10-K
1
EXECUTONE 10-K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number: 0-11551
EXECUTONE Information Systems, Inc.
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(Exact name of registrant as specified in its charter)
Virginia 86-0449210
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
478 Wheelers Farms Road, Milford, Connecticut 06460
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)876-7600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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N/A None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
71/2% Convertible Subordinated Debentures, Due March 15, 2011
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common stock held by nonaffiliates of the
registrant (assuming for this purpose that all executive officers and directors
of the registrant are affiliates) as of March 24, 1995 was $99,767,506, based on
the last sale price for the common stock on that date.
The number of shares outstanding of the registrant's only class of common stock,
$.01 par value per share, as of March 24, 1995, was 46,092,903.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the Part of this Form
10-K indicated below:
Part II - 1994 Annual Report to Shareholders
Part III - Proxy Statement for 1995 Annual Meeting of Shareholders scheduled
to be held June 15, 1995.
TABLE OF CONTENTS
Item Page
PART I
1. Business 1
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 10
Executive Officers of the Registrant 11
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 14
6. Selected Financial Data 14
7. Management's Discussion and Analysis of Financial Condition 14
and Results of Operations
8. Financial Statements and Supplementary Data 14
9. Changes in and Disagreements with Accountants on 14
Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant 14
11. Executive Compensation 14
12. Security Ownership of Certain Beneficial Owners and Management 15
13. Certain Relationships and Related Transactions 15
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
PART I
ITEM 1. BUSINESS
General
EXECUTONE Information Systems, Inc. ("EXECUTONE" or the "Company")
designs, manufactures, sells, installs and supports voice processing systems and
healthcare communications systems. EXECUTONE also provides cost-effective
long-distance telephone service through its INFOSTAR'r'/LD+ program. Products
are sold under the EXECUTONE'r', INFOSTAR'r', IDS'tm', LIFESAVER'tm' and
INFOSTAR/ILS'tm' brand names through a worldwide network of direct sales and
service offices and independent distributors.
EXECUTONE's executive offices are located at 478 Wheelers Farms Road,
Milford, Connecticut 06460, telephone (203) 876-7600. The Common Stock of
EXECUTONE is traded on the NASDAQ National Market System under the symbol
"XTON", and its Convertible Subordinated Debentures due 2011 trade on the NASDAQ
system under the symbol "XTONG".
Recent Developments
Effective March 31, 1994, the Company sold its Vodavi Communications
Systems Division ("VCS") to V Technology Acquisition Corp. for $9.7 million in
cash and a $1.2 million note which is due in September 1995 and is fully secured
by a letter of credit.
In August 1994, the Company's revolving credit and term loan agreement
(the "Credit Facility") was further amended to reduce the commitment fee and
provide for Eurodollar denomination borrowings, among other changes. The amended
Credit Facility is secured by substantially all the assets of the Company and
expires in August 1999. Direct borrowings and letters of credit are available
under the Credit Facility pursuant to a formula based on eligible accounts
receivable and inventory up to a maximum of $55 million, including $15 million
in letters of credit.
Business Strategy
EXECUTONE is a vertically integrated voice processing and healthcare
communications company. The Company controls the major elements of its business,
ranging from product design, manufacturing and marketing to distribution,
installation, service and support. The Company's products and services are
marketed and sold through a worldwide network of Company-owned direct sales and
service offices and independent distributors. The Company's strategic focus is
on seven product areas: three in the area of voice processing (telephone
systems, call center management and voice messaging products), plus healthcare
communication systems, locator systems, videoconferencing products, and voice,
data and video network services.
Revenues are derived from both from new installations and from the
Company's existing customer base through additions, changes, upgrades or
relocation of previously installed systems, maintenance contracts, service
charges and sales of network services. New installations replenish and expand
this base. In a typical sales situation, the Company analyzes a customer's needs
and provides a system intended to improve the customer's productivity and reduce
operating expenses. After installation, the Company offers service and
maintenance, plus additional products for expansion or enhancement of the
system.
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EXECUTONE's objective in the voice processing market, in addition to sales
of traditional telephone systems, is to offer value-added products and services.
The Company's integrated digital telephone systems emphasize flexible software
applications, such as automated attendant, data switching, and computer
telephone interface, designed to enhance the customer's ability to communicate,
obtain and manage information. The Company's telephone systems provide the
platform for its other voice processing software applications.
The second area of focus is call center management products. Call center
management products integrate a computerized digital telephone system platform
with high-volume inbound, outbound and internal call processing systems such as
automatic call distribution, predictive dialing, interactive voice response and
scripting software. The Company's objective is to develop and market systems
that will enable its call center customers efficiently and cost-effectively to
receive or place their customer or prospect calls, distribute those calls to
available live operators, obtain information from callers, record and distribute
messages from callers, produce management reports, and provide data interface
with host or mainframe computers.
The third part of the Company's voice processing focus is voice-messaging
systems, primarily voice mail, that integrate with the Company's telephone
systems.
The fourth primary area of the Company's focus is healthcare
communications systems. EXECUTONE has been a recognized name in this market for
many years and, with its LIFESAVER'tm' nurse call system and with the
introduction of its new CARE/COM'r' II-E nurse call system, can provide to
its hospital customers integration of the flow of voice and data between nurse
and patient, increased flexibility and efficiency in hospital operations, and
the means to improve patient care. The Company is also creating
applications software specific to hospital and nursing homes to help resolve
many labor intensive tasks.
The Company's INFOSTAR/ILS'tm' locator system, released in early 1994, can
improve productivity, save time and expense for users and eliminate overhead
paging by instantly locating staff and equipment in a facility. Each person or
piece of equipment wears an individually coded badge that transmits infrared
signals to sensors placed throughout the facility, which forward the location
information to a central processing unit. The location data can be accessed on
local display stations. The ILS'tm' system can be integrated with the Company's
telephone systems and the LIFESAVER'tm' nurse call system to provide
additional productivity improvements for both office and hospital environments.
In 1994, the Company began marketing the videoconferencing products of GPT
Video Systems ("GPT") in the United States. The Company also provides
videoconferencing network services such as multipoint conferencing, network
bridging and network design to its videoconferencing customers, and has
established video conferencing demonstration and rental facilities in major U.S.
cities.
The Company also offers a broad range of network services, including
long-distance service, least-cost routing, network design and support services,
enabling customers to make more efficient and cost-effective use of their
telecommunications systems.
Voice Processing Products
General - EXECUTONE offers a complete line of applications-oriented voice
processing systems, ranging from those satisfying the basic voice communications
needs of businesses with a small number of telephones to those capable of
meeting the complex voice/data communications demands of much larger business
locations that need fully featured telecommunications systems. The Company
markets the IDS'tm' Integrated Digital System, along with an expanding line of
software applications and features operating on that platform. The Company's
largest telephone system is the IDS'tm'/System 648 digital system which can
accommodate up to 648 nonblocking voice ports and 648 nonblocking data ports.
The Company believes its installed
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telephone equipment base exceeds 3 million desktops, with over 1.5 million
serviced by its own direct sales and service offices.
EXECUTONE's voice processing systems are characterized by flexible
software and a hardware design that makes them readily adaptable to evolving
technology and customer requirements. The Company attributes the market
acceptance of its systems to cost-effective design and to the sophistication of
its software options. The software in each system provides such features as
automatic dialing, add-on conferencing, call forwarding, last number redialing,
message waiting, paging capability, internal diagnostic routines and other
commonly used communications features. The Company's systems also include an
integrated automated attendant feature to answer and transfer calls quickly and
efficiently without operator intervention, and a video display terminal and
management reports that permit the monitoring of calls and improve the
efficiency of directing calls to the appropriate extensions. The Company's
telephone systems also support sophisticated voice processing applications such
as voice messaging and call center products.
EXECUTONE develops its application-specific software options using
high-level programming languages to facilitate further enhancements and
portability. EXECUTONE's software includes remote capabilities built into
certain systems that enable the Company to customize and update selected
features continuously, which increases the value of such systems and lengthens
their useful lives. Certain of the Company's systems are capable of having
service diagnostics, updates and modifications performed on a remote basis. The
ability to provide such off-site servicing increases the efficiency of customer
support and service.
Call Center Management Products - The Company's call center management products
consist of the following voice processing systems, which can be integrated with
the Company's digital telephone systems and with each other to provide
large-volume inbound, outbound and internal call management. Computer-telephone
integration ("CTI") technology integrates the IDS'tm' call processing function
with information in a customer's computer database. Primarily used by large
incoming call centers to automatically identify incoming callers and by outbound
centers to contact and provide records of contacts, CTI limits the amount of
time that an agent spends contacting or identifying the caller, thereby
providing better customer service, reducing the number of required agents and
reducing telephone line and transmission expense.
Predictive Dialing - The INFOSTAR'r'/Predictive Dialer is an automated
call system designed to boost productivity in outbound call centers. The system
integrates telephone, data collection and transaction processing functions for
those customers who require high volume contact by telephone to transact
business, such as sales, credit and collections, blood banks and fund-raising.
Working with the host computer and the IDS'tm' telephone system platform, the
dialer automatically dials telephone numbers pulled from the host computer
database and detects "live" calls. Available representatives receive these calls
and, through CTI, can view screen information about the customer from the
database immediately after the customer answers the phone. The system predicts
the availability of agents in order to reduce abandoned calls and increase agent
productivity, and reduces agent contact with busy signals, no answers, wrong
numbers and answering machines. Management reports provide instant and
historical feedback on call distribution, list management, data input integrity
and file maintenance.
Automatic Call Distribution ("ACD") - ACD systems are designed to increase
responsiveness to inbound callers and increase agent productivity. ACD systems
provide the capability to distribute or route incoming calls to available agents
based upon management's specifications, and allow the supervisor of the call
processing group to monitor call traffic on-line via a computer terminal. The
Company produces ACD software for call centers of up to 500 agents in five
levels of sophistication, the highest of which is "Custom Plus ACD." "Custom
Plus ACD" provides the capability to store and retrieve call data for a limited
period, print out standard call traffic reports, customize reports to the needs
of a specific application, monitor traffic with color screens and graphics, and
greatly enhance the ability to store and retrieve historical call data.
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Interactive Voice Response - The Company's interactive voice response
("IVR") systems provide businesses with automated handling of routine calls.
Voice response systems allow callers to input and retrieve information into or
from computers by means of the dialpads on their telephones. The caller is
guided by voice prompts to input data by dialing numbers, which the IVR system
converts into computer keystrokes. The IVR system can also convert computer
screen information into voice prompts, allowing callers to retrieve information
from computers. The voice response product provides advanced computer access
applications and advanced facilities, such as ISDN, that interface with the
Company's IDS'tm' family of telephone systems and other advanced voice
processing applications.
Voice Messaging Systems - The Company also offers a voice mail system that can
be integrated with the IDS'tm' telephone systems and telephone systems
manufactured by others. The voice message or voice mail system receives,
records, stores, distributes, transfers and replays messages from both external
and internal callers and can supplement other call center systems. The Company
has developed and is developing other specialized voice messaging systems.
Healthcare Communication Products
The Company develops, manufactures, markets and services a line of
specialized internal communications systems that are used primarily in the
healthcare industry. These internal communications systems are
microprocessor-based patient-to-nurse communication systems, intercoms, paging
and sound equipment, and room status indicators. The Company's LIFESAVER'tm'
nurse call system is an advanced system integrating voice and data
communication between nurse and patient and providing enhanced self-
diagnostics. The LIFESAVER'tm' system is a state-of-the-art communications
network that provides routine and emergency signalling, voice communications
and data transmission. The nurse console offers menu-driven functions and
step-by-step user prompts. The system is highly flexible, offering many
programmable features to allow customization of its operations to the
hospital's needs. A single system can serve more than 300 patient beds and up to
eight nurse control stations, and up to eight systems can be networked for
centralized operation.
In early 1995, the Company introduced its CARE/COM'r'II-E nurse call
system. The CARE/COM'r' II-E nurse call system represents the first step in
EXECUTONE's plan to bring the benefits of a totally integrated communications
system to the healthcare market on the Company's digital platform. The
CARE/COM'r' lI-E system provides patient to staff and staff to staff voice
communication on an automatic three-level call priority basis. This new system
can currently support 72 patient stations per system, with the ability to
integrate three systems together and support 216 patient stations. A new three-
line LCD display Nurse Control Station allows simple call processing and system
operation. The system is highly flexible to meet the individually defined
needs of today's hospitals and long-term care facilities.
The LIFESAVER'tm' nurse call system and future releases of the
CARE/COM'r'II-E system will integrate with the Company's locator system.
Locator Systems
The Company's INFOSTAR/ILS'tm' locator system is an integrated system using
infrared transmitter badges to communicate location data to sensors installed
throughout a facility. The badges transmit regularly at user- programmed
intervals and can be worn by staff personnel or attached to equipment. The
location data is collected by the sensors and forwarded to a central processing
unit that organizes the data so it can be accessed at one or more display
stations. The display of staff and equipment location information can be in the
form of a list or in the form of a map of the facility using icons. The display
can be filtered to show only particular staff members, groups of personnel,
particular pieces of equipment or groups of equipment.
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Videoconferencing Systems and Services
The Company markets GPT desktop and room videoconferencing equipment in the
United States and provides video network services including video networking,
network design, multipoint conferencing, video network bridging, and "walk-in"
videoconference rental centers located throughout the United States. The Company
provides its videoconferencing customers with a "turnkey" solution including
equipment installation, network services, maintenance and customer support.
Network Services
The Company also markets INFOSTAR'r'/LD+ long-distance telephone service
to its customers. INFOSTAR'r'/LD+ provides a complete service to the Company's
customers from the initial sale through billing and customer support. The
Company has contracted with U.S. Sprint to carry the long-distance traffic on
its fiber optic network. This program offers many features including six-second
billing rates, accounting codes, international service, a travel card program,
800 service, "T-1" access and specialized management reporting.
The Company also provides the following network services:
Network Designer - The Company can perform a computer-generated analysis
of a customer's calling patterns in order to recommend the optimum configuration
of its network. Recommendations would include the long-distance carriers and the
number of lines needed.
Least Cost Routing ("LCR") - LCR stores current tariff tables for the
appropriate long-distance carriers employed by the customer and automatically
selects the least expensive carrier for each specific call at the moment the
call is placed.
Data Switching - Data switching provides the capability to switch data
between mainframe, minicomputers, personal computers, terminals and peripherals
through the telephone systems.
Centrex Capability and Applications - The Company's telephone systems can
be programmed to function in conjunction with and enhance the features of
Centrex services offered by the local telephone companies.
Sales and Marketing
Developing and maintaining a strong relationship with the end-user
customer is the focus of the Company's marketing strategy. The Company's
distribution network consists of (1) 69 Company-owned direct sales and service
locations in the major markets in the United States and in the United Kingdom;
(2) a National Accounts Division that uses the sales, installation, service and
support capabilities of EXECUTONE's distribution network to serve multiple
offices and departments of companies; (3) a Federal Systems Division that uses
the distribution network to serve offices of the U. S. Government and its
agencies; (4) vertical marketing organizations for sales of certain specialized
voice processing and healthcare communications products; (5) domestic
independent distributors with approximately 110 locations operating under
exclusive and nonexclusive agreements throughout the United States and Canada;
(6) 13 independent distributors operating in fourteen other foreign countries.
For those distributors that have exclusive distribution rights for
specified products, retention of such rights is subject to satisfaction of
established criteria for sales and service to customers on an ongoing basis. The
divesting of or acquisition of customer bases to or from distributors in
specific geographic territories may occur in the normal course of the Company's
business.
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EXECUTONE's National Accounts Division provides uniformity in pricing,
coordination, installation, billing and service for National Accounts Division
customers such as Bridgestone/Firestone, Airborne Express, Fidelity Investments,
Mellon Bank, Prudential, Moore Business Forms, Johnson Controls, TCI Cable, and
Carlson Companies. The Division coordinates the sales, installation, service and
support functions of direct and independent sales offices to serve the multiple
offices and departments of large companies.
The Company's Federal Systems Division addresses the special procurement
and administrative requirements of the U.S. Government. Sales are made through a
combination of master contracts and competitively solicited proposals for large
or complex telecommunications requirements. Federal Systems coordinates the
installation, service and support activities of direct and independent sales
offices to provide ongoing support to federal agency offices nationwide.
Backlog consists primarily of products that have been ordered and that
will be shipped or installed within 30 to 60 days of the order (other than call
center and healthcare orders, which have a longer lead time), or systems the
installation of which is not yet required by the customer. Backlog as of
December 31, 1994 was $29,390,000 compared to $36,407,000 at December 31, 1993,
and the Company expects virtually all of such backlog to be filled within the
current fiscal year.
Customer Support and Service
EXECUTONE operates a National Service Center that is able to diagnose
system problems for many of the end-user customers of its direct sales and
service offices, coordinate field service personnel and program certain
corrections remotely from a centralized location at its corporate headquarters.
The National Service Center helps the Company in providing consistent customer
service and support while improving the productivity of the Company's
technicians. All service calls received from customers are controlled from
initial diagnosis to ultimate disposition through an internally-developed and
maintained proprietary software package. The National Service Center maintains
detailed customer records and also markets and monitors certain products and
services such as maintenance contracts. It is the primary point of contact for
customer needs, questions or requests. Additionally, the National Service Center
provides the Company with statistical data and reports regarding a product's
performance, which can be used to make enhancements and improvements. This data
is also available for each of the Company's locations and each of its
technicians.
EXECUTONE warrants parts and labor on its systems, typically for one year,
and provides maintenance and service after warranty expiration either on a
contract or time and materials basis. Most of the Company's products are
repaired at its 56,000-square foot repair facility located near San Diego,
California.
Research and Development
As of March 1, 1995, EXECUTONE employed over 100 individuals engaged in
product design and development. The Company's research and development program
is designed to anticipate and respond to customer needs through development of
new products and enhancement of existing products. During 1994, the Company's
engineering efforts focused on applications-oriented software products and a new
line of specialized healthcare communications equipment. EXECUTONE continually
strives to reduce production costs by incorporating new technology into its
design and manufacturing operations. For the years ended December 31, 1994,
1993, and 1992, Company-sponsored research, development and engineering
expenditures amounted to approximately $9.5 million, $8.1 million and $6.8
million, respectively.
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Manufacturing
Most of EXECUTONE's telephone products are manufactured by Wong's
Electronics Company, Ltd. ("Wong's") in Hong Kong or China, by Quality
Telecommunication Products, also referred to as Compania Dominicana de Telefonos
("Codetel"), in the Dominican Republic, and by the Company directly in Poway,
California.
The Company's Manufacturing Services Agreement with Wong's currently
expires in February 1996 but is automatically extended each year for an
additional one-year term unless either party gives notice of termination three
months prior to expiration of the current term. The contract may be terminated
earlier by either party in the event of a material breach by the other party.
If the agreement between Wong's and EXECUTONE should be terminated for any
reason, or if Wong's is unable to ship or has to reduce shipments, or if
restrictions are imposed materially limiting the importation of products
produced by foreign manufacturers, the Company could be affected adversely until
satisfactory alternative sources are in place. The profitability of EXECUTONE's
operations could be affected to the extent it is unable to reflect the direct
and indirect costs of products purchased from Wong's in its pricing policies.
The prices for products purchased by EXECUTONE from its suppliers are payable in
U.S. dollars.
The majority of EXECUTONE's specialized healthcare and internal
communication systems are produced in the United States at the Company's
facility in Poway, California or at domestic subcontractors. The functions of
repair, warehousing and distribution of the Company's products are performed at
the Company's facilities in Poway.
Trademarks, Patents and Copyrights
Management believes that the continued success of EXECUTONE is dependent
upon the ability to design, develop and market new products and new or enhanced
applications. The patentability of such new products or applications is
evaluated and patent applications are filed where necessary to protect unique
developments. The Company currently holds three utility patents, expiring at
various times between 2007 and 2011, and has eleven U.S. and six foreign patent
applications pending. EXECUTONE has registered or applied to register its
trademarks when it believes registration to be of importance to its ongoing
business operations. EXECUTONE also generally claims copyright protection for
software, circuit designs, schematics and technical and training documentation
used in connection with its products, and relies upon trade secret, contract and
copyright laws to protect its proprietary rights in its software, designs and
documentation.
EXECUTONE's least cost routing, voice message, voice response and
predictive dialing products incorporate certain technology and software licensed
from independent third parties. Generally, these licenses require payment of a
royalty for each system sold that incorporates the licensed technology or
require that the Company purchase the product from the licensor.
Government Regulation
Many of the Company's systems are designed to be connected to the public
telecommunications network and as such are required to comply with certain rules
of the Federal Communications Commission ("FCC") pertaining to
telecommunications equipment. The Company's network services are generally
required to be tariffed and are subject to regulation by the public utility
commissions of the various states and by the FCC. The Company has not
experienced any material adverse effect on its business or operations as a
result of such regulation and compliance.
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Certain uses of outbound call processing systems are regulated by federal
and state law. Among other things, the FCC has adopted rules pursuant to the
Federal Telephone Consumer Protection Act to protect residential telephone
subscribers' privacy rights to avoid receiving telephone solicitations to which
they object. Certain states have enacted similar laws limiting access to
telephone subscribers who object to receiving solicitations. Although compliance
with these laws may limit the potential use of the Company's predictive dialer
systems in some respects, the Company's systems can be programmed to operate
automatically in full compliance with these laws through the use of appropriate
calling lists and calling campaign time parameters.
To the extent the Company markets its products internationally, it is
required to comply with applicable foreign law, including certification of its
products by appropriate government regulatory organizations.
Competition
The market segments in which EXECUTONE offers its products and services
are highly competitive. The under 300-desktop voice processing market in the
United States, the primary market for the Company's voice processing products
and services, is served by many domestic and foreign communications equipment
manufacturers and distributors, including AT&T, Northern Telecom, and the
Regional Bell Operating Companies (the "RBOCs"), as well as numerous specialized
software companies. The Company believes that it may be third in telephone
system shipments to the under 300-desktop voice processing market, after AT&T
and Northern Telcom, based on industry surveys of 1994 data. However, such
information may not be sufficient to make an exact assessment of the Company's
competitive position relative to its competitors. Many of EXECUTONE's
competitors have substantially more capital, technology and marketing resources
than the Company.
Competition in EXECUTONE's market segments could increase if Congress or
the FCC and the United States District Court having jurisdiction over the
deregulation of AT&T were to permit the RBOCs to conduct telephone equipment
manufacturing activities and to provide certain new services such as
long-distance service. To date, the RBOCs have been denied such permission;
however, they continue to seek authorization through judicial and legislative
processes, and there can be no assurance that they will not in the future be
permitted to conduct manufacturing activities or provide services that compete
directly with those of EXECUTONE.
The Company believes it is in a good competitive position in call center
management where it believes it is currently the only vendor that supplies
inbound, outbound and administrative call processing integrated with a telephone
system platform.
The Company's principal competitors in healthcare communications are
DuKane and Rauland-Borg. The Company believes it has a strong competitive
position in this market.
The Company believes that it has several competitors in videoconferencing
and that it will have several competitors in locator systems but is not yet
sufficiently involved in these product areas to estimate its competitive
position relative to such competitors.
The Company offers a full array of telecommunication products and services
to its customers. The Company competes primarily on the basis of the range of
integrated products it offers, the quality of its products, its customer
service, nationwide distribution and installation, and to a lesser extent on the
basis of price.
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Employees
As of March 1, 1995, EXECUTONE employed approximately 2,400 persons,
directly and through its subsidiaries. Approximately 5% of the employees of the
Company and its subsidiaries are represented by unions, all of which are
represented by the International Brotherhood of Electrical Workers. Management
believes that the Company's relations with its employees are good.
ITEM 2. PROPERTIES
EXECUTONE's principal offices are located in two leased buildings in
Milford, Connecticut. The Company has sales offices, warehouses, manufacturing
and distribution facilities throughout the United States. As of December 31,
1994, the Company utilized 73 facilities in the United States with an aggregate
of approximately 800,000 square feet for its ongoing operations.
The Company's facilities are occupied under lease agreements except for
one facility. This Company- owned building is approximately 15,000 square feet,
and is used for a direct sales and service office. The current annual rent for
the Company's facilities is approximately $8.9 million. The Company has two
facilities totalling approximately 16,000 square feet of space that are no
longer used in ongoing operations and most of which are subleased.
The Company believes its facilities are adequate and generally suitable
for its business requirements at the present time and for the immediate future.
The following is a brief description of the primary facilities of the Company.
Use Location Approximate Size
Corporate and Direct Sales Milford, Connecticut 150,000 square feet
Headquarters; National Customer
Service Center; and Research,
Development and Engineering
Facility
Distribution, Production and Repair Center Poway, California 115,000 square feet
and Warehouse
Direct Sales and Service Major cities across U.S. 535,000 square feet
Offices, including warehouses
ITEM 3. LEGAL PROCEEDINGS
EXECUTONE currently is a named defendant in a number of lawsuits and is a
party to a number of other proceedings that have arisen in the normal course of
its business. Those lawsuits and proceedings relate primarily to the collection
of indebtedness owed to the Company, the performance of products sold by the
Company, and various contract disputes. In the opinion of management, these
proceedings are not expected to have a material adverse effect on the
consolidated financial position of the Company and, to the extent they are not
covered by insurance, reserves adequate to satisfy such liabilities have been
established.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth
quarter of the fiscal year covered by this report.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position With Company
Alan Kessman 48 Chairman of the Board, President and Chief Executive Officer
Stanley M. Blau 57 Vice Chairman of the Board
Michael W. Yacenda 43 Executive Vice President
Barbara C. Anderson 43 Vice President, General Counsel and Secretary
James E. Cooke III 46 Vice President, National Accounts
Anthony R. Guarascio 41 Vice President, Finance and Chief Financial Officer
Israel J. Hersh 41 Vice President, Software Engineering
Elizabeth Hinds 53 Vice President, Human Resources
Robert W. Hopwood 51 Vice President, Customer Care
Mark M. Hughes 44 Vice President, Direct Sales
Andrew Kontomerkos 49 Senior Vice President, Hardware Engineering and Production
David E. Lee 48 Vice President, Business Development
John T. O'Kane 65 Vice President, MIS
Frank J. Rotatori 52 Vice President, Healthcare Sales
Shlomo Shur 45 Senior Vice President, Advanced Technology
James H. Stirling 48 Vice President, Sales
Alan Kessman has served as Chairman and Chief Executive Officer of
EXECUTONE since 1988. Prior to that, he had served as President and Chief
Executive Officer of ISOETEC Communications, Inc., a predecessor of the Company
("ISOETEC") since 1983. From 1978 to 1983, Mr. Kessman served as President of
three operating subsidiaries of Rolm Corporation, and from 1981 to 1983, he
served as a Corporate Vice President of Rolm Corporation, responsible for sales
and service in the eastern United States.
Stanley M. Blau has served as Vice Chairman of EXECUTONE since 1988. Prior
thereto, from June 1987 to July 1988, Mr. Blau was the President and Chief
Executive Officer of Vodavi Technology Corporation, a predecessor company of
EXECUTONE ("Vodavi"). Mr. Blau was formerly the President and Chairman of the
Board of Consolidated Communications, Inc., a telecommunications products supply
company he founded in 1973.
11
Michael W. Yacenda has served as Executive Vice President of EXECUTONE
since January 1990. Prior to that time, he was Vice President, Finance and Chief
Financial Officer of the Company from July 1988 to January 1990. He served as a
Vice President of ISOETEC from 1983 to 1988. From 1974 to 1983, Mr. Yacenda was
employed by Arthur Andersen & Co., a public accounting firm. Mr. Yacenda is a
certified public accountant.
Barbara C. Anderson has been Vice President and General Counsel since
October 1990 and Secretary since November 1990. Prior thereto, she served for
approximately one year as Vice President and General Counsel of The Jesup Group,
Inc., a plastics manufacturer, and from 1985 to 1989, Ms. Anderson was Corporate
Counsel of United States Surgical Corporation, a manufacturer of medical
devices.
James E. Cooke III has served as Vice President, National Accounts since
February 1995. Prior to that time, from 1992 until 1995, Mr. Cooke served as
Division Manager of Operations for the Company, and from 1988 through 1991, Mr.
Cooke was a District Manager for the Company. From 1985 until 1988, Mr. Cooke
was the President of an interconnect company, and from 1981 to 1985, he was a
General Manager and a Regional Manager of the Jarvis Corporation.
Anthony R. Guarascio has been Vice President, Finance and Chief Financial
Officer since January 1994, and prior thereto was Vice President and Corporate
Controller since January 1990. From 1984 until 1990, Mr.
Guarascio was the Corporate Controller of the Company and ISOETEC.
Israel J. Hersh has been Vice President, Software Engineering since
February 1995. Mr. Hersh joined the Company as Director of Software Development
in 1984, and was promoted to Senior Director of Software Engineering in January
1994. Prior to his employment with the Company, Mr. Hersh was a manager of the
software development department for T-Bar, Inc. Mr. Hersh has a BS in Electrical
Engineering from Tel Aviv University and a MS in Electrical Engineering from
Bridgeport University.
Elizabeth Hinds has been Vice President, Human Resources since January
1995. Prior to joining the Company, Ms. Hinds was Vice President, Human
Resources of Chilton Company, a wholly-owned subsidiary of Capital
Cities/American Broadcasting Company, Inc. ("CC/ABC"), from February 1993 until
January 1995. Ms. Hinds was the Director of Human Resources for CC/ABC from June
1987 until February 1993.
Robert W. Hopwood has served as Vice President, Customer Care since
January 1990. From 1983 until 1990, Mr. Hopwood was the Director of Technical
Operations of the Company and ISOETEC.
Mark M. Hughes has been Vice President, Direct Sales since February 1995.
Prior to that time, Mr. Hughes was Division Manager of Sales for the Company,
since January 1992. From 1988 to 1991, Mr. Hughes served as a Regional Manager
for the Company and from 1986 until 1988, he was a Regional Manager for ISOETEC.
Andrew Kontomerkos has been Senior Vice President, Hardware Engineering
and Production since January 1994, and prior thereto was Vice President,
Hardware Engineering since 1988. He served as a Vice President of ISOETEC since
1983. From 1982 to 1983, he was a Vice President and founder of SAM
Communications, Inc., a telecommunications research and development company
which was one of the predecessors to ISOETEC; that corporation was merged into
ISOETEC in 1983. From 1979 to 1982, Mr. Kontomerkos was Director of
Telecommunications Systems Development of TIE/communications, Inc., a
manufacturer of telecommunications systems.
12
David E. Lee has been Vice President, Business Development since February
1995. Prior thereto, from October 1990 to February 1995, Mr. Lee was Division
Manager for the Network Services Division of the Company. From 1984 until 1990,
Mr. Lee held various management positions within the Company. Mr. Lee served as
Director, International Finance of GTE Corporation from 1983 to 1984 and prior
thereto, he held various financial management positions within GTE Corporation.
John T. O'Kane has served as Vice President, MIS since January 1990. From
1988 until 1990, Mr. O'Kane was Director of MIS for the Company. Prior to that
time and since 1981, he was the Vice President of MIS for Executone, Inc., a
predecessor of the Company.
Frank J. Rotatori has been Vice President, Healthcare Sales since February
1995. Prior thereto he was Vice President, European Operations since February
1994, and prior thereto was Director of Call Center Management Products during
1992 and 1993, Vice President-Direct Sales from 1990 through 1991 and Vice
President-Customer Service of EXECUTONE from 1988 to 1990. Mr. Rotatori joined
ISOETEC in 1986 as a regional manager. From 1982 to 1986, he served as General
Manager and Eastern Regional Manager for Rolm Corporation. For 13 years prior to
that time, he worked at Xerox Corporation in various manufacturing, accounting,
sales and service management positions.
Shlomo Shur has been Senior Vice President, Advanced Technology since
January 1994, and prior thereto was Vice President, Software Engineering since
1988. He served as a Vice President of ISOETEC from 1983 to 1988. From 1982 to
1983, he was Vice President and a founder of SAM Communications, Inc., a
telecommunications research and development company which was one of the
predecessors to ISOETEC; that corporation was merged into ISOETEC in 1983. From
1978 to 1982, Mr. Shur was Manager, Software Development for TIE/communications,
Inc., a manufacturer of telecommunications systems.
James H. Stirling has been Vice President, Sales since January 1994 and
prior thereto was Vice President, Marketing since January 1990. During the
period 1988 to 1990, he served as Regional Manager for the Company. Mr. Stirling
was a Regional Manager of ISOETEC from 1987 to 1988. From 1985 to 1986, Mr.
Stirling was Vice President of Sales and Marketing for the Jarvis Corporation,
which was acquired by ISOETEC in 1986.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to "Stock Data" on page 35 of the
Registrant's 1994 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to "Selected Financial Data" on page 21 of
the Registrant's 1994 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 17 through 19 of the
Registrant's 1994 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements are incorporated by reference to the Financial
Statements on pages 22 through 35 of the Registrant's 1994 Annual Report to
Shareholders. The Schedule appears at pages S-1 through S-2 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See Part I for information regarding executive officers. Additional
required information is incorporated by reference to the Registrant's Proxy
Statement for the 1995 Annual Meeting of Shareholders scheduled to be held on
June 15, 1995.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Registrant's Proxy Statement for the
1995 Annual Meeting of Shareholders scheduled to be held on June 15, 1995.
14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Registrant's Proxy Statement for the
1995 Annual Meeting of Shareholders scheduled to be held on June 15, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Registrant's Proxy Statement for the
1995 Annual Meeting of Shareholders scheduled to be held on June 15, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1), (a)(2) and (d). The financial statements required by this item
and incorporated herein by reference are as follows:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1994 and 1993
Consolidated Statements of Operations - Years ended December 31, 1994,
1993 and 1992
Consolidated Statements of Changes in Stockholders' Equity - Three
years ended December 31, 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1994,
1993 and 1992
Notes to Consolidated Financial Statements
The schedules to consolidated financial statements required by this
item and included in this report are as follows:
Report of Independent Public Accountants on Schedule
Schedule II - Valuation and Qualifying Accounts
(a)(3) and (c). The exhibits required by this item and included in this
report or incorporated herein by reference are listed in the accompanying index
(page E-1).
For the purposes of complying with the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933, the undersigned
registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on the following Form S-8
filings:
S-8 Reg. No. 2-91008 filed May 9, 1984 on 1983 Employee Stock Purchase
Plan (650,000 shares)
S-8 Reg. No. 33-959 filed October 17, 1985 on 1984 Stock Option Plan
(390,000 shares)
S-8 Reg. No. 33-6604 filed June 19, 1986 on 1983 Stock Option Plan
(350,000 shares)
15
S-8 Reg. No. 33-16585 filed August 24, 1987 on 1986 and 1983 Stock
Option Plans (800,000 shares)
S-8 Reg. No. 33-23294 filed August 3, 1988 on 1986 Stock Option Plan
(7,000,000 shares) and Employee Stock Purchase Plan (500,000 shares)
S-8 Reg. No. 33-42561 filed September 4, 1991 on 1984 Employee Stock
Purchase Plan (350,000 shares) and Directors' Stock Option Plan
(100,000 shares)
S-8 Reg. No. 33-45015 filed January 2, 1992 on 1984 Employee Stock
Purchase Plan (400,000 shares)
S-8 Reg. No. 33-57519 filed January 31, 1995 on 1984 Employee Stock
Purchase Plan (1,000,000 shares).
Insofar as indemnification arising under the Securities Act of 1933
(the "Act") may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to the court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1994.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
EXECUTONE Information Systems, Inc.
By: /s/ Alan Kessman
------------------------------
Alan Kessman, Chairman, President
and Chief Executive Officer
March 27, 1995
Milford, Connecticut
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
March 27, 1995 /s/ Alan Kessman
-------------------------------
Alan Kessman
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
March 27, 1995 /s/ Stanley M. Blau
-------------------------------
Stanley M. Blau
Vice Chairman of the Board of Directors
March 27, 1995 /s/ Anthony R. Guarascio
-------------------------------
Anthony R. Guarascio
Vice President-Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 27, 1995 /s/ Thurston R. Moore
-------------------------------
Thurston R. Moore
Director
March 27, 1995
-------------------------------
William J. Spencer
Director
March 27, 1995 /s/ Richard S. Rosenbloom
-------------------------------
Richard S. Rosenbloom
Director
March 27, 1995 /s/ William R. Smart
-------------------------------
William R. Smart
Director
17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
EXECUTONE Information Systems, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements included in EXECUTONE Information Systems, Inc. and
subsidiaries' annual report to stockholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 27, 1995. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14 is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 27, 1995
S-1
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
ADDITIONS DEDUCTIONS
---------------------------------------- -------------
CHARGED NET
BALANCE AT (CREDITED) (CREDITED) WRITEOFFS OF BALANCE AT
BEGINNING TO COSTS AND TO OTHER UNCOLLECTIBLE END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS ACCOUNTS PERIOD
------------------------------------------------ ---------- ------------ ---------- ------------- ----------
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful accounts....... $1,017 $1,381 -- ($1,063) $1,335
Allowance for uncollectible notes
receivable.......................... 1,084 (393) -- -- 691
Year ended December 31, 1993*
Deducted from asset accounts:
Allowance for doubtful accounts....... 1,046 1,285 -- (1,314) 1,017
Allowance for uncollectible notes
receivable.......................... 1,604 (440) (80) -- 1,084
Year ended December 31, 1992*
Deducted from asset accounts:
Allowance for doubtful accounts....... 1,101 522 -- (577) 1,046
Allowance for uncollectible notes
receivable.......................... 2,018 (280) -- (134) 1,604
------------
* Restated to reflect the disposition of the VCS Division, which was sold as of
March 1994.
S-2
STATEMENT OF DIFFERENCES
The 'greater than or equal to' mathematical symbol shall be expressed as >=
The 'less than or equal to' mathematical symbol shall be expressed as <=
The registered trademark symbol shall be expressed as 'r'
The trademark symbol shall be expressed as 'tm'
EXECUTONE INFORMATION SYSTEMS, INC.
EXHIBITS TO 1994 ANNUAL REPORT ON FORM 10-K
Exhibit No.
2-1 Asset Purchase Agreement among V Technology Acquisition
Corporation, EXECUTONE Information Systems, Inc. and Vodavi, Inc.
dated November 5, 1993, and Amendment dated February 18, 1994. (1)
3-1 Certificate of Merger including Articles of Incorporation, as
amended. (2)
3-2 Articles of Amendment dated June 24, 1992 and filed June 26, 1992
amending the Company's Articles of Incorporation. (3)
3-3 Bylaws, as amended. (3)
4-1 Specimen Common Stock Certificate. (4)
4-2 Specimen Certificate representing 7 1/2% Convertible Subordinated
Debentures. (4)
4-3 Second Amended and Restated Loan and Security Agreement dated as of
August 30, 1994 and First Amendment thereto dated January 1, 1995,
between EXECUTONE Information Systems, Inc., Continental Bank N.A.
and the other Lenders named therein. Filed herewith.
4-4 Loan Agreement dated as of August 30, 1994, between EXECUTONE
Information Systems, Inc., certain employees thereof, and the
Lenders named therein. Filed herein.
4-10 Indenture dated March 1, 1986 with United States Trust Company of
New York relating to 7 1/2% Convertible Subordinated Debentures of
Vodavi Technology Corporation due March 15, 2011. (5)
4-11 First Supplemental Indenture dated August 4, 1989 with United
States Trust Company of New York relating to 7 1/2% Convertible
Subordinated Debentures due March 15, 2011. (4)
10-1 1984 Employee Stock Purchase Plan of EXECUTONE Information Systems,
Inc. (6)
10-2 1986 Stock Option Plan of EXECUTONE Information Systems, Inc. (6)
10-3 1984 Stock Option Plan of EXECUTONE Information Systems, Inc. (7)
10-4 401(K) Savings Plan of Vodavi Technology Corporation dated December
27, 1985. (4)
10-5 Stock Option Bonus Credit Plan of EXECUTONE Information Systems,
Inc. dated December 31, 1988. (4)
10-6 1990 Directors' Stock Option Plan. (7)
10-7 1994 Executive Stock Incentive Plan. Filed herewith.
10-9 Volume Purchase Agreement dated January 31, 1992 between U. S.
Sprint Communications Company Limited Partnership and EXECUTONE
Information Systems, Inc. (2)
E-1
Exhibit No.
10-12 Warrant to purchase 143,181 shares of Common Stock of EXECUTONE
Information Systems, Inc. in favor of Continental Bank N.A. dated
December 28, 1990 (7)
10-13 Warrant to purchase 50,000 shares of Common Stock of EXECUTONE
Information Systems, Inc. in favor of Continental Bank N.A. dated
December 28, 1990 (7)
10-16 Manufacturing Services Agreement dated December 23, 1991 between
EXECUTONE Information Systems, Inc. and Compania Dominicana de
Telefonos, C por A (Codetel). (2)
10-17 Manufacturing Services Agreement dated February 9, 1990 between
Wong's Electronics Co., Ltd. and EXECUTONE Information Systems,
Inc. (7)
10-18 Warrant Agreement between EXECUTONE Information Systems, Inc. and
Hambrecht & Quist Guaranty Finance representing 488,890 Warrants to
Purchase Common Stock, dated January 17, 1992. (2)
10-19 Warrant to Purchase 25,000 Shares of Common Stock of EXECUTONE
Information Systems, Inc. in favor of Richard S. Rosenbloom dated
June 23, 1992. (3)
10-20 Warrant to Purchase 25,000 Shares of Common Stock of EXECUTONE
Information Systems, Inc. in favor of William R. Smart dated
September 24, 1992. (3)
11 Statement regarding computation of per share earnings. Filed
herewith.
13 1994 Annual Report to Shareholders of EXECUTONE Information
Systems, Inc. (pages 17 through 35). Filed herewith.
22 Subsidiaries of EXECUTONE Information Systems, Inc. Filed herewith.
24 Consent of Arthur Andersen LLP. Filed herewith.
------------------------------
(1) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991, as amended by Form 8
filed on June 12, 1992.
(3) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992.
(4) Incorporated by reference to the Registrant's Annual Report on Form
10-K as amended for the year ended December 31, 1989.
(5) Incorporated by reference to Vodavi Technology Corporation's
Registration Statement on Form S-1 (as amended) (Registration No.
33-3827) filed on March 9, 1986 and amended April 1, 1986.
E-2
(6) Incorporated by reference to the Registrant's Registration
Statement on Form S-8 (File No. 33- 23294) declared effective by
the Commission on August 23, 1988.
(7) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1990, as amended by Form 8
filed on August 20, 1991.
E-3
EX-4
2
EXHIBIT 4-3
EXHIBIT 4-3
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 30, 1994
AMONG
EXECUTONE INFORMATION SYSTEMS, INC.,
AS BORROWER,
CONTINENTAL BANK, an Illinois Banking
Corporation, (formerly known as Continental
Bank N.A.)
FLEET BANK N.A., and BANK OF BOSTON CONNECTICUT,
AS LENDERS,
AND
CONTINENTAL BANK, an Illinois Banking
Corporation, (formerly known as Continental
Bank N.A.)
AS AGENT
TABLE OF CONTENTS
PAGE
1. DEFINITIONS AND OTHER TERMS
1.1 Definitions ......................................... 2
1.2 Other Definitional Provisions ....................... 21
1.3 Interpretation of Agreement ......................... 21
1.4 Compliance with Financial Restrictions .............. 22
1.5 Exercise of Discretion .............................. 22
2. LOANS; LETTERS OF CREDIT; OTHER MATTERS
2.1 Loans ............................................... 22
2.1.1 Revolving Loans ....................... 22
2.1.2 Stock Purchase Loans .................. 23
2.1.3 Mandatory Prepayments ................. 23
2.2 Letters of Credit ................................... 23
2.3 Loan Accounts; Demand Deposit Account ............... 27
2.4 Interest and Fees ................................... 27
2.4.1 Interest .............................. 28
2.4.2 Nonuse Fees ........................... 28
2.4.3 Closing Fee ........................... 28
2.4.4 Agent's Fee ........................... 28
2.4.5 Method of Calculating Interest and Fees 28
2.4.6 Payment of Interest and Fees .......... 28
2.5 Requests for Loans; Borrowing Base Certificates;
Other Information Concerning the Selection
of Interest Rates and Funding of Loans ............. 28
2.6 Notes ............................................... 31
2.7 Overdraft Loans ..................................... 31
2.8 Over Advances ....................................... 32
2.9 Limitation on Overdraft Loans and Over
Advances ........................................... 32
2.10 Making of Payments; Application of
Collections; Charging of Accounts .................. 32
2.11 Agent's Periodic Settlements with Lenders ........... 34
2.11.1 Settlements for Principal of Revolv-
ing Loans; Overdraft Loans, and Un-
reimbursed Disbursements under
Letters of Credit .................... 34
2.11.2 Settlements for Principal of Stock
Repurchase Loans, Interest and Fees .. 35
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PAGE
2.11.3 Late Remittances ............................ 36
2.12 Reaffirmation ....................................... 36
2.13 Set Off ............................................. 36
2.14 Pro Rata Treatment .................................. 37
2.15 All Loans Equally Secured ........................... 37
2.16 Intentionally Omitted ............................... 38
2.17 Taxes and Increased Costs Related to Eurodollar
Rate Loans ......................................... 38
3. COLLATERAL
3.1 Grant of Security Interest .......................... 39
3.2 Accounts Receivable ................................. 41
3.3 Inventory ........................................... 44
3.4 Equipment ........................................... 45
3.5 Supplemental Documentation .......................... 46
4. REPRESENTATIONS AND WARRANTIES
4.1 Organization ........................................ 47
4.2 Authorization ....................................... 47
4.3 No Conflicts ........................................ 47
4.4 Validity and Binding Effect ......................... 47
4.5 No Default .......................................... 47
4.6 Financial Statements ................................ 48
4.7 Insurance ........................................... 48
4.8 Litigation; Contingent Liabilities .................. 48
4.9 Indebtedness; Liens ................................. 49
4.10 Subsidiaries ........................................ 49
4.11 Partnerships; Joint Ventures ........................ 49
4.12 Business and Collateral Locations ................... 50
4.13 Real Property ....................................... 50
4.14 Eligibility of Collateral ........................... 50
4.15 Control of Collateral; Lease of Property ............ 50
4.16 Patents, Trademarks, etc. ........................... 51
4.17 Solvency ............................................ 51
4.18 Contracts; Labor Matters ............................ 51
4.19 Pension and Welfare Plans ........................... 51
4.20 Regulation U; Regulation G .......................... 52
4.21 Compliance .......................................... 52
4.22 Taxes ............................................... 52
-ii-
PAGE
4.23 Investment Company Act Representation ............... 52
4.24 Public Utility Holding Company Act
Representation ..................................... 52
4.25 Environmental and Safety and Health Matters ......... 53
4.26 Related Agreements .................................. 53
4.27 Collection Accounts ................................. 54
4.28 Accuracy of Information ............................. 54
4.29 Title to Properties ................................. 54
4.30 Creation of Security Interests and Liens ............ 54
4.31 Stock Purchase ...................................... 54
4.32 Stock Pledge ........................................ 54
5. BORROWER COVENANTS
5.1 Financial Statements and Other Reports .............. 55
5.1.1 Financial Reports ..................... 55
5.1.2 Summary Agings ........................ 55
5.1.3 Inventory Summary Certification ....... 56
5.1.4 Other Reports ......................... 56
5.2 Notices ............................................. 56
5.3 Existence ........................................... 58
5.4 Nature of Business .................................. 59
5.5 Books, Records and Access ........................... 59
5.6 Insurance ........................................... 59
5.7 Insurance Survey .................................... 60
5.8 Repair .............................................. 61
5.9 Taxes ............................................... 61
5.10 Compliance .......................................... 61
5.11 Pension Plans ....................................... 61
5.12 Merger, Purchase and Sale ........................... 61
5.13 Restricted Payments ................................. 62
5.14 Borrower's and Subsidiaries' Stock .................. 62
5.15 Indebtedness ........................................ 62
5.16 Liens ............................................... 62
5.17 Guaranties .......................................... 63
5.18 Investments ......................................... 63
5.19 Subsidiaries ........................................ 64
5.20 Leases .............................................. 64
5.21 Change in Accounts Receivable ....................... 64
5.22 Future Environmental Assessments .................... 64
5.23 Related Agreements .................................. 65
-iii-
PAGE
5.24 Unconditional Purchase Options ...................... 65
5.25 Use of Proceeds ..................................... 65
5.26 Transactions with Related Parties ................... 65
5.27 Consolidated Net Worth .............................. 66
5.28 Interest Coverage Ratio ............................. 66
5.29 Capital Expenditures ................................ 66
5.30 Liabilities to Net Worth Ratio ...................... 66
5.31 Earnings Before Interest, Taxes
and Amortization ................................... 67
5.32 Current Ratio ....................................... 67
5.33 Fixed Charge Coverage Ratio ......................... 67
5.34 Key-Man Life Insurance .............................. 67
5.35 Security Instruments and Recording .................. 67
5.36 Performance of Obligations .......................... 68
5.37 No Negative Pledges ................................. 68
5.38 Landlord Consents; Moving Collateral ................ 68
5.39 Limitation on Sales With Recourse ................... 68
6. DEFAULT
6.1 Event of Default .................................... 68
6.2 Effect of Event of Default; Remedies ................ 72
7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND
THE AGENT'S RIGHTS
7.1 Notice of Disposition of Collateral ................. 73
7.2 Application of Proceeds of Collateral ............... 73
7.3 Care of Collateral .................................. 73
7.4 Performance of Borrower's Obligations ............... 73
7.5 Agent's and each Lender's Rights .................... 74
8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND
OTHER MATTERS
8.1 Conditions Precedent to Effectiveness of this
Agreement .......................................... 74
8.1.1 Intentionally Omitted ................. 74
8.1.2 Security Interest ..................... 74
8.1.3 Solvency .............................. 75
8.1.4 Blocked Account; Lock Box ............. 75
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PAGE
8.1.5 Effect of Law ......................... 75
8.1.6 Exhibits; Schedules ................... 75
8.1.7 Fees .................................. 75
8.1.8 Loan Availability ..................... 75
8.1.9 Documents ............................. 75
8.1.10 Repayment of Term Loans ............... 77
8.2 Continuing Conditions Precedent to all Loans
and Letters of Credit; Certification ............... 77
9. INDEMNITY
9.1 Environmental and Safety and Health
Indemnity .......................................... 78
9.2 General Indemnity ................................... 78
9.3 Capital Adequacy .................................... 79
9.4 Indemnity Related to Eurodollar Rate Loans .......... 79
10. THE AGENT
10.1 Authorization ....................................... 80
10.2 Indemnification ..................................... 80
10.3 Exculpation ......................................... 80
10.4 Credit Investigation ................................ 80
10.5 Agent and Affiliates ................................ 80
10.6 Resignation ......................................... 80
11. ADDITIONAL PROVISIONS .......................................... 84
12. GENERAL
12.1 Borrower Waiver ..................................... 84
12.2 Power of Attorney ................................... 84
12.3 Expenses; Attorneys' Fees ........................... 85
12.4 Agent's Fees and Charges ............................ 86
12.5 Lawful Interest ..................................... 86
12.6 No Waiver by Agent or Lenders; Amendments ........... 86
12.7 Termination of Credit ............................... 87
12.8 Notices ............................................. 87
12.9 Assignments and Participations ...................... 87
12.10 Severability ........................................ 88
12.11 Successors .......................................... 89
12.12 Construction ........................................ 89
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PAGE
12.13 Governing Law ....................................... 89
12.14 Consent to Jurisdiction ............................. 89
12.15 Subsidiary Reference ................................ 89
12.16 Counterparts ........................................ 89
12.17 Confidentiality ..................................... 90
12.18 Waiver of Jury Trial; Waiver of
Consequential Damages .............................. 90
12.19 Connecticut Prejudgment Waiver ...................... 91
-vi-
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement") is made as of the 30th day of August, 1994 by and among EXECUTONE
INFORMATION SYSTEMS, INC., a Virginia corporation ("Borrower"), FLEET BANK N.A.
("Fleet"), BANK OF BOSTON CONNECTICUT ("Bank Boston"), and CONTINENTAL BANK, an
Illinois banking corporation (formerly known as Continental Bank N.A.) having
its principal office at 231 South LaSalle Street, Chicago, Illinois 60697
("Continental"), both individually and as agent for the Lenders (in such
capacity, the "Agent").
R E C I T A L S:
WHEREAS, Borrower and Continental entered into that certain Loan and
Security Agreement dated as of August 5, 1988 (as amended by amendments dated
April 13, 1989, November 27, 1989, December 19, 1989 and March 28, 1990, the
"Old Loan Agreement") pursuant to which Continental has extended loans and other
financial accommodations to Borrower;
WHEREAS, Borrower, Continental and certain other lenders entered into
an Amended and Restated Loan and Security Agreement dated as of December 27,
1990 (as amended by amendments dated March 29, 1991, July 15, 1991, November 8,
1991, January 17, 1992, December 18, 1992, May 21, 1993, November 18, 1993, and
March 31, 1994, the "First Restated Agreement");
WHEREAS, Borrower and the Lenders wish to amend and restate the First
Restated Agreement in its entirety on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit (including any loan or advance or grant of credit by renewal or
extension) hereafter made to Borrower by the Lenders, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
-1-
AMENDMENT AND RESTATEMENT
Borrower, the Agent, and the Lenders hereby agree that upon the
effectiveness of this Agreement, the terms and provisions of the First Restated
Agreement shall be and hereby are amended and restated in their entirety by the
terms and conditions of this Agreement and the terms and provisions of the First
Restated Agreement, except as otherwise provided herein, shall be superseded by
this Agreement.
Notwithstanding the amendment and restatement of the First Restated
Agreement by this Agreement, Borrower shall continue to be liable to Continental
and the Lenders with respect to agreements and obligations on the part of
Borrower under the Old Loan Agreement and the First Restated Agreement to
indemnify and hold harmless the Agent and Lenders from and against all claims,
demands, liabilities, damages, losses, costs, charges and expenses to which the
Agent and Lenders may be subject arising in connection with the Old Loan
Agreement or the First Restated Agreement.
Also notwithstanding the amendment and restatement of the First
Restated Agreement by this Agreement, all of the indebtedness, liabilities and
obligations owing by Borrower under the Old Loan Agreement and the First
Restated Agreement shall continue to be secured by the "Collateral" (as defined,
respectively, in the Old Loan Agreement and the First Restated Agreement) and
Borrower acknowledges and agrees that such "Collateral" remains subject to a
security interest in favor of Continental in its capacity as Agent hereunder for
the benefit of the Lenders and to secure the Liabilities of Borrower
re-evidenced by this Agreement.
This Agreement is given as a substitution of, and not as payment of,
the obligations of Borrower under the First Restated Agreement and is not
intended to constitute a novation of the First Restated Agreement. All
"Revolving Loans" and "Term Loans" (as such terms are defined in the First
Restated Agreement) which are outstanding and owing by Borrower under the First
Restated Agreement as of the Closing Date, as determined by the Agent, shall
constitute Revolving Loans hereunder and all "Letters of Credit" (as defined in
the First Restated Agreement) issued and outstanding under the First Restated
Agreement as of the Closing Date shall constitute Letters of Credit under this
Agreement.
-2-
1. DEFINITIONS AND OTHER TERMS.
1.1 Definitions. In addition to terms defined elsewhere in this
Agreement or any Supplement, Schedule or Exhibit hereto, when used herein, the
following terms shall have the following meanings (such meanings shall be
equally applicable to the singular and plural forms of the terms used, as the
context requires):
"Account Debtor" means any Person who is or who may become
obligated to Borrower under, with respect to, or on account of an
Account Receivable, Contract Right, General Intangible or other
Collateral.
"Account Receivable" means any account of Borrower and any
other right of Borrower to payment for goods sold or leased or for
services rendered, whether or not evidenced by an instrument or chattel
paper and whether or not yet earned by performance.
"Agent" is defined in the Preamble and includes any Person
subsequently appointed as the successor Agent pursuant to Section 10.6.
"Agreement" is defined in the Preamble and includes this
Second Amended and Restated Loan and Security Agreement, as it may be
amended, restated, modified or supplemented from time to time.
"Anniversary Date" means each date that occurs one year after
the Closing Date (in the case of the first Anniversary Date) or the
preceding Anniversary Date (in the case of the second through fifth
Anniversary Dates).
"Applicable Lending Office" means, with respect to each
Lender, such Lender's Domestic Lending Office in the case of Loans made
at the Reference Rate and such Lender's Eurodollar Lending Office in
the case of Loans made at the Eurodollar Rate.
"Applicable Percentage" means at any time of determination,
with respect to Eurodollar Rate Loans or Reference Rate Loans, the
applicable percentage set forth below based on the Modified Interest
Coverage Ratio and the Leverage Ratio for the Borrower at such time:
-3-
Eurodollar Rate Reference Rate
Level* Modified Interest Coverage Ratio Leverage Ratio Loans Percentage Loans Percentage
1 Less than 3.00x Greater than 3.25x 2.25% 0.50%
2 >= 3.00x but <3.75x <= 3.25x but >2.75x 2.00% 0.25%
3 >= 3.75x but <4.50x <= 2.75x but >2.25x 1.75% 0%
4 >= 4.50x but <5.25x <= 2.25x but >1.75x 1.50% 0%
5 Equal to or Greater than 5.25x Equal to or Less than 1.75x 1.25% 0%
* Both tests must be met for a change in Level to occur.
For purposes of the foregoing, (a) from the Closing Date until December
31, 1994, the Applicable Percentages shall be determined in accordance
with Level 3, (b) from and after such date, the Applicable Percentages
shall be determined at any time by reference to both the Modified
Interest Coverage Ratio and the Leverage Ratio in effect at the time,
(c) any change in the Applicable Percentages based on a change in the
Modified Interest Coverage Ratio or the Leverage Ratio shall be
effective for all purposes on and after the date of delivery to the
Agent of an Officer's Certificate of the Borrower with respect to the
financial statements to be delivered, as applicable, pursuant to
Sections 5.1.1(a) in the case of the fiscal year then ended and
5.1.1(b) for the six consecutive month period then ended on June 30,
(i) setting forth in reasonable detail the calculation of the Modified
Interest Coverage Ratio and Leverage Ratio for such fiscal period and
(ii) stating that the signer has reviewed the terms of this Agreement
and has made, or caused to be made under his or her supervision, a
review in reasonable detail of the transactions and condition of the
Borrower and its Subsidiaries during the accounting period covered by
the related financial statements and that such review has not disclosed
the existence during or at the end of such accounting period, and that
the signer does not have knowledge of the existence as at the date of
such Officer's Certificate, of any condition or event that constitutes
an Unmatured Event of Default or an Event of Default and (d)
notwithstanding the foregoing provisions of clauses (b) and (c), no
reduction in the Applicable Percentages shall be effective if any
Unmatured Event of Default or Event of Default
-4-
shall have occurred and be continuing. It is understood that the
foregoing Officer's Certificate shall be permitted to be delivered
prior to, but in no event later than, the time of the actual delivery
of the financial statements required to be delivered pursuant to
Section 5.1.1 for the applicable fiscal period. Any change in the
Applicable Percentages due to a change in the applicable Level shall
be effective on the effective date of such change in the applicable
Level and shall apply to all Eurodollar Rate Loans made on or after
the commencement of the period (and to Reference Rate Loans that are
outstanding at any time during the period) commencing on the effective
date of such change in the applicable Level and ending on the date
immediately preceding the effective date of the next such change in
applicable Level.
"Application" means an application by Borrower, in a form and
containing terms and provisions acceptable to the Issuing Lender, for
the issuance by the Issuing Lender of a Letter of Credit or a Stock
Purchase L/C.
"Assignee Deposit Account" has the meaning ascribed to such
term in Section 3.2(d).
"Assignment and Acceptance" means an Assignment and Acceptance
Agreement in the form of Exhibit B attached hereto.
"Attorneys' Fees" means the reasonable value of the services
(and costs, charges and expenses related thereto) of the attorneys (and
all paralegals, secretaries, accountants and other staff employed by
such attorneys) employed by the Agent or any Lender (including but not
limited to attorneys and paralegals who are employees of the Agent or
such Lender) from time to time (a) in the case of the Agent, incurred
(i) in connection with the negotiation, preparation, execution,
delivery, administration and enforcement of this Agreement, any Related
Agreement, any Supplemental Documentation and all other documents or
instruments provided for herein or therein or delivered or to be
delivered hereunder or under any thereof or in connection herewith or
with any thereof, (ii) to prepare documentation related to the Loans
made and other Liabilities incurred hereunder and (iii) to prepare any
amendment to or waiver under this Agreement or any Related Agreement
and any documents or instruments related thereto and (b) in the case of
the Agent and each Lender (i) to represent the Agent or such Lender in
any litigation, contest, dispute, suit or proceeding
-5-
or to commence, defend or intervene in any litigation, contest,
dispute, suit or proceeding or to file a petition, complaint, answer,
motion or other pleading, or to take any other action in or with
respect to, any litigation, contest, dispute, suit or proceeding
(whether instituted by the Agent, such Lender, Borrower or any other
Person and whether in bankruptcy or otherwise) in any way or respect
relating to the Collateral, any Third Party Collateral, this Agreement
or any Related Agreement, or Borrower's or any other Obligor's or any
Subsidiary's affairs, (ii) to protect, collect, lease, sell, take
possession of, or liquidate any of the Collateral or any Third Party
Collateral, (iii) to attempt to enforce any security interest in any
of the Collateral or any Third Party Collateral or to give any advice
with respect to such enforcement, (iv) to prepare, negotiate and
review any amendment to or any waiver under this Agreement or any
Related Agreement or any documents or instruments related thereto, and
(v) to enforce any right of the Agent or such Lender to collect any of
the Liabilities under this Agreement, any Related Agreement, any
Supplemental Documentation and all other documents provided for herein
or therein. Notwithstanding anything to the contrary herein contained,
"Attorneys Fees" shall not include any cost, fee, charge or expense
incurred by the Agent or any Lender in connection with any litigation,
dispute, suit or proceedings involving only the Lenders and/or the
Agent concerning settlements and other matters contained in Section
2.12.
"Banking Day" means any day other than a Saturday, Sunday or
legal holiday on which banks are authorized or required to be closed
for the conduct of commercial banking business in Chicago, Illinois,
New York City, New York or Hartford, Connecticut.
"Blocked Account Agreement" has the meaning ascribed to such
term in Section 3.2(d).
"Borrower" has the meaning ascribed to such term in the
Preamble.
"Borrowing Base" has the meaning ascribed to such term in
Supplement A.
"Borrowing Base Certificate" has the meaning ascribed to such
term in Section 2.5(d).
-6-
"Capital Expenditures" shall mean with respect to any Person,
for any period, the aggregate of all expenditures (whether paid in cash
or accrued as liabilities) during that period and including that
portion of Capitalized Leases that is capitalized on the balance sheet
of such Person by such Person during such period that, in conformity
with GAAP, are required to be included in or reflected by the property,
plant or equipment or similar fixed asset accounts reflected in the
combined and consolidated balance sheet of such Person (including
equipment which is purchased simultaneously with the trade-in of
existing equipment owned by such Person to the extent of the gross
amount of such purchase price less the book value of the equipment
being traded in at such time), but excluding expenditures made in
connection with the replacement or restoration of assets, to the extent
reimbursed or financed from insurance proceeds paid on account of the
loss of or damage to the assets being replaced or restored, or from
awards of compensation arising from the taking by condemnation or
eminent domain of such assets being replaced.
"Capitalized Lease" means any lease which is or should be
capitalized on the balance sheet of the lessee in accordance with GAAP.
"Change in Law" shall mean any change in any applicable law,
treaty, regulation or guideline (including, without limitation,
Regulation D of the Board of Governors of the Federal Reserve System)
after the date hereof or any new law, treaty, regulation or guideline,
or any interpretation of any of the foregoing by any governmental
authority charged with the administration thereof or any central bank
or other fiscal, monetary or other authority having jurisdiction over
the Lenders or their lending branches or the Eurodollar Rate Loans
contemplated by this Agreement, whether or not having the force of law.
"Closing Date" means the date this Agreement shall become
effective pursuant to Section 8.1.
"Code" means the Internal Revenue Code of 1986, as amended,
and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of the Code shall be construed to also refer to
any successor sections.
-7-
"Collateral" has the meaning ascribed to such term in Section
3.1.
"Collection Accounts" means, collectively, those deposit
accounts maintained by Borrower as identified by bank and account
number on Schedule 4.27 attached hereto.
"Commercial Letter of Credit" means any Letter of Credit which
is drawable upon presentation of a sight draft and other documents
evidencing the sale or shipment of goods purchased by Borrower in the
ordinary course of Borrower's business.
"Consolidated Net Worth" means at any time, the total of all
assets properly appearing on the balance sheet of Borrower in
accordance with GAAP, minus (1) the total of all liabilities of
Borrower, (2) any write-up in the book value of any fixed asset
resulting from a revaluation thereof, and (3) the amount, if any, at
which any shares of stock of Borrower appears on the asset side of the
consolidated balance sheet of Borrower.
"Continental" has the meaning ascribed to such term in the
Preamble.
"Contract Right" means any right of Borrower to payment under
a contract, which right is not yet earned by performance and not
evidenced by an instrument or chattel paper.
"Credit" means the facility established under this Agreement
pursuant to which the Lenders will make Revolving Loans (the "Revolving
Credit") to Borrower, make Stock Purchase Loans to Borrower (the "Stock
Purchase Credit") or issue any Letters of Credit for the account of
Borrower.
"Default Rate" means, with respect to a Loan, the rate of
interest which is applicable to such Loan after any amount thereof is
not paid when due, whether by acceleration or otherwise, as determined
pursuant to Supplement A.
"Demand Deposit Account" has the meaning ascribed to such term
in Section 2.3.
"Domestic Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Domestic Lending Office"
opposite under its name on the signature pages
-8-
hereto or such other office of such Lender as it may from time to time
specify to the Borrower and the Agent.
"EBITDA" means for any period of determination, the Borrower's
net earnings (or loss) after provision for taxes plus cash charges
against income for foreign, federal and state income taxes for such
period plus depreciation and amortization expense for such period plus
the Borrower's aggregate interest expense for such period, plus any
extraordinary losses arising outside of the ordinary course of business
during such period which have been included in the calculation of net
earnings, minus extraordinary gains arising outside the ordinary course
of business during such period which have been included in the
calculation of net earnings.
"Eligible Account Receivable" means an Account Receivable
owing to Borrower which meets the following requirements:
(1) it is genuine and in all respects what it
purports to be;
(2) it arises from either (a) the performance of
services by Borrower, which services have been fully performed
and, if applicable, acknowledged and/or accepted by the
Account Debtor with respect thereto or (b) the sale or lease
of goods by Borrower; and if it arises from the sale or lease
of goods, (i) such goods comply with such Account Debtor's
specifications (if any) and have been shipped to, or delivered
to and accepted by, such Account Debtor and (ii) Borrower has
possession of, or if requested by the Agent has delivered to
the Agent, shipping and delivery receipts evidencing such
shipment, delivery and acceptance;
(3) it (a) is evidenced by an invoice rendered to the
Account Debtor with respect thereto which (i) is dated not
earlier than the date of shipment or performance and (ii) has
payment terms which are reasonably acceptable to the Agent and
(b) meets the Eligible Account Receivable requirements set
forth in Supplement A;
(4) Borrower has the full and unqualified right to
assign and grant a Lien and security interest in such Account
Receivable to the Agent for the benefit of the Lenders and
such Account Receivable is not subject to any
-9-
assignment, claim or Lien, other than a Lien in favor of the
Agent, which Lien is prior to the right of, and enforceable as
such against, any other Person, except Liens consented to by
the Agent;
(5) it is a valid, legally enforceable and
unconditional obligation of the Account Debtor with respect
thereto, and is not subject to setoff, counterclaim, credit or
allowance (except any credit or allowance which has been
deducted in computing the net amount of the applicable invoice
as shown in the original schedule or Borrowing Base
Certificate furnished to the Agent identifying or including
such Account Receivable) or adjustment by the Account Debtor
with respect thereto, or to any claim by such Account Debtor
denying liability thereunder in whole or in part, and such
Account Debtor has not refused to accept any of the goods or
services which are the subject of such Account Receivable or
offered or attempted to return any of such goods;
(6) there are no proceedings or actions which are
then threatened or pending against the Account Debtor with
respect thereto or to which such Account Debtor is a party
including without limitation any bankruptcy, reorganization,
receivership, custodianship, insolvency or like proceeding, or
which might otherwise result in any material adverse change in
such Account Debtor's financial condition or in its ability to
pay any Account Receivable in full when due;
(7) it does not arise out of a contract or order
which, by its terms, forbids, restricts or makes void or
unenforceable the assignment by Borrower to the Agent of the
Account Receivable arising with respect thereto;
(8) the Account Debtor with respect thereto is not a
Subsidiary, Related Party or Obligor, or a director, officer,
employee or agent of Borrower, a Subsidiary, Related Party or
Obligor;
(9) the Account Debtor with respect thereto is a
resident or citizen of, and is located within, the United
States of America, unless the sale of goods giving rise to the
Account Receivable is on letter of credit, banker's acceptance
or other credit support terms satisfactory to
-10-
the Agent and the Agent's security interest in such Account
Receivable and letter of credit, bank's acceptance or other
credit support is duly and properly perfected;
(10) it is not an Account Receivable arising from a
"sale on approval," "sale or return" or "consignment," or
subject to any other repurchase or return agreement;
(11) it is not an Account Receivable with respect to
which possession and/or control of the goods sold giving rise
thereto is held, maintained or retained by Borrower or any
Subsidiary, Related Party or other Obligor (or by any agent or
custodian of Borrower, any Subsidiary, Related Party or
Obligor) for the account of or subject to further and/or
future direction from the Account Debtor thereof;
(12) it is not an Account Receivable which in any way
fails to meet or violates any warranty, representation or
covenant contained in this Agreement or any Related Agreement
relating directly or indirectly to Borrower's Accounts
Receivable;
(13) the Account Debtor thereunder is not located in
the States of Indiana, New Jersey or Minnesota; provided,
however, that such restriction shall not apply to an Account
Receivable if at the time the Account Receivable was created
and at all times thereafter (a) Borrower had filed and has
maintained effective a current Notice of Business Activities
Report with the appropriate office or agency of the State of
Indiana, New Jersey or Minnesota, as applicable or (b)
Borrower was and has continued to be exempt from the filing of
such Report and has provided the Agent with satisfactory
evidence thereof;
(14) it arises in the ordinary course of Borrower's
business;
(15) with respect to one or more Accounts Receivable
in excess of $10,000 in the aggregate owing by the United
States of America or any department, agency or instrumentality
thereof, Borrower has assigned its right to payment of such
Account Receivable to the Agent pursuant to the Assignment of
Claims Act of 1940, as amended and the Agent is satisfied as
to the absence of setoffs,
-11-
counterclaims and other defenses to payment on the part of the
United States of America or department, agency or
instrumentality thereof;
(16) if the Agent or any Lender in its discretion has
established a credit limit for an Account Debtor with respect
to such Account Receivable and has given Borrower thirty (30)
days prior written notice of such credit limit, the aggregate
dollar amount of Accounts Receivable due from such Account
Debtor, including such Account Receivable, which does not
exceed such credit limit;
(17) if the Account Receivable is evidenced by
chattel paper or an instrument, (a) the Agent shall have
specifically agreed in writing to include such Account
Receivable as an Eligible Account Receivable, (b) only
payments then due and payable under such chattel paper or
instrument shall be included as an Eligible Account Receivable
and (c) the originals of such chattel paper or instruments
have been endorsed and/or assigned and delivered to the Agent
in a manner satisfactory to the Agent; and
(18) it has not arisen from Inventory which at the
time of determination of Eligible Accounts Receivable
constituted Eligible Inventory.
An Account Receivable which is at any time an Eligible Account
Receivable, but which subsequently fails to meet any of the foregoing
requirements, shall forthwith cease to be an Eligible Account
Receivable. Further, with respect to any Account Receivable, if the
Agent or any Lender at any time or times hereafter determine in its or
their discretion that the prospect of payment or performance by the
Account Debtor with respect thereto is or will be impaired for any
reason whatsoever, then notwithstanding anything to the contrary
contained above, such Account Receivable shall forthwith cease to be an
Eligible Account Receivable.
"Eligible Assignee" means (i) a commercial bank, commercial
finance company or financial institution organized under the laws of
the United States, or any state thereof, and having a combined capital
and surplus of at least $100,000,000; or (ii) a commercial bank,
commercial finance company or financial institution organized under the
laws of any other country which
-12-
is a member of the Organization for Economic Cooperative and
Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least
$100,000,000, or the local currency equivalent thereof, provided that
such bank, commercial finance company or financial institution is
acting through a branch or agency located in the United States.
"Eligible Inventory" means Inventory which meets the following
requirements:
(1) Borrower, has title to such Inventory and the
full and unqualified right to grant a Lien and security
interest to the Agent for the benefit of the Lenders, and such
Inventory is not subject to any prior assignment, claim or
Lien, other than (a) a Lien in favor of the Agent and (b)
Liens consented to in writing by the Required Lenders;
(2) if it is held for sale or lease or furnishing
under contracts of service, it is (except as the Agent may
otherwise consent in writing) new or like new;
(3) except as the Agent may otherwise consent, it is
in the possession and control of Borrower; provided, however,
that if it is stored on premises leased by Borrower, the Agent
is in possession of a Landlord's Consent duly executed by the
owner of such premises;
(4) if it is in the possession or control of a
bailee, warehouseman, processor or other Person other than
Borrower, the Agent is in possession of such agreements,
instruments and documents as the Agent may require (each in
form and content acceptable to the Agent and duly executed, as
appropriate, by the bailee, warehouseman, processor or other
Person in possession or control of such Inventory, as
applicable) including but not limited to warehouse receipts in
the Agent's name covering such Inventory;
(5) it is not Inventory which is dedicated to,
identifiable with, or is otherwise specifically to be used in
the manufacture of, goods which are to be sold or leased to
the United States of America or any department, agency or
instrumentality thereof and in respect of which
-13-
Inventory, such Borrower shall have received any progress or
other advance payment which is or may be against any Account
Receivable generated upon the sale or lease of any such goods;
(6) it is not Inventory produced in violation of the
Fair Labor Standards Act and subject to the "hot goods"
provisions contained in Title 29 U.S.C. ss.215 or any
successor statute or section;
(7) it is not "private label" Inventory, or Inventory
bearing a servicemark, trademark or name of any Person other
than Borrower, or with respect to which the use by Borrower or
the manufacture or sale thereof by Borrower is subject to any
licensing, patent, royalty, trademark, tradename or copyright
agreement with any other Person under which the Borrower's
rights thereunder are not assignable to the Agent; except for
Inventory manufactured for and intended to be sold under a
supply contract to the owner of such trademark, service mark
etc.
(8) it is not (i) packaging or shipping materials,
(ii) goods used in connection with maintenance or repair of
Borrower's business, properties or assets, (iii) general
supplies or (iv) equipment;
(9) it is not Inventory which in any way fails to
meet or violates any warranty, representation or covenant
contained in this Agreement or any Related Agreement relating
directly or indirectly to Borrower's Inventory;
(10) the Agent or the Required Lenders has/have
determined in its or their discretion that it is not
unacceptable due to age, type, category, quality and/or
quantity;
(11) it satisfies the Eligible Inventory
Requirements, if any, set forth in Supplement A;
(12) it is not obsolete, unsalable, damaged or
otherwise unfit for sale or further processing or subject to
any consignment with any distributor; and
-14-
(13) it has not given rise to any Account Receivable
which, at the time of determination of Eligible Inventory,
constituted an Eligible Account Receivable.
Inventory of Borrower which is at any time Eligible Inventory but which
subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be Eligible Inventory.
"Environmental Laws" means the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation
and Liability Act, any so-called "Superfund" or "Superlien" law, the
Toxic Substances Control Act, the Hazardous Materials Transportation
Act, the Federal Water Pollution Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, and the Clean Air Act and any other
federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree or other requirement regulating, relating
to, or imposing liability or standards of conduct (including, but not
limited to, permit requirements, and emission or effluent restrictions)
concerning any Hazardous Materials or any hazardous, toxic or dangerous
waste, substance or constituent, or any pollutant or contaminant or
other substance, whether solid, liquid or gas, as now or at any time
hereafter in effect.
"Equipment" means all equipment of Borrower of every
description, including, without limitation, fixtures, furniture,
vehicles and trade fixtures, together with any and all accessions,
parts and equipment attached thereto or used in connection therewith,
and any substitutions therefor and replacements thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to
time. References to sections of ERISA shall be construed to also refer
to any successor sections.
"ERISA Affiliate" means any corporation, partnership, or other
trade or business (whether or not incorporated) that is, along with
Borrower, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Sections
414(b) and 414(c), respectively, of the Code or Section 4001 of ERISA,
or a member of the same
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affiliated service group within the meaning of Section 414(m) of the
Code.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office"
under its name on the signature pages hereto (or, if no such office is
specified, its Domestic Lending Office) or such other office of such
Lender as it may from time to time specify to the Borrower and the
Agent.
"Eurodollar Rate" has the meaning ascribed to such term in
Supplement A.
"Eurodollar Rate Loan" means a Loan which accrues interest at
the Eurodollar Rate.
"Event of Default" has the meaning ascribed to such term in
Section 6.1.
"Federal Funds Rate" shall have the meaning specified in
Section 2.11.3.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"Fiscal Year" means the 12 consecutive calendar month period
ending on the last day of December.
"Fixtures" means all fixtures of Borrower of every description
and all substitutions and replacements of any thereof.
"GAAP" means generally accepted accounting principles as
applied in the preparation of the audited financial statement of
Borrower referred to in Section 4.6.
"General Intangibles" means all of Borrower's intangible
personal property, including things in action, causes of action and all
other personal property of Borrower of every kind and nature (other
than accounts, inventory, equipment, chattel paper, documents,
instruments and money), including, without limitation, corporate or
other business records, non-competition agreements, inventions,
designs, patents, patent applications, trademarks, trademark
applications, trade names, trade styles, trade secrets, goodwill,
copyrights, registra-
-16-
tions, licenses, franchises, customer lists, tax refund claims, claims
against carriers and shippers, guarantee claims, security interests,
security deposits or other security held by or granted to Borrower to
secure any payment from an Account Debtor, and any rights to
indemnification.
"Hazardous Materials" means any pollutant, contaminant, toxic
substance, hazardous substance, hazardous material, hazardous chemical
or hazardous waste defined or qualifying as such in (or for the
purposes of) any Environmental Law, and shall include, but not be
limited to, petroleum, including crude oil or any fraction thereof
which is liquid at standard conditions of temperature or pressure (60
degrees fahrenheit and 14.7 pounds per square inch absolute), any
radioactive material, including, but not limited to, any source,
special nuclear or by-product material as defined at 42 U.S.C. Section
2011 et. seq., as amended or hereafter amended, polychlorinated
biphenyls and asbestos in any form or condition and any chemical,
material, pollutant or substance, release or discharge of which or
exposure to which is prohibited, limited or regulated by any Federal,
state or local governmental or regulatory authority or could pose a
hazard to the health and safety of the occupants of any properties of
Borrower or the owners and/or occupants of property adjacent to any
such property.
"Indebtedness" of any Person means, without duplication, (i)
any obligation of such Person for borrowed money, including, without
limitation, (a) any obligation of such Person evidenced by bonds,
debentures, notes or other similar debt instruments and (b) any
obligation for borrowed money which is non-recourse to the credit of
such Person but which is secured by a Lien on any asset of such Person,
(ii) any obligation of such Person on account of deposits, advances,
letters of credit and banker's acceptances issued for the account of
such Person, (iii) any obligation of such Person for the deferred
purchase price of any property or services, except Trade Accounts
Payable, (iv) any obligation of such Person as lessee under a
Capitalized Lease (v) all guaranties issued by such Person and (vi) any
Indebtedness of another Person secured by a Lien on any asset of such
first Person, whether or not such Indebtedness is assumed by such first
Person. For all purposes of this Agreement, the Indebtedness of any
Person shall include the Indebtedness of any partnership or joint
venture in which such Person is a general partner or joint venturer.
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"Inventory" means any and all of Borrower's goods, (including,
without limitation, goods in transit) wheresoever located which are or
may at any time be leased by Borrower to a lessee, held for sale or
lease, furnished under any contract of service, or held as raw
materials, work in process, or supplies or materials used or consumed
in Borrower's business, or which are held for use in connection with
the manufacture, packing, shipping, advertising, selling or finishing
of such goods, and all goods the sale or other disposition of which has
given rise to an Account Receivable, Contract Right or General
Intangible which are returned to and/or repossessed and/or stopped in
transit by Borrower or the Agent or any agent or bailee of either of
them, and all documents of title or other documents representing the
same.
"Investment" of any Person means any investment, made in cash
or by delivery of any kind of property or asset, in any other Person,
whether by acquisition of shares of stock or similar interest,
Indebtedness or other obligation or security, or by loan, advance or
capital contribution, or otherwise.
"Issuing Lender" means Continental.
"Landlord's Consent" means a Landlord's Consent substantially
in a form acceptable to the Agent.
"L/C Draft" means a draft drawn on Issuing Lender pursuant to
a Letter of Credit.
"Lenders" means collectively: Fleet, Bank Boston, and
Continental (in its capacity as a lender, but not in its capacity as
Agent) together in each case with their successors and assigns.
"Letter of Credit" means any letter of credit issued by
Issuing Lender, in its discretion, on the Application of Borrower
(including, but not limited to any letter of credit or any Stock
Purchase L/C issued pursuant to Section 2.2).
"Letter of Credit Obligations" means as to Borrower, at any
time of determination, an amount equal to the aggregate of the undrawn
amounts of all Letters of Credit plus the aggregate of all unpaid
obligations of Borrower to reimburse the Issuing Lender for amounts
drawn under all Letters of Credit.
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"Leverage Ratio" means, as at any date of determination, the
ratio of (i) the aggregate outstanding amount of all the Borrower's
Indebtedness plus the aggregate principal amount of loans outstanding
under the Management Loan Agreement to (ii) twice the amount of the
Borrower's EBITDA for the six consecutive month period ending on such
date.
"Liabilities" means all of the liabilities, obligations and
indebtedness of Borrower to the Agent, Issuing Lender or any Lender of
any kind or nature under or in connection with this Agreement, the
Management Loan Agreement or any Related Agreement other than the
Warrants, however created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing or due or
to become due, and including but not limited to (i) Borrower's
obligations under any Note, (ii) Borrower's obligations with respect to
any Letter of Credit or any Application therefor, (iii) interest,
charges, expenses, Attorneys' Fees and other sums chargeable to
Borrower by the Agent or any Lender under this Agreement or any Related
Agreement other than the Warrants and (iv) the obligations of Borrower
under any Related Agreement other than the Warrants, including
obligations of performance. "Liabilities" shall also include any and
all amendments, restatements, extensions, renewals, refundings or
refinancings of any of the foregoing.
"Lien" means any mortgage, pledge, hypothecation, judgment
lien or similar legal process, title retention lien, or other lien,
encumbrance or security interest, including, without limitation, the
interest of a vendor under any conditional sale or other title
retention agreement and the interest of a lessor under any Capitalized
Lease.
"Loan" means (i) any Revolving Loan made pursuant to Section
2.1.1, (ii) any Stock Purchase Loan made pursuant to Section 2.1.2, and
(iii) any other loan or advance made to Borrower by the Agent or any
Lender pursuant to this Agreement.
"Loan Account" has the meaning ascribed to such term in
Section 2.3.
"Management Loan Agreement" means that certain loan agreement
dated as of August 30, 1994 among certain executives of Borrower from
time to time designated as borrowers thereunder,
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the Borrower, the Lenders and Continental, as agent for the Lenders.
"Margin Stock" has the meaning ascribed to such term in
Regulation G or U of the Federal Reserve Board or any regulation
substituted therefor, as in effect from time to time.
"Modified Interest Coverage Ratio" means with respect to the
Borrower, as at any date of determination for the six consecutive
months then ended, the ratio of (i) EBITDA minus Capital Expenditures
to (ii) total interest expense plus all interest accrued and payable to
the Lenders under the Management Loan Agreement.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA which is maintained for employees of
Borrower, any other Obligor or any ERISA Affiliate.
"Net Cash Proceeds" means cash and cash equivalent proceeds
received by Borrower in connection with any of the following
transactions, net of the costs incurred in connection with such
transaction, taxes paid or payable as a result thereof, and in the case
of any sale or disposition of assets, amounts applied to the repayment
of Indebtedness (other than the Liabilities) secured by a Lien on the
assets disposed of to the extent such Indebtedness and Lien are
permitted hereunder, (i) from the sale, lease assignment or other
disposition outside the ordinary course of business of any asset or
property; (ii) the sale or issuance of any securities of the Borrower
or any Subsidiary of Borrower, other than the issuance of securities
pursuant to the exercise of options to purchase Borrower's securities
by employees or directors of Borrower or any of its Subsidiaries, (iii)
the issuance of or increase in any Subordinated Debt after the Closing
Date and (iv) all proceeds of any insurance and condemnation awards.
"Note" means any promissory note of Borrower evidencing any
loan or advance (including but not limited to any Revolving Loan, Stock
Purchase Loan or Overdraft Loan) made by the Agent or any Lender to
Borrower pursuant to this Agreement.
"Obligor" means Borrower and each other Person who is or shall
become primarily or secondarily liable on any of the Liabilities, or
who grants to the Agent or any Lender a Lien on
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any property of such Person as security for any of the Liabilities.
"Occupational Safety and Health Law" means the Occupational
Safety and Health Act of 1970, as amended, and any other federal, state
or local statute, law, ordinance, code, rule, regulation, order or
decree regulating, relating to or imposing liability or standards of
conduct concerning employee health and/or safety.
"Over Advance" has the meaning ascribed to such term in
Section 2.8.
"Overdraft Loan" has the meaning ascribed to such term in
Section 2.7.
"Patent Assignment" means an Amended and Restated Collateral
Patent Assignment dated as of December 27, 1990 made by Borrower in
favor of the Agent as the same may be amended or restated from time to
time.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan," as such term is defined
in Section 3(2) of ERISA, which is subject to the provisions of Title
IV of ERISA (other than a Multiemployer Plan) and to which Borrower,
any other Obligor or any ERISA Affiliate may have any liability,
including any liability by reason of being deemed to be a contributing
sponsor under Section 4069 of ERISA.
"Percentage" shall mean, with respect to any Lender, a
fraction expressed as a percentage, the numerator of which shall equal
the amount set forth opposite such Lender's name on the signature page
hereof, as it may be adjusted from time to time as a result of
assignments permitted under Section 12.9 (and in the case of Lenders
not initially party to this Agreement, the amount set forth in the
applicable Assignment and Acceptance as any such Lender's commitment)
and the denominator of which is the Revolving Credit Amount.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
-21-
association, corporation, institution, entity, or government (whether
national, federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Pledge Agreement" means that certain Amended and Restated
Pledge Agreement dated as of December 27, 1990, made by the Borrower in
favor of the Agent, as amended or restated from time to time.
"Preferred Stock" means the Convertible Preferred Stock,
Series A, of Borrower.
"Real Property" means the real property owned by Borrower
identified on Schedule 4.13.
"Reference Rate" means, at any time, the greater of (a) the
Federal Funds Rate plus one half of one percent (.50%) or (b) the rate
of interest then most recently announced by Continental at Chicago,
Illinois as its reference rate. Each change in the interest rate on any
Loan shall take effect on the effective date of the change in the
Reference Rate.
"Reference Rate Loan" means a Loan which accrues interest at
the Reference Rate.
"Related Agreement" means any agreement, instrument or
document (including, without limitation, the Patent Assignment, the
Trademark Assignment, the Pledge Agreement, the Warrants, any deed of
trust and all other notes, guaranties, mortgages, deeds of trust,
chattel mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, leases, financing statements,
subordination agreements, trust account agreements and all other
written matter) heretofore, now, or hereafter delivered to the Agent or
any Lender with respect to or in connection with or pursuant to this
Agreement or any of the Liabilities, and executed by or on behalf of
Borrower or any other Obligor.
"Related Party" means any Person (other than a Subsidiary) (i)
which controls, or is controlled by, or is under common control with,
Borrower, (ii) which beneficially owns or holds, directly or
indirectly, ten percent (10%) or more of the equity interest of
Borrower or (iii) ten percent (10%) or more of the equity interest of
which is beneficially owned or held,
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directly or indirectly, by Borrower or a Subsidiary. The term "control"
means the possession, directly or indirectly, through one or more
intermediaries of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
"Reportable Event" has the meaning given to such term in
ERISA.
"Required Lenders" means, at any time, Lenders whose
Percentages aggregate more than 85%.
"Revolving Credit" has the meaning ascribed to such term in
the definition of "Credit."
"Revolving Credit Amount" shall mean $55,000,000.
"Revolving Loan" has the meaning ascribed to such term in
Section 2.1.1, including without limitation, any Loan made under
Section 2.7.
"Revolving Loan Availability" means, at any time of
determination, the lesser of: (i) the Revolving Credit Amount minus the
sum of (a) the aggregate unpaid principal balance of all Stock Purchase
Loans plus (b) the Letter of Credit Obligations outstanding at such
time, or (ii) the Borrowing Base minus the sum of (a) the Stock
Purchase Reserve plus (b) the Letter of Credit Obligations other than
the Stock Purchase L/C Obligations outstanding at such time.
"Settlement Date" has the meaning ascribed to such term in
Section 2.11.1.
"Standby Letter of Credit" means any Letter of Credit which is
not a Commercial Letter of Credit.
"Stock Purchase Availability" means, at any time of
determination, an amount equal to $9,750,000 minus the Stock Purchase
L/C Obligations outstanding at such time, but not less than zero.
"Stock Purchase Credit" has the meaning ascribed to such term
in the definition of "Credit".
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"Stock Purchase Loan" has the meaning ascribed to such term in
Section 2.1.2.
"Stock Purchase L/C" means a Standby Letter of Credit issued
by the Issuing Lender in accordance with Section 2.2 hereof for the
benefit of the Agent and the Lenders to secure the obligations and
liabilities of the borrowers under and in connection with the
Management Loan Agreement as such Letter of Credit may be amended,
modified, renewed or extended from time to time.
"Stock Purchase L/C Obligations" means as to Borrower, at any
time of determination, an amount equal to the aggregate of the undrawn
amounts of all Stock Purchase L/C's plus the aggregate of all unpaid
obligations of Borrower to reimburse the Issuing Lender for amounts
drawn under all Stock Purchase L/C's.
"Stock Purchase Liabilities" means, at any time of
determination, the aggregate principal amount of Stock Purchase Loans
and Stock Purchase L/C Obligations at such time.
"Stock Purchase Reserve" means, with respect to the
calculation of the Borrowing Base on and after each Anniversary Date
specified below, an amount equal to the percentage set opposite each
such Anniversary Date of the Target Stock Purchase Liabilities minus
the aggregate amount by which the Stock Purchase Liabilities have been
repaid or otherwise reduced since the date of the initial loan made
pursuant to the Management Loan Agreement:
First Anniversary Date 20%
Second Anniversary Date 40%
Third Anniversary Date 60%
Fourth Anniversary Date 80%
"Subordinated Debt" means that portion of any Liabilities,
obligations or Indebtedness of Borrower which contains terms (including
the amount thereof) satisfactory to the Required Lenders and is
subordinated, in a manner satisfactory to the Required Lenders, as to
right and time of payment of principal and interest thereon, to all of
the Liabilities.
"Subsidiary" means any Person of which or in which Borrower
and its other Subsidiaries own directly or indirectly 50%
-24-
or more of (i) the combined voting power of all classes of stock having
general voting power under ordinary circumstances to elect a majority
of the board of directors of such Person, if it is a corporation, (ii)
the capital interest or profits interest of such Person, if it is a
partnership, joint venture or similar entity or (iii) the beneficial
interest of such Person, if it is a trust, association or other
unincorporated organization.
"Supplemental Documentation" has the meaning ascribed to such
term in Section 3.5.
"Target Stock Purchase Liabilities" means the aggregate
principal amount of Stock Purchase Loans and all Stock Purchase L/C
Obligations outstanding on July 1, 1995.
"Taxes" with respect to any Person means taxes, assessments or
other governmental charges or levies imposed upon such Person, its
income or any of its properties, franchises or assets.
"Termination Date" means August 30, 1999.
"Third Party Collateral" means any property of any Person
other than Borrower which secures payment or performance of any
Liabilities.
"Trade Accounts Payable" of any Person means trade accounts
payable of such Person with a maturity of not greater than 90 days
incurred in the ordinary course of such Person's business.
"Trademark Assignment" means the Amended and Restated
Collateral Trademark Assignment dated as of December 27, 1990 made by
Borrower in favor of the Agent as amended or restated from time to
time.
"UCC" means the Uniform Commercial Code as in effect in the
State of Illinois, and any successor statute, together with any
regulations thereunder, in each case as in effect from time to time.
References to sections of the UCC shall be construed to also refer to
any successor sections.
-25-
"Unmatured Event of Default" means any event or condition
which, with the lapse of time or giving of notice to Borrower or both,
would constitute an Event of Default.
"Warrants" means, collectively, the warrants issued by
Borrower to the financial institutions which were the original lenders
under the First Amended Agreement.
1.2 Other Definitional Provisions. Unless otherwise defined or the
context otherwise requires, all financial and accounting terms used herein or in
any certificate or other document made or delivered pursuant hereto shall be
defined in accordance with GAAP. Unless otherwise defined therein, all terms
defined in this Agreement shall have the defined meanings when used in any Note
or in any certificate or other document made or delivered pursuant hereto. Terms
used in this Agreement which are defined in any Supplement or Exhibit hereto
shall, unless the context otherwise indicates, have the meanings given them in
such Supplement or Exhibit. Other terms used in this Agreement shall, unless the
context indicates otherwise, have the meanings provided for by the UCC to the
extent the same are used or defined therein.
1.3 Interpretation of Agreement. A Section, an Exhibit, a Supplement or
a Schedule is, unless otherwise stated, a reference to a section hereof, an
exhibit hereto, a supplement hereto or a schedule hereto, as the case may be.
Section captions used in this Agreement are for convenience only and shall not
affect the construction of this Agreement. The words "hereof," "herein,"
"hereto" and "hereunder" and words of similar import when used in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Reference to "this Agreement" shall include the provisions of
Supplement A.
1.4 Compliance with Financial Restrictions. Compliance with each of the
financial ratios and restrictions contained in Section 5 or Supplement A shall,
except as otherwise provided herein, be determined in accordance with GAAP
consistently followed.
1.5 Exercise of Discretion. Unless a different standard is specifically
referred to, whenever the Agent or any Lender or group of Lenders is authorized
to exercise its or their discretion herein or in any Related Agreement, such
Person(s) shall be entitled to take any action with respect to the matter in
question that might be taken by a commercial lender acting in good faith under
similar circumstances in connection with a secured financing transaction of
-26-
the size and nature contemplated by this Agreement and based upon the
information then available to such Person(s).
2. LOANS; LETTERS OF CREDIT; OTHER MATTERS.
2.1 Loans.
2.1.1 Revolving Loans.
(a) Subject to the terms and conditions of this
Agreement and the Related Agreements, and in reliance upon the
warranties of Borrower set forth herein and in the Related
Agreements, each Lender, severally and for itself alone,
agrees to make revolving loans to Borrower as Borrower may
request (individually each a "Revolving Loan" and collectively
the "Revolving Loans") from time to time until, but not
including the Termination Date, in an amount not to exceed, in
the aggregate at any time outstanding, such Lender's
Percentage of the Revolving Loan Availability at such time.
Revolving Loans made by the Lenders may be repaid and, subject
to the terms and conditions hereof, reborrowed until, but not
including, the Termination Date, unless the Credit extended
under this Agreement is otherwise terminated as provided in
this Agreement.
(b) In the event the aggregate outstanding principal
balance of all Revolving Loans exceeds the Revolving Loan
Availability, Borrower shall, unless the Required Lenders
shall otherwise consent in accordance with Section 2.8,
without notice or demand of any kind, immediately make such
repayments of the Revolving Loans or take such other actions
as shall be necessary to eliminate such excess.
(c) All Revolving Loans hereunder shall be paid by
Borrower on the Termination Date, unless payable sooner
pursuant to the provisions of this Agreement, but may, at
Borrower's election, be repaid in whole or in part at any time
prior to such date without premium or penalty.
2.1.2 Stock Purchase Loans.
(a) Subject to the terms and conditions of this
Agreement and the Related Agreements, and in reliance upon
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the warranties of Borrower set forth herein and in the Related
Agreements, each Lender, severally and for itself alone,
agrees from time to time from the date hereof until June 30,
1995, to make one or more loans to Borrower upon Borrower's
request ("Stock Purchase Loans") in an amount not to exceed,
in the aggregate at any time outstanding, such Lender's
Percentage of the Stock Purchase Availability at such time,
provided, however, that the proceeds of each Loan made
pursuant to this Section 2.1.2 shall be used by Borrower only
for the purpose of purchasing (or refinancing the purchase
price of) up to 3,000,000 shares of Borrower's common stock
for an aggregate amount not to exceed $9,750,000.
(b) Unless otherwise required to be sooner paid
pursuant to this Agreement, the principal amount of the Stock
Purchase Loans shall be repaid in full on June 30, 1995.
2.1.3 Mandatory Prepayments.
(a) If any Net Cash Proceeds shall at any time arise,
Borrower shall prepay the Loans in an amount equal to such Net
Cash Proceeds, simultaneously with the consummation of the
transaction giving rise to such Net Cash Proceeds, except that
(i) if simultaneous payment is not practicable and so long as
the security interest in favor of the Agent in such proceeds
is continuously perfected to the Agent's satisfaction, payment
may be made within two (2) Banking Days thereafter, and (ii)
Net Cash Proceeds which are insurance proceeds or condemnation
awards are payable within a reasonable time not exceeding
seven (7) days after receipt by Borrower.
(b) Unless an Event of Default or Unmatured Event of
Default shall have occurred and is continuing, prepayments
under this Section 2.1.3 shall first be applied to the
principal balance of any outstanding Revolving Loans.
2.2 Letters of Credit.
(a) In addition to Loans made pursuant to Section 2.1, the
Issuing Lender will, from time to time until the Termination Date, upon
receipt of duly executed Applications and such other documents,
instruments and/or agreements as the Issuing
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Lender may require, issue or amend Letters of Credit on such terms as
are satisfactory to the Issuing Lender, provided, however that the
Issuing Lender shall not issue or amend any Letter of Credit: (A) other
than a Stock Purchase L/C at any time if, after giving effect to such
Letter of Credit, the Letter of Credit Obligations other than the Stock
Purchase L/C Obligations would exceed the greatest of (i) $15,000,000,
(ii) the Revolving Credit Amount minus the sum of (A) the Stock
Purchase L/C Obligations plus (B) the Stock Purchase Reserve plus (C)
the outstanding principal balance of the Loans, or (iii) the Borrowing
Base minus the sum of (A) the Stock Purchase L/C Obligations plus (B)
the Stock Purchase Reserve plus (C) the outstanding principal balance
of the Revolving Loans; provided, further, that the Issuing Lender
shall not issue or amend a Stock Purchase L/C at any time unless and
until the Management Loan Agreement becomes effective and if, after
giving effect to such issuance or amendment, the Stock Purchase L/C
Obligations would exceed $10,000,000 minus the aggregate outstanding
principal amount of the Stock Purchase Loans or; (B) with an expiry
date (i) more than one year from its issuance or (ii) after the
Termination Date unless the Borrower provides cash collateral for the
full face amount of such Letter of Credit.
(b) Borrower agrees to pay the Issuing Lender, on demand, the
Issuing Lender's standard administrative operating fees and charges in
effect from time to time for issuing and administering any Letters of
Credit. Borrower further agrees to pay the Agent, for the account of
the Lenders according to their respective Percentages, a commission,
equal to a rate per annum equal to, in the case of all Letters of
Credit other than the Stock Purchase L/C's, the Applicable Percentage
for Eurodollar Rate Loans at such time, and, in the case of any Stock
Purchase L/C, the Applicable Percentage for Eurodollar Rate Loans minus
.50% (calculated on the basis of a year consisting of 360 days and paid
for the actual number of days elapsed) on the average daily amount
available to be drawn under each such Letter of Credit, payable
quarterly, in arrears on the last day of each March, June, September
and December. The Agent in its sole discretion may provide for the
payment of any fees, charges or commission due to the Issuing Lender by
advancing the amount thereof to Borrower as a Revolving Loan. On the
last day of each March, June, September and December, the Agent shall
deliver a report to each Lender describing the Letters of
-29-
Credit issued during the fiscal quarter then ended, in form and
substance satisfactory to the Lenders.
(c) Borrower agrees to reimburse the Issuing Lender, on
demand, for each such payment made by the Issuing Lender under or
pursuant to any Letter of Credit or L/C Draft. Borrower further agrees
to pay to the Issuing Lender, on demand, interest at the Default Rate
applicable to Reference Rate Loans on any amount paid by the Issuing
Lender under or pursuant to any Letter of Credit or L/C Draft from the
date of payment until the date of reimbursement to the Issuing Lender.
The Agent may, and upon the request of Borrower when no Event of
Default exists (to the extent there is additional availability for
Revolving Loans but without regard to the other conditions precedent
set forth in Section 8.2) shall provide for the payment of any
reimbursement obligations due to the Issuing Lender and any interest
accrued thereon by advancing the amount thereof to Borrower as a
Revolving Loan.
(d) Borrower's obligation to reimburse the Issuing Lender for
payments and disbursements made by the Issuing Lender under any Letter
of Credit shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense
to payment which Borrower may have or have had against the Issuing
Lender, any other Lender or any beneficiary of any Letter of Credit,
including, without limitation, any defense based on the failure of the
demand for payment under such Letter of Credit to conform to the terms
of such Letter of Credit, the legality, validity, regularity or
enforceability of such Letter of Credit, or the identity of the
transferee of such Letter of Credit or the sufficiency of any transfer
if such Letter of Credit is transferable; any amendment or waiver of or
any consent to or departure from all or any part of any of this
Agreement or any Related Agreement; any breach of contract or other
dispute between the Borrower and any beneficiary or any transferee of
any of the Letters of Credit (or any persons or entities for whom any
such beneficiary or any such transferee may be acting), the Issuing
Lender, any participant with the Issuing Lender or any other person or
entity; any statement or any other document presented under any of the
Letters of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever; or any delay, extension of time,
renewal, compromise or other indulgence or modification granted or
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agreed to by the Issuing Lender, with or without notice to or approval
by the Borrower in respect of any of the Letters of Credit or any of
the Liabilities provided, however, that Borrower shall not be obligated
to reimburse the Issuing Lender for any wrongful payment or
disbursement made under any Letter of Credit as a result of acts or
omissions constituting gross negligence or willful misconduct on the
part of the Issuing Lender or any of its officers, employees or agents.
(e) Notwithstanding anything to the contrary herein or in any
Application, upon the occurrence of an Event of Default, an amount
equal to the aggregate amount of the outstanding Letter of Credit
Obligations shall, at the Issuing Lender's option and without demand
upon or further notice to Borrower, be deemed (as between the Issuing
Lender and Borrower) to have been paid or disbursed by the Issuing
Lender under the Letters of Credit issued and L/C Drafts accepted by
the Issuing Lender (notwithstanding that such amounts may not in fact
have been so paid or disbursed), and a Revolving Loan to Borrower in
the amount of such Letter of Credit Obligations to have been made and
accepted, which Loan shall be immediately due and payable. In lieu of
the foregoing, at the election of the Agent or the Required Lenders at
any time after an Event of Default, Borrower shall, upon the Issuing
Lender's demand, deliver to the Issuing Lender cash collateral equal to
the aggregate Letter of Credit Obligations. Any such cash Collateral
and/or any amounts received by the Issuing Lender in payment of the
Loan made pursuant to this subsection (e) shall be delivered to and
held by the Agent on behalf of the Issuing Lender and the Lenders in
the Assignee Deposit Account or a separate account appropriately
designated as a cash collateral account in relation to this Agreement
and the Letters of Credit and shall be retained by the Agent on behalf
of the Lenders as collateral security in respect of, first, Borrower's
Liabilities under or in connection with the Letters of Credit and L/C
Drafts and then, all other Liabilities. Such amounts shall not be used
by the Issuing Lender to pay any amounts drawn or paid under or
pursuant to any Letter of Credit or L/C Draft, but may be applied to
reimburse the Issuing Lender for drawings or payments under or pursuant
to Letters of Credit or L/C Drafts which the Issuing Lender has paid,
or if no such reimbursement is required, to payment of such other
Liabilities in accordance with the provisions of Section 2.10(b). Any
amounts remaining in any cash collateral account established pursuant
to this
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subsection (e) following payment in full of all Liabilities shall be
returned to Borrower.
(f) With respect to each Letter of Credit, each Lender (other
than the Issuing Lender) hereby irrevocably and unconditionally agrees
that it shall be deemed to have purchased and received from the Issuing
Lender, without recourse or warranty an undivided interest in such
Letter of Credit, effective simultaneously with the issuance thereof,
in an amount equal to such Lender's Percentage of the amount of such
Letter of Credit. For the purposes of this Agreement, the proportionate
interest which the Issuing Lender retains in each Letter of Credit
shall be referred to as its "participation" in such Letter of Credit.
(g) If the Issuing Lender shall fail to be reimbursed pursuant
to Section 2.2(c) by Borrower (or from the proceeds of a Loan pursuant
to the last sentence of such subsection (c)) for any payment or
disbursement under a Letter of Credit or L/C Draft, each other Lender
shall, promptly upon request of the Issuing Lender, provide the Agent
with immediately available funds for the account of the Issuing Lender
an amount equal to such Lender's Percentage of such payment or
disbursement. If the Agent or the Issuing Lender subsequently receives
from Borrower any reimbursement of such payment or disbursement, the
Agent or the Issuing Lender, as the case may be, shall promptly remit
to each Lender its Percentage of such reimbursement. All interest
payments received by the Issuing Lender or the Agent on account of
reimbursements under this Agreement shall be promptly distributed by
the Issuing Lender or the Agent, as the case may be, to the other
Lenders pro rata according to their respective Percentages (except to
the extent that the Issuing Lender was not promptly reimbursed by any
such Lender).
(h) The obligation of each Lender to provide the Agent with
such Lender's pro rata share of the amount of any payment or
disbursement made by the Issuing Lender under any outstanding Letter of
Credit or L/C Draft shall be absolute and unconditional under any and
all circumstances and irrespective of any setoff, counterclaim or
defense to payment which such Lender may have or have had against the
Issuing Lender (or any other Lender), including, without limitation,
any defense based on the failure of the demand for payment under such
Letter of Credit to conform to the terms of such Letter of Credit, the
legality, validity, regularity or enforceability of such Letter
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of Credit, or the identity of the transferee of such Letter of Credit
or the sufficiency of any transfer if such Letter of Credit is
transferable; provided, however, that the Lenders shall not be
obligated to reimburse the Issuing Lender for any wrongful payment or
disbursement made under any Letter of Credit as a result of acts or
omissions constituting gross negligence or willful misconduct on the
part of the Issuing Lender or any of its officers, employees or agents.
(i) In determining whether to make any payment under or
pursuant to any Letter of Credit or any related L/C Draft, the Issuing
Lender shall have no obligation to Borrower, any Lender or any other
Person other than to confirm that any documents required to be
delivered have been delivered and that such documents comply on their
face with the requirements of such Letter of Credit. No action taken or
omitted by the Issuing Lender under or in connection with any Letter of
Credit or L/C Draft, if taken or omitted in the absence of gross
negligence or willful misconduct, shall put the Issuing Lender under
any resulting liability to Borrower or any Lender.
(j) If any Lender shall request, the Issuing Lender shall send
a notice of its intention not to renew the Stock Purchase L/C to the
beneficiary thereunder.
2.3 Loan Accounts; Demand Deposit Account. The Agent shall establish or
cause to be established on its books in Borrower's name one or more accounts
(each a "Loan Account") to evidence Loans made to Borrower. The Agent will
credit or cause to be credited to a commercial account ("Demand Deposit
Account") maintained by Borrower at the Agent's 231 South LaSalle Street,
Chicago, Illinois office the amount of any sums advanced as Loans hereunder. Any
amounts advanced as Loans hereunder which are credited to Borrower's Demand
Deposit Account, together with any other amounts advanced to Borrower as a Loan
pursuant to this Agreement, will be debited to the applicable Loan Accounts and
result in an increase in the principal balance outstanding in such Loan Accounts
in the amount thereof.
2.4 Interest and Fees.
2.4.1 Interest. The outstanding principal balance of the Loans
and other Liabilities of Borrower hereunder shall bear interest until
paid at the rate(s) indicated in Supplement A hereto. Interest accruing
on all Loans and other
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Liabilities shall be the obligation of Borrower and shall be paid on
the date(s) specified in Supplement A.
2.4.2 Nonuse Fee. Borrower agrees to pay to the Agent for the
account of the Lenders, pro rata according to their respective
Percentages, a fee equal to (0.375%) per annum on the daily average
amount by which the Revolving Credit Amount exceeds the sum of (i) the
outstanding aggregate principal balance of the Loans plus (ii) the
Letter of Credit Obligations. The fee provided for in this Section
2.4.2 shall be payable quarterly, in arrears, on the last day of each
March, June, September and December, and on the date the Revolving
Credit terminates for the quarter (or portion thereof) then ended.
2.4.3 Closing Fee. On the Closing Date, Borrower agrees to pay
to the Agent for the account of each Lender a closing fee equal to
one-quarter of one percent (0.25%) of the difference between such
Lender's Commitment and such Lender's Percentage of $10,000,000. With
the Agent's consent, the amount of any closing fee due on the Closing
Date may be advanced to Borrower as a Revolving Loan.
2.4.4 Agent's Fees. Borrower shall pay the Agent for its own
account an annual agency fee equal to $35,000, payable in advance, on
the Closing Date and on each anniversary thereof as long as any credit
is available or outstanding under this Agreement.
2.4.5 Method of Calculating Interest and Fees. Interest on the
unpaid principal amount of each Loan shall accrue from and including
the date such Loan is made to, but not including, the date such Loan is
paid. Interest and any fee shall be calculated on the basis of a year
consisting of 360 days and paid for actual days elapsed.
2.4.6 Payment of Interest and Fees. The Agent may provide for
the payment of any unpaid accrued interest and any fees by charging the
Demand Deposit Account or any other bank account maintained by Borrower
with Agent. Agent shall make reasonable efforts to notify Borrower of
the amount of such payment promptly after charging any such account.
All fees hereunder shall be non-refundable when paid.
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2.5 Requests for Loans; Borrowing Base Certificates; Other Information
Concerning the Selection of Interest Rates and Funding of Loans.
(a) Except for Overdraft Loans made pursuant to the provisions
of Section 2.7, and Revolving Loans made pursuant to the provisions of
Section 2.2(b), 2.2(c), 2.2(e), 3.2(c), 5.5, 5.6, 5.22, 7.4, 12.3, or
12.4, each Loan shall be made on notice, given by the Borrower to the
Agent not later than 11:00 A.M. (Chicago time) if requesting a
Eurodollar Rate Loan on the third Banking Day prior to the date of the
proposed Loan or, if requesting a Reference Rate Loan, on the Banking
Day prior to the date of the proposed Loan. Borrower shall repay or
convert each Eurodollar Rate Loan at the end of an Interest Period with
respect to such Eurodollar Rate Loan. Each notice of a borrowing shall
be confirmed immediately in writing in the form of Exhibit F attached
hereto ("Notice of Borrowing"), specifying therein the requested (i)
date of such Loan, (ii) type of Loan, (iii) amount of such Loan, and
(iv) if requesting a Eurodollar Rate Loan, the Interest Period for such
Loan. Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any borrowing of a Eurodollar Rate Loan, the
Borrower shall indemnify the Lenders against any loss, reasonable cost
or expense incurred by any Lender as a result of any failure to fulfill
on or before the date specified in the applicable Notice of Borrowing
the applicable conditions set forth in Section 8.2 including, without
limitation, any loss (including loss of anticipated profits of which
any Lender shall supply to Borrower reasonable calculations), cost or
expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund the Loan to be
made as a part of such borrowing when such Loan, as result of such
failure, is not made on such date.
(b) Upon the Agent's receipt of a Notice of Borrowing, the
Agent shall promptly (but in any event on the same day on which such
notice is received) notify each Lender of the applicable interest rate
selected by Borrower under subsection 2.5(e). The Agent shall give each
Lender notice of each request for each new Loan in writing or by
telephone. Each Lender shall, before 11:00 A.M. (Chicago time) on the
date of such requested Loan, make available for the account of its
Applicable Lending Office to the Agent, in federal or other immediately
available funds, such Lender's Percentage of such requested Loan. After
the Agent's receipt of such funds or the
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Agent is satisfied that such funds are forthcoming from the Lenders,
and upon fulfillment of the application conditions set forth herein,
the Agent will make such funds available to the Borrower at the Agent's
aforesaid address. However, notwithstanding anything in this subsection
to the contrary:
(i) if any Lender shall, at least one Banking Day
before the date of any requested Loan, notify the Agent that
the introduction of any change in or in the interpretation of
any law or regulation makes it unlawful, or that any central
bank or other governmental authority assets that is unlawful,
for such Bank or its Eurodollar Lending Office to perform its
obligations hereunder to make or fund Eurodollar Rate Loans
hereunder, the right of the Borrower to select Eurodollar Rate
Loans shall be suspended until such Lender shall notify the
Agent that circumstances causing such suspension no longer
exist, and each subsequent Loan shall be made at the Reference
Rate; and
(ii) if the Agent is unable, after reasonable
efforts, due to prevailing market conditions, to provide
timely information for the determination of the Eurodollar
Rate, or is otherwise unable to determine the Eurodollar Rate
at any time, for Eurodollar Rate Loans, the right of the
Borrower to select the Eurodollar Rate for any subsequent
Loans shall be suspended until the Agent shall notify the
Borrower and the Lenders that the circumstances causing such
suspension no longer exist.
(c) In the event that Borrower shall at any time, or from time
to time, (i) make a request for a Loan hereunder or (ii) be deemed to
have requested an Overdraft Loan, Borrower agrees to forthwith provide
the Agent with such information, at such frequency and in such format,
as is reasonably required by the Agent, such information to be current
as of the time of such request.
(d) Borrower further agrees to provide to the Agent a current
Borrowing Base Certificate for each week no later than Wednesday of the
immediately succeeding week and at such other times as the Agent or the
Required Lenders may request. Such Borrowing Base Certificate shall be
in substantially the same form as that attached hereto as Exhibit A,
executed and certified as accurate by such officers or employees of
Borrower
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as Borrower designates in writing to the Agent and each Lender pursuant
to duly adopted resolutions of Borrower's Board of Directors
authorizing such action.
(e) Borrower shall provide the Agent with documentation
satisfactory to the Agent indicating the names of those employees of
Borrower authorized by Borrower to sign Borrowing Base Certificates
and/or to make telephonic requests for Loans, and/or to authorize
disbursement of the proceeds of Loans by wire transfer or otherwise,
and the Agent shall be entitled to rely upon such documentation until
notified in writing by Borrower of any change(s) in the names of the
employees so authorized. The Agent shall be entitled to act on the
instructions of anyone identifying himself as one of the persons
authorized to request Loans or disbursements of Loan proceeds by
telephone and Borrower shall be bound thereby in the same manner as if
the person were actually so authorized. Borrower agrees to indemnify
and hold the Agent and each Lender harmless from any and all claims,
damages, liabilities, losses, costs and expenses (including Attorneys'
Fees) which may arise or be created by the acceptance of instructions
for making or paying Loans by wire transfer or telephone.
(f) Unless the Agent shall have received notice from a Lender
prior to the date of any Loan that such Lender will not make available
to the Agent such Lender's ratable portion of such Loan, the Agent may
assume that such Lender's portion available to the Agent on the date of
such Loan in accordance with subsection (f) and the Agent may, in
reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Lender
shall not have so made such ratable portion available to the Agent,
such Lender and the Borrower severally agree 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 Borrower until the date such amount is repaid to the Agent, at (i)
in the case of the Borrower, the interest rate applicable at the time
to such Loans and (ii) in the case of such Lender, the Federal Funds
Rate. If such Lender shall repay to the Agent such corresponding
amount, such amount so repaid shall constitute such Lender's advance as
a part of such Loan for purposes of this Agreement.
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(i) The failure of any Lender to make the advance to be made
by it as part of any Borrowing shall not relieve any other Lender of
its obligation, if any, hereunder to make its advance on the date of
such Loan, but no Lender shall be responsible for the failure of any
other Lender to make the advance to be made by such other Lender on the
date of any Loan. Nothing contained in this Section 2.5 shall be
construed to limit the liability of any Lender to the Borrower for such
Lender's default in its obligations hereunder.
2.6 Notes. Except to the extent a Loan may, at the request of any
Lender, be evidenced by a Note, all Loans and payments hereunder shall be
recorded on Agent's books, which shall be rebuttably presumptive evidence of the
amount of such Loans outstanding at any time hereunder. Agent will account
monthly as to all Loans and payments hereunder and each monthly accounting will
be fully binding on Borrower unless, within fifteen (15) Banking Days of receipt
thereof by Borrower, Borrower shall provide Agent with a specific listing of
exceptions. Notwithstanding any term or condition of this Agreement to the
contrary, however, the failure of Agent to record the date and amount of any
Loan hereunder shall not limit or otherwise affect the obligations of Borrower
to repay any such Loan.
2.7 Overdraft Loans. Subject to Section 2.1 (including, without
limitation, the restrictions on aggregate principal amount of Revolving Loans
outstanding) and unless the Required Lenders have otherwise instructed the Agent
in writing, the Agent, in its discretion, may (but shall not be required to) on
behalf of the Lenders, make a Revolving Loan to Borrower in an amount equal to
the amount of any overdraft which may from time to time exist with respect to
the Demand Deposit Account or any other bank account which Borrower may now or
hereafter have with the Agent; provided, however, the Agent shall not make any
such Loan without the prior consent, promptly confirmed in writing, of all
Lenders at any time the Agent has actual knowledge of Borrower's inability or
failure to satisfy the conditions set forth in Section 8.2. The existence of any
such overdraft shall be deemed to be a request by Borrower for such Loan.
Borrower acknowledges that the Agent and the Lenders are under no duty or
obligation to make any Loan to Borrower to cover any overdraft. Borrower further
agrees that an overdraft shall constitute a separate Loan under this Agreement
(an "Overdraft Loan"), which shall bear, from the date on which the overdraft
occurred until paid, interest in an amount equal to the greater of 130% of the
highest rate of interest then charged for Loans (other than Overdraft Loans)
made hereunder, and $50.00 per day. If the
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Agent, in its sole and absolute discretion, decides not to make Loans on behalf
of the Lenders to cover part or all of any overdraft, the Agent may return any
check(s) which created such overdraft and Agent shall make reasonable efforts to
notify Borrower of the return of such check(s).
2.8 Over Advances. Unless the Required Lenders have otherwise agreed,
the Agent may not make Revolving Loans to Borrower in amounts which cause the
outstanding principal balance of the Revolving Loans to exceed the Revolving
Loan Availability or otherwise permit the outstanding principal balance of the
Revolving Loans to at any time exceed the Revolving Loan Availability (such
excess Liabilities are herein referred to as "Over Advances"); provided,
however, if the Required Lenders consent to the making of an Over Advance, the
Agent may, on behalf of the Lenders, make such Over Advance at the request of
Borrower, provided that such Over Advance is not outstanding for more than 60
consecutive days and does not exceed in the aggregate an amount equal to the
lesser of (i) 10% of the Borrowing Base at such time or (ii) $3,000,000. If an
Over Advance is created as a result of a reduction of the Borrowing Base, the
Agent may, in its discretion, on behalf of the Lenders, make Over Advances for
two (2) Banking Days after the date of determination that a reduction in the
Borrowing Base has created the Over Advance. Such Over Advances shall not exceed
in the aggregate at any time outstanding an amount equal to the lesser of (i)
the difference between (a) the Borrowing Base in effect immediately prior to
such Over Advance and (b) the Borrowing Base after such reduction or (ii)
$3,000,000. Any Over Advance shall bear interest at a rate equal to 130% of the
highest rate of interest then charged for Loans made hereunder.
2.9 Limitation on Overdraft Loans and Over Advances. The Agent shall
not be deemed to have violated Sections 2.7 and 2.8 if (a) at the time of
permitting the applicable Overdraft Loan(s) or Over Advance(s) the Agent had a
reasonable good faith belief that no Overdraft Loan or Over Advance would result
therefrom, or (b) the applicable Over Advance results from a fluctuation in the
value of Collateral used to determine the Borrowing Base or from a determination
by the Agent or the Required Lenders that certain Collateral should be excluded
from eligibility.
2.10 Making of Payments; Application of Collections; Charging of
Accounts.
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(a) All payments hereunder (including payment of
reimbursement obligations and payments with respect to any Notes) shall
be made without set-off or counterclaim and shall be made to the Agent,
for the account of the Agent, the Lenders or the Issuing Lender, as
provided for herein, in immediately available funds (except as the
Required Lenders may otherwise consent) prior to 12:30 p.m., Chicago
time, on the date due at its office at 231 South LaSalle Street,
Chicago, Illinois 60697, or at such other place as may be designated by
the Agent to Borrower in writing. Any payments received after such time
shall be deemed received on the next Banking Day (except to the extent
provided, and for the purpose, set forth, in the last sentence of
subsection (b) below). Whenever any payment to be made hereunder or
under any Note shall be stated to be due on a date other than a Banking
Day, such payment may be made on the next succeeding Banking Day, and
such extension of time shall be included in the calculation of interest
and any fees.
(b) Borrower authorizes the Agent, and the Agent will,
subject to the provisions of this subsection (b), apply the whole or
any part of any amounts received by the Agent (whether deposited in the
Assignee Deposit Account of Borrower or otherwise received by the
Agent) from the collection of items of payment and proceeds of any
Collateral or Third Party Collateral, against the principal and/or
interest of any Loans made hereunder and/or any other Liabilities in
the following order of application, subject to Section 7.2, first, to
payment of amounts then due with respect to fees (including Attorneys'
Fees), charges and expenses for which Borrower is liable pursuant to
this Agreement and the Related Agreements; second, to payment of
amounts then due with respect to interest on the Stock Purchase Loans;
third, to payment of amounts then due with respect to interest on the
Revolving Loans; fourth, to payment of amounts then due with respect to
principal of the Stock Purchase Loans; fifth, to payment of amounts
then due with respect to principal of the Revolving Loans; and sixth,
only in the case of application of proceeds of Collateral and if no
other Liabilities are outstanding, to cash collateralize, to the
Agent's satisfaction, any Letter of Credit Obligations; provided,
further, that no checks, drafts or other instruments received by the
Agent shall constitute final payment to the Agent for the accounts of
the Lenders unless and until such item of payment has actually been
collected. Following the occurrence and during the continuance of an
Event of Default, the Agent shall apply all amounts received from or on
account
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of Borrower, or from any proceeds of Collateral or Third Party
Collateral, to the Liabilities in such order as the Lenders shall
agree. All items or amounts which are delivered to the Agent by or on
behalf of Borrower or any Obligor or any Account Debtor on account of
partial or full payment or otherwise as proceeds of any of the
Collateral or Third Party Collateral (including any items or amounts
which may have been deposited to the Assignee Deposit Account) may from
time to time in the Agent's discretion (unless the Required Lenders
have directed the Agent otherwise), be released to Borrower or may be
applied by the Agent towards payment of the Liabilities, whether or not
then due as provided in the preceding sentence. Notwithstanding
anything to the contrary herein, (i) all cash, checks, instruments and
other items of payment, solely for purposes of determining the
occurrence of an Event of Default, shall be deemed received upon actual
receipt by the Agent, unless the same is subsequently dishonored for
any reason whatsoever, (ii) for purposes of determining whether, under
Sections 2.1 and 2.2, there is availability for Loans or Letters of
Credit, all cash, checks, instruments and other items of payment shall
be applied against the Liabilities on the first Banking Day after
receipt thereof by the Agent and (iii) solely for purposes of interest
calculation hereunder, all cash, checks, instruments and other items of
payment shall be deemed to have been applied against the Liabilities on
the second Banking Day after receipt by the Agent of available funds
with respect thereto.
(c) Borrower hereby authorizes the Agent, and the Agent may,
in its discretion, charge to Borrower at any time when due all or any
portion of any of the Liabilities (and interest, if any, thereon),
including but not limited to any Attorneys' Fees and other costs and
expenses of the Agent and any Lender for which Borrower is liable
pursuant to the terms of this Agreement or any Related Agreement, by
charging Borrower's Demand Deposit Account or any other bank account of
Borrower with the Agent; provided, however that the provisions of this
Section 2.10(c) shall not affect Borrower's obligation to pay when due
all amounts payable by Borrower under this Agreement, any Note or any
Related Agreement, whether or not there are sufficient funds therefor
in the Demand Deposit Account or any such other bank account of
Borrower. The Agent shall make reasonable efforts to notify Borrower of
its charging any such account promptly after taking such action.
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2.11 Agent's Periodic Settlements With Lenders.
2.11.1 Settlements for Principal of Revolving Loans, Overdraft
Loans, Over Advances and Unreimbursed Disbursements under Letters of
Credit.
(a) The Agent and the Lenders acknowledge and agree
that the Agent may from time to time, pursuant to the
provisions of this Agreement or any Related Agreement, advance
Revolving Loans, Overdraft Loans and Over Advances to
Borrower, and receive payments of Revolving Loans, Overdraft
Loans and Over Advances from Borrower, on a non-pro-rata basis
pending the occurrence of a Settlement Date. Each such advance
shall be credited, and each such payment shall be debited, to
Continental's Loan Account, and each of the Lenders agrees
that to the extent that Continental's resulting pro rata share
of the outstanding principal amount of all Revolving Loans,
Overdraft Loans and Over Advances is greater than or less than
Continental's Percentage of such principal amount, each other
Lender shall be deemed to have purchased a participation
interest in Continental's Revolving Loans, Overdraft Loans and
Over Advances, or Continental shall be deemed to have
purchased a participation interest in each other Lender's
Revolving Loans, Overdraft Loans and Over Advances, as
appropriate, in an amount which will cause each Lender's
percentage (including both direct and participation interests)
of the outstanding principal amount of all Revolving Loans,
Overdraft Loans and Over Advances to be equal, in each case,
to such Lender's Percentage; provided, however, that (i) no
Lender shall be obligated to remit any funds to any other
Lender in respect of the purchase of a participation interest
pursuant to this sentence until the occurrence of a Settlement
Date and (ii) notwithstanding any such purchase of a
participation interest, each Lender shall receive interest on
its Revolving Loans, Overdraft Loans and Over Advances at the
appropriate rate provided in Supplement A based upon the
amount of funds required to be remitted to the Agent under
Section 2.11.1(b) from time to time.
(b) On each Settlement Date, the Agent shall deliver
a report (each a "Report") to each Lender setting forth, among
other things, the outstanding principal amount of
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all Revolving Loans, Overdraft Loans and Over Advances and the
amount of all unreimbursed payments made by the Issuing Bank
under any Letters of Credit (collectively the "Outstanding
Revolving Credit Liabilities"), in each case as of the close
of business on the preceding Banking Day (or, if the Agent or
any Lender shall so request with respect to any Settlement
Date described in clause (ii) or (iii) of the definition of
"Settlement Date" in subsection (c) below, as of a specified
time prior to noon on such Settlement Date). Concurrently with
or promptly after delivery of each such Report, each Lender
shall remit to the Agent (for the account of Continental
and/or the Issuing Bank) or the Agent shall remit to each
Lender (on behalf of Continental and/or the Issuing Bank), as
appropriate, the amount necessary to cause each Lender's
Percentage of all Outstanding Revolving Credit Liabilities to
be equal to such Lender's Percentage.
(c) For purposes of this Agreement, a "Settlement Date" shall
be each of (i) the first Banking Day following the occurrence of any
Calculation Date (as defined below), (ii) any Banking Day on which, as
of the close of the Agent's business on the immediately preceding
Banking Day (or, if the Agent or any Lender shall so request, as of a
specified time prior to noon on such Banking Day), the Outstanding
Revolving Credit Liabilities are more than $5,000,000 more or less than
such sum as shown on the Report prepared by the Agent with respect to
the immediately preceding Settlement Date, and (iii) any other Banking
Day designated by the Agent or any Lender. For purposes of the
foregoing, a "Calculation Date" shall be Thursday of each week (or, if
any such day is not a Banking Day, the immediately preceding Banking
Day).
2.11.2 Settlements for Principal of Stock Repurchase Loans,
Interest and Fees. Promptly (and in any event no later than noon on the
next Banking Day) upon receipt of any payment of principal of the Stock
Purchase Loans, any interest on any Loans or any fees payable
hereunder, the Agent shall remit to each Lender its share of such
payment received in collected funds by the Agent.
2.11.3 Late Remittances. Without limitation of any Lender's
right to receive interest on its Revolving Loans,
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Overdraft Loans and Over Advances as provided herein, if the Agent or
any Lender shall fail to make full payment when due of any amount
required to be remitted pursuant to Section 2.11.1 or 2.11.2, the party
failing to make such payment shall, upon demand by the party entitled
to receive such payment, pay such amount together with interest thereon
at the "Federal Funds Rate". The "Federal Funds Rate" means for any day
the weighted average of the rates on overnight Federal Funds
transactions, with members of the Federal Reserve System, arranged by
Federal Funds brokers applicable to Federal Funds transactions on that
date. The Federal Funds Rate shall be determined by the Agent on the
basis of reports by Federal Funds brokers to, and published daily by,
the Federal Reserve Bank of New York in the Composite Closing
Quotations for U.S. Government Securities. If such publication is
unavailable or the Federal Funds Rate is not set forth therein, the
Federal Funds Rate shall be determined on the basis of any other source
reasonably selected by the Agent. In the case of a Saturday, Sunday or
legal holiday on which banking institutions in Chicago, Illinois are
not required to be open, the Federal Funds Rate shall be the rate
applicable to Federal Funds transactions on the immediately preceding
day for which the Federal Funds Rate is reported.
2.12 Reaffirmation. Each Loan or any Letter of Credit requested by
Borrower pursuant to this Agreement shall constitute an automatic certification
by Borrower to the Agent and each Lender that (i) all of the representations and
warranties of Borrower in this Agreement and each of the Related Agreements are
true and correct on the date of such request to the same extent as if made on
such date, except for such changes as are specifically permitted hereunder (or
under such Related Agreement) and (ii) immediately before and after making the
requested Loan or issuing the requested Letter of Credit, no Event of Default,
or Unmatured Event of Default, then exists or would result therefrom.
2.13 Setoff. In addition to and not in limitation of all other rights
and remedies (including other rights of offset or banker's lien) that any Lender
or any other holder of any Note may have under applicable law, each Lender or
such other holder shall, upon the occurrence of any Event of Default described
in Section 6.1, or any Unmatured Event of Default described in Section 6.1(e),
have the right to appropriate and apply to the payment of the Liabilities
(whether or not then due), in such order of application as Lender or such other
holder may elect, any and all
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balances, credits, deposits (general or special, time or demand, provisional or
final), accounts or moneys of Borrower then or thereafter with such Lender or
such other holder. Such Lender or such other holder shall use reasonable efforts
to notify Borrower of such actions promptly after the occurrence of either of
the foregoing; provided, however, that the failure to give such notice shall not
affect the validity of such actions.
2.14 Pro Rata Treatment. Subject to the various provisions of this
Agreement and the Related Agreements that permit the Agent to make Loans and
receive payments for the account of Continental on a non-pro rata basis pending
the occurrence of a Settlement Date and that permit the Issuing Bank to receive
payment of reimbursement obligations under Letters of Credit, (a) all borrowings
and repayments shall be effected so that after giving effect thereto all Loans,
and all participations in Letters of Credit, shall be pro rata among the Lenders
according to their respective Percentages and (b) if any Lender shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff, banker's lien or otherwise) on account of any Loan or any participation
interest in a Letter of Credit in excess of its pro rata share of payments then
or therewith obtained by all Lenders, such Lender shall purchase from the other
Lenders such participations in the Loans or participation interests held by such
other Lenders as shall be necessary to cause such purchasing Lender to share the
excess payment or other recovery ratably with each of such other Lenders;
provided, however, that if all or any portion of the excess payment or other
recovery is thereafter recovered from such purchasing Lender, the purchase shall
be rescinded and each Lender which has sold a participation to the purchasing
Lender shall repay to the purchasing Lender the purchase price to the ratable
extent of such recovery. Borrower agrees that any Lender purchasing a
participation from another Lender pursuant to this Section may, to the fullest
extent permitted by law, exercise all its rights of payment with respect to such
participation as fully as if such Lender were a direct creditor of Borrower in
the amount of such participation. If under any applicable bankruptcy, insolvency
or other similar law, any Lender receives a secured claim in lieu of a setoff to
which this Section applies, such Lender shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the other Lenders entitled under this Section to share in the
benefits of any recovery on such secured claim.
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2.15 All Loans Equally Secured. The Revolving Loans, the Stock Purchase
Loans and all other Loans under this Agreement, and all other Liabilities of
Borrower to the Agent, the Issuing Lender or any Lender under this Agreement and
any of the Related Agreements, shall be secured by the Agent's Lien on all of
the Collateral and Third Party Collateral and by all other Liens heretofore,
now, or at any time or times hereafter granted by Borrower or any other Obligor
to the Agent or any Lender. Borrower agrees that all of the rights of the Agent
and the Lenders set forth in this Agreement shall apply to any modification,
amendment or restatement of, or supplement to, this Agreement, any Supplements
or Exhibits hereto, and the Related Agreements, unless otherwise agreed in
writing.
2.16 Intentionally Omitted.
2.17 Taxes and Increased Costs Related to Eurodollar Rate Loans.
(a) With respect to the Eurodollar Rate Loans, if any Lender
shall determine in good faith that any Change in Law shall:
(i) impose, modify or deem applicable any reserve,
special deposit or similar requirements against assets held
by, or deposits in or for the account of, or loans by, or any
other acquisition of funds or disbursements by, such Lender;
(ii) subjects such Lender, any of the Eurodollar Rate
Loans or any Notes to any tax (including, without limitation,
any United States interest equalization tax or similar tax
however named applicable to the acquisition or holding of debt
obligations and any interest or penalties with respect
thereto), duty, charge, stamp tax, fee, deduction or
withholding in respect of this Agreement, any Eurodollar Rate
Loans or any Notes except such taxes as may be measured by
such Lender's overall net income or that of such Lender's
lending branch and imposed by the jurisdiction, or any
political subdivision or taxing authority thereof, in which
the Lender's principal executive office or such Lender's
lending branch is located;
(iii) change the basis of taxation of payments of
principal and interest due from the Borrower to such
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Lender or under any Note (other than by a change in taxation
of such Lender's overall net income); or
(iv) impose on such Lender any penalty with respect
to the foregoing or any other condition regarding this
Agreement, its disbursement, any Eurodollar Rate Loans or any
Note;
and such Lender shall determine that the result of
any of the foregoing is to increase the cost (whether
by incurring a cost or adding to a cost) to such
Lender of making or maintaining any Eurodollar Rate
Loans hereunder or to reduce the amount of principal
or interest received by such Lender, and that such
Lender shall not be fully compensated for such
increased cost or reduced amount received by such
Lender by the adjustment of the reserve percentage or
assessment rate included in the determination of the
Eurodollar Rate, then the Borrower shall pay to such
Lender from time to time as specified by such Lender
such additional amounts as such Lender shall
determine are sufficient to compensate and indemnify
such Lender for such increased cost or reduced
amount. If such Lender makes such a claim for
compensation, such Lender shall provide to the
Borrower a certificate setting forth such increased
cost or reduced amount in reasonable detail
(including an explanation of the basis for and the
computation for such increased cost or reduced
amount) as a result of any event mentioned herein and
such certificate shall be conclusive and binding on
the Borrower as to the amount thereof except in the
case of manifest error.
(b) Without limiting the effect of subsection (a) above, in
the event that any Change in Law (i) increases the cost (whether by
incurring a cost or adding to a cost) of creating or maintaining any
Eurodollar Rate Loans hereunder based on or measured by the excess
above a specified level of the amount of a category or deposits or
other liabilities of any Lender which includes deposits by reference to
which the interest rate on such Eurodollar Rate Loans is based or
determined or a category of extensions of credit or other assets of
such Lender which includes such Eurodollar Rate Loans, or (ii) subjects
such Lender to restrictions on the amount of such a category of
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liabilities or assets which such Lender may hold, then, if such Lender
so elects by notice to the Borrower, such Lender's obligation to
increase or effect by conversion any affected Eurodollar Rate Loans
hereunder shall be suspended until such Change in Law ceases to be in
effect. Upon the giving of such notice to the Borrower, such Eurodollar
Rate Loans shall automatically be converted to Reference Rate Advances.
The Lenders may, at their option, elect to make, fund or maintain any
Loans hereunder at the branch or office specified herein or such other
of its branches or offices as the Lenders may from time to time elect;
provided, however, that any such election changing such branch or
office does not result in increased costs to the Lenders for which the
Borrower is liable to compensate the Lenders under this Section 2.17.
3. COLLATERAL.
3.1 Grant of Security Interest. Borrower hereby reaffirms the grant of
the security interest granted to Continental under the First Restated Agreement
and as security for the payment of all Loans now or hereafter made by the
Lenders (or by the Agent on behalf of the Lenders) to Borrower hereunder or
under any Note, and as security for the payment or other satisfaction of all
Liabilities (including, without limitation, all reimbursement obligations under
any Letters of Credit), Borrower hereby grants to Continental in its capacity as
Agent, for the benefit of the Agent, the Issuing Bank and the Lenders, a
security interest in and to the following property of Borrower, whether now
owned or existing, or hereafter acquired or coming into existence, wherever now
or hereafter located (all such property is hereinafter referred to collectively
as the "Collateral"):
(a) Accounts Receivable (whether or not Eligible Accounts
Receivable);
(b) Equipment and Fixtures;
(c) Inventory (whether or not Eligible Inventory);
(d) General Intangibles;
(e) Contract Rights and documents of title;
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(f) All chattel paper and instruments evidencing, arising out
of or relating to any obligation to Borrower for goods sold or leased
or services rendered, or otherwise arising out of or relating to any
property described in subsections (a) through (e) above;
(g) Any and all balances, credits, deposits (general or
special, time or demand, provisional or final), accounts (including
without limitation, the Collection Accounts and Assignee Deposit
Account) or monies of or in the name of Borrower now or hereafter with
the Agent or any Lender and any and all property of every kind or
description of or in the name of Borrower now or hereafter, for any
reason or purpose whatsoever, in the possession or control of, or in
transit to, or standing to Borrower's credit on the books of, the Agent
or any Lender, any agent or bailee for the Agent or any Lender, or any
Participant;
(h) All interest of Borrower in any goods the sale or lease of
which shall have given or shall give rise to, and in all guaranties and
other property securing the payment of or performance under, any
Accounts Receivable, Contract Rights, General Intangibles or any
chattel paper or instruments referred to in subsection (f) above;
(i) Any and all other property of Borrower, of any kind or
description (including but not limited to real estate of Borrower),
subject to a separate mortgage, pledge or security interest in favor of
the Agent or in which the Agent now or hereafter has or acquires a
security interest securing any Liabilities, whether pursuant to a
written agreement or instrument other than this Agreement or otherwise;
(j) All replacements, substitutions, additions or accessions
to or for any of the foregoing;
(k) To the extent related to the property described in
subsections (a) through (j) above, all books, correspondence, credit
files, records, invoices and other papers and documents, including,
without limitation, to the extent so related, all tapes, cards,
computer runs, computer programs and other papers and documents in the
possession or control of Borrower or any computer bureau from time to
time acting for Borrower, and, to the extent so related, all rights in,
to and under all policies
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of insurance, including claims of rights to payments thereunder and
proceeds therefrom, including any credit insurance; and
(l) All products and proceeds (including but not limited to
any Accounts Receivable or other proceeds arising from the sale or
other disposition of any Collateral, any returns of any Equipment or
Inventory sold by Borrower, and the proceeds of any insurance covering
any of the Collateral) of any of the foregoing.
3.2 Accounts Receivable.
(a) If requested by the Agent, Borrower shall advise the Agent
promptly of any Inventory items in excess of $50,000 in aggregate value
which are returned by or repossessed from any Account Debtor, or
otherwise recovered, shall receive such Inventory in trust and, unless
instructed to deliver such Inventory to the Agent, shall resell it for
the Agent, on behalf of the Agent and the Lenders. If requested by the
Agent, Borrower shall notify the Agent immediately of all disputes and
claims by any Account Debtor in excess of $50,000 in aggregate amount.
Unless and until an Event of Default or an Unmatured Event of Default
has occurred and is continuing, Borrower shall be permitted to settle
and/or adjust all disputes regarding Accounts Receivable in accordance
with Borrower's usual business practices. No discount or credit
allowance shall be granted by Borrower to any Account Debtor without
the Agent's prior consent except for discounts, credits, and allowances
made or given in the ordinary course of Borrower's business or of which
written notice has been given to the Agent. All Account Debtor payments
and all net amounts received by the Agent in settlement, adjustment or
liquidation of any Account Receivable shall be applied by the Agent to
the Liabilities, or credited to Borrower's Demand Deposit Account
(subject to collection) as the Agent may deem appropriate and, as more
fully described in Section 2.10. If requested by the Agent, Borrower
will make proper entries in its books and records, disclosing the
assignment of Accounts Receivable to the Agent.
(b) Borrower warrants that: (i) all of the Accounts Receivable
are and will continue to be bona fide existing obligations created by
the sale of goods, the rendering of services, or the furnishing of
other good and sufficient consideration to Account Debtors in the
regular course of
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business; (ii) all shipping or delivery receipts and other documents
furnished or to be furnished to the Agent in connection therewith are
and will be genuine and (iii) none of the Accounts Receivable
identified or included on any schedule, Borrowing Base Certificate or
report as Eligible Accounts Receivable fail at the time so identified
or included to satisfy any of the requirements for eligibility set
forth in the definition of Eligible Accounts Receivable.
(c) The Agent is authorized and empowered (which authorization
and power, being coupled with an interest, is irrevocable until the
last to occur of termination of this Agreement and payment and
performance in full of all of the Liabilities under this Agreement) at
any time in its discretion:
(1) To request, in Borrower's name or the name of a
third party, confirmation from any Account Debtor or party
obligated under or with respect to any Collateral of the
amount shown by the Accounts Receivable or other Collateral to
be payable, or any other matter stated therein;
(2) To endorse in Borrower's name and to collect any
chattel paper, checks, notes, drafts, instruments or other
items of payment tendered to or received by the Agent in
payment of any Account Receivable or other obligation owing to
Borrower;
(3) To notify, either in the Agent's name or
Borrower's name, and/or to require Borrower to notify, any
Account Debtor or other Person obligated under or in respect
of any Collateral, of the fact of the Agent's Lien thereon and
of the collateral assignment thereof to the Agent;
(4) After the occurrence and during the continuance
of an Event of Default or Unmatured Event of Default, to
direct, either in the Agent's name or Borrower's name, and/or
to require Borrower to direct, any Account Debtor or other
Person obligated under or in respect of any Collateral to make
payment directly to the Agent of any amounts due or to become
due thereunder or with respect thereto; and
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(5) After the occurrence of an Event of Default or
Unmatured Event of Default, to demand, collect, surrender,
release or exchange all or any part of any Collateral or any
amounts due thereunder or with respect thereto, or compromise
or extend or renew for any period (whether or not longer than
the initial period) any and all sums which are now or may
hereafter become due or owing upon or with respect to any of
the Collateral, or enforce, by suit or otherwise, payment or
performance of any of the Collateral either in the Agent's own
name or in the name of Borrower.
Under no circumstances shall the Agent be under any duty to act in
regard to any of the foregoing matters. The costs relating to any of
the foregoing matters, including Attorneys' Fees and out-of-pocket
expenses, and the cost of any Assignee Deposit Account or other bank
account or accounts which may be required hereunder, shall be borne
solely by Borrower whether the same are incurred by the Agent or
Borrower, and the Agent may advance same to Borrower as a Revolving
Loan.
(d) Borrower shall deposit all collections of Accounts
Receivables and other proceeds of Collateral directly into one of the
Collection Accounts. Each Collection Account shall be maintained on
terms acceptable to the Agent, and at the Agent's request, subject to a
Blocked Account Agreement in form and substance satisfactory to Agent
("Blocked Account Agreement"), which agreement shall require collected
funds in such Collection Account, on a periodic basis, to be wire
transferred to a special bank account (the "Assignee Deposit Account")
with the Agent or such other bank or financial institution as the Agent
shall consent, over which the Agent alone has power of withdrawal.
Whether or not a Collection Account is subject to a Blocked Account
Agreement, Borrower shall cause all amounts deposited in the Collection
Accounts, once collected, to be directly wire transferred to the
Assignee Deposit Account from time to time as the Agent shall request.
Borrower acknowledges that the maintenance of the Assignee Deposit
Account is solely for the convenience of the Agent in facilitating its
own operations and Borrower does not and shall not have any right,
title or interest in the Assignee Deposit Account or in the amounts at
any time appearing to the credit thereof. Pending such transfer and
deposit into the Assignee Deposit Account, Borrower agrees not to
commingle any such checks, drafts, cash and other remittances with any
of its funds or property, but will hold them separate and apart
therefrom and upon an express
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trust for the Agent until transfer and deposit thereof is made in the
Assignee Deposit Account. Upon the full and final liquidation of all
Liabilities, the Agent will pay over to Borrower any excess amounts
received by the Agent as payment or proceeds of Collateral, whether
received by the Agent as a deposit in the Assignee Deposit Account or
received by the Agent as a direct payment on any of the sums due
hereunder.
(e) Borrower appoints the Agent, or any Person whom the Agent
may from time to time designate, as Borrower's attorney and
agent-in-fact with power: (i) after the occurrence and during the
continuance of an Event of Default, to notify the post office
authorities to change the address for delivery of Borrower's mail to an
address designated by the Agent and to receive, open and dispose of all
mail addressed to Borrower; provided, however, that the Agent shall
make reasonable efforts to forward to Borrower any such mail that does
not relate to this Agreement or the Collateral; (ii) in Borrower's or a
third party's name, to send requests for verification of Accounts
Receivable or other Collateral to Account Debtors; (iii) to open an
escrow account or Assignee Deposit Account under the Agent's sole
control for the collection of Accounts Receivable or other Collateral,
if not required contemporaneously with the execution hereof and (iv) to
do all other things which the Agent is permitted to do under this
Agreement or any Related Agreement or which are necessary to carry out
this Agreement and the Related Agreements. Neither the Agent nor any of
its directors, officers, employees or agents will be liable for any
acts of commission or omission nor for any error in judgment or mistake
of fact or law, unless the same shall have resulted from gross
negligence or willful misconduct. The foregoing appointment and power,
being coupled with an interest, is irrevocable until all Liabilities
under this Agreement are paid and performed in full and this Agreement
is terminated. Borrower expressly waives presentment, demand, notice of
dishonor and protest of all instruments and any other notice to which
it might otherwise be entitled.
(f) If any Account Receivable, Contract Right or General
Intangible of Borrower in excess of $25,000 arises out of a contract
with the United States or any department, agency, or instrumentality
thereof, Borrower will, unless the Agent shall otherwise agree,
immediately notify the Agent in writing and execute any instruments and
take any steps required by the Agent in order that all monies due and
to become due under such
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contract shall be assigned to the Agent and notice thereof given to the
government under the Federal Assignment of Claims Act of 1940, as
amended or other applicable laws or regulations.
(g) If any Account Receivable or Contract Right is evidenced
by chattel paper or promissory notes, trade acceptances, or other
instruments for the payment of money, Borrower will, unless the Agent
shall otherwise agree, deliver the originals of same to the Agent,
appropriately endorsed to the Agent's order and, regardless of the form
of such endorsement, Borrower hereby expressly waives presentment,
demand, notice of dishonor, protest and notice of protest and all other
notices with respect thereto.
3.3 Inventory.
(a) Unless the Agent shall otherwise agree, if Borrower sells
Inventory for cash, all full and partial payments therefor shall be
immediately delivered by Borrower to the Agent in their original form
for deposit in the Assignee Deposit Account or for other application to
reduction of the Liabilities. All such cash shall be held by Borrower
in trust for the Agent and shall be remitted to the Agent not later
than the end of the day received, or at such other time as the Agent
may designate.
(b) Neither the Agent nor any Lender shall be liable or
responsible in any way for the safekeeping of any Inventory delivered
to it, to any bailee appointed by or for it, to any warehouseman, or
under any other circumstances. Neither the Agent nor any Lender shall
be responsible for collection of any proceeds or for losses in
collected proceeds held by Borrower in trust for the Agent. Any and all
risk of loss for any or all of the foregoing shall be upon Borrower,
except for such loss as shall result from the Agent's or the applicable
Lender's gross negligence or willful misconduct.
(c) If and when requested by the Agent, Borrower shall, upon
acquiring an interest in any Inventory, deliver to the Agent schedules
of such Inventory, together with supplier's invoices, warranties,
production, cost and other records as the Agent may request. If
requested by the Agent, Borrower shall deliver to the Agent schedules
of the sale of any Inventory immediately upon its sale. Any material
change in the value or
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condition of any Inventory, and any errors discovered in schedules
delivered to the Agent, shall be reported to the Agent immediately.
Borrower confirms that the warranties and representations in this
Agreement shall apply to each schedule. Borrower represents and
warrants that, as to each schedule of Inventory delivered to the Agent
or any Lender:
(1) The descriptions, origins, sizes, qualities,
quantities, weights, and markings of all goods stated thereon,
or on any attachment thereto, are true and correct in all
material respects;
(2) None of the goods are defective, of second
quality or goods returned after shipment, except where
described as such; and
(3) All Inventory not included on such schedule has
been previously scheduled.
(d) If requested by the Agent, Borrower will notify the Agent
immediately if Borrower obtains possession (by return, repossession or
otherwise) of any Inventory in excess of $50,000 in aggregate value
which has been sold, and will inform the Agent of the identity of the
returned or repossessed Inventory, the applicable Account Debtor and
the amount of the applicable Account Receivable.
3.4 Equipment.
(a) Borrower shall at all times keep the Equipment in good
operating condition and repair, ordinary wear and tear excepted, and
Borrower shall not, without the prior written consent of the Agent,
sell, lease, or otherwise dispose of any Equipment, or any part thereof
or interest therein; provided, however, that without the Agent's
consent (but with notice to the Agent) Borrower may dispose of obsolete
or unuseful Equipment in the ordinary course provided the Equipment
disposed of in a single transaction or a series of transactions in any
Fiscal Year has an aggregate net book value of $50,000 or less.
(b) In the event any of the Equipment of Borrower is sold,
transferred or otherwise disposed of, other than as permitted by
Section 3.4(a), unless the Required Lenders shall agree otherwise, (i)
Borrower shall deliver all of the proceeds
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of any such sale, transfer or disposition to Agent, which proceeds
shall be applied to the repayment of the Liabilities of Borrower in
accordance with the provisions of Section 2.10(b), if such sale,
transfer or disposition is effected without replacement of the
Equipment so sold, transferred or disposed or if such Equipment is
replaced with equipment leased by Borrower as lessee, or (ii) Borrower
shall use the proceeds of such sale, transfer or disposition to finance
the purchase by Borrower of replacement Equipment and shall deliver to
Agent written evidence of the use of the proceeds for such purchase, if
such sale, transfer or disposition is made in connection with the
purchase by Borrower of replacement Equipment. All replacement
Equipment purchased by Borrower shall be free and clear of all liens,
claims, security interests or encumbrances.
(c) Borrower will, upon request of the Agent, submit to the
Agent a current listing of all of Borrower's Equipment, which listing
shall indicate the type, model, serial number and location of such
Equipment.
3.5 Supplemental Documentation. At the Agent's request, Borrower shall
execute and/or deliver to the Agent, at any time or times hereafter, such
agreements, documents, financing statements, warehouse receipts, bills of
lading, notices of assignment of Accounts Receivable, schedules of Accounts
Receivable assigned, and other written matter necessary or reasonably requested
by the Agent to perfect and maintain perfected the Agent's security interest in
the Collateral (all the above hereinafter referred to as "Supplemental
Documentation"), in form and substance acceptable to the Agent, and pay all
taxes, fees and other costs and expenses associated with any recording or filing
of the Supplemental Documentation. Borrower hereby irrevocably makes,
constitutes and appoints the Agent (and all Persons designated by the Agent for
that purpose) as Borrower's true and lawful attorney (and agent-in-fact) (which
appointment and power, being coupled with an interest, is irrevocable until the
last to occur of termination of this Agreement and payment and performance in
full of all of the Liabilities under this Agreement) to sign the name of
Borrower on any of the Supplemental Documentation and to deliver any of the
Supplemental Documentation to such Persons as the Agent in its discretion, may
elect. Borrower agrees that a carbon, photographic, photostatic, or other
reproduction of this Agreement or of a financing statement is sufficient as a
financing statement.
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4. REPRESENTATIONS AND WARRANTIES. To induce each of the Lenders to make Loans
to Borrower and the Issuing Lender to issue any Letters of Credit under this
Agreement, Borrower makes the following representations and warranties, all of
which shall be true and correct as of the Closing Date and shall survive the
execution of this Agreement and the making of the initial Loan or the issuance
of the initial Letter of Credit hereunder. Each request for a Loan hereunder
shall constitute a representation and warranty by Borrower, with the same effect
as a certificate delivered by Borrower in writing, that all of the
representations and warranties made herein (other than representations and
warranties which expressly speak as of a certain date), are true and correct in
all respects, except that the representations and warranties set forth in
Sections 4. 1, 4.7, 4.9, 4.10, 4.11, 4.12, 4.13, 4.15, and 4.16, insofar as they
refer to the accuracy of matters set forth on a Schedule hereto, may be updated
by Borrower by updating such Schedule.
4.1 Organization. Borrower and all of its corporate Subsidiaries are
corporations duly organized, validly existing and in good standing under the
laws of the jurisdictions of their respective incorporation. All of Borrower's
other Subsidiaries, if any, are entities duly organized, validly existing and in
good standing under the laws of the jurisdictions of their respective
organization. Borrower and all of its Subsidiaries are in good standing and are
duly qualified to do business in each jurisdiction where, because of the nature
of their respective activities or properties, such qualification is required,
except as otherwise disclosed on Schedule 4.1. On the date hereof, Borrower and
each Subsidiary conducts business in its own name exclusively. Schedule 4.1 sets
forth a complete and accurate list, as of the date of this Agreement, of (a) the
state or other jurisdiction of formation of Borrower, (b) each state in which
Borrower is qualified to do business and (c) all of Borrower's trade names,
trade styles or doing business forms.
4.2 Authorization. Borrower is duly authorized to execute and deliver
this Agreement, any Note(s), and any Related Agreements or Supplemental
Documentation contemplated by this Agreement, and is and will continue to be
duly authorized to borrow monies hereunder and to perform its obligations under
this Agreement, any Notes and any such Related Agreements and Supplemental
Documentation. The execution, delivery and performance by Borrower of this
Agreement, any Note(s), and any Related Agreements or Supplemental Documentation
contemplated by this Agreement, and the borrowings
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hereunder, do not and will not require any consent or approval of any
governmental agency or authority.
4.3 No Conflicts. The execution, delivery and performance by Borrower
of this Agreement, any Note(s), and any Related Agreements or Supplemental
Documentation contemplated by this Agreement do not and will not conflict with
(i) any provision of law, (ii) the charter or by-laws of Borrower, (iii) any
agreement binding upon Borrower or (iv) any court or administrative order or
decree applicable to Borrower, and do not and will not require, or result in,
the creation or imposition of any Lien on any asset of Borrower or any of its
Subsidiaries except as provided herein.
4.4 Validity and Binding Effect. This Agreement, any Note(s), and any
Related Agreements or Supplemental Documentation contemplated by this Agreement,
when duly executed and delivered will be legal, valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforceability may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the availability
of equitable remedies.
4.5 No Default. Neither Borrower nor any of its Subsidiaries is in
default under any agreement or instrument to which Borrower or any Subsidiary is
a party or by which any of their respective properties or assets is bound or
affected, which default might materially and adversely affect (i) the Agent's
Lien on or rights with respect to any Collateral or Third Party Collateral or
(ii) the financial condition or operations of Borrower, any Subsidiary or
Borrower and its Subsidiaries taken as a whole. No Event of Default or Unmatured
Event of Default has occurred and is continuing.
4.6 Financial Statements. Borrower's audited consolidated and
consolidating financial statement as at December 31, 1993 and Borrower's
unaudited consolidated and consolidating financial statement as at June 30,
1994, copies of which have been furnished to each of the Lenders, have been
prepared in conformity with generally accepted accounting principles applied on
a basis consistent with that of the preceding Fiscal Year and period and present
fairly the financial condition of Borrower and its Subsidiaries as at such dates
and the results of their operations for the periods then ended, subject (in the
case of the interim financial statement) to year-end audit adjustments, which
are not expected to be material in amount. Since December 31, 1993, there
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has been no material adverse change in the financial condition of Borrower, any
Subsidiary or Borrower and its Subsidiaries taken as a whole.
4.7 Insurance. Schedule 4.7 hereto is a complete and accurate summary
of the property and casualty insurance program carried by Borrower and its
Subsidiaries on the date hereof. Schedule 4.7 includes the insurer(s) name(s),
policy number(s), expiration date(s), amount(s) of coverage, type(s) of
coverage, the annual premium(s), Best's policyholder's and financial size
ratings of the insurer(s), exclusions, deductibles and self-insured retention
and describes in detail any retrospective rating plan, fronting arrangement or
any other self-insurance or risk assumption agreed to by Borrower or any
Subsidiary or imposed upon Borrower or any Subsidiary by any such insurer. This
summary also includes any self-insurance program that is in effect.
4.8 Litigation; Contingent Liabilities.
(a) Except for those referred to in a Schedule 4.8, no claims,
litigation, arbitration proceedings or governmental proceedings are
pending or threatened against or are affecting Borrower or any
Subsidiary, the results of which might materially and adversely affect
(i) the financial condition or operations of Borrower, any Subsidiary
or Borrower and its Subsidiaries taken as a whole or (ii) the Agent's
interest in or Lien on any material Collateral or Third Party
Collateral.
(b) Other than any liability incident to the claims,
litigation or proceedings disclosed in Schedule 4.8 or Schedule 4.19,
or provided for or disclosed in the financial statements referred to in
Section 4.6, to the best knowledge of Borrower, neither Borrower nor
any of its Subsidiaries has any contingent liabilities which are
material to Borrower, any Subsidiary or Borrower and its Subsidiaries
taken as a whole.
4.9 Indebtedness; Liens. Except as disclosed on the Financial
Statements provided to the Lenders under Section 4.6, neither Borrower nor any
Subsidiary has any Indebtedness other than the Indebtedness listed on Schedule
5.15. None of the Collateral or other property, revenues or assets of Borrower
or any Subsidiary is subject to any Lien (including but not limited to Liens
pursuant to Capitalized Leases under which Borrower or any Subsidiary is a
lessee) except: (a) Liens in favor of the Agent; (b) Liens for current Taxes not
delinquent or Taxes being contested in good faith
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and by appropriate proceedings and as to which such reserves or other
appropriate provisions as may be required by GAAP are being maintained; (c)
carriers', warehousemen's, mechanics', materialmen's and other like statutory
Liens arising in the ordinary course of business securing obligations which are
not overdue or which are being contested in good faith and by appropriate
proceedings and as to which such reserves or other appropriate provisions as may
be required by GAAP are being maintained; (d) Liens disclosed in the financial
statements referred to in Section 4.6 and (e) Liens listed on Schedule 4.9.
4.10 Subsidiaries. Borrower has no Subsidiaries except as listed on
Schedule 4.10. Schedule 4.10 sets forth, for each Subsidiary, a complete and
accurate statement of (a) Borrower's and each Subsidiary's percentage ownership
of each of their respective Subsidiaries, (b) the state or other jurisdiction of
formation or incorporation of each Subsidiary, (c) each state in which each
Subsidiary is qualified to do business on the date of this Agreement and (d) all
of each Subsidiary's trade names, trade styles or doing business forms on the
date of this Agreement.
4.11 Partnerships; Joint Ventures. Neither Borrower nor any of its
Subsidiaries is a partner or joint venturer in any partnership or joint venture
other than the partnerships and joint ventures listed on Schedule 4.11. Schedule
4.11 sets forth, for each such partnership or joint venture, a complete and
accurate statement of (a) Borrower's and each Subsidiary's percentage ownership
of each such partnership or joint venture, (b) the state or other jurisdiction
of formation or incorporation, as appropriate, of each such partnership or joint
venture, (c) each state in which each such partnership or joint venture is
qualified to do business on the date of this Agreement and (d) all of each such
partnership's or joint venture's trade names, trade styles or doing business
forms on the date of this Agreement.
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4.12 Business and Collateral Locations.
(a) On the date hereof the office where Borrower keeps
Borrower's books and records concerning Borrower's Accounts Receivable
and other Collateral, and Borrower's chief place of business and chief
executive office, is located at the address of Borrower set forth on
the signature pages of this Agreement. Schedule 4.12 contains a
complete and accurate list, as of the date of this Agreement, of (i)
all of Borrower's places of business other than that referred to in the
first sentence of this paragraph (a) and (ii) all locations and places
of business of each Subsidiary.
(b) Schedule 4.12 contains a complete and accurate list, as of
the date of this Agreement, of (i) the locations of all of Borrower's
Inventory, Equipment and Fixtures, (ii) if applicable, the locations of
all Third Party Collateral (except any part thereof which prior to the
execution of this Agreement Borrower shall have advised the Agent in
writing consists of Collateral or Third Party Collateral, as
applicable, normally used in more than one state) and (iii) if any
Inventory, Equipment or other Collateral, or any Third Party Collateral
is not in the possession or control of Borrower or the owner of such
Third Party Collateral, the name and mailing address of each bailee,
processor, warehouseman or other Person in possession or control
thereof.
4.13 Real Property. Schedule 4.13 contains a complete and accurate
list, as of the date of this Agreement, of (a) the address and legal
descriptions of any real property owned by Borrower or on which any Fixtures are
located and (b) in the case of Fixtures located on property not owned by
Borrower, the name(s) and mailing addresses of the record owners of such
property.
4.14 Eligibility of Collateral. Each Account Receivable or, item of
Inventory which Borrower shall, expressly or by implication (by inclusion on a
Borrowing Base Certificate or otherwise), request the Agent to classify as an
Eligible Account Receivable or as Eligible Inventory respectively, will, as of
the time when such request is made, conform in all respects to the requirements
of such classification set forth in the respective definitions of "Eligible
Account Receivable" and "Eligible Inventory" set forth herein.
4.15 Control of Collateral; Lease of Property. Borrower is not now
conducting, or permitting or suffering to be conducted, any
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activities pursuant to or in conjunction with which any of the Collateral is
now, or will be (while any Liabilities exist or this Agreement is in effect), in
the possession or control of, any Subsidiary, Obligor (other than Borrower) or
Related Party. Except for Capitalized Leases included on Schedule 5.15, Schedule
4.15 contains a complete and accurate list (with the exception of vehicle leases
and non-material office equipment) of (a) all leases under which Borrower or a
Subsidiary is the lessee covering any machinery, equipment or real property used
by Borrower or any Subsidiary and (b) the name and mailing address of each
lessor or owner of such machinery, equipment or real property.
4.16 Patents, Trademarks, etc. Borrower and each of its Subsidiaries
possesses adequate assets, licenses, patents, patent applications, copyrights,
trademarks, trademark applications, trade styles, and tradenames to continue to
conduct its respective business as heretofore conducted by it, and all such
licenses, patents, patent applications, copyrights, trademarks, trademark
applications, trade styles, and tradenames existing on the date hereof and, in
the case of patents, trademarks and copyrights, the date of issuance thereof,
are listed on Schedule 4.16.
4.17 Solvency. Borrower and each of its Subsidiaries now has capital
sufficient to carry on its respective business and transactions and all business
and transactions in which it is about to engage, and is now solvent and able to
pay its respective debts as they mature, and Borrower and each of its
Subsidiaries now owns property having a value, both at fair valuation and at
present fair salable value, greater than the amount required to pay Borrower's
or such Subsidiary's debts.
4.18 Contracts; Labor Matters. Except as disclosed on Schedule 4.18:
(a) neither Borrower nor any Subsidiary is a party to any contract or agreement,
or is subject to any charge, corporate restriction, judgment, decree or order,
which materially and adversely affects its business, property, assets,
operations or condition, financial or otherwise; (b) no labor contract to which
Borrower or any Subsidiary is a party or is otherwise subject is scheduled to
expire prior to the initial Termination Date; (c) neither Borrower nor any
Subsidiary has, within the two-year period preceding the date of this Agreement,
taken any action which would have constituted or resulted in a "plant closing"
or "mass layoff" within the meaning of the Federal Worker Adjustment and
Retraining Notification Act of 1988 or any similar applicable federal, state or
local law, and Borrower has no reasonable expectation that any such
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action is or will be required at any time prior to the initial Termination Date
and (d) on the date of this Agreement (i) neither Borrower nor any Subsidiary is
a party to any labor dispute and (ii) there are no strikes or walkouts relating
to any labor contracts to which Borrower or any Subsidiary is a party or is
otherwise subject.
4.19 Pension and Welfare Plans. Each Pension Plan complies in all
material respects with all applicable statutes and governmental rules and
regulations; no Reportable Event has occurred and is continuing with respect to
any Pension Plan; neither Borrower nor any ERISA Affiliate has withdrawn from
any Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" as
defined in Sections 4203 or 4205 of ERISA, respectively; no steps have been
instituted to terminate any Pension Plan; no contribution failure has occurred
with respect to any Pension Plan sufficient to give rise to a Lien under Section
302(f) of ERISA; no condition exists or event or transaction has occurred in
connection with any Pension Plan or Multiemployer Plan which could result in the
incurrence by Borrower, any other Obligor or any ERISA Affiliate of any material
liability, fine or penalty; and neither Borrower nor any other Obligor nor any
ERISA Affiliate is a "contributing sponsor" as defined in Section 4001(a)(13) of
ERISA of a "single-employer plan" as defined in Section 4001(a)(15) of ERISA
which has two or more contributing sponsors at least two of whom are not under
common control. Except as listed in Schedule 4.19, neither Borrower nor any
Subsidiary has any contingent liability with respect to any "employee welfare
benefit plan," as such term is defined in Section 3(1) of ERISA, which covers
retired or terminated employees and their beneficiaries.
4.20 Regulation U; Regulation G. Except to the extent that such actions
would not violate any of the margin regulations of the Federal Reserve Board,
including without limitation, Regulation U and Regulation G, Borrower is not
engaged in the business of purchasing or selling Margin Stock or extending
credit to others for the purpose of purchasing or carrying Margin Stock, and no
part of the proceeds of any borrowing hereunder will be used to purchase or
carry any Margin Stock or for any other purpose.
4.21 Compliance. Except as described on Schedule 4.21 or Schedule 4.25,
Borrower and its Subsidiaries are in compliance with all statutes and
governmental rules and regulations applicable to them noncompliance with which
would materially adversely affect the
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condition, financial or otherwise, or Borrower or any of its Subsidiaries.
4.22 Taxes. Each of Borrower and its Subsidiaries has filed all tax
returns which are required to have been filed and has paid, or made adequate
provisions for the payment of, all of its Taxes which are due and payable,
except such Taxes, if any, as are being contested in good faith and by
appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP have been maintained. The federal income
tax liability of Borrower and its Subsidiaries has been audited by the Internal
Revenue Service and has been finally determined and satisfied (or the time for
audit has expired) for all tax years up to and including the tax year ended
December 31, 1985. Borrower is not aware of any proposed assessment against
Borrower or any of its Subsidiaries for additional Taxes (or any basis for any
such assessment) which might be material to Borrower and its Subsidiaries taken
as a whole.
4.23 Investment Company Act Representation. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of l940, as amended.
4.24 Public Utility Holding Company Act Representation. Borrower is not
a "holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.25 Environmental and Safety and Health Matters. Except as disclosed
on Schedule 4.25, Borrower and each of its Subsidiaries and/or each property,
operations and facility that Borrower or any Subsidiary may own, operate or
control (i) complies in all material respects with (A) all applicable
Environmental Laws and (B) all applicable Occupational Safety and Health Laws;
(ii) is not subject to any judicial or administrative proceeding alleging the
violation of any Environmental Law or
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Occupational Safety and Health Law; (iii) has not received any notice (A) that
it may be in violation of any Environmental Law or Occupational Safety and
Health Law, (B) threatening the commencement of any proceeding relating to
allegedly unlawful, unsafe or unhealthy conditions or (C) alleging that it is or
may be responsible for any response, cleanup, or corrective action, including
but not limited to any remedial investigation/feasibility studies, under any
Environmental Law or Occupational Safety and Health Law; (iv) is not the subject
of federal or state investigation evaluating whether any investigation, remedial
action or other response is needed to respond to (A) a spillage, disposal or
release or threatened release into the environment of any Hazardous Material or
other hazardous, toxic or dangerous waste, substance or constituent, or other
substance or (B) any allegedly unsafe or unhealthful condition; (v) has not
filed any notice under or relating to any Environmental Law or Occupational
Safety and Health Law indicating or reporting (A) any past or present spillage,
disposal or release into the environment of, or treatment, storage or disposal
of, any Hazardous Material or other hazardous, toxic or dangerous waste,
substance or constituent, or other substance or (B) any potentially unsafe or
unhealthful condition, and there exists no basis for such notice irrespective of
whether or not such notice was actually filed and (vi) has no material
contingent liability in connection with (A) any actual or potential spillage,
disposal or release into the environment of, or otherwise with respect to, any
Hazardous Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance, whether on any premises owned or occupied by
Borrower or any Subsidiary or on any other premises or (B) any unsafe or
unhealthful condition. Except as disclosed on Schedule 4.25, there are no
Hazardous Materials on, in or under any property or facilities owned, operated
or controlled by Borrower or any Subsidiary, including but not limited to such
Hazardous Materials that may be contained in underground storage tanks, but
excepting such Hazardous Materials used in accordance with all applicable laws
and in the same manner as an ordinary consumer (e.g., gasoline in tanks of motor
vehicles, small amounts of cosmetic cleaners, etc.). The materiality standard
used in this Section 4.25 shall be exceeded only if the fact or facts giving
rise to a breach of the representation and warranty contained herein might
result in liability in excess of $100,000 in the aggregate.
4.26 Related Agreements. All representations and warranties of Borrower
contained in any Related Agreements are true and correct as if made on the date
hereof and Borrower hereby adopts and affirms all such representations and
warranties which Borrower agrees shall be incorporated by reference herein and
made a part hereof.
4.27 Collection Accounts. Schedule 4.27 contains a list of each deposit
account maintained by Borrower for the collection of Accounts Receivables and
proceeds of other Collateral.
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4.28 Accuracy of Information. All information supplied by Borrower to
the Lenders in writing in connection with this Agreement and the Related
Agreements and the transactions contemplated herein and therein on or before the
date hereof with respect to Borrower and its Subsidiaries is true, complete and
accurate in all material respects; and Borrower does not know of any fact which
it has not disclosed in writing to the Lenders which is material to Borrower or
any Subsidiary or the ability of Borrower or any Subsidiary to perform its
obligations hereunder or under any Related Agreement.
4.29 Title to Properties. Each of Borrower and Subsidiaries has good
and marketable title to its properties reflected on the financial statements
referred to in Section 4.6 or acquired since the date thereof except for such
assets as have been disposed of since the date thereof as no longer used or
useful in the conduct of its business or as have been disposed of in the
ordinary course of business as presently conducted and all such properties are
free and clear of Liens, except for Liens permitted under Section 5.16.
4.30 Creation of Security Interests and Liens. Subject to the next
sentence, there has been created a valid and duly perfected security interest or
Lien in favor of the Agent for the benefit of the Lenders in the Collateral,
which security interest or Lien secures the full amount of the Liabilities. Said
Collateral is subject to no other Liens other than Liens permitted to be
incurred by Borrower under Section 5.16.
4.31 Stock Purchase. Borrower has the authority to purchase its common
stock under its articles of incorporation, by-laws, and all applicable local,
state and federal laws including, but not limited to, laws regulating the
securities markets. Moreover, such purchase(s) of its common stock do not
constitute a fraudulent transfer or conveyance under any applicable state or
federal laws.
4.32 Stock Pledge. Borrower has the authority to receive the pledge of
its common stock referenced in Section 6.1(o) under its articles of
incorporation, by-laws, and all applicable local, state and federal laws
including but not limited to laws regulating the securities markets.
5. BORROWER COVENANTS. From the date of this Agreement and thereafter until the
Credit is terminated and all Liabilities of Borrower hereunder are paid in full,
Borrower agrees that unless the Required Lenders shall otherwise consent in
writing, it will:
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5.1 Financial Statements and Other Reports. Furnish to each Lender (or,
in case of Sections 5.1.2 and 5.1.3, the Agent) in form satisfactory to the
Required Lenders:
5.1.1 Financial Reports.
(a) Annual Audit Report. Within ninety (90) days
after each Fiscal Year of Borrower, a copy of the annual audit
report of Borrower and its Subsidiaries prepared on a
consolidating and consolidated basis and in conformity with
GAAP and certified by an independent certified public
accountant who shall be satisfactory to the Required Lenders,
together with an unqualified opinion thereon and a certificate
from such accountant (i) acknowledging such accountant's
understanding that each Lender is relying on such annual audit
report, (ii) containing a computation of, and showing
compliance with, each of the financial ratios and restrictions
contained in this Section 5 or in Supplement A, and (iii) to
the effect that, in making the examination necessary for the
signing of such annual audit report, such accountant has not
become aware of any Event of Default or Unmatured Event of
Default that has occurred and is continuing, or, if such
accountant has become aware of any such event, describing it
and the steps, if any, Borrower is taking to cure it;
(b) Monthly Financial Statement. Within thirty (30)
days after the end of each month of each Fiscal Year of
Borrower, a copy of the unaudited financial statement of
Borrower and its Subsidiaries prepared in the same manner as
the audit report referred to in preceding subsection (a),
signed by Borrower's chief financial officer and consisting of
at least a balance sheet as at the close of such month and
statements of earnings and cash flows for such month and for
the period from the beginning of such Fiscal Year to the close
of such month; and
(c) Officer's Certificate. Together with the
financial statements furnished by Borrower under the preceding
subsections (a) and (b), a certificate of Borrower's chief
financial officer, dated the date of such annual audit report
or such quarterly or monthly financial statement, as the case
may be, containing a statement that no Event of Default or
Unmatured Event of Default has occurred and is continuing, or,
if there is any such event, describing it
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and the steps, if any, being taken to cure it, and containing
a computation of, and showing compliance with, each of the
financial ratios and restrictions contained in this Section 5
or in Supplement A.
5.1.2 Summary Agings. Within fifteen (15) days after the end
of each month, a summary aging of all Accounts Receivable and a summary
aging of all accounts payable as of the end of such month, together
with a separate and distinct aging of all Accounts Receivable arising
from Borrower's long distance service resale business and identifying
thereon Account Debtors who do not otherwise purchase or lease
equipment or obtain services from Borrower, in each case in form and
content acceptable to Agent and each Lender.
5.1.3 Inventory Summary Certification. Within fifteen (15)
days after the end of each month, an Inventory summary certification
report as of the end of the month for all Inventory locations, in form
and content acceptable to the Agent.
5.1.4 Other Reports.
(a) SEC and Other Reports. Copies of each filing and
report made by Borrower or any Subsidiary with or to any
securities exchange or the Securities and Exchange Commission
and of each communication from Borrower or any Subsidiary to
shareholders generally, promptly upon the filing or making
thereof;
(b) Report of Change Relating to Borrower,
Subsidiaries or Partnerships. Promptly from time to time, a
written report of any change in the information set forth in
Schedule 4.1, Schedule 4.10 or Schedule 4.11 concerning
Borrower, any Subsidiary, or any partnership or joint venture;
(c) Patents, etc. Promptly from time to time, a
written report of any change to the list of patents,
trademarks, copyrights and other information set forth in
Schedule 4.16; and
(d) Other Reports. Any information required to be
provided pursuant to other provisions of this Agreement, and
such other reports or information from time to time reasonably
requested by any Lender.
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5.2 Notices. Notify the Agent (which will promptly notify each Lender)
in writing of any of the following immediately upon learning of the occurrence
thereof (or, in the case of subsections(e) and (f) of this Section 5.2, at least
30 days prior to the occurrence thereof to the extent applicable to the
Borrower, any Subsidiary or any other Obligor), describing the same and, if
applicable, the steps being taken by the Person(s) affected with respect
thereto:
(a) Default. The occurrence of (i) an Event of Default or
Unmatured Event of Default and (ii) to the extent not included in
clause (i) of this subsection 5.2(a), the default by Borrower, any
other Obligor, any Subsidiary or any Related Party under any material
note, indenture, loan agreement, mortgage, lease, deed or other
material similar agreement to which Borrower, any other Obligor, any
Subsidiary or any Related Party, as appropriate, is a party or by which
it is bound;
(b) Litigation. The institution of any, and, to the extent
Borrower has knowledge thereof, the threat of any litigation,
arbitration proceeding or governmental proceeding affecting Borrower,
any other Obligor, any Subsidiary, or any Collateral or any Third Party
Collateral, whether or not considered to be covered by insurance, if
such litigation, arbitration proceeding or other proceeding seeks
damages in excess of $500,000 or which, if decided adversely to
Borrower, has any possibility of having a materially adverse affect on
the financial condition or operations of Borrower or any Subsidiary or
Borrower's or such Subsidiary's ability to pay the Liabilities or to
perform its obligations hereunder or under any Related Agreement.
(c) Judgment. The entry of any judgment or decree against
Borrower, any other Obligor, any Subsidiary or any Related Party, if
the amount of such judgment exceeds $100,000;
(d) Pension Plans and Welfare Plans. The occurrence of a
Reportable Event with respect to any Pension Plan; the filing of a
notice of intent to terminate a Pension Plan by Borrower, any ERISA
Affiliate, or any other Obligor; the institution of proceedings to
terminate a Pension Plan by the PBGC or any other Person; the
withdrawal in a "complete withdrawal" or a "partial withdrawal" as
defined in Sections 4203 and 4205, respectively, of ERISA by Borrower,
any ERISA Affiliate or any other Obligor from any Multiemployer Plan;
the failure of
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Borrower, any other Obligor or any ERISA Affiliate to make a required
contribution to any Pension Plan, including but not limited to any
failure to pay an amount sufficient to give rise to a Lien under
Section 302(f) of ERISA; the taking of any action with respect to a
Pension Plan which could result in the requirement that Borrower, any
other Obligor or any ERISA Affiliate furnish a bond or other security
to the PBGC or such Pension Plan; the occurrence of any other event
with respect to any Pension Plan which could result in the incurrence
by Borrower, any other Obligor or any ERISA Affiliate of any material
liability, fine or penalty; or the incurrence of any material increase
in the contingent liability of Borrower, any other Obligor or any
Subsidiary with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA which covers retired or terminated
employees and their beneficiaries;
(e) Business and Collateral Information. Any change or
proposed change in any of the information set forth on Schedule 4.12,
Schedule 4.13 or Schedule 4.15, including but not limited to (i) any
change in the location of any Inventory, or Equipment or any Third
Party Collateral, (ii) the identity any new bailee, processor,
warehouseman or other Person in possession or control of any Inventory
or Equipment or other Collateral or Third Party Collateral, (iii) any
change in the name or address of the lessor or owner of any real
property or equipment leased to Borrower, any Subsidiary or any other
Obligor, (iv) any proposed change in the location of Borrower's or any
Subsidiary's chief executive office or chief place of business, (v) any
proposed opening, closing or other change in the list of offices and
other places of business of Borrower and each Subsidiary and (vi) any
opening, closing or other change in the offices and other places of
business of each other Obligor and each Related Party;
(f) Change of Name or Status. Any change in the name or
address of Borrower, any Subsidiary, any other Obligor or any Related
Party and any change in the tradenames and tradestyles set forth on
Schedule 4.1;
(g) Insurance Information. Any material change in the
information set forth in Schedule 4.7;
(h) Environmental and Safety and Health Matters. The
occurrence of any event, or the acquisition of any information which,
if it had occurred or was true on or before the Closing
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Date, would have been required to have been disclosed and included on
Schedule 4.25, including but not limited to receipt of any notice from
any federal, state or local government or agency with respect to any
actual or alleged violation of any Environmental Law or any
Occupational Safety and Health Law;
(i) Material Adverse Change. The occurrence of a material
adverse change in the business, operations or financial condition of
Borrower, any other Obligor or any Subsidiary;
(j) Default by Others. Any material default by any Account
Debtor or other Person obligated to Borrower, any other Obligor, or any
Subsidiary, under any contract, chattel paper, note or other evidence
of amounts payable or due or to become due to Borrower, such Obligor or
Subsidiary if the amount payable under such contract, chattel paper,
note or other evidence of amounts payable or due or to become due
exceeds $100,000;
(k) Moveable Collateral. If any of the Collateral or Third
Party Collateral shall consist of goods of a type normally used in more
than one state, whether or not actually so used, any use of any such
goods in any state other than a state in which Borrower shall have
previously advised the Agent such goods will be used. Borrower agrees
that such goods will not, unless the Agent and the Required Lenders
shall otherwise consent in writing, be used outside the continental
United States or in Louisiana;
(l) Change in Management or Line(s) of Business. Any change in
the senior management of Borrower or any Subsidiary, or any change in
Borrower's or any Subsidiary's line(s) of business; and
(m) Other Notices. Any notices required to be provided
pursuant to any Related Agreement or the other provisions of this
Agreement, and notice of the occurrence of such other events as the
Agent or any Lender may reasonably from time to time specify.
5.3 Existence. Maintain and preserve, and cause each Subsidiary to
maintain and preserve, its respective existence as a corporation or other form
of business organization, as the case may be, and all rights, privileges,
licenses, patents, patent rights,
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copyrights, trademarks, trade names, trade styles, franchises and other
authority to the extent material and necessary for the conduct of its respective
business in the ordinary course as conducted from time to time.
5.4 Nature of Business. Engage, and cause each Subsidiary to engage, in
substantially the same fields of business as it is engaged in on the date
hereof.
5.5 Books, Records and Access. Maintain, and cause each Subsidiary to
maintain, complete and accurate books and records (including but not limited to
records relating to Accounts Receivable, Inventory, Equipment and other
Collateral), in which full and correct entries in conformity with GAAP shall be
made of all dealings and transactions in relation to its respective business and
activities. Cause its books and records as at the end of any calendar month to
be posted and closed not more than thirty (30) days after the last business day
of such month. Permit, and cause each Subsidiary to permit, access by the Agent,
each Lender and their respective agents or employees to the books and records of
Borrower and such Subsidiary at Borrower's or such Subsidiary's place or places
of business at intervals to be determined in the discretion of the Agent and
such Lender and without hindrance or delay, and permit and cause each Subsidiary
to permit the Agent, each Lender and their respective agents and employees to
inspect Borrower's Inventory and Equipment and such Subsidiary's inventory and
equipment, to perform appraisals of Borrower's Equipment and each Subsidiary's
equipment, and to inspect, audit, check and make copies and/or extracts from the
books, records, computer data and records, computer programs, journals, orders,
receipts, correspondence and other data relating to Inventory, Accounts
Receivable, Contract Rights, General Intangibles, Equipment and any other
Collateral or Third Party Collateral, or relating to any other transactions
between the parties hereto. Any and all such inspections and/or audits shall be
at Borrower's expense, and the Agent may, on behalf of the Lenders according to
their respective Percentages, advance same to Borrower as a Revolving Loan.
Notwithstanding the foregoing, as long as no Event of Default or Unmatured Event
of Default has occurred or is continuing Borrower shall not be required to so
reimburse the Agent or the Lenders for inspections, audits and/or appraisals of
Collateral more frequently than four (4) times each Fiscal Year, and shall not
charge Borrower more than $100,000 per year for such investigations, approvals
and audits.
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5.6 Insurance. Maintain, and cause each Subsidiary to maintain,
insurance to such extent and against such hazards and liabilities as is commonly
maintained by companies similarly situated or as the Agent or the Required
Lenders may reasonably request from time to time. Keep the Collateral properly
housed and insured for an amount equal to the greater of (i) its full insurable
value or (ii) full replacement cost, against all loss or damage and such other
risks as are customarily insured against by persons engaged in business similar
to that of Borrower, with such companies, in such amounts and under policies in
such form as shall be satisfactory to the Agent or the Required Lenders.
Certificates of such policies of insurance have been delivered to the Agent
prior to the date hereof together with evidence of payment of all premiums
therefor. Borrower shall, upon request by the Agent or any Lender, provide to
the Agent or such Lender certified copies of all such policies. Borrower shall
cause each issuer of an insurance policy to provide the Agent, prior to the
Closing Date, with an endorsement or an independent instrument (i) substantially
in the form of Exhibit D or such other form and containing such other terms as
shall be acceptable to the Agent and (ii) showing loss payable to the Agent and,
if required by the Agent, naming the Agent as an additional insured. Borrower
hereby directs all insurers under such policies of insurance to pay all proceeds
payable thereunder directly to the Agent for the account of all the Lenders.
Borrower appoints the Agent and any Person whom the Agent may from time to time
designate (and all officers, employees or agents designated by the Agent or such
Person) as Borrower's true and lawful attorney and agent-in-fact with power to
make, settle and adjust claims under such policies of insurance, endorse the
name of Borrower on any check, draft, instrument or other item of payment for
the proceeds of such policies of insurance and make all determinations and
decisions with respect to such policies of insurance. The foregoing appointment
and power, being coupled with an interest, is irrevocable until all Liabilities
under this Agreement are paid and performed in full and this Agreement is
terminated. In the event Borrower at any time or times hereafter shall fail to
obtain or maintain any of the policies of insurance required herein or to pay
any premium in whole or in part relating thereto, then the Agent, without
waiving or releasing any obligation of or default by Borrower hereunder, may at
any time or times thereafter (but shall be under no obligation to do so) obtain
and maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which the Agent or the Required Lenders deem
advisable. All sums so disbursed by the Agent, including reasonable Attorneys'
Fees, court costs, expenses and other charges relating
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thereto, shall be payable on demand by Borrower to the Agent, and the Agent may,
in its sole and absolute discretion, advance such sums to Borrower as a
Revolving Loan.
5.7 Insurance Survey. Provide to each Lender at least annually during
the second quarter of each Fiscal Year of Borrower, a certificate signed by its
chief financial officer and by Borrower's insurance agent or agents therefor,
that attests to and summarizes the property and casualty insurance program
carried by Borrower and its Subsidiaries. This summary shall include the
insurer(s) name(s), policy number(s), expiration date(s), amount(s) of coverage,
type(s) of coverage, the annual premium(s), Best's policyholder's and financial
size ratings of the insurer(s), exclusions, deductibles and self-insured
retention. Borrower shall notify each Lender in writing (l) at least 30 days
prior to any cancellation or material change of any such insurance by Borrower
or any Subsidiary and (2) within 5 business days after receipt of any notice
(whether formal or informal) of any cancellation or change in any of its
insurance by any of its insurers or any material change in the cost thereof or
which reduces the policyholder's or financial size ratings of the insurance
carriers of Borrower or any of its Subsidiaries, as established by Best's
Insurance Reports. Annually, the Required Lenders shall have the right to
request Borrower to have a risk management survey completed by a recognized
independent risk management consultant acceptable to it and the Required Lenders
which will identify, quantify and assess any catastrophic uninsured,
underinsured or self-insured exposures faced by Borrower and its Subsidiaries.
The cost of such survey shall be borne solely by Borrower. A copy of the results
of each such a survey shall be promptly delivered by Borrower to each Lender.
5.8 Repair. Maintain, preserve and keep, and cause each Subsidiary to
maintain, preserve and keep, its properties in operating condition and repair,
ordinary wear and tear excepted, and from time to time make, and cause each
Subsidiary to make, all necessary and proper repairs, renewals, replacements,
additions, betterments and improvements thereto so that at all times the
efficiency thereof shall be fully preserved and maintained.
5.9 Taxes. Pay, and cause each Subsidiary to pay, when due, all of its
Taxes, unless and only to the extent that Borrower or such Subsidiary is
contesting such Taxes in good faith and by appropriate proceedings and Borrower
or such Subsidiary has set aside on its books such reserves or other appropriate
provisions therefor as may be required by GAAP.
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5.10 Compliance. Comply, and cause each Subsidiary to comply, with all
statutes and governmental rules and regulations applicable to it if a violation
of any such statute, governmental rules or regulation, in any respect may
materially (as determined by Agent) and adversely affect the Collateral or any
Third Party Collateral or Borrower's or such Subsidiary's business, operations
or financial condition or its ability to pay the Liabilities or to perform any
of their respective obligations hereunder or any Related Agreement.
5.11 Pension Plans. Not permit, and not permit any Subsidiary to
permit, any condition to exist in connection with any Pension Plan which might
constitute grounds for the PBGC to institute proceedings to have such Pension
Plan terminated or a trustee appointed to administer such Pension Plan; not
fail, and not permit any Subsidiary to fail, to make a required contribution to
any Pension Plan if such failure is sufficient to give rise to a Lien under
Section 302(f) of ERISA; and not engage in, or permit to exist or occur, or
permit any of its Subsidiaries to engage in, or permit to exist or occur, any
other condition, event or transaction with respect to any Pension Plan which
could result in the incurrence by Borrower or any of its Subsidiaries of any
material liability, fine or penalty.
5.12 Merger, Purchase and Sale. Not, and not permit any Subsidiary to:
(a) be a party to any merger, liquidation or consolidation other than as
contemplated under Section 5.18(l) hereof; (b) except in the normal course of
its business, sell, transfer, convey, lease or otherwise dispose of any of its
assets; (c) sell or assign, with or without recourse, any Accounts Receivable,
Contract Rights, notes receivable or chattel paper, except as provided in this
Agreement or (d) purchase or otherwise acquire all or substantially all the
assets of any Person; provided, however, the Borrower may acquire all or
substantially all of the assets of any Person so long as the aggregate purchase
price for all such acquisitions during the term of this Agreement does not
exceed $5,000,000 and the aggregate purchase price for all such acquisitions
during any fiscal year of Borrower does not exceed $2,000,000 and at the time of
any such acquisition and after giving effect to such acquisition, no Event of
Default or Unmatured Event of Default shall have occurred and be continuing.
5.13 Restricted Payments. After the Closing Date, not purchase or
redeem any shares of its stock, declare or pay any dividends thereon (other than
stock dividends or stock for stock exchanges), make any distribution to
stockholders as such or set
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aside any funds for any such purpose, and not prepay, purchase or redeem, and
not permit any Subsidiary to purchase, any subordinated Indebtedness of
Borrower; provided, however, that the Borrower may (i) pay dividends on its
Preferred Stock in accordance with its Articles of Incorporation as in effect on
January 17, 1992, (ii) purchase (or refinance its Purchase of) its shares with
the proceeds of Stock Purchase Loans as permitted under Section 2.1.2, and (iii)
repurchase its shares of common stock in the open market for the purpose of
making such stock available to its employees pursuant to its 1983 Employee Stock
Plan, 1984 Employee Stock Plan, 1986 Employee Stock Plan, and the Employee Stock
Purchase Plan provided that the net cost of such purchases to Borrower under
this clause (iii) do not exceed $1,000,000 during any calendar year.
5.14 Borrower's and Subsidiaries' Stock. Not permit any Subsidiary to
purchase or otherwise acquire any shares of the stock of Borrower, and not take
any action, or permit any Subsidiary to take any action, which will result in a
decrease in Borrower's or any Subsidiary's ownership interest in any Subsidiary.
5.15 Indebtedness. Not, and not permit any Subsidiary to, incur or
permit to exist any Indebtedness (including but not limited to Indebtedness as
lessee under Capitalized Leases), except: (a) Indebtedness under the terms of
this Agreement; (b) Subordinated Debt; (c) other Indebtedness outstanding on the
date hereof and listed on Schedule 5.15; (d) Indebtedness hereafter incurred in
connection with Liens permitted under Section 5.16(d) and (e) other Indebtedness
approved in writing by the Required Lenders.
5.16 Liens. Not, and not permit any Subsidiary to, create or permit to
exist any Lien with respect to any property, revenue or assets now owned or
hereafter acquired, except: (a) Liens for current Taxes not delinquent or Taxes
being contested in good faith and by appropriate proceedings and as to which
such reserves or other appropriate provisions as may be required by GAAP are
being maintained; (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, and other like statutory Liens arising in the ordinary course of
business securing obligations which are not overdue or which are being contested
in good faith and by appropriate proceedings and as to which such reserves or
other appropriate provisions as may be required by GAAP are being maintained;
(c) pledges or deposits in connection with workers' compensation, unemployment
insurance and other social security legislation; (d) Liens in connection with
the acquisition of property after the date hereof by way of purchase money
mortgage,
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conditional sale or other title retention agreement, Capitalized Lease or other
deferred payment contract, and attaching only to the property being acquired, if
(i) the Indebtedness secured thereby does not exceed 100% of the fair market
value of such property at the time of the acquisition thereof and (ii) the
aggregate outstanding amount of such Indebtedness of Borrower and its
Subsidiaries does not exceed $6,000,000; (e) Liens in favor of the Agent; (f)
Liens disclosed on the financial statements provided under Section 4.6; (g)
Liens existing on the date hereof and listed on Schedule 4.9; and (h) Liens
consented to in writing by the Required Lenders.
5.17 Guaranties. Not, and not permit any Subsidiary to, become or be a
guarantor or surety of, or otherwise become or be responsible in any manner
(whether by agreement to purchase any obligations, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or
otherwise) with respect to, any undertaking of any other Person, except for the
endorsement, in the ordinary course of collection, of instruments payable to it
or its order.
5.18 Investments. Not, and not permit any Subsidiary to, make or permit
to exist any Investment in any Person, except for: (a) advances to employees of
Borrower or any of its Subsidiaries for travel or other ordinary business
expenses provided that the aggregate amount outstanding at any one time shall
not exceed maximum amounts acceptable to the Required Lenders; (b) advances to
employees of Borrower or any of it Subsidiaries for relocation expenses for such
employees in an aggregate amount not exceeding $750,000 at any one time
outstanding; (c) advances to subcontractors and suppliers in maximum aggregate
amounts reasonably acceptable to the Required Lenders but in any event not
exceeding an aggregate outstanding amount of $750,000; (d) extensions of credit
in the nature of Accounts Receivable or notes receivable arising from the sale
of goods and services in the ordinary course of business; (e) shares of stock,
obligations or other securities received in settlement of claims arising in the
ordinary course of business; (f) Investments (other than Investments in the
nature of loans or advances) outstanding on the date hereof in Subsidiaries by
Borrower and other Subsidiaries; (g) Investments in the nature of loans and
advances constituting Indebtedness of Subsidiaries to Borrower and to other
Subsidiaries outstanding on the date hereof and listed on Schedule 5.18; (h)
other Investments outstanding on the date hereof and listed on Schedule 5.18;
(i) Investments in securities with maturities of one year or less from the date
of acquisition issued
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or fully guaranteed or insured by the United States of America or any agency
thereof; (j) Investments in commercial paper maturing in 180 days or less from
the date of issuance rated in the highest grade by a nationally recognized
credit agency; (k) Investments in certificates of deposit maturing within one
year from the date of acquisition either (1) in an amount not in excess of
$100,000 and issued by a bank or trust company organized under the laws of the
United States or any state thereof having capital, surplus and undivided profits
aggregating at least $100,000,000, or (2) in an amount greater than $100,000 and
issued by a bank or trust company organized under the laws of the United States
or any state thereof having capital, surplus and undivided profits aggregating
at least $100,000,000 , if such bank or trust company maintains a short term
credit rating for commercial paper of at least A2 and/or P2, as assigned by
Standard & Poor's Corporation and Moody's Investors Service, Inc., respectively;
(l) purchases of all of the issued and outstanding capital stock of any Person
provided that such Person is immediately after such acquisition merged with and
into Borrower, that before and after giving effect to such merger no Event of
Default or Unmatured Event of Default has occurred and is continuing and the
acquisition, if treated as an asset purchase, would be permitted under Section
5.12 hereof; and (m) other Investments consented to by the Agent and the
Required Lenders in writing.
5.19 Subsidiaries. Not, and not permit any Subsidiary to, acquire any
stock or similar interest in any Person, and not create, establish or acquire
any Subsidiaries other than those existing on the date of this Agreement and as
otherwise permitted under Section 5.18(l) hereof.
5.20 Leases. Not enter into or permit to exist, or permit any
Subsidiary to enter into or permit to exist, any arrangements for the leasing by
the Borrower or such Subsidiary, as lessee under a lease which is not a
Capitalized Lease, of any real or personal property (or any interest therein)
other than under leases in existence on the date hereof and listed on Schedule
4.15 and other leases which together require Borrower to pay an aggregate amount
of rentals of not more than $18,000,000 for any Fiscal Year.
5.21 Change in Accounts Receivable. After the occurrence of an Event of
Default or Unmatured Event of Default, permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account Receivable, including any of the terms
relating thereto.
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5.22 Future Environmental Assessments. Borrower shall provide such
information and certifications which the Agent or the Required Lenders may
reasonably request from time to time pertaining to the environmental aspects of
Borrower and its Subsidiaries and any property owned, operated or controlled by
Borrower or any Subsidiary. To investigate environmental aspects of Borrower and
its Subsidiaries and their properties, facilities and operations, the Agent (in
its discretion, or upon the request of the Required Lenders) or its agents shall
have the right at any time to enter upon the property of Borrower or any
Subsidiary, take samples, review the books, records or other documents of
Borrower and its Subsidiaries, interview officers and employees of Borrower or
its Subsidiaries, and conduct such other activities as the Agent, in its
discretion, deems appropriate. Borrower shall, and shall cause its Subsidiaries
to, cooperate fully in the conduct of any such assessment. If the Agent decides
(or is directed by the Required Lenders) to cause such an assessment to be
conducted because of (a) the Agent's considering taking possession of or title
to the property after the occurrence of an Event of Default or (b) a material
change in the use of the property which, in the Agent's or the Required Lender's
opinion, increases the risk of non-compliance with Environmental Laws or
increases the risk of cost or liabilities thereunder, then Borrower shall pay
upon demand all costs and expenses (including Attorney's Fees) connected with
such assessment. The Agent, may, in its discretion, provide for the payment of
any amount due from Borrower under this Section 5.22 by making Borrower a
Revolving Loan. Nothing in this Section 5.22, and no actions taken by the Agent
or its agents, or the Required Lenders, pursuant thereto, shall give, or be
construed as controlling or giving, to the Agent or any Lender the right or
obligation to direct or control the conduct or action or inaction of Borrower or
any Subsidiary with respect to any environmental matters, including but not
limited to those pertaining to compliance with any Environmental Laws.
5.23 Related Agreements. Not enter into, or permit any Subsidiary to
enter into, any agreement containing any provision which would be violated or
breached by the performance by Borrower or such Subsidiary of its obligations
hereunder or under any Related Agreement or any instrument or document delivered
or to be delivered by Borrower or such Subsidiary in connection herewith.
5.24 Unconditional Purchase Options. Not enter into or be a party to,
or permit any Subsidiary to enter into or be a party to any contract for the
purchase of materials, supplies or other property or services, if such contract
requires that payment be made
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by it regardless of whether or not delivery is ever made of such materials,
supplies or other property or services.
5.25 Use of Proceeds. Except as otherwise provided herein, not use or
permit any proceeds of the Loans to be used, either directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of "purchasing or
carrying" any Margin Stock, and furnish to each Lender upon request, a statement
in conformity with the requirements of Federal Reserve Form U-l referred to in
Regulation U of the Board of Governors of the Federal Reserve System or any
similar statement in conformity with the requirements of Regulation G of the
Board of Governors of the Federal Reserve System. Not use or permit any proceeds
of any of the Loans or Letters of Credit (other than the Stock Purchase Loans or
the Stock Purchase L/C's) to be used for any purpose other than for general
working capital.
5.26 Transactions with Related Parties. Not, and not permit any
Subsidiary to, enter into or be a party to any transaction or arrangement,
including, without limitation, the purchase, sale, lease or exchange of property
or the rendering of any service, with any Related Party, except in the ordinary
course of and pursuant to the reasonable requirements of Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
Borrower or such Subsidiary than would obtain in a comparable arm's-length
transaction with a Person not a Related Party.
5.27 Consolidated Net Worth. Maintain a Consolidated Net Worth as at
the last day of each fiscal quarter of each Fiscal Year as set forth below, in
an amount equal to or greater than the corresponding amount set forth below
opposite each such fiscal quarter:
For All
Quarters Ended in Amount
1994 75,000,000
1995 77,000,000
1996 79,000,000
1997 81,000,000
1998 83,000,000
1999 85,000,000
5.28 Interest Coverage Ratio. Not permit the ratio of Borrower's
consolidated net earnings before interest expense, provision for Taxes, and
amortization of intangibles to interest
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expense, as determined at the end of each fiscal quarter of each Fiscal Year for
the six consecutive month period then ended to be less than 2.50 to 1.00. For
purposes of this Section 5.28, (i) net earnings shall not include any gains on
the sale or other disposition of Investments or fixed assets and any
extraordinary items of income to the extent that the aggregate of all such gains
and extraordinary items of income exceed the aggregate of losses on such sale or
other disposition and extraordinary items, and (ii) interest expense shall
include, without limitation, implicit interest expense on Capitalized Leases.
5.29 Capital Expenditures. Not, and not permit any Subsidiary to make
any Capital Expenditures, or commit to make any Capital Expenditures if, after
giving effect to such Capital Expenditures, the aggregate amount of all Capital
Expenditures made by Borrower and its Subsidiaries on a consolidated basis in
any Fiscal Year would exceed, in the aggregate, the maximum amount set forth
opposite such Fiscal Year:
Fiscal Year Maximum Amount
1994 6,000,000
1995 6,000,000
1996 6,500,000
1997 6,500,000
1998 7,000,000
1999 7,000,000
5.30 Liabilities to Net Worth Ratio. Not permit the ratio of Borrower's
consolidated total liabilities to Borrower's Consolidated Net Worth, as
determined on the last day of each fiscal quarter, to exceed 1.50 to 1.00.
5.31 Earnings Before Interest, Taxes and Amortization. Not permit the
amount of Borrower's consolidated net earnings before interest expenses,
provision for Taxes, and amortization of intangibles, as determined on the last
day of each fiscal quarter during each Fiscal Year set forth below (other than
1994 in which case only the third and fourth fiscal quarters shall be subject to
this Section 5.31) for the six-month period ending on such date to be less than
the minimum amount set forth below opposite such date.
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Fiscal Year Minimum Amount
1994 5,250,000
1995 5,750,000
1996 6,000,000
1997 6,000,000
1998 6,000,000
1999 6,000,000
5.32 Current Ratio. Shall maintain a ratio of aggregate current assets
to aggregate current liabilities, determined as of the last day of each calendar
month, of at least 1.0 to 1.0.
5.33 Fixed Charge Coverage Ratio. Not permit the ratio of Borrower's
EBITDA to the sum of Borrower's (i) interest expense (ii) Capital Expenditures
net of any purchase money or Capitalized Lease obligations with respect thereto,
(iii) any scheduled principal payments on Indebtedness (including the principal
component of any Capitalized Lease), (iv) restructuring costs and (v) cash
Taxes, to be less than 1.25 to 1.0 for 1994 and 1.50 to 1.0 for all Fiscal Years
thereafter, in each case, as determined as at the end of each calendar quarter
during any such Fiscal Year for the twelve-month period ending on such date or
if such date occurs less than twelve months from January 1, 1994, then for the
period from January 1, 1994 until such date.
5.34 Key-Man Life Insurance. Borrower shall maintain a key-man life
insurance policy in the amount of $2,000,000 insuring the life of Alan Kessman.
The benefits payable under such policy shall be collaterally assigned to the
Agent for the benefit of the Lenders in order to secure the Liabilities.
5.35 Security Instruments and Recording. Borrower will duly and
punctually perform each of its obligations under the Related Agreements and, at
its expense, will promptly execute and deliver any and all such further
instruments and documents and take such further action as the Agent or the
Required Lenders reasonably deem necessary or desirable in obtaining the full
benefits of this Agreement and the Related Agreements and of the rights and
powers herein and therein granted, including, without limitation, the recording
and filing and re-recording and refiling of any Related Agreements and any and
all supplements or amendments thereto and instruments of conveyance, transfer,
assignment or further assurance (including financing and continuation statements
under the Uniform Commercial Code in effect in any relevant jurisdiction) and
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consents, as may, in the judgment of the Agent or the Required Lenders, be
necessary or desirable in order to grant, and fully preserve and protect the
rights of the Lenders (including, without limitation, upon foreclosure) in
respect of, a valid and duly perfected Lien upon the Collateral granted hereto
and pursuant to the Related Agreements, which Collateral shall otherwise be
subject only to Liens permitted to be incurred by Borrower under Section 5.16.
5.36 Performance of Obligations. Borrower shall, and shall cause each
of its Subsidiaries to, perform in all material respects all of its obligations
under all contractual obligations, except as to those obligations which are
being contested in good faith by appropriate proceedings and as to which
adequate reserves are established in accordance with GAAP and as to which
failure to perform could not singly or in the aggregate reasonably be expected
to have a material adverse effect on the business or financial condition of
Borrower or any Subsidiary or the ability of Borrower or any Subsidiary to
perform its obligations hereunder or under any Related Agreement.
5.37 No Negative Pledges. Borrower shall not, and shall not permit any
of its Subsidiaries to, enter into any agreement prohibiting the creation and
assumption of any Lien upon the property or assets of Borrower or any of its
Subsidiaries, whether now owned or hereafter acquired or requiring an obligation
to be secured if some other obligation is secured.
5.38 Landlord Consents; Moving Collateral. Borrower shall use its best
efforts to obtain Landlord Consents with respect to each location where Borrower
maintains Inventory.
5.39 Limitation on Sales with Recourse. The aggregate amount at any
time owing by the Borrower's customers to Persons which have financed such
customers' purchases of the Borrower's inventory or services for which the
Borrower may be liable ("Recourse Amount") shall not exceed $5,000,000 during
1994, $6,000,000 during 1995 and $7,000,000 during 1996 and thereafter. Fifty
percent (50%) of any Recourse Amount in excess of $4,000,000 up to $5,000,000
shall be deducted from the Borrowing Base and one hundred percent (100%) of any
Recourse Amount in excess of $5,000,000 shall be deducted from the Borrowing
Base.
6. DEFAULT.
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6.1 Event of Default. Each of the following shall constitute an Event
of Default under this Agreement:
(a) Non-Payment. Default in the payment, when due or declared
due, of any of the Liabilities.
(b) Non-Payment of Other Indebtedness. Default in the payment
when due, whether by acceleration or otherwise (subject to any
applicable grace period), of any Indebtedness of, or guaranteed by,
Borrower, any other Obligor or any Subsidiary (other than any
Indebtedness under this Agreement).
(c) Acceleration of Other
Indebtedness. Any event or condition shall occur which results in the
acceleration of the maturity of any Indebtedness of, or guaranteed by,
Borrower, any other Obligor or any Subsidiary (other than the
Indebtedness under this Agreement and any Notes) or enables the holder
or holders of such other Indebtedness or any trustee or agent for such
holders (any required notice of default having been given and any
applicable grace period having expired) to accelerate the maturity of
such other Indebtedness.
(d) Other Obligations. Default in the payment when due,
whether by acceleration or otherwise, or in the performance or
observance (subject to any applicable grace period or waiver of such
default) of (i) any obligation or agreement of Borrower, any other
Obligor or any Subsidiary to or with any Lender (other than any
obligation or agreement of Borrower hereunder and under any Notes) or
(ii) any material obligation or agreement of Borrower, any other
Obligor or any Subsidiary to or with any other Person (other than (x)
any such material obligation or agreement constituting or related to
Indebtedness, (y) Trade Accounts Payable and (z) any material
obligation or agreement of any Subsidiary to Borrower or to any other
Subsidiary), except only to the extent that the existence of any such
default is being contested by Borrower, such other Obligor or such
Subsidiary, as the case may be, in good faith and by appropriate
proceedings and Borrower, such other Obligor or such Subsidiary, as
applicable, shall have set aside on its books such reserves or other
appropriate provisions therefor as may be required by GAAP.
(e) Insolvency. Borrower, any other Obligor or any Subsidiary
becomes insolvent, or generally fails to pay, or admits in writing its
inability to pay, its debts as they
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mature, or applies for, consents to, or acquiesces in the appointment
of a trustee, receiver or other custodian for Borrower, such other
Obligor or such Subsidiary, or for a material part of the property of
Borrower, such other Obligor or such Subsidiary, or makes a general
assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other
custodian is appointed for Borrower, any other Obligor or any
Subsidiary, or for a substantial part of the property of Borrower, any
other Obligor or any Subsidiary and is not discharged or dismissed
within 30 days; or any bankruptcy, reorganization, debt arrangement or
other proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is instituted by Borrower, any
other Obligor or any Subsidiary; or any bankruptcy, reorganization or
other proceeding under any bankruptcy or insolvency law is instituted
against Borrower and is not discharged or dismissed within 30 days; or
any warrant of attachment or similar legal process is issued against
any substantial part of the property of Borrower, any other Obligor or
any Subsidiary.
(f) Pension Plans. The institution by Borrower or any ERISA
Affiliate of steps to terminate any Pension Plan if, in order to
effectuate such termination, Borrower or any ERISA Affiliate would be
required to make a contribution to such Pension Plan, or would incur a
liability or obligation to such Pension Plan, in excess of $100,000;
the institution by the PBGC of steps to terminate any Pension Plan and
the continuation of either such condition after notice thereof from
Lender; or a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.
(g) Non-Compliance With This Agreement. Default in the
performance of any of Borrower's agreements set forth in Section 2,
3.2, 3.3, 3.4, 5.3, 5.5, 5.6 or 5.12 through 5.32, (and not
constituting an Event of Default under any of the other subsections of
this Section 6.1), and continuance of such default for more than three
(3) days after notice thereof to Borrower from the Agent or any Lender;
or default in the performance of any of Borrower's agreements set forth
in Section 5.1.2, 5.1.3 or 5.2 (and not constituting an Event of
Default under any of the other subsections of this Section 6.1), and
continuance of such default for five (5) days after notice thereof to
Borrower from the Agent or any Lender;
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or default in the performance of any of Borrower's other agreements,
covenants, terms or conditions herein set forth (and not constituting
an Event of Default under any of the other subsections of this Section
6.1), and continuance of such default for thirty (30) days after notice
thereof to Borrower from the Agent or any Lender.
(h) Non-Compliance With Related Agreements. Default in the
performance by Borrower, any other Obligor or any Subsidiary of any of
its agreements set forth in the Trademark Assignment, the Patent
Assignment, the Pledge Agreement or any other Related Agreement (and
not constituting an Event of Default under any of the other subsections
of this Section 6.1), and continuance of such default after notice from
the Agent or any Lender and the expiration of the grace period (if any)
set forth therein.
(i) Warranty. Any warranty made by Borrower or any other
Obligor herein or the Trademark Assignment, the Patent Assignment, the
Pledge Agreement or any other Related Agreement is untrue or misleading
in any material respect when made or deemed made; or any schedule,
statement, report, notice, certificate or other writing furnished by
Borrower or any other Obligor to the Agent or any Lender is untrue or
misleading in any material respect on the date as of which the facts
set forth therein are stated or certified; or any certification made or
deemed made by Borrower or any other Obligor to the Agent or any Lender
is untrue or misleading in any material respect on or as of the date
made or deemed made.
(j) Litigation. There shall be entered against any one of
Borrower, any other Obligor or any Subsidiary one or more judgments or
decrees in excess of $100,000 in the aggregate at any one time
outstanding, excluding those judgments or decrees (i) that shall have
been outstanding less than 30 calendar days from the entry thereof,
(ii) for not more than $3,000,000 during the time which a stay of
enforcement of such judgment or decree is in effect by reason of a
pending appeal or otherwise, or (iii) for and to the extent which
Borrower, such Subsidiary or such Obligor, as applicable, is insured
and with respect to which the insurer has assumed responsibility in
writing or for and to the extent which Borrower, such Subsidiary or
such Obligor, as applicable, is otherwise indemnified if the terms of
such indemnification and the indemnitor are satisfactory to the
Required Lenders.
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(k) Validity. If the validity or enforceability of this
Agreement, the Trademark Assignment, the Patent Assignment, the Pledge
Agreement or any other Related Agreement shall be challenged by
Borrower, any other Obligor or any Related Party, or shall fail to
remain in full force and effect.
(l) Conduct of Business. If Borrower, any other Obligor or any
Subsidiary is enjoined, restrained or in any way prevented by court
order, which has not been dissolved or stayed within five (5) Banking
Days of the date of entry, from conducting all or any material part of
its business affairs.
(m) Material Adverse Change. The Required Lenders shall have
determined in good faith that (i) a material adverse change has
occurred in the business, operations or financial condition of
Borrower, any other Obligor or any Subsidiary, (ii) the Agent's
interest in any material Collateral or Third Party Collateral has been
adversely affected or impaired, or the value thereof to the Lenders has
been diminished to a material extent, or (iii) the prospect of payment
or performance of any material obligation or agreement of Borrower or
any other Obligor hereunder or under any Related Agreement is
materially impaired, and the condition giving rise to such
determination does not constitute an Event of Default under any of the
other subsections of this Section 6.1 and continues to exist after
notice of such determination by any Lender to Borrower.
(n) Change in Senior Management. Anthony R. Guarascio or Alan
Kessman shall no longer hold senior management positions with Borrower
and no acceptable successor shall have been appointed within a
reasonable time, and at least two Lenders in good faith shall have
determined that such change in senior management shall have a material
adverse effect on Borrower.
(o) Stock Pledge. Borrower shall fail to receive a pledge, in
form and substance satisfactory to the Agent, of all of the Borrower's
common stock purchased with the proceeds of loans received by the
designated Borrowers pursuant to the Management Loan Agreement.
6.2 Effect of Event of Default; Remedies.
(a) In the event that one or more Events of Default described
in Section 6.1(e) shall occur, then each Lender's
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commitment and the Credit extended under this Agreement shall terminate
and all Liabilities hereunder and under any Notes shall be immediately
due and payable without demand, notice or declaration of any kind
whatsoever.
(b) In the event an Event of Default other than one described
in Section 6.1(e) shall occur, then each Lender's commitment shall
terminate and the Agent may, with the consent of the Required Lenders,
(and upon request of the Required Lenders shall) declare all
Liabilities hereunder and under any Notes immediately due and payable
without demand or notice of any kind whatsoever, whereupon the Credit
extended under this Agreement shall terminate and all Liabilities
hereunder and under any Notes shall be immediately due and payable. The
Agent shall promptly advise Borrower of any such declaration, but
failure to do so shall not impair the effect of such declaration.
(c) In the event of the occurrence of any Event of Default the
Agent and the Lenders may exercise any one or more or all of the
following remedies, all of which are cumulative and non-exclusive:
(1) Any remedy contained in this Agreement or in any
of the Related Agreements or any Supplemental Documentation;
(2) Any rights and remedies available to the Agent or
any Lender under the UCC, and any other applicable law;
(3) To the extent permitted by applicable law, the
Agent may, without notice, demand or legal process of any
kind, take possession of any or all of the Collateral (in
addition to Collateral which it may already have in its
possession), wherever it may be found, and for that purpose
may pursue the same wherever it may be found, and may enter
into any premises where any of the Collateral may be or is
supposed to be, and search for, take possession of, remove,
keep and store any of the Collateral until the same shall be
sold or otherwise disposed of, and the Agent shall have the
right to store the same in any of Borrower's premises without
cost to the Agent;
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(4) At the Agent's request, Borrower will, at
Borrower's expense, assemble the Collateral and make it
available to the Agent at a place or places to be designated
by the Agent which is reasonably convenient to the Agent and
Borrower; and
(5) The Agent, with the consent of the Required
Lenders, and pursuant to notification given to Borrower as
provided for below, may sell any Collateral actually or
constructively in its possession at public or private sale and
apply the proceeds thereof as provided below.
7. ADDITIONAL PROVISIONS REGARDING COLLATERAL AND THE AGENT'S RIGHTS.
7.1 Notice of Disposition of Collateral. Any notification of intended
disposition of any of the Collateral required by law shall be deemed reasonably
and properly given if given at least five (5) calendar days before such
disposition.
7.2 Application of Proceeds of Collateral. Unless otherwise agreed by
the Required Lenders, any proceeds of any disposition by the Agent of any of the
Collateral may be applied by the Agent to the payment of expenses in connection
with the taking possession of, storing, preparing for sale, and disposition of
Collateral, including Attorneys' Fees and legal expenses, and any balance of
such proceeds may be applied by the Agent toward the payment of such of the
Liabilities in accordance with the provisions of Section 2.10(b).
7.3 Care of Collateral. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if it takes such action for that purpose as Borrower requests in
writing, but failure of the Agent to comply with such request shall not, of
itself, be deemed a failure to exercise reasonable care, and no failure of the
Agent to preserve or protect any rights with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by Borrower, shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral.
7.4 Performance of Borrower's Obligations. The Agent shall have the
right, but shall not be obligated, to discharge any claims
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against or Liens, and any Taxes at any time levied or placed upon any or all
Collateral including, without limitation, those arising under statute or in
favor of landlords, taxing authorities, government, public and/or private
warehousemen, common and/or private carriers, processors, finishers, draymen,
coopers, dryers, mechanics, artisans, laborers, attorneys, courts, or others.
The Agent may also pay for maintenance and preservation of Collateral. The Agent
may, but is not obligated to, perform or fulfill any of Borrower's
responsibilities under this Agreement which Borrower has failed to perform or
fulfill. The Agent may advance to Borrower as a Revolving Loan any payment made
or expense incurred by the Agent under this Section 7.4.
7.5 Agent's and each Lender's Rights. None of the following shall
affect the obligations of Borrower to the Agent and the Lenders under this
Agreement or the Agent's right with respect to the remaining Collateral or any
Third Party Collateral (any or all of which actions may be taken by the Agent,
with the consent of the Lenders or Required Lenders, if any, pursuant to the
provisions hereof, at any time, whether before or after an Event of Default, at
its sole and absolute discretion and without notice to Borrower):
(a) acceptance or retention by the Agent or any Lender of
other property or interests in property as security for the
Liabilities, or acceptance or retention of any Obligor(s), in addition
to Borrower, with respect to any of the Liabilities;
(b) release of its security interest in, or surrender or
release of, or the substitution or exchange of or for, all or any part
of the Collateral or any Third Party Collateral or any other property
securing any of the Liabilities (including but not limited to any
property of any Obligor other than Borrower), or any extension or
renewal for one or more periods (whether or not longer than the
original period), or release, compromise, alteration or exchange, of
any obligations of any guarantor or other Obligor with respect to any
Collateral or any such property;
(c) extension or renewal for one or more periods (whether or
not longer than the original period), or release, compromise,
alteration or exchange of any of the Liabilities, or release or
compromise of any obligation of any Obligor with respect to any of the
liabilities; or
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(d) failure by the Agent or any Lender to resort to other
security or pursue any Obligor before resorting to the Collateral.
8. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS AND OTHER MATTERS.
8.1 Conditions Precedent to Effectiveness of this Agreement. The
effectiveness of this Agreement and the obligation of each Lender hereunder is
subject to satisfaction of the following conditions precedent (in addition to
those provided in Section 8.2):
8.1.1 Intentionally Omitted.
8.1.2 Security Interest. The security interest in the
Collateral granted under this Agreement and the Related Agreements, and
in any Third Party Collateral, and all other Liens granted to the Agent
to secure the Liabilities, shall be a first-priority, perfected Lien
except as otherwise agreed by the Lenders, and all financing statements
and other documents relating to Collateral and Third Party Collateral
shall have been filed or recorded, as appropriate.
8.1.3 Solvency. After giving effect to the initial Loans made
hereunder, Borrower shall have sufficient assets (excluding goodwill
and other intangible assets not capable of valuation) having a value,
both at present fair salable value and at fair valuation, greater than
the amount of Borrower's liabilities (including trade debt and
Indebtedness to the Lenders). The Lenders shall be satisfied that all
of the assets supporting the Loans under this Agreement shall be
sufficient in value to provide the Borrower with sufficient cash flow
and working capital to enable it to profitably operate its business and
to meet its obligations as they become due.
8.1.4 Blocked Account; Lock Box. To the extent required by the
Agent, Borrower shall have entered into blocked account and/or lock box
agreements with the Agent for the collection and remittance to the
Agent of cash proceeds of Collateral.
8.1.5 Effect of Law. No law or regulation affecting any
Lender's entering into the secured financing transaction contemplated
by this Agreement shall impose upon any Lender any
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material obligation, fee, liability, loss, cost, expense or damage.
8.1.6 Exhibits; Schedules. All Exhibits and Schedules to this
Agreement shall have been completed and submitted to each Lender, shall
be in form and substance satisfactory to each Lender and shall contain
no facts or information which any Lender, in its sole judgment,
determines to be unacceptable.
8.1.7 Fees. If not funded with the proceeds of the initial
Loans, the Agent and the Lenders shall have received fees due and
payable by Borrower in connection with this Agreement or any commitment
letter relating hereto prior to or upon the effectiveness of this
Agreement.
8.1.8 Loan Availability. The outstanding amount of Loans and
any Letters of Credit and the Borrower's request for Loans on the
Closing Date shall be such that after such Loans are made by the
Lenders, the Revolving Loan Availability shall equal or exceed
$6,000,000.
8.1.9 Documents. The Agent shall have received all of the
following, each duly executed where appropriate and dated as of the
Closing Date (or such other date as shall be satisfactory to the
Agent), in form and substance satisfactory to the Agent, and each in
sufficient number of counterparts to provide one to each Lender:
(a) Borrower Resolutions. A copy, duly certified by
the secretary or an assistant secretary of Borrower of (1)
resolutions of the Board of Directors of Borrower authorizing
(A) the borrowings by Borrower hereunder, (B) the execution,
delivery and performance by Borrower of this Agreement, the
Management Loan Agreement and each other Related Agreement to
which Borrower is a party or by which it is bound, and (C)
certain officers or employees of Borrower to request
borrowings by telephone and to execute Borrowing Base
Certificates, (2) all documents evidencing any other necessary
corporate action with respect to this Agreement, the
Management Loan Agreement and the Related Agreements, and (3)
all approvals or consents, if any, with respect to this
Agreement, the Management Loan Agreement and the Related
Agreements;
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(b) Borrower Incumbency Certificate. A certificate of
the secretary of Borrower certifying the names of the officers
of Borrower authorized to sign this Agreement, the Management
Loan Agreement and each other Related Agreement to which
Borrower is a party or by which it is bound, and all other
documents and certificates to be delivered by Borrower
hereunder, together with the true signatures of such officers;
(c) Borrower's Certificate. Certificate of the
President of Borrower certifying that (i) all conditions
precedent required for the effectiveness of this Agreement
have been satisfied, (ii) no Event of Default or Unmatured
Event of Default exists, and (iii) all representations and
warranties made by Borrower in this Agreement and the Related
Agreements are true and correct as of the Closing Date;
(d) Borrower's Bylaws. A copy, duly certified by the
secretary or an assistant secretary of Borrower, of Borrower's
Bylaws;
(e) Borrower's Certificate of Incorporation. A copy,
duly certified by the Secretary of Commonwealth of Virginia of
Borrower's Certificate of Incorporation;
(f) Borrower's Registration; Good Standing. A copy,
duly certified by the applicable Secretary of State of a
certificate of good standing issued by the Secretary of the
State of Delaware and each other state where Borrower is
qualified to do business or where, because of the nature of
its business or properties, qualification to do business is
required;
(g) Legal Opinion. Legal opinion from counsel for
Borrower substantially in the form of Exhibit C attached
hereto;
(h) Insurance. Evidence satisfactory to the Agent of
the existence of insurance on the Collateral, Third Party
Collateral and business of Borrower in amounts and with
insurers acceptable to the Agent, together with evidence
establishing that the Agent is named as a loss payee and/or
additional insured, as applicable, on all related insurance
policies, together with a certificate of
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Borrower's insurance broker or brokers stating that such
insurance coverage is consistent with insurance coverage
maintained by companies engaged in businesses, owning
properties and engaging in operations similar to the
businesses, properties and operations of Borrower; and
(i) Other Documents. Such other documents as the
Agent or any Lender shall determine to be necessary or
desirable, including but not limited to documents described in
Subsections 8.1.9(a), (b), (e), (f), (g), (h) and (i) with
respect to each Obligor other than Borrower.
8.1.10 Repayment of Term Loans. The Term Loans, as that term
is defined in the First Restated Agreement, shall be fully repaid, and
all of Borrower's payment obligations related thereto shall be fully
discharged.
8.2 Continuing Conditions Precedent to all Loans and Letters of Credit;
Certification. The obligation of each Lender to make its initial Loan and each
subsequent Loan and the obligation of the Issuing Bank to issue any Letters of
Credit is subject to satisfaction of the following conditions precedent in
addition to those provided in Section 8.1:
(a) No Change in Condition. No change in the condition or
operations, financial or otherwise, of Borrower, any Subsidiary or any
other Obligor, shall have occurred which change, in the discretion of
each Lender, may have a material adverse effect on Borrower, any
Subsidiary or any other Obligor, or on any Collateral or Third Party
Collateral or the ability of Borrower, any Subsidiary or any other
Obligor to perform its obligations hereunder or under any Related
Agreement;
(b) Default. Before and after giving effect to such Loan, no
Event of Default or Unmatured Event of Default shall have occurred and
be continuing;
(c) Insurance. There shall have been no material change, or
notice of prospective material change (whether such notice is formal or
informal), in the nature, extent, scope or cost of the insurance
policies of the Borrower or any Subsidiary listed on Schedule 4.7 which
change would have a material adverse effect on the financial condition
of Borrower, any Subsidiary or Borrower and its Subsidiaries taken as a
whole, or would
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materially adversely affect Borrower's ability to perform its
obligations under this Agreement, any Note(s), or any Related Agreement
to which it is a party or by which it is bound;
(d) Warranties. Before and after giving effect to such Loan,
the warranties in Section 4 shall be true and correct as though made on
the date of such Loan, except for such changes as are specifically
permitted hereunder;
(e) No Material Transaction. None of Borrower, and Subsidiary
or any other Obligor shall have entered into any material (as
determined by the Required Lenders) commitment or transaction,
including, without limitation, transactions for borrowings and capital
expenditures, which are not in the ordinary course of their respective
businesses; and
(f) Accounting Methods. Borrower shall not have made any
material (as determined by the Required Lenders) change in its
accounting methods or principles except as required by GAAP.
Each request for a Loan hereunder made or deemed to have been made by
Borrower or request for the issuance of a Letter of Credit shall be deemed to be
a certificate of Borrower as to the matters set out in the foregoing provisions
of this Section 8.2.
9. INDEMNITY.
9.1 Environmental and Safety and Health Indemnity. Borrower hereby
indemnifies the Agent and each Lender and agrees to hold the Agent and each
Lender harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever
(including, without limitation, court costs and Attorneys' Fees) which at any
time or from time to time may be paid, incurred or suffered by, or asserted
against, the Agent or such Lender for, with respect to, or as a direct or
indirect result of the violation by Borrower or any of its Subsidiaries of any
Environmental Law or Occupational Safety and Health Law, or with respect to, or
as a direct or indirect result of (i) the presence on, around or under, or the
escape, seepage, leakage, spillage, disposal, discharge, emission or release
from, properties utilized by Borrower and/or any Subsidiary in the conduct of
its business into or upon any land, the atmosphere, or any watercourse, body of
water or wetland, of any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other
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substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any Environmental
Law) or (ii) the existence of any unsafe or unhealthful condition on or at any
premises utilized by Borrower and/or any Subsidiary in the conduct of its
business. The provisions of and undertakings and indemnification set out in this
Section 9.1 shall survive satisfaction and payment of the Liabilities and
termination of this Agreement.
9.2 General Indemnity. In addition to the payment of expenses pursuant
to Section 12.3, whether or not the transactions contemplated hereby shall be
consummated, Borrower agrees to indemnify, pay and hold the Agent and each
Lender and any holder of any Notes, and the officers, directors, employees,
agents, and affiliates of the Agent and each Lender and such holders
(collectively, the "Indemnitees") harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for any of such Indemnitees in connection with any investigative, administrative
or judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto) that may be imposed on,
incurred by, or asserted against any Indemnitee, in any manner relating to or
arising out of this Agreement, any Related Agreement or any other agreements
executed and delivered by Borrower or any other Obligor in connection herewith,
the statements contained in any commitment letter delivered by any Lender, any
Lender's agreement to make the Loans or to issue any Letters of Credit
hereunder, the use or intended use of any Letters of Credit, or the use or
intended use of the proceeds of any of the Loans hereunder (the "indemnified
liabilities"); provided that Borrower shall have no obligation to an Indemnitee
hereunder with respect to indemnified liabilities arising from the gross
negligence or willful misconduct of such Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it violates any law or public policy,
Borrower shall contribute the maximum portion that it is permitted to pay under
applicable law to the payment and satisfaction of all indemnified liabilities
incurred by the Indemnitees or any of them. The provisions of the undertakings
and indemnification set out in this Section 9.2 shall survive satisfaction and
payment of the Liabilities and termination of this Agreement.
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9.3 Capital Adequacy. If any Lender shall reasonably determine that the
application or adoption of any law, rule, regulation, directive, interpretation,
treaty or guideline regarding capital adequacy, or any change therein or in the
interpretation or administration thereof, whether or not having the force or law
(including, without limitation, application of changes to Regulation H and
Regulation Y of the Federal Reserve Board issued by the Federal Reserve Board on
January 19, 1989 and regulations of the Comptroller of the Currency, Department
of the Treasury, 12 CFR Part 3, Appendix A, issued by the Comptroller of the
Currency on January 27, 1989) increases the amount of capital required or
expected to be maintained by such Lender or any Person controlling such Lender,
and such increase is based upon the existence of such Lender's obligations
hereunder and other commitments of this type, then from time to time, within ten
(10) days after demand from such Lender, Borrower shall pay to such Lender such
amount or amounts as will compensate such Lender or such controlling Person, as
the case may be, for such increased capital requirement. The determination of
any amount to be paid by Borrower under this Section 9.3 shall take into
consideration the policies of each Lender or any Person controlling such Lender
with respect to capital adequacy and shall be based upon any reasonable
averaging, attribution and allocation methods. A certificate of each Lender
setting forth the amount or amounts as shall be necessary to compensate such
Lender as specified in this Section 9.3 shall be delivered to Borrower and shall
be conclusive in the absence of manifest error.
9.4 Indemnity Related to Eurodollar Rate Loans. In the event the
Lenders shall incur any loss, cost or expense (including, without limitation,
any reduction in the rate of return on the Lenders' capital, loss of profit and
any loss, cost, expense or premium incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Lenders to fund or
maintain any Eurodollar Rate Loan or the relending or reinvesting of such
deposits or amounts paid or prepaid to the Lenders) as a result of any of the
following events, the Borrower shall pay to the Lenders, upon the demand of the
Lenders, such amount as will reimburse the Lenders for such loss, cost or
expense:
(a) any payment or prepayment of a Eurodollar Rate Loan on a
date other than the last day of its Interest Period whether on account
of acceleration, mandatory prepayment or otherwise;
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(b) any failure by the Borrower to borrow a Eurodollar Rate
Loan on the date specified in a Notice of Borrowing given by the
Borrower to the Lenders;
(c) any failure by the Borrower to make any payment of
principal on any Eurodollar Rate Loan when due (whether by acceleration
or otherwise);
(d) the occurrence of any Event of Default hereunder; or
(e) any Change in Law with respect to the Lenders' capital
adequacy has or would have the effect of reducing the rate of return on
the Lenders' capital, as a consequence of its Loan or as a consequence
of its obligation hereunder to make or maintain Eurodollar Rate Loans,
to a level below that which the Lenders could have achieved but for
such Change in Law;
If the Lenders make such a claim for compensation, it shall provide by
an officer of each of the Lenders setting forth the amount of such
loss, cost or expense in reasonable detail (including an explanation of
the basis for and the computation of such loss, cost or expense) and
the amounts shown on such certificate shall be conclusive and binding
absent manifest error.
10. THE AGENT.
10.1 Authorization. Each Lender hereby authorizes and appoints the
Agent to act on behalf of such Lender to the extent provided herein or in any
document or instrument delivered hereunder or in connection herewith, and to
take such other action as may be reasonably incidental thereto. As to any other
matters not expressly provided for by this Agreement or any document or
instrument delivered hereunder or in connection herewith, the Agent shall not be
required to exercise any discretion or take any action. Each Lender authorizes
and directs the Agent to enter into the Related Agreements relating to the
Collateral for the benefit of such Lender. Each Lender agrees that any action
taken by the Agent or Required Lenders in accordance with the terms of this
Agreement or the other Related Agreements relating to the Collateral, and the
exercise by the Agent or the Required Lenders of their respective powers set
forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be authorized and binding upon all of the Lenders.
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10.2 Indemnification. Each Lender agrees to reimburse and indemnify the
Agent for, and hold the Agent harmless against, a share (determined, in
accordance with such Lender's Percentage) of any loss, damages, penalty, action,
judgment, obligation, cost, disbursement, liability or expense (including
Attorneys' Fees and the costs and expenses of defending against any claim
against the Agent arising hereunder or thereunder) incurred without gross
negligence or willful misconduct on the part of the Agent arising out of or in
connection with the performance of its obligations or the exercise of its powers
hereunder or under any document or instrument delivered hereunder or in
connection herewith.
10.3 Exculpation. The Agent shall be entitled to rely upon advice of
counsel concerning legal matters, and upon this Agreement and any Note,
schedule, certificate, statement, report, notice or other writing which it
believes to be genuine or to have been presented by a proper Person. Neither the
Agent nor any of its directors, officers, employees or agents shall (i) be
responsible for any recitals, representations or warranties contained in, or for
the execution, validity, genuineness, effectiveness or enforceability of, this
Agreement, any Note, any Related Agreement or any other instrument or document
delivered hereunder or in connection herewith, (ii) be responsible for the
validity, genuineness, perfection, effectiveness, enforceability, existence,
value or enforcement of any collateral security, (iii) be under any duty to
inquire into or pass upon any of the foregoing matters, or to make any inquiry
concerning the performance by Borrower or any other Obligor of its obligations,
(iv) be responsible for any determination made by it or them as to whether or
not the transactions contemplated hereby or the obligations of Borrower
hereunder or any other obligations of Borrower or its affiliates qualify as a
highly leveraged transaction, as such term is defined in Comptroller of the
Currency Banking Circular 242 and interpreted in the February 6, 1990 joint
statement of the Comptroller of the Currency, the Federal Reserve Board and the
Federal Deposit Insurance Corporation, as further amended, interpreted or
otherwise modified from time to time, or (v) in any event, be liable as such for
any action taken or omitted by it or them (including, without limitation, any
action taken or omitted hereunder pursuant to any provision of this Agreement or
any Related Agreement that permits the Agent to exercise its discretion) except
for its or their own gross negligence or willful misconduct. In any event, the
Agent shall at all times be entitled to act or refrain from acting, and in all
cases shall be fully protected in acting or refraining from acting, if the Agent
acts or refrains from acting in accordance with written instructions from the
Required
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Lenders. The agency hereby created shall in no way impair or affect any of the
rights and powers of, or impose any duties or obligations upon, the Agent in its
individual capacity.
10.4 Credit Investigation. Each Lender acknowledges that it has made
such inquiries and taken such care on its own behalf as would have been the case
had such Lender's commitment been granted and such Lender's Loans and other
financial accommodations to Borrower made directly by such Lender to Borrower
without the intervention of the Agent or any other Lender. Each Lender agrees
and acknowledges that (i) the Agent makes no representations or warranties about
the credit-worthiness of Borrower, any other Obligor or any other party to this
Agreement or with respect to the legality, validity, sufficiency or
enforceability of this Agreement, any Note or any Related Agreement or the value
of any Collateral or other security therefor and (ii) except to the extent
otherwise expressly provided herein, the Agent has no duty or responsibility to
provide such Lender with any credit or other information concerning the affairs,
financial condition or business of Borrower or any other Person that may come
into the Agent's possession; provided, however, the Agent and each Lender shall
provide each other Lender and the Agent, as the case may be, with any
information of which it or they have actual knowledge regarding events or
circumstances which the recipient of such information determines is likely to
have a material adverse effect on the financial or other condition of Borrower
or any of its Subsidiaries or its or their ability to pay the Liabilities or to
perform its or their obligations hereunder or under any Related Agreement. If
and to the extent that the Agent provides any Lender with copies of documents or
information as a result of any field examination, collateral audit or other
investigation by the Agent with respect to this Agreement, any Related
Agreement, any Collateral, such Lender agrees that such documents are provided
without any representation or warranty by the Agent as to the validity, accuracy
or completeness thereof, and such Lender shall have no claim against the Agent
with respect thereto for any reason whatsoever.
10.5 Agent and Affiliates. The Agent shall have the same rights and
powers hereunder as any other Lender and may exercise or refrain from exercising
the same as though it were not the Agent, and the Agent and its affiliates may
accept deposits from and generally engage in any kind of business with Borrower
or any affiliate thereof as if the Agent were not the Agent hereunder.
10.6 Resignation.
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(a) The Agent may resign as such at any time upon at least
forty-five (45) days' prior notice to Borrower and the Lenders. In the
event of any such resignation, the Lender with the largest Percentage
(other than Continental) shall become the successor Agent unless such
Lender shall decline to become the successor Agent, in which case the
Lenders (other than Continental) shall as promptly as practicable
appoint a successor Agent. If no successor shall have been so
appointed, and shall have accepted such appointment, within forty-five
(45) days after the giving of notice of such resignation, then the
retiring Agent may (but shall not be required to), on behalf of the
Lenders, appoint a successor Agent, which shall be a financial
institution with capital and surplus not less than $100,000,000. Such
successor Agent shall purchase, and Continental shall be obligated to
sell, such amount of Continental's interest in the Loans and other
Liabilities, including without limitation, all Letter of Credit
Obligations or Stock Purchase L/C Obligations then outstanding, so that
as a result of such purchase the successor Agent shall have a
Percentage at least equal to Continental's Percentage, after giving
effect to such purchase; provided, however, that the Lender with the
largest Percentage (other than Continental) may become the successor
Agent without any obligation to purchase any of Continental's interest
in the Loan. 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 rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from all
further duties and obligations under this Agreement. After any
resignation pursuant to this Section 10.6, the provisions of this
Section 10 shall inure to the benefit of the retiring Agent as to any
actions taken or omitted to be taken by it while it was Agent
hereunder.
(b) All the Lenders (other than Continental), and the
Borrower, may request the resignation of the Agent for cause by written
notice to the Agent signed by each Lender (other than Continental) and
Borrower, stating the grounds upon which they intend to relieve the
Agent of its duties and obligations hereunder and under the Related
Agreements. Upon such request, the Agent agrees to resign, and such
resignation shall become effective, only upon satisfaction of all of
the following conditions precedent: (i) the Lenders (other than
Continental) and Borrower shall have unanimously appointed a successor
agent to assume the Agent's responsibilities, rights, duties and
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obligations hereunder and under the Related Agreements; (ii) such
successor shall have acknowledged, executed and/or delivered to the
Agent, the Lenders and Borrower such instruments, documents and
agreements as the Agent may require, in form and substance satisfactory
to Agent and its counsel, accepting such appointment and assuming the
Agent's responsibilities, rights, duties and obligations hereunder and
under the Related Agreements; (iii) such successor shall have purchased
and Continental shall be obligated to sell such amount of Continental's
interest in the Loans and other Liabilities, including without
limitation, all Letter of Credit Obligations and Stock Purchase L/C
Obligations then outstanding so that as a result of such purchase the
successor Agent shall have a Percentage at least equal to Continental's
Percentage, after giving effect to such purchase. Upon satisfaction of
the foregoing conditions precedent, the successor agent shall succeed
to and become vested with all of the responsibilities, rights, duties
and obligations of the Agent, and Continental shall be discharged
therefrom, and the provisions of this Section 10 shall inure to the
benefit of Continental as to any actions taken or omitted to be taken
by it while it was Agent hereunder.
In each such instance the resigning Agent shall cooperate with the
successor Agent and shall make available to such successor Agent all books and
records, including computer records, in Agent's possession and relating to the
administration of the Loans in its capacity as Agent.
11. ADDITIONAL PROVISIONS.
Additional provisions are set forth in Supplement A.
12. GENERAL.
12.1 Borrower Waiver. Except as otherwise provided for in this
Agreement, Borrower waives (i) presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, one or more extensions or renewals of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by the Agent or any
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Lender on which Borrower may in any way be liable and hereby ratifies and
confirms whatever the Agent or any Lender may do in this regard; (ii) all rights
to notice and a hearing prior to the Agent's taking possession or control of, or
the Agent's relevy, attachment or levy on or of, the Collateral or any bond or
security which might be required by any court prior to allowing the Agent to
exercise any of the Agent's remedies and (iii) the benefit of all valuation,
appraisement and exemption laws. Borrower acknowledges that it has been advised
by counsel of its choice with respect to this Agreement and the transactions
evidenced by this Agreement.
12.2 Power of Attorney. Borrower appoints the Agent, or any Person whom
the Agent may from time to time designate, as Borrower's attorney and
agent-in-fact with power (which appointment and power, being coupled with an
interest, is irrevocable until all Liabilities are paid and performed in full
and this Agreement is terminated), without notice to Borrower, to:
(a) At such time or times hereafter as the Agent or said
agent, in its discretion, may determine in Borrower's or the Agent's
name (i) endorse Borrower's name on any checks, notes, drafts or any
other items of payment relating to and/or proceeds of the Collateral
which come into the possession of the Agent or under the Agent's
control and apply such payment or proceeds to the Liabilities; (ii)
endorse Borrower's name on any chattel paper, document, instrument,
invoice, freight bill, bill of lading or similar document or agreement
in the Agent's possession relating to Accounts Receivable, Inventory or
any other Collateral; (iii) use the information recorded on or
contained in any data processing equipment and computer hardware and
software to which Borrower has access relating to Accounts Receivable,
Inventory and/or other Collateral; (iv) use Borrower's stationery and
sign the name of Borrower to verification of Accounts Receivable and
notices thereof to Account Debtors and (v) if not done by Borrower, do
all acts and things determined by the Agent or the Required Lenders to
be necessary, to fulfill Borrower's obligations under this Agreement;
and
(b) At such time or times after the occurrence of an Event of
Default, as the Agent or said agent, in its discretion, may determine,
in Borrower's or the Agent's name: (i) demand payment of the Accounts
Receivable; (ii) enforce payment of the Accounts Receivable, by legal
proceedings or otherwise; (iii) exercise all of Borrower's rights and
remedies with respect to the collection of the Accounts Receivable and
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other Collateral; (iv) settle, adjust, compromise, extend or renew the
Accounts Receivable; (v) settle, adjust or compromise any legal
proceedings brought to collect the Accounts Receivable; (vi) if
permitted by applicable law, sell or assign the Accounts Receivable
and/or other Collateral upon such terms for such amounts and at such
time or times as the Agent may deem advisable; (vii) discharge and
release the Accounts Receivable and/or other Collateral; (viii)
prepare, file and sign Borrower's name on any proof of claim in
bankruptcy or similar document against any Account Debtor; (ix)
prepare, file and sign Borrower's name on any notice of lien,
assignment or satisfaction of lien or similar document in connection
with the Accounts Receivable and/or other Collateral and (x) do all
acts and things necessary, in the Agent's discretion, to obtain
repayment of the Liabilities and to fulfill Borrower's other
obligations under this Agreement.
12.3 Expenses; Attorneys' Fees. Borrower agrees, whether or not any
Loan is made hereunder, to pay upon demand all Attorneys' Fees and all other
reasonable expenses incurred by the Agent or any Lender in connection with (a)
in the case of the Agent, (i) the preparation, negotiation and execution of this
Agreement, any Related Agreement and any document required to be furnished in
connection herewith or therewith, (ii) the preparation of any and all amendments
to this Agreement or any of the Related Agreements and all other instruments or
documents provided for therein or delivered or to be delivered thereunder or in
connection therewith, and (b) in the case of the Agent and each Lender, (I) the
collection or enforcement of Borrower's or any other Obligor's obligations
hereunder or under any Related Agreement and (II) the collection or enforcement
of any rights of the Agent or any Lender in or to any Collateral or Third Party
Collateral. The Agent may advance all such amounts to Borrower as a Revolving
Loan. Borrower also agrees (X) to indemnify and hold the Agent and each Lender
harmless from any loss or expense which may arise or be created by the Agent's
acceptance of telephonic or other instructions for making Loans and (Y) to pay,
and save the Agent and each Lender harmless from all liability for, any stamp or
other taxes which may be payable with respect to the execution or delivery of
this Agreement, or any Related Agreement or Supplemental Documentation, or the
issuance of any Note or of any other instruments or documents provided for
herein or to be delivered hereunder or in connection herewith. Borrower's
foregoing obligations shall survive any termination of this Agreement.
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12.4 Agent's Fees and Charges. Borrower agrees to pay the Agent on
demand the customary fees and charges of the Agent for maintenance of accounts
with the Agent or for providing other services to Borrower. The Agent may, in
its sole and absolute discretion, provide for such payment by advancing the
amount thereof to Borrower as a Revolving Loan.
12.5 Lawful Interest. In no contingency or event whatsoever shall the
interest rate charged pursuant to the terms of this Agreement exceed the highest
rate permissible under any law which a court of competent jurisdiction shall, in
a final determination, deem applicable hereto. In the event that such a court
determines that any Lender has received interest hereunder in excess of the
highest applicable rate, such Lender shall promptly refund such excess interest
to Borrower.
12.6 No Waiver by the Agent or Lenders; Amendments. No failure or delay
on the part of the Agent or any Lender in the exercise of any power or right,
and no course of dealing between Borrower and the Agent or any Lender, shall
operate as a waiver of such power or right, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power or right. The remedies provided for herein are
cumulative and not exclusive of any remedies which may be available to the Agent
or any Lender at law or in equity. No notice to or demand on Borrower not
required hereunder shall in any event entitle Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
right of the Agent or any Lender to any other or further action in any
circumstances without notice or demand. No amendment, modification or waiver of,
or consent with respect to, any provision of this Agreement or any Related
Agreement shall in any event be effective unless the same shall be in writing
and signed and delivered by the Agent and signed and delivered by Lenders having
an aggregate Percentage of not less than the aggregate Percentage expressly
designated herein with respect thereto or, in the absence of such designation,
as to any provision of this Agreement or any Related Agreement, by the Required
Lenders, and then any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No amendment, modification, waiver or consent (i) shall extend or
increase the amount of the commitment hereunder of any Lender, extend the due
date for any amount payable hereunder, reduce or waive any fee payable to or for
the account of the Lenders hereunder, reduce the rate of interest payable with
respect to any Loan,
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any reimbursement obligation or the amount of any payment of principal or reduce
the aggregate Percentage required to effect an amendment, modification, waiver
or consent, amend the definition of "Required Lenders", amend the conditions for
drawing the Stock Purchase L/C, release any Collateral or amend or modify any of
Sections 2.15, 2.17, 9, 12.6 or 12.9 without the consent of all of the Lenders
or (ii) shall extend the maturity or reduce the principal amount of, or rate of
interest on, any Loan without the consent of the holder of such Loan. No
provisions of Section 10 shall be amended, modified or waived without the
consent of the Agent.
12.7 Termination of Credit. Borrower may terminate the Credit at any
time upon two (2) Banking Days prior written notice to the Agent and the Lenders
and payment in full of the outstanding principal balance of the Loans and all
other Liabilities and receipt by the Agent of cash Collateral in the amount of
the Letter of Credit Obligations. All of the Agent's and the Lenders' rights and
remedies, the liens and security interests of the Agent in the Collateral and
all of Borrower's duties and obligations under this Agreement shall survive
termination of the Credit extended to Borrower hereunder until all of the
Liabilities hereunder have been finally paid and performed in full. The
termination or cancellation of the Credit shall not affect or impair the
liabilities and obligations of Borrower or any one or more of the Obligors to
the Agent and the Lenders, or the Agent's and the Lenders' rights with respect
to any Loans and advances made and other Liabilities incurred prior to such
termination or with respect to the Collateral or any Third Party Collateral.
12.8 Notices. Except as otherwise expressly provided herein, any notice
hereunder to Borrower, the Agent or any Lender shall be in writing (including
telegraphic, telex, or facsimile communication) and shall be given to Borrower,
the Agent or such Lender at its address, telex number or facsimile number set
forth on the signature pages hereof or at such other address, telex number or
facsimile number as such party may, by written notice, designate as its address,
telex number or facsimile number for purposes of notices hereunder. All such
notices shall be deemed to be given when transmitted by telex and the
appropriate answerback is received, transmitted by facsimile and receipt thereof
confirmed by telephone, delivered to the telegraph office, delivered by courier,
personally delivered or, in the case of notice by mail, three (3) Banking Days
following deposit in the United States mails, properly addressed as herein
provided, with proper postage prepaid; provided,
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however, that notice to the Agent of Borrower's intent to terminate the Credit
shall not be effective until actually received by the Agent.
12.9 Assignments and Participations.
(a) Except as set forth in subsection (b) below, none of the
Lenders may sell all or any portion of the Loans owing it under this
Agreement or any participating interest therein; provided, however, any
Lender may, at any time, assign and delegate to one or more commercial
banks or other financial institutions (each such Person to whom such
assignment and delegation is to be made being herein referred to as an
"Assignee"), an interest in such Lender's Loans, participation
interests in Letters of Credit and commitments hereunder, provided:
(i) each such assignment shall be of a constant, and
not a varying, percentage of the assigning Lender's rights and
obligations so assigned;
(ii) the amount of any commitment being assigned
pursuant to such assignment (determined as of the date and
acceptance with such assignment) shall in no event be less
than $5,000,000 and shall be an integral multiple of $500,000;
(iii) such assignment shall be to an Eligible
Assignee;
(iv) after giving effect to such assignment, the
assigning Lender shall have a commitment hereunder of not less
than $5,000,000; and
(v) the assigning Lender shall have concurrently
assigned the same percentage of its interest under the
Management Loan Agreement to the same assignee.
The parties to any such assignment shall execute and deliver
to the Agent, for its acceptance and recording, an Assignment and
Acceptance and a processing and recordation fee of $3,000.
Upon receipt of the foregoing Assignment and Acceptance, (x)
the Assignee shall be deemed automatically to have become
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a party hereto and to the extent that rights and obligations hereunder
have been assigned and delegated to such Assignee shall have the rights
and obligations of a Lender hereunder and under the other instruments
and documents executed in connection herewith, and (y) the assigning
Lender, to the extent that rights and obligations hereunder have been
assigned and delegated by it, shall be released from its obligations
hereunder. Any attempted assignment and delegation not made in
accordance with this Section 12.9 shall be null and void.
(b) Each Lender may sell participations to one or more banks
or other entities in or to all or a portion of the Loans owing to it;
provided, however, that (i) Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, and (iii) the Borrower, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement.
12.10 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.11 Successors. This Agreement shall be binding upon Borrower, the
Agent and the Lenders and their respective successors and assigns, and shall
inure to the benefit of Borrower, the Agent and the Lenders and the successors
and assigns of the Agent and the Lenders. Borrower shall not assign its rights
or duties hereunder without the consent of the Agent and the Lenders.
12.12 Construction. Borrower acknowledges that this Agreement shall not
be binding upon the Agent and the Lenders or become effective until and unless
accepted by the Agent and the Lenders, in writing. If so accepted by the Agent
and the Lenders, this Agreement and the Related Agreements and Supplemental
Documents shall, unless otherwise expressly provided therein, be deemed to have
been negotiated and entered into in, and shall be governed and controlled by the
laws of, the State of Illinois as to interpretation, enforcement, validity,
construction, effect, choice of law, and in all other respects, including, but
not limited to, the legality of the interest rate and other charges, but
excluding perfection of
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security interests and liens which shall be governed and controlled by the laws
of the relevant jurisdiction.
12.13 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS.
12.14 Consent to Jurisdiction. To induce the Agent and the Lenders to
accept this Agreement, Borrower irrevocably agrees that, subject to the Agent
and the Lenders' sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY
WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE
RELATED AGREEMENTS, OR THE SUPPLEMENTAL DOCUMENTATION OR THE COLLATERAL SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS.
BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS UPON BORROWER, AND AGREES THAT ALL SUCH SERVICE OF PROCESS
MAY BE MADE BY REGISTERED MAIL DIRECTED TO BORROWER AT THE ADDRESS STATED ON THE
SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT THEREOF.
12.15 Subsidiary Reference. Any reference herein to a Subsidiary or
Subsidiaries of Borrower, and any financial definition, ratio, restriction or
other provision of this Agreement which is stated to be applicable to "Borrower
and its Subsidiaries" or which is to be determined on a "consolidated" or
"consolidating" basis, shall apply only to the extent Borrower has any
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with Borrower for financial reporting purposes.
12.16 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Agreement.
12.17 Confidentiality. Each Lender shall hold all information with
respect to Borrower or any Subsidiary that is obtained pursuant to or in
connection with this Agreement in accordance with its customary procedures for
handling confidential information of such nature; it being understood that any
Lender may disclose such information (x) to any of its examiners, affiliates,
outside auditors, counsel and other professional advisors in connection with
this Agreement, (y) in the case of any Lender to, or any actual or prospective
Assignee or (z) as required or requested by any
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governmental agency or representative thereof or pursuant to legal process;
provided, however, that
(a) unless specifically prohibited by applicable law or court
order, each Lender shall notify Borrower of any request by any
governmental agency or representative thereof (other than any such
request in connection with an examination of the financial condition of
such Lender by such governmental agency) for disclosure of any such
information prior to disclosure of such information; and
(b) prior to any disclosure by a Lender to an actual or
prospective Assignee, such Lender shall require such Assignee or
Participant to agree in writing
(i) to be bound by this Section 12.17; and
(ii) to require any other Person to whom such
Assignee discloses such information to be similarly bound by
this Section 12.17.
Except as may be required by an order of a court of competent jurisdiction and
to the extent set forth therein, no Lender shall be obligated or required to
return any materials furnished by Borrower or any Subsidiary.
Notwithstanding the foregoing, any Lender or Assignee may disclose any
information that (i) becomes publicly available other than as a result of a
breach of this Agreement, (ii) becomes available to such Lender or Assignee on a
nonconfidential basis from a source other than Borrower or a Subsidiary and not
in contravention of any other confidentiality obligations of which such Lender
or Assignee has actual acknowledge or (iii) was available to such Lender or
Assignee on a nonconfidential basis prior to its disclosure to such Lender or
Assignee by Borrower or a Subsidiary.
12.18 WAIVER OF JURY TRIAL; WAIVER OF CONSEQUENTIAL DAMAGES. EACH OF
BORROWER, THE AGENT AND EACH LENDER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (i) UNDER THIS AGREEMENT OR
ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (ii)
ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
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NEITHER BORROWER NOR ANY LENDER NOR THE AGENT SHALL BE LIABLE TO THE
OTHER FOR CONSEQUENTIAL DAMAGES ARISING FROM ANY BREACH OF CONTRACT, TORT OR
OTHER WRONG RELATING TO THE ESTABLISHMENT, ADMINISTRATION OR COLLECTION OF THE
LIABILITIES OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY RELATED AGREEMENT OR
UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN
THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR THE ACTION OR INACTION OF
BORROWER UNDER ANY ONE OR MORE HEREOF OR THEREOF.
12.19 CONNECTICUT PREJUDGMENT WAIVER. EACH BORROWER ACKNOWLEDGES THAT
THE TRANSACTIONS EVIDENCED HEREBY ARE PART OF COMMERCIAL TRANSACTIONS AND, TO
THE MAXIMUM EXTENT ALLOWED UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278A
TO 52-278M INCLUSIVE OR ANY OTHER APPLICABLE LAW, HEREBY WAIVES: (A) ALL RIGHTS
TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER IN CONNECTION WITH ANY AND ALL
PREJUDGMENT REMEDIES TO WHICH LENDERS OR THEIR SUCCESSORS OR ASSIGNS MAY BE
ENTITLED TO BY VIRTUE OF ANY DEFAULT OR OTHER PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT, AND (B) ALL RIGHTS TO REQUEST THAT LENDERS OR THEIR
SUCCESSORS OR ASSIGNS TO POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT ANY OF
THE BORROWERS AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY
SOUGHT OR OBTAINED BY VIRTUE OF ANY EVENT OF DEFAULT OR UNMATURED EVENT OF
DEFAULT HEREUNDER OR UNDER ANY RELATED AGREEMENT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
EXECUTONE INFORMATION SYSTEMS, INC.
By: /s/A.R. Guarascio
Title:
Address:
478 Wheelers Farms Road
Milford, Connecticut 06460
Telephone: 203-876-7600
Telecopier: 203-882-0400
Attention:Barbara Anderson, Esq.
Commitment
$25,000,000 CONTINENTAL BANK (formerly known as
Continental Bank NA., an Illinois
Banking Corporation, individually
and as Agent
By: /s/Brian Cullina
Title: V.P.
Address:
231 South LaSalle Street
Chicago, Illinois 60697
Telephone: 312-828-2345
Telecopier: 312-828-7327
Attention: Business Credit Group
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Commitment
$20,000,000 FLEET BANK N.A.
By: /s/William H. Creaser
Title: V.P.
Address:
Structured Finance Group
CTHMM02B
One Constitution Plaza
Hartford, Connecticut 06115
Telephone: 203-644-6144
Telecopier: 203-244-4495
Attention: William Creaser
Commitment
$10,000,000 BANK OF BOSTON CONNECTICUT
By: /s/D.R. Toussaint
Title: S.V.P.
Address:
One Landmark Square
Suite 2002
Stamford, Connecticut 06901
Telephone: 203-967-3888
Telecopier: 203-967-8169
Attention: John McCabe
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LIST OF EXHIBITS AND SCHEDULES
Exhibits:
Exhibit A Form of Borrowing Base Certificate (ss.2.5(d))
Exhibit B Form of Assignment and Acceptance Agreement
Exhibit C Form of Borrower's Counsel's Opinion
Exhibit D Form of Insurance Endorsement (ss.5.6)
Exhibit E Form of Notice of Conversion
Exhibit F Form of Notice of Borrowing
Schedules:
Schedule 4.1 Borrower Trade Names, State of Incorporation &
Qualification
Schedule 4.7 Insurance Summary
Schedule 4.8 Schedule of Litigation & Contingent Liabilities
Schedule 4.9 Schedule of Liens
Schedule 4.10 Schedule of Subsidiaries
Schedule 4.11 Schedule of Partnerships & Joint Ventures
Schedule 4.12 Schedule of Business & Collateral Locations
Schedule 4.13 Schedule of Real Property Descriptions and Owners
Schedule 4.15 Schedule of Leases
Schedule 4.16 Schedule of Patents, Trademarks & Copyrights
Schedule 4.18 Schedule of Labor Matters
Schedule 4.19 Schedule of Contingent Employee Benefit Plan
Liabilities
Schedule 4.21 Schedule of Noncompliance
Schedule 4.25 Schedule of Environmental Matters
Schedule 4.27 Schedule of Collection Accounts
Schedule 5.15 Schedule of Indebtedness
Schedule 5.18 Schedule of Investments
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SUPPLEMENT A
to
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Dated as of August 30, 1994, Between
EXECUTONE INFORMATION SYSTEMS, INC. as Borrower ("Borrower"),
CONTINENTAL BANK, FLEET BANK N.A., and BANK OF BOSTON
CONNECTICUT (collectively, "Lenders"), and
CONTINENTAL BANK, in its capacity
as agent for the Lenders ("Agent").
1. Loan Agreement Reference. This Supplement A, as it may be amended or modified
from time to time in accordance with the below-referred Loan Agreement, is a
part of the Second Amended and Restated Loan and Security Agreement dated as of
August 30, 1994 between Borrower, Agent and Lenders (together with all
amendments, restatements, modifications and supplements thereof, the "Loan
Agreement").
2. Definitions. Terms used herein which are defined in the Loan Agreement shall
have the meaning ascribed to them therein unless the context requires otherwise.
In addition, the following terms shall have the following meanings:
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Rate" means, for the Interest Period for each Loan
made at the Eurodollar Rate, an interest rate per annum obtained by
dividing (i) the average (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such average is not such a multiple) of the
rates per annum at which deposits in dollars are offered by the
principal office of Continental in London, England to prime banks in
the London interbank market at 11:00 A.M. (London time) two (2) Banking
Days before the first day of such Interest Period in an amount
substantially equal to the Loan made at the Eurodollar Rate and for a
period equal to such Interest Period by (ii) a percentage equal to 100%
minus the Eurodollar Rate Reserve Percentage for such Interest Period.
The Eurodollar Rate for the Interest Period for each Loan made at the
Eurodollar Rate shall be determined by the Agent two (2) Banking Days
before the first day of such Interest Period.
"Eurodollar Rate Reserve Percentage" for the Interest Period
for any Loan made at the Eurodollar Rate means the reserve percentage
applicable during such Interest Period (or if more than one such
percentage shall be so applicable, the daily average of such
percentages for those days in such Interest Period during which any
such percentage shall be so applicable) under regulations issued from
time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement
(including, without limitation, any emergency, supplemental or other
marginal reserve requirement) for Continental with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
"Interest Period" means, for each Loan made at the Eurodollar
Rate, the period commencing on the date of such Loan and ending on the
last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
one, two or three months as the Borrower may select, upon notice
received by the Agent in accordance with Section 2.5 of the Loan
Agreement; provided, however, that whenever the last day of any
Interest Period would otherwise occur on a day other than a Banking
Day, the last day of such Interest Period shall be extended to occur on
the next succeeding Banking Day; provided, that if such extension would
cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall
occur on the next preceding Banking Day.
"Notice of Conversion" shall have the meaning ascribed to such
term in Section 4.2.1 of this Supplement.
3. Borrowing Base.
3.1 Borrowing Base. The term "Borrowing Base" as used in the Loan
Agreement, at the time of determination thereof pursuant to the Borrowing Base
Certificate most recently delivered under Section 2.5(c) of the Loan Agreement,
shall mean:
(i) an amount of up to 80% of the net amount (after deduction
of such reserves and allowances as the Agent, in its discretion,
determines from time to time to be appropriate, following such
consultation with the Required Lenders as the
A-2
Agent, in its sole discretion, determines to be appropriate) of
Borrower's Eligible Accounts Receivable, plus
(ii) an amount of up to the lesser of (A) 40% of the net value
(as determined by the Agent and after deduction of such reserves and
allowances as the Agent in its discretion, determines from time to time
to be appropriate, following such consultation with the Required
Lenders as the Agent, in its sole discretion, determines to be
appropriate) of Borrower's Eligible Inventory, or (B) 100% of
Borrower's Eligible Accounts Receivable.
3.2 Agent's Discretion. Notwithstanding anything to the contrary in
this Section 3, Agent reserves the right, in its discretion, to at any time
reduce any of the percentages or dollar amounts set forth in Section 3.1 above.
Borrower agrees that nothing contained in this Supplement A (i) shall be
construed as Agent's agreement to resort or look to a particular type or item of
Collateral as security for any specific Loan or advance or in any way limit
Agent's right to resort to any or all of the Collateral as security for any of
the Liabilities, (ii) shall be deemed to limit or reduce any Lien on or any
security interest in or upon any portion of the Collateral or other security for
the Liabilities, or (iii) shall supersede any provision of the Loan Agreement.
3.3 Special Reserves. Without limitation of the Agent's discretion to
establish reserves and deductions pursuant to Sections 3.1 and 3.2 above, and
subject in each case to adjustment as a result of periodic audits, there shall
be deducted from the Borrowing Base an amount equal to two (2) month's rent for
each of Borrower's Inventory locations with respect to which Agent has not
received a Landlord's Consent, to allow for claims against Eligible Inventory.
4. Interest.
4.1 Loans.
4.1.1 Rates of Interest. The Borrower shall pay interest on
the unpaid principal amount of each Loan made by each Lender from the
date of such Loan until such principal amount shall be paid in full, at
the following rates per annum:
A-3
(a) Reference Rate Loans. During such periods as such
Loan is a Reference Rate Loan, a rate per annum equal at all
times to the Reference Rate in effect from time to time plus
the Applicable Percentage.
(b) Eurodollar Rate Loans. During such periods as
such Loan is a Eurodollar Rate Loan, a rate per annum equal at
all times during each Interest Period for such Loan to the
Eurodollar Rate for such Interest Period plus the Applicable
Percentage.
The Borrower shall designate for each Loan the applicable
interest rate in the Notice of Borrowing applicable to such
Loan.
4.1.2 Limit on Option to Choose Eurodollar Rate. If at any
time the Agent or Lenders shall determine in good faith that any Change
in Law makes it unlawful or impracticable for the Lenders to make,
continue, or maintain Eurodollar Rate Loans or to give effect to the
Lenders' obligations with respect to Eurodollar Rate Loans, then the
Agent or Lender (as the case may be) shall promptly give notice thereof
to Borrower, and the Lenders' obligation to make, continue or maintain
Eurodollar Rate Loans under the Loan Agreement shall terminate until it
is no longer unlawful or impracticable for the Lender to make, continue
and maintain such affected Eurodollar Rate Loans, and such affected
Eurodollar Rate Loans that are outstanding at the time that such notice
is given shall be automatically converted to Reference Rate Loans.
4.1.3 Default Rate of Interest. If any amount of the Loans is
not paid when due, whether by acceleration or otherwise, the entire
unpaid principal balance of the Loans shall bear interest until the
amount overdue is paid at a rate per annum equal to the greater of (a)
the rate of interest which is 2% higher than the applicable per annum
rate of interest otherwise payable hereunder or (b) the rate of
interest which is 2% higher than the applicable per annum rate of
interest in effect at the time such amount became due. In the case of
the Stock Purchase Loan or any Revolving Loan, such interest shall be
payable upon demand.
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4.2 Interest Rate Conversions.
4.2.1 Conversion Options. On the terms and subject to the
conditions of this Agreement and provided that no Event of Default
shall have occurred and be continuing, upon written notice to the Agent
in substantially the form of Exhibit E to the Loan Agreement (the
"Notice of Conver-sion"), the Borrower may (i) convert any Eurodollar
Rate Loan to a Reference Rate Loan upon expiration of the applicable
Interest Period, (ii) continue to maintain Eurodollar Rate Loans upon
the expiration of the applicable Interest Period, or (iii) convert any
Reference Rate Loan to a Eurodollar Rate Loan at any time. Such Notice
of Conversion shall be delivered to the Agent prior to 1:00 p.m.
(Chicago time) three (3) Banking Days prior to the proposed conversion
date if conversion to, or continuation of, a Eurodollar Rate Loan is
requested, and prior to 1:00 p.m. (Chicago time) one (1) Banking Day
prior to the proposed Conversion Date if conversion to a Reference Rate
Loan is requested. Each proposed conversion date shall be a Banking
Day.
4.2.2 Alternative Forms of Notice. In lieu of delivering the
above-described Notice of Conversion, the Borrower may give the Agent
telephonic notice by the time required for giving such notice under
this Section 4.2; provided, however, that such notice shall be
confirmed by a telecopy or facsimile transmission to the Agent prior to
1:00 p.m. (New York City time) on the proposed conversion date if
conversion of a Loan to a Reference Rate is requested, and if a
conversion to or continuation of a Eurodollar Rate is requested shall
be confirmed promptly in writing by delivery to the Agent of a Notice
of Conversion.
4.2.3 Failure to Choose an Interest Rate. If the Borrower
shall fail to give notice of the duration of the proposed Interest
Period with respect to a proposed conversion of an outstanding
Reference Rate Loan to a Eurodollar Rate Loan or a continuation of a
Eurodollar Rate Loan, the Borrower shall be deemed not to have elected
to convert from the Reference Rate Loan or continue the Eurodollar Rate
Loan. If the Borrower shall fail to give a timely and complete Notice
of Conversion with respect to an outstanding Eurodollar Rate Loan in
A-5
accordance with subsections 4.2.1 or 4.2.2, the Borrower shall be
deemed to have elected to convert such outstanding Eurodollar Rate Loan
to a Reference Rate Loan on the last day of the applicable Interest
Period.
4.2.4 Irrevocability of Conversion Notices. Any Notice of
Conversion (or telephonic notice in lieu thereof) given or deemed to
have been given pursuant to this Section 4.2 shall be irrevocable.
4.2.5 Mandatory Conversions. Each Eurodollar Rate Loan shall
be converted to a Reference Rate Loan at the end of the then applicable
Interest Period if (i) an Event of Default has occurred and is
continuing and the Lenders have not terminated their commitment to make
Loans and declared the outstanding Loans to be due and payable pursuant
to Section 6.2 of the Loan Agreement, or (ii) the Lenders shall be
unable to determine the Eurodollar Rate or shall have deemed the
Eurodollar Rate to be inadequate or unfair (as provided in Section 2.5
of the Loan Agreement). If the making or maintaining of Eurodollar Rate
Loans shall be unlawful or impossible (as provided in Section 2.5), all
Eurodollar Rate Loans then outstanding shall be converted into
Reference Rate Loans on either (a) the last day of the Interest Period
or Interest Periods applicable to such Loans if the Lenders may
lawfully continue to maintain and fund such Loans until such day, or
(b) immediately, if the Lenders may not lawfully continue to fund and
maintain such Loans.
4.3 Overdraft Loans; Over Advances. Overdraft Loans and Over Advances
shall bear interest at the rate(s) determined pursuant to Section 2.7 and
Section 2.8 of the Loan Agreement.
4.4 Computation. Changes in any interest rate provided for herein which
are due to changes in the Reference Rate shall take effect on the date of the
change in the Reference Rate.
4.5 Interest. Interest accruing on the Loans shall be due and payable
monthly in arrears on the last day of each month.
5. Eligible Account Receivable Requirements.
5.1 Age. To qualify as an Eligible Account Receivable, the Account
Receivable must be due and payable in full within 90 days of
A-6
the date of the invoice evidencing such Account Receivable, and must not be
unpaid on the date that is 90 days after the date of such invoice.
5.2 Cross Aging. If invoices representing 25% or more of the unpaid net
amount of all Accounts Receivable from any one Account Debtor are unpaid more
than 90 days after the date of such invoices, then all Accounts Receivable owing
from such Account Debtor shall cease to be Eligible Accounts Receivable.
5.3 Long Distance Service Resale Business. Eligible Accounts Receivable
shall not include any Accounts Receivable arising from Borrower's long distance
service resale business which is owing from an Account Debtor which does not
otherwise lease or purchase equipment or obtain services from Borrower.
6. Eligible Inventory Requirements.
6.1 Inventory in Transit. At any time Eligible Inventory shall include
up to $10,000,000 of Inventory owned by Borrower which is not in the possession
or control of Borrower but otherwise qualifies as Eligible Inventory if (a) such
Inventory is in transit to Borrower from a supplier and the Borrower's payment
for such Inventory is secured on terms satisfactory to the Agent and (b) the
Agent shall be satisfied that the Agent's security interest in such Inventory is
a first-priority perfected security interest.
6.2 Work-In-Process. Eligible Inventory shall not include
work-in-process.
6.3 Inventory Located in Statutory Lien States. At the discretion of
the Required Lenders, Inventory located in Florida, New Jersey, Pennsylvania or
any other state which provides a landlord with statutory lien rights shall not
constitute Eligible Inventory at any time unless and until a Landlord's Consent
with respect to the location of such Inventory has been obtained.
A-7
FIRST AMENDMENT TO THE SECOND AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "Amendment") is made as of this 1st day of January,
1995 by and among EXECUTONE Information Systems, Inc., a Virginia corporation
with its principal place of business at 478 Wheelers Farms Road, Milford,
Connecticut 06460 ("Borrower"), and Bank of America Illinois (formerly known as
Continental Bank, which was, itself, formerly known as Continental Bank, N.A.)
an Illinois banking corporation) with an office at 231 South LaSalle Street,
Chicago, Illinois 60697 ("Bank of America"), as agent for the "Lenders"
(hereinafter defined) (in such capacity, the "Agent"), Fleet Bank N.A.
("Fleet"), and Bank of Boston Connecticut, a Connecticut banking corporation
("Bank of Boston"). Bank of America, Fleet and Bank of Boston are hereinafter
collectively referred to as the "Lenders."
W I T N E S S E T H :
WHEREAS, Lenders have made loans, extensions of credit and other
financial accommodations to Borrower pursuant to the Second Amended and Restated
Loan and Security Agreement dated as of August 30, 1994 ("Loan Agreement") by
and among the Agent, the Lenders and Borrower;
WHEREAS, Borrower and the Lenders have agreed to amend Section 5.29 of
the Loan Agreement, and to waive compliance with that Section 5.29 for Fiscal
Year 1994, under the terms and conditions set forth herein; and
NOW, THEREFORE, in consideration of the premises, and in order to
induce the Lenders to amend the Loan Agreement pursuant to the terms hereof, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. Unless otherwise defined herein, and except as provided
in Section 2 of this Amendment, all capitalized words and phrases used in this
Amendment shall have the same meanings as are specifically set forth in the Loan
Agreement.
2. Amendments to the Loan Agreement.
(a) Section 5.29 to the Loan Agreement is hereby amended by
changing the maximum amount of Capital Expenditures permitted under the
terms and conditions of Section 5.29 for Fiscal Years 1995 through 1999
to the following:
Fiscal Year Maximum Amount
1995 $7,500,000
1996 7,500,000
1997 7,500,000
1998 7,500,000
1999 7,500,000
(b) It is understood by all parties hereto that Continental
Bank, an Illinois banking corporation, is now known as Bank of America
Illinois, an Illinois banking corporation; and the Loan Agreement is
amended so as to delete the defined term, "Continental", wherever that
term appears therein, and in its place, insert the term, "Bank of
America".
3. Waiver. Borrower hereby acknowledges and agrees that, for Fiscal
Year 1994, it exceeded or permitted its Capital Expenditures to exceed the limit
set forth in Section 5.29 of the Loan Agreement by approximately $3,080,000. The
Lenders hereby waive Borrower's obligation to comply with Section 5.29 for
Fiscal Year 1994. However, the foregoing waiver is limited to the specific
matter addressed herein and for the specific time period referenced herein and
shall not be deemed a waiver with respect to any other matter or time period, or
otherwise restrict the exercise or to prejudice any right or remedy of the
Lenders under the Loan Agreement or any other document, agreement or instrument
delivered in connection therewith.
4. Acknowledgment of Borrower. Borrower hereby acknowledges and agrees
that: (a) Borrower has no defense, offset or counterclaim with respect to the
payment of any sum owed to the Lenders, or with respect to the performance or
observance of any warranty or covenant contained in the Loan Agreement or any of
the Related Agreements; and (b) the Lenders have performed all obligations and
duties owed to Borrower through the date hereof.
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5. Representations and Warranties of Borrower. To induce the Lenders to
amend the Loan Agreement and to consider making future Loans thereunder,
Borrower represents and warrants to the Lenders that:
(a) Compliance with Loan Agreements. On the date hereof, and
except as discussed in Section 3 of this Amendment, Borrower is in
compliance with all of the terms and provisions set forth in the Loan
Agreement (as modified by this Amendment) and no Event of Default or
Unmatured Event of Default has occurred and is continuing.
(b) Representations and Warranties. On the date hereof, and
except as discussed in Section 3 of this Amendment, the
representations and warranties set forth in Section 4 of the Loan
Agreement are true and correct with the same effect as though such
representations and warranties had been made on the date hereof,
except to the extent that such representations and warranties
expressly relate to an earlier date.
(c) Corporate Authority. Borrower has full power and authority
to consummate this Amendment, and to make the borrowings under the Loan
Agreement as amended by this Amendment, and has full power and
authority to incur and perform the obligations provided for under the
Loan Agreement and this Amendment, all of which have been duly
authorized by all proper and necessary corporate action. No consent or
approval of stockholders or of any public authority or regulatory body
which has not been obtained is required as a condition to the validity
or enforceability of this Amendment.
(d) Amendment as Binding Agreement. This Amendment constitutes
the valid and legally binding obligation of Borrower fully enforceable
against Borrower in accordance with its terms.
(e) No Conflicting Agreements. The execution and performance
by Borrower of this Amendment, and the borrowing by Borrower under the
Loan Agreement, as amended, will not (i) violate any provision of law,
any order of any court or other agency of government, or the Articles
of Incorporation or Bylaws of Borrower; or (ii) violate any indenture,
contract, agreement or other instrument to which Borrower is a
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party, or by which any of its property is bound, or be in conflict
with, result in a breach of or constitute (with due notice and or lapse
of time) a default under, any such indenture, contract, agreement or
other instrument; or (iii) result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the
property or assets of Borrower, other than in favor of Agent for the
benefit of the Lenders.
6. Effectiveness of This Amendment. The amendments set forth above
shall become effective as of the date of this Amendment only upon the
satisfaction of the following conditions precedent:
(a) Receipt of Documents. Agent shall have received four (4)
copies of this Amendment duly executed by Borrower and the Lenders.
(b) No Material Adverse Change. No event shall have occurred
which may have a material adverse effect on the financial condition or
operations of the Borrower.
(c) Fees and Expenses. Borrower shall have paid the amendment
fee of $10,000.00 as provided in Section 8 of this Amendment.
7. Effect on Loan Agreement. Except as specifically amended hereby, the
terms and provisions of the Loan Agreement are in all other respects ratified
and confirmed and remain in full force and effect. No reference to this
Amendment need be made in any notice, writing or other communication relating to
the Loan Agreement; any such reference to the Loan Agreement shall be deemed to
be a reference thereto as amended by this Amendment.
8. Fees and Expenses. Borrower hereby agrees to pay all reasonable
out-of-pocket expenses incurred by the Lenders in connection with the
preparation, negotiation and consummation of this Amendment, and all other
documents related hereto (whether or not any borrowing under the Loan Agreement
as amended shall be consummated), including, without limitation, the reasonable
fees and expenses of the Lenders' counsel, and any filing fees and recordation
tax required in connection with the filing of any documents necessary to
consummate the provisions of this Amendment. To induce Lenders to enter into
this Amendment, Borrower further agrees to pay an amendment fee of $10,000.00 to
Bank of America
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which shall be fully earned and non-refundable upon execution of this Amendment,
and which shall be distributed on a pro-rata basis to each of the Lenders
pursuant to Sections 2.11 and 2.14 of the Loan Agreement.
9. Governing Law. This Amendment shall be construed in accordance with
and governed by the laws of the State of Illinois, without regard to the
conflict of laws principles thereof.
10. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed original and all of which taken
together shall constitute one and the same Amendment.
11. Indemnification. Borrower hereby agrees to indemnify and hold
harmless each Lender, the Agent, their respective affiliates and their
respective directors, officers, employees, agents and controlling persons (each
being an "Indemnified Party") from and against any and all claims, damages,
liabilities and expenses (including, without limitation, reasonable fees and
disbursements of counsel) that may be incurred by or asserted against such
Indemnified Party in connection with the investigation of, preparation for or
defense of any pending or threatened claim or any action or proceeding arising
out of or relating to the Loan Documents and this Amendment, whether or not such
Indemnified Party is a party hereto, provided that Borrower shall not be liable
for any such claims, damages, liabilities or expenses resulting from such
Indemnified Party's own gross negligence or willful misconduct. The obligations
of the Borrower described in this Section are independent of all other
obligations of the Borrower hereunder and under the documentation which will
evidence the transactions contemplated hereunder and shall survive the
expiration and termination of the Loan Agreement, and shall be payable on
demand.
12. Release. In consideration of the mutual covenants herein contained,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower for itself and on behalf of all present
and former officers, directors, stockholders, agents, employees, predecessors,
subsidiaries, affiliates, successors and assigns (all of the foregoing hereafter
collectively referred to as ("Releasors") have fully and forever remised,
released and discharged and do hereby fully and forever remise, release and
discharge the Lenders, and
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each and all of their respective subsidiary and affiliated corporations,
companies, divisions, predecessors, successors and assigns, and each and all of
its directors, officers, employees, attorneys, accountants, consultants, and
other agents, of and from all manner of actions, cause and causes of action,
suits, debts, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, judgments,
executions, claims and demands of whatsoever, whether or not concealed or
hidden, arising out of or relating to any matter, cause or thing whatsoever,
which the Releasors, jointly or severally, have had, may have had, or now have,
or which the Releasors, jointly or severally, hereafter can, shall or may have,
for or by reason of any matter, cause or thing whatsoever, whenever arising, to
and including the date of this Amendment.
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IN WITNESS WHEREOF, Borrower has caused this Amendment to be duly
executed under seal by its duly authorized officer and the Lenders have caused
this Amendment to be executed by their duly authorized officers, all as of the
date and year first above written.
EXECUTONE INFORMATION SYSTEMS, INC.
a Virginia corporation
By: /s/A.R. Guarascio
Name:Anthony R. Guarascio
Its: Vice President and
Corporate Controller
BANK OF AMERICA ILLINOIS,
individually, and as Agent
By: /s/George C. Lyman
Name:George C. Lyman
Its: Vice President
FLEET BANK N.A.
By: /s/Frederick A. Meagher
Name:Frederick A. Meagher
Its: Vice President
BANK OF BOSTON CONNECTICUT
By: /s/W. Lincoln Schoff Jr.
Name:W. Lincoln Schoff Jr.
Its: Director
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EX-4
3
EXHIBIT 4-4
EXHIBIT 4-4
================================================================================
LOAN AGREEMENT
DATED AS OF August 30, 1994
AMONG
CERTAIN DESIGNATED BORROWERS OF
EXECUTONE INFORMATION SYSTEMS, INC.
AND LISTED ON THE SIGNATURE PAGES HEREOF,
AS BORROWERS,
EXECUTONE INFORMATION SYSTEMS, INC.,
AS AN ACCOMMODATING PARTY,
CONTINENTAL BANK, an Illinois Banking Corporation,
FLEET BANK N.A., and BANK OF BOSTON CONNECTICUT,
AS LENDERS,
AND
CONTINENTAL BANK, an Illinois Banking Corporation,
AS AGENT
================================================================================
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made as of the 30th day of
August, 1994 by and among CERTAIN DESIGNATED EMPLOYEES OF EXECUTONE INFORMATION
SYSTEMS, INC., a Virginia corporation ("Executone"), LISTED ON THE SIGNATURE
PAGES HEREOF ("Borrowers"), EXECUTONE, FLEET BANK N.A. ("Fleet"), BANK OF BOSTON
CONNECTICUT ("Bank Boston"), and CONTINENTAL BANK, an Illinois banking
corporation having its principal office at 231 South LaSalle Street, Chicago,
Illinois 60697 (formerly, Continental Bank, N.A.) ("Continental") both
individually and as agent for the Lenders (in such capacity, the "Agent").
R E C I T A L S:
WHEREAS, Borrowers wish to borrow funds from Lenders (hereinafter
defined) for purposes listed herein;
WHEREAS, based on the representations and warranties of Borrowers,
Lenders have agreed to make loans to Borrowers pursuant to the agreements,
terms, covenants and conditions contained herein;
WHEREAS, Lenders and Executone have executed the Second Amended and
Restated Loan and Security Agreement concurrently with this Agreement;
WHEREAS, Executone agrees to make certain payments and other
accommodations to the Agent and the Lenders in order to induce Lenders to enter
into this Agreement; and
WHEREAS, the Lenders appoint Continental to act as their agent for
purposes of administering the loans and financial accom-modations to Borrowers;
NOW, THEREFORE, in consideration of any loan or advance or grant of
credit hereafter made to Borrowers by the Lenders, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS AND OTHER TERMS.
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1.1 DEFINITIONS. In addition to terms defined elsewhere in this
Agreement or any Supplement, Schedule or Exhibit hereto, when used herein, the
following terms shall have the following meanings (such meanings shall be
equally applicable to the singular and plural forms of the terms used, as the
context requires):
"Agent" means Continental in its capacity as agent for the
Lenders or any Person subsequently appointed as the successor Agent
pursuant to Section 8.6.
"Agreement" is defined in the Preamble as it may be amended,
restated, modified or supplemented from time to time.
"Attorneys' Fees" means the reasonable value of the services
(and costs, charges and expenses related thereto) of the attorneys (and
all paralegals, secretaries, accountants and other staff employed by
such attorneys) employed by the Agent or any Lender (including but not
limited to attorneys and paralegals who are employees of the Agent or
such Lender) from time to time (a) in the case of the Agent, (i) in
connection with the negotiation, preparation, execution, delivery,
administration and enforcement of this Agreement, any Related
Agreement, and all other documents or instruments provided for herein
or therein or delivered or to be delivered hereunder or under any
thereof or in connection herewith or with any thereof, (ii) to prepare
documentation related to the Loans made and other Liabilities incurred
hereunder and (iii) to prepare any amendment to or waiver under this
Agreement or any Related Agreement and any documents or instruments
related thereto and (b) in the case of the Agent and each Lender (i) to
represent the Agent or such Lender in any litigation, contest, dispute,
suit or proceeding or to commence, defend or intervene in any
litigation, contest, dispute, suit or proceeding or to file a petition,
complaint, answer, motion or other pleading, or to take any other
action in or with respect to, any litigation, contest, dispute, suit or
proceeding (whether instituted by the Agent, such Lender, Borrower or
any other Person and whether in bankruptcy or otherwise) in any way or
respect relating to the Collateral, this Agreement or any Related
Agreement, or Borrower's affairs, (ii) to protect, collect, lease,
sell, take possession of, or liquidate any of the Collateral, (iii) to
attempt to enforce any security interest in any of the Collateral or to
give any advice with respect to such enforcement, (iv) to prepare,
negotiate and review any amendment to or any waiver under this
Agreement or
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any Related Agreement or any documents or instruments related
thereto, and (v) to enforce any right of the Agent or such Lender to
collect any of the Liabilities under this Agreement, any Related
Agreement, and all other documents provided for herein or therein.
"Banking Day" means any day other than a Saturday, Sunday or
legal holiday on which banks are authorized or required to be closed
for the conduct of commercial banking business in Chicago, Illinois,
New York City, New York or Hartford, Connecticut.
"Borrower" has the meaning ascribed to such term in the
Preamble.
"Closing Date" means the date of this Agreement contained on
the cover page hereof.
"Continental" has the meaning ascribed to such term in the
Preamble.
"Credit Limit" means the lesser of (i) the aggregate purchase
price paid by the Borrowers for the common stock of Executone pursuant
to the Stock Option Plan on or before the Termination Date or (ii)
$9,750,000.
"Demand Deposit Account" has the meaning ascribed to such term
in the Executone Agreement.
"Designation" means the package of forms (including, but not
limited to a personal financial statement of the Borrower along with a
declaration by the Borrower concerning the truth, accuracy, and
completeness of the information contained in each Designation relating
to that Borrower) to be submitted by each Borrower and Executone
pursuant to Section 2.1 substantially in the form attached hereto as
Exhibit A.
"Executone" has the meaning ascribed to such term in the
Preamble.
"Executone Agreement" means the Second Amended and Restated
Loan and Security Agreement between Executone Lenders and the Agent
dated concurrently herewith, as amended, restated, modified or
supplemented from time to time.
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"Event of Default" has the meaning ascribed to such term in
Section 7.1.
"Federal Funds Rate" means for any day the weighted average of
the rates on overnight Federal Funds transactions, with members of the
Federal Reserve System, arranged by Federal Funds brokers applicable to
Federal Funds transactions on that date. The Federal Funds Rate shall
be determined by the Agent on the basis of reports by Federal Funds
brokers to, and published daily by, the Federal Reserve Bank of New
York in the Composite Closing Quotations for U.S. Government
Securities. If such publication is unavailable or the Federal Funds
Rate is not set forth therein, the Federal Funds Rate shall be
determined on the basis of any other source reasonably selected by the
Agent. In the case of a Saturday, Sunday or legal holiday on which
banking institutions in Chicago, Illinois are not required to be open,
the Federal Funds Rate shall be the rate applicable to Federal Funds
transactions on the immediately preceding day for which the Federal
Funds Rate is reported.
"Lenders" means collectively: Fleet, Bank Boston, and
Continental (in its capacity as a lender, but not in its capacity as
Agent).
"Lending Date" has the meaning ascribed to such term in
Section 2.3(a).
"Letter of Credit Support" means the establishment and
maintenance of a stand-by letter of credit by Executone pursuant to the
Executone Agreement and Section 5.2(g) to support the Borrowers'
obligations hereunder.
"Liabilities" means with respect to each Borrower, all of the
liabilities, obligations and indebtedness of such Borrower to the Agent
or any Lender of any kind or nature under or in connection with this
Agreement or any Related Agreement, however created, arising or
evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing or due or to become due, and including but not
limited to such Borrower's obligations under any Note, and (ii)
interest, charges, expenses, Attorneys' Fees and other sums chargeable
to Borrower by the Agent or any Lender under this Agreement or any
Related Agreement. "Liabilities" shall also include any
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and all amendments, restatements, extensions, renewals, refundings or
refinancings of any of the foregoing.
"Loan" means any loan made pursuant to Section 2.2 of this
Agreement.
"Maximum Eligible Amount" means, with respect to each
Borrower, a maximum amount, to be determined by Executone, which may be
loaned to such Borrower pursuant to this Agreement.
"Note" means the promissory note executed by each Borrower
substantially in the form attached hereto as Exhibit C evidencing any
Loan to any Borrower pursuant to this Agreement.
"Notice of Borrowing" has the meaning ascribed to such term in
Section 2.3(a) and shall be substantially in the form attached hereto
as Exhibit B.
"Percentage" means, with respect to any Lender, a fraction
expressed as a percentage, the numerator of which shall equal the
amount set forth opposite such Lender's name on the signature page
hereof, as it may be adjusted from time to time as a result of
assignments permitted under Section 9.6 (and in the case of Lenders not
initially party to this Agreement, the amount set forth in the
applicable Assignment and Acceptance as any such Lender's commitment)
and the denominator of which is the Credit Limit.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, entity, or government (whether
national, federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Reference Rate" means, at any time, the rate of interest then
most recently announced by Continental at Chicago, Illinois as its
reference rate. Each change in the interest rate on any Loan shall take
effect on the effective date of the change in the Reference Rate.
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"Related Agreement" means any agreement, instrument or
document heretofore, now, or hereafter delivered to the Agent or any
Lender with respect to or in connection with or pursuant to this
Agreement or any of the Liabilities, and executed by or on behalf of
any Borrower.
"Required Lenders" means, at any time, Lenders whose
Percentages aggregate more than 85%.
"Stock Option Plan" means Executone's 1994 Executive Stock
Incentive Plan established by Executone whereby certain officers of
Executone who are participants under such plan may purchase shares of
common stock in Executone.
"Termination Date" means June 30, 1995.
"Unmatured Event of Default" means any event or condition
which after the giving of notice or lapse of time or both would become
an Event of Default.
1.2 INTERPRETATION OF AGREEMENT. A Section, an Exhibit, a Supplement or
a Schedule is, unless otherwise stated, a reference to a section hereof, an
exhibit hereto, a supplement hereto or a schedule hereto, as the case may be.
Section captions used in this Agreement are for convenience only and shall not
affect the construction of this Agreement. The words "hereof," "herein,"
"hereto" and "hereunder" and words of similar import when used in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement.
1.3 EXERCISE OF DISCRETION. Unless a different standard is specifically
referred to, whenever the Agent or any Lender or group of Lenders is authorized
to exercise its or their discretion herein or in any Related Agreement, such
Person(s) shall be entitled to take any action with respect to the matter in
question that might be taken by a commercial lender acting in good faith under
similar circumstances in connection with a secured financing transaction of the
size and nature contemplated by this Agreement and based upon the information
then available to such Person(s).
2. BORROWER DESIGNATION LOANS; PRINCIPAL PAYMENTS.
2.1 DESIGNATION OF BORROWERS. From time to time, from the date hereof
until the Termination Date, Executone shall designate
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certain of its employees who are participants in the Stock Option Plan to be
eligible as Borrowers hereunder. Each such designation shall be submitted to the
Agent in the form, and with all the information set forth on Exhibit A attached
hereto (the "Designation") at least thirty (30) days prior to the date on which
such an eligible employee intends to request a Loan. The Designation for each
employee named therein shall indicate the Maximum Eligible Amount for such
employee, provided that Executone may not provide for Maximum Eligible Amounts
in the aggregate for all Borrowers in excess of the Credit Limit. The delivery
of a Designation shall be deemed to be an approval by Executone of the employee
named in the Designation to be a Borrower hereunder, and Borrowers understand
and agree that personal financial information (including, but not limited to,
credit agency reports) applicable to them will be distributed by the Agent to
each of the Lenders. Based on the information contained in the Designation
submitted for each employee, the Lenders may in accordance with their standard
credit practices approve such employee to participate as a Borrower hereunder.
The indication of a Maximum Eligible Amount for any eligible employee shall not
obligate any Lender to approve a Loan to that employee for that Lender's
Percentage of the Maximum Eligible Amount.
2.2 THE LOANS. Each Lender severally and not jointly agrees, on the
terms and subject to the conditions set forth herein, to make Loans to each
Borrower from time to time during the period from the date hereof until the
Termination Date in an aggregate amount not to exceed at any time such Lender's
Percentage of the sum of all the outstanding Maximum Eligible Amounts designated
by Executone for such Borrower in accordance with Section 2.1 above; provided,
however, that (i) the aggregate amount of all Loans made with respect to any
particular Borrower shall not at any time exceed such Borrower's Maximum
Eligible Amount; (ii) the aggregate amount of Loans to all Borrowers shall not
exceed the Credit Amount; (iii) Loans shall be made only on the last day of each
calendar quarter (March 31, June 31, September 31, and December 31) if such day
is a Banking Day, and if not, then on the immediately preceding day that is a
Banking Day; and (iv) each Borrower is restricted to a maximum of three (3)
Lending Dates in which to receive all of the Loans which can be made to that
Borrower. Each Loan shall be made by the Lenders ratably according to their
respective Percentages. Once repaid, no Loan may be reborrowed.
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2.3 MAKING THE LOANS.
(a) Each Loan to a Borrower shall be made on notice from a
Borrower to the Agent, given not later than 12:00 noon (Chicago time)
on the Banking Day prior to the Banking Day of the proposed Loan. Any
such notice of a Loan (a "Notice of Borrowing") shall be by telecopy,
confirmed immediately in writing, in substantially the form of Exhibit
B hereto, specifying therein (i) the amount of such Loan, (ii) the date
of such Loan and (iii) disbursement directions. Promptly following a
receipt of a Notice of Borrowing, the Agent shall provide each Lender
by telecopy, a copy of such Notice of Borrowing. Each Lender shall,
before 11:00 a.m. (Chicago time) on the date of each requested Loan,
make available to the Agent at its address referred to in Section 9.5
and the signature pages hereof, in same-day funds, such Lender's
Percentage of such Loan. After the Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Section 5,
the Agent shall make such funds available to the Borrower requesting
such Loan as set forth in the applicable Notice of Borrowing. The date
on which the proceeds of any Loan is disbursed to a Borrower pursuant
to this Section 2.3 and the other terms and conditions of this
Agreement is referred to as a "Lending Date".
(b) Each Notice of Borrowing shall be irrevocable and binding
on the Borrower giving such notice.
(c) Unless the Agent shall have received notice from a Lender
prior to a Lending Date that such Lender will not make available to the
Agent such Lender's Percentage of such Loan, the Agent may (but shall
not be obligated to) assume that such Lender has made such portion
available to the Agent on the requested date of such Loan in accordance
with subsection (a) of this Section 2.3 and the Agent may (but shall
not be obligated to), in reliance upon such assumption, make available
to the requesting Borrower on such date a corresponding amount. If and
to the extent that such Lender shall not have so made such ratable
portion available to the Agent, such Lender and such Borrower severally
agree to repay to the Agent forthwith on demand such corresponding
amount, together with interest thereon, for each day from the
applicable Lending Date until the date such amount is repaid to the
Agent, at (i) in the case of such Borrower, the interest rate
applicable at the time to the Loan and (ii) in the case of such Lender,
the
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Federal Funds Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such
Lender's Percentage of such Loan for purposes of this Agreement.
(d) The failure of any Lender to make the Loans to be made by
it as part of any borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Loans on the date of such
borrowing, but no Lender shall be responsible for the failure of any
other Lender to make the Loans to be made by such other Lender on any
Lending Date.
2.4 NOTES. The Loans to each Borrower made by each Lender shall be
evidenced by a Note to each Lender substantially in the form attached hereto as
Exhibit C. Each Note shall be in the amount of each Lender's Percentage of the
Maximum Eligible Amount and shall be executed and delivered to each applicable
Lender prior to the first applicable Lending Date.
2.5 PRINCIPAL PAYMENTS. The aggregate principal amount of the Loans
made to each Borrower shall be repaid in four installments on each of May 31,
1997, May 31, 1998, May 31, 1999 with a final installment payable on August 30,
1999. The amount of each installment payable on each May 31 shall be equal to
ten percent (10%) of the original principal balance of all Loans made to such
Borrower and, the installment payable on August 30, 1999 shall be in an amount
equal to the remaining unpaid principal balance. Any Loan may be prepaid in
whole or in part at any time. Any prepayments of principal shall be applied to
the installments in the order of maturity.
3. INTEREST AND FEES.
3.1 INTEREST RATE. The outstanding principal balance of the Loans and
other Liabilities of Borrowers hereunder shall bear interest until paid at a
fluctuating rate per annum equal to the Reference Rate less one-fourth of one
percent (0.25%), provided, however, that if any amount of any Loan to any
Borrower is not paid when due, whether by acceleration or otherwise, the entire
unpaid principal balance of the Loan made to such Borrower shall accrue at a
rate per annum equal to the greater of (a) the rate of interest which is three
percent (3%) higher than the applicable per
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annum rate of interest otherwise payable hereunder or (b) the rate of interest
which is three percent (3%) higher than the applicable per annum rate of
interest in effect at the time such amount became due. Interest on the unpaid
principal amount of each Loan shall accrue from and including the Lending Date
to, but not including, the date such Loan is paid. Interest and any fee shall be
calculated on the basis of a year consisting of 360 days and paid for actual
days elapsed.
3.2 INTEREST PAYMENTS. Interest is payable by each Borrower quarterly,
in arrears, on the last Banking Day of each calendar quarter (March 31, June 31,
September 31, and December 31). Executone hereby agrees that the Agent may
provide for the payment of such interest by charging Executone's Demand Deposit
Account established with the Agent pursuant to the Executone Agreement.
3.3 CLOSING FEE. On the Closing Date, in consideration for establishing
the credit facility described in this Agreement for the benefit of its
executives, Executone agrees to pay to the Agent for the account of the Lenders
pro rata according to their Percentages, a closing fee equal to $50,000.
3.4 AGENT'S FEE. Executone agrees to pay the Agent for its own account
an annual agency fee equal to $15,000, payable in advance, on the Closing Date
and on each anniversary thereof as long as any credit is available or
outstanding under this Agreement.
3.5 ATTORNEYS' FEES. Executone agrees to pay all Attorneys' Fees.
4. APPORTIONMENT AND SHARING OF PAYMENTS.
4.1 RATABLE APPORTIONMENT OF PAYMENTS. Aggregate principal payments and
interest payments shall be apportioned among all outstanding Loans to which such
payments relate and payments of fees shall, as applicable, be apportioned
ratably among the Lenders according to their Percentages, as applicable. All
payments shall be remitted to the Agent for distribution to the Lenders.
4.2 PAYMENTS IN EXCESS OF A LENDER'S RATABLE SHARE. If any Lender shall
obtain any payment (whether voluntary, involuntary, through the exercise of any
right of setoff, or otherwise) on account of the Loans made by it to any
Borrower in excess of its ratable share of payments on account of such Loan
obtained by all the Lenders, such Lender shall forthwith purchase from the other
Lenders such participations in the Loans made by them as shall be
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necessary to cause such purchasing Lender to share the excess payment ratably
with each of them; provided, however, that, if all or any portion of such excess
payment is thereafter recovered from such purchasing Lender, such purchase from
each Lender shall be rescinded and such Lender shall repay to the purchasing
Lender the purchase price to the extent of such recovery, together with an
amount equal to such Lender's ratable share (according to the proportion of (a)
the amount of such Lender's required repayment to (b) the total amount so
recovered from the purchasing Lender in respect of the total amount so
recovered. Each Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
setoff) with respect to such participation as fully as if such Lender were the
direct creditor of such Borrower in the amount of such participation.
5. CONDITIONS PRECEDENT; DELIVERY OF DOCUMENTS.
5.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT. The
effectiveness of this Agreement and the obligation of the Agent and each Lender
to make Loans to each Borrower is subject to satisfaction of the following
conditions precedent:
(a) Executone Agreement. The Executone Agreement shall have
been duly executed and delivered by all parties thereto and shall, by
its terms, have become effective;
(b) Fees and Expenses. All fees and expenses of the Agent and
Lenders that are payable by Borrowers or Executone pursuant to this
Agreement shall be paid in full;
(c) Secretary's Certificate. The Lenders shall have received a
Certificate of Executone's Secretary or Assistant Secretary certifying
(i) that attached thereto is a true and complete copy of the Stock
Option Plan as in effect on the date thereof, (ii) that attached
thereto is a true and complete copy of the resolutions of Executone's
Board of Directors establishing and authorizing the Stock Option Plan
and the execution and delivery of this Agreement and the provision of
the Letter of Credit Support as contemplated hereunder, (iii) attached
thereto is a true and complete copy of Executone's Articles of
Incorporation and Bylaws as in effect on the date thereof and (iv) a
verification of the incumbency of all officers of Executone duly
authorized to
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execute and deliver this Agreement and any Related Agreement on behalf
of Executone;
(d) Opinion of Counsel. The Lenders shall have received a
satisfactory opinion of counsel in form and substance satisfactory to
the Lenders; and
(e) No Conflict. No law or regulation affecting any Lender's
entering into the secured financing transaction contemplated by this
Agreement shall impose upon any Lender any material obligation, fee,
liability, loss, cost, expense or damage.
5.2 CONDITIONS PRECEDENT TO THE MAKING OF EACH LOAN TO EACH BORROWER.
The obligation of each Lender to make any Loan to any Borrower hereunder is
subject to the satisfaction of the following conditions precedent:
(a) Designation. The Designation for such Borrower has been
approved by the Lenders and such Borrower has executed and delivered a
counterpart of this Agreement to the Agent;
(b) Notice of Borrowing. The Agent shall have received a duly
executed and timely delivered Notice of Borrowing from such Borrower
and all representations and warranties of the Borrower contained
therein and in such Borrower's Designation shall be true and correct as
of the date of such Loan;
(c) Credit Limit. The Loan, if made pursuant to the applicable
Notice of Borrowing, would not cause the aggregate of the outstanding
principal balance of all Loans to all Borrowers pursuant to this
Agreement to exceed the Credit Limit;
(d) Notes. Such Borrower shall have executed a Note to each
Lender for an amount equal to such Lender's Percentage of the Maximum
Eligible Amount pursuant to Section 2.4;
(e) No Defaults. Before and after giving effect to such Loan,
no Event of Default or Unmatured Event of Default shall have occurred
and be continuing under this Agreement or the Executone Agreement;
(f) Stock Option Plan. The Stock Option Plan is effective and
has not been rescinded or modified; and
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(g) Letter of Credit Support. Executone shall have provided
for the benefit of the Lenders a stand-by letter of credit
substantially in the form of Exhibit D attached hereto with an undrawn
face amount at all times equal to the lesser of $10,000,000 or 102.6%
of the principal amount of the Loans outstanding or, at such time,
requested. This stand-by letter of credit shall be amended or renewed
as necessary in order to continue or increase the Letter of Credit
Support to account for additional Loans.
6. BORROWER COVENANTS. Each Borrower agrees for him or herself that until all of
the Liabilities of such Borrower are paid in full, unless the Agent shall
otherwise consent in writing, he or she will:
6.1 FINANCIAL REPORTS. Within ninety (90) days after the end of each
calendar year, provide the Agent, as requested, with a personal financial
statement (using the format provided in the financial statement that is part of
the Designation) together with a certification (also using the format provided
in the Designation) as to the truth, accuracy, and completeness of such
financial statement.
6.2 NOTICES. Notify the Agent (which will promptly notify each Lender)
in writing (or by telephone with written confirmation to follow within two (2)
Banking Days of the telephone call) immediately upon learning of the occurrence
of an Event of Default.
6.3 FURTHER INFORMATION. Promptly provide, upon the request of Agent,
any further information or documents to Agent that Agent may reasonably require
from time to time in relation to this Agreement or any Related Agreement.
6.4 USE OF PROCEEDS. The proceeds of each Loan requested under Section
2.1 shall be used by Borrowers on or before the Termination Date only to
purchase shares of common stock in Executone pursuant to and in conformity with
the Stock Option Plan.
7. DEFAULT.
7.1 EVENTS OF DEFAULT. With respect to each Borrower, each of the
following shall constitute an "Event of Default" under this Agreement:
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(a) Non-Payment. Default in the payment, when due or declared
due, of any of such Borrower's Liabilities;
(b) False Information in the Designation. Any information
provided by such Borrower or by Executone with respect to such Borrower
herein, in any Designation or any Borrowing Notice or otherwise in
connection with this Agreement or the Related Agreements shall prove to
be false or misleading in any material respect at the time made;
(c) Non-Compliance With This Agreement. Default in the
performance of any of Borrower's agreements set forth herein or in any
Related Agreement (and not constituting an Event of Default under any
of the other subsections of this Section 7.1), and the continuance of
such default for more than thirty (30) days after notice thereof to
Borrower from the Agent or any Lender;
(d) Dismissal. Such Borrower's employment with Executone is
terminated for any reason by either Executone or such Borrower;
(e) Insolvency. Such Borrower becomes insolvent, or generally
fails to pay, or admits in writing his or her inability to pay, his or
her debts as they mature, or applies for, consents to, or acquiesces in
the appointment of a trustee, receiver or other custodian for such
Borrower or for a material part of the property of such Borrower or
makes a general assignment for the benefit of creditors; or, in the
absence of such application, consent or acquiescence, a trustee,
receiver or other custodian is appointed for such Borrower or for a
substantial part of the property of Borrower and is not discharged or
dismissed within thirty (30) days; or any bankruptcy, reorganization,
debt arrangement or other proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding, is instituted by
such Borrower; or any bankruptcy, reorganization or other proceeding
under any bankruptcy or insolvency law is instituted against such
Borrower and is not discharged or dismissed within 30 days; or any
warrant of attachment or similar legal process is issued against any
substantial part of the property of such Borrower;
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(f) Default under the Executone Agreement. Any "Event of
Default" (as defined in the Executone Agreement) occurs under the
Executone Agreement;
(g) Executone's Failure to Perform. Executone fails to perform
any of its obligations hereunder pursuant to this Agreement; and
(h) Letter of Credit Support. The issuer of the Letter of
Credit Support shall have notified the Agent that the Letter of Credit
Support shall not be renewed or that it shall be terminated for any
reason at any time prior to its expiration.
7.2 EFFECT OF EVENT OF DEFAULT; REMEDIES.
(a) In the event that one or more Events of Default described
in Section 7.1(e) shall occur with respect to a Borrower, then each
Lender's commitment to make further Loans to such Borrower under this
Agreement shall terminate and all Liabilities of such Borrower
hereunder and under such Borrower's Notes shall be immediately due and
payable without demand, notice or declaration of any kind whatsoever.
(b) In the event an Event of Default with respect to a
Borrower other than one described in Section 7.1(e) shall occur, then
each Lender's commitment to make Loans to such Borrower (in the case of
an Event of Default under Section 7.1) shall terminate and the Agent
may with the consent of the Required Lenders (and upon the request of
the Required Lenders shall) declare all Liabilities of such Borrower
immediately due and payable without demand or notice of any kind
whatsoever, whereupon no further Loans shall be extended to such
Borrower under this Agreement and such Borrower's Liabilities hereunder
and under such Borrower's Notes shall be immediately due and payable.
In the event that one or more Events of Default with respect to a
Borrower shall occur and be continuing, any Lender may declare all
Liabilities of such Borrower owing to such Lender to be immediately due
and payable without demand or notice of any kind whatsoever, whereupon
no further Loans will be made by such Lender to such Borrower under
this Agreement and such Borrower's liabilities owing to such Lender
shall be immediately due and payable.
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(c) If any Event of Default shall occur, the Agent may with
the consent, and shall at the request, of the Required Lenders exercise
any one or more or all of the following remedies, all of which are
cumulative and non-exclusive:
(1) Any remedy contained in this Agreement or in any
of the Related Agreements;
(2) Any rights and remedies available to the Agent or
any Lender under the Uniform Commercial Code or any other
applicable law; and
(3) Draw upon the Letter of Credit Support in
accordance with its terms.
However, notwithstanding anything herein to the contrary, if an Event
of Default described in Section 7.1(h) shall occur, then the Agent
shall draw upon the Letter of Credit Support. In addition, should any
Event of Default occur and be continuing with respect to any Borrower,
any Lender may request that the Agent, and the Agent shall, draw upon
the Letter of Credit Support, at the option of such Lender, either (i)
as necessary to repay any amounts then due and owing to such Lender
from such Borrower or (ii) as necessary to repay to such Lender the
entire amount of the Liabilities owing to such Lender from such
Borrower under the terms of the applicable Note and this Agreement,
whether or not such amounts are then due.
8. THE AGENT.
8.1 AUTHORIZATION. Each Lender hereby authorizes and appoints the Agent
to act on behalf of such Lender to the extent provided herein or in any document
or instrument delivered hereunder or in connection herewith, and to take such
other action as may be reasonably incidental thereto. As to any other matters
not expressly provided for by this Agreement or any document or instrument
delivered hereunder or in connection herewith, the Agent shall not be required
to exercise any discretion or take any action. Each Lender agrees that any
action taken by the Agent in accordance with the terms of this Agreement or
Related Agreements, and the exercise by the Agent of its powers set forth herein
or therein, together with such other powers that are reasonably incidental
thereto, shall be authorized and binding upon all of the Lenders.
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8.2 INDEMNIFICATION. Each Lender agrees to reimburse and indemnify the
Agent for, and hold the Agent harmless against, a share (determined, in
accordance with such Lender's Percentage) of any loss, damages, penalty, action,
judgment, obligation, cost, disbursement, liability or expense (including
Attorneys' Fees and the costs and expenses of defending against any claim
against the Agent arising hereunder or thereunder) incurred without gross
negligence or willful misconduct on the part of the Agent arising out of or in
connection with the performance of its obligations or the exercise of its powers
hereunder or under any document or instrument delivered hereunder or in
connection herewith.
8.3 EXCULPATION. The Agent shall be entitled to rely upon advice of
counsel concerning legal matters, and upon this Agreement and any Note,
Designation, report, notice or other writing which it believes to be genuine or
to have been presented by a proper Person. Neither the Agent nor any of its
directors, officers, employees or agents shall (i) be responsible for any
recitals, representations or warranties contained in, or for the execution,
validity, genuineness, effectiveness or enforceability of, this Agreement, any
Note, any Designation, any Related Agreement or any other instrument or document
delivered hereunder or in connection herewith, (ii) be responsible for the
validity, genuineness, perfection, effectiveness, enforceability, existence,
value or enforcement of the Letter of Credit Support, (iii) be under any duty to
inquire into or pass upon any of the foregoing matters, or to make any inquiry
concerning the performance by any Borrower of its obligations, or (iv) in any
event, be liable as such for any action taken or omitted by it or them
(including, without limitation, any action taken or omitted hereunder pursuant
to any provision of this Agreement or any Related Agreement that permits the
Agent to exercise its discretion) except for its or their own gross negligence
or willful misconduct. In any event, the Agent shall at all times be entitled to
act or refrain from acting, and in all cases shall be fully protected in acting
or refraining from acting, if the Agent acts or refrains from acting in
accordance with written instructions from the Lenders. The agency hereby created
shall in no way impair or affect any of the rights and powers of, or impose any
duties or obligations upon, the Agent in its individual capacity.
8.4 CREDIT INVESTIGATION. Each Lender acknowledges that it has made
such inquiries and taken such care on its own behalf as would have been the case
had such Lender's commitment been granted and such Lender's Loans and other
financial accommodations to the
-17-
Borrowers made directly by such Lender to the Borrowers without the intervention
of the Agent or any other Lender. Each Lender agrees and acknowledges that (i)
the Agent makes no representations or warranties about the credit-worthiness of
any or all of the Borrowers or any other party to this Agreement or with respect
to the legality, validity, sufficiency or enforceability of this Agreement, any
Note, any Related Agreement, the Letter of Credit Support or the value of any
security therefor and (ii) except to the extent otherwise expressly provided
herein, the Agent has no duty or responsibility to provide such Lender with any
credit or other information concerning the affairs, financial condition or
business of each Borrower that may come into the Agent's possession; provided,
however, the Agent and each Lender shall provide each other Lender and the
Agent, as the case may be, with any information of which it or they have actual
knowledge regarding events or circumstances which the recipient of such
information determines is likely to have a material adverse effect on the
financial or other condition of any Borrower or any Borrower's ability to pay
the Liabilities of such Borrower or to perform his or her obligations hereunder
or under any Related Agreement. If and to the extent that the Agent provides any
Lender with copies of documents or personal financial information relating to
any Borrower or reports from other investigations by the Agent with respect to
this Agreement, or any Related Agreement, such Lender agrees that such documents
are provided without any representation or warranty by the Agent as to the
validity, accuracy or completeness thereof, and such Lender shall have no claim
against the Agent with respect thereto for any reason whatsoever.
8.5 AGENT AND AFFILIATES. The Agent shall have the same rights and
powers hereunder as any other Lender and may exercise or refrain from exercising
the same as though it were not the Agent, and the Agent and its affiliates may
accept deposits from and generally engage in any kind of business with any
Borrower as if the Agent were not the Agent hereunder.
8.6 RESIGNATION.
(a) The Agent may resign as such at any time upon at least
forty-five (45) days' prior notice to Executone and the Lenders. In the
event of any such resignation, the Lender with the largest Percentage
(other than Continental) shall become the successor Agent unless such
Lender shall decline to become the successor Agent, in which case the
Lenders (other than Continental) shall as promptly as practicable
appoint a
-18-
successor Agent. If no successor shall have been so appointed, and
shall have accepted such appointment, within forty-five (45) days after
the giving of notice of such resignation, then the retiring Agent may
(but shall not be required to), on behalf of the Lenders, appoint a
successor Agent, which shall be a financial institution with capital
and surplus not less than $100,000,000. Such successor Agent shall
purchase, and Continental shall be obligated to sell, such amount of
Continental's interest in the Loans and other Liabilities of all the
Borrowers then outstanding, so that as a result of such purchase the
successor Agent shall have a Percentage at least equal to Continental's
Percentage, after giving effect to such purchase provided, however,
that the Lender with the largest Percentage (other than Continental)
may become the successor Agent without any obligation to purchase any
of Continental's interest in the Loan. 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 rights,
powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from all further duties and obligations under
this Agreement. After any resignation pursuant to this Section 8.6, the
provisions of this Section 8 shall inure to the benefit of the retiring
Agent as to any actions taken or omitted to be taken by it while it was
Agent hereunder.
(b) All the Lenders (other than Continental) and Executone may
request the resignation of the Agent for cause by written notice to the
Agent signed by each Lender (other than Continental) and Executone,
stating the grounds upon which they intend to relieve the Agent of its
duties and obligations hereunder and under the Related Agreements. Upon
such request, the Agent agrees to resign, and such resignation shall
become effective, only upon satisfaction of all of the following
conditions precedent: (i) the Lenders (other than Continental) and
Executone shall have unanimously appointed a successor agent to assume
the Agent's responsibilities, rights, duties and obligations hereunder
and under the Related Agreements; (ii) such successor shall have
acknowledged, executed and/or delivered to the Agent, the Lenders and
Executone such instruments, documents and agreements as the Agent may
require, in form and substance satisfactory to Agent and its counsel,
accepting such appointment and assuming the Agent's responsibilities,
rights, duties and obligations hereunder and under the Related
Agreements; (iii) such successor shall have purchased and Continental
shall be obligated to sell such
-19-
amount of Continental's interest in the Loans and other Liabilities of
all Borrowers then outstanding so that as a result of such purchase the
successor Agent shall have a Percentage at least equal to Continental's
Percentage, after giving effect to such purchase. Upon satisfaction of
the foregoing conditions precedent, the successor agent shall succeed
to and become vested with all of the responsibilities, rights, duties
and obligations of the Agent, and Continental shall be discharged
therefrom, and the provisions of this Section 8 shall inure to the
benefit of Continental as to any actions taken or omitted to be taken
by it while it was Agent hereunder.
In each such instance the resigning Agent shall cooperate with the
successor Agent and shall make available to such successor Agent all books and
records, including computer records, in Agent's possession and relating to the
administration of the Loans in its capacity as Agent.
9. MISCELLANEOUS.
9.1 COVENANT OF EXECUTONE. Executone shall promptly notify Agent of (i)
the termination of any Borrower's employment with Executone, or (ii) any
alteration, amendment or termination of the Stock Option Plan.
9.2 BORROWER WAIVER. Except as otherwise provided for in this
Agreement, each Borrower waives (i) presentment, demand and protest and notice
of presentment, protest, default, non-payment, maturity, release, compromise,
settlement, one or more extensions or renewals of any or all Notes, contract
rights, documents, and instruments, at any time held by the Agent or any Lender
on which any Borrower may in any way be liable and hereby ratifies and confirms
whatever the Agent or any Lender may do in this regard. Borrower acknowledges
that it has been advised by counsel of its choice with respect to this Agreement
and the transactions evidenced by this Agreement.
9.3 LAWFUL INTEREST. In no contingency or event whatsoever shall the
interest rate charged pursuant to the terms of this Agreement exceed the highest
rate permissible under any law which a court of competent jurisdiction shall, in
a final determination, deem applicable hereto. In the event that such a court
determines that any Lender has received interest hereunder or under any Note
-20-
in excess of the highest lawful rate, such Lender shall promptly refund such
excess interest to the applicable Borrower.
9.4 NO WAIVER BY THE AGENT OR LENDERS; AMENDMENTS. No failure or delay
on the part of the Agent or any Lender in the exercise of any power or right,
and no course of dealing between any Borrower and the Agent or any Lender, shall
operate as a waiver of such power or right, nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power or right. The remedies provided for herein are
cumulative and not exclusive of any remedies which may be available to the Agent
or any Lender at law or in equity. No notice to or demand on any Borrower not
required hereunder shall in any event entitle any Borrower to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of the Agent or any Lender to any other or further action in
any circumstances without notice or demand. No amendment, modification or waiver
of, or consent with respect to, any provision of this Agreement or any Related
Agreement shall in any event be effective unless the same shall be in writing
and signed and delivered by the Agent and signed and delivered by the Lenders
having an aggregate Percentage of not less than the aggregate Percentage
expressly designated herein with respect thereto or, in the absence of such
designation, as to any provision of this Agreement or any Related Agreement, by
the Required Lenders, and then any such amendment, modification, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No amendment, modification, waiver or consent (i) shall
extend or increase the amount of the commitment hereunder of any Lender, extend
the due date for any amount payable hereunder, reduce or waive any fee payable
to or for the account of the Lenders hereunder, reduce the rate of interest
payable with respect to any Loan, any reimbursement obligation or the amount of
any payment of principal without the consent of all of the Lenders, or reduce
the aggregate Percentage required to effect an amendment, modification, waiver
or consent, amend the definition of "Required Lenders", or amend the conditions
for drawing under the Stock Purchase L/C, release any collateral or amend or
modify any of Sections 9.4 or 9.6 or (ii) shall extend the maturity or reduce
the principal amount of, or rate of interest on, any Loan without the consent of
the holder of such Loan. No provisions of Section 8 shall be amended, modified
or waived without the consent of the Agent.
-21-
9.5 NOTICES. Except as otherwise expressly provided herein, any notice
hereunder to any or all Borrowers, the Agent or any Lender shall be in writing
and shall be given to the affected Borrower, the Agent or such Lender at its
address or facsimile number set forth on the signature pages hereof or at such
other address or facsimile number as such party may, by written notice,
designate for purposes of notices hereunder. All such notices shall be deemed to
be given when transmitted by facsimile and receipt thereof confirmed by
telephone, delivered by courier, personally delivered or, in the case of notice
by mail, three (3) Banking Days following deposit in the United States mails,
properly addressed as herein provided, with proper postage prepaid.
9.6 ASSIGNMENTS AND PARTICIPATIONS.
(a) None of the Lenders may sell all or any portion of the
Loans owing it under this Agreement or any participating interest
therein; provided, however, any Lender may, at any time, assign and
delegate to one or more commercial banks or other financial
institutions (each such Person to whom such assignment and delegation
is to be made being herein referred to as an "Assignee"), an interest
in such Lender's Loans hereunder, provided:
(i) each such assignment shall be of a constant, and
not a varying, percentage of the assigning Lender's rights and
obligations so assigned;
(ii) the amount of any commitment being assigned
pursuant to such assignment (determined as of the date and
acceptance with such assignment) shall in no event be less
than $1,000,000 and shall be an integral multiple of $500,000;
(iii) such assignment shall be to (i) a commercial
bank, commercial finance company or financial institution
organized under the laws of the United States, or any state
thereof, and having a combined capital and surplus of at least
$100,000,000; or (ii) a commercial bank, commercial finance
company or financial institution organized under the laws of
any other country which is a member of the Organization for
Economic Cooperative and Development, or a political
subdivision of any such country, and having a combined capital
and surplus of at least $100,000,000, or the local currency
equivalent
-22-
thereof, provided that such bank, commercial finance company
or financial institution is acting through a branch or agency
located in the United States;
(iv) after giving effect to such assignment, the
assigning Lender shall have a commitment hereunder of not less
than $1,000,000; and
(v) the assigning Lender shall concurrently assign
the same Percentage of its interest under the Executone
Agreement to the same assignee.
Upon receipt of the foregoing Assignment and Acceptance, (x)
the Assignee shall be deemed automatically to have become a party
hereto and to the extent that rights and obligations hereunder have
been assigned and delegated to such Assignee shall have the rights and
obligations of a Lender hereunder and under the other instruments and
documents executed in connection herewith, and (y) the assigning
Lender, to the extent that rights and obligations hereunder have been
assigned and delegated by it, shall be released from its obligations
hereunder. Any attempted assignment and delegation not made in
accordance with this Section 9.6 shall be null and void.
(b) Each Lender may sell participations to one or more banks
or other entities in or to all or a portion of the Loans owing to it;
provided, however, that (i) Lender's obligations under this Agreement
shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, and (iii) the Borrowers, the Agent and the other Lenders
shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this
Agreement.
9.7 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
9.8 SUCCESSORS. This Agreement shall be binding upon Borrowers,
Executone, the Agent, and the Lenders and their respective successors and
assigns, and shall inure to the benefit of Borrowers, Executone, the Agent, and
the Lenders and the successors
-23-
and assigns of the Agent and the Lenders. None of the Borrowers or Executone
shall assign their rights or duties hereunder without the consent of the Agent
and the Lenders.
9.9 CONSTRUCTION AND GOVERNING LAW. Each of the Borrowers and Executone
acknowledge that this Agreement shall not be binding upon the Agent and the
Lenders or become effective until and unless accepted by the Agent and the
Lenders, in writing. If so accepted by the Agent and the Lenders, this Agreement
and the Related Agreements shall, unless otherwise expressly provided therein,
be deemed to have been negotiated and entered into in, and shall be governed and
controlled by the laws of, the State of Illinois as to interpretation,
enforcement, validity, construction, effect, choice of law, and in all other
respects, including, but not limited to, the legality of the interest rate and
other charges, but excluding perfection of security interests and liens which
shall be governed and controlled by the laws of the relevant jurisdiction.
9.10 CONSENT TO JURISDICTION. To induce the Agent and the Lenders to
accept this Agreement, each of the Borrowers and Executone irrevocably agrees
that, subject to the Agent and the Lenders' sole and absolute election, ALL
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR
RELATED TO THIS AGREEMENT, OR THE RELATED AGREEMENTS SHALL BE LITIGATED IN
COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWERS AND
EXECUTONE HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURT LOCATED WITHIN SAID CITY AND STATE AND WAIVE PERSONAL SERVICE OF
ANY AND ALL PROCESS, AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL DIRECTED TO BORROWERS AND EXECUTONE AT THE ADDRESS STATED ON THE
SIGNATURE PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT THEREOF.
9.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Agreement. Executone and each of
the Borrowers agree that the failure of any one or more of the Borrowers to
execute this Agreement does not waive or excuse the obligations and duties of
Executone and any of the Borrowers who do execute this Agreement.
9.12 WAIVER OF JURY TRIAL; WAIVER OF CONSEQUENTIAL DAMAGES. EACH
BORROWER, EXECUTONE, THE AGENT, AND EACH LENDER WAIVES ANY
-24-
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS (I) UNDER THIS AGREEMENT OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR (II) ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A JUDGE AND NOT BEFORE A JURY.
NONE OF THE BORROWERS, EXECUTONE, THE LENDERS, OR THE AGENT SHALL BE
LIABLE TO THE OTHER FOR CONSEQUENTIAL DAMAGES ARISING FROM ANY BREACH OF
CONTRACT, TORT OR OTHER WRONG RELATING TO THE ESTABLISHMENT, ADMINISTRATION OR
COLLECTION OF THE LIABILITIES OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY
RELATED AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH, OR THE
ACTION OR INACTION OF ANY BORROWER UNDER ANY ONE OR MORE HEREOF OR THEREOF.
9.13 CONNECTICUT PREJUDGMENT WAIVER. EACH BORROWER ACKNOWLEDGES THAT
THE TRANSACTIONS EVIDENCED HEREBY ARE PART OF COMMERCIAL TRANSACTIONS AND, TO
THE MAXIMUM EXTENT ALLOWED UNDER CONNECTICUT GENERAL STATUTES SECTIONS 52-278A
TO 52-278M INCLUSIVE OR ANY OTHER APPLICABLE LAW, HEREBY WAIVES: (A) ALL RIGHTS
TO NOTICE AND PRIOR COURT HEARING OR COURT ORDER IN CONNECTION WITH ANY AND ALL
PREJUDGMENT REMEDIES TO WHICH LENDERS OR THEIR SUCCESSORS OR ASSIGNS MAY BE
ENTITLED TO BY VIRTUE OF ANY DEFAULT OR OTHER PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT, AND (B) ALL RIGHTS TO REQUEST THAT LENDERS OR THEIR
SUCCESSORS OR ASSIGNS TO POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT ANY OF
THE BORROWERS AGAINST DAMAGES THAT MAY BE CAUSED BY ANY PREJUDGMENT REMEDY
SOUGHT OR OBTAINED BY VIRTUE OF ANY EVENT OF DEFAULT OR UNMATURED EVENT OF
DEFAULT HEREUNDER OR UNDER ANY RELATED AGREEMENT.
-25-
IN WITNESS WHEREOF, the parties hereto have either executed this
Agreement individually or caused this Agreement to be executed by their
respective officers thereunto duly authorized as of the date first written
above.
EXECUTONE INFORMATION SYSTEMS, INC.
By:_________________________________
Title:______________________________
Address:
478 Wheelers Farms Road
Milford, Connecticut 06460
Telephone: 203-876-7600
Telecopier: 203-882-0400
Attention: Barbara Anderson, Esq.
Commitment
$4,431,818.18 CONTINENTAL BANK, an Illinois
Banking Corporation, individually
and as Agent
By:_________________________________
Title:______________________________
Address:
231 South LaSalle Street
Chicago, Illinois 60697
Telephone: 312-828-2345
Telecopier: 312-828-7327
Attention: Business Credit Group
-26-
Commitment
$3,545,454.55 FLEET BANK N.A.
By:/s/William H. Creaser
Title: V.P.
Address:
Structured Finance Group
CTHMM02B
One Constitution Plaza
Hartford, Connecticut 06115
Telephone: 203-644-6144
Telecopier: 203-244-4495
Attention: William Creaser
Commitment
$1,772,727.27 BANK OF BOSTON CONNECTICUT
By:/s/John P. McCabe
Title:Vice President
Address:
One Landmark Square
Suite 2002
Stamford, Connecticut 06901
Telephone: 203-967-3888
Telecopier: 203-967-8169
Attention: John McCabe
-27-
[SIGNATURE PAGE TO BE ADDED
FOR EACH BORROWER]
-28-
EX-10
4
EXHIBIT 10-7
EXHIBIT 10-7
EXECUTONE INFORMATION SYSTEMS, INC.
1994 EXECUTIVE STOCK INCENTIVE PLAN
1. Purposes of the Plan
The primary purpose of this 1994 Executive Stock Incentive Plan is to
encourage and assist the key executives of the Company to acquire and own
greater amounts of Common Stock of the Company and, through such ownership, to
align the interests of the executives more closely with the interests of the
Company's shareholders generally. A secondary purpose of the Plan is to provide
the executives with an element of incentive compensation tied to appreciation in
value of the Company's Common Stock and thereby to attract and retain the best
available executives, without undue growth in the levels of fixed compensation
such as salary.
2. Definitions
The following terms shall have the meanings set forth below when used
herein:
"Accrued Interest" shall mean the interest on the Loan Amount accrued
at the rate equal to the interest rate paid or payable from time to time by the
Company on its general revolving credit facility or general purpose bank
borrowings, or in the circumstances described in Section 5(g) of the Plan, the
interest on the Loan Amount accrued at the rate determined by the Bank lender.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall mean serious misconduct such as embezzlement, fraud,
dishonesty, breach of fiduciary duty, deliberate and repeated disregard of
Company policies or rules, improper disclosure or use of the Company's trade
secrets or confidential information, or competition with the Company.
"Change of Control Event" shall mean (i) any person, including a
"group" as defined in Section 13(d)(3) of the Exchange Act, becomes the owner
or beneficial owner of Company securities having 20% or more of the combined
voting power of the then outstanding Company securities that may be cast for the
election of the Company's directors (other than as a result of an issuance of
securities initiated by the Company, or open market purchases approved in
advance by the Board of Directors of the Company, as long as the majority of the
Board at the time the purchases are made are directors who were members of the
Board immediately prior to the purchases being made and approved such
purchases); or (ii) as the direct or indirect result of, or in conjunction with,
a cash tender or exchange offer, a merger or other business combination, a sale
of assets, a
contested election, or any combination of these or similar transactions, the
persons who were directors of the Company before such transactions cease to
constitute a majority of the Company's Board, or any successor's board, within
two years of the last of such transactions. For purposes of the Plan, the Change
of Control Date is the date on which an event described in (i) or (ii) occurs.
If a Change of Control occurs on account of a series of transactions, the Change
of Control Date is the date of the last of such transactions.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the committee appointed by the Board to
administer the Plan, which shall consist of at least three Directors who are not
Eligible Employees, and which shall initially be the Compensation Committee of
the Board.
"Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company, or any security into which such Common Stock is changed or
converted in a reorganization, recapitalization, merger or other similar
transaction.
"Company" shall mean EXECUTONE Information Systems, Inc., a Virginia
corporation.
"Director" shall mean a member of the Board.
"Eligible Employee" shall mean an officer of the Company or any other
regular employee of the Company or any Parent or Subsidiary of the Company who
holds a key position or performs an important function in the implementation of
the Company's long-term plans.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean the last sale price of the Common Stock
as reported by NASDAQ on the day in question, or if the Common Stock is not
reported on NASDAQ, the last sale price, or the average of the bid and asked
prices, as otherwise reported on the principal exchange or market on which the
Common Stock is traded, or if such prices are unavailable the fair market value
as determined by the Board of Directors in its sole discretion.
"Interest Deferral" shall mean the amount of Accrued Interest on the
Loan Amount payment of which is deferred by the Company and added to the Loan
Amount.
"Interest Payment" is 15% of the annual Accrued Interest on the Loan
Amount, which is to be paid by the Participant under the Plan.
2
"Interest Payment Date" shall mean each December 31 on which any Loan
Amount is outstanding.
"Loan Amount" shall mean the dollar amount owed to the Company by the
Participant pursuant to the Plan, including all unpaid portions of the Purchase
Price for Purchased Shares and all Accrued Interest not paid by the Participant.
"Note" shall mean the promissory note of the Participant representing
the Purchase Price and certain Accrued Interest as provided in the Plan.
"Parent" shall mean a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Participant" shall mean an Eligible Employee who is selected by the
Committee for participation and participates in the Plan.
"Plan" shall mean this 1994 Executive Stock Incentive Plan.
"Pledge Agreement" shall mean a pledge agreement executed by a
Participant and the Company pursuant to the Plan.
"Purchase Price" shall mean the price paid for the Purchased Shares by
the Participant.
"Purchased Shares" shall mean the Shares of Common Stock purchased by a
Participant under the Plan.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Share" shall mean a share of Common Stock, as adjusted in accordance
with Section 9 of the Plan.
"Subsidiary" shall mean a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Administration of the Plan
The Plan shall be administered by the Committee, which shall have full
authority to determine all questions of eligibility and participation levels, to
adopt, amend and rescind rules relating to the Plan, to approve the forms of
Note and Pledge Agreement, and to interpret the provisions of the Plan in its
sole discretion. All decisions, determinations and interpretations of the
Committee shall be final and binding on all Participants. The Committee shall
have authority to waive any provisions of the Plan, and to amend or waive
3
any provisions of any Note or Pledge Agreement delivered pursuant to the Plan,
as it deems in its sole discretion to be appropriate and in the best interests
of the Company and its shareholders.
4. Common Stock Subject to Plan
Subject to the provisions of Section 9 of the Plan, the maximum
aggregate number of Shares that may be purchased and sold under the Plan is
3,000,000 Shares. The Shares may be authorized and newly issued Common Stock or
Shares reacquired by or on behalf of the Company; provided, however, that it is
the intent of the Plan that the number of Shares sold under the Plan not exceed
the number of previously issued Shares reacquired by the Company or on behalf of
the Company, or purchased by the Participants, for purposes of the Plan and that
there be no net dilution of existing shareholders of the Company as a result of
the Plan. Any Shares issued under the Plan that are subsequently reacquired by
the Company from the Participant shall, unless the Plan shall have been
terminated, again become available for purchase under the Plan.
5. Participation in the Plan
(a) The Committee may at the time of adoption of the Plan and approval
by the Company's shareholders, and thereafter during the term of the Plan, in
its discretion grant to any number of Eligible Employees rights to purchase a
specified number of Shares of Common Stock to be issued by the Company under the
Plan. Eligible Employees who are so selected may elect to participate in the
Plan and purchase such Shares by executing a Note, payable to the Company and in
a form acceptable to the Company, in the amount of the Loan Amount and
delivering such Note to the Company together with the certificates for the
Purchased Shares and a Pledge Agreement in a form acceptable to the Committee.
(b) The Company shall hold the certificates for all Purchased Shares as
security for payment of the Loan Amount. Certificates for Purchased Shares may
be released to a Participant or other owner of the Purchased Shares only upon
payment of the Loan Amount then outstanding with respect to such Purchased
Shares, or as provided in Section 6(c) hereof.
(c) No Participant shall have any rights as a shareholder with respect
to any Purchased Shares until a Note in the amount of the Purchase Price has
been executed and delivered to the Company or the Purchase Price has otherwise
been paid. Upon such delivery of the Note or other payment of the Purchase
Price, the Participant shall have all rights of a shareholder of the Company,
subject only to the limitations and provisions of the Plan, the Note, the Pledge
Agreement and applicable law.
4
(d) The Purchase Price shall be the Fair Market Value of the Purchased
Shares on the date the Note and the Pledge Agreement are executed and delivered
to the Company. Such date shall be the date of purchase for purposes of the
Plan.
(e) The Loan Amount including all Interest Deferrals shall be payable
prorata upon sale of any Purchased Shares, but in any event shall be payable in
full five years following the date of the Note. Each Participant shall make an
Interest Payment on each Interest Payment Date. The balance of the Accrued
Interest shall be added to the Loan Amount as the Interest Deferral.
(f) Each Participant shall be required to reduce the Loan Amount each
year by an amount equal to 25% of any bonus or incentive paid to the Participant
by the Company based on the Company's annual financial results. Such payment
shall be made to the Company within 10 days of the Participant's receipt of
payment of any such bonus or incentive.
(g) In the event that the Company elects to have a bank or other
financial institution ("Bank") loan the Purchase Price to Participants, then the
Note shall be delivered and payable to the Bank, shall be in a form acceptable
to the Bank, and shall accrue interest at an interest rate determined by the
Bank from time to time. Interest shall be in an amount and shall be due and
payable at the times determined by the Bank, the Participant shall pay the
Interest Payment, and the Company shall pay the balance of the Accrued Interest
as required by the Bank. All Accrued Interest paid by the Company shall be
repaid to the Company by the Participant and shall be represented by a personal
promissory note payable to the Company on the same terms as the Note. The
Company shall guarantee or otherwise secure the Participants' borrowings from
the Bank under the Plan and to secure such guarantee shall hold the Purchased
Shares subject to a Pledge Agreement. To the extent practicable, all other
provisions of the Plan shall apply to purchases of Shares that are financed by a
Bank to the same extent as such provisions would apply to purchases under the
Plan that are financed by the Company.
6. Restrictions on Resale
(a) Except as provided in Section 6(c), the Participant shall not be
permitted to sell any Purchased Shares without first paying in full the Loan
Amount and all Accrued Interest that has not been previously paid with respect
to the Purchased Shares to be sold.
(b) In addition to the restriction of Section 6(a), the Participant may
not sell any Purchased Shares
(i) except pursuant to subsection (c) hereof; or
(ii) until the first to occur of (A) five years from the date
of purchase of the Purchased Shares; (B) the Fair Market Value of the
Common Stock shall equal or exceed $10.00 per share, as such price may
be adjusted pursuant to Section 9 (the "Target Price")
5
for at least twenty consecutive trading days; (C) the Participant dies
or is permanently disabled; or (D) a Change of Control Event occurs; or
(E) upon termination of employment of the Participant, with respect to
any Purchased Shares not repurchased by the Company pursuant to the
Plan.
(c) Notwithstanding anything to the contrary herein, each year the
Participant shall be permitted to sell a portion of his or her Purchased Shares
equal to the number of shares that at the Participant's sale d price will result
in net proceeds to the Participant (after payment of sales commissions, all
other expenses and all taxes on any gain realized on the sale) and after
deducting the estimated amount of the next Interest Payment that will be due
from Participant (the "Net Proceeds") equal to the following percentages of the
outstanding Loan Amount.
Percentage
of Loan Amount
----------------
After one year: 10%
After two years: Additional 15%
After three years: Additional 20%
After four years: Additional 25%
All such Net Proceeds shall be paid to the Company to reduce the Loan
Amount.
(d) Nothing in the Plan shall prevent any Participant from selling his
or her Purchased Shares in any merger, consolidation, tender offer or exchange
offer for cash or any combination of cash or securities in provided the Loan
Amount is paid in full upon such sale, or from exercising a right to sell
Purchased Shares under any provision of the Plan, to the extent not previously
exercised, at any time after that right has accrued.
(e) If, pursuant to any provision of the Plan, the Participant has the
right to sell any Purchased Shares upon repayment of the Loan Amount relating to
such Shares, then the Participant shall in such case be permitted to retain
ownership of any or all of such Purchased Shares provided such Loan Amount is
paid to the Company. Any part of the Loan Amount may be prepaid at any time;
provided, however, that except as provided to the contrary in Section 6(c), the
restrictions on resale of the Purchased Shares shall continue to the extent that
such restrictions would otherwise apply to the Purchased Shares.
(f) In addition to the restrictions on resale imposed by the Plan, all
Purchased Shares may be resold by the Participant only in compliance with all
applicable federal and state securities laws as from time to time in effect,
including without limitation the registration provisions of the Securities Act
and Section 16 of the Exchange Act.
6
7. Termination of Employment
(a) Upon termination of employment of a Participant due to the
Participant's death, title to the Participant's Purchased Shares shall be
transferred to the Participant's estate and may be disposed of by will or by the
laws of descent or distribution, subject to the Note and the Pledge Agreement.
The Purchased Shares may be sold or otherwise disposed of by the estate or any
beneficiary who owns the Shares, upon payment of the Loan Amount associated with
such Shares, including all Interest Deferrals and any other Accrued Interest
included therein, or ownership thereof may be retained subject to the Note and
Pledge Agreement.
(b) Upon termination of employment of a Participant due to the
Participant's permanent disability, the Participant may retain ownership of such
Shares subject to the Note and Pledge Agreement, or may sell or otherwise
dispose of any of the Purchased Shares, upon payment of the Loan Amount
associated with such Purchased Shares, including all Interest Deferrals and
other Accrued Interest included therein.
(c) Upon termination of employment of a Participant due to the
Participant's resignation, or due to termination of the Participant's employment
by the Company for Cause, the Company shall have the right and option, but shall
not be obligated, to repurchase all or any portion of the Purchased Shares then
owned by the Participant at the Purchase Price for such Shares plus the amount
of any Interest Payments made by the Participant with respect to such Shares. In
the event and to the extent that the Company does not exercise its option to
repurchase the Participant's Purchased Shares, the Participant shall be entitled
to retain title to any Shares not repurchased by the Company, subject to the
Note and the Pledge Agreement, or, upon payment to the Company of the Loan
Amount then outstanding with respect to the Purchased Shares (including all
Interest Deferrals and other Accrued Interest including therein) shall have the
right to sell any or all of the Purchased Shares or to retain ownership of such
Shares.
(d) Upon termination of employment of a Participant by the Company for
reasons other than Cause, including but not limited to reorganization or
restructuring or elimination of the Participant's position, then the Company
shall have the right and option, but shall not be obligated, to repurchase the
Purchased Shares then owned by the Participant at the Purchase Price for such
Shares plus the amount of any Interest Payments made by the Participant with
respect to such Shares; provided, however, that there shall be exempted from
this right to repurchase a number of such Shares equal to (i) 10% of the total
number of Purchased Shares originally purchased by the Participant, multiplied
by (ii) the number of full years (12-month periods) the Participant was employed
by the Company from the date of the Participant's initial purchase under the
Plan until the Participant's termination of employment. The Participant shall be
entitled to retain title to such exempted Shares and any other Shares not
repurchased by the Company, subject to the Note and the Pledge Agreement, or,
upon payment to the Company of the Loan Amount then
7
outstanding with respect to the Shares (including all Interest Deferrals
and other Accrued Interest included therein), shall have the right to sell any
or all of the retained Purchased Shares or to retain ownership of such Shares.
(e) Upon any termination of employment of a Participant following a
Change of Control Event, then the Company shall have no option to repurchase any
of the Purchased Shares and the Participant shall be entitled to retain title to
the Purchased Shares subject to the Note and the Pledge Agreement, or, upon
payment to the Company of the Loan Amount then outstanding with respect to the
Shares (including all Interest Deferrals and other Accrued Interest included
therein), the Participant shall have the right to retain any or all of the
Purchased Shares or to sell any or all of the Purchased Shares.
(f) The Participant's obligations pursuant to the Note with respect to
the Loan Amount from time to time outstanding, and the Company's security
interest in any Purchased Shares not sold pursuant to this m time to subsection,
shall continue notwithstanding the Participant's termination of employment.
8. Nontransferability of Rights.
No rights of any Participant hereunder may be sold, assigned, pledged,
hypothecated or otherwise disposed of in any manner other than by will or the
laws of descent and distribution. The rights of a Participant under the Plan may
be exercised during the lifetime of the Participant only by the Participant.
9. Adjustments Upon Changes in Capitalization
(a) Subject to any required action by the shareholders of the Company,
the total number of Shares authorized for purchase under the Plan, the number of
Purchased Shares, and the Target Price, shall be proportionately adjusted
for any increase or decrease in the number of issued and outstanding Shares
resulting from a stock split, reverse stock split, stock dividend,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued Shares effected without receipt of
consideration by the Company other than a conversion of convertible securities
of the Company. Such adjustment shall be made by the Board, whose determination
in that respect shall be final and binding. Except as expressly provided in the
Plan, no issuance by the Company of Common Stock, any other stock of any class,
or any securities convertible into Common Stock or other stock of any class,
shall affect or cause any adjustment in the number of Shares or Purchased Shares
subject to the Plan or the Target Price.
(b) In the event of a sale of all or substantially all of the assets of
the Company, the merger or consolidation of the Company into or with another
corporation, or the dissolution or liquidation of the Company, the holder of
Purchased Shares shall have the same rights as the holder of other Shares and
shall be changed or converted into the same number and kind of shares of stock
or the same amount of property, cash or securities as any other holder. In the
event that the Company is the surviving corporation in any such sale, merger or
consolidation, the changed or converted shares shall continue to be
8
subject to the provisions of the Plan and any Note and Pledge Agreement relating
to the Purchased Shares, except as otherwise provided in Sections 6 and 7 of the
Plan. In any event described in this subsection (b), any conversion of Purchased
Shares into cash or cash and securities of another company shall be subject to
the repayment in full of the Note.
10. Conditions to Issuance and Sale of Shares
Shares shall not be issued and sold under the Plan unless the issuance
and sale of such Shares complies with all applicable laws including without
limitation the Securities Act, the Exchange Act, state securities laws, all
rules and regulations thereunder, and the requirements of any stock exchange on
which the Shares may then be listed or traded. The Company shall at all times
reserve and keep available for issuance Shares sufficient to satisfy the
requirements of the Plan. The Company shall not have any liability to any
Participant or Eligible Employee arising from its inability to issue or sell
Shares due to failure to satisfy any such conditions.
11. Term of Plan
The Plan shall become effective upon its adoption by the Board and
approval by the shareholders of the Company. The Plan shall continue in effect
for a term of ten years unless sooner terminated under Section 12 hereof.
12. Amendment and Termination of the Plan
(a) The Board may amend or terminate the Plan from time to time in such
respects as the Board may deem advisable; provided, however, that any amendments
requiring shareholder approval under the Code, Rule 16 b-3 under the Exchange
Act, or other applicable law shall be approved by such shareholders as provided
in Section 13 hereof.
(b) Except as provided in Section 9, no amendment or termination of the
Plan shall affect the rights of Participants or the Company pursuant to any
transactions, instruments or agreements, previously entered into under the Plan,
unless otherwise mutually agreed in writing by a Participant and the Company
with the prior approval of the Committee.
13. Shareholder Approval
Adoption of the Plan is subject to approval by the affirmative vote, at
a duly held shareholders' meeting, of the holders of a majority of the
outstanding Shares present in person or by proxy and entitled to vote thereon.
9
EX-11
5
EXHIBIT 11
EXHIBIT 11
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Twelve Months Ended
------------------------- -------------------------
12/31/94 12/31/93 12/31/94 12/31/93
----------- ----------- ----------- -----------
(Restated) (Restated)
INCOME FROM CONTINUING
OPERATIONS $ 2,248,000 $ 1,966,000 $ 6,734,000 $ 4,903,000
DISCONTINUED OPERATIONS:
INCOME FROM OPERATIONS,
NET OF INCOME TAXES -- 102,000 153,000 298,000
GAIN ON DISPOSAL,
NET OF INCOME
TAXES -- -- 604,000 --
----------- ----------- ----------- -----------
NET INCOME $ 2,248,000 $ 2,068,000 $ 7,491,000 $ 5,201,000
INTEREST EXPENSE
ADJUSTMENT 7,000 36,000 26,000 144,000
----------- ----------- ----------- -----------
ADJUSTED NET INCOME $ 2,255,000 $ 2,104,000 $ 7,517,000 $ 5,345,000
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES 45,060,000 35,808,000 43,705,000 32,926,000
OUTSTANDING
COMMON STOCK EQUIVALENTS:
Add - Net shares
assumed to be issued
for dilutive stock
options and warrants 3,071,000 4,498,000 3,241,000 4,253,000
Add - Shares assumed
to be issued on
conversion of preferred
stock (converted
entirely in 1993) and
exercise of related
warrants 489,000 8,406,000 751,000 11,104,000
----------- ----------- ----------- -----------
TOTAL WEIGHTED AVERAGE
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING 48,620,000 48,712,000 47,697,000 48,283,000
=========== =========== =========== ===========
EARNINGS PER COMMON
SHARE:
Continuing Operations $ 0.05 $ 0.04 $ 0.14 $ 0.10
Discontinued Operations -- -- 0.02 0.01
----------- ----------- ----------- -----------
Net Income $ 0.05 $ 0.04 $ 0.16 $ 0.11
=========== =========== =========== ===========
EX-13
6
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's revenues are primarily derived from sales of its products and
services through a worldwide network of direct sales and service offices and
independent distributors. The Company's end-user revenues are derived from two
primary sources: (1) sales of systems to new customers, which include sales of
application-specific software options ("product revenues"), and (2) servicing
the end-user base through the upgrade, expansion, enhancement (which includes
sales of application-specific software options), and maintenance of previously
installed systems, as well as revenues from the INFOSTAR'r'/LD+ program
(commonly referred to as "base revenues"). Base revenues usually generate higher
operating income margin than initial sales of systems, since the Company's
selling expenses for base revenues are lower than those for initial system
sales. Sales of the Company's application-specific software options and related
services generally produce a higher operating income margin than both system
sales and base revenues due to the added performance value and relatively low
production costs of such proprietary software and services.
RESULTS OF OPERATIONS: 1994 COMPARED TO 1993 (AS RESTATED)
Total revenues for the year ended December 31, 1994 were 7% higher than the
comparable 1993 period. Base revenues for 1994 increased 12% over 1993 primarily
due to volume increases generated by the INFOSTAR'r'/LD+ program, increased
sales of system upgrades and expansions and increased revenue from maintenance
contracts. Product revenues for 1994 increased 3% over 1993 primarily due to
increased sales of voice processing products and sales decreases in non-voice
processing applications and healthcare revenue.
Gross profit increased almost $11 million compared to 1993, with the gross
profit as a percentage of total revenue increasing to 41.5% from 40.6%. The
increases were a result of the continuing favorable product mix of increased
base revenue and voice processing products. Voice processing and base revenues
now account for 71% of the sales volume compared to 64% in 1993, indicating the
Company's shifting emphasis to market value-added products to the customer base
and increase sales of application-specific software products.
Operating income increased $1.5 million during 1994 and, as a percentage of
total revenue, was 5.1% compared to 4.9% for 1993. The increase in operating
income as a percentage of total revenue is primarily related to the increase in
gross profit margin, partially offset by continuing investments in the sales
force and sales support personnel, technical marketing support and research,
development and engineering expenses for the development and sale of the new
higher margin products.
Interest, amortization and other expenses, net for the year ended December 31,
1994 were $1.0 million lower than the corresponding 1993 period, primarily due
to the favorable impact of a lower level of bank borrowings.
The Company accounts for income taxes in accordance with FAS 109, Accounting for
Income Taxes. For the year ended December 31, 1994, the Company recorded a
provision for income taxes of $3.3 million. Approximately 88% or $2.9 million of
the total tax provision was recorded as a reduction of the deferred tax asset to
reflect the utilization of tax benefits. As a result of the utilization of these
benefits, the Company had no significant tax liability for the year ended
December 31, 1994. Therefore, the Company will only pay $0.4 million in taxes,
even though the tax provision on the income statement is $3.3 million. In
addition, the Company recorded a provision for income taxes of $0.5 million,
relating to discontinued operations, which also reduced the deferred tax asset.
The remaining deferred tax asset of $27.0 million as of December 31, 1994
represents the expected benefits to be received from utilization of tax benefit
carryforwards which will result in the payment of minimal taxes in the near
future. During 1994, the Company adjusted its valuation allowance, resulting in
an increase in the deferred tax asset of $6.5 million, $5.2 million of which was
a reduction of goodwill as it related to pre-acquisition tax benefits and $1.3
million of which reduced the 1994 provision for income taxes. The basis for the
adjustment of the valuation allowance was a significant increase in pre-tax
income from $7.6 million in 1993 to $10.0 million in 1994. Accordingly,
historical earnings support the realization of the larger deferred tax asset.
The Company believes that the deferred tax asset will more likely than not be
realized in the carryforward period. Refer to Note D of the Notes to
Consolidated Financial Statements.
In December 1993, a fire occurred at the Company's main subcontractor's
production facility in Shinzen, China, causing inventory shortages during the
first six months of 1994. The production problems were largely alleviated by the
Company's ability to increase its own production and find alternative
manufacturing sources. In July 1994, the Company recovered $4 million from its
insurance carrier for additional direct costs related to the emergency
production situation.
As of March 31, 1994, the Company sold its Vodavi Communications Systems
Division ("VCS"), which sold telephone equipment to supply houses and dealers
under the brand names STARPLUS'r' and INFINITE'tm', for approximately $10.9
million. Proceeds of the sale consisted of approximately $9.7 million in cash
and a $1.2 million note, fully secured by a letter of credit and payable in
September 1995. The cash proceeds were used to reduce borrowings under the
Company's revolving credit facility. The sale resulted in an after-tax gain of
$604,000 (net of income tax provision of $403,000). The results of VCS have been
reported separately as a discontinued operation in the consolidated statements
of operations. Prior year consolidated financial statements have been restated
to present VCS as a discontinued operation. Net revenues of the discontinued
operation for 1994, through the date of sale, 1993 and 1992 were $8.6 million,
$31.6 million and $26.6 million, respectively. Refer to Note J of the Notes to
Consolidated Financial Statements.
In September 1994, the Company paid $1.2 million to the former shareholders of
Isoetec Texas, Inc. in partial settlement of claims by such shareholders. In
December 1994, the Company paid an additional $211,000 in cash and common stock
to settle all remaining claims. These payments were adjustments of the recorded
purchase price for Isoetec Texas, Inc., resulting in an increase to intangible
assets, which is being charged to income over the remaining amortization period.
Refer to Note J of the Notes to Consolidated Financial Statements.
In 1994, the Company was required to implement FAS 112, Employers' Accounting
for Postemployment Benefits, which requires the accrual of benefits to former or
inactive employees after employment but before retirement. The impact on the
Company's financial results was not material.
RESULTS OF OPERATIONS: 1993 COMPARED TO 1992 (AS RESTATED)
Total revenues for the year ended December 31, 1993 were 7% higher compared to
the prior year. Product revenues for 1993 increased 5% over 1992 primarily as a
result of increased sales volume from new installations of healthcare
communications and predictive dialer equipment and increased sales volume from
our independent distributor channels. Base revenues for 1993 were 10% higher
than in 1992. The increase in base revenues was attributable primarily to
increased sales of system upgrades, expansions and maintenance to the Company's
existing customer base, and volume increases generated by the INFOSTAR'r'/LD+
program.
Gross profit as a percentage of total revenues increased to 40.6% in 1993 from
39.6% in 1992. Gross profit margins in 1993 were $10.2 million higher than 1992
primarily due to the overall increase in sales volume and to the higher
absorption of fixed costs resulting from higher revenues.
Operating income as a percentage of total revenues increased to 4.9% in 1993
from 4.1% in 1992. The increase in operating income as a percentage of total
revenues was primarily related to improved gross profit margins partially offset
by higher research, development, engineering, and selling expenses which
resulted from increased investments in the development and sale of new higher
margin products.
Interest, amortization and other expenses, net for the year ended December 31,
1993 were $0.4 million lower than the corresponding 1992 period. The decrease
was primarily due to interest savings as a result of the conversion of the note
payable to Hambrecht & Quist Guaranty Finance ("HQGF") to preferred stock, as
well as lower interest expense for the Company's credit facility due to lower
borrowing levels and lower interest rates.
For the year ended December 31, 1993, the Company recorded a provision for
income taxes of $2.7 million. Approximately 93% or $2.5 million of the total tax
provision was recorded as a reduction of the deferred tax asset to reflect the
utilization of tax benefits. As a result of the utilization of these benefits,
the Company had no significant tax liability for the year ended December 31,
1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is represented by cash, cash equivalents and cash
availability under its existing credit facilities. The Company's liquidity was
$30 million, $29 million and $24 million as of December 31, 1994, 1993 and 1992,
respectively.
At December 31, 1994 and 1993, cash and cash equivalents amounted to $7.8
million and $7.4 million, respectively, or 8% of current assets. The Company
generated $19.2 million of cash from operations and an additional $9.7 million
from the sale of VCS. The cash was used to reduce debt by $9.8 million, fund
$11.9 million of working capital, purchase $6.3 million of capital equipment and
for restructuring costs and other payments of $0.9 million. The funding of
working capital is primarily accounts receivable and inventory. The increase in
accounts receivable is a result of increased December volume and an increase in
collection cycles, primarily from National Accounts and the Federal Government.
Inventory increased primarily due to the rebuild of inventory depleted during
the emergency production situation earlier in the year and the change in the
Company's inventory planning to have more inventory on hand to more easily deal
with any potential supply interruptions in the future.
Total debt at December 31, 1994 was $25.5 million, a decrease of $9.8 million
from $35.3 million at December 31, 1993. The decrease in debt is primarily due
to lower bank borrowings of $4.2 million, repayment of the $3.8 million term
note under the Company's credit facility, the conversion of $1.1 million of
subordinated debentures to exercise common stock purchase warrants and
repayments of other long-term debt and capital lease obligations of $1.7
million. The debt reductions were partially offset by a $0.7 million capital
lease obligation incurred in connection with equipment acquisitions and an
increase to the carrying value of the convertible subordinated debentures of
$0.3 million due to accretion.
The Company's secured credit facility (the "Credit Facility") was amended in
August 1994. The $55 million Credit Facility expires in August 1999 and consists
of a revolving line of credit providing for direct borrowings and up to $15
million in letters of credit. Direct borrowings and letter of credit advances
are made available pursuant to a formula based on the levels of eligible
accounts receivable and inventories. The Credit Facility agreement contains
certain restrictive covenants which include, among other things, a prohibition
on the declaration or payment of any cash dividends, minimum ratios of operating
income to interest and fixed charges, and a maximum ratio of total liabilities
to net worth as well as a subjective acceleration clause. Interest rates are
also subject to adjustment based upon certain financial ratios. During 1994, the
Company was in compliance with all such financial covenants. The Credit Facility
is secured by substantially all of the assets of the Company. Refer to Note C of
the Notes to Consolidated Financial Statements.
As of February 17, 1995, there were $15.1 million of direct borrowings and $6.1
million of letters of credit outstanding and $13.2 million of borrowings
available under the Credit Facility. Required principal payments for debt in
1995 are $0.8 million. The Company believes that borrowings under the Credit
Facility and cash flow from operations will be sufficient to meet working
capital and other requirements for 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
EXECUTONE Information Systems, Inc.:
We have audited the accompanying consolidated balance sheets of EXECUTONE
Information Systems, Inc. (a Virginia corporation) and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for each of the three
years in the period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of EXECUTONE Information Systems,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
January 27, 1995
SELECTED FINANCIAL DATA
The following is selected financial data for EXECUTONE for the five years ended
December 31, 1994.
(In thousands, except for per share amounts)
Years Ended December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Restated) (Restated) (Restated) (Restated)
Revenues $ 291,969 $ 271,765 $ 253,024 $ 243,616 $ 252,516
========= ========= ========= ========= =========
Income Before Income
Taxes From Continuing
Operations $ 10,041 $ 7,580 $ 4,320 $ 2,327 $ 3,422
========= ========= ========= ========= =========
Income From Continuing
Operations $ 6,734 $ 4,903 $ 2,222 $ 1,146 $ 1,395
Income (Loss) From
Discontinued Operations,
Net of Taxes 757 298 (157) (129) 493
Extraordinary Item - Gain on
Extinguishment of Debt,
Net of Taxes -- -- 1,267 -- --
--------- --------- --------- --------- ---------
Net Income $ 7,491 $ 5,201 $ 3,332 $ 1,017 $ 1,888
========= ========= ========= ========= =========
EARNINGS PER SHARE:
Continuing Operations $ 0.14 $ 0.10 $ 0.05 $ 0.03 $ 0.05
Discontinued Operations 0.02 0.01 -- -- 0.01
Extraordinary Item -- -- 0.03 -- --
--------- --------- --------- --------- ---------
Net Income $ 0.16 $ 0.11 $ 0.08 $ 0.03 $ 0.06
========= ========= ========= ========= =========
Total Assets $ 189,481 $ 175,555 $ 179,294 $ 177,602 $ 192,799
========= ========= ========= ========= =========
Long-Term Debt(1) $ 24,698 $ 32,279 $ 43,752 $ 56,271 $ 63,231
========= ========= ========= ========= =========
Cash Dividends Declared
Per Share(2) $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= =========
(1) Includes capitalized leases.
(2) The Company has not declared or paid any cash dividends on its Common
Stock. Refer to "Stock Data".
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
Years Ended December 31,
1994 1993 1992
---- ---- ----
(Restated) (Restated)
REVENUES:
Product $137,752 $134,209 $128,044
Base 154,217 137,556 124,980
--------- --------- ---------
291,969 271,765 253,024
COST OF REVENUES 170,825 161,446 152,929
--------- --------- ---------
Gross Profit 121,144 110,319 100,095
--------- --------- ---------
OPERATING EXPENSES:
Research, development and engineering 9,451 8,094 6,796
Selling, general and administrative 96,898 88,918 82,892
--------- ---------- ----------
106,349 97,012 89,688
--------- ---------- ----------
OPERATING INCOME 14,795 13,307 10,407
INTEREST, AMORTIZATION AND
OTHER EXPENSES, NET:
Cash 2,212 3,193 3,253
Noncash 2,542 2,534 2,834
--------- ----------- -----------
4,754 5,727 6,087
--------- ----------- -----------
INCOME BEFORE INCOME TAXES FROM
CONTINUING OPERATIONS 10,041 7,580 4,320
PROVISION FOR INCOME TAXES:
Cash 400 335 331
Noncash (utilization of pre-acquisition
tax benefits - refer to Note D) 2,907 2,342 1,767
--------- ----------- ----------
3,307 2,677 2,098
--------- ----------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM 6,734 4,903 2,222
Income (loss) from discontinued operations
(net of income tax provision
(benefit) of $102, $158, and ($105)) 153 298 (157)
Gain on disposal of discontinued operations
(net of income tax provision of $403) 604 -- --
Extraordinary item - gain on extinguishment
of debt (net of income tax provision of $888) -- -- 1,267
---------- ---------- ---------
NET INCOME $ 7,491 $ 5,201 $ 3,332
========== ========== =========
EARNINGS PER SHARE:
CONTINUING OPERATIONS $ 0.14 $ 0.10 $ 0.05
DISCONTINUED OPERATIONS 0.02 0.01 ---
EXTRAORDINARY ITEM -- -- 0.03
---------- ----------- ----------
NET INCOME $ 0.16 $ 0.11 $ 0.08
========== =========== =========
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK AND
EQUIVALENTS OUTSTANDING 47,697 48,283 44,377
========== =========== =========
The accompanying notes are an integral part of these consolidated statements.
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended December 31,
1994 1993 1992
---- ---- ----
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 6,734 $ 4,903 $ 3,489
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,463 7,469 7,645
Deferred income tax provision 2,907 2,342 1,767
Extraordinary item, net of taxes -- - (1,267)
Noncash interest expense 242 272 315
Provision for losses on accounts receivable 893 725 306
Other 1,009 (2) 599
------- -------- --------
19,248 15,709 12,854
------- ------ ------
Changes in working capital items:
Accounts receivable (9,346) (4,337) (1,639)
Inventories (13,049) 4,073 (1,938)
Accounts payable and accruals 10,497 2,732 3,690
Other working capital items (47) (629) 1,080
-------- --------- -------
(11,945) 1,839 1,193
--------- ------- -------
NET CASH PROVIDED BY CONTINUING
OPERATIONS 7,303 17,548 14,047
-------- ------ ------
Cash flows from discontinued operations (449) (209) (1,717)
--------- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 6,854 17,339 12,330
-------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (6,091) (2,119) (1,947)
Acquisitions of distributors/customer bases (1,298) (750) (431)
Proceeds from sale of VCS 9,700 -- ---
Other (436) 8 (593)
--------- ------- --------
NET CASH PROVIDED/(USED) BY
INVESTING ACTIVITIES 1,875 (2,861) (2,971)
--------- ------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Restructuring cost payments, net (505) (811) (2,127)
Repayments under revolving credit facility (4,199) (3,524) (3,129)
Repayments of term note under credit facility (3,750) (1,250) (1,000)
Repayments of GTE/Contel promissory note -- (4,000) (2,000)
Borrowings under HQGF Note -- -- 2,000
Repayments of other long-term debt (1,781) (2,355) (1,954)
Debt exchange transaction costs -- -- (1,252)
Repurchase of stock (8,450) (3,100) --
Proceeds from issuance of stock 10,399 564 171
------- ------- -------
NET CASH USED BY FINANCING ACTIVITIES (8,286) (14,476) (9,291)
-------- ------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 443 2 68
CASH AND CASH EQUIVALENTS - BEGINNING
OF YEAR 7,406 7,404 7,336
-------- ------- -------
CASH AND CASH EQUIVALENTS - END
OF YEAR $ 7,849 $7,406 $ 7,404
======== ====== =======
The accompanying notes are an integral part of these consolidated statements.
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts) December 31, December 31,
1994 1993
----------- ------------
1993
ASSETS (Restated)
CURRENT ASSETS:
Cash and cash equivalents $ 7,849 $ 7,406
Accounts receivable, net of allowance
of $1,335 and $1,017 46,675 37,567
Inventories 40,300 29,091
Prepaid expenses and other current assets 7,358 5,789
Net assets of discontinued operation -- 8,538
-------- -----------
Total Current Assets 102,182 88,391
PROPERTY AND EQUIPMENT, net 18,967 14,728
INTANGIBLE ASSETS, net 38,415 44,216
DEFERRED TAXES 26,979 25,200
OTHER ASSETS 2,938 3,020
-------- -----------
$189,481 $175,555
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 777 $ 2,989
Accounts payable 39,369 29,295
Accrued payroll and related costs 7,026 7,751
Accrued liabilities 8,187 7,057
Accrued restructuring costs 1,005 1,381
Deferred revenue and customer deposits 18,757 17,713
--------- --------
Total Current Liabilities 75,121 66,186
LONG-TERM DEBT 24,698 32,279
LONG-TERM DEFERRED REVENUE 2,354 1,345
--------- --------
Total Liabilities 102,173 99,810
--------- --------
STOCKHOLDERS' EQUITY:
Common stock: $.01 par value; 60,000,000 shares
authorized; 45,647,894 and 41,205,498 issued and
outstanding 456 412
Additional paid-in capital 72,303 68,275
Retained earnings 14,549 7,058
--------- --------
Total Stockholders' Equity 87,308 75,745
--------- --------
$189,481 $175,555
========= ========
The accompanying notes are an integral part of these consolidated balance
sheets.
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for Common Stock Preferred Stock Paid-In Retained Stockholders'
share amounts) Shares Amount Shares Amount Capital Earnings Equity
------ ------- ------ ------ ------- -------- ------------
Balance as of December 31, 1991 30,332,284 $303 -- $ -- $59,526 $(1,475) $58,354
Debt restructuring (Note C) 674,865 6,149 729 6,878
Proceeds from issuances of stock
from warrants and employee
stock plans 541,211 6 376 382
Amortization of deferred
compensation 90 90
Net income 3,332 3,332
----------------------------------------------------------------------------------------
Balance as of December 31, 1992 30,873,495 $309 674,865 $6,149 $60,721 $1,857 $69,036
Proceeds from issuances of stock
from employee stock plans 1,307,805 13 1,247 1,260
Proceeds from common stock
purchase warrants exercised
through bond conversion 1,418,300 14 971 985
Conversion of note payable to
HQGF into preferred stock 200,000 1,909 365 2,274
Conversion of preferred stock
into common stock 8,748,650 88 (874,865) (8,058) 7,970 --
Repurchase of stock (1,142,752) (12) (3,088) (3,100)
Amortization of deferred
compensation 89 89
Net income 5,201 5,201
----------------------------------------------------------------------------------------
Balance as of December 31, 1993 41,205,498 $412 -- $ -- $68,275 $7,058 $75,745
Proceeds from issuances of stock
from employee stock plans 5,716,651 57 11,303 11,360
Proceeds from common stock
purchase warrants exercised
through bond conversion 1,507,000 15 1,056 1,071
Repurchase of stock (2,781,255) (28) (8,422) (8,450)
Amortization of deferred
compensation 91 91
Net income 7,491 7,491
-----------------------------------------------------------------------------------------
Balance as of December 31, 1994 45,647,894 $456 -- $ -- $72,303 $14,549 $87,308
========================================================================================
The accompanying notes are an integral part of these consolidated statements.
EXECUTONE INFORMATION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - NATURE OF THE BUSINESS AND FORMATION OF THE COMPANY
EXECUTONE Information Systems, Inc. (the "Company") designs, manufactures,
sells, installs, supports and services voice processing systems and provides
cost-effective long-distance telephone service. The Company is also a leading
supplier of specialized hospital communications equipment. Products are sold
under the EXECUTONE'r', INFOSTAR'r', IDS'tm', LIFESAVER'tm', and
INFOSTAR/ILS'tm' brand names through a worldwide network of direct sales and
service offices and independent distributors.
The Company was formed on July 8, 1988 through the merger of ISOETEC
Communications, Inc. ("ISOETEC") with Vodavi Technology Corporation ("Vodavi").
The merger of ISOETEC into Vodavi was accounted for under the purchase method of
accounting and Vodavi was deemed to have undergone a quasi-reorganization for
accounting purposes. As of July 1988, Vodavi's accumulated deficit of
approximately $49.7 million was eliminated. Executone, Inc. was acquired in 1988
from Contel Corporation ("Contel") for promissory notes and cash.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include the
accounts of the Company and its subsidiaries. In consolidating the accompanying
financial statements, all significant intercompany transactions have been
eliminated.
Revenue Recognition. The Company recognizes revenue on equipment sales and
software licenses to independent distributors when shipped. Revenue from
equipment, software and installation contracts with end-users is recognized when
the contract or contract phase for major installations is substantially
completed.
Revenue derived from the sale of service contracts is amortized ratably over the
service contract period on a straight-line basis.
Earnings Per Share. Earnings per share is based on the weighted average number
of shares of common stock, convertible preferred stock (which was entirely
converted in 1993) and dilutive common stock equivalents, which include stock
options and warrants, outstanding during the period. Common stock equivalents
and the convertible subordinated debentures which are antidilutive have been
excluded from the computations.
Cash Equivalents. Cash equivalents include short-term investments with original
maturities of three months or less.
Inventories. Inventories are stated at the lower of first-in, first-out ("FIFO")
cost or market and consist of the following at December 31, 1994 and 1993:
(Amounts in thousands) 1994 1993
---------------------- ---- ----
(Restated)
Raw Materials $ 3,082 $ 3,363
Finished Goods 37,218 25,728
-------- --------
$40,300 $29,091
======== ========
Finished goods include service stock which is amortized over the estimated
product/service life of the related systems. At December 31, 1993, finished
goods inventory was unusually low due to the December 1993 fire at the Company's
main subcontractor's production facility. See Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Intangible Assets. Intangible assets represent the excess of the purchase price
of the predecessor companies and customer bases acquired over the fair value of
the net tangible assets acquired. Amortization is provided over periods ranging
from 10 to 40 years. Intangible assets at December 31, 1994 and 1993 are net of
accumulated amortization of $13.6 million and $11.4 million, respectively.
Property and Equipment. Property and equipment at December 31, 1994 and 1993
consist of the following:
----------------------
(Amounts in thousands) 1994 1993
---------------------- ---- ----
(Restated)
Land and building $ 1,961 $ 1,932
Furniture and fixtures 7,626 7,212
Leasehold improvements 2,620 3,185
Machinery and equipment 34,269 26,641
-------- -------
46,476 38,970
Accumulated depreciation (27,509) (24,242)
-------- -------
Property and equipment, net $18,967 $14,728
======== =======
Depreciation is provided on a straight-line basis over the estimated economic
useful lives of property and equipment which range from three to ten years for
equipment and thirty years for a building. Amortization, principally of
leasehold improvements, is provided over the life of the respective lease terms
which range from three to ten years.
Accrued Restructuring Costs. The accrual for restructuring costs includes costs
to combine the operations of the predecessor companies and distributors
subsequently acquired, and to pursue the new business direction of the Company
as of July 1988. These include accruals established for the discontinuance of
unprofitable non-telephone businesses, for relocation and reorganization costs,
for lease costs on duplicate facilities, for litigation costs incurred in
connection with pre-acquisition activities, and for other related costs.
Income Taxes. The Company utilizes the liability method of accounting for income
taxes as set forth in FAS 109, Accounting for Income Taxes. Under the liability
method, deferred taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Research, Development and Engineering. Research, development and engineering
costs are expensed as incurred.
Fair Value of Financial Instruments. The fair value of the Company's Convertible
Subordinated Debentures at December 31, 1994 is approximately $13.7 million,
based upon market quotes. The carrying value of all other financial instruments
included in the accompanying financial statements approximate fair value as of
December 31, 1994 based upon current interest rates.
Noncash Investing and Financing Activities. The following noncash investing and
financing activities took place during the three years ended December 31, 1994:
(Amounts in thousands) 1994 1993 1992
---------------------- ---- ---- ----
Capital leases for equipment acquisitions $686 $1,791 $1,028
Utilization of credits under a special
stock option incentive plan 737 696 205
Common stock purchase warrants exercised
through bond conversion 1,071 985 ---
Note receivable for disposition of VCS
division (Note J) 1,200 -- ---
Issuance of debt to finance acquisitions
of customer bases and distributors -- 300 911
Conversion of Note Payable to HQGF to
Preferred Stock -- 2,274 ---
Conversion of Preferred Stock into
Common Stock -- 8,058 ---
Refer to the consolidated statements of cash flows for information on
cash-related operating, investing and financing activities.
NOTE C - DEBT
The Company's debt is summarized below at December 31, 1994 and 1993:
(Amounts in thousands) 1994 1993
---------------------- ---- ----
Borrowings Under Revolving Credit Facility (a) $10,967 $15,166
Term Note Under Credit Facility (a) -- 3,750
Convertible Subordinated Debentures (b) 11,855 12,684
Capital Lease Obligations (c) 2,408 2,928
Other 245 740
------- -------
Total Debt 25,475 35,268
Less: Current Portion of Long-Term Debt 777 2,989
------- -------
Total Long-Term Debt $24,698 $32,279
======= =======
(a) The Company's Credit Facility was amended in August 1994, including the
repayment of the term note. The amended $55 million Credit Facility consists of
a revolving line of credit providing for direct borrowings and up to $15 million
in letters of credit. Direct borrowings and letter of credit advances are made
available pursuant to a formula based on the levels of eligible accounts
receivable and inventories. To minimize interest on the revolving line of
credit, the Company has the option to borrow money based upon the lender's prime
rate (8.5% at December 31, 1994) or at an adjusted eurodollar rate (7.9% at
December 31, 1994). As of December 31, 1994, the Company had $8.0 million
outstanding subject to the adjusted eurodollar rate, with the balance at the
prime rate. Prior to August 1994, interest on amounts outstanding under the
revolving line of credit were based upon the lender's prime rate. The revolving
line of credit expires in August 1999. Approximately $22.0 million was available
at December 31, 1994 under the revolving line of credit, including approximately
$6.1 million which was committed to cover outstanding letters of credit. The
unused portion of the line of credit has a commitment fee of 0.375%. The
Company's average outstanding indebtedness under the revolving line of credit
for the years ended December 31, 1994 and 1993 was $13.1 million and $17.3
million, respectively, and the average interest rate on such indebtedness was
7.1% and 7.2%, respectively.
The Credit Facility agreement contains certain restrictive covenants which
include, among other things, a prohibition on the declaration or payment of any
cash dividends, minimum ratios of operating income to interest and fixed
charges, and a maximum ratio of total liabilities to net worth as well as a
subjective acceleration clause. Interest rates are also subject to adjustment
based upon certain financial ratios. The Company was in compliance with all
covenants in 1994. The Credit Facility is secured by substantially all of the
assets of the Company.
(b) The Company's Convertible Subordinated Debentures (the "Debentures"), issued
in April 1986, are due March 15, 2011 and bear interest at 7 1/2%, payable March
15th and September 15th. In January 1992, $15 million principal amount of
Debentures with a book value of $10.1 million was exchanged for 674,865 shares
of Convertible Preferred Stock and 2,999,400 Common Stock Purchase Warrants,
which resulted in an extraordinary gain, net of tax, of $1.3 million included in
the statement of operations for the year ended December 31, 1992. The face value
of the outstanding Debentures at December 31, 1994 was $16.5 million. The face
value of the Debentures was adjusted to fair value in connection with Vodavi's
1988 quasi-reorganization. The Debentures are convertible at the option of the
holder into Common Stock of the Company at any time on or before March 15, 2011,
unless previously redeemed, at a conversion price of $10.625 per share, subject
to adjustment in certain events. Subject to certain restrictions, the Debentures
are redeemable in whole or in part, at the option of the Company, at redemption
premiums of 100.75% in 1995, declining to par in 1996. The Debentures are also
subject to annual sinking fund payments of $1.5 million beginning March 15,
1997. Debentures converted in the debt-for-equity exchange and in connection
with Warrant exercises were delivered in lieu of cash in making sinking fund
payments. Thus, no cash sinking fund payment will be due until March 2008.
(c) The Company has entered into capital lease arrangements for office furniture
and data processing and test equipment with a net book value of approximately
$2.4 million and $2.8 million at December 31, 1994 and 1993, respectively. Such
leases have been capitalized using implicit interest rates which range from 8%
to 15%.
The following is a schedule of future maturities of long-term debt at December
31, 1994:
Years Ending December 31: (Amounts in thousands)
1995 $ 777
1996 821
1997 596
1998 403
1999 11,008
Thereafter 11,870
--------
$25,475
========
NOTE D - INCOME TAXES
The components of the provision for income taxes applicable to income from
continuing operations before extraordinary item for the three years ended
December 31, 1994 are as follows:
(Amounts in thousands) 1994 1993 1992
---------------------- ---- ---- ----
(Restated) (Restated)
Current - Federal $ 200 $ 145 $ 144
- State 200 190 187
------- ------- -------
400 335 331
------- ------- -------
Deferred - Federal 2,363 1,842 1,458
- State 544 500 309
------- ------- -------
2,907 2,342 1,767
------- ------- -------
$3,307 $2,677 $2,098
======= ======= =======
For the years ended December 31, 1994, 1993 and 1992, the Company recorded a
deferred income tax provision (benefit) of $505,000, $158,000 and ($105,000),
respectively, related to discontinued operations.
For the year ended December 31, 1992, the Company recorded a deferred income tax
provision of $888,000 related to an extraordinary item.
A reconciliation of the statutory federal income tax provision to the reported
income tax provision on income from continuing operations before extraordinary
item for the three years ended December 31, 1994 is as follows:
(Amounts in thousands) 1994 1993 1992
---------------------- ---- ---- ----
(Restated) (Restated)
Statutory income tax provision $3,415 $ 2,577 $1,469
State income taxes, net of
federal income tax benefit 676 526 349
Amortization of intangible assets 457 476 522
Adjustment of valuation allowance (1,252) (800) ---
Research and development credit (250) (196) (297)
Other 261 94 55
------ ------ ------
Reported income tax provision $3,307 $2,677 $2,098
====== ====== ======
The components of and changes in the net deferred tax asset are as follows:
Deferred
December 31, (Expense) December 31,
(Amounts in thousands) 1993 Benefit 1994
---------------------- -------- -------- ------
Net operating loss and tax credit carryforwards $31,079 $(1,904) $29,175
Inventory reserves 6,950 (1,545) 5,405
Accrued liabilities and restructuring costs 2,075 (629) 1,446
Debenture revaluation (1,966) 251 (1,715)
Other (1,657) (883) (2,540)
------- ------- ------
36,481 (4,710) 31,771
Valuation allowance (11,281) 6,489 (4,792)
------- ------- ------
Deferred tax asset $25,200 $1,779 $26,979
======= ====== =======
The deferred tax asset represents the benefits expected to be realized from the
utilization of pre- and post-acquisition tax benefit carryforwards, which
include net operating loss carryforwards ("NOLs"), tax credit carryforwards and
the excess of tax bases over fair value of the net assets of the Company as of
the date of the merger. The utilization of the pre-acquisition tax benefits for
financial reporting purposes will not be reflected in the statement of
operations, but will be reflected as a reduction of the deferred tax asset.
In order to fully realize the remaining deferred tax asset of $27.0 million as
of December 31, 1994, the Company will need to generate future taxable income of
approximately $73 million prior to the expiration of the pre-acquisition NOLs
and tax credit carryfowards. Although the Company believes that it is more
likely than not that the deferred tax asset will be fully realized based on
current projections of future pre-tax income, a valuation allowance has been
provided for a portion of the deferred tax asset. During 1994, the Company
adjusted its valuation allowance by $6.5 million, $5.2 million of which was a
reduction of goodwill as it related to pre-acquisition tax benefits and $1.3
million of which reduced the 1994 provision for income taxes. The basis for the
adjustment was a significant increase in pre-tax income from $7.6 million in
1993 to $10.0 million in 1994. Accordingly, historical earnings support the
realization of the larger deferred tax asset. However, there can be no assurance
that the Company will generate any specific level of future earnings.
As of December 31, 1994, the Company has NOLs and tax credit carryforwards
(subject to review by the Internal Revenue Service) available to offset future
income for tax return purposes of approximately $70.4 million and $3.1 million,
respectively. A portion of the NOLs and tax credit carryforwards were generated
prior to the formation of the Company and their utilization is subject to
certain limitations imposed by the Internal Revenue Code. The NOLs expire as
follows:
2002 2003 2004 2005 2006
----- ----- ----- ----- -----
(Amounts in millions) $ 1.3 $20.9 $26.1 $ 9.8 $12.3
A reconciliation of the Company's income before taxes for financial reporting
purposes to taxable income for the three years ended December 31, 1994 is as
follows:
(Amounts in thousands) 1994 1993 1992
---------------------- ---- ---- ----
(Restated) (Restated)
Income from continuing operations
before extraordinary item $10,041 $7,580 $4,320
Discontinued operations 1,262 456 (262)
Extraordinary item -- -- 2,155
------- ------- -------
Income before taxes for financial reporting purposes 11,303 8,036 6,213
Differences between income before taxes for
financial reporting purposes and taxable income:
Permanent differences 1,768 1,570 1,733
------- ------- -------
Book taxable income 13,071 9,606 7,946
State income taxes paid (275) (99) (183)
Accrued restructuring costs (375) (805) (1,760)
Net changes in other temporary differences (4,152) (6,926) (703)
------- ------- -------
Taxable income $ 8,269 $1,776 $5,300
======= ======= =======
Changes in temporary differences in all three years principally relate to
accrued restructuring costs, inventory reserves and other costs accrued for book
purposes, but not deducted for tax purposes until subsequently paid.
For the years ended December 31, 1994, 1993 and 1992, the Company made cash
payments of approximately $485,000, $96,000 and $364,000, respectively, for
income taxes.
NOTE E - COMMITMENTS AND CONTINGENCIES
Operating leases. The Company conducts its business operations in leased
premises under noncancellable operating lease agreements expiring at various
dates through 2005. Rental expense under operating leases amounted to $10.1
million, $9.7 million and $9.6 million for the years ended December 31, 1994,
1993 and 1992, respectively.
The following represents the future minimum rental payments due under
noncancellable operating leases that have initial or remaining lease terms in
excess of one year as of December 31, 1994:
Years Ending December 31, (Amounts in thousands)
1995 $ 8,110
1996 7,106
1997 6,185
1998 5,479
1999 3,990
Thereafter 3,442
-------
$34,312
=======
Litigation. The Company has various lawsuits, claims and contingent liabilities
arising from the conduct of business; however, in the opinion of management,
they are not expected to have a material adverse effect on the consolidated
financial position of the Company.
NOTE F - STOCK OPTIONS AND WARRANTS
Information relative to the Company's stock option plans at December 31, 1994 is
as follows:
Shares Per Share Range
Total shares originally authorized 9,290,000
Options exercised/expired since inception of plans (5,063,446)
----------
Remaining shares reserved for issuance 4,226,554
Options outstanding 3,663,777 $0.63-3.19
---------
Shares available for granting of future options 562,777
=========
Options exercisable 2,212,815 $0.63-3.13
Options exercised -
Year ended December 31, 1994 1,979,340 $0.63-2.88
Year ended December 31, 1993 1,144,395 $0.63-1.25
Year ended December 31, 1992 293,064 $0.63-1.19
Option prices under the Company's plans are equal to the market value of the
Common Stock on the dates the options are granted.
The Company has non-plan options outstanding at December 31, 1994 for 317,130
shares at prices ranging from $1.13 to $20.43 per share. These include options
for 300,000 shares granted to an officer by a predecessor company at a price of
$1.13 per share. Deferred compensation of $0.9 million was recorded for the
excess of the fair value over the exercise price at the date of grant and is
being amortized over 10 years ending in 1997. At December 31, 1994, all of the
non-plan options were exercisable. These options expire at various dates through
December 1999. Certain options include registration rights for the shares
issuable thereunder.
As of December 31, 1994, the Company has 488,890 warrants outstanding which
permit the holder to purchase one share of Common Stock for $1.00 in cash or
Debentures, and may be exercised through April 1, 1995. In addition, the Company
has other outstanding warrants to purchase a total of 249,431 shares of Common
Stock at prices ranging from $0.01 to $1.25 per share, expiring through
September 1997. At December 31, 1994, 721,654 warrants were exercisable. Certain
warrants include registration rights for the shares issuable thereunder.
NOTE G - EMPLOYEE STOCK PURCHASE PLAN
A total of 2,750,000 shares of Common Stock are authorized for issuance under
the Company's employee stock purchase plan. The plan permits eligible employees
to purchase up to 1,000 shares of Common Stock at the lower of 85% of the fair
market value of the Common Stock at the beginning or at the end of each
six-month offering period. Pursuant to such plan, 209,512, 168,097 and 177,846
shares were sold to employees during the three years ended December 31, 1994,
1993 and 1992, respectively.
During the year, the Company's shareholders adopted the 1994 Executive Stock
Incentive Plan, which enabled officers and other key employees to purchase a
total of up to 3,000,000 shares of the Company's Common Stock. During 1994,
participants purchased 2,850,000 shares of Common Stock at fair market value,
which were financed through individual bank borrowings at market interest rates
by each participant, payable over five years and guaranteed by the Company under
an $8.6 million letter of credit. This letter of credit has a minimal impact on
the Company's borrowing capability. These shares are held by the Company as
security for the borrowings under a loan and pledge agreement. Sales of such
shares by participants are subject to certain restrictions, and, generally, they
may not be sold for five years.
NOTE H - SAVINGS AND POST-RETIREMENT BENEFIT PLANS
The Company has a 401(k) Savings Plan under which it matches employee
contributions subject to the discretion of the Company's Board of Directors. The
Company's matching contribution, consisting of shares of its Common Stock
purchased in the open market, is equal to 25% of each employee's contribution,
up to a maximum of $660 per employee.
Prior to the 1993 plan year, the Company's matching contribution was equal to
25% of each employee's contribution and was made in cash up to a maximum of $600
per employee. The expense for the matching contribution for the years ended
December 31, 1994, 1993 and 1992 was approximately $500,000, $372,000 and
$422,000, respectively.
The Company has an obligation remaining from the acquisition of Executone, Inc.
to provide post-retirement health and life insurance benefits for a group of
fewer than 100 former Executone, Inc. employees, including 8 current employees
of the Company. The Company does not provide post-retirement health or life
insurance benefits to any other employees. Effective January 1, 1993, the
Company adopted FAS 106, a standard on accounting for post-retirement benefits
other than pensions. This standard requires that the expected cost of these
benefits must be charged to expense during the years that employees render
service, rather than recognizing these costs on the cash basis as the Company
had done prior to January 1, 1993. The Company adopted the new standard
prospectively.
The accumulated post-retirement benefit obligation ("APBO") as of January 1,
1995 was approximately $3.2 million, of which $2.9 million was for current
retirees and $0.3 million for future retirees. The APBO included $2.1 million of
unamortized transition obligation and a $0.7 million unrecognized net actuarial
loss. The transition obligation is being amortized over a 20-year period.
The 1994 pre-tax charge to earnings was $0.4 million, of which $0.1 million
represented the amortization cost and $0.3 million represented interest expense
and the recognition of a portion of the net actuarial loss. The 1993 pre-tax
charge to earnings was $0.3 million, of which $0.1 million represented the
amortization cost and $0.2 million represented interest expense. For the year
ended December 31, 1992, post-retirement benefits that were charged to
operations as paid approximated $255,000. The adoption of FAS 106 does not
affect the Company's cash outlays for post-retirement benefits.
In determining the APBO, the Company used a healthcare cost trend rate of
approximately 12% for 1994, decreasing over a nine-year period until leveling
off at 6%. A 1% increase in the trend rate would increase the APBO by
approximately 5%. The weighted average discount rate used was 7.25%.
NOTE I - INTEREST, AMORTIZATION AND OTHER EXPENSES, NET
Interest, amortization and other expenses, net consists of the following for the
three years ended December 31, 1994:
(Amounts in thousands) 1994 1993 1992
---------------------- ---- ---- ----
(Restated) (Restated)
Interest Expense $3,089 $3,556 $4,400
Interest Income (287) (252) (299)
Amortization of Intangible Assets 2,300 2,261 2,232
Other, net (348) 162 (246)
------ ------ ------
$4,754 $5,727 $6,087
====== ====== ======
For the years ended December 31, 1994, 1993 and 1992, the Company made cash
payments of approximately $2.8 million, $4.2 million and $4.9 million,
respectively, for interest expense on indebtedness.
NOTE J - ACQUISITIONS/DISPOSITIONS
As of March 31, 1994, the Company sold its Vodavi Communications Systems
Division ("VCS"), which sold telephone equipment to supply houses and dealers
under the brand names STARPLUS'r' and INFINITE'tm', for approximately $10.9
million. Proceeds of the sale consisted of approximately $9.7 million in cash
and a $1.2 million note, fully secured by a letter of credit and payable in
September 1995. The cash proceeds were received in April 1994 and were used to
reduce borrowings under the Company's credit facility.
The sale resulted in an after-tax gain of $604,000 (net of income tax provision
of $403,000). The results of VCS have been reported separately as a discontinued
operation in the consolidated statements of operations. Prior year consolidated
financial statements have been restated to present VCS as a discontinued
operation. Net revenues of the discontinued operation for the years ended
December 31, 1994 (through the date of sale), 1993 and 1992 were $8.6 million,
$31.6 million and $26.6 million, respectively.
In 1990, the Company acquired all the outstanding shares of Isoetec Texas, Inc.,
an independent distributor of the Company's products. The transaction has been
accounted for by the purchase method. The purchase price was based upon a
multiple of 1989 pre-tax earnings of Isoetec Texas, Inc., subject to adjustment.
The purchase price originally recorded was based on cash payments to the former
owners of approximately $1.1 million and liabilities assumed of approximately
$0.9 million.
The Company brought an action against the former owners of Isoetec Texas, Inc.
alleging breach of contract and fraud with respect to the calculation of 1989
pre-tax earnings and the purchase price. In November 1991, pursuant to the
purchase contract, an arbitrator ruled that 1989 pre-tax earnings should be
reduced by an amount that resulted in a reduction of the purchase price by
approximately $2 million. However, the arbitrator also awarded damages of
approximately $1.2 million to the former owners on a breach of warranty claim.
In September 1994, the Company paid $1.2 million to the former shareholders of
Isoetec Texas, Inc. in partial settlement of these claims, and, in December
1994, the Company paid an additional $211,000 in cash and common stock to settle
all remaining claims. These payments were adjustments of the recorded purchase
price, resulting in an increase to intangible assets which is being charged to
income over the remaining amortization period.
NOTE K - SELECTED QUARTERLY FINANCIAL DATA
The following is a summary of unaudited selected quarterly financial data for
the years ended December 31, 1994 and 1993:
Three Months Ended
-------------------------------------------------------------------
March 31, June 30, September 30, December 31,
(In thousands, except for per share amounts) 1994 1994 1994 1994
--------- -------- ------------ -----------
Revenues $65,307 $76,612 $76,547 $73,503
Gross Profit 25,921 31,831 31,764 31,628
Income Before Income Taxes
from Continuing Operations 143 4,024 3,312 2,562
Income from Continuing Operations 86 2,414 1,986 2,248
Discontinued Operations 757 -- -- --
Net Income 843 2,414 1,986 2,248
Earnings Per Share:
Continuing Operations -- 0.05 0.04 0.05
Discontinued Operations 0.02 -- -- --
Three Months Ended
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
(In thousands, except for per share amounts) 1993 1993 1993 1993
-------- -------- ---------- -----------
(Restated) (Restated) (Restated) (Restated)
Revenues $63,064 $68,483 $67,897 $72,321
Gross Profit 25,097 27,367 27,573 30,282
Income Before Income Taxes
from Continuing Operations 1,409 1,874 1,615 2,682
Income from Continuing Operations 846 1,125 966 1,966
Discontinued Operations (123) 77 242 102
Net Income 723 1,202 1,208 2,068
Earnings Per Share:
Continuing Operations 0.02 0.03 0.03 0.04
Discontinued Operations -- -- -- --
STOCK DATA
The number of holders of record of the Company's Common Stock as of the close of
business on January 31, 1995, was approximately 2,100. The Common Stock is
traded on the NASDAQ National Market System under the symbol "XTON". As reported
by NASDAQ on February 17, 1995, the closing sale price of the Common Stock on
the NASDAQ National Market System was $3 3/8. The following table reflects in
dollars the high and low closing sale prices for EXECUTONE's Common Stock as
reported by the NASDAQ National Market System for the periods indicated:
Fiscal Period High Low
------------- ---- ---
1994
First Quarter $2 15/16 $2 3/16
Second Quarter 2 13/16 2 1/2
Third Quarter 3 5/16 2 1/2
Fourth Quarter 3 9/16 3
1993
First Quarter $2 3/16 $1 5/8
Second Quarter 2 3/16 1 7/8
Third Quarter 2 3/4 1 15/16
Fourth Quarter 3 1/16 2 3/8
The Company's Debentures are quoted on the NASDAQ System under the symbol
"XTONG". On February 17, 1995, the average of the closing bid and asked prices
per $1,000 principal amount of Debentures, as reported on the NASDAQ System, was
$790. The following table reflects in dollars the high and low average closing
sale prices for the Debentures, as reported by the NASDAQ System, for the
periods indicated:
Fiscal Period High Low
------------- ---- ---
1994
First Quarter $900 $863
Second Quarter 854 786
Third Quarter 810 779
Fourth Quarter 815 775
1993
First Quarter $790 $710
Second Quarter 815 780
Third Quarter 858 803
Fourth Quarter 903 858
It is the present policy of the Board of Directors to retain earnings for use in
the business and the Company does not anticipate paying any cash dividends on
the Common Stock in the foreseeable future. The Company's current bank credit
agreement contains provisions prohibiting the payment of dividends on the Common
Stock.
STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS INDEPENDENT PUBLIC ACCOUNTANTS
EXECUTONE Information Systems, Inc. Arthur Andersen LLP
478 Wheelers Farms Road Champion Plaza
Milford, Connecticut 06460 400 Atlantic Street
(203) 876-7600 Stamford, Connecticut 06912-0021
STOCK AND WARRANT TRANSFER AGENT OUTSIDE COUNCIL
American Stock Transfer and Trust Company Hunton & Williams
40 Wall Street Riverfront Plaza
New York, New York 10005 951 East Byrd Street
Richmond, Virginia 23219
BOND TRANSFER AGENT
U.S. Trust Company of New York ADDITIONAL INFORMATION
114 West 47th Street A copy of EXECUTONE's Annual Report
on Form 10-K, New York, New York
10036-1532 which is filed with the
Securities and Exchange Commission,
is available without charge by
writing to:
David Krietzberg
Treasurer/Investor Relations
OFFICERS AND DIRECTORS Corporate Headquarters
BOARD OF DIRECTORS
-------------------------------------------------------------------------------
Alan Kessman Richard S. Rosenbloom 1, 2
Chairman of the Board David Sarnoff Professor of Business
Administration
Harvard Business School
Stanley M. Blau
Vice Chairman William R. Smart 1
Senior Vice President
Thurston R. Moore 1 Cambridge Strategic Management Group
Partner
Hunton & Williams William J. Spencer 1, 2
President
1 Compensation committee member Sematech, Inc.
2 Audit committee member
OFFICERS
-------------------------------------------------------------------------------
Alan Kessman Robert W. Hopwood
President and Chief Executive Officer Vice President, Customer Care
Stanley M. Blau Mark M. Hughes
Vice Chairman Vice President, Direct Sales
Michael W. Yacenda Andrew Kontomerkos
Executive Vice President Senior Vice President, Hardware
Engineering and Production
Barbara C. Anderson
Vice President, General Counsel and David E. Lee
Secretary Vice President, Business Development
James E. Cooke III John T. O'Kane
Vice President, National Accounts Vice President, MIS
Anthony R. Guarascio Frank J. Rotatori
Vice President, Finance and Vice President, Healthcare Sales
Chief Financial Officer
Shlomo Shur
Israel J. Hersh Senior Vice President, Advanced
Vice President, Software Engineering Technology
Elizabeth Hinds James H. Stirling
Vice President, Human Resources Vice President, Sales
EX-22
7
EXHIBIT 22
EXHIBIT 22
SUBSIDIARIES
STATE OR
COUNTRY OWNERSHIP
NAME OF INCORPORATION PERCENTAGE
EXECUTONE Network Services, Inc. Virginia 100%
INFOSTAR Technologies, Inc.* Virginia 100%
EXECUTONE Europe LTD United Kingdom 100%
EXECUTONE Systems Canada, Inc. Canada 100%
Blaser Industries, Inc. California 80.5%
* Name changed from INFOSTAR, Inc. in 1995.
EX-24
8
EXHIBIT 24
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included or incorporated by reference in this Form 10-K into the
Company's previously filed Registration Statements File Nos. 33-45015, 33-42561,
33-23294, 33-16585, 33-6604, 33-959, 2-91008, 33-40623, 33-46874, 33-46875,
33-50628, and 33-57519.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
March 27, 1995
EX-27
9
5
1000
YEAR
DEC-31-1994
DEC-31-1994
7,849
0
48,010
1,335
40,300
102,182
46,476
27,509
189,481
75,121
24,698
456
0
0
86,852
189,481
291,969
291,969
170,825
170,825
106,349
0
4,754
10,041
3,307
6,734
757
0
0
7,491
0.16
0.16