-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LIKiOXI1FP1HBiEuSH2oHNOWvt3FquKPT2VdC0YWYCXsR5y0nU4jAmXsMkSPq1e2 icamztNxvnNHNihON9XRpg== 0000903112-98-001962.txt : 19981123 0000903112-98-001962.hdr.sgml : 19981123 ACCESSION NUMBER: 0000903112-98-001962 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUESTRON TECHNOLOGY INC CENTRAL INDEX KEY: 0000732152 STANDARD INDUSTRIAL CLASSIFICATION: 5063 IRS NUMBER: 232257354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13324 FILM NUMBER: 98752776 BUSINESS ADDRESS: STREET 1: 6400 CONGRESS AVENUE STREET 2: SUITE 200 CITY: BOCA RATON STATE: FL ZIP: 33487 BUSINESS PHONE: 4072415251 MAIL ADDRESS: STREET 1: 6400 CONGRESS AVENUE STREET 2: SUITE 200 CITY: BOCA RATON STATE: FL ZIP: 33487 FORMER COMPANY: FORMER CONFORMED NAME: JUDICATE INC DATE OF NAME CHANGE: 19920703 10QSB 1 FORM 10QSB
U.S. Securities and Exchange Commission Washington, D. C. 20549 --------------------- FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 ............................................................................... [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ....... to .................................................................... Commission File Number 0-13324 ................................................................................... QUESTRON TECHNOLOGY, INC. ....................................................................................................................... (Exact name of small business issuer as specified in its charter) Delaware 23-2257354 ...................................................................................................................... (State or other jurisdiction (I. R. S. Employer of incorporation or organization) Identification Number) 6400 Congress Avenue, Suite 200A, Boca Raton, FL 33487 ............................................................................... (Address of principal executive offices) (561) 241-5251 ........................................................... (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X ................... No .................... As of November 6, 1998, there were 4,736,935 shares of the issuer's Common Stock outstanding. Transitional Small Business Disclosure Format (check one): Yes No X .................... ....................
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QUESTRON TECHNOLOGY, INC. INDEX Page No. PART I. Financial Information............................................................. 3 Item 1. Financial Statements (Unaudited).................................................. 3 Consolidated Balance Sheet - At September 30, 1998 and December 31, 1997..................................................................... 3 Consolidated Statement of Operations - For the Three Month and Nine Month Periods Ended September 30, 1998 and 1997.............................................. 4 Consolidated Statement of Cash Flows - For the Nine Month Periods Ended September 30, 1998 and 1997................................................................. 5 Notes to Consolidated Financial Statements............................... 6 - 11 Item 2. Management's Discussion and Analysis or Plan of Operation......................... 12 - 15 PART II. Other Information................................................................. 16 SIGNATURES........................................................................................ 17
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PART I - FINANCIAL INFORMATION Item 1. Financial Statements. QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 ASSETS September 30, December 31, 1998 1997 ----------------- ----------------- (Unaudited) Current assets: Cash and cash equivalents $ 87,587 $ 875,080 Accounts receivable, less allowance for doubtful accounts of $138,646 and $93,561, respectively 10,735,414 4,740,678 Other receivables 61,866 77,733 Inventories 17,284,914 8,415,777 Other current assets 477,625 158,597 ----------------- ----------------- Total current assets 28,647,406 14,267,865 Property and equipment - net 1,452,292 910,988 Cost in excess of net assets of businesses acquired, less accumulated amortization of $978,743 and $549,566, respectively 32,910,866 16,549,726 Deferred income taxes 2,927,012 3,192,947 Other assets 2,420,611 273,321 Total assets $ 68,358,187 $ 35,194,847 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,186,022 $ 2,378,381 Accrued expenses 1,753,597 839,514 Income taxes payable 1,209,317 201,477 Current portion of long-term debt 2,046,111 1,801,667 ----------------- ----------------- Total current liabilities 10,195,047 5,221,039 Deferred income taxes payable 373,754 182,552 Long-term debt 30,566,428 9,893,521 ----------------- ----------------- Total liabilities 41,135,229 15,297,112 ----------------- ----------------- Commitments and contingencies Common stock subject to put option agreement 362,343 622,857 Shareholders' equity: Preferred stock, $.01 par value; authorized 10,000,000 shares; none issued in 1998 and 1,150,000 issued in 1997 -- 11,500 Common stock, $.001 par value; authorized 20,000,000 shares; issued 4,736,935 shares in 1998 and 2,122,439 in 1997 4,732 2,122 Additional paid-in capital 39,830,354 33,462,524 Accumulated deficit (12,618,993) (13,845,790) ----------------- ----------------- 27,216,093 19,630,356 Less: Treasury stock, 11,849 shares, at cost (355,478) (355,478) ----------------- ----------------- Total shareholders' equity 26,860,615 19,274,878 ----------------- ----------------- Total liabilities and shareholders' equity $ 68,358,187 $ 35,194,847 ================= ================= See notes to Consolidated Financial Statements.
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, -------------------------------- -------------------------------- 1998 1997 1998 1997 -------------- -------------- -------------- -------------- Sales $ 17,799,542 $ 6,645,650 $ 38,871,478 $ 15,738,987 -------------- -------------- -------------- -------------- Operating costs and expenses: Cost of products and services sold 10,660,308 4,048,925 23,222,131 9,508,193 Selling, general & administrative expenses 4,053,074 1,692,182 9,116,655 4,212,025 Depreciation and amortization 322,296 127,325 655,455 308,752 15,035,678 5,868,432 32,994,241 14,028,970 -------------- -------------- -------------- -------------- Operating income 2,763,864 777,218 5,877,237 1,710,017 Interest expense 1,008,785 79,433 1,621,558 206,532 -------------- -------------- -------------- -------------- Income before income taxes 1,755,079 697,785 4,255,679 1,503,485 Provision for income taxes 719,582 288,185 1,744,828 620,939 Net income $ 1,035,497 $ 409,600 $ 2,510,851 $ 882,546 ============== ============== ============== ============== Net income $ 1,035,497 $ 409,600 $ 2,510,851 $ 882,546 Deduct: Preferred stock dividend 99,185 33,063 165,311 99,189 Imputed non-cash preferred stock dividend 663,510 192,329 1,075,988 346,304 -------------- -------------- -------------- -------------- Net income used in per common share calculation $ 272,802 $ 184,208 $ 1,269,552 $ 437,053 ============== ============== ============== ============== Net income per common share (*) $ .06 $ .11 $ .31 $ .28 ============== ============== ============== ============== Net income per diluted common share (*) $ .06 $ .11 $ .31 $ .28 ============== ============== ============== ============== Average number of common shares outstanding 4,738,766 1,646,636 4,099,800 1,578,436 ============== ============== ============== ============== Average number of diluted common shares outstanding 4,807,210 3,801,597 4,807,796 2,870,122 ============== ============== ============== ============== (*) Net income per common share and net income per diluted common share for the three and nine month periods ended September 30, 1998 reflect deductions for preferred stock dividends, including one-time, non-cash dividends associated with the conversion of preferred stock into common stock. Before such deductions, net income per common share was $.22 and $.61 for the three and nine month periods ended September 30, 1998, respectively; and net income per diluted common share was $.22 and $.52 for the three and nine month periods ended September 30, 1998, respectively. See Notes to Consolidated Financial Statements.
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QUESTRON TECHNOLOGY, INC. & SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) September 30, September 30, 1998 1997 --------------------- --------------------- Cash flows from operating activities: Net income $ 2,510,851 $ 882,546 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 655,455 308,752 Provision for doubtful accounts 39,085 62,093 Recognition of income tax benefit of net operating loss carryforward 265,935 435,064 Change in assets and liabilities: Increase in accounts receivable (3,316,642) (838,531) Decrease in other receivables 15,867 114,205 Increase in inventories (4,194,867) (303,490) Increase (decrease) in accounts payable 1,217,985 (227,436) Increase in accrued expenses 522,967 561,271 Increase in income taxes payable 1,007,840 45,065 Increase in deferred income taxes 191,202 34,811 (Increase) decrease in prepaid expenses and other assets (303,768) 194,065 --------------------- ------------------- Net cash (used) provided by operating activities (1,388,090) 1,268,415 --------------------- ------------------- Cash flows from investing activities: Net cash consideration paid for acquired business (17,672,524) (13,083,485) Acquisition of property and equipment (568,769) (78,759) Net cash used for investing activities (18,241,203) (13,162,244) --------------------- -------------------- Cash flows from financing activities: Proceeds from borrowings under revolving facility 5,647,799 -- Proceeds from convertible preferred stock unit offering -- 6,900,000 Proceeds from capital lease for computer system 371,228 -- Proceeds from long-term debt financing 30,000,000 10,000,000 Fees and expenses associated with long-term debt financing (1,976,300) -- Notes issued for acquired businesses -- 625,000 Costs associated with convertible preferred stock unit offering -- (1,260,447) Repayment of long-term debt (9,583,334) (1,375,000) Repayment of revolving facilities (5,472,340) (2,143,747) Payments on capital leases (63,943) -- Payments on note issued for acquired business (81,310) (29,668) --------------------- --------------------- Net cash provided by financing activities 18,841,800 12,716,138 --------------------- --------------------- (Decrease) increase in cash and cash equivalents (787,493) 822,309 Cash and cash equivalents at beginning of period 875,080 258,548 --------------------- --------------------- Cash and cash equivalents at end of period $ 87,587 $ 1,080,857 ===================== ===================== See Notes to Consolidated Financial Statements.
778321.3 5 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) Note 1. Basis of presentation. The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the Securities and Exchange Commission's instructions for a Quarterly Report on Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Management believes that all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. The consolidated balance sheet at December 31, 1997 reflects the audited balance sheet at that date. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1997. Note 2. Acquisition of Webb Distribution. In March 1997, the Company acquired 100% of the issued and outstanding capital stock of Comp Ware, Inc. d/b/a Webb Distribution ("Webb"), a privately owned company. The business of Webb is substantially similar to the fastener, electronic hardware, and related products value-added distribution business of the Company, serving customers in the high-technology equipment manufacturing industry. The purchase price for Webb consisted of: (i) $3,250,000 in cash; (ii) Note A in the amount of $375,000. Principal and interest at the rate of 10% are due and payable 18 months from the effective date of the closing; (iii) Note B in the amount of $375,000. Principal and interest at the rate of 10% are payable monthly over five years from the effective date of the closing; and (iv) 1,500,000 Series IV Warrants (the "Webb Warrants") issued to the majority shareholder of Webb as a down payment under the Stock Purchase Agreement. 6 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) Such acquisition was effected pursuant to a Stock Purchase Agreement dated as of December 16, 1996. The Company has accounted for such acquisition using the purchase method of accounting. In connection with this acquisition, the Company recorded $3,723,277 of cost in excess of net assets of the business acquired. In connection with the sale of the Webb warrants by the majority shareholder of Webb, Note A (as described in (ii) above) was satisfied pursuant to the terms of the acquisition agreement, effectively resulting in a $375,000 reduction in the cost of the acquisition. Note 3. Convertible Preferred Stock Unit Offering. In March 1997, the Company completed an Offering of 1,150,000 Units of its securities. Each Unit consisted of one share of Series B Convertible Preferred Stock and one Series IV Common Stock Purchase Warrant. The net proceeds to the Company, after deducting underwriting discounts and other expenses of the Offering, were $5,639,553. These proceeds were used in part to finance the cash portion of the purchase price of Webb. The remaining cash ($2,389,553) was used to repay the outstanding balance on the Company's revolving credit facility ($750,000) and to repay the outstanding balance on Webb's revolving credit facility ($1,000,000), with the remaining balance ($639,553) retained by the Company for working capital. On July 2, 1998, the 1,150,000 shares of Series B Convertible Preferred Stock converted into 1,653,125 shares of common stock. Note 4. Acquisition of Integrated Material Systems, Inc. In June 1997, the Company acquired 100% of the issued and outstanding capital stock of Integrated Material Systems, Inc. ("IMS"), a privately owned company. The purchase price for IMS consisted of 50,000 shares of the Company's common stock and an additional 75,000 shares of the Company's common stock to be earned if IMS attains certain earnings targets. In addition, the acquisition agreement calls for deferred purchase payments of up to $1,500,000 in cash based on the future earnings of IMS, payable in increments not to exceed $300,000 per year over five years. Note 5. Acquisition of Power Components, Inc. In September 1997, the Company purchased the net operating assets of Power Components, Inc. ("PCI"), a privately owned Philadelphia distributor of lithium batteries and customized battery packs and assemblies, through a simultaneously acquired wholly-owned subsidiary. The purchase price for PCI consisted of: (i) $900,000 in cash; (ii) 50,000 shares of the Company's common stock; (iii) a note payable in the amount of $250,000; 7 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) (iv) 100,000 shares of the Company's common stock to be earned if PCI attains certain earnings targets; and (v) deferred purchase payments of up to $900,000 in cash based on the future earnings of PCI, payable in increments not to exceed $300,000 per year over three years. Such transactions were effected pursuant to an Asset Purchase Agreement and a Stock Purchase Agreement dated September 4, 1997. The Company has accounted for such transactions using the purchase method of accounting. In connection with these transactions, the Company recorded $1,237,028 of cost in excess of net assets of the business acquired. Note 6. Acquisition of California Fasteners, Inc. In September 1997, the Company acquired 100% of the issued and outstanding capital stock of California Fasteners, Inc. ("Calfast"), a privately owned company. The purchase price for Calfast consisted of: (i) $6,594,441 in cash; (ii) the assumption of $1,058,712 in debt net of cash on hand; (iii) 475,106 shares of the Company's common stock, including 125,896 shares of the Company's common stock which sellers of Calfast may put to the Company, valued at $2,981,288; (iv) up to $795,559 in cash to be paid if Calfast attained certain earnings targets for the four month period ended December 31, 1997, of which $600,000 was paid in March 1998; and (v) up to $3,500,000 (50% in cash and 50% in shares of the Company's common stock) if Calfast attains certain earnings targets for the year ending December 31, 1998. The acquisition of Calfast was effected pursuant to a Stock Purchase Agreement dated as of August 29, 1997. The Company has accounted for such acquisition using the purchase method of accounting. In connection with this acquisition, the Company recorded $8,355,314 of cost in excess of net assets of the business acquired. Note 7. Acquisition of Fas-Tronics, Inc. In September 1998, the Company completed the acquisition of 100% of the issued and outstanding capital stock of Fas-Tronics, Inc. ("Fas-Tronics"), a privately owned company. 8 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) The purchase price for Fas-Tronics consisted of: (i) $7,422,803 in cash; (ii) 421,941 shares of the Company's common stock, valued at $1,930,380; and (iii) up to $4,000,000 (80% in cash and 20% in shares of the Company's common stock) if Fas-Tronics attains certain earnings targets for the twelve months ending June 30, 1999. The acquisition of Fas-Tronics was effected pursuant to a Stock Purchase Agreement dated as of June 12, 1998, as amended, with an effective date of July 1, 1998. The Company has accounted for such acquisition using the purchase method of accounting. In connection with this acquisition, the Company recorded $6,713,103 of cost in excess of net assets of the business acquired. Note 8. Acquisition of Fortune Industries, Inc. In September 1998, the Company completed the acquisition of 100% of the issued and outstanding capital stock of Fortune Industries, Inc. ("Fortune"), a privately owned company. The purchase price for Fortune consisted of: (i) $9,830,660 in cash; (ii) 518,102 shares of the Company's common stock, valued at $2,370,317; and (iii) up to $2,000,000 (81% in cash and 19% in shares of the Company's common stock) if Fortune attains certain earnings targets for the year ending December 31, 1998. The acquisition of Fortune was effected pursuant to a Stock Purchase Agreement dated as of June 12, 1998, as amended, with an effective date of July 1, 1998. The Company has accounted for such acquisition using the purchase method of accounting. In connection with this acquisition, the Company recorded $9,491,148 of cost in excess of net assets of the business acquired. 9 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) Note 9. Acquisitions - Pro forma Financial Information. The following unaudited pro forma information presents the combined operating results of the Company, Webb, CalFast, Fas-Tronics and Fortune as though each of the acquisitions had been made on January 1, 1997. The unaudited pro forma combined summary of operations includes the additional interest expense on debt incurred in connection with the acquisitions as if the debt had been outstanding from the beginning of the periods presented. The pro forma net income per common share and diluted common share for both 1998 and 1997 assume that all shares of common stock and Series IV Warrants of the Company outstanding as of September 30, 1998 were outstanding as of January 1, 1997. This pro forma information does not purport to be indicative of what would have occurred had the acquisitions been completed as of January 1, 1997 or results which may occur in the future:
Three months ended Nine months ended September 30, September 30, ------------------------------------- --------------------------------------- 1998 1997 1998 1997 ------------------ ------------------ ------------------ -------------------- Sales $ 17,799,542 $ 14,514,520 $ 50,031,939 $ 40,475,535 ----------------- ----------------- ------------------ ------------------ Operating income 3,086,160 2,141,451 8,940,142 6,325,007 ----------------- ----------------- ------------------ ------------------ Net income $ 1,035,497 $ 622,881 $ 3,186,454 $ 1,828,974 ================= ================= ================== ================== Net income $ 1,035,497 $ 622,881 $ 3,186,454 $ 1,828,974 Less: Preferred stock dividends 99,185 33,063 165,311 99,189 Imputed non-cash dividend 663,510 192,329 1,075,988 346,304 ----------------- ----------------- ------------------ ------------------ Net income used in per Common share calculation $ 272,802 $ 397,489 $ 1,945,155 $ 1,383,481 ================= ================= ================== ================== Pro forma net income per common share (*) $ .06 $ .13 $ .41 $ .45 ======== ======== ======== ======== Pro forma net income per diluted common share (*) $ .06 $ .12 $ .41 $ .42 ======== ======== ======== ======== Average number of common shares outstanding 4,738,766 3,050,633 4,723,052 3,050,633 ================= ================= ================== ================== Average number of diluted common shares outstanding 4,807,210 5,205,594 5,431,048 4,342,319 ================= ================= ================== ==================
(*) Pro forma net income per common share and pro forma net income per diluted common share for the three and nine month periods ended September 30, 1998 reflect deductions for preferred stock dividends, including one-time, non-cash dividends associated with the conversion of preferred stock into common stock. Before such deductions, pro forma net income per common share was $.22 and $.67 for the three and nine month periods ended September 30, 1998, respectively, and pro forma net income per diluted common share was $.22 and $.59 for the three and nine month periods ended September 30, 1998, respectively. 10 QUESTRON TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (Unaudited) Note 10. Revolving Credit Facility and Long-Term Debt. In connection with the acquisitions of Fas-Tronics and Fortune, the Company entered into a Loan and Security Agreement with Madeleine L.L.C. and Congress Financial Corporation (Florida). The agreement provides for a $45,000,000 credit facility consisting of a five-year term loan for $30,000,000 and a $15,000,000 revolving credit facility. The term loan is divided into two notes: Note A for $25,000,000 and Note B for $5,000,000. The loan agreement includes a provision for the calculation of a borrowing base, which determines the amount of borrowings available under the revolving facility. At September 30, 1998, $472,596 was borrowed and outstanding under the revolving facility. Of the remaining amount of the $15,000,000 revolving credit facility, or $14,527,404, $14,205,294 was available at September 30, 1998 for future working capital needs. Interest on the revolving facility is due monthly at the prime rate plus 1%, with a minimum rate of interest of 9% per annum. Interest on the five-year term loan Note A is due monthly at the prime rate plus 1.5% with a minimum rate of interest of 9.5% per annum. Interest on the five-year term loan Note B is due monthly at the prime rate plus 3% with a minimum rate of interest of 11% per annum. 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Results of Operations For the three month and nine month periods ended September 30, 1998. The results of operations through September 30, 1998 include the operating results of the Company's inventory logistics management business, Questron Distribution Logistics, Inc. ("QDL"), its master distribution of fasteners business, Integrated Material Systems, Inc. ("IMS") and its lithium battery and battery pack distribution business, Power Components, Inc. (PCI"). QDL includes the operating results of Quest Electronic Hardware, Inc. ("Quest"), Webb Distribution ("Webb"), California Fasteners, Inc. ("Calfast"), Fas-Tronics, Inc. ("Fas-Tronics") and Fortune Industries, Inc. ("Fortune"). The Company's revenues for the three month and nine month periods ended September 30, 1998 amounted to $17,799,542 and $38,871,478, respectively, which represent a record level of revenues for the Company, compared with $6,645,650 and $15,738,987 for the comparable prior year periods. The significant growth in the Company's revenues for such periods is primarily attributable to the acquisitions of Calfast, Fas-Tronics and Fortune, as well as the internal growth of the other QDL branches and the opening of a new QDL branch in Grand Rapids, MI during the second quarter of 1998. The revenues associated with the acquired businesses of Calfast, Fas-Tronics and Fortune for the three and nine month periods ended September 30, 1998 amounted to $9,957,463 and $17,136,913, respectively, compared with $939,119 for both the three and nine month periods ended September 30, 1997. The Company's operating income was $2,763,864 and $5,877,237, respectively, for the three month and nine month periods ended September 30, 1998, compared with operating income of $777,218 and $1,710,017 for the comparable prior year periods. The increase in operating income for the three month and nine month periods ended September 30, 1998, compared with the comparable prior year periods, is primarily due to the increased operating income attributable to the acquired businesses, as well as internal growth. Operating income as a percentage of sales for the three and nine month periods ended September 30, 1998 amounted to 15.5% and 15.1%, respectively, compared with 11.7% and 10.9% for the three month and nine month periods ended September 30, 1997, respectively. This improvement is attributable to the successful integration of the acquired businesses and the resultant cost savings from the combination of these businesses with the Company. Interest expense, which reflects the cost of borrowings associated with the acquisition of Calfast in September 1997 and the acquisitions of Fas-Tronics and Fortune as of July 1, 1998, as well as borrowings associated with QDL's working capital needs, for the three month and nine month periods ended September 30, 1998 amounted to $1,008,785 and $1,621,558, respectively. For the comparable periods of the prior year, the Company's results include interest expense of $79,433 and $206,532, respectively. The increase in interest expense principally reflects the costs of increased borrowings to 12 complete the acquisitions of Calfast, Fas-Tronics and Fortune, and to support the working capital needs of QDL. The provision for income taxes for the three month and nine month periods ended September 30, 1998 and 1997, respectively, reflects a federal income tax provision at an effective rate of 35% and 35.1%, respectively, and a state income tax provision at an effective rate of 6% and 6.2%, respectively, for the states in which the Company does business. Net income for the three month and nine month periods ended September 30, 1998 amounted to $1,035,497 and $2,510,851, respectively, compared with net income of $409,600 and $882,546 for the comparable prior year periods. This improvement reflects the increased operating income attributable to the acquired businesses, as well as continued internal growth, partially reduced by increased corporate expenses, interest expense, and income taxes. Net income per share reflects a deduction for preferred stock dividends, including one-time, non-cash dividends associated with the automatic conversion of preferred stock into common stock. The preferred stock converted into common stock on July 2, 1998, causing the acceleration of the amortization of the imputed one-time, non-cash dividend. Accordingly, the common stock into which the preferred stock converted (1,653,125 shares of common stock) is included in the common shares outstanding for the three months ended September 30, 1998 and is included for one quarter in the weighted average number of common shares outstanding for the nine months ended September 30, 1998. The effect of this one-time, non-cash dividend is anti-dilutive, accordingly, the presentation of net income per diluted common share is presented on the face of the income statement as the same amount as net income per common share. Before such deduction, however, the net income per diluted common share is $.22 and $.52 for the three months and nine months ended September 30, 1998, respectively. Net income per common share and net income per diluted common share in the fourth quarter of 1998 will not be impacted by such non-cash dividends. Liquidity and Capital Resources At September 30, 1998, the Company had $87,587 in cash and short-term investments, compared to $875,080 as of December 31, 1997. As of September 30, 1998, the Company had working capital of $18,411,641, compared with working capital of $9,046,826 as of December 31, 1997. For the nine months ended September 30, 1998, the net cash used by the Company's operating activities amounted to $1,388,090, principally reflecting the increase in inventories, receivables, prepaid expenses and other assets, offset in part by the profits of the Company and the increases in accounts payable, accrued expenses, income taxes payable and deferred income taxes. For the nine months ended September 30, 1998, the net cash used in the Company's investing activities amounted to $18,241,203, including $17,066,558 net cash 13 consideration paid in connection with the acquisitions of Fas-Tronics and Fortune and $600,000 net cash consideration paid in connection with the deferred purchase price of Calfast. The Company also had capital expenditures $568,679 for the acquisition of fixed assets, $392,040 of which represents the purchase and installation of a new on-line, real-time computer system. The Company does not have significant commitments for capital expenditures as of September 30, 1998 and no significant commitments are anticipated for the next twelve months. For the nine months ended September 30, 1998, the net cash provided by the Company's financing activities amounted to $18,841,800, which consists of $30,000,000 of bank financing associated with the acquisitions of Fas-Tronics and Fortune and the refinancing of existing bank debt, $5,647,799 of bank borrowings under the Company's revolving credit facility, as well as $371,228 of net proceeds from a capital lease for the purchase of the Company's computer system, reduced by long-term debt principal payments of $9,583,334, revolving facility repayments of $5,472,340, fees and expenses associated with the bank financing of $1,976,300, principal payments of $63,943 on various capital leases and principal payments of $81,310 on notes issued for acquired businesses. In connection with the acquisitions of Fas-Tronics and Fortune, the Company entered into a $45,000,000 Loan and Security Agreement with Madeleine L.L.C. and Congress Financial Corporation (Florida) providing for term debt of $30,000,000 and a revolving credit facility of $15,000,000. At September 30, 1998, $472,596 was borrowed and outstanding under the revolving facility. Of the remaining amount of the $15,000,000 revolving credit facility, or $14,527,404, $14,205,294 was available at September 30, 1998 for future working capital needs. Amounts outstanding under the revolving facility bear interest at a rate equal to 1.0% above the lender's prime rate with a minimum rate of interest of 9% per annum. As of November 10, 1998, the interest rate under the revolving facility was 9%. In order to secure the obligations of the Company and its subsidiaries under the revolving facility and the related term loan facility under the loan and security agreement with the lender, the Company entered into a stock pledge agreement with the lender whereby the Company pledged to the lender the shares of capital stock of each of its subsidiaries at the date of such agreement and any shares of its subsidiaries in which the Company may thereafter acquire an interest. In addition, the Company and its subsidiaries granted a security interest in substantially all of their assets to the lender. The Company intends to continue to identify and evaluate potential merger and acquisition candidates engaged in businesses complementary to its business. While certain of such additional potential acquisition opportunities are at various stages of consideration and evaluation, none is at any definitive stage at this time. Management believes that its working capital, funds available under its credit agreement, and funds generated from operations will be sufficient to meet its obligations through 1999, exclusive of cash requirements associated with any business acquisitions. Certain information contained in this report on Form 10-QSB includes "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act 14 of 1995 and is subject to certain risks and uncertainties, including those "Risk Factors" set forth in the Company's current annual report on Form 10-KSB for the year ended December 31, 1997. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect unanticipated events or developments. Readiness for Year 2000 Compliance The Year 2000 presents potential concerns for business and consumer computing. The consequences of this issue may include systems failures and business process interruption. It may also include additional business and competitive differentiation. Aside from the well-known calculation problems with the use of 2-digit date formats as the year changes from 1999 to 2000, the Year 2000 is a special case leap year and in many organizations using older technology, dates were used for special programmatic functions. The Year 2000 issue may affect the Company's internal systems, including information technology (IT) and non-IT systems. While the Company's IT system is prepared to handle all dating implications associated with the new millenium, the Company's management is presently engaged in an ongoing assessment of the readiness of all its systems for handling the Year 2000. Although the assessment is still underway, management currently believes that it will be successful in identifying and resolving any potential deficiencies in its non-IT systems with respect to the Year 2000 issue by June 1999 and that all such material systems will be compliant by the Year 2000 and that the cost to address the issues is not material. Nevertheless, the Company expects to assess its need to create contingency plans during 1999 for certain internal systems in the event management determines that such contingency plans may become warranted. All organizations dealing with the Year 2000 issue must address the effect this issue will have on their third-party supply chain. The Company plans to also undertake steps to identify whether its vendors have sufficiently identified and are taking steps to address the Year 2000 issue. Management is presently formulating a survey and plan for working with key third-parties to understand their ability to continue providing services and products through the change to 2000. The Company will work directly with its key vendors, distributors, and resellers, and coordinate its action with respect to the Year 2000 issue with them, if necessary, to avoid any business interruptions in 2000. For these key third-parties, contingency plans may be required. The Company's management believes the impact of the Year 2000will not cause any material disruptions in the Company's operations. However, the impact of such potential disruptions is difficult to discern. 15 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not applicable. Item 2. CHANGES IN SECURITIES On June 30, 1998, the Company filed an amendment to the Certificate of Designation of the Company with the Secretary of State of the State of Delaware, providing that (i) each share of the Company's Series B Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock") would automatically convert as of the close of business on July 2, 1998 (the "Conversion Date"), without any action on the part of the holder thereof or the Company, into 1.4375 shares of common stock, par value $.001 ("Common Stock"); (ii) holders of the Series B Preferred Stock would be entitled, when and as declared by the Board of Directors of the Company (the "Board"), to receive an annual dividend per share equal to $0.115 per share; (iii) such dividends would accrue from March 4, 1997 and would be payable on March 4, 1998 and on the Conversion Date (payable with respect to a full year), in cash or shares of Common Stock of the Company; (iv) the aforementioned dividends would be cumulative and no dividends would be paid or set apart in respect of the Common Stock or any other class of securities which ranks junior to the Series B Preferred Stock unless and until all accrued and unpaid dividends upon such Series B Preferred Stock had been paid or set apart in full; and (v) no interest would accrue with respect to dividends in arrears. On the Conversion Date, each share of Series B Preferred Stock was converted into Common Stock at a rate of 1.4375 shares of Common Stock and received $0.115 per share in Common Stock for the related dividend. On October 23, 1998, the Board (i) created a series of preferred stock, par value $.01 per share, of the Company (the "Series A Junior Participating Preferred Stock"), with the designation and number of shares thereof and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof set forth in the Certificate of Designation of Series A Junior Participating Preferred Stock of the Company, filed with the Secretary of State of the State of Delaware on November 5, 1998 and (ii) declared a dividend of one preferred share purchase right (a "Right") for each outstanding share of common stock, par value $.001 per share, of the Company (the "Common Stock"). The dividend is payable to stockholders of record on November 16, 1998. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $.01 per share, of the Company (the "Preferred Stock") at a price of $30 per one one-thousandth of a share of Preferred Stock, subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement dated as of October 23, 1998, as the same may be amended from time to time (the "Rights Agreement"), between the Company and American Stock Transfer & Trust Company, as Rights Agent (the "Rights Agent"). The Rights Agreement provides that, until the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (with certain exceptions, an "Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding shares of Common Stock or (ii) 10 business days (or such later date as may be determined by action of the Board of Directors prior to such time as any person or group of affiliated persons becomes an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of the outstanding shares of Common Stock (or earlier expiration of the Rights), the Rights will be transferred with and only with the Common Stock. A copy of the Rights Agreement was filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A with the Securities and Exchange Commission on November 6, 1998. Item 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable Item 5. OTHER INFORMATION Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits. See Exhibit Index immediately following the signature page. b) Reports on Form 8-K. During the fiscal quarter ended September 30, 1998, the Company filed a Current Report on Form 8-K, dated September 24, 1998, (i) reporting under Item 2 "Acquisition or Disposition of Assets" the acquisitions of Fas-Tronics, Inc. a Texas corporation, and Fortune Industries, Inc., a Texas corporation, (ii) reporting under Item 4 "Changes in Registrant's Certifying Accountant" the termination of Moore Stephens, P.C. as the Company's independent accountant and the appointment of Ernst & Young LLP as the Company's new independent accountant and (iii) including under Item 7 "Financial Statements and Exhibits" the Amendment to the Fas-Tronics Stock Purchase Agreement, the Amendment to the Fortune Stock Purchase Agreement and the Registration Rights Agreement relating to the events described in Item 2, together with the press release relating to the event reported in Item 4. 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. QUESTRON TECHNOLOGY, INC. (1) Principal Executive Officer: Date: November 16, 1998 /s/ Dominic A. Polimeni ------------------------------ Dominic A. Polimeni Chief Executive Officer (2) Principal Financial and Accounting Officer: Date: November 16, 1998 /s/ Milton M. Adler ------------------------------ Milton M. Adler Treasurer 17 EXHIBIT INDEX The following exhibits are filed as part of this quarterly report on Form 10-Q:
Exhibit Sequential No. Description Page No. --- ----------- -------- 3.0 Certificate of Incorporation, incorporated by reference to Exhibit 3(i) to the Registrant's Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1987 (File No. 0-13324) 3.1 Certificate of Amendment, dated March 20, 1985, to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on March 9, 1995 (File No. 33-44331) 3.3 Certificate of Amendment, dated June 9, 1989, to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on March 9, 1995 (File No. 33-44331) 3.4 Certificate of Correction, dated May 17, 1991, to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 4.1 to Amendment No. 1 of the Registrant's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on March 9, 1995 (File No. 33-44331) 3.5 Certificate of Amendment, dated December 20, 1993, to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3(i) to the Registrant's Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1993 (File No. 0-13324) 3.6 Certificate of Correction, dated July 19, 1994, to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form S-3 filed with the Securities and Exchange Commission on March 9, 1995 (File No. 33-44331) 3.7 Certificate of Amendment, dated April 2, 1996, to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.5 to the Registrant's Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1995 (File No. 0-13324)
Exhibit Sequential No. Description Page No. --- ----------- -------- 3.8 Certificate of Amendment, filed December 31, 1996, to Certificate of Incorporation of the Registrant, incorporated by reference to Exhibit 3.10 to Amendment No. 1 to the Registrant's Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 3.9 By-Laws of the Registrant, incorporated by reference to Exhibit 3b(ii) to the Registrant's Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1987 (File No. 0-13324) 3.10 Amendment to By-Laws of the Registrant, incorporated by reference to Exhibit 3.4 of the Registrant's Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1992 (File No. 0-13324) 4.0 Specimen Common Stock Certificate, incorporated by reference to Exhibit 4.0 to Amendment No. 1 to the Registrant's Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 4.1 Specimen Preferred Stock Certificate, incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 4.2 Certificate of Designations, Preferences and Rights of the Registrant's Series B Convertible Preferred Stock, incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant's Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 4.3 Form of Series IV Warrant Agreement, incorporated by reference to Exhibit 4.3 to Amendment No. 1 to the Registrant's Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 4.4 Form of Series III Warrant Agreement, dated as of November 7, 1994, incorporated by reference to Exhibit 10.22 to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1994 (File No. 0-13324) 4.5 Form of Underwriters' Purchase Option, incorporated by reference to Exhibit 4.5 to Amendment No. 1 to the Registrant's Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 4.6 Stock Purchase Warrant Certificate for Purchase of Common Stock of Questron Technology, Inc., incorporated by reference to Exhibit 4.6 to Amendment No. 1 to the Registrant's Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 4.7 Amended Certificate of Designation Establishing a Series of Preferred Stock of Questron Technology, Inc., incorporated by reference to Exhibit 4.7 to the Registrant's Quarterly Report on Form 10-Q/SB for the three-month period ended June 30, 1998 (File No. 0-13324) 4.8 Registration Rights Agreement, dated as of September 24, 1998, by and between the Company and the persons listed on Schedule A thereto, incorporated by reference to the Company's current report on Form 8-K, filed with the Securities and Exchange commission on October 8, 1998 (File No. 0-13324). 4.9 Certificate of Designation of Series A Junior Participating Preferred Stock of Questron Technology, Inc. 10.1 1996 Stock Option Plan, incorporated by reference to Exhibit 10.19 to Amendment No. 1 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 10.2 Exchange Agreement, dated November 8, 1996 by and among the Company, Gulfstream Financial Group, Inc. and Phillip D. Schwiebert, incorporated by reference to Exhibit 10.21 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243) 10.3 Stock Purchase Agreement dated as of December 16, 1996 relating to Webb Distribution, Inc., incorporated by reference to Exhibit 2.0 to Amendment No. 1 to the Company' Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243). 10.4 Form of Underwriting Agreement, incorporated by reference to Exhibit 2.0 to Amendment No. 1 to the Company's Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on February 25, 1997 (File No. 333-18243). 10.5 Stock Option Grant Agreement between the Company and Gulfstream Financial Group, Inc. made as of November 8, 1996, incorporated by reference to Exhibit 10.22 to the Registrant's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1996 (File No. 0-13324). 10.6 Stock Option Grant Agreement between the Company and Phillip D. Schwiebert made as of November 8, 1996, incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-KSB filed with the Securities and Exchange Commission for the fiscal year ended December 31, 1996 (File No. 0-13324). 10.7 Amendment No. 4, dated as of April 9, 1997, to the Loan and Security Agreement, dated as of March 31, 1995, between Silicon Valley Bank and Quest Electronics Hardware, Inc., incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the three month period ended March 31, 1997 (File No. 0-13324). 10.8 Stock Purchase Agreement dated as of August 29, 1997 relating to the acquisition of all of the outstanding stock of California Fasteners, Inc., incorporated by reference to the Company's Current Report on Form 8-K filed October 7, 1997 (File No. 0-13324). 10.9 Asset Purchase Agreement dated September 4, 1997 relating to the acquisition of substantially all of the assets of Power Components, Inc. with the related Stock Purchase Agreement dated September 4, 1997 relating to the acquisition of all of the stock of AR Acquisition Company, incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the three month period ended September 30, 1997 (File No. 0-13324). 10.10 Stock Purchase Agreement, dated as of June 12, 1998, by and between the Company, Gregory Fitzgerald, Valerie Fitzgerald and Fas-Tronics, Inc., incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-QSB for the three month period ended June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998 (File No. 0-13324). 10.11 Stock Purchase Agreement, dated as of June 12, 1998, by and between the Company, Fortune Industries, Inc. and the Stockholders of the Company listed on Schedule 1.1 thereto (the "Fortune Stock Purchase Agreement"), incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the three month period ended June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998 (File No. 0-13324). 10.12 Letter Agreement, dated July 29, 1998, by and between the Company, Gregory Fitzgerald, Valerie Fitzgerald and Fas-Tronics, Inc., incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-QSB for the three month period ended June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998 (File No. 0-13324). 10.13 Letter Agreement, dated July 29, 1998, by and between the Company, Fortune Industries, Inc. and the Stockholders of the Company listed on Schedule 1.1 to the Fortune Stock Purchase Agreement, incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB for the three month period ended June 30, 1998 filed with the Securities and Exchange Commission on August 14, 1998 (File No. 0-13324). 10.14 Second Amendment to the Fas-Tronics Stock Purchase Agreement, incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 8, 1998 (File No. 0-13324). 10.15 Second Amendment to the Fortune Stock Purchase Agreement, incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 8, 1998 (File No. 0-13324). 10.16 Rights Agreement dated as of October 23, 1998, between the Company and American Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to the Company's Registration Statement on Form 8-A, filed November 6, 1998 (File No. 0-13324). 10.17 Loan and Security Agreement dated as of September 24, 1998, by and among the Company, Questron Distribution Logistics, Inc., Integrated Material Systems, Inc., Power Components, Inc., California Fasteners, Inc., Comp Ware, Inc., Fas-Tronics, Inc., Fortune Industries, Inc., each of the signatories which is a signatory thereto, Congress Financial Corporation (Florida), as administrative agent and Madeleine L.L.C., as collateral agent. 10.18 Amendment Number One to the Loan and Security Agreement, dated as of November 2, 1998, by and among the Company, Questron Distribution Logistics, Inc., Integrated Material Systems, Inc., Power Components, Inc., California Fasteners, Inc., Comp Ware, Inc., Fas-Tronics, Inc., Fortune Industries, Inc., each of the Lenders, Congress Financial Corporation (Florida), as Administrative Agent and Madeleine L.L.C., as Collateral Agent. 27.1 Financial Data Schedule
EX-4.9 2 CERTIFICATE OF DESIGNATION CERTIFICATE OF DESIGNATION of SERIES A JUNIOR PARTICIPATING PREFERRED STOCK of QUESTRON TECHNOLOGY, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware Questron Technology, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY: That pursuant to the authority vested in the Board of Directors in accordance with the provisions of the Certificate of Incorporation of the said Corporation, the said Board of Directors on October 23, 1998 adopted the following resolution creating a series of 10,000 shares of Preferred Stock designated as "Series A Junior Participating Preferred Stock:" RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of the Certificate of Incorporation, a series of Preferred Stock, par value $.01 per share, of the Corporation be and hereby is created, and that the designation and number of shares thereof and the voting and other powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows: Series A Junior Participating Preferred Stock 1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as "Series A Junior Participating Preferred Stock," and the number of shares constituting such series shall be 10,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Junior Participating Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. 772000.1 2. Dividends and Distribution. (A) Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series A Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series A Junior Participating Preferred Stock, in preference to the holders of shares of any class or series of stock of the Corporation ranking junior to the Series A Junior Participating Preferred Stock in respect thereof, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December, in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $.001 per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. The "Adjustment Number" shall initially be 1,000. In the event the Corporation shall at any time after November 16, 1998 (i) declare and pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series A Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock). (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series 772000.1 A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (A) Each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on all matters submitted to a vote of the stockholders of the Corporation. (B) Except as required by law, by Section 3(C) and by Section 10 hereof, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (C) If, at the time of any annual meeting of stockholders for the election of directors, the equivalent of six quarterly dividends (whether or not consecutive) payable on any share or shares of Series A Junior Participating Preferred Stock are in default, the number of directors constituting the Board of Directors of the Company shall be increased by two. In addition to voting together with the holders of Common Stock for the election of other directors of the Company, the holders of record of the Series A Junior Participating Preferred Stock, voting separately as a class to the exclusion of the holders of Common Stock, shall be entitled at said meeting of stockholders (and at each subsequent annual meeting of stockholders), unless all dividends in arrears on the Series A Junior Participating Preferred Stock have been paid or declared and set apart for payment prior thereto, to vote for the election of two directors of the Company, the holders of any Series A Junior Participating Preferred Stock being entitled to cast a number of votes per share of Series A Junior Participating Preferred Stock as is specified in paragraph (A) of this Section 3. Until the default in payments of all dividends which permitted the election of said directors shall cease to exist, any director who shall have been so elected pursuant to the next preceding sentence may be removed at any time, without cause, only by the affirmative vote of the holders of the shares of Series A Junior Participating Preferred Stock at the time entitled to cast a majority of the votes entitled to be cast for the election of any such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. If and when such default shall cease to exist, the holders of the Series A Junior Participating Preferred Stock shall be divested of the foregoing special voting rights, subject to revesting in the event of each and every subsequent like default in payments of dividends. Upon the termination of the foregoing special voting rights, the terms of office of all persons who may have been elected directors pursuant to said special voting rights shall forthwith terminate, and the number of directors constituting the Board of Directors shall be reduced by two. The voting rights granted by this Section 3(c) shall be in addition to any other 772000.1 voting rights granted to the holders of the Series A Junior Participating Preferred Stock in this Section 3. 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends on, make any other distributions on, or redeemer purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or (iii) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Junior Participating Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein. 772000.1 6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount per share (the "Series A Liquidation Preference") equal to the greater of (i) $10 plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash and other property to be distributed in respect of the Common Stock upon such liquidation, dissolution or winding up of the Corporation. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series A Junior Participating Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Junior Participating Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences. (C) Neither the merger or consolidation of the Corporation into or with another corporation nor the merger or consolidation of any other corporation into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6. 7. Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the outstanding shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. 8. No Redemption. Shares of Series A Junior Participating Preferred Stock shall not be subject to redemption by the Company. 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Preferred Stock as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, unless the terms of any such series shall provide otherwise, and shall rank senior to the Common Stock as to such matters. 10. Amendment. At any time that any shares of Series A Junior Participating Preferred Stock are outstanding, the Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. 772000.1 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock. IN WITNESS WHEREOF, the undersigned has executed this Certificate this 23rd day of October, 1998. QUESTRON TECHNOLOGY, INC. By: /s/ Dominic A. Polimeni -------------------------------- Name: Dominic A. Polimeni Title: Chairman, President and Chief Executive Officer 772000.1 EX-10.17 3 LOAN AND SECURITY AGREEMENT --------------------------------------- QUESTRON TECHNOLOGY, INC. and its Subsidiaries --------------------------------------- --------------------------------------- --------------------------------------- LOAN AND SECURITY AGREEMENT Dated as of September 24, 1998 $45,000,000 --------------------------------------- --------------------------------------- --------------------------------------- CONGRESS FINANCIAL CORPORATION (FLORIDA), AS ADMINISTRATIVE AGENT MADELEINE L.L.C., AS COLLATERAL AGENT --------------------------------------- TABLE OF CONTENTS SECTION 1. CREDIT FACILITY.............................................................................1 1.1 Revolving Credit Loans.............................................................1 1.2 Term Loans.........................................................................2 1.3 Discretionary Additional Term Loan.................................................3 SECTION 2. INTEREST, FEES AND CHARGES..................................................................3 2.1 Interest...........................................................................3 2.2 Computation of Interest and Fees...................................................4 2.3 Rate Elections.....................................................................5 2.4 LIBOR Option.......................................................................5 2.5 Fee Letter Fees....................................................................7 2.6 Administrative Agency Fee..........................................................7 2.7 [Intentionally Omitted]............................................................7 2.8 Unused Line Fee....................................................................7 2.9 [Intentionally Omitted]............................................................7 2.10 Audit and Appraisal Fees...........................................................7 2.11 Reimbursement of Expenses..........................................................7 2.12 Bank Charges.......................................................................8 SECTION 3. LOAN ADMINISTRATION.........................................................................8 3.1 Manner of Borrowing Revolving Credit Loans.........................................8 3.2 Payments..........................................................................11 3.3 Mandatory Prepayments.............................................................15 3.4 Application of Payments and Collections...........................................16 3.5 All Loans to Constitute One Obligation............................................16 3.6 Loan Account......................................................................16 3.7 Statements of Account.............................................................17 3.8 General Provisions................................................................17 3.9 Pro Rata Treatment................................................................17 3.10 Sharing of Payments, Etc..........................................................18 SECTION 4. TERM AND TERMINATION.......................................................................18 4.1 Term of Agreement.................................................................18 4.2 Termination.......................................................................19 SECTION 5. SECURITY INTERESTS.........................................................................19 5.1 Interest in Collateral............................................................19 5.2 Lien Perfection, Further Assurances...............................................20 5.3 [Intentionally Omitted]...........................................................20 SECTION 6. COLLATERAL ADMINISTRATION..................................................................20 6.1 General...........................................................................20
-i- 6.2 Administration of Accounts........................................................21 6.3 Administration of Inventory.......................................................23 6.4 Administration of Equipment.......................................................23 6.5 Payment of Charges................................................................24 SECTION 7. REPRESENTATIONS AND WARRANTIES.............................................................24 7.1 General Representations and Warranties............................................24 7.2 [Intentionally Omitted]...........................................................31 7.3 Survival of Representations and Warranties........................................31 SECTION 8. COVENANTS AND CONTINUING AGREEMENTS........................................................31 8.1 Affirmative Covenants.............................................................31 8.2 Negative Covenants................................................................34 8.3 Specific Financial Covenants......................................................37 SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS....................................................38 9.1 Documentation.....................................................................39 9.2 Other Loan Documents..............................................................39 9.3 Certificates of Title.............................................................39 9.4 Approvals and Consents............................................................40 9.5 Certified Documents of Borrower...................................................40 9.6 Confirmation Searches.............................................................40 9.7 Opinion of Counsel................................................................40 9.8 Pay-Off Letter and UCC Termination Statements, Etc................................40 9.9 Projections.......................................................................41 9.10 Closing Date......................................................................41 9.11 Availability......................................................................41 9.12 No Litigation.....................................................................41 9.13 Acquisitions......................................................................41 9.14 [Intentionally Omitted]...........................................................41 9.15 Appraisals........................................................................41 9.16 Reference Checks..................................................................41 9.17 Pro Forma Balance Sheet...........................................................42 SECTION 9A. CONDITIONS PRECEDENT TO ALL CREDITS........................................................42 9A.1 No Default........................................................................42 9A.2 Representations and Warranties....................................................42 9A.3 Adverse Changes...................................................................42 9A.4 Injunctions.......................................................................42 SECTION 10. EVENTS OF DEFAULT, RIGHTS AND REMEDIES ON DEFAULT..........................................42 10.1 Events of Default.................................................................42 10.2 Acceleration of the Obligations...................................................45 10.3 Other Remedies....................................................................45 10.4 Remedies Cumulative, No Waiver....................................................46 SECTION 11. THE AGENTS.................................................................................47
-ii- 11.1 Appointment Powers and Immunities; Delegation of Duties; Liability of Agents............................................................................47 11.2 Reliance by Agent.................................................................49 11.3 Defaults..........................................................................49 11.4 Rights as a Lender................................................................50 11.5 Costs and Expenses; Indemnification...............................................50 11.6 Nonreliance on Agent and Other Lenders............................................51 11.7 Failure to Act....................................................................51 11.8 Resignation of Agent..............................................................52 11.9 Collateral Sub-Agents.............................................................52 11.10 Communications by Borrower........................................................52 11.11 Collateral Matters................................................................53 11.12 Restrictions on Actions by Administrative Agent and the Lenders; Sharing of Payments.......................................................................54 11.13 Withholding Tax...................................................................54 11.14 Several Obligations; No Liability.................................................55 SECTION 12. MISCELLANEOUS..............................................................................56 12.1 Power of Attorney.................................................................56 12.2 Indemnity.........................................................................57 12.3 Amendments, Etc...................................................................57 12.4 Successors; Assignments and Participations........................................59 12.5 Concerning the Collateral and Related Loan Documents..............................62 12.6 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information............................................62 12.7 Severability......................................................................63 12.8 Successors and Assigns............................................................63 12.9 Cumulative Effect, Conflict of Terms..............................................63 12.10 Execution in Counterparts.........................................................64 12.11 Notice............................................................................64 12.12 Lender Group's Consent............................................................65 12.13 Credit Inquiries..................................................................65 12.14 Certain Matters of Construction...................................................66 12.15 Entire Agreement..................................................................66 12.16 Interpretation....................................................................66 12.17 GOVERNING LAW; CONSENT TO FORUM...................................................66 12.18 WAIVERS BY BORROWER...............................................................67
-iii- LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is made as of September 24, 1998, by and among QUESTRON TECHNOLOGY, INC., a Delaware corporation ("QTI"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, QUESTRON DISTRIBUTION LOGISTICS, INC., a Delaware corporation ("QDLI"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation ("IMSI"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, POWER COMPONENTS, INC., a Pennsylvania corporation ("PCI"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, CALIFORNIA FASTENERS, INC., a California corporation ("CFI"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, COMP WARE, INC., a Delaware corporation doing business as Webb Distribution ("CWI"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, FAS-TRONICS, INC., a Texas corporation ("FTI"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487, FORTUNE INDUSTRIES, INC., a Texas corporation ("FII"), with its chief executive office and principal place of business at 6400 Congress Avenue, Suite 200A, Boca Raton, Florida 33487 (QTI, QDLI, IMSI, PCI, CFI, CWI, FTI, and FII, individually and collectively, and jointly and severally, are referred in this Agreement and the other Loan Documents as "Borrower"), each of the lenders that is a signatory to this Agreement (together with its successors and permitted assigns, individually, "Lender" and, collectively, "Lenders"), CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as administrative agent for the Lenders (in such capacity, together with its successors, if any, in such capacity, "Administrative Agent"), with an office at 777 Brickell Avenue, Suite 808, Miami, Florida 33131, and MADELEINE L.L.C., a New York limited liability company, as collateral agent for the Lender Group (in such capacity, together with its successors, if any, in such capacity, "Collateral Agent"), with an office at 450 Park Avenue, 28th Floor, New York, New York 10022. Capitalized terms used in this Agreement have the meanings assigned to them in Appendix A attached hereto. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP, consistently applied. CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, the Lenders agree to make a Total Credit Facility of (subject to Section 1.3) up to $45,000,000 available upon Borrower's request therefor, as follows: 1.1 Revolving Credit Loans. 1.1.1 Loans and Reserves. Each Revolving Credit Lender agrees, ratably in accordance with its respective Revolving Credit Commitment, and subject to the satisfaction -1- of the applicable conditions precedent set forth in Sections 9 and 9A hereof, to make Revolving Credit Loans to Borrower from time to time, as requested by Borrower in the manner set forth in Section 3.1.1 hereof, up to a maximum principal amount at any time outstanding not to exceed such Lender's Pro Rata Share (in accordance with its Revolving Credit Commitment) of an amount equal to the lesser of (a) the Maximum Amount, or (b) the Borrowing Base at such time minus the amount of reserves, if any, established by Administrative Agent as set forth below. Administrative Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Administrative Agent deem in good faith necessary or appropriate, against the amount of Revolving Credit Loans which Borrower may otherwise request under this Section 1.1.1, including, without limitation, with respect to (i) price adjustments, damages, unearned discounts, returned products or other matters for which credit memoranda are issued in the ordinary course of Borrower's business, (ii) shrinkage, spoilage, and obsolescence of Inventory, (iii) slow moving Inventory, (iv) sums chargeable against Borrower's Loan Account as Revolving Credit Loans under any section of this Agreement, (v) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any Property of Borrower, and (vi) such other matters, events, conditions, or contingencies as to which Administrative Agent, in its good faith sole credit judgment, determines reserves should be established from time to time hereunder. The Revolving Credit Loans shall be evidenced hereby and by the Revolving Notes, shall be secured by all of the Collateral, and shall constitute Obligations. 1.1.2 Use of Proceeds. The Revolving Credit Loans shall be used solely (a) on the Closing Date, for (i) the satisfaction in full of existing Indebtedness of Borrower to Existing Lender, (ii) payment of transactional costs, expenses, and fees incurred in connection with this Agreement and the other Loan Documents, and (iii) funding the cash portion of the purchase price of each of the Acquisitions, and (b) from and after the Closing Date, for Borrower's general corporate purposes in a manner consistent with the provisions of this Agreement (including funding (i) cash payments for deferred purchase price adjustments pursuant to acquisition agreements (irrespective of whether related to acquisitions consummated prior to the Closing Date, the Acquisition Documents, or acquisition agreements related to Permitted Acquisitions consummated after the Closing Date), and (ii) such cash portion of the purchase price of Permitted Acquisitions as the Required Lenders may permit in their sole and absolute discretion) and all applicable laws. 1.2 Term Loans. 1.2.1 Term Loan A. Lenders agree, ratably in accordance with their respective Term Loan A Commitments, and subject to the satisfaction of the applicable conditions precedent set forth in Sections 9 and 9A hereof, to make term loans (collectively, "Term Loan A") to Borrower on the Closing Date in an aggregate principal amount of $25,000,000, which Term Loan A shall be repayable in accordance with the terms of Term Note A, shall be secured by all of the Collateral, and shall constitute Obligations. The proceeds of Term Loan A shall be used solely for the purposes set forth in Section 1.1.2 above. 1.2.2 Term Loan B. Lenders agree, ratably in accordance with their respective Term Loan B Commitments, and subject to the satisfaction of the applicable conditions precedent set forth in Sections 9 and 9A hereof, to make term loans (collectively, "Term Loan B") to Borrower on the Closing Date in an aggregate principal amount of -2- $5,000,000, which Term Loan B shall be repayable in accordance with the terms of Term Note B, shall be secured by all of the Collateral, and shall constitute Obligations. The proceeds of Term Loan B shall be used solely for the purposes set forth in Section 1.1.2 above. 1.3 Discretionary Additional Term Loan. Upon the written request therefor by Borrower and the written approval by all Lenders, which approval may be withheld or conditioned in the sole and absolute discretion of any Lender, the Term Loan Lenders (or a subset of such Term Loan Lenders) may make additional term loans to Borrower in an aggregate amount of up to an additional $15,000,000 after the Closing Date, which additional term loans would be repayable in accordance with terms and conditions satisfactory to all of the Term Loan Lenders in their sole and absolute discretion (it being understood that, in no event, would the repayment of such additional term loans following an Event of Default be prior to the repayment of the Revolving Credit Loans), shall be secured by Collateral Agent's Liens on all of the Collateral, and shall constitute Obligations. The proceeds of such additional term loans shall be used solely to fund the cash portions of such additional acquisitions by Borrower (if any) as all of the Term Loan Lenders, Administrative Agent, and Collateral Agent in their sole and absolute discretion may permit in writing. If and to the extent that the Term Loan Lenders agree to make such additional term loans on the conditions set forth above (including the non-impairment of the priority of repayment of the Revolving Credit Loans), the Revolving Credit Lenders and Administrative Agent agree to execute and deliver any amendment to this Agreement, approved by Borrower, each of the Term Loan Lenders, Administrative Agent, and Collateral Agent, that provides for the incurrence, securing, and repayment of such additional term loans and permits the consummation of such additional acquisitions as are to be consummated with the proceeds of such additional term loans. SECTION 2. INTEREST, FEES AND CHARGES 2.1 Interest. 2.1.1 Rates of Interest. (a) Term Loan A and Term Loan B. Interest shall accrue on Term Loan A and be payable in accordance with the terms of Term Note A. Interest shall accrue on Term Loan B and be payable in accordance with the terms of Term Note B. (b) Revolving Loans. (i) During all times that a Base Rate Election is in effect, interest shall accrue on the principal amount of the Base Rate Revolving Credit Portion outstanding at the end of each day at the greater of (y) 9% per annum, and (z) a fluctuating rate per annum equal to the Base Rate plus 1%. The rate of interest set forth in the foregoing clause (z) shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any such change in the Base Rate occurs. -3- (ii) During all times that a LIBOR Rate Election is in effect, interest shall accrue on the principal amount of the LIBOR Revolving Credit Portions outstanding at the end of each day at the greater of (y) 9% per annum, and (z) a rate per annum equal to the LIBOR Rate applicable to the relevant LIBOR Revolving Credit Portion for the corresponding LIBOR Period plus the LIBOR Revolving Credit Margin. 2.1.2 Default Rate of Interest. Upon and after the occurrence of an Event of Default, and during the continuation thereof, the principal amount of all Loans shall bear interest at a rate per annum equal to 3% above the interest rate otherwise applicable thereto (the "Default Rate"). 2.1.3 Maximum Interest. In no event whatsoever shall the aggregate of all amounts deemed interest hereunder or under any Revolving Note or Term Note and charged or collected pursuant to the terms of this Agreement or pursuant to any Revolving Note or Term Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If any provisions of this Agreement or any Revolving Note or Term Note are in contravention of any such law, such provisions shall be deemed amended to conform thereto. 2.2 Computation of Interest and Fees. Interest and unused line fees hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year of 360 days. For the purpose of computing interest hereunder, all items of payment received by Administrative Agent for the account of the Lender Group shall be deemed applied by Administrative Agent on account of the Obligations (subject to final payment of such items) on the Business Day of receipt by Administrative Agent of such items (in immediately available funds) in Administrative Agent's Account. 2.3 Rate Elections. Unless one or more LIBOR Rate Elections by Borrower are in effect, Borrower shall be deemed to have made an effective Base Rate Election as to all of the Revolving Credit Loans, Term Loan A, and Term Loan B. If one or more LIBOR Rate Elections have been made by Borrower and are in effect, then Borrower shall be deemed to have made a LIBOR Rate Election as to the Revolving Credit Loans, Term Loan A, or Term Loan B, as applicable, that are the subject thereof and Borrower shall be deemed to have made an effective Base Rate Election as to the balance of the Revolving Credit Loans, Term Loan A, and Term Loan B that are not the subject thereof. 2.4 LIBOR Option. (a) Upon the conditions that: (i) Administrative Agent shall have received a LIBOR Request from Borrower at least 3 Business Days prior to the first day of the LIBOR Period requested, (ii) there shall have occurred no change in applicable law which would make it unlawful for Administrative Agent or any Revolving Credit Lender with respect to Revolving Credit Loans or Collateral Agent or any Term Loan Lender with respect to Term Loans to obtain deposits of U.S. dollars in the London interbank foreign currency deposits market, (iii) as of the date of the LIBOR Request and the first day of the LIBOR Period, there shall -4- exist no Default or Event of Default, (iv) Administrative Agent with respect to Revolving Credit Loans or Collateral Agent with respect to Term Loans is able to determine the LIBOR Rate in respect of the requested LIBOR Period, or Administrative Agent with respect to Revolving Credit Loans or Collateral Agent with respect to Term Loans is able to obtain deposits of U.S. dollars in the London interbank foreign currency deposits market in the applicable amounts and for the requested LIBOR Period, (v) as of the first date of the LIBOR Period, there are no more than 4 outstanding LIBOR Portions, including the LIBOR Portion being requested, and (vi) each such election is in respect of a LIBOR Portion of not less than $2,500,000 or an integral multiple thereof, then interest on the LIBOR Portion requested during the LIBOR Period requested will be based on the applicable LIBOR Rate. (b) Each LIBOR Request shall be irrevocable and binding on Borrower. Borrower shall indemnify the Lender Group for any loss, penalty, or expense incurred by Lenders due to failure on the part of Borrower to fulfill, on or before the date specified in any LIBOR Request, the applicable conditions set forth in this Agreement or due to the prepayment of the applicable LIBOR Portion prior to the last day of the applicable LIBOR Period, including, without limitation, any loss (including loss of anticipated profits) or expense incurred by reason of the liquidation or redeployment of deposits or other funds acquired by the Lender Group to fund or maintain the requested LIBOR Portion. (c) If any Legal Requirement shall (i) make it unlawful for Administrative Agent or any Revolving Credit Lender with respect to Revolving Credit Loans, or Collateral Agent or any Term Loan Lender with respect to Term Loans, to fund through the purchase of U.S. dollar deposits any LIBOR Portion, or otherwise give effect to its obligations as contemplated under this Section 2.4, or (ii) impose on Administrative Agent or any Revolving Credit Lender with respect to Revolving Credit Loans, or Collateral Agent or any Term Loan Lender with respect to Term Loans any costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such member of the Lender Group which includes deposits by reference to which the LIBOR Rate is determined as provided herein or a category of extensions of credit or other assets of such member of the Lender Group which includes any LIBOR Portion, or (iii) impose on Administrative Agent or any Revolving Credit Lender with respect to Revolving Credit Loans, or Collateral Agent or any Term Loan Lender with respect to Term Loans any restrictions on the amount of such a category of liabilities or assets which such member of the Lender Group may hold, then, in each such case, Administrative Agent with respect to Revolving Credit Loans or Collateral Agent with respect to Term Loans may, by notice thereof to Borrower, terminate the LIBOR Rate Election. Any LIBOR Portion subject thereto shall immediately bear interest thereafter at the rate and in the manner provided for Base Rate Portions pursuant hereto. Borrower shall indemnify the Lender Group against any loss, penalty, or expense incurred by the Lender Group due to liquidation or redeployment of deposits or other funds -5- acquired by the Lender Group to fund or maintain any LIBOR Portion that is prepaid by Borrower or terminated hereunder. (d) Lenders shall receive payments of amounts of principal of and interest on the Loans with respect to the LIBOR Portions free and clear of, and without deduction for, any Taxes. If (i) Lenders shall be subject to any Tax in respect of any LIBOR Portion, or any part thereof, or, (ii) Borrower shall be required to withhold or deduct any Tax from any such amount, the LIBOR Rate applicable to such LIBOR Portion shall be adjusted by Administrative Agent on behalf of the Lender Group to reflect all additional costs incurred by the Lender Group in connection with the payment by the Lender Group or the withholding by Borrower of such Tax and Borrower shall provide Administrative Agent on behalf of the Lender Group with a statement detailing the amount of any such Tax actually paid by Borrower. Determination by Administrative Agent on behalf of the Lender Group of the amount of such costs shall, in the absence of manifest error, be conclusive. If after any such adjustment any part of any Tax paid by the Lender Group is subsequently recovered by the Lender Group, the applicable members of the Lender Group shall reimburse Borrower to the extent of the amount so recovered. A certificate of an officer of Administrative Agent setting forth the amount of such recovery and the basis therefor shall, in the absence of manifest error, be conclusive. 2.5 Fee Letter Fees. Borrower shall pay to the Collateral Agent the fees set forth in the Fee Letter in accordance with the terms thereof and such fees are Obligations hereunder. 2.6 Administrative Agency Fee. Borrower shall pay to Administrative Agent (for its sole and separate account), on the Closing Date and on first day of each month thereafter, an administrative agency fee of $2,000 per month. Such fee, once paid, shall be fully earned and nonrefundable. 2.7 [Intentionally Omitted] 2.8 Unused Line Fee. Borrower shall pay to Administrative Agent (for its sole and separate account), a fee equal to 0.25% per annum of the average monthly amount by which (a) the Maximum Amount exceeds (b) the Revolving Facility Usage. 2.9 [Intentionally Omitted] 2.10 Audit and Appraisal Fees. Borrower shall pay to Administrative Agent: (a) for the sole and separate account of Administrative Agent, all out-of-pocket costs and expenses incurred by Administrative Agent in connection with audits of Borrower's books and records related to the Collateral; and (b) for the benefit of Collateral Agent for the sole and separate account of Collateral Agent, all out-of-pocket costs and expenses incurred by Collateral Agent in connection with (i) so long as no Event of Default has occurred and is continuing, confirmations of Borrower's financial and Collateral reporting, and (ii) upon the occurrence and during the continuation of an Event of Default, confirmations of Borrower's financial and -6- Collateral reporting and appraisals of the Collateral, plus, in each case, all fees and expenses incurred by Collateral Agent in connection with any such confirmations or appraisals of the Collateral commissioned by Collateral Agent and performed by third party confirming parties and appraisers. All such fees, costs, and expenses shall be payable pursuant to Section 3.1.3. 2.11 Reimbursement of Expenses. If, at any time or times regardless of whether an Event of Default then exists, Administrative Agent, Collateral Agent, or any Lender incurs legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (a) the negotiation and preparation of this Agreement or any of the other Loan Documents, or any amendment of or modification of this Agreement or any of the other Loan Documents, (b) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby, (c) any litigation, contest, dispute, suit, proceeding or action (whether instituted by the Lender Group, Borrower, or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrower's affairs, (d) any attempt to enforce any rights of the Lender Group against Borrower or any other Person which may be obligated to the Lender Group by virtue of this Agreement or any of the other Loan Documents, or (e) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral, then all such reasonable legal and accounting expenses, other costs and out-of-pocket expenses of the Lender Group shall be charged to Borrower. All amounts chargeable to Borrower under this Section 2.11 shall be Obligations secured by all of the Collateral, shall be payable on demand to Administrative Agent for the benefit of the applicable members of the Lender Group, and shall bear interest from the date such demand is made until paid in full at the rate applicable to Revolving Credit Loans from time to time. Borrower also shall reimburse Collateral Agent for expenses incurred by Collateral Agent in its administration of the Collateral to the extent and in the manner provided in Section 6 hereof. 2.12 Bank Charges. Borrower shall pay to the Lender Group in accordance with Section 3.1.1(b) any and all fees, costs, or expenses that the Lender Group pays to a bank or other similar institution arising out of or in connection with (a) the forwarding to Borrower or any other Person on behalf of Borrower, by the Lender Group, of proceeds of Loans made by the Lender Group to Borrower pursuant to this Agreement, and (b) the depositing for collection by the Lender Group, of any check or item of payment received by or delivered to the Lender Group on account of the Obligations. SECTION 3. LOAN ADMINISTRATION 3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the credit facility established pursuant to Section 1.1 hereof shall be as follows: 3.1.1 Loan Requests. A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (a) Borrower may give Administrative Agent notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date, no later than 11:00 a.m. (New York time) on the proposed borrowing date (which also shall be a Business Day); provided, however, that no such request may be made at a time when the conditions precedent set forth in Section 9A hereof are not satisfied, and (b) the becoming due of any amount required -7- to be paid under this Agreement, the Fee Letter, any Revolving Note or Term Note, or any other Loan Document, whether of principal or interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such principal, interest, or other Obligation. As an accommodation to Borrower, Administrative Agent may permit telephonic requests for Revolving Credit Loans and electronic transmittal of instructions, authorizations, agreements, or reports to Administrative Agent by Borrower. Unless Borrower specifically directs Administrative Agent in writing not to accept or act upon telephonic or electronic communications from Borrower, neither Agent nor any other member of the Lender Group shall have any liability to Borrower for any loss or damage suffered by Borrower as a result of Administrative Agent's honoring of any requests, execution of any instructions, authorizations, or agreements, or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Administrative Agent by Borrower, and Administrative Agent shall have no duty to verify the origin of any such communication or the authority of the person sending it. 3.1.2 Funding by Lenders. Administrative Agent shall from time to time, but no less frequently than weekly, notify each Revolving Credit Lender of the date such Lender is to fund its Revolving Credit Loans and the amount to be made available by it. If and to the extent that a Revolving Credit Lender and Administrative Agent so agree, at Administrative Agent's discretion, the amount to be made available by such Revolving Credit Lender on any date may be netted against any amount owing to such Lender and otherwise payable by Administrative Agent on account of payments received by it from Borrower on such date. The amount to be made available by each Revolving Credit Lender on any date shall be made available by it on such date to Administrative Agent at Administrative Agent's Account, in immediately available funds, not later than 1:00 p.m. (New York time) on any day in the case of fundings of which such Lenders have received notice not later than 11:00 a.m. (New York time) on such day (or, if notice is received after such time, not later than 12:00 p.m. (New York time) on the next succeeding Business Day). The obligation of each Revolving Credit Lender to Administrative Agent (as opposed to Borrower) to fund its Revolving Credit Loans on the date specified by Administrative Agent is absolute and unconditional and shall not be affected by any circumstance whatsoever, including (a) any set off counterclaim, recoupment, defense or other right which such Lender may have against Administrative Agent, Borrower or any other Person for any reason whatsoever, (b) the financial condition or prospects of Borrower, (c) the failure of any other such Lender to make funds available to Agent with respect to its Revolving Credit Loans, (d) the occurrence or continuation of an Event of Default, whether the same shall occur before or after Administrative Agent shall have made the Revolving Credit Loans, or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 3.1.3 Disbursement by Administrative Agent. Borrower and the Lender Group hereby irrevocably authorize Administrative Agent to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, pursuant to this Section 3.1 as follows: (a) the proceeds of each Revolving Credit Loan requested under Section 3.1.1(a) hereof shall (subject to receipt by Administrative Agent of funds from the Revolving Credit Lenders) be disbursed by Administrative Agent in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of a written disbursement letter from Borrower, and in the case of each subsequent borrowing, by -8- wire transfer to such bank account as may be agreed upon by Borrower and Administrative Agent from time to time or elsewhere if pursuant to a written direction from Borrower, and (b) the proceeds of each Revolving Credit Loan requested under Section 3.1.1(b) hereof shall be charged to the Loan Account and disbursed by Administrative Agent by way of direct payment of the relevant interest or other Obligation. 3.1.4 [Intentionally Omitted] 3.1.5 Authorization. Borrower and the Lender Group hereby irrevocably authorizes and directs Administrative Agent to charge to Borrower's Loan Account hereunder, as a Revolving Credit Loan deemed made to Borrower, a sum sufficient to pay all principal of Term Loans due and all interest accrued on the Obligations during the immediately preceding month and to pay all costs, fees, and expenses at any time owed by Borrower to the Lender Group hereunder or under any of the Loan Documents (including the Fee Letter); provided, however, that Administrative Agent may, but shall not be required to, so charge Borrower's Loan Account during the existence of an Event of Default or if and to the extent such charge would result in an Overadvance. Amounts advanced pursuant to this Section shall be deemed to have been requested by Borrower pursuant to Section 3.1.1(b), and the provisions of Sections 3.1.2 and 3.1.3 shall be applicable to each such advance. 3.1.6 Settlements. (a) Revolving Credit Loans and payments will be settled among Administrative Agent and the Revolving Credit Lenders according to such procedures as Administrative Agent and such Lenders may agree in writing from time to time. These procedures notwithstanding, each such Lender's obligation to fund its portion of the Revolving Credit Loans made by Administrative Agent to Borrower shall commence on the date such Revolving Credit Loans are made by Administrative Agent. Such payments to Administrative Agent will be made by such Lenders without set-off, counterclaim or reduction of any kind. (b) Administrative Agent may require the Revolving Credit Lenders to settle Revolving Credit Loans and payments on a daily basis (or such lesser frequency as Administrative Agent may determine) (each day of settlement being a "Settlement Date"). Administrative Agent will advise each Revolving Credit Lender by telephone or telecopy of the amount of each such Lender's Pro Rata Share (in accordance with its Revolving Credit Commitment) of the Revolving Facility Usage as of the close of business of the Business Day immediately preceding the Settlement Date. In the event that payments are necessary to adjust such Lender's actual Pro Rata Share (in accordance with its Revolving Credit Commitment) of the Revolving Facility Usage as of any Settlement Date to equal the amount of such Lender's required Pro Rata Share (in accordance with its Revolving Credit Commitment) of the Revolving Facility Usage, the party from which such payment is due will pay the other, in same day funds, by wire transfer to the other's account not later than the applicable time set forth on Section 3.1.2. -9- (c) If any such payment is not made to Administrative Agent by any such Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, such Lender shall be a Defaulting Lender and Administrative Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lenders Rate. Administrative Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrower to Administrative Agent for the Defaulting Lender's benefit on account of its Revolving Credit Loans. Any such amounts payable to a Defaulting Lender shall instead be paid to or retained by Administrative Agent. Administrative Agent may hold and, in its discretion, re-lend to Borrower as Revolving Credit Loans the amount of all such payments received or retained by it for the account of such Defaulting Lender. Solely for the purposes of voting or consenting to matters with Defaulting Lender shall be deemed not to be a "Lender" (in respect of its Revolving Credit Loans and Revolving Credit Commitment) and such Defaulting Lender's Revolving Credit Commitment with respect to the Revolving Credit Loans shall be deemed to be zero (-0-). This section shall remain effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable or (y) the Revolving Credit Lenders that are non-Defaulting Lenders and Administrative Agent shall have waived such Lender's default in writing. The operation of this section shall not be construed to increase or otherwise affect the Commitments of any Lender other than such Defaulting Lender, or relieve or excuse the performance by Borrower of its duties and obligations hereunder. 3.2 Payments. Except where evidenced by notes or other instruments (including the Revolving Notes and the Term Notes) issued or made by Borrower to the Lender specifically containing payment provisions which are in conflict with this Section 3.2 (in which event the conflicting provisions of said notes or other instruments shall govern and control), the Obligations shall be payable as follows: 3.2.1 Principal. Principal payable on account of Revolving Credit Loans shall be repayable in full by Borrower to Administrative Agent for the account of the Revolving Credit Lenders immediately upon the earliest of (a) the receipt by Administrative Agent or Borrower of any net cash proceeds of any of the Collateral (other than proceeds consisting of Non-Ordinary Course Proceeds unless and until all of the Obligations have become due and payable or as otherwise provided in Section 3.2.6), to the extent of said proceeds, except that, so long as no Default or Event of Default exists, if all Revolving Credit Loans outstanding at the time of receipt by Borrower of any such proceeds are LIBOR Portions, then Borrower may direct that such proceeds be held by Administrative Agent in a non-interest bearing cash collateral account maintained by Administrative Agent on its books and records (which funds may be commingled with other funds of Administrative Agent) to be applied to the payment of principal on the last day of the LIBOR Period applicable to each LIBOR Portion in the order of maturity, (b) the occurrence of an Event of Default in consequence of which Administrative Agent or Required Lenders elect to accelerate the maturity and payment of the Obligations, or (c) termination of this Agreement pursuant to Section 4 hereof; provided, however, that if an Overadvance shall exist, Borrower shall, on demand in writing by any Lender, repay the -10- Overadvance. Principal payable on account of the Term Loans shall be payable in accordance with the terms of the respective Term Notes. 3.2.2 Interest. (a) Base Rate Portion. Interest accrued on Base Rate Portions shall be due on the earliest of (i) the first calendar day of each month (for the immediately preceding month), computed through the last calendar day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which Administrative Agent or Required Lenders elect to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof. (b) LIBOR Portion. Interest accrued on each LIBOR Portion shall be due and payable on the earliest of (i) the first calendar day of each month (for the immediately preceding month), computed through the last calendar day of the preceding month, (ii) the last day of the Interest Period applicable to such LIBOR Portion, (iii) the occurrence of an Event of Default in consequence of which Administrative Agent or Required Lenders elect to accelerate the maturity and payment of the Obligations, or (iv) termination of this Agreement pursuant to Section 4 hereof. 3.2.3 Costs, Fees, and Charges. Costs, fees, and charges payable pursuant to this Agreement (or the other Loan Documents) shall be payable by Borrower as and when provided in the Loan Documents (including Section 2 hereof) to Administrative Agent, to any other member of the Lender Group (including Collateral Agent) to the extent expressly provided in this Agreement, the Fee Letter, or the other Loan Documents, or to any other Person designated by them in writing. 3.2.4 Other Obligations. The balance of the Obligations requiring the payment of money, if any, shall be payable by Borrower to Administrative Agent, for the account of the Lender Group as and when provided in this Agreement or the other Loan Documents or, if no time is specified, on demand therefor by Administrative Agent. 3.2.5 Return of Payments. Unless Administrative Agent receives notice from Borrower prior to the date on which any payment is due to the Lender Group that Borrower will not make such payment in full as and when required, Administrative Agent may assume that Borrower has made such payment in full to Administrative Agent on such date in immediately available funds and Administrative Agent may (but shall not be so required), in reliance upon such assumption, distribute to the applicable members of the Lender Group on such due date an amount equal to the amount then due such member of the Lender Group. If and to the extent Borrower has not made such payment in full to Administrative Agent, each member of the Lender Group shall repay to Administrative Agent on demand such amount distributed to such member of the Lender Group, together with interest thereon at the Base Rate for each day from the date such amount is distributed to such member of the Lender Group until the date repaid by such member of the Lender Group. -11- 3.2.6 Apportionment and Application of Payments. Except as otherwise provided with respect to Defaulting Lenders, aggregate principal payments and interest payments shall be apportioned ratably among the Lenders (according to their applicable Pro Rata Shares) and payments of the fees (other than fees designated for Administrative Agent's sole and separate account, fees designated for Collateral Agent's sole and separate account, and fees payable in accordance with the Fee Letter) shall, as applicable, be apportioned ratably among the Lenders. All payments shall be remitted to Administrative Agent and all such payments (but, so long as no Event of Default has occurred and is continuing, except for payments designated in writing by Borrower to Administrative Agent and Collateral Agent as a prepayment of the Term Loans hereunder, which may be so applied) and all Collections and all proceeds of Collateral received by any Agent, shall be applied as follows: (a) unless all of the Obligations have become or been declared due and payable: (i) all Non-Ordinary Course Proceeds consisting of cash proceeds of sales or other issuances of the Securities or Subordinated Debt of Borrower (to the extent permitted hereunder) shall be applied in the following order: first, to pay any fees, or expense reimbursements then due to Administrative Agent or Collateral Agent from Borrower until paid in full; second, to pay any fees or expense reimbursements then due to the Lenders from Borrower until paid in full; third, to pay interest due in respect of all Loans until paid in full (if such proceeds are insufficient to pay all such interest in full, then such amount shall be applied pro rata to interest accrued and unpaid with respect to each of the Loans); fourth, to repay the principal of the Revolving Credit Loans until paid in full; fifth, to pay any other Obligations due to the Lender Group (but exclusive of principal of the Term Loans); sixth, if and to the extent Borrower elects in writing to do so pursuant to a notice to Administrative Agent and Collateral Agent, to pay or prepay principal of Term Loan A, in inverse order of maturity of the installments thereof, until paid in full; and seventh, if and to the extent Borrower elects in writing to do so pursuant to a notice to Administrative Agent and Collateral Agent, to pay or prepay principal of Term Loan B, in inverse order of maturity of the installments thereof, until paid in full. (ii) all other Non-Ordinary Course Proceeds shall be applied in the following order: -12- first, to pay any fees, or expense reimbursements then due to Administrative Agent or Collateral Agent from Borrower until paid in full; second, to pay any fees or expense reimbursements then due to the Lenders from Borrower until paid in full; third, to pay interest due in respect of all Loans until paid in full (if such proceeds are insufficient to pay all such interest in full, then such amount shall be applied pro rata to interest accrued and unpaid with respect to each of the Loans); fourth, to pay or prepay principal of Term Loan A, in inverse order of maturity of the installments thereof, until paid in full; fifth, to pay or prepay principal of Term Loan B, in inverse order of maturity of the installments thereof, until paid in full; sixth, to repay the principal of the Revolving Credit Loans until paid in full; and seventh, to pay any other Obligations due to the Lender Group. (iii) all other Collections and all other proceeds of Collateral shall be applied in the following order: first, to pay any fees, or expense reimbursements then due to Administrative Agent or Collateral Agent from Borrower until paid in full; second, to pay any fees or expense reimbursements then due to the Lenders from Borrower until paid in full; third, to pay interest due in respect of all Loans until paid in full (if such proceeds are insufficient to pay all such interest in full, then such amount shall be applied pro rata to interest accrued and unpaid with respect to each of the Loans); fourth, to repay the principal of the Revolving Credit Loans until paid in full; and fifth, to pay any other Obligations due to the Lender Group. (b) from and after the date that all Obligations have become, or been declared by the Lender Group, due and payable or that all Obligations and Collateral have become, or been declared by the Lender Group, in liquidation, all Collections and all other proceeds of Collateral (irrespective of whether constituting Non-Ordinary Course Proceeds) shall be applied in the following order: -13- first, to pay any fees, or expense reimbursements then due to Administrative Agent or Collateral Agent from Borrower until paid in full; second, to pay any fees or expense reimbursements then due to the Lenders from Borrower until paid in full; third, to pay interest due in respect of all Loans (other than accrued but unpaid interest on the Term Loans previously deferred by the Lender Group in writing or permitted by the Lender Group to be paid by being added to the principal balance of the Term Loans in excess of an amount equal to 5 months of such interest on the Term Loans at the applicable rates under this Agreement or the Term Notes in effect on the date hereof) until paid in full (if such proceeds are insufficient to pay all such interest in full, then such amount shall be applied pro rata to interest accrued and unpaid with respect to each of the Loans); fourth, to repay the principal of the Revolving Credit Loans until paid in full; fifth, to pay all interest due in respect of all Loans to the extent not paid under clause "third" of this Section 3.2.6(b) until paid in full; sixth, to pay or prepay principal of the Term Loans, ratably until paid in full; and seventh, to pay any other Obligations due to the Lender Group. 3.3 Mandatory Prepayments. 3.3.1 Non-Ordinary Course Proceeds. Unless all Obligations have become, or been declared by the Lender Group in writing, due and payable or all Obligations and Collateral have become, or been declared in writing by the Lender Group, to be in liquidation, and except as provided for in Section 6.4.2, Borrower shall pay to Administrative Agent all Non-Ordinary Course Proceeds and each such payment shall be applied in accordance with the provisions of Section 3.2.6(a)(i) or (ii), as applicable. 3.3.2 Excess Cash Flow Recapture. Borrower shall prepay the Term Loans in amounts equal to the Excess Cash Flow Recapture Amount with respect to each fiscal year of Borrower during the Term hereof, such prepayments to be made within 5 days following the due date for delivery by Borrower to Administrative Agent of the annual financial statements required by Section 8.1.3(a) hereof; provided, however, that if an Event of Default has occurred and is continuing at the time of such required prepayment, such prepayment shall not be made until such Event of Default no longer exists. Each such prepayment made pursuant to this Section 3.3.2 shall be applied in accordance with the provisions of Section 3.2.6(a)(ii) or Section 3.2.6(b) hereof, as the case may be. 3.4 Application of Payments and Collections. For purposes of calculating Availability, all items of payment received by Administrative Agent by 1:00 p.m. (New York -14- time) on any Business Day shall be deemed received on that Business Day. All items of payment received in immediately available funds after 1:00 p.m. (New York time) on any Business Day shall be deemed received on the following Business Day. Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Administrative Agent or any other member of the Lender Group from or on behalf of Borrower, and Borrower does hereby irrevocably agree that, subject to Section 3.2 hereof, Administrative Agent shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Administrative Agent or the other members of the Lender Group (or their respective agents) against the Obligations, in such manner as Administrative Agent may deem advisable, notwithstanding any entry by Administrative Agent upon any of its books and records. If as the result of collections of Accounts as authorized by Section 6.2.6 hereof a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower at any time or times for so long as no Default or Event of Default exists. Such credit balance shall not be applied or be deemed to have been applied as a prepayment of the Term Loans, except that Administrative Agent (on the written direction by the Required Lenders) may offset such credit balance against the Obligations upon and after the occurrence of an Event of Default. 3.5 All Loans to Constitute One Obligation. The Loans shall constitute one general Obligation of Borrower, and shall be secured by Collateral Agent's Lien upon all of the Collateral, for the benefit of the Lender Group. 3.6 Loan Account. Administrative Agent shall enter all Loans as debits to the Loan Account and also shall record in the Loan Account all payments made by Borrower on any Obligations and all proceeds of Collateral which are finally paid to the Lender Group, and may record therein, in accordance with its customary practices, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower. 3.7 Statements of Account. Administrative Agent will account to Borrower monthly with a statement of Loans, charges, and payments made pursuant to this Agreement, and such accounting rendered by Administrative Agent shall be deemed final, binding and conclusive upon Borrower unless Administrative Agent is notified by Borrower in writing to the contrary within 30 days of the date each accounting is mailed to Borrower. Such notice only shall be deemed an objection to those items specifically objected to therein. 3.8 General Provisions. 3.8.1 Except to the extent otherwise provided in this Agreement or any other Loan Document, all payments of any Obligations shall be made in U.S. dollars, in immediately available funds, without deduction, set-off or counterclaim, to Administrative Agent at Administrative Agent's Account, not later than 1:00 p.m. (New York time) on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). 3.8.2 Each payment received by Administrative Agent under this Agreement of any Obligation for the account of any member of the Lender Group shall (subject -15- to Section 3.1.2 hereof) be paid by Administrative Agent promptly to such member of the Lender Group, in immediately available funds, to the account of such member of the Lender Group as specified from time to time by such member of the Lender Group in a written notice to Administrative Agent. 3.8.3 If the due date of any payment of any Obligation would otherwise fall on a day that is not a Business Day, such date shall be extended to the next succeeding Business Day, and interest shall be payable for any principal so extended for the period of such extension. 3.9 Pro Rata Treatment. Except to the extent otherwise provided in this Agreement: (a) (i) the making and conversion of Revolving Credit Loans shall be made pro rata among the Revolving Credit Lenders according to the amounts of their respective Revolving Credit Commitments or their respective Revolving Credit Loans, and (ii) the making and conversion of Term Loans shall be made pro rata among the Term Loan Lenders according to the amounts of their respective Term Loan A Commitments and Term Loan B Commitments or their respective Term Loans; and (b) each payment on account of any Obligations to or for the account of one or more members of the Lender Group in respect of any Obligations due on a particular day shall be allocated among the members of the Lender Group entitled to such payments pro rata in accordance with the respective amounts due and payable to such members of the Lender Group on such day and shall be distributed accordingly. 3.10 Sharing of Payments, Etc. 3.10.1 Borrower agrees that, in addition to (and without limitation of) any right of set-off, banker's lien, or counterclaim any Lender may otherwise have, each Lender shall be entitled during the continuation of an Event of Default, at its option but only with the prior written consent of all Lenders, to offset balances held by it for the account of Borrower at any of its offices, in U.S. dollars or in any other currency, against any Obligations of Borrower to such Lender that are not paid when due (regardless of whether such balances are then due to Borrower). Any Lender so entitled shall promptly notify Borrower, Collateral Agent, and Administrative Agent of any offset effected by it; provided, however, that such Lender's failure to give such notice shall not affect the validity of such offset. 3.10.2 If any Lender shall obtain from Borrower payment of any Obligation through the exercise of any right of set-off, banker's lien, or counterclaim or similar right or otherwise (other than from Administrative Agent as provided in this Agreement), and, as a result of such payment, such Lender shall have received a greater amount of the Obligations than the amount allocable to such Lender hereunder, Administrative Agent and the other members of the Lender Group (including such Lender) shall promptly make such adjustments from time to time as shall be equitable, to the end that the Lender Group shall share the benefit of such excess payment (net of any expenses that may be incurred by such Lender in obtaining or preserving such excess payment) in accordance with Section 3.2.6. To such end the Lender Group shall make appropriate adjustments among themselves if such payment is rescinded or must otherwise be restored. 3.10.3 [intentionally omitted] -16- 3.10.4 Nothing contained in this Section 3.10 shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other indebtedness or obligation of Borrower. If, under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a set-off to which this Section 3.10 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 Lenders entitled under this Section 3.10 to share in the benefits of any recovery on such secured claim. SECTION 4. TERM AND TERMINATION 4.1 Term of Agreement. Subject to the right of the Lender Group to cease making Loans to Borrower upon or after the occurrence of any Default or Event of Default, this Agreement shall be in effect for a period of 5 years from the date hereof, through and including September 24, 2003 (the "Term"), unless sooner terminated as provided in Section 4.2 hereof. 4.2 Termination. 4.2.1 Termination by Agent. Administrative Agent (acting on the written instructions of the Required Lenders) or Collateral Agent (acting on the written instructions of the Required Lenders) may terminate this Agreement at any time without notice upon or after the occurrence of an Event of Default. 4.2.2 Termination by Borrower. Upon at least 60 days prior written notice to Administrative Agent, Borrower may, at its option, terminate this Agreement without penalty or premium (other than as may be required by the provisions of Section 2.4); provided, however, that no such termination shall be effective until Borrower has paid all of the Obligations in immediately available funds. Any notice of termination given by Borrower shall be irrevocable unless the Required Lenders otherwise agree in writing, and the Lender Group shall have no obligation to make any Loans on or after the termination date stated in such notice. Borrower may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly. 4.2.3 [Intentionally Omitted]. 4.2.4 Effect of Termination. All of the Obligations shall be immediately due and payable upon the termination date stated in any notice of termination of this Agreement. All undertakings, agreements, covenants, warranties, and representations of Borrower contained in the Loan Documents shall survive any such termination, and, notwithstanding such termination, Collateral Agent shall retain its Liens in the Collateral for the benefit of the Lender Group, and the Lender Group shall retain all of its rights and remedies under the Loan Documents, until Borrower has paid to Administrative Agent, for the account of the Lender Group, all of Borrower's Obligations to the Lender Group, in full, in immediately available funds, together with the applicable termination charge, if any. Notwithstanding the payment in full of the Obligations, Collateral Agent shall not be required to terminate its security interests in the Collateral unless, with respect to any loss or damage the Lender Group may incur as a result of dishonored checks or other items of payment received by the Lender Group from Borrower or -17- any Account Debtor and applied to the Obligations, Administrative Agent shall, at its option, (a) have received a written agreement, executed by Borrower and by any Person whose loans or other advances to Borrower are used in whole or in part to satisfy the Obligations, indemnifying the Lender Group from any such loss or damage, or (b) have retained such monetary reserves, and Collateral Agent shall have retained such Liens on the Collateral, for such period of time as such Agents, in their reasonable discretion, may deem necessary to protect the Lender Group from any such loss or damage. SECTION 5. SECURITY INTERESTS 5.1 Interest in Collateral. To secure the prompt payment and performance to the Lender Group of the Obligations, each Borrower hereby grants to Collateral Agent, for the benefit of the Lender Group, a continuing Lien upon all right, title, and interest of such Borrower in and to all currently existing and hereafter acquired or arising Collateral (excluding, however, any real Property or estates or interests therein). Collateral Agent's Liens on all such Collateral shall attach thereto without further act on the part of the Lender Group or Borrower. 5.2 Lien Perfection, Further Assurances. Borrower shall execute such UCC-1 financing statements as are required by the Code and such other instruments, assignments, or documents as are necessary to perfect Collateral Agent's Lien upon any of the Collateral and shall take such other action as may be required to perfect or to continue the perfection of Collateral Agent's Lien upon the Collateral. Unless prohibited by applicable law, Borrower hereby authorizes Collateral Agent to execute and file any such financing statement on Borrower's behalf. The parties agree that a carbon, photographic, or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At Collateral Agent's request, Borrower also shall promptly execute or cause to be executed and shall deliver to Collateral Agent any and all documents, instruments, and agreements deemed necessary by Collateral Agent to give effect to or carry out the terms or intent of the Loan Documents. 5.3 [Intentionally Omitted] SECTION 6. COLLATERAL ADMINISTRATION 6.1 General. 6.1.1 Location of Collateral. All Collateral, other than Inventory in transit and motor vehicles, will at all times be kept by Borrower and its Subsidiaries at one or more of the business locations set forth in Schedule 6.1.1 attached hereto and shall not, without the prior written approval of Collateral Agent, be moved therefrom except, prior to an Event of Default and the Lender Group's acceleration of the maturity of the Obligations in consequence thereof, for (a) sales of Inventory in the ordinary course of business, and (b) removals in connection with dispositions of Equipment that are authorized by Section 6.4.2 hereof; provided, however, that Borrower may amend Schedule 6.1.1 to identify a new location so long as such amendment occurs by written notice to Administrative Agent and Collateral Agent not less than 30 days prior to the date that such Collateral is moved to such new location, so long as such new location is within the continental United States, and so long as, at the time of such written -18- notification, Borrower executes and delivers to Collateral Agent any financing statements or fixture filings necessary to perfect and continue perfected Collateral Agent's Liens on such Collateral and also provides to Collateral Agent a fully executed Collateral Access Agreement relative to such new location. 6.1.2 Insurance of Collateral. Borrower shall maintain and pay for insurance upon all Collateral wherever located and with respect to Borrower's business, covering casualty, hazard, public liability, and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Collateral Agent. Borrower shall deliver the originals of such policies to Collateral Agent with 438 BFU lender's loss payable endorsements or other satisfactory lender's loss payable endorsements, naming Collateral Agent (on behalf of the Lender Group) as sole loss payee, assignee, or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than 30 days prior written notice to Collateral Agent in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interest of Collateral Agent shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such insurance, Collateral Agent may, at its option, but shall not be required to, procure the same and charge Borrower therefor. Borrower agrees to deliver to Collateral Agent, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. 6.1.3 Protection of Collateral. All expenses of protecting, storing, warehousing, insuring, handling, maintaining, and shipping the Collateral, any and all excise, property, sales, and use taxes imposed by any state, federal, or local authority on any of the Collateral or in respect of the sale thereof shall be borne and paid by Borrower. If Borrower fails to promptly pay any portion thereof when due, Collateral Agent may, at its option, but shall not be required to, pay the same and charge Borrower therefor. Collateral Agent shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Collateral Agent's actual possession) or for any diminution in the value thereof, but the same shall be at Borrower's sole risk. 6.2 Administration of Accounts. 6.2.1 Records, Schedules, and Assignments of Accounts. Borrower shall keep accurate and complete records of its Accounts that compose the Collateral and all payments and collections thereon, and shall submit to Administrative Agent on such periodic basis as Administrative Agent shall request a sales and collections report for the preceding period, in form satisfactory to Administrative Agent. On or before 9:00 a.m. (New York time) on the 2nd Business Day of each week from and after the date hereof, Borrower shall deliver a Borrowing Base Certificate to Administrative Agent; provided, however, that, so long as Availability is less than or equal to $1,500,000, Administrative Agent may require that Borrower deliver a Borrowing Base Certificate on such frequency (including on a daily basis) as Administrative Agent may require. No later than 9:00 a.m. (New York time) on the 20th day of each month from and after the date hereof, Borrower shall deliver to Administrative Agent, in form and substance satisfactory to Administrative Agent, a detailed aged trial balance of all Accounts -19- existing as of the last Business Day of the immediately preceding week, specifying the names, addresses, face value, dates of invoices, and due dates for each Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and, upon Administrative Agent's request therefor, copies of proof of delivery and the original copy of all documents, including, without limitation, repayment histories and present status reports relating to the Accounts so scheduled, and such other matters and information relating to the status of then existing Accounts as Administrative Agent shall reasonably request. In addition, if an aggregate face amount of more than $250,000 of Accounts owed by any Account Debtor (together with its Affiliates) become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts or otherwise established by Administrative Agent, Borrower shall notify Administrative Agent of such occurrence on the first Business Day following such occurrence, and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Administrative Agent, Borrower shall execute and deliver to Administrative Agent formal written assignments in favor of Collateral Agent of all of Borrower's Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of invoices or invoice registers related thereto. 6.2.2 Discounts Allowances, Disputes. If Borrower grants any discounts, allowances, or credits that are not shown on the face of the invoice for the Account involved, Borrower shall report such discounts, allowances, or credits, as the case may be, to Administrative Agent as part of the next required Schedule of Accounts. If any amounts due and owing in excess of $100,000 are in dispute between Borrower and any Account Debtor, Borrower shall provide Administrative Agent with written notice thereof at the time of submission of the next Schedule of Accounts, explaining in detail the reason for the dispute, all claims related thereto, and the amount in controversy. Upon and after the occurrence of an Event of Default, Administrative Agent shall have the right to (a) settle or adjust all disputes and claims directly with the Account Debtor, (b) compromise the amount or extend the time for payment of the Accounts upon such terms and conditions as Administrative Agent may deem advisable, and (c) charge the deficiencies, costs and expenses thereof, including attorneys' fees, to Borrower. 6.2.3 Taxes. If an Account includes a charge for any tax payable to any governmental taxing authority, Administrative Agent is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor; provided, however, that Administrative Agent shall not be liable for any taxes to any governmental taxing authority that may be due by Borrower. 6.2.4 Account Verification. Whether or not a Default or an Event of Default has occurred, any of Administrative Agent's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Administrative Agent, any Lender, any designee of any of them, or Borrower, to verify the validity, amount, or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with Administrative Agent in an effort to facilitate and promptly conclude any such verification process. 6.2.5 Maintenance of Dominion Account. Borrower shall maintain a Dominion Account pursuant to one or more dominion account agreements (each, a "Dominion Account Agreement") in form and substance satisfactory to Administrative Agent with such -20- banks as may be selected by Borrower and be acceptable to Administrative Agent (including Wells Fargo Bank). Borrower shall issue to any such banks an irrevocable letter of instruction directing such banks to deposit all payments or other remittances received in the lockbox to the Dominion Account for application on account of the Obligations. All funds deposited in the Dominion Account shall immediately become the property of Administrative Agent, for the benefit of the Lender Group, and Borrower shall obtain the agreement by such banks in favor of Agent for the benefit of the Lender Group to waive any offset rights against the funds so deposited. The Lender Group and Administrative Agent on behalf thereof assume no responsibility for such lockbox arrangement, including, without limitation, any claim of accord and satisfaction or release with respect to deposits accepted by any bank thereunder. 6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite collection, Borrower shall endeavor in the first instance to make collection of its Accounts for the Lender Group. All remittances received by Borrower on account of Accounts, together with the proceeds of any other Collateral, shall be held as the Lender Group's property by Borrower as trustee of an express trust for the Lender Group's benefit, and Borrower shall immediately deposit same in kind in the Dominion Account. Administrative Agent retains the right at all times after the occurrence of a Default or an Event of Default, and Borrower hereby irrevocably designates, makes, constitutes, and appoints Administrative Agent (and all Persons designated by Administrative Agent) as Borrower's true and lawful attorney (and agent-in-fact), to notify Account Debtors that Accounts have been assigned to Collateral Agent and to collect Accounts directly in the name of the Lender Group and to charge the collection costs and expenses, including attorneys fees, to Borrower. 6.3 Administration of Inventory. 6.3.1 Records and Reports of Inventory. Borrower shall keep accurate and complete records of its Inventories that compose the Collateral. Borrower shall furnish Administrative Agent Inventory reports in form and detail satisfactory to Administrative Agent at such times as Administrative Agent may request, but at least once each month, not later than the twentieth day of such month. Borrower shall conduct a physical inventory, no less frequently than annually, of not less than such portion of the Inventory sufficient to permit Borrower to produce unqualified audited financial statements prepared in accordance with GAAP (and Borrower may so conduct such physical inventory, from and after the date Borrower gives written notice to Administrative Agent of Borrower's election to do so, on a cycle count basis, of not less than such portion of the Inventory sufficient to permit Borrower to produce unqualified audited financial statements prepared in accordance with GAAP ), and shall provide to Administrative Agent a report based on each such physical inventory promptly thereafter, together with such supporting information as Administrative Agent reasonably shall request. 6.3.2 Returns of Inventory. If, at any time or times hereafter, any Account Debtor returns any Inventory to Borrower the shipment of which generated an Account on which such Account Debtor is obligated in excess of $25,000, Borrower shall immediately notify Administrative Agent of the same, specifying the reason for such return and the location, condition and intended disposition of the returned Inventory. -21- 6.4 Administration of Equipment. 6.4.1 Records and Schedules of Equipment. Borrower shall keep accurate records itemizing and describing the kind, type, quality, quantity, and value of its Equipment that composes the Collateral and all dispositions made in accordance with Section 6.4.2 hereof, and shall furnish Administrative Agent and Collateral Agent with copies of a current schedule containing the foregoing information on at least an annual basis and more often if requested by Administrative Agent or Collateral Agent. Immediately on request therefor by Administrative Agent or Collateral Agent, Borrower shall deliver to Collateral Agent any and all certificates of title with respect to that portion of the Equipment that composes the Collateral and that is subject to certificates of title. 6.4.2 Dispositions of Equipment. Borrower will not sell, lease or otherwise dispose of or transfer any of the Equipment or any part thereof without the prior written consent of (a) in the case of dispositions of Equipment which, in the aggregate with all other dispositions of Equipment, has a fair market value or book value, whichever is less, of $500,000 or less, Collateral Agent, or (b) in all other cases, Collateral Agent (acting on the written instructions of all of the Lenders); provided, however, that the foregoing restriction shall not apply, for so long as no Default or Event of Default exists, to (i) dispositions of Equipment which, in the aggregate during any consecutive twelve-month period, has a fair market value or book value, whichever is less, of $10,000 or less, provided that all proceeds thereof are remitted to Administrative Agent for application to the Obligations in accordance herewith, or (ii) replacements of Equipment that is substantially worn, damaged or obsolete with Equipment of like kind, function and value, provided that the replacement Equipment shall be acquired prior to or concurrently with any disposition of the Equipment that is to be replaced, the replacement Equipment shall be free and clear of Liens other than Permitted Liens that are not Purchase Money Liens, and Borrower shall have given Collateral Agent at least 5 days prior written notice of such disposition. 6.5 Payment of Charges. All amounts chargeable to Borrower under Section 6 hereof shall be Obligations secured by all of the Collateral, shall be payable on demand, and shall bear interest from the date such advance was made until paid in full at the rate applicable to Revolving Credit Loans from time to time. SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1 General Representations and Warranties. In order to induce the Lender Group to enter into this Agreement and to extend credit hereunder, each Borrower hereby jointly and severally with each other Borrower makes the following representations and warranties which shall be true, correct, and complete in all material respects as of the date hereof, and, subject to the ability of Borrower to modify certain provisions thereof pursuant to the terms of Section 7.3 hereof, shall be true, correct, and complete in all material respects as of the Closing Date, and at and as of the date of the making of each Loan made hereafter, as though made on and as of the date of such Loan (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: -22- 7.1.1 Organization and Qualification. Each Borrower and each of its Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Each Borrower and each of its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each jurisdiction listed on Schedule 7.1.1 attached hereto and, except as set forth on Schedule 7.1.1, in all other states and jurisdictions where the character of its Properties or the nature of its activities make such qualification necessary. 7.1.2 Corporate Power and Authority. Each Borrower and each of its Subsidiaries is duly authorized and empowered to execute, deliver, and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of the shareholders of any Borrower or any of its Subsidiaries (except for any such approvals or consents that have been, or on or prior to the Closing Date shall be, obtained), (b) contravene any Borrower's or any of its Subsidiaries' charter, articles or certificate of incorporation or by-laws, (c) violate, or cause any Borrower or any of its Subsidiaries to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination, or award in effect having applicability to any Borrower or any of its Subsidiaries, (d) result in a material breach of or constitute a material default under any indenture or loan or credit agreement or any other material agreement, lease, or instrument to which any Borrower or any of its Subsidiaries is a parry or by which it or its Properties may be bound or affected, or (e) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by any Borrower or any of its Subsidiaries. 7.1.3 Legally Enforceable Agreement. As to each Borrower, this Agreement is, and each of the other Loan Documents to which it is a party, when delivered under this Agreement, will be, a legal, valid, and binding obligation of such Borrower, enforceable against it in accordance with its respective terms. 7.1.4 Capital Structure. Schedule 7.1.4 attached hereto states (a) the correct name of each of the Subsidiaries of Borrower, its jurisdiction of incorporation, and the percentage of its Voting Stock owned by Borrower, (b) the name of each of Borrower's corporate or joint venture Affiliates, and the nature of the affiliation, (c) the number, nature, and holder of all outstanding Securities of Borrower and each Subsidiary of Borrower, and (d) the number of authorized, issued and treasury shares of Borrower and each Subsidiary of Borrower. Borrower has good title to all of the shares it purports to own of the stock of each of its Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non-assessable. Except as set forth on Schedule 7.1.4, there are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Securities or obligations convertible into, or any powers of attorney relating to, shares of the capital stock of Borrower or any of its Subsidiaries. There are no outstanding agreements or instruments binding upon any of Borrower's shareholders relating to the ownership of its shares of capital stock. -23- 7.1.5 Corporate Names. Neither any Borrower nor any of its Subsidiaries has been known as or used any corporate, fictitious, or trade names except those listed on Schedule 7.1.5 attached hereto. Except as set forth on Schedule 7.1.5 attached hereto, neither any Borrower nor any of its Subsidiaries has been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person. 7.1.6 Business Locations, Agent for Process. Each Borrower's and each of its Subsidiaries' chief executive office and other places of business are as listed on Schedule 6.1.1 attached hereto. During the preceding 1-year period, neither any Borrower nor any of its Subsidiaries has had an office, place of business, or agent for service of process other than as listed on Schedule 6.1.1 attached hereto. Except as shown on Schedule 6.1.1 attached hereto, no Inventory is stored with a bailee, warehouseman or similar party, nor is any Inventory consigned to any Person. 7.1.7 Title to Properties, Priority of Liens. Each Borrower and each of its Subsidiaries has good and marketable title to, and fee simple ownership of or valid and subsisting leasehold interests in, all of its real Property (except for minor defects in title thereto that individually and in the aggregate do not materially interfere with the ability of any Borrower or any Subsidiary thereof to conduct its business as now conducted), and good title to all of the Collateral and all of its other Property, in each case, free and clear of all Liens except Permitted Liens. Subject to the Acquisition Qualification, each Borrower has paid or discharged all lawful claims which, if unpaid, might become a Lien against any of Borrower's Properties that is not a Permitted Lien. The Liens granted to Collateral Agent under Section 5 hereof are first priority Liens, subject only to Permitted Liens. 7.1.8 Accounts. Administrative Agent may rely, in determining which Accounts are Eligible Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Administrative Agent, with respect to each Account: (a) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; (b) It arises out of a completed, bona fide sale and delivery of goods or rendition of services by Borrower in the ordinary course of its business, and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; (c) it is for a liquidated amount maturing as stated in the duplicate invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Administrative Agent; (d) Such Account, and the Lender Group's security interest therein, is not, and will not (by voluntary act or omission of Borrower) be in the future, subject to any offset, Lien, deduction, defense, dispute, counterclaim, or any other adverse condition except for disputes resulting in returned goods where -24- the amount in controversy is deemed by Administrative Agent to be immaterial, and each such Account is absolutely owing to the relevant Borrower, and is not contingent in any respect or for any reason; (e) No Borrower has made any agreement with any Account Debtor thereunder for any extension, compromise, settlement, or modification of any such Account or any deduction therefrom, except discounts or allowances which are granted by the relevant Borrower in the ordinary course of its business for prompt payment, and which are reflected in the calculation of the net amount of each respective invoice related thereto, and which are reflected in the Schedules of Accounts submitted to Agent pursuant to Section 6.2.1 hereof; (f) Subject to the Acquisition Qualification, there are no facts, events or occurrences which in any way impair in any material respect the validity or enforceability of any Accounts, or which would reduce the amount payable thereunder from the face amount of the invoice and statements delivered to Administrative Agent with respect thereto; (g) To the best of Borrower's knowledge, the Account Debtor thereunder (i) had the capacity to contract at the time any contract or other document giving rise to the Account was executed, and (ii) such Account Debtor is Solvent; and (h) To the best of Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account. 7.1.9 Equipment. Subject to the Acquisition Qualification, the Equipment is in good operating condition and repair. 7.1.10 Financial Statements, Fiscal Year. The Consolidated balance sheets of Borrower (including the accounts of all Subsidiaries of Borrower for the period during which a Subsidiary relationship existed) as of June 30, 1998, and the related statements of income, changes in stockholder's equity, and changes in financial position for the period ended on such date, have been prepared in accordance with GAAP, and present fairly the financial positions of Borrower at such date and the results of Borrower's operations for such period. Since June 30, 1998, there has been no material adverse change in the condition, financial or otherwise, of Borrower as shown on the Consolidated balance sheet as of such date and no change in the aggregate value of Equipment and real Property owned by Borrower, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. The fiscal year of Borrower and each of its Subsidiaries ends on December 31 of each year. 7.1.11 Full Disclosure. The financial statements referred to in Section 7.1.10 hereof do not, nor does this Agreement or any other written statement of any Borrower to the Lender Group, contain any untrue statement of a material fact or omit a material -25- fact necessary to make the statements contained therein or herein not misleading. There is no fact which any Borrower has failed to disclose to in writing that results in, or, so far as each Borrower can now foresee, will result in, a Material Adverse Change. 7.1.12 Solvent Financial Condition. Borrower, and each of its Subsidiaries, taken as a whole, is and, after giving effect to the Loans to be made hereunder, will be, Solvent. 7.1.13 Surety Obligations. Except as set forth on Schedule 7.1.13, neither any Borrower nor any of its Subsidiaries is obligated as surety or indemnitor under any surety or similar bond or other contract issued or entered into any agreement to assure payment, performance, or completion of performance of any undertaking or obligation of any Person. 7.1.14 FEIN; Taxes. The federal tax identification number of each Borrower and each of its Subsidiaries is shown on Schedule 7.1.14 attached hereto. Each Borrower and each of its Subsidiaries (a) has filed all federal, state, and local tax returns and other reports it is required by law to file (other than tax returns in respect of taxes that (i) are not franchise, capital, income, or payroll taxes, (ii) are not material individually or in the aggregate, and (iii) if unpaid, would not result in the imposition of any Lien on any Property of any Borrower or any Subsidiary thereof), and (b) has paid, or made provision for the payment of, all taxes, assessments, fees, levies, and other governmental charges upon it, its income and Properties as and when such taxes, assessments, fees, levies, and charges that are due and payable, unless and to the extent any such taxes, assessments, fees, levies, or charges (exclusive of federal income taxes and payroll taxes) are being actively contested in good faith and by appropriate proceedings, and Borrower maintains reasonable reserves on its books therefor. The provision for taxes on the books of each Borrower and each of its Subsidiaries are adequate for all years not closed by applicable statutes and for its current fiscal year. 7.1.15 Brokers. Except as set forth in Schedule 7.1.15, there are no claims for brokerage commissions, finder's fees, or investment banking fees in connection with the transactions contemplated by this Agreement. 7.1.16 Patents, Trademarks, Copyrights, and Licenses. Each Borrower and each of its Subsidiaries owns or possesses all the patents, trademarks, service marks, trade names, copyrights, and licenses necessary for the present and planned future conduct of its business without any known conflict with the rights of others. All such patents, trademarks, service marks, trade names, copyrights, licenses, and other similar rights are listed on Schedule 7.1.16 attached hereto. 7.1.17 Governmental Consents. Each Borrower and each of its Subsidiaries has, and is in good standing with respect to, all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections, and franchises (collectively, "Permits") necessary to continue to conduct its business as now conducted by it and to own or lease and operate its Properties as now owned or leased by it, other than Permits that individually and in the aggregate are immaterial. -26- 7.1.18 Compliance with Laws. Each Borrower and each of its Subsidiaries has duly complied with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state, and local laws, rules, and regulations applicable to such Borrower or such Subsidiary, as applicable, its Properties or the conduct of its business, and. There have been no citations, notices, or orders of noncompliance issued to any Borrower or any of its Subsidiaries under any such law, rule, or regulation, except as to such non-compliance that individually and in the aggregate is immaterial. Each Borrower and each of its Subsidiaries has established and maintains an adequate monitoring system to insure that it remains in compliance with all federal, state, and local laws, rules, and regulations applicable to it. No Inventory has been produced in violation of the Fair Labor Standards Act (29 U.S.C. ss. 201 et seq.), as amended. 7.1.19 Restrictions. Neither any Borrower nor any of its Subsidiaries is a party or subject to any contract, agreement, or charter or other corporate restriction, which materially and adversely affects its business or the use or ownership of any of its Properties. Neither any Borrower nor any of its Subsidiaries is a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Schedule 7.1.19 attached hereto, none of which prohibit the execution of or compliance with this Agreement or the other Loan Documents by any Borrower or any of its Subsidiaries, as applicable. 7.1.20 Litigation. Except as set forth on Schedule 7.1.20 attached hereto, there are no actions, suits, proceedings, or investigations pending, or to the knowledge of each Borrower, threatened, against or affecting any Borrower or any of its Subsidiaries, or the business, operations, Properties, prospects, profits, or condition of Borrower or any of its Subsidiaries. Neither any Borrower nor any of its Subsidiaries is in default with respect to any order, writ, injunction, judgment, decree, or rule of any court, governmental authority or arbitration board, or tribunal. 7.1.21 No Defaults. No event has occurred and no condition exists which would, upon or after the execution and delivery of this Agreement or any Borrower's performance hereunder, constitute an Event of Default or, to the best of Borrower's knowledge, a Default. Neither any Borrower nor any of its Subsidiaries is in default, and, to the best of Borrower's knowledge, no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default in the payment of any Indebtedness to any Person for Money Borrowed. 7.1.22 Leases. Schedule 7.1.22(A) attached hereto identifies all capitalized leases of each Borrower and its Subsidiaries and Schedule 7.1.22(B) attached hereto identifies all operating leases of each Borrower and its Subsidiaries. Each Borrower and each of its Subsidiaries is in compliance with all of its obligations under the terms of each of its respective capitalized and operating leases, except for such noncompliance that individually and in the aggregate is immaterial. 7.1.23 Pension Plans. Except as disclosed on Schedule 7.1.23 attached hereto, neither any Borrower nor any of its Subsidiaries has any Plan. Subject to the Acquisition Qualification, each Borrower and each of its Subsidiaries is in compliance in all material respects -27- with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan (other than the failure by FTI to file on a timely basis a so-called IRS Form 5500 for the fiscal year ended December 31, 1996). No fact or situation that could result in a Material Adverse Change exists in connection with any Plan. Neither any Borrower nor any of its Subsidiaries has any withdrawal liability in connection with a Multiemployer Plan. 7.1.24 Trade Relations. There exists no actual or threatened (in writing) termination, cancellation, or limitation of, or any modification or change in, the business relationship between any Borrower or any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of any Borrower or any of its Subsidiaries, or with any material supplier, and there exists no present condition or state of facts or circumstances which would result in a Material Adverse Change or prevent any Borrower or any of its Subsidiaries from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 7.1.25 Labor Relations. Except as described on Schedule 7.1.25 attached hereto, neither any Borrower nor any of its Subsidiaries is a party to any collective bargaining agreement. There are no material grievances disputes or controversies with any union or any other organization of Borrower's or any of its Subsidiaries' employees, or threats of strikes, work stoppages, or any asserted pending demands for collective bargaining by any union or organization. 7.1.26 Eligible Inventory. All Inventory identified on any Borrowing Base Certificate as Eligible Inventory is (subject to the Acquisition Qualification) of good and merchantable quality and free from defects (except to the extent that a reserve has been taken with respect to any such defects). 7.1.27 Acquisitions. No default has occurred under any of the Acquisition Documents. Each of the Acquisitions has been consummated substantially in accordance with the terms of the applicable Acquisition Documents and with all applicable laws, including laws respecting bulk transfer of assets and the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended. 7.1.28 No Violation of Federal Reserve Board Regulations. The making by the Lender Group of the Loans, and the use by each Borrower of the proceeds of any and all Loans, do not and will not violate any of Regulations T, U, and X of the Federal Reserve Board. 7.1.29 Collateral Agent's Liens. The Liens granted by Borrower to Collateral Agent for the benefit of the Lender Group on the Collateral pursuant to this Agreement and the other Loan Documents are validly created, perfected, and first priority Liens. 7.1.30 Environmental Condition. None of the Properties or assets of any Borrower or any Subsidiary thereof has ever been used by any Borrower or any Subsidiary thereof or, to the best of Borrower's knowledge, by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials. None of the -28- Properties or assets of any Borrower or any Subsidiary has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, or a candidate for closure pursuant to any environmental protection statute. No Lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned or operated by any Borrower or any Subsidiary thereof. Neither any Borrower nor any Subsidiary thereof has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by any Borrower or any Subsidiary thereof resulting in the releasing or disposing of Hazardous Materials into the environment. 7.2 [Intentionally Omitted] 7.3 Survival of Representations and Warranties. All representations and warranties of Borrower contained in this Agreement or any of the other Loan Documents shall survive the execution, delivery, and acceptance thereof by Agent and Lenders and the parties thereto and the closing of the transactions described therein or related thereto. To the extent that Borrower timely complies with the notice provision set forth in Section 8.1.2 in respect of events or facts after the Closing Date that would render the representations and warranties set forth in any of Section 7.1.5, Section 7.1.6, Section 7.1.13, Section 7.1.16, Section 7.1.22 (exclusive of the second sentence thereof), and Section 7.1.23 inaccurate, incomplete, or misleading and the fact or event so disclosed by Borrower is not otherwise prohibited by this Agreement or any other Loan Document, then the applicable Schedule referenced in that Section shall be deemed to be amended to include and reflect such disclosed event or fact. SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 8.1 Affirmative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to the Lender Group, Borrower covenants that, unless otherwise consented to by Administrative Agent and Collateral Agent (each acting upon the instruction of the Required Lenders) in writing, it shall: 8.1.1 Visits and Inspections. Permit representatives of Administrative Agent, Collateral Agent, or any Lender: (a) so long as no Event of Default has occurred and is continuing, from time to time, as often as may be reasonably requested, but only during normal business hours; provided, however, that, under this clause (a) (as opposed to under clause (b)), Borrower only shall be obligated to reimburse Administrative Agent, Collateral Agent, and any Lender for the costs and expenses of one such visit and inspection in any 3 month period, and (b) upon the occurrence and during the continuation of an Event of Default, from time to time without prior notification or request to Borrower and at any time or times determined by Administrative Agent, Collateral Agent, or such Lender, as the case may be, in its sole discretion; it being understood that Borrower shall be obligated to reimburse Administrative Agent, Collateral Agent, and any Lender for the costs and expenses of all such visits and inspections performed under this clause (b), -29- to visit and inspect the Properties of Borrower and each of its Subsidiaries, inspect, audit, and make extracts from its books and records, and discuss with its officers, its employees, and its independent accountants, Borrower's and each of its Subsidiaries' business, assets, liabilities, financial condition, business prospects, and results of operations. 8.1.2 Notices. Promptly, but in any event no later than 5 days after the date on which Borrower is aware thereof, notify Administrative Agent (with sufficient copies for each member of the Lender Group) in writing of the occurrence of any event or the existence of any fact which renders any representation or warranty in this Agreement or any of the other Loan Documents inaccurate, incomplete, or misleading. 8.1.3 Financial Statements. Keep, and cause each Subsidiary to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions, and cause to be prepared and furnished to Administrative Agent (with sufficient copies for each member of the Lender Group) the following (all to be prepared in accordance with GAAP applied on a consistent basis, unless Borrower's certified public accountants concur in any change therein and such change is disclosed to Administrative Agent and is consistent with GAAP): (a) promptly upon Borrower's receipt thereof and in any event not later than 105 days after the close of each fiscal year of Borrower, unqualified audited financial statements of Borrower and its Subsidiaries as of the end of such year, on a Consolidated basis, certified by a firm of independent certified public accountants of recognized standing selected by Borrower but acceptable to Administrative Agent (except for a qualification for a change in accounting principles with which the accountant concurs); (b) not later than 30 days after the end of each month hereafter, including the last month of Borrower's fiscal year, unaudited interim financial statements of Borrower and its Subsidiaries as of the end of such month and of the portion of Borrower's financial year then elapsed, on a Consolidated basis, certified by a Responsible Officer of Borrower as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of Borrower and its Subsidiaries for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; (c) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements, or reports which Borrower has made available to its shareholders and copies of any regular, periodic, and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange; (d) promptly after the filing thereof, copies of any annual report required by ERISA to be filed in connection with each Plan; and -30- (e) such other data and information (financial and otherwise) as Administrative Agent or Collateral Agent, from time to time, reasonably may request, bearing upon or related to the Collateral or Borrower's and each of its Subsidiaries' financial condition or results of operations. As promptly as practicable and in no event later than 180 days after the close of each fiscal year of Borrower, Borrower shall forward to Administrative Agent a copy of the accountants' letter to Borrower's management that is prepared in connection with the financial statements described in clause (a) of this Section 8.1.3. Concurrently with the delivery of the financial statements described in clause (a) of this Section 8.1.3, Borrower shall cause to be prepared and shall furnish to Administrative Agent a certificate of the aforesaid certified public accountants certifying to Administrative Agent that, based upon their examination of the financial statements of Borrower and its Subsidiaries performed in connection with their examination of said financial statements, they are not aware of any Default or Event of Default, or, if they are aware of such Default or Event of Default, specifying the nature thereof, and acknowledging, in a manner satisfactory to Administrative Agent, that they are aware that the Lender Group is relying on such financial statements in making its decisions with respect to the Loans. Concurrently with the delivery of the financial statements described in clauses (a) and (b) of this Section 8.1.3, or more frequently if requested by Administrative Agent, Borrower shall cause to be prepared and furnished to Administrative Agent a Compliance Certificate in the form of Exhibit 8.1.3 attached hereto executed by a Responsible Officer. 8.1.4 Landlord and Storage Agreements. Provide Collateral Agent with copies of all agreements between Borrower or any of its Subsidiaries and any landlord or warehouseman which owns any premises at which any Inventory may, from time to time, be kept. 8.1.5 Year 2000 Compliance. Take all action necessary to assure that at all times the computer-based systems utilized by Borrower and each of its Subsidiaries are able to effectively interpret, process and manipulate data, including dates before, on and after June 30, 1999. At Lender's request, Borrower shall provide to Lender assurance reasonably satisfactory to Lender that the computer-based systems utilized by Borrower and each of its Subsidiaries are able to recognize and perform without error functions involving dates before, on and after June 30, 1999. 8.1.6 Projections. No later than the end of each fiscal year of Borrower deliver to the Lender Group Projections of Borrower for the forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by month. 8.1.7 Equipment. Make all necessary replacements of and repairs to the Equipment so that the value and operating efficiency thereof shall be maintained and preserved, ordinary depreciation and reasonable wear and tear excepted. 8.1.8 Taxes. (a) File on a timely basis all federal, state, and local tax returns and other reports it is required by law to file (other than tax returns in respect of taxes that (i) are not franchise, capital, income, or payroll taxes, (ii) are not material individually or in the aggregate, and (iii) if unpaid, would not result in the imposition of any Lien on any Property -31- of any Borrower or any Subsidiary thereof), and (b) pay, or make provision for the payment of, all taxes, assessments, fees, levies, and other governmental charges upon it, its income and Properties as and when such taxes, assessments, fees, levies, and charges become are due and payable, unless and to the extent any such taxes, assessments, fees, levies, or charges (exclusive of federal income taxes and payroll taxes) are being actively contested in good faith and by appropriate proceedings, and Borrower maintains reasonable reserves on its books therefor. 8.1.9 Compliance with Laws. Comply with the requirements of all applicable laws, rules, regulations, and orders of any governmental authority, including the Fair Labor Standards Act, the Americans With Disabilities Act, and all laws relative to Hazardous Materials, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not result in and reasonably could not be expected to result in a Material Adverse Change. 8.2 Negative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to the Lender Group, Borrower covenants that, unless Administrative Agent and Collateral Agent (acting upon the written instructions of the Required Lenders) has first consented thereto in writing, it will not: 8.2.1 Mergers, Consolidations, Acquisitions. Except for Permitted Acquisitions, merge or consolidate, or permit any Subsidiary of Borrower to merge or consolidate, with any Person, nor acquire, nor permit any of its Subsidiaries to acquire, all or any substantial part of the Properties of any Person. 8.2.2 Loans. Make, or permit any Subsidiary of Borrower to make, any loans or other advances of money (other than for salary, travel advances, advances against commissions, and other similar advances in the ordinary course of business) to any Person in excess of $150,000 in the aggregate for all such loans and other advances to all Persons. 8.3.3 Total Indebtedness. Create, incur, assume, or suffer to exist, or permit any Subsidiary of Borrower to create, incur, or suffer to exist, any Indebtedness, except: (a) Obligations owing to the Lender Group; (b) Indebtedness identified on Schedule 8.2.3; (c) Indebtedness of any Subsidiary of Borrower to Borrower; (d) accounts payable to trade creditors and current operating expenses (other than for Money Borrowed) which are not aged more than 120 days from billing date or more than 30 days from the due date, in each case, incurred in the ordinary course of business and paid within such time period, unless the same are being actively contested in good faith and by appropriate and lawful proceedings, and Borrower or such Subsidiary shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower or such Subsidiary and its independent accountants; (e) Obligations to pay Rentals permitted by Section 8.2.13 hereof; -32- (f) Permitted Purchase Money Indebtedness; (g) Subordinated Debt in amounts and on terms acceptable to the Required Lenders; (h) Indebtedness evidenced by Permitted Interest Rate or Currency Protection Agreements of Borrower; (i) contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business; and (j) Indebtedness not included in paragraphs (a) through (g) above which does not exceed at any time, in the aggregate, the sum of $100,000. 8.2.4 Affiliate Transactions. Enter into, or be a party to, or permit any Subsidiary of Borrower to enter into or be a party to, any transaction with any Affiliate of Borrower or stockholder, except as set forth on Schedule 8.2.4 and 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 that are fully disclosed to Administrative Agent and Collateral Agent and are no less favorable to Borrower than would obtain in a comparable arm's length transaction with a Person not an Affiliate or stockholder of Borrower or such Subsidiary. 8.2.5 Limitation on Liens. Create or suffer to exist, or permit any Subsidiary of Borrower to create or suffer to exist, any Lien upon any of its Property, income, or profits, whether now owned or hereafter acquired, except: (a) Liens at any time granted in favor of Collateral Agent for the benefit of the Lender Group; (b) Liens for taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due, or being contested in the manner described in Section 7.1.14 hereof, but only if in Collateral Agent's judgment such Lien does not adversely affect the Lender Group's rights or the priority of Collateral Agent's Lien in the Collateral; (c) Liens arising in the ordinary course of Borrower's business by operation of law or regulation, but only if payment in respect of any such Lien is not at the time required and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or materially impair the use thereof in the operation of Borrower's business; (d) Purchase Money Liens securing Permitted Purchase Money Indebtedness; (e) Liens securing Indebtedness of one of Borrower's Subsidiaries to Borrower or another such Subsidiary; -33- (f) such other Liens as appear on Schedule 8.2.5 attached hereto; and (g) such other Liens as both Collateral Agent and Administrative Agent may hereafter approve (in their sole discretion) in writing (including as so approved relative to Permitted Acquisitions). 8.2.6 Suspension, etc.; Nature of Business; Change of Name, etc. (a) Cause, suffer, or permit any Borrower or any Subsidiary thereof to be suspended or go out of business or to be liquidated, wound up, or dissolved; (b) make any change in the principal nature of Borrower's business; and (c) change the name, FEIN, corporate structure (within the meaning of Section 9-402(7) of the Code), or identity, or add any new fictitious name, of any Borrower or any Subsidiary thereof. 8.2.7 Distributions. Declare or make, or permit any Subsidiary of Borrower (other than a Subsidiary that composes Borrower) to declare or make, any Distributions. 8.2.8 Capital Expenditures. Make Capital Expenditures (including, without limitation, by way of capitalized leases) which, in the aggregate, as to Borrower and its Subsidiaries, exceed $500,000 during any fiscal year of Borrower. 8.2.9 Disposition of Assets. Sell, lease, or otherwise dispose of any of, or permit any Subsidiary of Borrower to sell, lease, or otherwise dispose any of, its Properties, including any disposition of Property as part of a sale and leaseback transaction, to or in favor of any Person, except (a) sales of Inventory in the ordinary course of business for so long as no Event of Default exists hereunder, (b) a transfer of Property to Borrower by a Subsidiary of Borrower, or (c) dispositions expressly authorized by this Agreement. 8.2.10 Stock of Subsidiaries. Permit any of its Subsidiaries to (a) issue any additional shares of its capital stock except director's qualifying shares or (b) form or capitalize any new Subsidiary of Borrower (other than in connection with Permitted Acquisitions). 8.2.11 Bill-and-Hold Sales, Etc. Except as set forth on Schedule 8.2.11, make a sale to any customer on a bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment basis, or any sale on a repurchase or return basis. 8.2.12 Restricted Investment. Make or have, or permit any Subsidiary of Borrower to make or have, any Restricted Investment. 8.2.13 Leases. Become, or permit any of its Subsidiaries to become, a lessee under any operating lease (other than a lease under which Borrower or any of its Subsidiaries is lessor) of Property if the aggregate Rentals payable during any current or future period of 12 consecutive months under the lease in question and all other leases under which Borrower or any of its Subsidiaries is then lessee would exceed $1,250,000 (or such higher amount as both Collateral Agent and Administrative Agent may agree in writing in their sole -34- discretion as a result of a Permitted Acquisition). The term "Rentals" means, as of the date of determination, all payments which the lessee is required to make by the terms of any lease. 8.2.14 Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person other than any other Borrower or a Subsidiary of any Borrower. 8.2.15 Equipment. Cause, suffer, or permit any of the Equipment to become affixed to any real Property leased to Borrower so that an interest arises therein under the real estate laws of the applicable jurisdiction unless the landlord of such real Property has executed a landlord waiver or leasehold mortgage in favor of and in form acceptable to Collateral Agent, and Borrower will not permit any of the Equipment to become an accession to any personal Property other than Equipment that is subject to first priority Liens in favor of Collateral Agent. 8.2.16 Prepayments. Prepay any Indebtedness of Borrower owing to any Person (other than the Lender Group). 8.2.17 Preferred Stock. Issue any Preferred Stock other than Permitted Preferred Stock. 8.2.18 Guarantees. Guarantee or otherwise become in any way liable with respect to the obligations of any third Person except by endorsement of instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to Administrative Agent for the benefit of the Lender Group. 8.3 Specific Financial Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to the Lender Group, Borrower covenants that, unless otherwise consented to by Administrative Agent and Collateral Agent (acting upon the written instructions of the Required Lenders) in writing, it shall: 8.3.1 Net Worth. From and after September 30, 1998, maintain, at all times, Net Worth of not less than an amount equal to (a) QTI's Net Worth as of September 30, 1998 (which shall be in an amount not less than $25,000,000), plus (b) with respect to any fiscal quarter ended after September 30, 1998, as of the last day of such fiscal quarter then ended, an amount equal to the sum of (i) 75% of QTI's Consolidated net income (if and to the extent such net income is a positive number) for such fiscal quarter then ended, plus (ii) 75% of QTI's Consolidated net income for each other fiscal quarter ended after September 30, 1998 (calculated, for each such other fiscal quarter, if and to the extent that, for each such other fiscal quarter, such net income is a positive number). 8.3.2 Minimum EBITDA. Maintain EBITDA for each of the following fiscal periods of not less than the amount shown below for the period corresponding thereto: -35- Fiscal Period Minimum EBITDA fiscal quarter ended 9/30/98 $2,500,000 fiscal quarter ended 12/31/98 $2,500,000 fiscal quarter ended 3/31/99 $3,200,000 fiscal quarter ended 6/30/99 $3,200,000 fiscal quarter ended 9/30/99 $3,200,000 fiscal quarter ended 12/31/99 $3,200,000 fiscal quarter ended 3/31/00 $3,800,000 fiscal quarter ended 6/30/00 $3,800,000 fiscal quarter ended 9/30/00 $3,800,000 fiscal quarter ended 12/31/00 $3,800,000 fiscal quarter ended 3/31/01 $4,400,000 fiscal quarter ended 6/30/01 $4,400,000 fiscal quarter ended 9/30/01 $4,400,000 fiscal quarter ended 12/31/01 $4,400,000 fiscal quarter ended 3/31/02 and each $5,100,000 fiscal quarter ended thereafter 8.3.3 Senior Debt Coverage Ratio. Maintain a Senior Debt Coverage Ratio not greater than 4.0:1.0 with respect to each fiscal quarter ending on or after December 31, 1998. 8.3.4 Fixed Charge Coverage Ratio. Maintain at the end of each of the following fiscal periods, a Fixed Charge Coverage Ratio of not less than the ratio shown below for the period corresponding thereto: Fiscal Period Minimum Ratio fiscal quarter ended 12/31/98 2.5:1.0 fiscal quarter ended 3/31/99 2.5:1.0 fiscal quarter ended 6/30/99 2.5:1.0 fiscal quarter ended 9/30/99 2.0:1.0 fiscal quarter ended 12/31/99 2.0:1.0 fiscal quarter ended 3/31/00 2.5:1.0 fiscal quarter ended 6/30/00 2.5:1.0 fiscal quarter ended 9/30/00 and each 2.5:1.0 quarter thereafter SECTION 9. CONDITIONS PRECEDENT TO INITIAL CREDITS Any other provision of this Agreement or any of the other Loan Documents notwithstanding, and without affecting in any manner the rights of Agent or the Lenders under -36- the other sections of this Agreement, Agent and the Lenders shall not be required to make the initial Loan under this Agreement unless and until each of the following conditions has been and continues to be satisfied: 9.1 Documentation. Administrative Agent and Collateral Agent shall have received each of the following Loan Documents, in form and substance satisfactory to Administrative Agent and Collateral Agent and their respective counsel, duly executed, and each such document shall be in full force and effect: (a) the Revolving Notes; (b) the Term Notes A and the Term Notes B; (c) the Suretyship Agreement; (d) the Dominion Account Agreements; (e) the Stock Pledge Agreement, together with the shares of capital stock of each Subsidiary of QTI, as well as stock powers with respect thereto endorsed in blank; (f) such Collateral Access Agreements as Administrative Agent or Collateral Agent may require in its discretion; (g) the Fee Letter, the Lender Group Side Letter, and the Post-Closing Letter; (h) the Trademark Security Agreement; (i) the Subordination Agreement; and (j) a letter agreement between Administrative Agent (for and on behalf of the Revolving Credit Lenders) and Borrower, in form and substance satisfactory to Administrative Agent, relative to Revolving Credit Loans based on the Inventory portion of the Borrowing Base. 9.2 Other Loan Documents. Each of the conditions precedent set forth in the other Loan Documents shall have been satisfied. 9.3 Certificates of Title. Collateral Agent shall have received duly executed certificates of title with respect to that portion of the Collateral that is subject to certificates of title. 9.4 Approvals and Consents. Borrower shall have received all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections, and franchises necessary for the consummation of the transactions contemplated by the Loan Documents. -37- 9.5 Certified Documents of Borrower. On or before the Closing Date, each Borrower shall have delivered to Administrative Agent copies of the following documents, duly certified, or the following certificates, as applicable: (a) Resolutions of the Board of Directors of such Borrower authorizing (i) the execution, deliver, and performance of the Loan Documents to which such Borrower is a party, (ii) the consummation of the transactions contemplated by the Loan Documents to which such Borrower is a party, and (iii) all other actions to be taken by such Borrower in connection with the Loan Documents to which Borrower is a party; (b) A certificate, signed by the Secretary or an Assistant Secretary of such Borrower, dated as of the Closing Date, as to (i) the incumbency, and containing the specimen signature or signatures, of the Person or Persons authorized to execute the Loan Documents to which such Borrower is a party on behalf of such Borrower, together with evidence of the incumbency of such Secretary or Assistant Secretary, and (ii) the authenticity and completeness of the certificate or articles of incorporation and by-laws of such Borrower; and (c) Certificates of status or good standing of such Borrower from the Secretary of State of its organization, dated within 10 days of the Closing Date, and of each state or other jurisdiction in which such Borrower is qualified to do business, dated within 15 days of the Closing Date. 9.6 Confirmation Searches. Collateral Agent shall have received searches reflecting the filing of its financing statements and/or fixture filings with respect to Borrower. 9.7 Opinion of Counsel. The Lender Group shall have received from counsel for Borrower a legal opinion in form and substance satisfactory to Collateral Agent and its counsel. 9.8 Pay-Off Letter and UCC Termination Statements, Etc. Each Existing Lender shall have executed and delivered a Pay-Off Letter, which shall be in full force and effect, together with original share certificates evidencing the capital stock of the relevant Borrowers, and UCC termination statements, mortgage releases, and other documentation evidencing the termination of its Liens on the Properties or capital stock, as the case may be, of Borrower. 9.9 Projections. The Lender Group shall have received Projections of Borrower for the forthcoming 3 years, year by year, and for the current fiscal year, month by month in form and substance satisfactory to the Lender Group. 9.10 Closing Date. The Closing Date shall occur on or before September 30, 1998. 9.11 Availability. Administrative Agent shall have determined that immediately after the Lender Group have made the initial Loans, and all closing fees, costs, and expenses incurred in connection with the transactions contemplated hereby and the Fee Letter, -38- Availability shall not be less than $10,000,000, provided that Borrower's trade payables are at a level and are aged consistent with the historical practices of Borrower (inclusive of FTI and FII). 9.12 No Litigation. No action proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby. 9.14 Acquisitions. Administrative Agent and Collateral Agent shall have received and reviewed copies, certified as true, correct, and complete by an appropriate officer of Borrower, of each of the Acquisition Documents, the form and substance of which shall be reasonably satisfactory to Administrative Agent and Collateral Agent. Each of the Acquisitions shall have been consummated substantially in accordance with the terms of the applicable Acquisition Documents. Administrative Agent and Collateral Agent shall have received evidence, satisfactory to Administrative Agent and Collateral Agent, that each Acquisition has been consummated in accordance with all applicable laws, including laws respecting bulk transfer of assets and the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended. 9.14 [Intentionally Omitted]. 9.15 Appraisals. Collateral Agent shall have received appraisals and valuations of the tangible and intangible Property and assets of Borrower, and the results shall be acceptable to the Lender Group in its sole discretion. 9.16 Reference Checks. The Lender Group shall have received satisfactory reference checks relative to key officers or directors of Borrower. 9.17 Pro Forma Balance Sheet. The Lender Group shall have received Borrower's Pro Forma Balance Sheet, which shall be satisfactory to the Lender Group in its sole discretion. SECTION 9A. CONDITIONS PRECEDENT TO ALL CREDITS Any other provision of this Agreement or any of the other Loan Documents notwithstanding, and without affecting in any manner the rights of the Lender Group under the other sections of this Agreement, the Lender Group shall not be required to make any Loans under this Agreement unless and until each of the following conditions has been and continues to be satisfied: 9A.1 No Default. No Default or Event of Default shall exist. 9A.2 Representations and Warranties. The representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date of such Loan (except to the extent that such representations and warranties relate solely to an earlier date). -39- 9A.3 Adverse Changes. No material adverse change shall have occurred with respect to Borrower. 9A.4 Injunctions. No injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extension of such credit shall have been issued and remain in force by any governmental authority against Borrower, the Lender Group, or any of their Affiliates. SECTION 10. EVENTS OF DEFAULT, RIGHTS AND REMEDIES ON DEFAULT 10.1 Events of Default. The occurrence of one or more of the following events shall constitute an "Event of Default": 10.1.1 [Intentionally Omitted] 10.1.2 Payment of Obligations. Borrower shall fail to pay any of the Obligations on or before the due date thereof (whether due at stated maturity, on demand, upon acceleration, or otherwise). 10.1.3 Misrepresentations. Any representation, warranty, or other statement made or furnished to Agent or any Lender by or on behalf of Borrower in this Agreement, any of the other Loan Documents, or any instrument, certificate, or financial statement furnished in compliance with or in reference thereto proves to have been false or misleading in any material respect when made or furnished or when reaffirmed pursuant to Section 7.2 hereof. 10.1.4 Breach of Specific Covenants. Borrower shall fail or neglect to perform, keep, or observe any covenant contained in Sections 5.2, 6.1.1, 6.2, 8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is required to perform, keep or observe such covenant; provided, however, that, so long as Availability exceeds $1,500,000, with respect to Borrower's obligation under Section 6.2.1 to deliver to Administrative Agent a Borrowing Base Certificate not later than 9:00 a.m. (New York time) on the 2nd Business Day of each week, Borrower shall be permitted with respect to not more than 1 week in any consecutive 3 month period to deliver the relevant Borrowing Base Certificate as late as 9:00 a.m. (New York time) on the 4th Business Day of such week without such late delivery constituting an Event of Default under this Section 10.1.4. 10.1.5 Breach of Other Covenants. Borrower shall fail or neglect to perform, keep, or observe any covenant contained in this Agreement (other than a covenant that is dealt with specifically elsewhere in Section 10.1 hereof) and the breach of such other covenant is not cured to the Required Lenders' satisfaction within 20 days after the sooner to occur of Borrower's receipt of notice of such breach from Agent or the date on which such failure or neglect first becomes known to any officer of Borrower. 10.1.6 Default Under Loan Documents/Acquisition Documents. Any event of default shall occur under, or Borrower shall default in the performance or observance of any term, covenant, condition, or agreement contained in, any of the other Loan Documents or the Acquisition Documents and such default shall continue beyond any applicable grace period. -40- 10.1.7 Other Defaults. There shall occur any default or event of default on the part of Borrower under any agreement, document, or instrument to which Borrower is a party or by which Borrower or any of its Property is bound, creating or relating to any Indebtedness (other than the Obligations) if the payment or maturity of such Indebtedness is accelerated in consequence of such event of default or demand for payment of such Indebtedness is made. 10.1.8 Uninsured Losses. Any loss, theft, damage, or destruction of any of the Collateral not fully covered (subject to such deductibles as Collateral Agent shall have permitted) by insurance in excess of $500,000. 10.1.9 Adverse Changes. There shall occur any Material Adverse Change with respect to Borrower. 10.1.10 Insolvency and Related Proceedings. Any Borrower shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian, or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against any Borrower or under the Bankruptcy Code (if against any Borrower, the continuation of such proceeding for more than 45 days), or any Borrower shall make any offer of settlement, extension, or composition to their respective unsecured creditors generally. 10.1.11 Business Disruption, Condemnation. There shall occur a cessation of a substantial part of the business of any Borrower or any Subsidiary thereof for a period which significantly affects such Borrower's or such Subsidiary's capacity to continue its business, on a profitable basis, or any Borrower or any Subsidiary thereof shall suffer the loss or revocation of any material Permit now held or hereafter acquired by such Borrower or such Subsidiary that is necessary to the continued or lawful operation of its business, or any Borrower or any Subsidiary thereof shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs, or any material lease or agreement pursuant to which any Borrower or any Subsidiary thereof leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term, or any material part of the Collateral shall be taken through condemnation or the value of such Property shall be materially impaired through condemnation. 10.1.12 Change of Control or Ownership. (a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than the Permitted Holders, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 20% of the total voting power of all classes of Voting Stock then outstanding of QTI entitled to vote in the election of directors; or (b) a majority of the members of the board of directors of QTI shall not be Continuing Directors; or (c) Borrower shall cease to own and control, directly or indirectly, 100% of the issued and outstanding Voting Stock of each Borrower other than QTI; or (d) the Polimeni Parties shall cease to own and control, directly and of record, at least 5% (calculated on a fully diluted basis) of the issued and outstanding capital Stock of QTI; or (e) Mr. Dominic A. Polimeni shall cease to be the Chairman and Chief Executive Officer of QTI (other than by reason of death or disability); provided, however, that the cessation of such Person to be -41- so employed shall not constitute a "Change of Control" if, within a period of 90 days after the first date of such cessation, the Board of Directors of Borrower appoints a successor to such Person and such successor is reasonably satisfactory to the Required Lenders and such successor agrees to so serve in that position. 10.1.13 ERISA. A Reportable Event shall occur which Administrative Agent and Collateral Agent determine in good faith to be reasonably likely to constitute grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if Borrower, or any Subsidiary of Borrower, is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's, or such Subsidiary's, complete or partial withdrawal from such Plan. 10.1.14 Challenge to Agreement. Borrower, or any Subsidiary of Borrower, or any Affiliate of any of them, shall challenge or contest in any action, suit, or proceeding the validity or enforceability of this Agreement, or any of the other Loan Documents, the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Agent. 10.1.15 [intentionally omitted]. 10.1.16 Criminal Forfeiture. Borrower, or any Subsidiary of Borrower, shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Property of Borrower, or any Subsidiary of Borrower. 10.1.17 Judgments. If one or more judgments or other claims involving an aggregate amount of $500,000, or more, and not fully covered by insurance, becomes a Lien or encumbrance upon any material portion of the Properties of any Borrower and its Subsidiaries, taken as a whole, and the Lien or encumbrance is not released, discharged, or bonded against before the earlier of 30 days of the date it first arises or 5 days of the date when such property or asset is subject to being forfeited; provided, however, that during such period Administrative Agent shall be entitled to create and maintain (and Collateral Agent shall be entitled to cause Administrative Agent to create and maintain) a reserve against the Borrowing Base in an amount sufficient to discharge such Lien or encumbrance and any and all penalties or interest payable in connection therewith. 10.2 Acceleration of the Obligations. Without in any way limiting the right of Administrative Agent (acting on the instructions of the Required Lenders) to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.2 hereof, upon or at any time after the occurrence of an Event of Default, all or any portion of the Obligations shall, at the option of Administrative Agent (acting upon the instructions of the Required Lenders) and without presentment, demand, protest, or further notice by the Lender Group, become at once due and payable, and Borrower forthwith shall pay to Administrative Agent for the benefit of the Lender Group the full amount of such Obligations; provided that upon the occurrence of an Event of Default specified in Section 10.1.10 hereof, all of the Obligations shall -42- become automatically due and payable without declaration, notice, or demand by the Lender Group. 10.3 Other Remedies. Upon and after the occurrence of an Event of Default, the Lender Group shall have and Collateral Agent, as the case may be, may exercise from time to time the following rights and remedies: 10.3.1 All of the rights and remedies of a secured party under the Code or under other applicable law, and all other legal and equitable rights to which the Lender Group may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 10.3.2 The right to take immediate possession of the Collateral, and to (a) require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Collateral Agent at a place designated by Collateral Agent which is reasonably convenient to both parties, and (b) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be the Property of Borrower, Borrower agrees not to charge the Lender Group for storage thereof). 10.3.3 The right to sell or otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Collateral Agent, in its sole discretion, may deem advisable. Borrower agrees that 10 days written notice to Borrower of any public or private sale or other disposition of Collateral shall be reasonable notice thereof, and such sale shall be at such locations as Collateral Agent may designate in said notice. Collateral Agent shall have the right to conduct such sales on Borrower's premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Collateral Agent shall have the right to sell, lease, or otherwise dispose of the Collateral, or any part thereof, for cash, credit, or any combination thereof, and Collateral Agent on behalf of the Lender Group may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale of any Collateral may be applied, after allowing 5 days for collection, (a) first, to the costs, expenses, and attorneys fees incurred by the Collateral Agent in collecting the Obligations, in enforcing the rights of the Lender Group under the Loan Documents, and in collecting, retaking, completing, protecting, removing, storing, advertising for sale, selling, and delivering any Collateral, (b) second, in accordance with the provisions of Section 3.2.6(b). If any deficiency shall arise, Borrower shall remain jointly and severally liable to the Lender Group therefor. 10.3.4 Collateral Agent is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, and advertising matter, or any Property of a similar nature as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Collateral Agent's benefit. -43- 10.3.5 [intentionally omitted] 10.4 Remedies Cumulative, No Waiver. All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrower contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule or contained in any other agreement between the Lender Group and Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower contained herein. The failure or delay of the Lender Group to require strict performance by Borrower of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers, and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower to Lenders shall have been fully satisfied. None of the undertakings, agreements, warranties, covenants, and representations of Borrower contained in this Agreement or any of the other Loan Documents, and no Event of Default by Borrower under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by the Lender Group, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by duly authorized representative of Administrative Agent and Collateral Agent (in each case, acting on written instructions of the Required Lenders) and directed to Borrower. SECTION 11. THE AGENTS 11.1 Appointment Powers and Immunities; Delegation of Duties; Liability of Agents 11.1.1 Each member of the Lender Group hereby designates and appoints Administrative Agent as its administrative agent under this Agreement and the other Loan Documents and Collateral Agent as its collateral agent under this Agreement and the other Loan Documents. Each member of the Lender Group hereby irrevocably authorizes each such Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Each such Agent agrees to act as such on the express conditions contained in this Article 11. The provisions of this Article 11 are solely for the benefit of the Administrative Agent, Collateral Agent, and the Lenders. Borrower shall have no rights as a third party beneficiary of any of the provisions contained herein; provided, however, that certain of the provisions of Section 11.13 hereof also shall be for the benefit of Borrower. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, each such Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall each such Agent have or be deemed to have any fiduciary relationship with any other member of the Lender Group, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against each such Agent; it being expressly understood and agreed that the use of the word "Agent" is for convenience only and that each -44- such Agent is merely the representative of the other members of the Lender Group, and has only the contractual duties set forth in this Agreement and the other Loan Documents. Except as expressly otherwise provided in this Agreement, each such Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which such Agent is expressly entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. No member of the Lender Group shall have any right of action whatsoever against each such Agent as a result of such Agent acting or refraining from acting hereunder pursuant to such discretion and any action taken or failure to act pursuant to such discretion shall be binding on the Lender Group. Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Administrative Agent or Collateral Agent, each of the members of the Lender Group agree that, as long as this Agreement remains in effect: (a) (i) Administrative Agent shall have the right to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Revolving Credit Loans, the Term Loans, the Collections, and related matters, and (ii) Collateral Agent shall have the right to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Collateral and related matters; (b) Collateral Agent shall have the right to execute or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents; (c) Administrative Agent shall have the right to make the Revolving Credit Loans, for itself or on behalf of the applicable Lenders as provided in the Loan Documents; (d) Administrative Agent shall have the right to exclusively receive, apply, and distribute the Collections as provided in the Loan Documents; (e) Administrative Agent shall have the right to open and maintain such bank accounts and lock boxes as Administrative Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collections and, on behalf of Collateral Agent, the Collateral; (f) (i) Administrative Agent shall have the right to perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrower, the Obligations, the Collections, or otherwise related to any of same as provided in the Loan Documents, and (ii) Collateral Agent shall have the right to perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrower, the Obligations, the Collateral, or otherwise related to any of same as provided in the Loan Documents; and (g) Administrative Agent and Collateral Agent each shall have the right to incur and pay such fees, charges, and expenses under the Loan Documents as such Agent reasonably may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents. Administrative Agent may deem and treat the payee of any Obligation as the holder thereof for all purposes of the Loan Documents unless and until a notice of the assignment or transfer of such Obligation shall have been filed with Administrative Agent. Each member of the Lender Group further consents to (y) the execution, delivery, and performance by Administrative Agent or Collateral Agent of each Loan Document entered into by such Agent on behalf of the Lender Group as contemplated by this Agreement, and (z) the terms of such Loan Documents. 11.1.2 Except as otherwise provided in this section, each of Administrative Agent and Collateral Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. Each of Administrative Agent and Collateral Agent shall not be responsible for the negligence or -45- misconduct of any agent or attorney-in-fact that it selects as long as such selection was made in compliance with this section and without gross negligence or willful misconduct. 11.1.3 None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any members of the Lender Group for any recital, statement, representation or warranty made by Borrower or any Subsidiary or Affiliate of Borrower, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by Administrative Agent or Collateral Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any member of the Lender Group to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of Borrower or any of Borrower's Subsidiaries or Affiliates. 11.2 Reliance by Agent. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person, and upon advice and statements of legal counsel (including counsel to Borrower or counsel to any member of the Lender Group), independent accountants and other experts selected by such Agent. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it first shall receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are received, such Agent shall act, or refrain from acting, as it deems advisable. If any Agent so requests, it first shall be indemnified to its reasonable satisfaction by the Lender Group against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent in all cases shall be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Lender Group and such request and any action taken or failure to act pursuant thereto shall be binding upon all members of the Lender Group. 11.3 Defaults. Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Administrative Agent for the account of the Lender Group, except with respect to Events of Default of which Administrative Agent has actual knowledge, and unless Administrative Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a "Notice of Default." Administrative Agent promptly will notify the Lender Group of its receipt of any such notice or of any Event of Default of which Administrative Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and -46- each Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Sections 11.2 and 11.7, each Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 10; provided, however, that unless and until such Agent has received any such request, such Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable. 11.4 Rights as a Lender. (a) With respect to its Commitments and the Loans made by it, Congress Financial Corporation (Southern) (and any successor acting as Administrative Agent, if any, as permitted by Section 11.8(a) hereof) in its capacity as a Lender under the Loan Documents shall have the same rights, privileges and powers under the Loan Documents as any other Lender and may exercise the same as though it were not acting as Administrative Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Administrative Agent in its individual capacity. Congress Financial Corporation (Southern) (and any successor acting as Administrative Agent) and its affiliates may (without having to account for the same to any member of the Lender Group) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with Borrower (and any of its Subsidiaries or Affiliates) as if it were not acting as Administrative Agent, and Congress Financial Corporation (Southern) (and its successors) and its affiliates may accept fees and other consideration from Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lender Group. (b) With respect to its Commitments and the Loans made by it, Madeleine L.L.C. (and any successor acting as Collateral Agent, if any, as permitted by Section 11.8(b) hereof) in its capacity as a Lender under the Loan Documents shall have the same rights, privileges and powers under the Loan Documents as any other Lender and may exercise the same as though it were not acting as Collateral Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Collateral Agent in its individual capacity. Madeleine L.L.C. (and any successor acting as Collateral Agent) and its affiliates may (without having to account for the same to any member of the Lender Group) accept deposits from, lend money to, make investments in and generally engage in any kind of banking, trust or other business with Borrower (and any of its Subsidiaries or Affiliates) as if it were not acting as Collateral Agent, and Madeleine L.L.C. and its affiliates may accept fees and other consideration from Borrower for services in connection with this Agreement or otherwise without having to account for the same to the Lender Group. 11.5 Costs and Expenses; Indemnification. Each Agent may incur and pay fees, costs, and expenses under the Loan Documents to the extent such Agent deems reasonably necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including without limiting the generality of the foregoing, court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrower is obligated to reimburse the Lender Group for such expenses pursuant to the Loan Agreement or otherwise. Each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof (in accordance with its Total Commitments). Whether or not the transactions -47- contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (without limiting the obligation of Borrower to do so), according to their Pro Rata Shares (in accordance with their respective Total Commitments), from and against any and all Indemnified Liabilities (including without limitation Indemnified Liabilities arising under any Environmental Law as provided in Section 12.2); provided, however, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse Administrative Agent or Collateral Agent, as the case may be, upon demand for such Lender's ratable share of any costs or out-of-pocket expenses (including attorneys fees and expenses) incurred by such Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein. The undertaking in this section shall survive the payment of all Obligations hereunder and the resignation or replacement of any Agent. 11.6 Nonreliance on Agent and Other Lenders. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by any Agent hereinafter taken, including any review of the affairs or Property of Borrower and its Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to each Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, Property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrower. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of Borrower and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports and other documents expressly herein required to be furnished to the Lender Group by Agent, no Agent shall have any duty or responsibility to provide any member of the Lender Group with any credit or other information concerning the business, prospects, operations, Property, financial and other condition or creditworthiness of Borrower and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. 11.7 Failure to Act. Except for action expressly required of any Agent under the Loan Documents, such Agent shall in all cases be fully justified in failing or refusing to act under any Loan Document unless it shall receive further assurances to its satisfaction from the Lenders of their indemnification obligations under Section 11.5 against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. -48- 11.8 Resignation of Agent. (a) Subject to the appointment and acceptance of a successor Administrative Agent as provided below, Administrative Agent may resign at any time by notice to the Lender Group and Borrower. Upon any such resignation, Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been appointed by Required Lenders and have accepted such appointment within 30 days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of Lenders, appoint a successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, remedies, powers, privileges, duties and obligations of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations, under the Loan Documents. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. (b) Subject to the appointment and acceptance of a successor Collateral Agent as provided below, Collateral Agent may resign at any time by notice to the Lender Group and Borrower. Upon any such resignation, Required Lenders shall have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been appointed by Required Lenders and have accepted such appointment within 30 days after the retiring Collateral Agent's giving of notice of resignation, then the retiring Collateral Agent may, on behalf of Lenders, appoint a successor Collateral Agent. Upon the acceptance of any appointment as Collateral Agent by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, remedies, powers, privileges, duties and obligations of the retiring Collateral Agent, and the retiring Collateral Agent shall be discharged from its duties and obligations, under the Loan Documents. After any retiring Collateral Agent's resignation as Collateral Agent, the provisions of this Section 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent. 11.9 Collateral Sub-Agents. Each member of the Lender Group by its execution and delivery of this Agreement agrees that, in the event it shall hold any monies or other investments on account of Borrower, such monies or other investments shall be held in the name and under the control of such member of the Lender Group, and such member of the Lender Group shall hold such monies or other investments as a collateral sub-agent for Collateral Agent under this Agreement and the other Loan Documents. Borrower by its execution and delivery of this Agreement hereby consents to the foregoing. 11.10 Communications by Borrower. Except as otherwise provided in this Agreement, Borrower's communications with respect to the Loan Documents shall be with Administrative Agent or Collateral Agent, as the case may be, and Borrower shall not be under any obligation to communicate directly with the Lenders. 11.11 Collateral Matters. -49- (a) The Lenders hereby irrevocably authorize Collateral Agent, at its option and in its sole discretion, to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrower of all Obligations; (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrower certifies in writing to Collateral Agent that the sale or disposition is permitted under this Agreement or the other Loan Documents (and Collateral Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which Borrower owned no interest at the time the security interest was granted or at any time thereafter; (iv) constituting property leased to Borrower under a lease that has expired or is terminated in a transaction permitted under this Agreement, or (v) which, in the aggregate with all other dispositions of Equipment, has a fair market value or book value, whichever is less, of $500,000 or less. Except as provided above or expressly provided in any other Loan Document, Collateral Agent will not execute and deliver a release of any Lien on any Collateral without the prior written authorization of all of the Lenders. Upon request by Collateral Agent or Borrower at any time, Administrative Agent and the Lenders will confirm in writing Collateral Agent's authority to release any such Liens on particular types or items of Collateral pursuant to this Section 11.11; provided, however, that (1) Collateral Agent shall not be required to execute any document necessary to evidence such release on terms that, in Collateral Agent's opinion, would expose Collateral Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of Borrower in respect of) all interests retained by Borrower, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (b) Collateral Agent shall have no obligation whatsoever to any other member of the Lender Group to assure that the Collateral exists or is owned by Borrower or is cared for, protected, or insured or has been encumbered, or that the Collateral Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Collateral Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, Collateral Agent may act in any manner it may deem appropriate, in its sole discretion given Collateral Agent's own interest in the Collateral in its capacity as one of the Lenders and that Collateral Agent shall have no other duty or liability whatsoever to any other member of the Lender Group as to any of the foregoing, except as otherwise provided herein. 11.12 Restrictions on Actions by Administrative Agent and the Lenders; Sharing of Payments. (a) Administrative Agent and each of the Lenders agrees that it shall not, without the express consent of Collateral Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Administrative Agent and Collateral Agent, set off against the Obligations, any amounts owing by such member of the Lender Group to Borrower or any accounts of Borrower now or hereafter maintained with such member of the Lender Group. Administrative Agent and each of the Lenders further agrees that it shall not, unless specifically requested to do so by Collateral Agent, take or cause to be taken any action, -50- including, the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such member of the Lender group any preference or priority against the other members of the Lender group with respect to the Collateral. (b) Subject to Section 11.4, if, at any time or times any Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Administrative Agent pursuant to the terms of this Agreement, or (ii) payments from Administrative Agent in excess of such Lender's ratable portion of all such distributions by Administrative Agent, such Lender promptly shall turn the same over to Administrative Agent, in kind, and with such endorsements as may be required to negotiate the same to Administrative Agent, or in same day funds, as applicable, for the account of the Lender Group and for apportionment and application to the Obligations in accordance with Section 3.2.6 hereof. 11.13 Withholding Tax. (a) If any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Administrative Agent and Borrower, to deliver to Administrative Agent and Borrower. (i) if such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and (iii) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Lender agrees promptly to notify Administrative Agent and Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower to such Lender, such Lender agrees to notify Administrative Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of Borrower to such Lender. To the extent of -51- such percentage amount, Administrative Agent will treat such Lender's IRS Form 1001 as no longer valid. (c) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with Administrative Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrower to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the IRC. (d) If any Lender is entitled to a reduction in the applicable withholding tax, Administrative Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding tax after taking into account such reduction. If the forms or other documentation required by clause (a) of this Section are not delivered to Administrative Agent, then Administrative Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Administrative Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify Administrative Agent fully for all amounts paid, directly or indirectly, by Administrative Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Administrative Agent under this Section, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this Section shall survive the payment of all Obligations and the resignation or replacement of Administrative Agent. 11.14 Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of an Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Administrative Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any member of the Lender Group any interest in, or subject any member of the Lender Group to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other member of the Lender Group. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no member of the Lender Group shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 11.5, no Agent or any Lender shall have any liability for the acts of the other Agent or any other Lender. No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance for it or on its behalf -52- in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. SECTION 12. MISCELLANEOUS 12.1 Power of Attorney. Borrower hereby irrevocably designates, makes, constitutes, and appoints Collateral Agent (and all Persons designated by Collateral Agent) as Borrower's true and lawful attorney (and agent-in-fact), and Collateral Agent, or Collateral Agent's agent, may, without notice to Borrower and in either Borrower's or Collateral Agent's name, but at the cost and expense of Borrower: 12.1.1 At such time or times upon or after the occurrence of a Default or an Event of Default as Collateral Agent or said agent (including Administrative Agent), in its sole discretion, may determine, endorse Borrower's name on any checks, notes, acceptances, drafts, money orders, or any other evidence of payment or proceeds of the Collateral which come into the possession of the Lender Group or under the Lender Group's control and shall deposit such item of payment into the Dominion Account or credit the amount thereof (in accordance with the provisions of this Agreement) to the Obligations. 12.1.2 At such time or times upon or after the occurrence of an Event of Default as Collateral Agent or its agent, in its sole discretion, may determine: (a) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of the Accounts, (b) settle, adjust, compromise, discharge, or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral, (c) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts, and at such time or times as Collateral Agent deems advisable, (d) take control, in any manner, of any item of payment or proceeds relating to any Collateral, (e) prepare, file, and sign Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor, or to any notice of lien, assignment, or satisfaction of lien or similar document in connection with any of the Collateral, (f) receive, open and dispose of all mail addressed to Borrower, and notify postal authorities to change the address for delivery thereof to such address as Collateral Agent may designate, (g) endorse the name of Borrower upon any of the items of payment or proceeds relating to any Collateral, and deposit the same to the account of Collateral Agent on account of the Obligations, (h) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document, or agreement relating to the Accounts, Inventory and any other Collateral, (i) use Borrower's stationery and sign the name of Borrower to verifications of the Accounts and notices thereof to Account Debtors, (j) use the information recorded on or contained in any data processing equipment, computer hardware, and software relating to the Accounts, Inventory, Equipment, and any other Collateral, (k) make and adjust claims under policies of insurance, and (l) do all other acts and things necessary, in Collateral Agent's determination, to fulfill Borrower's obligations under this Agreement. 12.2 Indemnity. Borrower hereby agrees to pay, indemnify, defend (with counsel selected by Borrower and reasonably acceptable to the Indemnified Person), and hold the Agent-Related Persons, the Lender-Related Persons with respect to each Lender, each -53- Participant, and each of their respective officers, directors, employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them in connection with or as a result of or related to the this Agreement and any other Loan Documents (including the enforcement, performance, and administration thereof, or any consents or waivers hereunder or thereunder or any amendment or modifications hereof or thereof) or the transactions contemplated herein, and with respect to any investigation, litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities"). Borrower shall have no obligation to any Indemnified Person under this Section 12.2 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. Without limiting the generality of the foregoing, these indemnities shall extend to any claims asserted against Agent or any Lender by any Person under any Environmental Laws or similar laws by reason of Borrower's or any other Person's failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances. Any contrary provision in this Agreement notwithstanding, (a) the foregoing shall not be deemed to be a waiver of Agent's obligations, if any, under Section 9-207 of the Code, and (b) the obligation of Borrower under this Section 12.2 shall survive the payment in full of the Obligations and the termination of this Agreement. 12.3 Amendments, Etc. 12.3.1 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Administrative Agent and Collateral Agent, in each case, at the written request of the Required Lenders) and Borrower and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by Borrower, all the Lenders, Administrative Agent, and Collateral Agent, do any of the following: (a) increase or extend the Commitment of any Lender; (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document, or forgive, compromise, or cancel any of the Obligations; provided, however, that no consent of the Term Loan Lenders shall be required for the compromise of any Obligation -54- relating solely to Revolving Credit Loans and no consent of the Revolving Credit Lenders shall be required for the compromise of any Obligation relating solely to Term Loans; (d) change the percentage of the Commitments that is required for the Lenders or any of them to take any action hereunder; (e) amend this Section or any provision of the Agreement providing for consent or other action by all Lenders; (f) release Collateral other than as permitted by Section 11.11, or subordinate any security interests or liens of Collateral Agent for the benefit of the Lender Group; (g) change the definition of "Required Lenders"; (h) release Borrower from any Obligation for the payment of money, or agree to subordinate any of the Obligations in right of payment to any other Indebtedness; (i) amend the provisions of Section 3.2.6; (j) increase the advance rate with respect to the Eligible Accounts or Eligible Inventory or any sublimit in the Borrowing Base applicable thereto; (k) permit the sale of all or substantially all of the capital stock of any Borrower or any of its Subsidiaries; (l) amend any of the provisions of Section 11; and, provided further, however, that (1) no amendment, waiver or consent shall, unless in writing and signed by Administrative Agent, affect the rights or duties of Administrative Agent under this Agreement or any other Loan Document, and (2) no amendment, waiver or consent shall, unless in writing and signed by Collateral Agent, affect the rights or duties of Collateral Agent under this Agreement or any other Loan Document. The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of or with respect to any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrower, shall not require consent by or the agreement of Borrower. 12.3.2 No Waivers; Cumulative Remedies. No failure by the Lender Group to exercise any right, remedy, or option under this Agreement, any other Loan Document, or any present or future supplement hereto or thereto, or in any other agreement between or among Borrower and the Lender Group, or delay by the Lender Group in exercising the same, will operate as a waiver thereof. No waiver by the Lender Group will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by the Lender Group on any occasion shall affect or diminish the Lender Group's rights thereafter to require strict performance by Borrower of any provision of this Agreement. The Lender Group's rights under -55- this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy which the Lender Group may have. 12.4 Successors; Assignments and Participations. 12.4.1 This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without the prior written consent of Administrative Agent, Collateral Agent, and each of the Lenders, and any prohibited assignment shall be absolutely void ab initio. No consent to assignment by the Lender Group shall release Borrower from its Obligations. A Lender may assign this Agreement and the other Loan Documents and its rights and duties hereunder and thereunder pursuant to Section 12.4.2 hereof and, except as expressly required pursuant to Section 12.4.2 hereof, no consent or approval by Borrower is required in connection with any such assignment. 12.4.2 (a) Any Lender may, with the written consent of Collateral Agent (which consent shall not be unreasonably withheld nor shall it be required in respect to an assignment of the Term Loans), assign and delegate to one or more assignees (provided that no written consent of Collateral Agent shall be required in connection with any assignment and delegation by a Lender to an Eligible Transferee) (each an "Assignee") all, or any part of all, of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000; provided, however, that Borrower, Collateral Agent, and Administrative Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to Borrower, Collateral Agent, and Administrative Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to Borrower, Collateral Agent, and Administrative Agent an Assignment and Acceptance in the form of Exhibit A-1 ("Assignment and Acceptance") in form and substance satisfactory to Collateral Agent; and (iii) the assignor Lender or Assignee has paid to Collateral Agent for Collateral Agent's sole and separate account a processing fee in the amount of $2,500. Anything contained herein to the contrary notwithstanding, the consent of Collateral Agent shall not be required if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender. (b) From and after the date that Collateral Agent notifies the assignor Lender that it has received an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 12.2 hereof) and be released from its obligations under this Agreement (except with respect to Section 11.5 hereof) (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement and the other Loan Documents, such Lender shall -56- cease to be a party hereto and thereto), and such assignment shall effect a novation among Borrower, the assignor Lender, and the Assignee. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document furnished pursuant hereto; (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or the performance or observance by Borrower of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (4) such Assignee will, independently and without reliance upon Administrative Agent, Collateral Agent, such assigning Lender, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (5) such Assignee appoints and authorizes each of Administrative Agent and Collateral Agent to take such action as Administrative Agent or Collateral Agent (as the case may be) on its behalf and to exercise such powers under this Agreement as are delegated to Administrative Agent or Collateral Agent (as the case may be) by the terms hereof, together with such powers as are reasonably incidental thereto; and (6) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitments allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. (e) Any Lender may at any time, with the written consent of Collateral Agent, sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such Lender (a "Participant") participating interests in the Obligations, the Commitments, and the other rights and interests of that Lender (the "originating Lender") hereunder and under the other Loan Documents (provided that no written consent of Collateral Agent shall be required in connection with any sale of any such participating interests by a Lender to an Eligible Transferee); provided, however, that (i) the originating Lender's obligations under this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrower, Collateral Agent, and Administrative Agent shall continue to deal solely and directly with the originating Lender in connection with the originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant any participating interest under which the Participant has the sole and exclusive right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such -57- amendment to, or consent or waiver with respect to, this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such Participant is participating; (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating; (C) release all or a material portion of the Collateral or guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating; (D) postpone the payment of, or reduce the amount of, the interest or fees payable to such Participant through such Lender; or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums; (v) all amounts payable by Borrower hereunder shall be determined as if such Lender had not sold such participation and (vi) any such participation shall be in a minimum amount of $5,000,000. The rights of any Participant only shall be derivative through the originating Lender with whom such Participant participates and no Participant shall have any direct rights as to the other Lenders, Administrative Agent, Collateral Agent, Borrower, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lender Group among themselves. (f) In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Borrower or Borrower's business; provided in each case that such assignee or participant (or prospective assignee or participant) shall agree to maintain the confidentiality of such information in accordance with its normal business practices. (g) Any other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 12.4.3 Notwithstanding anything in this Section 12.4 to the contrary, no Lender may assign or participate to Borrower or any of its Affiliates or Subsidiaries, if any, any interest in any Obligation or Commitment (or any related rights, remedies, powers or privileges) without the prior written consent of each Lender, Collateral Agent, and Administrative Agent. 12.5 Concerning the Collateral and Related Loan Documents. Each Lender authorizes and directs Collateral Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the benefit of the Lenders. Each Lender agrees that any action taken by Collateral Agent or Required Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Collateral Agent or Required Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 12.6 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information. By signing this Agreement, each Lender: -58- (a) is deemed to have requested that Administrative Agent or Collateral Agent, as the case may be, furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a "Report" and collectively, "Reports") prepared by such Agent, and such Agent shall so furnish each Lender with such Reports; (b) expressly agrees and acknowledges that neither Congress Financial Corporation (Southern) and Administrative Agent nor Madeleine L.L.C. and Collateral Agent (i) makes any representation or warranty as to the accuracy of any Report, or (ii) shall be liable for any information contained in any Report; (c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that the applicable Agent or other party performing any audit or examination will inspect only specific information regarding Borrower and will rely significantly upon Borrower's books and records, as well as on representations of Borrower's personnel; (d) agrees to keep all Reports and other material, non-public information regarding Borrower and its Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential manner; it being understood and agreed by Borrower that in any event such Lender may make disclosures (a) to counsel for and other advisors, accountants, and auditors to such Lender, (b) reasonably required by any bona fide potential or actual Assignee, transferee, or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender's rights hereunder, (c) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or participants, or (d) to the extent required by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold any Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrower; and (ii) to pay and protect, and indemnify, defend and hold any Agent and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including reasonable attorneys fees) incurred by any such Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender. -59- In addition to the foregoing: (x) Any Lender may from time to time request of any Agent in writing that such Agent provide to such Lender a copy of any report or document provided by Borrower to such Agent that has not been contemporaneously provided by Borrower to such Lender, and, upon receipt of such request, such Agent shall provide a copy of same to such Lender promptly upon receipt thereof from Borrower; (y) To the extent that any Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrower, any Lender may, from time to time, reasonably request such Agent to exercise such right as specified in such Lender's notice to such Agent, whereupon such Agent promptly shall request of Borrower the additional reports or information specified by such Lender, and, upon receipt thereof from Borrower, such Agent promptly shall provide a copy of same to such Lender; and (z) Any time that Administrative Agent renders to Borrower a statement regarding the Loan Account, Administrative Agent shall send a copy of such statement to each Lender and Collateral Agent. 12.7 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12.8 Successors and Assigns. This Agreement and the other Loan Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrower, Administrative Agent, Collateral Agent, and each of the Lenders permitted under Section 11.3 hereof. 12.9 Cumulative Effect, Conflict of Terms. The provisions of the other Loan Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof and except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control; provided, however, that the inclusion in such other Loan Documents of additional duties and obligations of Borrower or of additional rights, powers, and remedies in favor of the Lender Group shall not constitute such a conflict. 12.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 12.11 Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto, to be effective, shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given, or delivered immediately when delivered against receipt, 1 Business Day after deposit in the mail, postage prepaid, or with an overnight courier or, in the case of facsimile notice, when sent, addressed as follows: -60- If to Collateral Agent or Madeleine L.L.C.: MADELEINE L.L.C. 450 Park Avenue New York, New York 11556 Attention: Dan Wolf, Managing Director Facsimile No.: 212.755.3009 With a copy to: BROBECK, PHLEGER & HARRISON LLP 550 South Hope Street Los Angeles, California 90071 Attention: John Francis Hilson, Esq. Facsimile No.: 213.239.1324 If to Administrative Agent or Congress Financial Corporation: CONGRESS FINANCIAL CORPORATION (SOUTHERN) 777 Brickell Avenue, Suite 808 Miami, Florida 33131 Attention: Steven Harnick Facsimile No.: 305.371.9456 With a copy to: OTTERBOURG, STEINDLER, HOUSTON & ROSEN, P.C. 230 Park Avenue New York, New York 10169 Attention: David Morse, Esq. Facsimile No.: 212.682.6104 If to any Borrower: c/o QUESTRON TECHNOLOGY, INC. 6400 Congress Avenue, Suite 200A Boca Raton, Florida 33487 Attention: Mr. Dominic A. Polimeni, Chief Executive Officer Facsimile No.: 561.241.2866 With a copy to: BATTLE FOWLER LLP 75 East 55th Street New York, New York 10022 Attention: Gregory M. Weston, Esq. -61- Facsimile No.: 212.856.7822 or to such other address as each party may designate for itself by notice given in accordance with this Section 11.8; provided, however, that any notice, request, or demand to or upon Administrative Agent pursuant to Sections 3.1.1 or 4.2.2 hereof shall not be effective until received by Administrative Agent. 12.12 Lender Group's Consent. Whenever Administrative Agent's, Collateral Agent's, or a Lender's consent or approval is required to be obtained under this Agreement or any other Loan Document as a condition to any action, inaction, condition, or event, such Agent or such Lender shall be authorized to give or withhold such consent or approval in its sole and absolute discretion, and to condition its consent or approval upon the giving of additional collateral security for the Obligations, the payment of money, or any other matter. 12.13 Credit Inquiries. Borrower hereby authorizes and permits Administrative Agent or Collateral Agent to respond to usual and customary credit inquiries from third parties concerning Borrower or any of its Subsidiaries. 12.14 Certain Matters of Construction. The terms "herein," "hereof," and "hereunder," and other words of similar import refer to this Agreement as a whole and not to any particular section, Section, paragraph, or subdivision. Any pronoun used herein shall be deemed to cover all genders. The section titles, table of contents, and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications and supplements thereto and any and all extensions or renewals thereof. All terms contained in this Agreement shall have the meanings provided for by the Code to the extent the same are used or defined therein. 12.15 Entire Agreement. This Agreement and the other Loan Documents, together with all other instruments, agreements, and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings, and inducements, whether express or implied, oral or written. 12.16 Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 12.17 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED, AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN NEW YORK, NEW YORK. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION -62- OTHER THAN NEW YORK, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER, AND PROCEDURE FOR FORECLOSURE OF COLLATERAL AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF THE LENDER GROUP'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR THE LENDER GROUP, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW YORK, NEW YORK, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND THE LENDER GROUP PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS, HEREBY CONSENTS TO THE EXERCISE OF PERSONAL JURISDICTION OF SUCH COURT, AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAIL, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF THE LENDER GROUP TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE LENDER GROUP OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. 12.18 WAIVERS BY BORROWER. BORROWER WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH THE LENDER GROUP HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS, OR THE COLLATERAL, (B) PRESENTMENT, DEMAND, AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTIES AT -63- ANY TIME HELD BY AGENT OR ANY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR SUCH LENDER MAY DO IN THIS REGARD, (C) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT TO EXERCISE ANY OF THE LENDER GROUP'S REMEDIES, (D) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, AND EXEMPTION LAWS, AND (E) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO THE LENDER GROUP'S ENTERING INTO THIS AGREEMENT AND THAT THE LENDER GROUP IS RELYING UPON THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. -64- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered on the day and the year specified at the beginning of this Agreement. QUESTRON TECHNOLOGY, INC., a Delaware corporation By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman, President and Chief Executive Officer QUESTRON DISTRIBUTION LOGISTICS, INC., a Delaware corporation By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman, Chief Executive Officer and Chief Financial Officer INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman, Chief Executive Officer and Chief Financial Officer POWER COMPONENTS, INC., a Pennsylvania corporation By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman, Chief Executive Officer and Chief Financial Officer CALIFORNIA FASTENERS, INC., a California corporation By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman, Chief Executive Officer and Chief Financial Officer S-1 COMP WARE, INC., a Delaware corporation doing business as Webb Distribution By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman, Chief Executive Officer and Chief Financial Officer FAS-TRONICS, INC., a Texas corporation By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman of the Board, Chief Executive Officer and Chief Financial Officer FORTUNE INDUSTRIES, INC., a Texas corporation By:/s/ Dominic A. Polimeni ---------------------- Title: Chairman of the Board, Chief Executive Officer and Chief Financial Officer CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as Administrative Agent and a Lender By: /s/ Daniel Cott --------------- Title: Vice President S-2 MADELEINE, L.L.C., a New York limited liability company, as Collateral Agent and a Lender By: /s/ Daniel Wolf --------------- Title: Authorized Signatory S-3 APPENDIX A GENERAL DEFINITIONS When used in the Loan and Security Agreement, dated as of September 24, 1998, by and among QUESTRON TECHNOLOGY, INC., a Delaware corporation, QUESTRON DISTRIBUTION LOGISTICS, INC., a Delaware corporation, INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation, POWER COMPONENTS, INC., a Pennsylvania corporation, CALIFORNIA FASTENERS, INC., a California corporation, COMP WARE, INC., a Delaware corporation doing business as Webb Distribution, FAS-TRONICS, INC., a Texas corporation, and FORTUNE INDUSTRIES, INC., a Texas corporation (individually and collectively, and jointly and severally, "Borrower"), each of the lenders that is a signatory thereto (together with its successors and permitted assigns, individually, "Lender" and, collectively, "Lenders"), CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as administrative agent for the Lenders (in such capacity, together with its successors, if any, in such capacity, "Administrative Agent"), and MADELEINE L.L.C., a New York limited liability company, as collateral agent for the Lender Group (in such capacity, together with its successors, if any, in such capacity, "Collateral Agent"), the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Account Debtor - any Person who is or may become obligated under or on account of an Account. Accounts - all accounts, contract rights, chattel paper, instruments and documents, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has or hereafter acquires any interest. Acquisitions - individually and collectively, the purchase by QTI of the stock of FII pursuant to the Acquisition Documents relative thereto and the purchase by QTI of the stock of FTI pursuant to the Acquisition Documents relative thereto. Acquisition Documents - individually and collectively, (a) the Stock Purchase Agreement, dated as of June 12, 1998 (as amended), by and among QTI, FII, and the stockholders of FII identified on Schedule 1.1 thereto, and all documents and instruments to be executed or delivered in connection therewith, and (b) the Stock Purchase Agreement, dated as of June 12, 1998 (as amended), by and among QTI, Gregory Fitzgerald, Valerie Fitzgerald, and FTI, and all documents and instruments to be executed or delivered in connection therewith. Acquisition Qualification - with respect to any representation or warranty hereunder that is expressly qualified by the phrase "subject to the Acquisition Qualification" and solely to the extent such representation or warranty relates to (a) FII or FTI (as the case may be) as of the Closing Date, or (b) Property of FII or FTI (as the case may be) in existence and owned by such Borrower on the Closing Date, a qualification that such representation or warranty is made to the best of Borrower's knowledge; it being expressly understood and agreed that the Acquisition Qualification shall not apply to such representation or warranty relative to (1) FII or FTI after the Closing Date, or (2) any Property of FII or FTI acquired or arising after the Closing Date. Administrative Agent - Congress Financial Corporation (Southern), a Florida corporation, solely in its capacity as administrative agent for the Lenders, and shall include any successor administrative agent. Administrative Agent's Account - account number 322-020565 (or such other account as Administrative Agent shall have designated in writing to the Lender Group, as applicable, from time to time) maintained by Administrative Agent with The Chase Manhattan Bank, 4 New York Plaza, New York, New York. Affiliate - a Person (other than a Subsidiary): (a) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, a Person, (b) which beneficially owns or holds 5% or more of any class of the Voting Stock of a Person, or (c) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by a Person or a Subsidiary of a Person, or (d) which, in the case of any Lender, (i) is an investment fund or managed account managed by such Lender or any other Person referred to in clause (a) above in respect of such Lender, or (ii) is an investment manager of such investment fund or managed account. Agent - Administrative Agent or Collateral Agent, as the context requires. Agent-Related Persons - Administrative Agent and any successor agents thereto, and Collateral Agent and any successor agents thereto, together with their respective Affiliates, and the officers, directors, employees, counsel, agents, and attorneys-in-fact of such Persons and their Affiliates. Agreement - the Loan and Security Agreement referred to in the first sentence of this Appendix A, all Schedules, Exhibits, and Appendices thereto, including this Appendix A. Assignment and Acceptance - as defined in Section 12.4.2(a) of this Agreement. Availability - the amount of money that Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when (a) the Revolving Facility Usage (including any amounts that Agent or any of the Lenders may have paid for the account of Borrower pursuant to any of the Loan Documents and that have not been reimbursed by Borrower) is subtracted from (b) the lesser of (i) the Borrowing Base, or (ii) the Maximum Amount. If the amount outstanding is equal to or greater than the Borrowing Base or the Maximum Amount, Availability is 0. Bank - First Union National Bank. Base Rate - the rate of interest announced or quoted by Bank from time to time as its prime rate for commercial loans, whether such rate is the lowest rate charged by Bank to its most preferred borrowers, and, if such prime rate for commercial loans is 2. discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute therefor shall be the Base Rate. Base Rate Portion - a Base Rate Term Portion or a Base Rate Revolving Credit Portion. Base Rate Election - the election deemed to be made by Borrower and in effect under Section 2.3 to have interest based on the Base Rate apply to all or the balance of the Revolving Credit Loans or the Term Loans not subject to an effective LIBOR Rate Election. Base Rate Revolving Credit Portion - that portion of the Revolving Credit Loans that is not subject to an effective LIBOR Rate Election. Base Rate Term Portion - that portion of the Term Loan that is not subject to an effective LIBOR Rate Election. Borrower -has the meaning set forth in the preamble to this Agreement. Borrowing Base - as at any date of determination, an amount equal to: (a) 85% of the net amount of Eligible Accounts outstanding at such date, PLUS (b) the lesser of (1) $7,500,000 or (2) 50%, of the value of Eligible Inventory at such date calculated on the basis of the lower of cost or market with the cost of finished goods calculated on a first-in, first-out basis. For purposes hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Administrative Agent's option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. Borrowing Base Certificate - a borrowing base certificate in the form of Exhibit B-1 attached hereto. Business Day - (a) when used with respect to the LIBOR Rate Election, shall mean a day on which dealings may be effected in deposits of United States Dollars in the London interbank foreign currency deposits market and on which Agent or its affiliates are conducting and other banks may conduct business in London, England, or in the State of New York, and (b) when used with respect to any other provision of the Agreement, any day excluding Saturday, Sunday, and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are closed. 3. Capital Expenditures - expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions, or additions thereto that have a useful life of more than 1 year, including the total principal portion of Capitalized Lease Obligations. Capitalized Lease Obligation - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. CFI - has the meaning set forth in the preamble to this Agreement. Closing Date - the date on which the initial Loan is made under the Agreement. Code - the Uniform Commercial Code as adopted and in force in the State of New York as from time to time in effect, except that in those circumstances where the New York Commercial Code requires the application of the Uniform Commercial Code of another jurisdiction, the term Code shall refer to the Uniform Commercial Code as enacted in such jurisdiction. Collateral - all of the Property and interests in Property of Borrower, whether now owned or existing or hereafter created, acquired, or arising and wheresoever located, including: (a) Accounts; (b) Inventory; (c) Equipment; (d) General Intangibles; (e) Investment Property; (f) All monies and other Property of any kind now or at any time or times hereafter in the possession or under the control of Collateral Agent or any member of the Lender Group or any bailee or any Affiliate of Collateral Agent or any member of the Lender Group; (g) All accessions to, substitutions for and all replacements, products and cash and non-cash proceeds of (a) through (f) above, including, without limitation, proceeds of and unearned premiums with respect to insurance policies insuring any of the Collateral; and (h) All books and records (including, without limitation, customer lists, credit files, computer programs, print-outs, and other computer materials and records) of Borrower pertaining to any of (a) through (g) above. 4. Collateral Agent - Madeleine L.L.C., a New York limited liability company, solely in its capacity as collateral agent for the Lender Group, and shall include any successor collateral agent. Collateral Access Agreement - a landlord waiver or consent, mortgagee waiver or consent, Equipment lessor or Equipment secured financier waiver or consent, bailee letter, or a similar acknowledgement agreement of any warehouseman, processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Collateral consisting of goods, or of lessors or secured financiers of Equipment to Borrower, in each case, in form and substance satisfactory to Collateral Agent. Collections - all cash, checks, notes, instruments, and other items of payment (including insurance and condemnation proceeds, cash proceeds of sales and other voluntary or involuntary dispositions of Property, rental proceeds, and tax refunds). Commitment - Revolving Credit Commitment, Term Loan Commitment, or Total Commitment, as the context requires. Commitment Percentage - with respect to any Lender the ratio of (i) the amount of the Commitment of such Lender to (ii) the aggregate amount of the Commitments of all of the Lenders. Consolidated - the consolidation in accordance with GAAP of the accounts or other items as to which such term applies. Continuing Director - as of any date of determination, a member of the board of directors of QTI who (a) was a member of the board of directors of QTI on the Closing Date, or (b) was nominated to be a member of the board of directors of QTI by a majority of the Continuing Directors then in office to fill a vacancy left by the death, expiration of term, permanent disability, or resignation of a Continuing Director. CWI - has the meaning set forth in the preamble to this Agreement. Default - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - as defined in Section 2.1.2 of the Agreement. Defaulting Lender - any Lender with a Rendering Credit Commitment that fails to make any payment to Administrative Agent that it is required to make hereunder on any Settlement Date and that has not cured such failure by making such payment within 1 Business Day after written demand upon it by Administrative Agent to do so. Defaulting Lenders Rate - the Base Rate for the first 3 days from and after the date the relevant payment is due and, thereafter, at the interest rate then applicable to the relevant Revolving Credit Loan. 5. Distribution - in respect of any corporation means and includes: (a) the payment of any dividends or other distributions on capital stock of the corporation (except distributions in such stock or rights to acquire such stock), and (b) the redemption or acquisition of Securities, unless made contemporaneously from the net proceeds of the sale of Securities. Dominion Account - a special account of Administrative Agent established by Borrower pursuant to the Agreement at a bank selected by Borrower, but acceptable to Administrative Agent in its reasonable discretion, and over which Administrative Agent shall have sole and exclusive access and control for withdrawal purposes. Dominion Account Agreements - as defined in Section 6.2.5 of the Agreement. EBIT - with respect to any fiscal period, the sum of Borrower's Consolidated net earnings (or loss) before interest expense and taxes for said period as determined in accordance with GAAP, excluding any extraordinary gains or losses. EBITDA - with respect to any fiscal period, the sum of a Person's (a) EBIT, plus (b) depreciation and amortization, as determined on a Consolidated basis in accordance with GAAP. Eligible Account - an Account arising in the ordinary course of Borrower's business from the sale of goods or rendition of services which Administrative Agent, in its sole credit judgment, deems to be and Eligible Account. Without limiting the generality of the foregoing, no Account shall be an Eligible Account if: (a) it arises out of a sale made by Borrower to a Subsidiary or an Affiliate of Borrower, or to a Person controlled by an Affiliate of Borrower; or (b) it is unpaid for more than 60 days after the original due date shown on the invoice, or it is due or unpaid more than 90 days after the original invoice date; or (c) 50% or more of the Accounts from the Account Debtor owing such Account are not deemed Eligible Accounts hereunder, or (d) the total unpaid Accounts of the Account Debtor exceed 10% of the net amount of all Eligible Accounts, to the extent of such excess; provided, however, that, in the case of Steelcase, Inc. and such other Account Debtors as to which Administrative Agent and Collateral Agent have agreed in writing from time to time, the foregoing percentage may, in the reasonable credit judgment of Administrative Agent and Collateral Agent, be increased to up to 25% before the excess would be deemed ineligible; or (e) any covenant, representation, or warranty contained in the Agreement with respect to such Account has been breached; or 6. (f) it arises from a sale to an Account Debtor outside the United States, unless the sale is on letter of credit, guaranty or acceptance terms, in each case acceptable to Agent in its sole discretion; or (g) the Account is subject to a Lien other than a Permitted Lien. Eligible Inventory - such Inventory of Borrower (other than packaging materials and supplies) which Administrative Agent, in its sole credit judgment, deems to be Eligible inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory if: (a) it is not finished goods that is, in Administrative Agent's opinion, readily marketable in its current form, or (b) it is not in good, new, and saleable condition, or (c) it is slow-moving, obsolete (i.e., it has been in Borrower's inventory for more than 365 days), or unmerchantable, or (d) it does not meet all standards imposed by any governmental agency or authority, or (e) it does not conform in all respects to the warranties and representations set forth in the Agreement, (f) it is not at all times subject to Collateral Agent's duly perfected first priority security interest, and is not subject to any other Lien except a Permitted Lien, or (g) it is not situated at a location in compliance with the Agreement (including any location that is neither owned by Borrower nor the subject of a Collateral Access Agreement in full force and effect) or is in transit. Eligible Transferee - means (a) a commercial bank organized under the laws of the United States, or any state thereof, and having total assets in excess of $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development or a political subdivision of any such country, and having total assets in excess of $100,000,000; provided that such bank is acting through a branch or agency located in the United States; (c) a finance company, insurance company or other financial institution or fund that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $100,000,000; (d) any Affiliate (other than individuals) of a pre-existing Lender; (e) so long as no Event of Default has occurred and is continuing, any other Person approved by Agent and Borrower; and (f) during the continuation of an Event of Default, any other Person approved by Agent. 7. Environmental Laws - all federal, state, and local laws, rules, regulations, ordinances, programs, permits, guidances, orders, and consent decrees relating to health, safety, and environmental matters. Equipment - all machinery, apparatus, equipment, fittings, furniture, fixtures, motor vehicles, and other tangible personal Property (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower or in which Borrower has an interest, whether now owned or hereafter acquired by Borrower and wherever located, and all parts, accessories, and special tools, and all increases and accessions thereto and substitutions and replacements therefor. ERISA - the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder. Event of Default - as defined in Section 10.1 of the Agreement. Excess Cash Flow - with respect to any fiscal period of Borrower, the amount derived by adding to EBIT for such fiscal period depreciation and amortization for such fiscal period and subtracting from such sum: (a) regularly scheduled payments of principal on the Term Loans and Capital Expenditures which are not financed; (b)(i) cash payments for deferred purchase price adjustments pursuant to acquisition agreements in effect as of the Closing Date, the Acquisition Documents, and acquisition agreements in connection with Permitted Acquisitions consummated after the Closing Date, and (ii) the cash portion of the purchase price relative to Permitted Acquisitions); (c) taxes; and (d) interest; in each case, for such fiscal period. Excess Cash Flow Recapture Amount - 50% of the amount of Borrower's Excess Cash Flow for the applicable period. Existing Lenders - (a) Silicon Valley Bank, (b) Landmark Bank - Mid Cities, as assignee of Bank of West, and (c) Mr. Noel Edmond Hutchins and Mrs. Betty Hutchins. Family Member - with respect to any individual, any other individual having a relationship by blood (to the second degree of consanguinity), marriage, or adoption to such individual. Family Trust - with respect to any individual, trusts or other estate planning vehicles established for the benefit of Family Members of such individual and in respect of which such individual serves as trustee or in a similar capacity. Fee Letter - that certain letter agreement, dated as of September 24, 1998, among Borrower and Collateral Agent, setting forth certain fees payable to Collateral Agent. FII - has the meaning set forth in the preamble to this Agreement. Fixed Charges - for any accounting period, the scheduled principal and interest payments (including any imputed principal and interest payments due under or in respect 8. of any capital leases) required to be made during such period in respect of Money Borrowed, determined in accordance with GAAP. Fixed Charge Coverage Ratio - with respect to any period, the ratio of (a) Borrower's EBITDA for such period minus Capital Expenditures, to (b) Borrower's Fixed Charges for such period, all as determined on a Consolidated basis in accordance with GAAP. For purposes of this definition, "EBITDA" shall be calculated after giving effect to adjustments to eliminate expense items that would not have been incurred and include income items that would have been recognized, in each case, if each Permitted Acquisition consummated during the applicable period had been accomplished on the first day of the applicable period; such eliminations and inclusions to be mutually agreed upon by Borrower, Administrative Agent, and Collateral Agent. FTI - has the meaning set forth in the preamble to this Agreement. GAAP - as of any date of determination, generally accepted accounting principles in the United States of America then in effect; provided, however, that, for purposes of calculating the financial covenants contained in Section 8.3 hereof (and the related definitions), GAAP shall mean generally accepted accounting principles in effect in the United States as of the Closing Date and, if there is any changes in GAAP after the Closing Date, the financial reporting of Borrower shall be produced both under GAAP as then in effect and also under GAAP as in effect on the Closing Date. General Intangibles - all personal property of Borrower (including things in action) other than goods, Accounts, chattel paper, documents, instruments, and money, whether now owned or hereafter created or acquired by Borrower. Hazardous Materials - (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million. Indebtedness - as applied to a Person means, without duplication; (a) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, 9. (b) all obligations of other Persons which such Person has guaranteed, (c) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person, and (d) in the case of Borrower (without duplication), the Obligations. IMSI - has the meaning set forth in the preamble to this Agreement. Interest Rate or Currency Protection Agreement - any forward contract, futures contract, swap, option, or other financial arrangement (including caps, floors, collars, and similar arrangements) relating to, or the value of which is dependent upon, interest rates or currency exchange rates or indices. Inventory - all of Borrower's inventory, whether now owned or hereafter acquired, including, but not limited to, all goods intended for sale or lease by Borrower, or for display or demonstration, all work in process, all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, printing, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in Borrower's business, and all documents evidencing and General Intangibles relating to any of the foregoing, whether now owned or hereafter acquired by Borrower. Investment Property - means all of Borrower's now owned and hereafter acquired "investment property" as that term is defined in Section 9-115 of the Code. Legal Requirement - any requirement imposed upon any Lender by any law of the United States of America or the United Kingdom or by any regulation, order, interpretation, ruling, or official directive (whether or not having the force of law) of the Federal Reserve Board, the Bank of England, or any other board, central bank or governmental or administrative agency, institution or authority of in the United States of America, the United Kingdom, or any political subdivision of either thereof. Lender and Lenders - have the respective meanings set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement as a "Lender" in accordance with the provisions hereof. Lender Group - individually and collectively, each of the individual Lenders, Administrative Agent, and Collateral Agent. Lender Group Side Letter - that certain letter agreement, dated as of September 24, 1998, among Administrative Agent, Collateral Agent, and the Lenders. Lender-Related Persons - with respect to any Lender, such Lender, together with such Lender's Affiliates, and the officers, directors, employees, counsel, agents, and attorneys-in-fact of such Lender and such Lender's Affiliates. 10. LIBOR Interest Payment Date - with respect to any LIBOR Revolving Credit Portion or any LIBOR Term Portion, the first day of each calendar month during the applicable LIBOR Period. LIBOR Period - any period of 1 month, 2 months, or 3 months commencing on a Business Day, selected as provided in Section 2.4 of the Agreement; provided, however, that no LIBOR Period shall extend beyond the last day of the Term unless Borrower and the Lender Group have agreed to an extension of the Term beyond the expiration of the LIBOR Period in question and that, with respect to any LIBOR Term Portion, no applicable LIBOR Period shall extend beyond the scheduled installment payment date for such LIBOR Term Portion. If any LIBOR Period so selected shall end on a date that is not a Business Day, such LIBOR Period shall instead end on the next preceding or succeeding Business Day as determined by Administrative Agent in accordance with the then current banking practice in London; provided that Borrower shall not be required to pay double interest, even though the preceding LIBOR Period ends and the new LIBOR Period begins on the same day. Each determination by Administrative Agent of the LIBOR Period shall, in the absence of manifest error, be conclusive. LIBOR Portion - a LIBOR Revolving Credit Portion or a LIBOR Term Portion, as applicable. LIBOR Rate - with respect to any LIBOR Portion for the related LIBOR Period, an interest rate per annum (rounded upwards, if necessary, to the next higher 1/8 of 1% equal to the product of (a) the Base LIBOR Rate (as hereinafter defined) multiplied by (b) Statutory Reserves. For purposes of this definition, the term "Base LIBOR Rate" shall mean the rate (rounded to the nearest 1/8 of 1% or, if there is not nearest 1/8 of 1%, the next higher 1/8 of 1%) at which deposits of U.S. dollars approximately equal in principal amount to the LIBOR Portion specified in the applicable LIBOR Request are offered to Lenders by prime banks in the London interbank foreign currency deposits market at approximately 11:00 a.m., London time, 2 Business Days prior to the commencement of such LIBOR Period, for delivery on the first day of such LIBOR Period. Each determination by Administrative Agent of any LIBOR Rate shall, in the absence of manifest error, be conclusive. LIBOR Rate Election - the option granted pursuant to Section 2.4 to have the interest on all or any portion of the principal amount of the Revolving Credit Loans or the Term Loans based on a LIBOR Rate. LIBOR Request - a notice in writing (or by telephone confirmed by telex, telecopy or other facsimile transmission on the same, day as the telephone request) from Borrower to Administrative Agent requesting that interest on a Revolving Credit Loan or a Term Loan be based on the LIBOR Rate, specifying: (a) the first day of the LIBOR Period, (b) the length of the LIBOR Period consistent with the definition of that term, and (c) the dollar amount of the LIBOR Portion, consistent with the definition of such terms. LIBOR Revolving Credit Margin - at all times, the result of (a) the Base Rate plus 1% minus (ii) the LIBOR Rate applicable to the relevant LIBOR Portion; it being 11. understood that the LIBOR Revolving Credit Margin shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any change in the Base Rate occurs. LIBOR Revolving Credit Portion - that portion of the Revolving Credit Loans specified in a LIBOR Request (including any portion of Revolving Credit Loans that is being borrowed by Borrower concurrently with such LIBOR Request) that is not less than $2,500,000 or an integral multiple thereof, that does not exceed the outstanding balance of Revolving Credit Loans not already subject to an effective LIBOR Rate Election and, that, as of the date of the LIBOR Request specifying such LIBOR Revolving Credit Portion, has met the conditions for basing interest on the LIBOR Rate in Section 2.1.1(b) of the Agreement, and the LIBOR Period of which was commenced and not terminated. LIBOR Term Loan A Margin - at all times, the result of (a) the Base Rate plus 1.5% minus (ii) the LIBOR Rate applicable to the relevant LIBOR Term Portion; it being understood that the LIBOR Term Loan A Margin shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any change in the Base Rate occurs. LIBOR Term Loan B Margin - at all times, the result of (a) the Base Rate plus 3.0% minus (ii) the LIBOR Rate applicable to the relevant LIBOR Term Portion; it being understood that the LIBOR Term Loan B Margin shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any change in the Base Rate occurs. LIBOR Term Portion - that portion of the Term Loan specified in a LIBOR Request that is not less than $2,500,000 and an integral multiple thereof, that does not exceed the outstanding balance of the applicable Term Loan not already subject to an effective LIBOR Rate Election and, that, as of the date of the LIBOR Request specifying such LIBOR Term Portion, has met the conditions for basing interest on the LIBOR Rate in Section 2.1.1(b) of the Agreement, and the LIBOR Period of which was commenced and not terminated. Each LIBOR Term Portion shall be allocated among Lenders in accordance with their respective Pro Rata Share of the applicable Term Loan. Lien - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute, or contract. The term "Lien" also shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, a Person shall be deemed to be the owner of any Property that it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Loan Account - the loan account established on the books of Agent pursuant to Section 3.6 of the Agreement. 12. Loan Documents - the Agreement, the Other Agreements, and the Security Documents. Loans - all Revolving Credit Loans, Term Loans, and other loans and advances of any kind made by the Lender Group pursuant to the Agreement. Material Adverse Change - (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrower (taken as a whole), (b) the material impairment of Borrower's (taken as a whole) ability to perform its obligations under the Loan Documents to which it is a party or of the Lender Group to enforce the Obligations or realize upon the Collateral, (c) a material adverse effect on the value of the Collateral or the amount that the Lender Group would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the liquidation of such Collateral, or (d) a material impairment of the priority of the Lender Group's Liens with respect to the Collateral. Maximum Amount - $15,000,000. Money Borrowed - means (a) Indebtedness arising from the lending of money by any Person to Borrower, (b) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Borrower, (i) which is represented by notes payable or drafts accepted that evidence extensions of credit, (ii) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (iii) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property, (c) Indebtedness that constitutes a Capitalized Lease Obligation, (d) reimbursement obligations with respect to letters of credit or guaranties of letters of credit, and (e) Indebtedness of Borrower under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (a) through (c) hereof, if owed directly by Borrower. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of ERISA. Net Worth - as of any date of determination, QTI's total stockholder's equity calculated on a Consolidated basis in accordance with GAAP. Non-Ordinary Course Proceeds - (a) tax refunds of Borrower, (b) net cash proceeds of sales or other voluntary or involuntary dispositions of Equipment or real Property of Borrower, (c) net cash proceeds of sales or other issuances of Securities or Subordinated Debt of Borrower, (d) cash proceeds of sales or other voluntary or involuntary dispositions of other Property (other than cash proceeds of sales or other voluntary or involuntary dispositions of Accounts and Inventory) of Borrower not in the ordinary course of business, and (e) net cash proceeds of transactions (other than any sales or other dispositions of Property) by Borrower not in the ordinary course of business. Obligations - all Loans and all other advances, debts, liabilities, obligations, covenants, and duties, together with all interest, fees, and other charges owing, arising, due or payable from Borrower to any Lender of any kind or nature, present or future, 13. whether or not evidenced by any note, guaranty, or other instrument, whether arising under the Agreement or any of the other Loan Documents or otherwise whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, and however acquired. Other Agreements - the Fee Letter, the Suretyship Agreement, the Revolving Notes, the Term Notes, the Subordination Agreement, the Post-Closing Letter, the Dominion Account Agreements, and any and all other agreements, instruments, and documents (other than this Agreement and the Security Documents), heretofore, now, or hereafter executed by Borrower, any Subsidiary of Borrower, or any other third party and delivered to the Lender Group in respect of the transactions contemplated by the Agreement. Overadvance - the amount, if any, by which the Revolving Facility Usage exceeds the lesser of (a) the Borrowing Base or (b) the Maximum Amount. Participant - as defined in Section 12.4.2(e) of the Agreement. Pay-Off Letter - a letter, in form and substance satisfactory to Agent, from each Existing Lender respecting the amount necessary to repay in full all of the obligations of Borrower owing to such Existing Lender and to obtain a termination or release of all of the Liens existing in favor of such Existing Lender on the Properties or capital stock, as the case may be, of Borrower. Permits - as defined in Section 7.1.17 of the Agreement. Permitted Acquisitions - any purchase or other acquisition by Borrower of all or substantially all of the assets or Voting Stock of any other Person that is approved in writing by the Required Lenders, which approval may be given or withheld in their sole and absolute discretion. Permitted Holders - each of the Persons identified on Schedule P-1, and the respective Family Members (if any) and Family Trusts (if any) of each such Person. Permitted Interest Rate or Currency Protection Agreement - with respect to any Person, any Interest Rate or Currency Protection Agreement of such Person entered into with Bank (in its individual capacity and not as a member of the Lender Group) in the ordinary course of business that is designed to protect such Person against fluctuations in interest rates or currency exchange rates with respect to Indebtedness of such Person and which shall have a notional amount not greater than the payments due with respect to the Indebtedness hedged thereby and not for purposes of speculation. Permitted Preferred Stock - any Preferred Stock issued by QTI that is not Prohibited Preferred Stock. Permitted Liens - any Lien of a kind specified in Section 8.2.5 of the Agreement. 14. Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of Borrower incurred after the date hereof which is secured by a Purchase Money Lien and which, when aggregated with Capitalized Lease Obligations of Borrower incurred after the Closing Date, does not exceed $500,000. Person - an individual, partnership, corporation, limited liability company, joint stock company, land trust, business trust, or unincorporated organization, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees of Borrower that is covered by Title IV of ERISA. PCI - has the meaning set forth in the preamble to this Agreement. Polimeni Parties - Mr. Dominic A. Polimeni, his Family Members, and his Family Trusts. Post-Closing Letter - that certain letter agreement, dated as of September 24, 1998, among Borrower, Administrative Agent, Collateral Agent, and the Lenders, in form and substance satisfactory to Collateral Agent and Administrative Agent, relative to the completion of certain matters following the Closing Date. Preferred Stock - with respect to any Person, any class or series of equity Securities of such Person that is entitled, upon distribution of assets of such Person, whether by dividend or liquidation, to a preference over another class or series of equity Securities of such Person. Pro Forma Balance Sheet - a pro forma balance sheet of Borrower, dated as of the Closing Date and based upon the financial statements of Borrower (other than FTI and FII) as of June 30, 1998, of FTI as of June 30, 1998, and of FII as of June 30, 1998, which balance sheet shall (a) reflect the effect of the transactions contemplated by the Acquisition Documents and the Loan Documents, and (b) contain a Certificate of a Responsible Officer to the effect that the pro forma balance sheet reflects such officer's good faith best estimate as to the financial position of Borrower as of the Closing Document, after giving effect to such transactions. Prohibited Preferred Stock - any Preferred Stock of Borrower the terms and conditions of issuance, and rights and preferences, of which are not approved in writing by the Required Lenders in their sole and absolute discretion, including any Preferred Stock of Borrower that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of Preferred Stock of the same class and series payable in kind or dividends of common Stock) on or before a date not earlier than 2 years after the end of the Term or, on or before a date not earlier than 2 years after the end of the Term, is redeemable at the option of the holder thereof for cash (or assets or securities other than distributions in kind of Preferred Stock of the same class and series or of common Stock). 15. Projections - Borrower's forecasted Consolidated (giving effect to the Acquisitions) (a) balance sheets, (b) profit and loss statements, (c) cash flow statements, and (d) capitalization statements, all prepared on a consistent basis with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. Property - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Pro Rata Share - (a) with respect to a Lender's obligation to make Revolving Credit Loans and receive payments relative thereto, the percentage obtained by dividing (i) such Lender's Revolving Credit Commitment, as set forth on Schedule C-1, by (ii) the aggregate Revolving Credit Commitments of all Lenders, as set forth on Schedule C-1; (b) with respect to a Lender's obligation to make Term Loan A and receive payments relative thereto, the percentage obtained by dividing (i) such Lender's Term Loan A Commitment, as set forth on Schedule C-1, by (ii) the aggregate Term Loan A Commitments of all Lenders, as set forth on Schedule C-1. (c) with respect to a Lender's obligation to make Term Loan B and receive payments relative thereto, the percentage obtained by dividing (i) such Lender's Term Loan B Commitment, as set forth on Schedule C-1, by (ii) the aggregate Term Loan B Commitments of all Lenders, as set forth on Schedule C-1; and (d) with respect to all other matters (including the indemnification obligations arising under Section 11.5), the percentage obtained by dividing (i) such Lender's Total Commitments to make Loans, as set forth on Schedule C-1, by (ii) the aggregate Total Commitments of all Lenders, as set forth on Schedule C-1. Purchase Money Indebtedness - means and includes (a) Indebtedness (other than the Obligations) for the payment of all or any part of the purchase price of any fixed assets, (b) any Indebtedness (other than the Obligations) incurred at the time of or within 10 days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (c) any renewals, extensions, or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed assets that secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. QDLI - has the meaning set forth in the preamble to this Agreement. QTI - has the meaning set forth in the preamble to this Agreement. Rentals - as defined in Section 8.2.13 of the Agreement. 16. Reportable Event - any of the events set forth in Section 4043(c) of ERISA. Required Lenders - at any time, Lenders whose Pro Rata Shares aggregate at least 66-2/3% of the Commitments or, if the Commitments shall have been terminated irrevocably, Lenders holding at least 66-2/3% of the Obligations then outstanding. Responsible Officer - any of the duly appointed or elected Chief Executive Officer, Chief Financial Officer, or Chief Accounting Officer of QTI. Restricted Investment - any investment made in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (a) investments in one or more Subsidiaries of Borrower to the extent existing on the Closing Date; (b) Property to be used in the ordinary course of business; (c) Current Assets arising from the sale of goods and services in the ordinary course of business of Borrower and its Subsidiaries; (d) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within 1 year from the date of acquisition thereof; (e) investments in certificates of deposit maturing within 1 year from the date of acquisition 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; (f) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof; and (g) investments in Permitted Interest Rate and Currency Protection Agreements. Revolving Credit Commitment - for each Lender, the obligation of such Lender to fund Revolving Credit Loans, in an aggregate amount at one time outstanding with respect to each such Lender up to but not exceeding the amount set forth opposite the name of such Lender under Revolving Credit Commitment on Schedule C-1. Revolving Credit Lenders - individually and collectively, the Lenders with a Revolving Credit Commitment greater than zero. Revolving Credit Loan - a Loan made by Lenders as provided in Section 2.1 of the Agreement. 17. Revolving Facility Usage - as of any date of determination, the sum of the aggregate amount of Revolving Credit Loans outstanding. Revolving Note - individually and collectively, the Secured Promissory Notes executed and delivered by Borrower on or before the Closing Date in favor of each Revolving Credit Lender to evidence the Revolving Credit Loans, each in the form of Exhibit R-1 to the Agreement. Schedule of Accounts - as defined in Section 6.4.1 of the Agreement. Security - shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. Security Documents - the Stock Pledge Agreement, the Trademark Security Agreement, and all other instruments and agreements, securing the whole or any part of the Obligations. Senior Debt - as of any date of determination, all outstanding obligations of Borrower with respect to Money Borrowed (exclusive of Borrower's obligations in respect of Subordinated Debt). Senior Debt Coverage Ratio - with respect to any period, the ratio of (a) Borrower's Senior Debt as of the last day of such period, to (b) Borrower's EBITDA for the 12 month period ended as of the end of such period (except that in the case of periods ended on or prior to June 30, 1999, the calculation shall be made using FII's and FTI's EBITDA for the applicable 12 month period irrespective of whether they were Subsidiaries of QTI during the relevant period), all as determined on a Consolidated basis in accordance with GAAP.. For purposes of this definition, "EBITDA" shall be calculated after giving effect to adjustments to eliminate expense items that would not have been incurred and include income items that would have been recognized, in each case, if each Permitted Acquisition consummated during the applicable period had been accomplished on the first day of the applicable period; such eliminations and inclusions to be mutually agreed upon by Borrower, Administrative Agent, and Collateral Agent. Solvent - as to any Person, such Person (a) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (b) is able to pay all of its Indebtedness as such Indebtedness matures, and (c) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. Statutory Reserves - a fraction (expressed as a decimal) the numerator of which is the number 1, and the denominator of which is the number 1 minus the aggregate of the maximum reserve percentages (including, without limitation, any marginal, special, emergency, or supplemental reserves), expressed as a decimal, established by the Board of Governors of the Federal Reserve System and any other banking authority to which Bank or any Lender is subject for Eurocurrency Liabilities (as defined in Regulation D of 18. the Board of Governors of the Federal Reserve System or any successor thereto). Such reserve percentages shall include, without limitation, those imposed under such Regulation D. LIBOR Portions shall be deemed to constitute Eurocurrency Liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of or credit for proration, exceptions, or offsets which may be available from time to time to Bank or any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentages. Stock Pledge Agreement - a Stock Pledge Agreement between Collateral Agent and each Person composing Borrower that owns any interest in any other Person composing Borrower, in form and substance satisfactory to Collateral Agent. Subordinated Debt - Indebtedness of Borrower that is subordinated to the Obligations in a manner satisfactory to the Required Lenders. Subordination Agreement - a Subordination Agreement between Borrower and the Lender Group, in form and substance satisfactory to Collateral Agent. Subsidiary - any corporation of which a Person owns, directly or indirectly through one or more intermediaries, more than 50% of the Voting Stock at the time of determination. Suretyship Agreement - a suretyship agreement by each of the Borrowers in favor of Collateral Agent for the benefit of the Lender Group, in form and substance satisfactory to Collateral Agent. Tax - in relation to any LIBOR Portion and the applicable LIBOR Rate, any tax, levy, impost, duty, deduction, withholding or charges of whatever nature required by any Legal Requirement (a) to be paid by a Lender and/or (b) to be withheld or deducted from any payment otherwise required hereby to be made by Borrower to a Lender; provided, that the term "Tax" shall not include any taxes imposed upon the net income of a Lender by the United States of America, United Kingdom, or any political subdivision thereof. Term - as defined in Section 4.1 of the Agreement. Term Loan A - the Loan described in Section 1.2.1 of the Agreement. Term Loan A Commitment - for each Lender, the obligation of such Lender to fund Term Loan A, in an aggregate amount with respect to each such Lender equal to the amount set forth opposite the name of such Lender under Term Loan A Commitment on Schedule C-1. Term Loan B - the Loan described in Section 1.2.2 of the Agreement. Term Loan B Commitment - for each Lender, the obligation of such Lender to fund Term Loan B, in an aggregate amount with respect to each such Lender equal to the amount set forth opposite the name of such Lender under Term Loan B Commitment on Schedule C-1. 19. Term Loan Lenders - individually and collectively, the Lenders with a Term Loan A Commitment greater than zero or a Term Loan B Commitment greater than zero. Term Loans - individually and collectively, Term Loan A and Term Loan B. Term Note A - individually and collectively, the Secured Promissory Notes executed and delivered by Borrower on or before the Closing Date in favor of each Lender with a Term Loan A Commitment to evidence Term Loan A, each in the form of Exhibit T-1 to the Agreement. Term Note B - individually and collectively, the Secured Promissory Notes executed and delivered by Borrower on or before the Closing Date in favor of each Lender with a Term Loan B Commitment to evidence Term Loan B, each in the form of Exhibit T-2 to the Agreement. Term Notes - individually and collectively, Term Note A and Term Note B. Total Commitment - for each Lender, the obligation of such Lender to fund Loans, with respect to each type of Loan in the amount set forth opposite the name of such Lender under the Commitment relative to such Loan type on Schedule C-1, and in an aggregate amount will respect to such Lender equal to the amount set forth opposite the name of such Lender under Total Commitment on Schedule C-1. Total Credit Facility - subject to Section 1.3, $45,000,000. Trademark Security Agreement - a Trademark Security Agreement between Collateral Agent and Borrower, in form and substance satisfactory to Collateral Agent. Voting Stock - Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). Other Terms. All other terms contained in the Agreement shall have, when the context so indicates, the meanings provided for by the Code to the extent the same are used or defined therein. 20. LIST OF SCHEDULES AND EXHIBITS Schedule C-1 Commitments Schedule P-1 Permitted Holders Schedule 6.1.1 Borrower's and each Subsidiary's Business Locations Schedule 7.1.1 Jurisdictions in which Borrower and each Subsidiary is Authorized to do Business Schedule 7.1.4 Capital Structure of Borrower Schedule 7.1.5 Corporate Names Schedule 7.1.13 Surety Obligations Schedule 7.1.14 Tax Identification Numbers of Subsidiaries Schedule 7.1.15 Brokers Schedule 7.1.16 Patents, Trademarks, Copyrights and Licenses Schedule 7.1.19 Contracts Restricting Borrower's Right to Incur Debts Schedule 7.1.20 Litigation Schedule 7.1.22(A) Capitalized Leases Schedule 7.1.22(B) Operating Leases Schedule 7.1.23 Pension Plans Schedule 7.1.25 Labor Contracts Schedule 8.2.3 Permitted Indebtedness Schedule 8.2.4 Affiliate Transactions Schedule 8.2.5 Permitted Liens Schedule 8.2.11 Consignments Exhibit A-1 Form of Assignment and Acceptance Exhibit B-1 Form of Borrowing Base Certificate Exhibit R-1 Form of Revolving Note Exhibit T-1 Form of Term A Note Exhibit T-2 Form of Term B Note Exhibit 8.1.3 Form of Compliance Certificate 21. EX-10.18 4 AMENDMENT TO LOAN AND SECURITY AGREEMENT AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT, dated as of November 2, 1998 (this "Amendment"), is entered into by and among QUESTRON TECHNOLOGY, INC., a Delaware corporation, QUESTRON DISTRIBUTION LOGISTICS, INC., a Delaware corporation, INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation, POWER COMPONENTS, INC., a Pennsylvania corporation, CALIFORNIA FASTENERS, INC., a California corporation, COMP WARE, INC., a Delaware corporation doing business as Webb Distribution, FAS-TRONICS, INC., a Texas corporation, and FORTUNE INDUSTRIES, INC., a Texas corporation (individually and collectively, and jointly and severally, "Borrower"), each of the Lenders, CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as Administrative Agent, and MADELEINE L.L.C., a New York limited liability company, as Collateral Agent. This Amendment is entered into with reference to the following facts: A. Borrower heretofore entered into that certain Loan and Security Agreement, dated as of September 24, 1998 (as amended, restated, supplemented, or otherwise modified from time to time, the "Agreement") with the financial institutions identified therein as the "Lenders", Congress Financial Corporation (Florida), a Florida corporation, as Administrative Agent, and Madeleine L.L.C., as Collateral Agent (individually and collectively, the "Lender Group"). B. Borrower has requested the Lender Group to amend the Agreement to, among other things, provide a letter of credit facility in accordance with the terms and conditions hereof and the Lender Group is willing to so amend the Agreement in accordance with the terms and conditions hereof. D. All capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Agreement, as amended hereby. NOW, THEREFORE, in consideration of the above recitals and the mutual promises contained herein, Borrower and the Lender Group hereby agree as follows: 1. Amendments to Agreement. a. The following definitions set forth in Appendix A of the Agreement hereby are amended and restated in their entirety to read as follows: Commitment - Revolving Credit Commitment, Letter of Credit Sub-Commitment, Term Loan Commitment, or Total Commitment, as the context requires. Eligible Inventory - such Inventory of Borrower (other than packaging materials and supplies) which Administrative Agent, in its sole credit judgment, deems to be Eligible inventory. Without limiting the generality of the foregoing, no Inventory shall be Eligible Inventory if: (a) it is not finished goods that is, in Administrative Agent's opinion, readily marketable in its current form, or (b) it is not in good, new, and saleable condition, or (c) it is slow-moving, obsolete (i.e., it has been in Borrower's inventory for more than 365 days), or unmerchantable, or (d) it does not meet all standards imposed by any governmental agency or authority, or (e) it does not conform in all respects to the warranties and representations set forth in the Agreement, or (f) it is not at all times subject to Collateral Agent's duly perfected first priority security interest, and is not subject to any other Lien except a Permitted Lien, or (g) it is not situated at a location in compliance with the Agreement (including any location that is neither owned by Borrower nor the subject of a Collateral Access Agreement in full force and effect) or is in transit, or (h) it is purchased under a Commercial Letter of Credit, unless such Commercial Letter of Credit either has been drawn in full and reimbursed or has expired undrawn. Obligations - all Loans and all other advances, debts, liabilities, obligations (including contingent reimbursement obligations under any outstanding Letter of Credit Accommodations), covenants, and duties, together with all interest, fees, and other charges owing, arising, due or payable from Borrower to any Lender of any kind or nature, present or future, whether or not evidenced by any note, guaranty, or other instrument, whether arising under the Agreement or any of the other Loan Documents or otherwise whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, and however acquired. Other Agreements - the Fee Letter, the Suretyship Agreement, the Revolving Notes, the Term Notes, the Subordination Agreement, the Post-Closing Letter, the Dominion Account Agreements, the Letter of Credit Accommodations, and any and all other agreements, instruments, and documents (other than this Agreement and the Security Documents), heretofore, now, or hereafter executed by Borrower, any Subsidiary of Borrower, or any other third party and delivered 2 to the Lender Group in respect of the transactions contemplated by the Agreement. Pro Rata Share - (a) with respect to a Lender's obligation to make Revolving Credit Loans and receive payments relative thereto, the percentage obtained by dividing (i) such Lender's Revolving Credit Commitment, as set forth on Schedule C-1, by (ii) the aggregate Revolving Credit Commitments of all Lenders, as set forth on Schedule C-1; (b) with respect to a Lender's obligation to participate in Letter of Credit Accommodations, and receive payments of fees with respect thereto, the percentage obtained by dividing (i) such Lender's Letter of Credit Sub-Commitment, as set forth on Schedule C-1, by (ii) the aggregate Letter of Credit Sub-Commitments of all Lenders, as set forth on Schedule C-1 (c) with respect to a Lender's obligation to make Term Loan A and receive payments relative thereto, the percentage obtained by dividing (i) such Lender's Term Loan A Commitment, as set forth on Schedule C-1, by (ii) the aggregate Term Loan A Commitments of all Lenders, as set forth on Schedule C-1; (d) with respect to a Lender's obligation to make Term Loan B and receive payments relative thereto, the percentage obtained by dividing (i) such Lender's Term Loan B Commitment, as set forth on Schedule C-1, by (ii) the aggregate Term Loan B Commitments of all Lenders, as set forth on Schedule C-1; and (e) with respect to all other matters (including the indemnification obligations arising under Section 11.5), the percentage obtained by dividing (i) such Lender's Total Commitments to make Loans, as set forth on Schedule C-1, by (ii) the aggregate Total Commitments of all Lenders, as set forth on Schedule C-1. Revolving Facility Usage - as of any date of determination, the sum of the aggregate amount of Revolving Credit Loans outstanding and the LC Amount. b. Appendix A of the Agreement hereby is amended by adding thereto the following new definitions in proper alphabetical order: Commercial Letter of Credit - means a documentary letter of credit issued by Administrative Agent or any of Administrative Agent's Affiliates for the account of Borrower to support the purchase by Borrower of Inventory prior to transit to a location set forth on Schedule 6.1.1, that provides that all draws thereunder must require presentation of customary documentation (including, if applicable, commercial invoices, packing list, certificate of origin, bill of lading or airwaybill, customs clearance documents, quota statement, inspection certificate, beneficiaries statement, and bill of exchange, bills of lading, dock 3 warrants, dock receipts, warehouse receipts, or other documents of title) in form and substance satisfactory to Administrative Agent and reflecting the passage to Borrower of title to first quality Inventory conforming to Borrower's contract with the seller thereof. Any such Letter of Credit shall cease to be a "Commercial Letter of Credit" at such time, if any, as the goods purchased thereunder become Eligible Inventory. LC Amount - at any time, an amount equal to the sum of (a) 100% of the aggregate undrawn face amount of all Standby Letters of Credit and LC Guaranties of Standby Letters of Credit then outstanding, and (b) 50% of the aggregate undrawn face amount of all Commercial Letters of Credit and LC Guaranties of Commercial Letters of Credit then outstanding. LC Exposure - at any time, an amount equal to the sum of (a) 100% of the aggregate undrawn face amount of all Standby Letters of Credit and LC Guaranties of Standby Letters of Credit then outstanding, and (b) 100% of the aggregate undrawn face amount of all Commercial Letters of Credit and LC Guaranties of Commercial Letters of Credit then outstanding. LC Guaranty - any guaranty pursuant to which Administrative Agent or any Affiliate of Administrative Agent shall guaranty the payment or performance by Borrower of its reimbursement obligation under any letter of credit. Letter of Credit - any Standby Letter of Credit or Commercial Letter of Credit. Letter of Credit Accommodations - Letters of Credit or LC Guaranties. Letter of Credit Sub-Commitment - for each Lender, the obligation of such Lender to participate in Letter of Credit Accommodations, in an aggregate amount at one time outstanding with respect to each such Lender up to but not exceeding the amount set forth opposite the name of such Lender under Letter of Credit Sub-Commitment on Schedule C-1. The Letter of Credit Sub-Commitment of any Lender is a sub-commitment of such Lender's Revolving Credit Commitment and is not to be added to such Lender's Revolving Credit Commitment or Total Commitment. Standby Letter of Credit - any letter of credit issued by Administrative Agent or any of Administrative Agent's Affiliates for the account of Borrower other than a Commercial Letter of Credit. c. Section 1.1.1 of the Agreement hereby is amended and restated in its entirety to read as follows: 1.1.1 Loans and Reserves. Each Revolving Credit Lender agrees, ratably in accordance with its respective Revolving Credit Commitment, and subject to the satisfaction of the applicable conditions precedent set forth in 4 Sections 9 and 9A hereof, to make Revolving Credit Loans to Borrower from time to time, as requested by Borrower in the manner set forth in Section 3.1.1 hereof, up to a maximum principal amount at any time outstanding not to exceed such Lender's Pro Rata Share (in accordance with its Revolving Credit Commitment) of an amount equal to the lesser of (a) the Maximum Amount minus the LC Amount, or (b) the Borrowing Base at such time minus the LC Amount and the amount of reserves, if any, established by Administrative Agent as set forth below. Administrative Agent shall have the right to establish reserves in such amounts, and with respect to such matters, as Administrative Agent deem in good faith necessary or appropriate, against the amount of Revolving Credit Loans which Borrower may otherwise request under this Section 1.1.1, including, without limitation, with respect to (i) price adjustments, damages, unearned discounts, returned products or other matters for which credit memoranda are issued in the ordinary course of Borrower's business, (ii) shrinkage, spoilage, and obsolescence of Inventory, (iii) slow moving Inventory, (iv) sums chargeable against Borrower's Loan Account as Revolving Credit Loans under any section of this Agreement, (v) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any Property of Borrower, and (vi) such other matters, events, conditions, or contingencies as to which Administrative Agent, in its good faith sole credit judgment, determines reserves should be established from time to time hereunder. The Revolving Credit Loans shall be evidenced hereby and by the Revolving Notes, shall be secured by all of the Collateral, and shall constitute Obligations. d. A new Section 1.4 of the Agreement hereby is added to the Agreement in proper alphanumerical order as follows: 1.4 Letter of Credit Accommodations. (a) For so long as no Default or Event of Default exists and subject to and upon the terms and conditions contained herein (including Sections 9 and 9A), at the written request of Borrower, Administrative Agent, on behalf of the Revolving Credit Lenders (ratably in accordance with their respective Letter of Credit Sub-Commitments), agrees to provide or arrange for Letter of Credit Accommodations for the account of Borrower containing terms and conditions acceptable to Administrative Agent and (if other than Administrative Agent) the issuer thereof. (b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrower shall pay to Administrative Agent, for the ratable benefit of the Revolving Credit Lenders, a Letter of Credit Accommodation fee at a rate equal to 2.75% per annum on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, except that Borrower shall pay to Administrative Agent, for the ratable benefit of the Revolving Credit Lenders, 5 such Letter of Credit Accommodation fee, at the Required Lender's option, without notice, at a rate equal to 5.75% per annum on such daily outstanding balance for: (i) the period from and after the date of termination hereof until the Lender Group has received full and final payment of all Obligations (notwithstanding the entry of any judgment against Borrower) and (ii) the period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by the Required Lenders. Such Letter of Credit Accommodation fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fee shall survive the termination of this Agreement. Any and all charges, commissions, fees, and costs incurred by the Lender Group relating to the Letters of Credit Accommodations shall be considered Obligations for purposes of this Agreement and immediately shall be reimbursable by Borrower to Administrative Agent for the benefit of the Lender Group. (c) Letter of Credit Accommodations shall be available only if and to the extent that, on the date of the proposed issuance of any Letter of Credit Accommodations, the LC Exposure shall not exceed the lesser of (i) $1,000,000, and (ii) the lesser of (1) the Maximum Amount minus the then aggregate outstanding principal amount of Revolving Credit Loans, or (2) the Borrowing Base at such time minus the then aggregate outstanding principal amount of Revolving Credit Loans. (d) Without the prior written consent of the Required Lenders, Borrower shall not request any Letter of Credit Accommodation with an expiration date that is after the last day of the Term. Borrower agrees immediately to reimburse Administrative Agent for the benefit of the Lender Group for any amounts paid by the Lender Group with respect to Letter of Credit Accommodations and Borrower and the Lender Group agree that any amounts paid by the Lender Group under any Letter of Credit Accommodation and not reimbursed by Borrower shall constitute additional Revolving Credit Loans pursuant to Section 3.1.1(b), shall be secured by all of the Collateral, and shall bear interest and be payable at the same rate and in the same manner as all other Revolving Credit Loans. (e) Immediately upon issuance of any Letter of Credit Accommodation in accordance with this Section 1.4, each Revolving Credit Lender shall be deemed to have irrevocably and unconditionally purchased and received, without recourse or warranty, an undivided interest and participation in the credit support or enhancement provided through Administrative Agent to such issuer in connection with the issuance of such Letter of Credit Accommodation equal to such Lender's Pro Rata Share (based upon its respective Letter of Credit Sub-Commitment) of the face amount of such Letter of Credit Accommodation (including, without limitation, all obligations of Borrower with respect thereto, and any security therefor or guaranty pertaining thereto). In the event any payment by or on behalf of Borrower received by Administrative Agent with respect to any Letter of Credit Accommodation (or any guaranty by Borrower or reimbursement obligation of Borrower relating thereto) and distributed by 6 Administrative Agent to the Revolving Credit Lenders on account of their respective participations therein is thereafter set aside, avoided, or recovered from Administrative Agent in connection with any receivership, liquidation, or bankruptcy proceeding, each of the Revolving Credit Lenders shall, upon demand by Administrative Agent, pay to Administrative Agent such Lender's Pro Rata Share (based upon its respective Letter of Credit Sub-Commitment) of such amount set aside, avoided, or recovered, together with interest at the rate required to be paid by Administrative Agent upon the amount required to be repaid by it. (f) Borrower shall indemnify and hold the Lender Group harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which the Lender Group may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of' Credit Accommodation. Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all foreign, federal, state, and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrower hereby releases and holds the Lender Group harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrower, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation, The provisions of this Section 1.4(f) shall survive the payment of Obligations and the termination or non-renewal of this Agreement. (g) Nothing contained herein shall be deemed or construed to grant Borrower any right or authority to pledge the credit of the Lender Group in any manner. The Lender Group shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Administrative Agent unless Administrative Agent has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrower shall be bound by any interpretation made in good faith by Administrative Agent, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of Borrower. Administrative Agent shall have the sole and exclusive right and authority to, and Borrower shall not: (i) at any time an Event of Default exists or has occurred and is continuing, (A) approve or resolve any questions of non-compliance of documents, (B) give any instructions as to acceptance or rejection of any documents or goods, or (C) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders; and (ii) at all times, (A) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (B) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms 7 or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Administrative Agent may take such actions either in its own name or in Borrower's name. (h) Any rights, remedies, duties or obligations granted or undertaken by Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrower to Administrative Agent for the benefit of the Lender Group. Any duties or obligations undertaken by Administrative Agent to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Administrative Agent in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrower to the Lender Group and to apply in all respects to Borrower. (i) Borrower hereby authorizes and directs any issuing bank that issues a Letter of Credit Accommodation to deliver to Administrative Agent all instruments, documents, and other writings and property received by the issuing bank pursuant to such Letter of Credit Accommodation, and to accept and rely upon Administrative Agent's instructions and agreements with respect to all matters arising in connection with such Letter of Credit Accommodation and the related application. Borrower shall be the "applicant" or "account party" with respect to such Letter of Credit Accommodation. (j) If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application by any governmental authority of any such applicable law, treaty, rule, or regulation, or (ii) compliance by the issuing bank or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any governmental authority or monetary authority including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect (and any successor thereto): (i) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit Accommodation issued hereunder, or (ii) there shall be imposed on the issuing bank or the Lender Group any other condition regarding any Letter of Credit Accommodation issued pursuant hereto; and the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing any Letter of Credit Accommodation, or to reduce the amount receivable in respect thereof the Lender Group, then, and in any such case, Administrative Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify 8 Borrower, and Borrower shall pay on demand such amounts as Administrative Agent may specify to be necessary to compensate the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Revolving Credit Loans pursuant hereto. The determination by Administrative Agent of any amount due pursuant to this Section 1.4(j), as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto. e. Section 3.1.2 of the Agreement hereby is amended and restated in its entirety to read as follows: 3.1.2 Funding by Lenders. Administrative Agent shall from time to time, but no less frequently than weekly, notify each Revolving Credit Lender of the date such Lender is to fund its Revolving Credit Loans, and fund any amounts paid under any Letter of Credit Accommodation, and the amount to be made available by it. If and to the extent that a Revolving Credit Lender and Administrative Agent so agree, at Administrative Agent's discretion, the amount to be made available by such Revolving Credit Lender on any date may be netted against any amount owing to such Lender and otherwise payable by Administrative Agent on account of payments received by it from Borrower on such date. The amount to be made available by each Revolving Credit Lender on any date shall be made available by it on such date to Administrative Agent at Administrative Agent's Account, in immediately available funds, not later than 1:00 p.m. (New York time) on any day in the case of fundings of which such Lenders have received notice not later than 11:00 a.m. (New York time) on such day (or, if notice is received after such time, not later than 12:00 p.m. (New York time) on the next succeeding Business Day). The obligation of each Revolving Credit Lender to Administrative Agent (as opposed to Borrower) to fund its Revolving Credit Loans, and any payments under any Letter of Credit Accommodation, on the date specified by Administrative Agent is absolute and unconditional and shall not be affected by any circumstance whatsoever, including (a) any set off counterclaim, recoupment, defense or other right which such Lender may have against Administrative Agent, Borrower or any other Person for any reason whatsoever, (b) the financial condition or prospects of Borrower, (c) the failure of any other such Lender to make funds available to Agent with respect to its Revolving Credit Loans or any payments under any Letter of Credit Accommodation, (d) the occurrence or continuation of an Event of Default, whether the same shall occur before or after Administrative Agent shall have made the Revolving Credit Loans or Letter of Credit Accommodations, or (e) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 9 f. Section 3.1.6 of the Agreement hereby is amended and restated in its entirety to read as follows: 3.1.6 Settlements. (a) Revolving Credit Loans, Letter of Credit Accommodations, and payments will be settled among Administrative Agent and the Revolving Credit Lenders according to such procedures as Administrative Agent and such Lenders may agree in writing from time to time. These procedures notwithstanding, each such Lender's obligation to fund its portion of the Revolving Credit Loans and amounts paid under Letter of Credit Accommodations made by Administrative Agent to Borrower shall commence on the date such Revolving Credit Loans and Letter of Credit Accommodations are made by Administrative Agent. Such payments to Administrative Agent will be made by such Lenders without set-off, counterclaim or reduction of any kind. (b) Administrative Agent may require the Revolving Credit Lenders to settle Revolving Credit Loans, amounts paid under Letter of Credit Accommodations, and payments on a daily basis (or such lesser frequency as Administrative Agent may determine) (each day of settlement being a "Settlement Date"). Administrative Agent will advise each Revolving Credit Lender by telephone or telecopy of the amount of each such Lender's Pro Rata Share (in accordance with its Revolving Credit Commitment and its Letter of Credit Sub-Commitment) of the Revolving Facility Usage as of the close of business of the Business Day immediately preceding the Settlement Date. In the event that payments are necessary to adjust such Lender's actual Pro Rata Share (in accordance with its Revolving Credit Commitment and its Letter of Credit Sub-Commitment) of the Revolving Facility Usage as of any Settlement Date to equal the amount of such Lender's required Pro Rata Share (in accordance with its Revolving Credit Commitment and its Letter of Credit Sub-Commitment) of the Revolving Facility Usage, the party from which such payment is due will pay the other, in same day funds, by wire transfer to the other's account not later than the applicable time set forth on Section 3.1.2. (c) If any such payment is not made to Administrative Agent by any such Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, such Lender shall be a Defaulting Lender and Administrative Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lenders Rate. Administrative Agent shall not be obligated to transfer to a Defaulting Lender any payments made by Borrower to Administrative Agent for the Defaulting Lender's benefit on account of its Revolving Credit Loans and participations in Letter of Credit Accommodations. Any such amounts payable to a Defaulting Lender shall instead be paid to or retained by Administrative Agent. Administrative Agent may hold and, in its discretion, re-lend to Borrower as Revolving Credit Loans the amount of any or all such payments received or retained by it for the account of such Defaulting Lender or treat any or all such amounts as participations in Letter of Credit Accommodations made for 10 Borrower's account. Solely for the purposes of voting or consenting to matters with respect to the Loan Documents and determining Required Lenders, Defaulting Lender shall be deemed not to be a "Lender" (in respect of its Revolving Credit Loans, participations in Letter of Credit Accommodations, Revolving Credit Commitment, and Letter of Credit Sub-Commitment) and such Defaulting Lender's Revolving Credit Commitment with respect to the Revolving Credit Loans and Letter of Credit Sub-Commitment with respect to the Letter of Credit Accommodations shall be deemed to be zero (-0-). This section shall remain effective with respect to such Lender until (x) the Obligations under this Agreement shall have been declared or shall have become immediately due and payable or (y) the Revolving Credit Lenders that are non-Defaulting Lenders and Administrative Agent shall have waived such Lender's default in writing. The operation of this section shall not be construed to increase or otherwise affect the Commitments of any Lender other than such Defaulting Lender, or relieve or excuse the performance by Borrower of its duties and obligations hereunder. g. Clause "fourth" of Section 3.2.6(a)(i) of the Agreement hereby is amended and restated in its entirety to read as follows: fourth, to repay the principal of the Revolving Credit Loans until paid in full, and then to be held by Administrative Agent as cash collateral hereunder with respect to unreimbursed obligations in respect of Letter of Credit Accommodations; h. Clause "sixth" of Section 3.2.6(a)(ii) of the Agreement hereby is amended and restated in its entirety to read as follows: sixth, to repay the principal of the Revolving Credit Loans until paid in full, and then to be held by Administrative Agent as cash collateral hereunder with respect to unreimbursed obligations in respect of Letter of Credit Accommodations; i. Clause "fourth" of Section 3.2.6(a)(iii) of the Agreement hereby is amended and restated in its entirety to read as follows: fourth, to repay the principal of the Revolving Credit Loans until paid in full, and then to be held by Administrative Agent as cash collateral hereunder with respect to unreimbursed obligations in respect of Letter of Credit Accommodations; 11 j. Clause "fourth" of Section 3.2.6(b) of the Agreement hereby is amended and restated in its entirety to read as follows: fourth, to repay the principal of the Revolving Credit Loans until paid in full, and then to be held by Administrative Agent as cash collateral hereunder with respect to unreimbursed obligations in respect of Letter of Credit Accommodations; k. Section 4.2.2 of the Agreement hereby is amended and restated in its entirety to read as follows: 4.2.2 Termination by Borrower. Upon at least 60 days prior written notice to Administrative Agent, Borrower may, at its option, terminate this Agreement without penalty or premium (other than as may be required by the provisions of Section 2.4); provided, however, that no such termination shall be effective until Borrower has paid all of the Obligations in immediately available funds and all Letter of Credit Accommodations have expired or have been cash collateralized to Administrative Agent's satisfaction. Any notice of termination given by Borrower shall be irrevocable unless the Required Lenders otherwise agree in writing, and the Lender Group shall have no obligation to make any Loans or procure any Letter of Credit Accommodations on or after the termination date stated in such notice. Borrower may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly. l. The first paragraph of Section 7.1 of the Agreement hereby is amended and restated in its entirety to read as follows: 7.1 General Representations and Warranties. In order to induce the Lender Group to enter into this Agreement and to extend credit hereunder, each Borrower hereby jointly and severally with each other Borrower makes the following representations and warranties which shall be true, correct, and complete in all material respects as of the date hereof, and, subject to the ability of Borrower to modify certain provisions thereof pursuant to the terms of Section 7.3 hereof, shall be true, correct, and complete in all material respects as of the Closing Date, and at and as of the date of the making of each Loan or Letter of Credit Accommodation made hereafter, as though made on and as of the date of such Loan (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement: 12 m. Section 7.1.12 of the Agreement hereby is amended and restated in its entirety to read as follows: 7.1.12 Solvent Financial Condition. Borrower, and each of its Subsidiaries, taken as a whole, is and, after giving effect to the Loans to be made hereunder, will be, Solvent. n. Section 7.1.28 of the Agreement hereby is amended and restated in its entirety to read as follows: 7.1.28 No Violation of Federal Reserve Board Regulations. The making by the Lender Group of the Loans and Letter of Credit Accommodations, and the use by each Borrower of the proceeds of any and all Loans and Letter of Credit Accommodations, do not and will not violate any of Regulations T, U, and X of the Federal Reserve Board. o. The first paragraph of Section 9A of the Agreement hereby is amended and restated in its entirety to read as follows: Any other provision of this Agreement or any of the other Loan Documents notwithstanding, and without affecting in any manner the rights of the Lender Group under the other sections of this Agreement, the Lender Group shall not be required to make any Loans or Letter of Credit Accommodations under this Agreement unless and until each of the following conditions has been and continues to be satisfied: p. Section 10.3.5 of the Agreement hereby is amended and restated in its entirety to read as follows: 10.3.5 Administrative Agent may, at its option, require Borrower to deposit with Administrative Agent funds equal to the LC Exposure and, if Borrower fails to promptly make such deposit, Administrative Agent may advance such amount as a Revolving Credit Loan (whether or not an Overadvance is created thereby). Any such deposit or advance shall be held by Administrative Agent as a reserve to fund future payments on such LC Guaranties and future drawings against such Letters of Credit. At such time as all LC Guaranties have been paid or terminated and all Letters of Credit have been drawn upon or expired, any amounts remaining in such reserve shall be applied against any outstanding Obligations, or, if all Obligations have been indefeasibly paid in full, returned to Borrower. 13 q. Clause (a)(i) of the eighth sentence of Section 11.1.1 of the Agreement hereby is amended and restated in its entirety to read as follows: (a)(i) Administrative Agent shall have the right to maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Obligations, the Revolving Credit Loans, the Letter of Credit Accommodations, the Term Loans, the Collections, and related matters, and r. Clause (c) of the eighth sentence of Section 11.1.1 of the Agreement hereby is amended and restated in its entirety to read as follows: (c) Administrative Agent shall have the right to make the Revolving Credit Loans and the Letter of Credit Accommodations, for itself or on behalf of the applicable Lenders as provided in the Loan Documents; s. Section 12.11 of the Agreement hereby is amended to include therein the following additional notice information: If to KZH ING-2 LLC: KZH ING-2 LLC c/o The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 Attention: Virginia Conway Facsimile: 212.946.7776 With copies to: ING Capital Advisors, Inc. 333 S. Grand Ave., Suite 4250 Los Angeles, California 90071 Attention: Lenore Crummey-Benoit Facsimile: 213.626.6552 and to: Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166-0193 Attention: Shan McSweeney, Esq. Facsimile: 212.351.5330 14 If to KZH ING-3 LLC: KZH ING-3 LLC c/o The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 Attention: Virginia Conway Facsimile: 212.946.7776 With copies to: ING Capital Advisors, Inc. 333 S. Grand Ave., Suite 4250 Los Angeles, California 90071 Attention: Lenore Crummey-Benoit Facsimile: 213.626.6552 and to: Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, New York 10166-0193 Attention: Shan McSweeney, Esq. Facsimile: 212.351.5330 t. The Agreement and the other Loan Documents in effect as of the date hereof hereby are amended such that all references to "Congress Financial Corporation (Southern)" therein (including in Sections 11.4(a), 12.6(b), and 12.11 and in the definition of "Administrative Agent" in Appendix A of the Agreement) shall be replaced by references to "Congress Financial Corporation (Florida)". u. Schedule C-1 of the Agreement hereby is amended, restated, and replaced in its entirety by Schedule C-1 attached hereto. 2. Representations and Warranties. Borrower hereby represents and warrants to Agent that (a) the execution, delivery, and performance of this Amendment and of the Agreement, as amended by this Amendment, are within its corporate powers, have been duly authorized by all necessary corporate action, and are not in contravention of any law, rule, or regulation, or any order, judgment, decree, writ, injunction, or award of any arbitrator, court, or governmental authority, or of the terms of its charter or bylaws, or of any contract or undertaking to which it is a party or by which any of its properties may be bound or affected, and (b) this Amendment and the Agreement, as amended by this Amendment, constitute Borrower's legal, valid, and binding obligation, enforceable against Borrower in accordance with its terms. 15 3. Conditions Precedent to Amendment. The satisfaction of each of the following, unless waived or deferred by the Lender Group in its sole discretion, shall constitute conditions precedent to the effectiveness of this Amendment: a. Collateral Agent shall have received that certain letter agreement, dated as of even date herewith, between Administrative Agent and the Revolving Credit Lenders, on the one hand, and Collateral Agent, on the other hand, in form and substance satisfactory to Collateral Agent, duly executed, and such document shall be in full force and effect. b. The representations and warranties in this Amendment, the Agreement as amended by this Amendment, and the other Loan Documents shall be true and correct in all respects on and as of the date hereof, as though made on such date (except to the extent that such representations and warranties relate solely to an earlier date); c. No Event of Default or event which with the giving of notice or passage of time would constitute an Event of Default shall have occurred and be continuing on the date hereof, nor shall result from the consummation of the transactions contemplated herein; d. All other documents and legal matters in connection with the transactions contemplated by this Amendment shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Collateral Agent and Administrative Agent. 4. Further Assurances. Borrower shall execute and deliver all agreements, documents, and instruments, in form and substance satisfactory to Administrative Agent and Collateral Agent, and take all actions as Administrative Agent or Collateral Agent reasonably may request from time to time fully to consummate the transactions contemplated under this Amendment and the Agreement, as amended by this Amendment. 5. Effect on Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its terms and hereby is ratified and confirmed in all respects. The execution, delivery, and performance of this Amendment shall not operate as a waiver of or, except as expressly set forth herein, as an amendment of any right, power, or remedy of the Lender Group under the Agreement, as in effect prior to the date hereof. 6. Choice of Law and Venue; Jury Trial Waiver. THIS AMENDMENT HAS BEEN NEGOTIATED, EXECUTED, AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN NEW YORK, NEW YORK. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED, 16 HOWEVER, THAT IF ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW YORK, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER, AND PROCEDURE FOR FORECLOSURE OF COLLATERAL AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF THE LENDER GROUP'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR THE LENDER GROUP, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPREME COURT OF NEW YORK, NEW YORK, OR, AT AGENT'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND THE LENDER GROUP PERTAINING TO THIS AMENDMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, OR FORUM NON CONVENIENS, HEREBY CONSENTS TO THE EXERCISE OF PERSONAL JURISDICTION OF SUCH COURT, AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT, AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THE AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S. MAIL, PROPER POSTAGE PREPAID. NOTHING IN THIS AMENDMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF THE LENDER GROUP TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY THE LENDER GROUP OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THE AGREEMENT OR THIS AMENDMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. BORROWER WAIVES (A) THE RIGHT TO TRIAL BY JURY (WHICH THE LENDER GROUP HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS, OR THE COLLATERAL, (B) PRESENTMENT, DEMAND, AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION, OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER, AND GUARANTIES AT ANY TIME HELD BY 17 AGENT OR ANY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT OR SUCH LENDER MAY DO IN THIS REGARD, (C) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT TO EXERCISE ANY OF THE LENDER GROUP'S REMEDIES, (D) THE BENEFIT OF ALL VALUATION, APPRAISEMENT, AND EXEMPTION LAWS, AND (E) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO THE LENDER GROUP'S ENTERING INTO THIS AMENDMENT AND THAT THE LENDER GROUP IS RELYING UPON THE FOREGOING WAIVERS IN THEIR FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AMENDMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 7. Miscellaneous. a. Upon the effectiveness of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof" or words of like import referring to the Agreement shall mean and refer to the Agreement as amended by this Amendment. b. Upon the effectiveness of this Amendment, each reference in the Loan Documents to the "Loan Agreement", "thereunder", "therein", "thereof" or words of like import referring to the Agreement shall mean and refer to the Agreement as amended by this Amendment. c. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of an executed counterpart of this Amendment by telefacsimile shall be equally as effective as delivery of a manually executed counterpart of this Amendment. Any party delivering an executed counterpart of this Amendment by telefacsimile also shall deliver a manually executed counterpart of this Amendment but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. [signature page follows] 18 IN WITNESS WHEREOF, the parties have caused this Amendment Number One to Loan and Security Agreement to be executed and delivered as of the date first written above. QUESTRON TECHNOLOGY, INC., a Delaware corporation QUESTRON DISTRIBUTION LOGISTICS,INC., a Delaware corporation INTEGRATED MATERIAL SYSTEMS, INC., an Arizona corporation POWER COMPONENTS, INC., a Pennsylvania corporation CALIFORNIA FASTENERS, INC., a California corporation COMPWARE, INC., a Delaware corporation doing business as Webb Distribution FAS-TRONICS, INC., a Texas corporation FORTUNE INDUSTRIES, INC., a Texas corporation By:/s/ Dominic A. Polimeni ----------------------- Title: a Responsible Officer of each of the above-named Persons CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation, as Administrative Agent and a Lender By:/s/ Daniel Cott --------------- Title:Vice President MADELEINE L.L.C., a New York limited liability company, as Collateral Agent and a Lender By:/s/ Daniel Wolf --------------- Title:Authorized Signatory KZH ING-2 LLC, a Delaware limited liability company, as a Lender By:/s/ Virginia Conway ------------------- Title:Authorized Signatory KZH ING-3 LLC, a Delaware limited liability company, as a Lender By:/s/ Virginia Conway ------------------- Title:Authorized Signatory EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF INCOME FOR THE 9 MONTHS ENDED SEPTEMBER 30, 1998 AND THE CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS U.S. DOLLARS 9-MOS DEC-31-1998 SEP-30-1998 1 87,587 0 10,735,414 138,646 17,284,914 28,647,406 1,452,292 915,177 68,358,187 10,195,047 0 0 0 4,732 26,855,883 68,358,187 38,871,478 38,871,478 23,222,131 32,338,786 655,455 0 1,621,558 4,255,679 1,744,828 2,510,851 0 0 0 2,510,851 .31 .31
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