UNITED STATES
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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-21142
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NEMATRON CORPORATION
(Exact name of small business issuer as specified in its charter)
MICHIGAN 38-2483796
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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5840 INTERFACE DRIVE, ANN ARBOR, MICHIGAN 48103
(Address of principal executive offices) (Zip Code)
(734) 214-2000
(Issuer's telephone number, including area code)
Check whether the issuer (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities 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.
[ X ] YES [ ] No
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:
No par value Common Stock: 12,605,430 SHARES OUTSTANDING AS OF NOVEMBER 10, 1999
Transitional Small Business Disclosure Format: [ ] YES [X] NO
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,710,285 $ 106,730
Accounts receivable, net of allowance for doubtful
accounts of $139,000 at September 30, 1999, and
$368,000 at December 31, 1998 5,516,055 1,999,900
Inventories (Note 2) 1,432,626 1,884,335
Prepaid expenses and other current assets 207,196 305,310
-------------- --------------
Total Current Assets 8,866,162 4,296,275
Property and Equipment, net of accumulated depreciation
of $5,970,005 at September 30, 1999, and $5,685,402
at December 31, 1998 2,525,778 3,344,140
Other Assets:
Software and related development costs, net of amortization
of $3,286,018 at September 30, 1999, and $2,557,639
at December 31, 1998 3,498,985 3,880,284
Other intangible assets, net of amortization of $2,362,632 at
September 30, 1999, and $2,225,842 at December 31,1998 799,695 942,158
-------------- --------------
Net Other Assets 4,298,680 4,822,442
-------------- --------------
Total Assets $ 15,690,620 $ 12,462,857
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank (Note 4) $ -0- $ 2,715,457
Accounts payable 3,525,300 1,409,645
Trade notes payable -0- 1,123,956
Deferred revenue and other accrued expenses 2,534,114 1,387,403
Convertible promissory notes payable (Note 3) -0- 1,000,000
Current maturities of long-term debt (Note 4) 1,377,137 1,576,492
-------------- --------------
Total Current Liabilities 7,436,551 9,212,953
Long-Term Debt, less current maturities (Note 4) 1,646,846 2,182,783
Deferred Tax Liability 145,800 178,200
-------------- --------------
Total Liabilities 9,229,197 11,573,936
Stockholders' Equity:
Common Stock, no par value, 30,000,000 shares authorized;
12,605,430 and 5,353,316 shares issued and outstanding
at September 30, 1999 and at December 31, 1998,
respectively (Notes 3 and 7) 28,727,838 24,664,809
Foreign currency translation adjustment 1,669 (7,134)
Accumulated deficit (22,268,084) (23,768,754)
-------------- --------------
Total Stockholders' Equity 6,461,423 888,921
-------------- --------------
Total Liabilities and Stockholders' Equity $ 5,690,620 $ 12,462,857
============== ==============
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE- AND NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1999 AND 1998
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net Revenues $ 10,479,734 $ 3,766,848 $ 22,234,769 $ 12,478,026
Cost of Revenues 7,250,587 4,285,644 15,292,275 10,949,862
------------ ----------- ------------ ------------
Gross Profit (Loss) 3,229,147 (518,796) 6,942,494 1,528,164
Operating Expenses:
Product development costs 239,471 707,721 622,916 1,108,719
Selling, general and
administrative expenses 1,886,933 3,371,723 4,403,326 8,294,926
------------ ----------- ------------ ------------
Total Operating Expenses 2,126,404 4,079,444 5,026,242 9,403,645
------------ ----------- ------------ ------------
Operating Income (Loss) 1,102,743 (4,598,240) 1,916,252 (7,875,481)
Other Income (Expense):
Interest expense (85,202) (252,121) (433,690) (591,769)
Sundry income (expense) (16,812) (50,512) (14,291) (15,359)
------------ ----------- ------------ ------------
Total Other Income (Expense) (102,015) (302,633) (447,982) (607,128)
------------ ----------- ------------ ------------
Income (Loss) Before Taxes 1,000,728 (4,900,873) 1,468,270 (8,482,609)
Income Tax Benefit (Note 5) 10,800 703,856 32,400 811,000
------------ ----------- ------------ ------------
Net Income (Loss) $ 1,011,528 $(4,197,017) $ 1,500,670 $ (7,671,609)
============ =========== ============ ============
Per Share Amounts (Note 6):
Basic $ 0.08 $ (0.78) $ 0.15 $ (1.43)
============ =========== ============ ============
Diluted $ 0.08 $ (0.78) $ 0.14 $ (1.43)
============ =========== ============ ============
Weighted Average Shares
Outstanding (Note 6):
Basic 12,547,169 5,353,316 10,111,991 5,349,515
============ =========== ============ ============
Diluted 13,240,687 5,353,316 10,624,599 5,349,515
============ =========== ============ ============
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NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
Net income (loss) $1,011,528 $(4,197,017) $1,500,670 $(7,671,609)
Other comprehensive income -
equity adjustment from
foreign translation 8,148 2,169 8,803 1,735
---------- ----------- ---------- -----------
Comprehensive income (loss) $1,019,676 $(4,194,848) $1,509,473 $(7,669,874)
========== =========== ========== ===========
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
(UNAUDITED) (UNAUDITED)
Cash Flows From Operating Activities:
Net income (loss) $1,500,670 $(7,671,609)
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:
Depreciation and amortization 1,782,729 3,396,429
Deferred income tax benefit (32,400) (811,000)
Loss on disposal of property 53,200 51,711
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (3,516,155) 1,788,598
Inventories 451,709 2,539,637
Prepaid expenses and other current assets 98,114 298,301
Accounts payable 2,115,655 1,651,242
Deferred revenue and accrued expenses 1,161,406 236,788
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Net Cash Provided By Operating Activities 3,614,928 1,483,097
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Cash Flows From Investing Activities:
Additions to capitalized software development costs (347,081) (1,379,170)
Additions to property and equipment (101,958) (46,593)
Proceeds from disposals of property and equipment 19,317 60,921
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Net Cash Used In Investing Activities (429,722) (1,364,842)
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Cash Flows From Financing Activities:
Net proceeds from sale of Common Stock (Note 7) 1,520,000 -0-
Proceeds from Common Stock subscriptions (Note 7) 1,500,000 -0-
Increase (decrease) in note payable to bank (2,715,457) 637,000
Payment of trade notes payable (1,123,956) (241,805)
Payments of long-term debt (689,041) (646,471)
Payment of deferred financing fees (102,000) -0-
Proceeds from exercise of options and warrants 20,000 33,905
---------- -----------
Net Cash Used In Financing Activities (1,590,454) (217,371)
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Foreign Currency Translation Effect 8,803 2,075
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Net Increase (Decrease) In Cash and Cash Equivalents 1,603,555 (97,041)
Cash and Cash Equivalents at Beginning of Period 106,730 454,765
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Cash and Cash Equivalents at End of Period $1,710,285 $ 357,724
========== ===========
Non-Cash Financing and Investing Activities:
Conversion of stock subscriptions to Common Stock $1,500,000 -0-
Increase in Common Stock from conversion of
convertible promissory notes (Note 3) $1,023,029 -0-
Decrease in long-term debt and property resulting from
adjustment of purchase price $ 55,534 -0-
Conversion of trade accounts payable to trade notes payable $ 1,787,761
Acquisition of equipment under capital lease obligations $ 342,692
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 441,755 $ 569,277
Cash paid for income taxes -0- -0-
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ITEM 1. FINANCIAL STATEMENTS - CONTINUED
NEMATRON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of Nematron Corporation (the "Company") and its wholly-owned subsidiaries, Nematron Ltd., a United Kingdom corporation, and NemaSoft, Inc. ("NemaSoft") and Imagination Systems, Inc. ("ISI"), both Michigan corporations. All significant intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission's rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's latest annual report on Form 10-KSB and amendments thereto, and in the transition report for the three months ended December 31, 1998.
Certain reclassifications have been made to the fiscal 1998 presentation to conform to classifications used in fiscal 1999.
The Company has changed its fiscal year end from September 30 to December 31, and filed a transition report for the three month period ended December 31, 1998.
The results of operations for the three- and nine-month periods ended September 30, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year.
NOTE 2 - INVENTORIES
Inventories consist of the following at September 30, 1999 and December 31, 1998:
SEPTEMBER 30, 1999 DECEMBER 31, 1998
Purchased parts and accessories $ 1,141,163 $ 1,142,431
Work in process 41,364 307,762
Finished goods, demo units and service stock 250,099 434,142
----------- -----------
Total Inventory $ 1,432,626 $ 1,884,335
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NOTE 3 - CONVERTIBLE PROMISSORY NOTES
In December 1998, the Company issued convertible promissory notes (the "Notes") in the aggregate principal amount of $1 million with 18 investors in a private placement (collectively, the "Note Holders") as the first stage of a capital transaction, under which the Company raised a total of approximately $4 million of equity. The Notes bore interest at the rate of seven percent (7%) per annum, were due and payable, with accrued interest, on the later of March 31, 1999 or 5 days following the date of shareholder approval of the capital transaction. The Notes
were not transferable without the Company's consent. The Notes and accrued interest thereon were convertible by the Note Holders into Common Stock at $0.25 per share (the "Conversion Price"). In February and March 1999, certain Note Holders converted $169,863 of Notes and received 679,450 shares of Common Stock. On April 7, 1999, following shareholder approval of the capital transaction on April 6, 1999, the remaining $830,137 of Notes and $23,029 of accrued interest thereon were converted into 3,512,664 shares Common Stock.
NOTE 4 - SHORT TERM AND LONG-TERM DEBT
The Company entered into various amendments to the September 1998 loan agreements with its primary bank lender which provide, among other things, for a modification of certain terms of the Term Note, two Equipment Notes and a Revolving Credit Note (the "Bank Agreements").
Under the terms of the Bank Agreements, the amount available under the Revolving Credit Note was reduced from $5,000,000 to $4,000,000 on April 7, 1999, following the private placement of Common Stock on the same date. The credit availability under the Bank Agreements was limited by a borrowing formula which allowed for advances up to a maximum of the sum of 80% of eligible domestic and foreign accounts receivable, plus 35% of inventory, less the amount of letters of credit issued by the Company. Prior to the private placement, the formula also included a Permitted Overadvance of $1,100,000. The interest rate on the credit line borrowings was at the bank's prime interest rate plus 2.0% (10.0% effective rate at September 30, 1999). Amounts borrowed under the line of credit were due in full on October 31, 1999, which date was extended to November 12, 1999 and are included in current maturities of long-term debt.
The Company also was a party to a mortgage loan agreement that contained covenants that required the Company to maintain a minimum tangible net worth and a minimum debt-to-equity ratio. The Company was not in compliance with these covenants; however, the Company's mortgage lender waived these defaults through November 12, 1999.
On November 12, 1999, the Company repaid the amounts outstanding under the Bank Agreements, as well as the amount outstanding under the mortgage loan with the proceeds of a new term loan from LaSalle Business Credit, Inc., as described below.
Long-term debt includes the following debt instruments at September 31, 1999, and December 31, 1998:
SEPTEMBER 30, 1999 DECEMBER 31, 1998
Mortgage loan payable to bank $ 1,824,642 $ 1,956,474
Term note payable 930,000 1,170,000
Capitalized lease obligations and other notes 269,341 632,801
------------ ------------
Total long-term debt 3,023,983 3,759,275
Less current maturities (1,377,137) (1,576,492)
------------ ------------
Long-term debt, less current maturities $ 1,646,846 $ 2,182,783
============ ============
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On November 12, 1999, the Company entered into a Loan and Security Agreement (the "Credit Agreement") with LaSalle Business Credit, Inc. which provides for a three-year revolving line of credit and a term loan. The revolving credit note provides for a maximum borrowing of $8 million, limited by a borrowing formula which allows for advances up to 85% of eligible accounts receivable, with interest rate payable at the prime rate of interest plus 1.0% (9.25% at inception). The term loan of $2.9 million requires monthly principal payments of $16,100 plus interest at the prime rate of interest plus 1.5% (9.75% at inception), plus a mandatory quarterly prepayment of Excess Cash Flow, as defined in the Credit Agreement. The loans are collateralized by substantially all of the Company's assets and guaranteed by its domestic subsidiaries and their assets. Credit Agreement borrowings are due in full on November 12, 2002, but may be extended for an additional one-year period unless the lender gives prior notice of termination to the Company.
NOTE 5 - TAXES ON INCOME
The current tax benefit computed for the three- and nine-month periods ended September 30, 1999 and 1998 reflect the tax benefit associated with the amortization of non-deductible goodwill and other intangible assets during the periods.
The Company has net operating loss carryforwards ("NOLs") of approximately $19,400,000, which may be applied against future taxable income. The NOLs expire beginning 2003 and run through 2013. Utilization of these NOLs is subject to annual limitations under current Internal Revenue Service regulations. The Company has established a valuation allowance for the estimated amount of the total limitation on the utilization of the NOLs.
NOTE 6 - EARNINGS PER SHARE
Earnings per share ("EPS") for the three- and nine-month periods ended September 30, 1999 and 1998 is as follows:
FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30,
----------------------------------------------
1999 1998
---------------------------------------- ------------------------------------
Income Shares Per Share (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
BASIC EPS:
Net income (loss) $1,011,528 12,547,169 $ 0.08 $(4,197,017) 5,353,316 $ (0.78)
EFFECT OF DILUTIVE SECURITIES:
Options 693,518 -0- -0- -0- -0-
---------- ---------- ----------- ----------- --------- --------
DILUTED EPS:
Net income (loss)
Available to common
shareholders $ 278,457 13,240,687 $ 0.08 $ (4,197,017) 5,353,316 $ (0.78)
========= ========== =========== ============ ========= ========
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30,
---------------------------------------------
1999 1998
-------------------------------------- ------------------------------------
Income Shares Per Share (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
BASIC EPS:
Net income (loss) $1,500,670 10,111,991 $ 0.15 $(7,671,609) 5,349,515 $ (1.43)
EFFECT OF DILUTIVE SECURITIES:
Convertible promissory
notes 24,946 (0.00)
Options -0- 512,607 (0.01) -0- -0- 0.00
---------- ---------- -------- ----------- --------- --------
DILUTED EPS:
Net income available
to common shareholders $1,500,670 10,624,599 $ 0.14 $(7,671,609) 5,349,515 $ (1.43)
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For the three-month period ended September 30, 1999, 204,370 options and 322,676 warrants were outstanding but were not included in the computation of diluted EPS because the exercise prices of the excluded options and warrants were greater than the average market price of the common shares during the period. These options expire on various dates between 2003 and 2009, and the warrants expire between February 2000 and October 2002. For the three month period ended September 30, 1998, 860,754 options and 322,676 warrants were outstanding but were not included in the computation of diluted EPS because the inclusion of these securities would have an antidilutive effect on loss per share during the period. These options expire on various dates between 2003 and 2009, and these warrants expire between February 2000 and October 2002.
For the nine-month period ended September 30, 1999, 803,346 options and 322,676 warrants were outstanding but were not included in the computation of diluted EPS because the exercise prices of the excluded options and warrants were greater than the average market price of the common shares during the period. These options expire on various dates between 2003 and 2009, and the warrants expire between February 2000 and October 2002. For the nine-month period ended September 30, 1998, 860,754 options and 322,676 warrants were outstanding but were not included in the computation of diluted EPS because the inclusion of these securities would have an antidilutive effect on loss per share during the period. These options expire on various dates between 2003 and 2009, and these warrants expire between February 2000 and October 2002.
NOTE 7 - CHANGES IN COMMON STOCK AUTHORIZED, ISSUED AND OUTSTANDING
On April 6, 1999 the Company's shareholders approved a two stage capital transaction. Stage one included the issuance of $1,000,000 of Convertible Notes, as described in Note 3 above, and stage two included the exercise of options included in such Notes and the private placement of securities. In February and March 1999, certain note holders converted $169,863 of Notes and received 679,450 shares of Common Stock. Following shareholder approval, the remaining $830,137 of Notes and $23,029 of accrued interest thereon were converted into 3,412,664 shares of Common Stock. As a result of the completion of the first stage of the capital transaction, a total of 4,092,114 shares of Common Stock were issued. On April 6, 1999, the Company completed the second stage of the capital transaction. As a result thereof, the Company issued a total of 3,080,000 shares of Common Stock at $1.00 per share upon the exercise of the options and the private placement. (See Note 3).
On April 6, 1999, the Company's shareholders approved an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock from 15 million to 30 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 COMPARED WITH THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998
Net revenues for the three- and nine-month periods ended September 30, 1999 increased $6,173,000 (178.2%) and $9,757,000 (78.2%), respectively, to $10,480,000 and $22,235,000, respectively, compared to the same periods last year. The revenue increases are primarily attributable to increases in sales of bundled Industrial Control Computers under a supply program with a major automotive company, partially offset by slightly lower sales of software products. Management expects that net revenues for the last quarter of 1999 will also increase compared to the year earlier period, based on existing scheduled production releases, expected shipments under the current supply contract and the current backlog. Management expects that the rate of increase in fourth quarter revenues over the year earlier period will approximate the rate increase for the first nine months of 1999. Management further expects that upon the first quarter 2000 expiration of the current program with a major automotive company, revenues for 2000 will not keep pace with revenue levels experienced in 1999.
Gross profits for the three- and nine-month periods ended September 30, 1999 increased $3,748,000 and $5,414,000, respectively, to $3,229,000 and $6,942,000, respectively, compared to the same periods last year. Gross profit as a percentage of net revenues for the three- and nine-month periods ended September 30, 1999 were 30.8% and 31.2%, respectively, compared to -13.8% and 12.2% in the same periods last year. The improvement in gross profit percentage in the current periods results from both fixed cost and variable product cost reductions and from a higher percentage of sales of higher margin bundled hardware/software products in the current periods compared to the same periods last year. Additionally, in the quarter ended September 30, 1998, the Company wrote down the carrying amount of certain inventories in the amount of $1,002,000, and this adjustment decreased gross profit by 26.6% and 8.1%, respectively, in the three- and nine-month periods ended September 30, 1998. Management expects that gross profit margins will remain relatively constant throughout the fourth quarter as the mix of sales in the fourth quarter of 1999 is expected to be similar to the sales mix experienced in the first nine months of the year, based on the current backlog.
Product development expenses for the three- and nine-month periods ended September 30, 1999 decreased $468,000 (66.2%) and $486,000 (43.8%), respectively, to $239,000 and $623,000, respectively, compared to the same periods last year. The decrease is attributable to a smaller development staff and reduced development efforts in the current periods compared to a year ago. Management expects that product development expenses will increase slightly in the fourth quarter of 1999 as increased staff and development efforts are planned to develop and release new products in 2000.
Selling, general and administrative expenses for the three- and nine-month periods ended September 30, 1999 decreased $1,485,000 (44.0%) and $3,892,000 (46.9%) to $1,887,000 and $4,403,000, respectively, compared to the comparable periods last year. The decrease in selling, general and administrative expenses resulted primarily from lower staff levels, the effects of closing of satellite offices by December 1998, and the effects of cost controls during the current periods. Management expects that selling, general and administrative expenses will increase in the remaining quarter of 1999 because of expanded marketing and sales activities, but that such expenses will decrease as a percentage of net revenues.
Interest expense for the three- and nine-month periods ended September 30, 1999 decreased $167,000 (66.2%) and $158,000 (26.7%), respectively, to $85,000 and $434,000, respectively, compared to $252,000 and $592,000 for the comparable periods last year. These decreases result from lower average borrowing levels, most notably in the three-month period ended September 30, 1999 because of the paydown of line of credit borrowings from proceeds of the April 6, 1999 capital infusion and from cash generated from 1999 operations.
Sundry expenses for the three- and nine-month periods ended September 30, 1999 and 1998 were not significant for any period presented.
YEAR 2000 ISSUE
The Year 2000 Issue ("Y2K") is the result of certain computer programs being written using two digits rather than four digits to define the applicable year. Computer systems with a Y2K problem will be unable to interpret dates beyond the year 1999, which could cause a system failure or other computer errors, leading to disruptions in operations. In 1997, the Company began to assess its Y2K readiness and adopted a three-phase program for Y2K information systems compliance. Phase I is the identification of systems and products with which the Company has exposure to Y2K issues. Phase II encompasses the development and implementation of action plans to be Y2K compliant in all areas. Phase III includes final testing of each major area of exposure to ensure compliance. The Company has identified four major areas determined to be critical for successful Y2K compliance: (1) financial and information system applications; (2) software products currently sold; (3) third-party relationships and (4) non-information technology areas such as security, telephone systems and climate control systems.
The Company has finished all phases of its compliance program. The Company has contacted all significant software suppliers and believes that its financial and operational software is Y2K compliant. The Company has also reviewed its financial and information system applications, as well as its current hardware and software products for Y2K compliance, including the firmware embedded in certain hardware products, and believes that all such systems and software are Y2K compliant. Certain older products not currently offered were found to not be Y2K compliant, but a manual override solution has been offered and circulated to known users which will minimize any adverse effect to users of such older products. The Company has determined that its major financial and operational software and the systems used in non-information technology areas, such as security, telephone systems and climate control systems, are Y2K compliant. The Company has used its employee engineers and others in its review and testing procedures.
The Company has one older software product, used by purchasers of the product for monitoring and testing in a test cell environment (not related to machine control) which had to be modified to correct a Y2K problem. The modification has been completed at a cost of approximately $30,000, all of which related to the salary and benefits of software development employees of the Company, and such cost was funded from working capital. The Company has notified its customers that a solution is currently available for purchase.
The Company has relationships with, and is to varying degrees dependent upon, various third parties that provide funds, information, goods and services to the Company. These include the Company's bank lender, utility providers, stock transfer agent, contract manufacturer and suppliers of components. The Company is attempting, through informal contacts, to assess the compliance of these third parties. While not all parties have informed the Company as to their status, the most significant of these third parties have represented that their systems and products are Y2K compliant. The Company will continue with this assessment in the last quarter of 1999. The Y2K compliance of the systems of these third parties is outside the Company's control and there can be no assurance that these third parties will be Y2K compliant.
Because the Company believes that the systems within its control are Y2K compliant, the Company believes that the most reasonably likely worst case scenario is a compliance failure by one or more of the third parties described above. Such a failure would likely have an adverse effect on the Company's business, financial condition and results of operations. The magnitude of that effect, however, cannot be quantified at this time because of variables such as the type and importance of the third party, the possible effect on the Company's operations and the Company's ability to respond. Thus, there can be no assurance that there will not be a material adverse effect on the Company if such third parties do not remediate their systems in a timely manner and in a way that is compatible with the Company's systems.
As a result, the Company continues to develop contingency plans that assume some estimated level of noncompliance by, or business disruption to, these third parties. The Company intends to have contingency plans developed by the end of 1999 for third parties determined to be at high risk of noncompliance or business disruption or whose noncompliance or disruption, while not high risk, is considered likely to materially affect the Company.
The contingency plans will be developed on a case-by-case basis, and may include plans for switching to Y2K compliant suppliers.
Judgments regarding contingency plans are subject to many uncertainties and there can be no assurance that the Company will correctly anticipate the level, impact or duration of noncompliance or that its contingency plans will be sufficient to mitigate the impact of any noncompliance. Some material adverse effect to the Company may result despite such contingency plans.
To date, the Company has expended approximately $60,000 in incremental costs to assess and remediate Y2K problems. Existing engineering and application support and other Company personnel have expended these efforts. These costs have been expensed as incurred. The Company estimates additional Y2K remediation costs of $5,000 during the fourth quarter of 1999. Estimates of time, cost and risks are based on currently available information. Developments that could affect estimates include, without limitation, the availability of trained personnel, the ability to locate and correct all noncompliant systems, cooperation and remediation success of third parties material to the Company, and the ability to correctly anticipate risks and implement suitable contingency plans in the event of system failures at the Company or third parties.
The disclosure in this section contains information regarding Year 2000 readiness which constitutes "Year 2000 Readiness Disclosure" as defined in the Year 2000 Readiness Disclosure Act. Readers are cautioned that forward-looking statements contained in the Year 2000 Issue section should be read in conjunction with the Company's disclosures under the heading "Uncertainties Relating to Forward-Looking Statements".
LIQUIDITY AND CAPITAL RESOURCES
The Company was a party to a series of agreement with its former primary bank lender under which the Company had a term note, two equipment notes and a line of credit (the "Bank Agreements"). The line of credit permitted borrowing up to $4,000,000, subject to an availability formula based upon a percentage of eligible accounts receivable and inventory, reduced by letters of credit issued by the Company. The interest rate on the credit line borrowings was at the bank's prime interest rate plus 2.0% (10.0% effective rate at September 30, 1999).
The Company also was a party to a mortgage loan agreement that contained covenants that required the Company to maintain a minimum tangible net worth and a minimum debt-to-equity ratio. The Company was not in compliance with these covenants; however, the Company's mortgage loan lender waived these defaults through November 12, 1999.
On November 12, 1999, the Company repaid the amounts outstanding under the Bank Agreements and under the mortgage loan with the proceeds from a new $2.9 million three year term loan pursuant to a Loan and Security Agreement with LaSalle Business Credit, Inc. (the "Credit Agreement"). The Credit Agreement also provides for a revolving line of credit up to $8.0 million, limited by a borrowing formula that allows for advances up to 85% of eligible accounts receivable, which bears interest at the prime rate of interest plus 1.0% (9.25% at inception). The term loan requires monthly principal payments of $16,100 plus interest at the prime rate of interest plus 1.5% (9.75% at inception), plus a mandatory quarterly prepayment of "Excess Cash Flow", as defined in the Credit Agreement. The loans are secured by substantially all of the Company's assets and guaranteed by its domestic subsidiaries and their assets. Borrowings under the Credit Agreement are due in full on November 12, 2002, but may be extended for an additional one-year period unless the lender gives prior notice of termination to the Company.
The Credit Agreement includes various affirmative and negative covenants limiting the Company's ability to take certain actions, including the payment of cash dividends, requiring the Company to maintain specified levels of tangible net worth, debt service coverage and interest coverage and limiting capital expenditures and software development expenditures.
Based upon existing working capital, the new borrowing arrangement, and forecasted revenue and expense levels, management believes that it has sufficient liquidity to satisfy its liabilities as they become due.
UNCERTAINTIES RELATING TO FORWARD LOOKING STATEMENTS
"Item 2. Management's Discussion and Analysis or Plan of Operations" includes "forward-looking statements" (as defined in the federal securities laws) based on current management expectations. Factors that could cause future results to differ from these expectations include the decline of economic conditions in general and conditions in the automotive manufacturing industry in particular, a reduction in demand for the Company's products and services, decreases in orders under existing contracts, the inability of the Company to successfully implement its strategy to lead the industrial automation market migration from closed architecture PLCs to open architecture PC-based solutions, changes in Company strategy, reductions in product life cycles, competitive factors (including the introduction or enhancement of competitive products), pricing pressures which result in materially reduced selling prices for the Company's products, shifts in sales mix to less profitable products, raw material price increases or unavailability, delays in introduction of planned hardware and software products, software defects and latent technological deficiencies in new products, changes in operating expenses, fluctuations in foreign exchange rates, the inability to attract or retain sales, marketing and engineering talent, changes in customer requirements, unexpected Y2K issues in the Company's products or systems or third parties' systems, evolving industry standards, and any additional factors described in the Company's other reports filed with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(b) The terms of the proposed Credit Agreement described under Part I Item
2 "Management's Discussion and Analysis or Plan of Operation", when
effective, will prohibit the payment of dividends by the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herewith are set forth on the Index to Exhibits, which is incorporated herein.
(b) The Company filed no reports on Form 8-K during the quarter ended September 30, 1999.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEMATRON CORPORATION
BY:
NOVEMBER 12, 1999 /S/ MATTHEW S. GALVEZ
----------------- -------------------------------------------------
DATE MATTHEW S. GALVEZ, PRESIDENT AND CHIEF EXECUTIVE OFFICER
(DULY AUTHORIZED OFFICER)
NOVEMBER 12, 1999 /S/ DAVID P. GIENAPP
----------------- -------------------------------------------------
DATE DAVID P. GIENAPP, VICE PRESIDENT - FINANCE & ADMINISTRATION
(CHIEF ACCOUNTING OFFICER)
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INDEX TO EXHIBITS
Exhibit Number Description of Exhibit
3.1 Articles of Incorporation, as amended through June 30, 1999
4.1 Loan and Security Agreement, dated as of November 12, 1999, by
and between Nematron Corporation and LaSalle Business Credit,
Inc. providing for a $10.9 million total facility, including a
$2.9 million term loan and a $8.0 million revolving line of
credit.
10.1 Employment Agreement, entered into effective October 1, 1998,
by and between Matthew S. Galvez and the Company, dated July
26, 1999 (filed as Exhibit 10.1 of the Company's Quarterly
Report on Form 10-QSB for the period ended June 30, 1999 and
incorporated herein by reference)
27 Financial Data Schedule
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EXHIBIT 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF NEMATRON CORPORATION
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned corporation executes the following Articles:
1. The present name of the corporation is NEMATRON CORPORATION.
2. The corporation identification number (CID) assigned by the Bureau is 333-652.
3. The date of filing the original Articles of Incorporation was October 7, 1983. The corporation has had no other names.
The following Amended and Restated Articles of Incorporation supersede the Articles of Incorporation as amended and shall be the Articles of Incorporation for the corporation:
ARTICLE I
The name of the corporation is NEMATRON CORPORATION.
ARTICLE II
The purpose or purposes for which the corporation is formed are to engage in any activity within the purposes for which corporations may be organized under the Michigan Business Corporation Act.
ARTICLE III
The total authorized capital stock is:
1. Common stock: 3,000,000 shares
2. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
Subject to the preferences accorded the holders of any other class of stock pursuant to these Articles of Incorporation or action of the Board of Directors taken with respect to such preferences, holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors of the corporation from time to time and, in the event of any liquidation, dissolution or winding up of the corporation, the holders of Common Stock will be entitled to receive pro rata all of the remaining assets of the corporation available for distribution. Each issued and outstanding share of Common Stock is entitled to one vote.
No holder of any shares of any class of stock of this corporation shall have any preemptive or preferential right to subscribe for, or to purchase, any part of a new or additional issue of stock or any other reacquired shares of stock of any class whatsoever or of any securities convertible into stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration.
ARTICLE IV
The current resident agent is G. Paul Horst, 5840 Interface Drive, Ann Arbor, Michigan 48103.
ARTICLE V
No director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, provided that the foregoing shall not eliminate or limit the liability of a director for any of the following: (i) breach of the director's duty of loyalty to the corporation or its shareholders; (ii) acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law; (iii) a violation of Section 551(1) of the Michigan Business Corporation Act; (iv) a transaction from which the director derived an improper personal benefit or (v) an act or omission occurring prior to the date this article becomes effective. If the Michigan Business Corporation Act hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the corporation, in addition to the limitation on personal liability contained herein, shall be limited to the fullest extent permitted by the amended Michigan Business Corporation Act. No amendment or repeal of this Article V shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal.
ARTICLE VI
A. Directors and officers of the corporation shall be indemnified in
connection with any actual or threatened action or proceeding (including civil,
criminal, administrative or investigative proceedings) arising out of their
service to the corporation or to another organization at the corporation's
request, and shall be paid expenses incurred in defending any such proceeding in
advance of its final disposition, to the fullest extent permitted by law.
Persons who are not directors or officers of the Company may be similarly
indemnified in respect of such service to the extent authorized at any time by
the Board of Directors or the Bylaws of the corporation. The provisions of this
Article shall be applicable to actions or proceedings commenced after the
adoption hereof, whether arising from acts or omissions occurring before or
after the adoption hereof, and to persons who have ceased to be directors,
officers or employees, and shall inure to the benefit of their heirs, executors
and administrators. The right to indemnification and advancement of expenses
conferred hereunder shall be a contract right which may not be modified
retroactively without the written consent of the director or officer and shall
not be deemed exclusive of any other rights to indemnification or advancement of
expenses such person may have or to which such person may be entitled.
B. If a claim under this Article VI is not paid in full by the
corporation within thirty days after a written claim has been received by the
corporation, the indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim. If successful in whole or
in part in any such suit or in a suit brought by the corporation to recover
advances, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such claim. In any action brought by the indemnitee to
enforce a right hereunder (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking has been tendered to the corporation)
it shall be a defense that, and in any action brought by the corporation to
recover advances the corporation shall be entitled to recover such advances if,
the indemnitee has not met the applicable standard of conduct set forth in the
Michigan Business Corporation Act. Neither the failure of the corporation
(including its Board of Directors, a committee of its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the indemnitee
is proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Michigan Business Corporation Act, nor an
actual determination by the corporation (including its Board of Directors, a
committee of its Board of Directors, independent legal counsel, or its
shareholders) that the indemnitee has not met such applicable standard of
conduct, shall be a defense to an action brought by the indemnitee or create a
presumption that the indemnitee has not met the applicable standard of conduct.
In any action brought by the indemnitee to enforce a right hereunder or by the
corporation to recover payments by the corporation of advances, the burden of
proof shall be on the corporation.
ARTICLE VII
A. The number of directors constituting the entire Board of Directors shall not be less than three nor more than twelve, the exact number of directors to be fixed from time to time only by vote of a majority of the Board of Directors. The Board of Directors shall be divided into three classes as nearly equal in number as possible, with the term of office of one class expiring each year. The first class of the Board of Directors shall be elected to hold office for a term expiring at the annual meeting of shareholders in 1994; directors of the second class shall be elected to hold office for a term expiring at the next succeeding annual meeting of shareholders; and directors of the third
class shall be elected to hold office for a term expiring at the third succeeding annual meeting of shareholders, and in each case, until their respective successors are elected and have qualified, or until their earlier death, resignation or removal. At each annual election held after the initial classification and election in the manner provided above, a number of directors equal to the number of the class whose term expires at the time of the meeting shall be elected to hold office until the end of the third succeeding annual meeting of shareholders after their election and until their respective successors are elected and have qualified, or until their earlier death, resignation or removal. When the number of directors is changed, any newly created directorships or any decrease in directorships shall be so apportioned among the classes so as to make all classes as nearly equal in number as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
B. During the intervals between annual meetings of shareholders, any vacancy occurring in the Board of Directors caused by resignation, removal, death or other incapacity, and any newly created directorships resulting from an increase in the number of directorships shall be filled by a majority vote of the directors then in office, whether or not a quorum, or, if there are no directors in office, by the shareholders. If the Board of Directors accepts the resignation of any director or officer to take effect at a future time, it shall have the power to elect a successor who shall take office when the resignation becomes effective. Each director chosen to fill a vacancy or chosen to fill a newly created directorship shall hold office until the next election for the class for which such director shall have been chosen and until the election and qualification of his successor, or until his earlier death, resignation or removal. A director or directors or the entire Board of Directors may be removed from office only for cause.
C. The affirmative vote of the holders of at least 80% of the outstanding shares of the capital stock of the corporation entitled to vote generally in the elections of directors shall be required to amend, repeal or adopt any provision inconsistent with this Article VII.
These Restated Articles of Incorporation were duly adopted on the 25th day of January, 1993 in accordance with the provisions of Section 642 of the Michigan Business Corporation Act, and were duly adopted by the sole shareholder at a meeting of its board of directors held January 25, 1993.
Signed this 12th day of February, 1993
By /s/ G.Paul Horst
------------------
(Signature)
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NAME OF ORGANIZATION REMITTING FEES:
Nematron Corporation
Preparer's Name
and Business Telephone
Number:
Marguerite M. Gritenas
(313) 568-6503
RETURN DOCUMENT TO:
Marguerite M. Gritenas, Esq.
Dykema Gossett
400 Renaissance Center
Detroit, Michigan 48243
CERTIFICATE OF CHANGE OF REGISTERED OFFICE
AND/OR CHANGE OF RESIDENT AGENT
For use by Domestic and Foreign Corporations
(Please read information and instructions on reverse side)
Pursuant to the provisions of Act 284, Public Act of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:
1. The name of the corporation is: NEMATRON CORPORATION
2. The identification number assigned by the Bureau is: 333-652
3. a. The name of the resident agent on file with the Bureau is:
G. Paul Horst
b. The address of the registered office on file with the Bureau is: 5840 Interface Dr., Ann Arbor, Michigan 48103
c. The mailing address of the above registered office on file with the Bureau is: P.O. Box 1108, Ann Arbor, Michigan 48106
ENTER IN ITEM 4 THE INFORMATION AS IT SHOULD NOW APPEAR ON OUR
RECORDS
4. a. The name of the resident agent is: G. Paul Horst
b. The address of the registered office is: 5840 Interface Dr., Ann Arbor, Michigan 48103
5. The above changes were authorized by resolution duly adopted by its board of directors or trustees, or by the resident agent of a profit corporation to change the address of the registered office in which case a copy of this statement has been mailed to the corporation. The Corporation further states that the address of its registered office and the address of its registered agent, as changed, are identical.
Date signed: Signed by: /s/ G. Paul Horst
------------------------ ----------------------
G. Paul Horst President
-----------------------------------------
(Type or Print Name) (Type or Print Title)
|
Name of Person or Organization
Remitting Fees:
Nematron Corporation
Preparer's Name and Business
Telephone Number:
Terri Jeffrey-Barker
(313) 994-0591 x259
CERTIFICATE OF ASSUMED NAME
For use by Corporations and Limited Partnerships
(Please read information and instructions on reverse side)
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporation), or Act 162, Public Acts of 1982 (nonprofit corporations), or Act 213, Public Acts of 1982 (limited partnerships), the corporation or limited partnership in item one below executes the following Certificate:
1. The true name of the corporation or limited partnership is: NEMATRON CORPORATION
2. The identification number assigned by the Bureau is: 333-652
3. The location of the corporate registered office or the office at which the limited partnership records are maintained is: 5840 Interface Drive, Ann Arbor, MI 48103
4. The assumed name under which business is to be transacted is: ACTION INDUSTRIAL COMPUTERS
Signed this 10th day of November, 1993
By: /s/ Albert W. Lowery
---------------------
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CERTIFICATE OF MERGER/CONSOLIDATION
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit corporations), the undersigned corporations execute the following Certificate:
1. The Plan of Merger is as follows:
a. The name of each constituent corporation and its corporation identification number (CID) is as follows:
Nematron Corporation: (333-652)
Imagination Systems, Inc., a Virginia corporation which has no Michigan CID.
b. The name of the surviving corporation and its corporation identification number (CID) is:
Nematron Corporation (333-652)
c. As to each constituent corporation, the designation and number of outstanding shares of each class and series and the voting rights thereof are as follows:
Designation and
number of shares
in each class Class or series Class or series
Name of or series out- of shares entitled to
Corporation standing entitled to vote vote as a class
----------- ----------------- ---------------- ---------------
Nematron Common Stock, Common Stock Common Stock
Corporation no par value,
("Nematron" or 1,601,023 shares
the "Surviving
Corporation")
Imagination Common Stock Common Stock Common Stock
Systems, Inc. $0.01 par value,
("ISI") 1,453,442 shares
|
Neither the number of shares of common stock of Nematron nor number of the shares of common stock of ISI is subject to change prior to the effective date of the merger.
d. Not applicable, as this item relates to nonstock corporations.
e. The terms and conditions of the proposed merger, including the manner and basis of converting the shares of each constituent corporation into shares, bonds or other securities of the surviving corporation, or into cash or other consideration, are as follows:
(i) The Merger. On the effective date of the merger, ISI will be merged with and into Nematron, the separate corporate existence of ISI will cease and Nematron will continue as the Surviving Corporation. On the effective date of the merger (A) Nematron will continue its corporate existence under the laws of the State of Michigan and will possess all of the rights, powers, franchises and purposes of ISI and Nematron prior to the merger,
(B) all of the property of the constituent corporations will be the property of Nematron and (C) Nematron will, by operation of law, assume all of the liabilities and obligations of the constituent corporations.
(ii) Articles and Bylaws. The Amended and Restated Articles of Incorporation of Nematron in effect on the effective date of the merger will remain the Amended and Restated Articles of Incorporation of the Surviving Corporation without any modification or amendment in the merger. The Amended and Restated Bylaws of Nematron will remain the Amended and Restated Bylaws of the Surviving Corporation, except that they will be amended as provided in the Agreement and Plan of Merger between the constituent corporations dated February 2, 1995 (the "Merger Agreement").
(iii) Directors and Officers. The directors and officers of Nematron in office at and as of the effective date of the merger will remain the directors and officers of the Surviving Corporation. In addition, the number of seats on the Surviving Corporation's Board of Directors will be increased by three seats, and three directors designated by ISI, who have satisfied the selection criteria in Nematron's Amended and Restated Bylaws, will be appointed to the Surviving Corporation's Board of Directors.
(iv) Common Stock of ISI. On the effective date of the merger: (i) each share of ISI common stock issued and outstanding immediately prior to the effective date of the merger (other than a share of ISI common stock with respect to which Nematron has received notice of the exercise of dissenters' rights under the Virginia Stock Corporation Act (a "Dissenting Share") shall, ipso facto and without any action on the part of the holder thereof, be converted into and represent the right (A) to receive 0.56798 shares of Nematron common stock, and (B) to receive cash in lieu of any fractional share of Nematron common stock that would otherwise be issuable, and (ii) each Dissenting Share will have the rights set forth in the Virginia Stock Corporation Act. In addition, the Merger Agreement provides that, after the effective date of the merger, the Surviving Corporation will issue a warrant to purchase one share of Nematron common stock for every two shares of Nematron common stock issued in the merger only if certain conditions precedent set forth in the Merger Agreement are satisfied. Regardless of whether a holder of ISI common stock shall have received a certificate for Nematron common stock issued in the merger, no certificate representing ISI common stock shall be deemed to be outstanding or to have rights other than the right to receive the merger consideration described above, or to dissent from the merger and have the rights specified by the Virginia Stock Corporation Act. Each holder of a certificate representing ISI common stock (other than Dissenting Shares), upon surrender to Nematron of the stock certificate or certificates representing ISI common stock and the investment representation letter described in the Merger Agreement, shall be entitled to receive the merger consideration. After the effective date of the merger, there shall be no transfer of ISI common stock on the stock transfer books of ISI. The procedures for payment of the merger consideration are further described in the Merger Agreement.
(v) Common Stock of Nematron. Each share of common stock of Nematron issued and outstanding on the effective date of the merger, shall, ipso facto and without any action on the part of the holder thereof, be converted into one share of the common stock of the Surviving Corporation. Outstanding certificates of Nematron shall be deemed to represent the number of outstanding shares of common stock of the Surviving Corporation into which they have been converted, and need not be exchanged for new certificates of the Surviving Corporation by any holder thereof.
f. Not applicable, as the Amended and Restated Articles of Incorporation of Nematron will not be amended as a result of the merger.
g. Not applicable, as the terms and conditions of the merger are described in 1(e) above.
2. The merger is permitted under the laws of the Commonwealth of Virginia, the jurisdiction under which ISI is organized, and the Plan of Merger was adopted and approved by such corporation pursuant to and in accordance with the laws of that jurisdiction.
3. Not applicable, as the constituent corporations desire that the merger be effective upon the date of the filing of this Certificate of Merger with the Michigan Department of Commerce.
4. The Plan of Merger was approved by the Board of Directors of Nematron and ISI. In addition, the Plan of Merger was approved by the shareholders of ISI. Neither Section 703a nor Section 754 of the Michigan Business Corporation Act requires the shareholders of Nematron to approve the Plan of Merger. The Plan of Merger, and the related Merger Agreement referred to herein, will be furnished by the Surviving Corporation, on request and without cost, to any shareholder of any constituent corporation.
Signed this 2nd day of March, 1995.
NEMATRON CORPORATION
By: /s/ G. Paul Horst
--------------------------
G. Paul Horst
Its: President
|
Signed this 2nd day of March, 1995.
IMAGINATION SYSTEMS, INC.
By: /s/ Frank G. Logan, III
--------------------------
Frank G. Logan, III
Its: President
|
NAME OF ORGANIZATION REMITTING FEES:
Dykema Gossett PLLC
Preparer's Name and Business Telephone
Number:
Marguerite M. Gritenas
(313) 568-6503
Date Received (For Bureau Use Only) ----------------------------------------------------------- [Ld 4A] ----------------------------------------------------------- NAME Mark A. Metz Dykema Gossett PLLC ----------------------------------------------------------- |
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Profit and Nonprofit Corporations
(Please read information and instructions on the last page)
Pursuant to the provision of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:
1. The present name of the corporation is: Nematron Corporation
2. The identification number assigned by the Bureau is: 333-652
3. The location of the registered office is: 5840 Interface Drive, Ann Arbor, Michigan 48103
4. Article III of the Articles of Incorporation is hereby amended to read as set forth on Exhibit A, attached hereto and made a part hereof.
5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH.
a. The foregoing amendment of the Articles of Incorporation --- was duly adopted on the day of , 19 , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
Signed this day of , .
------- ----------- ------------
------------------------------------- ------------------------------------
(Signature) (Signature)
------------------------------------- ------------------------------------
(Type or Print Name) (Type or Print Name)
------------------------------------- ------------------------------------
(Signature) (Signature)
------------------------------------- ------------------------------------
(Type or Print Name) (Type or Print Name)
|
b. X The foregoing amendment to the Articles of Incorporation was
--- duly adopted on the 22nd day of May, 1995. The amendment:
(check one of the following)
|
X was duly adopted in accordance with Section 611(2) of --- the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment.
--- was duly adopted by the written consent of all directors pursuant to Section 525 of the Act, and the corporation is a nonprofit corporation organized on a nonstock directorship basis.
--- was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders who have been consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)
--- was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with section 407(3) of the Act if a nonprofit corporation, or Section 407(2) of the Act if a profit corporation.
Signed this 24th day of May, 1995.
By /s/ Frank G. Logan, III ------------------------------------------------ (Only Signature of President, Vice President, Chairperson, or Vice-Chairperson) |
EXHIBIT A
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
NEMATRON CORPORATION
ARTICLE III
The total authorized capital stock is:
1. Common stock: 8,000,000 shares
2. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
Subject to the preferences accorded the holders of any other class of stock pursuant to these Articles of Incorporation or action of the Board of Directors taken with respect to such preferences, holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors of the corporation from time to time and, in the event of any liquidation, dissolution or winding up of the corporation, the holders of Common Stock will be entitled to receive pro rata all of the remaining assets of the corporation available for distribution. Each issued and outstanding share of Common Stock is entitled to one vote.
No holder of any shares of any class of stock of this corporation shall have any preemptive or preferential right to subscribe for, or to purchase, any part of a new or additional issue or stock or any other reacquired shares of stock of any class whatsoever or of any securities convertible into stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration.
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU -------------------------------------------------------------------------------- Date Received (For Bureau Use Only) ----------------------------------------------------------- [Ld 4A] ----------------------------------------------------------- NAME Marguerite M. Gritenas Dykema Gossett PLLC ----------------------------------------------------------- |
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Profit and Nonprofit Corporations
(Please read information and instructions on the last page)
Pursuant to the provision of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:
1. The present name of the corporation is: Nematron Corporation
2. The identification number assigned by the Bureau is: 333-652
3. The location of the registered office is: 5840 Interface Drive, Ann Arbor, Michigan 48103
4. Article III of the Articles of Incorporation is hereby amended to read as set forth on Exhibit A, attached hereto and made a part hereof.
5. COMPLETE SECTION (a) IF THE AMENDMENT WAS ADOPTED BY THE UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF DIRECTORS OR TRUSTEES; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH.
a. The foregoing amendment of the Articles of Incorporation --- was duly adopted on the day of , 19 , in accordance with the provisions of the Act by the unanimous consent of the incorporator(s) before the first meeting of the Board of Directors or Trustees.
Signed this day of , .
------- ---------- ----------
------------------------------------- ------------------------------------
(Signature) (Signature)
------------------------------------- ------------------------------------
(Type or Print Name) (Type or Print Name)
------------------------------------- ------------------------------------
(Signature) (Signature)
------------------------------------- ------------------------------------
(Type or Print Name) (Type or Print Name)
|
b. X The foregoing amendment to the Articles of Incorporation was
----- duly adopted on the 8th day of March, 1996. The amendment:
(check one of the following)
|
X was duly adopted in accordance with Section 611(2) of --- the Act by the vote of the shareholders if a profit corporation, or by the vote of the shareholders or members if a nonprofit corporation, or by the vote of the directors if a nonprofit corporation organized on a nonstock directorship basis. The necessary votes were cast in favor of the amendment.
--- was duly adopted by the written consent of all directors pursuant to Section 525 of the Act, and the corporation is a nonprofit corporation organized on a nonstock directorship basis.
--- was duly adopted by the written consent of the shareholders or members having not less than the minimum number of votes required by statute in accordance with Section 407(1) and (2) of the Act if a nonprofit corporation, or Section 407(1) of the Act if a profit corporation. Written notice to shareholders who have been consented in writing has been given. (Note: Written consent by less than all of the shareholders or members is permitted only if such provision appears in the Articles of Incorporation.)
--- was duly adopted by the written consent of all the shareholders or members entitled to vote in accordance with section 407(3) of the Act if a nonprofit corporation, or Section 407(2) of the Act if a profit corporation.
Signed this 26th day of March, 1996.
By /s/ David P. Gienapp
---------------------------------------------------------
(Only Signature of President, Vice President,
Chairperson, or Vice-Chairperson)
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EXHIBIT A
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
NEMATRON CORPORATION
ARTICLE III
The total authorized capital stock is:
1. Common stock: 15,000,000 shares
2. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
Subject to the preferences accorded the holders of any other class of stock pursuant to these Articles of Incorporation or action of the Board of Directors taken with respect to such preferences, holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors of the corporation from time to time and, in the event of any liquidation, dissolution or winding up of the corporation, the holders of Common Stock will be entitled to receive pro rata all of the remaining assets of the corporation available for distribution. Each issued and outstanding share of Common Stock is entitled to one vote.
No holder of any shares of any class of stock of this corporation shall have any preemptive or preferential right to subscribe for, or to purchase, any part of a new or additional issue or stock or any other reacquired shares of stock of any class whatsoever or of any securities convertible into stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration.
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU -------------------------------------------------------------------------------- Date Received (For Bureau Use Only) ----------------------------------------------------------- [Ld 4A] ----------------------------------------------------------- NAME Jin Kyu Koh ----------------------------------------------------------- |
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
For use by Domestic Profit and Nonprofit Corporations
Pursuant to the provision of Act 284, Public Acts of 1972 (profit corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the undersigned corporation executes the following Certificate:
1. The present name of the corporation is: Nematron Corporation
2. The corporation identification number (CID) assigned by the Bureau is:
333-652
3. The location of its registered office is: 5840 Interface Drive, Ann Arbor, Michigan 48103
4. Articles III of the Articles of Incorporation are hereby amended and restated to read as follows:
ARTICLE III
The total authorized capital stock is:
1. Common Stock: 30,000,000 shares.
2. A statement of all or any of the relative rights, preferences and limitations of the shares of each class is as follows:
Subject to the preferences accorded the holders of any other class of stock pursuant to these Articles of Incorporation or action of the Board of Directors taken with respect to such preferences, holders of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors of the corporation from time to time and, in the event of any liquidation, dissolution or winding up of the corporation, the holders of Common Stock will be entitled to receive pro rata all of the remaining assets of the corporation available for distribution. Each issued and outstanding share of Common Stock is entitled to one vote.
No holder of any shares of any class of stock of this corporation shall have any preemptive or preferential right to subscribe for, or to purchase, any part of a new or additional issue of stock or any other reacquired shares of stock of any class whatsoever or of any securities convertible into stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration.
5. The foregoing amendment to the Articles of Incorporation was duly adopted on the 6th day of April, 1999, by the shareholders at the Annual Meeting of Shareholders. The necessary votes were cast in favor of the amendment.
Signed this 30th day of June, 1999
By: /s/ Matthew S. Galvez ---------------------------------------- (Signature of President, Vice President, Chairperson or Vice-Chairperson) |
-------------------------------------------------------------------------------- Name of person or organization Preparer's name and business remitting fees: telephone number: -------------------------------------------------------------------------------- Nematron Corporation Jin-Kyu Koh 5840 Interface Drive (313) 568-6627 Ann Arbor, Michigan 48103 -------------------------------------------------------------------------------- |
EXHIBIT 4.1
LOAN AND SECURITY AGREEMENT
DATED AS OF NOVEMBER 12, 1999
BY AND BETWEEN
NEMATRON CORPORATION,
AS BORROWER,
AND
LASALLE BUSINESS CREDIT, INC.,
AS LENDER
$10,900,000
TABLE OF CONTENTS
1. DEFINITIONS.............................................................................................1
(a) General Definitions.....................................................................................1
(b) Accounting Terms and Definitions.......................................................................10
2. REVOLVING LOANS........................................................................................10
3. TERM LOAN..............................................................................................11
4. LETTERS OF CREDIT......................................................................................11
5. INTEREST, FEES AND CHARGES.............................................................................12
(a) Rates of Interest......................................................................................12
(b) Computation of Interest and Fees.......................................................................12
(c) Maximum Interest.......................................................................................12
(d) Letter of Credit Fees..................................................................................13
(e) Closing Fee............................................................................................13
(f) Unused Line Fee........................................................................................13
(g) Examination and Appraisal Fees.........................................................................13
(h) Capital Adequacy Charge................................................................................13
6. LOAN ADMINISTRATION....................................................................................14
(a) Loan Requests..........................................................................................14
(b) Disbursement...........................................................................................14
7. GRANT OF SECURITY INTEREST TO LASALLE..................................................................14
8. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN................................15
9. POSSESSION OF COLLATERAL AND RELATED MATTERS...........................................................15
10. COLLECTIONS............................................................................................15
11. SCHEDULES AND REPORTS..................................................................................17
(a) Daily Reports..........................................................................................17
(b) Monthly Financial Statements...........................................................................18
(c) Monthly Reports........................................................................................18
(d) Annual Financial Statements............................................................................18
(e) Annual Projections.....................................................................................18
(f) Accountant's Reports...................................................................................19
(g) Explanation of Budgets and Projections.................................................................19
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(h) Other Information......................................................................................19
(i) Accompanying Certificates..............................................................................19
12. TERMINATION............................................................................................19
13. REPRESENTATIONS AND WARRANTIES.........................................................................20
14. COVENANTS..............................................................................................24
15. CONDITIONS PRECEDENT...................................................................................30
16. DEFAULT................................................................................................31
17. REMEDIES UPON AN EVENT OF DEFAULT......................................................................33
18. INDEMNIFICATION........................................................................................33
19. NOTICES................................................................................................34
20. CHOICE OF GOVERNING LAW AND CONSTRUCTION...............................................................34
21. FORUM SELECTION AND SERVICE OF PROCESS.................................................................34
22. MODIFICATION AND BENEFIT OF AGREEMENT..................................................................35
23. HEADINGS OF SUBDIVISIONS...............................................................................35
24. POWER OF ATTORNEY......................................................................................35
25. WAIVER OF JURY TRIAL; OTHER WAIVERS; CONFIDENTIALITY...................................................35
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("AGREEMENT") is made as of this 12th day of November, 1999, by and between LASALLE BUSINESS CREDIT, INC., a Delaware corporation ("LASALLE"), with an office at Two Honey Creek Corporate Center, 115 South 84th Street, Suite 220, Milwaukee, Wisconsin 53214, and NEMATRON CORPORATION, a Michigan corporation ("BORROWER"), with its principal office at 5840 Interface Drive, Ann Arbor, Michigan 48103.
WITNESSETH:
WHEREAS, from time to time Borrower may request LaSalle to make loans and advances to and extend certain credit accommodations to Borrower, and the parties wish to provide for the terms and conditions upon which such loans, advances and credit accommodations shall be made;
NOW, THEREFORE, in consideration of any loans, advances and credit accommodations (including any loans by renewal or extension) hereafter made to Borrower by LaSalle, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Borrower, the parties agree as follows:
1. DEFINITIONS
(a) General Definitions.
"ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "DOCUMENTS," "EQUIPMENT," "GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," "INVENTORY," and "INVESTMENT PROPERTY" shall have the respective meanings assigned to such terms, as of the date of this Agreement, in the Michigan Uniform Commercial Code.
"AFFILIATE" shall mean any Person directly or indirectly controlling, controlled by or under common control with Borrower, but shall not include any Subsidiary of Borrower.
"BENEFIT PLAN" shall mean an employee pension benefit plan of Borrower or an ERISA Affiliate, as defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA, each of which is specified on Schedule 13(w) attached hereto.
"BORROWING BASE" shall have the meaning specified in paragraph 2 hereof.
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, or such other day as banks in Milwaukee, Wisconsin or Chicago, Illinois are authorized or required to be closed for business.
"CAPITAL EXPENDITURES" shall mean, with respect to any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including expenditures for capitalized lease obligations) by Borrower during such period that are required by GAAP to be
included in or reflected by the property, plant or equipment or similar fixed asset accounts (or in intangible accounts subject to amortization) in the balance sheet of Borrower.
"CHANGE OF CONTROL" shall mean if the current shareholders of Borrower shall cease to directly or indirectly, of record or beneficially, own or control in the aggregate at least fifty percent (50%) of the voting shares of such Borrower free and clear of all liens and security interests.
"CLOSING AGENDA" shall have the meaning specified in paragraph 15(a)(i) hereof.
"CLOSING DATE" shall mean the date first stated above.
"COLLATERAL" shall mean all of the personal property of Borrower described in paragraph 7 hereof, all of the real property of Borrower described in the Mortgages and all other real or personal property of any Obligor or any other Person now or hereafter pledged to LaSalle to secure, either directly or indirectly, repayment of any of the Liabilities.
"DEBT SERVICE COVERAGE RATIO" shall mean, as of the end of any fiscal quarter for a measurement period consisting of that portion of the current Fiscal Year then ended, the ratio of (i) annualized (a) net income after taxes for such period (excluding any after-tax gains or losses on the sale of assets (other than the sale of Inventory in the ordinary course of business) and excluding other after-tax extraordinary gains or losses), plus (b) depreciation and amortization deducted in determining net income for such period, minus (c) Capital Expenditures and additions to capitalized software and development costs for such period not financed, to (ii) current principal maturities of long term debt and capitalized leases paid or scheduled to be paid during such Fiscal Year.
"DEFAULT" shall mean any event, condition or default which with the giving of notice, the lapse of time or both would be an Event of Default.
"DILUTION" shall mean, with respect to any period, the percentage obtained by dividing: (a) the sum of (i) non-cash credits against Accounts of Borrower for such period (but excluding any non-cash credits against Accounts of Borrower which have arisen solely because Borrower's invoice has been delivered to the wrong address of an Account Debtor and for which the Borrower has rebilled such Account to the correct address of such Account Debtor), plus (ii) pending or probable, but not yet applied, non-cash credits against Accounts of Borrower for such period, as reasonably determined by LaSalle, by (b) gross invoiced sales of Borrower for such period.
"ELIGIBLE ACCOUNT" shall mean an Account owing to a Borrower which is acceptable to LaSalle in its reasonable discretion for lending purposes. LaSalle shall consider an Account to be an Eligible Account if it meets, and so long as it continues to meet, the following requirements:
(i) it is genuine and in all respects is what it purports to be;
(ii) it is owned by a Borrower and such Borrower has the right to subject it to a security interest in favor of LaSalle;
(iii) it arises from (A) the performance of services by a Borrower and such services have been fully performed and acknowledged and accepted by the Account Debtor thereunder; or (B) the sale of Goods by a Borrower, and such Goods have been completed in accordance with the Account Debtor's specifications (if any) and delivered to and accepted by the Account Debtor, such Account Debtor has not refused to accept and has not returned or offered to return any of the Goods, or has not refused to accept any of the services, which are the subject of such Account, and the applicable Borrower has possession of, or has delivered to LaSalle at LaSalle's request, shipping and delivery receipts evidencing delivery of such Goods;
(iv) it is evidenced by an invoice rendered to the Account Debtor thereunder, is due and payable within thirty (30) days after the stated invoice date thereof and does not remain unpaid more than ninety (90) days past the stated invoice date thereof; provided, however, that if more than twenty-five percent (25%) of the aggregate dollar amount of invoices owing by a particular Account Debtor (other than an Account Debtor to the extent that its Accounts are Foreign Insured Accounts) remain unpaid for more than ninety (90) days past the respective invoice dates thereof, then all Accounts owing to the applicable Borrower by that Account Debtor shall be deemed ineligible;
(v) it is not subject to any prior assignment, claim, lien, security interest or encumbrance whatsoever, other than Permitted Liens;
(vi) it is a valid, legally enforceable and unconditional obligation of the Account Debtor thereunder, and is not subject to setoff, counterclaim, credit, allowance or adjustment by such Account Debtor, or to any claim by such Account Debtor denying liability thereunder in whole or in part;
(vii) it does not arise out of a contract or order which fails in any material respect to comply with the requirements of applicable law;
(viii) the Account Debtor thereunder is not a director, officer, employee or agent of a Borrower, or a Subsidiary, Parent or Affiliate of a Borrower;
(ix) it is not an Account with respect to which the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless the applicable Borrower assigns its right to payment of such Account to LaSalle pursuant to, and in full compliance with, the Assignment of Claims Act of 1940, as amended;
(x) it is not an Account with respect to which the Account Debtor is located in a state which requires the applicable Borrower, as a precondition to commencing or maintaining an action in the courts of that state, either to (A) receive a certificate of authority to do business and be in good standing in such state, or (B) file a notice of business activities report or similar report with such state's taxing authority, unless (x) the applicable Borrower has taken one of the actions described in clauses (A) or (B), (y) the failure to take one of the actions
described in either clause (A) or (B) may be cured retroactively by such Borrower at its election, or (z) such Borrower has proven, to LaSalle's satisfaction, that it is exempt from any such requirements under any such state's laws;
(xi) it is an Account which arises out of a sale made in the ordinary course of the applicable Borrower's business;
(xii) the Account Debtor either (A) is a resident or citizen of, and is located within, the United States of America or Canada, or (B) is not a resident or citizen of, or is not located within, the United States of America or Canada, but as to which (and only to the extent) adequate credit insurance for its Accounts exists in favor of the applicable Borrower and LaSalle and which is underwritten by American Indemnity Co. (a "Foreign Insured Account");
(xiii) it is not an Account with respect to which the Account Debtor's obligation to pay is conditional upon the Account Debtor's approval of the Goods or services or is otherwise subject to any repurchase obligation or any consignment return right, as with sales made on a bill-and-hold, guaranteed sale, sale on approval, sale or return or consignment basis;
(xiv) it is not an Account (A) with respect to which any representation or warranty contained in this Agreement is untrue or (B) which violates any of the covenants of Borrower contained in this Agreement;
(xv) it is not an Account (other than an Account of Electro-Matic Products Co. or a Foreign Insured Account) which, when added to a particular Account Debtor's other indebtedness to Borrower, exceeds the lesser of ten percent (10%) of the aggregate of Borrower's Accounts or a credit limit determined by LaSalle in its reasonable credit judgment for that Account Debtor; provided, however, that Accounts excluded from Eligible Accounts solely by reason of this clause (xv) shall be Eligible Accounts to the extent of such credit limit; provided further that upon the request of the Borrower from time to time, LaSalle shall give reasonable consideration to increasing such credit limit with respect to a particular Account Debtor;
(xvi) as to Accounts of Electro-Matic Products Co. ("ELECTRO-MATIC"), it is not an Electro-Matic Account which, when added to Electro-Matic's other indebtedness to Borrower, exceeds twenty-five percent (25%) of the aggregate of Borrower's Accounts, provided, however, that Electro-Matic Accounts excluded from Eligible Accounts solely by reason of this clause (xvi) shall be Eligible Accounts to the extent of such twenty-five percent (25%) credit limit; provided further that upon the request of the Borrower from time to time, LaSalle shall give reasonable consideration to increasing such credit limit with respect to Electro-Matic; or
(xvii) it is not an Account with respect to which the prospect of payment or performance by the Account Debtor is or will be impaired, as determined by LaSalle in its reasonable credit judgment.
"ENVIRONMENTAL LAWS" shall mean all federal, state, district, local and foreign laws, rules, regulations, ordinances, and consent decrees relating to health, safety, hazardous
substances, pollution and environmental matters, as now or at any time hereafter in effect, applicable to Borrower's business or facilities owned or operated by Borrower, including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and all references to sections thereof shall include such sections and any predecessor and successor provisions thereto.
"ERISA AFFILIATE" shall mean any member of a controlled group of entities as determined under Section 414(b), (c), (m), or (o) of the IRC, of which the Borrower is a member.
"EVENT OF DEFAULT" shall have the meaning specified in paragraph 16 hereof.
"EXCESS AVAILABILITY" shall mean, as of any date of
determination by LaSalle, the excess, if any, of (i) the Borrowing Base over
(ii) the sum (without duplication) of (a) outstanding Revolving Loans, plus (b)
outstanding Letter of Credit Obligations, plus (c) Borrower's aggregate trade
payables and outstanding debt which remain unpaid more than sixty (60) days
after the due dates thereof, in each case as of the close of business on such
date.
"EXCESS CASH FLOW" shall mean, with respect to any period, an
amount (not less than zero) equal to (i) net profit after taxes for such period,
plus (ii) depreciation and amortization expense deducted in determining net
profit for such period, minus (iii) Capital Expenditures and additions to
capitalized software and development costs for such period not financed, minus
(iv) current principal maturities of long-term debt and capitalized leases paid
or scheduled to be paid during such period.
"EXHIBIT A" shall mean the exhibit entitled "Exhibit A -
Business and Collateral Locations" which is attached hereto and made a part
hereof.
"EXHIBIT B" shall mean the exhibit entitled "Exhibit B -
Officer's Certificate", which is attached hereto and made a part hereof.
"FISCAL YEAR" shall mean with respect to Borrower, the twelve
(12) month accounting period of Borrower commencing January 1 of each calendar
year and ending December 31 of such calendar year.
"FOREIGN INSURED ACCOUNT" is defined in clause (xii) of the definition of "Eligible Account."
"GAAP" shall mean generally accepted accounting principles and policies in the United States as in effect from time to time.
"HAZARDOUS MATERIALS" shall mean any hazardous, toxic or dangerous substance,
materials and wastes, including, without limitation, hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including, without limitation, materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including, without limitation, any that are or become classified as hazardous or toxic under any Environmental Law).
"INDEMNIFIED PARTY" shall have the meaning specified in paragraph 18 hereof.
"INTEREST COVERAGE RATIO" shall mean, as of the end of any
fiscal quarter for a measurement period consisting of that portion of the Fiscal
Year then ended, the ratio of (i) annualized (a) net income after taxes for such
period (excluding any after-tax gains or losses on the sale of assets and
excluding other after-tax extraordinary gains or losses) plus (b) interest
expense, income tax expense, depreciation and amortization for such period, plus
(c) losses attributable to any fixed asset sales made during such period and
non-cash charges which have been subtracted in calculating net income for such
period, minus (d) gains attributable to any fixed asset sales made during such
period and other non-cash gains which have been added in calculating net income
for such period, to (ii) annualized interest expense for such period.
"IRC" shall mean the Internal Revenue Code of 1986, as amended.
"LASALLE BANK" shall mean LaSalle Bank N.A. and its successors and assigns.
"LETTERS OF CREDIT" shall mean those documentary or stand-by letters of credit issued for Borrower's account in accordance with the terms of paragraph 4 hereof.
"LETTER OF CREDIT OBLIGATIONS" shall mean, as of any date of determination, the sum of (i) the aggregate undrawn face amount of all Letters of Credit and (ii) the aggregate unreimbursed amount of all drawn Letters of Credit not already converted to a Loan hereunder.
"LIABILITIES" shall mean any and all obligations, liabilities and indebtedness of Borrower to LaSalle or to any parent, affiliate or subsidiary of LaSalle of any and every kind and nature, howsoever created, arising or evidenced and howsoever owned, held or acquired, whether now or hereafter existing, whether now due or to become due, whether primary, secondary, direct, indirect, absolute, contingent or otherwise (including, without limitation, obligations of performance), whether several, joint or joint and several, and whether arising or existing under written or oral agreement or by operation of law.
"LOAN" or "LOANS" shall mean any and all Revolving Loans and the Term Loan made by LaSalle to Borrower pursuant to paragraphs 2 and 3 hereof and all other loans, advances and financial accommodations made by LaSalle to or on behalf of Borrower hereunder.
"LOCK BOX" and "BLOCKED ACCOUNT" shall have the meanings specified in
paragraph 10 hereof.
"MATERIAL ADVERSE EFFECT" shall mean with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of the business, property, assets, operations, condition (financial or otherwise) or prospects of Borrower.
"MORTGAGE" shall mean each mortgage or deed of trust executed by Borrower in favor of LaSalle to secure the Liabilities.
"MULTIEMPLOYER PLAN" shall mean a plan described in Section 4001(a)(3) of ERISA which covers employees of Borrower or any ERISA Affiliate.
"NOTE" shall mean the Revolving Note or the Term Note.
"OBLIGOR" shall mean Borrower and each Person who is or shall become primarily or secondarily liable for any of the Liabilities; provided, however, that such term shall not include any Account Debtor.
"OBLIGORS" shall mean Borrower and each party guaranteeing Borrower's Liabilities, and each such Person is an "Obligor".
"ORIGINAL TERM" shall have the meaning specified in paragraph 12 hereof.
"OTHER AGREEMENTS" shall mean all agreements, instruments and documents including, without limitation, guaranties, mortgages, trust deeds, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements and all other writings heretofore, now or from time to time hereafter executed by or on behalf of Borrower or any other Person and delivered to LaSalle or to any parent, affiliate or subsidiary of LaSalle in connection with the Liabilities or the transactions contemplated hereby.
"PARENT" shall mean any Person now or at any time or times hereafter owning or controlling (alone or with any other Person) at least a majority of the issued and outstanding stock or other similar ownership interest of Borrower or any Subsidiary.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor thereof.
"PERMITTED INVESTMENT" shall mean
(a) Investments in direct obligations of, or obligations fully
guarantied by, the United States of America or any agency of the United States
of America the obligations of which agency carry the full faith and credit of
the United States of America, provided that such obligations mature within one
(1) year from the date of acquisition thereof;
(b) Investments in any obligation of any state or municipality thereof that at the time of acquisition thereof have an assigned rating of "A", "A-2" or higher by Standard & Poors (or an equivalent or higher rating by another credit rating agency of recognized national standing in the United States of America), provided that such obligations mature within one (1) year from the date of acquisition thereof;
(c) Investments in negotiable certificates of deposit issued by commercial banks organized under the laws of the United States of America or any state thereof, having capital, surplus and undivided profits aggregating at least Fifty Million Dollars ($50,000,000) and the long-term unsecured debt obligations of which are rated "A", "A-2" or higher by Standard & Poors (or an equivalent or higher rating by another credit rating agency of recognized national standing in the United States of America), provided that such certificates of deposit mature within one (1) year from the date of acquisition thereof; and
(d) Investments in corporate debt obligations (including commercial paper) of corporations organized under the laws of the United States of America or any state thereof that at the time of acquisition thereof have an assigned rating of "A", "A-2" or higher by Standard & Poors (or an equivalent or higher rating by another credit rating agency of recognized national standing in the United States of America).
"PERMITTED LIENS" shall mean (i) statutory liens of landlords,
carriers, warehousemen, mechanics, materialmen or suppliers incurred in the
ordinary course of business and securing amounts which are either (x) not yet
due or declared to be due by the claimant thereunder or (y) being contested in
good faith by appropriate proceeding and as to which Borrower maintains reserves
adequate to discharge such lien, (ii) liens or security interests in favor of
LaSalle, (iii) zoning restrictions and easements, rights of way, licenses,
covenants and other restrictions affecting the use of real property that do not
individually or in the aggregate have a Material Adverse Effect on Borrower's
ability to use such real property for its intended purpose in connection with
Borrower's business, (iv) liens securing the payment of taxes or other
governmental charges not yet delinquent or being contested in good faith and by
appropriate proceedings, (v) liens incurred or deposits made in the ordinary
course of Borrower's business in connection with capitalized leases or purchase
money security interests for purchase of, and applying only to, Equipment
included in the permitted borrowings under paragraph 13(p) or permitted as
Capital Expenditures under paragraph 14(m), (vi) liens securing indebtedness
owing by any Subsidiary to Borrower to the extent such indebtedness is permitted
under paragraph 14(l), or to any other Subsidiary of Borrower, (vii) deposits to
secure performance of bids, trade contracts, leases and statutory obligations
(to the extent not excepted elsewhere herein); (viii) liens specifically
permitted by LaSalle in writing as set forth on Schedule 1(a) attached hereto;
(ix) any lien arising out of the refinancing, extension, renewal or refunding of
any indebtedness secured by an lien permitted by any of the foregoing
subparagraphs (i) through (viii) inclusive; provided, that (a) such indebtedness
is not secured by any additional assets, and (b) the amount of such indebtedness
is not increased, (x) pledges or deposits in connection with worker's
compensation, unemployment insurance and other social security legislation, (xi)
securities and other properties held at banks or financial institutions to
secure the payment or reimbursement under overdraft, acceptance and other
facilities, (xii) rights of setoff, banker's lien and other similar rights
arising solely by operation of law, (xiii) liens in the nature of any minor
imperfections of title, including but not limited to easements, covenants, rights of way or other similar restrictions which would not materially adversely affect the use of the property to which they relate, have a material adverse effect on the sale or lease of such property or render title thereto unmarketable and (xiv) liens securing appeal bonds.
"PERSON" shall mean any individual, sole proprietorship, partnership, limited liability company venture, trust, unincorporated organization, association, corporation, institution, entity, party or foreign or United States government (whether federal, state, county, city, municipal or otherwise), including, without limitation, any instrumentality, division, agency, body or department thereof.
"PROHIBITED TRANSACTION" shall mean a prohibited transaction in Section 4975 of the IRC and Section 406 of ERISA.
"REFERENCE RATE" shall mean the publicly announced Reference Rate of LaSalle Bank in effect from time to time. The Reference Rate is not intended to be the lowest or most favorable rate of LaSalle Bank in effect at any time.
"RENEWAL TERM" shall have the meaning specified in paragraph 12 hereof.
"REPORTABLE EVENT" shall mean a reportable event as defined in
Section 4043 of ERISA and the regulations issued under such section, with
respect to a Benefit Plan, excluding, however, such events as to which the PBGC
has by regulation waived the requirement of Section 4043(a) of ERISA that it be
notified within 30 days of the occurrence of such event.
"REVOLVING LOANS" shall have the meaning specified in paragraph 2 hereof.
"REVOLVING LOAN COMMITMENT" shall mean the sum of Eight Million Dollars ($8,000,000).
"REVOLVING NOTE" shall mean the promissory note in the original principal amount of Eight Million Dollars ($8,000,000), executed by Borrower to the order of LaSalle, dated as of the Closing Date.
"STANDARD FEDERAL" shall mean Standard Federal Bank, Troy, Michigan, and its successors and assigns.
"SUBORDINATED INDEBTEDNESS" shall mean debt expressly subordinated to LaSalle on terms and conditions acceptable to LaSalle in its sole judgment.
"SUBSIDIARY" shall mean any corporation or company of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time stock of any other class of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned by Borrower or by any partnership or joint venture of which more than fifty percent (50%) of the outstanding equity interests are at the time, directly or indirectly, owned by Borrower.
"TANGIBLE NET WORTH" shall mean shareholders' equity (including retained earnings) less the book value of all intangible assets reflected on Borrower's consolidated balance sheet, plus the amount of any debt subordinated to LaSalle where the terms and conditions of such subordination have been accepted in writing by LaSalle in its sole judgment, all as determined in accordance with GAAP, consistently applied.
"TERM LOAN" shall have the meaning specified in paragraph 3 hereof.
"TERM NOTE" shall mean the promissory note in the original principal amount equal to the amount of the Term Loan, executed by Borrower to the order of LaSalle and dated as of the Closing Date.
"TOTAL CREDIT FACILITY" shall mean the sum of Ten Million Nine Hundred Thousand Dollars ($10,900,000).
(b) Accounting Terms and Definitions. Unless otherwise defined or specified herein, all accounting terms used in this Agreement shall be construed in accordance with GAAP, applied on a basis consistent in all material respects with the financial statements delivered by Borrower to LaSalle on or before the Closing Date. All accounting determinations for purposes of determining compliance with the financial covenants contained in paragraph 14(m) shall be made in accordance with GAAP as in effect on the Closing Date and applied on a basis consistent in all material respects with the audited financial statements delivered to LaSalle by Borrower on or before the Closing Date. The financial statements required to be delivered hereunder from and after the Closing Date, and all financial records, shall be maintained in accordance with GAAP. If GAAP shall change from the basis used in preparing the audited financial statements delivered to LaSalle by Borrower on or before the Closing Date, the certificates required to be delivered pursuant to paragraph 11(b) demonstrating compliance with the covenants contained herein shall include, at the election of Borrower or upon the request of LaSalle, calculations setting forth the adjustments necessary to demonstrate how Borrower is in compliance with the financial covenants based upon GAAP as in effect on the Closing Date.
2. REVOLVING LOANS. Subject to the terms and conditions of this Agreement and the Other Agreements, during the Original Term and any Renewal Term, absent the existence and continuation of an Event of Default, LaSalle shall make such revolving loans and advances (the "REVOLVING LOANS") to Borrower as Borrower shall from time to time request, in accordance with the terms of this paragraph 2. The aggregate unpaid principal amount of all Revolving Loans outstanding at any one time made to Borrower shall not exceed the lesser of (i) an amount equal to eighty-five percent (85%) of the face amount of Eligible Accounts, less such reserves as LaSalle elects to establish from time to time in the exercise of its reasonable discretion, including, without limitation, a Dilution reserve if Dilution exceeds 5%, minus the outstanding amount of all Letter of Credit Obligations, (the "BORROWING BASE") or (ii) the Revolving Loan Commitment, minus the outstanding amount of all Letter of Credit Obligations. All Revolving Loans shall be repaid in full upon the earlier to occur of (A) the end of the Original Term or any Renewal Term, if either LaSalle or Borrower elects to terminate this Agreement as of the end of any such term and (B) the acceleration of the Liabilities pursuant to paragraph 17 of this Agreement. If at any time the outstanding principal balance of the Revolving Loans made to
Borrower exceeds (i) the Borrowing Base or (ii) the Revolving Loan Commitment, in each case less the outstanding Letter of Credit Obligations, Borrower shall immediately, and without the necessity of a demand by LaSalle, pay to LaSalle such amount as may be necessary to eliminate such excess, and LaSalle shall apply such payment against the outstanding principal balance of the Revolving Loans. In addition, if at any time the sum of (A) the outstanding principal balance of the Loans and (B) the outstanding Letter of Credit Obligations exceeds the Total Credit Facility, Borrower shall immediately and without the necessity of a demand by LaSalle pay to LaSalle such amount as may be necessary to eliminate such excess, and LaSalle shall apply such payment against the outstanding principal balance of the Revolving Loans in such order as LaSalle shall determine in its sole discretion. Borrower hereby authorizes LaSalle to charge any of Borrower's accounts to make any payments of principal or interest required by this Agreement. All Revolving Loans shall, in LaSalle's sole discretion, be evidenced by one or more promissory notes in form and substance satisfactory to LaSalle. However, if such Revolving Loans are not so evidenced, such Revolving Loans may be evidenced solely by entries upon the books and records maintained by LaSalle.
3. TERM LOAN.
(a) On the Closing Date, LaSalle shall make a term loan to
Borrower in the original principal amount of Two Million Nine Hundred Thousand
Dollars ($2,900,000) (the "TERM LOAN"). Principal payable on account of the Term
Loan shall be payable (x) in successive monthly installments (i) payable on the
first day of each month, the first of which installments shall be due and
payable on the first day of the month immediately following the 30th day after
the Closing Date and (ii) based on an amortization schedule consisting of
one-hundred eighty (180) equal and level payments, and (y) in quarterly
installments payable within thirty (30) days after the end of each fiscal
quarter in any amount equal to twenty percent (20%) of Excess Cash Flow during
such fiscal quarter then ended; provided, however, that the entire unpaid
principal balance of the Term Loan shall be due and payable in full upon the
expiration of the Original Term of this Agreement; and, provided further, that
in the event that the Original Term of this Agreement is initially or
subsequently renewed in accordance with paragraph 12 hereof, then Borrower shall
continue to make such equal and level monthly payments, with a final installment
equal to the unpaid principal balance and any other amounts outstanding due and
payable upon the expiration of the Renewal Term. Notwithstanding anything
hereinabove to the contrary, the entire unpaid principal balance of the Term
Loan, and any accrued and unpaid interest thereon, shall be immediately due and
payable upon the earlier to occur of (i) the last day of the Original Term or
the last day of any Renewal Term, if either LaSalle or Borrower elects to
terminate this Agreement as of the end of any such Original or Renewal Term and
(ii) the acceleration of the Liabilities pursuant to paragraph 17 of this
Agreement.
(b) If Borrower sells any real property subject to a Mortgage or if any Collateral is damaged, destroyed or taken by condemnation, Borrower shall pay to LaSalle, unless otherwise specifically provided herein or otherwise agreed to by LaSalle, as and when received by Borrower and as a mandatory prepayment of the Term Loan, to be applied against the last maturing installments of principal thereof, in the inverse order thereof (or, at LaSalle's option, after the Term Loan has been repaid in full, such of the other Liabilities of Borrower as LaSalle
may elect), a sum equal to the proceeds received by Borrower from (i) such sale or (ii) such damage, destruction or condemnation; provided, however, that without LaSalle's consent, unless and until an Event of Default has occurred and is continuing, proceeds of Collateral arising from the damage, destruction or condemnation thereof may be retained by Borrower and used by Borrower to repair, restore or replace such Collateral, as the case may be, so long as the fair market value of any such Collateral damaged, destroyed or condemned in any single incident is less than $50,000, and the fair market value, in the aggregate, of all such Collateral owned by Borrower and damaged, destroyed or condemned during any twelve-month period is less than $100,000.
4. LETTERS OF CREDIT. Subject to the terms and conditions of this Agreement, and the Other Agreements, during the Original Term or any Renewal Term, LaSalle shall, absent the existence of an Event of Default, from time to time cause the issuance of and co-sign for, upon Borrower's request, Letters of Credit; provided, that the Letters of Credit shall be in form and substance acceptable to LaSalle in its sole discretion and that the aggregate undrawn face amount of all such Letters of Credit shall at no time exceed Two Million Five Hundred Thousand Dollars ($2,500,000); and provided further, that no Letter of Credit shall have an expiry date (a) more than 365 days from the date of issuance or (b) beyond five (5) days prior to the expiration of the Original Term or the Renewal Term, as the case may be. Borrower's reimbursement obligation in respect of the Letters of Credit shall automatically reduce, dollar for dollar, the amount which Borrower may borrow based upon the Revolving Loan Commitment and the Borrowing Base. Any payment made by LaSalle to any Person on account of any Letter of Credit shall constitute a Revolving Loan hereunder (which shall, for the avoidance of doubt, thereafter reduce the outstanding amount under such Letter of Credit for purposes of determining the amount available under the Revolving Loans). At no time shall the aggregate sum of direct Revolving Loans by LaSalle to Borrower plus the contingent liability of LaSalle under the outstanding Letters of Credit be in excess of the Revolving Loan Commitment or the Borrowing Base.
5. INTEREST, FEES AND CHARGES.
(a) Rates of Interest. Interest accrued on all Loans shall be
due on the earliest of: (i) the first 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 LaSalle
elects to accelerate the maturity and payment of the Liabilities; or (iii)
termination of this Agreement pursuant to paragraph 12 hereof. At Borrower's
election, except as otherwise provided in paragraph 6(c) hereof, interest shall
accrue on: (A) the unpaid principal balance of the Term Loan made to Borrower
outstanding at the end of each day at a fluctuating rate per annum equal to one
and one-half per cent (1.50%) (the "TERM LOAN MARGIN") above the Reference Rate;
and (B) the principal amount of the Revolving Loans made to Borrower outstanding
at the end of each day at a fluctuating rate per annum equal to one per cent
(1.00%) (the "REVOLVING LOAN MARGIN") above the Reference Rate; provided,
however, that upon LaSalle's receipt and review of Borrower's consolidated
audited financial statements indicating consolidated net income for Fiscal Year
ending December 31, 2000, of not less than $500,000, then the Revolving Loan
Margin and the Term Loan Margin shall each thereafter be reduced by fifty (50)
basis points (i.e., one-half of one percent (0.50%)), with such reduction to
be effective on the first day of the month on which LaSalle receives such Financial Statements. The rate of interest payable on Loans shall increase or decrease by an amount equal to any increase or decrease in the Reference Rate, effective as of the opening of business on the day that any such change in the Reference Rate occurs. Upon and after the occurrence of an Event of Default, and during the continuation thereof, the principal amount of all Loans shall bear interest on demand at a rate per annum equal to (1) with respect to the Term Loan, the rate of interest then in effect under paragraph 5(a)(A) plus two percent (2%) and (2) with respect to Revolving Loans, the rate of interest then in effect under paragraph 5(a)(B) plus two percent (2%).
(b) Computation of Interest and Fees. Interest and collection charges hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year consisting of three hundred and sixty (360) days. For the purpose of computing interest hereunder, all items of payment received by LaSalle shall be deemed applied by LaSalle on account of the Liabilities (subject to final payment of such items) on the second (2nd) Business Day after receipt by LaSalle of good funds in LaSalle's account located in Chicago, Illinois or such other LaSalle office as LaSalle may hereafter designate.
(c) Maximum Interest. It is the intent of the parties that the rate of interest and the other charges to Borrower under this Agreement shall be lawful; therefore, if for any reason the interest or other charges payable under this Agreement are found by a court of competent jurisdiction, in a final determination, to exceed the limit which LaSalle may lawfully charge Borrower, then the obligation to pay interest and other charges shall automatically be reduced to such limit and, if any amount in excess of such limit shall have been paid, then such amount shall be refunded to Borrower.
(d) Letter of Credit Fees. Borrower shall remit to LaSalle a Letter of Credit fee equal to the greater of (i) one and one-half percent (1.50%) simple interest per annum on the aggregate undrawn face amount of all outstanding Letters of Credit issued for the account of Borrower, or (ii) $150 per transaction, such fee shall be payable monthly in arrears on each day that interest is payable hereunder. Borrower shall also pay on demand the normal and customary administrative charges for issuance, amendment, negotiation, renewal or extension of any Letter of Credit imposed by the bank issuing such Letter of Credit. Upon the occurrence and during the continuance of an Event of Default, all Letter of Credit fees shall be payable on demand at a rate equal to three and one-half percent (3.50%) per annum on the aggregate undrawn face amount thereof.
(e) Closing Fee. Borrower shall pay to LaSalle a closing fee of Seventy-Five Thousand Dollars ($75,000), which shall be fully earned, nonrefundable and due on the Closing Date.
(f) Unused Line Fee. Borrower shall pay to LaSalle at the end of each month, in arrears, an Unused Line Fee equal to three-eighths of one percent (0.375%) per annum on the daily average amount by which the Revolving Loan Commitment exceeds the sum of (i) the outstanding principal balance of the Revolving Loans and (ii) the outstanding Letter of Credit Obligations. The Unused Line Fee shall accrue from the Closing Date until the last day of the
Original Term, and if applicable, from the first day to the last day of each Renewal Term.
(g) Examination and Appraisal Fees. In addition to the costs
and expenses described in paragraph 14(o) hereof, Borrower shall pay to LaSalle
(i) an examination fee of $600 per day (provided that unless a Default or Event
of Default shall have occurred, the aggregate amount of such examination fees
shall not exceed $7,500 in any calendar year), plus (ii) all out-of-pocket
expenses for each examination performed by or at LaSalle's direction of
Borrower's books and records and Collateral and such other matters as LaSalle
shall deem appropriate in its commercially reasonable judgment, each such fee to
be paid upon the completion of each such examination.
(h) Capital Adequacy Charge. If LaSalle shall have determined that the adoption of any law, rule or regulation regarding capital adequacy, or any change therein or in the interpretation or application thereof, or compliance by LaSalle with any request or directive regarding capital adequacy (whether or not having the force of law) from any central bank or governmental authority enacted after the Closing Date, does or shall have the effect of reducing the rate of return on LaSalle's capital as a consequence of its obligations hereunder to a level below that which LaSalle could have achieved but for such adoption, change or compliance (taking into consideration LaSalle's policies with respect to capital adequacy) by a material amount, then from time to time, after submission by LaSalle to Borrower of a written demand therefor ("CAPITAL ADEQUACY DEMAND") together with the certificate described below, Borrower shall pay to LaSalle such additional amount or amounts ("CAPITAL ADEQUACY CHARGE") as will compensate LaSalle for such reduction, such Capital Adequacy Demand to be made with reasonable promptness following such determination. A certificate of LaSalle claiming entitlement to payment as set forth above shall be conclusive in the absence of manifest error. Such certificate shall set forth the nature of the occurrence giving rise to such reduction, the amount of the Capital Adequacy Charge to be paid to LaSalle, and the method by which such amount was determined. In determining such amount, LaSalle may use any reasonable averaging and attribution method, applied on a non-discriminatory basis.
6. LOAN ADMINISTRATION.
(a) Loan Requests. A request for a Revolving Loan shall be made or shall be deemed to be made, each in the following manner: (i) Borrower shall give LaSalle same day notice, no later than 10:30 A.M. (Chicago time) of such day, of its intention to borrow a Revolving Loan, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date; provided, however, that no such request may be made at a time when there exists a Default or an Event of Default; and (ii) the coming due of any amount required to be paid under this Agreement or any Note, whether on account of interest or for any other Liability, shall be deemed irrevocably to be a request for a Revolving Loan on the due date thereof in the amount required to pay such interest or other Liability. As an accommodation to Borrower, LaSalle may permit telephone requests for Revolving Loans and electronic transmittal of instructions, authorizations, agreements or reports to LaSalle by Borrower; provided that telephone requests or electronic transmittals may be made only by such persons as the Borrower may from time to time designate in writing to LaSalle (it being understood that LaSalle shall be
entitled to rely upon such designation until LaSalle receives and has a reasonable opportunity to act upon the Borrower's written amendment or retraction of such designation), and provided further that LaSalle will not accept a telephone or electronic request to change the account number into which proceeds from the Revolving Loans are deposited by LaSalle. Unless Borrower specifically directs LaSalle in writing not to accept or act upon telephonic or electronic communications from Borrower, LaSalle shall have no liability to Borrower for any loss or damage suffered by Borrower as a result of LaSalle'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 LaSalle by Borrower and LaSalle shall have no duty to verify the origin of any such communication or the authority of the Person sending it. Each notice of borrowing shall be irrevocable by and binding on Borrower.
(b) Disbursement. Borrower hereby irrevocably authorizes LaSalle to disburse the proceeds of each Revolving Loan requested by Borrower, or deemed to be requested by Borrower, as follows: (i) the proceeds of each Revolving Loan requested under paragraph 6(a)(i) shall be disbursed by LaSalle 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 the written disbursement letter from Borrower, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and LaSalle from time to time, or elsewhere if pursuant to a written direction from Borrower; and (ii) the proceeds of each Revolving Loan requested under paragraph 6(a)(ii) shall be disbursed by LaSalle by way of direct payment of the relevant interest or other Liability.
7. GRANT OF SECURITY INTEREST TO LASALLE. As security for the payment of all Loans now or in the future made by LaSalle to Borrower hereunder and for the payment or other satisfaction of all other Liabilities, Borrower hereby assigns to LaSalle and grants to LaSalle a continuing first priority security interest in the following property of Borrower, whether now or hereafter owned, existing, acquired or arising and wherever now or hereafter located: (a) all Accounts (whether or not Eligible Accounts) and all Goods whose sale, lease or other disposition by Borrower has given rise to Accounts and have been returned to or repossessed or stopped in transit by Borrower; (b) all Chattel Paper, Instruments, Investment Property, Documents and General Intangibles (including, without limitation, all patents, patent applications, trademarks, trademark applications, tradenames, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refund claims, claims against carriers and shippers, guarantee claims, contracts rights, security interests, security deposits and any rights to indemnification); (c) all Inventory; (d) all Goods (other than Inventory) including, without limitation, Equipment, vehicles and fixtures; (e) all deposits and cash and any other property of Borrower now or hereafter in the possession, custody or control of LaSalle or any agent or any parent, affiliate or subsidiary of LaSalle or any participant with LaSalle in the Loans for any purpose (whether for safekeeping, deposit, collection, custody, pledge, transmission or otherwise); and (f) all additions and accessions to, substitutions for, and replacements, products and proceeds of the foregoing property, including, without limitation, proceeds of all insurance policies insuring the foregoing property, and all of Borrower's books and records relating to any of the foregoing and to Borrower's business.
8. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN. Borrower shall, at LaSalle's request, at any time and from time to time, execute and deliver to LaSalle such financing statements, documents and other agreements and instruments (and pay the cost of filing or recording the same in all public offices deemed reasonably necessary or desirable by LaSalle) and do such other acts and things as LaSalle may deem necessary or desirable in order to establish and maintain a valid, attached and perfected security interest in the Collateral in favor of LaSalle (free and clear of all other liens, claims and rights of third parties whatsoever, whether voluntarily or involuntarily created, except Permitted Liens) to secure payment of the Liabilities, and in order to facilitate the collection of the Collateral. Borrower irrevocably hereby makes, constitutes and appoints LaSalle (and all Persons designated by LaSalle for that purpose) as Borrower's true and lawful attorney and agent-in-fact to execute such financing statements, documents and other agreements and instruments and do such other acts and things as may be necessary to preserve and perfect LaSalle's security interest in the Collateral. Borrower further agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement shall be sufficient as a financing statement.
9. POSSESSION OF COLLATERAL AND RELATED MATTERS. Unless an Event of Default has occurred and is continuing, Borrower shall have the right, in the ordinary course of Borrower's business, to (a) sell, lease or furnish under contracts of service any of Borrower's Inventory normally held by Borrower for any such purpose, and (b) use and consume any raw materials, work in process or other materials normally held by Borrower for such purpose; provided, however, that a sale in the ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owed by Borrower to the purchaser.
10. COLLECTIONS.
(a) Borrower shall direct all of its Account Debtors to make all payments on the Accounts directly to a post office box ("LOCK BOX") with a bank designated by LaSalle ("BLOCKED ACCOUNT BANK") (which initial Blocked Account Bank shall be LaSalle Bank) and in the name and under exclusive control of, LaSalle. Borrower acknowledges and consents to any arrangement whereby the Blocked Account Bank may arrange for Lock Box or Blocked Account processing to be handled by LaSalle Bank. Borrower shall establish an account (the "BLOCKED ACCOUNT") in LaSalle's name for the benefit of Borrower with Blocked Account Bank and LaSalle Bank. All payments received in the Lock Box shall be deposited in the Blocked Account, and into which Borrower will immediately deposit all payments made for Inventory or services sold or rendered by Borrower and received by Borrower in the identical form in which such payments were made, whether by cash or check. If Borrower, any Affiliate or Subsidiary of Borrower, or any shareholder, officer, director, employee or agent of Borrower or any Affiliate or Subsidiary, or any other Person acting for or in concert with Borrower shall receive any monies, checks, notes, drafts or other payments as proceeds of Borrower's Accounts or other Collateral, Borrower and each such Person shall receive all such items in trust for, and as the sole and exclusive property of, LaSalle and, immediately upon receipt thereof, shall remit the same (or cause the same to be remitted) in kind to the Blocked Account. Blocked Account Bank shall acknowledge and agree, in a manner satisfactory to LaSalle, that the amounts on deposit in such
Lock Box and Blocked Account are the sole and exclusive property of LaSalle,
that Blocked Account Bank has no right to setoff against such Lock Box or
Blocked Account or against any other account maintained by Blocked Account Bank
into which the contents of such Blocked Account are transferred, and that
Blocked Account Bank shall wire, or otherwise transfer in immediately available
funds in a manner satisfactory to LaSalle, funds deposited in the Blocked
Account on a daily basis as such funds are collected. Borrower agrees that all
payments made to the Blocked Account established by Borrower or otherwise
received by LaSalle, whether in respect of the Accounts of Borrower or as
proceeds of other Collateral of Borrower or otherwise, will be applied on
account of the Liabilities (other than (unless an Event of Default shall have
occurred and be continuing) the Term Loan) of Borrower in accordance with the
terms of this Agreement. If (x) application of such payments or proceeds causes
the Revolving Loan balance to be less than zero (such deficit is hereinafter
referred to as the "EXCESS AMOUNT"), and (y) no Default or Event of Default
shall have occurred and be continuing, then LaSalle shall notify the Borrower
thereof (whether orally or in writing) and, at Borrower's discretion, make a
disbursement in the amount of the Excess Amount (which disbursement shall not,
for the avoidance of doubt, accrue interest) to such unrestricted, non-blocked
account as the Borrower may direct LaSalle in writing. Borrower agrees to pay
all fees, costs and expenses which Borrower incurs in connection with opening
and maintaining a Lock Box and the Blocked Account. All of such fees, costs and
expenses which remain unpaid by Borrower pursuant to any agreement executed by
Borrower relating to the Lock Box or Blocked Account, to the extent same shall
have been paid by LaSalle hereunder, shall constitute Revolving Loans hereunder.
All checks, drafts, instruments and other items of payment or proceeds of
Collateral delivered to LaSalle in kind shall be endorsed by Borrower to
LaSalle, and, if that endorsement of any such item shall not be made for any
reason, LaSalle is hereby irrevocably authorized to endorse the same on
Borrower's behalf. For the purpose of this paragraph, Borrower irrevocably
hereby makes, constitutes and appoints LaSalle (and all Persons designated by
LaSalle for that purpose) as Borrower's true and lawful attorney and
agent-in-fact (i) to endorse Borrower's name upon said items of payment and/or
proceeds of Collateral of Borrower and upon any Chattel Paper, document,
instrument, invoice or similar document or agreement relating to any Account of
Borrower or goods pertaining thereto; (ii) to take control in any manner of any
item of payment or proceeds thereof; (iii) to have access to any lock box or
postal box into which any of Borrower's mail is deposited; and (iv) open and
process all mail addressed to Borrower and deposited therein; provided, however,
that LaSalle shall not exercise any such powers described in subparagraphs (i),
(ii) (except for routine Lock Box payments/proceeds), (iii) and (iv) unless and
until an Event of Default has occurred and is continuing.
(b) For the purpose of determining Borrower's Borrowing Base hereunder, LaSalle shall, upon receipt by LaSalle at its office in Chicago, Illinois or such other LaSalle office as LaSalle may hereafter designate, of cash or other immediately available funds from collections of items of payment and proceeds of any Collateral, apply such collections or proceeds against the Revolving Loans until the balance thereof is zero, and then, (i) if a Default or Event of Default shall have occurred and be continuing, to the other Liabilities in such order as LaSalle shall determine in its sole discretion, and (ii) if no Default or Event of Default shall have occurred and be continuing, as provided in paragraph 10(a).
(c) In its reasonable credit judgment, without waiving or releasing any
obligation, liability or duty of Borrower under this Agreement or the Other Agreements or any Event of Default, at any time or times hereafter, LaSalle may (but shall not be obligated to), following the occurrence and during the continuation of a Default or Event of Default, pay, acquire or accept an assignment of any security interest, lien, encumbrance or claim asserted by any Person in, upon or against the Collateral. All sums paid by LaSalle in respect thereof and all costs, fees and expenses (including, without limitation, reasonable attorney fees for both inside and outside counsel, all court costs and all other charges relating thereto) incurred by LaSalle shall constitute Revolving Loans.
(d) Immediately upon Borrower's receipt of any portion of the Collateral evidenced by an agreement, Instrument or Document including, without limitation, any Chattel Paper, Borrower shall deliver the original thereof to LaSalle together with an appropriate endorsement or other specific evidence of assignment thereof to LaSalle (in form and substance acceptable to LaSalle). If an endorsement or assignment of any such items shall not be made for any reason, LaSalle is hereby irrevocably authorized, as Borrower's attorney and agent-in-fact, to endorse or assign the same on Borrower's behalf.
(e) LaSalle shall render to Borrower each month a statement of Borrower's account or accounts, as the case may be, which shall constitute an account stated and shall be deemed to be correct and accepted by and be binding upon Borrower unless LaSalle receives a written statement of Borrower's exceptions thereto within thirty (30) days after such statement was rendered to Borrower.
11. SCHEDULES AND REPORTS. Borrower shall furnish or cause to be furnished to LaSalle the following:
(a) Daily Reports. Borrower shall provide LaSalle with an executed daily loan report and certificate in LaSalle's then current form on each day on which Borrower requests a Revolving Loan, and in any event at least one each week, which shall be accompanied by copies of Borrower's sales journal, cash receipts journal and credit memo journal for the relevant period. Such report shall reflect the activity of Borrower with respect to Accounts for the immediately preceding week, and shall be in a form and with such specificity as is satisfactory to LaSalle and shall contain such additional information as LaSalle may reasonably require concerning Accounts included, described or referred to in such report and any other documents in connection therewith requested by LaSalle including, without limitation, but only if specifically requested by LaSalle, copies of all invoices prepared in connection with such Amounts.
(b) Monthly Financial Statements. As soon as practicable and in any event within twenty (20) days following the end of each calendar month (except in the case of clause (4)(A), in which case within twenty (20) days following the end of each fiscal quarter): (1) statements of income and cash flows of Borrower and its Subsidiaries, prepared on a consolidated and consolidating basis, for each such month and for the period from beginning of the then current Fiscal Year of Borrower to the end of such month, (2) balance sheets of Borrower and its Subsidiaries, prepared on a consolidated and consolidating basis, as of the end of such month, (3) with respect to such statements of income and cash flows, in comparative
form, figures for the corresponding periods in the preceding Fiscal Year of Borrower, all in reasonable detail and certified by the chief financial officer of Borrower that such statements fairly present the financial condition of Borrower in accordance with GAAP, subject to changes resulting from normal year-end audit adjustments and (4) a certificate of Borrower's chief financial officer (A) setting forth, in such form and in such detail as shall be reasonably satisfactory to LaSalle, computations of Borrower's compliance with the covenants set forth in this Agreement, and (B) stating that an Default or Event of Default either (i) does not exist or (ii) exists, specifying the nature thereof and the actions being taken or proposed to be taken in connection therewith.
(c) Monthly Reports. In addition to any other reports, as soon as practicable and in any event within twenty (20) days after the end of each month, (i) a detailed trial balance of Borrower's Accounts aged per invoice date, in form and substance reasonably satisfactory to LaSalle including, without limitation, the names and addresses of all Account Debtors of Borrower, and (ii) a summary and detail of accounts payable (such Accounts and accounts payable divided into fifteen (15) or thirty (30) day intervals as LaSalle may require in its reasonable discretion), including a listing of any held checks.
(d) Annual Financial Statements. As soon as practicable and in any event within ninety-five (95) days after the end of each Fiscal Year of Borrower: (a) statements of income of Borrower and its Subsidiaries, prepared on a consolidated and consolidating basis, for such Fiscal Year, and a balance sheet of Borrower and its Subsidiaries, prepared on a consolidated and consolidating basis, as of the end of such Fiscal Year, and (2) statements of shareholders equity and cash flows of Borrower and its Subsidiaries, prepared on a consolidated and consolidating basis, for such Fiscal Year, such statements to be presented in accordance with GAAP and (other than the consolidating balance sheet and the consolidating income statement) certified by independent certified public accountants of recognized national standing selected by Borrower and reasonably satisfactory to LaSalle (which LaSalle agrees may be Grant Thornton LLP), whose opinion shall be unqualified, in form and substance reasonably satisfactory to LaSalle. Such financial statements shall be in the form filed with the Securities and Exchange Commission to the extent required to be filed therewith.
(e) Annual Projections. As soon as practicable and in any event prior to the beginning of each Fiscal Year of Borrower, projected profit and loss, balance sheets, statements of income and cash flow for Borrower, for each of the twelve (12) months during such Fiscal Year, which shall include the assumptions used therein, together with appropriate supporting details as reasonably requested by LaSalle.
(f) Accountant's Reports. As soon as practicable and in any event within ten (10) days of delivery to Borrower, a copy of any letter issued by Borrower's independent public accountants or other management consultants with respect to Borrower's financial or accounting systems or controls, including all so-called "management letters".
(g) Explanation of Budgets and Projections. In conjunction with the delivery of the annual presentation of projections or budgets referred to in paragraph 11(e) above, a letter signed by the President or a Vice President of Borrower and by the Treasurer or Chief Financial
Officer of Borrower, describing, comparing and analyzing, in detail, all changes and developments between the anticipated financial results included in such projections or budgets and the historical financial statements of Borrower.
(h) Other Information. With reasonable promptness, such other business or financial data, reports, appraisals and projections as LaSalle may reasonably request.
(i) Accompanying Certificates. All financial statements delivered to LaSalle pursuant to the requirements of this paragraph (except where otherwise expressly indicated) shall be prepared in accordance with GAAP as provided in this Agreement. Together with each delivery of financial statements required by paragraph 11(b) and (d) above, Borrower shall deliver to LaSalle an officer's certificate in the form attached hereto as Exhibit B, which shall include a calculation of Excess Cash Flow and financial covenants in the schedule attached to such officer's certificate in form satisfactory to LaSalle.
12. TERMINATION.
(a) This Agreement shall be in effect from the date hereof
until November 12, 2002 ("ORIGINAL TERM") and shall automatically renew itself
from year to year thereafter (each such one year renewal being referred to
herein as a "RENEWAL TERM") unless (i) the due date of the Liabilities is
accelerated pursuant to paragraph 17 hereof; (ii) Borrower elects or LaSalle
elects to terminate this Agreement at the end of the Original Term or at the end
of any Renewal Term by giving the other party written notice of such election at
least sixty (60) days prior to the end of the Original Term or the then current
Renewal Term, in which case Borrower shall pay all of the Liabilities in full on
the last day of such term; or (iii) Borrower elects to terminate this Agreement
at any other time during the Original Term or any Renewal Term upon not less
than sixty (60) days prior written notice, in which case Borrower shall pay all
of the Liabilities in full on the date specified in such written notice. If one
or more of the events specified in subparagraphs (i), (ii) or (iii) occurs, this
Agreement shall terminate on the date thereafter on which the Liabilities are
paid in full; provided, however, that the security interests and liens created
under this Agreement and the Other Agreements shall survive such termination
until the date upon which payment and satisfaction in full of the Liabilities
shall have occurred. At such time as Borrower has repaid all of the Liabilities
and this Agreement has terminated, (A) Borrower shall deliver to LaSalle a
release, in form and substance reasonably satisfactory to LaSalle, of all
obligations and liabilities of LaSalle and its officers, directors, employees,
agents, parents, subsidiaries and affiliates to Borrower, and if Borrower is
obtaining new financing from another lender, Borrower shall deliver such
lender's indemnification of LaSalle, in the form attached hereto as Schedule
12(a), for checks which LaSalle has credited to Borrower's account, but which
subsequently are dishonored for any reason and, (B) LaSalle shall deliver to
Borrower a release in form and substance reasonably satisfactory to Borrower.
(b) If this Agreement is terminated prior to the end of the Original Term, Borrower agrees to pay to LaSalle, as a prepayment fee, in addition to the payment of all other Liabilities owing by Borrower, an amount equal to: (i) two percent (2%) of the Total Credit Facility if this Agreement is terminated during the first year of the Original Term; (ii) one percent
(1.0%) of the Total Credit Facility if this Agreement is terminated during the second year of the Original Term; and (iii) one percent(1.0%) of the Total Credit Facility if this Agreement is terminated during the third year of the Original Term; provided, however, that such prepayment fee shall not be payable if this Agreement is terminated (A) at the end of the Original Term pursuant to the terms set forth herein, or (B) at any other time by LaSalle if no Default or Event of Default shall have occurred and be continuing, or (C) by the Borrower following the issuance of any Capital Adequacy Demand, or (D) by the Borrower following the merger of LaSalle with and into, or the sale of substantially all of LaSalle's assets to, any Person which is not an Affiliate of LaSalle and where LaSalle is not the surviving entity, or (E) by the Borrower following any sale, assignment, transfer or other disposition by LaSalle of its rights under this Agreement and the Other Agreements (other than a participation interest herein or therein) to any Person other than an Affiliate of LaSalle; provided, however, that any such prepayment fee shall be waived if Borrower refinances all Liabilities with Standard Federal after the eighteen-month anniversary of the Closing Date. In light of the extreme difficulty of accurately calculating actual damages arising out of any early termination, LaSalle and Borrower have agreed that the prepayment fee provided for above is a reasonable estimate of actual damages that would be incurred.
13. REPRESENTATIONS AND WARRANTIES. Borrower hereby makes the following representations, warranties and covenants:
(a) the financial statements delivered or to be delivered by Borrower to LaSalle at or prior to the date of this Agreement and at all times subsequent thereto accurately reflect the consolidated financial condition of Borrower and its Subsidiaries, and since the date of the Borrower's consolidated financial statements delivered to LaSalle most recently prior to the date of this Agreement, no event or condition has occurred which has had, or is reasonably likely to have, a Material Adverse Effect;
(b) the offices where Borrower and each Subsidiary keeps its books, records and accounts (or copies thereof) concerning the Collateral, Borrower's and each Subsidiary's principal place of business and all of Borrower's and each Subsidiary's other places of business, locations of Collateral and post office boxes are as set forth in Exhibit A;
(c) the Collateral, including without limitation the Equipment (except any part thereof which prior to the date of this Agreement Borrower shall have advised LaSalle in writing consists of Collateral normally used in more than one state) is and shall be kept, or, in the case of vehicles, based, only at the addresses set forth on the first page of this Agreement or on Exhibit A, and at other locations within the continental United States of which LaSalle has been advised by Borrower in writing;
(d) Borrower shall immediately give written notice to LaSalle of any use of any such Goods in any state other than a state in which Borrower has previously advised LaSalle such Goods shall be used, and such Goods shall not, unless LaSalle shall otherwise consent in writing, be used outside of the continental United States;
(e) no security agreement, financing statement or analogous instrument exists
or shall exist with respect to any of the Collateral other than any security agreement, financing statement or analogous instrument evidencing Permitted Liens;
(f) each Account which Borrower shall, expressly or by implication, request LaSalle to classify as an Eligible Account shall, as of the time when such request is made, conform in all respects to the requirements of such classification as set forth in the definition of Eligible Account;
(g) Borrower and each Subsidiary is and shall at all times during the Original Term or any Renewal Term be the lawful owner of all Collateral now purportedly owned or hereafter purportedly acquired by such Person, free from all liens, claims, security interests and encumbrances whatsoever, whether voluntarily or involuntarily created and whether or not perfected, other than the Permitted Liens;
(h) Borrower and each Subsidiary has the right and power and is duly authorized and empowered to enter into, execute and deliver this Agreement and the Other Agreements to the extent each is a party thereto, and perform its obligations hereunder and thereunder; Borrower's and each Subsidiary's execution, delivery and performance of this Agreement and the Other Agreements to which it each is a party does not and shall not conflict with the provisions of any statute, regulation, ordinance or rule of law, or any agreement, contract or other document which may now or hereafter be binding on Borrower or such Subsidiary, and Borrower's and each Subsidiary's execution, delivery and performance of this Agreement and the Other Agreements shall not result in the imposition of any lien or other encumbrance upon any of Borrower's or any Subsidiary's property under any existing indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument by which Borrower, any Subsidiary, or any of its property may be bound or affected;
(i) except as otherwise disclosed on Schedule 13(i), there are no actions or proceedings which are pending or, to the best of Borrower's knowledge, threatened against Borrower or any Subsidiary which are reasonably likely to have a Material Adverse Effect;
(j) Borrower and each Subsidiary has obtained all licenses, authorizations, approvals and permits, the lack of which would have a Material Adverse Effect on the operation of its business, and Borrower is and shall remain in compliance in all material respects with all applicable federal, state, local and foreign statutes, orders, regulations, rules and ordinances (including, without limitation, Environmental Laws and statutes, orders, regulations, rules and ordinances relating to taxes, employer and employee contributions and similar items, securities, ERISA or employee health and safety), the failure to comply with which would have a Material Adverse Effect on its business, property, assets, operations or condition, financial or otherwise;
(k) all written information now, heretofore or hereafter furnished by Borrower to LaSalle is and shall be true and correct in all material respects as of the date with respect to which such information was or is furnished (except for financial projections, which have been prepared in good faith based upon reasonable assumptions);
(l) neither Borrower nor any Subsidiary is conducting, permitting or suffering
to be conducted, nor shall it conduct, permit or suffer to be conducted, any activities pursuant to or in connection with which any of the Collateral is now, or will (while any Liabilities remain outstanding) be owned by any Affiliate;
(m) the name of Borrower and (except as set forth in Schedule
13(m)) each Subsidiary has always been as set forth on the first page of this
Agreement, in the case of Borrower, and Schedule 13(m), in the case of
Subsidiaries, and neither Borrower nor any Subsidiary uses tradenames or
division names in the operation of its business, except as otherwise disclosed
on Schedule 13(m);
(n) this Agreement and the Other Agreements to which Borrower or any Subsidiary is a party are the legal, valid and binding obligations of Borrower and the Subsidiaries to the extent each is a party, and are enforceable against Borrower and Subsidiaries in accordance with their respective terms to the extent each is a party, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally;
(o) Borrower is solvent, is able to pay its debts as they become due and has capital sufficient to carry on its business, now owns property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its debts, and will not be rendered insolvent by the execution and delivery of this Agreement or any of the Other Agreements or by completion of the transactions contemplated hereunder or thereunder;
(p) neither Borrower nor any Subsidiary is now obligated, whether directly or indirectly, for any loans or other indebtedness for borrowed money other than (i) the Liabilities; (ii) indebtedness disclosed to LaSalle on Schedule 13(p); (iii) unsecured indebtedness to trade creditors arising in the ordinary course of Borrower's or such Subsidiary's business and (iv) unsecured indebtedness arising from the endorsement of drafts and other instruments for collection, in the ordinary course of Borrower's or such Subsidiary's business.
(q) neither Borrower nor any Subsidiary owns any margin securities, and none of the proceeds of the Loans hereunder shall be used for the purpose of purchasing or carrying any margin securities or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase any margin securities or for any other purpose not permitted by Regulation G or Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time;
(r) except as otherwise disclosed on Schedule 13(r), neither Borrower nor any Subsidiary has any Parents, Subsidiaries or divisions, nor is Borrower or any Subsidiary engaged in any joint venture or partnership with any other Person;
(s) Borrower and each Subsidiary is duly organized and in good standing in its jurisdiction of organization and Borrower and each Subsidiary is duly qualified and in good standing in all jurisdictions where the nature and extent of the business transacted by it or the ownership of its assets makes such qualification necessary, except for such other jurisdictions in
which the failure to so qualify would not have a Material Adverse Effect;
(t) neither Borrower nor any Subsidiary is in default under any material contract, lease or commitment to which it is a party or by which it is bound, nor does Borrower know of any dispute regarding any contract, lease or commitment which is material to the continued financial success and well-being of Borrower or any Subsidiary, except for such defaults or disputes which, individually or in the aggregate, would not have a Material Adverse Effect;
(u) there are no controversies pending or threatened between Borrower or any Subsidiary and any of its employees, other than employee grievances arising in the ordinary course of business which would not, in the aggregate, have a Material Adverse Effect and Borrower and each Subsidiary is in compliance in all material respects with all federal and state laws respecting employment and employment terms, conditions and practices, except where the failure to so comply would not have a Material Adverse Effect;
(v) Borrower and each Subsidiary possesses, and shall continue to possess, adequate licenses, patents, patent applications, copyrights, service marks, trademarks, trademark applications, tradestyles and tradenames to continue to conduct its business as conducted by it on the date of this Agreement;
(w) except as set forth on Schedule 13(w), no Benefit Plan is
in violation in any material respect of any of the provisions of ERISA or any of
the qualification requirements of Section 401(a) of the IRC within the
immediately preceding five (5) year period; no Prohibited Transaction or
Reportable Event has occurred with respect to any Benefit Plan has been the
subject of a waiver of the minimum funding standard under Section 412 of the
IRC, no Benefit Plan has experienced an accumulated funding deficiency under
Section 412 of the IRC, no lien has been imposed upon the such Borrower or any
ERISA Affiliate of such Borrower under Section 412(n) of the IRC, no Benefit
Plan has been amended in such a way that the security requirements of Section
401(a)(29) of the IRC apply; no notice of intent to terminate a Benefit Plan has
been distributed to affected parties or filed with the PBGC under Section 4041
of ERISA; the PBGC has not instituted proceedings to terminate, or appoint a
trustee to administer, a Benefit Plan and no event has occurred or condition
exists which might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit plan;
neither Borrower nor any ERISA Affiliate of Borrower would be liable for any
amount in the aggregate in excess of $5,000 pursuant to Sections 4062, 4063 or
4064 of ERISA if all Benefit Plans terminated as of the most recent valuation
dates of such Benefit Plans; neither Borrower nor any ERISA Affiliate of
borrower maintains any employee welfare benefit plan, as defined in Section 3(1)
of ERISA, which provides any benefits to an employee or the employee's
dependents with respect to claims incurred after the employee separates from
service other than is required by applicable law; and neither Borrower or any
ERISA Affiliate of Borrower has incurred or expects to incur any withdrawal
liability to any Multiemployer Plan;
(x) (i) neither Borrower nor any Subsidiary has generated, used, stored, treated, transported, manufactured, handled, produced or disposed of any Hazardous Materials,
on or off its premises (whether or not owned by it) in any manner which at any time violates any Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of the Borrower and each Subsidiary comply in all material respects with all Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder; (ii) there has been no investigation, proceeding, complaint, order, directive, claim, citation or notice by any governmental authority or any other Person, nor is any pending or to the best of the Borrower's knowledge threatened, and Borrower shall immediately notify LaSalle upon becoming aware of any such investigation, proceeding, complaint, order, directive, claim, citation or notice and take prompt and appropriate actions to respond thereto, with respect to any non-compliance with or violation of the requirements of any Environmental Law by the Borrower or any Subsidiary or the release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects the Borrower or any Subsidiary or its business, operations or assets or any properties at which the Borrower or any Subsidiary has transported, stored, disposed of any Hazardous Materials; and (iii) neither Borrower nor any Subsidiary has any material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials; and
(y) Borrower and its Subsidiaries have reviewed the areas within their business and operations which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the "YEAR 2000 PROBLEM" (that is, the risk that computer applications used by Borrower and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date on or after December 31, 1999), and have made related appropriate inquiry of material suppliers and vendors. Based on such review and program, Borrower believes that the "Year 2000 Problem" will not have a Material Adverse Effect on Borrower. From time to time, at the request of LaSalle, Borrower and its Subsidiaries shall provide to LaSalle such updated information or documentation as is requested regarding the status of their efforts to address the Year 2000 Problem.
Borrower represents, warrants and covenants to LaSalle that (x) all representations and warranties of Borrower contained in this Agreement (whether appearing in paragraph 13 hereof or elsewhere) shall be true at the time of Borrower's execution of this Agreement, and (y) all representations, warranties and covenants of Borrower contained in this Agreement (whether appearing in paragraphs 13 or 14 hereof or elsewhere) shall survive the execution, delivery and acceptance hereof by the parties hereto and the closing of the transactions described herein or related hereto, shall remain true until the repayment in full of all of the Liabilities and termination of this Agreement, and shall be remade by Borrower at the time each Revolving Loan is made and each Letter of Credit is issued pursuant to this Agreement.
14. COVENANTS. Until payment or satisfaction in full of all Liabilities and termination of this Agreement, unless Borrower obtains LaSalle's prior written consent waiving or modifying any of Borrower's covenants hereunder in any specific instance, Borrower agrees as
follows:
(a) Borrower and each Subsidiary shall at all times keep accurate and complete books, records and accounts with respect to all of Borrower's and its Subsidiaries' respective business activities, in accordance with sound accounting practices and generally accepted accounting principles consistently applied, and shall keep such books, records and accounts, and any copies thereof, only at the addresses indicated for such purpose on Exhibit A;
(b) LaSalle, or any Persons designated by it, shall have the right, at any time, upon prior notice (unless a Default or Event of Default shall have occurred and be continuing, in which case no notice shall be required) in the exercise of its commercially reasonable credit judgment, to call at Borrower's and each Subsidiary's places of business at any reasonable times, and, without hindrance or delay, to inspect the Collateral and to inspect, audit, check and make extracts from Borrower's and each Subsidiary's books, records, journals, orders, receipts and any correspondence and other data relating to Borrower's and each Subsidiary's business, the Collateral or any transactions between the parties hereto, and shall have the right to make such verification concerning Borrower's and each Subsidiary's business as LaSalle may consider reasonable under the circumstances. Borrower and each Subsidiary shall furnish to LaSalle such information relevant to LaSalle's rights under this Agreement as LaSalle shall at any time and from time to time reasonably request. Borrower authorizes LaSalle (A) to discuss the affairs, finances and business of Borrower and each Subsidiary (1) with any officers of Borrower and each Subsidiary or any Affiliate, and (2) with those employees or directors of Borrower and each Subsidiary and Affiliate with whom LaSalle has determined in its commercially reasonable judgment to be necessary or desirable to converse to protect LaSalle's interests hereunder, under the Other Agreements, or in respect of the Liabilities or Collateral (and such discussions with such employees or directors shall be limited to such extent), and (B) to discuss the financial condition of Borrower and each Subsidiary with Borrower's independent public accountants. Any such discussions shall be without liability to LaSalle or to such accountants. Except as specifically provided in this paragraph 14(b), it is understood that any information provided by Borrower to LaSalle remains subject to the provisions of paragraph 25(e) hereof. Borrower shall pay to or reimburse LaSalle for all reasonable fees, costs, and out-of-pocket expenses incurred by LaSalle in the exercise of its rights hereunder (pursuant to paragraph 5(g) hereof) and all of such costs, fees and expenses shall constitute Revolving Loans hereunder;
(c) (i) Borrower shall keep the Collateral properly housed and shall keep the Collateral insured against such risks and in such amounts as are customarily insured against by Persons engaged in businesses similar to that of Borrower with such companies, in such amounts and under policies in such form as shall be reasonably satisfactory to LaSalle. Originals or certified copies of such policies of insurance have been, or within fifteen (15) days after the Closing Date, shall be, delivered to LaSalle together with evidence of payment of all premiums therefor, and shall contain an endorsement, in form and substance acceptable to LaSalle, showing loss under such insurance policies payable to LaSalle. Such endorsement, or an independent instrument furnished to LaSalle, shall provide that the insurance company shall give LaSalle at least thirty (30) days written notice before any such policy of insurance is altered or cancelled and that no act, whether willful or negligent, or default of Borrower or any other Person shall affect the right of LaSalle to recover under such policy of insurance in case of loss or damage.
Borrower hereby directs all insurers under such policies of insurance to pay all proceeds payable thereunder directly to LaSalle. Borrower irrevocably, makes, constitutes and appoints LaSalle (and all officers, employees or agents designated by LaSalle) as Borrower's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance and making all determinations and decisions with respect to such policies of insurance; provided, however, that LaSalle shall exercise such rights only upon the occurrence of an Event of Default;
(ii) Borrower shall maintain, at its expense, such public liability and third party property damage insurance as is customary for Persons engaged in businesses similar to that of Borrower with such companies and in such amounts, with such deductibles and under policies in such form as shall be reasonably satisfactory to LaSalle and originals or certified copies of such policies have been, or within fifteen (15) days after the Closing Date, shall be, delivered to LaSalle together with evidence of payment of all premiums therefor; each such policy shall contain an endorsement showing LaSalle as additional insured thereunder and providing that the insurance company shall give LaSalle at least thirty (30) days written notice before any such policy shall be altered or cancelled; and
(iii) If Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, then LaSalle, without waiving or releasing any obligation or default by Borrower hereunder, may (but shall be under no obligation to) obtain and maintain such policies of insurance and pay such premiums and take such other actions with respect thereto as LaSalle deems advisable. All sums disbursed by LaSalle in connection with any such actions, including, without limitation, court costs, expenses, other charges relating thereto and reasonable attorneys' fees, shall constitute Revolving Loans hereunder and, until paid, shall bear interest at the highest rate then applicable to Revolving Loans hereunder;
(d) neither Borrower nor any Subsidiary shall use the Collateral, or any part thereof, in any unlawful business or for any unlawful purpose or use or maintain any of the Collateral in any manner that does or could result in material damage to the environment or a violation of any applicable environmental laws, rules or regulations; Borrower and Subsidiaries shall keep the Collateral in good condition, repair and order, ordinary wear and tear excepted; neither Borrower nor Subsidiary shall permit the Collateral, or any part thereof, to be levied upon under execution, attachment, distraint or other legal process; neither Borrower nor any Subsidiary shall sell, lease, grant a security interest in or otherwise dispose of any of the Collateral except as expressly permitted by this Agreement; and neither Borrower nor any Subsidiary shall secrete or abandon any of the Collateral, or remove or permit removal of any of the Collateral from any of the locations listed on Exhibit A or in any written notice to LaSalle pursuant to paragraph 14(u) hereof, except for the removal of Inventory sold in the ordinary course of Borrower's or such Subsidiary's business as permitted herein;
(e) all monies and other property obtained by Borrower from LaSalle pursuant to this Agreement will be used solely for business purposes of Borrower;
(f) Borrower shall, at the request of LaSalle, indicate on its records concerning the Collateral a notation, in form satisfactory to LaSalle, of the security interest of LaSalle hereunder, and under the Other Agreements and Borrower shall not maintain duplicates or copies of such records at any address other than Borrower's principal place of business set forth on the first page of this Agreement; provided, however, that Borrower, in the ordinary course of its business, may furnish copies of such records to its accountants, attorneys and other agents or advisors as it may determine to be necessary or desirable, in the exercise of its commercially reasonable judgment;
(g) Borrower and each Subsidiary shall file all required tax returns and pay all of its taxes when due, including, without limitation, taxes imposed by federal, state or municipal agencies, and shall cause any liens for taxes to be promptly released, unless and to the extent that (i) such tax is being contested in good faith by appropriate proceedings and is adequately reserved for, to the extent required by GAAP, on its balance sheet, or (ii) the failure to pay would not have a Material Adverse Effect;
(h) Borrower shall not (i) incur, create, assume or suffer to exist any indebtedness other than (A) the Liabilities, (B) unsecured indebtedness owing in the ordinary course of business to trade suppliers or utilities, (C) any other indebtedness described in Schedule 13(p) hereof, and (D) purchase money indebtedness for fixed assets; or (ii) assume, guarantee or endorse, or otherwise become liable in connection with, the obligations of any Person, except by endorsement of instruments for deposit or collection or similar transactions in the ordinary course of business;
(i) Borrower shall not engage in any merger or consolidation except where the Borrower is the surviving entity; no Subsidiary shall engage in any merger or consolidation except where the Borrower or a Subsidiary is the surviving entity; neither Borrower nor any Subsidiary shall sell, lease or otherwise dispose of all or substantially all of its assets; neither Borrower nor any Subsidiary shall create any new Subsidiary other than a new wholly-owned Canadian Subsidiary of Borrower ("CANADIAN SUB"); no Subsidiary shall issue any shares of, or warrants or other rights to receive or purchase any shares of, any class of its stock; Borrower shall not permit any of its Subsidiaries (other than Nematron, Ltd., a company organized under the laws of England and Wales, and Canadian Sub) to own or hold any property or to conduct any business; neither Borrower nor any Subsidiary shall engage in any businesses other than the businesses currently engaged in by Borrower or such Subsidiary or businesses reasonably related thereto;
(j) Borrower shall not (i) declare or pay any dividend or other distribution (whether in cash or in kind) on, purchase, redeem or retire any shares of any class of its stock, or make any payment on account of, or set apart assets for the repurchase, redemption, defeasance or retirement of, any class of its stock, provided, that Borrower shall not be prohibited from declaring and distributing a dividend solely in the form of its capital stock or from engaging in any stock split or reverse stock split; or (ii) make any optional payment or prepayment on or redemption (including without limitation by making payments to a sinking fund or analogous fund) or repurchase of any indebtedness for borrowed money other than indebtedness pursuant to this Agreement;
(k) neither Borrower nor any Subsidiary shall make any loans to, or investment in, any Person, whether in cash, securities or other property of any kind, other than (i) Permitted Investments, (ii) loans to or investments in Subsidiaries made during the Original Term or any Renewal Term, and not exceeding $105,000 in the aggregate at any time outstanding, (iii) loans made to any Subsidiary prior to the Original Term and disclosed on Schedule 13(p), (iv) loans permitted under paragraph 14(o), and (v) loans from any Subsidiary to the Borrower on such terms as may be reasonably acceptable to LaSalle.
(l) neither Borrower nor any Subsidiary shall (i) change its fiscal year, or (ii) permit any amendment or modification to be made to its organizational documents which is materially adverse to the interests of LaSalle (provided that Borrower shall notify LaSalle of any other amendment or modification thereto as soon as practicable thereafter);
(m) Borrower shall maintain and keep in full force and effect each of the financial covenants set forth below. The calculation and determination of each such financial covenant, and all accounting terms contained therein, shall be so calculated and construed in accordance with GAAP, applied on a basis consistent with the financial statements of Borrower delivered on or before the Closing Date;
(i) Consolidated Tangible Net Worth Plus Subordinated Indebtedness. Borrower and its Subsidiaries, on a consolidated basis, shall at all times maintain a Tangible Net Worth plus Subordinated Indebtedness of not less than (A) Two Million Dollars ($2,000,000) during Fiscal Year ending December 31, 1999, and (B) Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) during each Fiscal Year after December 31, 1999;
(ii) Consolidated Interest Coverage Ratio. Borrower and its Subsidiaries, on a consolidated basis, shall maintain an Interest Coverage Ratio as of the end of each fiscal quarter for that portion of the Fiscal Year then ended, commencing with the fiscal quarter ending December 31, 1999, of not less than 1.50 to 1.00;
(iii) Consolidated Debt Service Coverage Ratio. Borrower and its Subsidiaries, on a consolidated basis, shall maintain a Debt Service Coverage Ratio, as of the end of each fiscal quarter for that portion of the Fiscal Year then ended, commencing with the fiscal quarter ending December 31, 1999, of not less than 1.25 to 1.00; and
(iv) Consolidated Capital Expenditures, Etc. Borrower and its Subsidiaries, on a consolidated basis, shall not make Capital Expenditures and payments under synthetic or off-balance sheet leases aggregating more than Two Hundred Fifty Thousand Dollars ($250,000) during the Fiscal Year ending December 31, 1999, and Five Hundred Dollars ($500,000) during any Fiscal Year after December 31, 1999. Borrower and its Subsidiaries, on a consolidated basis, shall not incur costs totaling more than $2,000,000 relating to software development activities for the Fiscal Year ending December 31, 1999, whether expensed or capitalized, and not more than $2,400,000 in any Fiscal Year thereafter.
(n) Borrower shall reimburse LaSalle for all costs and expenses including,
without limitation, legal expenses and reasonable attorneys' fees (both in-house and outside counsel), incurred by LaSalle in connection with the documentation and consummation of this transaction and any amendments or modifications of this Agreement or the Other Agreements or other transactions between Borrower and LaSalle, including, without limitation, Uniform Commercial Code and other public record searches, lien filings, Federal Express or similar express or messenger delivery, appraisal costs, surveys, title insurance and environmental audit or review costs, and in seeking to collect, protect or enforce any rights in or to the Collateral or incurred by LaSalle in seeking to collect any Liabilities and to administer and enforce any of LaSalle's rights under this Agreement. Borrower shall also pay all normal service charges with respect to accounts maintained by LaSalle for the benefit of Borrower. All such costs, expenses and charges shall constitute Revolving Loans hereunder;
(o) except as otherwise permitted under paragraph 14(k) neither Borrower nor any Subsidiary shall make any loan (it being understood that prepaid expenses, deposits and accounts receivable for goods sold in the ordinary course of business do not constitute loans under this paragraph 14(o)) to any Person except travel advances made to employees in the ordinary course of business and Borrower's loans to its employees not exceeding Fifty Thousand Dollars ($50,000) to any single Person and One Hundred Thousand Dollars ($100,000) in the aggregate outstanding for all Persons at any one time; provided, that no Event of Default shall have occurred and be continuing prior to, or would occur as a result of, any such payment;
(p) Borrower shall not enter into or be a party to, or permit any Subsidiary to enter into or be a party to, any transaction with any Affiliate of Borrower except in the ordinary course of business for fair consideration and on terms no less favorable to Borrower or such Subsidiary as are available from unaffiliated third parties;
(q) Borrower shall promptly advise LaSalle in writing of any Material Adverse Effect or the occurrence of any Default or Event of Default;
(r) neither Borrower nor any Subsidiary shall make material changes in the ownership or operations of Borrower or such Subsidiary without LaSalle's express prior written consent, which consent, absent a Change of Control, shall not be unreasonably withheld; provided that this paragraph 14(r) shall not prohibit Borrower from issuing additional shares of its capital stock;
(s) Borrower shall maintain at Closing a $200,000 Dilution reserve;
(t) Borrower shall maintain all of its operating and deposit accounts (other than the Blocked Account) with Standard Federal. Borrower and Standard Federal shall have in effect at all times a lockbox and blocked account agreement in favor of LaSalle, which agreement shall be in form and substance satisfactory to LaSalle;
(u) Borrower shall promptly (but in no event less than ten
(10) days prior thereto) advise LaSalle in writing of any of the following
actions or occurrences by Borrower or any Subsidiary: the proposed opening of
any new place of business, the closing of any existing
place of business, any change in the location of its books, records and accounts (or copies thereof) or the opening or closing of any post office box;
(v) Borrower shall promptly notify LaSalle in writing if Borrower learns that any such Eligible Account subsequently becomes ineligible;
(w) Borrower shall, promptly upon becoming aware of any pending or threatened action or proceeding which is reasonably likely to have a Material Adverse Effect, give written notice thereof to LaSalle;
(x) Borrower shall notify LaSalle in writing within ten (10) days of the change of its name or the use of any tradenames or division names not previously disclosed to LaSalle in writing;
(y) (i) Borrower and each Subsidiary shall keep and maintain the Equipment in good operating condition and repair and shall make all necessary replacements thereof and renewals thereto so that the value and operating efficiency thereof shall at all times be preserved and maintained, ordinary wear and tear excepted; (ii) Borrower and each Subsidiary shall not permit any such items to become a fixture to real estate or an accession to other personal property; (iii) from time to time Borrower and each Subsidiary may sell, exchange or otherwise dispose of obsolete, unused or worn out Equipment; and (iv) Borrower, immediately on demand by LaSalle, shall deliver to LaSalle any and all evidence of ownership of, including, without limitation, certificates of title and applications of title to, any of the Equipment;
(z) Borrower shall, following the determination by any governmental authority that there is non-compliance, or any condition which requires any action by or on behalf of Borrower or any Subsidiary in order to avoid any non-compliance, with any Environmental Law, at Borrower's expense, cause an independent environmental engineer reasonably acceptable to LaSalle to conduct such tests of the relevant site(s) as are appropriate and prepare and deliver a report setting forth the result of such tests, a proposed plan for remediation and an estimate of the costs thereof; and
(aa) Borrower shall deliver to LaSalle an ALTA/ACSM survey certified to LaSalle by a licensed surveyor, in form and substance acceptable to LaSalle, as soon as practicable, but not later than sixty (60) days, after the Closing Date (provided that if such surveyor is unable to complete on-site survey work within such sixty-day period due to adverse local weather conditions, the period for completion and delivery of such survey shall be extended for such reasonable period necessary for completion and delivery of the survey).
15. CONDITIONS PRECEDENT.
(a) The obligation of LaSalle to fund the Term Loan, to fund the initial Revolving Loan, and to co-sign as applicant for the initial Letter of Credit, is subject to the satisfaction or waiver on or before the Closing Date of the following conditions precedent:
(i) LaSalle shall have received each of the agreements, opinions, reports, approvals, consents, certificates and other documents set forth on the closing document list attached hereto as Schedule 15(a)(i) (the "CLOSING AGENDA");
(ii) Since June 30, 1999, no event shall have occurred which has had or could reasonably be expected to have a Material Adverse Effect, as determined by LaSalle in its sole discretion;
(iii) LaSalle shall have received payment in full of all fees and expenses payable to it by Borrower on or before the Closing Date;
(iv) LaSalle shall have determined that immediately after giving effect to (A) the making of the initial Loans, including without limitation the Term Loan and the Revolving Loans, if any, requested to be made on the Closing Date, (B) the issuance of the initial Letter of Credit, if any, requested to be made on the Closing Date and (C) the payment or reimbursement by Borrower of LaSalle for all closing costs and expenses incurred in connection with the transactions contemplated hereby, on a pro forma basis the Excess Availability of Borrower shall not be less than Six Hundred Thousand Dollars ($600,000), and the Borrower's chief executive officer or chief financial officer shall have delivered to LaSalle a certificate to such effect; and
(v) The Obligors shall have executed and delivered to LaSalle all documents which LaSalle determines are reasonably necessary to consummate the transactions contemplated hereby.
After the Closing Date, the obligation of LaSalle to make any requested Revolving Loan or to co-sign as applicant for any requested Letter of Credit is subject to the satisfaction of the conditions precedent set forth below. Each such request shall constitute a representation and warranty that such conditions are satisfied:
(i) All representations and warranties contained in this Agreement and the Other Agreements shall be true and correct on and as of the date of such request, as if then made, other than representations and warranties that relate solely to an earlier date;
(ii) Default or Event of Default shall have occurred, or would result from the making of the requested Revolving Loan or the issuance of the requested Letter of Credit, which has not been waived; and
(iii) Since June 30, 1999, no event has occurred which has had or could reasonably be expected to have a Material Adverse Effect.
16. DEFAULT. The occurrence of any one or more of the following events shall constitute an "EVENT OF DEFAULT" hereunder:
(a) the failure of any Obligor to pay when due, declared due, or demanded by LaSalle in accordance with the terms hereof, any of the Liabilities and, in the case of Liabilities other than scheduled principal, interest or fees, such Liabilities shall remain unpaid for three days;
(b) the failure of any Obligor to perform, keep or observe any of the covenants, conditions, promises, agreements or obligations of such Obligor under this Agreement or any of the Other Agreements, in each case to the extent each is a party thereto, and the continuation of such failure for a period of thirty (30) days;
(c) the making or furnishing by any Obligor to LaSalle of any representation, warranty, certificate, schedule, report or other communication within or in connection with this Agreement or the Other Agreements or in connection with any other agreement between such Obligor and LaSalle, which is untrue or misleading in any material respect, or the failure of any Obligor to perform, keep or observe any of the covenants, conditions, promises, agreement of such Obligor under any other agreement with any Person if such failure has or is reasonably likely to have a Material Adverse Effect;
(d) the creation (whether voluntary or involuntary) of any lien or other encumbrance upon any of the Collateral, other than the Permitted Liens, or the making of, any levy, seizure or attachment thereof;
(e) the commencement of any proceedings (i) in bankruptcy by or against any Obligor, (ii) for the liquidation or reorganization of any Obligor, (iii) alleging that such Obligor is insolvent or unable to pay its debts as they mature, or (iv) for the readjustment or arrangement of any Obligor's debts, whether under the United States Bankruptcy Code or under any other law, whether state or federal, now or hereafter existing for the relief of debtors, or the commencement of any analogous statutory or non-statutory proceedings involving any Obligor; provided, however, that if such commencement of proceedings against such Obligor is involuntary, such action shall not constitute an Event of Default unless such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings;
(f) the appointment of a receiver or trustee for any Obligor, for any of the Collateral or for any substantial part of any Obligor's assets or the institution of any proceedings for the dissolution, or the full or partial liquidation, or the merger or consolidation, of any Obligor which is a corporation or a partnership; provided, however, that if such appointment or commencement of proceedings against such Obligor is involuntary, such action shall not constitute an Event of Default unless such appointment is not revoked or such proceedings are not dismissed within forty-five (45) days after the commencement of such proceedings;
(g) the entry of any judgment(s) or order(s) in excess of $100,000, individually or in the aggregate against any Obligor which remains unsatisfied or undischarged, or with respect to which an insurer has not acknowledged full responsibility in writing, and in effect for thirty (30) days after such entry without a stay of enforcement or execution;
(h) the occurrence of an event of default under, or the revocation or termination of, any agreement, instrument or document executed and delivered by any Person to LaSalle pursuant to which such Person has guaranteed to LaSalle the payment of all or any of the Liabilities or has granted LaSalle a security interest in or lien upon some or all of such Person's real and/or personal property to secure the payment of all or any of the Liabilities;
(i) the occurrence of an event of default under any other agreement(s) or instrument(s) evidencing indebtedness for borrowed money in excess of $100,000, individually or in the aggregate, executed or delivered by Borrower or pursuant to which agreement or instrument Borrower or its properties is or may be bound;
(j) a Change of Control shall have occurred;
(k) if any Reportable Event shall have occurred or any Benefit Plan shall be terminated within the meaning of title IV of ERISA, or a trustee shall be appointed by the appropriate United States District Court to administer any Benefit Plan, the PBGC shall institute proceedings to terminate any Benefit Plan, or there shall be a withdrawal from any Multiemployer Plan, and there shall be a Material Adverse Effect in the case of any event described in this paragraph 16(k);
(l) the occurrence of any event or condition which has a Material Adverse Effect which is not reasonably susceptible of cure within thirty (30) days after such occurrence; or
(m) the occurrence of any event or condition which has a Material Adverse Effect which is susceptible of cure and either (i) such event or condition shall remain uncured for a period of thirty (30) days after the occurrence thereof, or (ii) the Borrower shall have ceased diligent efforts to procure such cure.
Notwithstanding anything contained in this paragraph 16 or contained in any other provision of this Agreement or Other Agreements to the contrary, in the event of the institution of any proceedings described in paragraph 16(e) hereof against Borrower, LaSalle shall not be obligated to make advances to Borrower during the forty-five (45) day grace period provided in paragraph 16(e).
17. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in paragraph 16(e) hereof, all of the Liabilities shall immediately and automatically become due and payable, without notice of any kind. Upon the occurrence of any other Event of Default, all of the Liabilities may, at the option of LaSalle, and without demand, notice or legal process of any kind, be declared, and immediately shall become, due and payable.
(b) Upon the occurrence and during the continuance of an Event of Default, LaSalle may exercise from time to time any rights and remedies available to it under the Uniform Commercial Code and any other applicable law in addition to, and not in lieu of, any rights and remedies expressly granted in this Agreement or in any of the Other Agreements and all of LaSalle's rights and remedies shall be cumulative and non-exclusive to the extent permitted by law. In particular, but not by way of limitation of the foregoing, LaSalle may, without notice, demand or legal process of any kind, take possession of any or all of the Collateral (in addition to Collateral of which it already has possession), wherever it may be found, and for that purpose may pursue the same wherever it may be found, and may enter into any of Borrower's premises where any of the Collateral may be, and search for, take possession of, remove, keep and store any of
the Collateral until the same shall be sold or otherwise disposed of, and LaSalle shall have the right to store the same at any of Borrower's premises without cost to LaSalle. At LaSalle's request, Borrower shall, at Borrower's expense, assemble the Collateral and make it available to LaSalle at one or more places to be designated by LaSalle and reasonably convenient to LaSalle and Borrower. Borrower recognizes that if Borrower fails to perform, observe or discharge any of its Liabilities under this Agreement or the Other Agreements, no remedy at law will provide adequate relief to LaSalle, and Borrower agrees that LaSalle shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. Any notification of intended disposition of any of the Collateral required by law will be deemed reasonably and properly given if given at least ten (10) calendar days before such disposition. Any proceeds of any disposition by LaSalle of any of the Collateral may be applied by LaSalle to the payment of expenses in connection with the Collateral including, without limitation, legal expenses and reasonable attorneys' fees (both in-house and outside counsel) and any balance of such proceeds may be applied by LaSalle toward the payment of such of the Liabilities, and in such order of application, as LaSalle may from time to time elect.
18. INDEMNIFICATION. Borrower agrees to defend (with counsel reasonably satisfactory to LaSalle), protect, indemnify and hold harmless LaSalle, each affiliate or subsidiary of LaSalle, and each of their respective officers, directors, employees, attorneys and agents (each an "INDEMNIFIED PARTY") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature (including, without limitation, the disbursements and the reasonable fees of counsel for each Indemnified Party in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnified Party shall be designated a party thereto), which may be imposed on, incurred by, or asserted against, any Indemnified Party (whether direct, indirect or consequential and whether based on any federal, state or local laws or regulations including, without limitation, securities, environmental and commercial laws and regulations, under common law or in equity, or based on contract or otherwise) in any manner relating to or arising out of this Agreement or any Other Agreement, or any act, event or transaction related or attendant thereto, the making and the management of the Loans or any Letters of Credit or the use or intended use of the proceeds of the Loans or any Letters of Credit; provided, however, that Borrower shall not have any obligation hereunder to any Indemnified Party with respect to matters caused by or resulting from the bad faith or willful misconduct of such Indemnified Party. To the extent that the undertaking to indemnify set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Borrower shall satisfy such undertaking to the maximum extent permitted by applicable law. Any liability, obligation, loss, damage, penalty, cost or expense covered by this indemnity shall be paid to each Indemnified Party on demand, and, failing prompt payment, shall constitute a Revolving Loan hereunder. The provisions of this paragraph 18 shall survive the satisfaction and payment of the other Liabilities and the termination of this Agreement.
19. NOTICES. All written notices and other written communications with respect to this Agreement shall be sent by ordinary, certified or overnight mail, by telecopy or delivered in person, and (a) in the case of LaSalle shall be sent to it at both (i) 135 South LaSalle Street, Chicago, Illinois 60603, Attention: Operations Manager (if by telecopy to (312) 904-6450), and (ii) Two Honey Creek Corporate Center, 115 South 84th Street, Suite 220,
Milwaukee, Wisconsin 53214, Attention: Mr. Bruce A. Sprenger, Senior Vice President (if by telecopy to (414) 256-5099)), and (b) in the case of Borrower shall be sent to Borrower at its principal place of business as set forth on the first page of this Agreement (if by telecopy to (734) 994-8170).
20. CHOICE OF GOVERNING LAW AND CONSTRUCTION. This Agreement and the Other Agreements are submitted by Borrower to LaSalle for LaSalle's acceptance or rejection at LaSalle's principal place of business as an offer by Borrower to borrow monies from LaSalle now and from time to time hereafter, and shall not be binding upon LaSalle or become effective until accepted by LaSalle, in writing, at said place of business. If so accepted by LaSalle, this Agreement and the Other Agreements shall be deemed to have been made at said place of business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF WISCONSIN AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN THE COLLATERAL, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION. If any provision of this Agreement shall be held to 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 remaining provisions of this Agreement.
21. FORUM SELECTION AND SERVICE OF PROCESS. To induce LaSalle
to accept this Agreement, Borrower irrevocably agrees that, subject to LaSalle's
sole and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR
RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER
AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN
THE CITY OF MILWAUKEE, STATE OF WISCONSIN. BORROWER HEREBY CONSENTS AND SUBMITS
TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID
CITY AND STATE. Borrower hereby irrevocably appoints and designates CT
Corporation, whose address is 44 East Mifflin Street, Madison, Wisconsin (or any
other person having and maintaining a place of business in such state whom
Borrower may from time to time hereafter designate upon ten (10) days written
notice to LaSalle and who LaSalle has agreed in its reasonable discretion in
writing is satisfactory and who has executed an agreement in form and substance
reasonably satisfactory to LaSalle agreeing to act as such attorney and agent),
as Borrower's true and lawful attorney and duly authorized agent for acceptance
of service of legal process. Borrower agrees that service of such process upon
such person shall constitute personal service of such process upon Borrower.
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST BORROWER BY LASALLE IN ACCORDANCE WITH THIS
PARAGRAPH.
22. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the Other Agreements may not be modified, altered or amended except by an
agreement in writing signed by Borrower and LaSalle. Borrower may not sell, assign or transfer this Agreement, or the Other Agreements or any portion thereof including, without limitation, Borrower's rights, titles, interest, remedies, powers or duties thereunder. Borrower hereby consents to LaSalle's sale, assignment, transfer or other disposition, at any time and from time to time hereafter, of this Agreement, or the Other Agreements, or of any portion thereof, or participations therein including, without limitation, LaSalle's rights, titles, interest, remedies, powers and/or duties thereunder, provided that no such sale, assignment, transfer or other disposition shall be to Bank One Corporation, Michigan National Corporation or Key Bank Corporation or any Subsidiary thereof (collectively, "EXCLUDED BANKS"). Borrower agrees that it shall execute and deliver such documents as LaSalle may request in connection with any such sale, assignment, transfer or other disposition.
23. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this Agreement are for convenience of reference only, and shall not govern the interpretation of any of the provisions of this Agreement.
24. POWER OF ATTORNEY. Borrower acknowledges and agrees that its appointment of LaSalle as its attorney and agent-in-fact for the purposes specified in this Agreement is an appointment coupled with an interest and shall be irrevocable until all of the Liabilities are paid in full and this Agreement is terminated.
25. WAIVER OF JURY TRIAL; OTHER WAIVERS; CONFIDENTIALITY.
(A) LASALLE AND BORROWER HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT OF BORROWER OR LASALLE OR WHICH, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND LASALLE. IN NO EVENT SHALL LASALLE BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
(B) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY LASALLE OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
(c) Borrower hereby waives demand, presentment, protest and notice of nonpayment, and further waives the benefit of all valuation, appraisal and exemption laws (other than rights under the Uniform Commercial Code).
(d) LaSalle's failure, at any time or times hereafter, to require strict
performance by Borrower of any provision of this Agreement or any of the Other Agreements shall not waive, affect or diminish any right of LaSalle thereafter to demand strict compliance and performance therewith. Any suspension or waiver by LaSalle of an Event of Default under this Agreement or any default under any of the Other Agreements shall not suspend, waive or affect any other Event of Default under this Agreement or any other default under any of the Other Agreements, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. No delay on the part of LaSalle in the exercise of any right or remedy under this Agreement or any Other Agreement shall preclude other or further exercise thereof or the exercise of any right or remedy. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the Other Agreements and no Event of Default under this Agreement or default under any of the Other Agreements shall be deemed to have been suspended or waived by LaSalle unless such suspension or waiver is in writing, signed by a duly authorized officer of LaSalle and directed to Borrower specifying such suspension or waiver.
(e) Borrower has furnished and will furnish to LaSalle certain
information concerning Borrower which Borrower has advised is non-public,
proprietary or confidential in nature ("CONFIDENTIAL INFORMATION"). LaSalle
confirms to the Borrower that it is LaSalle's policy and practice to maintain in
confidence all Confidential Information which is provided to it under agreements
providing for the extension of credit and which is identified to it as such, and
that it will protect the confidentiality of, and not disclose, Confidential
Information submitted to it with respect to Borrower under this Agreement,
commensurate with its efforts to maintain the confidentiality of its own
Confidential Information, provided, however, that (i) nothing contained herein
shall prevent LaSalle from disclosing Confidential Information (A) to its
Affiliates and their respective directors, officers, and employees and to any
legal counsel, auditors, appraisers, consultants or other persons retained by it
or its Affiliates as professional advisors, on the condition that such
information not be further disclosed except in compliance with this paragraph
25(e); (B) as may be required by any regulatory authority having jurisdiction
over it or its operations or to, or under the authority of, any court deemed by
it to be of competent jurisdiction; (C) to any actual or potential assignee of
or participant in LaSalle's rights and obligations under this Agreement (but not
any Excluded Bank) to the extent such actual potential assignee or participant
has agreed to maintain such information in confidence on the basis set forth in
this paragraph 25(e); and (D) as necessary in connection with the exercise of
its remedies under this Agreement or any of the Other Agreements; (ii) the terms
of this paragraph 25(e) shall be inapplicable to any information furnished to
LaSalle which is in LaSalle's possession prior to the delivery to it of such
information by Borrower or any other authorized Person, or otherwise has been
obtained by it on a non-confidential basis, or which was or becomes available to
the public or otherwise part of the public domain (other than as a result of
LaSalle's failure or any prospective participant's or assignee's failure to
abide hereby), or which was not non-public, proprietary or confidential when
Borrower or any other authorized Person delivered it to LaSalle; and (iii) the
determination by LaSalle as to the application of any of the circumstances
described in the foregoing clauses (i) and (ii) will be rebuttably presumed
conclusive and binding if made in good faith.
(f) Notwithstanding subparagraph (e) above, Borrower consents to LaSalle
publishing a tombstone or similar advertising material relating to the financing transaction contemplated by this Agreement.
[SIGNATURE PAGE(S) TO FOLLOW]
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement in Milwaukee, Wisconsin, as of the date first above written.
LASALLE BUSINESS CREDIT, INC.
By: /s/ Bruce A. Sprenger ---------------------- Name: Bruce A. Sprenger |
Title Senior Vice President
NEMATRON CORPORATION,
A MICHIGAN CORPORATION
By: /s/ David P. Gienapp
---------------------
David P. Gienapp
Vice President - Finance and
Administration, and Secretary
|
EXHIBIT A - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and Security Agreement of even date herewith by and between NEMATRON CORPORATION and LASALLE BUSINESS CREDIT, INC.
a. Borrower's business locations (please indicate which location is the principal place of business and at which locations originals and all copies of Borrower's books, records and accounts are kept):
5840 Interface Drive, Ann Arbor, Michigan 48103
124 Washington Street #201, Foxboro, Massachusetts
b. Other locations of Collateral owned by Borrower (including, without limitation, warehouse locations, processing locations, consignment locations) and all post office boxes of Borrower. Please indicate the relationship of such location to Borrower (i.e. public warehouse, processor, etc.).
EXHIBIT B - OFFICER'S CERTIFICATE
THIS CERTIFICATE is submitted pursuant to paragraph 11(i) of the Loan and Security Agreement dated as of November 12, 1999 ("LOAN AGREEMENT") by and between LaSalle Business Credit, Inc. ("LaSalle") and Nematron Corporation ("Borrower").
The undersigned hereby certifies to LaSalle that as of the date hereof:
1. The undersigned is the Secretary of the Borrower.
2. There exists no event or circumstance which is or which with the passage of time, the giving of notice, or both would constitute an Event of Default, as that term is defined in the Loan Agreement, or , if such an event or circumstance exists, a writing attached hereto specifies the nature thereof, the period of existence thereof and the action that Borrower has taken or proposes to take with respect thereto.
3. No material adverse change in the condition, financial or otherwise, business, property, or results of operations of Borrower has occurred since June 30, 1999, or, if such a change has occurred, a writing attached hereto specifies the nature thereof and the action that Borrower has taken or proposes to take with respect thereto.
4. All insurance premiums due as of such date have been paid.
5. All taxes due as of such date have been paid or, for those taxes which have not been paid, a writing attached hereto describes the nature and amount of such taxes, and sets forth Borrower's rationale for not paying such taxes and the action that Borrower has taken or proposes to take with respect thereto.
6. To the best of the undersigned's knowledge, after appropriate inquiry, except as previously disclosed to LaSalle in writing, no litigation, investigation or proceeding, or injunction writ or restraining order is pending or threatened against the Borrower or, if any litigation, investigation or proceeding, or injunction, writ or restraining order is pending or threatened against the Borrower, a writing attached hereto specifies the nature thereof and the action that Borrower has taken or proposes to take with respect thereto.
7. Borrower is in compliance with the representations, warranties and covenants in the Loan Agreement, or, if Borrower is not in compliance with any representations, warranties or covenants in the Loan Agreement, a writing attached hereto specifies the nature thereof, the period of existence thereof and the action that Borrower has taken or proposes to take with respect thereto.
8. Attached hereto is a true and correct calculation of the financial covenants contained in paragraph 14(m) of the Loan Agreement.
NEMATRON CORPORATION, a Michigan
Corporation
Dated: November 12, 1999 By: /s/ David P. Gienapp (SEAL)
--------------------
Name: David P. Gienapp
Title: Secretary
|
| ARTICLE 5 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD END | SEP 30 1999 |
| CASH | 1,710,285 |
| SECURITIES | 0 |
| RECEIVABLES | 5,516,055 |
| ALLOWANCES | 139,000 |
| INVENTORY | 1,432,626 |
| CURRENT ASSETS | 8,866,162 |
| PP&E | 2,525,778 |
| DEPRECIATION | 5,970,005 |
| TOTAL ASSETS | 15,690,620 |
| CURRENT LIABILITIES | 7,436,551 |
| BONDS | 1,646,846 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 28,727,838 |
| OTHER SE | 1,669 |
| TOTAL LIABILITY AND EQUITY | 15,690,620 |
| SALES | 10,479,734 |
| TOTAL REVENUES | 10,479,734 |
| CGS | 7,250,587 |
| TOTAL COSTS | 2,126,404 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 85,202 |
| INCOME PRETAX | 1,000,728 |
| INCOME TAX | 10,800 |
| INCOME CONTINUING | 1,011,528 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 1,011,528 |
| EPS BASIC | 0.08 |
| EPS DILUTED | 0.08 |