-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SMcgVEFhZyMxzkViheZbSeQ/7QWEtPIQ0BojeNuXEIB9xwT97BeRsIHLrLD5VTWQ 1vBOcfCeZq8u3WYSLNs2zA== 0000950131-95-002846.txt : 19951016 0000950131-95-002846.hdr.sgml : 19951016 ACCESSION NUMBER: 0000950131-95-002846 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19951013 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERIQUEST TECHNOLOGIES INC CENTRAL INDEX KEY: 0000764864 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 330244136 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10397 FILM NUMBER: 95580588 BUSINESS ADDRESS: STREET 1: 3 IMPERIAL PROMENADE STREET 2: STE 300 CITY: SANTA ANA STATE: CA ZIP: 92707 BUSINESS PHONE: 7144370099 MAIL ADDRESS: STREET 1: 2722 MICHELSON DRIVE CITY: IRVINE STATE: CA ZIP: 92715 FORMER COMPANY: FORMER CONFORMED NAME: CMS ENHANCEMENTS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRO FUNDS CORP DATE OF NAME CHANGE: 19870210 10-K 1 FORM 10-K FOR FISCAL 1995 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to _______ . Commission File No. 1-10397 AMERIQUEST TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0244136 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) NUMBER) 3 IMPERIAL PROMENADE, STE. 300 92707 SANTA ANA, CA 92707 (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) Registrant's telephone number, including area code: (714) 445-5000 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS Common Stock, $.01 par value NAME OF EACH EXCHANGE ON WHICH REGISTERED New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO The aggregate market value of the voting stock held by non-affiliates of the Registrant as of September 29, 1995 is approximately $28,097,429. For purposes of making this calculation only, the Registrant has defined "affiliates" as including all officers, directors and beneficial owners of more than 10% of the outstanding Common Stock of the Registrant. The number of shares outstanding of the Registrant's Preferred and Common Stock as of September 29, 1995: Common Stock, $.01 par value, 24,303,572 shares; Preferred Stock, $.01 par value, 2,596,525 shares. INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF THE REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] Exhibit Index is on page 31.____________________________Page 1 of pages. PART I ITEM 1. BUSINESS. THE COMPANY AmeriQuest Technologies, Inc., a Delaware corporation ("AmeriQuest" or the "Company"), maintains its principal executive offices at 3 Imperial Promenade, Santa Ana, California, and its telephone number is (714) 445-5000. AmeriQuest conducts its business through its subsidiaries. CDS Distribution, Inc., a Delaware corporation ("CDS Distribution") and AmeriQuest/NCD, Inc., a Florida corporation ("AmeriQuest/NCD") and Robec, Inc., a Pennsylvania corporation ("Robec") market and sell, as distributors, hardware products for the personal computer market. AmeriQuest/Kenfil Inc. ("Kenfil"), markets and sells, as a distributor, software products for the personal computer market. The domestic entertainment software business of Kenfil was terminated in June 1995, such that its primary business currently is derived from the sale of application software in Asia. CMS Enhancements, Inc., a California corporation ("CMS Enhancements") is a supplier of hard disk drive subsystems for IBM compatible and other leading personal and business computers, including Apple, Compaq and others. Hard disk drives allow personal computers, which otherwise often lack sufficient data storage capacity, to perform many widely used, sophisticated business applications. CMS Enhancements also offers disk array, magneto optical, CD- ROM, floppy disk drives and magnetic tape back-up subsystems having a variety of data storage capacities as well as personal computers, networking, graphics, communications and connectivity and accessory products. AmeriQuest currently markets more than 2,000 products to original equipment manufacturers, value-added resellers and dealers throughout the United States and in many foreign countries, including national and regional distributors and large integrators such as Intelligent Electronics and ENTEX. RECENT DEVELOPMENTS On August 7, 1995, AmeriQuest Technologies, Inc. ("AmeriQuest") entered into a purchase agreement with Computer 2000 AG and its wholly-owned subsidiary Computer 2000, Inc. (herein referred to collectively as "Computer 2000") pursuant to which, among other things: 1. On August 22, 1995, Computer 2000 exchanged an $18 million Promissory Note from AmeriQuest 2000, Inc., a wholly-owned subsidiary of AmeriQuest, in exchange for (i) 810,811 shares of AmeriQuest's Series A Preferred Stock (convertible into 8,108,110 shares of AmeriQuest Common Stock upon the authorization of the underlying Common Stock) and (ii) warrants to purchase 657,289 shares of Series D Preferred Stock (convertible into 6,572,890 shares of AmeriQuest Common Stock upon the authorization of the underlying Common Stock) exercisable at $0.50 per share of the Series D Preferred; and 2. On August 22, 1995, Computer 2000 purchased (i) 1,785,714 shares of AmeriQuest's Series B Preferred Stock (convertible into 17,857,140 shares of AmeriQuest Common Stock upon the authorization of the underlying Common Stock) and (ii) warrants to purchase 746,186 shares of Series D Preferred Stock (convertible into 7,461,860 shares of AmeriQuest Common Stock upon the authorization of the underlying Common Stock) exercisable at $.50 per share of Series D Preferred Stock in consideration of $31.25 million cash; and 3. In consideration for the debt conversion and the additional investment, Computer 2000 was granted additional pari passu rights with respect to other warrants and options issued by AmeriQuest, as well as a warrant to purchase that number of shares equal to the total number of shares of Common Stock issued and to be issued by AmeriQuest in excess of 2,800,000 shares in the acquisition of Robec, Inc. at an effective price of $0.05 per share; and 2 4. Computer 2000 assumed control of the Board of Directors (five of nine directors, the Board being expanded to nine directors at that time), control of the management of AmeriQuest (Chief Executive Officer and Chief Operating Officer) and ownership of preferred stock which votes with AmeriQuest's Common Stock with a voting power equal to approximately 52.7 of all shares entitled to vote on matters presented to shareholders. (The voting percentage can increase to approximately 62% of AmeriQuest voting shares upon the exercise of the warrants and options referenced above.) ---------------- AmeriQuest acquired 50.1% of Robec in September 1994. The Amended and Restated Agreement and Plan of Reorganization (the "Merger Agreement") between AmeriQuest, Robec and certain principal shareholders of Robec provides that AmeriQuest must issue additional shares upon the acquisition of the minority shares pursuant to a merger between Robec and a wholly-owned subsidiary of AmeriQuest, i.e. RI Acquisition, Inc. The shareholders of Robec approved the merger on September 27, 1995, and the merger was to close on or before September 29, 1995. However, due to the adjustment in merger consideration based on the comparative market values of Robec's common stock in relation to AmeriQuest Common Stock, the number of shares to be issued under the strict terms of the Merger Agreement exceeds 20% of the prior outstanding AmeriQuest Common Stock such that it may be necessary to secure the approval of AmeriQuest shareholders to comply with New York Stock Exchange requirements and possibly authorize an increase in authorized shares of AmeriQuest Common Stock before the merger can be consummated. No assurance can be given as to the likelihood or timing of the completion of the Robec merger. ---------------- In June 1995 Kenfil terminated its entertainment and educational software business, such that Kenfil is now engaged primarily in the distribution of business applications, utilities, graphics and communication software to the Asian market. ---------------- At various dates during fiscal year 1995 and continuing into September 1995, AmeriQuest was in default to its primary lender due to noncompliance with certain financial ratio and covenant compliance. In October 1995, the Company received waivers from its primary lender for non-compliance of the financial covenants of the NCD credit agreement. The Company has also amended its credit agreements covering its remaining borrowings to remove the financial covenants which the Company was not in compliance with on June 30, 1995, pending renegotiation of the financial covenants. The amendment also allows the lender to cancel the credit agreement with 60 days notice. No assurance can be given that AmeriQuest's primary lender will continue to forbear collection of the debt owed to it. At October 13, 1995, AmeriQuest, through AmeriQuest/NCD, had approximately $8 million available under its existing credit facilities based upon then available collateral. The Company is in the process of negotiating the refinancing of its credit agreements. Management expects that the Company will complete this refinancing by December 31, 1995. Management believes that improvements in operating cash flows resulting from cost containment activities together with available borrowings on current credit agreements and the expected refinancing will allow the Company to meet its obligations and capital needs as they arise through June 30, 1996. AMERIQUEST DISTRIBUTION CDS Distribution and AmeriQuest/NCD (collectively referred to hereinafter as "AmeriQuest Distribution") are national valued-added wholesale distributors of microcomputers and related products to value-added resellers ("VARs"), dealers and computer retailers. AmeriQuest Distribution markets, sells and supports a variety of products ranging from individual components, which are typically sold in volume, to complete systems that have been fully configured, assembled and tested prior to delivery to its customers. Strategy has been to emphasize the sale of these complete systems and to provide a high level of value-added services, including consultation on component selection and system configuration and provision of system assembly and testing and technical support services. Vendors include leading manufacturers such as IBM, AST, NEC, Acer, Altos, Western Digital, Telebit, and Multi-tech Systems. AmeriQuest Distribution focuses its marketing efforts on the products of a limited number 3 of key vendors in order to become one of the leading distributors for each of its principal vendors. This enables AmeriQuest Distribution to develop product- specific technical expertise that enhances its value-added support services. AmeriQuest Distribution attempts to minimize competition among vendors' products while maintaining some overlap to provide protection against product shortages or discontinuations. Price discounting by its competitors has forced AmeriQuest Distribution to reduce its prices, resulting in deteriorating gross margins for commodity products. The effects of such price discounting on the Company are reflected in the periodic net sales and gross margins as reflected elsewhere herein. AmeriQuest Distribution is pursuing a broad restructuring program which includes, among other items cost reductions, the closing of certain offices and warehouse locations, downsizing of the employee base, consolidation of inventory and a change in emphasis among the methods by which sales are obtained. Products AmeriQuest Distribution seeks to maintain products from nationally-recognized vendors that provide all the components most VARs require to fully configure their computer systems. All new products are extensively tested prior to inclusion in AmeriQuest Distribution's distribution network. The following is a description of the major categories of products currently sold by AmeriQuest Distribution and the principal current vendors of those products. Microcomputers--AmeriQuest Distribution distributes desktop and portable personal computers and multiuser microcomputers manufactured by Acer, Altos, IBM, and AST. Printers--AmeriQuest Distribution distributes a broad line of dot matrix, laser and ink-jet printers manufactured by Lexmark, Canon and Citizen. Monitors and Terminals--AmeriQuest Distribution distributes monitors and terminals manufactured by CTX, Goldstar, AOC and Viewsonic. Local Area Networks--A local area network ("LAN") permits microcomputers to communicate with one another and to function on an integrated basis. AmeriQuest Distribution distributes LAN software and specialized hardware products manufactured by C Net, Microdyne and N.D.C. Accessories and Supplies--AmeriQuest Distribution distributes hard and floppy disk drives, board products, diskettes, stand-by power supplies, modems and other communications products, accessories and supplies manufactured by numerous companies including Boca Research, IBM, CMS, American Power, Tripplite and Epson. Vendor Relations To maintain a strong relationship with its principal vendors, AmeriQuest Distribution focuses on marketing the products of a limited number of key vendors. AmeriQuest Distribution selects its product line to minimize competition among vendors' products while maintaining some overlap to provide protection against product shortages or discontinuations. In addition, AmeriQuest Distribution enhances its relationship with its vendors by providing feedback on products, assisting in new product development, working with vendors to develop marketing programs and offering vendors the opportunity to provide seminars to AmeriQuest Distribution's customers at AmeriQuest Distribution facilities. AmeriQuest Distribution, like most hardware distributors, sells products throughout the United States for vendors on a non-exclusive basis without geographic restrictions. AmeriQuest Distribution has distribution agreements with most of its vendors and believes they are in the form customarily used by each vendor and generally contain provisions which allow termination by either party upon as little as 30 days' notice. Most of AmeriQuest Distribution's major distribution agreements provide price protection by giving AmeriQuest Distribution a credit, subject to specified limitations, in the amount of any price reductions by the vendor between the time of the initial sale to AmeriQuest Distribution and the subsequent sale by AmeriQuest Distribution to its 4 customer. Most of the major distribution agreements also give AmeriQuest Distribution qualified return privileges on slow-moving inventory. AmeriQuest Distribution's distribution agreements do not restrict AmeriQuest Distribution from selling similar products manufactured by competitors. Any minimum purchase provisions in AmeriQuest Distribution's distribution agreements are at levels that AmeriQuest Distribution believes do not impose significant risk. From time to time, the demand for certain products sold by AmeriQuest Distribution exceeds the supply available from the vendor. AmeriQuest Distribution believes that its ability to compete has not been adversely affected to a material extent by these periodic shortages, although sales may be adversely affected for an interim period. In order to limit the impact of such shortages, AmeriQuest Distribution generally attempts to include comparable products from more than one vendor in its product line and endeavors to provide direction to its customers in their selection of products. Sales and Distribution AmeriQuest Distribution has divided its sales operations into five domestic and three international regions, each covering a geographical section of the country. Compensation is based, in part, on the gross profits generated from sales. The regional manager is a technically-trained salesperson and is responsible for opening new accounts and serving all established accounts in the manager's customer base. AmeriQuest Distribution also utilizes volume sales specialists at its offices who sell largely through telemarketing. Customer orders are generally made by a toll-free telephone call to a sales representative in AmeriQuest Distribution's sales offices, and the order is entered onto AmeriQuest Distribution's computer system. The sales representative has access to available information on inventory and customer credit status and, upon reviewing this data, can enter the order immediately. Shipment is usually made the same day, except on orders that require assembly and testing. Customers also may pick up their orders at the designated warehouse. All orders are handled on a prepayment, COD or credit basis depending on the customer's creditworthiness and previous payment history. In addition, AmeriQuest Distribution assists some resellers in obtaining equipment financing through third-party floor planning programs. AmeriQuest Distribution permits the return of products within certain time limits and under certain conditions subject to a restocking charge, provided that the products are unused. Products that are defective upon arrival are handled on a manufacturers' warranty return basis without any restocking charge. AmeriQuest Distribution estimates that a majority of its sales are to VARs and value-added dealers. No customer has accounted for more than 10% of AmeriQuest Distribution's net sales during 1995, 1994 or 1993. Sales by AmeriQuest Distribution are not seasonal to any material extent. Because of AmeriQuest Distribution's prompt delivery times, it maintains no substantial backlog of orders. KENFIL In June 1995 Kenfil terminated its entertainment and educational software business, such that Kenfil is now engaged primarily in the distribution of business applications, utilities, graphics and communication software to the Asian market. International Operations and Sales AmeriQuest Distribution serves the international market place, primarily South America, through its regional office and warehouse in Miami, Florida. This business represents over 20% of total sales, and is a vital part of AmeriQuest's growth strategy. ROBEC AmeriQuest acquired 50.1% of Robec in September 1994. The Amended and Restated Agreement and Plan of Reorganization (the "Merger Agreement") between AmeriQuest, Robec and certain principal shareholders of Robec provides that AmeriQuest must issue additional shares upon the acquisition of the minority shares pursuant to a merger between Robec and a wholly-owned subsidiary of AmeriQuest, i.e. RI Acquisition, Inc. 5 The shareholders of Robec approved the merger on September 27, 1995, and the merger was to close on or before September 29, 1995. However, due to the adjustment in merger consideration based on the comparative market values of Robec's common stock in relation to AmeriQuest Common Stock, the number of shares to be issued under the strict terms of the Merger Agreement exceeds 20% of the prior outstanding AmeriQuest Common Stock such that it may be necessary to secure the approval of AmeriQuest shareholders to comply with New York Stock Exchange requirements and possibly authorize an increase in authorized shares of AmeriQuest Common Stock before the merger can be consummated. No assurance can be given as to the likelihood or timing of the completion of the Robec merger. The predecessor of Robec, Inc. ("Robec") was incorporated in Nevada in 1977. On August 16, 1989, this predecessor company was merged into a new Pennsylvania corporation to form Robec. The authorized capital stock of Robec consists of 10 million shares of Common Stock, $.01 par value per share, and 5 million shares of Preferred Stock, $.01 par value per share. In October 1989, Robec completed the initial public offering of its Common Stock, receiving net proceeds of approximately $12.7 million through the sale of 1,350,000 shares of Common Stock. The net proceeds of the public offering were used to repay bank borrowings, part of which were incurred to fund a dividend paid to shareholders of record prior to the offering in connection with the termination of Robec's status as a corporation subject to taxation under Subchapter S of the Code. In February 1990, Robec acquired certain assets and assumed certain liabilities of J. Crew, Inc., doing business as Electronic Marketing Specialists, Inc., which was engaged in the distribution of microcomputers. Robec is primarily a national valued-added wholesale distributor of microcomputers and related products to value-added resellers ("VARs"), dealers and computer retailers and primarily operates in this one business segment. Robec markets, sells and supports a variety of products ranging from individual components, which are typically sold in volume, to complete systems that have been fully configured, assembled and tested prior to delivery to its customers. Robec's historic strategy has been to emphasize the sale of these complete systems and to provide a high level of value-added services, including consultation on component selection and system configuration and provision of system assembly and testing and technical support services. As a result of competitive pressures, reduced profit margins and the way in which other, similar distributors have changed their businesses, Robec is now placing more emphasis on telemarketing as its primary sales method. Robec also provides a variety of training programs and educational seminars designed to enhance its customers' technical capabilities. In March 1994, Robec began, in respect to new customers, to discontinue its maintenance services and sales of spare parts and supplies for microcomputers and related products. Robec believes that the discontinuation of these services will not have a material effect on its inventory or results of operations. Robec's vendors include leading manufacturers such as Acer, Altos, Digi- Board, Fujitsu, IBM, Okidata, Multi-tech Systems, Samsung, Texas Instruments, Unisys and Wyse. Robec focuses its marketing efforts on the products of a limited number of key vendors in order to become one of the leading distributors for each of its principal vendors. This enables Robec to develop product-specific technical expertise that enhances its value-added support services. Robec attempts to minimize competition among vendors' products while maintaining some overlap to provide protection against product shortages or discontinuations. Products Robec seeks to maintain products from nationally-recognized vendors that provide all the components most VARs require to fully configure their computer systems. All new products are extensively tested prior to inclusion in Robec's distribution network. The following is a description of the major categories of products currently sold by Robec and the principal current vendors of those products. Microcomputers--Robec distributes desktop and portable personal computers and multiuser microcomputers manufactured by Acer, Altos, IBM, Trigem and Unisys. 6 Printers--Robec distributes a broad line of dot matrix, laser and ink-jet printers manufactured by Citizen, Fujitsu and Okidata. Monitors and Terminals--Robec distributes monitors and terminals manufactured by Acer, CTX, Link, Orchestra, Qume, Relisys, Samsung, Unisys and Wyse. Local Area Networks--A LAN permits microcomputers to communicate with one another and to function on an integrated basis. Robec distributes LAN software and specialized hardware products manufactured by Computone, Digi-Board, D- Link, Samsung and Unisys. Many of these products are offered with Novell, Moses Computers or EMEX software. Accessories and Supplies--Robec distributes hard and floppy disk drives, board products, diskettes, stand-by power supplies, modems and other communications products, accessories and supplies manufactured by numerous companies including Boca Research, Mountain Computer, Multi-Tech Systems, UDS and 3M. Software--Robec sells a variety of operating system and LAN software products generally as part of its systems sales. Robec has also commenced the sale of certain applications software. Among the manufacturers of these software products are SCO, Data Access and Novell. Vendor Relations To maintain a strong relationship with its principal vendors, Robec focuses on marketing the products of a limited number of key vendors. Robec selects its product line to minimize competition among vendors' products while maintaining some overlap to provide protection against product shortages or discontinuations. In addition, Robec enhances its relationship with its vendors by providing feedback on products, assisting in new product development, working with vendors to develop marketing programs and offering vendors the opportunity to provide seminars to Robec's customers at Robec facilities. Robec, like most hardware distributors, sells products throughout the United States for vendors on a non-exclusive basis without geographic restrictions. Robec has distribution agreements with most of its vendors and believes they are in the form customarily used by each vendor and generally contain provisions which allow termination by either party upon as little as 30 days' notice. Most of Robec's major distribution agreements provide price protection by giving Robec a credit, subject to specified limitations, in the amount of any price reductions by the vendor between the time of the initial sale to Robec and the subsequent sale by Robec to its customer. Most of the major distribution agreements also give Robec qualified return privileges on slow- moving inventory. Robec's distribution agreements do not restrict Robec from selling similar products manufactured by competitors. Any minimum purchase provisions in Robec's distribution agreements are at levels that Robec believes do not impose significant risk. From time-to-time, the demand for certain products sold by Robec exceeds the supply available from the vendor. Robec believes that its ability to compete has not been adversely affected to a material extent by these periodic shortages, although sales may be adversely affected for an interim period. In order to limit the impact of such shortages, Robec generally attempts to include comparable products from more than one vendor in its product line and endeavors to provide direction to its customers in their selection of products. Competition Competition in the distribution of microcomputer products is intense. Principal national distributors are Ingram Micro D, Inc., Merisel, Inc. and Tech Data Corporation. AmeriQuest Distribution and Robec also compete with numerous manufacturers, resellers, retailers and regional distributors. Most of AmeriQuest Distribution's and Robec's major competitors have substantially greater financial resources than AmeriQuest Distribution or Robec, even on a combined basis. 7 Competition is primarily based upon availability of product, price, speed of delivery, convenience, technical support and other support services. AmeriQuest Distribution believes that it is generally competitive with respect to each of these factors and that its principal, competitive advantages are its technical support and other support services, and speed of delivery. The software distribution industry is highly competitive. Competition within the industry is based primarily on price and product availability, and to a lesser extent on the speed of delivery and the level of marketing and other services provided. Certain of Kenfil's competitors have substantially greater financial resources than Kenfil. Kenfil's principal competitors include international distributors such as Ingram Micro Inc. and Merisel, Inc., both of which distribute hardware products in addition to software. Because of the intense competition within the industry, software distributors, including Kenfil, have low gross and operating margins. Consequently, Kenfil's profitability is highly dependent upon effective management and control of costs. The manner in which microcomputer software products are distributed and sold is changing, and new methods of distribution may emerge or expand. Software publishers have sold, and may intensify their efforts to sell, their products directly to resellers and end-users, including certain major reseller customers of Kenfil. From time to time certain publishers have instituted programs for the direct sale of large-order quantities of software to major corporate accounts, and these types of programs may continue to be used by various publishers. In addition, certain major publishers have implemented programs for master copy distribution of software (site licensing). These programs generally grant an organization the right to make any number of copies of software for distribution within the organization provided that the organization pays a fee to the publisher for each copy made. Also, publishers may attempt to increase the volume of software products distributed electronically to end-user's microcomputers. These factors, among others, led the Company's decision to terminate its entertainment software business. Employees As of September 30, 1995, AmeriQuest had 89 full-time employees, exclusive of those persons employed by its subsidiaries, as identified below. As of September 30, 1995, CMS Enhancements, Inc. had 34 full-time employees. As of September 30, 1995, AmeriQuest Distribution had 171 full-time employees, including 13 persons employed overseas. None of AmeriQuest Distribution's employees are covered by a collective bargaining agreement. AmeriQuest Distribution considers its relations with its employees to be good. As of September 30, 1995, Kenfil had 74 full-time employees, all of which are overseas personnel. As of September 30, 1995, Robec had 129 full-time employees, including 79 persons employed in sales, sales support and marketing functions. None of Robec's employees are covered by a collective bargaining agreement. Robec considers its relations with its employees to be good. 8 ITEM 2. PROPERTIES. AMERIQUEST AmeriQuest's principal offices are located in leased facilities in Santa Ana, California. AmeriQuest, CDS Distribution and Kenfil are all housed primarily in this facility, which consists of approximately 55,000 square feet of office space, which occupy two floors of an eleven story office building. The principal offices for CMS Enhancements, Inc. are located in a 62,428 square foot, single level office/warehouse facility in Anaheim, California. AmeriQuest's distribution facilities previously were located in Irvine, California and Wilmington, Ohio. The inventory previously maintained in Irvine, California was relocated to Anaheim, California. Inventory for CDS Distribution previously maintained in Wilmington, Ohio was relocated to an AmeriQuest/NCD warehouse facility in Elk Grove Village, Illinois. Kenfil products continue to be stored and shipped from Wilmington, Ohio. Presently, there are a total of six warehouse distribution locations for AmeriQuest. One of the six is located in Horsham, Pennsylvania, in a Robec facility. All facilities are leased. ROBEC Robec's executive, administrative and main sales offices are located in Robec's facility in suburban Philadelphia, Pennsylvania. This facility consists of 36,000 square feet of office space and 69,000 square feet of warehouse space. The current owner of this facility is a partnership affiliated with the management of Robec. Robec's branch offices generally consist of between 900 and 10,200 square feet of office space, depending on market size. The Atlanta branch was relocated to a 79,587 square foot facility in Lawrenceville, Georgia in July 1995. This facility is currently leased by AmeriQuest. Robec occupies approximately 15,000 square feet of warehouse space and 3,000 square feet of office space. The move was made as a planned consolidation of two facilities located in the Atlanta area. Robec's branch offices are equipped with standardized telephone, security and computer systems which Robec installs and programs. Robec leases all of its offices, two of which are leased from partnerships affiliated with the management of Robec. The leases generally provide for a base minimum rental per square foot. In addition, Robec is generally responsible for its pro rata share of maintenance expenses for common areas, real estate taxes and insurance. Robec is evaluating its current needs for branch offices and expects to reduce both the number and sizes of its branch offices during 1995. Robec's current leases generally permit the early termination of the lease upon payment of a penalty equal to the amount of one year's rent. If Robec should desire to extend any of the current leases, Robec believes that extensions on satisfactory terms, or alternative locations, generally would be available, although there can be no assurance that Robec would be able to negotiate further extensions of any particular lease. 9 SUMMARY TABLE The following table sets forth information regarding the regional offices of AmeriQuest and its subsidiaries.
LOCATION SQUARE FEET LEASE EXPIRATION YEAR OPENED -------- ----------- ---------------- ----------- AmeriQuest: Santa Ana, CA............ 55,000 3/31/06 1995 Anaheim, CA.............. 62,248 2/28/00 1995 Miami, FL................ 30,000 2/1/99 1995 Hollywood, FL............ 15,418 8/31/97 1995 Hollywood, FL............ 15,887 8/31/97 1994 Lawrenceville, GA........ 79,587 2/14/00 1995 Chicago, IL.............. 44,760 9/30/95 1995 Visalia, CA.............. 46,800 3/ /99 1994 Van Nuys, CA............. 21,829 7/31/95 1992 Hollywood, FL............ 3,963 9/30/97 1995 Alpharetta, GA........... 1,924 6/1/99 1994 Westboro, MA............. 7,800 1/31/97 1993 Hauppauge, NY............ 2,000 1/31/99 1994 Dallas, TX............... 13,520 3/31/96 1993 Robec: Boston, MA............... 15,100 2/28/99 1994 Chicago, IL.............. 1,775 12/31/95 1988 Kansas City, MO.......... 977 6/30/98 1993 Reston, VA............... 300 mo.to mo. 1984 Horsham, PA.............. 110,000 12/1/96 1978 Salt Lake City, UT....... 2,300 12/31/95 1990 Youngstown, OH........... 6,640 12/31/95 1993
ITEM 3. LEGAL PROCEEDINGS. AmeriQuest is both a plaintiff and defendant from time-to-time in lawsuits incidental to its business. The management of AmeriQuest believes that none of such current proceedings individually or in the aggregate, will have a material adverse effect on AmeriQuest. While not expected to be of material effect to the Company, Kenfil Inc. vs. RLI Insurance Company, Superior Court of the State of California, County of Los Angeles, No. BC 108564 filed July 12, 1994, involves litigation instituted by Kenfil Inc. to recover additional monies for the damage it incurred in the Northridge earthquake of January 17, 1994. The defendant cross-claimed on August 12, 1994 for return of the $840,000 it had paid on claims submitted by Kenfil Inc., based on affidavits from former Kenfil employees alleging that they had been instructed following the earthquake to intentionally destroy additional inventory. The defendant's theory is that it is not obligated to even cover that portion of the damage cause by the earthquake because of the possible fraud involved with such actions; while the management of Kenfil maintains that only that portion of damages actually incurred by the earthquake were submitted as claimed losses. There exists a question of fact as to whether the actions of Kenfil's employees were instigated by upper-level management and a question of law as to whether the managers of Kenfil are able to take ultra vires actions which can be attributed to Kenfil. The testimony to date appears fragmented and uncorroborated, such that a close examination of the evidence deduced to date reveals no clear evidence that would allow one to conclude that the defendant was in any way defrauded. Additionally, it appears that the defendant insurance company failed to terminate the contract upon discovery of the alleged "fraud," and merely chose to not renew the contract upon its expiration. Although there are pictures available to prove the actual damage immediately following the earthquake, no assurance can be given that the defendant will not ultimately prevail. The ability of Kenfil Inc. to satisfy any possible future judgement is dependent on the results of its future operations. However, such a judgement would not directly impact the other subsidiaries of AmeriQuest nor AmeriQuest itself. 10 Richard M. Terrell, et al. vs. AmeriQuest Technologies, Inc., was filed December 20, 1994 in the Circuit Court of the State of Oregon for the County of Washington, Case No. C941228CV. The Company learned by happenstance during the week of May 11, 1995 that default judgments in the amount of $15.9 million were entered against it and its former Chief Executive Officer in the Circuit Court of Washington County, Oregon on February 17, 1995 in favor of certain shareholders of defunct Microware Corporation ("Microware"). The lawsuit relates to the Company's decision not to proceed with the acquisition of Microware in early 1993. The judgement has since been vacated. In the opinion of management the suit is without merit. The Plaintiffs' claims are premised on a Share Exchange Agreement dated January 14, 1993 by and between the Company and the Plaintiffs, which was terminated on January 21, 1993 in light of an ever continuing and accelerating deterioration in the operations of Microware, which the Company believed to constitute a "material adverse change" under the Share Exchange Agreement. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On September 12, 1994, the shareholders of Kenfil and AmeriQuest approved the proposed merger of "AmeriQuest/Kenfil Inc.," a wholly-owned subsidiary of AmeriQuest, with and into Kenfil Inc. (the "Merger"). The Merger has since become effective, and AmeriQuest is now the sole shareholder of AmeriQuest/Kenfil Inc. In connection with the Merger, AmeriQuest issued 1,046,252 shares of its Common Stock to the Kenfil minority shareholders, 1,894,360 shares to the holders of Kenfil Inc's subordinated debt and 2,788,353 shares to Kenfil Inc's vendors. The vote on this matter was 6,636,184 shares FOR, 21,000 shares AGAINST and 2,815 shares ABSTAINED. In order to accommodate the Merger, the shareholders of AmeriQuest also approved an amendment to AmeriQuest's Certificate of Incorporation to increase the number of authorized shares of Common Stock of AmeriQuest from 10,000,000 shares to 30,000,000 shares. The vote on this matter was 6,875,775 shares FOR, 25,129 shares AGAINST and 3,997 shares ABSTAINED. A total of 11,005,625 shares were outstanding and entitled to vote on the record date. ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information regarding the current officers of AmeriQuest.
NAME AGE POSITION ---- --- -------- Steve DeWindt.... 40 Chairman of the Board of Directors and Chief Executive Officer Mark Mulford..... 41 Director, President and Chief Operating Officer Donald Resnick... 52 Chief Financial Officer Dennis Fairchild. 45 Chief Accounting Officer
The officers are elected by the Board of Directors and serve at the discretion of the Board of Directors, subject, however, to the provisions of their employment agreements, which generally provide for severance payments in the event of termination for other than "cause," as defined in each employment agreement. The severance rights range from one to two years of salary, during which time they are prohibited from competing with AmeriQuest or its subsidiaries. Steve DeWindt (age 40) has served as one of four Co-Presidents of Computer 2000 and head of Group Sales & Marketing for Computer 2000 since May, 1992. He is responsible for the geographic regions of Northern Europe, North America and the Middle East. Prior to his affiliation with Computer 2000 Mr. DeWindt served as Director of worldwide sales for the reseller channel at Intel from May, 1984 to April, 1992. Mr. DeWindt also served as Director of Business Affairs and International Marketing for the Records and Music Publishing Group of the Walt Disney Company from June, 1979 to March, 1983. Mr. DeWindt holds an Masters in Business Administration from the University of California at Los Angeles ("UCLA"). 11 Mark Mulford (age 41) has served for the last nine years with Frontline Distribution Ltd., Computer 2000's largest foreign subsidiary, which conducts business in the United Kingdom, most recently as Managing Director. Mr. Mulford holds a degree in Chemistry from Oxford University. Mr. Mulford is a Chartered Accountant. Donald Resnick (age 53) joined AmeriQuest as interim President in July 1995 and became Chief Financial Officer upon the consummation of the Computer 2000 purchase on August 22, 1995. Mr. Resnick was Chief Operating Officer of NCD from August 1994 to June 1995. From June 1990 to August 1994 he was engaged in various venture capital activities. From 1978 to June 1990 he served as the International Chief Financial Officer for Digital Equipment Corporation and the Executive Vice President for Schweber Electronics. Mr. Resnick has degrees from New York University, Adelphi University and the Wharton School University of Pennsylvania. Mr. Resnick is a Certified Public Accountant. Dennis Fairchild (age 45) joined AmeriQuest upon its acquisition of NCD in November 1994. Mr. Fairchild has served as Chief Financial Officer of NCD since January 1994. From March 1990 to December 1993, Mr. Fairchild was a partner in Coral Springs Connections, the owner of Southwest Frozen Foods, and served as Chief Financial Officer of Southwest Frozen Foods. Mr. Fairchild holds a Bachelor of Science degree in Accounting from Man Kato State University. Mr. Fairchild is a Certified Public Accountant and a CMA. 12 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The following table sets forth the market prices for the shares of Common Stock of AmeriQuest. The prices reflect the high and low closing prices quoted on the New York Stock Exchange for each calendar quarter since December 31, 1993. AMERIQUEST
1993 HIGH LOW ---- ----- --- First Quarter.................................................... 3 3/8 2 Second Quarter................................................... 3 5/8 2 Third Quarter.................................................... 3 1/4 2 Fourth Quarter................................................... 5 3/4 2 1/2 1994 ---- First Quarter.................................................... 6 4 1/8 Second Quarter................................................... 4 1/8 3 Third Quarter.................................................... 4 1/4 3 1/8 Fourth Quarter................................................... 4 2 5/8 1995 ---- First Quarter.................................................... 3 1/4 2 1/2 Second Quarter................................................... 3 1/4 1 3/4 Third Quarter.................................................... 2 1/8 1 1/8
On September 30, 1995, the stock of AmeriQuest closed at $1.25 per share on the New York Stock Exchange. As of that date AmeriQuest had approximately 1,045 shareholders of record. ITEM 6. SELECTED FINANCIAL DATA. The following selected consolidated financial data has been derived from and should be read in conjunction with the audited consolidated financial statements of AmeriQuest, and the notes thereto, and with "Management's Discussion and Analysis of Results of Operations and Financial Condition", included elsewhere herein and incorporated herein by this reference (dollars in thousands, except per share data).
YEAR ENDED JUNE 30, ------------------------------------------------------- 1995 1994 1993 1992 1991 ---------- --------- --------- --------- --------- Net sales (1)........... $416,571 $87,593 $73,082 $115,053 $130,062 Income (loss) before taxes................... (67,566) (7,971) 236 (9,623) (12,027) Net income (loss) (2)... (67,566) (7,971) 236 (8,893) (8,501) Earnings (loss) per share (2)............... (3.76) (1.33) 0.08 (3.04) (2.89) Total assets............ 128,008 65,145 20,274 23,522 40,747 Long-term obligations... 24,515(3) 3,442 1,817 274 1,851 Stockholders' equity (deficit)............... (25,709) 12,875 8,644 7,952 16,806 Weighted average shares outstanding............. 17,993,440 5,973,511 3,060,908 2,921,588 2,941,666
- ------ (1) The sales increase in 1995 was due primarily to acquisitions. The sales increase in 1994 compared to 1993 was largely due to the initiation of a broader distribution strategy. Year to year sales declines from 1991 to 1993 were principally due to an eroding customer base and reduced emphasis on commodity products. (2) The losses in 1995 were impacted by the Company's decision to terminate the entertainment software business and costs incurred to integrate prior acquisitions. Losses in 1994, 1992 and 1991 related principally to corporate restructurings in 1994 and 1992 and erosion of the customer base in 1991 to 1993 not offset by operating cost decreases. (3) Includes the $18 million advance from Computer 2000 related to its equity investment (see Note 8 to the Consolidated Financial Statements) and $5.8 million associated with the issuance of 6.8 million shares of the Company's common stock required to complete the Robec merger (see Note 2 to the Consolidated Financial Statements). 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. BUSINESS STRATEGY AmeriQuest is in a single line of business, namely the distribution of personal and other computing hardware and to a lesser extent software products. AmeriQuest has followed a business strategy of growth by acquisition, consistent with the consolidation that is occurring in the maturing personal computer marketplace. For this strategy to be successful, the Company must: . Integrate the operations of Robec . Combine the business cultures of diverse operations . Obtain adequate capital resources to fund working capital required for continuing operations During the last half of fiscal 1994 and through fiscal 1995, the Company completed the acquisitions of several regional distributors, Kenfil, Inc., NCD, Inc. and 50.1 percent of Robec, Inc. This completes the Company's currently planned acquisitions except for the remaining 49.9 percent interest in Robec, Inc. which management expects to complete in the first half of fiscal 1996. During the fourth quarter of fiscal 1995 in anticipation of the completion of Computer 2000's equity investment and with input from Computer 2000's management, the Company made the decision to terminate its entertainment software business which was a substantial portion of Kenfil Inc.'s U.S. operations. (See a further discussion below.) The Company still operates Kenfil's application software distribution business in Asia. The following reflects the net changes in each specified account as regards to the implementation of the business strategy of the Company:
INCREASE (DECREASE) DURING THE YEAR ENDED JUNE 30, ----------------------- 1995 1994 COMPARED TO COMPARED TO 1994 1993 ----------- ----------- (DOLLARS IN THOUSANDS) Sales Due to acquisitions................................... $333,016 $14,267 Continuing operations................................. (4,038) 244 Net change............................................ 328,978 14,511 Gross Profit Due to acquisitions................................... 14,519 771 Continuing operations................................. (11,338) 256 Net change............................................ 3,181 1,027
SIGNIFICANT FISCAL 1995 NET LOSS The Company incurred significant losses during fiscal 1995 related to acquired operations. The most substantial portion of this loss, $30.1 million, resulted from the decision to terminate Kenfil's entertainment software business ($20.3 million related to the write-off of intangible assets and $9.8 million of reserves to write down inventory to liquidation value and customer and vendor receivables to their recoverable value). Additional operating losses of $8.1 million were incurred to integrate operations, systems and business practices, as well as consolidate warehouse facilities, reduce headcount and eliminate redundant regional distribution operations. These costs are summarized below: Termination of entertainment software business: Intangible write-off............................................... $20,339 Asset write-offs................................................... 9,800 Integration of acquired hardware distribution companies: Intangible write-off............................................... 3,438 Property and equipment write-offs.................................. 2,183 Severance.......................................................... 2,500 ------- $38,260 =======
14 In addition to operating losses incurred directly related to current year acquisition activity, significant operating losses were incurred at the Company's CDS, NCD and Robec subsidiaries. These operating losses resulted from significant competitive pricing pressures reducing sales prices and gross margins, pre-integration operating costs related to redundant warehouse facilities and personnel and, inventory write-downs due to elimination of targeted product lines, loss of certain vendors and a fourth quarter liquidation strategy required to raise sufficient levels of operating cash flow (see liquidity section below). In the fourth quarter of fiscal 1995, in anticipation of the completion of Computer 2000's equity investment and with input from Computer 2000's management, AmeriQuest management decided to refocus the strategic direction of the Company. The new strategic direction is focused upon the higher margin computer hardware and value-added manufacturing segments of the Company's business. As such, the decision was made to terminate Kenfil's entertainment software business. Operating results from Kenfil's entertainment software business during fiscal year 1995 are as follows (in thousands): Net sales............................................................ $25,051 Gross margin......................................................... 3,677 Intangible write-off................................................. 20,339 Net loss............................................................. 25,885
NET SALES During the years ended June 30, 1995 and 1994, with emphasis upon a broader based distribution strategy, net sales increased 373% and 20%, respectively, as contrasted with the prior year. The majority of these sales increases were directly associated with the operations of acquired businesses. AmeriQuest has also emphasized value-added assembly of certain products, limited in fiscal year 1995 and 1994 to mass storage devices. Net sales at NCD and Robec during fiscal 1995 are below their pre- acquisition levels experienced during comparable periods in the prior year. This is due to significant competitive pricing pressures, lost product lines and lost volume directly related to the Company's sales force integration efforts. An integral aspect of AmeriQuest's business is to exchange products sold to customers which are either incompatible units or do not work for a variety of technical and other reasons. If such products are ultimately determined to be defective, AmeriQuest, under contract terms with its vendors, is able to return such products to its vendors. Under such exchange arrangements AmeriQuest's economic risk is nominal and generally limited to the costs of freight and technical services, both current period charges to expense. An aggregate warranty and returns reserve of approximately $2 million is reflected in the balance sheet of AmeriQuest at June 30, 1995. COST OF SALES AND GROSS PROFIT The Company operates in the personal computer industry, which is affected by significant technological change and short product life cycles. Competitors have financial, marketing, or management resources substantially greater than those of AmeriQuest. Product lines sold by AmeriQuest are also offered by many other distributors, which in combination with short product life cycles, can result in rapid declines in product gross margins. In addition, inventory is subject to loss due to short-term technological obsolescence. Gross margin and operating results were negatively impacted during fiscal 1995 by significant costs and management efforts focused on the integration of the acquired businesses. Gross margin has also been negatively impacted by high levels of sales returns and very competitive pricing in its software and certain 15 regional hardware distribution businesses along with inventory losses of $17 million related primarily to the elimination of certain product lines, loss of certain vendors and a fourth quarter liquidation strategy to raise sufficient levels of operating cash flow. The Company's gross margins also declined during fiscal 1994 and 1993 as compared to prior periods due to intense price erosion on many AmeriQuest product lines. AmeriQuest anticipates that it will continue to experience downward pressure on gross margins due to industry price competition. Although AmeriQuest expects that it will be able to continue to reduce selling, general and administrative expenses as a percentage of sales, no assurance can be given as to whether such reductions will, in fact, occur or as to the actual amount of any such reductions. To the extent gross margins continue to decline and the Company is not successful in increasing sales and, reducing selling, general and administrative expenses as a percentage of sales, the Company will experience further negative operating results. AmeriQuest manages its inventories by maintaining sufficient quantities to achieve high order fill rates while at the same time attempting to stock only those products in high demand with a rapid turnover rate. Inventory balances will fluctuate as the Company adds new product lines and when appropriate, makes large purchases from manufacturers when the terms of such purchases are considered advantageous. The Company's contracts with certain vendors provide price protection and stock return privileges to help reduce the risk of loss to the Company due to manufacturer price reductions and slow moving or obsolete inventory. In addition, the Company has the right to return a certain percentage of purchases, subject to certain limitations. In general, vendors provide various incentive programs to the Company. The funds received under these programs are determined based on purchases and/or sales of the vendors' product and the performance of certain training, advertising and other market development activities. Revenue associated with these funds is recorded when earned either as a reduction of selling, general and administrative expenses or product cost, according to the specific nature of the program. Market development funds received from vendors aggregated $2.7 million in fiscal year 1995 and were immaterial in fiscal years 1994 and 1993. OPERATING EXPENSES For the years ended June 30, 1995, 1994 and 1993, selling, general and administrative expenses were approximately 13%, 16% and 14% of net sales, as AmeriQuest expanded its employee base and acquired new facilities to support additional product lines to accommodate revenue growth. During fiscal 1995, the Company wrote off intangibles of $23.8 million associated with the decision to terminate its entertainment software business and the elimination of certain redundant regional distribution businesses. In addition, the Company incurred significant costs associated with the closure of redundant warehouse facilities and the reduction of personnel. The Company also wrote off a significant amount of customer receivables related to the termination of its entertainment software business and recorded bad debt reserves related to lower volume and higher credit risk customers. In 1994 AmeriQuest restructured its operations and related charges aggregated $5.7 million. The components of the restructuring charge are as follows (dollars in thousands): Employee terminations................................................ $ 500 Facilities abandonment............................................... 300 Discontinued product lines........................................... 4,900 ------ $5,700 ======
As this restructuring was initiated in the middle of the fiscal year 1994, the efforts were largely completed by year end and the related expenditures were largely incurred at that date. The discontinued product lines related to the then direct manufacture of personal computers utilizing proprietary design features. OPERATING RESULTS The annual and quarterly operating results of the domestic operations of the Company during the three years ended June 30, 1995, have varied considerably due to the acquisition of distribution companies and a reduced emphasis on manufacturing for all but mass storage assembly of disk drives. 16 INTEREST EXPENSE Interest expense increased during the years ended June 30, 1995, and 1994 to 1.5% and .8%, respectively, of net sales, as a result of AmeriQuest's reliance on its bank line of credit to finance increased accounts receivable and inventories. During the year ended June 30, 1993 interest expense was .5% of net sales. INCOME TAXES In the years ended June 30, 1995, 1994 and 1993 no income tax expense resulted due to losses or the availability of tax operating loss carry forwards. INFLATION To date, AmeriQuest has not been significantly affected by inflation. Moreover, technological changes in the electronics industry have generally resulted in price reductions, despite increases in certain costs which may be affected by inflation. In addition, many electronic components of comparable quality can currently be purchased outside of the United States at favorable prices. LIQUIDITY AND CAPITAL RESOURCES During fiscal year 1995, the Company has generated cash to meet its operating needs by sales of common stock, subordinated indebtedness and bank borrowings. At June 30, 1995, the Company had $970,000 in cash and had borrowed approximately $73 million against its existing lines of credit. During fiscal year 1995, the Company used $43.6 million of cash in operating activities, compared to the use of $8.4 million in operating activities in the prior year. The significant amount of cash used in operating activities resulted from operating losses, investments of approximately $6 million in business integration activities associated with the current year acquisitions, conversion of approximately $13.3 million of trade payables into borrowings under the Company's line of credit facility and investment in working capital required to support the significant increase in business volume associated with the acquired distribution companies. At June 30, 1995, the Company incurred a net loss of $67.6 million, had a stockholders' deficit of $25.7 million and a working capital deficit of $21.4 million. In November 1994, AmeriQuest and Computer 2000 entered into an agreement pursuant to which Computer 2000 agreed to invest approximately $50 million in AmeriQuest in exchange for a majority ownership interest in Ameriquest. Under the agreement Computer 2000 initially loaned AmeriQuest $18 million. In August 1995, Computer 2000 exchanged the $18 million notes and provided the Company with additional cash proceeds of approximately $31 million in exchange for the issuance by AmeriQuest of certain shares of AmeriQuest's preferred stock, convertible into common stock and warrants, all subject to adjustment for certain defined activities (see Note 3 of the Notes to Consolidated Financial Statements). Further, as consideration for Computer 2000's exchange of the notes of $18 million and Computer 2000's additional investment of $31 million, AmeriQuest also granted to Computer 2000 certain pari passu rights with respect to other outstanding warrants, options and other rights to acquire shares of AmeriQuest's common stock that AmeriQuest has previously granted, or is obligated to grant in the future, to others. After the completion of the Computer 2000 equity investment, Computer 2000's ownership of the Company approximated 51 percent. Computer 2000 holds warrants allowing it to increase its ownership in the Company to approximately 61 percent. The Company used these proceeds to repay trade debt and borrowings under its line of credit agreements. In addition to the additional equity capital provided by Computer 2000, the Company has begun a program to reduce operating costs through the closure of unprofitable field sales offices and the consolidation of distribution warehouses and the elimination of duplicate labor and non payroll operating costs. In addition, 17 administrative costs have been reduced through the flattening of the Company's management structure. Management is continuing these cost reduction activities. Further cost reductions should also result through the elimination of duplicate administration and other operating costs once the Robec merger is complete. The Company maintains lines of credit with financial institutions which in the aggregate provide for revolving credit of over $80 million at June 30, 1995 including a $20 million facility extended to Robec, Inc. Current lines of credit totaling $27.5 million expire on December 31, 1995 relate to NCD. Borrowings under these facilities are limited to a contractual percentage of eligible inventories and receivables. At June 30, 1995, all inventories and accounts receivable were pledged as collateral under these facilities and the lenders hold liens on substantially all of the other assets owned by the Company. The terms of the lending agreements include certain restrictive covenants which require the maintenance of specified financial covenants generally related to tangible net worth, working capital and total debt to tangible net worth. Borrowings under these lines bear interest from 1 to 3 percent over the prime rate and are limited to specified percentages of AmeriQuest's eligible accounts receivable (a borrowing base in excess of $27.5 million) and inventories (a borrowing base of over $27.5 million). At various dates during fiscal year 1995 and continuing at September 1995, the Company was in default to its primary lender due to noncompliance with certain financial ratio and other covenant compliance. In October 1995, the Company received a waiver from its primary lenders for non-compliance of the financial covenants of the NCD credit agreement. The Company has also amended its credit agreements covering its remaining borrowings to remove the financial covenants which the Company was not in compliance with at June 30, 1995, pending renegotiation of the financial covenants. The amendment also allows the lender to cancel the credit agreement with 60 days notice. At September 30, 1995, AmeriQuest, through NCD, had approximately $8 million available under its existing credit facilities based upon then available collateral. The Company is in the process of negotiating the refinancing of its credit agreements. Management expects that the Company will complete this refinancing by December 31, 1995. Management believes that improvements in operating cash flows resulting from the cost containment activities discussed above, together with available borrowings on current credit agreements and the expected refinancing will allow the Company to meet its obligations and capital needs as they arise through June 30, 1996. Cash utilized in operations was approximately $8.4 million in fiscal 1994 and $1.2 million in fiscal 1993. In 1994 and 1993 property purchases were limited to approximately $1.5 million and $1.3 million, respectively. Bank borrowings increased by approximately $23 million in 1994, principally utilized to fund acquired assets. Borrowings in 1993 were highly variable and did not exceed $3.6 million during the year. In 1995 and 1994 proceeds from stock issuances supplemented borrowed resources and were largely required to complete the business acquisitions of AmeriQuest and fund operations. In August 1995 the Company sold its Singapore subsidiary ("CMS Singapore") to a former officer and director of the Company. The Company exchanged all of the stock of CMS Singapore for 350,000 shares of the Company's previously issued common stock. The consideration received for CMS Singapore is approximately equal to its net book value. 18 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements, notes thereto, and the report of independent public accountants thereon are included herein. Supplementary data, including quarterly financial information, is included following the financial statements. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None 19 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The following table sets forth certain information regarding the current directors and officers of AmeriQuest.
NAME AGE POSITION ---- --- -------- Chairman of the Board of Directors and Chief Executive Steve DeWindt..... 40 Officer Harry Krischik.... 44 Co-Chairman of the Board of Directors Marc L. Werner.... 38 Vice-Chairman of the Board of Directors Mark Mulford...... 41 Director, President and Chief Operating Officer Klaus J.M. Laufen. 52 Director Holger Heims...... 32 Director Harold L. Clark... 59 Director Stephen G. Holmes. 49 Director Donald Resnick.... 53 Chief Financial Officer Dennis Fairchild.. 45 Chief Accounting Officer
Steve DeWindt (age 40) has served as one of four Co-Presidents of Computer 2000 and head of Group Sales & Marketing for Computer 2000 since May, 1992. He is responsible for the geographic regions of Northern Europe, North America and the Middle East. Prior to his affiliation with Computer 2000 Mr. DeWindt served as Director of worldwide sales for the reseller channel at Intel from May, 1984 to April, 1992. Mr. DeWindt also served as Director of Business Affairs and International Marketing for the Records and Music Publishing Group of the Walt Disney Company from June, 1979 to March, 1983. Mr. DeWindt holds an Masters in Business Administration from the University of California at Los Angeles ("UCLA"). Dr. Harry Krischik (age 44) has served as one of the Co-Presidents of Computer 2000 for more than the last five years, with responsibility for the areas of logistics, electronic data processing and human resources. He also has regional responsibility for Southern Europe and Latin America. Marc L. Werner (age 38) has been employed by Werner Co. since 1986, and currently serves as President and Director for Werner Financial, Inc. and various companies affiliated with Werner Co. Mr. Werner is a Certified Public Accountant, and holds a Bachelor of Science degree in Accounting from Northern Illinois University. Mark Mulford (age 41) has served for the last nine years with Frontline Distribution Ltd., Computer 2000's largest foreign subsidiary, which conducts business in the United Kingdom, most recently as Managing Director. Mr. Mulford holds a degree in Chemistry from Oxford University. Mr. Mulford is a Chartered Accountant. Klaus J. M. Laufen (age 52) has served as one of the Co-Presidents of Computer 2000 for more than the last five years, with responsibility for the areas of finance, group investments and investor relations. Holger Heims (age 32) has served with Computer 2000 since October, 1991, most recently as Director of Investments, Tax & Legal. From May, 1989 to October, 1991 he was a partner in the firm of Heims Tax Consultants. Mr. Heims has a Masters of Business Administration degree from Munich University. Harold L. Clark (age 59) was named President and Chief Executive Officer of AmeriQuest on December 3, 1993. He was appointed to serve as a director on March 4, 1994 and resigned as President and Chief Executive Officer on August 22, 1995. Prior to December 1993 he served as President and Chief Executive Officer of CDS Distribution, Inc., a subsidiary of AmeriQuest, from April 1993 to December 1993. From February 1991 to December 1992, he served as President, Chief Operating Officer and Director of Everex Systems, Inc. (L"Everex"). From 1989 through 1991, he served as a computer industry consultant. From 1984 to 1989, he served as the President of Ingram Micro, Inc. Dr. Clark received a B.S. Degree from Bryant College, an MBA from Pepperdine University, and has earned a Doctor of Education Degree from Nova University. Stephen G. Holmes (age 49) joined AmeriQuest as its Chief Financial Officer, Secretary and Treasurer in January 1992, after serving as a general partner and a managing partner of Arthur Andersen & Co. from 1978 until 1992. Mr. Holmes was appointed to serve as a Director on March 4, 1994. Effective August 22, 1995 Mr. 20 Holmes is a consultant to AmeriQuest. Mr. Holmes was educated at the University of Colorado and the University of Rochester, from which he received a B.S. degree, and is licensed to practice as a Certified Public Accountant in the State of California and other states. Donald Resnick (age 53) joined AmeriQuest as interim President in July 1995 and became Chief Financial Officer upon the consummation of the Computer 2000 purchase on August 22, 1995. Mr. Resnick was Chief Operating Officer of NCD from August 1994 to June 1995. From June 1990 to August 1994 he was engaged in various venture capital activities. From 1978 to June 1990 he served as the International Chief Financial Officer for Digital Equipment Corporation and the Executive Vice President for Schweber Electronics. Mr. Resnick has degrees from New York University, Adelphi University and the Wharton School University of Pennsylvania. Mr. Resnick is a Certified Public Accountant. Dennis Fairchild (age 45) joined AmeriQuest upon its acquisition of NCD in November 1994. Mr. Fairchild has served as Chief Financial Officer of NCD since January 1994. From March 1990 to December 1993, Mr. Fairchild was a partner in Coral Springs Connections, the owner of Southwest Frozen Foods, and served as Chief Financial Officer of Southwest Frozen Foods. Mr. Fairchild holds a Bachelor of Science degree in Accounting from Man Kato State University. Mr. Fairchild is a Certified Public Accountant and a CMA. 21 ITEM 11. EXECUTIVE COMPENSATION. The following table provides information concerning the annual and long-term compensation of the Chief Executive Officer of AmeriQuest and each of the four other highest paid executive officers who served as such at the end of fiscal year 1995 and for two of the other highest paid executive officers who had left AmeriQuest prior to the end of fiscal year 1995 for services rendered to AmeriQuest and its subsidiaries in all capacities during the fiscal years 1995, 1994 and 1993.
LONG-TERM ANNUAL COMPENSATION(1) COMPENSATION --------------------------- ------------ STOCK OPTION AWARDS ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES)(2) COMPENSATION - --------------------------- --------------- -------- ------------ ------------ Harold L. Clark......... 1995 $ 214,117 0 200,000shs.(2) 0 Chief Executive Officer 1994 $134,861(3) 0 250,000shs.(2) 0 1993 $ 18,000(3) 0 0 0 Stephen G. Holmes....... 1995 $155,769 0 50,000shs.(2) 0 Secretary/Treasurer 1994 $130,819 0 100,000shs.(2) 0 Chief Financial Officer 1993 $100,000 0 0 Peter S.H. Grubstein.... 1995 $162,500 0 0 0 Senior Vice President 1994 0 0 0 0 1993 0 0 0 0 Howard B. Crystal....... 1995 $148,942 0 100,000shs.(2) 0 Senior Vice President-- Operation 1994 0 0 0 0 1993 0 0 0 0 Peter D. Lytle.......... 1995 $100,000 0 40,000shs.(2) 0 Senior Vice President-- Operations 1994 56,140 0 0 0 1993 0 0 0 0 Irwin Bransky(4)........ 1995 $271,631 0 0 0 Former President 1994 0 0 0 0 and Chief Executive Officer of Kenfil Inc. 1993 0 0 0 0 Carol L. Miltner(5)..... 1995 $184,560(5) 0 0 0 Executive Vice 1994 $ 75,000 $28,125 100,000shs.(5) 0 President--Sales and Marketing 1993 0 0 0 0
- -------- (1) In fiscal years 1995, 1994 and 1993, no executive officer received perquisites or other personal benefits, securities or property which exceeded the lesser of $50,000 or 10% of such executive officer's salary and bonus. (2) Stock awards were made during fiscal 1995 to Messrs. Clark and Holmes at $2.50 per share, with the par value being paid in cash and the balance represented by non-interest bearing Promissory Notes in the amounts of $498,000 and $124,500, respectively. Stock options awarded in fiscal 1995 and 1994 were non-qualified stock options exercisable at $3.15 and $2.00 per share, respectively, and are subject to the approval of shareholders. (3) Includes compensation received as a consultant in the applicable period in the amounts of $59,861 and $18,000, respectively. (4) Irwin Bransky left AmeriQuest in February, 1995. (5) Carol Miltner left AmeriQuest in March, 1995. A consulting fee of $75,000 was paid at that time to The Consulting Group, which is wholly-owned by Ms. Miltner, and the options subject to her Employment Agreement were deemed to be fully vested, exercisable at $2.00 per share. 22 OPTION GRANTS The following table provides, as to the Chief Executive Officer and each of the four other highest paid executive officers who served as such at the end of fiscal year 1995 and for two of the other highest paid executive officers who had left AmeriQuest prior to the end of fiscal year 1995, information concerning individual grants of stock options made during fiscal year 1995.
% OF TOTAL POTENTIAL REALIZABLE VALUE NO. OF OPTIONS AT ASSUMED ANNUAL RATES SECURITIES GRANTED TO OF STOCK APPRECIATION UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(4)(5) OPTIONS IN FISCAL PRICE EXPIRATION --------------------------- NAME GRANTED YEAR 1995 (PER SHARE) DATE 0% 5% 10% - ---- ---------- ---------- ----------- ---------- ---------------- ---------- Harold L.Clark (1)...... 0 0 0 -- $0 $ 0 $ 0 Stephen G. Holmes (1)... 0 0 0 -- $0 $ 0 $ 0 Peter S.H. Grubstein.... 0 0 0 -- $0 $ 0 $ 0 Howard B. Crystal....... 100,000(2) 100% $3.15 7/14/2000 $0 $110,000 $240,000 Peter D. Lytle.......... 0 0 0 -- $0 $ 0 $ 0 Irwin Bransky........... 0 0 0 -- $0 $ 0 $ 0 Carol L. Miltner (3).... 0 0 0 -- $0 $ 0 $ 0
- -------- (1) Stock awards were made during fiscal 1995 to Messrs. Clark and Holmes at $2.50 per share, with the par value being paid in cash and the balance represented by non-interest bearing Promissory Notes in the amounts of $498,000 and $124,500, respectively. The Notes are due September 30, 1996. (2) The options granted are non-qualified stock options which vest in 25% increments every 14 months, with the first 25% scheduled to vest on September 14, 1995. Messrs. Crystal and Lytle left AmeriQuest at the end of July, 1995, and received severance payments equal to ten months salary in the amounts of $125,000 and $110,417, respectively. Additionally, the options earlier granted were deemed to be fully vested, exercisable at $3.15 per share and $2.00 per share respectively, but must be exercised within 90 days after the execution of the severance agreements. (3) Carol Miltner left AmeriQuest in March, 1995. A consulting fee of $75,000 was paid at that time to The Consulting Group, which is wholly-owned by Ms. Miltner, and the options subject to her Employment Agreement were deemed to be fully vested, exercisable at $2.00 per share. (4) The potential realizable values shown in these columns illustrate the results of hypothetical annual rates of appreciation compounded annually from the date of grant until the end of the option term, assuming an initial investment equal to the aggregate exercisable price shown for the option grant. These amounts are reported net of the option exercise price (which may be paid by delivery of already-owned shares of Common Stock), but before any taxes associated with the exercise or subsequent sale of the underlying shares. (5) The dollar amounts in these columns are based on the hypothetical annual rates of appreciation noted and are therefore not intended to forecast possible future appreciation, if any, of the price of AmeriQuest's Common Stock. Alternative formulas for determining potential realizable value have not been utilized because AmeriQuest is not aware of any formula which will determine with reasonable accuracy a present value based on future unknown or volatile factors. There can be no assurance that the dollar amounts reflected in these columns will be achieved. Actual gains, if any, on stock option exercises are dependent on the future performance of the Common Stock and overall market conditions, as well as the executive officer's continued employment through the vesting period. 23 OPTION EXERCISES AND FISCAL YEAR-END VALUES The following table provides, as to the Chief Executive Officer of AmeriQuest and each of the four other highest paid executive officers who served as such at the end of fiscal year 1995 and for two of the other highest paid executive officers who had left AmeriQuest prior to the end of fiscal year 1995, information concerning unexercised stock options at June 30, 1995. None of the executive officers exercised any stock options during fiscal year 1995.
NUMBER OF VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT AT JUNE 30, 1995 JUNE 30, 1995(1) ------------------------- ------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- ------------- ----------- ------------- Harold L. Clark............. 62,500 187,500 shs. $ 7,813 $23,438 Stephen G. Holmes........... 35,000 75,000 shs. 9,375 9,375 Peter S.H. Grubstein........ 0 0 0 0 Howard B. Crystal........... 0 100,000 shs 0 0 Peter D. Lytle.............. 40,000 0 $ 2,500 2,500 Irwin Bransky............... 0 0 0 0 Carol L. Miltner............ 100,000 0 $12,500 0
- -------- (1) Based on the closing price of AmeriQuest's Common Stock on the New York Stock Exchange onJune 30, 1995. (2) Carol Miltner left AmeriQuest in March, 1995. A consulting fee of $75,000 was paid at that time toThe Consulting Group, which is wholly-owned by Ms. Miltner, and the options subject to her Employment Agreement were deemed to be fully vested, exercisable at $2.00 per share. COMPENSATION OF OUTSIDE DIRECTORS AmeriQuest paid Messrs. Walker T. Walker, Jr. and William N. Silvis $2,500 per quarter in their capacities as outside directors during fiscal 1995. AmeriQuest has and will continue to pay the expenses of itsnon-employee Directors in attending Board meetings. All directors are also eligible to receive stock and/or stock options as a form of compensation. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the fiscal year ended June 30, 1993 AmeriQuest granted options to each of Messrs. Walker and Silvis to purchase 5,000 shares of AmeriQuest's Common Stock at $1.50 per share. Such options were originally due to vest over a three-year period; however, on December 3, 1993 the Board resolved that such options should immediately vest, and be increased to 20,000 shares each exercisable at $1.875 per share. Mr. Silvis has exercised his option in full, but Mr. Walker still holds his option. On October 14, 1994, the Board resolved to grant Messrs. Walker and Silvis additional three-year options relating to 15,000 shares each, exercisable at $3.375 per share. The proposal to adjust the stock options arrangements in favor of Messrs. Walker and Silvis and the grant of new options was proposed by new directors without regard to any compensation that might be paid to others pursuant to recommendation of the Compensation Committee. Additionally, on July 28, 1995, the Board resolved to cancel the options outstanding in favor of Messrs. Walker and Silvis in the respective amounts of 35,000 and 15,000 shares, respectively, and granted to such individuals fully-paid shares in such amounts in recognition of their long-standing service to AmeriQuest. On March 4, 1994, the independent members of the Board of Directors authorized AmeriQuest to grant five-year, non-qualified stock options to Mr. Terren S. Peizer and Manufacturers Indemnity and Insurance Company of America in the amounts of 400,000 shares and 150,000 shares, respectively, as additional incentive for Messrs. Terren S. Peizer and Marc L. Werner to assist AmeriQuest with its avowed policy of growth by acquisition. The options vested when AmeriQuest's operations attained a sales "run rate" of $300 Million per year. The exercise price is $4.50 per share. 24 On October 14, 1994, Manufacturers Indemnity and Insurance Company of America paid $456,000 for(i) 190,000 shares of AmeriQuest Common Stock and (ii) a warrant to acquire an additional 190,000 shares of AmeriQuest Common Stock, initially exercisable at $3.50 per share and subsequently adjusted to $2.22 per share. Manufacturers indemnity and Insurance Company of America's purchase was part of a private placement in October, 1994 to a larger group of investors that provided funds necessary for AmeriQuest to acquire NCD. Also, on October 14, 1994, Manufacturers Indemnity and Insurance Company of America acquired 200,000 shares of AmeriQuest Common Stock in consideration of a promise to pay $2.50 per share. On June 28, 1995, Manufacturers Indemnity and Insurance Company of America paid $1,190,000 for (i) 680,000 shares of AmeriQuest Common Stock and (ii) a warrant to acquire an additional 1,360,000 shares of AmeriQuest Common Stock, exercisable at $1.05 per share. Manufacturers Indemnity and Insurance Company of America's purchase was part of a private placement in June, 1995 to a larger group of investors that provided funds necessary for AmeriQuest to meet working capital requirements occasioned by AmeriQuest being under collateralized on its obligation to IBM Credit Corporation. Messrs. Marc L. Werner, Terren S. Peizer and William N. Silvis serve on the Compensation Committee. While there are no "interlocks" between such individuals and other companies with which they are affiliated or associated, AmeriQuest granted options during fiscal 1994 to Mr. Terren S. Peizer and Manufacturers Indemnity and Insurance Company of America, a company affiliated with Mr. Werner, to secure the services of Messrs. Peizer and Werner in connection with the projected efforts they were to expend in assisting AmeriQuest in its acquisition of other companies. 25 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth, as of September 15, 1995, information relating to the beneficial ownership of AmeriQuest's Preferred Stock and Common Stock by (i) each person known to AmeriQuest to be the beneficial owner of more than five percent of any such class of AmeriQuest's outstanding securities, (ii) each director, (iii) each of the executive officers for which executive compensation information is set forth above, and (iv) all directors and executive officers as a group. AmeriQuest knows of no agreements among its shareholders which relate to voting or investment power over its Common Stock.
BENEFICIAL OWNERSHIP AS OF SEPTEMBER 15, 1995 ----------------------------------------------- NUMBER OF SHARES ---------------------- PREFERRED COMMON PERCENT OF CLASS(13) --------- --------- -------------------- NAME AND ADDRESS OF BENEFICIAL OWNER Computer 2000 AG............... 810,811(1) 100.00% Wolfratshauser Strasse 84 1,785,714(1) 100.00% 81379 Munchen, Germany 532,000 2.19% Manufacturers Indemnity and In- surance Company of America.... 3,233,473(2) 12.51% 5775 Flatiron Parkway, Ste 205 Boulder, Co 80301 COMMON STOCK DIRECTORS AND OFFICERS (11)(12) Steve DeWindt.................. -0- -0- -0- Harry Krischik................. 810,811(1) 100.00% 1,785,714(1) 100.00% 532,000(1) 2.19% Klaus J.M. Laufen.............. 810,811(1) 100.00% 1,785,714(1) 100.00% 532,000(1) 2.19% Marc L. Werner................. 3,693,473(2) 14.29% Mark Mulford................... 0(1) 0 Holger Heims................... 0(1) 0 Donald W. Resnick.............. 150,000(3) * Harold L. Clark................ 450,000(4) 1.83% Stephen G. Holmes.............. 160,000(5) * Peter S. H. Grubstein.......... 559,595(6) 2.29% Howard B. Crystal.............. 100,000(7) * Peter D. Lytle................. 40,000(8) * Irwin Bransky.................. 471,579 1.94% Carol L. Miltner............... 100,000(9) * All officers and directors as a group (15 persons)............ 810,811 100% 1,785,714 100% 6,297,745(10) 23.58%
- -------- (1) On August 22, 1995, Computer 2000 acquired 810,811 shares of AmeriQuest Series A Preferred Stock and 1,785,714 shares of AmeriQuest Series B Preferred Stock. Each such share of Series A and Series B Preferred Stock is convertible into ten (10) shares of AmeriQuest Common Stock once shareholders increase the number of shares of AmeriQuest Common Stock authorized for issuance. The Series A and Series B Preferred Stock are entitled to one vote for each share of underlying Common Stock and vote as a single class with the AmeriQuest Common Stock, such that Computer 2000 presently holds approximately 52.7% of the outstanding voting power attributable to all classes voting as a single class of Common Stock (which includes 532,000 of AmeriQuest Common Stock also held by Computer 2000). Additionally, as outlined under "Item 1. Business--Recent Developments," Computer 2000 has options and warrants to acquire additional shares which could ultimately increase its voting power to approximately 62% of all classes voting as a single class of Common Stock. Messrs. Harry Krischik and Klaus J.M. Laufen each have shared voting power over the shares held by Computer 2000 as each is also a Director of Computer 2000, and collectively could control any vote where there is only a total of three directors for Computer 2000. In this regard, it should also be noted that the parent companies of Computer 2000, Klockner & Co. AG and VIAG Aktiengesellschaft, have been asserting a significant degree of 26 control over the affairs of Computer 2000. Additionally, it should be noted that Messrs. Steve DeWindt, Mark Mulford and Holger Heims are nominees of Computer 2000. (2) The Board of Directors of Manufacturing Indemnity and Insurance Company of America is vested with the voting and investment powers relating to the shares of AmeriQuest's Common Stock held by Manufacturers Indemnity and Insurance Company of America. Mr. Marc L. Werner, as a Director of Manufacturers Indemnity and Insurance Company of America, may be deemed to have shared voting and investment powers over the 1,683,473 shares of AmeriQuest Common Stock held by Manufacturers Indemnity and Insurance Company of America. In addition, Manufacturers Indemnity and Insurance Company of America holds a four-year warrant to purchase 190,000 shares of Common Stock at $3.50 per share from May 14, 1995 to November 14, 1998. The exercise price of the warrant was adjusted downward to $2.22 per share because of the right of such purchasers to adjust the warrant exercise price to the same price as other investors acquire shares between November 14, 1994 and May 14, 1995. The conversion price to Computer 2000 of its $18 million loan is deemed by AmeriQuest to constitute such a "sale." In addition, Manufacturers Indemnity and Insurance Company of America holds a three-year warrant to purchase 1,360,000 shares of Common Stock at $1.05 per share thru June 30, 1998. (3) Includes 150,000 shares subject to stock options currently exercisable at $1.50 per share. (4) Includes 200,000 shares issued to Mr. Clark on October 14, 1994 for which Mr. Clark paid $2,000 in cash and tendered to AmeriQuest a one-year Promissory Note in the amount of $498,000. The balance of the shares are subject to currently exercisable stock options, exercisable at $1.00 per share. (5) Includes 50,000 shares issued to Mr. Holmes on October 14, 1994 for which Mr. Holmes paid $500 in cash and tendered to AmeriQuest a one-year Promissory Note in the amount of $124,500. The balance of the shares are subject to currently exercisable stock options, exercisable at $1.00 per share. (6) The number of shares listed for Mr. Grubstein includes 107,000 shares of AmeriQuest Common Stock issuable in consequence of the assumption by AmeriQuest of Kenfil's obligation under a Warrant issued to Corporate Efficiency Consulting, L.P., a New Jersey limited partnership ("CEC") for 315,000 shares of Kenfil Common Stock. Mr. Grubstein now holds his option directly and not derivatively through CEC. (7) Includes 100,000 shares subject to stock options currently exercisable at $3.15 per share. (8) Includes 40,000 shares subject to stock options currently exercisable at $2.00 per share. (9) Includes 100,000 shares subject to stock options currently exercisable at $2.00 per share. (10) Includes 2,407,000 shares subject to stock options and warrants currently vested and issuable upon exercise of such options and warrants. (11) The address for the executive officers and directors and proposed directors is: 3 Imperial Promenade, Ste. 300, Santa Ana, California 92707. (12) Each executive officer and director has sole voting and investment power with respect to the shares listed, unless otherwise indicated. (13) For purposes of determining the percentage of outstanding Common Stock held by each person or group set forth in the table, the number of shares held by a person or group is divided by the sum of the number of shares of AmeriQuest's Common Stock outstanding on September 15, 1995 (810,811 shares of Series A Preferred Stock; 1,785,714 shares of Series B Preferred Stock; and 24,303,572 shares of Common Stock) plus the number of shares of Common Stock subject to outstanding stock options and warrants exercisable currently or within 60 days of September 15, 1995 by such person or group, in accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended. Percentages of less than 1% are represented by an asterisk. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During the fiscal year ended June 30, 1993 AmeriQuest granted options to each of Messrs. Walker and Silvis to purchase 5,000 shares of AmeriQuest's Common Stock at $1.50 per share. Such options were originally due to vest over a three-year period; however, on December 3, 1993 the Board resolved that such options should immediately vest, and be increased to 20,000 shares each exercisable at $1.875 per share. Mr. Silvis has exercised his option in full, but Mr. Walker still holds his option. On October 14, 1994, the Board resolved to grant Messrs. Walker and Silvis additional three-year options relating to 15,000 shares each, exercisable at $3.375 per share. The proposal to adjust the stock options arrangements in favor of Messrs. Walker and Silvis 27 and the grant of new options was proposed by new directors without regard to any compensation that might be paid to others pursuant to recommendation of the Compensation Committee. Additionally, on July 28, 1995, the Board resolved to cancel the options outstanding in favor of Messrs. Walker and Silvis in the respective amounts of 35,000 and 15,000 shares, respectively, and granted to such individuals fully-paid shares in such amounts in recognition of their long-standing service to AmeriQuest. On March 4, 1994, the independent members of the Board of Directors authorized AmeriQuest to grant five-year, non-qualified stock options to Mr. Terren S. Peizer and Manufacturers Indemnity and Insurance Company of America in the amounts of 400,000 shares and 150,000 shares, respectively, as additional incentive for Messrs. Terren S. Peizer and Marc L. Werner to assist AmeriQuest with its avowed policy of growth by acquisition. The options vested when AmeriQuest's operations attained a sales "run rate" of $300 Million per year. The exercise price is $4.50 per share. On October 14, 1994, Manufacturers Indemnity and Insurance Company of America paid $456,000 for (i) 190,000 shares of AmeriQuest Common Stock and (ii) a warrant to acquire an additional 190,000 shares of AmeriQuest Common Stock, initially exercisable at $3.50 per share and subsequently adjusted to $2.22 per share. Manufacturers Indemnity and Insurance Company of America's purchase was part of a private placement in October, 1994 to a larger group of investors that provided funds necessary for AmeriQuest to acquire NCD. Also, on October 14, 1994, Manufacturers Indemnity and Insurance Company of America acquired 200,000 shares of AmeriQuest Common Stock in consideration of a promise to pay $2.50 per share. On June 28, 1995, Manufacturers Indemnity and Insurance Company of America paid $1,190,000 for (i) 680,000 shares of AmeriQuest Common Stock and (ii) a warrant to acquire an additional 1,360,000 shares of AmeriQuest Common Stock, exercisable at $1.05 per share. Manufacturers Indemnity and Insurance Company of America's purchase was part of a private placement in June, 1995 to a larger group of investors that provided funds necessary for AmeriQuest to meet working capital requirements occasioned by AmeriQuest being under collateralized on its obligation to IBM Credit Corporation. SEVERANCE ARRANGEMENTS WITH PRECEDING MANAGEMENT On July 28, 1995, the Board of Directors resolved to accede to the demands of Mr. Gregory A. White in connection with his severance of service from AmeriQuest. The Separation Agreement between AmeriQuest and Mr. White provides for (i) a lump-sum payment of $500,000 within three (3) business days following the closing of the Purchase Agreement (together with normal salary until so paid), (ii) to continue health insurance coverage for Mr. White and his dependents for a period of two years through July 11, 1997, (iii) all options are deemed vested and exercisable for a period of twenty-four months from the effective date of the Separation Agreement, and (iv) AmeriQuest will allow Mr. White to retain $155,000 he took as an interest-free loan, which shall be due and payable as soon as the market price for AmeriQuest's Common Stock reaches $3.50 for a 20-day (consecutive) period, provided there is then an effective registration statement available which would allow Mr. White to sell the shares underlying his options upon exercise thereof. AmeriQuest also forgave the outstanding loan it made to Mr. White to assist him in relocating his family from Florida to California, in the amount of $75,000. ---------------- 28 On July 28, 1995, the Board of Directors, in recognition of indications that Computer 2000 intended to replace Messrs. Clark and Holmes, resolved that AmeriQuest should honor the terms of their severance pay concurrent with the closing of the Purchase Agreement, without compromise. However, those provisions were mutually agreed to be compromised, based upon certain oral understandings, and are protested. The final terms were more favorable to AmeriQuest than those strictly provided for in the agreements, in that a substantial portion of the cash obligation was handled by repricing outstanding options, and certain other concessions. The severance arrangement with Mr. Clark provided for the payment of $290,000 cash, comprised of a $170,000 severance payment, $20,000 for accrued vacation and $100,000 as a consulting retainer. Additionally, the exercise price of Mr. Clark's 250,000 stock options was repriced from $2.00 per share to $1.00 per share. The severance arrangement with Mr. Holmes provided for cash payments totaling $171,539, comprised of $160,000 severance (of which $60,000 remains to be paid on January 1, 1996) and $11,539 for accrued vacation. Additionally, the exercise price of Mr. Holmes' 100,000 stock options was repriced from $2.00 per share to $1.00 per share. 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Financial Statements and Schedules (1) Financial Statements included in Part II of this Report:
PAGE REFERENCE --------- Report of Independent Public Accountants........................ F-1 Statements of Operations for each of the three years ended June 30, 1995....................................................... F-2 Balance Sheets at June 30, 1995 and 1994........................ F-3 Statements of Stockholders' Equity (Deficit) for each of the three years ended June 30, 1995................................ F-4 Statements of Cash Flows for each of the three years ended June 30, 1995....................................................... F-5 Notes to Financial Statements................................... F-7 (2) Financial Statement Schedule Schedule II--Valuation and Qualifying Accounts and Reserves..... F-17
(b) Reports on Form 8-K Current Report on Form 8-K (Amendment No. 3) dated June 14, 1994, filed May 26, 1995, amending certain pro forma disclosures relating to the acquisition of Kenfil Inc. Current Report on Form 8-K (Amendment No. 1) dated July 18, 1994, filed April 6, 1995, reporting that AmeriQuest had resolved to abort its sale of CMS Enhancements (S) PTE Ltd., a Singapore subsidiary of AmeriQuest, for failure of the purchaser to remit the entirety of the agreed consideration. Current Report on Form 8-K (Amendment No. 4) dated September 12, 1994, filed May 9, 1995, amending certain pro forma disclosures relating to the acquisition of Kenfil Inc. Current Report on Form 8-K (Amendment No. 6) dated November 14, 1994, filed May 26, 1995, amending certain pro forma disclosures relating to the acquisition of Ross White Enterprises, Inc. d/b/a "National Computer Distributors." Current Report on Form 8-K dated June 26, 1995, filed July 3, 1995, reporting the resignation of Robert H. Beckett from the Board of Directors and the assertion of Robec, Inc. regarding possibly renegotiating the exchange ratio for that transaction. Current Report on Form 8-K dated August 7, 1995, filed August 16, 1995, reporting a change in control of AmeriQuest upon the closing of the Purchase Agreement by and between AmeriQuest and Computer 2000 AG, the resignation of Mr. Gregory A. White from the Board of Directors and a proposed change of fiscal year to September 30 of each year to conform to the fiscal year end of Computer 2000 AG. Current Report on Form 8-K dated August 9, 1995, filed August 16, 1995, reporting the disposition of CMS Enhancements (S) PTE Ltd., a Singapore subsidiary of AmeriQuest. 30 (c) Exhibits EXHIBIT INDEX
EXHIBIT NO. TITLE OF DOCUMENT PAGE NO. LOCATION OF FILING - ----------- ----------------- -------- ------------------ 2.01* Amended and Restated Agreement and SEC File No. 33-57611 Plan of Reorganization dated as of Exhibit 2.01 August 11, 1994 by, between and among AmeriQuest, Robec and certain principal shareholders of Robec. 2.02* Agreement and Plan of Reorganization 50 SEC File No. 1-10397 dated September 26, 1994 by, between 10-K for June 30, 1994 and among AmeriQuest, Ross White Enterprises, Inc. d/b/a "National Computer Distributors ("NCD") and the shareholders of NCD. 3.01(a)* Certificate of Incorporation of SEC File 1-10397 AmeriQuest as amended through 10-K for June 30, 1994 September 22, 1994. 3.01(b) Certificate of Designations for SEC File 1-10397 Preferred Stock issued and issuable to 10-K for June 30, 1995 Computer 2000. 3.02* By-laws of AmeriQuest. 189 SEC File 33-81726 4.01* Reference is made to Exhibits 3.01 and 3.02, the Certificate of Incorporation and Bylaws, which define the rights of security holders. 4.02* Specimen Stock Certificate. 274 SEC File 33-81726 10.01 Inventory and Working Capital SEC File No. 1-10397 Financing Agreement dated May 5, 1995 10-K for June 30, 1995 by and between CDS Distribution, Inc. and IBM Credit Corporation, as amended. 10.02 Inventory and Working Capital SEC File No. 1-10397 Financing Agreement dated May 5, 1995 10-K for June 30, 1995 by and between CMS Enhancements, Inc. and IBM Credit Corporation, as amended. 10.03 Working Capital Financing Agreement SEC File No. 1-10397 dated May 5, 1995 by and between 10-K for June 30, 1995 AmeriQuest/Kenfil Inc. and IBM Credit Corporation, as amended. 10.04 Revolving Credit Agreement dated April SEC File No. 1-10397 27, 1992 by and between Ross White 10-K for June 30, 1995 Enterprise, Inc. d/b/a "National Computer Distributors," as amended. 10.05* Inventory and Working Capital SEC File No. 0-18115 Financing Agreement dated September 8-K dated 21, 1994 by and between Robec, Inc. September 22, 1994 and IBM Credit Corporation, as amended. 10.06* Incentive Stock Option Plan. SEC File 2-96539 10.07* Employee Stock Bonus Plan. SEC File 33-23809 10.08 Employment Agreement for Steve SEC File No. 1-10397 DeWindt. 10-K for June 30, 1995
31
EXHIBIT NO. TITLE OF DOCUMENT PAGE NO. LOCATION OF FILING - ----------- ----------------- -------- ------------------ 10.09 Employment Agreement for Mark Mulford. SEC File No. 1-10397 10-K for June 30, 1995 10.10 Employment Agreement for Holger Heims. SEC File No. 1-10397 10-K for June 30, 1995 10.11* Exchange Agreement between AmeriQuest 62 SEC File No. 1-10397 and Mr. James D'Jen for the 10-K/A-4 for disposition of CMS Enhancements. June 30, 1994 10.12* Purchase Agreement dated August 7, SEC File No. 1-10397 1995 by and between AmeriQuest and 8-K dated August 7, 1995 Computer 2000 AG. 10.13* Agreement of Sublease dated December SEC File No. 33-81726 5, 1994 by and between AmeriQuest and The Austin Company. 21.01* Subsidiaries of AmeriQuest. 351 SEC File No. 1-10397 10-K for June 30, 1994 23.01 Consent of Arthur Andersen LLP to the SEC File No. 1-10397 incorporation of their report included 10-K for June 30, 1995 in the Annual Report on Form 10-K of AmeriQuest for the fiscal year ended June 30, 1995 into AmeriQuest's previously filed Registration Statements. 24.01 Powers of Attorney for Messrs. Steve 50 SEC File No. 1-10397 DeWindt, Mark Mulford, Marc L. Werner, 10-K for June 30, 1995 Dr. Harry Krischik, Klaus J.M Laufen, Holger Heims, Harold L. Clark and Stephen G. Holmes. 27.01 Financial Data Schedule. 66 SEC File No. 1-10397 10-K for June 30, 1995
- -------- * Incorporated herein by reference to the indicated filing pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended, and Rule 24 of the Commission's Rules of Practice. 32 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SANTA ANA, STATE OF CALIFORNIA, ON THE 13TH DAY OF OCTOBER, 1995. AmeriQuest Technologies, Inc. /s/ Steve DeWindt By: _________________________________ STEVE DEWINDT CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ Steve DeWindt Chairman of the October 13, - ------------------------------------- Board, Chief 1995 STEVE DEWINDT Executive Officer and Director (Principal Executive Officer) /s/ Mark Mulford President, Chief October 13, - ------------------------------------- Operating Officer 1995 MARK MULFORD** and Director /s/ Donald W. Resnick Secretary, October 13, - ------------------------------------- Treasurer, Chief 1995 DONALD W. RESNICK Financial Officer (Principal Financial and Accounting Officer) /s/ Dr. Harry Krischik Co-Chairman of the October 13, - ------------------------------------- Board 1995 DR. HARRY KRISCHIK** /s/ Marc L. Werner Vice Chairman of the October 13, - ------------------------------------- Board 1995 MARC L. WERNER** /s/ Klaus J. M. Laufen Director October 13, - ------------------------------------- 1995 KLAUS J. M. LAUFEN** 33 SIGNATURE TITLE DATE /s/ Holger Heims Director October 13, - ------------------------------------- 1995 HOLGER HEIMS** /s/ Harold L. Clark Director October 13, - ------------------------------------- 1995 HAROLD L. CLARK** /s/ Stephen G. Holmes Director October 13, - ------------------------------------- 1995 STEPHEN G. HOLMES** /s/ Steve DeWindt /s/ Donald W. Resnick - ------------------------------------- ------------------------------------- STEVE DEWINDT*, DONALD W. RESNICK**, ATTORNEY-IN-FACT ATTORNEY-IN-FACT 34 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To AmeriQuest Technologies, Inc.: We have audited the accompanying consolidated balance sheets of AmeriQuest Technologies, Inc. (a Delaware corporation) and subsidiaries (AmeriQuest) as of June 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1995. These financial statements and the schedule referred to below are the responsibility of AmeriQuest's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of AmeriQuest as of June 30, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index on page 30 is presented for purposes of complying with the Securities and Exchange Commissions rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Los Angeles, California October 13, 1995 F-1 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30, ------------------------------------------------ 1995 1994 1993 --------------- --------------- --------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NET SALES..................... $416,571 $87,593 $73,082 COST OF SALES................. 400,820 75,023 61,539 --------------- -------------- -------------- Gross profit................ 15,751 12,570 11,543 --------------- -------------- -------------- OPERATING EXPENSES Selling, general and administrative................ 53,432 14,119 10,274 Intangibles write off....... 23,777 -- -- Restructuring............... -- 5,700 -- Research and development.... 39 25 782 --------------- -------------- -------------- 77,248 19,844 11,056 --------------- -------------- -------------- Income (loss) from operations.................... (61,497) (7,274) 487 OTHER (INCOME) EXPENSE Other income................ (13) (31) (26) Interest expense............ 6,082 728 277 --------------- -------------- -------------- 6,069 697 251 --------------- -------------- -------------- Net income (loss)........... $(67,566) $(7,971) $ 236 =============== ============== ============== Net income (loss) per common share and common share equivalent.. $ (3.76) $ (1.33) $ 0.08 =============== ============== ============== Weighted average shares outstanding................... 17,993,440 5,973,511 3,060,908 =============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements. F-2 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30, 1995 1994 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS CURRENT ASSETS Cash............................................... $ 970 $ 3,200 Accounts receivable, less allowances for doubtful accounts of $9,572 and $477 as of June 30, 1995 and 1994, respectively............................ 56,342 24,708 Inventories........................................ 49,101 24,165 Other current assets............................... 1,362 1,627 ----------- ----------- Total current assets............................. 107,775 53,700 ----------- ----------- PROPERTY AND EQUIPMENT, NET.......................... 6,649 4,078 INTANGIBLE ASSETS, NET............................... 10,411 6,490 OTHER ASSETS......................................... 3,173 877 ----------- ----------- $ 128,008 $ 65,145 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable................................... $ 42,023 $ 23,408 Notes payable...................................... 72,945 23,059 Other current liabilities.......................... 14,234 2,361 ----------- ----------- Total current liabilities........................ 129,202 48,828 ----------- ----------- SUBORDINATED NOTES PAYABLE TO SHAREHOLDERS........... -- 3,175 LONG TERM OBLIGATIONS................................ 6,515 267 SUBORDINATED NOTES PAYABLE........................... 18,000 -- COMMITMENTS AND CONTINGENCIES........................ STOCKHOLDERS' EQUITY Preferred stock, $.01 par value; authorized 10,000,000 shares; no shares issued and outstanding.............. -- -- Common stock, $.01 par value; authorized 30,000,000 shares; issued and outstanding, 22,966,711 and 9,857,779 shares, as of June 30, 1995 and 1994, respectively.... 230 99 Additional paid-in capital......................... 56,196 27,345 Accumulated deficit................................ (82,135) (14,569) ----------- ----------- Total stockholders' equity (deficit)............. (25,709) 12,875 ----------- ----------- $ 128,008 $ 65,145 =========== ===========
The accompanying notes are an integral part of these consolidated balance sheets. F-3 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK ADDITIONAL ----------------- PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT ---------- ------ ---------- ----------- (DOLLARS IN THOUSANDS) BALANCES AT JUNE 30, 1992............. 2,925,523 $ 29 $14,757 $ (6,834) Common stock issued by private placement............................ 143,000 2 286 -- Common stock issued for assets........ 100,000 1 149 -- Exercise of employee stock options.... 12,187 -- 18 -- Net income for the year ended June 30, 1993.................................. -- -- -- 236 ---------- ---- ------- -------- BALANCES AT JUNE 30, 1993............. 3,180,710 $ 32 $15,210 $ (6,598) ---------- ---- ------- -------- Common stock issued by private placement............................ 4,905,072 49 9,054 -- Common stock issued for businesses acquired.............................. 1,730,330 17 3,011 -- Exercise of employee stock options.... 41,667 1 70 -- Net loss for the year ended June 30, 1994.................................. -- -- -- (7,971) ---------- ---- ------- -------- BALANCE AT JUNE 30, 1994.............. 9,857,779 $ 99 $27,345 $(14,569) ---------- ---- ------- -------- Common stock issued by private placement and other.................. 4,266,258 43 8,646 -- Common stock issued for businesses acquired.............................. 8,352,148 84 19,019 -- Exercise of employee stock options.... 32,834 -- 51 -- Shares issued to employees............ 457,692 4 1,135 -- Net loss for the year ended June 30, 1995.................................. -- -- -- (67,566) ---------- ---- ------- -------- BALANCES AT JUNE 30, 1995............. 22,966,711 $230 $56,196 $(82,135) ========== ==== ======= ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, ---------------------------------------- 1995 1994 1993 -------- ---------------------- ------- (DOLLARS IN THOUSANDS) Cash Flows from Operating Activities Net income (loss).................... $(67,566) $(7,971) $ 236 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization...... 4,723 1,107 1,013 Intangibles write-off.............. 23,777 -- -- Provision for losses on accounts receivable......................... 5,787 577 328 Provision for losses on inventories........................ 17,039 1,714 633 Loss on sale of equipment.......... 1,540 -- 33 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable....................... (3,016) (1,698) 3,302 (Increase) decrease in inventories and other............ (390) (1,447) 953 (Increase) decrease in other assets........................... (189) 1,500 (1,449) (Decrease) in accounts payable and other........................ (25,312) (2,190) (3,776) -------- ------- ------- Net cash provided by (used in) operating activities................. (43,607) (8,408) 1,273 -------- ------- ------- Cash Flows from Investing Activities Purchase of property and equipment... (4,316) (1,546) (1,260) Net cash (paid) received from acquisition of businesses, net of acquired cash of $1,656 in 1995...... (1,973) 769 -- Proceeds from sale of equipment...... -- -- 17 -------- ------- ------- Net cash used in investing activities........................... (6,289) (777) (1,243) -------- ------- ------- Cash Flows from Financing Activities Proceeds from subordinated debt...... 18,000 -- 1,505 Proceeds from notes payable borrowings, net...................... 20,926 3,741 (1,669) Proceeds from sale of common stock... 8,740 7,624 456 -------- ------- ------- Net cash provided by (used in) financing activities................. 47,666 11,365 292 -------- ------- ------- Increase (decrease) in cash.......... (2,230) 2,180 322 Cash--beginning of the year.......... 3,200 1,020 698 -------- ------- ------- Cash--end of the year................ $ 970 $ 3,200 $ 1,020 ======== ======= =======
The accompany notes are an integral part of these consolidated financial statements. F-5 Supplemental Disclosures of Cash Flow Information: Interest on lines of During Fiscal 1995, 1994 and 1993 the Company paid interest costs credit: of approximately $5,917, $728 and $277, respectively. Income taxes: During Fiscal 1995, 1994 and 1993 the Company made no tax payments. Noncash investing and financing activities: Capital leases: During Fiscal 1995 and 1994, the Company entered into capital leases for equipment totaling approximately $270 and $180, respectively. Subordinated note During Fiscal 1994, the Company issued approximately 522,000 payable conversion: shares of common stock upon the conversion of a $1,550 subordinated note payable. Intangible write off: During Fiscal 1995, the Company wrote off $23,777 of intangibles related to the termination of its entertainment software business and impairment of intangible assets at certain acquired regional distributors.
The accompany notes are an integral part of these consolidated financial statements. F-6 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business. AmeriQuest Technologies, Inc. and subsidiaries ("Company" or "AmeriQuest") is a national value-added wholesale distributor of computer hardware and related products to value-added resellers, system integrators and computer retailers through its wholly-owned subsidiaries, CDS Distribution, Inc., AmeriQuest/NCD, Inc. and its 50.1 percent owned subsidiary, Robec, Inc. AmeriQuest is also a supplier of hard disk drive subsystems compatible with leading business computers, through its wholly- owned subsidiary, CMS Enhancements, Inc. ("CMS"). CMS also offers disk array, magneto optical, CD-ROM, floppy disk drives and magnetic tape back-up subsystems. Through its wholly-owned subsidiary, Kenfil, Inc., AmeriQuest distributes business applications, utilities, graphics and communication software to the Asian market. The Company operates in the personal computer industry, which is affected by significant technological change and short product life cycles. Competitors have financial, marketing, or management resources substantially greater than those of AmeriQuest. Product lines sold by AmeriQuest are also offered by many other distributors, which in combination with short product life cycles, can result in rapid declines in product gross margins. In addition, inventory is subject to loss due to short-term technological obsolescence. No one customer represents more than 10 percent of consolidated revenues. The Company's largest vendor accounted for approximately 11% and 20% of the Company's purchases during fiscal years 1995 and 1994, respectively. No other vendor represented 10% or more of the Company's purchases in either fiscal year 1995 and 1994. Basis of consolidation. The consolidated financial statements include the accounts of AmeriQuest and its majority and wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Accounting period. The Company's fiscal year ends on the Saturday closest to June 30, however, in 1994, Friday was used as the last day of the fiscal period. The year ending dates for the past three fiscal years were July 1, 1995 and June 30, 1994 and 1993. For presentation purposes, all of the aforementioned fiscal year ends are referred to as June 30. Inventories. Inventories consist principally of computer hardware and software held for resale and are stated at the lower of first-in, first-out cost or market. Reserves for inventory obsolescence and slow moving product are provided based upon specified criteria, such as recent sales activity and date of purchase. Property and equipment. Property and equipment are stated at cost. Depreciation and amortization are computed using the straight line method over estimated useful lives as follows: Equipment.................................................... 5 years Furniture and fixtures....................................... 5 years Leasehold improvements....................................... Lease term Vehicles..................................................... 3 to 5 years
Maintenance, repairs and minor renewals are charged directly to expense as incurred. Additions and betterments to property and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in operations. Intangible assets. Intangible assets relate primarily to acquired distribution channels and related vendor relationships and market positions. Intangibles are amortized using the straight-line method from the date of F-7 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) acquisition over the expected period to be benefitted, currently estimated at 10 years. In determining the appropriate amortization period the Company considered the historical length of the acquiree's vendor relationships and the overall size and quality of the vendors and their product offerings. On a quarterly basis, the Company assesses the recoverability of intangible assets based upon consideration of past performance and future expectations of undiscounted cash flow on an acquisition by acquisition basis to the extent separately identifiable, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long Lived Assets and For Long Lives Assets to be Disposed of". To the extent separate assessment of such acquired intangibles is no longer feasible (i.e. as a result of integrating multiple acquisitions into a single business unit) such assessment is performed on a combined basis as appropriate. During the fourth quarter of fiscal 1995 in anticipation of the completion of Computer 2000 A.G.'s (Computer 2000) equity investment, the Company, with input from Computer 2000 management, made the decision to terminate its entertainment software business and to focus its management efforts and capital in the higher margin, value-added products, application software and computer hardware distribution businesses. Management determined that future operating cash flow from certain regional acquisitions will not be sufficient to recover the related intangible assets. As a result of these assessments, the Company wrote-off approximately $23.8 million of intangibles related to the termination of its entertainment software business and the impairment of intangibles related to acquired regional distributors. Market development funds. In general, vendors provide various incentive programs to the Company. The funds received under these programs are determined based on purchases and/or sales of the vendors' product and the performance of certain training, advertising and other market development activities. Revenue associated with these funds is recorded when earned either as a reduction of selling, general and administrative expenses or product cost, according to the specific nature of the program. Sales recognition. Sales are recorded as of the date shipments are made to customers. Sales returns and allowances are reflected as a reduction in sales and recorded in inventory at expected net realizable value. The Company permits the return of products within certain time limits and will exchange returned products. Products that are defective upon arrival are handled on a warranty return basis with the Company's vendors. The Company provides for product warranty and return obligations at the point of sale based on estimates of expected future costs. Income taxes. The Company accounts for income taxes utilizing taxes from the liability method required by Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes." Net income (loss) per common share and common share equivalent. Net income (loss) per common share and common share equivalent is computed by dividing net income (loss) by the weighted average number of shares of common stock and common stock equivalents outstanding. Common stock equivalents that increase earnings per share or decrease loss per share are excluded from the computation. Reclassifications. Certain amounts in the prior periods have been reclassified to conform to the current year's presentation. F-8 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. ACQUISITIONS The Company has pursued a strategy of growth through acquisition by acquiring regional distributors with the goal of creating a national distributor of value-added computers, subsystems and peripherals. The success of this strategy is dependent upon the ability of the Company to effectively consolidate and integrate the operations of the acquired businesses, combine different cultures and obtain adequate financing to complete acquisitions and fund working capital requirements. All of the Company's acquisitions completed during fiscal years 1993 through 1995 have been accounted for in accordance with the purchase method of accounting. The Company's Consolidated Financial Statements include acquiree's results of operations from the effective acquisition dates. The per share valuation of the Company's common stock issued in connection with the following acquisitions represents a discount from the quoted market price, based upon the weighted average discounts received on recently completed private equity cash transactions. Management believes this method of valuation is the best indication of fair value due to the Company's thin stock trading value and small public float. Regional distributors. During fiscal year 1994 and 1993, CDS Distribution, Inc., a wholly-owned subsidiary of the Company completed the acquisition of several smaller regional distributors ("regional distributors"). Total consideration given to complete these acquisitions was 1,730,330 shares of the Company's common stock valued at $3 million. In fiscal 1995, as a result of the acquisitions of Robec and NCD discussed below, these distributors were considered to be redundant, resulting in their closure and the write off of their intangibles of approximately $3.4 million. Kenfil Inc. ("Kenfil"). As of June 1994, the Company acquired 51% of the outstanding common stock of Kenfil for common stock of the Company. Kenfil distributed microcomputer software in both the U.S. and Asia. As of September 1994, the Company acquired the remaining outstanding 49% of the common stock of Kenfil and converted certain trade and subordinated debt of Kenfil for common and preferred stock, subsequently converted to common stock of the Company. During fiscal year 1995, the former U.S. operations of Kenfil, including principally educational and entertainment software distribution, were terminated by the Company. Total consideration given for the Kenfil acquisition was 5,846,162 shares of the Company's common stock valued at approximately $14 million, plus transaction costs of $785,000. Robec, Inc. ("Robec"). As of September 1994, the Company acquired 50.1% of the outstanding common stock of Robec for common stock of the Company. Robec is a distributor of computer products and services, specializing in systems and UNIX applications, and is based in Horsham, Pennsylvania. The Company proposes to acquire the remaining 49.9% of outstanding common stock of Robec during fiscal year 1996. In September 1995, Robec's shareholders approved the acquisition by AmeriQuest of the remaining 49.9% of Robec common stock not owned by the Company. The Robec merger agreement requires the Company to issue additional common shares to provide former and current Robec shareholders participating in the merger with a minimum value associated with the Company's common stock issued or to be issued to complete the merger transaction. Based upon the exchange ratio included in the Robec merger agreement, 1,402,805 shares of the Company's common stock valued at $2.7 million was issued in exchange for 50.1 percent of Robec's common stock in September 1994. Due to the minimum value provisions and adjustments to the exchange ratio included in the amended Robec merger agreement, an additional 6.8 million shares of the Company's common stock is expected to be issued to complete the Robec merger. The additional shares to be issued are valued at $5.8 million and is recorded as a long term liability in the accompanying consolidated balance sheet. Total consideration is expected to be 8.2 million shares of the Company's common stock valued at $8.5 million, plus transaction costs of $265,000. Intangible assets recorded at June 30, 1995 related to Robec are approximately $164,000. F-9 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The completion of the Robec merger is pending AmeriQuest shareholder approval and an increase in the authorized number of AmeriQuest common stock shares. National Computer Distributors ("NCD"). In November 1994, the Company acquired all of the outstanding common stock of NCD for cash and common stock of the Company. NCD is a distributor of computer products and services, specializing in systems and connectivity applications. Total consideration given in the NCD acquisition was 1,864,767 shares of the Company's common stock valued at $4.1 million and cash of $3.4 million. Intangible assets recorded at June 30, 1995 related to NCD are approximately $9.7 million. In connection with the issuance of the Company's common stock associated with the NCD acquisition, the Company entered into a stock repurchase agreement with holders of 661,586 shares of the Company's common stock. The holders of the Company's common stock covered by this agreement have required the Company to repurchase the stock at $3.50 per share which is recorded as a current liability in the accompanying balance sheet. Management believes that distribution channel access represents the most significant intangible acquired in connection with the acquisitions discussed above. Management initially assigned a 10 year economic life to this intangible asset as that is the period of time that management expects to derive benefit from the existing vendor relationships and market position. Management determined that 10 years is an appropriate economic life based upon the historical length of the acquiree's vendor relationships and the overall size and quality of the acquiree's vendors and their product offerings. See Note 1 for a discussion of the Company's policy for evaluating the realization of intangible assets, the termination of the entertainment software business and the related fiscal 1995 write-off of intangibles. The following unaudited pro forma combined information shows the results of the Company's operations for the fiscal years ended June 30, 1995 and 1994 as though the acquisitions and the Computer 2000 equity investment (see Note 8) all had occurred as of the beginning of each respective fiscal year (in thousands except per share data):
YEAR ENDED JUNE 30, ----------------------- 1995 1994 ----------- ----------- Revenues......................................... $ 520,134 $ 613,606 Net loss......................................... 70,020 37,636 Net loss per share............................... 1.33 .75 Weighted average shares.......................... 52,729,000 50,405,380
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place at the beginning of the indicated period or the results that may occur in the future. Furthermore, the pro forma results do not give effect to cost savings or incremental costs which may occur as a result of the integration and consolidation of the acquired companies. The entertainment software business of Kenfil contributed revenues of $25 million and $139 million and incurred net losses of $25.9 million and $20.8 million on a pro forma basis during fiscal years 1995 and 1994, respectively. The following unaudited condensed balance sheet information reflects the financial position of the Company at June 30, 1995 as though the acquisition of the remaining shares of Robec and the Computer 2000 equity investment had occurred as of that date. The pro forma amounts do not reflect the results of actual operations F-10 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) subsequent to June 30, 1995 (i.e. to the extent losses were incurred subsequent to June 30, 1995, such losses would result in a corresponding reduction in shareholders' equity).
JUNE 30, 1995 --------------------- AS REPORTED PRO FORMA ----------- --------- Total current assets................................ $107,775 $107,775 ======== ======== Total current liabilities........................... $129,202 $ 97,952 ======== ======== Total long-term liabilities......................... $ 24,515 $ 667 ======== ======== Shareholders' equity (deficit)...................... $(25,709) $ 29,389 ======== ========
The above presentation assumes that the Robec merger is completed in accordance with the amended Robec merger agreement which results in the issuance of approximately 6.8 million shares of the Company's common stock. The issuance of the remaining shares is currently pending AmeriQuest shareholder approval. If the final consummation of the merger were to include consideration other than stock (i.e. cash or notes) the amount of pro forma equity would be reduced by a corresponding amount. 3. INVENTORIES Inventories consist of the following (in thousands):
JUNE 30, --------------- 1995 1994 ------- ------- Finished goods............................................ $46,628 $19,977 Raw materials and subassemblies........................... 2,473 4,188 ------- ------- $49,101 $24,165 ======= =======
Inventories are reflected net of reserves of approximately $13.8 million and $2.6 million at June 30, 1995 and 1994, respectively. Inventories do not contain any labor or overhead. The Company manages its inventories by maintaining sufficient quantities to achieve high order fill rates while at the same time attempting to stock only those products in high demand with a rapid turnover rate. Inventory balances will fluctuate as the Company adds new product lines and when appropriate, makes large purchases from manufacturers when the terms of such purchases are considered advantageous. Short product life years and rapid technological obsolescence significantly increases the risk of declines in inventory value and the lack of recovery of inventory balances at recorded values. The Company's contracts with most of its vendors provide price protection and stock return privileges to reduce to some degree the risk of loss to the Company due to manufacturer price reductions and slow moving or obsolete inventory. 4. PROPERTY AND EQUIPMENT Property and equipment consist of the following (in thousands):
JUNE 30, --------------- 1995 1994 ------- ------- Equipment................................................ $10,753 $ 5,106 Furniture and fixtures................................... 4,156 5,563 Leasehold improvements................................... 2,358 433 ------- ------- 17,267 11,102 Less accumulated depreciation and amortization........... 10,618 7,024 ------- ------- $ 6,649 $ 4,078 ======= =======
F-11 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. NOTES PAYABLE The Company maintains lines of credit with financial institutions which in the aggregate provide for revolving credit of over $80 million at June 30, 1995 including a $20 million facility extended to Robec, Inc. Current lines of credit totaling $27.5 million expire on December 31, 1995 related to NCD. Management is currently negotiating a refinancing arrangement to replace the expiring line of credit. Borrowings under these facilities are limited to a contractual percentage of eligible inventories and receivables. At June 30, 1995, all inventories and accounts receivable were pledged as collateral under these facilities and the lenders hold liens on substantially all of the other assets owned by the Company. The terms of the lending agreements include certain restrictive covenants which require the maintenance of specified financial covenants generally related to tangible net worth, working capital and total debt to tangible net worth. Borrowings under these lines bear interest from 1 to 3 percent over the prime rate and are limited to specified percentages of AmeriQuest's eligible accounts receivable (a borrowing base in excess of $27.5 million) and inventories (a borrowing base of over $27.5 million). The weighted average interest rate for borrowings under these credit facilities at June 30, 1995, 1994 and 1993, were 11.2%, 8% and 10%, respectively. At various dates during fiscal year 1995 and continuing at September 1995, the Company was in default to its primary lender due to noncompliance with certain financial ratio and covenant compliance. In October 1995, the Company received a waiver from its primary lenders for non-compliance with the financial covenants of NCD's credit agreement. The Company has also amended its credit agreements covering its remaining borrowings to remove the financial covenants which the Company was not in compliance with at June 30, 1995, pending renegotiation of those covenants. The amendment also allows the lender to cancel the credit agreements with 60 days notice. At September 30, 1995, AmeriQuest, through NCD, had approximately $8 million available under its existing credit facilities based upon available collateral. The Company is in the process of negotiating the refinancing of its credit agreements. Management expects that the Company will complete this refinancing by December 31, 1995. Management believes that improvements in operating cash flows resulting from the cost containment activities discussed above, together with available borrowings on current credit agreements and the expected refinancing will allow the Company to meet its obligations and capital needs as they are required, through June 30, 1996. 6. INCOME TAXES The deferred tax asset (liability) of the Company consists of the following (in thousands):
JUNE 30, ----------------- 1995 1994 -------- ------- Inventory reserves.......................................... $ 17,405 $ 481 Depreciation................................................ 268 331 Allowance for doubtful accounts............................. 12,488 153 Other....................................................... 10,962 (487) Net operating loss carryforwards............................ 51,949 4,800 Valuation allowance......................................... (93,072) (5,545) -------- ------- $ -- $ (267) ======== =======
F-12 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The principal elements accounting for the difference between income taxes computed at the statutory rate and the effective rate are as follows (in thousands):
YEAR ENDED JUNE 30, ----------------------- 1995 1994 1993 -------- ------- ---- Federal tax expense (credit) computed at statutory rate.................................................. $(23,648) $(3,200) $ 80 State taxes, net of federal benefit................... -- -- 15 Tax (benefit from) earnings of foreign operations..... -- -- (24) Intangible write off.................................. 8,322 -- -- Effect of U.S. and foreign net operating losses....... 15,326 3,200 (71) -------- ------- ---- $ -- $ -- $-- ======== ======= ====
At June 30, 1995, the Company had an income tax operating loss carryforward of approximately $52 million, which is available to offset earnings in future periods through 2010, subject to limitations discussed below. Of the Company's consolidated net operating loss, $5 million relates to the Company's Robec subsidiary which is not included in the Company's consolidated federal income tax return. The Company experienced "ownership changes" in 1994 and 1995 for income tax purposes, which will result in future annual limitations on the utilization of net operating loss carryforwards to approximately $4 million per year. 7. COMMITMENTS AND CONTINGENCIES The Company leases its corporate office, warehouse space and certain equipment under operating leases. Future minimum rental commitments for all non-cancellable operating leases at June 30, 1995 are as follows (in thousands):
YEAR ENDED JUNE 30, - ------------------- 1996................................................................. $ 4,274 1997................................................................. 4,226 1998................................................................. 2,487 1999................................................................. 2,153 2000................................................................. 1,854 Thereafter............................................................ 6,841 ------- $21,835 =======
Total rental expense under non-cancellable agreements for the years ended June 30, 1995, 1994 and 1993 was approximately $4,291,000, $1,083,000 and $694,000, respectively. In June 1995, the Company entered into a settlement agreement with Microware Corporation ("Microware") regarding a default judgment in the amount of $15.9 million which had been entered against the Company in favor of certain shareholders of the defunct Microware. The underlying lawsuit relates to the Company's decision not to proceed with the acquisition of Microware in early 1993. Under the terms of the settlement the Company issued 125,000 shares of its common stock to the plaintiffs and paid $50,000 in cash in exchange for vacation of the default judgement, without prejudice. The plaintiffs refiled their claim in July 1995 seeking $8 million of compensatory damages and $50 million of punitive damages. Management, after discussion with counsel, believes that the plaintiff's claim is without merit. The Company is also a party to various other legal matters. Based upon discussions with counsel, management believes that the ultimate outcome of these matters will not have a material adverse effect on the Company's future financial position or its results of operations. The Company is contingently liable at June 30, 1995 under the terms of repurchase agreements with financial institutions providing inventory financing for dealers of the Company's products. The contingent liability under those agreements approximates the amount financed, reduced by the resale value of any products F-13 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) which may be repurchased, and the risk of loss is spread over numerous dealers and financial institutions. Losses under these agreements have been immaterial in the past. Sales under these agreements during the years ended June 30, 1995, 1994 and 1993 were approximately $17 million, $7 million, and $6 million, respectively. 8. COMMON STOCK In November 1994, AmeriQuest and Computer 2000 entered into an agreement pursuant to which Computer 2000 agreed to invest approximately $50 million in AmeriQuest in exchange for a majority ownership interest in AmeriQuest. Under the agreement Computer 2000 initially loaned AmeriQuest $18 million. In August 1995 Computer 2000 exchanged these notes for 810,811 shares of AmeriQuest's Series A preferred stock (convertible into 8,108,110 shares of common stock, subject to adjustment) and warrants to purchase 657,289 shares of Series D preferred stock (convertible up to 6,572,890 shares of common stock, subject to adjustment) exercisable at $0.53 per share of Series D preferred stock ($0.05 per share of common stock on an as-if-converted to common stock basis). The $18 million loan is reflected as a non-current liability at June 30, 1995 in the accompanying consolidated balance sheet. In addition, Computer 2000 purchased from AmeriQuest, for $31.2 million, 1,785,714 shares of Series B preferred stock (convertible into 17,857,140 shares of common stock) and warrants to purchase 746,186 shares of Series D preferred stock (convertible up to 7,461,860 shares of common stock, subject to adjustment) exercisable at $.53 per share of Series D preferred stock ($0.05 per share of common stock on an as-if-converted to common stock basis). Assuming the exercise of warrants referred to above the conversion of the preferred stock issuable upon such exercise and the conversion of the preferred stock AmeriQuest will have issued 40 million shares of common stock at an average purchase price of $1.25 per share and Computer 2000 will hold approximately 62% of AmeriQuest's outstanding voting stock. Further, in consideration for Computer 2000's exchange of the notes of $18 million and Computer 2000's additional investment of $31.2 million, AmeriQuest also granted to Computer 2000 pari passu rights with respect to other outstanding warrants, options and other rights to acquire shares of AmeriQuest's Common Stock that AmeriQuest has previously granted, or is obligated to grant in the future, to others: (i) If AmeriQuest issues in connection with its acquisition of Robec any shares in excess of 2,800,000 shares of common stock, including all shares already issued and all shares issued in the future, including shares issued upon the exercise of options or warrants granted, assumed or exchanged in connection with the Robec acquisition, then Computer 2000 will have the right, pursuant to certain warrants to be granted by AmeriQuest to purchase a number of shares of Series E preferred stock as will be convertible into a number of shares of common stock that will be equal to the number of incremental shares that are issued in connection with the Robec acquisition. The exercise price of the acquisition maintenance warrants will be $1.25 per share of Series E preferred stock ($0.05 per share of common stock on an as-if-converted to common stock basis). (ii) In connection with a private placement in June 1995 AmeriQuest issued common stock and warrants to investors, which included warrants to purchase up to 5,148,574 shares of common stock at an exercise price of $1.05 per share. If and to the extent that any of the unit warrants are exercised, then Computer 2000 will have the right, pursuant to certain warrants to be issued by AmeriQuest, to purchase a number of Series F preferred stock that will be convertible into a number of shares of common stock equal to the shares issued upon the exercise of the unit warrants. The exercise price of these warrants will be $5.25 per share of Series F preferred stock ($.525 per share of common stock on an as-if-converted to common stock). (iii) AmeriQuest granted to Computer 2000 an option to purchase a number of shares of common stock that will be equal to the number of shares of common stock that AmeriQuest issues upon exercise or conversion of all currently outstanding options, warrants or other rights (other than shares subject to the unit maintenance warrants and acquisitions maintenance) to acquire (upon conversion or otherwise) any F-14 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) shares of common stock or other equity securities of AmeriQuest. This option will be exercisable for the same consideration and on the same terms as the consideration for which and terms under which such additional shares are issued. On August 31, 1995, after completion of the Computer 2000 equity investment and assuming conversion of all the preferred stock to common stock, the Company would have 48,931,961 shares of common stock outstanding. Assuming the completion of the Robec merger and exercise of outstanding warrants and Computer 2000's maintenance warrant arrangements, the Company would have approximately 96 million shares of common stock outstanding. In August 1994, the shareholders approved an increase in the authorized common stock of the Company from 10 to 30 million shares, the effect of which is reflected herein, however, in order to complete the Robec transaction (see Note 2) and allow for the conversion of preferred stock held by Computer 2000, additional common stock will be required to be authorized. The Company has instituted various stock option plans which authorize the granting of options to key employees, directors, officers, vendors and customers to purchase shares of the Company's common stock. All grants of options during the years presented have been to employees or directors and were granted at the then quoted market price. A summary of shares available for grant and the options outstanding under the plans are as follows:
SHARES AVAILABLE OPTIONS PRICE FOR GRANT OUTSTANDING RANGE --------- ----------- ---------- BALANCES, JUNE 30, 1992........................ 134,500 138,782 $1.50-3.00 Increase in shares available for grant....... 140,000 -- -- Options granted.............................. (73,000) 73,000 2.00-2.50 Options exercised............................ -- (12,187) 1.50 Cancelled.................................... 6,750 (6,750) 2.50 ------- ------- ---------- BALANCES, JUNE 30, 1993........................ 208,250 192,845 $1.50-3.00 Increase in shares available for grant....... 250,000 -- -- Options granted.............................. (20,000) 20,000 2.38-4.50 Options exercised............................ -- (41,667) 1.50-2.00 Cancelled.................................... 78,818 (78,818) -- ------- ------- ---------- BALANCES, JUNE 30, 1994........................ 517,068 92,360 $1.50-4.50 Options exercised............................ -- (32,834) 1.50 Cancelled.................................... 2,625 (2,625) 1.50-2.38 ------- ------- ---------- BALANCES, JUNE 30, 1995........................ 519,693 56,901 $1.50-4.50 ======= ======= ==========
The 56,901 options outstanding are currently exercisable. In fiscal 1995 and 1994, warrants to acquire common stock of the Company were issued to unrelated parties aggregating in connection with private equity and other transactions, 7,490,574 shares, are exercisable at prices ranging from $1.05 to $5 per share (the then quoted market price) and expire through 1999. In addition,non-qualified options to acquire an additional 1,422,291 shares of common stock are outstanding at exercise prices ranging from $1 to $4.50 per share. Of this amount, options to acquire 782,291 shares have been issued subject to the Company obtaining appropriate shareholder approval. During 1995, the Company issued 457,692 shares of stock to various employees, including 450,000 shares which were sold to members of management at $2.50 per share in exchange for one-year promissory notes totaling $1,125,000. As a result of Computer 2000's equity investment and the related changes in management, the ultimate realizability of these notes is uncertain, consequentially they have been reserved for in the accompanying financial statements. F-15 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. RESTRUCTURING During fiscal year 1994, the Company restructured certain of its activities in order to emphasize and streamline its operations, consistent with its core capabilities in value-added distribution. The components of the restructuring charges are as follows (dollars in thousands): Employee terminations................................................... $ 500 Facilities abandonment.................................................. 300 Discontinued product lines.............................................. 4,900 ------ $5,700 ======
10. FOREIGN SALES INFORMATION A summary of the Company's operations by geographic area for the last three years is as follows (in thousands):
YEAR ENDED JUNE 30, 1995 U.S. FAR EAST ELIMINATION CONSOLIDATED - ------------------------ -------- -------- ----------- ------------ Sales to unaffiliated customers...... $374,552 $42,019 $ -- $416,571 Transfers between geographic areas... $ -- $ -- $ -- $ -- Net sales............................ $374,552 $42,019 $ -- $416,571 Loss from operations................. $ 60,746 $ 751 $ -- $ 61,497 Identifiable assets.................. $122,548 $ 5,460 $ -- $128,008 YEAR ENDED JUNE 30, 1994 U.S. FAR EAST ELIMINATION CONSOLIDATED - ------------------------ -------- -------- ----------- ------------ Sales to unaffiliated customers...... $ 62,089 $25,504 $ -- $ 87,593 Transfers between geographic areas... $ 4,107 $ 298 $(4,405) $ -- Net sales............................ $ 66,196 $25,802 $(4,405) $ 87,593 Loss from operations................. $ 7,182 $ 92 $ -- $ 7,274 Identifiable assets.................. $ 62,584 $ 2,561 $ -- $ 65,145 YEAR ENDED JUNE 30, 1993 U.S. FAR EAST ELIMINATION CONSOLIDATED - ------------------------ -------- -------- ----------- ------------ Sales to unaffiliated customers...... $ 50,342 $22,740 $ -- $ 73,082 Transfers between geographic areas... $ -- $ 3,086 $(3,086) $ -- Net sales............................ $ 50,342 $25,826 $(3,086) $ 73,082 Income from operations............... $ 647 $ (160) $ -- $ 487 Identifiable assets.................. $ 17,170 $ 3,104 $ -- $ 20,274
United States sales include export sales of approximately $6.4 million, $2.3 million and $2 million made principally to Europe, Latin America, the Far East and Canada in fiscal years 1995, 1994 and 1993, respectively. 11. DISPOSITION In August 1995, the Company completed the sale of its Singapore subsidiary, ("CMS Singapore") to a former officer and director of the Company. The Company exchanged all of the stock of CMS Singapore for 350,000 shares of the Company's previously issued common stock. Consideration received for the divestiture of CMS Singapore is approximately equal to its net book value. Sales of CMS Singapore approximated $20 million during fiscal 1995. F-16 AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES SCHEDULE II AMERIQUEST TECHNOLOGIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (DOLLARS IN THOUSANDS)
BALANCE ADDITIONS AT CHARGED TO DEDUCTIONS-- BALANCE BEGINNING COST AND ACCOUNTS AT END DESCRIPTIONS OF PERIOD EXPENSES WRITTEN OFF OTHER OF PERIOD ------------ --------- ---------- ------------ ------ --------- Allowance for Doubtful Accounts: July 1, 1992 to June 30, 1993................. $ 403 $ 328 $ 478 -- $ 253 July 1, 1993 to June 30, 1994................. $ 253 $ 577 $ 353 -- $ 477 July 1, 1994 to June 30, 1995................. $ 477 $ 5,787 $ 622 3,930(1) $ 9,572 Inventory Reserve: July 1, 1992 to June 30, 1993................. $7,425 $ 633 $ 4,962 -- $ 3,096 July 1, 1993 to June 30, 1994................. $3,096 $ 1,714 $ 2,177 -- $ 2,633 July 1, 1994 to June 30, 1995................. $2,633 $17,039 $13,354 $7,461(1) $13,779
- -------- (1) Additions to reserves related to acquisitions and accounted for as part of their purchase price allocation. F-17 EX-3.01(A) 2 AMENDED CERT. OF INCORPORATION EXHIBIT 3.01(b) EXHIBIT A --------- CERTIFICATE OF DESIGNATIONS OF AMERIQUEST TECHNOLOGIES, INC. AmeriQuest Technologies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in ----------- accordance with the provisions of Section 151(g) thereof, hereby certifies as follows: Pursuant to the authority conferred upon the Board of Directors by the Certificate of Amendment of the Certificate of Incorporation of the Corporation filed with the Office of the Secretary of State of the State of Delaware on September 14, 1994, the Board of Directors on August 3, 1995 adopted the following resolutions decreasing to zero the number of authorized shares of this Corporation's Series C Preferred Stock and creating five new series of Preferred Stock: RESOLVED, that because no shares of the Corporation's Series C Preferred Stock are currently outstanding and pursuant to the authority granted to the Board of Directors by the Fourth Article of the Certificate of Amendment of the Certificate of Incorporation of the Corporation filed with the Office of the Secretary of State of the State of Delaware on September 14, 1994 (the "Certificate"), the number of authorized shares of the Corporation's Series C ----------- Preferred Stock shall be reduced to zero and no shares of the Corporation's Series C Preferred Stock shall be issued subject to the Certificate of Designations previously filed with the Office of the Secretary of State of the State of Delaware on July 18, 1994 with respect to the Series C Preferred Stock; RESOLVED, that pursuant to the authority granted to the Board of Directors by the Fourth Article of the Certificate, five new series of the class of Preferred Stock of the Corporation are hereby created, and the designation and amounts thereof and the powers, preferences, privileges, restrictions, limitations, qualifications and rights of the shares of each such series are as follows: SECTION 1: SERIES A, SERIES B, SERIES D, SERIES E AND ------------------------------------------ SERIES F PREFERRED STOCK. ------------------------ The following number of shares of authorized and unissued Preferred Stock, par value $0.01 per share, of the Corporation are hereby designated as follows, with the respective powers, preferences, rights, limitations and restrictions specified herein: (i) Eight Hundred Ten Thousand, Eight Hundred and Eleven (810,811) shares are designated as Series A Preferred Stock (hereinafter referred to as the "Series A Preferred Stock"); ------------------------ (ii) One Million, Seven Hundred Eighty Five Thousand, Seven Hundred and Fourteen (1,785,714) shares are designated as Series B Preferred Stock (hereinafter referred to as the "Series B Preferred Stock"); ------------------------ (iii) One Million, Four Hundred Three Thousand, Four Hundred and Seventy Five (1,403,475) shares as designated as Series D Preferred Stock (hereinafter referred to as the "Series D Preferred Stock"); ------------------------ (iv) Four Hundred Thousand (400,000) shares as designated as Series E Preferred Stock (hereinafter referred to as the "Series E Preferred Stock"); ------------------------ (v) Five Hundred Fourteen Thousand, Eight Hundred and Fifty Seven (514, 857) shares as designated as Series F Preferred Stock (hereinafter referred to as the "Series F Preferred Stock"). ------------------------ 1.1 Definitions. For purposes of Sections 1 and 2 hereof, the following ----------- definitions shall apply: (a) "Board" shall mean the Board of Directors of the Corporation. ----- (b) "Corporation" shall mean this corporation. ----------- (c) "Common Stock" shall mean the Common Stock, $0.01 par value of ------------ the Corporation. (d) "Original Issue Date" shall mean (i) with respect to the Series A ------------------- Preferred Stock, Series B Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock, the date on which this Certificate of Designations is filed with the Delaware Secretary of State, and (ii) with respect to any other series of Preferred Stock which may be issued in the future the date on which the first share of such Series of Preferred Stock is issued. (e) "Original Issue Price" shall mean $22.20 per share for the Series -------------------- A Preferred Stock, $17.50 per share for the Series B Preferred Stock, $0.53 per share for the Series D Preferred Stock, $1.25 per share for the Series E Preferred Stock and $5.25 per share for the Series F Preferred Stock. (f) "Issued Preferred Stock" shall mean the Series A Preferred Stock, ---------------------- Series B Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock of the Corporation. (g) Subsidiary" shall mean any corporation of which at least fifty ---------- percent (50%) of the outstanding voting stock is at the time owned directly or indirectly by the Corporation or by one or more of such subsidiary corporations. 1.2 Dividends. --------- (a) Issued Preferred Stock Dividends. The holders of the then -------------------------------- outstanding Issued Preferred Stock shall be entitled to receive, if, as and when declared by the Board, out of any assets or funds legally available therefor, dividends concurrently with any dividends paid on the outstanding shares of Common Stock, in any given fiscal year of the Corporation, in an amount at least equal to the dividend that would be payable upon and with respect to the number 2 of shares of Common Stock into which the shares of Issued Preferred Stock are convertible on the date of such payment. (b) Dividends Noncumulative. Subject to the provisions of Section ----------------------- 1.2(a), dividends on the Issued Preferred Stock shall not be mandatory or cumulative, and no rights shall accrue to the holders of the Issued Preferred Stock in the event that the Corporation shall fail to declare or pay dividends on the Issued Preferred Stock in a specified amount in any previous fiscal year of the Corporation, whether or not the earnings of the Corporation in the previous fiscal year were sufficient to pay such dividends in whole or in part; provided, however, nothing in this Section 1.2(b) shall be read to allow the - -------- ------- Corporation to pay or declare dividends on the outstanding shares of Common Stock without complying with the provisions of Section 1.2(a). 1.3 Liquidation Preferences. ----------------------- (a) Preference for Issued Preferred Stock. In the event of any ------------------------------------- liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of each share of Issued Preferred Stock then outstanding shall be entitled to be paid out of the assets and funds of the Corporation available for distribution to its stockholders, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Stock or any other stock of the Corporation ranking on liquidation junior to the Issued Preferred Stock, an amount per share equal to the Original Issue Price of the applicable series of Issued Preferred Stock plus all declared but unpaid dividends on the Issued Preferred Stock (the "Issued ------ Preferred Preference"). All payments of the Issued Preferred Preference shall - -------------------- be made pro rata to all holders of Issued Preferred Stock based on the applicable Original Issue Price. If upon any liquidation, dissolution or winding up of the Corporation, the assets and funds to be distributed to the holders of the Issued Preferred Stock shall be insufficient to permit the payment to such stockholders of the full Issued Preferred Preference, then all of the remaining assets of the Corporation shall be distributed ratably to the holders of the Issued Preferred Stock based on the aggregate Issued Preferred Preference for the shares of Issued Preferred Stock held by each holder. (b) No Participating Preference. If, after the payment in full of --------------------------- the Issued Preferred Preference, the Corporation has assets or funds remaining available for distribution to stockholders, then the remaining assets and funds of the Corporation available for distribution to stockholders shall be distributed to the holders of outstanding Common Stock without participation by the holders of the Issued Preferred Stock. (c) Merger or Sale of Assets. A consolidation or merger of the ------------------------ Corporation with or into any other corporation or corporations in which the holders of the Corporation's outstanding shares before the consolidation or merger do not retain a majority of the voting power of the surviving corporation (or its parent), or a sale of all or substantially all of the assets of the Corporation, shall be deemed to be a liquidation, dissolution or winding up of the Corporation as those terms are used in this Section. (d) Non-Cash Consideration. In the case of any event described in ---------------------- paragraph (c) above, if the consideration received by the Corporation is other than cash, indebtedness or securities, the value of such consideration shall be its fair market value as determined in good faith by the Board. Any securities to be delivered pursuant to paragraphs (a) or (b) above, shall be valued as follows: 3 (1) Securities not subject to investment letter or other similar restrictions on free marketability: (A) If traded on a national securities exchange or the NASDAQ National Market System, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the 30-day period ending three (3) days prior to the closing; and (B) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three (3) days prior to the closing; and (C) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board. (2) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in clause (1)(A), (B) or (C) to reflect the approximate fair market value thereof, as determined in good faith by the Board. 1.4 Voting Rights. Except as otherwise expressly provided herein, or as ------------- required by law, the holders of Issued Preferred Stock and the holders of Common Stock shall vote together and not as separate classes. Each holder of shares of Issued Preferred Stock shall be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Issued Preferred Stock could be converted pursuant to the provisions of Section 1.5 below at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, the date such vote is taken or any written consent of stockholders is solicited. 1.5 Conversion Rights. The outstanding shares of Issued Preferred Stock ----------------- shall be convertible to Common Stock as follows: (a) Optional Conversion. Subject to Section 1.5(b), each share of ------------------- Issued Preferred Stock shall be convertible at any time or from time to time at the option of the holder thereof into fully paid and nonassessable shares of Common Stock as provided herein. (b) Automatic Conversion. Each share of Issued Preferred Stock will -------------------- be converted into fully paid and nonassessable shares of Common Stock as provided herein at such time as there are a sufficient number of authorized shares of Common Stock legally and validly reserved to effect the conversion or exercise of all outstanding shares of Issued Preferred Stock and all outstanding rights, options, warrants or other securities convertible, exchangeable or exercisable for Issued Preferred Stock. (c) Conversion Price. Each share of Issued Preferred Stock shall be ---------------- convertible into the number of shares of Common Stock which results from (a) dividing the Original Issue Price for the applicable series of Issued Preferred Stock by the conversion price of that series of Issued Preferred Stock that is in effect at the time of conversion (the "Conversion Price") and (b) multiplying ---------------- such quotient by (i) ten (10) with respect to Series A Preferred Stock, Series B 4 Preferred Stock, Series D Preferred Stock and Series F Preferred Stock and (ii) twenty-five (25) with respect to Series E Preferred Stock. The initial Conversion Price for each series of Issued Preferred Stock shall be its Original Issue Price. The Conversion Price shall be subject to adjustment from time to time as provided below. (d) Adjustment for Stock Splits and Combinations. If the Corporation -------------------------------------------- shall at any time or from time to time after the Original Issue Date of a series of Issued Preferred Stock effect a stock split or subdivision of the outstanding Common Stock, the Conversion Price for such series of Issued Preferred Stock in effect immediately before that subdivision shall be proportionately decreased, and, conversely, if the Corporation shall at any time or from time to time after the Original Issue Date of a series of Issued Preferred Stock combine the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price for such series of Issued Preferred Stock in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (b) shall become effective at the close of business on the date the stock split, subdivision or combination becomes effective. (e) Adjustment for Common Stock Dividends and Distributions. If the ------------------------------------------------------- Corporation at any time or from time to time after the Original Issue Date of a series of Issued Preferred Stock makes, or fixes, a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable solely in additional shares of Common Stock, in each such event the Conversion Price for such series of Issued Preferred Stock that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (1) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this subsection (c) to reflect the actual payment of such dividend or distribution. (f) Adjustments for Other Dividends and Distributions. If the ------------------------------------------------- Corporation at any time or from time to time after the Original Issue Date of a series of Issued Preferred Stock makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, in each such event appropriate provision shall be made so that the holders of such series of Issued Preferred Stock shall receive on the date of such dividend or distribution the amount of securities of the Corporation which they would have received had their Issued Preferred Stock been converted into Common Stock on the date of such event. (g) Adjustment for Reclassification, Exchange and Substitution. If ----------------------------------------------------------- at any time or from time to time after the Original Issue Date of a series of Issued Preferred Stock, the Common Stock issuable upon the conversion of such series of Issued Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares, stock dividend, other dividend or distribution, or a reorganization, merger, consolidation or sale 5 of assets provided for elsewhere in this Section 1.5 or in Section 1.3(c)), then in any such event each holder of such series of Issued Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Common Stock into which such shares of Issued Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. (h) Reorganizations. If at any time or from time to time after the --------------- Original Issue Date of a series of Issued Preferred Stock there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 1.5 or in Section 1.3(c)), as a part of such capital reorganization provision shall be made so that the holders of such series of Issued Preferred Stock shall thereafter be entitled to receive upon conversion of the Issued Preferred Stock the number of shares of stock or other securities or property of the Corporation to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 1.5 with respect to the rights of the holders of Issued Preferred Stock after such capital reorganization to the end that the provisions of this Section 1.5 (including adjustment of the Conversion Price then in effect and the number of shares issuable upon conversion of the Issued Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable. (i) Certificate of Adjustment. In each case of an adjustment or ------------------------- readjustment of any Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Issued Preferred Stock, the Corporation, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Issued Preferred Stock at the holder's address as shown in the Corporation's books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (1) the applicable Conversion Price at the time in effect and (2) the type and amount, if any, of other property which at the time would be received upon conversion of the applicable series of Issued Preferred Stock. (j) Notices of Record Date. Upon (1) any taking by the Corporation ---------------------- of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (2) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger or consolidation of the Corporation with or into any other corporation, or any transfer of all or substantially all the assets of the Corporation to any other person or any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, the Corporation shall mail to each holder of Issued Preferred Stock at least ten (10) days prior to the record date specified therein a notice specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (2) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up is expected to become effective, and (3) the date, if any, that is to be fixed as to when the holders of record of Common Stock (or other securities) shall be entitled to 6 exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding up. (k) Mechanics of Optional Conversion. Each holder of Issued -------------------------------- Preferred Stock who desires to convert the same into share of Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or any transfer agent for the Issued Preferred Stock or Common Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the number of shares of Issued Preferred Stock being converted. Thereupon the Corporation shall promptly issue and deliver at such office to such holder a certificate or certificates for the number of shares of Common Stock to which such holder is entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate representing the shares of Issued Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Common Stock on such date. (l) Mechanics of Automatic Conversion. Upon the filing with the --------------------------------- Secretary of State of the State of Delaware of an amendment to the Corporation's Certificate of Incorporation increasing the authorized number of shares of Common Stock to an amount sufficient to provide for the conversion of all authorized shares of Issued Preferred Stock for which a Certificate of Designations has been filed (whether or not such shares are outstanding), the outstanding shares of Issued Preferred Stock shall be converted into Common Stock automatically without the need for any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that -------- ------- the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such conversion unless the certificates evidencing such shares of Issued Preferred Stock are delivered to the Corporation or its transfer agent as provided below, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. Upon the occurrence of such automatic conversion of the Issued Preferred Stock, the holders of Issued Preferred Stock shall surrender the certificates representing such shares at the office of the Corporation or any transfer agent for the Issued Preferred Stock or Common Stock. Thereupon, there shall be issued and delivered to such holder promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Preferred Stock surrendered were convertible on the date on which such automatic conversion occurred. (m) Fractional Shares. No fractional shares of Common Stock shall be ----------------- issued upon conversion of Issued Preferred Stock. In lieu of any fractional share to which the holder would otherwise be entitled, the Corporation shall pay cash equal to the product of such fraction multiplied by the Common Stock's per share fair market value as determined in good faith by the Board as of the date of conversion. (n) Reservation of Stock Issuable Upon Conversion. The Corporation --------------------------------------------- shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Issued Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Issued Preferred Stock; and if at any time (including without limitation the Original Issue Date) the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the 7 conversion of all then outstanding shares of the Issued Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (o) Notices. Any notice required by the provisions of this Section ------- 1.5 to be given to the holders of shares of the Issued Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Corporation. (p) Payment of Taxes. The Corporation will pay all transfer taxes or ---------------- charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of Issued Preferred Stock, except for any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of Issued Preferred Stock so converted were registered. (q) No Impairment. The Corporation shall not amend its Certificate ------------- of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Issued Preferred Stock against dilution or other impairment. (r) No Reissuance of Issued Preferred Stock. No share or shares of --------------------------------------- Issued Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. SECTION 2: RESTRICTIONS AND LIMITATIONS. ---------------------------- 2.1 So long as any shares of any series of Issued Preferred Stock remain outstanding, the Corporation shall not, without the approval by vote or written consent of the holders of eighty-five percent (85%) of the outstanding shares of such series of Issued Preferred Stock (i) increase the authorized shares of such series of Issued Preferred Stock or (ii) amend or repeal any provision of or add any provision to the Corporation's Certificate of Incorporation or Bylaws if such amendment or repeal would alter or change any of the rights, preferences, privileges of or limitations provided herein for the benefit of such series of Issued Preferred Stock. 2.2 So long as any shares of any series of Issued Preferred Stock remain outstanding, the Corporation shall not, without the approval, by vote or written consent, of the holders of a majority of the outstanding Issued Preferred Stock, voting as a single class: (a) Increase the total number of authorized shares of Preferred Stock; 8 (b) Authorize or issue any equity security (other than Common Stock) senior to or on a parity with any series of Preferred Stock as to dividend rights, redemption rights, liquidation preferences or voting rights; (c) Merge with or into or sell all or substantially all of its assets to any person or entity or effect any other form of corporate recapitalization or reorganization, if after such merger, sale, recapitalization or reorganization the then-current stockholders of the Corporation hold less than 50% of the combined voting power of the surviving entity; (d) Enter into any transaction that would result in a deemed dividend under Section 305 of the Internal Revenue Code 1986, as amended; or (e) Increase the size of the Board of Directors above nine (9) members. IN WITNESS WHEREOF, AmeriQuest Technologies, Inc., has caused this Certificate of Designations to be duly executed and attested this ____ day of August 1995. AMERIQUEST TECHNOLOGIES, INC. By:______________________________________ Harold Clark Chief Executive Officer Attest: ____________________________________ Stephen Holmes Secretary 9 EX-10.01 3 CDS INVENTORY AND WORKING CAPITAL AGREEMENT EXHIBIT 10.01 Inventory and Working Capital Financing Agreement by and between CDS Distribution, Inc. and IBM Credit Corporation Table of Contents INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT........................................................ 1 RECITALS ............................................................. 1 Section 1. DEFINITIONS.............................................. 1 1.1. Special Definitions...................................... 1 1.2. Other Defined Terms...................................... 9 Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES............. 9 2.1. Line of Credit........................................... 9 2.2. Product Advances......................................... 10 2.3. A/R Advances............................................. 11 2.4. Finance and Other Charges................................ 13 2.5. Statements Regarding Customer's Account.................. 13 2.6. Shortfall................................................ 14 2.7. Application of Payments.................................. 14 2.8. Prepayment and Reborrowing By Customer................... 14 Section 3. LINE OF CREDIT ADDITIONAL PROVISIONS..................... 14 3.1. Ineligible Accounts...................................... 14 3.2. Reimbursement for Charges................................ 16 3.3. Lockbox and Special Account.............................. 17 3.4. Collections.............................................. 17 3.5. Application of Remittances and Credits................... 17 3.6. Power of Attorney........................................ 17 Section 4. SECURITY--COLLATERAL..................................... 19 4.1. Grant.................................................... 19 4.2. Further Assurances....................................... 20 Section 5. CONDITIONS PRECEDENT..................................... 20 5.1. Conditions Precedent to the Effectiveness of This Agreement......................................... 20 5.2. Conditions to Each Advance............................... 21 Section 6. REPRESENTATIONS AND WARRANTIES........................... 22 6.1. Organization and Qualifications.......................... 22 6.2. Rights in Collateral; Priority of Liens.................. 22 6.3. No Conflicts............................................. 22 6.4. Enforceability........................................... 23 6.5. Locations of Offices, Records and Inventory.............. 23 6.6. Fictitious Business Names................................ 23 6.7. Organization............................................. 23 6.8. No Judgments or Litigation............................... 23 6.9. No Defaults.............................................. 24 6.10. Labor Matters............................................ 24 6.11. Compliance with Law...................................... 24 6.12. ERISA.................................................... 24 6.13. Compliance with Environmental Laws....................... 24 6.14. Intellectual Property.................................... 25 6.15. Licenses and Permits..................................... 25 6.16. Investment Company....................................... 25 6.17. Taxes and Tax Returns.................................... 26 6.18. Status of Accounts....................................... 26 6.19. Affiliate/Subsidiary Transactions........................ 26 1 6.20. Accuracy and Completeness of Information................. 26 6.21. Recording Taxes.......................................... 26 6.22. Indebtedness............................................. 27 Section 7. AFFFIRMATIVE CONVENANTS.................................. 27 7.1. Financial and Other Information.......................... 27 7.2. Location of Collateral................................... 29 7.3. Changes in Customer...................................... 30 7.4. Corporate Existence...................................... 30 7.5. ERISA.................................................... 30 7.6. Environmental Matters.................................... 30 7.7. Collateral Books and Records/Collateral Audit............ 31 7.8. Insurance; Casualty Loss................................. 32 7.9. Taxes.................................................... 32 7.10. Compliance With Laws..................................... 33 7.11. Fiscal Year.............................................. 33 7.12. Intellectual Property.................................... 33 7.13. Maintenance of Property.................................. 33 7.14. Collateral............................................... 33 7.15. Subsidiaries............................................. 34 Section 8. NEGATIVE COVENANTS....................................... 35 8.1. Liens.................................................... 35 8.2. Disposition of Assets.................................... 35 8.3. Corporate Changes........................................ 35 8.4. Guaranties............................................... 35 8.5. Restricted Payments...................................... 35 8.6. Investments.............................................. 36 8.7. Affiliate/Subsidiary Transactions........................ 36 8.8. ERISA.................................................... 36 8.9. Additional Negative Pledges.............................. 37 8.10. Storage of Collateral with Bailees and Warehousemen...... 37 8.11. Use of Proceeds.......................................... 37 8.12. Accounts................................................. 37 8.13. Indebtedness............................................. 37 8.14. Loans.................................................... 37 Section 9. DEFAULT.................................................. 38 9.1. Event of Default......................................... 38 9.2. Acceleration............................................. 40 9.3. Remedies................................................. 40 Section 10. MISCELLANEOUS............................................ 42 10.1. Term; Termination........................................ 42 10.2. Indemnification.......................................... 42 10.3. Additional Obligations................................... 43 10.4. LIMITATION OF LIABILITY.................................. 43 10.5. Alteration/Waiver........................................ 43 10.6. Severability............................................. 44 10.7. One Loan................................................. 44 10.8. Additional Collateral.................................... 44 10.9. No Merger or Novations................................... 44 10.10. Paragraph Titles......................................... 45 10.11. Binding Effect; Assignment............................... 45 2 10.12. Notices.................................................. 45 10.13. Counterparts............................................. 46 10.14. ATTACHMENT A MODIFICATIONS............................... 46 10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW.......................................... 46 10.16. JURY TRIAL WAIVER........................................ 47 3 INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") is hereby made this 5 day of May, 1995, by and between IBM CREDIT CORPORATION with a place of business at 1500 Riveredge Parkway, Atlanta, GA 30328 ("IBM Credit"), and CDS DISTRIBUTION, INC. with a place of business at 2722 Michelson Drive, Irvine, CA 92713 ("Customer"). RECITALS WHEREAS, in the course of Customer's operations, Customer intends to purchase from Persons approved in writing by IBM Credit for the purposes of this Agreement (the "Authorized Suppliers") computer hardware and software products manufactured or distributed by or bearing any trademark or trade name of such Authorized Suppliers for distribution throughout the United States (the "Products") (as of the date hereof the Authorized Suppliers are as set forth on Attachment E hereto); WHEREAS, Customer has requested that IBM Credit finance its purchase of Products from such Authorized Suppliers and its working capital requirements, and IBM Credit is willing to provide such financing to Customer subject to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: Section 1. DEFINITIONS 1.1 Special Definitions. The following terms shall have the following respective meaning in this Agreement: "A/R Advance": any loan or advance of funds made by IBM Credit to Customer pursuant to Section 2.3 of this Agreement, including, as the context may require, a WCO Advance, a PRO Advance and a Takeout Advance. "A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance under this Agreement. "A/R Advance Term": shall be the collective or individual reference, as the context may require, to a PRO Advance Term and 1 a WCO Advance Term. "A/R Finance Charges": as defined on Attachment A. "Accounts": as defined in the U.C.C. "Advance": any loan or other extension of credit by IBM Credit to Customer pursuant to this Agreement including, without limitation, (i) Product Advances and (ii) A/R Advances. "Affiliate": with respect to the Customer, any Person meeting one of the following: (i) at least 10% of such Person's equity is owned, directly or indirectly, by Customer; (ii) at least 10% of Customer's equity is owned, directly or indirectly, by such Person; or (iii) at least 10% of Customer's equity and at least 10% of such Person's equity is owned, directly or indirectly, by the same Person or Persons. All of Customer's officers, directors, joint venturers, and partners shall also be deemed to be Affiliates of Customer for purposes of this Agreement. "AmeriQuest": AmeriQuest Technologies, Inc., the direct owner of one hundred percent (100%) of the outstanding capital stock of Customer. "Auditors": a nationally recognized firm of independent certified public accountants selected by Customer and satisfactory to IBM Credit. "Available Credit": at any time, (1) the Maximum Advance Amount less (2) the Outstanding Advances at such time. "Average Daily Balance": the sum of the Outstanding Product Advances or Outstanding A/R Advances, as the case may be, as of the end of each day during a calendar month, divided by the number of days in the calendar month. "Borrowing Base": as defined in Attachment A. "Business Day": any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are generally closed or on which IBM Credit is closed. "Closing Date": the date on which the conditions precedent to the effectiveness of this Agreement set forth in Section 5.1 hereof are satisfied or waived in writing by IBM Credit. "Code": the Internal Revenue Code of 1986, as amended or any successor statute. "Collateral": as defined in Section 4.1. "Collateral Management Report": a report to be delivered by 2 Customer to IBM Credit from time to time, as provided herein, signed by the chief executive officer or chief financial officer, in the form of Attachment F hereto, detailing and certifying, among other items: a summary of Customer's inventory on hand financed by IBM Credit and Customer's Eligible Accounts, the amounts and aging of all of Customer's Accounts, Customer's inventory on hand financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice price to Customer and the total of the line item values for all inventory listed on the report, the amounts and aging of Customer's accounts payable as of a specified date, all of Customer's IBM Credit borrowing activity during a specified period and the total amount of Customer's Borrowing Base as well as Customer's Outstanding A/R Advances, Outstanding Product Advances, Available Credit and any Shortfall Amount as of a specified date. "Common Due Date": (1) the fifth day of a calendar month if the Product Advance Term or A/R Advance Term, whichever is applicable, expires on the first through tenth of such calendar month; (2) the fifteenth day of a calendar month if the Product Advance Term or A/R Advance Term, whichever is applicable, expires on the eleventh through twentieth of such calendar month; and (3) the twenty-fifth day of a calendar month if the Product Advance Term or A/R Advance Term, whichever is applicable, expires on the twenty-first through the last day of such calendar month. "Compliance Certificate": a certificate substantially in the form of Attachment C. "Default": either (1) an Event of Default or (2) any event or condition which, but for the requirement that notice be given or time lapse or both, would be an Event of Default. "Delinquency Fee Rate": as defined on Attachment A. "Eligible Account": as defined in Section 3.1. "Environmental Laws": all statutes, laws, judicial decisions, regulations, ordinances, and other governmental restrictions relating to pollution, the protection of the environment, occupational health and safety, or to emissions, discharges or release of pollutants, contaminants, hazardous substances or wastes into the environment. "Environmental Liability": any claim, demand, obligation, cause of action, allegation, order, violation, injury, judgment, penalty or fine, cost or expense, resulting from the violation or alleged violation of any Environmental Laws or the imposition of any Lien pursuant to any Environmental Laws. "ERISA": the Employee Retirement Income Security Act of 1974, as 3 amended, or any successor statutes. "Event of Default": as defined in Section 9.1. "Financial Statements": the consolidated and consolidating balance sheets, statements of operations, statements of cash flows and statements of changes in shareholder's equity of AmeriQuest and its Subsidiaries for the period specified, prepared in accordance with GAAP and consistent with prior practices. "Floor Plan Lender": any Person who now or hereinafter provides inventory financing to Customer, provided that such Person executes an Intercreditor Agreement (as defined in Section 5.1 of this Agreement) or a subordination agreement with IBM Credit in form and substance satisfactory to IBM Credit. "Free Financing Period": for each Product Advance, the period, if any, in which IBM Credit does not charge Customer a financing charge. IBM Credit shall calculate the Customer's Free Financing Period utilizing a methodology that is consistent with the methodologies used for similarly situated customers of IBM Credit. The Customer understands that IBM Credit may not offer or may cease to offer a Free Financing Period for the Customer's purchases of Products. "GAAP": generally accepted accounting principles in the United States as in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. "Guaranties": guaranties in favor of IBM Credit guarantying the Obligations of Customer. "Guarantor": any guarantor pursuant to any of the Guaranties. "Hazardous Substances": all substances, wastes or materials, to the extent subject to regulation as "hazardous substances" or "hazardous waste" under any Environmental-LawS. "Indebtedness": with respect to any Person, (1) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (2) all obligations of such Person under capital leases, (3) all obligations of such 4 Person in respect of letters of credit, banker's acceptances or similar obligations issued or created for the account of such Person, (4) liabilities arising under any interest rate protection, future, option swap, cap or hedge agreement or arrangement under which such Person is a party or beneficiary, (5) all obligations under guaranties of such Person and (6) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Investment": with respect to any Person (the "Investor"), (1) any investment by the Investor in any other Person, whether by means of share purchase, capital contribution, purchase or other acquisition of a partnership or joint venture interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty by the Investor of any Indebtedness or other obligation of any other Person. "Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust, mortgage, other encumbrance or other arrangement having the practical effect of the foregoing, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Line of Credit": as defined in Section 2.1. "Material Adverse Effect": a material adverse effect (1) on the business, operations, results of operations, assets, or financial condition of the Customer, (2) on the aggregate value of the Collateral or the aggregate amount which IBM Credit would be likely to receive (after giving consideration to reasonably likely delays in payment and reasonable costs of enforcement) in the liquidation of such Collateral to recover the Obligations in full, or (3) on the rights and remedies of IBM Credit under this Agreement. "Maximum Advance Amount": at any time, the lesser of (1) the Line of Credit and (2) the Borrowing Base at such time. "Obligations": all covenants, agreements, warranties, duties, representations, loans, advances, interest (including interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Customer, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind and nature whatsoever now or hereafter arising, owing, due or payable from Customer to IBM Credit, whether primary or secondary, joint or several, direct, contingent, fixed or otherwise, secured or unsecured arising under this Agreement and the Other Agreements. "Other Agreements": all security agreements, mortgages, leases, instruments, documents, guarantees, schedules of assignment, contracts and similar agreements executed by Customer and delivered to IBM Credit, pursuant to this Agreement or otherwise, and all amendments, supplements and other modifications to the foregoing from time to time. "Other Charges": as set forth in Attachment A. "Outstanding Advances": at any time of determination, the sum of (1) the Outstanding Product Advances and (2) the Outstanding A/R Advances. "Outstanding A/R Advances": at any time of determination, the sum of (1) the unpaid principal amount of all A/R Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to A/R Advances charged to Customer's account with IBM Credit. "Outstanding Product Advances": at any time of determination, the sum of (1) the unpaid principal amount of all Product Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to Product Advances charged to Customer's account with IBM Credit. "Payment Dates": the fifth, fifteenth and twenty-fifth day of each calendar month. "Permitted Indebtedness": any of the following: (1) Indebtedness to IBM Credit; (2) Indebtedness described in Section VII of Attachment B; (3) Indebtedness to any Floor Plan Lender; (4) Purchase Money Indebtedness; (5) guaranties in favor of IBM Credit; and (6) Other Indebtedness consented to by IBM Credit in writing prior to the incurrence thereof. "Permitted Liens": any of the following: (1) Liens which are the subject of an Intercreditor Agreement, in effect from time to time between IBM Credit and any other secured creditor; (2) Purchase Money Security Interests; (3) Liens described in Section I of Attachment B; 6 (4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common carriers, landlords and other similar Liens arising by operation of law or otherwise, not waived in connection herewith, for amounts that are not yet due and payable or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (5) attachment or judgment Liens individually or in the aggregate not in excess of $300,000 (exclusive of (A) any amounts that are duly bonded to the satisfaction of IBM Credit or (B) any amount fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full); (6) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of Customer; (7) extensions and renewals of the foregoing permitted Liens; provided that (A) the aggregate amount of such extended or renewed Liens do not exceed the original principal amount of the Indebtedness for which it secures, (B) such Liens do not extend to any property other than property already previously subject to the Lien and (C) such extended or renewed Liens are on terms and conditions no more restrictive than the terms and conditions of the Liens being extended or renewed; (8) Liens arising from deposits or pledges to secure bids, tenders, contracts, leases, surety and appeal bonds and other obligations of like nature arising in the ordinary course of the Customer's business; (9) Liens for taxes, assessments or governmental charges not delinquent or being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (10) Liens arising out of deposits in connection with workers' compensation, unemployment insurance or other social security or similar legislation; (11) Liens arising pursuant to this Agreement; and 7 (12) other Liens consented to by IBM Credit in writing prior to the incurrence thereof. "Person": any individual, association, firm, corporation, partnership, trust, unincorporated organization or other entity whatsoever. "Policies": all policies of insurance required to be maintained by Customer under this Agreement or any of the Other Agreements. "Prime Rate": as of the date of determination, the average of the rates of interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of America National Trust & Savings Association as their prime or base rate, as of the last Business Day of the calendar month immediately preceding the date of determination, whether or not such announced rates are the actual rates charged by such banking institutions to their most creditworthy borrowers. "PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to itself on behalf of Customer to repay all or a portion of a Product Advance that is due and payable. "PRO Advance Term": for each PRO Advance, a period, in increments of ten days as specified by Customer in the Request for A/R Advance with respect to such PRO Advance, but in no event in excess of thirty days, commencing on the A/R Advance Date for such PRO Advance. "Product Advance": any advance of funds made or committed to be made by IBM Credit for the account of Customer to an Authorized Supplier in respect of an invoice delivered by such Authorized Supplier to IBM Credit describing Products purchased by Customer, including any such advance made or committed to be made as of the date hereof pursuant to the Financing Agreement. "Product Advance Charge": as defined on Attachment A. "Product Advance Term": for each Product Advance, a period of days equal to that set forth in Attachment A from time to time, commencing on the invoice date of such Product Advance. "Purchase Money Indebtedness": any Indebtedness (including capital leases) incurred to finance the acquisition of assets (other than assets manufactured or distributed by or bearing any trademark or trade name of any Authorized Supplier) to be used in the Customer's business not to exceed the lesser of (1) the purchase price or acquisition cost of such asset and (2) the fair market value of such asset. "Purchase Money Security Interest": any security interest securing Purchase Money Indebtedness, which security interest 8 applies solely to the particular asset acquired with the Purchase Money Indebtedness. "Request for A/R Advance": as defined in Section 2.3. "Requirement of Law": as to any Person, the articles of incorporation and by- laws of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Shortfall Amount": as defined in Section 2.6. "Subsidiary": with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Takeout Advance": an A/R Advance made to existing creditors of Customer on behalf of Customer, in an amount sufficient to discharge Customer's indebtedness to such creditor. "Termination Date": shall mean (i) the first anniversary of the date of this Agreement or such other date as IBM Credit and Customer may agree to in writing from time to time. "Voting Stock": securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions). "WCO Advance": an A/R Advance, with a WCO Advance Term. "WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180) days commencing on the A/R Advance Date for such WCO Advance. 1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which are defined in the Uniform Commercial Code as in effect in the State of New York (the "U.C.C.") shall have the meanings assigned to them therein. Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES 2.1. Line of Credit. Subject to the terms and conditions set forth in this Agreement, on and after the Closing Date to but not including the date that is the earlier of (x) the date on which this Agreement is terminated pursuant to Section 10.1 and (y) the date on which IBM Credit terminates the Line of Credit pursuant 9 to Section 9.2, IBM Credit agrees to extend to the Customer a line of credit ("Line of Credit") in the amount set forth in Attachment A pursuant to which IBM Credit will make to the Customer, from time to time, Advances in an aggregate amount at any one time outstanding not to exceed the Maximum Advance Amount. 2.2 Product Advances. (A) Subject to the terms and conditions of this Agreement, IBM Credit shall make Product Advances in connection with Customer's purchase of Products from Authorized Suppliers. Customer hereby authorizes and directs IBM Credit to pay the proceeds of Product Advances directly to the applicable Authorized Supplier in respect of invoices delivered to IBM Credit for such Products by such Authorized Supplier and acknowledges that each such Product Advance constitutes a loan by IBM Credit to Customer pursuant to this Agreement as if the Customer received the proceeds of the Product Advance directly from IBM Credit. (B) No finance charge shall accrue on any Product Advance during the Free Financing Period, if any, applicable to such Product Advance. Customer shall repay each Product Advance no later than the Common Due Date for such Product Advance. Customer may, at its option, repay each Product Advance by requesting IBM Credit to apply all or any part of the principal amount of an A/R Advance to the Outstanding Product Advances. Customer's request for such application shall be made in accordance with Section 2.3. When so requested and subject to the terms and conditions of this Agreement, IBM Credit shall apply the amount so requested to the amounts due in respect of the Outstanding Product Advances. Nothing contained herein shall relieve Customer of its obligation to repay Product Advances when due. Each Product Advance shall accrue a finance charge on the Average Daily Balance thereof from the end of the Free Financing Period, if any, for such Product Advance, or if no such Free Financing Period shall be in effect, from the date of invoice for such Product Advance, in each case, until such Product Advance shall become due and payable in accordance with the terms of this Agreement, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement as the "Product Advance Charge" and (b) the highest rate from time to time permitted by applicable law. In addition, for any Product Advance with respect to which a Free Financing Period shall not be in effect, Customer shall pay a fee equal to 50 basis points of such Product Advance. Such fee shall be due and payable on the Common Due Date for such Product Advance. If it is determined that amounts received from Customer were in excess of the highest rate permitted by law, then the amount representing such excess shall be considered reductions to principal of Advances. (C) Customer acknowledges that IBM Credit does not warrant 10 the Collateral. Customer shall be obligated to pay IBM Credit in full even if the Collateral is defective or fails to conform to the warranties extended by the Authorized Supplier. The Obligations of Customer shall not be affected by any dispute Customer may have with any manufacturer, distributor or Authorized Supplier. Customer will not assert any claim or defense which it may have against any manufacturer, distributor or Authorized Supplier against IBM Credit. (D) Customer hereby authorizes IBM Credit to collect directly from any Authorized Supplier any credits, rebates, bonuses or discounts owed by such Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits received by IBM Credit may be applied by IBM Credit to the Outstanding Advances. Any Supplier Credits collected by IBM Credit shall in no way reduce Customer's debt to IBM Credit in respect of the Outstanding Advances until such Supplier Credits are applied by IBM Credit. (E) IBM Credit may apply any payments and Supplier Credits received by IBM Credit to reduce finance charges first and then to principal amounts of Advances owed by Customer. IBM Credit may apply principal payments to the oldest (earliest) invoices (and related Product Advances) first, but, in any case, all principal payments will be applied in respect of the Outstanding Product Advances made for Products which have been sold, lost, stolen, destroyed, damaged or otherwise disposed of prior to any other application thereof. (F) Customer will indemnify and hold IBM Credit harmless from and against any claims or demands asserted by any Person relating to or arising from the Collateral for any reason whatsoever, including, without limitation, the condition of the Collateral, any misrepresentation made about the Collateral by any representative of Customer, or any act or failure to act by Customer except to the extent such claims or demands are directly attributable to IBM Credit's gross negligence or willful misconduct. Nothing contained in the foregoing shall impair any rights or claims which the Customer may have against any manufacturer, distributor or Authorized Supplier. 2.3. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's request for such an Advance ("Request for A/R Advance"). For any requested A/R Advance pursuant to which monies will be disbursed to Customer or any Person other than IBM Credit, a Request for A/R Advance shall be delivered to IBM Credit on or prior to 1:00 p.m. (Stamford, CT time) one Business Day prior to the requested A/R Advance Date. The Request for A/R Advance shall specify (i) the requested A/R Advance Date; (ii) the amount of the requested A/R Advance; (iii) whether such A/R Advance is a WCO Advance or a PRO Advance; (iv) 11 if applicable, the PRO Advance Term for such A/R Advance; (v) for each PRO Advance, the month, day and year of the Common Due Date, as set forth in Customer's applicable billing statement from IBM Credit, for the Product Advance to which the PRO Advance is to be applied; and (vi) if applicable, the amount of the requested A/R Advance that should be applied to the Outstanding Product Advances (provided that all PRO Advances shall be applied to Outstanding Product Advances). Customer may deliver a Request for A/R Advance via facsimile. Any Request for A/R Advance delivered to IBM Credit shall be irrevocable. Notwithstanding any other provision of this Agreement, Customer shall not (i) request more than one PRO Advance in respect of any Product Advance; and (ii) request a PRO Advance for any Common Due Date on which Customer will take a discount offered by IBM Credit for invoice amounts paid in full within fifteen days of the invoice date under IBM Credit's High Turnover Option ("HTO") Program. (B) Subject to the terms and conditions of this Agreement, on the A/R Advance Date specified in a Request for A/R Advance, IBM Credit shall make the principal amount of each A/R Advance available to the Customer in immediately available funds to an account maintained by Customer (or in the case of a Takeout Advance, as directed by Customer). If IBM Credit is making an A/R Advance hereunder on a day on which Customer is to repay all or any part of an Outstanding Advance (or any other amount owing hereunder), IBM Credit shall apply the proceeds of the A/R Advance to such repayment and only an amount equal to the difference, if any, between the amount of the A/R Advance and the amount being repaid shall be made available to Customer as provided in the immediately preceding sentence. (C) Each A/R Advance shall accrue a finance charge on the unpaid principal amount thereof, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement under the caption "A/R Finance Charge" for such type of A/R Advance, and (b) the highest rate from time to time permitted by applicable law. If it is determined that amounts received from the Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. (D) Unless otherwise due and payable at an earlier date, the unpaid principal amount of each A/R Advance, other than a Takeout Advance, shall be due and payable on the applicable Common Due Date. Unless otherwise notified by Customer in writing prior to the day the principal amount of any WCO Advance becomes due and payable, the Customer shall be deemed to have provided IBM Credit with a Request for A/R Advance requesting a WCO Advance on the day such principal amount is due and payable in an amount equal to the unpaid principal amount of the WCO Advance so due. Subject to the terms and conditions of this Agreement, the principal amount of such WCO Advance shall 12 automatically renew for an additional WCO Advance Term. Notwithstanding any other provision of this Agreement, a Takeout Advance may only be requested on the Closing Date and such Takeout Advance shall be limited to an amount sufficient to discharge the indebtedness that is the subject of a Takeout Advance. Unless otherwise agreed in writing, a Takeout Advance shall be due as defined on Attachment D. 2.4. Finance and Other Charges. (A) Finance charges shall be calculated by multiplying the applicable Delinquency Fee Rate, Product Advance Charge or A/R Finance Charge provided for in this Agreement by Customer's applicable Average Daily Balance. The Delinquency Fee Rate, the Product Advance Charge and the various A/R Finance Charges provided for in this Agreement are each computed on the basis of an actual day, 360 day year. (B) The Customer hereby agrees to pay to IBM Credit the charges set forth as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit additional charges for any returned items of payment received by Customer. The Customer hereby acknowledges that any such charges are not interest but that such charges, if unpaid, will constitute part of the Outstanding Advances. (C) The finance charges and Other Charges owed under this Agreement, and any charges hereafter agreed to in writing by the parties, are payable monthly on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its sole discretion, add unpaid finance charges and Other Charges to the Customer's outstanding Advances. (D) If any amount owed under this Agreement, including, without limitation, any Advance, is not paid when due (whether at maturity, by acceleration or otherwise), the unpaid amount thereof will bear a late charge from and including its due date to but not including the date IBM Credit receives payment thereof, at a per annum rate equal to the lesser of (a) the amount set forth in Attachment A to this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time to time permitted by applicable law. In addition, if any Shortfall Amount shall not be paid when due pursuant to Section 2.6 hereof, Customer shall pay IBM Credit an additional late charge equal to the product of the Shortfall Amount multiplied by thirty (30) basis points. If it is determined that amounts received from Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. 2.5. Statements Regarding Customer's ACcount. IBM Credit will send statements of each transaction hereunder as well as monthly billing statements to Customer with respect to Advances and other charges due on Customer's account with IBM Credit. Each 13 statement of transaction and monthly billing statement shall be deemed, absent manifest error, to be correct and shall constitute an account stated with respect to each transaction or amount described therein unless within seven (7) calendar days after such statement of transaction or billing statement is received by Customer, Customer provides IBM Credit written notice objecting that such amount or transaction is incorrectly described therein and specifying the error(s), if any, contained therein. IBM Credit may at any time adjust such statements of transaction or billing statements to comply with applicable law and this Agreement. 2.6. Shortfall. If, on any date, the Outstanding Advances shall exceed the Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer shall on such date prepay the Outstanding Advances in an amount equal to such Shortfall Amount. 2.7. Application of Payments. The Customer hereby agrees that all checks and other instruments delivered to IBM Credit on account of Customer's Obligations shall constitute conditional payment until such items are actually collected by IBM Credit. The Customer waives the right to direct the application of any and all payments at any time or times hereafter received by IBM Credit on account of the Customer's Obligations. Customer agrees that IBM Credit shall have the continuing exclusive right to apply and reapply any and all such payments to Customer's Obligations in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any of its books and records. 2.8. Prepayment and Reborrowing By Customer. (A) Customer may at any time prepay, without notice or penalty, in whole or in part amounts owed under this Agreement. IBM Credit may apply payments made to it (whether by the Customer or otherwise) to pay finance charges and other amounts owing under this Agreement first and then to the principal amount owed by the Customer. (B) Subject to the terms and conditions of this Agreement, any amount prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be reborrowed by Customer in accordance with the provisions of this Agreement. Section 3. LINE OF CREDIT ADDITIONAL PROVISIONS 3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall have the sole right to determine eligibility of Accounts from an Account obligor for purposes of determining the Borrowing Base; however, without limiting such right, the following AccOunts will be deemed to be ineligible for purposes of determining the Borrowing Base: 14 (A) Accounts created from the sale of goods and/or performance of services on non-standard terms or that allow for payment to be made more than forty-five (45) days from the date of such sale or performance of services; (B) Accounts unpaid more than ninety (90) days from date of invoice; (C) Accounts payable by an account debtor if fifty percent (50%) or more of the aggregate outstanding balance of all such Accounts remain unpaid for more than ninety (90) days from the date of invoice; (D) Accounts payable by an account debtor that is an Affiliate of Customer or an officer, employee, agent, guarantor, stockholder or Affiliate of Customer or is related to or has common shareholders, officers or directors with Customer; (E) Accounts arising from consignment sales; (F) Except for state, local and United States government institutions and public educational institutions, accounts with respect to which the payment by the account debtor is or may be conditional; (G) Except for state, local and United States government institutions and public educational institutions, accounts with respect to which: (i) the account debtor is not a commercial entity, or (ii) the account debtor is not a resident of the United States; (H) Accounts payable by any account debtor to which Customer is or may become liable for goods sold or services rendered by such account debtor to Customer; (I) Accounts arising from the sale or lease of goods purchased for a personal, family or household purpose; (J) Accounts arising from the sale or other disposition of goods that has been used for demonstration purposes or loaned or leased by the Customer to another party; (K) Accounts which are progress payment accounts or contra accounts; (L) Accounts upon which IBM Credit does not have a valid, perfected, first priority security interest; (M) Accounts payable by an account debtor that is or 15 Customer knows will become, subject to proceedings under United States Bankruptcy Law or other law for the relief of debtors; (N) Accounts that are not payable in US dollars; (O) Accounts payable by any account debtor that is a remarketer of computer hardware and software products and whose purchases of such products from Customer have been financed by another person who pays the proceeds of such financing directly to Customer on behalf of such obligor; (P) Accounts arising from the sale or lease of goods which are billed to any account debtor but have not yet been shipped by Customer; (Q) Accounts with respect to which Customer has permitted or agreed to any extension, compromise or settlement, or made any change or modification of any kind or nature, including, but not limited to, any change or modification to the terms relating thereto; (R) Accounts that do not arise from undisputed bona fide transactions completed in accordance with the terms and conditions contained in the invoices, purchase orders and contracts relating thereto; (S) Accounts that are discounted for the full payment term specified in Customer's terms and conditions with its account debtors, or for any longer period of time; (T) Accounts on cash on delivery (C.O.D.) terms; (U) Accounts arising from maintenance or service contracts that are billed in advance of full performance of service; (V) Accounts arising from bartered transactions; (W) Accounts arising from incentive payments, rebates, discounts, credits, and refunds from a supplier; and (X) Any and all other Accounts that IBM Credit deems, in its sole and absolute discretion, to be ineligible. The aggregate of all Accounts that are not ineligible Accounts shall hereinafter be referred to as "Eligible Accounts". 3.2. Reimbursement for Charges. Customer agrees to pay for all costs and expenses of Customer's bank in respect to collection of checks and other items of payment, all fees relating to the use and maintenance of the Lockbox and the Special Account (each as defined in Section 3.3) and with respect to remittances of proceeds of the Advances hereunder. 16 3.3. Lockbox and Special Account. Customer shall establish and maintain lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A with the financial institution(s) listed in Attachment A (each, a "Bank") pursuant to an agreement between the Customer and each Bank in form and substance satisfactory to IBM Credit. Customer shall also establish and maintain a deposit account which shall contain only proceeds of Customer's Accounts ("Special Account") with each Bank. Customer shall enter into and maintain a contingent blocked account agreement with each Bank for the benefit of IBM Credit in form and substance satisfactory to IBM Credit pursuant to which, among other things, such Bank shall agree that, upon notice from IBM Credit, disbursements from the Special Account shall be made only as IBM Credit shall direct. 3.4. Collections. Customer shall instruct all Account obligors to remit payments directly to a Lockbox. In addition, Customer shall have such instruction printed in conspicuous type on all invoices. Customer shall instruct such Bank to deposit all remittances to such Bank's Lockbox into its Special Account. Customer further agrees that it shall not deposit or permit any deposits of funds other than remittances paid in respect of the Accounts into the Special Account(s) or permit any commingling of funds with such remittances in any Lockbox or Special Account. Without limiting the Customer's foregoing obligations, if, at any time, Customer receives a remittance directly from an account obligor, then Customer shall make entries on its books and records in a manner that shall reasonably identify such remittances and shall keep a separate account on its record books of all remittances so received and deposit the same into a Special Account. Until so deposited into the Special Account, Customer shall keep all remittances received in respect of Accounts separate and apart from Customer's other property so that they are capable of identification as the proceeds of Accounts in which IBM Credit has a security interest. 3.5. Application of Remittances and Credits. Customer shall apply all remittances against the aggregate of Customer's outstanding Accounts no later than the end of the Business Day on which such remittances are deposited into the Special Account. Customer also agrees to apply each remittance against its respective Account no later than three (3) Business Days from the date such remittance is deposited into the Special Account. In addition, Customer shall promptly apply any credits owing in respect to any Account when due. 3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with full power of substitution, as its true and lawful attorney-in-fact with full power, in good faith and in compliance with commercially reasonable standards, in the discretion of IBM Credit, to: 17 (A) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected the security interest in the Collateral contemplated under this Agreement and the Other Agreements; (B) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation; and upon the occurrence and during the continuance of an Event of Default as defined in Section 9.1 hereof: (C) demand payment, enforce payment and otherwise exercise all Customer's rights and remedies with respect to the collection of any Accounts; (D) settle, adjust, compromise, extend or renew any Accounts; (E) settle, adjust or compromise any legal proceedings brought to collect any Accounts; (F) sell or assign any Accounts upon such terms, for such amounts and at such time or times as IBM Credit may deem advisable; (G) discharge and release any Accounts; (H) prepare, file and sign Customer's name on any Proof of Claim in Bankruptcy or similar document against any Account obligor; (I) prepare, file and sign Customer's name on any notice of lien, claim of mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or similar document in connection with any Accounts; (J) endorse the name of Customer upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to any Account or goods pertaining thereto; (K) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation; (L) sign the name of Customer to requests for verification of Accounts and notices thereof to Account obligors; (M) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to enforce any and all remedies it may have under this Agreement, at law or 18 otherwise; and (N) make, settle and adjust claims under the Policies with respect to the Collateral and endorse Customer's name on any check, draft, instrument or other item of payment of the proceeds of the Policies with respect to the Collateral; and (O) take control in any manner of any term of payment or proceeds and for such purpose to notify the postal authorities to change the address for delivery of mail addressed to Customer to such address as IBM Credit may designate. The power of attorney granted by this Section is for value and coupled with an interest and is irrevocable so long as this Agreement is in effect or any Obligations remain outstanding. Nothing done by IBM Credit pursuant to such power of attorney will reduce any of Customer's Obligations other than Customer's payment Obligations to the extent IBM Credit has received monies. Section 4. SECURITY -- COLLATERAL 4.1 Grant. To secure Customer's full and punctual payment and performance of the Obligations when due (whether at the stated maturity, by acceleration or otherwise), Customer hereby grants IBM Credit a security interest in all of Customer's right, title and interest in and to the following property, whether now owned or hereafter acquired or existing and wherever located: (A) all inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (B) all accounts, contract rights, chattel paper, instruments, deposit accounts, obligations of any kind owing to Customer, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and all books, invoices, documents and other records in any form evidencing or relating to any of the foregoing; (C) general intangibles; (D) all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the foregoing; and (E) all substitutions and replacements for all of the foregoing, all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets shall be collectively defined herein as 19 the "Collateral". Customer covenants and agrees with IBM Credit that: (a) the security constituted to by this Agreement is in addition to any other security from time to time held by IBM Credit and (b) the security hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of Customer to IBM Credit pursuant to this Agreement and the Other Agreements. 4.2. Further Assurances. Customer shall, from time to time upon the request of IBM Credit, execute and deliver to IBM Credit, or cause to be executed and delivered, at such time or times as IBM Credit may request such other and further documents, certificates and instruments that IBM Credit may deem necessary to perfect and maintain perfected IBM Credit's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under this Agreement and the Other Agreements. Customer shall make appropriate entries on its books and records disclosing IBM Credit's security interests in the Collateral. Section 5. CONDITIONS PRECEDENT 5.1. Conditions Precedent to the Effectiveness of This Agreement. The effectiveness of this Agreement is subject to the receipt by IBM Credit of, or waiver in writing by IBM Credit of compliance with, the following conditions precedent: (A) this Agreement executed and delivered by Customer and IBM Credit; (B) (i) copies of the resolutions of the Board of Directors of Customer certified by the secretary or assistant secretary of Customer authorizing the execution, delivery and performance of this Agreement and each Other Agreement executed and delivered in connection herewith, (ii) a certificate of the secretary or an assistant secretary of Customer, in form and substance satisfactory to IBM Credit, certifying the names and true signatures of the officers of Customer authorized to sign this Agreement and the Other Agreements and (iii) copies of the articles of incorporation and by-laws of Customer certified by the secretary or assistant secretary of Customer; (C) certificates dated as of a recent date from the Secretary of State or other appropriate authority evidencing the good standing of Customer in the jurisdiction of its organization and in each other jurisdiction where the ownership or lease of its property or the conduct of its business requires it to qualify to do business; 20 (D) copies of all approvals and consents from any Person, in each case in form and substance satisfactory to IBM Credit, which are required to enable Customer to authorize, or required in connection with, (a) the execution, delivery or performance of this Agreement and each of the Other Agreements, and (b) the legality, validity, binding effect or enforceability of this Agreement and each of the Other Agreements; (E) a lockbox agreement executed by Customer and each Bank, in form and substance satisfactory to IBM Credit; (F) a contingent blocked account agreement executed by Customer and each Bank in form and substance satisfactory to IBM Credit; (G) intercreditor agreements ("Intercreditor Agreement"), in form and substance satisfactory to IBM Credit, executed by each other secured creditor of Customer as set forth in Attachment A; (H) a favorable opinion of counsel for Customer in substantially the form of Attachment I; (I) UCC-1 financing statements for each jurisdiction reasonably requested by IBM Credit executed by Customer and each guarantor whose guaranty to IBM Credit is intended to be secured by a pledge of its assets; (J) the statements, certificates, documents, instruments, financing statements, agreements and information set forth in Attachment A and Attachment B; and (K) all such other statements, certificates, documents, instruments, financing statements, agreements and other information with respect to the matters contemplated by this Agreement as IBM Credit shall have reasonably requested. 5.2. Conditions to Each Advance. No Advance will be required to be made or renewed by IBM Credit under this Agreement unless, on and as of the date of such Advance, the following statements shall be true to the satisfaction of IBM Credit: (A) The representations and warranties contained in this Agreement or in any document, instrument or agreement executed in connection herewith, are true and correct in all material respects on and as of the date of such Advance as though made on and as of such date; (B) No event has occurred and is continuing or after giving effect to such Advance or the application of the proceeds thereof would result which would constitute a Default; 21 (C) No event has occurred and is continuing which could reasonably be expected to have a Material Adverse Effect; (D) Both before and after giving effect to the making of such Advance, no Shortfall Amount exists. Except as Customer has otherwise disclosed to IBM Credit in writing prior to each request, each request (or deemed request pursuant to Section 2.3 (D)) for an Advance hereunder and the receipt (or deemed receipt) by the Customer of the proceeds of any Advance hereunder shall be deemed to be a representation and warranty by Customer that, as of and on the date of such Advance, the statements set forth in (A) through (D) above are true statements. No such disclosures by Customer to IBM Credit shall in any manner be deemed to satisfy the conditions precedent to each Advance that are set forth in this Section 5.2. Section 6. REPRESENTATIONS AND WARRANTIES To induce IBM Credit to enter into this Agreement, Customer represents and warrants to IBM Credit as follows: 6.1. Organization and Qualifications. Customer and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the power and authority to own its properties and assets and to transact the businesses in which it presently is engaged and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where it presently is engaged in business and is required to be so qualified. 6.2. Rights in Collateral; Priority of Liens. Customer and each of its Subsidiaries owns the property granted by it respectively as Collateral to IBM Credit, free and clear of any and all Liens in favor of third parties except for the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties and the Other Agreements in the Collateral constitute the valid and enforceable first, prior and perfected Liens on the Collateral, except to the extent any Liens that are prior to IBM Credit's Liens are (i) the subject of an Intercreditor Agreement or (ii) Purchase Money Security Interests in product of a brand that is not financed by IBM Credit. 6.3. No Conflicts. The execution, delivery and performance by Customer of this Agreement and each of the Other Agreements (i) are within its corporate power; (ii) are duly authorized by all necessary corporate action; (iii) are not in contravention in any respect of any Requirement of Law or any indenture, contract, 22 lease, agreement, instrument or other commitment to which it is a party or by which it or any of its properties are bound; (iv) do not require the consent, registration or approval of any Governmental Authority or any other Person (except such as have been duly obtained, made or given, and are in full force and effect); and (v) will not, except as contemplated herein, result in the imposition of any Liens upon any of its properties. 6.4. Enforceability. This Agreement and all of the other documents executed and delivered by the Customer in connection herewith are the legal, valid and binding obligations of Customer, and are enforceable in accordance with their terms, except as such enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting creditors' rights generally or the general equitable principles relating thereto. 6.5. Locations of Offices, Records and Inventory. The address of the principal place of business and chief executive office of Customer is as set forth on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and records of Customer, and all of its chattel paper (other than the chattel paper delivered to IBM Credit pursuant to Section 7.14(E)) and records of Accounts, are maintained exclusively at such location. There is no jurisdiction in which Customer has any assets, equipment or inventory (except for vehicles and inventory in transit for processing) other than those jurisdictions identified on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment B, as amended from time to time by any notice provided by Customer to IBM Credit in accordance with Section 7.7(C) of this Agreement, also contains a complete list of the legal names and addresses of each warehouse at which the Customer's inventory is stored. None of the receipts received by Customer from any warehouseman states that the goods covered thereby are to be delivered to bearer or to the order of a named person or to a named person and such named person's assigns. 6.6. Fictitious Business Names. Customer has not used any corporate or fictitious name during the five (5) years preceding the date of this Agreement, other than those listed on Attachment B. 6.7. Organization. All of the outstanding capital stock of Customer has been validly issued, is fully paid and nonassessable. 6.8. No Judgments or Litigation. Except as set forth on Attachment B, no judgments, orders, writs or decrees are outstanding against Customer nor is there now pending or, to the 23 best of Customer's knowledge after due inquiry, threatened, any litigation, contested claim, investigation, arbitration, or governmental proceeding by or against Customer. 6.9. No Defaults. The Customer is not in default under any term of any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it, or any of its properties are bound. Customer has no knowledge of any dispute regarding any such indenture, contract, lease, agreement, instrument or other commitment. No Default or Event of Default has occurred and is continuing. 6.10. Labor Matters. Except as set forth on any notice provided by Customer to IBM Credit pursuant to Section 7.1(F) of this Agreement, the Customer is not a party to any labor dispute. There are no strikes or walkouts or labor controversies pending or threatened against the Customer which could reasonably be expected to have a Material Adverse Effect. 6.11. Compliance with Law. Customer has not violated or failed to comply with any Requirement of Law or any requirement of any self regulatory organization. 6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan", "defined benefit plan", or "multi-employer benefit plan", which Customer has established, maintained, or to which it is required to contribute (collectively, the "Plans") is in compliance with all applicable provisions of ERISA and the Code and the rules and regulations thereunder as well as the Plan's terms and conditions. There have been no "prohibited transactions" and no "reportable event" has occurred within the last 60 months with respect to any Plan. Customer has no "multi-employer benefit plan". As used in this Agreement the terms "employee benefit plan", "employee pension benefit plan", "defined benefit plan", and "multi-employer benefit plan" have the respective meanings assigned to them in Section 3 of ERISA and any applicable rules and regulations thereunder. The Customer has not incurred any "accumulated funding deficiency" within the meaning of ERISA or incurred any liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection with a Plan (other than for premiums due in the ordinary course). 6.13. Compliance with Environmental Laws. Except as otherwise disclosed in Attachment B: (A) The Customer has obtained all government approvals required with respect to the operation of their businesses under any Environmental Law. (B) (i) the Customer has not generated, transported or disposed of any Hazardous Substance; (ii) the Customer is not currently generating, transporting or disposing of any Hazardous 24 Substance; (iii) the Customer has no knowledge that (a) any of its real property (whether owned, leased, or otherwise directly or indirectly controlled) has been used for the disposal of or has been contaminated by any Hazardous Substance, or (b) any of its business operations have contaminated lands or waters of others with any Hazardous Substance; (iv) the Customer and its respective assets are not subject to any Environmental Liability and, to the best of the Customer's knowledge, any threatened Environmental Liability; (v) the Customer has not received any notice of or otherwise learned of any governmental investigation evaluating whether any remedial action is necessary to respond to a release or threatened release of any Hazardous Substance for which the Customer may be liable; (vi) the Customer is not in violation of any Environmental Law; (vii) there are no proceedings or investigations pending against Customer with respect to any violation or alleged violation of any Environmental Law; provided however, that the parties acknowledge that any generation, transportation, use, storage and disposal of certain such Hazardous Substances in Customer's or its Subsidiaries' business shall be excluded from representations (i) and (ii) above, provided, further, that Customer is at all times generating, transporting, utilizing, storing and disposing such Hazardous Substances in accordance with all applicable Environmental Laws and in a manner designed to minimize the risk of any spill, contamination, release or discharge of Hazardous Substances other than as authorized by Environmental Laws. 6.14. Intellectual Property. Customer possesses such assets, licenses, patents, patent applications, copyrights, service marks, trademarks, trade names and trade secrets and all rights and other property relating thereto or arising therefrom ("Intellectual Property") as are necessary or advisable to continue to conduct its present and proposed business activities. 6.15. Licenses and Permits. Customer has obtained and holds in full force and effect all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary for the operation of its businesses as presently conducted. Customer is not in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval. 6.16. Investment Company. The Customer is not (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a holding company, or an Affiliate of a holding company or of a subsidiary of a holding company, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or 25 the Other Agreements or to perform its obligations hereunder or thereunder. 6.17. Taxes and Tax Returns. Customer has timely filed all federal, state, and local tax returns and other reports which it is required by law to file, and has either duly paid all taxes, fees and other governmental charges indicated to be due on the basis of such reports and returns or pursuant to any assessment received by the Customer, or made provision for the payment thereof in accordance with GAAP. The charges and reserves on the books of the Customer in respect of taxes or other governmental charges are in accordance with GAAP. No tax liens have been filed against Customer or any of its property. 6.18. Status of Accounts. Each Account is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by Customer, in the ordinary course of its business; the goods and inventory being sold and the Accounts created are its exclusive property and are not and shall not be subject to any Lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever (other than Permitted Liens). The Customer's customers have accepted goods or services and owe and are obligated to pay the full amounts stated in the invoices according to their terms. There are no proceedings or actions known to Customer which are pending or threatened against any Material Account Obligor (as defined in Section 7.14(B) of this Agreement) of any of the Accounts which could reasonably be expected to result in a material adverse effect on the obligor's ability to pay the full amounts due to Customer. 6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate or Subsidiary of the Customer is a party except (i) in the ordinary course of and pursuant to the reasonable requirements of Customer's business and (ii) upon fair and reasonable terms no less favorable to Customer than it could obtain in a comparable arm's-length transaction with an unaffiliated Person. 6.20. Accuracy and Completeness of Information. All factual information furnished by or on behalf of the Customer to IBM Credit or the Auditors for purposes of or in connection with this Agreement or any Other Agreement, or any transaction contemplated hereby or thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time. 6.21. Recording Taxes. All recording taxes, recording fees, filing fees and other charges payable in connection with the 26 filing and recording of this Agreement have either been paid in full by Customer or arrangements for the payment of such amounts by Customer have been made to the satisfaction of IBM Credit. 6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted Indebtedness; and (ii) has not guaranteed the obligations of any other Person (except as permitted by Section 8.4), Section 7. AFFIRMATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations: 7.1. Financial and Other Information. Customer shall cause to be furnished to IBM Credit the following information within the following time periods: (A) as soon as available and in any event within ninety (90) days after the end of each fiscal year of AmeriQuest (i) audited Financial Statements (provided that, to the extent not otherwise audited by the Auditors, the consolidating Financial Statements may be unaudited) as of the close of the fiscal year and for the fiscal year, together with a comparison to the Financial Statements for the prior year, in each case accompanied by (a) either an opinion of the Auditors without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit or, if so qualified, an opinion which shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such Auditors' "Management Letter" to AmeriQuest, if any, (c) a written statement signed by the Auditors stating that in the course of the regular audit of the business of AmeriQuest and its consolidated Subsidiaries, which audit was conducted by the Auditors in accordance with generally accepted auditing standards, the Auditors have not obtained any knowledge of the existence of any Default under any provision of this Agreement, or, if such Auditors shall have obtained from such examination any such knowledge, they shall disclose in such written statement the existence of the Default and the nature thereof, it being understood that such Auditors shall have no liability, directly or indirectly, to anyone for failure to obtain knowledge of any such Default; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of AmeriQuest and its Subsidiaries for such fiscal year prepared by the chief executive officer or chief financial officer of AmeriQuest; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal year, whether 27 AmeriQuest is in compliance with the financial covenants set forth in Exhibit A to the guaranty executed by AmeriQuest; (B) as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of AmeriQuest (i) Financial Statements as of the end of such period and for the fiscal year to date, together with a comparison to the Financial Statements for the same periods in the prior year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments and except for the absence of footnotes) by the chief executive officer or chief financial officer of AmeriQuest as having been prepared in accordance with GAAP; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of AmeriQuest and its Subsidiaries for such period and for the fiscal year to date prepared by the chief executive officer or chief financial officer of AmeriQuest; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal quarter, whether AmeriQuest is in compliance with the financial covenants set forth in Exhibit A to the guaranty executed by AmeriQuest; (C) promptly after Customer obtains knowledge of (i) the occurrence of a Default or Event of Default, or (ii) the existence of any condition or event which would result in the Customer's failure to satisfy the conditions precedent to Advances set forth in Section 5, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (D) promptly after Customer obtains knowledge of (i) any proceeding(s) being instituted or threatened to be instituted by or against Customer in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign), or (ii) any actual or prospective change, development or event which, in any such case, has had or could reasonably be expected to have a Material Adverse Effect, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (E) promptly after Customer obtains knowledge that (i) any order, judgment or decree in excess of $300,000 shall have been entered against Customer or any of its properties or assets, or (ii) it has received any notification of a material violation of any Requirement of Law from any Governmental Authority, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; 28 (F) promptly after Customer learns of any material labor dispute to which Customer may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which Customer is a party or by which it is bound, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (G) within five (5) Business Days after request by IBM Credit, any written certificates, schedules and reports together with all supporting documents as IBM Credit may reasonably request relating to the Collateral or the Customer's or any guarantor's business affairs and financial condition; (H) by the fifth (5th) day of each month, or as otherwise agreed in writing, a Collateral Management Report as of a date no earlier than the last day of the immediately preceding month; (I) along with the Financial Statements set forth in Section 7.1(A) and (B), the name, address and phone number of each of its account debtors' primary contacts for each Account on the Accounts aging report contained in its most recent Collateral Management Report; and (J) within five (5) days after the same are sent, copies of all financial statements and reports which AmeriQuest or Customer sends to its stockholders, and within five (5) days after the same are filed, copies of all financial statements and reports which AmeriQuest or Customer may make to, or file with, the Securities and Exchange Commission or any successor or analogous governmental authority. Each certificate, schedule and report provided by Customer to IBM Credit shall be signed by an authorized officer of Customer, and which signature shall be deemed a representation and warranty that the information contained in such certificate, schedule or report is true and accurate in all material respects on the date as of which such certificate, schedule or report is made and does not omit to state a material fact necessary in order to make the statements contained therein not misleading at such time. Each financial statement delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods. 7.2. Location of Collateral. The inventory, equipment and other tangible Collateral shall be kept or sold at the addresses as set forth on Attachment B or on any notice provided by Customer to IBM Credit in accordance with Section 7.7(C). Such locations shall be certified quarterly to IBM Credit substantially in the form of Attachment G. 29 7.3. Changes in Customer. Customer shall provide 30 days prior written notice to IBM Credit of any change in Customer's name, chief executive office and principal place of business, organization, form of ownership or corporate structure; provided, however, that Customer's compliance with this covenant shall not relieve it of any of its other obligations or any other provisions under this Agreement or any Other Agreement limiting actions of the type described in this Section. 7.4. Corporate Existence. Customer shall (A) maintain its corporate existence, maintain in full force and effect all licenses, bonds, franchises, leases and qualifications to do business, and all contracts and other rights necessary to the profitable conduct of its business, (B) continue in, and limit its operations to, the same general lines of business as presently conducted by it unless otherwise permitted in writing by IBM Credit and (C) comply with all Requirements of Law. 7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it learns of the occurrence of any event which would constitute a "reportable event" under ERISA or any regulations thereunder with respect to any Plan, or that the PBGC has instituted or will institute proceedings to terminate any Plan. Notwithstanding the foregoing, the Customer shall have no obligation to notify IBM Credit as to any "reportable event" as to which the 30-day notice requirement of Section 4043(b) has been waived by the PBGC, until such time as such Customer is required to notify the PBGC of such reportable event. Such notification shall include a certificate of the chief financial officer of Customer setting forth details as to such "reportable event" and the action which Customer proposes to take with respect thereto, together with a copy of any notice of such "reportable event" which may be required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its intent to institute such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause the plan administrator to furnish, to IBM Credit the most recently filed annual report for each Plan. 7.6. Environmental Matters. (A) Customer and any other Person under Customer's control (including, without limitation, agents and Affiliates under such control) shall (i) comply with all Environmental Laws in all material respects, and (ii) undertake to use commercially reasonable efforts to prevent any unlawful release of any Hazardous Substance by Customer or such Person into, upon, over or under any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer. (B) Customer shall notify IBM Credit, promptly upon its obtaining knowledge of (i) any non-routine proceeding or investigation by any Governmental Authority with respect to the 30 presence of any Hazardous Substances on or in any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, (ii) all claims made or threatened by any Person or Governmental Authority against Customer or any of Customer's assets relating to any loss or injury resulting from any Hazardous Substance, (iii) Customer's discovery of evidence of unlawful disposal of or environmental contamination by any Hazardous Substance on any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, and (iv) any occurrence or condition which could constitute a violation of any Environmental Law. 7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to maintain books and records pertaining to the Collateral in such detail, form and scope as is consistent with good business practice, and agrees that such books and records will reflect IBM Credit's interest in the Accounts. (B) Customer agrees that IBM Credit or its agents may enter upon the premises of Customer at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or copying (at Customer's expense) any and all records pertaining thereto, (iii) discussing the affairs, finances and business of Customer with any officers, employees and directors of Customer or with the Auditors and (iv) verifying Eligible Accounts and other Collateral. Customer also agrees to provide IBM Credit with such reasonable information and documentation that IBM Credit deems necessary to conduct the foregoing activities, including, without limitation, reasonably requested samplings of purchase orders, invoices and evidences of delivery or other performance. Upon the occurrence and during the continuance of an Event of Default which has not been waived by IBM Credit in writing, IBM Credit may conduct any of the foregoing activities in any manner that IBM Credit deems reasonably necessary. (C) Customer shall give IBM Credit thirty (30) days prior written notice of any change in the location of any Collateral, the location of its books and records or in the location of its chief executive office or place of business from the locations specified in Attachment B, and will execute in advance of such change and cause to be filed and/or delivered to IBM Credit any financing statements, landlord or other lien waivers, or other documents reasonably required by IBM Credit, all in form and substance reasonably satisfactory to IBM Credit. (D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient detail, of any substantial change relating to the type, quantity or quality of the Collateral, or any event which could reasonably be expected to have a Material Adverse 31 Effect on the value of the Collateral or on the security interests granted to IBM Credit therein. 7.8. Insurance; Casualty Loss. (A) Customer will maintain with financially sound and reputable insurance companies: (i) insurance on its properties, (ii) public liability insurance against claims for personal injury or death as a result of the use of any products sold by it and (iii) insurance coverage against other business risks, in each case, in at least such amounts and against at least such risks as are usually and prudently insured against in the same general geographical area by companies of established repute engaged in the same or a similar business. Customer will furnish to IBM Credit, upon its written request, the insurance certificates with respect to such insurance. In addition, all Policies so maintained are to name IBM Credit as an additional insured as its interest may appear. (B) Without limiting the generality of the foregoing, Customer shall keep and maintain, at its sole expense, the Collateral insured for an amount not less than the amount set forth on Attachment A from time to time opposite the caption "Collateral Insurance Amount" against all loss or damage under an "all risk" Policy in companies mutually acceptable to IBM Credit and Customer, with a lender's loss payable endorsement or mortgagee clause in form and substance reasonably satisfactory to IBM Credit designating that any loss payable thereunder with respect to such Collateral shall be payable to IBM Credit. Upon receipt of proceeds by IBM Credit the same shall be applied on account of the Customer's Outstanding Product Advances first, then to the Outstanding A/R Advances. Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon the Policy issued by it or by independent instruments furnished to IBM Credit, at least ten (10) days written notice before any Policy shall be altered or cancelled and that no act or default of Customer or any other person shall affect the right of IBM Credit to recover under the Policies. Customer hereby agrees to direct all insurers under the Policies to pay all proceeds with respect to the Collateral directly to IBM Credit. If Customer fails to pay any cost, charges or premiums, or if Customer fails to insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit hereunder shall be considered an additional debt owed by Customer to IBM Credit and are due and payable immediately upon receipt of an invoice by IBM Credit. 7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or assessed against Customer or any of the Collateral before any penalty or interest accrues thereon unless such taxes are being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted and an adequate reserve or other appropriate provisions have been made therefor as required in order to be in conformity with GAAP and 32 an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect. 7.10. Compliance With Laws. Customer agrees to comply with all Requirements of Law applicable to the Collateral or any part thereof, or to the operation of its business. 7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year ending June 30 unless Customer provides IBM Credit at least thirty (30) days prior written notice of any change thereof. 7.12. Intellectual Property. Customer shall do and cause to be done all things necessary to preserve and keep in full force and effect all registrations of Intellectual Property which the failure to do or cause to be done could reasonably be expected to have a Material Adverse Effect. 7.13. Maintenance of Property. Customer shall maintain all of its material properties (business and otherwise) in good condition and repair (ordinary wear and tear excepted) and pay and discharge all costs of repair and maintenance thereof and all rental and mortgage payments and related charges pertaining thereto and not commit or permit any waste with respect to any of its material properties. 7.14. Collateral. Customer shall: (A) if from time to time reasonably required by IBM Credit, provide IBM Credit with access to copies of all invoices, delivery evidences and other such documents relating to each Account; (B) promptly upon Customer's obtaining knowledge thereof, furnish to and inform IBM Credit of all material adverse information relating to the financial condition of any Account obligor whose outstanding obligations to Customer constitute two percent (2%) or more of the Accounts at such time (a "Material Account Obligor"); (C) promptly upon Customer's learning thereof, notify IBM Credit in writing of any event which would cause any obligation of a Material Account Obligor to become an Ineligible Account; (D) keep all goods rejected or returned by any account debtor and all goods repossessed or stopped in transit by Customer from any account debtor segregated from other property of Customer, holding the same in trust for IBM Credit until Customer applies a credit against such account debtor's outstanding obligations to Customer or sells such goods in the ordinary course of business, whichever occurs earlier; 33 (E) stamp or otherwise mark chattel paper and instruments now owned or hereafter acquired by it in conspicuous type to show that the same are subject to IBM Credit's security interest and immediately thereafter deliver or cause such chattel paper and instruments to be delivered to IBM Credit or any agent designated by IBM Credit with appropriate endorsements and assignments to vest title and possession in IBM Credit; (F) use commercially reasonable efforts to collect all Accounts owed; (G) promptly notify IBM Credit of any loss, theft or destruction of or damage to any of the Collateral. Customer shall diligently file and prosecute its claim for any award or payment in connection with any such loss, theft, destruction of or damage to Collateral. Customer shall, upon demand of IBM Credit, make, execute and deliver any assignments and other instruments sufficient for the purpose of assigning any such award or payment to IBM Credit, free of any encumbrances of any kind whatsoever; (H) consistent with reasonable commercial practice, observe and perform all matters and things necessary or expedient to be observed or performed under or by virtue of any lease, license, concession or franchise forming part of the Collateral in order to preserve, protect and maintain all the rights of IBM Credit thereunder; (I) consistent with reasonable commercial practice, maintain, use and operate the Collateral and carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Collateral and the earnings, incomes, rents, issues and profits thereof; and (J) at any time and from time to time, upon the request of IBM Credit, and at the sole expense of Customer, Customer will promptly and duly execute and deliver such further instruments and documents and take such further action as IBM Credit may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests granted herein and the payment of any and all recording taxes and filing fees in connection therewith. 7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer become parties to this Agreement or any other agreement executed in connection with this Agreement as guarantors or sureties. Customer will comply, and cause all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement, as if such sections applied directly to such 34 Subsidiaries. Section 8. NEGATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations due hereunder: 8.1. Liens. The Customer will not, directly or indirectly mortgage, assign, pledge, transfer, create, incur, assume, permit to exist or otherwise permit any Lien or judgment to exist on any of its property, assets, revenues or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for Permitted Liens. 8.2. Disposition of Assets. The Customer will not, directly or indirectly, sell, lease, assign, transfer or otherwise dispose of any assets other than (i) sales of inventory in the ordinary course of business and short term rental of inventory as demonstrations in amounts not material to Customer, and (ii) voluntary dispositions of individual assets and obsolete or worn out property in the ordinary course of business, provided, that the aggregate book value of all such assets and property so sold or disposed of under this section 8.2 (ii) in any fiscal year shall not exceed 5% of the consolidated assets of the Customer as of the beginning of such fiscal year. 8.3. Corporate Changes. The Customer will not, without the prior written consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve or enter into or engage in any operation or activity materially different from that presently being conducted by Customer. 8.4. Guaranties. The Customer will not, directly or indirectly, assume, guaranty, endorse, or otherwise become liable upon the obligations of any other Person, except (i) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) by the giving of indemnities in connection with the sale of inventory or other asset dispositions permitted hereunder, and (iii) for guaranties in favor of IBM Credit. 8.5. Restricted Payments. The Customer will not, directly or indirectly: (i) declare or pay any dividend (other than dividends payable solely in common stock of Customer) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of Customer or any warrants, options or rights to purchase any such capital stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, 35 either directly or indirectly, whether in cash or property or in obligations of Customer; or (ii) make any optional payment or prepayment on or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than the Obligations). 8.6. Investments. The Customer will not, directly or indirectly, make, maintain or acquire any Investment in any Person other than: (A) interest bearing deposit accounts (including certificates of deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar federal insurance program; (B) direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations guaranteed as to principal and interest by the United States of America or any agency thereof; (C) stock or obligations issued to Customer in settlement of claims against others by reason of an event of bankruptcy or a composition or the readjustment of debt or a reorganization of any debtor of Customer; and (D) commercial paper of any corporation organized under the laws of any State of the United States or any bank organized or licensed to conduct a banking business under the laws of the United States or any State thereof having the short-term highest rating then given by Moody's Investor's Services, Inc. or Standard & Poor's Corporation. 8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or indirectly, enter into any transaction with any Affiliate or Subsidiary, including, without limitation, the purchase, sale or exchange of property or the rendering of any service to any Affiliate or Subsidiary of Customer except in the ordinary course of business and pursuant to the reasonable requirements of Customer's business upon fair and reasonable terms no less favorable to Customer than could be obtained in a comparable arm's-length transaction with an unaffiliated Person. 8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a material liability to the PBGC, (B) permit any "prohibited transaction" involving any Plan (other than a "multi-employer benefit plan") which would subject the Customer to a material tax or penalty on "prohibited transactions" under the Code or ERISA, (C) fail to pay to any Plan any contribution which they are obligated to pay under the terms of such Plan, if such failure would result in a material "accumulated funding deficiency", whether or not waived, (D) allow or suffer to exist any occurrence and during the continuance of a "reportable event" 36 or any other event or condition, which presents a material risk of termination by the PBGC of any Plan (other than a "multi-employer benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As used in this Agreement, the terms "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in the Code and ERISA. For purposes of this Section 8.8, the terms material liability, tax, penalty, accumulated funding deficiency and risk of termination shall mean a liability, tax, penalty, accumulated funding deficiency or risk of termination which could reasonably be expected to have a Material Adverse Effect. 8.9. Additional Negative Pledges. Customer will not, directly or indirectly, create or otherwise cause or permit to exist or become effective any contractual obligation which may restrict or inhibit IBM Credit's rights or ability to sell or otherwise dispose of the Collateral or any part thereof after the occurrence and during the continuance of an Event of Default. 8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not be stored with a bailee, warehouseman or similar party without the prior written consent of IBM Credit unless Customer will, concurrently with the delivery of such Collateral to such party, cause such party to issue and deliver to IBM Credit, warehouse receipts in the name of IBM Credit evidencing the storage of such Collateral. 8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds of any Advances other than to acquire Products from Authorized Suppliers and for its general working capital requirements. 8.12. Accounts. The Customer shall not permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, which would affect IBM Credit's ability to collect payment on any Account in whole or in part, except for such extensions, compromises or settlements made by Customer in the ordinary course of its business, provided, however, that the aggregate amount of such extensions, compromises or settlements does not exceed five percent (5%) of the Customer's Accounts at any time. 8.13. Indebtedness. The Customer will not create, incur, assume or permit to exist any Indebtedness, except for Permitted Indebtedness. 8.14. Loans. The Customer will not make any loans, advances, contributions or payments of money or goods to any Subsidiary, Affiliate or parent corporation or to any officer, director or 37 stockholder of Customer or of any such corporation (except for compensation for personal services actually rendered), except for transactions expressly authorized in this Agreement. Section 9. DEFAULT 9.1. Event of Default. Any one or more of the following events shall constitute an Event of Default by the Customer under this Agreement and the Other Agreements: (A) The failure to make timely payment of the Obligations or any part thereof when due and payable; (B) Customer fails to comply with or observe any term, covenant or agreement contained in this Agreement; (C) Any representation, warranty, statement, report or certificate made or delivered by or on behalf of Customer or any of its officers, employees or agents or by or on behalf of any Guarantor to IBM Credit was false in any material respect at the time when made or deemed made; (D) The occurrence of any event or circumstance which could reasonably be expected to have a Material Adverse Effect; (E) Customer, any Subsidiary or any Guarantor shall generally not pay its debts as such debts become due, become or otherwise declare itself insolvent, file a voluntary petition for bankruptcy protection, have filed against it any involuntary bankruptcy petition, cease to do business as a going concern, make any assignment for the benefit of creditors, or a custodian, receiver, trustee, liquidator, administrator or person with similar powers shall be appointed for Customer, any Subsidiary or any Guarantor or any of its respective properties or have any of its respective properties seized or attached, or take any action to authorize, or for the purpose of effectuating, the foregoing, provided, however, that Customer, any Subsidiary or any Guarantor shall have a period of forty-five (45) days within which to discharge any involuntary petition for bankruptcy or similar proceeding; (F) The use of any funds borrowed from IBM Credit under this Agreement for any purpose other than as provided in this Agreement; (G) The entry of any judgment against Customer or any Guarantor in an amount in excess of $300,000 and such judgment is not satisfied, dismissed, stayed or superseded by bond within thirty (30) days after the day of entry thereof (and in the event of a stay or supersedeas bond, such judgment is not discharged 38 within thirty (30) days after termination of any such stay or bond) or such judgment is not fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full; (H) The dissolution or liquidation of Customer or any Guarantor, or Customer or any Guarantor or its directors or stockholders shall take any action to dissolve or liquidate Customer or any Guarantor; (I) Any "going concern" or like qualification or exception, or qualification arising out of the scope of an audit by an Auditor of his opinion relative to any Financial Statement delivered to IBM Credit under this Agreement; (J) There issues a warrant of distress for any rent or taxes with respect to any premises occupied by Customer in or upon which the Collateral, or any part thereof, may at any time be situated and such warrant shall continue for a period of ten (10) Business Days from the date such warrant is issued; (K) Customer suspends business; (L) The occurrence of any event or condition which enables the holder of any Indebtedness arising in one or more related or unrelated transactions, in aggregate principal amount exceeding $300,000 to accelerate the maturity thereof or the failure of Customer to pay when due any such Indebtedness; (M) Any guaranty of any or all of the Customer's Obligations executed by any guarantor in favor of IBM Credit, shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction or the validity or enforceability thereof shall be contested or denied by any such guarantor, or any such guarantor shall deny that it has any further liability or obligation thereunder or any such guarantor shall fail to comply with or observe any of the terms, provisions or conditions contained in any such guaranty; (N) Customer is in default under the material terms of any of the Other Agreements after the expiration of any applicable cure periods; (O) There shall occur a "reportable event" with respect to any Plan, or any Plan shall be subject to termination proceedings (whether voluntary or involuntary) and there shall result from such "reportable event" or termination proceedings a liability of Customer to the PBGC which in the reasonable opinion of IBM Credit will have a Material Adverse Effect; (P) Any "person" (as defined in Section 13(d)(3) of the 39 Securities Exchange Act of 1934, as amended) acquires a beneficial interest in 50% or more of the Voting Stock of Customer. (Q) Robec, Inc. fails to execute and deliver to IBM Credit in form and substance satisfactory to IBM Credit, a collateralized guaranty guarantying the obligations of Customer to IBM Credit and execute any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected IBM Credit's security interest in the assets of Robec, Inc. contemplated by the collateralized guaranty upon the earlier of (i) the acquisition of all of the outstanding shares of Robec, Inc. by an Affiliate, and (ii) June 30, 1995. 9.2. Acceleration. Upon the occurrence and during the continuance of an Event of Default which has not been waived in writing by IBM Credit, IBM Credit may, in its sole discretion, take any or all of the following actions, without prejudice to any other rights it may have at law or under this Agreement to enforce its claims against the Customer: (a) declare all Obligations to be immediately due and payable (except with respect to any Event of Default set forth in Section 9.1(E) hereof, in which case all Obligations shall automatically become immediately due and payable without the necessity of any notice or other demand) without presentment, demand, protest or any other action or obligation of IBM Credit; and (b) immediately terminate the Line of Credit hereunder. 9.3. Remedies. (A) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit may exercise all rights and remedies of a secured party under the U.C.C. Without limiting the generality of the foregoing, IBM Credit may: (i) remove from any premises where same may be located any and all documents, instruments, files and records (including the copying of any computer records), and any receptacles or cabinets containing same, relating to the Accounts, or IBM Credit may use (at the expense of the Customer) such of the supplies or space of the Customer at Customer's place of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit and generally shall have all other rights respecting said Accounts, including without limitation the right to accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the Customer or IBM Credit; (iii) sell, assign and deliver the Accounts and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at IBM Credit's sole option and discretion, and IBM Credit may bid or become a purchaser at any 40 such sale; and (iv) foreclose the security interests created pursuant to this Agreement by any available judicial procedure, or to take possession of any or all of the Collateral without judicial process and to enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same. (B) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, in the name of Customer or IBM Credit, or in the name of such other party as IBM Credit may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as IBM Credit in its sole discretion may deem advisable, and IBM Credit shall have the right to purchase at any such sale. If IBM Credit, in its sole discretion determines that any of the Collateral requires rebuilding, repairing, maintenance or preparation, IBM Credit shall have the right, at its option, to do such of the aforesaid as it deems necessary for the purpose of putting such Collateral in such saleable form as IBM Credit shall deem appropriate. The Customer hereby agrees that any disposition by IBM Credit of any Collateral pursuant to and in accordance with the terms of a repurchase agreement between IBM Credit and the manufacturer or any supplier (including any Authorized Supplier) of such Collateral constitutes a commercially reasonable sale. The Customer agrees, at the request of IBM Credit, to assemble the Collateral and to make it available to IBM Credit at places which IBM Credit shall select, whether at the premises of the Customer or elsewhere, and to make available to IBM Credit the premises and facilities of the Customer for the purpose of IBM Credit's taking possession of, removing or putting such Collateral in saleable form. If notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) Business Days notice shall constitute reasonable notification. (C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit is hereby granted, upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, an irrevocable, non-exclusive license to use, assign, license or sublicense all computer software programs, data bases, processes and materials used by the Customer in its businesses or in connection with any of the Collateral. (D) The net cash proceeds resulting from IBM Credit's exercise of any of the foregoing rights (after deducting all charges, costs and expenses, including reasonable attorneys' 41 fees) shall be applied by IBM Credit to the payment of Customer's Obligations, whether due or to become due, in such order as IBM Credit may in it sole discretion elect. Customer shall remain liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer or its successors or assigns, any surplus resulting therefrom. (E) The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. 9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral by any court process Customer hereby irrevocably waives to the extent permitted by applicable law any bonds, surety and security relating thereto required by any statute, court rule or otherwise as an incident to such possession and any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof. In addition, Customer waives to the extent permitted by applicable law all rights of set-off it may have against IBM Credit. Customer further waives to the extent permitted by applicable law presentment, demand and protest, and notices of non-payment, non-performance, any right of contribution, dishonor, and any other demands, and notices required by law. Section 10. MISCELLANEOUS 10.1. Term; Termination. (A) This Agreement shall remain in force until the earlier of (i) the Termination Date, (ii) the date specified in a written notice by the Customer that they intend to terminate this Agreement which date shall be no less than 90 days following the receipt by IBM Credit of such written notice, and (iii) termination by IBM Credit after the occurrence and during the continuance of an Event of Default. Upon the date that this Agreement is terminated, all of Customer's Obligations shall be immediately due and payable in their entirety, even if they are not yet due under their terms. (B) Until the indefeasible payment in full of all of Customer's Obligations, no termination of this Agreement or any of the Other Agreements shall in any way affect or impair the Customer's Obligations to IBM Credit including, without limitation, any transaction or event occurring prior to such termination, and IBM Credit's security interest in the Collateral. 10.2. Indemnification. The Customer hereby agrees to indemnify and hold harmless IBM Credit and each of its officers, directors, agents and assigns (collectively, the "Indemnified Persons") 42 against all losses, claims, damages, liabilities or other expenses (including reasonable attorneys' fees and court costs now or hereinafter arising from the enforcement of this Agreement, the "Losses") to which any of them may become subject insofar as such Losses arise out of or are based upon any event, circumstance or condition (a) occurring or existing on or before the date of this Agreement relating to any financing arrangements IBM Credit may from time to time have with (i) Customer, (ii) any Person that shall be acquired by Customer or (iii) any Person that Customer may acquire all or substantially all of the assets of, or (b) directly or indirectly, relating to the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby or thereby or to any of the Collateral or to any act or omission of the Customer in connection therewith. Notwithstanding the foregoing, the Customer shall not be obligated to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of IBM Credit's gross negligence or willful misconduct. The indemnity provided herein shall survive the termination of this Agreement. 10.3. Additional Obligations. IBM Credit, without waiving or releasing any Obligation or Default of the Customer, may perform any Obligations of the Customer that the Customer shall fail or refuse to perform and IBM Credit may, at any time or times hereafter, but shall be under no obligation so to do, pay, acquire or accept any assignment of any security interest, lien, encumbrance or claim against the Collateral asserted by any person. All sums paid by IBM Credit in performing in satisfaction or on account of the foregoing and any expenses, including reasonable attorney's fees, court costs, and other charges relating thereto, shall be a part of the Obligations, payable on demand and secured by the Collateral. 10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT, ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 10.5. Alteration/Waiver. This Agreement and the Other Agreements may not be altered or amended except by an agreement in writing signed by the Customer and by IBM Credit. No delay or omission of IBM Credit to exercise any right or remedy hereunder, whether before or after the occurrence of any Event of Default, shall impair any such right or remedy or shall operate as a waiver thereof or as a waiver of any such Event of Default. In the event that IBM Credit at any time or from time to time dispenses with any one or more of the requirements specified in 43 this Agreement or any of the Other Agreements, such dispensation may be revoked by IBM Credit at any time and shall not be deemed to constitute a waiver of any such requirement subsequent thereto. IBM Credit's failure at any time or times to require strict compliance and performance by the Customer of any undertakings, agreements, covenants, warranties and representations of this Agreement or any Other Agreement shall not waive, affect or diminish any right of IBM Credit thereafter to demand strict compliance and performance thereof. Any waiver by IBM Credit of any Default by the Customer under this Agreement or any of the Other Agreements shall not waive or affect any other Default by the Customer under this Agreement or any of the Other Agreements, whether such Default is prior or subsequent to such other Default and whether of the same or a different type. None of the undertakings, agreements, warranties, covenants, and representations of the Customer contained in this Agreement or the Other Agreements and no Default by the Customer shall be deemed waived by IBM Credit unless such waiver is in writing signed by an authorized representative of IBM Credit. 10.6. Severability. If any provision of this Agreement or the Other Agreements or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Agreement and the Other Agreements and the application of such provision to other Persons or circumstances will not be affected thereby, the provisions of this Agreement and the Other Agreements being severable in any such instance. 10.7. One Loan. All Advances heretofore, now or at any time or times hereafter made by IBM Credit to the Customer under this Agreement or the Other Agreements shall constitute one loan secured by IBM Credit's security interests in the Collateral and by all other security interests, liens and encumbrances heretofore, now or from time to time hereafter granted by the Customer to IBM Credit or any assignor of IBM Credit. 10.8. Additional Collateral. All monies, reserves and proceeds received or collected by IBM Credit with respect to Accounts and other property of the Customer in possession of IBM Credit at any time or times hereafter are hereby pledged by Customer to IBM Credit as security for the payment of Customer's Obligations and shall be applied promptly by IBM Credit on account of the Customer's Obligations; provided, however, IBM Credit may release to the Customer such portions of such monies, reserves and proceeds as IBM Credit may from time to time determine, in its sole discretion. 10.9. No Merger or Novations. (A) Notwithstanding anything contained in any document to the contrary, it is understood and agreed by the Customer and IBM Credit that the claims of IBM Credit arising hereunder and existing as of the date hereof constitute continuing claims arising out of the Obligations of 44 Customer under the Financing Agreement and any Other Agreement. Customer acknowledges and agrees that such Obligations outstanding as of the date hereof have not been satisfied or discharged and that this Agreement is not intended to effect a novation of the Customer's Obligations under the Financing Agreement or any Other Agreement. (B) Neither the obtaining of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the Obligations of the Customer to IBM Credit secured by this Agreement and shall not operate as a merger of any covenant in this Agreement, and the acceptance of any payment or alternate security shall not constitute or create a novation and the obtaining of a judgment or judgments under a covenant herein contained shall not operate as a merger of that covenant or affect IBM Credit's rights under this Agreement. 10.10. Paragraph Titles. The Section titles used in this Agreement and the Other Agreements are for convenience only and do not define or limit the contents of any Section. 10.11. Binding Effect; Assignment. This Agreement and the Other Agreements shall be binding upon and inure to the benefit of IBM Credit and the Customer and their respective successors and assigns; provided, that the Customer shall have no right to assign this Agreement or any of the Other Agreements without the prior written consent of IBM Credit. 10.12. Notices. Except as otherwise expressly provided in this Agreement, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (A) upon receipt if deposited in the United States mails, first class mail, with proper postage prepaid, (B) upon receipt of confirmation or answer back if sent by telecopy, or other similar facsimile transmission, (C) one Business Day after deposit with a reputable overnight courier with all charges prepaid, or (D) when delivered, if hand-delivered by messenger, all of which shall be properly addressed to the party to be notified and sent to the address or number indicated as follows: 45 (i) If to IBM Credit at: IBM Credit Corporation 1500 Riveredge Parkway Atlanta, GA 30328 Attention: Remarketer Finance Center Manager Telecopy: (404) 644-4825 (ii) If to Customer at: CDS Distribution, Inc. MacArthur Place, 3 Imperial Promenade Santa Ana, CA 92707 Attention: Stephen G. Holmes Telecopy: (704) 513-2450 or to such other address or number as each party designates to the other in the manner prescribed herein. 10.13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. 10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Advance Term set forth in Attachment A from time to time if on at least two occasions during any three-month period a Shortfall Amount has become due and payable and may modify the Collateral Insurance Amount set forth in Attachment A from time to time, in each case, by providing Customer with a new Attachment A. Any such new Attachment A shall be effective as of the date specified in the new Attachment A. 10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, THE CUSTOMER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT COURT IN NEW YORK. (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY 46 REGISTERED OR CERTIFIED MAlL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. (E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. 10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH. IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused its authorized representatives to execute this Agreement and has caused its corporate seal to be affixed hereto as of the date first written above. CDS DISTRIBUTION, INC. By: /s/ Stephen G. Holmes ------------------------------- Print Name: Stephen G. Holmes ----------------------- Title: CFO ---------------------------- ACCEPTED this day of , 1995 ------- ------------------ IBM CREDIT CORPORATION By: ----------------------------- Print Name: --------------------- Title: -------------------------- 47 ATTACHMENT A, EFFECTIVE DATE MAY 5, 1995 ("IWCF ATTACHMENT A") TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") DATED MAY 5, 1995 Customer: CDS Distribution, Inc. I. Fees, Rates and Repayment Terms: (A) Line of Credit: Thirty-Five Million Dollars ($35,000,000.00); (B) Borrowing Base: (i) 85% of the amount of the Customer's Eligible Accounts as of the date of determination as reflected in the Customer's most recent Collateral Management Report; (ii) 100% of the Customer's inventory in the Customer's possession as of the date of determination as reflected in the Customer's most recent Collateral Management Report constituting Products (other than service parts) financed through a Product Advance by IBM Credit. The value to be assigned to such inventory shall be based upon the Authorized Supplier's invoice price to Customer for Financed Products net of all applicable price reduction credits. (C) Product Advance Charge: Prime Rate plus 1.750% (D) Product Advance Term: 100 days (E) Collateral Insurance Amount: Thirty Million Dollars ($30,000,000.00) (F) A/R Finance Charge: (i) PRO Advance Charge: Prime Rate plus 2.000% (ii) WCO Advance Charge: Prime Rate plus 2.000% (iii) Takeout Advance Charge: Prime Rate plus 1.750% (G) Delinquency Fee Rate: Prime Rate plus 6.500% (H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30% (I) Other Charges: (i) Application Processing Fee: $ 0.00 (ii) Monthly Service Fee: $1,500.00 (iii) Closing Fee: $ 0.00 (iv) Commitment Fee: $ 0.00 Page 1 of 19 48 FIRST AMENDMENT TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT This First Amendment, dated May 18, 1995 is hereby made to that certain Inventory and Working Capital Financing Agreement (as amended, supplemented or otherwise modified from time to time, the "Agreement") to be entered into by and between CDS Distribution, Inc. ("Customer") and IBM Credit Corporation ("IBM Credit"). RECITALS WHEREAS, Customer executed that certain Agreement on May 5, 1995. WHEREAS, Customer has requested that it be permitted to deliver certain security pledges and related documents, as required by IBM Credit, after the execution of the Agreement. WHEREAS, IBM Credit has agreed to permit the delivery of such documents after the execution of the Agreement subject to the terms and conditions set forth in this First Amendment; NOW THEREFORE, in consideration of the premises set forth herein, and for other good and valuable consideration, the value and sufficiency of which is hereby acknowledged, the Customer and IBM Credit agree as follows: AGREEMENT SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement. a) The following definition is added to Section 1.1 of the Agreement: "`Foreign Subsidiaries': Kenfil Distribution (Far East) Limited, Kenfil Distribution (M) SDN. BHD., and CMS Enhancements (Australia) Pty Limited; for each the outstanding capital stock of which is one hundred percent (100%) owned by Customer or its Affiliates." SECTION 2. Amendment to Event of Default. a) The following paragraph (R) is inserted immediately following Section 9.1, paragraph (Q): "(R) Customer fails to grant, by June 30, 1995, IBM Credit a first priority security interest in and assign, pledge, hypothecate and deliver to IBM Credit 100% of the stock of each of the Foreign Subsidiaries and all substitutions, dividends, interest, and redemption prices and other rights with respect to such securities and all other property received in respect of or in exchange for such securities, opinions of local counsel Page 1 of 3 49 satisfactory to IBM Credit concerning IBM Credit's first priority security interest in the stock of the Foreign Subsidiaries and additional related documents, both satisfactory in form and substance to IBM Credit, with respect to the securities pledged of the Foreign Subsidiaries, as IBM Credit may reasonably request." SECTION 3. Representations and Warranties. Customer makes to IBM Credit the following representations and warranties, all of which are material and are made to induce IBM Credit to enter into this Amendment. 3.1 Accuracy and Completeness of Warranties and Representations. All representations made by Customer in the Agreement were true, accurate and complete in every respect as of the date made, and, after giving effect to this Amendment, all representations made by Customer in the Agreement are true, accurate and complete in every material respect as of the date hereof, and do not fail to disclose any material fact necessary to make the representations not misleading. 3.2 Violation of Other Agreements. The execution and delivery of this Amendment do not violate or cause Customer not to be in compliance with the terms of any agreement to which Customer is a party. 3.3. Litigation. Except as has been disclosed by Customer to IBM Credit in writing, there is no litigation, proceeding, investigation or labor dispute pending or threatened against Customer, which if adversely determined, would materially adversely affect the ability of Customer to perform its obligations under the Financing Agreement, and the other documents, instruments and agreements executed in connection therewith or pursuant hereto. SECTION 4. Ratification of Agreement. Except as specifically waived hereby, all the provisions of the Agreement shall remain in full force and effect. Customer hereby ratifies, confirms and agrees that the Agreement represents a valid and enforceable obligation of Customer, and is not subject to any claims, offsets or defenses. SECTION 5. Governing Law. This Amendment shall be governed by and interpreted in accordance with the laws of the State of New York. SECTION 6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement. Page 2 of 3 50 IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized officers of the undersigned as of the day and year first above written. CDS DISTRIBUTION, INC. IBM CREDIT CORPORATION BY: /s/ Stephen G. Holmes BY: --------------------------- ----------------------------- NAME: Stephen G. Holmes NAME: ------------------------- --------------------------- TITLE: CFO TITLE: ------------------------ -------------------------- ATTEST: ATTEST: /s/ Peter ??????????? - ------------------------------ -------------------------------- PRINT NAME: Peter ????????? PRINT NAME: ------------------- --------------------- Page 3 of 3 51 EX-10.02 4 CMS INVENTORY AND WORKING CAPITAL AGREEMENT EXHIBIT 10.02 Inventory and Working Capital Financing Agreement by and between CMS Enhancements, Inc. and IBM Credit Corporation Table of Contents INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT........................................................ 1 RECITALS ............................................................. 1 Section 1. DEFINITIONS.............................................. 1 1.1. Special Definitions...................................... 1 1.2. Other Defined Terms...................................... 9 Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES............. 9 2.1. Line of Credit........................................... 9 2.2. Product Advances......................................... 10 2.3. A/R Advances............................................. 11 2.4. Finance and Other Charges................................ 13 2.5. Statements Regarding Customer's Account.................. 13 2.6. Shortfall................................................ 14 2.7. Application of Payments.................................. 14 2.8. Prepayment and Reborrowing By Customer................... 14 Section 3. LINE OF CREDIT ADDITIONAL PROVISIONS..................... 14 3.1. Ineligible Accounts...................................... 14 3.2. Reimbursement for Charges................................ 16 3.3. Lockbox and Special Account.............................. 17 3.4. Collections.............................................. 17 3.5. Application of Remittances and Credits................... 17 3.6. Power of Attorney........................................ 17 Section 4. SECURITY--COLLATERAL..................................... 19 4.1. Grant.................................................... 19 4.2. Further Assurances....................................... 20 Section 5. CONDITIONS PRECEDENT..................................... 20 5.1. Conditions Precedent to the Effectiveness of This Agreement......................................... 20 5.2. Conditions to Each Advance............................... 21 Section 6. REPRESENTATIONS AND WARRANTIES........................... 22 6.1. Organization and Qualifications.......................... 22 6.2. Rights in Collateral; Priority of Liens.................. 22 6.3. No Conflicts............................................. 22 6.4. Enforceability........................................... 23 6.5. Locations of Offices, Records and Inventory.............. 23 6.6. Fictitious Business Names................................ 23 6.7. Organization............................................. 23 6.8. No Judgments or Litigation............................... 23 6.9. No Defaults.............................................. 24 6.10. Labor Matters............................................ 24 6.11. Compliance with Law...................................... 24 6.12. ERISA.................................................... 24 6.13. Compliance with Environmental Laws....................... 24 6.14. Intellectual Property.................................... 25 6.15. Licenses and Permits..................................... 25 6.16. Investment Company....................................... 25 6.17. Taxes and Tax Returns.................................... 26 6.18. Status of Accounts....................................... 26 6.19. Affiliate/Subsidiary Transactions........................ 26 1 6.20. Accuracy and Completeness of Information................. 26 6.21. Recording Taxes.......................................... 26 6.22. Indebtedness............................................. 27 Section 7. AFFFIRMATIVE CONVENANTS.................................. 27 7.1. Financial and Other Information.......................... 27 7.2. Location of Collateral................................... 29 7.3. Changes in Customer...................................... 30 7.4. Corporate Existence...................................... 30 7.5. ERISA.................................................... 30 7.6. Environmental Matters.................................... 30 7.7. Collateral Books and Records/Collateral Audit............ 31 7.8. Insurance; Casualty Loss................................. 32 7.9. Taxes.................................................... 32 7.10. Compliance With Laws..................................... 33 7.11. Fiscal Year.............................................. 33 7.12. Intellectual Property.................................... 33 7.13. Maintenance of Property.................................. 33 7.14. Collateral............................................... 33 7.15. Subsidiaries............................................. 34 Section 8. NEGATIVE COVENANTS....................................... 35 8.1. Liens.................................................... 35 8.2. Disposition of Assets.................................... 35 8.3. Corporate Changes........................................ 35 8.4. Guaranties............................................... 35 8.5. Restricted Payments...................................... 35 8.6. Investments.............................................. 36 8.7. Affiliate/Subsidiary Transactions........................ 36 8.8. ERISA.................................................... 36 8.9. Additional Negative Pledges.............................. 37 8.10. Storage of Collateral with Bailees and Warehousemen...... 37 8.11. Use of Proceeds.......................................... 37 8.12. Accounts................................................. 37 8.13. Indebtedness............................................. 37 8.14. Loans.................................................... 37 Section 9. DEFAULT.................................................. 38 9.1. Event of Default......................................... 38 9.2. Acceleration............................................. 40 9.3. Remedies................................................. 40 Section 10. MISCELLANEOUS............................................ 42 10.1. Term; Termination........................................ 42 10.2. Indemnification.......................................... 42 10.3. Additional Obligations................................... 43 10.4. LIMITATION OF LIABILITY.................................. 43 10.5. Alteration/Waiver........................................ 43 10.6. Severability............................................. 44 10.7. One Loan................................................. 44 10.8. Additional Collateral.................................... 44 10.9. No Merger or Novations................................... 44 10.10. Paragraph Titles......................................... 45 10.11. Binding Effect; Assignment............................... 45 2 10.12. Notices.................................................. 45 10.13. Counterparts............................................. 46 10.14. ATTACHMENT A MODIFICATIONS............................... 46 10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW.......................................... 46 10.16. JURY TRIAL WAIVER........................................ 47 3 INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT This INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") is hereby made this 5 day of May, 1995, by and between IBM CREDIT CORPORATION with a place of business at 1500 Riveredge Parkway, Atlanta, GA 30328 ("IBM Credit"), and CMS ENHANCEMENTS, INC. with a place of business at 2722 Michelson Drive, Irvine, CA 92713 ("Customer"). RECITALS WHEREAS, in the course of Customer's operations, Customer intends to purchase from Persons approved in writing by IBM Credit for the purposes of this Agreement (the "Authorized Suppliers") computer hardware and software products manufactured or distributed by or bearing any trademark or trade name of such Authorized Suppliers for distribution throughout the United States (the "Products") (as of the date hereof the Authorized Suppliers are as set forth on Attachment E hereto); WHEREAS, Customer has requested that IBM Credit finance its purchase of Products from such Authorized Suppliers and its working capital requirements, and IBM Credit is willing to provide such financing to Customer subject to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: Section 1. DEFINITIONS 1.1 Special Definitions. The following terms shall have the following respective meaning in this Agreement: "A/R Advance": any loan or advance of funds made by IBM Credit to Customer pursuant to Section 2.3 of this Agreement, including, as the context may require, a WCO Advance, a PRO Advance and a Takeout Advance. "A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance under this Agreement. "A/R Advance Term": shall be the collective or individual reference, as the context may require, to a PRO Advance Term and 1 a WCO Advance Term. "A/R Finance Charges": as defined on Attachment A. "Accounts": as defined in the U.C.C. "Advance": any loan or other extension of credit by IBM Credit to Customer pursuant to this Agreement including, without limitation, (i) Product Advances and (ii) A/R Advances. "Affiliate": with respect to the Customer, any Person meeting one of the following: (i) at least 10% of such Person's equity is owned, directly or indirectly, by Customer; (ii) at least 10% of Customer's equity is owned, directly or indirectly, by such Person; or (iii) at least 10% of Customer's equity and at least 10% of such Person's equity is owned, directly or indirectly, by the same Person or Persons. All of Customer's officers, directors, joint venturers, and partners shall also be deemed to be Affiliates of Customer for purposes of this Agreement. "AmeriQuest": AmeriQuest Technologies, Inc., the direct owner of one hundred percent (100%) of the outstanding capital stock of Customer. "Auditors": a nationally recognized firm of independent certified public accountants selected by Customer and satisfactory to IBM Credit. "Available Credit": at any time, (1) the Maximum Advance Amount less (2) the Outstanding Advances at such time. "Average Daily Balance": the sum of the Outstanding Product Advances or Outstanding A/R Advances, as the case may be, as of the end of each day during a calendar month, divided by the number of days in the calendar month. "Borrowing Base": as defined in Attachment A. "Business Day": any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are generally closed or on which IBM Credit is closed. "Closing Date": the date on which the conditions precedent to the effectiveness of this Agreement set forth in Section 5.1 hereof are satisfied or waived in writing by IBM Credit. "Code": the Internal Revenue Code of 1986, as amended or any successor statute. "Collateral": as defined in Section 4.1. "Collateral Management Report": a report to be delivered by 2 Customer to IBM Credit from time to time, as provided herein, signed by the chief executive officer or chief financial officer, in the form of Attachment F hereto, detailing and certifying, among other items: a summary of Customer's inventory on hand financed by IBM Credit and Customer's Eligible Accounts, the amounts and aging of all of Customer's Accounts, Customer's inventory on hand financed by IBM Credit by quantity, type, model, Authorized Supplier's invoice price to Customer and the total of the line item values for all inventory listed on the report, the amounts and aging of Customer's accounts payable as of a specified date, all of Customer's IBM Credit borrowing activity during a specified period and the total amount of Customer's Borrowing Base as well as Customer's Outstanding A/R Advances, Outstanding Product Advances, Available Credit and any Shortfall Amount as of a specified date. "Common Due Date": (1) the fifth day of a calendar month if the Product Advance Term or A/R Advance Term, whichever is applicable, expires on the first through tenth of such calendar month; (2) the fifteenth day of a calendar month if the Product Advance Term or A/R Advance Term, whichever is applicable, expires on the eleventh through twentieth of such calendar month; and (3) the twenty-fifth day of a calendar month if the Product Advance Term or A/R Advance Term, whichever is applicable, expires on the twenty-first through the last day of such calendar month. "Compliance Certificate": a certificate substantially in the form of Attachment C. "Default": either (1) an Event of Default or (2) any event or condition which, but for the requirement that notice be given or time lapse or both, would be an Event of Default. "Delinquency Fee Rate": as defined on Attachment A. "Eligible Account": as defined in Section 3.1. "Environmental Laws": all statutes, laws, judicial decisions, regulations, ordinances, and other governmental restrictions relating to pollution, the protection of the environment, occupational health and safety, or to emissions, discharges or release of pollutants, contaminants, hazardous substances or wastes into the environment. "Environmental Liability": any claim, demand, obligation, cause of action, allegation, order, violation, injury, judgment, penalty or fine, cost or expense, resulting from the violation or alleged violation of any Environmental Laws or the imposition of any Lien pursuant to any Environmental Laws. "ERISA": the Employee Retirement Income Security Act of 1974, as 3 amended, or any successor statutes. "Event of Default": as defined in Section 9.1. "Financial Statements": the consolidated and consolidating balance sheets, statements of operations, statements of cash flows and statements of changes in shareholder's equity of AmeriQuest and its Subsidiaries for the period specified, prepared in accordance with GAAP and consistent with prior practices. "Floor Plan Lender": any Person who now or hereinafter provides inventory financing to Customer, provided that such Person executes an Intercreditor Agreement (as defined in Section 5.1 of this Agreement) or a subordination agreement with IBM Credit in form and substance satisfactory to IBM Credit. "Free Financing Period": for each Product Advance, the period, if any, in which IBM Credit does not charge Customer a financing charge. IBM Credit shall calculate the Customer's Free Financing Period utilizing a methodology that is consistent with the methodologies used for similarly situated customers of IBM Credit. The Customer understands that IBM Credit may not offer or may cease to offer a Free Financing Period for the Customer's purchases of Products. "GAAP": generally accepted accounting principles in the United States as in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. "Guaranties": guaranties in favor of IBM Credit guarantying the Obligations of Customer. "Guarantor": any guarantor pursuant to any of the Guaranties. "Hazardous Substances": all substances, wastes or materials, to the extent subject to regulation as "hazardous substances" or "hazardous waste" under any Environmental-LawS. "Indebtedness": with respect to any Person, (1) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (2) all obligations of such Person under capital leases, (3) all obligations of such 4 Person in respect of letters of credit, banker's acceptances or similar obligations issued or created for the account of such Person, (4) liabilities arising under any interest rate protection, future, option swap, cap or hedge agreement or arrangement under which such Person is a party or beneficiary, (5) all obligations under guaranties of such Person and (6) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Investment": with respect to any Person (the "Investor"), (1) any investment by the Investor in any other Person, whether by means of share purchase, capital contribution, purchase or other acquisition of a partnership or joint venture interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty by the Investor of any Indebtedness or other obligation of any other Person. "Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust, mortgage, other encumbrance or other arrangement having the practical effect of the foregoing, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Line of Credit": as defined in Section 2.1. "Material Adverse Effect": a material adverse effect (1) on the business, operations, results of operations, assets, or financial condition of the Customer, (2) on the aggregate value of the Collateral or the aggregate amount which IBM Credit would be likely to receive (after giving consideration to reasonably likely delays in payment and reasonable costs of enforcement) in the liquidation of such Collateral to recover the Obligations in full, or (3) on the rights and remedies of IBM Credit under this Agreement. "Maximum Advance Amount": at any time, the lesser of (1) the Line of Credit and (2) the Borrowing Base at such time. "Obligations": all covenants, agreements, warranties, duties, representations, loans, advances, interest (including interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Customer, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind and nature whatsoever now or hereafter arising, owing, due or payable from Customer to IBM Credit, whether primary or secondary, joint or several, direct, contingent, fixed or otherwise, secured or unsecured arising under this Agreement and the Other Agreements. "Other Agreements": all security agreements, mortgages, leases, instruments, documents, guarantees, schedules of assignment, contracts and similar agreements executed by Customer and delivered to IBM Credit, pursuant to this Agreement or otherwise, and all amendments, supplements and other modifications to the foregoing from time to time. "Other Charges": as set forth in Attachment A. "Outstanding Advances": at any time of determination, the sum of (1) the Outstanding Product Advances and (2) the Outstanding A/R Advances. "Outstanding A/R Advances": at any time of determination, the sum of (1) the unpaid principal amount of all A/R Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to A/R Advances charged to Customer's account with IBM Credit. "Outstanding Product Advances": at any time of determination, the sum of (1) the unpaid principal amount of all Product Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to Product Advances charged to Customer's account with IBM Credit. "Payment Dates": the fifth, fifteenth and twenty-fifth day of each calendar month. "Permitted Indebtedness": any of the following: (1) Indebtedness to IBM Credit; (2) Indebtedness described in Section VII of Attachment B; (3) Indebtedness to any Floor Plan Lender; (4) Purchase Money Indebtedness; (5) guaranties in favor of IBM Credit; and (6) Other Indebtedness consented to by IBM Credit in writing prior to the incurrence thereof. "Permitted Liens": any of the following: (1) Liens which are the subject of an Intercreditor Agreement, in effect from time to time between IBM Credit and any other secured creditor; (2) Purchase Money Security Interests; (3) Liens described in Section I of Attachment B; 6 (4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common carriers, landlords and other similar Liens arising by operation of law or otherwise, not waived in connection herewith, for amounts that are not yet due and payable or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (5) attachment or judgment Liens individually or in the aggregate not in excess of $300,000 (exclusive of (A) any amounts that are duly bonded to the satisfaction of IBM Credit or (B) any amount fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full); (6) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of Customer; (7) extensions and renewals of the foregoing permitted Liens; provided that (A) the aggregate amount of such extended or renewed Liens do not exceed the original principal amount of the Indebtedness for which it secures, (B) such Liens do not extend to any property other than property already previously subject to the Lien and (C) such extended or renewed Liens are on terms and conditions no more restrictive than the terms and conditions of the Liens being extended or renewed; (8) Liens arising from deposits or pledges to secure bids, tenders, contracts, leases, surety and appeal bonds and other obligations of like nature arising in the ordinary course of the Customer's business; (9) Liens for taxes, assessments or governmental charges not delinquent or being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (10) Liens arising out of deposits in connection with workers' compensation, unemployment insurance or other social security or similar legislation; (11) Liens arising pursuant to this Agreement; and 7 (12) other Liens consented to by IBM Credit in writing prior to the incurrence thereof. "Person": any individual, association, firm, corporation, partnership, trust, unincorporated organization or other entity whatsoever. "Policies": all policies of insurance required to be maintained by Customer under this Agreement or any of the Other Agreements. "Prime Rate": as of the date of determination, the average of the rates of interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of America National Trust & Savings Association as their prime or base rate, as of the last Business Day of the calendar month immediately preceding the date of determination, whether or not such announced rates are the actual rates charged by such banking institutions to their most creditworthy borrowers. "PRO Advance": an A/R Advance, with a PRO Advance Term, made by IBM Credit to itself on behalf of Customer to repay all or a portion of a Product Advance that is due and payable. "PRO Advance Term": for each PRO Advance, a period, in increments of ten days as specified by Customer in the Request for A/R Advance with respect to such PRO Advance, but in no event in excess of thirty days, commencing on the A/R Advance Date for such PRO Advance. "Product Advance": any advance of funds made or committed to be made by IBM Credit for the account of Customer to an Authorized Supplier in respect of an invoice delivered by such Authorized Supplier to IBM Credit describing Products purchased by Customer, including any such advance made or committed to be made as of the date hereof pursuant to the Financing Agreement. "Product Advance Charge": as defined on Attachment A. "Product Advance Term": for each Product Advance, a period of days equal to that set forth in Attachment A from time to time, commencing on the invoice date of such Product Advance. "Purchase Money Indebtedness": any Indebtedness (including capital leases) incurred to finance the acquisition of assets (other than assets manufactured or distributed by or bearing any trademark or trade name of any Authorized Supplier) to be used in the Customer's business not to exceed the lesser of (1) the purchase price or acquisition cost of such asset and (2) the fair market value of such asset. "Purchase Money Security Interest": any security interest securing Purchase Money Indebtedness, which security interest 8 applies solely to the particular asset acquired with the Purchase Money Indebtedness. "Request for A/R Advance": as defined in Section 2.3. "Requirement of Law": as to any Person, the articles of incorporation and by- laws of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Shortfall Amount": as defined in Section 2.6. "Subsidiary": with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Takeout Advance": an A/R Advance made to existing creditors of Customer on behalf of Customer, in an amount sufficient to discharge Customer's indebtedness to such creditor. "Termination Date": shall mean (i) the first anniversary of the date of this Agreement or such other date as IBM Credit and Customer may agree to in writing from time to time. "Voting Stock": securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions). "WCO Advance": an A/R Advance, with a WCO Advance Term. "WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180) days commencing on the A/R Advance Date for such WCO Advance. 1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which are defined in the Uniform Commercial Code as in effect in the State of New York (the "U.C.C.") shall have the meanings assigned to them therein. Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES 2.1. Line of Credit. Subject to the terms and conditions set forth in this Agreement, on and after the Closing Date to but not including the date that is the earlier of (x) the date on which this Agreement is terminated pursuant to Section 10.1 and (y) the date on which IBM Credit terminates the Line of Credit pursuant 9 to Section 9.2, IBM Credit agrees to extend to the Customer a line of credit ("Line of Credit") in the amount set forth in Attachment A pursuant to which IBM Credit will make to the Customer, from time to time, Advances in an aggregate amount at any one time outstanding not to exceed the Maximum Advance Amount. 2.2 Product Advances. (A) Subject to the terms and conditions of this Agreement, IBM Credit shall make Product Advances in connection with Customer's purchase of Products from Authorized Suppliers. Customer hereby authorizes and directs IBM Credit to pay the proceeds of Product Advances directly to the applicable Authorized Supplier in respect of invoices delivered to IBM Credit for such Products by such Authorized Supplier and acknowledges that each such Product Advance constitutes a loan by IBM Credit to Customer pursuant to this Agreement as if the Customer received the proceeds of the Product Advance directly from IBM Credit. (B) No finance charge shall accrue on any Product Advance during the Free Financing Period, if any, applicable to such Product Advance. Customer shall repay each Product Advance no later than the Common Due Date for such Product Advance. Customer may, at its option, repay each Product Advance by requesting IBM Credit to apply all or any part of the principal amount of an A/R Advance to the Outstanding Product Advances. Customer's request for such application shall be made in accordance with Section 2.3. When so requested and subject to the terms and conditions of this Agreement, IBM Credit shall apply the amount so requested to the amounts due in respect of the Outstanding Product Advances. Nothing contained herein shall relieve Customer of its obligation to repay Product Advances when due. Each Product Advance shall accrue a finance charge on the Average Daily Balance thereof from the end of the Free Financing Period, if any, for such Product Advance, or if no such Free Financing Period shall be in effect, from the date of invoice for such Product Advance, in each case, until such Product Advance shall become due and payable in accordance with the terms of this Agreement, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement as the "Product Advance Charge" and (b) the highest rate from time to time permitted by applicable law. In addition, for any Product Advance with respect to which a Free Financing Period shall not be in effect, Customer shall pay a fee equal to 50 basis points of such Product Advance. Such fee shall be due and payable on the Common Due Date for such Product Advance. If it is determined that amounts received from Customer were in excess of the highest rate permitted by law, then the amount representing such excess shall be considered reductions to principal of Advances. (C) Customer acknowledges that IBM Credit does not warrant 10 the Collateral. Customer shall be obligated to pay IBM Credit in full even if the Collateral is defective or fails to conform to the warranties extended by the Authorized Supplier. The Obligations of Customer shall not be affected by any dispute Customer may have with any manufacturer, distributor or Authorized Supplier. Customer will not assert any claim or defense which it may have against any manufacturer, distributor or Authorized Supplier against IBM Credit. (D) Customer hereby authorizes IBM Credit to collect directly from any Authorized Supplier any credits, rebates, bonuses or discounts owed by such Authorized Supplier to Customer ("Supplier Credits"). Any Supplier Credits received by IBM Credit may be applied by IBM Credit to the Outstanding Advances. Any Supplier Credits collected by IBM Credit shall in no way reduce Customer's debt to IBM Credit in respect of the Outstanding Advances until such Supplier Credits are applied by IBM Credit. (E) IBM Credit may apply any payments and Supplier Credits received by IBM Credit to reduce finance charges first and then to principal amounts of Advances owed by Customer. IBM Credit may apply principal payments to the oldest (earliest) invoices (and related Product Advances) first, but, in any case, all principal payments will be applied in respect of the Outstanding Product Advances made for Products which have been sold, lost, stolen, destroyed, damaged or otherwise disposed of prior to any other application thereof. (F) Customer will indemnify and hold IBM Credit harmless from and against any claims or demands asserted by any Person relating to or arising from the Collateral for any reason whatsoever, including, without limitation, the condition of the Collateral, any misrepresentation made about the Collateral by any representative of Customer, or any act or failure to act by Customer except to the extent such claims or demands are directly attributable to IBM Credit's gross negligence or willful misconduct. Nothing contained in the foregoing shall impair any rights or claims which the Customer may have against any manufacturer, distributor or Authorized Supplier. 2.3. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's request for such an Advance ("Request for A/R Advance"). For any requested A/R Advance pursuant to which monies will be disbursed to Customer or any Person other than IBM Credit, a Request for A/R Advance shall be delivered to IBM Credit on or prior to 1:00 p.m. (Stamford, CT time) one Business Day prior to the requested A/R Advance Date. The Request for A/R Advance shall specify (i) the requested A/R Advance Date; (ii) the amount of the requested A/R Advance; (iii) whether such A/R Advance is a WCO Advance or a PRO Advance; (iv) 11 if applicable, the PRO Advance Term for such A/R Advance; (v) for each PRO Advance, the month, day and year of the Common Due Date, as set forth in Customer's applicable billing statement from IBM Credit, for the Product Advance to which the PRO Advance is to be applied; and (vi) if applicable, the amount of the requested A/R Advance that should be applied to the Outstanding Product Advances (provided that all PRO Advances shall be applied to Outstanding Product Advances). Customer may deliver a Request for A/R Advance via facsimile. Any Request for A/R Advance delivered to IBM Credit shall be irrevocable. Notwithstanding any other provision of this Agreement, Customer shall not (i) request more than one PRO Advance in respect of any Product Advance; and (ii) request a PRO Advance for any Common Due Date on which Customer will take a discount offered by IBM Credit for invoice amounts paid in full within fifteen days of the invoice date under IBM Credit's High Turnover Option ("HTO") Program. (B) Subject to the terms and conditions of this Agreement, on the A/R Advance Date specified in a Request for A/R Advance, IBM Credit shall make the principal amount of each A/R Advance available to the Customer in immediately available funds to an account maintained by Customer (or in the case of a Takeout Advance, as directed by Customer). If IBM Credit is making an A/R Advance hereunder on a day on which Customer is to repay all or any part of an Outstanding Advance (or any other amount owing hereunder), IBM Credit shall apply the proceeds of the A/R Advance to such repayment and only an amount equal to the difference, if any, between the amount of the A/R Advance and the amount being repaid shall be made available to Customer as provided in the immediately preceding sentence. (C) Each A/R Advance shall accrue a finance charge on the unpaid principal amount thereof, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement under the caption "A/R Finance Charge" for such type of A/R Advance, and (b) the highest rate from time to time permitted by applicable law. If it is determined that amounts received from the Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. (D) Unless otherwise due and payable at an earlier date, the unpaid principal amount of each A/R Advance, other than a Takeout Advance, shall be due and payable on the applicable Common Due Date. Unless otherwise notified by Customer in writing prior to the day the principal amount of any WCO Advance becomes due and payable, the Customer shall be deemed to have provided IBM Credit with a Request for A/R Advance requesting a WCO Advance on the day such principal amount is due and payable in an amount equal to the unpaid principal amount of the WCO Advance so due. Subject to the terms and conditions of this Agreement, the principal amount of such WCO Advance shall 12 automatically renew for an additional WCO Advance Term. Notwithstanding any other provision of this Agreement, a Takeout Advance may only be requested on the Closing Date and such Takeout Advance shall be limited to an amount sufficient to discharge the indebtedness that is the subject of a Takeout Advance. Unless otherwise agreed in writing, a Takeout Advance shall be due as defined on Attachment D. 2.4. Finance and Other Charges. (A) Finance charges shall be calculated by multiplying the applicable Delinquency Fee Rate, Product Advance Charge or A/R Finance Charge provided for in this Agreement by Customer's applicable Average Daily Balance. The Delinquency Fee Rate, the Product Advance Charge and the various A/R Finance Charges provided for in this Agreement are each computed on the basis of an actual day, 360 day year. (B) The Customer hereby agrees to pay to IBM Credit the charges set forth as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit additional charges for any returned items of payment received by Customer. The Customer hereby acknowledges that any such charges are not interest but that such charges, if unpaid, will constitute part of the Outstanding Advances. (C) The finance charges and Other Charges owed under this Agreement, and any charges hereafter agreed to in writing by the parties, are payable monthly on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its sole discretion, add unpaid finance charges and Other Charges to the Customer's outstanding Advances. (D) If any amount owed under this Agreement, including, without limitation, any Advance, is not paid when due (whether at maturity, by acceleration or otherwise), the unpaid amount thereof will bear a late charge from and including its due date to but not including the date IBM Credit receives payment thereof, at a per annum rate equal to the lesser of (a) the amount set forth in Attachment A to this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time to time permitted by applicable law. In addition, if any Shortfall Amount shall not be paid when due pursuant to Section 2.6 hereof, Customer shall pay IBM Credit an additional late charge equal to the product of the Shortfall Amount multiplied by thirty (30) basis points. If it is determined that amounts received from Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. 2.5. Statements Regarding Customer's ACcount. IBM Credit will send statements of each transaction hereunder as well as monthly billing statements to Customer with respect to Advances and other charges due on Customer's account with IBM Credit. Each 13 statement of transaction and monthly billing statement shall be deemed, absent manifest error, to be correct and shall constitute an account stated with respect to each transaction or amount described therein unless within seven (7) calendar days after such statement of transaction or billing statement is received by Customer, Customer provides IBM Credit written notice objecting that such amount or transaction is incorrectly described therein and specifying the error(s), if any, contained therein. IBM Credit may at any time adjust such statements of transaction or billing statements to comply with applicable law and this Agreement. 2.6. Shortfall. If, on any date, the Outstanding Advances shall exceed the Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer shall on such date prepay the Outstanding Advances in an amount equal to such Shortfall Amount. 2.7. Application of Payments. The Customer hereby agrees that all checks and other instruments delivered to IBM Credit on account of Customer's Obligations shall constitute conditional payment until such items are actually collected by IBM Credit. The Customer waives the right to direct the application of any and all payments at any time or times hereafter received by IBM Credit on account of the Customer's Obligations. Customer agrees that IBM Credit shall have the continuing exclusive right to apply and reapply any and all such payments to Customer's Obligations in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any of its books and records. 2.8. Prepayment and Reborrowing By Customer. (A) Customer may at any time prepay, without notice or penalty, in whole or in part amounts owed under this Agreement. IBM Credit may apply payments made to it (whether by the Customer or otherwise) to pay finance charges and other amounts owing under this Agreement first and then to the principal amount owed by the Customer. (B) Subject to the terms and conditions of this Agreement, any amount prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be reborrowed by Customer in accordance with the provisions of this Agreement. Section 3. LINE OF CREDIT ADDITIONAL PROVISIONS 3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall have the sole right to determine eligibility of Accounts from an Account obligor for purposes of determining the Borrowing Base; however, without limiting such right, the following AccOunts will be deemed to be ineligible for purposes of determining the Borrowing Base: 14 (A) Accounts created from the sale of goods and/or performance of services on non-standard terms or that allow for payment to be made more than forty-five (45) days from the date of such sale or performance of services; (B) Accounts unpaid more than ninety (90) days from date of invoice; (C) Accounts payable by an account debtor if fifty percent (50%) or more of the aggregate outstanding balance of all such Accounts remain unpaid for more than ninety (90) days from the date of invoice; (D) Accounts payable by an account debtor that is an Affiliate of Customer or an officer, employee, agent, guarantor, stockholder or Affiliate of Customer or is related to or has common shareholders, officers or directors with Customer; (E) Accounts arising from consignment sales; (F) Except for state, local and United States government institutions and public educational institutions, accounts with respect to which the payment by the account debtor is or may be conditional; (G) Except for state, local and United States government institutions and public educational institutions, accounts with respect to which: (i) the account debtor is not a commercial entity, or (ii) the account debtor is not a resident of the United States; (H) Accounts payable by any account debtor to which Customer is or may become liable for goods sold or services rendered by such account debtor to Customer; (I) Accounts arising from the sale or lease of goods purchased for a personal, family or household purpose; (J) Accounts arising from the sale or other disposition of goods that has been used for demonstration purposes or loaned or leased by the Customer to another party; (K) Accounts which are progress payment accounts or contra accounts; (L) Accounts upon which IBM Credit does not have a valid, perfected, first priority security interest; (M) Accounts payable by an account debtor that is or 15 Customer knows will become, subject to proceedings under United States Bankruptcy Law or other law for the relief of debtors; (N) Accounts that are not payable in US dollars; (O) Accounts payable by any account debtor that is a remarketer of computer hardware and software products and whose purchases of such products from Customer have been financed by another person who pays the proceeds of such financing directly to Customer on behalf of such obligor; (P) Accounts arising from the sale or lease of goods which are billed to any account debtor but have not yet been shipped by Customer; (Q) Accounts with respect to which Customer has permitted or agreed to any extension, compromise or settlement, or made any change or modification of any kind or nature, including, but not limited to, any change or modification to the terms relating thereto; (R) Accounts that do not arise from undisputed bona fide transactions completed in accordance with the terms and conditions contained in the invoices, purchase orders and contracts relating thereto; (S) Accounts that are discounted for the full payment term specified in Customer's terms and conditions with its account debtors, or for any longer period of time; (T) Accounts on cash on delivery (C.O.D.) terms; (U) Accounts arising from maintenance or service contracts that are billed in advance of full performance of service; (V) Accounts arising from bartered transactions; (W) Accounts arising from incentive payments, rebates, discounts, credits, and refunds from a supplier; and (X) Any and all other Accounts that IBM Credit deems, in its sole and absolute discretion, to be ineligible. The aggregate of all Accounts that are not ineligible Accounts shall hereinafter be referred to as "Eligible Accounts". 3.2. Reimbursement for Charges. Customer agrees to pay for all costs and expenses of Customer's bank in respect to collection of checks and other items of payment, all fees relating to the use and maintenance of the Lockbox and the Special Account (each as defined in Section 3.3) and with respect to remittances of proceeds of the Advances hereunder. 16 3.3. Lockbox and Special Account. Customer shall establish and maintain lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A with the financial institution(s) listed in Attachment A (each, a "Bank") pursuant to an agreement between the Customer and each Bank in form and substance satisfactory to IBM Credit. Customer shall also establish and maintain a deposit account which shall contain only proceeds of Customer's Accounts ("Special Account") with each Bank. Customer shall enter into and maintain a contingent blocked account agreement with each Bank for the benefit of IBM Credit in form and substance satisfactory to IBM Credit pursuant to which, among other things, such Bank shall agree that, upon notice from IBM Credit, disbursements from the Special Account shall be made only as IBM Credit shall direct. 3.4. Collections. Customer shall instruct all Account obligors to remit payments directly to a Lockbox. In addition, Customer shall have such instruction printed in conspicuous type on all invoices. Customer shall instruct such Bank to deposit all remittances to such Bank's Lockbox into its Special Account. Customer further agrees that it shall not deposit or permit any deposits of funds other than remittances paid in respect of the Accounts into the Special Account(s) or permit any commingling of funds with such remittances in any Lockbox or Special Account. Without limiting the Customer's foregoing obligations, if, at any time, Customer receives a remittance directly from an account obligor, then Customer shall make entries on its books and records in a manner that shall reasonably identify such remittances and shall keep a separate account on its record books of all remittances so received and deposit the same into a Special Account. Until so deposited into the Special Account, Customer shall keep all remittances received in respect of Accounts separate and apart from Customer's other property so that they are capable of identification as the proceeds of Accounts in which IBM Credit has a security interest. 3.5. Application of Remittances and Credits. Customer shall apply all remittances against the aggregate of Customer's outstanding Accounts no later than the end of the Business Day on which such remittances are deposited into the Special Account. Customer also agrees to apply each remittance against its respective Account no later than three (3) Business Days from the date such remittance is deposited into the Special Account. In addition, Customer shall promptly apply any credits owing in respect to any Account when due. 3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with full power of substitution, as its true and lawful attorney-in-fact with full power, in good faith and in compliance with commercially reasonable standards, in the discretion of IBM Credit, to: 17 (A) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected the security interest in the Collateral contemplated under this Agreement and the Other Agreements; (B) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation; and upon the occurrence and during the continuance of an Event of Default as defined in Section 9.1 hereof: (C) demand payment, enforce payment and otherwise exercise all Customer's rights and remedies with respect to the collection of any Accounts; (D) settle, adjust, compromise, extend or renew any Accounts; (E) settle, adjust or compromise any legal proceedings brought to collect any Accounts; (F) sell or assign any Accounts upon such terms, for such amounts and at such time or times as IBM Credit may deem advisable; (G) discharge and release any Accounts; (H) prepare, file and sign Customer's name on any Proof of Claim in Bankruptcy or similar document against any Account obligor; (I) prepare, file and sign Customer's name on any notice of lien, claim of mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or similar document in connection with any Accounts; (J) endorse the name of Customer upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to any Account or goods pertaining thereto; (K) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation; (L) sign the name of Customer to requests for verification of Accounts and notices thereof to Account obligors; (M) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to enforce any and all remedies it may have under this Agreement, at law or 18 otherwise; and (N) make, settle and adjust claims under the Policies with respect to the Collateral and endorse Customer's name on any check, draft, instrument or other item of payment of the proceeds of the Policies with respect to the Collateral; and (O) take control in any manner of any term of payment or proceeds and for such purpose to notify the postal authorities to change the address for delivery of mail addressed to Customer to such address as IBM Credit may designate. The power of attorney granted by this Section is for value and coupled with an interest and is irrevocable so long as this Agreement is in effect or any Obligations remain outstanding. Nothing done by IBM Credit pursuant to such power of attorney will reduce any of Customer's Obligations other than Customer's payment Obligations to the extent IBM Credit has received monies. Section 4. SECURITY -- COLLATERAL 4.1 Grant. To secure Customer's full and punctual payment and performance of the Obligations when due (whether at the stated maturity, by acceleration or otherwise), Customer hereby grants IBM Credit a security interest in all of Customer's right, title and interest in and to the following property, whether now owned or hereafter acquired or existing and wherever located: (A) all inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (B) all accounts, contract rights, chattel paper, instruments, deposit accounts, obligations of any kind owing to Customer, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and all books, invoices, documents and other records in any form evidencing or relating to any of the foregoing; (C) general intangibles; (D) all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the foregoing; and (E) all substitutions and replacements for all of the foregoing, all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets shall be collectively defined herein as 19 the "Collateral". Customer covenants and agrees with IBM Credit that: (a) the security constituted to by this Agreement is in addition to any other security from time to time held by IBM Credit and (b) the security hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of Customer to IBM Credit pursuant to this Agreement and the Other Agreements. 4.2. Further Assurances. Customer shall, from time to time upon the request of IBM Credit, execute and deliver to IBM Credit, or cause to be executed and delivered, at such time or times as IBM Credit may request such other and further documents, certificates and instruments that IBM Credit may deem necessary to perfect and maintain perfected IBM Credit's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under this Agreement and the Other Agreements. Customer shall make appropriate entries on its books and records disclosing IBM Credit's security interests in the Collateral. Section 5. CONDITIONS PRECEDENT 5.1. Conditions Precedent to the Effectiveness of This Agreement. The effectiveness of this Agreement is subject to the receipt by IBM Credit of, or waiver in writing by IBM Credit of compliance with, the following conditions precedent: (A) this Agreement executed and delivered by Customer and IBM Credit; (B) (i) copies of the resolutions of the Board of Directors of Customer certified by the secretary or assistant secretary of Customer authorizing the execution, delivery and performance of this Agreement and each Other Agreement executed and delivered in connection herewith, (ii) a certificate of the secretary or an assistant secretary of Customer, in form and substance satisfactory to IBM Credit, certifying the names and true signatures of the officers of Customer authorized to sign this Agreement and the Other Agreements and (iii) copies of the articles of incorporation and by-laws of Customer certified by the secretary or assistant secretary of Customer; (C) certificates dated as of a recent date from the Secretary of State or other appropriate authority evidencing the good standing of Customer in the jurisdiction of its organization and in each other jurisdiction where the ownership or lease of its property or the conduct of its business requires it to qualify to do business; 20 (D) copies of all approvals and consents from any Person, in each case in form and substance satisfactory to IBM Credit, which are required to enable Customer to authorize, or required in connection with, (a) the execution, delivery or performance of this Agreement and each of the Other Agreements, and (b) the legality, validity, binding effect or enforceability of this Agreement and each of the Other Agreements; (E) a lockbox agreement executed by Customer and each Bank, in form and substance satisfactory to IBM Credit; (F) a contingent blocked account agreement executed by Customer and each Bank in form and substance satisfactory to IBM Credit; (G) intercreditor agreements ("Intercreditor Agreement"), in form and substance satisfactory to IBM Credit, executed by each other secured creditor of Customer as set forth in Attachment A; (H) a favorable opinion of counsel for Customer in substantially the form of Attachment I; (I) UCC-1 financing statements for each jurisdiction reasonably requested by IBM Credit executed by Customer and each guarantor whose guaranty to IBM Credit is intended to be secured by a pledge of its assets; (J) the statements, certificates, documents, instruments, financing statements, agreements and information set forth in Attachment A and Attachment B; and (K) all such other statements, certificates, documents, instruments, financing statements, agreements and other information with respect to the matters contemplated by this Agreement as IBM Credit shall have reasonably requested. 5.2. Conditions to Each Advance. No Advance will be required to be made or renewed by IBM Credit under this Agreement unless, on and as of the date of such Advance, the following statements shall be true to the satisfaction of IBM Credit: (A) The representations and warranties contained in this Agreement or in any document, instrument or agreement executed in connection herewith, are true and correct in all material respects on and as of the date of such Advance as though made on and as of such date; (B) No event has occurred and is continuing or after giving effect to such Advance or the application of the proceeds thereof would result which would constitute a Default; 21 (C) No event has occurred and is continuing which could reasonably be expected to have a Material Adverse Effect; (D) Both before and after giving effect to the making of such Advance, no Shortfall Amount exists. Except as Customer has otherwise disclosed to IBM Credit in writing prior to each request, each request (or deemed request pursuant to Section 2.3 (D)) for an Advance hereunder and the receipt (or deemed receipt) by the Customer of the proceeds of any Advance hereunder shall be deemed to be a representation and warranty by Customer that, as of and on the date of such Advance, the statements set forth in (A) through (D) above are true statements. No such disclosures by Customer to IBM Credit shall in any manner be deemed to satisfy the conditions precedent to each Advance that are set forth in this Section 5.2. Section 6. REPRESENTATIONS AND WARRANTIES To induce IBM Credit to enter into this Agreement, Customer represents and warrants to IBM Credit as follows: 6.1. Organization and Qualifications. Customer and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the power and authority to own its properties and assets and to transact the businesses in which it presently is engaged and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where it presently is engaged in business and is required to be so qualified. 6.2. Rights in Collateral; Priority of Liens. Customer and each of its Subsidiaries owns the property granted by it respectively as Collateral to IBM Credit, free and clear of any and all Liens in favor of third parties except for the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties and the Other Agreements in the Collateral constitute the valid and enforceable first, prior and perfected Liens on the Collateral, except to the extent any Liens that are prior to IBM Credit's Liens are (i) the subject of an Intercreditor Agreement or (ii) Purchase Money Security Interests in product of a brand that is not financed by IBM Credit. 6.3. No Conflicts. The execution, delivery and performance by Customer of this Agreement and each of the Other Agreements (i) are within its corporate power; (ii) are duly authorized by all necessary corporate action; (iii) are not in contravention in any respect of any Requirement of Law or any indenture, contract, 22 lease, agreement, instrument or other commitment to which it is a party or by which it or any of its properties are bound; (iv) do not require the consent, registration or approval of any Governmental Authority or any other Person (except such as have been duly obtained, made or given, and are in full force and effect); and (v) will not, except as contemplated herein, result in the imposition of any Liens upon any of its properties. 6.4. Enforceability. This Agreement and all of the other documents executed and delivered by the Customer in connection herewith are the legal, valid and binding obligations of Customer, and are enforceable in accordance with their terms, except as such enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting creditors' rights generally or the general equitable principles relating thereto. 6.5. Locations of Offices, Records and Inventory. The address of the principal place of business and chief executive office of Customer is as set forth on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and records of Customer, and all of its chattel paper (other than the chattel paper delivered to IBM Credit pursuant to Section 7.14(E)) and records of Accounts, are maintained exclusively at such location. There is no jurisdiction in which Customer has any assets, equipment or inventory (except for vehicles and inventory in transit for processing) other than those jurisdictions identified on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment B, as amended from time to time by any notice provided by Customer to IBM Credit in accordance with Section 7.7(C) of this Agreement, also contains a complete list of the legal names and addresses of each warehouse at which the Customer's inventory is stored. None of the receipts received by Customer from any warehouseman states that the goods covered thereby are to be delivered to bearer or to the order of a named person or to a named person and such named person's assigns. 6.6. Fictitious Business Names. Customer has not used any corporate or fictitious name during the five (5) years preceding the date of this Agreement, other than those listed on Attachment B. 6.7. Organization. All of the outstanding capital stock of Customer has been validly issued, is fully paid and nonassessable. 6.8. No Judgments or Litigation. Except as set forth on Attachment B, no judgments, orders, writs or decrees are outstanding against Customer nor is there now pending or, to the 23 best of Customer's knowledge after due inquiry, threatened, any litigation, contested claim, investigation, arbitration, or governmental proceeding by or against Customer. 6.9. No Defaults. The Customer is not in default under any term of any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it, or any of its properties are bound. Customer has no knowledge of any dispute regarding any such indenture, contract, lease, agreement, instrument or other commitment. No Default or Event of Default has occurred and is continuing. 6.10. Labor Matters. Except as set forth on any notice provided by Customer to IBM Credit pursuant to Section 7.1(F) of this Agreement, the Customer is not a party to any labor dispute. There are no strikes or walkouts or labor controversies pending or threatened against the Customer which could reasonably be expected to have a Material Adverse Effect. 6.11. Compliance with Law. Customer has not violated or failed to comply with any Requirement of Law or any requirement of any self regulatory organization. 6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan", "defined benefit plan", or "multi-employer benefit plan", which Customer has established, maintained, or to which it is required to contribute (collectively, the "Plans") is in compliance with all applicable provisions of ERISA and the Code and the rules and regulations thereunder as well as the Plan's terms and conditions. There have been no "prohibited transactions" and no "reportable event" has occurred within the last 60 months with respect to any Plan. Customer has no "multi-employer benefit plan". As used in this Agreement the terms "employee benefit plan", "employee pension benefit plan", "defined benefit plan", and "multi-employer benefit plan" have the respective meanings assigned to them in Section 3 of ERISA and any applicable rules and regulations thereunder. The Customer has not incurred any "accumulated funding deficiency" within the meaning of ERISA or incurred any liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection with a Plan (other than for premiums due in the ordinary course). 6.13. Compliance with Environmental Laws. Except as otherwise disclosed in Attachment B: (A) The Customer has obtained all government approvals required with respect to the operation of their businesses under any Environmental Law. (B) (i) the Customer has not generated, transported or disposed of any Hazardous Substance; (ii) the Customer is not currently generating, transporting or disposing of any Hazardous 24 Substance; (iii) the Customer has no knowledge that (a) any of its real property (whether owned, leased, or otherwise directly or indirectly controlled) has been used for the disposal of or has been contaminated by any Hazardous Substance, or (b) any of its business operations have contaminated lands or waters of others with any Hazardous Substance; (iv) the Customer and its respective assets are not subject to any Environmental Liability and, to the best of the Customer's knowledge, any threatened Environmental Liability; (v) the Customer has not received any notice of or otherwise learned of any governmental investigation evaluating whether any remedial action is necessary to respond to a release or threatened release of any Hazardous Substance for which the Customer may be liable; (vi) the Customer is not in violation of any Environmental Law; (vii) there are no proceedings or investigations pending against Customer with respect to any violation or alleged violation of any Environmental Law; provided however, that the parties acknowledge that any generation, transportation, use, storage and disposal of certain such Hazardous Substances in Customer's or its Subsidiaries' business shall be excluded from representations (i) and (ii) above, provided, further, that Customer is at all times generating, transporting, utilizing, storing and disposing such Hazardous Substances in accordance with all applicable Environmental Laws and in a manner designed to minimize the risk of any spill, contamination, release or discharge of Hazardous Substances other than as authorized by Environmental Laws. 6.14. Intellectual Property. Customer possesses such assets, licenses, patents, patent applications, copyrights, service marks, trademarks, trade names and trade secrets and all rights and other property relating thereto or arising therefrom ("Intellectual Property") as are necessary or advisable to continue to conduct its present and proposed business activities. 6.15. Licenses and Permits. Customer has obtained and holds in full force and effect all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary for the operation of its businesses as presently conducted. Customer is not in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval. 6.16. Investment Company. The Customer is not (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a holding company, or an Affiliate of a holding company or of a subsidiary of a holding company, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or 25 the Other Agreements or to perform its obligations hereunder or thereunder. 6.17. Taxes and Tax Returns. Customer has timely filed all federal, state, and local tax returns and other reports which it is required by law to file, and has either duly paid all taxes, fees and other governmental charges indicated to be due on the basis of such reports and returns or pursuant to any assessment received by the Customer, or made provision for the payment thereof in accordance with GAAP. The charges and reserves on the books of the Customer in respect of taxes or other governmental charges are in accordance with GAAP. No tax liens have been filed against Customer or any of its property. 6.18. Status of Accounts. Each Account is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by Customer, in the ordinary course of its business; the goods and inventory being sold and the Accounts created are its exclusive property and are not and shall not be subject to any Lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever (other than Permitted Liens). The Customer's customers have accepted goods or services and owe and are obligated to pay the full amounts stated in the invoices according to their terms. There are no proceedings or actions known to Customer which are pending or threatened against any Material Account Obligor (as defined in Section 7.14(B) of this Agreement) of any of the Accounts which could reasonably be expected to result in a material adverse effect on the obligor's ability to pay the full amounts due to Customer. 6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate or Subsidiary of the Customer is a party except (i) in the ordinary course of and pursuant to the reasonable requirements of Customer's business and (ii) upon fair and reasonable terms no less favorable to Customer than it could obtain in a comparable arm's-length transaction with an unaffiliated Person. 6.20. Accuracy and Completeness of Information. All factual information furnished by or on behalf of the Customer to IBM Credit or the Auditors for purposes of or in connection with this Agreement or any Other Agreement, or any transaction contemplated hereby or thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time. 6.21. Recording Taxes. All recording taxes, recording fees, filing fees and other charges payable in connection with the 26 filing and recording of this Agreement have either been paid in full by Customer or arrangements for the payment of such amounts by Customer have been made to the satisfaction of IBM Credit. 6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted Indebtedness; and (ii) has not guaranteed the obligations of any other Person (except as permitted by Section 8.4), Section 7. AFFIRMATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations: 7.1. Financial and Other Information. Customer shall cause to be furnished to IBM Credit the following information within the following time periods: (A) as soon as available and in any event within ninety (90) days after the end of each fiscal year of AmeriQuest (i) audited Financial Statements (provided that, to the extent not otherwise audited by the Auditors, the consolidating Financial Statements may be unaudited) as of the close of the fiscal year and for the fiscal year, together with a comparison to the Financial Statements for the prior year, in each case accompanied by (a) either an opinion of the Auditors without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit or, if so qualified, an opinion which shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such Auditors' "Management Letter" to AmeriQuest, if any, (c) a written statement signed by the Auditors stating that in the course of the regular audit of the business of AmeriQuest and its consolidated Subsidiaries, which audit was conducted by the Auditors in accordance with generally accepted auditing standards, the Auditors have not obtained any knowledge of the existence of any Default under any provision of this Agreement, or, if such Auditors shall have obtained from such examination any such knowledge, they shall disclose in such written statement the existence of the Default and the nature thereof, it being understood that such Auditors shall have no liability, directly or indirectly, to anyone for failure to obtain knowledge of any such Default; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of AmeriQuest and its Subsidiaries for such fiscal year prepared by the chief executive officer or chief financial officer of AmeriQuest; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal year, whether 27 AmeriQuest is in compliance with the financial covenants set forth in Exhibit A to the guaranty executed by AmeriQuest; (B) as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of AmeriQuest (i) Financial Statements as of the end of such period and for the fiscal year to date, together with a comparison to the Financial Statements for the same periods in the prior year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments and except for the absence of footnotes) by the chief executive officer or chief financial officer of AmeriQuest as having been prepared in accordance with GAAP; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of AmeriQuest and its Subsidiaries for such period and for the fiscal year to date prepared by the chief executive officer or chief financial officer of AmeriQuest; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal quarter, whether AmeriQuest is in compliance with the financial covenants set forth in Exhibit A to the guaranty executed by AmeriQuest; (C) promptly after Customer obtains knowledge of (i) the occurrence of a Default or Event of Default, or (ii) the existence of any condition or event which would result in the Customer's failure to satisfy the conditions precedent to Advances set forth in Section 5, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (D) promptly after Customer obtains knowledge of (i) any proceeding(s) being instituted or threatened to be instituted by or against Customer in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign), or (ii) any actual or prospective change, development or event which, in any such case, has had or could reasonably be expected to have a Material Adverse Effect, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (E) promptly after Customer obtains knowledge that (i) any order, judgment or decree in excess of $300,000 shall have been entered against Customer or any of its properties or assets, or (ii) it has received any notification of a material violation of any Requirement of Law from any Governmental Authority, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; 28 (F) promptly after Customer learns of any material labor dispute to which Customer may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which Customer is a party or by which it is bound, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (G) within five (5) Business Days after request by IBM Credit, any written certificates, schedules and reports together with all supporting documents as IBM Credit may reasonably request relating to the Collateral or the Customer's or any guarantor's business affairs and financial condition; (H) by the fifth (5th) day of each month, or as otherwise agreed in writing, a Collateral Management Report as of a date no earlier than the last day of the immediately preceding month; (I) along with the Financial Statements set forth in Section 7.1(A) and (B), the name, address and phone number of each of its account debtors' primary contacts for each Account on the Accounts aging report contained in its most recent Collateral Management Report; and (J) within five (5) days after the same are sent, copies of all financial statements and reports which AmeriQuest or Customer sends to its stockholders, and within five (5) days after the same are filed, copies of all financial statements and reports which AmeriQuest or Customer may make to, or file with, the Securities and Exchange Commission or any successor or analogous governmental authority. Each certificate, schedule and report provided by Customer to IBM Credit shall be signed by an authorized officer of Customer, and which signature shall be deemed a representation and warranty that the information contained in such certificate, schedule or report is true and accurate in all material respects on the date as of which such certificate, schedule or report is made and does not omit to state a material fact necessary in order to make the statements contained therein not misleading at such time. Each financial statement delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods. 7.2. Location of Collateral. The inventory, equipment and other tangible Collateral shall be kept or sold at the addresses as set forth on Attachment B or on any notice provided by Customer to IBM Credit in accordance with Section 7.7(C). Such locations shall be certified quarterly to IBM Credit substantially in the form of Attachment G. 29 7.3. Changes in Customer. Customer shall provide 30 days prior written notice to IBM Credit of any change in Customer's name, chief executive office and principal place of business, organization, form of ownership or corporate structure; provided, however, that Customer's compliance with this covenant shall not relieve it of any of its other obligations or any other provisions under this Agreement or any Other Agreement limiting actions of the type described in this Section. 7.4. Corporate Existence. Customer shall (A) maintain its corporate existence, maintain in full force and effect all licenses, bonds, franchises, leases and qualifications to do business, and all contracts and other rights necessary to the profitable conduct of its business, (B) continue in, and limit its operations to, the same general lines of business as presently conducted by it unless otherwise permitted in writing by IBM Credit and (C) comply with all Requirements of Law. 7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it learns of the occurrence of any event which would constitute a "reportable event" under ERISA or any regulations thereunder with respect to any Plan, or that the PBGC has instituted or will institute proceedings to terminate any Plan. Notwithstanding the foregoing, the Customer shall have no obligation to notify IBM Credit as to any "reportable event" as to which the 30-day notice requirement of Section 4043(b) has been waived by the PBGC, until such time as such Customer is required to notify the PBGC of such reportable event. Such notification shall include a certificate of the chief financial officer of Customer setting forth details as to such "reportable event" and the action which Customer proposes to take with respect thereto, together with a copy of any notice of such "reportable event" which may be required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its intent to institute such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause the plan administrator to furnish, to IBM Credit the most recently filed annual report for each Plan. 7.6. Environmental Matters. (A) Customer and any other Person under Customer's control (including, without limitation, agents and Affiliates under such control) shall (i) comply with all Environmental Laws in all material respects, and (ii) undertake to use commercially reasonable efforts to prevent any unlawful release of any Hazardous Substance by Customer or such Person into, upon, over or under any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer. (B) Customer shall notify IBM Credit, promptly upon its obtaining knowledge of (i) any non-routine proceeding or investigation by any Governmental Authority with respect to the 30 presence of any Hazardous Substances on or in any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, (ii) all claims made or threatened by any Person or Governmental Authority against Customer or any of Customer's assets relating to any loss or injury resulting from any Hazardous Substance, (iii) Customer's discovery of evidence of unlawful disposal of or environmental contamination by any Hazardous Substance on any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, and (iv) any occurrence or condition which could constitute a violation of any Environmental Law. 7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to maintain books and records pertaining to the Collateral in such detail, form and scope as is consistent with good business practice, and agrees that such books and records will reflect IBM Credit's interest in the Accounts. (B) Customer agrees that IBM Credit or its agents may enter upon the premises of Customer at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or copying (at Customer's expense) any and all records pertaining thereto, (iii) discussing the affairs, finances and business of Customer with any officers, employees and directors of Customer or with the Auditors and (iv) verifying Eligible Accounts and other Collateral. Customer also agrees to provide IBM Credit with such reasonable information and documentation that IBM Credit deems necessary to conduct the foregoing activities, including, without limitation, reasonably requested samplings of purchase orders, invoices and evidences of delivery or other performance. Upon the occurrence and during the continuance of an Event of Default which has not been waived by IBM Credit in writing, IBM Credit may conduct any of the foregoing activities in any manner that IBM Credit deems reasonably necessary. (C) Customer shall give IBM Credit thirty (30) days prior written notice of any change in the location of any Collateral, the location of its books and records or in the location of its chief executive office or place of business from the locations specified in Attachment B, and will execute in advance of such change and cause to be filed and/or delivered to IBM Credit any financing statements, landlord or other lien waivers, or other documents reasonably required by IBM Credit, all in form and substance reasonably satisfactory to IBM Credit. (D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient detail, of any substantial change relating to the type, quantity or quality of the Collateral, or any event which could reasonably be expected to have a Material Adverse 31 Effect on the value of the Collateral or on the security interests granted to IBM Credit therein. 7.8. Insurance; Casualty Loss. (A) Customer will maintain with financially sound and reputable insurance companies: (i) insurance on its properties, (ii) public liability insurance against claims for personal injury or death as a result of the use of any products sold by it and (iii) insurance coverage against other business risks, in each case, in at least such amounts and against at least such risks as are usually and prudently insured against in the same general geographical area by companies of established repute engaged in the same or a similar business. Customer will furnish to IBM Credit, upon its written request, the insurance certificates with respect to such insurance. In addition, all Policies so maintained are to name IBM Credit as an additional insured as its interest may appear. (B) Without limiting the generality of the foregoing, Customer shall keep and maintain, at its sole expense, the Collateral insured for an amount not less than the amount set forth on Attachment A from time to time opposite the caption "Collateral Insurance Amount" against all loss or damage under an "all risk" Policy in companies mutually acceptable to IBM Credit and Customer, with a lender's loss payable endorsement or mortgagee clause in form and substance reasonably satisfactory to IBM Credit designating that any loss payable thereunder with respect to such Collateral shall be payable to IBM Credit. Upon receipt of proceeds by IBM Credit the same shall be applied on account of the Customer's Outstanding Product Advances first, then to the Outstanding A/R Advances. Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon the Policy issued by it or by independent instruments furnished to IBM Credit, at least ten (10) days written notice before any Policy shall be altered or cancelled and that no act or default of Customer or any other person shall affect the right of IBM Credit to recover under the Policies. Customer hereby agrees to direct all insurers under the Policies to pay all proceeds with respect to the Collateral directly to IBM Credit. If Customer fails to pay any cost, charges or premiums, or if Customer fails to insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit hereunder shall be considered an additional debt owed by Customer to IBM Credit and are due and payable immediately upon receipt of an invoice by IBM Credit. 7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or assessed against Customer or any of the Collateral before any penalty or interest accrues thereon unless such taxes are being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted and an adequate reserve or other appropriate provisions have been made therefor as required in order to be in conformity with GAAP and 32 an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect. 7.10. Compliance With Laws. Customer agrees to comply with all Requirements of Law applicable to the Collateral or any part thereof, or to the operation of its business. 7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year ending June 30 unless Customer provides IBM Credit at least thirty (30) days prior written notice of any change thereof. 7.12. Intellectual Property. Customer shall do and cause to be done all things necessary to preserve and keep in full force and effect all registrations of Intellectual Property which the failure to do or cause to be done could reasonably be expected to have a Material Adverse Effect. 7.13. Maintenance of Property. Customer shall maintain all of its material properties (business and otherwise) in good condition and repair (ordinary wear and tear excepted) and pay and discharge all costs of repair and maintenance thereof and all rental and mortgage payments and related charges pertaining thereto and not commit or permit any waste with respect to any of its material properties. 7.14. Collateral. Customer shall: (A) if from time to time reasonably required by IBM Credit, provide IBM Credit with access to copies of all invoices, delivery evidences and other such documents relating to each Account; (B) promptly upon Customer's obtaining knowledge thereof, furnish to and inform IBM Credit of all material adverse information relating to the financial condition of any Account obligor whose outstanding obligations to Customer constitute two percent (2%) or more of the Accounts at such time (a "Material Account Obligor"); (C) promptly upon Customer's learning thereof, notify IBM Credit in writing of any event which would cause any obligation of a Material Account Obligor to become an Ineligible Account; (D) keep all goods rejected or returned by any account debtor and all goods repossessed or stopped in transit by Customer from any account debtor segregated from other property of Customer, holding the same in trust for IBM Credit until Customer applies a credit against such account debtor's outstanding obligations to Customer or sells such goods in the ordinary course of business, whichever occurs earlier; 33 (E) stamp or otherwise mark chattel paper and instruments now owned or hereafter acquired by it in conspicuous type to show that the same are subject to IBM Credit's security interest and immediately thereafter deliver or cause such chattel paper and instruments to be delivered to IBM Credit or any agent designated by IBM Credit with appropriate endorsements and assignments to vest title and possession in IBM Credit; (F) use commercially reasonable efforts to collect all Accounts owed; (G) promptly notify IBM Credit of any loss, theft or destruction of or damage to any of the Collateral. Customer shall diligently file and prosecute its claim for any award or payment in connection with any such loss, theft, destruction of or damage to Collateral. Customer shall, upon demand of IBM Credit, make, execute and deliver any assignments and other instruments sufficient for the purpose of assigning any such award or payment to IBM Credit, free of any encumbrances of any kind whatsoever; (H) consistent with reasonable commercial practice, observe and perform all matters and things necessary or expedient to be observed or performed under or by virtue of any lease, license, concession or franchise forming part of the Collateral in order to preserve, protect and maintain all the rights of IBM Credit thereunder; (I) consistent with reasonable commercial practice, maintain, use and operate the Collateral and carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Collateral and the earnings, incomes, rents, issues and profits thereof; and (J) at any time and from time to time, upon the request of IBM Credit, and at the sole expense of Customer, Customer will promptly and duly execute and deliver such further instruments and documents and take such further action as IBM Credit may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests granted herein and the payment of any and all recording taxes and filing fees in connection therewith. 7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer become parties to this Agreement or any other agreement executed in connection with this Agreement as guarantors or sureties. Customer will comply, and cause all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement, as if such sections applied directly to such 34 Subsidiaries. Section 8. NEGATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations due hereunder: 8.1. Liens. The Customer will not, directly or indirectly mortgage, assign, pledge, transfer, create, incur, assume, permit to exist or otherwise permit any Lien or judgment to exist on any of its property, assets, revenues or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for Permitted Liens. 8.2. Disposition of Assets. The Customer will not, directly or indirectly, sell, lease, assign, transfer or otherwise dispose of any assets other than (i) sales of inventory in the ordinary course of business and short term rental of inventory as demonstrations in amounts not material to Customer, and (ii) voluntary dispositions of individual assets and obsolete or worn out property in the ordinary course of business, provided, that the aggregate book value of all such assets and property so sold or disposed of under this section 8.2 (ii) in any fiscal year shall not exceed 5% of the consolidated assets of the Customer as of the beginning of such fiscal year. 8.3. Corporate Changes. The Customer will not, without the prior written consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve or enter into or engage in any operation or activity materially different from that presently being conducted by Customer. 8.4. Guaranties. The Customer will not, directly or indirectly, assume, guaranty, endorse, or otherwise become liable upon the obligations of any other Person, except (i) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) by the giving of indemnities in connection with the sale of inventory or other asset dispositions permitted hereunder, and (iii) for guaranties in favor of IBM Credit. 8.5. Restricted Payments. The Customer will not, directly or indirectly: (i) declare or pay any dividend (other than dividends payable solely in common stock of Customer) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of Customer or any warrants, options or rights to purchase any such capital stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, 35 either directly or indirectly, whether in cash or property or in obligations of Customer; or (ii) make any optional payment or prepayment on or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than the Obligations). 8.6. Investments. The Customer will not, directly or indirectly, make, maintain or acquire any Investment in any Person other than: (A) interest bearing deposit accounts (including certificates of deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar federal insurance program; (B) direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations guaranteed as to principal and interest by the United States of America or any agency thereof; (C) stock or obligations issued to Customer in settlement of claims against others by reason of an event of bankruptcy or a composition or the readjustment of debt or a reorganization of any debtor of Customer; and (D) commercial paper of any corporation organized under the laws of any State of the United States or any bank organized or licensed to conduct a banking business under the laws of the United States or any State thereof having the short-term highest rating then given by Moody's Investor's Services, Inc. or Standard & Poor's Corporation. 8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or indirectly, enter into any transaction with any Affiliate or Subsidiary, including, without limitation, the purchase, sale or exchange of property or the rendering of any service to any Affiliate or Subsidiary of Customer except in the ordinary course of business and pursuant to the reasonable requirements of Customer's business upon fair and reasonable terms no less favorable to Customer than could be obtained in a comparable arm's-length transaction with an unaffiliated Person. 8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a material liability to the PBGC, (B) permit any "prohibited transaction" involving any Plan (other than a "multi-employer benefit plan") which would subject the Customer to a material tax or penalty on "prohibited transactions" under the Code or ERISA, (C) fail to pay to any Plan any contribution which they are obligated to pay under the terms of such Plan, if such failure would result in a material "accumulated funding deficiency", whether or not waived, (D) allow or suffer to exist any occurrence and during the continuance of a "reportable event" 36 or any other event or condition, which presents a material risk of termination by the PBGC of any Plan (other than a "multi-employer benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As used in this Agreement, the terms "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in the Code and ERISA. For purposes of this Section 8.8, the terms material liability, tax, penalty, accumulated funding deficiency and risk of termination shall mean a liability, tax, penalty, accumulated funding deficiency or risk of termination which could reasonably be expected to have a Material Adverse Effect. 8.9. Additional Negative Pledges. Customer will not, directly or indirectly, create or otherwise cause or permit to exist or become effective any contractual obligation which may restrict or inhibit IBM Credit's rights or ability to sell or otherwise dispose of the Collateral or any part thereof after the occurrence and during the continuance of an Event of Default. 8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not be stored with a bailee, warehouseman or similar party without the prior written consent of IBM Credit unless Customer will, concurrently with the delivery of such Collateral to such party, cause such party to issue and deliver to IBM Credit, warehouse receipts in the name of IBM Credit evidencing the storage of such Collateral. 8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds of any Advances other than to acquire Products from Authorized Suppliers and for its general working capital requirements. 8.12. Accounts. The Customer shall not permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, which would affect IBM Credit's ability to collect payment on any Account in whole or in part, except for such extensions, compromises or settlements made by Customer in the ordinary course of its business, provided, however, that the aggregate amount of such extensions, compromises or settlements does not exceed five percent (5%) of the Customer's Accounts at any time. 8.13. Indebtedness. The Customer will not create, incur, assume or permit to exist any Indebtedness, except for Permitted Indebtedness. 8.14. Loans. The Customer will not make any loans, advances, contributions or payments of money or goods to any Subsidiary, Affiliate or parent corporation or to any officer, director or 37 stockholder of Customer or of any such corporation (except for compensation for personal services actually rendered), except for transactions expressly authorized in this Agreement. Section 9. DEFAULT 9.1. Event of Default. Any one or more of the following events shall constitute an Event of Default by the Customer under this Agreement and the Other Agreements: (A) The failure to make timely payment of the Obligations or any part thereof when due and payable; (B) Customer fails to comply with or observe any term, covenant or agreement contained in this Agreement; (C) Any representation, warranty, statement, report or certificate made or delivered by or on behalf of Customer or any of its officers, employees or agents or by or on behalf of any Guarantor to IBM Credit was false in any material respect at the time when made or deemed made; (D) The occurrence of any event or circumstance which could reasonably be expected to have a Material Adverse Effect; (E) Customer, any Subsidiary or any Guarantor shall generally not pay its debts as such debts become due, become or otherwise declare itself insolvent, file a voluntary petition for bankruptcy protection, have filed against it any involuntary bankruptcy petition, cease to do business as a going concern, make any assignment for the benefit of creditors, or a custodian, receiver, trustee, liquidator, administrator or person with similar powers shall be appointed for Customer, any Subsidiary or any Guarantor or any of its respective properties or have any of its respective properties seized or attached, or take any action to authorize, or for the purpose of effectuating, the foregoing, provided, however, that Customer, any Subsidiary or any Guarantor shall have a period of forty-five (45) days within which to discharge any involuntary petition for bankruptcy or similar proceeding; (F) The use of any funds borrowed from IBM Credit under this Agreement for any purpose other than as provided in this Agreement; (G) The entry of any judgment against Customer or any Guarantor in an amount in excess of $300,000 and such judgment is not satisfied, dismissed, stayed or superseded by bond within thirty (30) days after the day of entry thereof (and in the event of a stay or supersedeas bond, such judgment is not discharged 38 within thirty (30) days after termination of any such stay or bond) or such judgment is not fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full; (H) The dissolution or liquidation of Customer or any Guarantor, or Customer or any Guarantor or its directors or stockholders shall take any action to dissolve or liquidate Customer or any Guarantor; (I) Any "going concern" or like qualification or exception, or qualification arising out of the scope of an audit by an Auditor of his opinion relative to any Financial Statement delivered to IBM Credit under this Agreement; (J) There issues a warrant of distress for any rent or taxes with respect to any premises occupied by Customer in or upon which the Collateral, or any part thereof, may at any time be situated and such warrant shall continue for a period of ten (10) Business Days from the date such warrant is issued; (K) Customer suspends business; (L) The occurrence of any event or condition which enables the holder of any Indebtedness arising in one or more related or unrelated transactions, in aggregate principal amount exceeding $300,000 to accelerate the maturity thereof or the failure of Customer to pay when due any such Indebtedness; (M) Any guaranty of any or all of the Customer's Obligations executed by any guarantor in favor of IBM Credit, shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction or the validity or enforceability thereof shall be contested or denied by any such guarantor, or any such guarantor shall deny that it has any further liability or obligation thereunder or any such guarantor shall fail to comply with or observe any of the terms, provisions or conditions contained in any such guaranty; (N) Customer is in default under the material terms of any of the Other Agreements after the expiration of any applicable cure periods; (O) There shall occur a "reportable event" with respect to any Plan, or any Plan shall be subject to termination proceedings (whether voluntary or involuntary) and there shall result from such "reportable event" or termination proceedings a liability of Customer to the PBGC which in the reasonable opinion of IBM Credit will have a Material Adverse Effect; (P) Any "person" (as defined in Section 13(d)(3) of the 39 Securities Exchange Act of 1934, as amended) acquires a beneficial interest in 50% or more of the Voting Stock of Customer. (Q) Robec, Inc. fails to execute and deliver to IBM Credit in form and substance satisfactory to IBM Credit, a collateralized guaranty guarantying the obligations of Customer to IBM Credit and execute any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected IBM Credit's security interest in the assets of Robec, Inc. contemplated by the collateralized guaranty upon the earlier of (i) the acquisition of all of the outstanding shares of Robec, Inc. by an Affiliate, and (ii) June 30, 1995. 9.2. Acceleration. Upon the occurrence and during the continuance of an Event of Default which has not been waived in writing by IBM Credit, IBM Credit may, in its sole discretion, take any or all of the following actions, without prejudice to any other rights it may have at law or under this Agreement to enforce its claims against the Customer: (a) declare all Obligations to be immediately due and payable (except with respect to any Event of Default set forth in Section 9.1(E) hereof, in which case all Obligations shall automatically become immediately due and payable without the necessity of any notice or other demand) without presentment, demand, protest or any other action or obligation of IBM Credit; and (b) immediately terminate the Line of Credit hereunder. 9.3. Remedies. (A) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit may exercise all rights and remedies of a secured party under the U.C.C. Without limiting the generality of the foregoing, IBM Credit may: (i) remove from any premises where same may be located any and all documents, instruments, files and records (including the copying of any computer records), and any receptacles or cabinets containing same, relating to the Accounts, or IBM Credit may use (at the expense of the Customer) such of the supplies or space of the Customer at Customer's place of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit and generally shall have all other rights respecting said Accounts, including without limitation the right to accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the Customer or IBM Credit; (iii) sell, assign and deliver the Accounts and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at IBM Credit's sole option and discretion, and IBM Credit may bid or become a purchaser at any 40 such sale; and (iv) foreclose the security interests created pursuant to this Agreement by any available judicial procedure, or to take possession of any or all of the Collateral without judicial process and to enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same. (B) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, in the name of Customer or IBM Credit, or in the name of such other party as IBM Credit may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as IBM Credit in its sole discretion may deem advisable, and IBM Credit shall have the right to purchase at any such sale. If IBM Credit, in its sole discretion determines that any of the Collateral requires rebuilding, repairing, maintenance or preparation, IBM Credit shall have the right, at its option, to do such of the aforesaid as it deems necessary for the purpose of putting such Collateral in such saleable form as IBM Credit shall deem appropriate. The Customer hereby agrees that any disposition by IBM Credit of any Collateral pursuant to and in accordance with the terms of a repurchase agreement between IBM Credit and the manufacturer or any supplier (including any Authorized Supplier) of such Collateral constitutes a commercially reasonable sale. The Customer agrees, at the request of IBM Credit, to assemble the Collateral and to make it available to IBM Credit at places which IBM Credit shall select, whether at the premises of the Customer or elsewhere, and to make available to IBM Credit the premises and facilities of the Customer for the purpose of IBM Credit's taking possession of, removing or putting such Collateral in saleable form. If notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) Business Days notice shall constitute reasonable notification. (C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit is hereby granted, upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, an irrevocable, non-exclusive license to use, assign, license or sublicense all computer software programs, data bases, processes and materials used by the Customer in its businesses or in connection with any of the Collateral. (D) The net cash proceeds resulting from IBM Credit's exercise of any of the foregoing rights (after deducting all charges, costs and expenses, including reasonable attorneys' 41 fees) shall be applied by IBM Credit to the payment of Customer's Obligations, whether due or to become due, in such order as IBM Credit may in it sole discretion elect. Customer shall remain liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer or its successors or assigns, any surplus resulting therefrom. (E) The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. 9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral by any court process Customer hereby irrevocably waives to the extent permitted by applicable law any bonds, surety and security relating thereto required by any statute, court rule or otherwise as an incident to such possession and any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof. In addition, Customer waives to the extent permitted by applicable law all rights of set-off it may have against IBM Credit. Customer further waives to the extent permitted by applicable law presentment, demand and protest, and notices of non-payment, non-performance, any right of contribution, dishonor, and any other demands, and notices required by law. Section 10. MISCELLANEOUS 10.1. Term; Termination. (A) This Agreement shall remain in force until the earlier of (i) the Termination Date, (ii) the date specified in a written notice by the Customer that they intend to terminate this Agreement which date shall be no less than 90 days following the receipt by IBM Credit of such written notice, and (iii) termination by IBM Credit after the occurrence and during the continuance of an Event of Default. Upon the date that this Agreement is terminated, all of Customer's Obligations shall be immediately due and payable in their entirety, even if they are not yet due under their terms. (B) Until the indefeasible payment in full of all of Customer's Obligations, no termination of this Agreement or any of the Other Agreements shall in any way affect or impair the Customer's Obligations to IBM Credit including, without limitation, any transaction or event occurring prior to such termination, and IBM Credit's security interest in the Collateral. 10.2. Indemnification. The Customer hereby agrees to indemnify and hold harmless IBM Credit and each of its officers, directors, agents and assigns (collectively, the "Indemnified Persons") 42 against all losses, claims, damages, liabilities or other expenses (including reasonable attorneys' fees and court costs now or hereinafter arising from the enforcement of this Agreement, the "Losses") to which any of them may become subject insofar as such Losses arise out of or are based upon any event, circumstance or condition (a) occurring or existing on or before the date of this Agreement relating to any financing arrangements IBM Credit may from time to time have with (i) Customer, (ii) any Person that shall be acquired by Customer or (iii) any Person that Customer may acquire all or substantially all of the assets of, or (b) directly or indirectly, relating to the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby or thereby or to any of the Collateral or to any act or omission of the Customer in connection therewith. Notwithstanding the foregoing, the Customer shall not be obligated to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of IBM Credit's gross negligence or willful misconduct. The indemnity provided herein shall survive the termination of this Agreement. 10.3. Additional Obligations. IBM Credit, without waiving or releasing any Obligation or Default of the Customer, may perform any Obligations of the Customer that the Customer shall fail or refuse to perform and IBM Credit may, at any time or times hereafter, but shall be under no obligation so to do, pay, acquire or accept any assignment of any security interest, lien, encumbrance or claim against the Collateral asserted by any person. All sums paid by IBM Credit in performing in satisfaction or on account of the foregoing and any expenses, including reasonable attorney's fees, court costs, and other charges relating thereto, shall be a part of the Obligations, payable on demand and secured by the Collateral. 10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT, ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 10.5. Alteration/Waiver. This Agreement and the Other Agreements may not be altered or amended except by an agreement in writing signed by the Customer and by IBM Credit. No delay or omission of IBM Credit to exercise any right or remedy hereunder, whether before or after the occurrence of any Event of Default, shall impair any such right or remedy or shall operate as a waiver thereof or as a waiver of any such Event of Default. In the event that IBM Credit at any time or from time to time dispenses with any one or more of the requirements specified in 43 this Agreement or any of the Other Agreements, such dispensation may be revoked by IBM Credit at any time and shall not be deemed to constitute a waiver of any such requirement subsequent thereto. IBM Credit's failure at any time or times to require strict compliance and performance by the Customer of any undertakings, agreements, covenants, warranties and representations of this Agreement or any Other Agreement shall not waive, affect or diminish any right of IBM Credit thereafter to demand strict compliance and performance thereof. Any waiver by IBM Credit of any Default by the Customer under this Agreement or any of the Other Agreements shall not waive or affect any other Default by the Customer under this Agreement or any of the Other Agreements, whether such Default is prior or subsequent to such other Default and whether of the same or a different type. None of the undertakings, agreements, warranties, covenants, and representations of the Customer contained in this Agreement or the Other Agreements and no Default by the Customer shall be deemed waived by IBM Credit unless such waiver is in writing signed by an authorized representative of IBM Credit. 10.6. Severability. If any provision of this Agreement or the Other Agreements or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Agreement and the Other Agreements and the application of such provision to other Persons or circumstances will not be affected thereby, the provisions of this Agreement and the Other Agreements being severable in any such instance. 10.7. One Loan. All Advances heretofore, now or at any time or times hereafter made by IBM Credit to the Customer under this Agreement or the Other Agreements shall constitute one loan secured by IBM Credit's security interests in the Collateral and by all other security interests, liens and encumbrances heretofore, now or from time to time hereafter granted by the Customer to IBM Credit or any assignor of IBM Credit. 10.8. Additional Collateral. All monies, reserves and proceeds received or collected by IBM Credit with respect to Accounts and other property of the Customer in possession of IBM Credit at any time or times hereafter are hereby pledged by Customer to IBM Credit as security for the payment of Customer's Obligations and shall be applied promptly by IBM Credit on account of the Customer's Obligations; provided, however, IBM Credit may release to the Customer such portions of such monies, reserves and proceeds as IBM Credit may from time to time determine, in its sole discretion. 10.9. No Merger or Novations. (A) Notwithstanding anything contained in any document to the contrary, it is understood and agreed by the Customer and IBM Credit that the claims of IBM Credit arising hereunder and existing as of the date hereof constitute continuing claims arising out of the Obligations of 44 Customer under the Financing Agreement and any Other Agreement. Customer acknowledges and agrees that such Obligations outstanding as of the date hereof have not been satisfied or discharged and that this Agreement is not intended to effect a novation of the Customer's Obligations under the Financing Agreement or any Other Agreement. (B) Neither the obtaining of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the Obligations of the Customer to IBM Credit secured by this Agreement and shall not operate as a merger of any covenant in this Agreement, and the acceptance of any payment or alternate security shall not constitute or create a novation and the obtaining of a judgment or judgments under a covenant herein contained shall not operate as a merger of that covenant or affect IBM Credit's rights under this Agreement. 10.10. Paragraph Titles. The Section titles used in this Agreement and the Other Agreements are for convenience only and do not define or limit the contents of any Section. 10.11. Binding Effect; Assignment. This Agreement and the Other Agreements shall be binding upon and inure to the benefit of IBM Credit and the Customer and their respective successors and assigns; provided, that the Customer shall have no right to assign this Agreement or any of the Other Agreements without the prior written consent of IBM Credit. 10.12. Notices. Except as otherwise expressly provided in this Agreement, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (A) upon receipt if deposited in the United States mails, first class mail, with proper postage prepaid, (B) upon receipt of confirmation or answer back if sent by telecopy, or other similar facsimile transmission, (C) one Business Day after deposit with a reputable overnight courier with all charges prepaid, or (D) when delivered, if hand-delivered by messenger, all of which shall be properly addressed to the party to be notified and sent to the address or number indicated as follows: 45 (i) If to IBM Credit at: IBM Credit Corporation 1500 Riveredge Parkway Atlanta, GA 30328 Attention: Remarketer Finance Center Manager Telecopy: (404) 644-4825 (ii) If to Customer at: CMS Enhancements, Inc. MacArthur Place, 3 Imperial Promenade Santa Ana, CA 92707 Attention: Stephen G. Holmes Telecopy: (704) 513-2450 or to such other address or number as each party designates to the other in the manner prescribed herein. 10.13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. 10.14. ATTACHMENT A MODIFICATIONS. IBM Credit may modify the Product Advance Term set forth in Attachment A from time to time if on at least two occasions during any three-month period a Shortfall Amount has become due and payable and may modify the Collateral Insurance Amount set forth in Attachment A from time to time, in each case, by providing Customer with a new Attachment A. Any such new Attachment A shall be effective as of the date specified in the new Attachment A. 10.15. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, THE CUSTOMER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT COURT IN NEW YORK. (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY 46 REGISTERED OR CERTIFIED MAlL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. (E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. 10.16. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH. IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused its authorized representatives to execute this Agreement and has caused its corporate seal to be affixed hereto as of the date first written above. CMS ENHANCEMENTS, INC. By: /s/ Stephen G. Holmes ------------------------------- Print Name: Stephen G. Holmes ----------------------- Title: CFO ---------------------------- ACCEPTED this day of , 1995 ------- ------------------ IBM CREDIT CORPORATION By: ----------------------------- Print Name: --------------------- Title: -------------------------- 47 ATTACHMENT A, EFFECTIVE DATE MAY 5, 1995 ("IWCF ATTACHMENT A") TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT") DATED MAY 5, 1995 Customer: CMS Enhancements, Inc. I. Fees, Rates and Repayment Terms: (A) Line of Credit: Five Million Dollars ($5,000,000.00); (B) Borrowing Base: (i) 85% of the amount of the Customer's Eligible Accounts as of the date of determination as reflected in the Customer's most recent Collateral Management Report; (ii) 100% of the Customer's inventory in the Customer's possession as of the date of determination as reflected in the Customer's most recent Collateral Management Report constituting Products (other than service parts) financed through a Product Advance by IBM Credit. The value to be assigned to such inventory shall be based upon the Authorized Supplier's invoice price to Customer for Financed Products net of all applicable price reduction credits. (C) Product Advance Charge: Prime Rate plus 1.750% (D) Product Advance Term: 100 days (E) Collateral Insurance Amount: Five Million Dollars ($5,000,000.00) (F) A/R Finance Charge: (i) PRO Advance Charge: Prime Rate plus 2.000% (ii) WCO Advance Charge: Prime Rate plus 2.000% (iii) Takeout Advance Charge: Prime Rate plus 1.750% (G) Delinquency Fee Rate: Prime Rate plus 6.500% (H) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30% (I) Other Charges: (i) Application Processing Fee: $3,000.00 (ii) Monthly Service Fee: $ 500.00 (iii) Closing Fee: $ 0.00 (iv) Commitment Fee: $ 0.00 Page 1 of 19 FIRST AMENDMENT TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT This First Amendment, dated May 18, 1995 is hereby made to that certain Inventory and Working Capital Financing Agreement (as amended, supplemented or otherwise modified from time to time, the "Agreement") to be entered into by and between CDS Distribution, Inc. ("Customer") and IBM Credit Corporation ("IBM Credit"). RECITALS WHEREAS, Customer executed that certain Agreement on May 5, 1995. WHEREAS, Customer has requested that it be permitted to deliver certain security pledges and related documents, as required by IBM Credit, after the execution of the Agreement. WHEREAS, IBM Credit has agreed to permit the delivery of such documents after the execution of the Agreement subject to the terms and conditions set forth in this First Amendment; NOW THEREFORE, in consideration of the premises set forth herein, and for other good and valuable consideration, the value and sufficiency of which is hereby acknowledged, the Customer and IBM Credit agree as follows: AGREEMENT SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement. a) The following definition is added to Section 1.1 of the Agreement: "`Foreign Subsidiaries': Kenfil Distribution (Far East) Limited, Kenfil Distribution (M) SDN. BHD., and CMS Enhancements (Australia) Pty Limited; for each the outstanding capital stock of which is one hundred percent (100%) owned by Customer or its Affiliates." SECTION 2. Amendment to Event of Default. a) The following paragraph (R) is inserted immediately following Section 9.1, paragraph (Q): "(R) Customer fails to grant, by June 30, 1995, IBM Credit a first priority security interest in and assign, pledge, hypothecate and deliver to IBM Credit 100% of the stock of each of the Foreign Subsidiaries and all substitutions, dividends, interest, and redemption prices and other rights with respect to such securities and all other property received in respect of or in exchange for such securities, opinions of local counsel Page 1 of 3 49 satisfactory to IBM Credit concerning IBM Credit's first priority security interest in the stock of the Foreign Subsidiaries and additional related documents, both satisfactory in form and substance to IBM Credit, with respect to the securities pledged of the Foreign Subsidiaries, as IBM Credit may reasonably request." SECTION 3. Representations and Warranties. Customer makes to IBM Credit the following representations and warranties, all of which are material and are made to induce IBM Credit to enter into this Amendment. 3.1 Accuracy and Completeness of Warranties and Representations. All representations made by Customer in the Agreement were true, accurate and complete in every respect as of the date made, and, after giving effect to this Amendment, all representations made by Customer in the Agreement are true, accurate and complete in every material respect as of the date hereof, and do not fail to disclose any material fact necessary to make the representations not misleading. 3.2 Violation of Other Agreements. The execution and delivery of this Amendment do not violate or cause Customer not to be in compliance with the terms of any agreement to which Customer is a party. 3.3. Litigation. Except as has been disclosed by Customer to IBM Credit in writing, there is no litigation, proceeding, investigation or labor dispute pending or threatened against Customer, which if adversely determined, would materially adversely affect the ability of Customer to perform its obligations under the Financing Agreement, and the other documents, instruments and agreements executed in connection therewith or pursuant hereto. SECTION 4. Ratification of Agreement. Except as specifically waived hereby, all the provisions of the Agreement shall remain in full force and effect. Customer hereby ratifies, confirms and agrees that the Agreement represents a valid and enforceable obligation of Customer, and is not subject to any claims, offsets or defenses. SECTION 5. Governing Law. This Amendment shall be governed by and interpreted in accordance with the laws of the State of New York. SECTION 6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement. Page 2 of 3 50 IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized officers of the undersigned as of the day and year first above written. CDS DISTRIBUTION, INC. IBM CREDIT CORPORATION BY: /s/ Stephen G. Holmes BY: --------------------------- ----------------------------- NAME: Stephen G. Holmes NAME: ------------------------- --------------------------- TITLE: CFO TITLE: ------------------------ -------------------------- ATTEST: ATTEST: /s/ Peter ??????????? - ------------------------------ -------------------------------- PRINT NAME: Peter ????????? PRINT NAME: ------------------- --------------------- Page 3 of 3 51 EX-10.03 5 WORKING CAPITAL FINANCING AGREEMENT EXHIBIT 10.03 WORKING CAPITAL FINANCING AGREEMENT This WORKING CAPITAL FINANCING AGREEMENT (as amended, supplemented or otherwise modified from time to time, this "Agreement") and is hereby made this 5 day of May, 1995, by and between IBM CREDIT CORPORATION with a place of business at 1500 Riveredge Parkway, Atlanta, GA 30328 ("IBM Credit"), and AmeriQuest/Kenfil Inc. with a place of business at 2722 Michelson Drive, Irvine, CA 92713 ("Customer"). RECITALS WHEREAS, in the course of Customer's operations, Customer requires cash for its working capital requirements; WHEREAS, Customer has requested that IBM Credit provide it with working capital loans and IBM Credit is willing to provide such loans to Customer subject to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: Section 1. DEFINITIONS 1.1 Special Definitions. The following terms shall have the following respective meaning in this Agreement: "A/R Advance": any loan or advance of funds made by IBM Credit to Customer pursuant to Section 2.2 of this Agreement, including, as the context may require, a WCO Advance and a Takeout Advance. "A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance under this Agreement. "A/R Advance Term": shall be a WCO Advance Term. "A/R Finance Charges": as defined on Attachment A. "Accounts": as defined in the U.C.C. "Advance": any loan or other extension of credit by IBM Credit to Customer pursuant to this Agreement including, without 1 limitation, A/R Advances. "Affiliate": with respect to the Customer, any Person meeting one of the following: (i) at least 10% of such Person's equity is owned, directly or indirectly, by Customer; (ii) at least 10% of Customer's equity is owned, directly or indirectly, by such Person; or (iii) at least 10% of Customer's equity and at least 10% of such Person's equity is owned, directly or indirectly, by the same Person or Persons. All of Customer's officers, directors, joint venturers, and partners shall also be deemed to be Affiliates of Customer for purposes of this Agreement. "AmeriQuest": AmeriQuest Technologies, Inc., the direct owner of one hundred percent (100%) of the outstanding capital stock of Customer. "Auditors": a nationally recognized firm of independent certified public accountants selected by Customer and satisfactory to IBM Credit. "Available Credit": at any time, (1) the Maximum Advance Amount less (2) the Outstanding Advances at such time. "Average Daily Balance": the sum of the Outstanding A/R Advances as of the end of each day during a calendar month, divided by the number of days in the calendar month. "Borrowing Base": as defined in Attachment A. "Business Day": any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are generally closed or on which IBM Credit is closed. "Closing Date": the date on which the conditions precedent to the effectiveness of this Agreement set forth in Section 5.1 hereof are satisfied or waived in writing by IBM Credit. "Code": the Internal Revenue Code of 1986, as amended or any successor statute. "Collateral": as defined in Section 4.1. "Collateral Management Report": a report to be delivered by Customer to IBM Credit from time to time, as provided herein, signed by the chief executive officer or chief financial officer, in the form of Attachment F hereto, detailing and certifying, among other items: a summary of Customer's Eligible Accounts, the amounts and aging of all of Customer's AccountS, the amounts and aging of Customer's accounts payable as of a specified date, all of Customer's IBM Credit borrowing activity during a specified period and the total amount of Customer's Borrowing Base as well as Customer's Outstanding A/R Advances, Available Credit and any 2 Shortfall Amount as of a specified date. "Common Due Date": (1) the fifth day of a calendar month if the A/R Advance Term expires on the first through tenth of such calendar month; (2) the fifteenth day of a calendar month if the A/R Advance Term expires on the eleventh through twentieth of such calendar month; and (3) the twenty-fifth day of a calendar month if the A/R Advance Term expires on the twenty-first through the last day of such calendar month. "Compliance Certificate": a certificate substantially in the form of Attachment C. "Default": either (1) an Event of Default or (2) any event or condition which, but for the requirement that notice be given or time lapse or both, would be an Event of Default. "Delinquency Fee Rate": as defined on Attachment A. "Eligible Account": as defined in Section 3.1. "Environmental Laws": all statutes, laws, judicial decisions, regulations, ordinances, and other governmental restrictions relating to pollution, the protection of the environment, occupational health and safety, or to emissions, discharges or release of pollutants, contaminants, hazardous substances or wastes into the environment. "Environmental Liability": any claim, demand, obligation, cause of action, allegation, order, violation, injury, judgment, penalty or fine, cost or expense, resulting from the violation or alleged violation of any Environmental Laws or the imposition of any Lien pursuant to any Environmental Laws. "ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any successor statutes. "Event of Default": as defined in Section 9.1. "Financial Statements": the consolidated and consolidating balance sheets, statements of operations, statements of cash flows and statements of changes in shareholder's equity of AmeriQuest and its Subsidiaries for the period specified, prepared in accordance with GAAP and consistent with prior practices. "Floor Plan Lender": any Person who now or hereinafter provides inventory financing to Customer, provided that such Person executes an Intercreditor Agreement (as defined in Section 5.1 of this Agreement) or a subordination agreement with IBM Credit in form and substance satisfactory to IBM Credit. 3 "GAAP": generally accepted accounting principles in the United States as in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing. "Guaranties": guaranties in favor of IBM Credit guarantying the Obligations of Customer. "Guarantor": any guarantor pursuant to any of the Guaranties. "Hazardous Substances": all substances, wastes or materials, to the extent subject to regulation as "hazardous substances" or "hazardous waste" under any Environmental Laws. "Indebtedness": with respect to any Person, (1) all obligations of such Person for borrowed money or for the deferred purchase price of property or services (other than trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices) or which is evidenced by a note, bond, debenture or similar instrument, (2) all obligations of such Person under capital leases, (3) all obligations of such Person in respect of letters of credit, banker's acceptances or similar obligations issued or created for the account of such Person, (4) liabilities arising under any interest rate protection, future, option swap, cap or hedge agreement or arrangement under which such Person is a party or beneficiary, (5) all obligations under guaranties of such Person and (6) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. "Investment": with respect to any Person (the "Investor"), (1) any investment by the Investor in any other Person, whether by means of share purchase, capital contribution, purchase or other acquisition of a partnership or joint venture interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty by the Investor of any Indebtedness or other obligation of any other Person. "Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust, mortgage, other encumbrance or other arrangement having the practical effect of the foregoing, including the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Line of Credit": as defined in Section 2.1. 4 "Material Adverse Effect": a material adverse effect (1) on the business, operations, results of operations, assets, or financial condition of the Customer, (2) on the aggregate value of the Collateral or the aggregate amount which IBM Credit would be likely to receive (after giving consideration to reasonably likely delays in payment and reasonable costs of enforcement) in the liquidation of such Collateral to recover the Obligations in full, or (3) on the rights and remedies of IBM Credit under this Agreement. "Maximum Advance Amount": at any time, the lesser of (1) the Line of Credit and (2) the Borrowing Base at such time. "Obligations": all covenants, agreements, warranties, duties, representations, loans, advances, interest (including interest accruing on or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to Customer, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), fees, reasonable expenses, indemnities, liabilities and Indebtedness of any kind and nature whatsoever now or hereafter arising, owing, due or payable from Customer to IBM Credit, whether primary or secondary, joint or several, direct, contingent, fixed or otherwise, secured or unsecured arising under this Agreement and the Other Agreements. "Other Agreements": all security agreements, mortgages, leases, instruments, documents, guarantees, schedules of assignment, contracts and similar agreements executed by Customer and delivered to IBM Credit, pursuant to this Agreement or otherwise, and all amendments, supplements and other modifications to the foregoing from time to time. "Other Charges": as set forth in Attachment A. "Outstanding Advances": at any time of determination, the sum of the Outstanding A/R Advances. "Outstanding A/R Advances": at any time of determination, the sum of (1) the unpaid principal amount of all A/R Advances made by IBM Credit under this Agreement; and (2) any finance charge, fee, expense or other amount related to A/R Advances charged to Customer's account with IBM Credit. "Payment Dates": the fifth, fifteenth and twenty-fifth day of each calendar month. "Permitted Indebtedness": any of the following: (1) Indebtedness to IBM Credit; (2) Indebtedness described in Section VII of Attachment B; 5 (3) Indebtedness to any Floor Plan Lender; (4) Purchase Money Indebtedness; (5) guaranties in favor of IBM Credit; and (6) Other Indebtedness consented to by IBM Credit in writing prior to the incurrence thereof. "Permitted Liens": any of the following: (1) Liens which are the subject of an Intercreditor Agreement, in effect from time to time between IBM Credit and any other secured creditor; (2) Purchase Money Security Interests; (3) Liens described in Section I of Attachment B; (4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common carriers, landlords and other similar Liens arising by operation of law or otherwise, not waived in connection herewith, for amounts that are not yet due and payable or being contested in good faith by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (5) attachment or judgment Liens individually or in the aggregate not in excess of $300,000 (exclusive of (A) any amounts that are duly bonded to the satisfaction of IBM Credit or (B) any amount fully covered by insurance as to which the insurance company has acknowledged its obligation to pay such judgment in full); (6) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of Customer; (7) extensions and renewals of the foregoing permitted Liens; provided that (A) the aggregate amount of such extended or renewed Liens do not exceed the original principal amount of the Indebtedness for which it secures, (B) such Liens do not extend to any property other than property already previously subject to the Lien and (C) such extended or renewed Liens are on terms and conditions no more restrictive than the terms and conditions of the Liens being extended or renewed; 6 (8) Liens arising from deposits or pledges to secure bids, tenders, contracts, leases, surety and appeal bonds and other obligations of like nature arising in the ordinary course of the Customer's business; (9) Liens for taxes, assessments or governmental charges not delinquent or being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted if an adequate reserve or other appropriate provisions shall have been made therefor as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect; (10) Liens arising out of deposits in connection with workers' compensation, unemployment insurance or other social security or similar legislation; (11) Liens arising pursuant to this Agreement; and (12) other Liens consented to by IBM Credit in writing prior to the incurrence thereof. "Person": any individual, association, firm, corporation, partnership, trust, unincorporated organization or other entity whatsoever. "Policies": all policies of insurance required to be maintained by Customer under this Agreement or any of the Other Agreements. "Prime Rate": as of the date of determination, the average of the rates of interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of America National Trust & Savings Association as their prime or base rate, as of the last Business Day Of the calendar month immediately preceding the date of determination, whether or not such announced rates are the actual rates charged by such banking institutions to their most creditworthy borrowers. "Purchase Money Indebtedness": any Indebtedness (including capital leases) incurred to finance the acquisition of assets (other than assets manufactured or distributed by or bearing any trademark or trade name of any Authorized Supplier) to be used in the Customer's business not to exceed the lesser of (1) the purchase price or acquisition cost of such asset and (2) the fair market value of such asset. "Purchase Money Security Interest": any security interest securing Purchase Money Indebtedness, which security interest applies solely to the particular asset acquired with the Purchase Money Indebtedness. "Request for A/R Advance": as defined in Section 2.2. 7 "Requirement of Law": as to any Person, the articles of incorporation and by- laws of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Shortfall Amount": as defined in Section 2.5 "Subsidiary": with respect to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions are at the time directly or indirectly owned by such Person. "Takeout Advance": an A/R Advance made to existing creditors of Customer on behalf of Customer, in an amount sufficient to discharge Customer's indebtedness to such creditor. "Termination Date": shall mean (i) the first anniversary of the date of this Agreement or such other date as IBM Credit and Customer may agree to in writing from time to time. "Voting Stock": securities, the holders of which are ordinarily, in the absence of contingencies, entitled to elect the corporate directors (or persons performing similar functions). "WCO Advance": an A/R Advance, with a WCO Advance Term. "WCO Advance Term": for each WCO Advance, a period of one hundred eighty (180) days commencing on the A/R Advance Date for such WCO Advance. 1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which are defined in the Uniform Commercial Code as in effect in the State of New York (the "U.C.C.") shall have the meanings assigned to them therein. 8 Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES 2.1. Line of Credit. Subject to the terms and conditions set forth in this Agreement, on and after the Closing Date to but not including the date that is the earlier of (x) the date on which this Agreement is terminated pursuant to Section 10.1 and (y) the date on which IBM Credit terminates the Line of Credit pursuant to Section 9.2, IBM Credit agrees to extend to the Customer a line of credit ("Line of Credit") in the amount set forth in Attachment A pursuant to which IBM Credit will make to the Customer, from time to time, Advances in an aggregate amount at any one time outstanding not to exceed the Maximum Advance Amount. 2.2. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's request for such an Advance ("Request for A/R Advance"). For any requested A/R Advance pursuant to which monies will be disbursed to Customer or any Person other than IBM Credit, a Request for A/R Advance shall be delivered to IBM Credit on or prior to 1:00 p.m. (Stamford, CT time) one Business Day prior to the requested A/R Advance Date. The Request for A/R Advance shall specify (i) the requested A/R Advance Date; and (ii) the amount of the requested A/R Advance; Customer may deliver a Request for A/R Advance via facsimile. Any Request for A/R Advance delivered to IBM Credit shall be irrevocable. (B) Subject to the terms and conditions of this Agreement, on the A/R Advance Date specified in a Request for A/R Advance, IBM Credit shall make the principal amount of each A/R Advance available to the Customer in immediately available funds to an account maintained by Customer (or in the case of a Takeout Advance, as directed by Customer). If IBM Credit is making an A/R Advance hereunder on a day on which Customer is to repay all or any part of an Outstanding Advance (or any other amount owing hereunder), IBM Credit shall apply the proceeds of the A/R Advance to such repayment and only an amount equal to the difference, if any, between the amount of the A/R Advance and the amount being repaid shall be made available to Customer as provided in the immediately preceding sentence. (C) Each A/R Advance shall accrue a finance charge on the unpaid principal amount thereof, at a per annum rate equal to the lesser of (a) the finance charge set forth in Attachment A to this Agreement under the caption "A/R Finance Charge" for such type of A/R Advance, and (b) the highest rate from time to time permitted by applicable law. If it is determined that amounts received from the Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. 9 (D) Unless otherwise due and payable at an earlier date, the unpaid principal amount of each A/R Advance, other than a Takeout Advance, shall be due and payable on the applicable Common Due Date. Unless otherwise notified by Customer in writing prior to the day the principal amount of any WCO Advance becomes due and payable, the Customer shall be deemed to have provided IBM Credit with a Request for A/R Advance requesting a WCO Advance on the day such principal amount is due and payable in an amount equal to the unpaid principal amount of the WCO Advance so due. Subject to the terms and conditions of this Agreement, the principal amount of such WCO Advance shall automatically renew for an additional WCO Advance Term. Notwithstanding any other provision of this Agreement, a Takeout Advance may only be requested on the Closing Date and such Takeout Advance shall be limited to an amount sufficient to discharge the indebtedness that is the subject of a Takeout Advance. Unless otherwise agreed in writing, a Takeout Advance shall be due as defined on Attachment D. 2.3. Finance and Other Charges. (A) Finance charges shall be calculated by multiplying the applicable Delinquency Fee Rate or A/R Finance Charge provided for in this Agreement by Customer's applicable Average Daily Balance. The Delinquency Fee Rate and the various A/R Finance Charges provided for in this Agreement are each computed on the basis of an actual day, 360 day year. (B) The Customer hereby agrees to pay to IBM Credit the charges set forth as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit additional charges for any returned items of payment received by Customer. The Customer hereby acknowledges that any such charges are not interest but that such charges, if unpaid, will constitute part of the Outstanding Advances. (C) The finance charges and Other Charges owed under this Agreement, and any charges hereafter agreed to in writing by the parties, are payable monthly on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its sole discretion, add unpaid finance charges and Other Charges to the Customer's outstanding Advances. (D) If any amount owed under this Agreement, including, without limitation, any Advance, is not paid when due (whether at maturity, by acceleration or otherwise), the unpaid amount thereof will bear a late charge from and including its due date to but not including the date IBM Credit receives payment thereof, at a per annum rate equal to the lesser of (a) the amount set forth in Attachment A to this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time to time permitted by applicable law. In addition, if any Shortfall Amount shall not be paid when due pursuant to Section 2.5 hereof, Customer shall pay IBM Credit an additional late charge equal to 10 the product of the Shortfall Amount multiplied by thirty (30) basis points. If it is determined that amounts received from Customer were in excess of such highest rate, then the amount representing such excess shall be considered reductions to principal of Advances. 2.4. Statements Regarding Customer's Account. IBM Credit will send statements of each transaction hereunder as well as monthly billing statements to Customer with respect to Advances and other charges due on Customer's account with IBM Credit. Each statement of transaction and monthly billing statement shall be deemed, absent manifest error, to be correct and shall constitute an account stated with respect to each transaction or amount described therein unless within seven (7) calendar days after such statement of transaction or billing statement is received by Customer, Customer provides IBM Credit written notice objecting that such amount or transaction is incorrectly described therein and specifying the error(s), if any, contained therein. IBM Credit may at any time adjust such statements of transaction or billing statements to comply with applicable law and this Agreement. 2.5. Shortfall. If, on any date, the Outstanding Advances shall exceed the Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer shall on such date prepay the Outstanding Advances in an amount equal to such Shortfall Amount. 2.6. Application of Payments. The Customer hereby agrees that all checks and other instruments delivered to IBM Credit on account of Customer's Obligations shall constitute conditional payment until such items are actually collected by IBM Credit. The Customer waives the right to direct the application of any and all payments at any time or times hereafter received by IBM Credit on account of the Customer's Obligations. Customer agrees that IBM Credit shall have the continuing exclusive right to apply and reapply any and all such payments to Customer's Obligations in such manner as IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any of its books and records. 2.7. Prepayment and Reborrowing By Customer. (A) Customer my at any time prepay, without notice or penalty, in whole or in part amounts owed under this Agreement. IBM Credit may apply payments made to it (whether by the Customer or otherwise) to pay finance charges and other amounts owing under this Agreement first and then to the principal amount owed by the Customer. (B) Subject to the terms and conditions of this Agreement, any amount prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be reborrowed by Customer in accordance with the provisions of this Agreement. 11 Section 3. LINE OF CREDIT/ADDITIONAL PROVISIONS 3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall have the sole right to determine eligibility of Accounts from an Account obligor for purposes of determining the Borrowing Base; however, without limiting such right, the following Accounts will be deemed to be ineligible for purposes of determining the Borrowing Base: (A) Accounts created from the sale of goods and/or performance of services on non-standard terms or that allow for payment to be made more than forty-five (45) days from the date of such sale or performance of services; (B) ACcounts unpaid more than ninety (90) days from date of invoice; (C) Accounts payable by an account debtor if fifty percent (50%) or more of the aggregate outstanding balance of all such Accounts remain unpaid for more than ninety (90) days from the date of invoice; (D) Accounts payable by an account debtor that is an Affiliate of Customer or an officer, employee, agent, guarantor, stockholder or Affiliate of Customer or is related to or has common shareholders, officers or directors with Customer; (E) Accounts arising from consignment sales; (F) Except for state, local and United States government institutions and public educational institutions, accounts with respect to which the payment by the account debtor is or may be conditional; (G) Except for state, local and United States government institutions and public educational institutions, accounts with respect to which: (i) the account debtor is not a commercial entity, or (ii) the account debtor is not a resident of the United States; (H) Accounts payable by any account debtor to which Customer is or may become liable for goods sold or services rendered by such account debtor to Customer; (I) Accounts arising from the sale or lease of goods purchased for a personal, family or household purpose; (J) Accounts arising from the sale or other disposition of goods that has been used for demonstration purposes or loaned or 12 leased by the Customer to another party; (K) Accounts which are progress payment accounts or contra accounts; (L) Accounts upon which IBM Credit does not have a valid, perfected, first priority security interest; (M) Accounts payable by an account debtor that is or Customer knows will become, subject to proceedings under United States Bankruptcy Law or other law for the relief of debtors; (N) Accounts that are not payable in US dollars; (O) Accounts payable by any account debtor that is a remarketer of computer hardware and software products and whose purchases of such products from Customer have been financed by another person who pays the proceeds of such financing directly to Customer on behalf of such obligor; (P) Accounts arising from the sale or lease of goods which are billed to any account debtor but have not yet been shipped by Customer; (Q) Accounts with respect to which Customer has permitted or agreed to any extension, compromise or settlement, or made any change or modification of any kind or nature, including, but not limited to, any change or modification to the terms relating thereto; (R) Accounts that do not arise from undisputed bona fide transactions completed in accordance with the terms and conditions contained in the invoices, purchase orders and contracts relating thereto; (S) Accounts that are discounted for the full payment term specified in Customer's terms and conditions with its account debtors, or for any longer period of time; (T) Accounts on cash on delivery (C.O.D.) terms; (U) Accounts arising from maintenance or service contracts that are billed in advance of full performance of service; (V) Accounts arising from bartered transactions; (W) Accounts arising from incentive payments, rebates, discounts, credits, and refunds from a supplier; and (X) Any and all other Accounts that IBM Credit deems, in its sole and absolute discretion, to be ineligible. 13 The aggregate of all Accounts that are not ineligible Accounts shall hereinafter be referred to as "Eligible Accounts". 3.2. Reimbursement for Charges. Customer agrees to pay for all costs and expenses of Customer's bank in respect to collection of checks and other items of payment, all fees relating to the use and maintenance of the Lockbox and the Special Account (each as defined in Section 3.3) and with respect to remittances of proceeds of the Advances hereunder. 3.3. Lockbox and Special Account. Customer shall establish and maintain lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A with the financial institution(s) listed in Attachment A (each, a "Bank") pursuant to an agreement between the Customer and each Bank in form and substance satisfactory to IBM Credit. Customer shall also establish and maintain a deposit account which shall contain only proceeds of Customer's Accounts ("Special Account") with each Bank. Customer shall enter into and maintain a contingent blocked account agreement with each Bank for the benefit of IBM Credit in form and substance satisfactory to IBM Credit pursuant to which, among other things, such Bank shall agree that, upon notice from IBM Credit, disbursements from the Special Account shall be made only as IBM Credit shall direct. 3.4. Collections. Customer shall instruct all Account obligors to remit payments directly to a Lockbox. In addition, Customer shall have such instruction printed in conspicuous type on all invoices. Customer shall instruct such Bank to deposit all remittances to such Bank's Lockbox into its Special Account. Customer further agrees that it shall not deposit or permit any deposits of funds other than remittances paid in respect of the Accounts into the Special Account(s) or permit any commingling of funds with such remittances in any Lockbox or Special Account. Without limiting the Customer's foregoing obligations, if, at any time, Customer receives a remittance directly from an account obligor, then Customer shall make entries on its books and records in a manner that shall reasonably identify such remittances and shall keep a separate account on its record books of all remittances so received and deposit the same into a Special Account. Until so deposited into the Special Account, Customer shall keep all remittances received in respect of Accounts separate and apart from Customer's other property so that they are capable of identification as the proceeds of Accounts in which IBM Credit has a security interest. 3.5. Application of Remittances and Credits. Customer shall apply all remittances against the aggregate of Customer's outstanding ACcounts no later than the end of the Business Day on which such remittances are deposited into the Special Account. Customer also agrees to apply each remittance against its respective Account no later than three (3) Business Days from the 14 date such remittance is deposited into the Special Account. In addition, Customer shall promptly apply any credits owing in respect to any Account when due. 3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with full power of substitution, as its true and lawful attorney-in-fact with full power, in good faith and in compliance with commercially reasonable standards, in the discretion of IBM Credit, to: (A) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected the security interest in the Collateral contemplated under this Agreement and the Other Agreements; (B) endorse the name of Customer upon any of the items of payment of proceeds and deposit the same in the account of IBM Credit for application to the Obligation; and upon the occurrence and during the continuance of an Event of Default as defined in Section 9.1 hereof: (C) demand payment, enforce payment and otherwise exercise all Customer's rights and remedies with respect to the collection of any Accounts; (D) settle, adjust, compromise, extend or renew any Accounts; (E) settle, adjust or compromise any legal proceedings brought to collect any Accounts; (F) sell or assign any Accounts upon such terms, for such amounts and at such time or times as IBM Credit may deem advisable; (G) discharge and release any Accounts; (H) prepare, file and sign Customer's name on any Proof of Claim in Bankruptcy or similar document against any Account obligor; (I) prepare, file and sign Customer's name on any notice of lien, claim of mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or similar document in connection with any Accounts; (J) endorse the name of Customer upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to any Account or goods pertaining thereto; 15 (K) sign the name of Customer to requests for verification of Accounts and notices thereof to Account obligors; (L) sign the name of Customer on any document or instrument that IBM Credit shall deem necessary or appropriate to enforce any and all remedies it may have under this Agreement, at law or otherwise; and (M) make, settle and adjust claims under the Policies with respect to the Collateral and endorse Customer's name on any check, draft, instrument or other item of payment of the proceeds of the Policies with respect to the Collateral; and (N) take control in any manner of any term of payment or proceeds and for such purpose to notify the postal authorities to change the address for delivery of mail addressed to Customer to such address as IBM Credit may designate. The power of attorney granted by this Section is for value and coupled with an interest and is irrevocable so long as this Agreement is in effect or any Obligations remain outstanding. Nothing done by IBM Credit pursuant to such power of attorney will reduce any of Customer's Obligations other than Customer's payment Obligations to the extent IBM Credit has received monies. Section 4. SECURITY -- COLLATERAL 4.1 Grant. To secure Customer's full and punctual payment and performance of the Obligations when due (whether at the stated maturity, by acceleration or otherwise), Customer hereby grants IBM Credit a security interest in all of Customer's right, title and interest in and to the following property, whether now owned or hereafter acquired or existing and wherever located: (A) all inventory and equipment, and all parts thereof, attachments, accessories and accessions thereto, products thereof and documents therefor; (B) all accounts, contract rights, chattel paper, instruments, deposit accounts, obligations of any kind owing to Customer, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and all books, invoices, documents and other records in any form evidencing or relating to any of the foregoing; (C) general intangibles; (D) all rights now or hereafter existing in and to all mortgages, security agreements, leases or other contracts securing or otherwise relating to any of the foregoing; and (E) all substitutions and replacements for all of the 16 foregoing, all proceeds of all of the foregoing and, to the extent not otherwise included, all payments under insurance or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing. All of the above assets shall be collectively defined herein as the "Collateral". Customer covenants and agrees with IBM Credit that: (a) the security constituted by this Agreement is in addition to any other security from time to time held by IBM Credit and (b) the security hereby created is a continuing security interest and will cover and secure the payment of all Obligations both present and future of Customer to IBM Credit pursuant to this Agreement and the Other Agreements. 4.2. Further Assurances. Customer shall, from time to time upon the request of IBM Credit, execute and deliver to IBM Credit, or cause to be executed and delivered, at such time or times as IBM Credit may request such other and further documents, certificates and instruments that IBM Credit may deem necessary to perfect and maintain perfected IBM Credit's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under this Agreement and the Other Agreements. Customer shall make appropriate entries on its books and records disclosing IBM Credit's security interests in the Collateral. Section 5. CONDITIONS PRECEDENT 5.1. Conditions Precedent to the Effectiveness of This Agreement. The effectiveness of this Agreement is subject to the receipt by IBM Credit of, or waiver in writing by IBM Credit of compliance with, the following conditions precedent: (A) this Agreement executed and delivered by Customer and IBM Credit; (B) (i) copies of the resolutions of the Board of Directors of Customer certified by the secretary or assistant secretary of Customer authorizing the execution, delivery and performance of this Agreement and each Other Agreement executed and delivered in connection herewith, (ii) a certificate of the secretary or an assistant secretary of Customer, in form and substance satisfactory to IBM Credit, certifying the names and true signatures of the officers of Customer authorized to sign this Agreement and the Other Agreements and (iii) copies of the articles of incorporation and by-laws of Customer certified by the secretary or assistant secretary of Customer; (C) certificates dated as of a recent date from the Secretary of State or other appropriate authority evidencing the 17 good standing of Customer in the jurisdiction of its organization and in each other jurisdiction where the ownership or lease of its property or the conduct of its business requires it to qualify to do business; (D) copies of all approvals and consents from any Person, in each case in form and substance satisfactory to IBM Credit, which are required to enable Customer to authorize, or required in connection with, (a) the execution, delivery or performance of this Agreement and each of the Other Agreements, and (b) the legality, validity, binding effect or enforceability of this Agreement and each of the Other Agreements; (E) a lockbox agreement executed by Customer and each Bank, in form and substance satisfactory to IBM Credit; (F) a contingent blocked account agreement executed by Customer and each Bank in form and substance satisfactory to IBM Credit; (G) intercreditor agreements ("Intercreditor Agreement"), in form and substance satisfactory to IBM Credit, executed by each other secured creditor of Customer as set forth in Attachment A; (H) a favorable opinion of counsel for Customer in substantially the form of Attachment I; (I) UCC-1 financing statements for each jurisdiction reasonably requested by IBM Credit executed by Customer and each guarantor whose guaranty to IBM Credit is intended to be secured by a pledge of its assets; (J) the statements, certificates, documents, instruments, financing statements, agreements and information set forth in Attachment A and Attachment B; and (K) all such other statements, certificates, documents, instruments, financing statements, agreements and other information with respect to the matters contemplated by this Agreement as IBM Credit shall have reasonably requested. 5.2. Conditions to Each Advance. No Advance will be required to be made or renewed by IBM Credit under this Agreement unless, on and as of the date of such Advance, the following statements shall be true to the satisfaction of IBM Credit: (A) The representations and warranties contained in this Agreement or in any document, instrument or agreement executed in connection herewith, are true and correct in all material respects on and as of the date of such Advance as though made on and as of such date; 18 (B) No event has occurred and is continuing or after giving effect to such Advance or the application of the proceeds thereof would result which would constitute a Default; (C) No event has occurred and is continuing which could reasonably be expected to have a Material Adverse Effect; (D) Both before and after giving effect to the making of such Advance, no Shortfall Amount exists. Except as Customer has otherwise disclosed to IBM Credit in writing prior to each request, each request (or deemed request pursuant to Section 2.2 (D)) for an Advance hereunder and the receipt (or deemed receipt) by the Customer of the proceeds of any Advance hereunder shall be deemed to be a representation and warranty by Customer that, as of and on the date of such Advance, the statements set forth in (A) through (D) above are true statements. No such disclosures by Customer to IBM Credit shall in any manner be deemed to satisfy the conditions precedent to each Advance that are set forth in this Section 5.2. Section 6. REPRESENTATIONS AND WARRANTIES To induce IBM Credit to enter into this Agreement, Customer represents and warrants to IBM Credit as follows: 6.1. Organization and Qualifications. Customer and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) has the power and authority to own its properties and assets and to transact the businesses in which it presently is engaged and (iii) is duly qualified and is authorized to do business and is in good standing in each jurisdiction where it presently is engaged in business and is required to be so qualified. 6.2. Rights in Collateral; Priority of Liens. Customer and each of its Subsidiaries owns the property granted by it respectively as Collateral to IBM Credit, free and clear of any and all Liens in favor of third parties except for the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the Customer and each of its Subsidiaries pursuant to this Agreement, the Guaranties and the Other Agreements in the Collateral constitute the valid and enforceable first, prior and perfected Liens on the Collateral, except to the extent any Liens that are prior to IBM Credit's Liens are (i) the subject of an Intercreditor Agreement or (ii) Purchase Money Security Interests in product of a brand that is not financed by IBM Credit. 6.3. No Conflicts. The execution, delivery and performance by Customer of this Agreement and each of the Other Agreements (i) 19 are within its corporate power; (ii) are duly authorized by all necessary corporate action; (iii) are not in contravention in any respect of any Requirement of Law or any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it or any of its properties are bound; (iv) do not require the consent, registration or approval of any Governmental Authority or any other Person (except such as have been duly obtained, made or given, and are in full force and effect); and (v) will not, except as contemplated herein, result in the imposition of any Liens upon any of its properties. 6.4. Enforceability. This Agreement and all of the other documents executed and delivered by the Customer in connection herewith are the legal, valid and binding obligations of Customer, and are enforceable in accordance with their terms, except as such enforceability may be limited by the effect of any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or similar laws affecting creditors' rights generally or the general equitable principles relating thereto. 6.5. Locations of Offices, Records and Inventory. The address of the principal place of business and chief executive office of Customer is as set forth on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. The books and records of Customer, and all of its chattel paper (other than the chattel paper delivered to IBM Credit pursuant to Section 7.14(E)) and records of Accounts, are maintained exclusively at such location. There is no jurisdiction in which Customer has any assets, equipment or inventory (except for vehicles and inventory in transit for processing) other than those jurisdictions identified on Attachment B or on any notice provided by Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment B, as amended from time to time by any notice provided by Customer to IBM Credit in accordance with Section 7.7(C) of this Agreement, also contains a complete list of the legal names and addresses of each warehouse at which the Customer's inventory is stored. None of the receipts received by Customer from any warehouseman states that the goods covered thereby are to be delivered to bearer or to the order of a named person or to a named person and such named person's assigns. 6.6. Fictitious Business Names. Customer has not used any corporate or fictitious name during the five (5) years preceding the date of this Agreement, other than those listed on Attachment B. 6.7. Organization. All of the outstanding capital stock of Customer has been validly issued, is fully paid and nonassessable. 20 6.8. No Judgments or Litigation. Except as set forth on Attachment B, no judgments, orders, writs or decrees are outstanding against Customer nor is there now pending or, to the best of Customer's knowledge after due inquiry, threatened, any litigation, contested claim, investigation, arbitration, or governmental proceeding by or against Customer. 6.9. No Defaults. The Customer is not in default under any term of any indenture, contract, lease, agreement, instrument or other commitment to which it is a party or by which it, or any of its properties are bound. Customer has no knowledge of any dispute regarding any such indenture, contract, lease, agreement, instrument or other commitment. No Default or Event of Default has occurred and is continuing. 6.10. Labor Matters. Except as set forth on any notice provided by Customer to IBM Credit pursuant to Section 7.1(F) of this Agreement, the Customer is not a party to any labor dispute. There are no strikes or walkouts or labor controversies pending or threatened against the Customer which could reasonably be expected to have a Material Adverse Effect. 6.11. Compliance with Law. Customer has not violated or failed to comply with any Requirement of Law or any requirement of any self regulatory organization. 6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan", "defined benefit plan", or "multi-employer benefit plan", which Customer has established, maintained, or to which it is required to contribute (collectively, the "Plans") is in compliance with all applicable provisions of ERISA and the Code and the rules and regulations thereunder as well as the Plan's terms and conditions. There have been no "prohibited transactions" and no "reportable event" has occurred within the last 60 months with respect to any Plan. Customer has no "multi-employer benefit plan". As used in this Agreement the terms "employee benefit plan", "employee pension benefit plan", "defined benefit plan", and "multi-employer benefit plan" have the respective meanings assigned to them in Section 3 of ERISA and any applicable rules and regulations thereunder. The Customer has not incurred any "accumulated funding deficiency" within the meaning of ERISA or incurred any liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection with a Plan (other than for premiums due in the ordinary course). 6.13. Compliance with Environmental Laws. Except as otherwise disclosed in Attachment B: (A) The Customer has obtained all government approvals required with respect to the operation of their businesses under any Environmental Law. 21 (B) (i) the Customer has not generated, transported or disposed of any Hazardous Substance; (ii) the Customer is not currently generating, transporting or disposing of any Hazardous Substance; (iii) the Customer has no knowledge that (a) any of its real property (whether owned, leased, or otherwise directly or indirectly controlled) has been used for the disposal of or has been contaminated by any Hazardous Substance, or (b) any of its business operations have contaminated lands or waters of others with any Hazardous Substance; (iv) the Customer and its respective assets are not subject to any Environmental Liability and, to the best of the Customer's knowledge, any threatened Environmental Liability; (v) the Customer has not received any notice of or otherwise learned of any governmental investigation evaluating whether any remedial action is necessary to respond to a release or threatened release of any Hazardous Substance for which the Customer may be liable; (vi) the Customer is not in violation of any Environmental Law; (vii) there are no proceedings or investigations pending against Customer with respect to any violation or alleged violation of any Environmental Law; provided however, that the parties acknowledge that any generation, transportation, use, storage and disposal of certain such Hazardous Substances in Customer's or its Subsidiaries' business shall be excluded from representations (i) and (ii) above, provided, further, that Customer is at all times generating, transporting, utilizing, storing and disposing such Hazardous Substances in accordance with all applicable Environmental Laws and in a manner designed to minimize the risk of any spill, contamination, release or discharge of Hazardous Substances other than as authorized by Environmental Laws. 6.14. Intellectual Property. Customer possesses such assets, licenses, patents, patent applications, copyrights, service marks, trademarks, trade names and trade secrets and all rights and other property relating thereto or arising therefrom ("Intellectual Property") as are necessary or advisable to continue to conduct its present and proposed business activities. 6.15. Licenses and Permits. Customer has obtained and holds in full force and effect all franchises, licenses, leases, permits, certificates, authorizations, qualifications, easements, rights of way and other rights and approvals which are necessary for the operation of its businesses as presently conducted. Customer is not in violation of the terms of any such franchise, license, lease, permit, certificate, authorization, qualification, easement, right of way, right or approval. 6.16. Investment Company. The Customer is not (i) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a holding company, or an Affiliate of a holding company or of a subsidiary of a holding company, within the meaning of the Public Utility Holding Company 22 Act of 1935, as amended, or (iii) subject to any other law which purports to regulate or restrict its ability to borrow money or to consummate the transactions contemplated by this Agreement or the Other Agreements or to perform its obligations hereunder or thereunder. 6.17. Taxes and Tax Returns. Customer has timely filed all federal, state, and local tax returns and other reports which it is required by law to file, and has either duly paid all taxes, fees and other governmental charges indicated to be due on the basis of such reports and returns or pursuant to any assessment received by the Customer, or made provision for the payment thereof in accordance with GAAP. The charges and reserves on the books of the Customer in respect of taxes or other governmental charges are in accordance with GAAP. No tax liens have been filed against Customer or any of its property. 6.18. Status of Accounts. Each Account is based on an actual and bona fide sale and delivery of goods or rendition of services to customers, made by Customer, in the ordinary course of its business; the goods and inventory being sold and the Accounts created are its exclusive property and are not and shall not be subject to any Lien, consignment arrangement, encumbrance, security interest or financing statement whatsoever (other than Permitted Liens). The Customer's customers have accepted goods or services and owe and are obligated to pay the full amounts stated in the invoices according to their terms. There are no proceedings or actions known to Customer which are pending or threatened against any Material Account Obligor (as defined in Section 7.14(B) of this Agreement) of any of the Accounts which could reasonably be expected to result in a material adverse effect on the obligor's ability to pay the full amounts due to Customer. 6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound by any agreement or arrangement (whether oral or written) to which any Affiliate or Subsidiary of the Customer is a party except (i) in the ordinary course of and pursuant to the reasonable requirements of Customer's business and (ii) upon fair and reasonable terms no less favorable to Customer than it could obtain in a comparable arm's-length transaction with an unaffiliated Person. 6.20. Accuracy and Completeness of Information. All factual information furnished by or on behalf of the Customer to IBM Credit or the Auditors for purposes of or in connection with this Agreement or any Other Agreement, or any transaction contemplated hereby or thereby is or will be true and accurate in all material respects on the date as of which such information is dated or certified and not incomplete by omitting to state any material fact necessary to make such information not misleading at such time. 23 6.21. Recording Taxes. All recording taxes, recording fees, filing fees and other charges payable in connection with the filing and recording of this Agreement have either been paid in full by Customer or arrangements for the payment of such amounts by Customer have been made to the satisfaction of IBM Credit. 6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted Indebtedness; and (ii) has not guaranteed the obligations of any other Person (except as permitted by Section 8.4). Section 7. AFFIRMATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations: 7.1. Financial and Other Information. Customer shall cause to be furnished to IBM Credit the following information within the following time periods: (A) as soon as available and in any event within ninety (90) days after the end of each fiscal year of AmeriQuest (i) audited Financial Statements (provided that, to the extent not otherwise audited by the Auditors, the consolidating Financial Statements may be unaudited) as of the close of the fiscal year and for the fiscal year, together with a comparison to the Financial Statements for the prior year, in each case accompanied by (a) either an opinion of the Auditors without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit or, if so qualified, an opinion which shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such Auditors' "Management Letter" to AmeriQuest, if any, (c) a written statement signed by the Auditors stating that in the course of the regular audit of the business of AmeriQuest and its consolidated Subsidiaries, which audit was conducted by the Auditors in accordance with generally accepted auditing standards, the Auditors have not obtained any knowledge of the existence of any Default under any provision of this Agreement, or, if such Auditors shall have obtained from such examination any such knowledge, they shall disclose in such written statement the existence of the Default and the nature thereof, it being understood that such Auditors shall have no liability, directly or indirectly, to anyone for failure to obtain knowledge of any such Default; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of AmeriQuest and its Subsidiaries for such fiscal year prepared by the chief executive officer or chief financial officer of AmeriQuest; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in 24 determining, as of the end of such fiscal year, whether AmeriQuest is in compliance with the financial covenants set forth in Exhibit A to the guaranty executed by AmeriQuest; (B) as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of AmeriQuest (i) Financial Statements as of the end of such period and for the fiscal year to date, together with a comparison to the Financial Statements for the same periods in the prior year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments and except for the absence of footnotes) by the chief executive officer or chief financial officer of AmeriQuest as having been prepared in accordance dance with GAAP; (ii) if composed, a narrative discussion of the consolidated financial condition and results of operations and the consolidated liquidity and capital resources of AmeriQuest and its Subsidiaries for such period and for the fiscal year to date prepared by the chief executive officer or chief financial officer of AmeriQuest; and (iii) a Compliance Certificate along with a schedule, in substantially the form of Attachment C hereto, of the calculations used in determining, as of the end of such fiscal quarter, whether AmeriQuest is in compliance with the financial covenants set forth in Exhibit A to the guaranty executed by AmeriQuest; (C) promptly after Customer obtains knowledge of (i) the occurrence of a Default or Event of Default, or (ii) the existence of any condition or event which would result in the Customer's failure to satisfy the conditions precedent to Advances set forth in Section 5, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (D) promptly after Customer obtains knowledge of (i) any proceeding(s) being instituted or threatened to be instituted by or against Customer in any federal, state, local or foreign court or before any commission or other regulatory body (federal, state, local or foreign), or (ii) any actual or prospective change, development or event which, in any such case, has had or could reasonably be expected to have a Material Adverse Effect, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (E) promptly after Customer obtains knowledge that (i) any order, judgment or decree in excess of $300,000 shall have been entered against Customer or any of its properties or assets, or (ii) it has received any notification of a material violation of any Requirement of Law from any Governmental Authority, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the 25 Customer's proposed response thereto, each in reasonable detail; (F) promptly after Customer learns of any material labor dispute to which Customer may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which Customer is a party or by which it is bound, a certificate of the chief executive officer or chief financial officer of Customer specifying the nature thereof and the Customer's proposed response thereto, each in reasonable detail; (G) within five (5) Business Days after request by IBM Credit, any written certificates, schedules and reports together with all supporting documents as IBM Credit may reasonably request relating to the Collateral or the Customer's or any guarantor's business affairs and financial condition; (H) by the fifth (5th) day of each month, or as otherwise agreed in writing, a Collateral Management Report as of a date no earlier than the last day of the immediately preceding month; (I) along with the Financial Statements set forth in Section 7.1(A) and (B), the name, address and phone number of each of its account debtors' primary contacts for each Account on the Accounts aging report contained in its most recent Collateral Management Report; and (J) within five (5) days after the same are sent, copies of all financial statements and reports which AmeriQuest or Customer sends to its stockholders, and within five (5) days after the same are filed, copies of all financial statements and reports which AmeriQuest or Customer may make to, or file with, the Securities and Exchange Commission or any successor or analogous governmental authority. Each certificate, schedule and report provided by Customer to IBM Credit shall be signed by an authorized officer of Customer, and which signature shall be deemed a representation and warranty that the information contained in such certificate, schedule or report is true and accurate in all material respects on the date as of which such certificate, schedule or report is made and does not omit to state a material fact necessary in order to make the statements contained therein not misleading at such time. Each financial statement delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods. 7.2. Location of Collateral. The inventory, equipment and other tangible Collateral shall be kept or sold at the addresses as set forth on Attachment B or on any notice provided by Customer to IBM Credit in accordance with Section 7.7(C). Such locations shall be certified quarterly to IBM Credit substantially in the 26 form of Attachment G. 7.3. Changes in Customer. Customer shall provide 30 days prior written notice to IBM Credit of any change in Customer's name, chief executive office and principal place of business, organization, form of ownership or corporate structure; provided, however, that Customer's compliance with this covenant shall not relieve it of any of its other obligations or any other provisions under this Agreement or any Other Agreement limiting actions of the type described in this Section. 7.4. Corporate Existence. Customer shall (A) maintain its corporate existence, maintain in full force and effect all licenses, bonds, franchises, leases and qualifications to do business, and all contracts and other rights necessary to the profitable conduct of its business, (B) continue in, and limit its operations to, the same general lines of business as presently conducted by it unless otherwise permitted in writing by IBM Credit and (C) comply with all Requirements of Law. 7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it learns of the occurrence of any event which would constitute a "reportable event" under ERISA or any regulations thereunder with respect to any Plan, or that the PBGC has instituted or will institute proceedings to terminate any Plan. Notwithstanding the foregoing, the Customer shall have no obligation to notify IBM Credit as to any "reportable event" as to which the 30-day notice requirement of Section 4043(b) has been waived by the PBGC, until such time as such Customer is required to notify the PBGC of such reportable event. Such notification shall include a certificate of the chief financial officer of Customer setting forth details as to such "reportable event" and the action which Customer proposes to take with respect thereto, together with a copy of any notice of such "reportable event" which may be required to be filed with the PBGC, or any notice delivered by the PBGC evidencing its intent to institute such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause the plan administrator to furnish, to IBM Credit the most recently filed annual report for each Plan. 7.6. Environmental Matters. (A) Customer and any other Person under Customer's control (including, without limitation, agents and Affiliates under such control) shall (i) comply with all Environmental Laws in all material respects, and (ii) undertake to use commercially reasonable efforts to prevent any unlawful release of any Hazardous Substance by Customer or such Person into, upon, over or under any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer. (B) Customer shall notify IBM Credit, promptly upon its 27 obtaining knowledge of (i) any non-routine proceeding or investigation by any Governmental Authority with respect to the presence of any Hazardous Substances on or in any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, (ii) all claims made or threatened by any Person or Governmental Authority against Customer or any of Customer's assets relating to any loss or injury resulting from any Hazardous Substance, (iii) Customer's discovery of evidence of unlawful disposal of or environmental contamination by any Hazardous Substance on any property now or hereinafter owned, leased or otherwise controlled (directly or indirectly) by Customer, and (iv) any occurrence or condition which could constitute a violation of any Environmental Law. 7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to maintain books and records pertaining to the Collateral in such detail, form and scope as is consistent with good business practice, and agrees that such books and records will reflect IBM Credit's interest in the AccountS. (B) Customer agrees that IBM Credit or its agents may enter upon the premises of Customer at any time and from time to time, during normal business hours and upon reasonable notice under the circumstances, and at any time at all on and after the occurrence and during the continuance of an Event of Default for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or copying (at Customer's expense) any and all records pertaining thereto, (iii) discussing the affairs, finances and business of Customer with any officers, employees and directors of Customer or with the Auditors and (iv) verifying Eligible Accounts and other Collateral. Customer also agrees to provide IBM Credit with such reasonable information and documentation that IBM Credit deems necessary to conduct the foregoing activities, including, without limitation, reasonably requested samplings of purchase orders, invoices and evidences of delivery or other performance. Upon the occurrence and during the continuance of an Event of Default which has not been waived by IBM Credit in writing, IBM Credit may conduct any of the foregoing activities in any manner that IBM Credit deems reasonably necessary. (C) Customer shall give IBM Credit thirty (30) days prior written notice of any change in the location of any Collateral, the location of its books and records or in the location of its chief executive office or place of business from the locations specified in Attachment B, and will execute in advance of such change and cause to be filed and/or delivered to IBM Credit any financing statements, landlord or other lien waivers, or other documents reasonably required by IBM Credit, all in form and substance reasonably satisfactory to IBM Credit. (D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient detail, of any substantial change relating 28 to the type, quantity or quality of the Collateral, or any event which could reasonably be expected to have a Material Adverse Effect on the value of the Collateral or on the security interests granted to IBM Credit therein. 7.8. Insurance; Casualty Loss. (A) Customer will maintain with financially sound and reputable insurance companies: (i) insurance on its properties, (ii) public liability insurance against claims for personal injury or death as a result of the use of any products sold by it and (iii) insurance coverage against other business risks, in each case, in at least such amounts and against at least such risks as are usually and prudently insured against in the same general geographical area by companies of established repute engaged in the same or a similar business. Customer will furnish to IBM Credit, upon its written request, the insurance certificates with respect to such insurance. In addition, all Policies so maintained are to name IBM Credit as an additional insured as its interest may appear. (B) Without limiting the generality of the foregoing, Customer shall keep and maintain, at its sole expense, the Collateral insured for an amount not less than the amount set forth on Attachment A from time to time opposite the caption "Collateral Insurance Amount" against all loss or damage under an "all risk" Policy in companies mutually acceptable to IBM Credit and Customer, with a lender's loss payable endorsement or mortgagee clause in form and substance reasonably satisfactory to IBM Credit designating that any loss payable thereunder with respect to such Collateral shall be payable to IBM Credit. Upon receipt of proceeds by IBM Credit the same shall be applied on account of the Customer's Outstanding Product Advances first, then to the Outstanding A/R Advances. Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon the Policy issued by it or by independent instruments furnished to IBM Credit, at least ten (10) days written notice before any Policy shall be altered or cancelled and that no act or default of Customer or any other person shall affect the right of IBM Credit to recover under the Policies. Customer hereby agrees to direct all insurers under the Policies to pay all proceeds with respect to the Collateral directly to IBM Credit. If Customer fails to pay any cost, charges or premiums, or if Customer fails to insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit hereunder shall be considered an additional debt owed by Customer to IBM Credit and are due and payable immediately upon receipt of an invoice by IBM Credit. 7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or assessed against Customer or any of the Collateral before any penalty or interest accrues thereon unless such taxes are being contested, in good faith, by appropriate proceedings promptly instituted and diligently conducted and an 29 adequate reserve or other appropriate provisions have been made therefor as required in order to be in conformity with GAAP and an adverse determination in such proceedings could not reasonably be expected to have a Material Adverse Effect. 7.10. Compliance With Laws. Customer agrees to comply with all Requirements of Law applicable to the Collateral or any part thereof, or to the operation of its business. 7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year ending June 30 unless Customer provides IBM Credit at least thirty (30) days prior written notice of any change thereof. 7.12. Intellectual Property. Customer shall do and cause to be done all things necessary to preserve and keep in full force and effect all registrations of Intellectual Property which the failure to do or cause to be done could reasonably be expected to have a Material Adverse Effect. 7.13. Maintenance of Property. Customer shall maintain all of its material properties (business and otherwise) in good condition and repair (ordinary wear and tear excepted) and pay and discharge all costs of repair and maintenance thereof and all rental and mortgage payments and related charges pertaining thereto and not commit or permit any waste with respect to any of its material properties. 7.14. Collateral. Customer shall: (A) if from time to time reasonably required by IBM Credit, provide IBM Credit with access to copies of all invoices, delivery evidences and other such documents relating to each Account; (B) promptly upon Customer's obtaining knowledge thereof, furnish to and inform IBM Credit of all material adverse information relating to the financial condition of any Account obligor whose outstanding obligations to Customer constitute two percent (2%) or more of the Accounts at such time (a "Material Account Obligor"); (C) promptly upon Customer's learning thereof, notify IBM Credit in writing of any event which would cause any obligation of a Material Account Obligor to become an Ineligible Account; (D) keep all goods rejected or returned by any account debtor and all goods repossessed or stopped in transit by Customer from any account debtor segregated from other property of Customer, holding the same in trust for IBM Credit until Customer applies a credit against such account debtor's outstanding obligations to Customer or sells such goods in the 30 ordinary course of business, whichever occurs earlier; (E) stamp or otherwise mark chattel paper and instruments now owned or hereafter acquired by it in conspicuous type to show that the same are subject to IBM Credit's security interest and immediately thereafter deliver or cause such chattel paper and instruments to be delivered to IBM Credit or any agent designated by IBM Credit with appropriate endorsements and assignments to vest title and possession in IBM Credit; (F) use commercially reasonable efforts to collect all Accounts owed; (G) promptly notify IBM Credit of any loss, theft or destruction of or damage to any of the Collateral. Customer shall diligently file and prosecute its claim for any award or payment in connection with any such loss, theft, destruction of or damage to Collateral. Customer shall, upon demand of IBM Credit, make, execute and deliver any assignments and other instruments sufficient for the purpose of assigning any such award or payment to IBM Credit, free of any encumbrances of any kind whatsoever; (H) consistent with reasonable commercial practice, observe and perform all matters and things necessary or expedient to be observed or performed under or by virtue of any lease, license, concession or franchise forming part of the Collateral in order to preserve, protect and maintain all the rights of IBM Credit thereunder; (I) consistent with reasonable commercial practice, maintain, use and operate the Collateral and carry on and conduct its business in a proper and efficient manner so as to preserve and protect the Collateral and the earnings, incomes, rents, issues and profits thereof; and (J) at any time and from time to time, upon the request of IBM Credit, and at the sole expense of Customer, Customer will promptly and duly execute and deliver such further instruments and documents and take such further action as IBM Credit may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the security interests granted herein and the payment of any and all recording taxes and filing fees in connection therewith. 7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer become parties to this Agreement or any other agreement executed in connection with this Agreement as guarantors or sureties. Customer will comply, and cause all 31 Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement, as if such sections applied directly to such Subsidiaries. Section 8. NEGATIVE COVENANTS Until termination of this Agreement and the indefeasible payment and satisfaction of all Obligations due hereunder: 8.1. Liens. The Customer will not, directly or indirectly mortgage, assign, pledge, transfer, create, incur, assume, permit to exist or otherwise permit any Lien or judgment to exist on any of its property, assets, revenues or goods, whether real, personal or mixed, whether now owned or hereafter acquired, except for Permitted Liens. 8.2. Disposition of Assets. The Customer will not, directly or indirectly, sell, lease, assign, transfer or otherwise dispose of any assets other than (i) sales of inventory in the ordinary course of business and short term rental of inventory as demonstrations in amounts not material to Customer, and (ii) voluntary dispositions of individual assets and obsolete or worn out property in the ordinary course of business, provided, that the aggregate book value of all such assets and property so sold or disposed of under this section 8.2 (ii) in any fiscal year shall not exceed 5% of the consolidated assets of the Customer as of the beginning of such fiscal year. 8.3. Corporate Changes. The Customer will not, without the prior written consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve or enter into or engage in any operation or activity materially different from that presently being conducted by Customer. 8.4. Guaranties. The Customer will not, directly or indirectly, assume, guaranty, endorse, or otherwise become liable upon the obligations of any other Person, except (i) by the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business, (ii) by the giving of indemnities in connection with the sale of inventory or other asset dispositions permitted hereunder, and (iii) for guaranties in favor of IBM Credit. 8.5. Restricted Payments. The Customer will not, directly or indirectly: (i) declare or pay any dividend (other than dividends payable solely in common stock of Customer) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of capital stock of Customer or any warrants, options or rights to purchase any such capital stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, 32 either directly or indirectly, whether in cash or property or in obligations of Customer; or (ii) make any optional payment or prepayment on or redemption (including, without limitation, by making payments to a sinking or analogous fund) or repurchase of any Indebtedness (other than the Obligations). 8.6. Investments. The Customer will not, directly or indirectly, make, maintain or acquire any Investment in any Person other than: (A) interest bearing deposit accounts (including certificates of deposit) which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a similar federal insurance program; (B) direct obligations of the government of the United States of America or any agency or instrumentality thereof or obligations guaranteed as to principal and interest by the United States of America or any agency thereof; (C) stock or obligations issued to Customer in settlement of claims against others by reason of an event of bankruptcy or a composition or the readjustment of debt or a reorganization of any debtor of Customer; and (D) commercial paper of any corporation organized under the laws of any State of the United States or any bank organized or licensed to conduct a banking business under the laws of the United States or any State thereof having the short-term highest rating then given by Moody's Investor's Services, Inc. or Standard & Poor's Corporation. 8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or indirectly, enter into any transaction with any Affiliate or Subsidiary, including, without limitation, the purchase, sale or exchange of property or the rendering of any service to any Affiliate or Subsidiary of Customer except in the ordinary course of business and pursuant to the reasonable requirements of Customer's business upon fair and reasonable terms no less favorable to Customer than could be obtained in a comparable arm's-length transaction with an unaffiliated Person. 8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a material liability to the PBGC, (B) permit any "prohibited transaction" involving any Plan (other than a "multi-employer benefit plan") which would subject the Customer to a material tax or penalty on "prohibited transactions" under the Code or ERISA, (C) fail to pay to any Plan any contribution which they are obligated to pay under the terms of such Plan, if such failure would result in a material "accumulated funding deficiency", whether or not waived, (D) allow or suffer to exist any occurrence and during the continuance of a "reportable event" 33 or any other event or condition, which presents a material risk of termination by the PBGC of any Plan (other than a "multi-employer benefit plan"), or (E) fail to notify IBM Credit as required in Section 7.5. As used in this Agreement, the terms "accumulated funding deficiency" and "reportable event" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in the Code and ERISA. For purposes of this Section 8.8, the terms material liability, tax, penalty, accumulated funding deficiency and risk of termination shall mean a liability, tax, penalty, accumulated funding deficiency or risk of termination which could reasonably be expected to have a Material Adverse Effect. 8.9. Additional Negative Pledges. Customer will not, directly or indirectly, create or otherwise cause or permit to exist or become effective any contractual obligation which may restrict or inhibit IBM Credit's rights or ability to sell or otherwise dispose of the Collateral or any part thereof after the occurrence and during the continuance of an Event of Default. 8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not be stored with a bailee, warehouseman or similar party without the prior written consent of IBM Credit unless Customer will, concurrently with the delivery of such Collateral to such party, cause such party to issue and deliver to IBM Credit, warehouse receipts in the name of IBM Credit evidencing the storage of such Collateral. 8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds of any Advances other than for its general working capital requirements. 8.12. Accounts. The Customer shall not permit or agree to any extension, compromise or settlement or make any change or modification of any kind or nature with respect to any Account, including any of the terms relating thereto, which would affect IBM Credit's ability to collect payment on any Account in whole or in part, except for such extensions, compromises or settlements made by Customer in the ordinary course of its business, provided, however, that the aggregate amount of such extensions, compromises or settlements does not exceed five percent (5%) of the Customer's Accounts at any time. 8.13. Indebtedness. The Customer will not create, incur, assume or permit to exist any Indebtedness, except for Permitted Indebtedness. 8.14. Loans. The Customer will not make any loans, advances, contributions or payments of money or goods to any Subsidiary, Affiliate or parent corporation or to any officer, director or stockholder of Customer or of any such corporation (except for 34 compensation for personal services actually rendered), except for transactions expressly authorized in this Agreement. Section 9. DEFAULT 9.1. Event of Default. Any one or more of the following events shall constitute an Event of Default by the Customer under this Agreement and the Other Agreements: (A) The failure to make timely payment of the Obligations or any part thereof when due and payable; (B) Customer fails to comply with or observe any term, covenant or agreement contained in this Agreement; (C) Any representation, warranty, statement, report or certificate made or delivered by or on behalf of Customer or any of its officers, employees or agents or by or on behalf of any Guarantor to IBM Credit was false in any material respect at the time when made or deemed made; (D) The occurrence of any event or circumstance which could reasonably be expected to have a Material Adverse Effect; (E) Customer, any Subsidiary or any Guarantor shall generally not pay its debts as such debts become due, become or otherwise declare itself insolvent, file a voluntary petition for bankruptcy protection, have filed against it any involuntary bankruptcy petition, cease to do business as a going concern, make any assignment for the benefit of creditors, or a custodian, receiver, trustee, liquidator, administrator or person with similar powers shall be appointed for Customer, any Subsidiary or any Guarantor or any of its respective properties or have any of its respective properties seized or attached, or take any action to authorize, or for the purpose of effectuating, the foregoing, provided, however, that Customer, any Subsidiary or any Guarantor shall have a period of forty-five (45) days within which to discharge any involuntary petition for bankruptcy or similar proceeding; (F) The use of any funds borrowed from IBM Credit under this Agreement for any purpose other than as provided in this Agreement; (G) The entry of any judgment against Customer or any Guarantor in an amount in excess of $300,000 and such judgment is not satisfied, dismissed, stayed or superseded by bond within thirty (30) days after the day of entry thereof (and in the event of a stay or supersedeas bond, such judgment is not discharged within thirty (30) days after termination of any such stay or bond) or such judgment is not fully covered by insurance as to which the insurance company has acknowledged its obligation to 35 pay such judgment in full; (H) The dissolution or liquidation of Customer or any Guarantor, or Customer or any Guarantor or its directors or stockholders shall take any action to dissolve or liquidate Customer or any Guarantor; (I) Any "going concern" or like qualification or exception, or qualification arising out of the scope of an audit by an Auditor of his opinion relative to any Financial Statement delivered to IBM Credit under this Agreement; (J) There issues a warrant of distress for any rent or taxes with respect to any premises occupied by Customer in or upon which the Collateral, or any part thereof, may at any time be situated and such warrant shall continue for a period of ten (10) Business Days from the date such warrant is issued; (K) Customer suspends business; (L) The occurrence of any event or condition which enables the holder of any Indebtedness arising in one or more related or unrelated transactions, in aggregate principal amount exceeding $300,000 to accelerate the maturity thereof or the failure of Customer to pay when due any such Indebtedness; (M) Any guaranty of any or all of the Customer's Obligations executed by any guarantor in favor of IBM Credit, shall at any time for any reason cease to be in full force and effect or shall be declared to be null and void by a court of competent jurisdiction or the validity or enforceability thereof shall be contested or denied by any such guarantor, or any such guarantor shall deny that it has any further liability or obligation thereunder or any such guarantor shall fail to comply with or observe any of the terms, provisions or conditions contained in any such guaranty; (N) Customer is in default under the material terms of any of the Other Agreements after the expiration of any applicable cure periods; (O) There shall occur a "reportable event" with respect to any Plan, or any Plan shall be subject to termination proceedings (whether voluntary or involuntary) and there shall result from such "reportable event" or termination proceedings a liability of Customer to the PBGC which in the reasonable opinion of IBM Credit will have a Material Adverse Effect; (P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) other than AmeriQuest acquires a beneficial interest in 50% or more of the Voting Stock of Customer. 36 (Q) Robec, Inc. fails to execute and deliver to IBM Credit in form and substance satisfactory to IBM Credit, a collateralized guaranty guarantying the obligations of Customer to IBM Credit and execute any document or instrument that IBM Credit shall deem necessary or appropriate to perfect and maintain perfected IBM Credit's security interest in the assets of Robec, Inc. contemplated by the collateralized guaranty upon the earlier of (i) the acquisition of all of the outstanding shares of Robec, Inc. by an Affiliate, and (ii) June 30, 1995. 9.2. Acceleration. Upon the occurrence and during the continuance of an Event of Default which has not been waived in writing by IBM Credit, IBM Credit may, in its sole discretion, take any or all of the following actions, without prejudice to any other rights it may have at law or under this Agreement to enforce its claims against the Customer: (a) declare all Obligations to be immediately due and payable (except with respect to any Event of Default set forth in Section 9.1(E) hereof, in which case all Obligations shall automatically become immediately due and payable without the necessity of any notice or other demand) without presentment, demand, protest or any other action or obligation of IBM Credit; and (b) immediately terminate the Line of Credit hereunder. 37 9.3. Remedies. (A) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit may exercise all rights and remedies of a secured party under the U.C.C. Without limiting the generality of the foregoing, IBM Credit may: (i) remove from any premises where same may be located any and all documents, instruments, files and records (including the copying of any computer records), and any receptacles or cabinets containing same, relating to the Accounts, or IBM Credit may use (at the expense of the Customer) such of the supplies or space of the Customer at Customer's place of business or otherwise, as may be necessary to properly administer and control the Accounts or the handling of collections and realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit and generally shall have all other rights respecting said Accounts, including without limitation the right to accelerate or extend the time of payment, settle, compromise, release in whole or in part any amounts owing on any Accounts and issue credits in the name of the Customer or IBM Credit; (iii) sell, assign and deliver the Accounts and any returned, reclaimed or repossessed merchandise, with or without advertisement, at public or private sale, for cash, on credit or otherwise, at IBM Credit's sole option and discretion, and IBM Credit may bid or become a purchaser at any such sale; and (iv) foreclose the security interests created pursuant to this Agreement by any available judicial procedure, or to take possession of any or all of the Collateral without judicial process and to enter any premises where any Collateral may be located for the purpose of taking possession of or removing the same. (B) Upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, IBM Credit shall have the right to sell, lease, or otherwise dispose of all or any part of the Collateral, whether in its then condition or after further preparation or processing, in the name of Customer or IBM Credit, or in the name of such other party as IBM Credit may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as IBM Credit in its sole discretion may deem advisable, and IBM Credit shall have the right to purchase at any such sale. If IBM Credit, in it's sole discretion determines that any of the Collateral requires rebuilding, repairing, maintenance or preparation, IBM Credit shall have the right, at its option, to do such of the aforesaid as it deems necessary for the purpose of putting such Collateral in such saleable form as IBM Credit shall deem appropriate. The Customer hereby agrees that any disposition by IBM Credit of any Collateral pursuant to and in accordance with the terms of a repurchase agreement between IBM Credit and the manufacturer or any supplier (including any Authorized Supplier) of such Collateral constitutes a 38 commercially reasonable sale. The Customer agrees, at the request of IBM Credit, to assemble the Collateral and to make it available to IBM Credit at places which IBM Credit shall select, whether at the premises of the Customer or elsewhere, and to make available to IBM Credit the premises and facilities of the Customer for the purpose of IBM Credit's taking possession of, removing or putting such Collateral in saleable form. If notice of intended disposition of any Collateral is required by law, it is agreed that ten (10) Business Days notice shall constitute reasonable notification. (C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit is hereby granted, upon the occurrence and during the continuance of any Event of Default which has not been waived in writing by IBM Credit, an irrevocable, non-exclusive license to use, assign, license or sublicense all computer software programs, data bases, processes and materials used by the Customer in its businesses or in connection with any of the Collateral. (D) The net cash proceeds resulting from IBM Credit's exercise of any of the foregoing rights (after deducting all charges, costs and expenses, including reasonable attorneys' fees) shall be applied by IBM Credit to the payment of Customer's Obligations, whether due or to become due, in such order as IBM Credit may in it sole discretion elect. Customer shall remain liable to IBM Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer or its successors or assigns, any surplus resulting therefrom. (E) The enumeration of the foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. 9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral by any court process Customer hereby irrevocably waives to the extent permitted by applicable law any bonds, surety and security relating thereto required by any statute, court rule or otherwise as an incident to such possession and any demand for possession of the Collateral prior to the commencement of any suit or action to recover possession thereof. In addition, Customer waives to the extent permitted by applicable law all rights of set-off it may have against IBM Credit. Customer further waives to the extent permitted by applicable law presentment, demand and protest, and notices of non-payment, non-performance, any right of contribution, dishonor, and any other demands, and notices required by law. 39 Section 10. MISCELLANEOUS 10.1. Term; Termination. (A) This Agreement shall remain in force until the earlier of (i) the Termination Date, (ii) the date specified in a written notice by the Customer that they intend to terminate this Agreement which date shall be no less than 90 days following the receipt by IBM Credit of such written notice, and (iii) termination by IBM Credit after the occurrence and during the continuance of an Event of Default. Upon the date that this Agreement is terminated, all of Customer's Obligations shall be immediately due and payable in their entirety, even if they are not yet due under their terms. (B) Until the indefeasible payment in full of all of Customer's Obligations, no termination of this Agreement or any of the Other Agreements shall in any way affect or impair the Customer's Obligations to IBM Credit including, without limitation, any transaction or event occurring prior to such termination, and IBM Credit's security interest in the Collateral. 10.2. Indemnification. The Customer hereby agrees to indemnify and hold harmless IBM Credit and each of its officers, directors, agents and assigns (collectively, the "Indemnified Persons") against all losses, claims, damages, liabilities or other expenses (including reasonable attorneys' fees and court costs now or hereinafter arising from the enforcement of this Agreement, the "Losses") to which any of them may become subject insofar as such Losses arise out of or are based upon any event, circumstance or condition (a) occurring or existing on or before the date of this Agreement relating to any financing arrangements IBM Credit may from time to time have with (i) Customer, (ii) any Person that shall be acquired by Customer or (iii) any Person that Customer may acquire all or substantially all of the assets of, or (b) directly or indirectly, relating to the execution, delivery or performance of this Agreement or the consummation of the transactions contemplated hereby or thereby or to any of the Collateral or to any act or omission of the Customer in connection therewith. Notwithstanding the foregoing, the Customer shall not be obligated to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result of IBM Credit's gross negligence or willful misconduct. The indemnity provided herein shall survive the termination of this Agreement. 10.3. Additional Obligations. IBM Credit, without waiving or releasing any Obligation or Default of the Customer, may perform any Obligations of the Customer that the Customer shall fail or refuse to perform and IBM Credit may, at any time or times hereafter, but shall be under no obligation so to do, pay, acquire or accept any assignment of any security interest, lien, encumbrance or claim against the Collateral asserted by any person. All sums paid by IBM Credit in performing in 40 satisfaction or on account of the foregoing and any expenses, including reasonable attorney's fees, court costs, and other charges relating thereto, shall be a part of the Obligations, payable on demand and secured by the Collateral. 10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT, ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. 10.5. Alteration/Waiver. This Agreement and the Other Agreements may not be altered or amended except by an agreement in writing signed by the Customer and by IBM Credit. No delay or omission of IBM Credit to exercise any right or remedy hereunder, whether before or after the occurrence of any Event of Default, shall impair any such right or remedy or shall operate as a waiver thereof or as a waiver of any such Event of Default. In the event that IBM Credit at any time or from time to time dispenses with any one or more of the requirements specified in this Agreement or any of the Other Agreements, such dispensation may be revoked by IBM Credit at any time and shall not be deemed to constitute a waiver of any such requirement subsequent thereto. IBM Credit's failure at any time or times to require strict compliance and performance by the Customer of any undertakings, agreements, covenants, warranties and representations of this Agreement or any Other Agreement shall not waive, affect or diminish any right of IBM Credit thereafter to demand strict compliance and performance thereof. Any waiver by IBM Credit of any Default by the Customer under this Agreement or any of the Other Agreements shall not waive or affect any other Default by the Customer under this Agreement or any of the Other Agreements, whether such Default is prior or subsequent to such other Default and whether of the same or a different type. None of the undertakings, agreements, warranties, covenants, and representations of the Customer contained in this Agreement or the Other Agreements and no Default by the Customer shall be deemed waived by IBM Credit unless such waiver is in writing signed by an authorized representative of IBM Credit. 10.6. Severability. If any provision of this Agreement or the Other Agreements or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Agreement and the Other Agreements and the application of such provision to other Persons or circumstances will not be affected thereby, the provisions of this Agreement and the Other Agreements being severable in any such instance. 41 10.7. One Loan. All Advances heretofore, now or at any time or times hereafter made by IBM Credit to the Customer under this Agreement or the Other Agreements shall constitute one loan secured by IBM Credit's security interests in the Collateral and by all other security interests, liens and encumbrances heretofore, now or from time to time hereafter granted by the Customer to IBM Credit or any assignor of IBM Credit. 10.8. Additional Collateral. All monies, reserves and proceeds received or collected by IBM Credit with respect to Accounts and other property of the Customer in possession of IBM Credit at any time or times hereafter are hereby pledged by Customer to IBM Credit as security for the payment of Customer's Obligations and shall be applied promptly by IBM Credit on account of the Customer's Obligations; provided, however, IBM Credit may release to the Customer such portions of such monies, reserves and proceeds as IBM Credit may from time to time determine, in its sole discretion. 10.9. No Merger or Novations. (A) Notwithstanding anything contained in any document to the contrary, it is understood and agreed by the Customer and IBM Credit that the claims of IBM Credit arising hereunder and existing as of the date hereof constitute continuing claims arising out of the Obligations of Customer under the Financing Agreement and any Other Agreement. Customer acknowledges and agrees that such Obligations outstanding as of the date hereof have not been satisfied or discharged and that this Agreement is not intended to effect a novation of the Customer's Obligations under the Financing Agreement or any Other Agreement. (B) Neither the obtaining of any judgment nor the exercise of any power of seizure or sale shall operate to extinguish the Obligations of the Customer to IBM Credit secured by this Agreement and shall not operate as a merger of any covenant in this Agreement, and the acceptance of any payment or alternate security shall not constitute or create a novation and the obtaining of a judgment or judgments under a covenant herein contained shall not operate as a merger of that covenant or affect IBM Credit's rights under this Agreement. 10.10. Paragraph Titles. The Section titles used in this Agreement and the Other Agreements are for convenience only and do not define or limit the contents of any Section. 10.11. Binding Effect; Assignment. This Agreement and the Other Agreements shall be binding upon and inure to the benefit of IBM Credit and the Customer and their respective successors and assigns; provided, that the Customer shall have no right to assign this Agreement or any of the Other Agreements without the prior written consent of IBM Credit. 42 10.12. Notices. Except as otherwise expressly provided in this Agreement, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered (A) upon receipt if deposited in the United States mails, first class mail, with proper postage prepaid, (B) upon receipt of confirmation or answer back if sent by telecopy, or other similar facsimile transmission, (C) one Business Day after deposit with a reputable overnight courier with all charges prepaid, or (D) when delivered, if hand-delivered by messenger, all of which shall be properly addressed to the party to be notified and sent to the address or number indicated as follows: (i) If to IBM Credit at: IBM Credit Corporation 1500 Riveredge Parkway Atlanta, GA 30328 Attention: Remarketer Finance Center Manager Telecopy: (404) 644-4825 (ii) If to Customer at: AmeriQuest/Kenfil, Inc. MacArthur Place, 3 Imperial Promenade Santa Ana, CA 92707 Attention: Stephen G. Holmes Telecopy: (714) 513-2450 or to such other address or number as each party designates to the other in the manner prescribed herein. 10.13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. 10.14. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, THE CUSTOMER HEREBY IRREVOCABLY AND UNCONDITIONALLY: (A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT COURT IN NEW YORK. (B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME. 43 (C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT THERETO; (D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION. (E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS) OF THE STATE OF NEW YORK. 10.15. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH. IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused its authorized representatives to execute this Agreement and has caused its corporate seal to be affixed hereto as of the date first written above. AMERIQUEST/KENFIL INC. By: /s/ Stephen G. Holmes ------------------------------------ Print Name: Stephen G. Holmes ---------------------------- Title: CFO --------------------------------- ACCEPTED this day of , 1995 --------- --------------- IBM CREDIT CORPORATION By: ------------------------------------ Print Name: ---------------------------- Title: --------------------------------- 44 FIRST AMENDMENT TO WORKING CAPITAL FINANCING AGREEMENT This First Amendment, dated May 18, 1995 is hereby made to that certain ------ Working Capital Financing Agreement (as amended, supplemented or otherwise modified from time to time, the "Agreement") to be entered into by and between AmeriQuest/Kenfil Inc. ("Customer") and IBM Credit Corporation ("IBM Credit"). RECITALS WHEREAS, Customer executed that certain Agreement on May 5, 1995. WHEREAS, Customer has requested that it be permitted to deliver certain security pledges and related documents, as required by IBM Credit, after the execution of the Agreement. WHEREAS, IBM Credit has agreed to permit the delivery of such documents after the execution of the Agreement subject to the terms and conditions set forth in this First Amendment; NOW THEREFORE, in consideration of the premises set forth herein, and for other good and valuable consideration, the value and sufficiency of which is hereby acknowledged, the Customer and IBM Credit agree as follows: AGREEMENT SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement. a) The following definition is added to Section 1.1 of the Agreement: "`Foreign Subsidiaries': Kenfil Distribution (Far East) Limited, Kenfil Distribution (M) SDN. BHD., and CMS Enhancements (Australia) Pty Limited; for each the outstanding capital stock of which is one hundred percent (100%) owned by Customer or its Affiliates." SECTION 2. Amendment to Event of Default. a) The following paragraph (R) is inserted immediately following Section 9.1, paragraph (Q): "(R) Customer fails to grant, by June 30, 1995, IBM Credit a first priority security interest in and assign, pledge, hypothecate and deliver to IBM Credit 100% of the stock of each of the Foreign Subsidiaries and all substitutions, dividends, interest, and redemption prices and other rights with respect to such securities and all other property received in respect of or in exchange for such securities, opinions of local counsel Page 1 of 3 satisfactory to IBM Credit concerning IBM Credit's first priority security interest in the stock of the Foreign Subsidiaries and additional related documents, both satisfactory in form and substance to IBM Credit, with respect to the securities pledged of the Foreign Subsidiaries, as IBM Credit may reasonably request." SECTION 3. Representations and Warranties. Customer makes to IBM Credit the following representations and warranties, all of which are material and are made to induce IBM Credit to enter into this Amendment. 3.1 Accuracy and Completeness of Warranties and Representations. All representations made by Customer in the Agreement were true, accurate and complete in every respect as of the date made, and, after giving effect to this Amendment, all representations made by Customer in the Agreement are true, accurate and complete in every material respect as of the date hereof, and do not fail to disclose any material fact necessary to make the representations not misleading. 3.2 Violation of Other Agreements. The execution and delivery of this Amendment do not violate or cause Customer not to be in compliance with the terms of any agreement to which Customer is a party. 3.3. Litigation. Except as has been disclosed by Customer to IBM Credit in writing, there is no litigation, proceeding, investigation or labor dispute pending or threatened against Customer, which if adversely determined, would materially adversely affect the ability of Customer to perform its obligations under the Financing Agreement, and the other documents, instruments and agreements executed in connection therewith or pursuant hereto. SECTION 4. Ratification of Agreement. Except as specifically waived hereby, all the provisions of the Agreement shall remain in full force and effect. Customer hereby ratifies, confirms and agrees that the Agreement represents a valid and enforceable obligation of Customer, and is not subject to any claims, offsets or defenses. SECTION 5. Governing Law. This Amendment shall be governed by and interpreted in accordance with the laws of the State of New York. SECTION 6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement. Page 2 of 3 IN WITNESS WHEREOF, this Amendment has been executed by the duly authorized officers of the undersigned as of the day and year first above written. AMERIQUEST KENFIL INC. IBM CREDIT CORPORATION BY: /s/ Stephen G. Homes BY: ------------------------- --------------------------- NAME: Stephen G. Holmes NAME: ----------------------- ------------------------- TITLE: CFO TITLE: ---------------------- ------------------------ ATTEST: ATTEST: PJ - ---------------------------- ------------------------------ PRINT NAME: Peter ??????? PRINT NAME: ----------------- ------------------- Page 3 of 3 EX-10.04 6 REVOLVING CREDIT AGREEMENT EXHIBIT 10.04 REVOLVING CREDIT AGREEMENT DATED AS OF APRIL 27, 1992 THE FIRST NATIONAL BANK OF BOSTON AND ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS TABLE OF CONTENTS Section Page - ------- ---- SECTION I - DEFINITIONS 1.1 General............................................................ 1 1.2 Accounting Terms................................................... 9 SECTION II - DESCRIPTION OF CREDIT 2.1 The Loans.......................................................... 9 2.2 Notice and Manner of Borrowing..................................... 9 2.3 Closing Fee........................................................ 9 2.4 Commitment Fee..................................................... 10 2.5 Commitment Reduction/Early Termination Fee......................... 10 2.6 The Loan Account................................................... 10 2.7 Interest Rates and Payments of Interest............................ 10 2.8 Changed Circumstances.............................................. 11 2.9 Payments and Prepayments of the Loans.............................. 11 2.10 Method of Payment.................................................. 11 2.11 Overdue Payments................................................... 11 2.12 Computation of Interest and Fees................................... 11 2.13 Borrowing Base Availability........................................ 11 2.14 Borrowing Base Excesses............................................ 12 2.15 Promises to Pay.................................................... 12 2.16 Authorization to Debit Loan Account................................ 12 2.17 Capital Adequacy................................................... 12 SECTION III - CONDITIONS OF LOANS 3.1 Conditions Precedent to Initial Loan............................... 13 3.2 Conditions Precedent to All Loans.................................. 15 SECTION IV - REPRESENTATIONS AND WARRANTIES 4.1 Organization and Qualification..................................... 15 4.2 Corporate Authority................................................ 16 4.3 Valid Obligations.................................................. 16 4.4 Consents or Approvals.............................................. 16 4.5 Title to Properties; Absence of Encumbrances....................... 16 4.6 Financial Statements............................................... 17 4.7 Changes............................................................ 17 4.8 Defaults........................................................... 17 4.9 Taxes.............................................................. 17 4.10 Litigation......................................................... 17 4.11 Use of Proceeds.................................................... 17 4.12 Subsidiaries....................................................... 18 4.13 Investment Company Act............................................. 18 4.14 Compliance with ERISA.............................................. 18 4.15 Security Interest.................................................. 18 4.16 Application of Proceeds............................................ 18 4.17 Taxes and Charges Relating to the Agreement........................ 18
(i) SECTION V - AFFIRMATIVE COVENANTS Section Page - ------- ---- 5.1 Financial Statements and other Reporting Requirements.............. 19 5.2 Conduct of Business................................................ 20 5.3 Maintenance and Insurance.......................................... 20 5.4 Taxes.............................................................. 21 5.5 Inspection by the Bank............................................. 21 5.6 Maintenance of Books and Records................................... 21 5.7 Ratio of EBIT to Interest Expense.................................. 21 5.8 Minimum Total Capital Funds........................................ 21 5.9 Leverage Ratio..................................................... 21 5.10 Ratio Senior Bank Indebtedness to Total Capital Funds.............. 22 5.11 Further Assurances................................................. 22 SECTION VI - NEGATIVE COVENANTS 6.1 Indebtedness....................................................... 22 6.2 Contingent Liabilities............................................. 22 6.3 Encumbrances....................................................... 23 6.4 Capital Expenditures............................................... 24 6.5 ERISA.............................................................. 24 6.6 Merger; Consolidation; Sale or Lease of Assets..................... 24 6.7 Leases............................................................. 24 6.8 Sale and Leaseback................................................. 24 6.9 Investments........................................................ 25 6.10 Change in Terms and Prepayment of Subordinated Indebtedness........ 25 6.11 Dividends and Equity Distributions................................. 25 SECTION VII - SECURITY AGREEMENT 7.1 Creation of Security Interest...................................... 25 7.2 Covenants Pertaining to Collateral................................. 26 7.3 Reports, etc. Pertaining to Collateral............................. 27 7.4 Collection of Accounts and Adjustments............................. 29 7.5 Bank's Rights in Collateral........................................ 29 7.6 Remedies........................................................... 30 7.7 Waivers............................................................ 31 SECTION VIII - DEFAULTS 8.1 Events of Default.................................................. 32 8.2 Remedies........................................................... 34
(ii) SECTION IX - MISCELLANEOUS Section Page - ------- ---- 9.1 Notices........................................................... 34 9.2 Expenses.......................................................... 35 9.3 Set-Off........................................................... 36 9.4 Term of Agreement................................................. 36 9.5 No Waivers........................................................ 36 9.6 Governing Law..................................................... 36 9.7 Amendments........................................................ 36 9.8 Binding Effect of Agreement....................................... 36 9.9 Counterparts...................................................... 37 9.10 Severability...................................................... 37 9.11 Captions.......................................................... 37 9.12 Entire Agreement.................................................. 37 9.13 Jury Waiver....................................................... 37
EXHIBITS EXHIBIT 3.1(j) FORM OF LEGAL OPINION EXHIBIT 4.1 LOCATIONS EXHIBIT 4.5 ENCUMBRANCES EXHIBIT 4.10 LITIGATION EXHIBIT 5.1(c) FORM OF CHIEF FINANCIAL OFFICER'S REPORT EXHIBIT 6.1(b) INDEBTEDNESS EXHIBIT 6.3(f)(iii) FORM OF VENDOR SUBORDINATION LETTER EXHIBIT 7.3(c) FORM OF BORROWING BASE CERTIFICATE EXHIBIT 7.5 FORM OF AGENCY ACCOUNT AGREEMENT (iii) REVOLVING CREDIT AGREEMENT THIS REVOLVING CREDIT AGREEMENT (the "Agreement") is made as of April 27, 1992 between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS (the "Borrower"), a Florida corporation with its chief executive office at 3401-C N.W. 72nd Avenue, Miami, Florida 33132 and THE FIRST NATIONAL BANK OF BOSTON, a national banking association having its head office at 100 Federal Street, Boston, Massachusetts 02110. SECTION I DEFINITIONS ----------- 1.1 General. ------- All capitalized terms used in this Agreement or in any certificate, report or other document made or delivered pursuant to this Agreement (unless otherwise defined therein) shall have the meanings assigned to them below: Accounts. All of the accounts of the Borrower including, without -------- limitation, all rights to payment for goods sold or leased or for services rendered, all sums of money or other proceeds due or becoming due thereon, all instruments pertaining thereto, all guarantees and security therefor, all goods giving rise thereto and all rights pertaining to and interest in such goods including the right of stoppage in transit; all rights under contracts to receive money; all other rights and claims to the payment of money, including, without limitation, chattel paper and amounts due from affiliates of the Borrower; and insurance proceeds with respect to any of the foregoing. Agency Account Agreement. See Section 7.5. ------------------------ Agreement. This Agreement (including all exhibits, schedules, annexes and --------- the like referred to herein) as originally executed, or if amended, varied or supplemented from time to time, as so amended, varied or supplemented. Base Rate. The rate of interest announced from time to time by the Bank at --------- its head office at 100 Federal Street, Boston, Massachusetts 02110 as its "Base Rate". Borrowing Base. An amount equal to the lesser of (i) $20,000,000; or (ii) -------------- the sum of (x) 85% of the face value of Eligible Accounts due and owing at such time; plus (y) 50% of Eligible Inventory, not to exceed $12,000,000. ---- -2- Borrowing Base Certificate. See Section 7.3(c). -------------------------- Business Day. Any day other than a Saturday, Sunday or legal holiday on ------------ which banks in Boston, Massachusetts are open for the conduct of a substantial part of their commercial lending business. Chief Financial Officer's Report. See Section 5.1(c). -------------------------------- Code. The Internal Revenue Code of 1986 and the rules and regulations ---- thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect. Collateral. Any and all property of the Borrower in which the Bank now ---------- has, by this Agreement acquires or hereafter acquires, a security interest, lien or encumbrance, including without limitation, the security interest granted pursuant to Section 7.1 of this Agreement. Controlled Group. All trades or businesses (whether or not incorporated) ---------------- under common control that, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. Default. An event or condition that, with the passage of time or the ------- giving of notice, or both, would constitute an Event of Default. EBIT. At any time that the amount thereof shall be determined, the ---- Borrower's Net Income before total interest expense, income tax expense, expenses attributable to stock bonuses paid to Gregory A. White under the Employment Agreement dated March 31, 1992 between Gregory A. White and the Borrower, as amended and in effect as of the date of this Agreement, expenses attributable to capitalized transaction costs associated with the transactions consummated under and in connection with the Purchase Agreement and the transactions contemplated by this Agreement, the amortization of good will and noncompete agreements and other intangibles shown on the Borrower's balance sheet, but after the depreciation of the Borrower's fixed asset expense. Eligible Account. An Account which meets all of the following ---------------- requirements: (a) such Account is owned by the Borrower and represents a complete bona fide transaction which requires no further act under any circumstances on part of the Borrower to make such Account payable to the account debtor; (b) such Account is not past due more than 60 days; -3- (c) the goods the sale of which gave rise to such Account were shipped or delivered to the account debtor on an absolute sale as is and not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or return basis, or on the basis of any other similar understanding, and no material part of such goods has been returned or rejected; (d) such Account is not evidenced by chattel paper or an instrument of any kind unless such chattel paper or instrument has been delivered to and is in the possession of the Bank; (e) the account debtor with respect to such Account is not insolvent or the subject of any bankruptcy or insolvency proceedings of any kind or of any other proceeding or action, threatened or pending, which might have a materially adverse effect on such account debtor and is not, in the reasonable discretion of the Bank, deemed ineligible for credit or other reasons; (f) such Account is not owing by an account debtor whose then-existing accounts owing to the Borrower exceed in face amount 30% of the Borrower's total Eligible Accounts; (g) such Account is not owing by an account debtor when 50% of all then-existing accounts owing to the Borrower by such account debtor are past due more than 60 days; (h) if such Account arises from the performance of services, such services have been fully rendered; (i) if the account debtor with respect thereto is located outside of the United States of America (excluding for this purpose the Commonwealth of Puerto Rico or the United States Virgin Islands), the goods which gave rise to such Account were shipped after receipt by the Borrower from the account debtor of an irrevocable letter of credit, which letter of credit has been confirmed by a financial institution reasonably acceptable to the Bank and is in form and substance reasonably acceptable to the Bank, payable in the full face amount of the face value of he Account in Dollars at a place of payment located within the United States; (j) the amount owning on the invoice evidencing such Account is a valid, legally enforceable obligation of the account debtor with respect thereto and is not subject to any material present, or contingent, and no facts exist which are the basis for any future, offset, deduction or counterclaim, dispute or other defense on the part of such account debtor; (k) such Account is subject to a security interest in favor of the Bank, which security interest is perfected as to such Account, and is subject to no other Lien whatsoever other than a Permitted Lien; -4- (l) such Account is evidenced by an invoice or other documentation in form reasonably acceptable to the Bank; (m) such Account is not subject to the Assignment of Claims Act of 1940, as amended from time to time, or any applicable law now or hereafter existing similar in effect thereto, as determined in the reasonable discretion of the Bank, or to any provision prohibiting its assignment or requiring notice of or consent to such assignment; (n) the goods giving rise to such Account were not, at the time of the sale thereof, subject to any Lien, except the Permitted Liens; and (o) such Account is not determined by the Bank to be ineligible for any other reason based upon such credit and collateral considerations as the Bank may reasonably deem appropriate. Eligible Inventory. Inventory which meets all of the following ------------------ requirements: (a) such Inventory is owned by the Borrower, is subject to a security interest in favor of the Bank, which security interest is perfected as to such Inventory, and is subject to no other Lien whatsoever other than a Permitted Lien; (b) such Inventory consists of finished goods; (c) such Inventory is in good condition and meets all standards applicable to such goods, their use or sale imposed by any governmental agency, or department or division thereof, having regulatory authority over such matters; (d) such Inventory is currently either usable or saleable, at prices approximately at least cost, in the normal course of the Borrower's business; (e) such Inventory is located within the United States at one of the locations set forth in the most recent Schedule of Inventory; (f) such Inventory is in the possession of the Borrower and not any third part, such as warehousers or contractors (unless the Bank has received a waiver from the applicable warehousers or contractors in form and substance reasonably satisfactory to the Bank); (g) such Inventory is of a quality and from a vendor satisfactory to the Bank; (h) such Inventory is obtained from a vendor offering stock rotation or stock balancing privileges to the Borrower; and -5- (i) such Inventory is not determined by the Bank to be ineligible for any other reason based upon such reasonable credit and collateral considerations as the Bank may deem appropriate. Inventory immediately loses the status of Inventory if and when the Borrower sells it, otherwise passes title thereto or consumes it or the Bank releases or transfers its security interest therein. If and when an Eligible Account exists by virtue of constituting proceeds of Eligible Inventory, the Inventory giving rise to the Eligible Account automatically loses its status as Eligible Inventory. Encumbrances. See Section 6.3. ------------ Equipment. All of the Borrower's machinery, equipment and fixtures, --------- wherever located, including, without limitation, office furniture, furnishings and trade fixtures specialty tools and parts, motor vehicles and materials handling equipment, together with the Borrower's interest in, and right to, any and all manuals and other materials that contain technical data relating to the use, operations, or structure of such equipment, and at least one set of copies of those materials on which then-current information is recorded. ERISA. The Employee Retirement Income Security Act of 1974 and the rules ----- and regulations thereunder, collectively, as the same may from time to time be supplemented or amended and remain in effect. Event of Default. Any event described in Section 8.1. ---------------- General Intangibles. All of the general intangibles of the Borrower, ------------------- including, without limitation, tax refunds, rights with respect to trademarks, service marks, trade names, patens, copyright rights, trade-secrets information, and rights to prevent others from doing acts that constitute unfair competition with or misappropriation of the property of the Borrower including, without limitations, any sums (net of expenses) that the Borrower may receive arising out of any claim for infringement of its rights in any patent, copyright, trademark, trade name, trade secret or other proprietary right and all rights of the Borrower under contracts to enjoy performance by others or to be entitled to enjoy rights granted by others or to be entitled to enjoy rights granted by others, including without limitation any licenses. Guarantees. As applied to the Borrower, all guarantees, endorsements or ---------- other contingent or surety obligations with respect to obligations of others whether or not reflected on the balance sheet of the borrower, including any obligation to furnish funds, directly or indirectly (whether by virtue of partnership arrangements, by agreement to keep-well or otherwise), through the purchase of goods, supplies or -6- services, or by way of stock purchase, capital contribution, advance or loan, or to enter into a contract for any of the foregoing, for the purpose of payment of obligations of any other person or entity. Indebtedness. As applied to the Borrower, (i) all obligations for borrowed ------------ money or other extensions of credit, including all obligations representing the deferred purchase price of property, other than accounts payable arising in the ordinary course of business, (ii) all obligations evidenced by bonds, notes, debentures or other similar instruments, (iii) all obligations secured by any mortgage, pledge, security interest or other lien on property owned or acquired by the Borrower whether or not the obligations secured thereby shall have been assumed, (iv) that portion of all obligations arising under capital leases that is required to be capitalized on the consolidated balance sheet of the Borrower, and (v) all Guarantees. Inventory. All inventory of the Borrower wherever located, including, --------- without limitation, all goods, merchandise, and other personal property which are held for sale, lease or other disposition, or held for display or demonstration, or leased or cosigned or which are raw materials, work in process, or materials used or consumed or to be used or consumed in the business of the Borrower. "Inventory" shall include all proprietary rights, patents, plans, drawings, diagrams, schematics, assembly and display materials relating to any of the foregoing. Investments. The purchase or acquisition of any share of capital stock, ----------- partnership interest, evidence of indebtedness or other equity security of any other person or entity, any loan, advance or extension of credit to, or contribution to the capital of, any other person or entity, any real estate held for sale or investment, any commodities futures contracts held other than in connection with bona fide hedging transactions, any other investment in any other person or entity, and the making of any commitment or acquisition of any option to make an Investment. Loan. A Loan made to the Borrower by the Bank pursuant to Section II of ---- this Agreement. Loan Account. The general ledger account in the name of the Borrower on the ------------ books of the Bank in which will be recorded loans and advances made by the Bank to the Borrower pursuant to this Agreement, payments made on such loans, and other appropriate debits and credits as provided by this Agreement. Maximum Commitment. $20,000,000. ------------------ -7- Net Income. At any date as of which the amount thereof shall be determined, ---------- all amounts that should, in accordance with generally accepted accounting principles, be included as the net income of the Borrower. Obligations. Any and all obligations of the Borrower to the Bank of every ----------- kind and description, direct or indirect, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising or acquired, regardless of how they arise or are acquired or by what agreement or instrument, if any, and including obligations to perform acts and refrain from taking action as well as obligations to pay money. PBGC. The Pension Benefit Guaranty Corporation or any entity succeeding to ---- any or all of its functions under ERISA. Permitted Encumbrances. See Section 6.3. ---------------------- Plan. At any time, an employee pension or other benefit plan that is ---- subject to Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group or (ii) if such Plan is established, maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Borrower, or any member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding five Plan years made contributions. Proceeds. Whatever is received upon the sale, lease, exchange, collection -------- or other disposition of the Collateral including, but not limited to, all Accounts, goods, money, checks, deposit accounts, and insurance proceeds. Purchase Agreement. The Subordinated Note and Warrant Purchase Agreement ------------------ dated as of March 31, 1992 by and among the Borrower, those persons listed on Schedule A annexed thereto, and C.T. Capital Trust N.V., a Netherlands Antilles - ---------- corporation, as agent and attorney in fact for such persons. Qualified Investments. Investments in (i) notes, bonds or other obligations -------------------- of the United States of America or any agency thereof that as to principal and interest constitute direct obligations of or are guaranteed by the United States of America; (ii) certificates of deposit or other deposit instruments or accounts of banks or trust companies organized under the laws of the United States or any state thereof that have capital and surplus of at least $100,000,000, (iii) commercial paper that is rated not less than prime-one or A-1 or their equivalents by Moody's Investors Service, Inc. or -8- Standard & Poor's Corporation, respectively, or their successors, and (iv) any repurchase agreement secured by any one or more of the foregoing. Senior Bank Indebtedness. Any and all Indebtedness of the Borrower to the ------------------------ Bank whether under this Agreement or otherwise. Service Fee. See Section 2.3. ----------- Subordinated Indebtedness. Indebtedness of the Borrower evidenced by the ------------------------- Subordinated Notes, as defined in, and issued pursuant to, the Purchase Agreement and any other Indebtedness of the borrower the payment of principal of and interest on which is expressly subordinated in right of payment, to the prior payment in full of the Obligations, by a subordination agreement in a form and continuing terms approved by the Bank. Subsidiary. Any corporation, association, joint stock company, business ---------- trust or other similar organization of which 50% or more of the ordinary voting power for the election of a majority of the members of the board of directors or other governing body of such entity is held or controlled by the Borrower; or any other such organization the management for which is directly or indirectly controlled by the Borrower through the exercise of voting power or otherwise; or any joint venture, whether incorporated or note, on which the Borrower has a 50% ownership interest. Tangible Net Worth. At any date as of which the amount hereof shall be ------------------ determined, (i) the total assets of the Borrower minus (ii) the sum of any ----- amounts attributable to (a) goodwill; (b) intangible items such as unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses; (c) all reserves not already deducted from assets; (d) any write-up in the book value of assets resulting from any revaluation thereof subsequent to the date of the financial statements referred to in Section 4.6; (e) noncompete agreements; and (f) loans to shareholders of the Borrower including without limitation the "Senior Management Notes," referred to in Section 3.14 of the Purchase Agreement, minus (iii) Total Liabilities. ----- Termination Date. April 30, 1994. ---------------- Total Capital Funds. At any date as of which the amount thereof shall be ------------------- determined, the sum of Tangible Net Worth and Subordinated Indebtedness. Total Liabilities. At any date as of which the amount thereof shall be ----------------- determined, all obligations that should, in accordance with generally accepted accounting principles, be classified as liabilities on the balance sheet of the Borrower, including in any event all Indebtedness. -9- Vendor Subordination Letter. See Section 6.3(f)(ii). --------------------------- 1.2. Accounting Terms. All terms of an accounting character shall have the ---------------- meanings assigned thereto by generally accepted accounting principles applied on a basis consistent with the financial statements referred to in Section 4.6 of this Agreement, modified to the extent, but only to the extent, that such meanings are specifically modified herein. SECTION II DESCRIPTION OF CREDIT --------------------- 2.1. The Loans. Subject to the terms and conditions hereof, the Bank will --------- make Loans to the Borrower from time to time until the close of business on the last Business Day preceding the Termination Date, in such amounts as the Borrower may request, provided that the debit balance of the Loan Account shall not at any time exceed the amount available under the Borrowing Base. The Borrower may borrow, repay pursuant to Section 2.8, and reborrow, from the date of this Agreement until the last Business Day preceding the Termination Date, any amount available under the borrowing Base as provided in this Agreement. Any Loan not repaid by the Termination Date shall be due and payable on such date. 2.2 Notice and Manner of Borrowing. (a) Whenever the Borrower desires to ------------------------------ obtain a Loan hereunder, an officer of the Borrower, certified in writing as authorized to request Loans hereunder, shall notify the Bank (which notice to the Bank shall be irrevocable) by telex, telegraph, telecopy or telephone received no later than 12:00 noon boston time on the day on which the requested Loan is to be made. Such notice shall specify the effective date and amount of each Loan subject to the limitations set forth in Section 2.1. (b) Subject to the terms and conditions hereof, the Bank shall make each Loan on the effective date specified therefor by debiting the amount of such Loan to the Loan Account and crediting a like amount to the demand deposit account of the Borrower with the Bank, or, to such other account as the Borrower may direct. (c) Subject to the terms and conditions hereof, the Borrower may obtain Loans hereunder by writing drafts on any checking account which it may maintain with the Bank or any of its affiliates. The amount of each such Loan shall be debited to the Loan Account. 2.3. Closing Fee. The Borrower shall pay to the Bank a non-refundable ----------- closing fee of $150,000 on the date this Agreement is executed. -10- 2.4. Commitment Fee. The Borrower shall pay to the Bank, during each month -------------- or portion thereof, until the Termination Date, a commitment fee computed at the rate of three-eighths of one percent (3/8%) per annum on the difference between (a) the Maximum Commitment; and (b) the average daily balance of the Loan Account during such month.Commitment fees shall be payable monthly in arrears, and on the Termination Date. 2.5. Commitment Reduction and Early Termination Fee. The Borrower shall ---------------------------------------------- pay to the Bank three percent (3%) of the amount of any reduction in or termination of the Maximum Commitment by the borrower in the initial 365 day period following (and including) the date of this agreement, and two percent (2%) of the amount of any such reduction or termination in the next succeeding 365 day period. All such amounts shall be payable on the date or dates of such reductions or terminations. 2.6. The Loan Account. The Loans shall be evidenced by debit entries to ---------------- the Loan Account. The Bank shall also record in the Loan Account all payments made by the borrower on account of indebtedness evidenced by the Loan Account and all proceeds of Collateral which are finally paid to the Bank at its office in cash or solvent credits, and may record therein, in accordance with customary accounting practice, other debits and credits,including all charges and expenses properly chargeable to the Borrower and any other Obligation. The debit balance of the Loan Account shall reflect the amount of the borrower's indebtedness to the Bank from time to time by reason of Loans and other appropriate charges hereunder. At least once each month the Bank shall render (i) a statement of account showing as of its date the debit balance of the Loan Account and charges to the Loan Account for such month; and (ii) a statement of account showing as of its date the balance of any deposit account maintained with the Borrower with the Bank and charges to such deposit account for such month. Each such statement referred to above shall be considered correct and accepted by the Borrower and conclusively binding upon it absent manifest error unless, within thirty (30) days after the date of any such statement, notice to the contrary is received by the Bank from the Borrower. 2.7. Interest Rate and Payments of Interest. (a) Each Loan shall bear -------------------------------------- interest on the outstanding principal amount thereof at a rate per annum equal to the Base Rate plus one and one half percent (1 1/2%), which rate shall change contemporaneously with any change in the Base rate. Such interest shall be payable on the first day of each month and when such Loan is due (whether at maturity, by reason of acceleration or otherwise). -11- (b) At the option of the Bank, and no sooner than thirty (30) days after the occurrence of an Event of Default hereunder, the interest rate applicable to each Loan shall increase to three percent (3%) above the rate of interest applicable to the Loans. Such interest rate shall change contemporaneously with any change in the Base Rate. 2.8. Changed Circumstances. Intentionally Omitted. --------------------- 2.9. Payments and Prepayments of the Loans. In addition to payments ------------------------------------- required pursuant to Section 7.6 hereof, the Loans may be prepaid at any time, in whole or in part, without premium or penalty, provided that interest accrued on the amounts so paid to the date of such payment must be paid at the time of any such payment. No prepayment of the Loans before the Termination Date shall impair the right of the Borrower to borrow as set forth in Section 2.1. 2.10. Method of Payment. All payments and prepayments of principal and ---------------- any and all other amounts due hereunder shall be made by the Borrower to the Bank at 100 Federal Street, Boston, Massachusetts in immediately available funds and in United States Dollars, on or before 11:00 a.m. (Boston time) on the due date thereof, free and clear of, and without any deduction or withholding for, any taxes or other payments. 2.11. Overdue Payments. Until the provisions of Section 2.7(b) shall ---------------- become applicable, overdue principal (whether at maturity, by reason of acceleration or otherwise) and, to he extent permitted by applicable law, overdue interest and fees or any other amounts payable hereunder shall bear interest from and including the due date thereof until paid, compounded daily and payable on demand, at a rate per annum equal to 2% above the rate of interest otherwise applicable to the Loans. 2.12. Computation of Interest and Fees. Interest and all fees payable -------------------------------- hereunder shall be computed daily on the basis of a year of 360 days and paid for the actual number of days for which due. If the due date for any payment of principal is extended by operation of law, interest shall be payable for such extended time. If any payment required by this Agreement becomes due on a day that is not a Business Day such payment shall be made on the next succeeding Business Day, and such extension shall be included in computing interest in connection with such payment. 2.13. Borrowings Base Availability. The Borrower understands that the Bank ---------------------------- will use the Borrowing Base as a maximum ceiling on Loans. Notwithstanding the other provisions of this Agreement, in computing Loan availability under the Borrowing Base, the Bank will subtract from the Borrowing Base the debit balance of the Loan Account. -12- 2.14. Borrowing Base Excesses. If at any time or times the debit ----------------------- balance of the Loan Account exceeds the Borrowing Base, the Borrower shall pay immediately to the Bank the amount of any such excess to be credited to the Loan Account. 2.15. Promises to Pay. The Borrower promises to pay to the Bank in --------------- accordance with the terms of this Agreement and on the dates specified herein, subject to acceleration under Section VIII, all monetary Obligations hereunder. 2.16. Authorization to Debit Loan Account. The Borrower authorizes the ----------------------------------- Bank, in the Bank's sole discretion, to charge when due any monetary Obligation, including, without limitation, all amounts owing for interest, fees, costs and expenses and other charges provided by this Agreement, including but not limited to Section 9.2 of this Agreement, to the Loan Account, and such amounts shall be Loans hereunder and shall be disclosed promptly to the Borrower by way of written advices of debits to the Loan Account. 2.17. Capital Adequacy. If the Bank shall have determined that the ---------------- adoption of any applicable law, rule, regulation, guideline, directive or request (whether or not having the force of law) regarding capital requirements for banks or bank holding companies, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any of the foregoing imposes or increases a requirement by the Bank to allocate capital resources to the Bank's commitment to make Loans hereunder which has or would have the effect of reducing the return on the Bank's capital to a level below that which the Bank could have achieved (taking into consideration the Bank's then existing policies with respect to capital adequacy and assuming full utilization of the Bank's capital) but for such adoption, change or compliance by any amount reasonably deemed by the Bank to be material, then the Bank may, at its option and by notice to the Borrower, adjust the Commitment fee charged to the Borrower pursuant to Section 2.4, which adjustment shall become effective sixty (60) days from the date of such notice. Any notice by the Bank to the Borrower shall be accompanied by a certificate shall set forth the nature of the occurrence giving rise to such compensation, the additional amount or amounts to be paid to it hereunder and the method by which such amounts were determined. In determining such amount, the Bank may use any reasonable averaging and attribution methods. Such certificate and the determinations set forth therein shall be conclusive in the absence of manifest error. Notwithstanding any other provision hereof, at any time following receipt of a notice from the Bank pursuant to this -13- Section 2.17, the Borrower may, upon thirty (30) days notice to the Bank, terminate this Agreement without payment of any penalty or premium including the early termination fee otherwise payable under Section 2.5 hereof. SECTION III CONDITIONS OF LOANS ------------------- 3.1. Conditions Precedent to Initial Loan. The obligation of the Bank to ------------------------------------ make its initial Loan is subject to the condition precedent that the Bank shall have received, in form and substance reasonably satisfactory to the Bank and its counsel, the following: (a) this Agreement duly executed by the Borrower; (b) a Certificate of Corporate Borrowing Resolutions signed by the Secretary of the Borrower; (c) a Certification of Titles signed by the Secretary of the Borrower regarding the officers of the Borrower; (d) a Certificate of Legal Existence of the Borrower of reasonably recent date issued by the Secretary of State of Florida; (e) a Certificate of Good Standing and Authority regarding the Borrower's qualification to transact business as a foreign corporation in Georgia and Texas; (f) a Certificate signed by the Secretary of the Borrower as to the truth, correctness and completeness of copies of (i) Certificate of Incorporation filed with the Secretary of State of the Borrower's jurisdiction of incorporation together with all amendments thereto; and (ii) By-laws of the Borrower. (g) Receipt of evidence, in form and substance satisfactory to the Bank, of the filing of UCC-1 financing statements in favor of the Bank, for filing in all offices necessary to perfect the Bank's security interest in the Collateral. (h) an agency account agreement, substantially in the form of Exhibit 7.5 ----------- attached hereto duly executed by the Borrower, the Bank and Barnett Bank of South Florida, N.A. (i) Landlord Waivers for following premises leased by the Borrower: 3401-C N.W. 72nd Avenue Miami, Florida 33122-1321 (Dade County) -14- 1746 W. Crosby Road Carrollton, Texas 75006 (Dallas County) 1275 Oakbrook Drive Suite A Norcross, Georgia 30039 (Gwinett County) Computer Image 12537 South Dixie Highway Miami, Florida 33156 Computer Image North Miami Beach, Florida 33162 (j) favorable opinions addressed to the Bank from (i) the Borrower's counsel, Hutchins & Wheeler and J. James Donnellan, III, Esquire, and (ii) counsel to the institutional holders of the Subordinated Indebtedness issued under the Purchase Agreement, opining as to the matters covered by the form of opinion attached hereto as Exhibit 3.1(j); (k) insurance certificates required by Section 5.3 hereof; (l) Vendor Subordination Letters, substantially in the form of Exhibit 6.3(f)(ii) hereto, or the "notice" letters referred to in Section 6.3(f)(ii)(B) as appropriate, executed by all vendors having, as of the date of this Agreement, a written security interest grant covering any of the Collateral included in the Borrowing Base Certificate delivered pursuant to Section 7.3(c) hereof. (m) Borrowing Base Certificate dated April 24, 1992 as to: (i) Schedule of Accounts Receivable as of April 23, 1992, and (ii) Schedule of Inventory as of April 23, 1992. (n) Chief Financial Officer's Report dated April 24, 1992 covering the period of the most recent financial statements referenced in Section 4.6 hereof. (o) a copy of the audited financial statements for the Borrower's fiscal year ending December 31, 1991 with copies of the report and statement required by Section 5.1(a) hereof. (p) a copy of the financial statements of the Borrower reviewed by Coopers & Lybrand and the "cold comfort" accountants letter delivered by Coopers & Lybrand to the agent under the Purchase Agreement covering the period January 1, 1992 to the date of such letter. (q) such other documents, and completion of such other matters, as counsel for the Bank may reasonably deem necessary or appropriate. -15- 3.2. Conditions Precedent to All Loans. The obligation of the Bank to --------------------------------- make each Loan, including the initial Loan, is further subject to the following conditions: (a) the representations and warranties contained in Section IV shall be true and accurate in all material respects on and as of the effective date of each Loan as though made at and as of each such date (except to the extent that such representations and warranties expressly relate to an earlier date), and no Default shall have occurred and be continuing, or would result from such Loan; (b) the resolutions referred to in Section 3.1(b) shall remain in full force and effect; and (c) no change shall have occurred in any law or regulation or interpretation thereof that, in the opinion of counsel for the Bank, would make it illegal or against the policy of any governmental agency or authority for the Bank to make Loans hereunder. The making of each Loan shall be deemed to be a representation and warranty by the Borrower on the date of such Loan as to the accuracy of the facts referred to in subsection (a) of this Section 3.2. SECTION IV REPRESENTATIONS AND WARRANTIES ------------------------------ In order to induce the Bank to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants to the Bank that: 4.1. Organization and Qualification. The Borrower (a) is a corporation ------------------------------- duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (b) has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated, (c) is duly qualified and in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where the nature of its properties or business requires such qualification, except where the failure to be so qualified would not have a material adverse effect on the business, financial condition, assets or properties of the Borrower on a consolidated basis, (d) has its chief executive office located at the address of the Borrower shown in the preamble to this Agreement and (e) has an office, manufacturing facility, warehouse or occupies space in the states and at the locations specified in Exhibit 4.1 hereto. ----------- -16- 4.2. Corporate Authority. The execution, delivery and performance of this ------------------- Agreement and the transactions contemplated hereby are within the corporate power and authority of the Borrower and have been authorized by all necessary corporate proceedings, and do not and will not: (a) require any consent or approval of the stockholders of the Borrower other than those consents and approvals, if any, previously obtained; (b) contravene any provision of the charter documents or by-laws of the Borrower or any law, rule or regulation applicable to the Borrower; (c) contravene any provision of, or constitute an event of default or event that, but for the requirement that time elapse or notice be given, or both, would constitute an event of default under, any other agreement, instrument, order or undertaking binding on the Borrower; or (d) result in or require the imposition of any Encumbrance on any of the properties, assets or rights of the Borrower, except Encumbrances permitted hereunder. 4.3. Valid Obligations. This Agreement and all of its terms and ----------------- provisions are the legal, valid and binding obligations of the Borrower, enforceable in accordance with its terms except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally, and except as the remedy of specific performance or of injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 4.4. Consents or Approvals. The execution, delivery and performance of --------------------- this Agreement and the transactions contemplated herein do not require any approval or consent of, or filing or registration with, any governmental or other agency or authority, or any other party. 4.5. Title to Properties; Absence of Encumbrances. The Borrower has good -------------------------------------------- and marketable title to all of the properties, assets and rights of every name and nature now purported to be owned by it, including, without limitation, such properties, assets and rights as are reflected in the financial statements referred to in Section 4.6 (except such properties, assets or rights as have been disposed of in the ordinary course of business since the date thereof), free from all Encumbrances except Permitted Encumbrances or those Encumbrances disclosed in Exhibit 4.5 thereto, and, except as so disclosed, free from all ------- defects of title that might materially adversely affect such properties, assets or rights, taken as a whole. -17- 4.6. Financial Statements. The Borrower has furnished the Bank with its -------------------- balance sheet as of December 31, 1991 and with its statements of income, changes in stockholders' equity and cash flow as of such date, and related footnotes, audited and unqualified by Coopers & Lybrand. The Borrower has also furnished the Bank its balance sheet and its statements of income, as of December 31, 1991. All such financial statements were prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods specified and present fairly the financial position of the Borrower as of such dates and the results of the operations of the Borrower for such periods. The Borrower has also furnished the Bank with certain financial statements covering the period January 1, 1992 to the date of the "cold comfort" accountants' letter delivered to the agent under the Purchase Agreement. There are no liabilities, contingent or otherwise, not disclosed in such financial statements that involve a material amount. 4.7. Changes. Other than as disclosed in Schedules 8.4 and 8.27 of the ------- Purchase Agreement, since the date of the most recent financial statements referred to in Section 4.6, there have been no changes in the assets, liabilities, financial condition, business or prospects of the Borrower other than changes in the ordinary course of business, the effect of which has not, in the aggregate, been materially adverse. 4.8. Defaults. As of the date of this Agreement, no Default exists. -------- 4.9. Taxes. The Borrower has filed all federal, state and other tax ----- returns which were due prior to the date of this Agreement, and all taxes, assessments and other governmental charges due from the Borrower prior to or as of the date hereof have been fully paid. The Borrower has established and will maintain on its books reserves adequate for the payment of all federal, state and other tax liabilities. 4.10. Litigation. Except as set forth on Exhibit 4.10 hereto, there is no ---------- ------------ litigation, arbitration, proceeding or investigation pending, or, to the knowledge of the officers of the Borrower threatened, against the Borrower that, if adversely determined, would result in a material judgment not fully covered by insurance or would otherwise have a material adverse effect on the assets, business or prospects of the Borrower. 4.11. Use of Proceeds. No portion of any Loan is to be used for the --------------- "purpose of purchasing or carrying" any "margin stock" as such terms are used in Regulations G, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. 221 and 224, as amended; and following the application of the proceeds of each Loan, the value of all "margin stock" of the -18- Borrower will not exceed 25% of the value of the total assets of the Borrower that are subject to the restrictions set forth in Section 6.3. 4.12. Subsidiaries. As of the date of this Agreement, the Borrower has no ------------ Subsidiaries. 4.13. Investment Company Act. The Borrower is not subject to regulation ---------------------- under the Investment Company Act of 1940, as amended. 4.14. Compliance with ERISA. The Borrower and each member of the --------------------- Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA; and no "prohibited transaction" or "reportable event" (as such terms are defined in ERISA) has occurred with respect to any Plan. 4.15. Security Interest. This Agreement creates and continues in favor of ----------------- the Bank a security interest in the Collateral identified in Section 7.1 hereof. All financing statements with respect to the Collateral have been executed and will be filed on or before the date of the initial loan hereunder in all offices necessary to perfect a security interest in the Collateral, and such security interest constitutes a first priority perfected security interest in the Collateral, except in Collateral (if any) in which a security interest cannot be perfected by filing under the Uniform Commercial Code. 4.16. Application of Proceeds. The proceeds of Loans made hereunder ----------------------- shall be used for general working capital purposes. 4.17. Taxes and Charges Relating to the Agreement. All state and local ------------------------------------------- recording, franchise, stamp, documentary and other governmental charges and assessments required to be paid in connection with the execution, delivery, filing or recordation of, or as a condition to, the enforcement of this Agreement, or the Bank's lien on or security interest in the Collateral, have been duly paid. SECTION V AFFIRMATIVE COVENANTS --------------------- So long as the Bank has any commitment to lend hereunder or any Loan or other Obligation remains outstanding, the Borrower covenants as follows: -19- 5.1 Financial Statements and other Reporting Requirements. The Borrower ------------------------------------------------------ shall furnish to the Bank: (a) as soon as available to the Borrower, but in any event within 90 days after the end of each of its fiscal years, a balance sheet as of the end of, and a related statement of income, changes in stockholders' equity and cash flow for, such year, audited and unqualified by Coopers & Lybrand (or other independent certified public accountants acceptable to the Bank); and, concurrently with such financial statements, a copy of said certified public accountants' management report and a written statement by such accountants that, in the making of the audit necessary for their report and opinion upon such financial statements they have obtained no knowledge of any Default or, if in the opinion of such accountants any such Default exists, they shall disclose in such written statement the nature and status thereof; (b) as soon as available to the Borrower, but in any event within 45 days after the end of each fiscal quarter, a balance sheet as of the end of, and a related statement of income for the period then ended; (c) concurrently with the delivery of each financial statement pursuant to subsections (a) and (b) of this Section 5.1, a report in substantially the form of Exhibit 5.1(c) hereto signed on behalf of the Borrower by its chief financial -------------- officer; (d) promptly after the receipt thereof by the Borrower copies of any reports submitted to the Borrower by independent public accountants in connection with any interim review of the accounts of the Borrower made by such accountants; (e) if and when the Borrower gives or is required to give notice to the PBGC of any "Reportable Event" (as defined in Section 4043 of ERISA) with respect to any Plan that might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that any member of the Controlled Group or the plan administrator of any Plan has given or is required to give notice of any such Reportable Event, a copy of the notice of such Reportable Event given or required to be given to the PBGC; (f) immediately upon becoming aware of the existence of any condition or event that constitutes a Default, written notice thereof specifying the nature and duration thereof and the action being or proposed to be taken with respect thereto; (g) promptly upon becoming aware of any litigation or of any investigative proceedings by a governmental agency or authority commenced or threatened against the Borrower of which it has notice, the outcome of which would or might have a -20- materially adverse effect on the assets, business, prospects or financial condition of the Borrower, written notice thereof and the action being or proposed to be taken with respect thereto; and (h) from time to time, such other information about the Borrower as the Bank may reasonably request. 5.2. Conduct of Business. The Borrower shall: ------------------- (a) duly observe and comply in all material respects with all applicable laws and valid requirements of any governmental authorities relative to its corporate existence, rights and franchises, to the conduct of its business and to its property and assets, and shall maintain and keep in full force and effect all licenses and permits necessary in any material respect to the proper conduct of its business; (b) maintain its corporate existence; (c) remain engaged substantially in the business of the wholesale distribution of computer equipment and related software; and (d) maintain its chief executive office at the address specified in Section 4.1 hereof, unless the Bank shall have first been notified in writing of any change. 5.3. Maintenance and Insurance. The Borrower shall maintain its ------------------------- properties in good repair, working order and condition as required for the normal conduct of its business. The Borrower shall at all times maintain with financially sound and reputable insurers, liability and casualty insurance customary for companies engaged in businesses similar to that of the Borrower including in any event fire and extended coverage and theft, and, with respect to the Borrower's casualty insurance covering the Collateral, shall, in addition be in amounts, containing such terms, in such form, and for such periods as may be reasonably satisfactory to the Bank, such insurance to be payable to the Bank (as loss payee and additional insured) and the Borrower as their interests may appear. All such policies of insurance shall provide for no less than thirty (30) days written minimum cancellation notice to the Bank. In the event the Borrower fails to provide and maintain insurance as herein required, the Bank may, at its option, provide such insurance and charge the amount thereof to the Loan Account which amount shall bear interest at the rate specified in, and in accordance with, Section 2.11 of this Agreement. The Borrower shall furnish to the Bank certificates or other evidence reasonably satisfactory to the Bank of compliance with the foregoing insurance provisions. -21- 5.4. Taxes. The Borrower shall pay or cause to be paid all taxes, ----- assessments or governmental charges on or against it or its properties on or prior to the time when they become due unless any such tax, assessment or charge is being contested in good faith by appropriate proceedings and with adequate reserves established and maintained in accordance with generally accepted accounting principles provided no lien shall have been filed to secure any such tax, assessment or charge. 5.5. Inspection and Verification of Accounts. The Borrower shall permit --------------------------------------- the Bank or its designees, at any reasonable time and upon reasonable notice (or if a Default shall have occurred and is continuing, at any time and without prior notice), to (i) visit and inspect the properties of the Borrower, (ii) examine and make copies of and take abstracts from the books and records of the Borrower, (iii) discuss the affairs, finances and accounts of the Borrower and its appropriate officers, employees and accountants and (iv) arrange for verification of Accounts under reasonable procedures directly with the Borrower's accountants, the account debtors or by other methods. 5.6. Maintenance of Books and Records. The Borrower shall keep adequate ------------------------------- books and records of account, in which true and complete entries will be made reflecting all of its business and financial transactions, and such entries will be made in accordance with generally accepted accounting principles consistently applied and applicable law. 5.7. Ratio of EBIT to Interest Expense. As of the last day of each of the --------------------------------- Borrower's fiscal quarters, the Borrower shall have a ratio of (a) EBIT to (b) total interest expense but excluding imputed interest arising from accretion of debt discount on the Subordinated Indebtedness issued under the Purchase Agreement, of not less than the ratio specified for each of the following periods: Period Ratio ------ ----- April 1, 1992 - June 30, 1992 1.5:1 July 1, 1992 - March 31, 1993 2.5:1 April 1, 1993 and thereafter 3.0:1 5.8. Minimum Total Capital Funds. The Borrower shall maintain Total Capital --------------------------- Funds of not less than $3,500,000 until March 31, 1993, and thereafter $3,500,000 plus seventy-five percent (75%) of the Borrower's Net Income for the ---- immediately preceding year. 5.9. Leverage Ratio. The Borrower shall maintain a ratio of (i) Total -------------- Liabilities less Subordinated Indebtedness to (ii) Total Capital Funds of not more than 5:1 until March 31, 1993 and 3.5:1 thereafter. -22- 5.10. Ratio of Senior Bank Indebtedness to Total Capital Funds. The -------------------------------------------------------- Borrower shall maintain a ratio of Senior Bank Indebtedness to Total Capital Funds of not more than 3:1. 5.11. Further Assurances. At any time and from time to time the ------------------ Borrower shall, and shall cause each of its Subsidiaries to, execute and deliver such further instruments and take such further action as may reasonably be requested by the Bank to effect the purposes of this Agreement. SECTION VI NEGATIVE COVENANTS ------------------ So long as the Bank has any commitment to lend hereunder or any Loan or other Obligation remains outstanding, the Borrower covenants as follows: 6.1. Indebtedness. The Borrower will not create, incur, assume, ------------ guarantee or be or remain liable with respect to any Indebtedness other than the following: (a) Indebtedness of the Borrower to the Bank, any direct or indirect subsidiary of the Bank or any of the Bank's affiliates; (b) Indebtedness existing as of the date of this Agreement and disclosed on Exhibit 6.1(b) hereto or in the financial statements referred to in -------------- Section 4.6; (c) Subordinated Indebtedness; (d) Normal trade Indebtedness and relating to the acquisition of goods and supplies other than any such Indebtedness not more than sixty (60) days past due from the due date or any such Indebtedness being contested in good faith and for which adequate reserves have been established and which shall not exceed in the aggregate at any time $250,000; ------- (e) Indebtedness secured by Permitted Encumbrances; and (f) Other Indebtedness not to exceed $50,000 in the aggregate at any time. 6.2. Contingent Liabilities. The Borrower shall not create, incur, ---------------------- assume, guarantee or remain liable with respect to any Guarantees other than the following: (a) Guarantees in favor of the Bank, or any of its or their affiliates; -23- (b) Guarantees existing on the date of this Agreement and disclosed on Exhibit 6.1(b) hereto or in the financial statements referred to in Section 4.6; - -------------- (c) Guarantees resulting from the endorsement of negotiable instruments for collection in the ordinary course of business; (d) Guarantees with respect to surety, appeal performance and return-of-money and other similar obligations incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); and (e) Guarantees of normal trade debt relating to the acquisition of goods and supplies. 6.3. Encumbrances. The Borrower shall not create, incur, assume or suffer ------------ to exist any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor upon or with respect to any of its property or assets ("Encumbrances"), ------------ or assign or otherwise convey any right to receive income, including the sale or discount of accounts receivable with or without recourse, except the following ("Permitted Encumbrances"): ---------------------- (a) Encumbrances in favor of the Bank, or any of the Bank's affiliates; (b) Liens for taxes, fees, assessments and other governmental charges to the extent that payment of the same may be postponed or is not required in accordance with the provisions of Section 5.4; (c) Landlords' and lessors' liens in respect of rent not in default or liens in respect of pledges or deposits under workmen's compensation, unemployment insurance, social security laws, or similar legislation (other than ERISA) or in connection with appeal and similar bonds incidental to litigation; mechanics', laborers' and materialmen's and similar liens, if the obligations secured by such liens are not then delinquent; liens securing the performance of bids, tenders, contracts (other than for the payment of money); and statutory obligations incidental to the conduct of its business and that do not in the aggregate materially detract from the value of its property or materially impair the use thereof in the operation of its business; (d) Judgment liens that shall not have been in existence for a period longer than 60 days after the creation thereof or, if a stay of execution shall have been obtained, for a period longer than 60 days after the expiration of such stay; -24- (e) Rights of lessors under capital leases; and (f) Encumbrances in respect of any purchase money obligations for (i) any equipment used in the business of the Borrower which at any time shall not exceed $100,000 in the aggregate, and (ii) inventory supplied by a vendor who has delivered to the Bank either (A) a Vendor Subordination Letter, substantially in the form of Exhibit 6.3(f)(ii) hereto, or (B) if such vendor's ------------------ security interest in such inventory has not been perfected by the filing of a Form-1 Uniform Commercial Code Financing Statement, a letter acknowledging that notices, if any, given by such vendor to the Bank will be delivered to the address specified in Section 9.1(d) hereof, provided that any such Encumbrance -------- ---- shall not extend to property and assets not financed by such a purchase money obligation. 6.4. Capital Expenditures. The Borrower shall not purchase or agree to -------------------- purchase, or incur any obligations (including that portion of the obligations arising under any capital lease that is required to be capitalized on the balance sheet of the Borrower) for, any equipment or other property constituting fixed assets of greater than $250,000, in the aggregate, during any fiscal year. 6.5. ERISA. Neither the Borrower nor any member of the Controlled Group ----- shall permit any Plan maintained by it to (i) engage in any "prohibited transaction" (as defined in Section 4975 of the Code, (ii) incur any "accumulated funding deficiency" (as defined in Section 302 of ERISA) whether or not waived, or (iii) terminate any Plan in a manner that could result in the imposition of a lien or encumbrance on the assets of the Borrower pursuant to Section 4068 of ERISA. 6.6. Merger; Consolidation; Sale or Lease of Assets. Other than as ---------------------------------------------- permitted by Section 7.2 of this Agreement, the Borrower shall not sell, lease or otherwise dispose of assets or properties (valued at the lower of cost or market), or liquidate, merge or consolidate into or with any other person or entity. 6.7. Leases. The Borrower shall not, during any fiscal year, have aggregate ------ annual lease payments for real or personal property (whether or not such payments are termed rent) in excess of $1,000,000. 6.8. Sale and Leaseback. Without the prior written consent of the Bank, the ------------------ Borrower shall not enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property owned by it in order to lease such property or lease other property that the Borrower intends to use for substantially the same purpose as the property being sold or transferred. -25- 6.9. Investments. Without the prior written consent of the Bank, the ----------- Borrower shall not make or maintain any Investments other than (i) Qualified Investments; or (ii) Investments in any one entity for which the aggregate purchase price does not exceed $200,000. 6.10. Change in Terms and Prepayment of Subordinated Indebtedness. The ----------------------------------------------------------- Borrower shall not: (a) effect or permit any change in or amendment to (i) the terms by which any Subordinated Indebtedness purports to be subordinated to the payment or performance of the Obligations, or (ii) the terms relating to the repayment of any Subordinated Indebtedness; or (b) directly or indirectly, make any payment of any principal of or in redemption, retirement or repurchase of Subordinated Indebtedness, except payments required by the instruments evidencing such Indebtedness. 6.11 Dividends and other Equity Distributions. The Borrower shall not pay ---------------------------------------- any dividends in excess of $150,000 during the calendar year ending December 31, 1992, and zero thereafter, on any class of its capital stock or make any other distribution or payment on account of or in redemption, retirement or purchase of such capital stock; provided that this Section shall not apply to (i) the -------- issuance, delivery or distribution by the Borrower of shares of its common stock pro rata to its shareholders and (ii) the purchase or redemption by the Borrower of its capital stock with the proceeds of the issuance of additional shares of capital stock. SECTION VII SECURITY AGREEMENT ------------------ 7.1. Creation of Security Interest. As collateral security for the ----------------------------- payment and performance in full of the Obligations, the Borrower hereby assigns to the Bank all of its rights, title and interest in, and grants to the Bank a continuing security interest in, the following personal property: all personal property of the Borrower including without limitation, Accounts, Inventory, Equipment and General Intangibles, whether such property is now owned or existing or is owned, acquired, or arises hereafter, together with all goods, instruments, documents of title, policies and certificates of insurance, securities, chattel paper, deposits, cash or other property owned by or in which it has an interest which are now or may hereafter be in the possession, custody or control of the Bank or its assigns for any purpose, and any and all additions, substitutions, replacements, accessions, Proceeds and products thereof. -26- 7.2. Covenants Pertaining to Collateral. The Borrower covenants that: ---------------------------------- (a) Other than sales of Inventory or grants of licenses and other rights in the ordinary course of the Borrower's business for cash or an open account and on terms of payment ordinarily extended to its customers, the Borrower will not grant, assign or transfer any interest in, or otherwise encumber, any of the Collateral other than in favor of the Bank, or any of its affiliates, except as otherwise permitted herein. So long as no Default has occurred and is continuing, the Borrower may dispose of any Equipment which as become worn out, obsolete, unnecessary or has been replaced by other Equipment or been Temporarily removed for the purposes of repair. The Borrower shall defend the Collateral against, and take any action reasonably necessary to remove any liens or encumbrances other than those permitted hereunder and defend the right, title and interest of the Bank in and to any of the Borrower's rights in the Collateral. (b) At the time any Account becomes subject to a security interest in favor of the Bank, such Account shall be a valid, legal and binding obligation of the account debtor named therein for goods sold or services theretofore performed by the Borrower, enforceable in accordance with its terms (which terms shall be expressly set forth on the face of the invoice applicable thereto). (c) The Collateral shall remain personal property of the Borrower and shall not be deemed to be a fixture irrespective of the manner of its attachment to any real estate, and upon request by the Bank, the Borrower will deliver to the Bank such disclaimer, waiver, or other document as the Bank requests, executed by each person having an interest in such real estate. (d) It will keep the Collateral in good order and repair, subject to reasonable wear and tear, and will not use the same in violation of law or any policy of insurance thereon, and will pay promptly when due all taxes and assessments upon the Collateral or for its use or operation. (e) It will apply for, and pursue diligently applications for, registration of its ownership of the General Intangibles for which registration is appropriate and will use other appropriate measures to preserve its rights in other such General Intangibles. (f) Except as disclosed in Exhibit 4.1 hereto, all tangible Collateral ----------- shall be located at the chief executive office of the Borrower, and the Borrower will not remove any part thereof (except in connection with dispositions permitted under Section 7.2(a)) unless and until such time as written consent to a change of location is obtained from the Bank. The -27- Borrower's chief executive office and the place where its records concerning the Collateral are kept is shown on the first page hereof, and the Borrower will not change such chief executive office or remove such records without the express prior written consent of the Bank, which consent shall not be unreasonably withheld. (g) At any time and from time to time, upon the written request of the Bank, and at the sole expense of the Borrower, the Borrower will promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as the Bank may reasonably deem desirable in obtaining the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statement under the Uniform Commercial Code in effect in any jurisdiction with respect to the liens and security interests granted hereby, transferring Collateral (other than Inventory and Accounts) to the Bank's possession, and using its reasonable best efforts to obtain waivers from landlord's and mortgagees, if necessary. The Borrower also hereby authorizes the Bank to file any such financing or continuation statement without the signature of the Bank to the extent permitted by applicable law. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note or other instrument, such note or instrument shall be immediately pledged and delivered to the Bank, duly endorsed in a manner satisfactory to it. (h) The Borrower will not change its name, identity or corporate structure in any manner which might make any financing or continuation statement filed hereunder seriously misleading within the meaning of Section 9-402(7) of the Uniform Commercial Code (or any other then applicable provision of the Code) unless the Borrower shall have given the Bank at least 30 days prior written notice thereof or shall have delivered to the Bank acknowledgement copies of UCC-3 financing statements reflecting such change duly executed and duly filed in each jurisdiction in which UCC-1 filings were required in order to perfect the security interest granted by this Agreement in the Collateral and shall have taken all action (or made arrangements to take such action concurrently with such change if it is impossible to take such action in advance) necessary or reasonably requested by the Bank to amend such financial statement or continuation statement so that it is not seriously misleading. 7.3. Reports, etc. Pertaining to Collateral. The Borrower will: -------------------------------------- (a) Schedule of Accounts. Deliver to the Bank on or before the date of -------------------- the initial Loan hereunder and by the first Business Day following the end of the last Business Day of each -28- week, and at such other intervals and for such periods as the Bank may request, a schedule of receivables which (i) shall be reconciled to the Borrowing Base Certificate as of such last Business Day, (ii) shall set forth a detailed aged trial balance of all its then existing Accounts, specifying the names, addresses and balance due for each account debtor obligated on an Account so listed, and (iii) shall set forth a detailed report of balances due from and rebates owing to account debtors, specifying the names and addresses of each account debtor, the balance due on each account debtor's Account and the amount of any rebate owned to that account debtor in the ordinary course of the Borrower's business. (b) Schedule of Inventory. Deliver to the Bank on or before the date of --------------------- the initial Loan hereunder and by the 15th day of each month a schedule of inventory as of the last Business Day of the immediately preceding monthly account period of the Borrower and at such other intervals and for such periods as the Bank may request, itemizing and describing the kind, type and quantity of Inventory and location and the Borrower's cost thereof. (c) Borrowing Base Certificate. Concurrently with the delivery of the -------------------------- schedules required by subsections 7.3(a) and (b) deliver to the Bank a Borrowing Base Certificate, substantially in the form of Exhibit 7.3(c) hereto, prepared as of the close of business on the last Business Day of the period covered by such schedules. (d) Collateral Values. Promptly notify the Bank of any information ----------------- received by the Borrower relative to any of the Collateral including the Accounts, the account debtors, or other persons obligated in connection therewith, which may in any way affect adversely the value of any of its property or the rights and remedies of the Bank in respect thereto; (e) Account Debtor Insolvency. Promptly notify the Bank when it obtains ------------------------- knowledge of actual or imminent bankruptcy or other insolvency proceeding of any account debtor owing an aggregate of $100,000 or more to the Borrower; (f) Sales and Shipping Information. Deliver to the Bank, as the Bank may ------------------------------ from time to time require, delivery receipts, customer's purchase orders, shipping instructions, bills of lading and any other evidence of shipping arrangements; and (g) Notice of Diminution in Value. Immediately notify the Bank of any ----------------------------- return or adjustment in excess of $100,000, -29- rejection, repossession and loss or damage of or to merchandise represented by the Accounts or constituting Inventory, and of any credit adjustment or dispute arising in connection with the goods or services represented by the Accounts or constituting Inventory, and the Borrowing Base shall be adjusted accordingly. 7.4. Collection of Accounts and Adjustments. Until the Bank exercises its -------------------------------------- rights to collect the Accounts pursuant to Sections 7.6 or 7.7, the Borrower will collect with diligence all of its Accounts, and may continue its present policies with respect to adjustments. 7.5. Bank's Rights in Collateral. (a) After the occurrence of an Event --------------------------- of Default and so long as such an Event of Default is continuing, with respect to any Accounts, (i) the Borrower shall, at the request of the Bank, notify account debtors of the security interest of the Bank in any Account and that payment thereof is to be made directly to the Bank, and (ii) the Bank itself may, without notice to or demand upon the Borrower, so notify account debtors. The giving of such notification shall not affect the duties of the Borrower, described below with respect to proceeds of collections of Accounts received by the Borrower. Until such notice by the Bank, any such collection of Accounts, whether in the form of cash, checks, notes, or other instruments for the payment of money (properly endorsed or assigned where required to enable the Bank to collect same), shall be in trust for the Bank, and the Borrower shall deliver said collections daily to the Bank, or to such bank as may be approved by the Bank for deposit to an agency account governed by the terms of an agency account agreement with such bank, substantially in the form of Exhibit 7.5 attached ----------- hereto, in the identical form received. The Bank shall credit the proceeds of collection of Accounts received by the Bank to the Loan Account, such credits to be entered as soon as practicable upon receipt and in any event within one Business Day after receipt thereof by the Bank. Such credits shall be conditional upon final payment in cash or solvent credits of the items giving rise to them. If any item is not so paid, the Bank, in its discretion, whether or not the item is returned, may either reverse any credit given for the item or debit the amount of the item from the deposits or other sums which may be due to the Borrower from the Bank. Upon elimination of any debit balance of the Loan Account, proceeds of collection and other receipts may then be credited to any deposit account which the Borrower may maintain with the Bank, or, if there is no such account, held pending instructions from the Borrower. After the occurrence of an Event of Default and with respect to any Accounts, the Bank may, at its option and at any time, whether or not the Obligations are due, without notice or demand on the Borrower (i) demand, collect, receipt for, settle, compromise, adjust, give discharges and releases, all as the Bank may reasonably determine; (ii) commence and prosecute any actions in any court for the purposes of collecting any such Accounts and enforcing any other rights in -30- respect thereof; (iii) defend, settle or compromise any action brought and, in connection therewith, give such discharge or release as the Bank may deem appropriate; (iv) receive, open and dispose of mail addressed to the Borrower and endorse checks, notes, drafts, acceptances, money orders, or other instruments or documents evidencing payment, on behalf of and in the name of the Borrower, or securing, or relating to such Accounts; and (v) sell, assign, transfer, make any agreement in respect of, or otherwise deal with or exercise rights in respect of, any such Accounts or the services which have given rise thereto, as fully and completely as though the Bank were the absolute owners thereof for all purposes. In taking any action hereunder with respect to the Collateral, the Bank agrees to use its best efforts to act in a commercially reasonable manner. (b) After the occurrence of an Event of Default and so long as any such Event of Default is continuing, with respect to any Inventory and Equipment, make, adjust and settle claims under any insurance policy related thereto. (c) In addition to the remedies provided for herein or otherwise available to the Bank, the Bank is hereby granted a license or other right to use, without charge, the Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and the Borrower's rights under all licenses and all franchise agreements shall inure to the Bank's benefit. The Bank shall not exercise any rights provided by this Section 7.5(c) unless an Event of Default has occurred and is continuing. Except as otherwise provided herein, the Bank shall have no duty as to the collection or protection of the Collateral nor as to the preservation of any rights pertaining thereto. 7.6. Remedies. (a) In any jurisdiction where enforcement of rights -------- hereunder is sought, the Bank shall have, in addition to all other rights and remedies, the rights and remedies of a secured party under the applicable Uniform Commercial Code. Upon the occurrence of an Event of Default or at any time thereafter (such defaults not having been previously cured to the reasonable satisfaction of the Bank) and so long as any part of the Obligations remains unpaid or unperformed, the Bank may, at its option, without notice or demand, declare all of the Obligations to be immediately due and payable and take immediate possession of the Collateral, and for that purpose enter upon any premises on which any of the Collateral is situated and remove the same therefrom or remain on such premises and in possession of such Collateral for purposes of conducting a sale or enforcing the rights of the Bank under this Agreement. The Borrower will, upon demand, make the Collateral available to the Bank at a place and time designated by the Bank which is reasonably convenient. After the occurrence of an Event of Default the Bank may collect and receive all income and proceeds in respect of the Collateral, exercise all rights of the Borrower with respect thereto, and apply the Collateral and any and all income and proceeds received by it hereunder to the payment of all Obligations to the Bank. The Bank may sell, lease or otherwise dispose of the Collateral at a public or private sale, with or without having the Collateral at the place of sale, and upon terms and in such manner as the Bank may determine, and the Bank may purchase any Collateral at any such sale. Unless the Collateral threatens to decline rapidly in value or is of the type customarily sold on a recognized market, the Bank shall give to the Borrower at least ten business days' prior written notice of the time and place of any public sale of the Collateral or of the time after which any private sales or any other intended disposition thereof is to be made. (b) Prior to any disposition of Collateral pursuant to this Agreement, the Bank may, at its option, cause any of the Collateral to be repaired, reconditioned, but not upgraded unless mutually agreed, in such manner and to such extent as to make saleable, and any reasonable sums expended therefor by the Bank shall be repaid by the Borrower and become part of the Obligations secured hereby; the Bank shall have the right to enforce one or more remedies hereunder successively or concurrently, and any such action shall not stop or prevent the Bank from pursuing any further remedy which it may have hereunder or by law. (c) The Bank shall be entitled to retain and to apply the proceeds of such sale to: (i) all sums secured hereby; and (ii) its reasonable expenses of retaking, holding, protecting and maintaining, and preparing for sale and selling the Collateral, together with interest on such expenses at the rate specified in, and in accordance with, Section 2.11 of this Agreement, including reasonable attorney's fees and other legal expenses incurred by it in connection therewith. If a sufficient sum is not realized from any such disposition of Collateral to pay all Obligations secured by this Agreement, the Borrower hereby promises and agrees to pay to the Bank any deficiency. (d) The Bank shall have the right to enforce one or more remedies hereunder successively or concurrently, and any further remedy which it may have hereunder or by law. 7.7. Waivers. Except as otherwise provided herein, the Borrower waives ------- demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in -32- reliance hereon and all other demands and notice of any description. With respect to both the Obligations and the Collateral, the Borrower assents to any extension or postponement of the time of payment or any other forgiveness or indulgence, to any substitution, exchange or release of Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Bank may deem advisable. The Bank may exercise any rights with respect to the Collateral without resorting, or regard, to other collateral or sources of reimbursement for the Obligations. SECTION VIII DEFAULTS -------- 8.1. Events of Default. There shall be an Event of Default hereunder if ----------------- any of the following events occurs: (a) The Borrower shall fail to pay when due (i) any amount of principal of or interest on any Loans, or (ii) any fees or expenses payable hereunder within five Business Days of the due date therefor; or (b) The Borrower shall fail to perform any term, covenant or agreement contained in Sections 5.1(f), 5.5, 5.7 through 5.9 or 6.1 through 6.5; or (c) The Borrower shall fail to perform any covenant contained in Sections 5.1(e), 5.1(g) or 5.2, and such failure shall continue for 30 days; or (d) The Borrower shall fail to perform any term, covenant or agreement (other than in respect of subsections 8.1(a) through (c) hereof) contained in this Agreement and such default shall continue for 30 days after notice thereof has been received by the Borrower from the Bank; or (e) Any representation or warranty of the Borrower made in this Agreement or any other documents or agreements executed in connection with the transactions contemplated by this Agreement or in any certificate delivered hereunder shall prove to have been false in any material respect upon the date when made or deemed to have been made; or (f) There shall occur any material adverse change in the assets, liabilities, financial condition, business or prospects of the Borrower, as determined by the Bank acting in good faith which shall be in existence for thirty (30) days after -33- notification by the Bank to the Borrower of such material adverse change; or (g) The Borrower shall fail to pay at maturity, or within any applicable period of grace, any Indebtedness or fail to observe or perform any term, covenant or agreement evidencing or securing such Indebtedness, the result of which failure is to permit the holder or holders of such Indebtedness to cause such Indebtedness to become due prior to its stated maturity; or (h) The Borrower shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar official of itself or of all or a substantial part of its property, (ii) be generally not paying its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (v) take any action or commence any case or proceeding under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts, or any other law providing for the relief of debtors, (vi) fail to contest in a timely or appropriate manner, or acquiesce in writing to, any petition filed against it in an involuntary case under such Bankruptcy Code or other law, (vii) take any action under the laws of its jurisdiction of incorporation or organization similar to any of the foregoing, or (viii) take any corporate action for the purpose of effecting any of the foregoing; or (i) A proceeding or case shall be commenced, without the application or consent of the Borrower in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets, or (iii) similar relief in respect of it, under any law relating to bankruptcy, insolvency, reorganization, winding-up or composition or adjustment of debts or any other law providing for the relief of debtors, and such proceeding or case shall continue undismissed, or unstayed and in effect, for a period of 30 days; or an order for relief shall be entered in an involuntary case under such Bankruptcy Code, against the Borrower or action under the laws of the jurisdiction of incorporation or organization of the Borrower similar to any of the foregoing shall be taken with respect to the Borrower and shall continue unstayed and in effect for any period of 60 days; or (j) A judgment or order for the payment of money not covered by insurance shall be entered against the Borrower by any court, or a warrant of attachment or execution or similar process shall be issued or levied against property of the -34- Borrower, which in the aggregate exceeds $200,000 in value and such judgment, order, warrant or process shall continue undischarged or unstayed for 60 days; or (k) The Borrower or any member of the Controlled Group shall fail to pay when due any amount which it shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or notice of intent to terminate a Plan or Plans shall be filed under Title IV of ERISA by the Borrowers, any member of the Controlled Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans against the Borrower and such proceedings shall not have been dismissed within 60 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated. 8.2. Remedies. Upon the occurrence of an Event of Default described in -------- subsections 8.1(h) and (i), immediately and automatically, and upon the occurrence of any other Event of Default, at any time thereafter while such Event of Default is continuing, at the Bank's option and upon the Bank's declaration: (a) The Bank's commitment to make any further Loans hereunder shall terminate; (b) The unpaid principal amount of the Loans together with accrued interest and all other Obligations shall become immediately due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and (c) The Bank may exercise any and all rights it has under this Agreement or any other documents or agreements executed in connection herewith, or at law or in equity, and proceed to protect and enforce the Bank's rights by any action at law, in equity or other appropriate proceeding. SECTION IX MISCELLANEOUS ------------- 9.1. Notices. All notices, requests and demands to or upon the Borrower ------- or the Bank shall be deemed to have been duly given or made: if by telecopy, telex, telegram or by hand, immediately upon sending or delivery; if by any overnight delivery service, one (1) day after dispatch; and if mailed by certified mail, return receipt requested, five (5) days after -35- mailing. All notices, requests and demands are to be given or made to the respective parties at the following addresses (or to such other address as any party may designate by notice in accordance with this Section): (a) If to the Borrower: Ross White Enterprises, Inc., d/b/a National Computer Distributors 3401-C N.W. 72nd Avenue Miami, Florida 33132 Attention: Gregory A. White Telephone: (305) 477-9019 Telecopier: (305) 599-1511 (b) with a copy to Lee Capital Holdings One International Place, Suite 4301 Boston, MA 02110 Attention: Jonathan O. Lee Telephone: (617) 345-0477 Telecopier: (617) 345-0478 (c) If to the Bank: The First National Bank of Boston 100 Federal Street Boston, MA 02110 Attention: William C. Purinton Vice President Asset Based Lending, 01-22-08 Telephone: (617) 434-8856 Telecopier: (617) 434-1188 (d) With a copy to: The First National Bank of Boston 400 Perimeter Center Terrace Suite 745 Atlanta, Georgia 30346 Attention: William D. Kearney Vice President Telephone: (404) 393-4676 Telecopier: (404) 393-4166 9.2. Expenses. The Borrower shall, on demand, pay or reimburse the Bank --------- for all reasonable expenses (including attorneys' fees of outside counsel or allocation costs of in-house counsel) incurred or paid by the Bank in connection with the preparation, negotiation and closing of this Agreement (whether or not the transactions contemplated hereby shall be consummated) and all reasonable expenses (including attorneys' -36- fees of outside counsel or allocation costs of in-house counsel) incurred or paid by the Bank in connection with the administration or amendment of this Agreement (whether or not the transactions contemplated hereby shall be consummated) and with the enforcement of any Obligation of the Borrower or exercise of any right of the Bank hereunder. The Borrower shall, on demand, pay or reimburse the Bank for all expenses (including the allocation costs of the Bank's employees) incurred in connection with the commercial finance examinations of the Borrower's operations conducted by the Bank. 9.3. Set-Off. Regardless of the adequacy of the Collateral, any deposits ------- or other sums, at any time credited by or due from the Bank to the Borrower may at any time be applied to or set off against Obligations on which the Borrower is primarily liable and may at or after the maturity thereof be applied to or set off against Obligations on which the Borrower is secondarily liable. 9.4. Term of Agreement. This Agreement shall continue in force and effect ----------------- so long as the Bank has any commitment to make Loans hereunder or any Loan or any Obligation hereunder shall be outstanding. 9.5. No Waivers. No failure or delay by the Bank in exercising any right, ---------- power or privilege hereunder or under any other documents or agreements executed in connection herewith shall operate as a waiver thereof; nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law. 9.6. Governing Law. This Agreement shall be deemed to be a contract made ------------- under seal and shall be construed in accordance with and governed by the laws of The Commonwealth of Massachusetts (without giving effect to any conflicts of laws provisions contained therein). 9.7. Amendments. Neither this Agreement nor any provision hereof or ---------- thereof may be amended, waived, discharged or terminated except by a written instrument signed by the Bank and, in the case of amendments, by the Borrower. 9.8. Binding Effect of Agreement. This Agreement shall be binding upon --------------------------- and inure to the benefit of the Borrower and the Bank and their respective successors and assigns; provided that the Borrower may not assign or transfer its rights hereunder. The Bank may assign all of its rights and obligations hereunder without the consent of the Borrower. The Bank may sell, transfer or grant participations in the Loan without the prior written consent of the Borrower and the Borrower agrees that -37- any transferee or participant shall be entitled to the benefits of Sections 2.8, 2.11, 5.5, 9.2 and 9.3 to the same extent as if such transferee or participant were the Bank hereunder; provided that notwithstanding any such transfer or participation, the Borrower may, for all purposes of this Agreement, treat the Bank as the person entitled to exercise all rights hereunder and to receive all payments with respect thereto. 9.9. Counterparts. This Agreement may be signed in any number of ------------ counterparts with the same effect as if the signatures hereto and thereto were upon the same instrument. 9.10. Severability. The invalidity or unenforceability of any one or more ------------ phrases, clauses or sections of this Agreement shall not affect the validity or enforceability of the remaining portions of it. 9.11. Captions. The captions and headings of the various sections and -------- subsections of this Agreement are provided for convenience only and shall not be construed to modify the meaning of such sections or subsections. 9.12. Entire Agreement. This Agreement and the documents and agreements ---------------- executed in connection herewith constitute the final agreement of the parties hereto and supersede any prior agreement or understanding, written or oral, with respect to the matters contained herein and therein. 9.13. JURY WAIVER. EACH OF THE BORROWER AND THE BANK AGREE THAT NEITHER ----------- OF THEM, NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE BORROWER AND THE BANK, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BORROWER NOR THE BANK HAS AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. -38- IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as an instrument under seal as of the day and year first above written. ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE] - ------------------------ ------------------------------- Witness Title: President [Seal] Executed At: Boston, Mass. ---------------------- THE FIRST NATIONAL BANK OF BOSTON [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE] - ------------------------ ------------------------------- Witness Its Authorized Officer [Seal] Executed At: Boston MA ---------------------- ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS AMENDMENT NO. 1 DATED AS OF NOVEMBER 2, 1992 THIS AMENDMENT (this "Amendment") is entered into as of November 2, 1992 by and between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS, a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). Preliminary Statement. The parties have entered into a Revolving Credit ---------------------- Agreement dated as of April 27, 1992 (the "Agreement") providing for the maintenance by the Borrower of certain financial operating ratios. The Borrower has delivered financial statements and other reports to the Bank reflecting increases in sales beyond that previously projected and has requested that certain of these ratios be amended to allow the Borrower to borrow against the additional accounts receivable arising from these sales. In exchange for the Borrower's agreement to lower the inventory cap under the Agreement, the Bank has agreed to the Borrower's request subject to the Borrower's execution and delivery of this amendment. Upon and after the date of this Amendment all references to the Agreement in that document, or in any related document, shall mean the Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Agreement, and, except as specifically provided in this Amendment, the Agreement shall remain in full force and effect. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. -2- In consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the Bank from a continuing relationship under the Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Borrower and the Bank agrees that the Agreement is hereby amended as follows: 1. The defined term "Borrowing Base" appearing in Section I of the Agreement is hereby amended in its entirety to read as follows: Borrowing Base. An amount equal to the lesser of (x) $20,000,000 or (y) the -------------- sum of (i) 85% of the face value of Eligible Accounts due and owing at such time, plus (ii) the least of (A) 50% of Eligible Inventory, (B) $12,000,000 ---- and (C) the amount available under subset (y)(i) of this definition. 2. Exhibit 7.3(c) to the Agreement, the form of Borrowing Base Certificate required to be delivered to the Bank by the Borrower pursuant to Section 7.3(c) of the Agreement, is hereby deleted from the Agreement and the form attached hereto as Schedule A to this Amendment is hereby substituted in its stead. ---------- 3. Section 5.9 of the Agreement is hereby amended in its entirety to read as follows: 5.9. Leverage Ratio. The Borrower shall maintain a ratio of (i) Total -------------- Liabilities less Subordinated Indebtedness to (ii) Total Capital Funds of not more than 5.75:1 for the period commencing November 1, 1992 and ending December 31, 1992 and 6:1 thereafter. 4. Section 5.10 of the Agreement is hereby amended in its entirety to read as follows: 5.10. Ratio of Senior Bank Indebtedness to Total Capital Funds. The -------------------------------------------------------- Borrower shall maintain a ratio of Senior Bank Indebtedness to Total Capital Funds of not more than 3.5:1 during the period commencing November 1, 1992 and ending December 31, 1992 and 4:1 thereafter. This Amendment is executed as an instrument under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. -3- All parts of the Agreement not affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the -------- ---- Agreement shall conflict or be inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS By: (SIGNATURE APPEARS HERE) -------------------------------- Title: President ----------------------------- [Seal] THE FIRST NATIONAL BANK OF BOSTON By: (SIGNATURE APPEARS HERE) -------------------------------- Title: Vice President ----------------------------- Signed at: Boston, MA ------------------------- [Seal] ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS AMENDMENT NO. 2 DATED AS OF APRIL 19, 1993 THIS AMENDMENT (this "Amendment") is entered into as of April 16, 1993 by and between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS, a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). Preliminary Statement. The parties have entered into a Revolving Credit ---------------------- Agreement dated as of April 27, 1992, as previously amended by Amendment No. 1 dated November 2, 1992 and by a letter agreement dated March 18, 1993 (the "Agreement"). Under the terms of the Agreement, as presently in effect, the Borrower's Maximum Commitment of $13,500,000 will expire on April 30, 1993. The Borrower has delivered its financial statements for the period ending March 31, 1993 and revised cash flow projections for the twelve month period ending March 31, 1994 and requested that the Bank increase the Maximum Commitment and reinstate the original Termination Date of April 30, 1994. The Bank has agreed to the Borrower's requests subject to the Borrower's execution and delivery of this amendment. Upon and after the date of this Amendment all references to the Agreement in that document, or in any related document, shall mean the Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Agreement, and, except as specifically provided in this Amendment, the Agreement shall remain in full force and effect. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. In consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the Bank from a continuing relationship under the Agreement and for other good -2- -2- and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Borrower and the Bank agrees that the Agreement is hereby amended as follows: 1. The following defined terms appearing in Section I of the Agreement are hereby amended in their entirety to read as follows: Borrowing Base. An amount equal to the lesser of (x) $15,000,000 or (y) -------------- the sum of (i) 85% of the face value of Eligible Accounts due and owing at such time, plus (ii) the least of (A) 50% of Eligible Inventory, (B) ---- $12,000,000 and (C) the amount available under subset (y)(i) of this definition, minus (from the sum of (i) and (ii)) $500,000. ----- Maximum Commitment. $15,000,000. ------------------ Termination Date. April 30, 1994. ---------------- 2. Exhibit 7.3(c) to the Agreement, the form of Borrowing Base Certificate required to be delivered to the Bank by the Borrower pursuant to Section 7.3(c) of the Agreement, is hereby deleted from the Agreement and the form attached hereto as Schedule A to this Amendment is hereby substituted in its stead. ---------- 3. Section 5.1(b) of the Agreement is hereby amended in its entirety to read as follows: (b) as soon as available, but in any event within 15 days after the end of each month, a balance sheet as of the end of, and a related statement of income for, the month then ended; 4. Section 5.7 of the Agreement is hereby amended in its entirety to read as follows: 5.7. Ratio of EBIT to Interest Expense. As of the last day of each month, --------------------------------- the Borrower shall have a ratio of (a) EBIT to (b) total interest expense (excluding imputed interest arising from accretion of debt discount on the Subordinated Indebtedness issued under the Purchase Agreement) of not less than 2:1. This Amendment is executed as an instrument under seal and shall be governed by the construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. -3- All parts of the Agreement not affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the -------- ---- Agreement shall conflict or be inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS By: [SIGNATURE APPEARS HERE] ----------------------------- Title: President -------------------------- [Seal] THE FIRST NATIONAL BANK OF BOSTON By: ------------------------------ Title: --------------------------- Signed at: [Seal] ----------------------- ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS AMENDMENT NO. 3 THIS AMENDMENT (this "Amendment") is entered into as of May 26, 1993 by and between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS, a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). Preliminary Statement. The parties have entered into a Revolving Credit ---------------------- Agreement dated as of April 27, 1992, as previously amended by Amendment No. 1 dated November 2, 1992, a letter agreement dated March 18, 1993, and by Amendment No. 2 dated as of April 19, 1993 (the "Agreement"). The Borrower has delivered its financial statements for the period ending April 30, 1993 and requested that the Bank increase the Maximum Commitment under the Agreement and make certain other modifications to the Agreement. The Bank has agreed to the Borrower's requests subject to the Borrower's execution and delivery of this amendment. Upon and after the date of this Amendment all references to the Agreement in that document, or in any related document, shall mean the Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Agreement, and, except as specifically provided in this Amendment, the Agreement shall remain in full force and effect. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. In consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the Bank from a continuing relationship under the Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Borrower and the Bank agrees that the Agreement is hereby amended as follows: 1. The following defined terms appearing in Section I of the Agreement are hereby amended in their entirety to read as follows: Borrowing Base. An amount equal to the lesser of (x) $20,000,000 or (y) the -------------- sum of (i) 85% of the face value of Eligible Accounts due and owing at such time, plus (ii) the least of (A) 50% of Eligible Inventory, (B) $12,000,000 ---- and (C) the amount available under subset (y)(i) of this definition, minus ----- (from the sum of (i) and (ii)) $500,000, or if on the date of any determination, the amount available hereunder shall exceed $17,500,000, $750,000. Maximum Commitment. $20,000,000. ------------------ 2. Sections 5.7 through 5.10 of the Agreement are hereby amended in their entirety to read as follows: 5.7. Ratio of EBIT to Interest Expense. As of May 31, 1993 for the two --------------------------------- month period then ending, and June 30, 1993 for the three month period then ending, and thereafter as of the last day of each fiscal quarter, the Borrower shall have a ratio of (a) EBIT to (b) total interest expense (excluding imputed interest arising from accretion of debt discount on the Subordinated Indebtedness issued under the Purchase Agreement) of not less than 1.5:1 with respect to any such period on the last day of which the balance of the Loan Account is less than $17,500,000, and 1.75:1 for all other such periods. 5.8. Minimum Total Capital Funds. The Borrower shall maintain Total --------------------------- Capital Funds of not less than the amounts set forth below for the periods specified:
Period Amount ------ ------ May 26, 1993 - June 29, 1993.............................. $3,800,000 June 30, 1993 - September 29, 1993........................ $3,900,000 September 30, 1993 - December 30, 1993.................... $4,050,000 December 31, 1993 - March 30, 1994........................ $4,250,000 March 31, 1994 and thereafter............................. $4,525,000
5.9. Leverage Ratio. The Borrower shall maintain a ratio of (i) Total -------------- Liabilities less Subordinated Indebtedness to (ii) Total Capital Funds of not more than 7:1. -2- 5.10. Ratio of Senior Bank Indebtedness to Total Capital Funds. The -------------------------------------------------------- Borrower shall maintain a ratio of Senior Bank Indebtedness to Total Capital Funds of not more than 5:1. 3. Section 5.11 of the Agreement is hereby renumbered as Section 5.12 and the following new Section 5.11 is added to the Agreement: 5.11. Accounts Payable Average Turnover. As at the end of each of the --------------------------------- Borrower's fiscal months, the quotient of the Borrower's cost of goods sold divided by the Borrower's accounts payable arising from the sale of finished goods to the Borrower when divided into the number "31" shall equal "25" or less. 4. Exhibit 7.3(c) to the Agreement, the form of Borrowing Base Certificate required to be delivered to the Bank by the Borrower pursuant to Section 7.3(c) of the Agreement, is hereby deleted from the Agreement and the form attached hereto as Schedule A to this Amendment is hereby substituted in its stead. ---------- This Amendment is executed as an instrument under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. All parts of the Agreement not affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the -------- ---- Agreement shall conflict or be inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS By: (SIGNATURE APPEARS HERE) ---------------------------------- Title: President ------------------------------- [Seal] THE FIRST NATIONAL BANK OF BOSTON By: (SIGNATURE APPEARS HERE) ---------------------------------- Title: Vice President ------------------------------- Signed at: Boston, MA --------------------------- [Seal] -3- ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS AMENDMENT NO. 4 THIS AMENDMENT (this "Amendment") is entered into as of October 15, 1993 by and between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS, a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). Preliminary Statement. The parties have entered into a Revolving Credit --------------------- Agreement dated as of April 27, 1992, as previously amended by Amendment No. 1 dated november 2, 1992, by a letter agreement dated March 18, 1993, by Amendment No. 2 dated as of May 26, 1993 and by Amendment No. 3 dated as of May 26, 1993, (the "Agreement"). Under the terms of the Agreement, the Borrower has a Maximum Commitment of $20,000,000 which expires on April 30, 1994. The Borrower has delivered its financial statements for its most recent fiscal period ending September 30, 1993 and requested that the Bank increase the Maximum Commitment under the Agreement, extend the expiration date, and make certain other modifications to the Agreement. The Bank has agreed to the Borrower's requests subject to the Borrower's execution and delivery of this amendment. Upon and after the date of this Amendment all references to the Agreement in that document, or in any related document, shall mean the Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Agreement, and, except as specifically provided in this Amendment, the Agreement shall remain in full force and effect. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. In consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the bank from a continuing relationship under the Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Borrower and the Bank agrees that the Agreement is hereby amended as follows: 1. The following defined terms appearing in Section I of the Agreement are hereby amended in their entirety to read as follows: Borrowing Base. An amount equal to the lesser of (x) $25,000,000 or (y) -------------- the sum of (i) 85% of the face value of Eligible Accounts due and owing at such time, plus (ii) the least of (A) 50% of Eligible Inventory, (B) ---- $12,000,000 and (C) the amount available under subset (y)(i) of this definition, minus (from the sum of (i) and (ii)) the amount specified ----- below for the range of availability hereunder calculated as of the date of any determination: Loan Availability Amount ----------------- ------ Under $17,500,000 ........................ $500,000 $17,500,000 - $20,000,000 ................ $750,000 $Over $20,000,000 ........................ $1,000,000 Maximum Commitment. $25,000,000. ------------------ Termination Date. July 31, 1994. ---------------- 2. Section 5.8 of the Agreement is hereby amended in its entirety to read as follows: 5.8. Minimum Total Capital Funds. The Borrower shall maintain Total --------------------------- Capital Funds of not less than the amounts set forth below for the periods specified: Period Amount ------ ------ September 30, 1993 - December 30, 1993 ....... $4,200,000 December 31, 1993 - March 30, 1994 ........... $4,600,000 March 31, 1994 and thereafter ................ $5,000,000 3. Section 9.2 of the Agreement is hereby amended in its entirety to read as follows: 9.2 Expenses. The Borrower shall, on demand, pay or reimburse the Bank -------- for all reasonable expenses (including attorneys' fees of outside counsel or allocation costs of in-house counsel) incurred or paid by the Bank or any Assignee, as defined in Section 9.14 of this Agreement, in connection with this Agreement, any amendments thereof (including without limitation the amended and restated form of this -2- Agreement contemplated by Section 9.14 of this Agreement), the Bank's administration of this Agreement (including without limitation any waivers, approvals and consents relating thereto), its enforcement of any Obligation, and the exercise of any rights of the Bank hereunder. The Borrower shall, on demand, also pay or reimburse the Bank for all expenses (including without limitation the allocation costs of the Bank's employees) incurred in connection with the commercial finance examinations of the Borrower's operations conducted by the Bank. 4. The Agreement is hereby further amended by the addition of the following new Section 9.14: 9.14. Assignments and Participations. ------------------------------ (a) Assignments. The Bank may at any time assign all, or a portion, ----------- of its rights, interests and duties with respect to its commitment to make Loans hereunder to one or more banks or other financial institutions, or any affiliate thereof, (each, an "Assignee") on such terms, as between the Bank and each Assignee, as the Bank may deem appropriate, and such Assignee shall assume such rights, interests and duties pursuant to an instrument executed by such Assignee and the Bank, or, in the case of a partial assignment by the Bank, pursuant to an amended and restated form of this Agreement, and for this purpose the Bank may make available to each of its potential Assignees such information relating to the Borrower, this Agreement and the transactions contemplated hereby as the Bank may deem necessary or desirable. Upon notice to the Borrower of an assignment in full of the Bank's rights, interests and duties hereunder to an Assignee, such Assignee shall have all the rights, interests and duties of the Bank hereunder with a commitment to make Loans as set forth in herein, and the Bank shall be released from its obligations hereunder in full without the requirement of any further consent or action by the Borrower. (b) Participations. In addition to its rights to assign all or any -------------- portion of its commitment hereunder pursuant to the foregoing subsection (a) of this Section 9.14, the Bank may sell participations in the Loans to one or more banks or other financial institutions, or any affiliate thereof, on such terms as the Bank may deem appropriate, and for this purpose the Bank may make available to each potential participant such information relating to the Borrower, this Agreement and the transactions contemplated hereby as the Bank may deem necessary or desirable. -3- 5. Exhibit 7.3(c) to the Agreement, the form of Borrowing Base Certificate required to be delivered to the Bank by the Borrower pursuant to Section 7.3(c) of the Agreement, is hereby deleted from the Agreement and the form attached hereto as Schedule A to this Amendment is hereby substituted in its stead. ---------- 6. Conditions Precedent to Effectiveness of this Amendment. This ------------------------------------------------------- Amendment shall take effect on the date of receipt by the Bank of the last item specified below (other than any item the delivery of which is expressly deferred or waived in writing by the Bank): (a) This Amendment duly executed by the Borrower; (b) A certificate of the Secretary or an Assistant Secretary of the Borrower with respect to resolutions, of its Board of Directors authorizing the execution and delivery of this Amendment, identifying the officer(s) authorized to execute, deliver and take all other actions required under this Amendment, or the Agreement and providing specimen signatures of such officer(s), and confirming that the Borrower's Articles of Organization and By-Laws previously delivered and certified to the Bank have not been amended, substituted, rescinded or otherwise modified in any way since the date of said prior certification; (c) a certificate of the president or chief financial officer of the Borrower with respect to representations and warranties under the Agreement, the absence of Defaults, and the locations and value of the Borrower's inventory together with such additional UCC Financing Statements, landlord waivers and insurance certificates as the Bank may deem necessary or desirable, based on the Borrower's locations shown in the schedule attached thereto; (d) a copy of a fully executed amendment to the Subordinated Note and Warrant Purchase Agreement dated as of March 31, 1992 among the Borrower, the Purchasers named therein and C.T. Capital Trust, N.V., as agent for the Purchasers, reflecting modifications to the Borrower's financial covenants under that agreement in conformity with the Borrower's financial covenants under the Agreement after giving effect to this Amendment; (e) such other documents and evidence of completion of such other matters, as the Bank reasonably may deem necessary or desirable. -4- This Amendment is executed as an instrument under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. All parts of the Agreement not affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the -------- ---- Agreement shall conflict or be inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS By: (SIGNATURE APPEARS HERE) ----------------------------------- Title: Chairman -------------------------------- [Seal] Signed at: Boston, MA ---------------------------- THE FIRST NATIONAL BANK OF BOSTON By: (SIGNATURE APPEARS HERE) ----------------------------------- Title: Vice President -------------------------------- Signed at: Boston, MA ---------------------------- [Seal] -5- ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS AMENDMENT NO. 5 THIS AMENDMENT (this "Amendment") is entered into as of March 1, 1994 by and between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS, a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). Preliminary Statement. The parties have entered into a Revolving Credit ---------------------- Agreement dated as of April 27, 1992, as previously amended by Amendment No. 1 dated November 2, 1992, by a letter agreement dated March 18, 1993, by Amendment No. 2 dated as of May 26, 1993, by Amendment No. 3 dated as of May 26, 1993, and by Amendment No. 4 dated as of October 15, 1993 (the "Agreement"). Under the terms of the Agreement, the Bank has a Maximum Commitment of $25,000,000. Subsequent to the delivery by the Borrower to the Bank of its preliminary financial statements for its third fiscal quarter ending December 31, 1993, the Borrower has advised the Bank that certain adjustments to these statements may be appropriate. In view of the uncertainty of the resolution of the matters underlying these adjustments, the Bank has requested and the Borrower has agreed to amend the Agreement so as to provide for certain reductions in the Bank's Maximum Commitment under the Agreement. Upon and after the date of this Amendment all references to the Agreement in that document, or in any related document, shall mean the Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Agreement, and, except as specifically provided in this Amendment, the Agreement shall remain in full force and effect. All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Agreement. In consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the Bank from a continuing relationship under the Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the -2- Borrower and the Bank agrees that the Agreement is hereby amended as follows: The following defined terms appearing in Section I of the Agreement are hereby amended in their entirety to read as follows: Borrowing Base. An amount equal to the lesser of (x) $23,500,000 during the -------------- period March 1, 1994 through and including March 14, 1994, and $22,500,000 thereafter or (y) the sum of (i) 85% of the face value of Eligible Accounts due and owing at such time, plus (ii) the least of (A) 50% of Eligible ---- Inventory, (B) $12,000,000 and (C) the amount available under subset (y)(i) of this definition, minus (from the sum of (i) and (ii)) the amount ----- specified below for the range of availability hereunder calculated as of the date of any determination:
Loan Availability Amount ----------------- ------ Under $17,500,000.............................. $500,000 $17,500,000 - $20,000,000...................... $750,000 Over $20,000,000............................... $1,000,000
Maximum Commitment. $23,500,000 during the period March 1, 1994 through ------------------ and including March 14, 1994, and $22,500,000 thereafter. This Amendment is executed as an instrument under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. All parts of the Agreement not affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the -------- ---- Agreement shall conflict or be inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS By: [SIGNATURE APPEARS HERE] -------------------------------- Title: Chairman, Board of Directors ----------------------------- [Seal] Signed at: Boston, Massachusetts ------------------------- THE FIRST NATIONAL BANK OF BOSTON By: [SIGNATURE APPEARS HERE] -------------------------------- Title: Vice President ----------------------------- Signed at: Boston, MA ------------------------- [Seal] FORBEARANCE AGREEMENT This Forbearance Agreement (this "Agreement") is entered into as of April 25, 1994 by and between Ross White Enterprises, Inc., d/b/a National Computer Distributors, a Florida corporation with offices at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower") and The First National Bank of Boston, a national banking association with offices at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). All capitalized terms herein shall have the meanings ascribed to them in the Bank Credit Agreement, as defined below. In consideration of the mutual promises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, the parties hereby agree as follows: SECTION 1. RECITALS, ACKNOWLEDGMENT, ADMISSION AND STIPULATION OF FACTS. ------------------------------------------------------------- The parties hereto stipulate, admit, acknowledge and agree that the following facts are true, correct and accurate: 1.1 The Borrower and the Bank have entered into a Revolving Credit Agreement dated as of April 27, 1992, as amended by Amendment No. 1 dated November 2, 1992, by a letter agreement dated March 18, 1993, by Amendment No. 2 dated as of May 26, 1993, by Amendment No. 3 dated as of May 26, 1993, by Amendment No. 4 dated as of October 15, 1993, and by Amendment No. 5 dated as of March 1, 1994 (collectively, the "Bank Credit Agreement") providing for a working capital line of credit secured by all assets of the Borrower with a Maximum Commitment of $22,500,000. 1.2 The Borrower has also entered into a Subordinated Note and Warrant Purchase Agreement dated as of March 31, 1992, as amended by Amendment No. 1 dated as of October 27, 1993 (collectively, the "Note Purchase Agreement") among the Borrower, the persons named therein as "Purchasers" (the "Purchasers") and C.T. Capital Trust N.V., a Netherlands Antilles corporation, as agent and attorney-in-fact for the Purchasers ("Capital Trust") pursuant to which the Borrower issued its 12% Subordinated Notes due March 31, 1997, each dated March 31, 1992 in an amount equal to $3,000,000 in the aggregate (the "Subordinated Debt"). -2- 1.3 By letter dated March 28, 1994, the Bank acknowledged the Event of Default existing under the Bank Credit Agreement as a result of the Borrower's failure to comply with its leverage covenant under Section 5.9 of the Bank Credit Agreement and the Borrower's further disclosure of an as then undetermined amount of a charge to be taken against the Borrower's fiscal year 1993 Tangible Net Worth. 1.4 Subsequently, the Borrower has advised the Bank that it expects the charge to Tangible Net Worth to approximate $2,300,000 on a pre-tax basis and $1,200,000 after-tax, with a corresponding negative adjustment to the amount of the Borrower's Tangible Net Worth shown in the Borrower's financial statements previously delivered to the Bank for the Borrower's 1993 fiscal year end. 1.5 As reflected in the Borrower's financial statements for the period ending March 31, 1994, the Borrower continues to be in default of its leverage covenant under Section 5.9 of the Bank Credit Agreement. Moreover, based on the Borrower's disclosures to the Bank regarding the charge it expects to take to Tangible Net Worth, on a pro-forma basis after giving effect to the $1,200,000 after-tax charge, the Borrower is also in default of its Minimum Total Capital Funds covenant under Section 5.8 of the Bank Credit Agreement and the maximum Senior Bank Indebtedness to Total Capital Funds ratio permitted under Section 5.10 of the Bank Credit Agreement. The Borrower is also in default of these covenants under the Note Purchase Agreement. The Borrower does not contest the nature or existence of said defaults, and failures or breaches incidental thereto, or the enforceability of the Bank's rights under the Bank Credit Agreement and related loan documents, including but not limited to the Agency Account Agreement. 1.6 Pursuant to the terms of the Bank Credit Agreement, the Bank has specific rights and remedies, including but not limited to the right to accelerate the Obligations and to sue for the total amount of principal and accrued interest due thereunder and costs and expenses, including but not limited to reasonable attorneys fees in accordance with Section 9.2 of the Bank Credit Agreement. 1.7 (a) The Bank Credit Agreement and the related loan documents set forth the legal, valid, binding and continuing obligation of the Borrower to the Bank and are enforceable in accordance with their respective terms and conditions; (b) all actions taken by the Bank to the date of this Agreement, pursuant to its rights under the Bank Credit Agreement and the -3- related loan documents have been commercially reasonable; (c) the Borrower has no cause of action, claim, defense, setoff or reduction against the Bank in any way regarding or related to the Bank Credit Agreement or any related loan document and the sums due thereunder; (d) the Bank properly satisfied and performed in a timely and reasonable manner all obligations to the Borrower under the Bank Credit Agreement and the related loan documents; and the Borrower's Obligations are secured by all assets of the Borrower. 1.8 The Borrower has requested that the Bank refrain from exercising its rights and remedies under the Bank Credit Agreement and the related loan documents. 1.9 The Borrower acknowledges, agrees and confirms that except for this Agreement, the Bank is not required, bound, or obligated in any way to refrain from exercising its rights and remedies, but the Bank has agreed to the forbearance requested in consideration of the covenants, representations, warranties and agreements contained in this Agreement. SECTION 2. BANK'S AGREEMENT TO FORBEAR. Conditional upon the receipt by ---------------------------- the Bank of the document required by Section 3.4 of this Agreement and so long as no default under Section 14.1 of this Agreement has occurred, the Bank agrees to forbear from exercising its rights and remedies under the Bank Credit Agreement (but not its right to make demand prior to, for payment on, the Termination Date and to refuse to make loans to the Borrower at any time and from time to time prior to the Termination Date in accordance with Section 3.1 of this Agreement) until July 31, 1994 in accordance with the provisions of this Agreement. SECTION 3. BORROWER'S AGREEMENTS. In consideration of the Bank's ---------------------- agreement to forbear its rights and remedies as stated in Section 2 above, the Borrower agrees that so long as this Agreement is in effect, all provisions of the Bank Credit Agreement shall remain in full force and effect except as follows: 3.1 Notwithstanding Section 2 of the Bank Credit Agreement or any other provision thereof which either expressly or impliedly commits the Bank to lend to the Borrower until the Termination Date, all advances to the Borrower under the Bank Credit Agreement shall be in the Bank's sole and absolute discretion up to a maximum principal amount of $22,500,000 subject to availability under the Borrowing Base at the percentages and dollar limitations stated therein, or at such other percentages and dollar limitations (including zero) as -4- the Bank shall in its sole and absolute discretion determine, and the Bank shall have no commitment whatsoever to make loans or extend credit or other financial accommodations to the Borrower. All Obligations are demandable by the Bank at any time prior to the Termination Date and shall be due and payable in full without demand on the Termination Date, notwithstanding any provision in the Bank Credit Agreement to the contrary. 3.2 Notwithstanding Section 2.7 of the Bank Credit Agreement, effective as of April 21, 1994 and retroactive thereto, the Borrower shall pay interest on the outstanding amount of each Loan at a rate per annum equal to the Base Rate plus three percent (3%), which rate shall change contemporaneously with any change in the Base Rate. The Bank's right to change the higher default rate of interest specified by the second sentence of said Section 2.7 shall continue. 3.3 On or before June 30, 1994 either (a) the Borrower shall deliver to the Bank a balance sheet of the Borrower certified by the Borrower's chief financial officer, as evidence of, and reflecting, the infusion of a minimum of $1,000,000 in additional equity in the form of additional common stock of the Borrower, which stock shall be validly issued, fully paid and non-assessable, or (b) if by the close of business on June 30, 1994 the Borrower shall not have delivered the balance sheet required by the foregoing 3.3(a), the Bank shall charge the Borrower's Loan Account a non-refundable fee equal to $350,000. 3.4 Simultaneously with the delivery of this Agreement to the Bank by the Borrower, the Borrower shall cause to be delivered to the Bank a copy of a letter addressed to the Borrower and signed by Capital Trust, or such other document as shall be satisfactory in form and substance to the Bank, acknowledging the agreement of Capital Trust to forbear its exercise of its rights and remedies under the Note Purchase Agreement so long as this Agreement is in effect. SECTION 4. BANK'S AGREEMENTS. In consideration of the Borrower's ----------------- agreements set forth in Section 3 above, the Bank agrees that so long as this Agreement is in effect: 4.1 The commitment fees and early termination fees otherwise due the Bank under Sections 2.4 and 2.5 of the Bank Credit Agreement are hereby waived. 4.2. The financial covenants set forth in sections 5.7, 5.8, 5.9 and 5.10 are hereby waived. -5- SECTION 5. REPRESENTATIONS. The Borrower agrees and acknowledges that its ---------------- obligations to the Bank under the Bank Credit Agreement and the related loan documents, except as otherwise expressly modified by this Agreement, are, by the execution of this Agreement, ratified and confirmed in all respects. SECTION 6. ACKNOWLEDGMENTS. The Borrower acknowledges and agrees that its ---------------- duly authorized officer executing this Agreement has (a) read and understands the contents of this Agreement, (b) had opportunity to consult with counsel of choice regarding same, (c) acted voluntarily and without duress in connection with the execution and delivery of this Agreement. SECTION 7. RELEASE, INDEMNITY, WAIVER. The Borrower hereby releases, --------------------------- covenants not to sue, waives and forever discharges and relieves the Bank and its agents, attorneys and employees (the "Releasees") of, from, regarding, and/or on account of any and all rights, benefits, interest, liabilities, claims, demands, actions, causes of action, suits, debts, covenants, obligations, accounts due, contracts, rights to payment, damages, lost profits, costs, fees, counterclaims, attorneys' fees, interest penalties, offsets, setoffs, losses, and claims and defenses of every nature and kind whatsoever, whether at common law (contract, tort or other theory) or pursuant to federal, state or local statute, rule, ordinance, or regulation, whether vested or contingent, whether known or unknown, whether liquidated or unliquidated, whether matured or unmatured, whether disputed or undisputed, which the Borrower ever had or may now have against the Releases, upon or by reason of any matter, cause or thing whatsoever arising from the Bank Credit Agreement or any related loan document. SECTION 8. NO MODIFICATION OR WAIVER. None of the terms or provisions of -------------------------- the Bank Credit Agreement or the other loan documents or this Agreement may be changed, waiver, modified, discharged, or terminated except by instrument in writing executed by the parties hereto, or the party against whom or which enforcement of the change, waiver, modification, discharge or termination is asserted. None of the terms or provisions of the Bank Credit Agreement or any of the related loan documents or this Agreement shall be deemed to have been abrogated or waived by reason of any failure or failures to enforce the same. In the event of any inconsistency between the Bank Credit Agreement or any related loan document and this Agreement, the terms of this Agreement shall prevail. -6- SECTION 9. COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which shall be considered an original for all purposes, provided that all such counterparts shall together constitute one and the same - ------------- instrument. SECTION 10. APPLICABLE LAW. This Agreement shall be governed by and -------------- construed, interpreted and enforced, in accordance with and pursuant to the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. SECTION 11. SUCCESSORS AND ASSIGNS. The provisions of this Agreement ---------------------- shall be binding upon, and shall inure to the benefit of, the respective successors, assigns, and participants of the Bank, and the respective heirs, successors and assigns of the Borrower (but such reference is not intended, nor shall it be construed as, a consent to an assignment by the Borrower). SECTION 12. ENTIRE AGREEMENT. The Bank Credit Agreement and the related ---------------- loan documents, as confirmed and affected by this Agreement, constitute the entire agreement between the parties hereto relating to or connected with the loan transactions and other matters contemplated thereby. Any other agreements or understandings related to or connected with such loan transactions or other matters not expressly set forth in the Bank Credit Agreement and related loan documents as confirmed or affected hereby, are null and void and superseded in their entirety. SECTION 13. INTENTION OF THE PARTIES. It is intended by the parties ------------------------ hereto that this Agreement shall become a part of the loan documentation files of the Borrower. SECTION 14. DEFAULTS AND REMEDIES. --------------------- SECTION 14.1 DEFAULTS: The following shall constitute a default under -------- this Agreement: (a) the occurrence of a further material adverse change in the financial condition or affairs of the Borrower; (b) the giving of a notice of intent to accelerate the Subordinated Debt by Capital Trust; (c) the occurrence of any event described in subsection 8.1(h) or 8.1(i) of the Bank Credit Agreement or any other Event of Default (other than the Events of Default identified in Section 1.5 of this Agreement); -7- (d) failure by the Borrower to abide by and/or comply with all terms or conditions set forth herein or in the Bank Credit Agreement or other loan documents as confirmed or affected hereby, or the failure by Capital Trust or any Purchaser to abide by and/or comply with all terms or conditions set forth in the letter or other document referred to in Section 3.4 of this Agreement or in Section 6 of the Note Purchase Agreement. SECTION 14.2 REMEDIES. In the event of any default by the Borrower under --------- this Agreement as set forth in subsection 12.1 above, this Agreement shall terminate as to any matter not already consummated and the Bank may exercise any or all rights and remedies available to it under the Bank Credit Agreement or any other loan document, or applicable law. The Borrower shall remain responsible to pay all costs and expenses, including reasonable attorney's fees associated with the collection of payments due under this Agreement, the Bank Credit Agreement and/or other loan documents, as provided in section 9.2 of the Bank Credit Agreement. IN WITNESS WHEREOF, The parties have executed this Agreement as an instrument under seal as of the date first written above. WITNESS: ROSS WHITE ENTERPRISES, INC. [SIGNATURE APPEARS HERE] 5-4-94 By: /s/ Gregory A. White - --------------------------------- --------------------------------- Name: Gregory A. White ------------------------------- Title: President ------------------------------ THE FIRST NATIONAL BANK OF BOSTON [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE] - --------------------------------- --------------------------------- Name: [NAME APPEARS HERE] ------------------------------- Title: Vice President ------------------------------ ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS AMENDMENT NO. 6 THIS AMENDMENT (this "Amendment") is entered into as of August 11, 1994 by and between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS, a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement, as defined below. R E C I T A L S --------------- WHEREAS, The Borrower and the Bank have entered into a Revolving Credit Agreement dated as of April 27, 1992, as previously amended by the various documents listed on Schedule A hereto (the "Credit Agreement"); ---------- WHEREAS, under the terms of the Credit Agreement, the Bank has agreed to extend credit to the Borrower until the Termination Date (August 31, 1994) on a demand discretionary basis up to a maximum principal amount of $22,500,000 subject to availability under the Borrowing Base; WHEREAS, the Borrower has also entered into a Subordinated Note and Warrant Purchase Agreement dated as of March 31, 1992, as amended (collectively, the "Note Purchase Agreement") among the Borrower, the persons named therein as "Purchasers" (the "Purchasers") and C.T. Capital Trust N.V., a Netherlands Antilles corporation, as agent and attorney-in-fact for the Purchasers ("Capital Trust") pursuant to which the Borrower issued its 12% Subordinated Notes due March 31, 1997 (the "Maturity Date"), each dated March 31, 1992 in an amount equal to $3,000,000 in the aggregate (the "Capital Trust Subordinated Debt"); WHEREAS, the Capital Trust Subordinated Debt is presently demandable at any time prior to August 31, 1994 and, absent a reinstatement of the Maturity Date, may be accelerated and declared due and payable on August 31, 1994 by Capital Trust; WHEREAS, the Borrower has advised the Bank that the Purchasers have agreed to reinstate the Maturity Date and to -2- further amend the Note Purchase Agreement to the extent necessary to conform the financial ratios under the Note Purchase Agreement to levels equal to or more lenient than the ratios under the Credit Agreement after giving effect to the amendments effected hereby; WHEREAS, the Borrower has requested that the Bank's commitment under the Credit Agreement be reinstated and the Termination Date be extended, and in reliance upon the foregoing and the representations, warranties, covenants and other agreements contained herein and in the Credit Agreement, the Bank has agreed to the Borrower's request, subject to the terms hereof; NOW THEREFORE, in consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the Bank from a continuing relationship under the Credit Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Borrower and the Bank agrees that the Credit Agreement is hereby amended as follows: 1. The following new defined term is hereby added to Section I of the Credit Agreement: "Applicable Margin" shall mean the applicable percentage specified below ----------------- based on the Borrower's ratio of (i) Total Liabilities less Subordinated Indebtedness to (ii) Total Capital Funds ("Leverage Ratio") as determined as of the last day of each month commencing with the month ending August 31, 1994, to be effective on a prospective basis as of the first day of the next succeeding month:
-------------------------------------------- Leverage Ratio Applicable Percentage -------------------------------------------- (Greater Than) 7:1 3% -------------------------------------------- (Less Than) 7:1 1 1/2% --------------------------------------------
2. The definition of "Eligible Inventory" appearing in Section I of the Credit Agreement is hereby amended by deleting the "and" at the end of subclause (h), relettering subclause (i) to become subclause (j) and by the addition of the following additional exclusion therefrom to be inserted immediately following subclause (h) thereof: (i) such Inventory is not more than 180 days from date of purchase; and -3- 3. The following defined term appearing in Section I of the Credit Agreement is hereby amended in its entirety to read as follows: Termination Date. December 31, 1995, or such earlier date on which the ---------------- Bank's commitment hereunder is reduced to zero or otherwise terminated in accordance with the terms of this Agreement. 4. Section 2.5 of the Credit Agreement is hereby amended to read in its entirety as follows: 2.5. Early Termination Fee. In the event of a termination by the Borrower --------------------- of the Bank's commitment hereunder prior to the Termination Date, the Borrower shall pay to the Bank three percent (3%) of the Maximum Commitment on the effective date of any such termination, which termination may be effected only upon thirty (30) days prior written notice delivered by the Borrower to the Bank. 5. Subclause (a) of Section 2.7 of the Credit Agreement is hereby amended in its entirety to read as follows: (a) Each Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to the Base Rate plus the Applicable ---- Margin, which rate shall change contemporaneously with any change in the Base Rate. Such interest shall be payable on the first day of each month and when such Loan is due (whether at maturity, by reason of acceleration or otherwise). 6. Exhibit 5.1(c), the form of Chief Financial Officer Report required to be delivered to the Bank by the Borrower pursuant to Section 5.1(c) of the Credit Agreement, is hereby deleted from the Credit Agreement and the form attached hereto as Schedule B to this Amendment is hereby substituted in its stead. ---------- 7. Section 5.7 of the Credit Agreement is hereby amended in its entirety to read as follows: 5.7. Ratio of EBIT to Interest Expense. As of the last day of each month, --------------------------------- the Borrower shall have ratio of (a) EBIT to (b) total interest expense of not less than 1.75:1, excluding from such calculation any inputed interest arising from accretion of debt discount on the Subordinated Indebtedness issued under the Purchase Agreement. -4- 8. Section 5.8 of the Credit Agreement is hereby amended in its entirety to read as follows: 5.8. Minimum Total Capital Funds. The Borrower shall maintain Total --------------------------- Capital Funds of not less than the amounts set forth below for the periods specified, plus on a cumulative basis, an additional $250,000 for each ---- quarter ending after October 31, 1994:
Period Amount ------ ------ June 30, 1994 - September 29, 1994............. $2,700,000 September 30, 1994 - October 30, 1994.......... $2,950,000 October 31, 1994 and thereafter................ $5,000,000
9. Sections 5.9, 5.10 and 5.11 of the Credit Agreement are hereby deleted and intentionally omitted. 10. The $250,000 dollar limit on capital expenditures appearing in Section 6.4 of the Credit Agreement is hereby amended to "$500,000." 11. Exhibit 7.3(c) to the Credit Agreement, the form of Borrowing Base Certificate required to be delivered to the Bank by the Borrower pursuant to Section 7.3(c) of the Credit Agreement, is hereby deleted from the Credit Agreement and the form attached hereto as Schedule C to this Amendment is hereby ---------- substituted in its stead. 12. The Forbearance Agreement dated as of April 25, 1994, as amended, is hereby terminated and all modifications to the Credit Agreement effected thereby, including but not limited to, those set forth in Sections 3 and 4 thereof, shall be of no further force or effect. 13. Conditions Precedent to Effectiveness of this Amendment. This ------------------------------------------------------- Amendment shall take effect on the date of receipt by the Bank of the last item specified below (other than any item the delivery of which is expressly deferred or waived in writing by the Bank): (a) This Amendment duly executed by the Borrower; (b) A certificate of the Secretary or an Assistant Secretary of the Borrower with respect to resolutions, of its Board of Directors authorizing the execution and delivery of this Amendment, identifying the officer(s) authorized to execute, deliver and take all other actions required under this Amendment, or the Credit Agreement; -5- (c) a certificate of the president or chief financial officer of the Borrower with respect to representations and warranties under the Credit Agreement, the absence of Defaults, and the locations and value of the Borrower's inventory together with such additional UCC Financing Statements, landlord waivers and insurance certificates as the Bank may deem necessary or desirable, based on the Borrower's locations shown in the schedule attached thereto; (d) a copy of a fully executed amendment to the Subordinated Note and Warrant Purchase Agreement dated as of March 31, 1992 among the Borrower, the Purchasers named therein and C.T. Capital Trust, N.V., as agent for the Purchasers, reflecting modifications to the Borrower's financial covenants under that agreement in conformity with the Borrower's financial covenants under the Credit Agreement after giving effect to this Amendment and the reinstatement of the Maturity Date; (e) such other documents and evidence of completion of such other matters, as the Bank reasonably may deem necessary or desirable. Upon and after the date of this Amendment all references to the Credit Agreement in that document, or in any related document, shall mean the Credit Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Credit Agreement, and, except as specifically provided in this Amendment, the Credit Agreement shall remain in full force and effect. This Amendment is executed as an instrument under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. All parts of the Credit Agreement not affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the Credit Agreement shall ------------- conflict or be inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. -6- IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Credit Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., WITNESSED: d/b/a/ NATIONAL COMPUTER DISTRIBUTORS /s/ GUY V. SIMMONS By: /s/ JONATHAN P. LEE - ----------------------------------- ------------------------------------- Guy V. Simmons Jonathan P. LEE - ----------------------------------- ---------------------------------------- Print Name Print Name Address: One International Plaza Title: Chairman -------------------------- ---------------------------------- Boston, MA 01921 Signed at: Boston, MA - ----------------------------------- ------------------------------ [Seal] WITNESSED: THE FIRST NATIONAL BANK OF BOSTON By: - ----------------------------------- ------------------------------------- - ----------------------------------- ---------------------------------------- Print Name Print Name Address: Title: --------------------------- ---------------------------------- Signed at: - ----------------------------------- ------------------------------ [Seal] -72- IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Credit Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., WITNESSED: d/b/a/ NATIONAL COMPUTER DISTRIBUTORS By: - ----------------------------------- ------------------------------------ - ----------------------------------- --------------------------------------- Print Name Print Name Address: Title: --------------------------- -------------------------------- Signed at: - ----------------------------------- ---------------------------- [Seal] WITNESSED: THE FIRST NATIONAL BANK OF BOSTON By: - ----------------------------------- ----------------------------------- - ----------------------------------- -------------------------------------- Print Name Print Name Address: 100 Title: --------------------------- -------------------------------- Signed at: - ----------------------------------- ---------------------------- [Seal] ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS AMENDMENT NO. 7 AND WAIVER THIS AMENDMENT NO. 7 AND WAIVER (this "Amendment") is entered into as of September 8, 1994 by and between ROSS WHITE ENTERPRISES, INC., d/b/a NATIONAL COMPUTER DISTRIBUTORS, a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement, as defined below. R E C I T A L S --------------- WHEREAS, the Borrower and the Bank have entered into a Revolving Credit Agreement dated as of April 27, 1992, as previously amended by the various documents listed on Schedule A hereto (the "Credit Agreement"); ---------- WHEREAS, the Borrower has delivered to the Bank a letter requesting certain waivers from the Bank with respect to the Borrower's failure to comply with certain covenants and obligations of the Borrower under the Credit Agreement; NOW THEREFORE, in consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the Bank from a continuing relationship under the Credit Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Borrower and the Bank agrees that the Credit Agreement is hereby amended as follows: 1. Section 5.7 of the Credit Agreement is hereby amended in entirety to read as follows: 5.7. Ratio of EBIT to Interest Expense. The Borrower shall have a ratio ---------------------------------- of (i) EBIT to (ii) total interest expense, excluding from such calculation any imputed interest arising from accretion of debt discount on the Subordinated Indebtedness issued under the Purchase Agreement, of not less than (a) 1.75:1 as of the last day of each of the Borrower's fiscal quarters, and (ii) 1:1 as of the last day of each month ending on any date other than the last day of any fiscal quarter of the Borrower. -2- 2. Section 6.7 of the Credit Agreement is hereby amended in its entirety to read as follows: 6.7. Leases. The Borrower shall not, during any of its fiscal years, have ------ aggregate lease payments for real or personal property (whether or not such payments are termed rent) in excess of $1,750,000. In reliance upon the Borrower's representation, which by the Borrower's signature hereto, the Borrower is hereby deemed to have made, that other than the Defaults or Events of Defaults identified below, as of the date of this Amendment, the Borrower is not otherwise in default of any of its obligations under the Credit Agreement, the Bank hereby waives any Default or Event of Default existing as a result of the Borrower's failure to comply with the following covenants and obligations: A. The Borrower's obligation under Section 5.1(a) of the Credit Agreement to deliver to the Bank its audited financial statements within ninety days following its fiscal year ending March 31, 1994, which statements, by its signature hereto, the Borrower covenants and agrees shall be delivered to the Bank on or before September 30, 1994 in accordance with the requirements of Section 5.1(a) (other than the ninety day time period specified therein), and the failure by the Borrower to so deliver such statements shall constitute an Event of Default under the Credit Agreement; B. During any time prior to March 31, 1994, the Borrower's obligation under: (i) Section 5.6 of the Credit Agreement to keep adequate books and records of account in accordance with generally accepted accounting principles with respect to certain items previously disclosed to the Bank, which items the Borrower by its acceptance hereof, represents and warrants to the Bank are now properly reflected in its books and records; and (ii) Section 6.4 of the Credit Agreement to maintain capital expenditures of the type described by said Section 6.4 within the $250,000 maximum permitted prior to the effective date of Amendment No. 6 dated as of August 11, 1994 to the Credit Agreement ("Amendment 6"). C. With respect to the months ending March 31, 1994 and July 31, 1994, the Borrower's obligation under Section 5.7 of the Credit Agreement to maintain the ratio of EBIT to total interest expense specified by said Section 5.7; D. During any time prior to June 30, 1994, the Borrower's obligation under Section 5.8 of the Credit Agreement to maintain Total Capital Funds of not less than the amount specified by said Section 5.8; -3- E. During any time prior to the effective date of Amendment 6, the Borrower's obligation under: (i) Section 5.9 of the Credit Agreement to maintain its ratio of Total Liabilities (less Subordinated Indebtedness) to Total Capital Funds within the maximum ratio permitted by said Section 5.9; (ii) Section 5.10 of the Credit Agreement to maintain its ratio of Senior Bank Indebtedness to Total Capital Funds within the maximum ratio permitted by said Section 5.10; (iii) Section 5.11 of the Credit Agreement to maintain an accounts payable average turnover as required by said Section 5.11; and (iv) Section 6.1(d) of the Credit Agreement, with respect to Hyundia Electronics America, not to remain liable for normal trade Indebtedness for more than sixty days past the due date thereof; The foregoing waivers are expressly limited to the specific defaults and Events of Defaults set forth above and are not, nor shall they be construed as, waivers of any other default or Event of Default under the Credit Agreement, whether now existing or hereafter occurring. These waivers notwithstanding, all rights of the Bank with respect to any claims it may have against the Borrower or any third party arising out of or in any way related to the matters giving rise to the defaults and Events of Defaults enumerated above are expressly reserved. Upon and after the date of this Amendment all references to the Credit Agreement in that document, or in any related document, shall mean the Credit Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Credit Agreement, and, except as specifically provided in this Agreement, the Credit Agreement shall remain in full force and effect. This Amendment is executed as an instrument under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. All parts of the Credit Agreement not affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the Credit Agreement shall -------- ---- conflict or be inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. -4- IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Credit Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC., WITNESSED: d/b/a NATIONAL COMPUTER DISTRIBUTORS /s/ Guy J. Simmons By: /s/ Jonathan O. Lee - ------------------------------- ---------------------------------- GUY J. SIMMONS JONATHAN O. LEE - ------------------------------- ------------------------------------- Print Name Print Name Address: 1 International Place Title: Chairman ----------------------- ------------------------------ Boston, Massachusetts 02110 Signed At Boston, MA - ------------------------------- --------------------------- [Seal] WITNESSED: THE FIRST NATIONAL BANK OF BOSTON By: - ------------------------------- ------------------------------------- - ------------------------------- ---------------------------------------- Print Name Print Name Address: Title: ----------------------- ---------------------------------- Signed At - ------------------------------- ------------------------------- [Seal] -4- IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Credit Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. ROSS WHITE ENTERPRISES, INC. WITNESSED: d/b/a NATIONAL COMPUTER DISTRUBTORS By: - -------------------------------------- ------------------------------- - -------------------------------------- ----------------------------------- Print Name Print Name Address: Title: ----------------------------- ---------------------------- Signed At - -------------------------------------- ------------------------- [Seal] WITNESSED: THE FIRST NATIONAL BANK OF BOSTON /s/ Deborah L. White By: /s/ Janet O. Sanchez - -------------------------------------- ------------------------------- Deborah L. White Janet O. Sanchez - -------------------------------------- ----------------------------------- Print Name Print Name Address: 100 Federal St. Title: Vice President ----------------------------- ---------------------------- Boston, MA 02110 Signed At 100 Federal St. Boston - -------------------------------------- ------------------------- [Seal] AMERIQUEST/NCD, INC. AMENDMENT NO. 8 THIS AMENDMENT NO. 8 (this "Amendment") is entered into as of March , -- 1995 by and between AMERIQUEST/NCD, INC., a Florida corporation having an address at 6100 Hollywood Boulevard, Hollywood, Florida 33024 (the "Borrower"), and THE FIRST NATIONAL BANK OF BOSTON, a national banking association with its head office at 100 Federal Street, Boston, Massachusetts 02110 (the "Bank"). All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement, as defined below. RECITALS -------- WHEREAS, the Borrower and the Bank have entered into a Revolving Credit Agreement dated as of April 27, 1992, as previously amended by the various documents listed on Schedule A hereto (as amended, the "Credit Agreement"); ---------- WHEREAS, the Borrower has requested certain amendments to the Credit Agreement, including, but not limited to, an increase in the Maximum Commitment from $22,500,000 to $30,000,000; WHEREAS, the Bank is, on the terms and conditions stated below, willing to grant the request of the Borrower; NOW THEREFORE, in consideration of the foregoing premises and the mutual benefits to be derived by the Borrower and the Bank from a continuing relationship under the Credit Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each of the Borrower and the Bank agrees that the Credit Agreement is hereby amended as follows: 1. The following definitions appearing in Section 1.1 of the Credit Agreement are each hereby amended respectively in their entirety to read as follows: (a) "Borrowing Base. An amount equal to the lesser of (x) $30,000,000 -------------- and (y) the sum of (i) 85% of the face value of Eligible Accounts due and owing at such time, plus (ii) the least of (A) 50% of Eligible ---- Inventory, (B) $15,000,000 and (C) the amount available under subset (y) (i) of this definition, minus (from the sum of (i) and ----- (ii)) the amount specified below for the range of availability hereunder calculated as of the date of any determination: -2-
Loan Availability Amount Reserve ------------------------ ------- Less than $17,500,000 $ 500,000 $17,500,000 - $19,999,999 $ 750,000 $20,000,000 - $22,499,999 $1,000,000 $22,500,000 - $24,999,999 $1,250,000 25,000,000 or more $1,500,000"
(b) "Maximum Commitment. $30,000,000." ------------------ 2. Section 5.7 of the Credit Agreement is hereby amended in its entirety to read as follows: "5.7. Ratio of EBIT to Interest Expense. As of the last day of each --------------------------------- fiscal quarter, the Borrower shall have a ratio of (i) EBIT to (ii) total interest expense, excluding from such calculation any imputed interest arising from accretion of debt discount on any Subordinated Indebtedness, of not less than 1.75:1." 3. Section 5.8 of the Credit Agreement is hereby amended in its entirety to read as follows: "5.8. Minimum Total Capital Funds. The Borrower shall maintain at all --------------------------- times Total Capital Funds of not less than $8,500,000 as of December 31, 1994, plus, on a cumulative basis, an additional $250,000 for each quarter ---- ending after December 31, 1994." 4. Section 5.9 of the Credit Agreement, which was previously deleted and intentionally omitted from the Credit Agreement, is hereby added to read as follows: "5.9. Leverage Ratio. The Borrower shall maintain at all times a ratio -------------- of (i) Total Liabilities less Subordinated Indebtedness to (ii) Total ---- Capital Funds of not more than 7.5:1." 5. Section 5.10 of the Credit Agreement, which was previously deleted and intentional omitted from the Credit Agreement, is hereby added to read as follows: "5.10. Ratio of Senior Bank Indebtedness to Total Capital Funds. The -------------------------------------------------------- Borrower shall maintain at all times a ratio of Senior Bank Indebtedness to Total Capital Funds of not more than 5:1." 6. This Amendment shall become effective when, and only when, the Bank shall have received the following documents: (a) This Amendment duly executed by the Borrower and the Bank; -3- (b) A certificate of the secretary or assistant secretary of the Borrower with respect to resolutions of its Board of Directors authorizing the execution and delivery of this Amendment and the matters contemplated hereby, identifying the officers authorized to execute, deliver and take all other actions required under this Amendment or the Credit Agreement, and confirming that the Borrower's articles of organization and by-laws previously delivered and certified to the Bank have not been amended, substituted, rescinded or otherwise modified in any way since the date of such prior certification; (c) A certificate of the president or chief financial officer of the Borrower with respect to representations and warranties under the Credit Agreement and the absence of any Default or Event of Default under the Credit Agreement; (d) Payment by the Borrower of a closing fee in the amount of $37,500; and (e) Such other documents and evidence of completion of such other matters as the Bank may reasonable deem necessary or desirable. 7. The Borrower represents and warrants to the Bank as follows: (a) The Borrower is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated, is duly qualified and in good standing as a foreign corporation, and is duly authorized to do business in each jurisdiction where the nature of its properties or business require such qualification, except where the failure to be so qualified would not have a material adverse affect on the business, financial condition, assets or properties of the Borrower on a consolidated basis. (b) The execution, delivery and performance of this Amendment and the Credit Agreement and the transactions contemplated hereby and thereby are within the corporate power and authority of the Borrower and had been authorized by all necessary corporate proceedings, and do not and will not: (i) require any consent or approval of the stockholders of the Borrower other than those consents and approvals, if any, previously obtained; (ii) contravene any provision of the charter documents or by-laws of the Borrower or any law, rule or regulation applicable to the Borrower; -4- (iii) contravene any provision of, or constitute an event of default or event that, but for the requirement that time elapse or notice be given, or both, would constitute an event of default, under any other agreement, instrument, order or undertaking binding on the Borrower; (iv) result in or require the imposition of any Encumbrance on any of the properties, assets or rights of the Borrower, except Encumbrances permitted by the Credit Agreement. (c) This Amendment and the Credit Agreement and all of their terms and provisions are the legal, valid and binding obligations of the Borrower, enforceable in accordance with their terms except as limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting the enforcement of creditors' rights generally, and except as the remedies of specific performance or of injunctive relief are subject to the discretion of the court before which any proceeding therefore may be brought. (d) The execution, delivery and performance of this Amendment and the Credit Agreement and the transactions contemplated hereby and thereby do not require any approval or consent of or filing of registration with, any governmental or other agency or authority, or any other party. (e) There is no litigation, arbitration, proceeding or investigation pending, or, to the knowledge of the officers of the Borrower threatened, against the Borrower that, if adversely determined would result in a material judgment not fully covered by insurance or would otherwise have a material adverse affect on the assets, business or prospects of the Borrower. 8. Upon and after the date of this Amendment all references to the Credit Agreement in that document, or in any related document, shall mean the Credit Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any noncompliance with the provisions of the Credit Agreement, and, except as specifically provided in this Amendment, the Credit Agreement shall remain in full force and effect. 9. This Amendment is executed as an instrument under seal and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts without regard to its conflicts of law rules. All parts of the Credit Agreement not -5- affected by this Amendment are hereby ratified and affirmed in all respects, provided that if any provision of the Credit Agreement shall conflict or be - -------- ---- inconsistent with this Amendment, the terms of this Amendment shall supersede and prevail. IN WITNESS WHEREOF, each of the Borrower and the Bank in accordance with Section 9.7 of the Credit Agreement, has caused this Amendment to be executed and delivered by their respective duly authorized officers as of the date set forth in the preamble on page one of this Amendment. WITNESSED: AMERIQUEST/NCD, INC. /s/ Stephen G. Holmes By: /s/ Gregory A. White - ---------------------------------- ----------------------------- STEPHEN G. HOLMES GREGORY A. WHITE - ---------------------------------- --------------------------------- Print Name Print Name Address: 2722 Michelson Dr., Title: President -------------------------- --------------------------- Irvine, CA 92715 Signed At Irvine, California - ---------------------------------- ----------------------- [Seal] WITNESSED: THE FIRST NATIONAL BANK OF BOSTON By: - ---------------------------------- ----------------------------- - ---------------------------------- --------------------------------- Print Name Print Name Address: Title: -------------------------- --------------------------- Signed At - ---------------------------------- ----------------------- [Seal] SCHEDULE A TO AMENDMENT NO. 8 ----------------------------- DOCUMENTS EFFECTING PRIOR AMENDMENTS TO AGREEMENT ------------------------------------------------- 1. Amendment No. 1 Dated November 2, 1992 2. Letter Agreement Dated March 18, 1993 3. Amendment No. 2 Dated April 16, 1993 4. Amendment No. 3 Dated May 26, 1993 5. Amendment No. 4 Dated October 15, 1993 6. Amendment No. 5 Dated March 1, 1994 7. Forbearance Agreement Dated April 25, 1994 8. Amendment No. 1 To Forbearance Agreement Dated June 30, 1994 9. Amendment No. 2 To Forbearance Agreement Dated July 28, 1994 10. Amendment No. 6 Dated August 11, 1994 11. Amendment No. 7 Dated September 8, 1994 AMERIQUEST/NCD, INC. AMENDMENT NO. 9, EXTENSION, WAIVER AND CONSENT This Amendment No. 9, Extension, Waiver and Consent (this "Amendment") is --------- entered into as of July 11, 1995 by and between The First National Bank of Boston, a national banking association having a principal place of business at 100 Federal Street, Boston, Massachusetts ("Bank"), and AmeriQuest/NCD, Inc., a ---- Florida corporation having its chief executive office and principal place of business at MacArthur Place, 3 Imperial Promenade, Santa Ana, California 92707 (the "Borrower") and successor by merger to Ross White Enterprises, Inc. ("Ross -------- ---- White"). All capitalized terms used but not otherwise defined herein shall have - ----- the meanings assigned to them in the Credit Agreement, as defined below. R E C I T A L S - - - - - - - - WHEREAS, the Bank and the Borrower have entered into a Revolving Credit Agreement dated as of April 27, 1992, as amended by Amendment No. 1 dated November 2, 1992, by a letter agreement dated March 18, 1993, by Amendment No. 2 dated as of May 26, 1993, by Amendment No. 3 dated as of May 26, 1993, by Amendment No. 4 dated as of October 15, 1993, by Amendment No. 5 dated as of March 1, 1994, by Amendment No. 6 dated as of August 11, 1994, by Amendment No. 7 and Waiver dated as of September 8, 1994, and by Amendment No. 8 dated as of March 23, 1995, and as modified by an Assignment and Assumption Agreement dated as of November 14, 1994 (as so amended and modified, the "Credit Agreement") ---------------- pursuant to which, among other things, the Borrower granted to the Bank a security interest in all of its personal property (the "Collateral"); and ---------- WHEREAS, on the date of the initial Loan to Ross White under the Credit Agreement, the Bank had established a revolving line of credit for Ross White as an independent company engaged in the nationwide sale and distribution of computers and computer peripherals secured by all of Ross White's assets, including but not limited to all inventory and accounts receivable; and WHEREAS, as a result of the acquisition and consolidation strategy of its parent company, AmeriQuest Technologies, Inc., a Delaware Corporation (the "Parent"), the Borrower is now affiliated with a number of companies engaged in ------ similar businesses (the Parent and all such affiliated companies, collectively, the "Parent Group"), and the Borrower has informed the Bank that it has, and ------------ from time to time intends to, relocate -2- certain of its inventory Collateral to locations where goods that are owned by members of the Parent Group are also warehoused, and pursuant to Section 7.2 of the Credit Agreement has requested that the Bank consent to such relocation; and WHEREAS, the Borrower has further requested a sixty day extension of the time for delivery to the Bank under Section 5.1(a) of the Credit Agreement of the Borrower's audited balance sheet for the Borrower's fiscal year ending March 31, 1995 and related audited statements of income, changes in stockholders' equity, and cash flow from June 30, 1995 to August 31, 1995; and WHEREAS, in reliance on the assurances of the Borrower and the Parent that notwithstanding the interrelated nature of the Borrower and the Parent Group, and the consolidation and integration strategies of the Parent, the Parent and the other members of the Parent Group will conduct their respective dealings with the Borrower on an independent and arm's-length basis and will observe and maintain the separate identity of the Borrower, the Bank is willing to consent to the Collateral being moved and maintained at these shared locations provided that the Borrower at all time shall segregate the Collateral from goods owned by the other members of the Parent Group and deliver to the Bank certain intercreditor agreements with secured creditors of such other members; WHEREAS, the members of the Parent Group are provided working capital support by lenders other than the Bank without benefit of an intercorporate guarantee by the Borrower, and the Bank is providing working capital support to the Borrower without benefit of an intercorporate guarantee by the Parent or any other member of the Parent Group; and WHEREAS, in an effort to monitor on a timely basis the financial results and prospects of the Borrower, the Bank is requiring that the Borrower provide the Bank from time to time with certain information relative to the Parent Group; WHEREAS, the Bank is further requiring that the Borrower, (i) maintain financial records and audited financial statements separate from the Parent Group, (ii) have all corporate actions authorized by the Borrower's board of directors at properly held and recorded meetings, and (iii) observe all other corporate formalities with respect to its intercompany purchases and sales of inventory and other assets; WHEREAS, the parties are willing to so agree subject to the amendments to the Credit Agreement and other terms and covenants contained herein; -3- NOW THEREFORE, in consideration of the mutual covenants and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each of the Bank and the Borrower hereby agrees as follows: 1. The preamble to the Credit Agreement is hereby amended in its entirety to read as follows: "THIS REVOLVING CREDIT AGREEMENT (this "Agreement") is made as of April 27, 1992 between AMERIQUEST/NCD, INC. (the "Borrower"), a Florida corporation having its chief executive office and principal place of business at MacArthur Place, 3 Imperial Promenade, Santa Ana, California 92707, and successor by merger to Ross White Enterprises, Inc., and THE FIRST NATIONAL SANK OF BOSTON (the "Bank"), a national banking association having its head office at 100 Federal Street, Boston, Massachusetts 02110." 2. The definition of "Borrowing Base" appearing in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows: (a) "Borrowinq Base. An amount equal to the lesser of (x) $27,500,000 until -------------- the Contingency Date, as defined below, and thereafter, $30,000,000 and (y) the sum of (i) 85% of the face value of Eligible Accounts due and owing at such time, plus (ii) the least of (A) 50% of Eligible Inventory, (B) ---- $15,000,000 and (C) the amount available under subset (y)(i) of this definition, minus (from the sum of (i) and (ii)) the amount specified below ----- for the range of availability hereunder calculated as of the date of any determination,
Loan Availability Amount Reserve ------------------------ ------- Less than $17,500,000 $ 500,000 $17,500,000 - $19,999,999 $ 750,000 $20,000,000 - $22,499,999 $1,000,000 $22,500,000 - $24,999,999 $1,250,000 25,000,000 or more $1,500,000
minus from the amount calculated in accordance with the foregoing, ----- commencing on July 17, 1995, $500,000 and increasing to $1,000,000 commencing on July 24, 1995 through and including the second Business Day (the "Contingency Date") following receipt by the Bank of unqualified ---------------- audited financial statements of the Borrower in accordance with Section 5.1(a) of this Agreement for the fiscal year ending April 1, 1995 reflecting -4- performance by the Borrower under Sections 5.7, 5.8, 5.9 and 5.10 of this Agreement at a level equal to or better than that shown in the management- prepared financial statements delivered to the Bank on May 16, 1995 for the fiscal year ending April 1, 1995." 3. The definition of "Eligible Account" appearing in Section 1.1 of the Credit Agreement is hereby amended by deleting the "and" at the end of subclause (n), relettering subclause (o) to become subclause (p), and by adding the following new subclause (o) to be inserted immediately following subclause (n) thereof: "(o) such Account is not owing by an Affiliate of the Borrower; and" 4. The definition of "Eligible Inventory" appearing in Section 1.1 of the Credit Agreement is hereby amended by deleting the "and" at the end of subclause (i), relettering subclause (j) to become subclause (k), and by adding the following new subclause (j) to be inserted immediately following subclause (i) thereof: "(j) commencing on August 15, 1995, such Inventory, if located in a Consolidated Warehouse, (i) has a value not greater than the Consolidated Warehouse Inventory Cap then in effect for such warehouse, (or, if the value of such Inventory is in excess of the amount so specified, such excess is excluded from the calculation of the total value of such Inventory), (ii) is the subject of an Intercreditor Agreement, in full force and effect, (iii) is located in a Consolidated Warehouse for which the Bank has received an executed landlord agreement, substantially in the form of Exhibit 1.1 (j) (iii) hereto, or Exhibit 1.1 (j) (iv) hereto, as --------------------- -------------------- appropriate and (iv) if purchased from an Affiliate of the Borrower, such Affiliate is a party to the Affiliate Subordination Agreement; and" 5. The definition of "Subordinated Indebtedness" appearing in Section I of the Credit Agreement is hereby amended in its entirety to read as follows: "Subordinated Indebtedness. Any Indebtedness of the Borrower the payment of ------------------------- principal of and interest on which is expressly subordinated in right of payment to the prior payment in full of the Obligations by a subordination agreement in a form and containing terms approved by the Bank, including but not limited to Indebtedness subordinated under the Parent Subordination Agreement and the Affiliate Subordination Agreement." -5- 6. The following new defined terms are hereby added to Section 1.1 of the Credit Agreement in proper alphabetical order: "Affiliate. Any person that now or hereafter directly, or indirectly --------- through one or more intermediaries, controls, or is controlled by, or is under common control with, such person. The terms "control," "controlled by," and "under common control with" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities or interests, by contract or otherwise." "Affiliate Subordination Agreement. The Subordination Agreement, --------------------------------- substantially in the form of Exhibit 1.1(j)(v), as may be amended from ----------------- time to time, executed by the Borrower and the Affiliates named therein from time to time in favor of the Bank, pursuant to which any and all amounts from time to time owing by the Borrower to each such Affiliate is subordinated to the payment in full of all Indebtedness of the Borrower owing from time to time to the Bank." "Consolidated Warehouse. A warehouse at which Collateral owned by the ---------------------- Borrower is located together with goods owned by an Affiliate of the Borrower." "Consolidated Warehouse Inventory Cap. The amount shown for each ------------------------------------ Consolidated Warehouse set forth on Exhibit 1.1(j)(i) hereto, as such ----------------- exhibit may be amended and/or updated from time to reflect such changes in those amounts as the Borrower and the Bank may agree upon (or, after the occurrence of an Event of Default which is continuing, as the Bank may, in its sole discretion, specify from time to time by written notice to the Borrower,) and/or to add additional Consolidated Warehouses or delete warehouses no longer constituting a Consolidated Warehouse." "Intercreditor Agreement. An Intercreditor Agreement in form and substance ----------------------- satisfactory to the Bank substantially in the form of Exhibit 1.1(j)(ii) ------------------ hereto between the Bank and any secured creditor of an Affiliate of the Borrower with a security interest in goods of such Affiliate located at a Consolidated Warehouse." "Parent. AmeriQuest Technologies, Inc., a Delaware corporation, and any ------ subsequent holder of a majority of the issued and outstanding shares of common stock of the Borrower." -6- "Parent Subordination Agreement. The Subordination Agreement dated as of ------------------------------ November 14, 1994 executed by the Borrower and AmeriQuest Technologies, Inc. in favor of the Bank, as may be amended from time to time, pursuant to which any and all Indebtedness of the Borrower from time to time owing to the Parent is subordinated to the payment in full of all Indebtedness of the Borrower owing from time to time to the Bank." 7. The following subclauses of Section 5.1 of the Credit Agreement are hereby amended in their entirety respectively to read as follows: "(d) promptly after the receipt thereof by the Borrower, any Subsidiary of the Borrower, the Parent, or any other Affiliate of the Borrower, copies of any reports submitted to such person by independent public accountants in connection with any interim review of the accounts of such person made by such accountants;" "(f) immediately upon becoming aware of the existence of any condition or event that constitutes, with respect to the Borrower, a Default hereunder, or, with respect to any Subsidiary of the Borrower, the Parent or any other Affiliate of the Borrower, a default under any agreement or instrument evidencing or securing indebtedness of such person, written notice thereof specifying the nature and duration thereof and the action being or proposed to be taken with respect thereto;" "(g) promptly upon becoming aware of any litigation or of any investigative proceedings by a governmental agency or authority commenced or threatened against the Borrower, any Subsidiary of the Borrower, the Parent, or any other Affiliate of the Borrower of which such person has notice, the outcome of which would or might have a materially adverse effect on the assets, business, prospects or financial condition of such person, written notice thereof and the action being or proposed to be taken with respect thereto;" "(h) promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Borrower, any Subsidiary of the Borrower, the Parent, or any other Affiliate of the Borrower sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that the Borrower, any Subsidiary of the Borrower, the Parent, or any other Affiliate of the Borrower files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange; and -7- (i) from time to time, such other information about the Borrower, any Subsidiary of the Borrower, the Parent, or any other Affiliate of the Borrower as the Bank may reasonably request." 8. Section V of the Credit Agreement is further amended by renumbering Section 5.12 thereof as Section 5.14, and by inserting new Sections 5.12 and 5.13 immediately following Section 5.11 thereof as follows: "5.12. Maintenance of Independent and Separate Identity. The Borrower shall ------------------------------------------------ (i) maintain financial records and audited financial statements separate from the Parent and the other Affiliates, (ii) have all corporate actions authorized by the Borrower's board of directors (at least two members of which will at all time be independent directors who are not officers or employees of the Borrower, the Parent or any other Affiliate of the Borrower) at properly held and recorded meetings, and (iii) observe all other corporate formalities with respect to its intercompany purchases and sales of inventory and other assets; "5.13. Collateral Located in Consolidated Warehouses. (a) All Collateral ---------------------------------------------- located in a Consolidated Warehouse will be located in a segregated section of such Consolidated Warehouse clearly delineated with colored tape and containing therein only Collateral and no goods owned by any entity other than the Borrower, and each item of Collateral will be marked with a colored sticker or tag or shall be otherwise identified as property of the Borrower so as to identify it as the Bank's Collateral; (b) At any time that an Intercreditor Agreement is not in full force and effect, or, in the event of a bankruptcy of an Affiliate of the Borrower with goods located in a Consolidated Warehouse, or any foreclosure action taken by a creditor against any such Affiliate's goods, the Borrower will, promptly upon the Bank's request, move the Collateral located in the related Consolidated Warehouse to another location satisfactory to the Bank, or take such other or additional actions with respect thereto as the Bank may reasonably require; (c) The Borrower will notify the Bank, at least thirty (30) days prior to the relocation, with such detail as the Bank may request, of any intended relocation of Collateral to a Consolidated Warehouse (including any relocation of Collateral from one Consolidated Warehouse to another Consolidated Warehouse, and will at the same time provide the Bank with two duplicate originals of an -8- updated Exhibit 1.1(j)(i), with Consolidated Warehouse Inventory Caps dated ----------------- and signed by the Borrower for signature by the Bank, which Exhibit ------- 1.1(j)(i) will replace in its entirety the Exhibit 1.1(j)(i) previously --------- ----------------- made a part of this Agreement and which the Borrower hereby authorizes the Bank to substitute therefor; and (d) Upon request by the Bank, the Borrower will provide the Bank with copies of any documentation with respect to intercompany receivables arising from transactions between the Borrower and any Affiliate having goods located at a Consolidated Warehouse." 9. Section VI is hereby amended to add the following new Section 6.12: "6.12. Transactions with Affiliates. (a) The Borrower will not enter into ----------------------------- or be a party to any transaction or arrangement with any Affiliate (including, without limitation, the purchase from, sale to or exchange of property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of and pursuant to the reasonable requirements of the Borrower's business, upon fair and reasonable terms no less favorable to the Borrower than would obtain in a comparable arm's length transaction with a person other than an Affiliate, and upon observance of all normal corporate and business formalities with respect to such transaction; and (b) The Borrower will not enter into any transaction pursuant to which it will, or could, owe money to any Affiliate having goods in a Consolidated Warehouse until such Affiliate has become a party to the Affiliate Subordination Agreement and delivered to the Bank an original signature page therefor accompanied by a certificate of the recording officer for such Affiliate certifying to the authority of the officer executing the same. 10. Section 7.3(b) of the Credit Agreement is hereby amended in its entirety to read as follows: "(b) Schedule of Inventory. Deliver to the Bank weekly a schedule of --------------------- inventory as of the last Business Day of the immediately preceding weekly account period of the Borrower and/or at such other intervals and for such periods as the Bank may request, itemizing and describing for each location the kind, type and quantity of Inventory by location and the Borrower's cost thereof." -9- 11. Section 9.1 of the Credit Agreement is hereby amended by deleting clauses (a) through (d) therefrom, and by adding the following new clauses (a) and (b): "(a) If to the Borrower: AmeriQuest/NCD, Inc. MacArthur Place 3 Imperial Promenade Santa Ana, California 92707 Attn: Dennis Fairchild, V.P. Finance Telephone: (714) 437-0099 x5007 Telecopier: (714) 437-9197 (b) If to the Bank: The First National Bank of Boston 115 Perimeter Center Place, N.E., Suite 500 Atlanta, Georgia 30346 Attn: John K. Hood/James St. Clair Telephone: (404) 390-6526/6557 Telecopier: (404) 393-4166 12. Each of Exhibits 4.1. 4.5, 4.10, and 7.3(c) is hereby ----------------------- ------ amended in its entirety and replaced with the respective Exhibit attached hereto. 13. Extension Waiver. In reliance upon the Borrower's ---------------- representation, which by the Borrower's signature hereto the Borrower is hereby deemed to have made, that as of the date of this Amendment the Borrower is not in default of any of its obligations under the Credit Agreement, the Bank hereby extends the time for delivery of the Borrower's audited financial statements required by Section 5.1(a) of the Credit Agreement for the fiscal year ending April 1, 1995 to August 31, 1995 and waives the Borrower's failure to deliver such financial statements within ninety (90) days following its fiscal year ending April 1, 1995. By its signature hereto, the Borrower covenants and agrees that such statements by August 31, 1995 shall be delivered to the Bank on or before August 31, 1995 in accordance with the requirements of Section 5.1(a) (other than the ninety day time period specified therein), and the failure by the Borrower to deliver such statements by August 31, 1995 shall constitute an Event of Default under the Credit Agreement. The foregoing waiver is expressly limited to the non-compliance by the Borrower with Section 5.1(a) of the Credit Agreement and is not, nor shall it be construed as, a waiver of any other provision of the Credit Agreement. 14. Consent. Subject to the satisfaction of the conditions ------- precedent set forth herein, the Bank hereby consents to the relocation of any Collateral to a Consolidated Warehouse. -10- 15. Effectivess of Amendment. This Amendment, and the extension and waiver ------------------------ and consents contained herein, shall become effective, as of the date first written above, upon the satisfaction of the following conditions precedent: (a) receipt by the Bank of this Amendment, executed by an authorized officer of the Borrower; (b) receipt by the Bank of a true and correct Exhibit 1.1(j)(i) as to all Collateral located in a Consolidated Warehouse; (c) a certificate of the secretary or an assistant secretary of the Borrower with respect to resolutions of its Board of Directors authorizing the execution and delivery of this Amendment, confirming the resolutions previously adopted by the Board of Directors of the Borrower authorizing the borrowings and other transactions contemplated under the Credit Agreement, identifying the officer(s) authorized to execute, deliver and take all other actions required under this Amendment, or the Credit Agreement, and confirming that the Borrower's Articles of Organization and By-Laws previously delivered and certified to the Bank have not been amended, substituted, rescinded or otherwise modified in any way since the date of said prior certification; (d) a certificate of the president or chief financial officer of the Borrower with respect to representations and warranties under the Agreement, and the absence of any Defaults or Events of Default; (e) such other items or documents as may be requested by the Bank. 16. Effect Upon Credit Aqreement. Upon and after the date of ----------------------------- this Amendment all references to the Credit Agreement in that document or in any related document, shall mean the Credit Agreement as amended by this Amendment. Except as expressly provided in this Amendment, the execution and delivery of this Amendment does not and will not amend, modify or supplement any provision of, or constitute a consent to or a waiver of any non-compliance with the provisions of the Credit Agreement, and, except as specifically provided in this Amendment, the Credit Agreement shall remain in full force and effect. 17. No Impairment of Lien. Nothing set forth herein shall ---------------------- affect the priority or extent of the lien of the Credit Agreement, nor, release or change the liability of any party who may now be or after the date of this, become liable primarily or secondarily, thereunder. -11- 18. Further Assurances. The Borrower hereby agrees to execute ------------------- and deliver such other instruments, and take such other action, as the Bank may reasonably request in connection with this Amendment, including, without limitation, the delivery of all additional Uniform Commercial Code financing statements which the Bank may deem appropriate for the perfection, protection and enforcement of its security interests in the Collateral. 19. Miscellaneous. (a) This Amendment shall be construed -------------- according to and governed by the laws of The Commonwealth of Massachusetts without regard to its internal conflicts rules; (b) if any provision of this Amendment is adjudicated to be invalid, illegal or unenforceable, in whole or in part, it will be deemed omitted to that extent and all other provisions of this Amendment will remain in full force and effect; (c) the captions contained in this Amendment are for convenience of reference only and in no event define, describe or limit the scope of intent or any of the provisions or terms hereof; (d) this Amendment shall be binding upon and inure to the benefit of the parties and their respective heirs, legal representatives, successors and assigns; and (e) this Amendment may be executed in one or more counterparts. 20. Additional Agreement Regarding Applicable Margin for Period ----------------------------------------------------------- Commencing January 1. 1995. In light of the Bank's continuing - -------------------------- concern regarding certain matters relative to the Borrower's leverage ratio for the month ending December 31, 1994 and thereafter, which the parties have agreed will be resolved upon delivery of the Borrower's audited April 1, 1995 year-end financial statements (the "Audited Statements"), the parties hereby agree that the Applicable Margin will be deemed to have been (i) 3% for the period January 1, 1995 through May 31, 1995, and (ii) 1 1/2% for the period June 1, 1995 through the end of the month in which the Audited Statements are delivered to the Bank, provided that if the Audited Statements are -------- ---- unqualified, the interest due for the period February 1, 1995 through May 31, 1995 shall be recalculated using an Applicable Margin of 1 1/2% with the difference rebated to the Borrower by the Bank in the form of a credit against unpaid accrued interest due or becoming due under the Credit Agreement after the Bank's receipt of the Audited Statements, and provided -------- further that if the Audited Statements are qualified, the - ------- ---- interest due for the period June 1, 1995 through the end of the month in which the Audited Statements are delivered to the Bank, shall be recalculated using an Applicable Margin of 3% with the difference to be charged to the Borrower's Loan Account. -12- IN WITNESS WHEREOF, the parties have executed this Amendment by their duly authorized officers as of the date first above written. AMERIQUEST/NCD, INC. By: --------------------------------- --------------------------------- Print Name Title: CEO ------------------------------ Executed At: CA ------------------------ THE FIRST NATIONAL BANK OF BOSTON By: --------------------------------- --------------------------------- Print Name Title: ------------------------------ Executed At: ------------------------ EX-10.08 7 EMPLOYMENT AGMT. W/ STEVEN DEWINDT EXHIBIT 10.08 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is entered into as of --------- September ___, 1995 (the "Effective Date") between AmeriQuest Technologies,Inc., -------------- a Delaware corporation with its principal offices located at 3 Imperial Promenade, Suite 300, Santa Ana, California ("Company"), and Steve DeWindt, a ------- resident of Laguna Niguel, California ("Employee"). -------- In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows: 1. POSITION. During the term of this Agreement, Company will employ -------- Employee, and Employee will serve Company as the Company's Chief Executive Officer. Employee will report directly to the Board of Directors of Company. 2. DUTIES. Employee will serve Company in such capacities and with ------ such duties and responsibilities as the Board of Directors may from time to time determine. Employee will comply with and be bound by Company's operating policies, procedures, and practices from time to time in effect during Employee's employment. Employee will perform his duties under this Agreement at the offices of Company, provided, that Employee may be required to do -------- extensive traveling in connection with the performance of his duties hereunder. Employee hereby represents and warrants that he is free to enter into and fully perform this Agreement and the agreements referred to herein without breach of any agreement or contract to which he is a party or by which he is bound. 3. EXCLUSIVE SERVICE. During his employment with Company, Employee ----------------- will devote his full time and efforts exclusively to this employment and apply all his skill and experience to the performance of his duties and advancing Company's interests in accordance with Employee's experience and skills. In addition, during his employment with Company, Employee will not engage in any consulting activity except with the prior written approval of Company, or at the direction of Company, and Employee will otherwise do nothing inconsistent with the performance of his duties hereunder. 4. OBLIGATION NOT TO COMPETE. Employee hereby agrees that while he ------------------------- is employed by Company (the "Restricted Period"), Employee shall not engage in ----------------- or provide services to any business that is competitive with or detrimental to any present or contemplated business of Company known to Employee. Employee also agrees that, during the Restricted Period, he shall not in any manner attempt to induce or assist others to attempt to induce any customer or client of Company to terminate his association with Company, nor do anything directly or indirectly to interfere with the relationship between Company and any such persons or concerns. Each of the following activities shall, without limitation, be deemed to constitute engaging in business within the meaning of this Section 3: to engage in, work with, have an interest or concern in, advise, lend money to, guarantee the debts or obligations of, or permit one's name or any party thereof to be used in connection with, an enterprise or endeavor, either individually, in partnership, or in conjunction with any person or persons, firms, associations, companies, or corporations, whether as a principal, agent, shareholder, 1 employee, officer, director, partner, consultant or in any other manner whatsoever; provided, however, that Employee shall retain the right to -------- ------- invest in or have an interest in entities traded on any public market or offered by any national brokerage house, provided that said interest does not exceed one percent (1%) of the voting control of said entity. In addition, Employee may make passive investments in privately held entities that are determined by the Board of Directors of Company not to be competitors of Company. 5. TERM OF AGREEMENT. This Agreement will commence on the Effective ----------------- Date, and will continue for a period of twenty-four months and thereafter unless terminated pursuant to Section 8 hereof. 6. COMPENSATION AND BENEFITS. ------------------------- 6.1 BASE SALARY. Company agrees to pay Employee an initial ----------- minimum salary of Two Hundred and Ten Thousand Dollars ($210,000.00) per year. Employee's salary will be payable as earned in accordance with Company's customary payroll practice. 6.2 ADDITIONAL BENEFITS. Employee will be eligible to ------------------- participate in Company's employee benefit plans of general application, including without limitation those plans covering pension and profit sharing, executive bonuses, stock purchases, stock options, and those plans covering life, health, and dental insurance in accordance with the rules established for individual participation in any such plan and applicable law, provided however, that Company will pay 100% of the premiums for Employee's (and Employee's family) health and dental insurance. Employee will receive such other benefits, including vacation, holidays and sick leave, as Company generally provides to its employees holding similar positions as that of Employee. 6.3 COMPANY CAR. Company will provide to Employee a BMW 700 ----------- Series or equivalent automobile and pay the costs of insurance and maintenance thereon. 6.4 PLAN BONUS. Employee will be eligible to earn a bonus of up ---------- to Three Hundred and Thirty-Six Thousand Dollars ($336,000.00) (the "Plan ---- Bonus") during his first year of employment with Company. The performance - ----- criteria relative to the Plan Bonus is as set forth in Exhibit A attached --------- hereto. 6.5 PERFORMANCE BONUS. Employee will be eligible to earn a ----------------- bonus payable in Company stock and based upon Company's cumulative profit from October 1, 1995 until Employee's termination (the "Performance Bonus"). The ----------------- performance criteria relative to the Performance Bonus is as set forth in Exhibit B attached hereto. - --------- 6.6 EXPENSES. Company will reimburse Employee for all -------- reasonable and necessary expenses incurred by Employee in connection with Company's business, provided that such expenses are deductible to Company, are in accordance with - 2 - Company's applicable policy and are properly documented and accounted for in accordance with the requirements of the Internal Revenue Service. 7. PROPRIETARY RIGHTS. Employee hereby agrees to execute an ------------------ Employee Confidentiality Agreement with Company in substantially the form attached hereto as Exhibit C. --------- 8. TERMINATION. ----------- 8.1 EVENTS OF TERMINATION. Employee's employment with Company --------------------- shall terminate upon any one of the following: (a) the Company's determination made in good faith that it is terminating Employee for "cause" as defined under Section 8.2 below ("Termination for Cause"); --------------------- (b) three months after the effective date of a written notice sent to Employee stating that Company is terminating his employment, without cause, which notice can be given by Company at any time after the Effective Date at Company's sole discretion, for any reason or for no reason; or (c) the effective date of a written notice sent to Company from Employee stating that Employee is electing to terminate his employment with Company. 8.2 "CAUSE" DEFINED. For purposes of this Agreement, "cause" --------------- for Employee's termination will exist at any time after the happening of one or more of the following events: (a) a failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of the Company; (b) a failure or a refusal in any material respect, faithfully or diligently, to perform his duties determined by the Company in accordance with this Agreement or the customary duties of Employee's employment; (c) unprofessional, unethical or fraudulent conduct or conduct that materially discredits the Company or is materially detrimental to the reputation, character or standing of the Company; (d) dishonest conduct or a deliberate attempt to do an injury to the Company; (e) Employee's material breach of a term of this Agreement; - 3 - (f) an unlawful or criminal act which would reflect badly on the Company in the Company's reasonable judgment; (g) Employee's death. - 4 - 9. EFFECT OF TERMINATION. --------------------- 9.1 TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the ---------------------------------------------- event of any termination of this Agreement pursuant to Sections 8.1(a) or 8.1(c), the Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 6 through the date of termination. Employee's rights under the Company's benefit plans of general application shall be determined under the provisions of those plans. 9.2 TERMINATION WITHOUT CAUSE. In the event of any ------------------------- termination of this Agreement pursuant to Section 8.1(b), the Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 6 through the last day of the six month period following the date that the notice referred to in Section 8.1(b) is given. 10. MISCELLANEOUS. ------------- 10.1 ARBITRATION. Employee and Company shall submit to mandatory ----------- binding arbitration in any controversy or claim arising out of, or relating to, this Agreement or any breach hereof, provided, however, that Company retains -------- ------- its right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. Such arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association in effect at that time, and judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 10.2 SEVERABILITY. If any provision of this Agreement shall be ------------ found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such arbitrator or court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect. 10.3 REMEDIES. Company and Employee acknowledge that the service -------- to be provided by Employee is of a special, unique, unusual, extraordinary and intellectual character, which gives it peculiar value the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, Employee hereby consents and agrees that for any breach or violation by Employee of any of the provisions of this Agreement including, without limitation, Section 3), a restraining order and/or injunction may be issued against Employee, in addition to any other rights and remedies Company may have, at law or equity, including without limitation the recovery of money damages. - 5 - 10.4 NO WAIVER. The failure by either party at any time to --------- require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No - 6 - waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced. 10.5 ASSIGNMENT. This Agreement and all rights hereunder are ---------- personal to Employee and may not be transferred or assigned by Employee at any time. Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes Company's obligations -------- ------- hereunder. 10.6 WITHHOLDING. All sums payable to Employee hereunder shall ----------- be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law. 10.7 ENTIRE AGREEMENT. This Agreement and the Employee ---------------- Confidentiality Agreement constitute the entire and only agreements between the parties relating to employment of Employee with Company, and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings with respect thereto. 10.8 AMENDMENT. This Agreement may be amended, modified, --------- superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto. 10.9 NOTICES. All notices and other communications required or ------- permitted under this Agreement shall be in writing and hand delivered, sent by telecopier, sent by certified first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent by telecopier, five (5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties: If to Company: AmeriQuest Technologies, Inc. ----------------------------- 3 Imperial Promenade, Suite 300 ------------------------------- Santa Ana, CA 92707 -------------------- Telecopier: (714) 445-5350 -------------- Attention: Board of Directors ------------------ If to Employee: Steve DeWindt ------------- 2 Shelter Cove -------------- Laguna Niguel, CA 92677 ------------------------ Telecopier: 10.10 BINDING NATURE. This Agreement shall be binding upon, and -------------- - 7 - inure to the benefit of, the successors and personal representatives of the respective parties hereto. 10.11 HEADINGS. The headings contained in this Agreement are for -------- reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female referents, and the word "or" is used in the inclusive sense. 10.12 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement. 10.13 GOVERNING LAW. This Agreement and the rights and obligations ------------- of the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws. IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of the date first above written. "COMPANY" "EMPLOYEE" AMERIQUEST TECHNOLOGIES, INC. STEVE DEWINDT By: Name: Title: 353214 - 8 - EXHIBIT A PLAN BONUS CRITERIA - 9 - EXHIBIT B PERFORMANCE BONUS CRITERIA - 10 - EXHIBIT C CONFIDENTIALITY AGREEMENT - 11 - EMPLOYEE INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT ----------------------------------------------------------- In consideration of, and as a condition of my employment with AmeriQuest Technologies, Inc., a Delaware corporation (the "COMPANY"), I hereby represent to the Company and the Company and I agree as follows: 1. PURPOSE OF AGREEMENT. I understand that the Company is engaged in a -------------------- continuous program of research, development, production, and marketing in connection with its business and that it is critical for the Company to preserve and protect its "Proprietary Information" (as defined below), its rights in "Inventions" (as defined below), and in all related intellectual property rights. Accordingly, I am entering into this Agreement as a condition of my employment with the Company, whether or not I am expected to create inventions of value for the Company. 2. DISCLOSURE OF INVENTIONS. I will promptly disclose in confidence to the ------------------------ Company all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, and trade secrets ("INVENTIONS") that I make or conceive or first reduce to practice or create, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment, and whether or not such Inventions are patentable, copyrightable or protectible as trade secrets. 3. WORK FOR HIRE; ASSIGNMENT OF INVENTIONS. I acknowledge that any --------------------------------------- copyrightable works prepared by me within the scope of my employment are "works for hire" under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works. I further acknowledge that all Inventions that (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company's business or current or anticipated research and development, will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company. 4. ASSIGNMENT OF OTHER RIGHTS. In addition to the foregoing assignment of -------------------------- Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets, and other intellectual property rights in any Invention; and (b) any and all "Moral Rights" (as defined below) that I may have in or with respect to any Invention. I also hereby forever waive and agree never to assert any and all Moral Rights I may have in or with respect to any Invention, even after termination of my work on behalf of the Company. "MORAL RIGHTS" means any rights to claim authorship of an Invention, to object to or prevent the modification of any Invention, or to withdraw from circulation or control the publication or distribution of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right." 5. ASSISTANCE. I will assist the Company in every proper way to obtain for ---------- the Company and enforce patents, copyrights, mask work rights, trade secret rights, and other legal protections for the Company's Inventions in any and all countries. I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets, and other legal protections. My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time or expenses actually spent by me at the Company's request on such assistance. I appoint the Secretary of the Company as my attorney-in-fact to execute documents on my behalf for this purpose. 6. PROPRIETARY INFORMATION. I understand that my employment by the Company ----------------------- creates a relationship of confidence and trust with respect to any information of a confidential or secret nature that may be disclosed to me by the Company that relates to the business of the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company or any other party with whom the Company agrees to hold information of such party in confidence ("PROPRIETARY INFORMATION"). Such Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, and customer lists. 7. CONFIDENTIALITY. At all times, both during my employment and after its --------------- termination, I will keep and hold all such Proprietary Information in strict confidence and trust, and I will not use or disclose any of such Proprietary Information without the prior written consent of the Company, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me any documents or materials or copies thereof containing any Proprietary Information. 8. NO BREACH OF PRIOR AGREEMENT. I represent that my performance of all the ---------------------------- terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, or similar agreement with any former employer or other party. I represent that I will not bring with me to the Company or use in the performance of my duties for the Company any documents or materials of a former employer that are not generally available to the public or have not been legally transferred to the Company. 9. NOTIFICATION. I hereby authorize the Company to notify my actual or future ------------ employers of the terms of this Agreement and my responsibilities hereunder. 10. NAME & LIKENESS RIGHTS, ETC. I hereby authorize the Company to use, reuse, ---------------------------- and to grant others the right to use and reuse, my name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any media now known or hereafter developed (including but not limited to film, video, and digital or other electronic media), both during and after my employment, for whatever purposes the Company deems necessary. 11. INJUNCTIVE RELIEF. I understand that in the event of a breach or ----------------- threatened breach of this Agreement by me the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement. 12. GOVERNING LAW; SEVERABILITY. This Agreement will be governed and --------------------------- interpreted in accordance with the internal laws of the State of Florida, without regard to or application of choice-of-law rules or principles. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid or unenforceable, then such provision shall not be voided, but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect. 13. NO DUTY TO EMPLOY. I understand that this Agreement does not constitute a ----------------- contract of employment or obligate the Company to employ me for any stated period of time. This Agreement shall be effective as of the first day of my employment by the Company, namely: September ___, 1995. AMERIQUEST TECHNOLOGIES, INC.: EMPLOYEE: By: ______________________________ _______________________________ Signature Name:_____________________________ Name __________________________ Title:____________________________ Date:__________________________ [SIGNATURE PAGE TO DEWINDT CONFIDENTIALITY AGREEMENT] EX-10.09 8 EMPLOYMENT AGMT. W/ MARK MULFORD EXHIBIT 10.09 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is entered into as of --------- September 1, 1995 (the "Effective Date") between AmeriQuest Technologies, -------------- Inc., a Delaware corporation with its principal offices located at 3 Imperial Promenade, Suite 300, Santa Ana, California ("Company"), and Mark Mulford, a ------- resident of Laguna Niguel, California ("Employee"). -------- In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows: 1. POSITION. During the term of this Agreement, Company will employ -------- Employee, and Employee will serve Company as the Company's President and Chief Operating Officer. Employee will report directly to Steve DeWindt, Chairman of the Board of Directors of Company and Chief Executive Officer. 2. DUTIES. Employee will serve Company in such capacities and with ------ such duties and responsibilities as the Board of Directors and Chief Executive Officer of Company may from time to time determine. Employee will comply with and be bound by Company's operating policies, procedures, and practices from time to time in effect during Employee's employment. Employee will perform his duties under this Agreement at the offices of Company, provided, that -------- Employee may be required to do extensive traveling in connection with the performance of his duties hereunder. Employee hereby represents and warrants that he is free to enter into and fully perform this Agreement and the agreements referred to herein without breach of any agreement or contract to which he is a party or by which he is bound. 3. EXCLUSIVE SERVICE. During his employment with Company, Employee ----------------- will devote his full time and efforts exclusively to this employment and apply all his skill and experience to the performance of his duties and advancing Company's interests in accordance with Employee's experience and skills. In addition, during his employment with Company, Employee will not engage in any consulting activity except with the prior written approval of Company, or at the direction of Company, and Employee will otherwise do nothing inconsistent with the performance of his duties hereunder. 4. OBLIGATION NOT TO COMPETE. Employee hereby agrees that while he ------------------------- is employed by Company (the "Restricted Period"), Employee shall not engage in ----------------- or provide services to any business that is competitive with or detrimental to any present or contemplated business of Company known to Employee. Employee also agrees that, during the Restricted Period, he shall not in any manner attempt to induce or assist others to attempt to induce any customer or client of Company to terminate his association with Company, nor do anything directly or indirectly to interfere with the relationship between Company and any such persons or concerns. Each of the following activities shall, without limitation, be deemed to constitute engaging in business within the meaning of this Section 3: to engage in, work with, have an interest or concern in, advise, lend money to, guarantee the debts or obligations of, or permit one's name or any party thereof to be used in connection with, an enterprise or endeavor, either individually, in partnership, or in conjunction with any person or persons, firms, 1 associations, companies, or corporations, whether as a principal, agent, shareholder, employee, officer, director, partner, consultant or in any other manner whatsoever; provided, however, that Employee shall retain the right to -------- ------- invest in or have an interest in entities traded on any public market or offered by any national brokerage house, provided that said interest does not exceed one percent (1%) of the voting control of said entity. In addition, Employee may make passive investments in privately held entities that are determined by the Board of Directors of Company not to be competitors of Company. 5. TERM OF AGREEMENT. This Agreement will commence on the Effective ----------------- Date, and will continue for a period of twelve months and thereafter unless terminated pursuant to Section 8 hereof. 6. COMPENSATION AND BENEFITS. ------------------------- 6.1 BASE SALARY. Company agrees to pay Employee an initial ----------- minimum salary of One Hundred and Ninety Thousand Dollars ($190,000.00) per year. Employee's salary will be payable as earned in accordance with Company's customary payroll practice. 6.2 ADDITIONAL BENEFITS. Employee will be eligible to ------------------- participate in Company's employee benefit plans of general application, including without limitation those plans covering pension and profit sharing, executive bonuses, stock purchases, stock options, and those plans covering life, health, and dental insurance in accordance with the rules established for individual participation in any such plan and applicable law, provided however, that Company will pay 100% of the premiums for Employee's (and Employee's family) health and dental insurance. Employee will receive such other benefits, including vacation, holidays and sick leave, as Company generally provides to its employees holding similar positions as that of Employee. 6.3 RELOCATION BENEFITS. Company will pay all reasonable costs ------------------- to relocate Employee from Holland to Southern California, subject to approval of the Chief Executive Officer. Such costs shall include expenses of moving and storing Employee's personal property and air fare for Employee and his family. 6.4 ALLOWANCES. Company will provide an allowance to Employee ---------- of $800.00 per month to be applied towards lease of an automobile and insurance thereon. Company will provide an allowance to Employee of $4,000.00 per month to be applied towards the rental or purchase of a personal residence and associated costs. 6.5 PLAN BONUS. Employee will be eligible to earn a bonus of up ---------- to Three Hundred and Four Thousand Dollars ($304,000.00) bonus (the "Plan ---- Bonus") during his first year of employment with Company. The performance - ----- criteria relative to the Plan Bonus is as set forth in Exhibit A attached --------- hereto. 6.6 PERFORMANCE BONUS. Employee will be eligible to earn a One ----------------- - 2 - Hundred Thousand Dollar ($100,000.00) bonus (the "Performance Bonus") upon the ----------------- achievement of performance criteria to be established by September 30, 1995 by the Chief Executive Officer and the Compensation Committee of the Board of Directors and thereafter attached to hereto as Exhibit B. --------- 6.7 EXPENSES. Company will reimburse Employee for all -------- reasonable and necessary expenses incurred by Employee in connection with Company's business, provided that such expenses are deductible to Company, are in accordance with Company's applicable policy and are properly documented and accounted for in accordance with the requirements of the Internal Revenue Service. 6.8 PRICE PROTECTION. It is anticipated that Employee will ---------------- purchase a personal residence in Southern California to occupy during the term of this Agreement and sell such residence upon the termination thereof or shortly thereafter. For up to three months after termination of this Agreement, Company will pay to Employee the difference, if any, by which the net proceeds received by Employee upon sale of the Employee's residence (the "Proceeds") are -------- less than the price paid by Employee for such residence, including customary closing costs ("Cost"). Company shall not be liable to Employee for the ---- amount, if any, by which such residence is damaged by earthquake or fire. Employee agrees to take all reasonable efforts to sell the residence for the highest possible sales price. Employee agrees that the excess, if any, of Proceeds over Cost will be paid to Company. Proceeds and Cost will be calculated without regard to any mortgage amount. 7. PROPRIETARY RIGHTS. Employee hereby agrees to execute an Employee ------------------ Confidentiality Agreement with Company in substantially the form attached hereto as Exhibit C. --------- 8. TERMINATION. ----------- 8.1 EVENTS OF TERMINATION. Employee's employment with Company --------------------- shall terminate upon any one of the following: (a) the Company's determination made in good faith that it is terminating Employee for "cause" as defined under Section 8.2 below ("Termination for Cause"); --------------------- (b) three months after the effective date of a written notice sent to Employee stating that Company is terminating his employment, without cause, which notice can be given by Company at any time after the Effective Date at Company's sole discretion, for any reason or for no reason; or (c) the effective date of a written notice sent to Company from Employee stating that Employee is electing to terminate his employment with Company. - 3 - 8.2 "CAUSE" DEFINED. For purposes of this Agreement, "cause" -------------- for Employee's termination will exist at any time after the happening of one or more of the following events: - 4 - (a) a failure or a refusal to comply in any material respect with the reasonable policies, standards or regulations of the Company; (b) a failure or a refusal in any material respect, faithfully or diligently, to perform his duties determined by the Company in accordance with this Agreement or the customary duties of Employee's employment; (c) unprofessional, unethical or fraudulent conduct or conduct that materially discredits the Company or is materially detrimental to the reputation, character or standing of the Company; (d) dishonest conduct or a deliberate attempt to do an injury to the Company; (e) Employee's material breach of a term of this Agreement; (f) an unlawful or criminal act which would reflect badly on the Company in the Company's reasonable judgment; (g) Employee's death. 9. EFFECT OF TERMINATION. --------------------- 9.1 TERMINATION FOR CAUSE OR VOLUNTARY TERMINATION. In the ---------------------------------------------- event of any termination of this Agreement pursuant to Sections 8.1(a) or 8.1(c), the Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 6 through the date of termination. Employee's rights under the Company's benefit plans of general application shall be determined under the provisions of those plans. 9.2 TERMINATION WITHOUT CAUSE. In the event of any termination ------------------------- of this Agreement pursuant to Section 8.1(b), the Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 6 through the last day of the three month period following the date that the notice referred to in Section 8.1(b) is given. 9.3 RESIGNATION AS DIRECTOR. In the event of a termination of ----------------------- this Agreement for any reason, Employee agrees to resign as a director of Company. To insure compliance with this provision, Employee is delivering to Company concurrently herewith, a contingent resignation in the form attached hereto as Exhibit D. ---------- 10. MISCELLANEOUS. ------------- 10.1 ARBITRATION. Employee and Company shall submit to ----------- mandatory binding arbitration in any controversy or claim arising out of, or relating to, this - 5 - Agreement or any breach hereof, provided, however, that Company retains its -------- ------- right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. Such arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association in effect at that time, and judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 10.2 SEVERABILITY. If any provision of this Agreement shall be ------------ found by any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such arbitrator or court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect. 10.3 REMEDIES. Company and Employee acknowledge that the service -------- to be provided by Employee is of a special, unique, unusual, extraordinary and intellectual character, which gives it peculiar value the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Accordingly, Employee hereby consents and agrees that for any breach or violation by Employee of any of the provisions of this Agreement including, without limitation, Section 3), a restraining order and/or injunction may be issued against Employee, in addition to any other rights and remedies Company may have, at law or equity, including without limitation the recovery of money damages. 10.4 NO WAIVER. The failure by either party at any time to --------- require performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced. 10.5 ASSIGNMENT. This Agreement and all rights hereunder are ---------- personal to Employee and may not be transferred or assigned by Employee at any time. Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes -------- ------- Company's obligations hereunder. 10.6 WITHHOLDING. All sums payable to Employee hereunder shall ----------- be reduced by all federal, state, local and other withholding and similar taxes and payments required by applicable law. - 6 - 10.7 ENTIRE AGREEMENT. This Agreement and the Employee ---------------- Confidentiality Agreement constitute the entire and only agreements between the parties relating to employment of Employee with Company, and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings with respect thereto. 10.8 AMENDMENT. This Agreement may be amended, modified, --------- superseded, cancelled, renewed or extended only by an agreement in writing executed by both parties hereto. 10.9 NOTICES. All notices and other communications required or ------- permitted under this Agreement shall be in writing and hand delivered, sent by telecopier, sent by certified first class mail, postage pre-paid, or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent by telecopier, five (5) days after mailing if sent by mail, and one (l) day after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties: If to Company: AmeriQuest Technologies, Inc. ----------------------------- 3 Imperial Promenade, Suite 300 ------------------------------- Santa Ana, CA 92707 -------------------- Telecopier: (714) 445-5350 -------------- Attention: Steve DeWindt ------------- If to Employee: Mark Mulford ------------ 9 Emerald Glen -------------- Laguna Niguel, CA 92677 ------------------------ Telecopier: 10.10 BINDING NATURE. This Agreement shall be binding upon, and -------------- inure to the benefit of, the successors and personal representatives of the respective parties hereto. 10.11 HEADINGS. The headings contained in this Agreement are for -------- reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female referents, and the word "or" is used in the inclusive sense. 10.12 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement. 10.13 GOVERNING LAW. This Agreement and the rights and ------------- - 7 - obligations of the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws. - 8 - IN WITNESS WHEREOF, Company and Employee have executed this Agreement as of the date first above written. "COMPANY" "EMPLOYEE" AMERIQUEST TECHNOLOGIES, INC. MARK MULFORD By: Name: Title: - 9 - EXHIBIT A PLAN BONUS CRITERIA - 10 - EXHIBIT B PERFORMANCE BONUS CRITERIA - 11 - EXHIBIT C CONFIDENTIALITY AGREEMENT - 12 - EXHIBIT D CONTINGENT RESIGNATION September 29, 1995 Board of Directors AmeriQuest Technologies, Inc. 3 Imperial Promenade, Suite 300 Santa Ana, CA 92707 Re: Resignation ----------- Dear Board of Directors: I hereby resign as a member of the Board of Directors of AmeriQuest Technologies, Inc. ("AQS") at such time as that certain Employment Agreement dated as of September 1, 1995, by and between AQS and me is terminated for any reason. Sincerely, Mark Mulford - 13 - EMPLOYEE INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT ----------------------------------------------------------- In consideration of, and as a condition of my employment with AmeriQuest Technologies, Inc., a Delaware corporation (the "COMPANY"), I hereby represent to the Company and the Company and I agree as follows: 1. PURPOSE OF AGREEMENT. I understand that the Company is engaged in a -------------------- continuous program of research, development, production, and marketing in connection with its business and that it is critical for the Company to preserve and protect its "Proprietary Information" (as defined below), its rights in "Inventions" (as defined below), and in all related intellectual property rights. Accordingly, I am entering into this Agreement as a condition of my employment with the Company, whether or not I am expected to create inventions of value for the Company. 2. DISCLOSURE OF INVENTIONS. I will promptly disclose in confidence to the ------------------------ Company all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, and trade secrets ("INVENTIONS") that I make or conceive or first reduce to practice or create, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment, and whether or not such Inventions are patentable, copyrightable or protectible as trade secrets. 3. WORK FOR HIRE; ASSIGNMENT OF INVENTIONS. I acknowledge that any --------------------------------------- copyrightable works prepared by me within the scope of my employment are "works for hire" under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works. I further acknowledge that all Inventions that (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company's business or current or anticipated research and development, will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company. 4. ASSIGNMENT OF OTHER RIGHTS. In addition to the foregoing assignment of -------------------------- Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets, and other intellectual property rights in any Invention; and (b) any and all "Moral Rights" (as defined below) that I may have in or with respect to any Invention. I also hereby forever waive and agree never to assert any and all Moral Rights I may have in or with respect to any Invention, even after termination of my work on behalf of the Company. "MORAL RIGHTS" means any rights to claim authorship of an Invention, to object to or prevent the modification of any Invention, or to withdraw from circulation or control the publication or distribution of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right." 5. ASSISTANCE. I will assist the Company in every proper way to obtain for ---------- the Company and enforce patents, copyrights, mask work rights, trade secret rights, and other legal protections for the Company's Inventions in any and all countries. I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets, and other legal protections. My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time or expenses actually spent by me at the Company's request on such assistance. I appoint the Secretary of the Company as my attorney-in-fact to execute documents on my behalf for this purpose. 6. PROPRIETARY INFORMATION. I understand that my employment by the Company ----------------------- creates a relationship of confidence and trust with respect to any information of a confidential or secret nature that may be disclosed to me by the Company that relates to the business of the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company or any other party with whom the Company agrees to hold information of such party in confidence ("PROPRIETARY INFORMATION"). Such Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, and customer lists. 7. CONFIDENTIALITY. At all times, both during my employment and after its --------------- termination, I will keep and hold all such Proprietary Information in strict confidence and trust, and I will not use or disclose any of such Proprietary Information without the prior written consent of the Company, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me any documents or materials or copies thereof containing any Proprietary Information. 8. NO BREACH OF PRIOR AGREEMENT. I represent that my performance of all the ---------------------------- terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, or similar agreement with any former employer or other party. I represent that I will not bring with me to the Company or use in the performance of my duties for the Company any documents or materials of a former employer that are not generally available to the public or have not been legally transferred to the Company. 9. NOTIFICATION. I hereby authorize the Company to notify my actual or future ------------ employers of the terms of this Agreement and my responsibilities hereunder. 10. NAME & LIKENESS RIGHTS, ETC. I hereby authorize the Company to use, reuse, ---------------------------- and to grant others the right to use and reuse, my name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any media now known or hereafter developed (including but not limited to film, video, and digital or other electronic media), both during and after my employment, for whatever purposes the Company deems necessary. 11. INJUNCTIVE RELIEF. I understand that in the event of a breach or ----------------- threatened breach of this Agreement by me the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement. 12. GOVERNING LAW; SEVERABILITY. This Agreement will be governed and --------------------------- interpreted in accordance with the internal laws of the State of Florida, without regard to or application of choice-of-law rules or principles. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid or unenforceable, then such provision shall not be voided, but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect. 13. NO DUTY TO EMPLOY. I understand that this Agreement does not constitute a ----------------- contract of employment or obligate the Company to employ me for any stated period of time. This Agreement shall be effective as of the first day of my employment by the Company, namely: September 1, 1995. AMERIQUEST TECHNOLOGIES, INC.: EMPLOYEE: By:___________________________________ ___________________________________ Signature Name: Steve DeWindt ___________________________________ Name (Please print) Title: Chief Executive Officer Date:______________________________ [SIGNATURE PAGE TO MULFORD CONFIDENTIALITY AGREEMENT] EX-10.10 9 EMPLOYMENT AGMT. W/ HOLGER HEIMS EXHIBIT 10.10 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement (the "Agreement") is entered into as of October 1, --------- 1995 (the "Effective Date") between AmeriQuest Technologies, Inc., a Delaware -------------- corporation with its principal offices located at 3 Imperial Promenade, Suite 300, Santa Ana, California ("Company"), and Holger Heims, a resident of ------- Stiftsbogen 144, 81375 Munich, Germany ("Employee"). -------- In consideration of the promises and the terms and conditions set forth in this Agreement, the parties agree as follows: 1. POSITION. During the term of this Agreement, Company will employ -------- Employee, and Employee will serve Company as Company's Vice President (Operational Controlling) and as primary liaison to the Executive Board of Computer 2000 AG. Employee will report directly to Steve DeWindt, Company's Chief Executive Officer and Chairman of the Board of Directors, and Mark Mulford, Company's President and Chief Operating Officer. 2. DUTIES. Employee will serve Company in such capacities and with such ------ duties and responsibilities as the Board of Directors, Chief Executive Officer and President of Company may from time to time determine. Employee will comply with and be bound by Company's operating policies, procedures, and practices from time to time in effect during Employee's employment. Employee will perform his duties under this Agreement at the offices of Company, provided, that -------- Employee may be required to do extensive traveling in connection with the performance of his duties hereunder. Employee hereby represents and warrants that he is free to enter into and fully perform this Agreement and the agreements referred to herein without breach of any agreement or contract to which he is a party or by which he is bound. 3. OBLIGATION NOT TO COMPETE. Employee hereby agrees that while he is ------------------------- employed by Company (the "Restricted Period"), Employee shall not engage in or ----------------- provide services to any business outside of the Computer 2000 group of companies that is competitive with or detrimental to any present or contemplated business of the Company known to Employee. Employee also agrees that, during the Restricted Period, he shall not in any manner attempt to induce or assist others to attempt to induce any customer or client of Company to terminate his association with Company, nor do anything directly or indirectly to interfere with the relationship between Company and any such persons or concerns. Each of the following activities shall, without limitation, be deemed to constitute engaging in business within the meaning of this Section 3: to engage in, work with, have an interest or concern in, advise, lend money to, guarantee the debts or obligations of, or permit one's name or any party thereof to be used in connection with, an enterprise or endeavor, either individually, in partnership, or in conjunction with any person or persons, firms, associations, companies, or corporations, whether as a principal, agent, shareholder, employee, officer, director, partner, consultant or in any other manner whatsoever; provided, -------- however, that Employee shall retain the right to invest in or have an interest - ------- in entities traded on any public market or offered by any national brokerage house, provided that said interest does not exceed one percent (1%) of the voting control of said entity. In addition, Employee may make passive investments in privately held entities that are determined by the Board of Directors of Company not to be competitors of Company. 4. TERM OF AGREEMENT. This Agreement will commence on the Effective Date, ----------------- and continue until August 31, 1996 unless terminated earlier pursuant to Section 7 hereof. 5. COMPENSATION AND BENEFITS. ------------------------- 5.1 BASE SALARY. The Company agrees to pay Employee an initial salary ----------- of One Hundred Fifty Thousand Dollars ($150,000) per year. Employee's salary will be payable as earned in accordance with Company's customary payroll practice. 5.2 ADDITIONAL BENEFITS. Employee will be eligible to participate in ------------------- Company's employee benefit plans of general application, including without limitation those plans covering pension and profit sharing, executive bonuses, stock purchases, stock options, and plans covering life and disability insurance in accordance with the rules established for individual participation in any such plan and applicable law. Employee will receive such other benefits, including vacation, holidays and sick leave, as the Company generally provides to its employees holding similar positions as that of Employee. 5.3 EXPENSES. The Company will reimburse Employee for all reasonable -------- and necessary expenses incurred by Employee in connection with the Company's business, provided that such expenses are deductible to the Company, are in accordance with the Company's applicable policy and are properly documented and accounted for in accordance with the requirements of the Internal Revenue Service. 6. TERMINATION. ----------- 6.1 EVENTS OF TERMINATION. Employee's employment with the Company shall --------------------- terminate upon any one of the following: (a) the Company's determination made in good faith that it is terminating Employee for "cause" as defined under Section 6.2 below ("Termination for Cause") as evidenced by a written notice to such --------------------- effect sent to Employee; or (b) three months after the effective date of a written notice sent to Employee stating that the Company is terminating his employment, without cause, which notice can be given by the Company at any time after the Effective Date at the Company's sole discretion, for any reason or for no reason ("Termination Without Cause"); or ------------------------- (c) three months after the effective date of a written notice sent to the Company from Employee stating that Employee is electing to terminate his employment with the Company ("Voluntary Termination"). --------------------- 6.2 "CAUSE" DEFINED. For purposes of this Agreement, "cause" for --------------- 2 Employee's termination will exist at any time after the happening of one or more of the following events: (a) unethical, dishonest, fraudulent or criminal conduct; (b) a deliberate attempt to injure the Company; (c) Employee's death. 7. EFFECT OF TERMINATION. --------------------- 7.1 TERMINATION FOR CAUSE. In the event of any termination of this --------------------- Agreement pursuant to Section 6.1(a), Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 5 through the date of termination. Employee's rights under the Company's benefit plans of general application shall be determined under the provisions of those plans. 7.2 TERMINATION WITHOUT CAUSE OR VOLUNTARY TERMINATION. In the event of -------------------------------------------------- any termination of this Agreement pursuant to Sections 6.1(b) or 6.1(c), Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 5 through the last day of the three month period following the date that the notice referred to in Sections 6.1(b) or 6.1(c) is given. 8. MISCELLANEOUS. ------------- 8.1 ARBITRATION. Employee and the Company shall submit to mandatory ----------- binding arbitration in any controversy or claim arising out of, or relating to, this Agreement or any breach hereof, provided, however, that the Company retains -------- ------- its right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. Such arbitration shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association in effect at that time, and judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof. 8.2 SEVERABILITY. If any provision of this Agreement shall be found by ------------ any arbitrator or court of competent jurisdiction to be invalid or unenforceable, then the parties hereby waive such provision to the extent that it is found to be invalid or unenforceable and to the extent that to do so would not deprive one of the parties of the substantial benefit of its bargain. Such provision shall, to the extent allowable by law and the preceding sentence, be modified by such arbitrator or court so that it becomes enforceable and, as modified, shall be enforced as any other provision hereof, all the other provisions continuing in full force and effect. 8.3 NO WAIVER. The failure by either party at any time to require --------- performance or compliance by the other of any of its obligations or agreements shall in no way affect the right to require such performance or compliance at any time thereafter. The 3 waiver by either party of a breach of any provision hereof shall not be taken or held to be a waiver of any preceding or succeeding breach of such provision or as a waiver of the provision itself. No waiver of any kind shall be effective or binding, unless it is in writing and is signed by the party against whom such waiver is sought to be enforced. 8.4 ASSIGNMENT. This Agreement and all rights hereunder are personal to ---------- Employee and may not be transferred or assigned by Employee at any time. The Company may assign its rights, together with its obligations hereunder, to any parent, subsidiary, affiliate or successor, or in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, provided, however, that any such assignee assumes the Company's -------- ------- obligations hereunder. 8.5 WITHHOLDING. All sums payable to Employee hereunder shall be reduced ----------- by all federal, state, local and other withholding and similar taxes and payments required by applicable law. 8.6 ENTIRE AGREEMENT. This Agreement constitutes the entire and only ---------------- agreement between the parties relating to employment of Employee with the Company, and this Agreement supersedes and cancels any and all previous contracts, arrangements or understandings with respect thereto. 8.7 AMENDMENT. This Agreement may be amended, modified, superseded, --------- cancelled, renewed or extended only by an agreement in writing executed by both parties hereto. 8.8 NOTICES. All notices and other communications required or permitted ------- under this Agreement shall be in writing and hand delivered, sent by telecopier or sent by nationally recognized express courier service. Such notices and other communications shall be effective upon receipt if hand delivered or sent by telecopier, three days after dispatch if sent by express courier, to the following addresses, or such other addresses as any party shall notify the other parties: If to Company: AmeriQuest Technologies, Inc. ----------------------------- 3 Imperial Promenade, Suite 300 ------------------------------- Santa Ana, CA 92707 -------------------- Telecopier: (714) 445-5350 -------------- Attention: Steve DeWindt ------------- If to Employee: Holger Heims ------------ 3 Imperial Promenade, Suite 300 ------------------------------- Santa Ana, CA 92707 -------------------- Telecopier: (714) 445-5350 -------------- 8.9 BINDING NATURE. This Agreement shall be -------------- 4 binding upon, and inure to the benefit of, the successors and personal representatives of the respective parties hereto. 8.10 HEADINGS. The headings contained in this Agreement are for -------- reference purposes only and shall in no way affect the meaning or interpretation of this Agreement. In this Agreement, the singular includes the plural, the plural included the singular, the masculine gender includes both male and female referents, and the word "or" is used in the inclusive sense. 8.11 COUNTERPARTS. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed to be an original but all of which, taken together, constitute one and the same agreement. 8.12 GOVERNING LAW. This Agreement and the rights and ------------- obligations of the parties hereto shall be construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws. [THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, the Company and Employee have executed this Agreement as of the date first above written. "COMPANY" "EMPLOYEE" AMERIQUEST TECHNOLOGIES, INC. HOLGER HEIMS By: By: Name: Title: [SIGNATURE PAGE TO EMPLOYMENT AGREEMENT] 6 EMPLOYEE INVENTION ASSIGNMENT AND CONFIDENTIALITY AGREEMENT ----------------------------------------------------------- In consideration of, and as a condition of my employment with AmeriQuest Technologies, Inc., a Delaware corporation (the "COMPANY"), I hereby represent to the Company and the Company and I agree as follows: 1. PURPOSE OF AGREEMENT. I understand that the Company is engaged in a -------------------- continuous program of research, development, production, and marketing in connection with its business and that it is critical for the Company to preserve and protect its "Proprietary Information" (as defined below), its rights in "Inventions" (as defined below), and in all related intellectual property rights. Accordingly, I am entering into this Agreement as a condition of my employment with the Company, whether or not I am expected to create inventions of value for the Company. 2. DISCLOSURE OF INVENTIONS. I will promptly disclose in confidence to the ------------------------ Company all inventions, improvements, designs, original works of authorship, formulas, processes, compositions of matter, computer software programs, databases, mask works, and trade secrets ("INVENTIONS") that I make or conceive or first reduce to practice or create, either alone or jointly with others, during the period of my employment, whether or not in the course of my employment, and whether or not such Inventions are patentable, copyrightable or protectible as trade secrets. 3. WORK FOR HIRE; ASSIGNMENT OF INVENTIONS. I acknowledge that any --------------------------------------- copyrightable works prepared by me within the scope of my employment are "works for hire" under the Copyright Act and that the Company will be considered the author and owner of such copyrightable works. I further acknowledge that all Inventions that (a) are developed using equipment, supplies, facilities or trade secrets of the Company, (b) result from work performed by me for the Company, or (c) relate to the Company's business or current or anticipated research and development, will be the sole and exclusive property of the Company and are hereby irrevocably assigned by me to the Company. 4. ASSIGNMENT OF OTHER RIGHTS. In addition to the foregoing assignment of -------------------------- Inventions to the Company, I hereby irrevocably transfer and assign to the Company: (a) all worldwide patents, patent applications, copyrights, mask works, trade secrets, and other intellectual property rights in any Invention; and (b) any and all "Moral Rights" (as defined below) that I may have in or with respect to any Invention. I also hereby forever waive and agree never to assert any and all Moral Rights I may have in or with respect to any Invention, even after termination of my work on behalf of the Company. "MORAL RIGHTS" means any rights to claim authorship of an Invention, to object to or prevent the modification of any Invention, or to withdraw from circulation or control the publication or distribution of any Invention, and any similar right, existing under judicial or statutory law of any country in the world, or under any treaty, regardless of whether or not such right is denominated or generally referred to as a "moral right." 5. ASSISTANCE. I will assist the Company in every proper way to obtain for ---------- the Company and enforce patents, copyrights, mask work rights, trade secret rights, and other legal protections for the Company's Inventions in any and all countries. I will execute any documents that the Company may reasonably request for use in obtaining or enforcing such patents, copyrights, mask work rights, trade secrets, and other legal protections. My obligations under this paragraph will continue beyond the termination of my employment with the Company, provided that the Company will compensate me at a reasonable rate after such termination for time or expenses actually spent by me at the Company's request on such assistance. I appoint the Secretary of the Company as my attorney-in-fact to execute documents on my behalf for this purpose. 7 6. PROPRIETARY INFORMATION. I understand that my employment by the Company ----------------------- creates a relationship of confidence and trust with respect to any information of a confidential or secret nature that may be disclosed to me by the Company that relates to the business of the Company or to the business of any parent, subsidiary, affiliate, customer or supplier of the Company or any other party with whom the Company agrees to hold information of such party in confidence ("PROPRIETARY INFORMATION"). Such Proprietary Information includes but is not limited to Inventions, marketing plans, product plans, business strategies, financial information, forecasts, personnel information, and customer lists. 7. CONFIDENTIALITY. At all times, both during my employment and after its --------------- termination, I will keep and hold all such Proprietary Information in strict confidence and trust, and I will not use or disclose any of such Proprietary Information without the prior written consent of the Company, except as may be necessary to perform my duties as an employee of the Company for the benefit of the Company. Upon termination of my employment with the Company, I will promptly deliver to the Company all documents and materials of any nature pertaining to my work with the Company, and I will not take with me any documents or materials or copies thereof containing any Proprietary Information. 8. NO BREACH OF PRIOR AGREEMENT. I represent that my performance of all the ---------------------------- terms of this Agreement and my duties as an employee of the Company will not breach any invention assignment, proprietary information, or similar agreement with any former employer or other party. I represent that I will not bring with me to the Company or use in the performance of my duties for the Company any documents or materials of a former employer that are not generally available to the public or have not been legally transferred to the Company. 9. NOTIFICATION. I hereby authorize the Company to notify my actual or future ------------ employers of the terms of this Agreement and my responsibilities hereunder. 10. NAME & LIKENESS RIGHTS, ETC. I hereby authorize the Company to use, reuse, ---------------------------- and to grant others the right to use and reuse, my name, photograph, likeness (including caricature), voice, and biographical information, and any reproduction or simulation thereof, in any media now known or hereafter developed (including but not limited to film, video, and digital or other electronic media), both during and after my employment, for whatever purposes the Company deems necessary. 11. INJUNCTIVE RELIEF. I understand that in the event of a breach or ----------------- threatened breach of this Agreement by me the Company may suffer irreparable harm and will therefore be entitled to injunctive relief to enforce this Agreement. 12. GOVERNING LAW; SEVERABILITY. This Agreement will be governed and --------------------------- interpreted in accordance with the internal laws of the State of Florida, without regard to or application of choice-of-law rules or principles. In the event that any provision of this Agreement is found by a court, arbitrator, or other tribunal to be illegal, invalid or unenforceable, then such provision shall not be voided, but shall be enforced to the maximum extent permissible under applicable law, and the remainder of this Agreement shall remain in full force and effect. 13. NO DUTY TO EMPLOY. I understand that this Agreement does not constitute a ----------------- contract of 8 employment or obligate the Company to employ me for any stated period of time. This Agreement shall be effective as of the first day of my employment by the Company, namely: October 1, 1995. AMERIQUEST TECHNOLOGIES, INC.: EMPLOYEE: By: ------------------------------ ---------------------------------------- Signature Name: Steve DeWindt ---------------------------- ---------------------------------------- Name (Please print) Title: Chief Executive Officer Date: --------------------------- ------------------------------- 9 EX-23.1 10 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.01 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K into the Company's previously filed Registration Statements, SEC File Nos. 33-57611, 33-85752, 33-76538, and 33- 74034. ARTHUR ANDERSEN L.L.P. /s/ Arthur Andersen L.L.P. Los Angeles, California October 13, 1995 EX-24.01 11 POWERS OF ATTORNEY FOR 8EXECUTIVE OFFICERS EXHIBIT 24.01 APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 12th day of October, 1995. ---- /s/ STEVE DeWINDT _____________________________________ Steve DeWindt APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Steve DeWindt and Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 13th day of October, 1995. /s/ Dr. Harry Krischik --------------------------------- Dr. Harry Krischik APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Steve DeWindt and Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 12th day of October, 1995. /s/ Klaus J. M. Laufen ------------------------------------- Klaus J. M. Laufen APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Steve DeWindt and Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 12th day of October, 1995. /s/ Mark Mulford ------------------------------------- Mark Mulford APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Steve DeWindt and Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 6th day of October, 1995. /s/ Holger Heims ------------------------------------- Holger Heims APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Steve DeWindt and Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 12th day of October, 1995. /s/ Marc L. Werner ------------------------------------- Marc L. Werner APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Steve DeWindt and Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 10th day of October, 1995. /s/ Harold L. Clark ------------------------------------- Harold L. Clark APPOINTMENT OF ATTORNEY-IN-FACT AND CONSENT OF DIRECTOR I hereby authorize, as a director of AmeriQuest Technologies, Inc. (the "Corporation"), the filing with the Securities and Exchange Commission of the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1995 (the "Annual Report"), and any and all amendments thereto as management deems advisable in response to SEC comments or otherwise, inasmuch as the Annual Report is deemed to be incorporated by reference in the Corporation's Registration Statements on Forms S-3 and S-4. I hereby consent to the filing by the Corporation of such Annual Report, and to reference to my name in the Annual Report as a "Director" of the Corporation. I hereby appoint Steve DeWindt and Donald W. Resnick as my attorneys-in-fact with power to either of them to sign any and all amendments or documents required to complete any amendments to the Annual Report filed on behalf of the Corporation. DATED the 6th day of October, 1995. /s/ Stephen G. Holmes ------------------------------------- Stephen G. Holmes EX-27 12 FDS ARTICLE 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS JUL-01-1995 JUL-01-1995 970 0 56,342 0 49,101 107,775 6,649 0 128,008 129,202 0 230 0 0 (25,939) 128,008 416,571 416,571 400,820 400,820 77,248 0 6,082 (67,566) 0 (67,566) 0 0 0 (67,566) (3.76) (3.76)
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