- 23 -
1987, Norcom had sustained years of operating losses. Although
Norcom was restored to profitability after the acquisition,
Norcom’s ability to compensate Quest was limited. At all times
it continued to be highly leveraged with millions of dollars of
debt. The lender, Bank South, viewed Norcom as financially
unstable and required Mr. Arnold to personally guarantee Norcom’s
loan. Although Norcom was profitable in the years after the
ownership change, its financial condition was depleted in 1989 by
the payment of a $1.6 million dividend, which was requested by
Bank South. Norcom’s poor financial condition is further
evidenced by the fact it did not begin to compensate all of its
officers until 1991.
The Bank South loan agreement expressly restricted the
amount of compensation Norcom could pay to its officers and
directors. Moreover, both the Bank South loan and the LaSalle
loan limited Norcom’s ability to make payments to related
parties. As petitioners have alleged, Norcom’s financial
condition and its financing arrangements severely limited its
ability to compensate Quest until Norcom’s financial condition
improved dramatically in 1995.
It is also clear that Norcom’s management team lacked high-
level financial planning expertise, at least after Mr. Lombardi
resigned in early 1992. Instead of replacing Mr. Lombardi with
an officer with a finance background, Norcom looked to Quest for
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011