SERANOVA, INC.,
AS BORROWER
AND
FLEET CAPITAL CORPORATION,
AS LENDER
LOAN AND SECURITY AGREEMENT
Dated: July 14, 2000
$15,000,000.00
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FLEET CAPITAL CORPORATION
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TABLE OF CONTENTS
SECTION 1. CREDIT FACILITY.................................................1
1.1 Revolving Credit Loans......................................1
1.2 Letter of Credit; LC Guaranties.............................1
SECTION 2. INTEREST, FEES AND CHARGES......................................2
2.1 Interest....................................................2
2.2 Computation of Interest and Fees............................2
2.3 Letter of Credit and LC Guaranty Fees.......................2
2.4 Facility Fee................................................3
2.5 Collection Charges..........................................3
2.6 Unused Line Fee.............................................3
2.7 Audit and Appraisal Fees....................................3
2.8 Waiver of Fees..............................................3
2.9 Reimbursement of Expenses...................................3
2.10 Bank Charges................................................4
SECTION 3. LOAN ADMINISTRATION.............................................4
3.1 Manner of Borrowing Revolving Credit Loans..................4
3.2 Payments....................................................4
3.3 Proceeds of Sale, Loss, Destruction or Condemnation
of Collateral...............................................5
3.4 Application of Payments and Collections.....................5
3.5 All Loans to Constitute One Obligation......................5
3.6 Loan Account................................................5
3.7 Statements of Account.......................................6
SECTION 4. TERM AND TERMINATION............................................6
4.1 Term of Agreement...........................................6
4.2 Termination.................................................6
SECTION 5. SECURITY INTERESTS..............................................7
5.1 Security Interest in Collateral.............................7
5.2 Lien Perfection; Further Assurances.........................7
5.3 Pledge of Stocks............................................8
SECTION 6. COLLATERAL ADMINISTRATION.......................................8
6.1 General.....................................................8
6.2 Administration of Accounts..................................8
6.3 Administration of Inventory................................10
6.4 Administration of Equipment................................10
6.5 Payment of Charges.........................................10
SECTION 7. REPRESENTATIONS AND WARRANTIES.................................10
7.1 General Representations and Warranties.....................10
7.2 Continuous Nature of Representations and Warranties........15
7.3 Survival of Representations and Warranties.................15
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS............................15
8.1 Affirmative Covenants......................................15
8.2 Negative Covenants.........................................17
8.3 Specific Financial Covenants...............................20
(i)
SECTION 9. CONDITIONS PRECEDENT...........................................20
9.1 Documentation..............................................21
9.2 No Default.................................................21
9.3 Other Loan Documents.......................................21
9.4 Availability...............................................21
9.5 No Litigation..............................................21
9.6 Spin-off...................................................21
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT..............21
10.1 Events of Default...........................................21
10.2 Acceleration of the Obligations.............................23
10.3 Other Remedies..............................................23
10.4 Remedies Cumulative; No Waiver..............................24
SECTION 11. MISCELLANEOUS..................................................24
11.1 Power of Attorney...........................................24
11.2 Indemnity...................................................25
11.3 Modification of Agreement; Sale of Interest.................25
11.4 Severability................................................25
11.5 Successors and Assigns......................................25
11.6 Cumulative Effect; Conflict of Terms........................25
11.7 Execution in Counterparts...................................26
11.8 Notice......................................................26
11.9 Lender's Consent............................................26
11.10 Credit Inquiries............................................27
11.11 Time of Essence.............................................27
11.12 Entire Agreement............................................27
11.13 Interpretation..............................................27
11.14 Governing Law; Consent to Forum.............................27
11.15 Waiver by Borrower..........................................28
(ii)
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 14th day of July, 2000, by
and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island corporation
with an office at 0000 Xxxxx 00 Xxxx, Xxxxxxxxxxx, Xxx Xxxxxx 00000; and
SERANOVA, INC. ("Borrower"), a New Jersey corporation with its chief executive
office and principal place of business at 000 Xxxxxxxx Xxxxxx, Xxxxxx, Xxx
Xxxxxx 00000. Capitalized terms used in this Agreement have the meanings
assigned to them in Appendix A, General Definitions. Accounting terms not
otherwise specifically defined herein shall be construed in accordance with GAAP
consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to Fifteen
Million ($15,000,000.00) Dollars available upon Borrower's request therefor, as
follows:
1.1 Revolving Credit Loans.
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1.1.1 Loans and Reserves. Lender agrees, for so long as no Default
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or Event of Default exists, to make Revolving Credit Loans to Borrower from time
to time, as requested by Borrower in the manner set forth in subsection 3.1.1
hereof, up to a maximum principal amount at any time outstanding equal to the
Borrowing Base at such time minus reserves, if any. Lender shall have the right
to establish reserves in such amounts, and with respect to such matters, as
Lender shall deem necessary or appropriate, against the amount of Revolving
Credit Loans which Borrower may otherwise request under this subsection 1.1.1,
including, without limitation, with respect to (i) price adjustments, damages,
unearned discounts, returned products or other matters for which credit
memoranda are issued in the ordinary course of Borrower's business; (ii) other
sums chargeable against Borrower's Loan Account as Revolving Credit Loans under
any section of this Agreement; (iii) amounts owing by Borrower to any Person to
the extent secured by a Lien on, or trust over, any Property of Borrower; and
(iv) such other matters, events, conditions or contingencies as to which Lender,
in its sole credit judgment, determines reserves should be established from time
to time hereunder. In the event of any adjustment under this subsection 1.1.1,
Lender shall give Borrower five (5) Business Days' prior written notice.
1.1.2 Use of Proceeds. The Revolving Credit Loans shall be used
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solely for Borrower's general operating capital needs in a manner consistent
with the provisions of this Agreement and all applicable laws.
1.2 Letter of Credit; LC Guaranties. Lender agrees, for so long as no
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Default or Event of Default exists and if requested by Borrower, to (i) issue,
or cause to be issued by its Affiliates, Letters of Credit for the account of
Borrower or (ii) execute LC Guaranties by which Lender or its Affiliate shall
guaranty the payment or performance by Borrower of its reimbursement obligations
with respect to Letters of Credit, provided that the LC Amount at any time shall
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not exceed $3,000,000.00. No Letter of Credit or LC Guarantee may have an
expiration date that is after the last day of the Original Term or the then
applicable Renewal Term. Any amounts paid by Lender under any LC Guaranty or in
connection with any Letter of Credit shall be treated as Revolving Credit Loans,
shall be secured by all of the Collateral and shall bear interest and be payable
at the same rate and in the same manner as Revolving Credit Loans.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
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2.1.1 Rates of Interest. Interest shall accrue on the principal
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amount of the Revolving Credit Loans outstanding at the end of each day at a
fluctuating rate per annum equal to one-half of one (1/2%) percent plus the Base
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Rate. The rate of interest shall increase or decrease by an amount equal to any
increase or decrease in the Base Rate, effective without notice to the Borrower,
as of the opening of business on the day that any such change in the Base Rate
occurs.
2.1.2 Default Rate of Interest. Upon and after the occurrence of an
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Event of Default, and during the continuation thereof, the principal amount of
all Loans shall bear interest at a rate per annum equal to four (4%) percent
above the Base Rate (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the aggregate
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of all amounts deemed interest hereunder and charged or collected pursuant to
the terms of this Agreement exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. If any provisions of this Agreement are in contravention of
any such law, such provisions shall be deemed amended to conform thereto.
2.2 Computation of Interest and Fees. Interest and unused line fees and
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collection charges hereunder shall be calculated daily and shall be computed on
the actual number of days elapsed over a year of 360 days. For the purpose of
computing interest hereunder, all items of payment received by Lender shall be
deemed applied by Lender on account of the Obligations (subject to final payment
of such items) on the second Business Day after receipt by Lender of such items
in Lender's account located in Bridgewater, New Jersey.
2.3 Letter of Credit and LC Guaranty Fees. Borrower shall pay to Lender:
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(i) for standby Letters of Credit and LC Guaranties
of standby Letters of Credit, 2% per annum of the aggregate face amount of such
Letters of Credit and LC Guaranties outstanding from time to time during the
term of this Agreement, plus all normal and customary charges associated with
the issuance thereof, which fees and charges shall be deemed fully earned upon
issuance of each such Letter of Credit or LC Guaranty, shall be due and payable
on the first Business Day of each month and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason; and
(ii) for documentary Letters of Credit and LC Guaranties of
documentary Letters of Credit, a fee equal to 1% per annum of the face amount of
each such Letter of Credit or LC Guaranty, payable upon the issuance of such
Letter of Credit or execution of such LC Guaranty and an additional fee equal to
1% per annum of the face amount of such Letter of Credit or LC Guaranty payable
upon each renewal thereof and each extension thereof plus the normal and
customary charges associated with the issuance and administration of each such
Letter of Credit or LC Guaranty (which fees and charges shall be fully earned
upon issuance, renewal or extension (as the case may be) of each such Letter of
Credit or LC Guaranty, shall be due and payable on the first Business Day of
each month, and shall not be subject to rebate or proration upon the termination
of this Agreement for any reason).
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2.4 Facility Fee. Subject to subsection 2.6, Borrower shall pay to
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Lender a facility fee of $75,000, which shall be fully earned and nonrefundable
on the Closing Date and paid in twelve (12) equal installments.
2.5 Collection Charges. If items of payment are received by Lender at a
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time when there are no Revolving Credit Loans outstanding, such items of payment
shall be subject to a collection charge equal to two (2) days' interest on the
amount thereof at the rate then applicable to the Revolving Credit Loan, which
collection charges shall be payable on the first Business Day of each month.
2.6 Unused Line Fee. Subject to subsection 2.6, Borrower shall pay to
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Lender a fee equal to three-eighths of one percent (3/8%) per annum of the
average monthly amount by which the Total Credit Facility exceeds the sum of the
outstanding principal balance of the Revolving Credit Loans. The unused line fee
shall be payable monthly in arrears on the first day of each calendar month
hereafter.
2.7 Audit and Appraisal Fees. Borrower shall pay to Lender audit and
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appraisal fees of $750.00 per man per day in connection with audits and
appraisals of Borrower's books and records and such other matters as Lender
shall deem appropriate, plus all reasonable out-of-pocket expenses incurred by
Lender in connection with such audits and appraisals; provided, that Borrower
shall not be obligated to pay any such audit fees in excess of $8,000 (this
limitation shall not include any pre-closing field examinations, or reasonable
out-of-pocket expenses) during any fiscal year in which no Default or Event of
Default shall have occurred. Audit fees shall be payable on the first day of the
month following the date of issuance by Lender of a request for payment thereof
to Borrower.
2.8 Waiver of Fees. In the event the Borrower has a public offering,
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during such time that the Borrower maintains deposits of at least Ten Million
($10,000,000.00) Dollars with Fleet Bank, N.A., and has fully paid to the Lender
all of Borrower's Obligations, the Borrower shall not be required to pay any
fees due under subsections 2.5 and 2.6 of this Agreement.
2.9 Reimbursement of Expenses. If, at any time or times regardless of
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whether or not an Event of Default then exists, Lender or any Participating
Lender incurs legal or accounting expenses or any other costs or out-of-pocket
expenses in connection with (i) the negotiation and preparation of this
Agreement or any of the other Loan Documents, any amendment of or modification
of this Agreement or any of the other Loan Documents, or any sale or attempted
sale of any interest herein to a Participating Lender; (ii) the administration
of this Agreement or any of the other Loan Documents and the transactions
contemplated hereby and thereby; (iii) any litigation, contest, dispute, suit,
proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (iv) any attempt to enforce any
rights of Lender or any Participating Lender against Borrower or any other
Person which may be obligated to Lender by virtue of this Agreement or any of
the other Loan Documents, including, without limitation, the Account Debtors; or
(v) any attempt to inspect, verify, protect, preserve, restore, collect, sell,
liquidate or otherwise dispose of or realize upon the Collateral; then all such
legal and accounting expenses, other costs and out of pocket expenses of Lender
shall be charged to Borrower. All amounts chargeable to Borrower under this
Section 2.9 shall be Obligations secured by all of the Collateral, shall be
payable on demand to Lender or to such Participating Lender, as the case may be,
and shall bear interest from the date such demand is made until paid in full at
the rate applicable to Revolving Credit Loans from time to time. Borrower shall
also reimburse Lender for expenses incurred by Lender in its administration of
the Collateral to the extent and in the manner provided in Section 6 hereof.
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2.10 Bank Charges. Borrower shall pay to Lender, on demand, any and all
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fees, costs or expenses which Lender or any Participating Lender pays to a bank
or other similar institution (including, without limitation, any fees paid by
Lender to any Participating Lender) arising out of or in connection with (i) the
forwarding to Borrower or any other Person on behalf of Borrower, by Lender or
any Participating Lender, of proceeds of loans made by Lender to Borrower
pursuant to this Agreement and (ii) the depositing for collection, by Lender or
any Participating Lender, of any check or item of payment received or delivered
to Lender or any Participating Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION.
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the
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credit facility established pursuant to Section 1 hereof shall be as follows:
3.1.1 Loan Requests. A request for a Revolving Credit Loan shall be
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made, or shall be deemed to be made, in the following manner: (i) Borrower may
give Lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date, no
later than 11:00 a.m. New York City time on the proposed borrowing date together
with the Borrowing Base Certificate, provided, however, that no such request may
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be made at a time when there exists a Default or an Event of Default; and (ii)
the becoming due of any amount required to be paid under this Agreement, whether
as interest or for any other Obligation, shall be deemed irrevocably to be a
request for a Revolving Credit Loan on the due date in the amount required to
pay such interest or other Obligation. As an accommodation to Borrower, Lender
may permit telephonic requests for loans and electronic transmittal of
instructions, authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to accept or act upon
telephonic or electronic communications from Borrower, Lender shall have no
liability to Borrower for any loss or damage suffered by Borrower as a result of
Lender's honoring of any requests, execution of any instructions, authorizations
or agreements or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by Borrower and Lender
shall have no duty to verify the origin of any such communication or the
authority of the person sending it.
3.1.2 Disbursement. Borrower hereby irrevocably authorizes Lender to
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disburse the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of
each Revolving Credit Loan requested under subsection 3.1.1(i) shall be
disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written direction from Borrower; and (ii) the proceeds of each Revolving
Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by
way of direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably authorizes Lender,
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in Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all costs, fees and expenses at any time owed by Borrower to Lender
hereunder.
3.2 Payments. Except where evidenced by notes or other instruments
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issued or made by Borrower to Lender specifically containing payment provisions
which are in conflict with this
-4-
Section 3.2 (in which event the conflicting provisions of said notes or other
instruments shall govern and control), the Obligation shall be payable as
follows:
3.2.1 Principal. Principal payable on account of Revolving Credit
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Loans shall be payable by Borrower to Lender immediately upon the earliest of
(i) the receipt by Lender or Borrower of any proceeds of any of the Collateral,
to the extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of the
Obligations, or (iii) termination of this Agreement pursuant to Section 4
hereof; provided, however, that if an Overadvance shall exist at any time,
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Borrower shall, on demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on the Revolving Credit Loans shall
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be due on the earliest of (i) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month, (ii) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of the Obligations or
(iii) termination of this Agreement pursuant to Section 4 hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges payable
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pursuant to this Agreement shall be payable by Borrower as and when provided in
Section 2 hereof, to Lender or to any other Person designated by Lender in
writing.
3.2.4 Other Obligations. The balance of the Obligations requiring the
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payment of money, if any, shall be payable by Borrower to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is later.
3.3 Proceeds of Sale, Loss, Destruction or Condemnation of Collateral.
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Except as provided in subsection 6.4.2 hereof, if Borrower sells any of the
Equipment or if any of the Collateral is lost or destroyed or taken by
condemnation, Borrower shall pay to Lender, unless otherwise agreed by Lender,
as and when received by Borrower a sum equal to the proceeds (including
insurance payments) received by Borrower from such sale, loss, destruction or
condemnation.
3.4 Application of Payments and Collections. All items of payment
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received by Lender by 12:00 noon, New York City time, on any Business Day shall
be deemed received on that Business Day. All items of payment received after
12:00 noon, New York City time, on any Business Day shall be deemed received on
the following Business Day. Borrower irrevocably waives the right to direct the
application of any and all payments and collections at any time or times
hereafter received by Lender from or on behalf of Borrower, and Borrower does
hereby irrevocably agree that Lender shall have the continuing exclusive right
to apply and reapply any and all such payments and collections received at any
time or times hereafter by Lender or its agent against the Obligations, in such
manner as Lender may deem advisable, notwithstanding any entry by Lender upon
any of its books and records. If as the result of collections of Accounts as
authorized by subsection 6.2.6 hereof a credit balance exists in the Loan
Account, such credit balance shall not accrue interest in favor of Borrower, but
shall be available to Borrower at any time or times for so long as no Default or
Event of Default exists.
3.5 All Loans to Constitute One Obligation. The Loans shall constitute
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one general Obligation of Borrower, and shall be secured by Lender's Lien upon
all of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
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Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
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3.7 Statements of Account. Lender will account to Borrower monthly with
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a statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to the contrary
within 30 days of the date each accounting is mailed to Borrower. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making Loans
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to Borrower upon or after the occurrence of any Default or Event of Default,
this Agreement shall be in effect for a period of three (3) years from the date
hereof, through and including July 14, 2003 (the "Original Term"), and this
Agreement shall automatically renew itself for one-year periods thereafter (the
"Renewal Terms"), unless terminated as provided in Section 4.2 hereof.
4.2 Termination.
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4.2.1 Termination by Lender. Upon at least sixty (60) days prior
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written notice to Borrower, Lender may terminate this Agreement as of the last
day of the Original Term or the then current Renewal Term and Lender may
terminate this Agreement without notice upon or after the occurrence of an Event
of Default.
4.2.2 Termination by Borrower. Upon at least sixty (60) days prior
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written notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower has
paid all of the Obligations in immediately available funds. Any notice of
termination given by Borrower shall be irrevocable unless Lender otherwise
agrees in writing, and Lender shall have no obligation to make any Loans on or
after the termination date stated in such notice. Borrower may elect to
terminate this Agreement in its entirety only. No section of this Agreement or
type of Loan available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of termination of
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this Agreement for any reason, Borrower shall pay to Lender (in addition to the
then outstanding principal, accrued interest and other charges owing under the
terms of this Agreement and any of the other Loan Documents) as liquidated
damages for the loss of the bargain and not as a penalty, an amount equal to
2.0% of the Total Credit Facility if termination occurs during the first
twelve-month period of the Original Term (July 14, 2000 through July 14, 2001);
1% of the Total Credit Facility if termination occurs during the second 12-month
period of the Original Term (July 14, 2001 through July 14, 2002). If
termination occurs on or after July 14, 2002 or the Revolving Credit Loan is
transferred, assigned, refinanced or purchased in any manner by an affiliate of
the Lender, no termination charge shall be payable.
4.2.4 Effect of Termination. All of the Obligations shall be
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immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents shall
survive any such termination and Lender shall retain its Liens in the Collateral
and all of its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable termination charge, if
any. Notwithstanding the payment in full of the Obligations, Lender shall not be
required to terminate its security interests in the Collateral unless, with
respect to any loss or damage Lender may incur as a result of dishonored checks
or other items of payment received by Lender from Borrower or any Account Debtor
and applied to the Obligations, Lender shall, at its option, (i) have received a
written agreement, executed by Borrower and by any Person whose loans or other
advances to Borrower are used in
-6-
whole or in part to satisfy the Obligations, indemnifying Lender from any such
loss or damage; or (ii) have retained such monetary reserves and Liens on the
Collateral for such period of time as Lender, in its reasonable discretion, may
deem necessary to protect Lender from any such loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
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performance to Lender of the Obligations, Borrower (and by way of clarification,
not any Subsidiary) hereby grants to Lender a continuing Lien upon all of
Borrower's assets, including all of the following Property and interests in
Property of Borrower, whether now owned or existing or hereafter created,
acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) Equipment;
(iv) General Intangibles;
(v) Deposit Accounts;
(vi) Investment Property;
(vii) Leasehold Improvements;
(viii) All other tangible and intangible assets of Borrower
currently owned and hereinafter acquired;
(ix) All monies and other Property of any kind now or at any
time or times hereafter in the possession or under the control of Lender or a
bailee or Affiliate of Lender;
(x) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through (ix) above,
including, without limitation, proceeds of and unearned premiums with respect to
insurance policies insuring any of the Collateral; and
(xi) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (i) through (x) above.
5.2 Lien Perfection; Further Assurances. Borrower shall execute such
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UCC-1 financing statements as are required by the Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action as may be required
to perfect or to continue the perfection of Lender's Lien upon the Collateral.
Unless prohibited by applicable law, Borrower hereby authorizes Lender to
execute and file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrower shall also promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.
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5.3 Pledge of Stocks. As further security for the Obligations of
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Borrower hereunder, the Borrower shall pledge and assign to the Lender, a
continuing security interest in sixty-six percent (66%) of the shares of stocks
of all first-tier subsidiaries of Borrower (the "Pledged Shares") set forth in
Exhibit Q annexed hereto and any first-tier subsidiaries that may come into
existence after the Closing Date.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
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6.1.1 Location of Collateral. All Collateral, other than Inventory
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in transit and motor vehicles and laptop computers owned by Borrower and
utilized by its employees, will at all times be kept by Borrower and its
Subsidiaries at one or more of the business locations set forth in Exhibit B
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hereto and shall not, without the prior written approval of Lender, be moved
therefrom except, prior to an Event of Default and Lender's acceleration of the
maturity of the Obligations in consequence thereof, for (i) sales of Inventory
in the ordinary course of business; and (ii) removals in connection with
dispositions of Equipment that are authorized by subsection 6.4.2 hereof.
6.1.2 Insurance of Collateral. Borrower shall maintain and pay for
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insurance upon all Collateral wherever located and with respect to Borrower's
business, covering casualty, hazard, public liability and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Lender. Borrower shall deliver the originals of such policies to Lender with
satisfactory lender's loss payable endorsements, naming Lender as sole loss
payee, assignee or additional insured, as appropriate (not including however,
errors and omissions or other policies covering Borrower's employees or agent's
negligence). Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Lender in the event of cancellation of the policy for any reason whatsoever and
a clause specifying that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower or the owner of the Property or by
the occupation of the premises for purposes more hazardous than are permitted by
said policy. If Borrower fails to provide and pay for such insurance, Lender
may, at its option, but shall not be required to, procure the same and charge
Borrower therefor. Borrower agrees to deliver to Lender, promptly as rendered,
true copies of all reports made in any reporting forms to insurance companies.
6.1.3 Protection of Collateral. All expenses of protecting, storing,
-------------------------
warehousing, insuring, handling, maintaining and shipping the Collateral, any
and all excise, property, sales, and use taxes imposed by any state, federal, or
local authority on any of the Collateral or in respect of the sale thereof shall
be borne and paid by Borrower. If Borrower fails to promptly pay any portion
thereof when due, Lender may, at its option, but shall not be required to, pay
the same and charge Borrower therefor. Lender shall not be liable or responsible
in any way for the safekeeping of any of the Collateral or for any loss or
damage thereto (except for reasonable care in the custody thereof while any
Collateral is in Lender's actual possession) or for any diminution in the value
thereof, or for any act or default of any warehouseman, carrier, forwarding
agency, or other person whomsoever, but the same shall be at Borrower's sole
risk.
6.2 Administration of Accounts.
--------------------------
6.2.1 Records, Schedules and Assignments of Accounts. Borrower shall
----------------------------------------------
keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Lender on such periodic basis as Lender
shall request a sales and collections report for the preceding period, in form
satisfactory to Lender. On or before the fifteenth day of each month from and
after the date hereof, Borrower shall deliver to Lender, in form acceptable to
Lender, a detailed aged trial balance of all Accounts existing as of the last
day of the preceding
-8-
month, specifying the names, addresses, face value, dates of invoices and due
dates for each Account Debtor obligated on an Account so listed ("Schedule of
Accounts"), and, upon Lender's request therefor, copies of proof of delivery and
the original copy of all documents, including, without limitation, repayment
histories and present status reports relating to the Accounts so scheduled and
such other matters and information relating to the status of then existing
Accounts as Lender shall reasonably request including without limitation, weekly
unbilled Accounts reports. In addition, Accounts in an aggregate face amount in
excess of $50,000.00 become ineligible because they fall within one of the
specified categories of ineligibility set forth in the definition of Eligible
Accounts or otherwise established by Lender, Borrower shall notify Lender of
such occurrence on the first Business Day following such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence. If
requested by Lender, Borrower shall execute and deliver to Lender formal written
assignments of all of its Accounts weekly or daily, which shall include all
Accounts that have been created since the date of the last assignment, together
with copies of invoices or invoice registers related thereto.
6.2.2 Discounts, Allowances, Disputes. If Borrower grants any
----------------------------------
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, Borrower shall report such discounts, allowances or
credits, as the case may be, to Lender as part of the next required Schedule of
Accounts. If any amounts due and owing in excess of $50,000.00 are in dispute
between Borrower and any Account Debtor, Borrower shall provide Lender with
written notice thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all claims related
thereto and the amount in controversy. Upon and after the occurrence of an Event
of Default, Lender shall have the right to settle or adjust all disputes and
claims directly with the Account Debtor and to compromise the amount or extend
the time for payment of the Accounts upon such terms and conditions as Lender
may deem advisable, and to charge the deficiencies, costs and expenses thereof,
including attorney's fees, to Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax payable to
-----
any governmental taxing authority, Lender is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge Borrower therefor, provided, however that Lender shall
not be liable for any taxes to any governmental taxing authority that may be due
by Borrower.
6.2.4 Account Verification. Whether or not a Default or an Event of
---------------------
Default has occurred, any of Lender's officers, employees or agents shall have
the right, at any time or times hereafter, in the name of Lender, any designee
of Lender or Borrower, to verify the validity, amount or any other matter
relating to any Accounts by mail, telephone, telegraph or otherwise. Borrower
shall cooperate fully with Lender in an effort to facilitate and promptly
conclude any such verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall maintain a
---------------------------------
Dominion Account pursuant to a lockbox arrangement acceptable to Lender with
such banks as may be selected by Borrower and be acceptable to Lender. Borrower
shall issue to any such banks an irrevocable letter of instruction directing
such banks to deposit all payments or other remittances received in the lockbox
to the Dominion Account for application on account of the Obligations. All funds
deposited in the Dominion Account shall immediately become the property of
Lender and Borrower shall obtain the agreement by such banks in favor of Lender
to waive any offset rights against the funds so deposited. Lender assumes no
responsibility for such lockbox arrangement, including, without limitation, any
claim of accord and satisfaction or release with respect to deposits accepted by
any bank thereunder.
6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite
-------------------------------------------------
collection, Borrower shall endeavor in the first instance to make collection of
its Accounts for
-9-
Lender. All remittances received by Borrower on account of Accounts, together
with the proceeds of any other Collateral, shall be held as Lender's property by
Borrower as trustee of an express trust for Lender's benefit and Borrower shall
immediately deposit same in kind in the Dominion Account. Lender retains the
right at all times after the occurrence of a Default or an Event of Default to
notify Account Debtors that Accounts have been assigned to Lender and to collect
Accounts directly in its own name and to charge the collection costs and
expenses, including attorneys' fees to Borrower.
6.3 Administration of Inventory.
---------------------------
6.3.1 Records and Reports of Inventory. Borrower shall keep accurate
--------------------------------
and complete records of its Inventory. 6.3.2 Returns of Inventory. If at any
time or times hereafter any Account Debtor returns any Inventory to Borrower the
shipment of which generated an Account on which such Account Debtor is obligated
in excess of $50,000.00, Borrower shall immediately notify Lender of the same,
specifying the reason for such return and the location, condition and intended
disposition of the returned Inventory.
6.4 Administration of Equipment.
---------------------------
6.4.1 Records and Schedules of Equipment. Borrower shall keep
--------------------------------------
accurate records itemizing and describing the kind, type, quality, quantity and
value of its Equipment and all dispositions made in accordance with subsection
6.4.2 hereof, and if requested by Lender, shall furnish Lender with a current
schedule containing the foregoing information. Promptly on request therefor by
Lender, Borrower shall deliver to Lender any and all evidence of ownership, if
any, of any of the Equipment.
6.4.2 Dispositions of Equipment. Borrower will not sell, lease or
--------------------------
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Lender; provided, however, that the
-------- -------
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of Equipment which, in the aggregate during
any consecutive twelve-month period, has a fair market value or book value,
whichever is less, of $150,000.00 or less, provided that all proceeds thereof
are remitted to Lender for application to the Loans, or (ii) replacements of
Equipment that is substantially worn, damaged or obsolete with Equipment of like
kind, function and value, provided that the replacement Equipment shall be
acquired prior to or concurrently with any disposition of the Equipment that is
to be replaced, the replacement Equipment shall be free and clear of Liens other
than Permitted Liens that are not Purchase Money Liens, and Borrower shall have
given Lender at least 5 days prior written notice of such disposition.
6.5 Payment of Charges. All amounts chargeable to Borrower under Section
------------------
6 hereof shall be Obligations secured by all of the Collateral, shall be payable
on demand and shall bear interest from the date such advance was made until paid
in full at the rate applicable to Revolving Credit Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter
--------------------------------------
into this Agreement and to make advances hereunder, Borrower warrants,
represents and covenants to Lender that:
7.1.1 Organization and Qualification. Each of Borrower and its
--------------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws
-10-
of the jurisdiction of its incorporation. Each of Borrower and its Subsidiaries
is duly qualified and is authorized to do business and is in good standing as a
foreign corporation in each state or jurisdiction listed on Exhibit C hereto and
---------
in all other states and jurisdictions where the character of its Properties or
the nature of its activities make such qualification necessary and in which the
failure of Borrower or any of its Subsidiaries to be so qualified would have a
material adverse effect on the financial condition, business or Properties of
Borrower or any of its Subsidiaries.
7.1.2 Corporate Power and Authority. Each of Borrower and its
--------------------------------
Subsidiaries is duly authorized and empowered to enter into, execute, deliver
and perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of the
other Loan Documents have been duly authorized by all necessary corporate action
and do not and will not (i) require any further consent or approval of the
shareholders of Borrower or any of its Subsidiaries; (ii) contravene Borrower's
or any of its Subsidiaries' charter, articles or certificate of incorporation or
by-laws; (iii) violate, or cause Borrower or any of its Subsidiaries to be in
default under, any provision of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award in effect having
applicability to Borrower or any of its Subsidiaries; (iv) result in a breach of
or constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower or any of its
Subsidiaries is a party or by which it or its Properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any Lien
(other than Permitted Liens) upon or with respect to any of the Properties now
owned or hereafter acquired by Borrower or any of its Subsidiaries.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each of
------------------------------
the other Loan Documents when delivered under this Agreement will be, a legal,
valid and binding obligation of each of Borrower and its Subsidiaries
enforceable against it in accordance with its respective terms.
7.1.4 Capital Structure. Exhibit D hereto states (i) the correct name
-----------------
of each of the Subsidiaries of Borrower, its jurisdiction of incorporation and
the percentage of its Voting Stock owned by Borrower, (ii) the name of each of
Borrower's corporate or joint venture Affiliates and the nature of the
affiliation, (iii) the number, nature and holders of 5% of all outstanding
Securities of Borrower and each Subsidiary of Borrower, and (iv) the number of
authorized, issued and treasury shares of Borrower and each Subsidiary of
Borrower. Borrower has good title to all of the shares it purports to own of the
stock of each of its Subsidiaries, free and clear in each case of any Lien other
than Permitted Liens. All such shares have been duly issued and are fully paid
and non-assessable.
7.1.5 Corporate Names. Neither Borrower nor any of its
-----------------
Subsidiaries has been known as or used any corporate, fictitious or trade names
except those listed on Exhibit E hereto. Except as set forth on Exhibit E,
--------- ----------
neither Borrower nor any of its Subsidiaries has been the surviving corporation
of a merger or consolidation or acquired all or substantially all of the assets
of any Person.
7.1.6 Business Locations; Agent for Process. Each of Borrower's and
-------------------------------------
its Subsidiaries' chief executive office and other places of business are as
listed on Exhibit B hereto. During the preceding one-year period, neither
---------
Borrower nor any of its Subsidiaries has had an office, place of business or
agent for service of process other than as listed on Exhibit B. Except as shown
---------
on Exhibit B, no inventory is stored with a bailee, warehouseman or similar
---------
party, nor is any Inventory consigned to any Person.
7.1.7 Title to Properties; Priority of Liens. Except as set forth on
---------------------------------------
Exhibit O, each of Borrower and its Subsidiaries has good, indefeasible and
marketable title to and fee simple ownership of, or valid and subsisting
leasehold interests in, all of its real Property, and
-11-
good title to all of the Collateral and all of its other Property, in each case,
free and clear of all Liens except Permitted Liens. Borrower has paid or
discharged all lawful claims which, if unpaid, might become a Lien against any
of Borrower's Properties that is not a Permitted Lien. The Liens granted to
Lender under Section 5 hereof are first priority Liens, subject only to
Permitted Liens.
7.1.8 Accounts. Lender may rely, in determining which Accounts are
--------
Eligible Accounts, on all statements and representations made by Borrower with
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Account:
(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and
delivery of goods or rendition of services by Borrower in the ordinary course of
its business and in accordance with the terms and conditions of all purchase
orders, contracts or other documents relating thereto and forming a part of the
contract between Borrower and the Account Debtor;
(iii) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy of which
has been furnished or is available to Lender;
(iv) Such Account, and Lender's security interest therein, is
not, and will not (by voluntary act or omission of Borrower) be in the future,
subject to any offset, Lien, deduction, defense, dispute, counterclaim or any
other adverse condition except for disputes resulting in returned goods where
the amount in controversy is deemed by Lender to be immaterial, and each such
Account is absolutely owing to Borrower and is not contingent in any respect or
for any reason;
(v) Borrower has made no agreement with any Account Debtor
thereunder for any extension, compromise, settlement or modification of any such
Account or any deduction therefrom, except discounts or allowances which are
granted by Borrower in the ordinary course of its business for prompt payment
and which are reflected in the calculation of the net amount of each respective
invoice related thereto and are reflected in the Schedules of Accounts submitted
to Lender pursuant to subsection 6.2.1 hereof;
(vi) There are no facts, events or occurrences which in any
way impair the validity or enforceability of any Accounts or tend to reduce the
amount payable thereunder from the face amount of the invoice and statements
delivered to Lender with respect thereto;
(vii) To the best of Borrower's knowledge, the Account Debtor
thereunder (1) had the capacity to contract at the time any contract or other
document giving rise to the Account was executed and (2) such Account Debtor is
Solvent; and
(viii) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Account
Debtor thereunder which might result in any material adverse change in such
Account Debtor's financial condition or the collectibility of such Account.
7.1.9 Equipment. The Equipment is in good operating condition and
---------
repair, and all necessary replacements of and repairs thereto shall be made so
that the value and
-12-
operating efficiency of the Equipment shall be maintained and preserved,
reasonable wear and tear excepted.
7.1.10 Financial Statements; Fiscal Year. The balance sheet of
------------------------------------
Borrower as of December 31, 1999, and the related statements of income, changes
in stockholder's equity, and changes in financial position for the periods ended
on such dates, have been prepared in accordance with GAAP, and present fairly
the financial position of Borrower at such dates and the results of Borrower's
operations for such periods. Since December 31, 1999, there has been no material
change in the condition, financial or otherwise, of Borrower, and no change in
the aggregate value of Equipment and real Property owned by Borrower, except
changes in the ordinary course of business, none of which individually or in the
aggregate has been materially adverse. The fiscal year of Borrower ends on
December 31st of each year.
7.1.11 Full Disclosure. The financial statements referred to in
----------------
subsection 7.1.10 hereof do not, nor does this Agreement or any other written
statement of Borrower to Lender, contain any untrue statement of a material fact
or omit a material fact necessary to make the statements contained therein or
herein not misleading. There is no fact which Borrower has failed to disclose to
Lender in writing which materially affects adversely or, so far as Borrower can
now foresee, will materially affect adversely the Properties, business,
prospects, profits or condition (financial or otherwise) of Borrower or any of
its Subsidiaries or the ability of Borrower or its Subsidiaries to perform this
Agreement or the other Loan Documents.
7.1.12 Solvent Financial Condition. Borrower is now and, after giving
---------------------------
effect to the Loans to be made, at all times will be, Solvent.
7.1.13 Surety Obligations. Neither Borrower nor any of its
-------------------
Subsidiaries is obligated as surety or indemnitor under any surety or similar
bond or other contract issued or entered into any agreement to assure payment,
performance or completion of performance of any undertaking or obligation of any
Person.
7.1.14 Taxes. Borrower's federal tax identification number is
-----
00-0000000. The federal tax identification number of each of Borrower's
Subsidiaries is shown on Exhibit F hereto. Borrower and each of its Subsidiaries
---------
has filed all federal, state and local tax returns and other reports it is
required by law to file and has paid, or made provision for the payment of, all
taxes, assessments, fees, levies and other governmental charges upon it, its
income and Properties as and when such taxes, assessments, fees, levies and
charges that are due and payable, unless and to the extent any thereof are being
actively contested in good faith and by appropriate proceedings and Borrower
maintains reasonable reserves on its books therefor. The provision for taxes on
the books of Borrower and its Subsidiaries are adequate for all years not closed
by applicable statutes, and for its current fiscal year.
7.1.15 Brokers. There are no claims for brokerage commissions,
-------
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement.
7.1.16 Patents, Trademarks, Copyrights and Licenses. Each of Borrower
--------------------------------------------
and its Subsidiaries owns or possesses all the patents, trademarks, service
marks, trade names, copyrights and licenses necessary for the present and
planned future conduct of its business without any known conflict with the
rights of others. All such patents, trademarks, service marks, tradenames,
copyrights, licenses and other similar rights are listed on Exhibit G hereto.
---------
7.1.17 Governmental Consents. Each of Borrower and its Subsidiaries
----------------------
has, and is in good standing with respect to, all governmental consents,
approvals, licenses, authorizations, permits, certificates, inspections and
franchises necessary to continue to conduct
-13-
its business as heretofore or proposed to be conducted by it and to own or lease
and operate its Properties as now owned or leased by it.
7.1.18 Compliance with Laws. Each of Borrower and its Subsidiaries
----------------------
has duly complied with, and its Properties, business operations and leaseholds
are in compliance in all material respects with, the provisions of all federal,
state and local laws, rules and regulations applicable to Borrower or such
Subsidiary, as applicable, its Properties or the conduct of its business and
there have been no citations, notices or orders of noncompliance issued to
Borrower or any of its Subsidiaries under any such law, rule or regulation. Each
of Borrower and its Subsidiaries has established and maintains an adequate
monitoring system to insure that it remains in compliance with all federal,
state and local laws, rules and regulations applicable to it. No Inventory has
been produced in violation of the Fair Labor Standards Act (29 U.S.C.'201 et
--
seq.), as amended.
---
7.1.19 Restrictions. Neither Borrower nor any of its Subsidiaries is
------------
a party or subject to any contract, agreement, or charter or other corporate
restriction, which materially and adversely affects its business or the use or
ownership of any of its Properties. Neither Borrower nor any of its Subsidiaries
is a party or subject to any contract or agreement which restricts its right or
ability to incur Indebtedness, other than as set forth on Exhibit H hereto, none
---------
of which prohibit the execution of or compliance with this Agreement or the
other Loan Documents by Borrower or any of its Subsidiaries, as applicable.
7.1.20 Litigation. Except as set forth on Exhibit I hereto, there are
---------- ---------
no actions, suits, proceedings or investigations pending, or to the knowledge of
Borrower, threatened, against or affecting Borrower or any of its Subsidiaries,
or the business, operations, Properties, prospects, profits or condition of
Borrower or any of its Subsidiaries. Neither Borrower nor any of its
Subsidiaries is in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
7.1.21 No Defaults. No event has occurred and no condition exists
-----------
which would, upon or after the execution and delivery of this Agreement or
Borrower's performance hereunder, constitute a Default or an Event of Default.
Neither Borrower nor any of its Subsidiaries is in default, and no event has
occurred and no condition exists which constitutes, or which with the passage of
time or the giving of notice or both would constitute, a default in the payment
of any Indebtedness to any Person for Money Borrowed.
7.1.22 Leases. Exhibit J hereto is a complete listing of all
------ ----------
capitalized leases of Borrower and its Subsidiaries and Exhibit K hereto is a
---------
complete listing of all operating leases of Borrower and its Subsidiaries. Each
of Borrower and its Subsidiaries is in full compliance with all of the terms of
each of its respective capitalized and operating leases.
7.1.23 Pension Plans. Except as disclosed on Exhibit L hereto, neither
------------- ---------
Borrower nor any of its Subsidiaries has any Plan. Borrower and each of its
Subsidiaries is in full compliance with the requirements of ERISA and the
regulations promulgated thereunder with respect to each Plan. No fact or
situation that could result in a material adverse change in the financial
condition of Borrower or any of its Subsidiaries exists in connection with any
Plan. Neither Borrower nor any of its Subsidiaries has any withdrawal liability
in connection with a Multiemployer Plan.
7.1.24 Trade Relations. There exists no actual or threatened
----------------
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower or any of its Subsidiaries and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower or any of its Subsidiaries,
or with any material supplier, and there exists no present condition or state of
facts
-14-
or circumstances which would materially affect adversely Borrower or any of its
Subsidiaries or prevent Borrower or any of its Subsidiaries from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.25 Labor Relations. Except as described on Exhibit M hereto,
---------------- ----------
neither Borrower nor any of its Subsidiaries is a party to any collective
bargaining agreement. There are no material grievances, disputes or
controversies with any union or any other organization of Borrower's or any of
its Subsidiaries' employees, or threats of strikes, work stoppages or any
asserted pending demands for collective bargaining by any union or organization.
7.2 Continuous Nature of Representations and Warranties. Each
--------------------------------------------------------------
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain accurate, complete and
not misleading at all times during the term of this Agreement, except for
changes in the nature of Borrower's or its Subsidiaries' business or operations
that would render the information in any exhibit attached hereto either
inaccurate, incomplete or misleading, so long as Lender has consented to such
changes or such changes are expressly permitted by this Agreement.
7.3 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
----------------------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of Lender, from
----------------------
time to time, as often as may be reasonably requested, but only during normal
business hours, to visit and inspect the Properties of Borrower and each of its
Subsidiaries, inspect, audit and make extracts from its books and records, and
discuss with its officers, its employees and its independent accountants,
Borrower's and each of its Subsidiaries' business, assets, liabilities,
financial condition, business prospects and results of operations.
8.1.2 Notices. Promptly notify Lender in writing of the occurrence of
-------
any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading.
8.1.3 Financial Statements. Keep, and cause each Subsidiary to keep,
--------------------
adequate records and books of account with respect to its business activities in
which proper entries are made in accordance with GAAP reflecting all its
financial transactions; and cause to be prepared and furnished to Lender the
following (all to be prepared in accordance with GAAP applied on a consistent
basis, unless Borrower's certified public accountants concur in any change
therein and such change is disclosed to Lender and is consistent with GAAP):
(i) not later than one hundred twenty (120) days after the
close of each fiscal year of Borrower, unqualified audited financial statements
of Borrower and its Subsidiaries as of the end of such year, on a Consolidated
and consolidating basis, certified by a firm of independent certified public
accountants of recognized standing selected by Borrower but acceptable to Lender
(except for a qualification for a change in accounting principles with which the
accountant concurs);
-15-
(ii) not later than thirty (30) days after the end of each
quarterly period hereafter, including the last quarter of Borrower's fiscal
year, unaudited interim financial statements of Borrower and its Subsidiaries as
of the end of such quarter and of the portion of Borrower's financial year then
elapsed, on a Consolidated and consolidating basis, reviewed under the
Securities and Exchange Commission rules and regulations (but not to be
construed as Reviewed in accordance with GAAP) by independent certified public
accountants of recognized standing, selected by Borrower and satisfactory to the
Lender, certified by the principal financial officer of Borrower as prepared in
accordance with GAAP and fairly presenting the Consolidated financial position
and results of operations of Borrower and its Subsidiaries for such month and
period subject only to changes from audit and year-end adjustments and except
that such statements need not contain notes;
(iii) not later than thirty (30) days after the end of each
calendar month, the Borrower's balance sheet as of the end of such period and
the related statements of income and surplus, all in reasonable detail, all
prepared in accordance with generally accepted accounting principles, by the
Borrower's management, and in addition to such statements, any supplementary
information to the financial reports as the Lender shall reasonably require.
(iv) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements or reports
which Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower files
with the Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or any national securities exchange;
(v) promptly after the filing thereof, copies of any annual
report to be filed with ERISA in connection with each Plan;
(vi) upon each request for a Revolving Credit Loan, the
Borrowing Base Certificate; and
(vii) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's and each of its Subsidiaries' financial
condition or results of operations.
Concurrently with the delivery of the financial statements described in
clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy of
the accountants' letter to Borrower's management that is prepared in connection
with such financial statements and also shall cause to be prepared and shall
furnish to Lender a certificate of the aforesaid certified public accountants
certifying to Lender that, based upon their examination of the financial
statements of Borrower and its Subsidiaries performed in connection with their
examination of said financial statements, they are not aware of any Default or
Event of Default, or, if they are aware of such Default or Event of Default,
specifying the nature thereof, and acknowledging, in a manner satisfactory to
Lender, that they are aware that Lender is relying on such financial statements
in making its decisions with respect to the Loans. Concurrently with the
delivery of the financial statements described in clauses (i), (ii) and (iii) of
this subsection 8.1.3, or more frequently if requested by Lender, Borrower shall
cause to be prepared and furnished to Lender a Compliance Certificate in the
form of Exhibit N hereto certified by the Borrower's Chief Executive Officer,
---------
Chief Operating Officer or Secretary/Treasurer as accurate and affirmatively
stating that no Event of Default (or event which would, with the passage of time
or giving of notice or both, became an Event of Default) has occurred.
8.1.4 Landlord and Storage Agreements. In the event the Lender has
---------------------------------
not obtained an acknowledgment from Intelligroup, Inc. with respect to the New
Jersey property, in
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form and substance acceptable to the Lender within ninety (90) days of the
closing hereof, the Lender may reserve up to three (3) months rent for such
locations, out of Availability.
8.1.5 [INTENTIONALLY OMITTED]
8.1.6 Projections. No later than 30 days prior to the end of each
-----------
fiscal year of Borrower, deliver to Lender, Projections of Borrower for the
forthcoming 3 years, year by year, and for the forthcoming fiscal year, month by
month; any revised projections are to be provided within ten (10) days of
issuance.
8.1.7 Equipment. Borrower will not permit any of the Equipment to
---------
become affixed to any real Property leased to Borrower so that an interest
arises therein under the real estate laws of the applicable jurisdiction unless
the landlord of such real Property has executed a landlord waiver or leasehold
mortgage in favor of and in form acceptable to Lender, and Borrower will not
permit any of the Equipment to become an accession to any personal Property
other than Equipment that is subject to first priority (except for Permitted
Liens) Liens in favor of Lender.
8.2 Negative Covenants. During the term of this Agreement, and
------------------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless Lender has first consented thereto in writing, it will
not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate, or
-------
permit any Subsidiary of Borrower to merge or consolidate, with any Person; nor
acquire, nor permit any of its Subsidiaries to acquire, all or any substantial
part of the Properties of any Person, that is greater than or equal to Five
Million ($5,000,000.00) Dollars, except any Subsidiary of Borrower may be merged
with or into Borrower or another Subsidiary. Any acquisition of a Person for
less than Five Million ($5,000,000.00) Dollars shall be limited to payment in
Borrower's stock only. Lender's consent to acquisitions shall not be
unreasonably withheld.
8.2.2 Loans. Make, or permit any Subsidiary of Borrower to make, any
-----
loans or other advances of money to any Person which aggregate more than Two
Hundred Fifty Thousand ($250,000.00) Dollars at any time (other than for
extensions of trade credit to customers and travel advances to shareholders, all
in the ordinary course of business), provided however, the Borrower shall not be
permitted to make any advances to any shareholders of the Borrower that owns
more than five (5%) percent of the outstanding stock of the Borrower.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist,
------------------
or permit Borrower to create, incur or suffer to exist, any Indebtedness,
except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt existing on the date of this
Agreement;
(iii) Indebtedness of any Subsidiary of Borrower to Borrower;
(iv) accounts payable to trade creditors and current
operating expenses (other than for Money Borrowed) which are not aged more than
120 days from billing date or more than 30 days from the due date, in each case
incurred in the ordinary course of business and paid within such time period,
unless the same are being actively contested in good faith and by appropriate
and lawful proceedings; and Borrower or such Subsidiary shall have set
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aside such reserves, if any, with respect thereto as are required by GAAP and
deemed adequate by Borrower or such Subsidiary and its independent accountants;
(v) Obligations to pay Rentals permitted by subsection
8.2.13;
(vi) Permitted Purchase Money Indebtedness;
(vii) contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in the
ordinary course of business (but not by way of guaranty of any Subsidiary);
(viii) Indebtedness owed to Intelligroup, Inc. in the principal
amount of $15,000,000.00 (it being understood that Borrower may make a one-time
$3,000,000.00 principal payment to the holder thereof on or before September,
2000);
(ix) Indebtedness of a Person which becomes a Subsidiary
after the date hereof provided that:
(a) such Indebtedness existed at the time such
Person became a Subsidiary and was not created
in anticipation of such acquisition;
(b) immediately after giving effect to the
acquisition of such Person by the Borrower or
its Subsidiaries, no Default or Event of Default
shall occur and be continuing;
(c) such Indebtedness is not guaranteed by the
Borrower or any Subsidiary;
(d) such Indebtedness is not payable to selling
shareholders or Persons unless subordinated to
the Lender on terms approved by the Lender in
writing; and
(e) such Indebtedness would not be subject to
acceleration of maturity or cause an Event of
Default under existing loan documents as a
result of such acquisition by the Borrower or
Subsidiary; and
(x) Indebtedness existing on the date hereof and any
refinancings, refundings, swaps or exchanges thereof (without any increase in
the principal amount thereof).
8.2.4 Affiliate Transactions. Enter into, or be a party to, or permit
----------------------
any Subsidiary of Borrower to enter into or be a party to, any transaction with
any Affiliate of Borrower or stockholder, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's or such Subsidiary's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than would obtain in a comparable arm's
length transaction with a Person not an Affiliate or stockholder of Borrower or
such Subsidiary.
8.2.5 Limitation on Liens. Create or suffer to exist, or permit any
--------------------
Subsidiary of Borrower to create or suffer to exist, any Lien upon any of its
Property, income or profits, whether now owned or hereafter acquired, except:
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(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed pursuant to
any of the provisions of ERISA) not yet due, or being contested in the manner
described in subsection 7.1.14 hereto;
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment in respect of
any such Lien is not at the time required and such Liens do not, in the
aggregate, materially detract from the value of the Property of Borrower or
materially impair the use thereof in the operation of Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(v) Liens securing Indebtedness of one of Borrower's
Subsidiaries to Borrower or another such Subsidiary;
(vi) such other Liens as appear on Exhibit O hereto;
---------
(vii) Liens on the property or assets of a Person which
becomes a Subsidiary after the date hereof securing Indebtedness permitted by
paragraph 8.2.3(ix), provided that (1) such Liens existed at the time such
Person became a Subsidiary and were not created in anticipation of the
acquisition, (2) any such Lien does not by its terms cover any property or
assets after the time such Person becomes a Subsidiary which were not covered
immediately prior thereto, and (3) any such Lien does not by its terms secure
any Indebtedness other than Indebtedness existing immediately prior to the time
such Person becomes a Subsidiary; and
(viii) such other Liens as Lender may hereafter approve in
writing.
8.2.6 Subordinated Debt. Make, or permit any Subsidiary of Borrower
-----------------
to make, any payment of any part or all of any Subordinated Debt or take any
other action or omit to take any other action in respect of any Subordinated
Debt, except in accordance with a subordination agreement relative thereto.
8.2.7 Distributions. Declare or make, or permit any Subsidiary of
-------------
Borrower to declare or make, any Distributions, without the prior written
consent of Lender.
8.2.8 Capital Expenditures. Make unfinanced Capital Expenditures
---------------------
(including, without limitation, by way of capitalized leases) which, in the
aggregate, as to Borrower and its Subsidiaries, exceed $8,000,000.00 during
fiscal year ending December, 2000; $3,000,000.00 during fiscal year ending
December, 2001; and $3,000,000.00 during fiscal year ending December, 2002. At
no time shall any proceeds of the Revolving Credit Loans be used for Capital
Expenditures.
8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of any
---------------------
of, or permit any Subsidiary of Borrower to sell, lease or otherwise dispose any
of, its Properties, including any disposition of Property as part of a sale and
leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of business for so long as no Event of Default
exists hereunder, (ii) a transfer of Property to Borrower by a Subsidiary of
Borrower or (iii) dispositions expressly authorized by this Agreement, or (iv)
worn out or obsolete Property disposed of in the ordinary course of business.
-19-
8.2.10 Stock of Subsidiaries. Permit any of its Subsidiaries to
-----------------------
issue any additional shares of its capital stock, if after giving effect
thereto, would result in the Borrower owning less than 66% of the issued and
outstanding shares of stock of such Subsidiary.
8.2.11 Xxxx-and-Hold Sales, Etc. Make a sale to any customer on a
-------------------------
xxxx-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
8.2.12 Restricted Investment. Make or have, or permit any Subsidiary
----------------------
of Borrower to make or have, any Restricted Investment.
8.2.13 Leases. Become, or permit any of its Subsidiaries to become,
------
a lessee under any operating lease (other than a lease under which Borrower or
any of its Subsidiaries is lessor) of Property if the aggregate Rentals payable
during any current or future period of 12 consecutive months under the lease in
question and all other leases under which Borrower or any of its Subsidiaries is
then lessee would exceed $50,000.00. The term "Rentals" means, as of the date of
determination, all payments which the lessee is required to make by the terms of
any lease.
8.2.14 Tax Consolidation. File or consent to the filing of any
------------------
consolidated income tax return with any Person other than a
Subsidiary of Borrower.
8.2.15 Management Changes. The Borrower shall not make any change to
------------------
the officers of the Borrower without providing the Lender with at least sixty
(60) days notice of such change and Lender consents thereto.
8.3 Specific Financial Covenants. During the term of this Agreement, and
-----------------------------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.3.1 Debt to Tangible Net Worth Ratio. Maintain at all times a ratio
--------------------------------
of Consolidated Debt to Tangible Net Worth of not more than 3.0 to 1.0 at all
times.
8.3.2 Pre-Tax Operating Loss. Not incur a pre-tax operating loss
------------------------
greater than 10% in excess of the amount shown in the projections dated June 26,
2000.
8.3.3 Minimum Availability. Maintain at all times Availability
---------------------
calculated on a daily basis of not less than One Million ($1,000,000.00) Dollars
as of the Closing Date and at all times thereafter.
8.3.4 Interest Coverage Ratio. Achieve, at the end of each fiscal
------------------------
quarter (commencing with the third fiscal quarter, 2000) of the Borrower, an
Interest Coverage Ratio equal to or greater than 1.2 to 1.0 during the Original
Term.
8.3.5 Fixed Charge Coverage Ratio. Achieve, at the end of each
-----------------------------
fiscal quarter (commencing with the third fiscal quarter, 2000) of the Borrower,
a Fixed Charge Coverage Ratio equal to or greater than 1.1 to 1.0 during the
Original Term.
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other sections of this Agreement, Lender shall not be required to make any
Loan under this Agreement unless and until each of the following conditions has
been and continues to be satisfied:
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9.1 Documentation. Lender shall have received, in form and substance
-------------
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments and certificates as Lender and its counsel shall require in
connection therewith from time to time, all in form and substance satisfactory
to Lender and its counsel.
9.2 No Default. No Default or Event of Default shall exist.
----------
9.3 Other Loan Documents. Each of the conditions precedent set forth in
--------------------
the other Loan Documents shall have been satisfied.
9.4 Availability. Lender shall have determined that Availability is not
------------
be less than $1,000,000.00 as of the Closing Date.
9.5 No Litigation. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or the consummation of the transactions contemplated hereby.
9.6 Spin-off. The Borrower shall no longer be a wholly-owned subsidiary
--------
of Intelligroup, Inc., including without limitation, having separate ownership
and management from Intelligroup, Inc. The Borrower shall provide evidence of
such divestiture in form and substance satisfactory to the Lender.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
-------------------
events shall constitute an "Event of Default":
10.1.1 Payment of Revolving Credit Master Note. Borrower shall fail
---------------------------------------
to pay any principal, interest or premium, if any, owing on the Revolving Credit
Master Note on or within 10 days after the due date of such payment.
10.1.2 Payment of Other Obligations. Borrower shall fail to pay any
-----------------------------
of the other Obligations on or within ten (10) days after the due date thereof
(whether due at stated maturity, on demand, upon acceleration or otherwise).
10.1.3 Misrepresentations. Any representation, warranty or other
------------------
statement made or furnished to Lender by or on behalf of Borrower, any
Subsidiary of Borrower in this Agreement, any of the other Loan Documents or any
instrument, certificate or financial statement furnished in compliance with or
in reference thereto proves to have been false or misleading in any material
respect when made or furnished or when reaffirmed pursuant to Section 7.2
hereof.
10.1.4 Breach of Specific Covenants. Borrower shall fail or neglect
----------------------------
to perform, keep or observe any covenant contained in Sections 5.2, 6.1.1, 6.2,
8.1.1, 8.1.3, 8.2 or 8.3 hereof on the date that Borrower is required to
perform, keep or observe such covenant.
10.1.5 Breach of Other Covenants. Borrower shall fail or neglect
---------------------------
to perform, keep or observe any covenant contained in this Agreement (other than
a covenant which is dealt with specifically elsewhere in Section 10.1 hereof)
and the breach of such other covenant is not cured to Lender's satisfaction
within 15 days after the sooner to occur of Borrower's receipt of notice of such
breach from Lender or the date on which such failure or neglect first becomes
known to any officer of Borrower.
-21-
10.1.6 Default Under Security Documents/Other Agreements. Any event
-------------------------------------------------
of default shall occur under, or Borrower shall default in the performance or
observance of any term, covenant, condition or agreement contained in, any of
the Security Documents; or the Other Agreements and such default shall continue
beyond any applicable grace period.
10.1.7 Other Defaults. There shall occur any default or event of
---------------
default on the part of Borrower under any agreement, document or instrument to
which Borrower is a party or by which Borrower or any of its Property is bound,
creating or relating to any Indebtedness (other than the Obligations) if the
payment or maturity of such Indebtedness is accelerated in consequence of such
event of default or demand for payment of such Indebtedness is made.
10.1.8 Uninsured Losses. Any material loss, theft, damage or
-----------------
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
10.1.9 Adverse Changes. There shall occur any material adverse
---------------
change in the financial condition or business prospects of Borrower.
10.1.10 Insolvency and Related Proceedings. Borrower shall cease to
-----------------------------------
be Solvent or shall suffer the appointment of a receiver, trustee, custodian or
similar fiduciary, or shall make an assignment for the benefit of creditors, or
any petition for an order for relief shall be filed by or against Borrower under
the Bankruptcy Code (if against Borrower, the continuation of such proceeding
for more than 45 days), or Borrower shall make any offer of settlement,
extension or composition to its unsecured creditors generally.
10.1.11 Business Disruption; Condemnation. There shall occur a
-----------------------------------
cessation of a substantial part of the business of Borrower or any Subsidiary of
Borrower for a period which significantly affects Borrower's capacity to
continue its business, on a profitable basis; or Borrower or any Subsidiary of
Borrower shall suffer the loss or revocation of any license or permit now held
or hereafter acquired by Borrower which is necessary to the continued or lawful
operation of its business; or Borrower shall be enjoined, restrained or in any
way prevented by court, governmental or administrative order from conducting all
or any material part of its business affairs; or any material lease or agreement
pursuant to which Borrower leases, uses or occupies any Property shall be
canceled or terminated prior to the expiration of its stated term; or any part
of the Collateral shall be taken through condemnation or the value of such
Property shall be impaired through condemnation.
10.1.12 ERISA. A Reportable Event shall occur which Lender, in its
-----
sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if Borrower or any Subsidiary of Borrower is in "default" (as
defined in Section 4219(c)(5) of ERISA) with respect to payments to a
Multiemployer Plan resulting from Borrower's or such Subsidiary's complete or
partial withdrawal from such Plan.
10.1.13 Challenge to Agreement. Borrower or any Subsidiary of
------------------------
Borrower, or any Affiliate of any of them, shall challenge or contest in any
action, suit or proceeding the validity or enforceability of this Agreement, or
any of the other Loan Documents, the legality or enforceability of any of the
Obligations or the perfection or priority of any Lien granted to Lender.
-22-
10.1.14 Criminal Forfeiture. Borrower or any Subsidiary of Borrower
-------------------
shall be criminally indicted or convicted under any law that could lead to a
forfeiture of any Property of Borrower, any Subsidiary of Borrower.
10.1.15 Judgments. Any money judgment, writ of attachment or similar
---------
process in excess of $50,000.00 in the aggregate, is filed against Borrower or
any Subsidiary of Borrower, or any of their respective Property.
10.2 Acceleration of the Obligations. Without in any way limiting the
----------------------------------
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence of an Event of Default, all or any portion of the Obligations shall,
at the option of Lender and without presentment, demand protest or further
notice by Lender, become at once due and payable and Borrower shall forthwith
pay to Lender, the full amount of such Obligations, provided, that upon the
--------
occurrence of an Event of Default specified in subsection 10.1.10 hereof, all of
the Obligations shall become automatically due and payable without declaration,
notice or demand by Lender.
10.3 Other Remedies. Upon and after the occurrence of an Event of
--------------
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
10.3.1 All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights to
which Lender may be entitled, all of which rights and remedies shall be
cumulative and shall be in addition to any other rights or remedies contained in
this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
10.3.2 The right to take immediate possession of the Collateral,
and to (i) require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, and (ii) enter any premises where any of
the Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, Borrower
agrees not to charge Lender for storage thereof as long as such period shall not
exceed 90 days).
10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that 10 days written
notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
2 Business Days for collection, first to the costs, expenses and attorneys' fees
incurred by Lender in collecting the Obligations, in enforcing the rights of
Lender under the Loan Documents and in collecting, retaking, completing,
protecting, removing, storing, advertising for sale, selling and delivering any
Collateral, second to the interest due upon any of the Obligations; and third,
to the principal of the Obligations. If any deficiency shall arise, Borrower
shall remain liable to Lender therefor.
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10.3.4 Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Lender's benefit.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
------------------------------------
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary hereto
or in any schedule or contained in any other agreement between Lender and
Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed
cumulative to and not in derogation or substitution of any of the terms,
covenants, conditions, or agreements of Borrower herein contained. The failure
or delay of Lender to require strict performance by Borrower of any provision of
this Agreement or to exercise or enforce any rights, Liens, powers, or remedies
hereunder or under any of the aforesaid agreements or other documents or
security or Collateral shall not operate as a waiver of such performance, Liens,
rights, powers and remedies, but all such requirements, Liens, rights, powers,
and remedies shall continue in full force and effect until all Loans and all
other Obligations owing or to become owing from Borrower to Lender shall have
been fully satisfied. None of the undertakings, agreements, warranties,
covenants and representations of Borrower contained in this Agreement or any of
the other Loan Documents and no Event of Default by Borrower under this
Agreement or any other Loan Documents shall be deemed to have been suspended or
waived by Lender, unless such suspension or waiver is by an instrument in
writing specifying such suspension or waiver and is signed by a duly authorized
representative of Lender and directed to Borrower.
SECTION 11. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
-----------------
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
11.1.1 At such time or times upon or after the occurrence of a
Default or an Event of Default as Lender or said agent, in its sole discretion,
may determine, endorse Borrower's name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control.
11.1.2 At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent in its sole discretion may determine:
(i) demand payment of the Accounts from the Account Debtors, enforce payment of
the Accounts by legal proceedings or otherwise, and generally exercise all of
Borrower's rights and remedies with respect to the collection of the Accounts;
(ii) settle, adjust, compromise, discharge or release any of the Accounts or
other Collateral or any legal proceedings brought to collect any of the Accounts
or other Collateral; (iii) sell or assign any of the Accounts and other
Collateral upon such terms, for such amounts and at such time or times as Lender
deems advisable; (iv) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or similar document
in connection with any of the Collateral; (vi) receive, open and dispose of all
mail addressed to Borrower and to notify postal authorities to change the
address for delivery thereof to such address as Lender may designate; (vii)
endorse the name of Borrower upon any of the items of payment or proceeds
relating to any Collateral and deposit the same to the account of Lender on
-24-
account of the Obligations; (viii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight xxxx, xxxx of lading or similar
document or agreement relating to the Accounts, Inventory and any other
Collateral; (ix) use Borrower's stationery and sign the name of Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (x) use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Accounts, Inventory, Equipment
and any other Collateral; (xi) make and adjust claims under policies of
insurance; and (xii) do all other acts and things necessary, in Lender's
determination, to fulfill Borrower's obligations under this Agreement.
11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold
---------
Lender harmless from and against any liability, loss, damage, suit, action or
proceeding suffered or incurred by Lender (including reasonable attorneys fees
and legal expenses) as the result of Borrower's failure to observe, perform or
discharge Borrower's duties hereunder, except as may be caused by Lender's gross
negligence or willful misconduct. In addition, Borrower shall defend Lender
against and save it harmless from all claims of any Person with respect to the
Collateral. Without limiting the generality of the foregoing, these indemnities
shall extend to any claims asserted against Lender by any Person under any
Environmental Laws or similar laws by reason of Borrower's or any other Person's
failure to comply with laws applicable to solid or hazardous waste materials or
other toxic substances. Notwithstanding any contrary provision in this
Agreement, the obligation of Borrower under this Section 11.2 shall survive the
payment in full of the Obligations and the termination of this Agreement.
11.3 Modification of Agreement; Sale of Interest. This Agreement may not
-------------------------------------------
be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were "Lender" hereunder and Lender shall be relieved of all
obligations hereunder upon any such assignments. Borrower agrees that it will
use its best efforts to assist and cooperate with Lender in any manner
reasonably requested by Lender to effect the sale of participations in or
assignments of any of the Loan Documents or any portion thereof or interest
therein, including, without limitation, assisting in the preparation of
appropriate disclosure documents. Borrower further agrees that Lender may
disclose credit information regarding Borrower and its Subsidiaries to any
potential participant or assignee.
11.4 Severability. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.5 Successors and Assigns. This Agreement, the Other Agreements and the
----------------------
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.6 Cumulative Effect; Conflict of Terms. The provisions of the Other
------------------------------------
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of
-25-
the other Loan Documents by specific reference to the applicable provision of
this Agreement, if any provision contained in this Agreement is in direct
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
11.7 Execution in Counterparts. This Agreement may be executed in any
---------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument. Delivery of an executed counterpart of a signature page of this
document by facsimile shall be effective as delivery of a manually executed
counterpart of this document.
11.8 Notice. Except as otherwise provided herein, all notices, requests
------
and demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business Day after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile notice, when sent, addressed as follows:
If to Lender: Fleet Capital Corporation
0000 Xxxxx 00 Xxxx
Xxxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Facsimile No.: 000-000-0000
With a copy to: Xxxx Xxxxx Xxxx & XxXxxx LLP
000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx
Facsimile No.: 000-000-0000
If to Borrower: SeraNova, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxx Xxxxxx 00000
Attention: Mr. Xxxxx Xxxxxx
Facsimile No.: 000-000-0000
With a copy to: Xxxxxxxx Ingersoll
000 Xxxxxxx Xxxx Xxxx
Xxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx Xxxxxxxx
Facsimile No.: 000-000-0000
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof
shall not be effective until received by Lender.
11.9 Lender's Consent. Whenever Lender's consent is required to be
-----------------
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
-26-
11.10 Credit Inquiries. Borrower hereby authorizes and permits Lender to
----------------
respond to usual and customary credit inquiries from third parties concerning
Borrower or any of its Subsidiaries.
11.11 Time of Essence. Time is of the essence of this Agreement, the Other
---------------
Agreements and the Security Documents.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
-----------------
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
11.13 Interpretation. No provision of this Agreement or any of the other
--------------
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED,
-------------------------------
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN PLAINSBORO,
NEW JERSEY. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW JERSEY WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
RULES OF THE STATE OF NEW JERSEY: PROVIDED, HOWEVER, THAT IF ANY OF THE
-------- -------
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW JERSEY, THE LAWS
OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF
LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE
LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF
NEW JERSEY. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS
OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR
LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF NEW
JERSEY, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW JERSEY, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT
OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
----- --- ----------
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT
SHALL BE
-27-
DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY
JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS
AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY
---------------------
(WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR
TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION
LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS
AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED
THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY
WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
IN WITNESS WHEREOF, this Agreement has been duly executed in Plainsboro,
New Jersey, on the day and year specified at the beginning of this Agreement.
WITNESS: SERANOVA, INC.
------------------------------ By:
-----------------------------------------
XXXXXXXX XXXXXX, President
Accepted in Plainsboro, New Jersey:
FLEET CAPITAL CORPORATION
By:
-----------------------------------------
XXXXX X. XXXXXX,
Senior Vice President
-28-
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of July 14, 2000, by
and between Fleet Capital Corporation and SeraNova, Inc., the following terms
shall have the following meanings (terms defined in the singular to have the
same meaning when used in the plural and vice versa):
Account Debtor - any Person who is or may become obligated under or on
---------------
account of an Account.
Accounts - all accounts, contract rights, chattel paper, instruments and
--------
documents, whether now owned or hereafter created or acquired by Borrower or in
which Borrower now has or hereafter acquired any interest.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
---------
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, a Person; (ii) which beneficially owns or holds 5%
or more of any class of the Voting Stock of a Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
---------
sentence of this Appendix A, all Exhibits thereto and this Appendix A.
Approved Customer List - the list of Borrower's customers, approved by the
----------------------
Lender, in Lender's sole credit judgment, as having acceptable credit risk whose
Accounts may be included as an Eligible Account. The Approved Customer List is
annexed hereto as Exhibit P.
Availability - the amount of money which Borrower is entitled to borrow
------------
from time to time as Revolving Credit Loans, such amount being the difference
derived when the sum of the principal amount of Revolving Credit Loans then
outstanding (including any amounts which Lender may have paid for the account of
Borrower pursuant to any of the Loan Documents and which have not been
reimbursed by Borrower) is subtracted from the Borrowing Base. If the amount
outstanding is equal to or greater than the Borrowing Base, Availability is Zero
($0) Dollars.
Bank - Fleet National Bank.
----
Base Rate - the rate of interest announced or quoted by Bank from time to
---------
time as its prime rate for commercial loans, whether or not such rate is the
lowest rate charged by Bank to its most preferred borrowers; and, if such prime
rate for commercial loans is discontinued by Bank as a standard, a comparable
reference rate designated by Bank as a substitute therefor shall be the Base
Rate.
Borrowing Base - as at any date of determination thereof, an amount equal
--------------
to the lesser of:
(i) $15,000,000.00; or
(ii) an amount equal to 75% of the net amount of Eligible Accounts
outstanding at such date; less
-29-
(iii) the LC Amount.
For purposes hereof, the net amount of Eligible Accounts at any time shall
be the face amount of such Eligible Accounts less any and all returns, rebates,
discounts (which may, at Lender's option, be calculated on shortest terms),
credits, allowances or excise taxes of any nature at any time issued, owing,
claimed by Account Debtors, granted, outstanding or payable in connection with
such Accounts at such time. Further, it is agreed that the Lender may, in its
sole discretion, increase the advance rate referred to in (ii) above, up to
eighty-five (85%) percent.
Borrowing Base Certificate - a certificate in the form of Exhibit R annexed
--------------------------
hereto.
Business Day - any day excluding Saturday, Sunday and any day which is a
------------
legal holiday under the laws of the State of New Jersey or is a day on which
banking institutions located in such state are closed.
Capital Expenditures - expenditures made or liabilities incurred for the
---------------------
acquisition of any fixed assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than one year, including the
total principal portion of Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented by obligations
----------------------------
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Closing Date - the date on which all of the conditions precedent in Section
------------
9 of the Agreement are satisfied and the initial Loan is made.
Code - the Uniform Commercial Code as adopted and in force in the State of
----
New Jersey, from time to time.
Collateral - all of the Property and interests in Property described in
----------
Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
Consolidated - the consolidation in accordance with GAAP of the accounts or
------------
other items as to which such term applies.
Consolidated Debt - The aggregate of all debt of the Borrower and its
------------------
subsidiaries that is not intercompany debt, or Subordinated Debt.
Current Assets - at any date means the amount at which all of the current
---------------
assets of a Person would be properly classified as current assets shown on a
balance sheet at such date in accordance with GAAP except that any amounts due
from Affiliates and investments in Affiliates shall be excluded therefrom.
Default - an event or condition the occurrence of which would, with the
-------
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
------------
Deposit Account - a demand, time, savings, passbook or like account
----------------
maintained with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a certificate of deposit.
-30-
Distribution - in respect of any corporation means and includes: (i) the
------------
payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds of
the sale of Securities.
Dominion Account - a special account of Lender established by Borrower
-----------------
pursuant to the Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion, and over which Lender shall have sole and
exclusive access and control for withdrawal purposes.
EBIT - with respect to any fiscal period, the sum of Borrower's
----
Consolidated net earnings (or loss) before interest expense and taxes for said
period determined in accordance with GAAP.
Eligible Account - an Account arising in the ordinary course of Borrower's
-----------------
business from the sale of goods or rendition of services which Lender, in its
sole credit judgment, deems to be an Eligible Account. Without limiting the
generality of the foregoing, no Account shall be an Eligible Account if:
(i) it arises out of a sale made by Borrower to a Subsidiary or an
Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower; or
(ii) it is unpaid for more than 90 days after the original due date
shown on the invoice; or
(iii) it is due or unpaid more than 90 days after the original invoice
date; or
(iv) 50% or more of the Accounts from the Account Debtor are not
deemed Eligible Accounts hereunder; or
(v) the total unpaid Accounts of the Account Debtor exceed 20% of
the net amount of all Eligible Accounts, except American Express or Volkswagen,
USA which exceed 35% of the net amount of all Eligible Accounts, to the extent
of such excess; or
(vi) any covenant, representation or warranty contained in the
Agreement with respect to such Account has been breached; or
(vii) Account Debtor is also Borrower's creditor or supplier, or the
Account Debtor has disputed liability with respect to such Account, or the
Account Debtor has made any claim with respect to any other Account due from
such Account Debtor to Borrower, or the Account otherwise is or may become
subject to any right of setoff by the Account Debtor; or
(viii) the Account Debtor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or a decree or order for relief has
been entered by a court having jurisdiction in the premises in respect of the
Account Debtor in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other petition or other application for
relief under the federal bankruptcy laws has been filed against the Account
Debtor, or if the Account Debtor has failed, suspended business, ceased to be
Solvent, or consented to or suffered a receiver, trustee, liquidator or
custodian to be appointed for it or for all or a significant portion of its
assets or affairs; or
(ix) it arises from a sale to an Account Debtor outside the United
States, unless the sale is on letter of credit terms, or foreign credit
insurance collaterally assigned to the Lender, in each case acceptable to Lender
in its sole discretion; or
-31-
(x) it arises from a sale to the Account Debtor on a xxxx-and-hold,
guaranteed sale, sale-or-return, sale-on-approval, consignment or any other
repurchase or return basis; or
(xi) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless Borrower assigns its right
to payment of such Account to Lender, in a manner satisfactory to Lender, so as
to comply with the Assignment of Claims Act of 1940 (31 U.S.C. '203 et seq., as
amended); or -- ---
(xii) the Account is subject to a Lien other than the Lender's or a
Permitted Lien; or
(xiii) the goods giving rise to such Account have not been delivered to
and accepted by the Account Debtor or the services giving rise to such Account
have not been performed by Borrower and accepted by the Account Debtor or the
Account otherwise does not represent a final sale; or
(xiv) the Account is evidenced by chattel paper or an instrument of
any kind unless Lender has possession of such instrument, or has been reduced to
judgment; or
(xv) Borrower has made any agreement with the Account Debtor for any
deduction therefrom, except for discounts or allowances which are made in the
ordinary course of business for prompt payment and which discounts or allowances
are reflected in the calculation of the face value of each invoice related to
such Account; or
(xvi) Borrower has made an agreement with the Account Debtor to extend
the time of payment thereof; or
(xvii) the Account arises from a sale to an Account Debtor that is an
internet ("dot-com") company, unless the sale is secured by a letter of credit
or insured by credit insurance acceptable to the Lender and the credit insurance
has been collaterally assigned to the Lender; or
(xviii) the Account arises from a sale to an Account Debtor that is a
Person not on the Approved Customer List, unless the sale is secured by a letter
of credit or insured by credit insurance acceptable to the Lender and the credit
insurance has been collaterally assigned to the Lender.
Environmental Laws - all federal, state and local laws, rules, regulations,
------------------
ordinances, programs, permits, guidances, orders and consent decrees relating to
health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
---------
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or hereafter
acquired by Borrower and wherever located, and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as amended,
-----
and all rules and regulations from time to time promulgated thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
----------------
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Fixed Charge Coverage Ratio - with respect to any fiscal period, the ratio
---------------------------
of (i) Borrower's Consolidated net earnings (or loss) before interest, taxes,
depreciation and amortization minus the total of unfinanced Capital Expenditures
-----
plus cash taxes paid for such period to (ii) Fixed Charges for such period, all
----
determined in accordance with GAAP.
Fixed Charges - for any accounting period, the sum of interest expense,
-------------
plus current maturities on long term debt and current Capital Lease Obligations
(excluding a $3,000,000.00 principal payment due to Intelligroup, Inc. in
---------
September 2000).
GAAP - generally accepted accounting principles in the United States of
----
America in effect from time to time.
General Intangibles - all personal property of Borrower (including things
--------------------
in action) other than goods, Accounts, chattel paper, documents, instruments and
money, whether now owned or hereafter created or acquired by Borrower.
Governmental Authority. - the government of the United States of America,
-----------------------
any nation or any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government.
Indebtedness - as applied to a Person means, without duplication
------------
(i) all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance sheet
of such Person as at the date as of which Indebtedness is to be determined,
including, without limitation, Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account of such Person, and
(iv) in the case of Borrower (without duplication), the Obligations.
Interest Coverage Ratio - with respect to any period of determination, the
-----------------------
ratio of (i) EBIT for such period to (ii) Interest Expense for such period, all
as determined in accordance with GAAP.
Interest Expense - with respect to any fiscal period, the interest expense
----------------
incurred for such period as determined in accordance with GAAP plus the Letter
of Credit and LC Guaranty fees owing for such period.
Inventory - all of Borrower's inventory, whether now owned or hereafter
---------
acquired including, but not limited to, all goods intended for sale or lease by
Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or otherwise
used or consumed in Borrower's business; and all documents evidencing and
General Intangibles relating to any of the foregoing, whether now owned or
hereafter acquired by Borrower.
Investment Property - means a security, whether certificated or
---------------------
uncertificated, a security entitlement, a securities account, a commodity
contract, or a commodity account.
-33-
LC Amount - at any time, the aggregate undrawn face amount of all Letters
---------
of Credit and LC Guaranties then outstanding.
LC Guaranty - any guaranty pursuant to which Lender or any Affiliate of
-----------
Lender shall guaranty the payment or performance by Borrower of its
reimbursement obligation under any letter of credit.
Leasehold Improvements - any and all improvements made by Borrower to
-----------------------
Property leased by the Borrower.
Letter of Credit - all letters of credit issued by Lender or any Affiliate
----------------
of Lender at the request of and for the account of the Borrower.
Lien - any interest in Property securing an obligation owed to, or a claim
----
by, a Person other than the owner of the Property, whether such interest is
based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established on the books of Lender pursuant
------------
to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
---------------
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to the
-----
Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of money
--------------
by any Person to Borrower; (ii) Indebtedness, whether or not in any such case
arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures, notes
or similar instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or partial
payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbursement obligations with respect to letters of credit or
guaranties of letters of credit and (v) Indebtedness of Borrower under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (i) through (iii) hereof, if owed directly by Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
-------------------
ERISA.
Obligations - all Loans and all other advances, debts, liabilities,
-----------
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising and however acquired.
Original Term - as defined in Section 4.1 of the Agreement.
-------------
Other Agreements - any and all agreements, instruments and documents (other
----------------
than the Agreement and the Security Documents), heretofore, now or hereafter
executed by Borrower, any
-34-
Subsidiary of Borrower or any other third party and delivered to Lender in
respect of the transactions contemplated by the Agreement.
Overadvance - the amount, if any, by which the outstanding principal amount
-----------
of Revolving Credit Loans exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the right by Lender
--------------------
to participate in any of the Loans described in the Agreement and who shall have
entered into a participation agreement in form and substance satisfactory to
Lender.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of the
----------------
Agreement.
Permitted Purchase Money Indebtedness - Non-recourse Purchase Money
----------------------------------------
Indebtedness of Borrower incurred after the date hereof which is secured by a
Purchase Money Lien, provided however, at no time shall the proceeds of
Revolving Credit Loans be used to incur Purchase Money Indebtedness. For the
purposes of this definition, the principal amount of any Purchase Money
Indebtedness consisting of capitalized leases shall be computed as a Capitalized
Lease Obligation.
Person - an individual, partnership, corporation, limited liability
------
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for employees
----
of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted (a) balance sheets, (b) profit and loss
-----------
statements, (c) cash flow statements, and (d) capitalization statements, all
prepared on a consistent basis with Borrower's historical financial statements,
together with appropriate supporting details and a statement of underlying
assumptions.
Property - any interest in any kind of property or asset, whether real,
--------
personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness (other
----------------------------
than the Obligations) for the payment of all or any part of the purchase price
of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred
at the time of or within 10 days prior to or after the acquisition of any fixed
assets for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase Money
-------------------
Indebtedness, but only if such Lien shall at all times be confined solely to the
fixed assets the purchase price of which was financed through the incurrence of
the Purchase Money Indebtedness secured by such Lien.
Rentals - as defined in subsection 8.2.13 of the Agreement.
-------
Renewal Terms - as defined in Section 4.1 of the Agreement.
-------------
Reportable Event - any of the events set forth in Section 4043(b) of ERISA.
----------------
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Restricted Investment - any investment made in cash or by delivery of
----------------------
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) investments in one or more Subsidiaries of Borrower to the
extent existing on the Closing Date;
(ii) Property to be used in the ordinary course of business;
(iii) Current Assets arising from the sale of goods and services in
the ordinary course of business of Borrower and its Subsidiaries;
(iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United States of
America, provided that such obligations mature within one year from the date of
acquisition thereof;
(v) investments in certificates of deposit maturing within one year
from the date of acquisition issued by a bank or trust company organized under
the laws of the United States or any state thereof having capital surplus and
undivided profits aggregating at least $100,000,000; and
(vi) investments in commercial paper given the highest rating by a
national credit rating agency and maturing not more than 270 days from the date
of creation thereof.
Revolving Credit Loan - a Loan made by Lender as provided in Section 1.1 of
---------------------
the Agreement.
Revolving Loan Master Note - the Revolving Loan Master Note, of even date
---------------------------
herewith, executed by the Borrower and evidencing the Revolving Credit Loan.
Schedule of Accounts - as defined in subsection 6.2.1 of the Agreement.
--------------------
Security - shall have the same meaning as in Section 2(1) of the Securities
--------
Act of 1933, as amended.
Security Documents - all instruments, filings and agreements now or at any
------------------
time hereafter securing the whole or any part of the Obligations.
Solvent - as to any Person, such Person (i) owns Property whose fair
-------
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Subordinated Debt - Indebtedness of Borrower that is subordinated to the
------------------
Obligations in a manner satisfactory to Lender.
Subsidiary - any corporation of which a Person owns, directly or indirectly
----------
through one or more intermediaries, more than 50% of the Voting Stock at the
time of determination.
Tangible Net Worth - shall mean as of the time of any determination
--------------------
thereof, in accordance with generally accepted accounting principles, the
difference between (a) the sum of (i) the par value (or the value stated on the
books of Borrower) of the capital stock of all classes of Borrower, plus (or
minus in the case of a deficit), and (ii) the amount of the surplus, whether
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capital or earned of Borrower, plus Subordinated Debt, less (b) the sum of the
book value of treasury stock, unamortized debt discount and expense, good will,
trademarks, tradenames, patents, deferred charges, reserves and other similar
intangible assets and any write-up after the date hereof of the book value of
any assets, all determined in accordance with generally accepted accounting
principles.
Total Credit Facility - $15,000,000.00.
---------------------
UCP - means the 1993 Revision of the Uniform Customs and Practice for
---
Documentary Credits of the International Chamber of Commerce (Publication No.
500).
Voting Stock - Securities of any class or classes of a corporation the
-------------
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
Other Terms. All other terms contained in the Agreement shall have, when
-----------
the context so indicates, the meanings provided for by the Code to the extent
the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
----------------------------------
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
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