EXHIBIT 10.44
LOAN AND SECURITY AGREEMENT
Dated as of September 3, 1998
between
SANWA BUSINESS CREDIT CORPORATION
and
ELECTRONIC INTEGRATED SOLUTIONS
EDUCATIONAL INDUSTRIAL SALES, INCORPORATED,
XXXXXX MEDIA SALES, INC.
and
X. XXXXXXXXXXXX ENTERPRISES, INC.
INDEX
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SECTION TITLE PAGE
1. DEFINITIONS AND ACCOUNTING TERMS 1
1.1 Definitions 1
1.2 Accounting Terms 8
1.3 Other Terms 8
2. LOANS: GENERAL TERMS 8
2.1 Total Facility 8
2.2 Advances to Constitute One Loan; Loan Purpose 11
2.3 Interest Rate 11
2.4 Change of Circumstances 12
2.5 Funding Loss Indemnification 13
2.6 Term of Agreement; Prepayment; Liquidated
Damages 14
2.7 Credit Availability Charge 15
2.8 Audit Fee 15
2.9 Loan Fee 15
2.10 Unused Line Fee 15
2.11 Commitment Fee 15
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY 15
3.1 Eligible Accounts 15
3.2 Eligible Inventory 17
4. PAYMENTS 18
4.1 Loan Account; Method of Making Payments 18
4.2 Payment Terms 18
4.3 Collection of Accounts and Payments 18
4.4 Application of Payments and Collections 19
4.5 Statements 19
5. COLLATERAL: GENERAL TERMS 19
5.1 Security Interest 19
5.2 Disclosure of Security Interest 20
5.3 Special Collateral 20
5.4 Further Assurances 20
5.5 Inspection 20
5.6 Perfection and Priority; Location of Collateral 20
5.7 Lender's Payment of Claims Asserted Against
Collateral 21
6. COLLATERAL: ACCOUNTS 21
6.1 Verification of Accounts 21
6.2 Assignments, Records and Daily Collateral Report 21
6.3 Notice Regarding Disputed Accounts 21
6.4 Sale or Encumbrance of Accounts 21
7. COLLATERAL: INVENTORY 21
7.1 Sale of Inventory 21
7.2 Safekeeping of Inventory; Inventory Covenants 21
7.3 Records and Schedules of Inventory 22
7.4 Returned and Repossessed Inventory 22
7.5 Evidence of Ownership of Inventory 22
8. COLLATERAL: EQUIPMENT 22
8.1 Maintenance of the Equipment 22
8.2 Evidence of Ownership of Equipment 22
8.3 Proceeds of the Equipment 22
9. WARRANTIES AND REPRESENTATIONS 23
9.1 General Warranties and Representations 23
9.2 Account Warranties and Representations 26
9.3 Inventory Warranties and Representations 28
9.4 Automatic Warranty and Representations
and Reaffirmation of Warranties and
Representations 28
9.5 Survival of Warranties and Representations 28
10. COVENANTS AND CONTINUING AGREEMENTS 29
10.1 Affirmative Covenants 29
10.2 Negative Covenants 32
10.3 Contesting Charges 34
10.4 Payment of Charges 34
10.5 Insurance; Payment of Premiums 34
10.6 Survival of Obligations Upon Termination
of Agreement 35
10.7 Environmental Indemnity 35
10.8 Change of Control 35
10.9 Revisions or Updates 36
11. CONDITIONS PRECEDENT TO CLOSING 36
12. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 38
12.1 Default 38
12.2 Acceleration of the Liabilities 40
12.3 Advances During Cure Period 40
12.4 Default Rate 40
12.5 Remedies 40
12.6 Notice 41
13. MISCELLANEOUS 41
13.1 Appointment of Lender as the Borrowers' Lawful
Attorney-In-Fact 41
13.2 Modification of Agreement; Assignment or Sale
of Interest 42
13.3 Attorneys' Fees and Expenses; Lender's
Out-of-Pocket Expenses 42
13.4 Waiver by Lender 43
13.5 Severability 43
13.6 Parties; Entire Agreement 43
13.7 Conflict of Terms 43
13.8 Waiver by Borrower 44
13.9 Governing Law, Venue 44
13.10 Notice 44
13.11 Section Titles, Etc. 45
13.12 Course of Dealing 45
13.13 Setoff 45
13.14 Nonliability of Lender 46
13.15 Time of the Essence 46
13.16 Indemnification 46
13.17 Suretyship Waivers and Consents 47
13.18 WAIVER OF RIGHT TO TRIAL BY JURY 48
Schedules and Exhibits
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Exhibit "A" - Financials
Exhibit "B" - Notice of Borrowing/Conversion
Exhibit "C" - Borrowers' Locations
Exhibit "D" - Borrowers' Names or Tradestyles
Exhibit "E" - Litigation, Other Indebtedness, Guaranties, Contracts,
Judgments, Labor Disputes
Exhibit "F" - Liens
Exhibit "G" - Borrowers' Affiliates
Exhibit "H" - Documents
Exhibit "I" - Loan Account Statement
Schedule 10.2 - Deposit Accounts
LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of the
3rd day of September, 1998, by and between Sanwa Business Credit Corporation, a
Delaware corporation ("Lender"), and Electronic Integrated Solutions, a
California corporation (the "Parent"), including its Digital Network division
(the "Digital Division"), Educational Industrial Sales Incorporated, a
California corporation ("EISI"), Xxxxxx Media Sales, Inc., a Texas corporation
("Xxxxxx"), and X. Xxxxxxxxxxxx Enterprises, Inc., a Texas corporation
("Xxxxxxxxxxxx") (the Parent, EISI, Xxxxxx and Xxxxxxxxxxxx hereinafter are
referred to individually as a "Borrower" and collectively as the "Borrowers").
W I T N E S S E T H:
WHEREAS, the Borrowers desire to borrow funds from Lender, and Lender
is willing to make certain loans to the Borrowers on a joint and several
liability basis upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or other financial accommodations heretofore, now or
hereafter made to, or for the benefit of, the Borrowers by Lender, the parties
hereto agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS
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1.1 Definitions. When used herein, the following terms shall have the
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following meanings:
"Account Debtor" shall mean any Person who is or who may become
obligated to any of the Borrowers under, with respect to, or on account of
an Account.
"Accounts" shall mean and include all of the Borrowers' presently
existing and hereafter arising or acquired accounts, receivables and rights
of the Borrowers to payment for goods sold or leased or for services
rendered, including, without limitation, those which are not evidenced by
instruments or chattel paper, and whether or not they have been earned by
performance; proceeds of any letters of credit on which any of the
Borrowers is named as beneficiary; contract rights; chattel paper;
instruments; documents; insurance proceeds; and all such obligations
whatsoever owing to any of the Borrowers, together with all instruments and
all documents of title representing any of the foregoing, all rights in any
merchandise or goods which any of the same may represent, and all right,
title, security and guaranties with respect to each of the foregoing,
including, without limitation, any right of stoppage in transit.
"Affiliate" shall mean any and all Subsidiaries and any and all
Persons which, in the reasonable judgment of Lender, directly or
indirectly, own or control, are controlled by or are under common control
with any of the Borrowers, and any and all Persons from whom, in the
reasonable judgment of Lender, any of the Borrowers has not or is not
likely to exhibit independence of decision or action. For the purpose of
this definition, "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Ancillary Agreements" shall mean all Security Documents and all
agreements, instruments and documents, including without limitation, notes,
guaranties, mortgages, deeds of trust, chattel mortgages, pledges, powers
of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements, subordination agreements, trust
account agreements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of the Borrowers or any other Person or
delivered to Lender or any Participant with respect to this Agreement.
"Borrowing" shall mean a borrowing by the Borrowers consisting of a
Loan made by Lender on the same date and of the same Type pursuant to a
single Notice of Borrowing/Conversion.
"Business Day" shall mean any day in which (a) commercial banks are
not authorized to close or not required to close in Los Angeles, California
or New York, New York and (b) if such Business Day is related to a Loan
which bears or is to bear interest in a Euro-Rate, dealings in dollar
deposits are carried out in the London interbank market.
"Charges" shall mean all national, federal, state, county, city,
municipal, or other governmental taxes, levies, assessments, charges,
liens, claims or encumbrances (including, without limitation, those of the
Pension Benefit Guaranty Corporation) upon or relating to (i) the
Collateral, (ii) the Liabilities, (iii) the Borrowers' employees, payroll,
income or gross receipts, (iv) the Borrowers' ownership or use of any of
their assets, or (v) any other aspect of the Borrowers' respective
businesses.
"Closing Date" shall mean the date the initial Loans are made.
"Collateral" shall mean all of the property and interests in property
described in Section 5.1 and all other property and interests in property
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which shall, from time to time, secure any part of the Liabilities.
"Computers" shall mean all of the Borrowers' right, title and
interest, now owned and hereafter acquired, in computer equipment and
hardware, including, without limitation, all central processing units,
terminals, disk drives, tape drives, electronic memory units, printers,
keyboards, screens, peripherals (and other input/output devices), modems
and other communication controllers, and any and all accessions, parts and
appurtenances thereto, substitutions therefore and replacements thereof,
all intellectual property used by the Borrowers, at any time, in the
operation of such computer equipment hardware, including, without
limitation, all software, all of the Borrowers' rights under any licenses
related to the Borrowers' software or hardware, and all leases pursuant to
which the Borrowers lease any computer equipment, hardware or software.
"Credit Availability Charge" shall have the meaning ascribed to it in
Section 2.7
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"Current Assets" shall mean the aggregate net book value of the
current assets of the Borrowers on a consolidated basis as determined in
accordance with generally accepted accounting principles, excluding any
Accounts owing to any of the Borrowers from any Affiliate.
"Current Liabilities" shall mean the aggregate amount of all
liabilities of the Borrowers on a consolidated basis which would be
classified as current liabilities under generally accepted accounting
principles.
"Daily Collateral Report" shall mean a borrowing base report delivered
to Lender by the Borrowers, as required by Section 6.2, consisting of sales
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and collections of all of the Accounts existing as of the date of such
Daily Collateral Report, specifying for each Account Debtor obligated on
the Accounts, such Account Debtor's name, address and outstanding balance
and the aging of such outstanding balance; inventory valuations as set
forth in the most recent Inventory Report, and such other information as
may, from time to time, be required by Lender.
"Default" shall mean the occurrence or existence of any one or more of
the events described in Section 12.1.
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"Default Rate" shall have the meaning ascribed to it in Section 12.4.
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"Depository Bank" shall mean the banking institution which is referred
to in Section 4.3.
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"Eligible Accounts" shall mean those Accounts included in an Daily
Collateral Report which, as of the date of such Daily Collateral Report and
at all times thereafter, (i) satisfy the requirements for eligibility as
described in Section 3.1, (ii) do not violate the covenants,
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representations and warranties and other provisions of this Agreement and
(iii) Lender, in its reasonable credit judgment, deems to be Eligible
Accounts.
"Eligible Demonstration Inventory" shall mean Eligible Inventory which
SBCC determines is being utilized by the Borrowers for demonstration
purposes.
"Eligible Inventory" shall mean those items of Inventory included in
an Inventory Report which, as of the date of such Inventory Report and at
all times thereafter, (i) satisfy the requirements for eligibility as
described in Section 3.2, (ii) do not violate the covenants,
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representations and warranties and other provisions of this Agreement and
(iii) Lender, in its reasonable credit judgment, deems to be Eligible
Inventory.
"Environmental Laws" shall mean the Resource Conservation and Recovery
Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act, or any other federal state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous,
toxic or dangerous waste, substance or material, as now
or at any time hereafter in effect.
"Equipment" shall mean all of the Borrowers' now owned and hereafter
acquired equipment and fixtures, including without limitation, furniture,
machinery, vehicles and trade fixtures, together with any and all
accessories, parts and appurtenances thereto, substitutions therefor and
replacements thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Euro-Rate" shall mean with respect to any Interest Period for the
Euro-Rate Loans or Euro-Rate Portions, the rate per annum (which shall be
the same as of each day of such Interest Period) which is ordinarily
reported on page 3750 of the Telerate Matrix (in Dollars) for a principal
amount substantially equal to the amount of such Euro-Rate Portion and
having a maturity comparable to the Interest Period proposed to be
applicable to such Euro-Rate Portion, as quoted to the Borrowers by Lender;
provided, however, that if, for whatever reason, Lender shall be unable to
ascertain the Euro-Rate pursuant to the preceding provisions, the Euro-Rate
in such circumstances shall be the rate per annum determined by Lender by
dividing (the resulting quotient to be rounded upward to the nearest 1/100
of one percent) (a) the rate of interest (which shall be the same as of
each day of such Interest Period) per annum at which deposits in Dollars
are offered Lender or its Affiliates in the London interbank market at
approximately 11:00 a.m. (London time) two Business Days before the first
day of such Interest Period in an amount substantially equal to the amount
of such Euro-Rate Portion and having maturities comparable to such Interest
Period by (b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction of reserve
requirements in effect on the day which is two (2) Business Days prior to
the beginning of such Interest Period (including, without limitation,
basic, supplementary, marginal and emergency reserves under any regulations
of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as now and
from time to time in effect) for Eurocurrency funding (currently referred
to as "Eurocurrency liabilities" in regulation D of such Board) which are
required to be maintained by Lender; in every event such Euro-Rate to be
rounded upward to the next whole multiple of one-sixteenth of one percent
(.0625%).
"Euro-Rate Loan" shall mean any Loan or Portion which bears interest
at a rate per annum based upon the Euro-Rate.
"Euro-Rate Portion" shall mean with respect to the Loans, the Portion
of the Loans which bears interest at a rate determined by reference to the
Euro-Rate as provided in Section 2.1(c).
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"Event of Default" shall mean any event or condition which, with the
passage of time or the giving of notice or both, would constitute a
Default.
"Financials" shall mean those financial statements of the Borrowers
attached hereto as Exhibit "A" or delivered to Lender pursuant to Section
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10.1(e).
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"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"General Intangibles" shall mean all choses in action, general
intangibles, causes of action and all other intangible personal property of
the Borrowers of every kind and nature (other than Accounts) now owned or
hereafter acquired by the Borrowers. Without in any way limiting the
generality of the foregoing, General Intangibles specifically include,
without limitation, all corporate or other business records, security
deposits, prepaid deposits and expenses, inventions, designs, patents,
patent applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, tax refunds and tax refund
claims, all rights and claims against carriers and shippers, all rights to
indemnification, and all letters of credit, guarantee claims, security
interests or other security held by or granted to any of the Borrowers to
secure payment by an Account Debtor of any Accounts.
"Guarantor" shall mean any Person, other than any of the Borrowers,
who is liable for the payment of any of the Liabilities, either primarily
or secondarily (as a guarantor or an accommodation party) or one who
hypothecates property as security for the payment of any of the
Liabilities, including Xxxxxx X. Xxxxxx, an individual.
"Hazardous Materials" shall mean any hazardous substance or pollutant
or contaminant defined as such in (or for the purposes of) any
Environmental Law and shall include, but not be limited to, petroleum, any
radioactive material, and asbestos in any form or condition.
"Indebtedness" shall mean all of the Borrowers' liabilities,
obligations and indebtedness to any Person of any and every kind and
nature, whether primary, secondary, direct, indirect, absolute, contingent,
fixed, or otherwise, heretofore, now or hereafter owing, due or payable,
however evidenced, created, incurred, acquired or owing and however
arising, whether under written or oral agreement, by operation of law, or
otherwise. Without in any way limiting the generality of the foregoing,
Indebtedness specifically includes (i) the Liabilities, (ii) all
obligations or liabilities of any Person that are secured by any lien,
claim, encumbrance or security interest upon property owned by any of the
Borrowers, even though such Borrower has not assumed or become liable for
the payment thereof, (iii) all obligations or liabilities created or
arising under any lease of real or personal property, or conditional sale
or other title retention agreement with respect to property used or
acquired by any of the Borrowers, even though the rights and remedies of
the lessor, seller or lender thereunder are limited to repossession of such
property, (iv) all unfunded pension fund obligations and liabilities and
(v) deferred taxes.
"Initial Term" shall have the meaning ascribed to it in Section 2.6.
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"Interest Period" shall mean with respect to any Euro-Rate Loan or
Euro-Rate Portion, the time period selected by the Borrowers pursuant to
Section 2.1(e) which commences on the first day of such Loan or the
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effective date of any conversion and ends on the last day of such time
period, and thereafter, each subsequent time period selected by the
Borrowers pursuant to Section 2.1(e) which commences on the last day of the
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immediately preceding time period and ends on the last day of that
time period.
"Inventory" shall mean all goods, inventory, merchandise and other
personal property, including, without limitation, goods in transit,
wherever located and whether now owned or hereafter acquired by the
Borrowers which is or may at any time be held for sale or lease, furnished
under any contract of service or held as raw materials, work in process,
supplies or materials used or consumed in the business of any of the
Borrowers or are or might be used in connection with the manufacturing,
shipping, advertising or selling or finishing of such goods, merchandise
and other personal property and all documents of title or documents
representing the same, and all such property the sale or other disposition
of which has given rise to Accounts and which has been returned to or
repossessed or stopped in transit by any of the Borrowers.
"Inventory Report" shall mean a report delivered to Lender by the
Borrowers, as required by Section 7.3, consisting of a detailed listing of
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all Inventory as of the date of such Inventory Report describing the kind,
type, quality, quantity, location and the lower of cost (computed on the
basis of a first-in, first-out cost flow assumption) or market value of
such Inventory and such other information as may, from time to time be
required by Lender.
"Leverage Ratio" shall mean as of the last day of any fiscal quarter
of the Borrowers the ratio of (i) the Borrowers' total consolidated
indebtedness to (ii) Tangible Net Worth.
"Liabilities" shall mean all of the Borrowers' liabilities,
obligations and indebtedness to Lender of any and every kind and nature,
whether primary, secondary, direct, absolute, contingent, fixed, or
otherwise (including, without limitation, the Loans, interest, charges,
expenses, attorneys' fees and other sums chargeable to the Borrowers by
Lender, future advances made to or for the benefit of the Borrowers and
obligations of performance), whether arising under this Agreement, under
any other Ancillary Agreement or acquired by Lender from any other source,
whether heretofore, now or hereafter owing, arising, due, or payable from
the Borrowers to Lender, however evidenced, created, incurred, acquired or
owing and however arising, whether under written or oral agreement,
operation of law, or otherwise.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien or charge whether arising by operation
of law or otherwise.
"Loan" or "Loans" shall mean any or all of the advance or advances to
be made by Lender pursuant to this Agreement.
"Loan Account" shall have the meaning ascribed to it in Section 4.1.
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"Net Income" shall mean net income, on a consolidated basis, for such
period of the Borrowers determined in accordance with GAAP (excluding any
extraordinary items, including, without limitation, income or expenses
related to foreign exchange,
swaps or other derivative transactions and changes in GAAP).
"Participant" shall mean any Person, now or at any time or times
hereafter, participating with Lender in the loans or other financial
accommodations made by Lender to the Borrowers pursuant to this Agreement
and the Ancillary Agreements.
"Permitted Liens" shall mean the following:
(i) Any Liens existing on the Closing Date and disclosed in
Exhibit "F" or arising under this Agreement or the other Ancillary
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Documents;
(ii) Liens for taxes, fees, assessments or other
governmental charges or levies on real property, either not delinquent
or being contested in good faith by appropriate proceedings;
(iii) Liens upon or in any Equipment acquired or held by any
of the Borrowers to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment in the original principal amount not to
exceed Seven Hundred fifty Thousand Dollars ($750,000).
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party, or government (whether national,
federal, state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department
thereof).
"Portion" shall mean an amount of any Loan which is less than the
entire outstanding principal balance of such Loan.
"Prepayment Fee" shall have the meaning ascribed to it in Section 2.6.
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"Prime Rate" shall mean the highest "Prime Rate" of interest quoted
from time to time by The Wall Street Journal, provided, however, that in
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the event that The Wall Street Journal ceases quoting a "Prime Rate",
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"Prime Rate" shall mean the per annum rate of interest quoted as the "Bank
Prime Loan" rate for the most recent weekday for which such rate is quoted
in Statistical Release H.15(519) published from time to time by the Board
of Governors of the Federal Reserve System, provided further that in the
event that both of the aforesaid indices cease to be published or to quote
rates of the aforesaid types, the "Prime Rate" shall be determined from a
comparable index chosen by Lender in good faith. The Prime Rate shall
change effective on the date of the publication of any change in the
applicable index by which such "Prime Rate" is determined.
"Prime Rate Loan" shall mean any Loan or any Portion of any Loan which
bears interest at a rate per annum based upon the Prime Rate.
"Renewal Term" shall have the meaning ascribed to it in Section 2.6.
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"Reportable Event" shall have the meaning ascribed to it in Section
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9.1(n).
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"Security Documents" shall mean this Agreement and all other
agreements, security agreements, instruments, documents, financing
statements, warehouse receipts, bills of lading, notices of assignment,
schedules, assignments, deeds of trust, Ancillary Agreements, mortgages and
other written matter necessary or requested by Lender to create, perfect
and maintain perfected, Lender's security interest in the Collateral.
"Subsidiary" shall mean, as of any date of determination thereof and
with respect to any Person, any corporation, partnership or joint venture,
whether now existing or hereafter organized or acquired: (a) in the case
of a corporation, of which a majority of the securities having ordinary
voting power for the election of directors or other governing body (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person, or (b) in the case of a partnership or joint
venture, of which such Person or a Subsidiary of such Person is a general
partner or joint venturer or of which a majority of the partnership or
other ownership interests are at the time owned by such Person and/or one
or more of its Subsidiaries.
"Special Collateral" shall have the meaning ascribed to it in Section
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5.3.
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"Stock" shall mean all shares, options, interests, participations or
other equivalents (however designated) of or in a corporation, whether
voting or non-voting, including, without limitation, common stock,
warrants, preferred stock, convertible debentures and all agreements,
instruments and documents convertible, in whole or in part, into any one or
more or all of the foregoing.
"Tangible Net Worth" shall mean, as of any particular date, the
difference between (a) the Borrowers' consolidated total assets as they
would normally be shown on the balance sheet of the Borrowers, but
excluding therefrom the aggregate amount of all of the Borrowers'
intangible assets, including but not limited to all values attributable to
goodwill, patents, copyrights, trademarks, trade names, licenses, prepaid
deposits and expenses, leasehold improvements net of depreciation, other
General Intangibles and Accounts due from Affiliates, and other intangible
assets as reasonably determined by Lender and (b) the Borrowers'
consolidated total liabilities and deferred charges (excluding subordinated
debt) as they would usually be shown on such balance sheet, including as
liabilities all guarantees of the indebtedness of Affiliates or any other
Person.
"Total Facility" shall have the meaning ascribed to it in Section 2.1.
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"Type" shall mean, with respect to any Loan, Borrowing or Portion at
any time, the classification of such Loan, Borrowing or Portion by the type
of interest rate it then bears, whether an interest rate based on the Prime
Rate or the Euro-Rate.
1.2 Accounting Terms. All accounting terms used in this Agreement which
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are not specifically defined shall have the respective meanings customarily
given them in accordance with generally accepted accounting principles,
consistently applied.
1.3 Other Terms. All other terms contained in this Agreement which are
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not otherwise defined in this Agreement shall, unless the context indicates
otherwise, have the respective meanings provided for by the Uniform Commercial
Code of the State of California to the extent the same are used or defined
therein.
2. LOANS: GENERAL TERMS
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2.1 Total Facility.
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(a) Revolving Loans. Lender agrees to make available for the
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Borrowers' use from time to time during the term of this Agreement, upon
the Borrowers' request therefor, certain Loans in an aggregate principal
amount outstanding not to exceed Fifteen Million Dollars ($15,000,000) (the
"Total Facility"). The Total Facility shall be subject to all of the terms
and conditions of this Agreement and shall consist of revolving advances
based upon the Eligible Accounts and Eligible Inventory of the Borrowers in
accordance with the following applicable advance rates and dollar
limitations:
An amount equal to the lesser of:
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(i) the sum of
(A) eighty-five percent (85%) of the Eligible
Accounts of the Borrowers, except for the Eligible Accounts
of the Digital Division, plus seventy-five percent (75%) of
the Eligible Accounts of the Digital Division (subject, in
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each case, to adjustment based upon dilution as detailed
below) and
(B) the sum of (1) the lesser of (aa) thirty-five
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percent (35%) of Eligible Demonstration Inventory and (bb)
One Million Five Hundred Thousand Dollars ($1,500,000) plus
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(2) the lesser of (aa) fifty percent (50%) of all Eligible
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Inventory other than Eligible Demonstration Inventory and
(bb) Five Million Dollars ($5,000,000) less the aggregate
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outstanding amount of Loans made on the basis of Eligible
Demonstration Inventory, or
(ii) Fifteen Million Dollars ($15,000,000).
Lender may, in the exercise of its reasonable discretion, at any
time and from time to time, increase or decrease the advance percentages to
be applied to Eligible Accounts and Eligible Inventory which are contained
in this Section. In the event such percentages are decreased, such
decrease shall become effective upon not less than ten (10) Business Days
notice to Borrower, unless an Event of Default has occurred and is
continuing or a material, negative audit finding has been made in which
case such decrease shall be effective immediately, for the purpose of
calculating the amount which Lender may be willing to advance, or allow to
remain outstanding, against Eligible Accounts and Eligible Inventory.
Without limiting the generality of the preceding paragraph,
Lender may adjust the advance rate for the Eligible Accounts of the
Borrowers based upon the historical dilution of such Eligible Accounts in
accordance with the matrix set forth below:
Dilution Advance Rate
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Less than 5% 85%
Greater than 5% but less than
or equal to 10% 80%
Greater than 10% 75%
Based upon Lender's understanding of the historical dilution
rates of the Borrowers' Accounts, the initial advance rate for the Eligible
Accounts of the Borrowers, except for the Digital Division, will be eighty-
five percent (85%) and the initial advance rate for the Digital Division
will be seventy-five percent (75%). Lender will permit increases in the
advance rate for the Eligible Accounts of the Digital Division (up to a
maximum limit of 85%) provided that Lender's auditors verify that the
dilution rate of the Accounts of the Digital Division during the preceding
six-month period warrants such increase pursuant to the matrix set forth
above.
The Borrowers may permanently reduce the Total Facility (to an
amount mutually acceptable to the Borrowers and Lender) without the
obligation to pay any amendment fee (other than attorneys' fees and
expenses incurred by Lender in preparing any required amendment documents)
or Prepayment Fee by paying down the Loans with the proceeds of an initial
public offering or a private placement of equity securities or subordinated
debt.
(b) Notice of Borrowing. The Borrowers shall request each Loan
-------------------
by delivering to Lender an irrevocable written notice in the form of
Exhibit "B", appropriately completed (a "Notice of Borrowing/Conversion"),
-----------
which specifies, among other things:
(i) The principal amount of the requested Loan Borrowing;
(ii) Whether the requested Loan(s) are to consist of Prime
Rate Loans or Euro Rate Loans; each Euro-Rate Loan shall be in a
minimum amount of $500,000 or an integral multiple of $100,000 in
excess thereof;
(iii) If the requested Loan(s) are to be Euro-Rate Loan(s),
the Interest Period selected by the Borrowers for such Loan(s) in
accordance with Section 2.1(e); and
--------------
(iv) The date of the requested Loan, which shall be a
Business Day.
The Borrowers shall give each Notice of Borrowing/Conversion to Lender at
least three (3) Business Days before the date of the requested Loan in the
case of a Loan which will be a Euro-Rate Loan and before 10:00 a.m. Pacific
time on the date of the requested Loan in the case of a Loan which will be
a Prime Rate Loan. Each Notice of Borrowing/Conversion shall be delivered
to Lender at the office or telecopy number
specified in Section 13.10; provided, however, that the Borrowers shall
-------------
promptly deliver to Lender the original of any Notice of
Borrowing/Conversion initially delivered by telecopy. Notwithstanding the
above, the Borrowers shall not have outstanding more than three (3) Euro-
Rate Loans at any one time during the Initial Term or any Renewal Term of
this Agreement.
(c) Interest Rates. The Borrowers shall pay interest on the
--------------
outstanding principal balance of each Loan from the date of such Loan until
such Loan is repaid, at one of the following rates per annum:
(i) During such periods as such Loan is a Prime Rate Loan,
at a rate per annum equal to the Prime Rate plus one-half percent
----
(0.5%), such rate to change from time to time as the Prime Rate shall
change; and
(ii) During such periods as such Loan is a Euro-Rate Loan,
at a rate per annum equal at all times during each Interest Period for
such Euro-Rate Loan to the Euro-Rate for such Interest Period plus
----
three and one-quarter percent (3.25%).
All outstanding Loans shall bear interest at one, and only one, of the
above rates. All computations of interest on Loans shall be based on
a year of 360 days for actual days elapsed.
(d) Conversion of Interest Rate on Loans. The Borrowers may
------------------------------------
convert outstanding Prime Rate Loans into Euro-Rate Loans and outstanding
Euro-Rate Loans into Prime Rate Loans; provided, however, that any
conversion of Euro-Rate Loans into Prime Rate Loans shall be made on, and
only on, the last day of an Interest Period for such Euro-Rate Loans. The
Borrowers shall request such a conversion by delivering to Lender an
appropriately completed Notice of Borrowing/Conversion, which specifies,
among other things:
(i) The Prime Rate Portion or the Euro-Rate Portion which
is to be converted;
(ii) The Type of Loans into which such Loans or Portion are
to be converted;
(iii) If Prime Rate Loans are to be converted into Euro-Rate
Loans, the Interest Period selected by the Borrowers for such Loans in
accordance with Section 2.1(e); and
--------------
(iv) The date of the requested conversion, which shall be a
Business Day.
The Borrowers shall give each Notice of Loan/Conversion to Lender at least
three (3) Business Days before the date of the requested conversion in the
case of a conversion into Euro-Rate Loans, and at least one (1) Business
Day before the date of the requested conversion in the case of a conversion
into Prime Rate Loans. Each Request for Loan/Conversion shall be delivered
to Lender at the office or to the
telecopy number specified in Section 13.10; provided, however, that the
-------------
provided, however, that the Borrowers shall Borrowers shall promptly
deliver to Lender the original of any Notice of Loan/Conversion initially
delivered by telecopy.
(e) Euro-Rate Interest Periods. The initial and each subsequent
--------------------------
Interest Period selected by the Borrowers for a Euro-Rate Loan shall be
thirty (30), sixty (60) or ninety (90) days; provided, however, that (A)
any Interest Period which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day, unless
such next Business Day falls in another calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day; (B)
any interest Period for a Euro-Rate Loan which begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; (C) no such
Interest Period shall end after the Initial Term or any Renewal Term; and
(D) no more than three (3) Loans bearing interest at the Euro-Rate may be
originated or converted in any one month. If the Borrowers fail to notify
Lender of the next Interest Period for Euro-Rate Loans in accordance with
this Section 2.1(e), such Loans shall automatically convert to Prime Rate
--------------
Loans on the last day of the current Interest Period therefor.
2.2 Advances to Constitute One Loan; Loan Purpose. All loans and advances
---------------------------------------------
by Lender to Borrower under this Agreement and the Ancillary Agreements shall
constitute one loan and all Liabilities of Borrower to Lender under this
Agreement and the Ancillary Agreements shall constitute one general obligation
secured by the Collateral.
2.3 Interest Rate. In no contingency or event whatsoever shall the rate
-------------
or amount of interest paid by the Borrowers under this Agreement or any of the
Ancillary Agreements exceed the maximum rate or amount permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Lender has
received interest hereunder or under any Ancillary Agreement in excess of the
maximum amount permitted by such law, (i) Lender shall apply such excess to any
unpaid principal owed by the Borrowers to Lender or, if the amount of such
excess exceeds the unpaid balance of such principal, Lender shall promptly
refund such excess interest to the Borrowers and (ii) the provisions hereof
shall be deemed amended to provide for such permissible rate. All sums paid, or
agreed to be paid, by the Borrowers which are, or hereafter may be construed to
be, compensation for the use, forbearance or detention of money shall, to the
extent permitted by applicable law, be amortized, prorated, spread and allocated
throughout the full term of all such indebtedness until the indebtedness is paid
in full.
2.4 Change of Circumstances.
-----------------------
(a) Inability to Determine Rates. If, on or before the first day
----------------------------
of any Interest Period of any Loan or Portion, (i) the Euro-Rate for such
Interest Period cannot be adequately and reasonably determined due to the
unavailability of funds in, or other circumstances affecting, the London
interbank market or (ii) the Euro-Rates of interest for such Loans or
Portions do not adequately and fairly reflect the cost to Lender of making
or maintaining such Loans or Portions, Lender shall
immediately give notice of such condition to Borrower. After the giving
of any such notice and until Lender shall otherwise notify the Borrowers
that the circumstances giving rise to such condition no longer exist, the
Borrowers' right to request the making of or conversion to, and Lender's
obligations to make or convert to Euro-Rate or Euro-Rate Portions of the
Type affected by such condition shall be suspended. Any Euro-Rate Loans
or Euro-Rate Portions of the Type affected by such condition outstanding
at the commencement of any such suspension shall be converted at the end
of the then current Interest Period for such Loans or Portions into
another Type of Loan or Portion not affected by such suspension unless
such suspension has then ended.
(b) Illegality. If, after the date of this Agreement the
----------
adoption of any Governmental Rule, any change in any Governmental Rule or
the application of requirements thereof (whether such change occurs in
accordance with the terms of such Governmental Rule as enacted, as a result
of amendment or otherwise), any change in the interpretation or
administration of any Governmental Rule by any Governmental Authority, or
compliance by Lender with any request or directive (whether of not having
the force of law) of any Governmental Authority (a "Change of Law") shall
make it unlawful or impossible for Lender to make or maintain any Euro-Rate
Loan or Euro-Rate Portion, Lender shall immediately notify the Borrowers of
such Change of Law. Upon receipt of such notice, (i) the Borrowers' right
to request the making of or conversion to, and Lender's obligations to make
or convert to, any Loans or Portions of the Type affected by such Change of
Law shall be terminated, and (ii) the Borrowers shall, at the request of
Lender, either (A) pursuant to Section 2.1(d), as the case may be, convert
--------------
any such then outstanding Loans or Portions into another Type of Loans or
Portions not affected by such Change of Law at the end of the current
Interest Period for such Loans or Portions, or (B) immediately repay or
convert any such Loans or Portions if Lender shall notify the Borrowers
that the Lender may not lawfully continue to fund and maintain such Loans
or Portions. Any conversion or prepayment of Loans or Portions made
pursuant to the preceding sentence prior to the last day of an Interest
Period for such Loans or Portions shall be deemed a prepayment thereof for
purposes of this Agreement.
(c) Increased Costs. If any Change of Law announced after the
---------------
date of this Agreement:
(i) Shall subject Lender to any tax, duty or other charge
with respect to any Euro-Rate Loan or Euro-Rate Portion, or shall
change the basis of taxation of payments by the Borrowers to Lender on
such a Loan or Portion or in respect to such a Loan or Portion under
this Agreement (except for changes in the rate of taxation on the
overall net income of Lender); or
(ii) Shall impose, modify or hold applicable any reserve,
special deposit or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by Lender for any Euro-
Rate Loan or Euro-Rate Portion; or
(iii) Shall impose on Lender any other condition related to
any Euro-Rate Loan or Euro-Rate Portion;
And the effect of any of the foregoing is to increase the cost to Lender of
making, renewing, or maintaining any such Euro-Rate Loan or Euro-Rate
Portion or to reduce any amount receivable by Lender hereunder; then the
Borrowers shall from time to time, upon demand by Lender, pay to Lender
additional amounts sufficient to reimburse Lender for such increased costs
or to compensate Lender for such reduced amounts showing the calculation
thereof in reasonable detail. A certificate as to the amount of such
increased costs or reduced amounts, submitted by Lender to the Borrowers
shall, in the absence of manifest error, be conclusive and binding on the
Borrowers for all purposes; provided, however, that the increased costs or
reduced amounts shall not relate to any period more than 180 days prior to
the date of such certificate.
(d) Capital Requirements. If, after the date of this Agreement,
--------------------
Lender determines that (i) any Change of Law announced after the date of
this Agreement affects the amount of capital required or expected to be
maintained by Lender or any Person controlling Lender (a "Capital Adequacy
Requirement") and (ii) the amount of capital maintained by Lender or such
Person which is attributable to or based upon the Loans or this Agreement
must be increased as a result of such Capital Adequacy Requirement (taking
into account Lender's or such Person's policies with respect to capital
adequacy), the Borrowers shall pay to Lender or such Person, upon demand of
Lender, such amounts as Lender or such Person shall determine are necessary
to compensate Lender or such Person for the increased costs to Lender or
such Person of such increased capital. A certificate of Lender setting
forth in reasonable detail the computation of any such increased costs,
delivered by Lender to the Borrowers shall, in the absence of manifest
error, be conclusive and binding on the Borrowers for all purposes;
provided, however, that the increased costs or reduced amounts shall not
relate to any period more than 180 days prior to the date of such
certificate.
2.5 Funding Loss Indemnification. If the Borrowers shall (a) repay or
----------------------------
prepay any Euro-Rate Loan or Euro-Rate Portion on any day other than the last
day of an Interest Period therefor (whether an optional prepayment, a mandatory
prepayment, a payment upon acceleration or otherwise) or (b) fail to borrow any
Euro-Rate Loan or Euro-Rate Portion for which a Notice of Borrowing has been
delivered to Lender (whether as a result of the failure to satisfy any
applicable conditions or otherwise), the Borrowers shall, upon demand by Lender,
reimburse Lender and hold Lender harmless for all costs and losses incurred by
Lender as a result of such repayment, prepayment or failure. The Borrowers
understand that such costs and losses may include, without limitation, losses
incurred by Lender as a result of funding and other contracts entered into by
Lender to fund a Euro-Rate Loan or Euro-Rate Portion. If Lender shall demand
payment under this Section 2.5, Lender shall deliver to the Borrowers a
-----------
certificate setting forth the amount of costs and losses for which demand is
made, showing the calculation thereof in reasonable detail. Such a certificate
so delivered to the Borrowers shall, in the absence of manifest error, be
conclusive and binding on the Borrowers as to the amount of such loss for all
purposes.
2.6 Term of Agreement; Prepayment; Liquidated Damages. This Agreement
-------------------------------------------------
shall be in effect until two (2) years from the date hereof (the "Initial
Term") and shall be automatically renewed thereafter for successive periods of
one year (each a "Renewal Term") unless terminated as provided below. Either
party shall have the right to terminate
this Agreement at the end of the Initial Term or at the end of any Renewal
Term by giving the other party at least ninety (90) days' prior written notice
of such termination. In the event the Borrowers give notice of termination and
the Total Facility is not paid in full at the end of the Initial Term or
Renewal Term, as applicable, upon the request of the Borrowers, but in
Lender's sole discretion, Lender can continue to make advances and renew this
Agreement for an additional year, upon such terms and conditions as Lender may
require. In the event Lender does not agree to continue to make advances and
renew the term for an additional year, all Liabilities shall be immediately
due and payable. This Agreement may also be terminated by Lender upon the
occurrence of a Default. Upon the effective date of any termination, all of
the Liabilities shall become immediately due and payable without presentment,
notice or demand. Notwithstanding any termination, until all of the
Liabilities shall have been fully and finally paid and satisfied, Lender shall
be entitled to retain its security interest in the Collateral, the Borrowers
shall continue to remit collections of Accounts and proceeds of Collateral as
provided in this Agreement, and Lender shall retain all of its rights and
remedies under this Agreement. During the Initial Term or any Renewal Term,
the Borrowers may, at their option, upon not less than thirty (30) days
written notice to Lender specifying the date of prepayment, terminate this
Agreement on the first day of any month prior to the end of the Initial Term
or any Renewal Term and prepay all of the Liabilities hereunder. In such
event, the Borrowers shall pay to Lender, for loss of the bargain and not as a
penalty, as liquidated damages and as compensation for the costs of Lender
being prepared to make funds available to the Borrowers under this Agreement,
an amount (the "Prepayment Fee") equal to the following applicable percentage
of the Total Facility:
Prepayment Date Applicable Prepayment Fee
--------------- -------------------------
After the Closing Date Two percent (2.0%) of the
and before the first Total Facility
anniversary of this
Agreement
From and after the first One and one-half percent
anniversary of this (1.50%) of the Total Facility
Agreement and before the
second anniversary of
this Agreement
During the first Renewal One percent (1.00%) of
Term of this Agreement the Total Facility
At any time after the first Zero percent (0.00%) of
Renewal Term of this Agreement the Total Facility
The Borrowers shall also be responsible to pay, in every event, Euro-
Rate breakage penalties pursuant to Section 2.5, and if any fixed rate Loan is
-----------
outstanding, the Borrowers agree to pay an additional prepayment charge equal
to the actual loss, if any, that may be sustained by Lender through
redeployment of the funds loaned to the Borrowers at the then prevailing
interest rates.
2.7 Credit Availability Charge. To compensate Lender for the costs of
--------------------------
being prepared to make funds available to the Borrowers, the Borrowers agree
that if, during any such month, the daily average outstanding borrowings under
the Total Facility is less than Seven Million Five Hundred Thousand Dollars
($7,500,000), then the Borrowers shall pay to Lender at the end of each such
month a Credit Availability Charge, in addition to accrued
interest on the outstanding Liabilities, equal to such shortfall times the
applicable Prime Rate based interest rate for the Loans. The Credit
Availability Charge is in addition to any other applicable fees and charges
and shall be payable for the entire period covered by the Initial Term and
each Renewal Term, unless this Agreement is terminated by the Borrowers
pursuant to Section 2.6 above and the Borrowers have paid the applicable
-----------
Prepayment Fee and Euro-Rate breakage penalties. The Credit Availability
Charge shall be payable monthly during the Initial Term and during each
Renewal Term or immediately upon termination if this Agreement is terminated
prior to the end of the Initial Term or a Renewal Term.
2.8 Audit Fee. The Borrowers shall pay to Lender its reasonable costs and
---------
expenses incurred during the course of field examinations and audits, which
Lender will conduct on a quarterly basis prior to the existence of a Default and
as frequently as Lender may require following the occurrence and during the
continuance of a Default, including a per diem charge for examiners in the field
and office at Lender's then prevailing rate (currently $750 per person per day),
not to exceed aggregate examiners' charges of $3,000 plus reasonable costs and
expenses for any one field examination or audit occurring prior to a Default.
2.9 Loan Fee. The Borrowers shall pay Lender in cash, on the Closing
--------
Date, a Loan Fee equal to one percent (1.00%) of the Total Facility, with such
Loan Fee being credited on the Closing Date with the $50,000 portion of the
commitment fee previously paid by the Borrowers to Lender.
2.10 Unused Line Fee. The Borrowers shall pay to Lender each month, an
---------------
unused line fee equal to one-half percent (0.5%) per annum of the difference
between the Total Facility and the daily average outstanding principal balance
of the Loans for the prior month.
2.11 Commitment Fee. The Borrowers shall pay to Lender in cash, on the
--------------
Closing Date, the balance ($100,000) of the commitment fee payable by the
Borrowers to Lender in connection with Lender's commitment to provide the
Borrowers with the Loans contemplated hereunder, which commitment fee was fully
earned upon Borrowers' acceptance of Lender's commitment letter to the
Borrowers dated August 14, 1998.
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY
-------------------------------------
3.1 Eligible Accounts. Upon the Borrowers' delivery to Lender of a Daily
-----------------
Collateral Report, Lender shall, in its reasonable discretion, determine which
individual Accounts listed thereon are Eligible Accounts. Unless otherwise
agreed to by Lender, Eligible Accounts shall, at all times, be subject to the
following requirements for eligibility:
(a) If the Account arises from the sale of goods, such goods
shall have been shipped or delivered on open account and on an absolute
sale basis and not on consignment, on approval or on a sale-or-return basis
and shall not be subject to any other repurchase or return agreement and no
material part of such goods shall have been returned (other than returns
described in Section 7.4), repossessed, rejected, lost or damaged;
-----------
(b) The Account shall not be evidenced by chattel paper or an
instrument of any kind;
(c) The Account Debtor obligated on such Account shall not be
suspended from doing business, insolvent or the subject of any bankruptcy
or insolvency proceeding of any kind, or the subject of an assignment for
the benefit of creditors, or have had a receiver or trustee appointed for a
significant portion of its assets, and Lender shall be satisfied with the
creditworthiness of such Account Debtor;
(d) The Account Debtor obligated on such Account shall not be a
supplier to or creditor of any Borrower unless Borrower has a written
agreement with the Account Debtor in a form acceptable to Lender which
provides that such Account Debtor's Accounts are independent of and not be
subject to any right of offset whatsoever for any obligation or debt owed
by Borrower to such Account Debtor;
(e) If the Account is owing from an Account Debtor located
outside the United States, such Account Debtor shall have furnished the
applicable Borrower with an irrevocable letter of credit issued or
confirmed by a financial institution acceptable to Lender, which letter of
credit shall be in form and substance acceptable to Lender, pledged to
Lender, and be payable in United States dollars in an amount not less than
the face value of the Account;
(f) The Account shall be a valid, legally enforceable obligation
of the Account Debtor and such Account Debtor shall not have asserted, nor
be entitled to any offset, counterclaim or defense denying liability
thereunder;
(g) The Account shall be subject to and covered by Lender's
perfected security interest and shall not be subject to any other lien,
claim, encumbrance or security interest;
(h) The Account shall be evidenced by an invoice or other
documentation in form acceptable to Lender;
(i) The Account shall not have remained unpaid for a period
exceeding ninety (90) days after the original invoice date of the related
invoice and not more than fifty percent (50%) of the balance of all
Accounts owing from the Account Debtor obligated under such Account have
remained unpaid for more than ninety (90) days after the invoice date of
the related invoices or otherwise be deemed ineligible;
(j) If the Account Debtor is located in the State of New Jersey
or the State of Minnesota, Borrower shall have filed a Notice of Business
Activities Report with the appropriate agency in New Jersey or Minnesota,
as applicable, for the then current year;
(k) The Account shall not be owing from an employee, officer,
agent, director, stockholder of Borrower or any Affiliate or from the
United States of America or any department, agency or instrumentality
thereof;
(l) The aggregate amount of Accounts from an Account Debtor shall
not, at any time, exceed fifteen percent (15%) of the aggregate amount of
existing Eligible Accounts;
(m) The Account shall be one against which Lender is legally
permitted to make loans and advances;
(n) The Account shall not involve a contract requiring a
Borrower to provide goods or render services for a term of longer than one
hundred twenty (120) days;
(o) Each of the warranties and representations set forth in
Section 9.2 shall be reaffirmed with respect to such Account at the time
-----------
that the most recent Daily Collateral Report was delivered to Lender; and
(p) The Account shall otherwise be acceptable to Lender, in its
reasonable discretion.
3.2 Eligible Inventory. Upon the Borrowers' delivery to Lender of an
------------------
Inventory Report, Lender shall, in its reasonable discretion, determine which
items of Inventory listed thereon are Eligible Inventory. Unless otherwise
agreed to by Lender, Eligible Inventory shall, at all times, be subject to the
following requirements for eligibility:
(a) The item of Inventory shall constitute raw materials or
finished goods, shall be in good condition, meet all standards imposed by
any governmental agency or department or division thereof having regulatory
authority over such goods or their use or sale, shall be either currently
usable or currently saleable in the ordinary course of a Borrower's
business and shall not otherwise be unacceptable to Lender due to age,
type, category, quality or quantity;
(b) The item of Inventory shall be located at one of the
locations listed on Exhibit "C" attached hereto, shall be subject to and
-----------
covered by Lender's perfected security interest and shall not be subject to
any other lien, claim, encumbrance or security interest;
(c) The item of Inventory shall not have been consigned, sold or
leased to any Person;
(d) The item of Inventory shall not have been purchased by a
Borrower in or as part of a bulk transfer or sale of assets unless there
was compliance, or an exemption from compliance, with all applicable bulk
sales or transfer laws;
(e) The item of Inventory may have been relieved from a
Borrower's Inventory supply and may be accounted for by such Borrower as an
"unbilled" Account, provided such Borrower can document the status of such
item of Inventory to Lender's satisfaction;
(f) Each of the warranties and representations set forth in
Section 9.3 shall be reaffirmed with respect to such item of Inventory at
-----------
the time that the most recent Inventory Report was delivered to Lender; and
(g) The item of Inventory shall otherwise be acceptable to
Lender, in its reasonable discretion.
4. PAYMENTS
--------
4.1 Loan Account; Method of Making Payments. Lender shall maintain a loan
---------------------------------------
account (the "Loan Account") on its books in which shall be recorded (i) all
Loans made by Lender to the Borrowers pursuant to this Agreement, (ii) all
payments made by the Borrowers on all such Loans and (iii) all other appropriate
debits and credits as provided in this Agreement, including, without limitation,
all fees, charges, expenses and interest. All entries in the Loan Account shall
be made in accordance with Lender's customary accounting practices as in effect
from time to time. Unless otherwise agreed to in writing, all payments which
the Borrowers are required to make to Lender under this Agreement or under any
of the Ancillary Agreements shall be made by appropriate debits to the Loan
Account. Lender may, in its discretion, elect to xxxx the Borrowers for the
amount of any such payment in which case such amount shall be immediately due
and payable with interest thereon at the rate set forth in Section 2.3.
-----------
4.2 Payment Terms. Unless otherwise expressly provided in writing, the
-------------
Liabilities will be repayable as follows: (i) interest shall be payable on the
first day of each month (for the immediately preceding month) out of the first
collections received with respect to any proceeds of Collateral, (ii) fees,
costs, expenses and similar charges shall be payable as and when provided for in
this Agreement or the Ancillary Agreements and (iii) the principal balance of
the Liabilities shall be payable from collections received with respect to any
proceeds of Collateral as such proceeds are received; provided, however, that if
at any time the outstanding principal balance of the Loans exceed the applicable
percentage or dollar limitations set forth in Section 2.1(a), or the outstanding
--------------
principal balance of all of the Liabilities exceeds the Total Facility, Borrower
shall immediately pay to Lender such amount as is necessary to eliminate such
excess. All of the Liabilities shall be payable at the address set forth in
Section 13.10. Nothing contained in this Section shall authorize Borrower to
-------------
sell, lease or otherwise dispose of any Collateral other than as expressly set
forth in Sections 6.4, 7.1 and 8.3.
------------ --- ---
4.3 Collection of Accounts and Payments. The Borrowers shall establish
-----------------------------------
such blocked accounts or lockbox accounts as Lender may require, into which the
Borrowers will immediately deposit all remittances and proceeds of the
Collateral in the identical form in which such payment was made, whether by cash
or check. The banks with which such accounts are maintained (collectively, the
"Depository Banks") shall acknowledge and agree, in a manner satisfactory to
Lender, that all payments made to such accounts are the sole and exclusive
property of Lender, that the Depository Banks have no right of setoff against
the funds in such accounts and that the Depository Banks will wire, or otherwise
transfer immediately available funds in a manner satisfactory to Lender, funds
deposited in such accounts to Lender on a daily basis as soon as such funds are
collected. The Borrowers hereby agree that all payments made to such accounts
or otherwise received by Lender,
whether on the Accounts or as proceeds of other Collateral or otherwise, will
be the sole and exclusive property of Lender and will be applied on account of
the Liabilities. After allowing one (1) business day for collection after such
funds are received by Lender, Lender will credit (conditional upon final
collection) all payments received through such accounts to the Loan Account.
The Borrowers and any Affiliates, shareholders, directors, officers,
employees, agents of the Borrowers and all Persons acting for or in concert
with the Borrowers who receive any monies, checks, notes, drafts or any other
payments relating to or proceeds of Accounts or other Collateral which come
into their possession or under their control shall, acting as trustee for
Lender, hold such property as the sole and exclusive property of Lender and
immediately upon receipt thereof, shall remit the same or cause the same to be
remitted, in kind, to Lender. The Borrowers agree to pay to Lender any and all
fees, costs and expenses (if any) which Lender incurs in connection with
opening and maintaining the accounts and depositing for collection by Lender
any check or item of payment received or delivered to any Depository Bank or
Lender on account of the Liabilities and the Borrowers further agree to
reimburse Lender for any claims asserted by any Depository Bank in connection
with any account or any returned or uncollected checks received by any
Depository Bank for deposit in the accounts.
4.4 Application of Payments and Collections. The Borrowers irrevocably
---------------------------------------
waive the right to direct the application of payments and collections received
by Lender from or on behalf of the Borrowers, and the Borrowers agree that
Lender shall have the continuing exclusive right to apply and reapply any and
all such payments and collections against the Liabilities in such manner as
Lender may deem appropriate, notwithstanding any entry by Lender upon any of its
books and records. To the extent that the Borrowers make a payment or payments
to Lender or Lender receives any payment or proceeds of the Collateral for the
Borrowers' benefit, which payment(s) or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent such payment or proceeds received are so set aside, invalidated,
required to be repaid or the like, the Liabilities or part thereof intended to
be satisfied shall be revived and shall continue in full force and effect, as if
such payments or proceeds had not been received by Lender.
4.5 Statements. All Loans and all other debits and credits provided for
----------
in this Agreement, shall be evidenced by entries made by Lender in its internal
data control systems showing the date, amount and reason for each such debit or
credit. Until such time as Lender shall have rendered to the Borrowers written
statements of account as provided herein, the balance in the Loan Account, as
set forth on Lender's most recent statement, reasonably maintained, shall be
presumptive evidence of the amounts due and owing to Lender by the Borrowers.
Not more than ten (10) days after the final day of each calendar month, Lender
shall render to the Borrowers a statement setting forth the balance of the Loan
Account, and such other information in substantially the form attached hereto as
Exhibit "I". Each such statement shall be subject to subsequent adjustment by
Lender and Lender's right to reapply payments in accordance with Section 4.4,
-----------
but shall, absent manifest errors or omissions, be presumed correct and binding
upon the Borrowers and shall constitute an account stated unless, within thirty
(30) days after receipt of any statement from Lender, the Borrowers shall
deliver to Lender written objection thereto specifying the error or errors, if
any, contained in such statement.
5. COLLATERAL: GENERAL TERMS
-------------------------
5.1 Security Interest. To secure the prompt payment to Lender of the
-----------------
Liabilities, the Borrowers hereby grant to Lender a continuing security interest
in and to all of the following property and interest in property of the
Borrowers, whether now owned or existing or hereafter acquired or arising and
wherever located: (i) all Accounts, Inventory, Equipment, contract rights,
General Intangibles, tax refunds, chattel paper, instruments, letters of credit,
investment property, documents and documents of title; (ii) all of the
Borrowers' deposit accounts (general or special) including those maintained with
the Depository Bank or any other financial institution (iii) all monies, and any
and all other property of the Borrowers now or hereafter coming into the actual
possession, custody or control of Lender or any agent or affiliate of Lender in
any way or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise); (iv) all insurance proceeds of or
relating to any of the foregoing; (v) all of the Borrowers' Computers, books and
records; and (vi) all accessions and additions to, substitutions for, and
replacements, products and proceeds of any of the foregoing.
5.2 Disclosure of Security Interest. The Borrowers shall make appropriate
-------------------------------
entries upon their financial statements and books and records disclosing
Lender's security interest in the Collateral.
5.3 Special Collateral. Immediately upon the Borrowers' receipt of any
------------------
Collateral which is evidenced or secured by an agreement, chattel paper, letter
of credit, instrument or document, including, without limitation, promissory
notes, certificated securities, documents of title and warehouse receipts (the
"Special Collateral"), the Borrowers shall deliver the original thereof to
Lender or to such agent of Lender as Lender shall designate, together with
appropriate endorsements, the documents required to draw thereunder (as may be
relevant to letters of credit) or other specific evidence (in form and substance
acceptable to Lender) of assignment thereof to Lender and shall take such
actions as Lender may require to perfect Lender's security interest in such
Special Collateral and any collateral securing such Special Collateral.
5.4 Further Assurances. At Lender's request, the Borrowers shall, from
------------------
time to time, (i) execute and deliver to Lender all Security Documents that
Lender may reasonably request, in form and substance acceptable to Lender, and
pay the costs of any recording or filing of the same and (ii) take such other
actions as Lender may reasonably request in order to fully effect the purposes
of this Agreement and to protect Lender's interest in the Collateral. Upon the
occurrence and during the continuance of any Default, the Borrowers hereby
irrevocably make, constitute and appoint Lender (and all Persons designated by
Lender for that purpose) as the Borrowers' true and lawful attorney and agent-
in-fact to sign the name of the Borrowers on any of the Security Documents and
to deliver any of the Security Documents to such Persons as Lender, in its sole
discretion, may elect. This power of attorney is coupled with an interest. The
Borrowers agree that a carbon, photographic, photostatic, or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement.
5.5 Inspection. Lender (by any of its officers, employees or agents)
----------
shall have the right, at any time or times during the Borrowers' usual business
hours, without prior notice, to
inspect the Collateral, all records related thereto (and to make extracts from
such records) and the premises upon which any of the Collateral is located, to
discuss the Borrowers' affairs and finances with any Person and to verify the
amount, quality, value and condition of, or any other matter relating to, the
Collateral. The Borrowers shall pay all costs and expenses incurred by Lender
in the course of periodic audits and examinations of the Collateral and the
Borrowers' operations, which Lender will conduct on a quarterly basis prior to
a Default and as frequently as Lender may require after a Default, plus a per
diem charge at Lender's then prevailing rate (currently $750 per person per
day) for its auditors and examiners in the field and office, not to exceed
aggregate examiners' charges of $3,000 plus reasonable costs and expenses for
any one field audit or examination occurring prior to a Default.
5.6 Perfection and Priority; Location of Collateral. The Borrowers'
-----------------------------------------------
respective chief executive offices, principal places of business and all other
offices and locations of the Collateral and books and records related thereto
(including, without limitation, the Computers, computer programs, printouts and
other computer materials and records concerning the Collateral) are set forth on
Exhibit "C" attached hereto. The Borrowers shall not remove their respective
-----------
books and records or the Collateral from any such locations (except for removal
of items of Inventory upon their sale in accordance with the terms of this
Agreement) and shall not open any new offices or relocate any of their
respective books and records or the Collateral except within the continental
United States of America and with at least thirty (30) days' prior written
notice thereof to Lender.
5.7 Lender's Payment of Claims Asserted Against Collateral. Lender may,
------------------------------------------------------
but shall not be obligated to, at any time or times hereafter, in its sole
discretion, and without waiving any Default or waiving or releasing any
obligation, liability or duty of the Borrowers under this Agreement or the
Ancillary Agreements, pay, acquire or accept an assignment of any security
interest, lien, claim or other encumbrance asserted by any Person against the
Collateral. All sums paid by Lender under this Section, including all costs,
fees (including reasonable attorneys' fees), expenses and other charges relating
thereto, shall be payable by the Borrowers to Lender on demand and shall be
additional Liabilities secured by the Collateral.
6. COLLATERAL: ACCOUNTS
--------------------
6.1 Verification of Accounts. Any of Lender's officers, employees or
------------------------
agents shall have the right, at any time or times hereafter, in the applicable
Borrower's or Lender's name or tradestyle or in the name of a firm of
independent certified public accountants acceptable to Lender, to verify the
validity, amount or any other matters relating to any Accounts by mail,
telephone, telegraph or otherwise.
6.2 Assignments, Records and Daily Collateral Report. The Borrowers shall
------------------------------------------------
keep accurate and complete records of the Accounts and, as frequently as Lender
shall require, but not less frequently than twice weekly, the Borrowers shall
deliver to Lender a Daily Collateral Report and formal written assignments of
all Accounts, together with copies of the invoices related thereto. The
Borrowers shall also deliver to Lender, upon demand, the original copy of all
documents, including, without limitation, repayment histories, present status
reports and shipment reports, relating to the Accounts included in any Daily
Collateral
Report and such other matters and information relating to the status of then
existing Accounts as Lender shall reasonably request.
6.3 Notice Regarding Disputed Accounts. The Borrowers shall give Lender
----------------------------------
prompt notice of any Accounts which, for an Account Debtor, aggregate in excess
of Twenty-Five Thousand Dollars ($25,000) and which are in dispute between such
Account Debtor and a Borrower. In addition, each Daily Collateral Report shall
identify all disputed Accounts and disclose, in reasonable detail, the reason
for the dispute, all claims related thereto and the amount in controversy.
6.4 Sale or Encumbrance of Accounts. The Borrowers shall not, without the
-------------------------------
prior written consent of Lender, sell, transfer, grant a security interest in or
otherwise dispose of or encumber any of the Accounts to any Person other than
Lender.
7. COLLATERAL: INVENTORY
---------------------
7.1 Sale of Inventory. Unless a Default occurs, the Borrowers may sell
-----------------
Inventory in the ordinary course of their respective businesses (which does not
include a transfer in partial or total satisfaction of Indebtedness, sales in
bulk, sales on consignment or sales on an approval or a sale or return basis).
All proceeds of such sales shall be part of the Collateral and remitted to the
special account referred to in Section 4.3. The Borrowers shall not, except as
-----------
set forth in this Section, rent, lease or otherwise transfer or dispose of any
of the Inventory without Lender's prior written consent.
7.2 Safekeeping of Inventory; Inventory Covenants. The Borrowers shall
---------------------------------------------
maintain all Inventory in good and saleable condition at all times. Lender
shall not be responsible for (i) the safekeeping of the Inventory; (ii) any loss
or damage thereto or destruction thereof occurring or arising in any manner or
fashion from any cause; (iii) any diminution in the value of Inventory or (iv)
any act or default of any carrier, warehouseman, bailee or forwarding agency or
any other Person in any way dealing with or handling the Inventory. All risk of
loss, damage, distribution or diminution in value thereof shall be borne by the
Borrowers.
7.3 Records and Schedules of Inventory. The Borrowers shall keep correct
----------------------------------
and accurate daily records on a first-in, first-out basis, itemizing and
describing the kind, type, quality and quantity of Inventory, the Borrowers'
cost therefor and selling price thereof, and the daily withdrawals therefrom and
additions thereto and Inventory then on consignment, if any, provided that
Lender's prior written consent to such consignment must be obtained, and shall
furnish to Lender, monthly by the fifteenth (15th) day of the following month,
a current updated Inventory Report, based on a first in-first out cost
assumption. A physical count of the Inventory shall be conducted no less often
than semi-annually and a report based on such count of the Inventory shall
promptly be provided to Lender together with such supporting information
including, without limitation invoices relating to Borrowers' purchase of goods
listed in said Report, as Lender shall, in its sole discretion, request.
7.4 Returned and Repossessed Inventory. If at any time prior to the
----------------------------------
occurrence of a Default, any Account Debtor returns any of the Inventory to a
Borrower, such Borrower shall promptly determine the reason for such return and,
if Borrower accepts such return, issue a credit memorandum (with a copy to be
immediately sent to Lender) in the appropriate
amount to such Account Debtor; provided, however, that no Borrower shall,
without the prior consent of Lender, accept on any single day, returned
Inventory the sale price of which was in excess of Twenty-Five Thousand
Dollars ($25,000) in the aggregate. After the occurrence of a Default, the
Borrowers shall hold all returned Inventory in trust for Lender, shall
segregate all returned Inventory from all other property of the Borrower or in
the Borrowers' possession and shall conspicuously label such returned
Inventory as the property of Lender. The Borrowers shall, in all cases,
immediately notify Lender of the return of any Inventory, specifying the
reason for such return and the location and condition of the returned
Inventory.
7.5 Evidence of Ownership of Inventory. The Borrowers shall, upon
----------------------------------
Lender's request, deliver to Lender all evidence of ownership of the Inventory.
8. COLLATERAL: EQUIPMENT
---------------------
8.1 Maintenance of the Equipment. The Borrowers shall keep and maintain
----------------------------
the Equipment in good operating condition and repair and shall make all
necessary replacements thereof so that the value, utility and operating
efficiency thereof shall at all times be maintained and preserved and shall
promptly inform Lender of any material additions to or deletions from the
Equipment. The Borrowers shall not permit any such Equipment to become affixed
to real estate in such manner that such Equipment will become a fixture or an
accession to other personal property.
8.2 Evidence of Ownership of Equipment. The Borrowers shall, upon
----------------------------------
Lender's request, deliver to Lender all evidence of ownership of the Equipment
(including, without limitation, bills of sale, certificates of title and
applications for title).
8.3 Proceeds of the Equipment. The Borrowers shall not sell, transfer,
-------------------------
lease, grant a security interest in (other than a Permitted Lien) or otherwise
dispose of or encumber the Equipment or any part thereof to any Person other
than Lender; provided, however, that in any fiscal year of the Borrowers, the
Borrowers may sell or otherwise dispose of Equipment with an aggregate net book
value not to exceed Fifty Thousand Dollars ($50,000). In the event any
Equipment is sold, transferred or otherwise disposed of as permitted in this
Section, the Borrowers shall promptly notify Lender of such fact and deliver all
of the cash proceeds of such sale, transfer or disposition to Lender, which
proceeds shall be applied to the repayment of the Liabilities; provided,
however, that with Lender's prior consent the Borrowers may use the proceeds of
such sale, transfer or disposition to finance the purchase of replacement
Equipment in which Lender has a first, perfected security interest documented to
the satisfaction of Lender. The Borrowers shall deliver to Lender written
evidence of the use of the proceeds for such purchase. All replacement
Equipment purchased by the Borrowers shall be free and clear of all liens,
claims, security interests and other encumbrances, except for the security
interest granted to Lender and Permitted Liens.
9. WARRANTIES AND REPRESENTATIONS
------------------------------
9.1 General Warranties and Representations. The Borrowers warrant and
--------------------------------------
represent that:
(a) Existence and Qualification. Each Borrower is a corporation
---------------------------
duly organized and validly existing and in good standing under the laws of
the state of its incorporation and is qualified or licensed as a foreign
corporation to do business in all other countries, states and provinces in
which the laws thereof require such Borrower to be so qualified or
licensed;
(b) Other Names. No Borrower has used, during the five (5) year
-----------
period preceding the date of this Agreement, nor does any Borrower intend
to use, any other corporate or fictitious name, except as disclosed in
Exhibit "D" attached hereto;
-----------
(c) Authority and Power. Each Borrower has the right and power
-------------------
and is duly authorized and empowered to enter into, execute, deliver and
perform this Agreement and the Ancillary Agreements;
(d) Compliance with Law and Other Agreements. The execution,
----------------------------------------
delivery and performance by each Borrower of this Agreement and the
Ancillary Agreements shall not, by their execution or performance, the
lapse of time, the giving of notice or otherwise, constitute a material
violation of any applicable law, rule, regulation, judgment, order or
decree or a breach of any provision contained in such Borrower's charter
documents or by-laws or contained in any agreement, instrument, indenture
or other document to which such Borrower is now a party or by which it is
bound;
(e) Use of Proceeds. Each Borrower's use of the proceeds of any
---------------
advances made by Lender are, and will continue to be used for, legal and
proper corporate uses (duly authorized by its board of directors, in
accordance with applicable law, rule or regulation) and such uses are and
will be consistent with all applicable laws, rules and regulations;
(f) Governmental Approvals. Each Borrower has, and is current
----------------------
and in good standing with respect to, all material governmental approvals,
permits, certificates, inspections, consents and franchises necessary to
conduct and to continue to conduct its present business as heretofore
conducted by it and to own or lease and operate its properties as now owned
or leased and operated by it; and to the best knowledge of each Borrower,
none of said governmental approvals, permits, certificates, consents or
franchises contains any term, provision, condition or limitation more
burdensome than such as are generally applicable to Persons engaged in the
same or similar business as such Borrower;
(g) Solvency. Each Borrower now has capital sufficient to carry
--------
on its business and transactions and is now solvent and able to pay its
debts as they mature and each Borrower now owns property the fair saleable
value of which is greater than the amount required to pay such Borrower's
debts;
(h) No Litigation, Indebtedness or Guaranties. Except as
-----------------------------------------
disclosed on Exhibit "E" attached hereto, no Borrower has any litigation
-----------
pending, or to the best of its knowledge, threatened, and no Indebtedness
(except for trade payables arising
in the ordinary course of its business since the dates reflected in the
Financials) and has not guaranteed the obligations of any other Person;
(i) No Other Adverse Agreements or Arrangements. No Borrower is
-------------------------------------------
a party to any contract or agreement or subject to any charge, restriction,
judgment, decree or order materially and adversely affecting its business,
property, assets, operations or condition, financial or otherwise, and is
not a party to any labor dispute, lockout, strike or walkout relating to
any labor contracts and no such contract is scheduled to expire during the
Initial Term;
(j) Good Title. Each Borrower has good, indefeasible and
----------
merchantable title to, and ownership of, the Collateral, free and clear of
all liens, claims, security interests and other encumbrances, except those
of Lender and those described on Exhibit "F" attached hereto;
-----------
(k) No Violation of Laws. No Borrower is in violation of any
--------------------
applicable statute, rule, regulation or ordinance of any governmental
entity, including, without limitation, the United States of America, any
state, city, town, municipality, county or of any other jurisdiction, or of
any agency thereof, in any respect materially and adversely affecting the
Collateral or such Borrower's business, property, assets, operations or
condition, financial or otherwise;
(l) No Lien or Borrowing Defaults. No Borrower is in default
-----------------------------
under any indenture, loan agreement, mortgage, lease, deed of trust or
other similar agreement relating to the borrowing of monies or encumbering
of assets to which it is a party or by which it is bound;
(m) Financials. The Financials fairly present the assets,
----------
liabilities and financial condition and results of operations of the
Borrowers and such other Persons described therein as of the dates thereof;
there are no omissions or other facts or circumstances which are or may be
material and there has been no material and adverse change in the assets,
liabilities or financial or other condition of the Borrowers since the date
of the Financials; there exist no equity or long term investments in or
outstanding advances to any Person not reflected in the Financials; there
are no actions or proceedings which are pending or, to the best of the
Borrowers' knowledge, threatened, against any Borrower or any other Person
which might result in any material adverse change in the Borrowers'
financial condition or materially and adversely affect the Borrowers'
operations, their assets or the collateral;
(n) ERISA. No Borrower has received a notice to the effect that
-----
it is not in full compliance with any of the requirements of ERISA, and the
regulations promulgated thereunder and, to the best of knowledge of each
Borrower, there exists no event described in Section 4043 of ERISA,
excluding subsections 4043(b)(2) and 4043 (b)(3) thereof ("Reportable
Event"), with respect to any Borrower, and neither any of the Borrowers nor
any Person who is a member of the Borrowers' controlled group for Federal
income tax purposes has directly or indirectly, caused or permitted any of
the following to occur: (i) restated or amended any pension, profit-
sharing, savings, stock bonus, or other deferred compensation plans
established and
maintained by it which are subject to ERISA since ERISA became effective
with respect to such plans in a manner designed to or which would
disqualify those plans and their related trusts under the applicable
requirements of the Internal Revenue Code of 1986, as amended (the
"IRC"); (ii) permitted any of its officers to materially and adversely
affect the qualified tax-exempt status of any of its pension, profit-
sharing, savings, stock bonus or other deferred compensation plans and
trusts under the IRC; (iii) engaged in or permitted any officer to engage
in any "prohibited transaction" as defined in Section 406 of ERISA or
Section 4975 of the IRC; (iv) incurred any "accumulated funding
deficiency" as defined in Section 302 of ERISA or Section 412(a) of the
IRC, whether or not waived in connection with any pension, profit-
sharing, savings, stock bonus or other deferred compensation plans; (v)
taken or failed to take any action which caused or may cause a
termination of any pension plan in a manner which could result in the
imposition of a lien on any Borrower's property pursuant to Section 4068
of ERISA; (vi) failed to notify Lender that notice has been received of a
"termination" (as defined in ERISA) of any "multi-employer plan" (as
defined in ERISA) to which such Borrower has an obligation to contribute;
(vii) incurred a "complete withdrawal" (as defined in ERISA) from any
"multi-employer plan" to which such Borrower has an obligation to
contribute; (viii) incurred a "partial withdrawal" (as defined in ERISA)
from any "multi-employer plan" to which such Borrower has an obligation
to contribute; or (ix) failed to notify Lender that notice has been
received from the Administrator of any "multi-employer plan" to which
such Borrower has an obligation to contribute that any such plan will be
placed in "reorganization" as defined in ERISA;
(o) Taxes. Each Borrower has filed all federal, state and local
-----
tax returns and other reports, or has been included in consolidated returns
or reports filed by an Affiliate, which such Borrower is required by law,
rule or regulation to file and all Charges that are due and payable have
been paid;
(p) No Securities. The Borrowers' execution and delivery of this
-------------
Agreement or any of the Ancillary Agreements does not directly or
indirectly violate or result in a violation of any applicable laws, rules
or regulations, including without limitation, the Securities Exchange Act
of 1934, as amended, and Regulations U, G, T and X of the Board of
Governors of the Federal Reserve System (12 CFR 221, 207, 220 and 224,
respectively), and the Borrowers do not own or intend to purchase or carry
any "margin security," as defined in such Regulations.
(q) Affiliates. All Persons who are Affiliates of the Borrowers
----------
at this time are identified on Exhibit "G" hereto;
-----------
(r) Subsidiaries. Exhibit "G" correctly sets forth the names,
------------ -----------
forms of legal entity and jurisdictions of formation of all Subsidiaries of
the Borrowers. Except as described in Exhibit "G", the Borrowers do not
-----------
own any capital stock, partnership interest, joint venture interest or
other equity interest in any Person. Unless otherwise indicated in Exhibit
-------
"G", all of the outstanding shares of capital stock or partnership or joint
---
venture interests of each Subsidiary of the Borrowers are owned of record
and beneficially by the applicable Borrower, and all securities and
interests so owned are duly authorized, validly issued, fully paid, non-
assessable and issued in compliance with all applicable state and federal
securities and other laws, and are
free and clear of all liens. Each Subsidiary of the Borrowers is a legal
entity duly formed, validly existing and in good standing under the laws
of its jurisdiction of formation, is duly qualified or registered to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or the ownership or leasing of its properties
makes such qualification or registration necessary and has all requisite
legal power and authority to conduct its business and to own and lease
its properties. Each Subsidiary of the Borrowers is in compliance with
all laws and other legal requirements applicable to its business, has
obtained all authorizations, consents, approvals, orders, licenses and
permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing
from, any governmental agency that are necessary for the transaction of
its business.
(s) Environmental Matters. (i) The operations of each Borrower,
---------------------
any other obligor and each subsidiary of the Borrowers comply in all
material respects with all applicable Environmental Laws: (ii) none of the
operations of the Borrowers, any other obligor or any Subsidiary of the
Borrowers is subject to any judicial or administrative proceeding alleging
the violation of any Environmental laws; (iii) none of the operations of
the Borrowers, any other obligor or any Subsidiary of the Borrowers is the
subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any Hazardous Material
into the environment; (iv) none of the Borrowers, nor any other obligor or
any Subsidiary of the Borrowers has filed any notice under any federal or
state law indicating past or present treatment, storage or disposal of a
Hazardous Material or reporting a spill or release of a Hazardous Material
into the environment; and (v) none of the Borrowers, any other obligor or
any Subsidiary of the Borrowers has any known material contingent liability
in connection with any release of any Hazardous Material into the
environment. The materiality standard used in this Section shall be
exceeded if the facts giving rise to a breach or breaches of the
representations or warranties contained herein might result in liability in
excess of Fifty Thousand Dollars ($50,000) in the aggregate.
(t) No Broker's Fee. No brokerage, finder's or similar fees or
---------------
commission is due to any party by reason of the Borrowers' entering into
this Agreement or by reason of any of the transactions contemplated hereby,
and the Borrowers shall indemnify and hold Lender harmless from all such
fees and commissions.
(u) Year 2000 Capabilities. The Borrowers have taken all action
----------------------
necessary to assure that there will be no material adverse change to the
business of any of the Borrowers by reason of the advent of the year 2000,
including, without limitation, that all computer-based systems, embedded
microchips and other processing capabilities of the Borrowers effectively
recognize and process dates after April 1, 1999.
9.2 Account Warranties and Representations. The Borrowers warrant and
--------------------------------------
represent that Lender may rely, in determining which Accounts listed on any
Daily Collateral Report are
Eligible Accounts, without independent investigation, on all statements,
warranties and representations made by the Borrowers on or with respect to any
such Daily Collateral Report and, unless otherwise indicated in writing by the
Borrowers, that
(a) Such Accounts are genuine, are in all respects what they
purport to be, are not reduced to a judgment and, if evidenced by any
instrument, item of chattel paper, agreement, contract or document, are
evidenced by only one executed original instrument, item of chattel paper,
agreement, contract, or document, which original has been endorsed and
delivered to Lender;
(b) Such Accounts represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto;
(c) Except for credits issued to any Account Debtor in the
ordinary course of a Borrower's business for Inventory returned pursuant to
Section 7.4, the amounts shown on the Daily Collateral Report, and all
-----------
invoices and statements delivered to Lender with respect to any Account,
are actually and absolutely owing to the indicated Borrower and are not
contingent for any reason;
(d) Except as may be disclosed on such Daily Collateral Report,
there are no setoffs, counterclaims or disputes existing or asserted with
respect to any Accounts included on a Daily Collateral Report, and no
Borrower has made any agreement with any Account Debtor for any deduction
from such Account, except for discounts or allowances allowed by the
applicable Borrower in the ordinary course of its business for prompt
payment, which discounts and allowances have been disclosed to Lender and
are reflected in the calculation of the invoice related to such Account;
(e) To the best of the Borrowers' knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforcement
of any of the Accounts or tend to reduce the amount payable thereunder from
the amount of the invoice shown on any Daily Collateral Report and on all
contracts, invoices and statements delivered to Lender with respect
thereto;
(f) To the best of the Borrowers' knowledge, all Account Debtors
are solvent and had the capacity to contract at the time any contract or
other document giving rise to or evidencing the Accounts was executed;
(g) To the best of the Borrowers' knowledge, the goods, the sale
of which gave rise to the Accounts, (i) were produced in full compliance
with the Federal Labor Standards Act, 29 U.S.C. (S)(S) 207 et seq. as
amended from time to time, and (ii) are not subject to any lien, claim,
security interest or other encumbrance, except those of Lender and
Permitted Liens, and those removed or terminated prior to the date hereof;
(h) The Borrowers have no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the Accounts;
(i) To the best of the Borrowers' knowledge, there are no
proceedings or actions which are threatened or pending against any Account
Debtor which might result in any material adverse change in its financial
condition or business; and
(j) The Accounts have not been pledged or sold to any other
Person or otherwise encumbered and the respective Borrowers are the owners
of the Accounts free of all claims, liens and encumbrances except those of
Lender.
9.3 Inventory Warranties and Representations. The Borrowers warrant and
----------------------------------------
represent that Lender may rely, in determining which items of Inventory listed
on any Inventory Report are Eligible Inventory, without independent
investigation, on all statements, warranties and representations made by the
Borrowers on or with respect to any such Inventory Report and, unless otherwise
indicated in writing by the Borrowers, that
(a) All Inventory is located on premises listed on Exhibit "C" or
-----------
is Inventory which is in transit and is so identified on the relevant
Inventory Report;
(b) The Inventory has been produced in full compliance with all
requirements of the Federal Labor Standards Act, 29 U.S.C. (S)(S) 207 et
seq., as amended from time to time;
(c) Except as specified on Exhibit "C", no Inventory is now, and
-----------
shall not at any time or times hereafter be, stored with a bailee,
warehouseman or similar party without Lender's prior written consent and,
if Lender gives such consent, the applicable Borrower will concurrently
therewith cause any such bailee, warehouseman or similar party to issue and
deliver to Lender, in form and substance acceptable to Lender, warehouse
receipts therefor in Lender's name; and
(d) The indicated Borrower is the owner of all of the Inventory
free and clear of all claims, liens and encumbrances except those of Lender
and none of the Inventory has been leased, rented, transferred or sold,
either on consignment, on a sale or return basis, on approval, or
otherwise.
9.4 Automatic Warranty and Representation and Reaffirmation of Warranties
---------------------------------------------------------------------
and Representations. Each request for an advance made by the Borrowers pursuant
-------------------
to this Agreement or the Ancillary Agreements shall constitute (i) an automatic
warranty and representation by the Borrowers to Lender that there does not then
exist a Default or an Event of Default and (ii) a reaffirmation as of the date
of said request of all of the warranties and representations of the Borrowers
contained in this Agreement and in the Ancillary Agreements.
9.5 Survival of Warranties and Representations. The Borrowers covenant,
------------------------------------------
warrant and represent to Lender that all representations and warranties of the
Borrowers contained in this Agreement and the Ancillary Agreements shall be true
at the time of the Borrowers' execution of this Agreement and the Ancillary
Agreements, and shall survive the execution, delivery and acceptance hereof and
thereof by the parties thereto and the closing of the transactions described
herein and therein or related hereto or thereto.
10. COVENANTS AND CONTINUING AGREEMENTS
-----------------------------------
10.1 Affirmative Covenants. The Borrowers covenant that they shall:
---------------------
(a) Financial Tests. At all times hereafter maintain in each
---------------
case, on a consolidated basis:
(i) Tangible Net Worth of not less than the correlative
amounts indicated below for the periods stated:
Minimum Consolidated
Fiscal Quarter Ending Tangible Net Worth
--------------------- --------------------
September 30, 1998 $ 750,000
December 31, 1998 $1,100,000
March 31, 1999 $1,250,000
June 30, 1999 $1,400,000
September 30, 1999 $1,700,000
December 31, 1999 $2,000,000
March 31, 2000 $2,300,000
June 30, 2000 $2,600,000;
at no time shall any individual Borrower have a negative Tangible Net
Worth.
(ii) Net Income (calculated year to date) of not less
than the correlative amounts indicated below for the periods stated:
Minimum Consolidated
Fiscal Quarter Ending Tangible Net Income
--------------------- ---------------------
September 30, 1998 $150,000
December 31, 1998 $300,000
March 31, 1999 $150,000
June 30, 1999 $120,000
September 30, 1999 $300,000
December 31, 1999 $300,000
March 31, 2000 $300,000
June 30, 2000 $300,000; and
(iii) Leverage Ratio of not greater than the correlative
amounts indicated below for the periods stated:
Minimum Consolidated
Fiscal Quarter Ending Leverage Ratio
--------------------- --------------------
September 30, 1998 25.0 to 1.0
December 31, 1998 22.0 to 1.0
March 31, 1999 28.0 to 1.0
Minimum Consolidated
Fiscal Quarter Ending Leverage Ratio
--------------------- --------------------
June 30, 1999 22.0 to 1.0
September 30, 1999 17.0 to 1.0
December 31, 1999 13.0 to 1.0
March 31, 2000 12.0 to 1.0
June 30, 2000 11.0 to 1.0
(b) Bank Fees. Pay to Lender, on demand, any and all fees, costs
---------
or expenses which Lender or any Participant pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to the
Borrowers or any other Person on behalf of the Borrowers, by Lender or any
Participant, of proceeds of loans made by Lender to the Borrowers pursuant
to this Agreement and (ii) the depositing for collection, by Lender or any
Participant, of any check or item of payment received or delivered to
Lender or any Participant on account of the Liabilities;
(c) Notice of Loss of Collateral. Notify Lender promptly of any
----------------------------
event or occurrence causing a material loss or decline in value of the
Collateral and the estimated (or actual, if available) amount of such loss
or decline;
(d) Notice re Account Debtors. Promptly upon any Borrower's
-------------------------
learning thereof, notify Lender of (i) any material delay in such
Borrower's performance of any of its obligations to any Account Debtor and
of any assertion of any claims, offsets, defenses or counterclaims by any
Account Debtor and of any allowances or credits granted (including all
credits issued for returned or repossessed Inventory) or other monies
advanced by such Borrower to any Account Debtor and (ii) all material
adverse information relating to the financial or other condition of any
Account Debtor;
(e) Financials. Keep books of account and prepare consolidated
----------
and consolidating financial statements ("Financials") and furnish to Lender
the following (all to be kept and prepared in accordance with GAAP, unless
the Borrowers' independent certified public accountants concur in any
changes therein and such changes are disclosed in writing to Lender and are
consistent with then generally accepted accounting principles):
(i) as soon as available, but not later than ninety (90)
days after the close of each fiscal year of the Borrowers, Financials
of the Borrowers (including a balance sheet, a statement of profit and
loss and of surplus, and a statement of cash flows, each with
supporting footnotes) as at the end of such year and for the year then
ended all in reasonable detail as requested by Lender and audited by a
firm of independent certified public accountants of recognized
national standing selected by the Borrowers and containing the
unqualified opinion of such independent certified public accountants
with respect to the Financials;
(ii) as soon as available, but not later than thirty (30)
days after the end of each month, unaudited Financials of the
Borrowers (including a statement of profit and loss and of surplus for
the month then ended and a balance sheet as at the end of such month)
as at the end of the portion of the Borrowers' fiscal year then
elapsed, all in reasonable detail as requested by Lender and certified
by the Borrowers' principal financial officer as prepared in
accordance with GAAP and fairly presenting the financial position and
results of operations of the Borrowers for such period;
(iii) as soon as possible, but not later than fifteen (15)
days after the end of each month, (A) an Accounts aging (B) an aging
of all accounts payable, and (C) an Inventory Report, all in
reasonable detail as requested by Lender and certified by the
principal financial officer of each Borrower as prepared in accordance
with GAAP and fairly presenting the financial position and results of
each Borrower for such period;
(iv) by Friday of each week, a Daily Collateral Report;
(v) as soon as available, but not later than sixty (60)
days before the beginning of each fiscal year of the Borrowers, a
cash flow projection for such fiscal year, together with appropriate
supporting documents reasonably acceptable to Lender; and
(vi) such other data and information (financial or
otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral, the Borrowers' financial
condition or results of operations, or the financial condition of any
Person who is a Guarantor;
(f) Notice re Ineligibility of Accounts or Inventory. Notify
------------------------------------------------
Lender promptly, but in no event later than five (5) days after any
Borrower's learning thereof, that any Eligible Account or Eligible
Inventory has ceased to be an Eligible Account or Eligible Inventory and
the reason(s) for such ineligibility;
(g) Notice re Litigation. Notify Lender, promptly upon any
--------------------
Borrower's learning of (i) any litigation affecting such Borrower, whether
or not the claim is considered by such Borrower to be covered by insurance;
and (ii) the institution of any suit or administrative proceeding which may
materially and adversely affect the operations, financial condition or
business of such Borrower or which may affect Lender's security interest in
the Collateral;
(h) Copies of Agreements. Provide Lender with copies of all
--------------------
agreements between any Borrower and any warehouse at which Inventory may,
from time to time, be kept and all leases or similar agreements between any
Borrower and any Person, whether such Borrower is the lessor or lessee
thereunder;
(i) Notice of Default. Notify Lender, promptly upon learning
-----------------
thereof, of any Default or Event of Default;
(j) Environmental Matters. Give written notice to Lender
---------------------
immediately upon receipt of any notice that (i) the operations of any
Borrower, any other obligor or any Subsidiary of any Borrower are not in
full compliance with requirements of applicable Environmental Laws: (ii)
any Borrower, any other obligor or any Subsidiary of any Borrower is
subject to any federal or state investigation evaluating whether any
remedial action is needed to respond to the release of any Hazardous
Material into the environment; or (iii) any properties or assets of any
Borrower, any other obligor or any Subsidiary of any Borrower are subject
to an Environmental Lien. As used herein, "Environmental Lien" means a
lien in favor of any governmental entity for (A) any liability under any
Environmental Laws, or (B) damages arising from or costs incurred by such
governmental entity in response to a release of a Hazardous Material into
the environment. Without limiting the generality of any of the Borrowers'
other covenants and agreements, the operations of the Borrowers, any other
obligor and each of the Borrowers' Subsidiaries shall at all times comply
in all material respects with all applicable Environmental Laws. The
materiality standard used in this Section shall be exceeded if the facts
giving rise to a breach or breaches of the covenant contained herein might
result in liability in excess of Fifty Thousand Dollars ($50,000) in the
aggregate.
(k) Guaranty. Provide Lender with and maintain in effect a
--------
guaranty in form and substance satisfactory to Lender and executed by
Xxxxxx X. Xxxxxx, an individual; and
(l) Accounting Systems Upgrade. The Borrowers shall upgrade
--------------------------
their accounting systems to Lender's satisfaction, making such upgraded
systems fully operational by January 31, 1999 for EISI and by March 31,
1999 for Xxxxxxxxxxxx, Xxxxxx and the Parent, including the Parent's
Digital Division.
(m) Year 2000 Compatibility. The Borrowers shall take all
-----------------------
actions necessary to ensure that there will be no material adverse change
to any Borrower's business by reason of the advent of the year 2000,
including, without limitation, that all computer-based systems, embedded
microchips and other processing capabilities effectively recognize and
process dates after April 1, 1999. At Lender's request, the Borrowers
shall provide to Lender assurance reasonably acceptable to Lender that the
Borrowers' computer-based systems, embedded microchips and other processing
capabilities are year 2000 compatible.
10.2 Negative Covenants. The Borrowers covenant that they shall not,
------------------
without the prior written consent of Lender:
(a) Merger. Merge or consolidate with or acquire any Person;
------
(b) Investments. Other than in the ordinary course of its
-----------
business, make any investment in the securities of any Person;
(c) Dividends. Declare or pay dividends upon any of their Stock
---------
or make any distribution of their property or assets or make any loans,
advances or extensions of credit to any Person, including, without
limitation, any of their respective Affiliates, officers or employees;
provided that each Borrower may issue stock dividends upon its Stock so
long as the same is in accordance with all applicable laws and provided no
Default has occurred;
(d) Loans, Advances and Salaries. In any twelve month period,
----------------------------
make any loans or other advances of money (other than salary) to officers,
directors, stockholders or Affiliate of any Borrower that exceed Twenty-
Five Thousand Dollars
($25,000) individually or Fifty Thousand Dollars in the aggregate, or
permit the annual salary and all other direct and indirect remuneration
to the officers of any Borrower to exceed One Million Five Hundred
Thousand Dollars ($1,500,000) in the aggregate;
(e) Redemptions. Redeem, retire, purchase or otherwise acquire,
-----------
directly or indirectly, any Stock of any of the Borrowers;
(f) Change in Business. Make any material change in any
------------------
Borrower's capital structure or in any of its business objectives, purposes
and operations which might in any way adversely affect the repayment of the
Liabilities;
(g) Affiliate Transactions. Enter into, or be a party to, any
----------------------
transaction with any Affiliate, director, officer or stockholder of any
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's business and upon fair and reasonable terms
which are fully disclosed to Lender and are no less favorable to such
Borrower than would obtain in a comparable arm's length transaction with a
Person not an Affiliate, director, officer or stockholder of such Borrower;
(h) Agreements re Collateral. Enter into any transaction which
------------------------
materially and adversely affects the Collateral or the Borrowers' ability
to repay the Liabilities or permit or agree to any extension, compromise or
settlement or make any change or modification of any kind or nature with
respect to any Account, including any of the terms relating thereto, except
for credits given for Inventory returned pursuant to Section 7.4;
-----------
(i) Guaranty. Guarantee or otherwise, in any way, become liable
--------
with respect to the obligations or liabilities of any Person, except (i)
their Affiliates' obligations to Lender and (ii) by endorsement of
instruments or items of payment for deposit to the general account of the
Borrowers or for delivery to Lender on account of the Liabilities;
(j) Deposits to Affiliates. Make deposits to or withdrawals from
----------------------
any of their deposit accounts for the benefit of any Affiliate;
(k) Encumbrances. Except as otherwise expressly permitted herein
------------
or in the Ancillary Agreements, encumber, pledge, mortgage, grant a
security interest in, assign, sell, lease or otherwise dispose of or
transfer, whether by sale, merger, consolidation, liquidation, dissolution,
or otherwise, any of the Borrowers' assets;
(l) Indebtedness for Borrowed Money. Incur any Indebtedness for
-------------------------------
borrowed money in excess of Seven Hundred Fifty Thousand Dollars ($750,000)
other than the Liabilities, except for Indebtedness which is unsecured and
is with Persons who execute and deliver to Lender (in form and substance
acceptable to Lender) subordination agreements subordinating their claims
against the applicable Borrower to the payment of the Liabilities;
(m) Capital Expenditures. Make capital expenditures, including
--------------------
capital
leases and operating leases, in any fiscal year which, in the aggregate,
exceed Two Million Dollars ($2,000,000);
(n) Affiliate Accounts. Permit any Accounts owing to any
------------------
Borrower from any Affiliate to be payable on terms which would not allow
such Borrower to demand payment upon the occurrence of a default or permit
the aggregate amount of all Accounts owing from its Affiliates at any time
to exceed Ten Thousand Dollars ($10,000) unless a Default has occurred in
which case such Borrower shall permit no Accounts to be owing from its
Affiliates;
(o) Deposit Accounts. Open, transfer, close or change any of the
----------------
Borrowers' deposit accounts. A description of all of the Borrowers'
deposit accounts is provided in Schedule 10.2 hereto; or
-------------
(p) Subordinated Debt. Make any payments (whether of interest,
-----------------
principal or otherwise) on any Indebtedness subordinated to the Liabilities
while any Default exists or otherwise in contravention of the terms of the
subordination agreement between Lender and the holder of such Indebtedness.
10.3 Contesting Charges. Notwithstanding anything to the contrary herein,
------------------
the Borrowers may dispute any Charges without prior payment thereof, even if
such non-payment may cause a lien to attach to a Borrower's assets, provided
that the Borrowers shall give Lender prompt notice of such dispute and shall be
diligently contesting the same in good faith and by an appropriate proceeding
and there is no danger of a loss or forfeiture of any of the Collateral or of
Lender's priority position with respect to such Collateral and provided further
that, if the same are potentially or actually in excess of Twenty-Five Thousand
Dollars ($25,000) in the aggregate at any time hereafter, the Borrowers shall
give Lender such additional collateral and assurances as Lender, in its sole
discretion, deems necessary under the circumstances, immediately upon demand by
Lender.
10.4 Payment of Charges. Subject to the provisions of Section 10.3, the
------------------ ------------
Borrowers shall pay all of the Charges promptly when due . In the event the
Borrowers, at any time or times hereafter, shall fail to pay the Charges or to
promptly obtain the satisfaction of such Charges, the Borrowers shall promptly
so notify Lender thereof and Lender may, without waiving or releasing any
obligation or liability of the Borrowers hereunder or any Default, in its sole
discretion, at any time or times thereafter, make such payment or any part
thereof, (but shall not be obligated so to do) or obtain such satisfaction and
take any other action with respect thereto which Lender deems advisable. All
sums so paid by Lender and any expenses, including reasonable attorneys' fees,
court costs, expenses and other charges relating thereto, shall be payable by
the Borrower to Lender upon demand and shall be additional Liabilities.
10.5 Insurance; Payment of Premiums. At their sole cost and expense, the
------------------------------
Borrowers shall (i) keep and maintain the Collateral insured for the greater of
original cost or replacement value of the Collateral against loss or damage by
fire, theft, explosion, sprinklers and all other hazards and risks in amounts
customary for companies of similar size engaged in the same or similar
businesses; (ii) maintain product liability insurance in an amount customary for
the business conducted by the Borrowers and acceptable to Lender; and (iii)
general public liability insurance in an amount satisfactory to Lender but in no
event
less than Two Million Dollars ($2,000,000) per occurrence, for bodily
injury and property damage. All policies of insurance on the Collateral or
otherwise required hereunder shall be in form and amount satisfactory to Lender
and with insurers reasonably recognized as adequate by Lender. The Borrowers
shall deliver to Lender a copy of each policy of insurance and, if requested,
evidence of payment of all premiums therefor and shall deliver renewals of all
such policies to Lender at least thirty (30) days prior to their expiration
dates. Such policies of insurance shall contain an endorsement, in form and
substance acceptable to Lender, showing all losses payable to Lender. Such
endorsement shall provide that the insurance companies will give Lender at least
thirty (30) days' prior notice before any such policy shall be altered or
canceled and that no act or default of any Borrower or any other person shall
affect the right of Lender to recover under such policy in case of loss or
damage. The Borrowers hereby direct all insurers under such policies to pay all
proceeds payable thereunder directly to Lender. After the occurrence and during
the continuance of a Default, each of the Borrowers irrevocably makes,
constitutes and appoints Lender (and all officers, employees or agents
designated by Lender) as such Borrower's true and lawful attorney and agent-in-
fact for the purpose of making, settling and adjusting claims under such
policies (provided that Lender shall consult with such Borrower prior to
finally making, settling or adjusting claims under such policies), endorsing
the name of such Borrower in writing or by stamp on any check, draft,
instrument or other item of payment for the proceeds of such policies and for
making all determinations and decisions with respect to such policies. If the
Borrowers shall fail to obtain or maintain any of the policies required by
this Section 10.5 or to pay any premium relating thereto, then Lender, without
------------
waiving or releasing any obligation or default by the Borrowers hereunder, may
(but shall be under no obligation to do so) obtain and maintain such policies
of insurance and pay such premiums and take any other action with respect
thereto which Lender deems advisable. All sums so disbursed by Lender,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be payable by the Borrowers to Lender upon demand and
shall be additional Liabilities.
10.6 Survival of Obligations Upon Termination of Agreement. Except as
-----------------------------------------------------
otherwise expressly provided for in this Agreement and in the Ancillary
Agreements, no termination or cancellation (regardless of cause or procedure) of
this Agreement or the Ancillary Agreements shall in any way affect or impair the
powers, obligations, duties, rights, and liabilities of the Borrowers or Lender
in any way or respect relating to any transaction or event occurring prior to
such termination or cancellation, the Collateral, or any of the undertakings,
agreements, covenants, warranties and representations of the Borrowers or Lender
contained in this Agreement or the Ancillary Agreements. All such undertakings,
agreements, covenants, warranties and representations shall survive such
termination or cancellation.
10.7 Environmental Indemnity. Each of the Borrowers hereby indemnifies
-----------------------
Lender, its successors and assignees, and agrees to hold Lender harmless from
and against any and all losses, liabilities, damages, injuries, costs, expenses
and claims of any and every kind whatsoever (including, without limitation,
court costs and attorneys' fees) which at any time or from time to time may be
paid, incurred or suffered by, or asserted against, Lender for, with respect to,
or as a direct or indirect result of the violation by such Borrower, any other
obligor or any of such Borrower's Subsidiaries, of any laws, including but not
limited to, the Environmental Laws or any laws or regulations relating to
Hazardous Materials, treatment, storage, disposal, generation and
transportation, air, water and noise pollution, soil or ground
or water contamination, the handling, storage or release into the environment
of Hazardous Materials; or with respect to, or as a direct or indirect result
of the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission or release from, properties utilized by such Borrower, any
other obligor or any of such Borrower's Subsidiaries in the conduct of their
respective business into or upon any land, the atmosphere, or any watercourse,
body of water or wetland, of any Hazardous Materials (including, without
limitation, any losses, liabilities, damages, injuries, costs, expenses or
claims asserted or arising under the Environmental Laws) provided that such
Borrower shall not be liable to any indemnified party with respect to any
matter arising from such indemnified party's gross negligence or wilful
misconduct; and the provisions of and undertakings and indemnification set out
in this Section shall survive the satisfaction and payment of the Liabilities
and the termination of this Agreement.
10.8 Change of Control. It is covenanted and agreed by the Borrowers that
-----------------
no person or group which is not a shareholder in or beneficial owner of any of
the Borrowers as of the Closing Date, shall directly or indirectly acquire the
legal or beneficial ownership of more than five percent (5%) of the Borrowers;
provided, however, that if such group is Xxxxxx & Xxxxxxxxx Capital Partners,
Weston Presidio Capital or other comparable investment firm reasonably
acceptable to Lender, the above five percent (5%) limitation shall be increased
to twenty-five percent (25%). In addition, Xxxxxx X. Xxxxxx and his family
partnership or trust collectively shall be required to maintain legal or
beneficial ownership, either directly or by ownership of shares in the
Borrowers' parent company in a sufficient amount to have the power to direct or
cause the direction of management, operation or policies of the Borrowers. In
no event, however, shall any other group or person (other than Xxxxxx X. Xxxxxx
and his family partnership or trust) obtain the power to elect, appoint or cause
the election or appointment of, a majority of the members of the Board of
Directors of any Borrower, through beneficial ownership of capital stock of such
Borrower or otherwise.
10.9 Revisions or Updates. Should any of the information or disclosures
--------------------
provided on any of the Schedules or Exhibits originally attached hereto become
outdated or incorrect in any material respect, the Borrowers promptly shall
provide to Lender such revisions or updates as may be necessary or appropriate
to update or correct such Schedule(s) or Exhibit(s); provided that no such
revisions or updates shall be deemed to have amended, modified or superseded
such Schedule or Exhibit as originally attached hereto, or to have cured any
breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule or Exhibit unless and until Lender, in its
sole and absolute discretion, shall have accepted in writing such revisions or
updates.
11. CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Lender will not be obligated to make any advances hereunder unless the
following conditions precedent have been satisfied as determined by Lender:
(a) All of the Borrowers' representations and warranties
contained in this Agreement and the Ancillary Agreements shall be correct
and complete; the Borrowers shall have performed and complied with all
covenants, agreements, and conditions contained herein and in the Ancillary
Agreements which are required to have been performed or complied with; and
there shall exist no Default or Event of
Default.
(b) The Borrowers shall have delivered, or cause to be delivered,
to Lender the documents listed on Exhibit "H" hereto and such other
-----------
documents, instruments and agreements as Lender shall request in
connection herewith, duly executed by all parties thereto other than
Lender, and in form and substance satisfactory to Lender and its
counsel.
(c) No material adverse change in the condition or operations,
financial or otherwise, of the Borrowers or the Guarantor shall have
occurred during the period (the "Interim Period") commencing on the
date of Lender's latest audit of the Borrowers (i.e., May 31, 1998)
and ending on the Closing Date;
(d) None of the Borrowers shall have entered into any material
commitment or material transaction during the Interim Period,
including, without limitation, transactions for borrowings and capital
expenditures, which are not in the ordinary course of such person's
business.
(e) None of the Borrowers shall have made any material change in
its accounting methods or principles during the Interim Period;
(f) No materially advantageous agreement now in effect between
any of the Borrowers and any other person or entity shall have been
terminated, modified or declared to be in default during the Interim
Period;
(g) There shall not have been instituted or threatened, during
the Interim Period, any material litigation or proceeding in any court
or administrative forum to which any of the Borrowers is, or might
become, a party;
(h) On the Closing Date, the present fair saleable value of the
assets of each of the Borrowers shall be greater than the total
liabilities of such Borrower, including without limitation, contingent
liabilities, and Lender shall be satisfied that the present fair
saleable value of the assets of each of the Borrowers will continue
thereafter to be greater than the total liabilities of such Borrower,
including, without limitation, contingent liabilities;
(i) On the Closing Date, all of the assets supporting the
Liabilities shall be sufficient in value, as determined by Lender, to
provide the Borrowers with working capital to enable the Borrowers to
profitably operate their respective business;
(j) Subordination agreements and intercreditor agreements
(including, without limitation, debt subordination agreements with
Sand Hill Partners and with the respective sellers of Xxxxxxxxxxxx and
the Digital Division) in form and substance satisfactory to Lender
shall have been executed and delivered by the Borrowers and such other
parties as Lender deems necessary;
(k) During the Interim Period, Lender or its representatives
shall have
been given access at all reasonable times to inspect and evaluate the
Collateral and the Borrower's books and records, and the Borrowers and
the Guarantor shall have provided Lender with all Financial and other
information which Lender may have reasonably requested;
(l) On the Closing Date, the Borrowers shall have excess
borrowing availability of not less than Five Hundred Thousand Dollars
($500,000) after giving effect to the refinancing of the Borrowers'
obligations to their existing Lenders, the payment of all fees, costs and
expenses associated with the closing of the financing transaction
contemplated hereunder and after bringing all accounts payable to within
sixty (60) days past due based on vendor terms;
(m) Lender shall have received the final written report from
Dovetech, Inc. regarding such company's appraisal of the inventory of the
Borrowers, and Lender's AAAG division shall have reviewed and been
satisfied with the information reflected in such report;
(n) Lender shall have received and been satisfied with its review
of the personal financial statement of Xxxxxx X. Xxxxxx, which financial
statement, among other things, shall demonstrate that Mr. Esters' net
worth, excluding the value of his equity interests in the Borrowers, is at
least $2,000,000;
(o) Lender shall have completed its review of, and found
acceptable, the Borrowers' insurance coverage;
(p) Lender shall have received copies of all labor contracts to
which any Borrower is a party, and all labor contracts necessary to the
continuation of the respective business operations of the Borrowers shall
be in effect on the Closing Date; and
(q) The Borrowers shall have paid the Loan Fee, the balance of
the Commitment Fee, Lender's initial Audit Fee and all other fees and
expenses of Lender which are due and payable on the Closing Date.
12. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
---------------------------------------
12.1 Default. The occurrence of any one or more of the following events
-------
shall constitute a Default:
(a) The Borrowers fail to pay any part of the Liabilities when
due or declared due or the Borrowers in default in the payment of any of
the Indebtedness;
(b) The Borrowers or any Guarantor fail or neglect to perform,
keep or observe any other term, provision, condition or covenant contained
in this Agreement or in the Ancillary Agreements, which is required to be
performed, kept or observed by the Borrowers or any Guarantor;
(c) A default shall occur under any material agreement, document
or instrument, other than this Agreement or any of the Ancillary
Agreements, now or
hereafter existing, to which any Borrower is a party;
(d) Any statement, warranty, representation, report, financial
statement, or certificate made or delivered by any Borrower or by any
Guarantor, or any of their officers, employees or agents, to Lender is not
true and correct in any material respect;
(e) There shall occur any material uninsured damage to or loss,
theft, or destruction of any of the Collateral;
(f) The Collateral or any other asset of any of the Borrowers or
of any Guarantor is attached, seized, levied upon or subjected to a writ or
distress warrant, or comes within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not
dismissed or otherwise avoided within thirty (30) days thereafter; or
applica tion is made by any Person other than a Borrower or any Guarantor
for the appointment of a receiver, trustee, or custodian for any of the
Collateral or any other asset of any of the Borrowers or of any Guarantor
and the same is not dismissed within thirty (30) days after the application
therefor;
(g) An application is made by any Borrower or any Guarantor for
the appointment of a receiver, trustee or custodian for any of the
Collateral or any other asset of any of the Borrowers or of any Guarantor;
a petition under any section or chapter of the Bankruptcy Code or similar
law or regulation is filed by any Borrower or any Guarantor; a petition
under any section or chapter of the Bankruptcy Code or similar law or
regulation is filed against any Borrower or any Guarantor and is not
dismissed within thirty (30) days after filing; any Borrower or any
Guarantor makes an assignment for the benefit of its creditors or any case
or proceeding is filed by or against any Borrower or any Guarantor for its
dissolution, liquidation, or termina tion; any Borrower or any Guarantor
ceases to conduct its business as now conducted or is enjoined, restrained
or in any way prevented by court order from conducting all or any material
part of its business affairs;
(h) Except as permitted in Section 10.3, a notice of lien, levy
------------
or assessment is filed of record with respect to all or any substantial
portion of any Borrower's or any Guarantor's assets by the United States,
or any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency including, without
limitation, the Pension Benefit Guaranty Corporation, or any taxes or debts
owing to any of the foregoing becomes a lien or encumbrance upon the
Collateral or any other asset of any of the Borrowers or of any Guarantor
and such lien or encumbrance is not released within thirty (30) days after
its creation;
(i) Judgment is rendered against any Borrower or any Guarantor in
excess of Twenty-Five Thousand Dollars ($25,000) and such Borrower or
Guarantor, as applicable, fails to immediately satisfy such judgment or
fails to bond and stay enforcement of such judgment and commence
appropriate proceedings to appeal such judgment within the applicable
appeal period or, after such appeal is filed, such Borrower or Guarantor,
as applicable, fails to diligently prosecute such appeal or such appeal is
denied;
(j) Any Borrower or any Guarantor becomes insolvent or fails
generally to pay its or his debts as they become due;
(k) The Borrowers fail within fifteen (15) days after the
occurrence of any of the following events, to furnish Lender with
appropriate notice thereof: (i) the happening of a Reportable Event with
respect to any profit sharing or pension plan governed by ERISA (such
notice shall contain the statement of the chief financial officer of the
applicable Borrower setting forth details as to such Reportable Event and
the action which such Borrower proposes to take with respect thereto and a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation), (ii) the termination of any such plan, (iii) the appointment
of a trustee by an appropriate United States District Court to administer
any such plan, or (iv) the institution of any proceedings by the Pension
Benefit Guaranty Corporation to terminate any such plan or to appoint a
trustee to administer any such plan;
(l) The Borrowers fail to: (i) furnish to Lender a copy of each
report which is filed by any Borrower with respect to any profit sharing or
pension plan governed by ERISA promptly after the filing thereof with the
Secretary of Labor or the Pension Benefit Guaranty Corporation or (ii)
notify Lender promptly upon receipt by any Borrower of any notice of the
institution of any proceeding or other actions which may result in the
termination of any such plans;
(m) Any individual who is a Guarantor shall die or become
incompetent and a new Guarantor or substitute performance, acceptable to
Lender, is not provided within thirty (30) days;
(n) Any Guarantor revokes or terminates any guaranty relating to
any of the Liabilities or defaults under the terms of any such guaranty; or
(o) A default occurs under any agreement, instrument or document
relating to any of the Liabilities heretofore, now or at any time or times
hereafter executed by, or delivered to Lender by any Borrower or by any
Guarantor.
12.2 Acceleration of the Liabilities. Upon and after the occurrence of a
-------------------------------
Default, all of the Liabilities may, at the option of Lender and without demand,
notice, or legal process of any kind, be declared, and immediately shall become,
due and payable.
12.3 Advances During Cure Period. Upon the occurrence of a Default which
---------------------------
is subject to any cure period, Lender may, in its sole discretion, cease making
further advances during the time such Default remains uncured.
12.4 Default Rate. Upon the occurrence and during the continuance of a
------------
Default, the Loans shall bear interest at a Default Rate equal at all times to
three percent (3%) above the applicable interest rate provided for such Loans,
such Default rate to begin upon the occurrence of the Default and to be adjusted
upon any interest rate change as provided herein.
12.5 Remedies. Upon and after the occurrence of a Default, Lender shall
--------
have all of
the following rights and remedies:
(a) All of the rights and remedies of a secured party under the
California Commercial Code or any other applicable law, all of which rights
and remedies shall be cumulative, and not exclusive, to the extent
permitted by law and in addition to any other rights and remedies contained
in this Agreement and in any of the Ancillary Agreements;
(b) The right to (i) peacefully enter upon the premises of any
Borrower or any other place or places where the Collateral is located,
without any obligation to pay rent to any Borrower or any other Person,
through self-help and without judicial process or first obtaining a final
judgment or giving any Borrower notice and opportunity for a hearing on the
validity of Lender's claim, and remove the Collateral from such premises
and places to the premises of Lender or any agent of Lender, for such time
as Lender may require to collect or liquidate the Collateral, and/or (ii)
require the Borrowers to assemble and deliver the Collateral to Lender at a
place to be designated by Lender;
(c) The right to (i) open any Borrower's mail and collect any and
all amounts due from Account Debtors or direct that any Borrower's mail be
diverted to a post office box or other location as determined by Lender,
(ii) notify Account Debtors that the Accounts have been assigned to Lender
and that Lender has a security interest therein and (iii) direct such
Account Debtors to make all payments due from them upon the Accounts,
including the Special Collateral, directly to Lender or to a lock box
designated by Lender. Lender shall promptly furnish the Borrowers with a
copy of any such notice sent and the Borrowers hereby agree that any such
notice in Lender's sole discretion, may be sent on Lender's stationery, in
which event, the Borrowers shall, upon demand, co-sign such notice with
Lender;
(d) The right to sell, lease or to 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, in lots or in bulk,
for cash or on credit, all as Lender, in its sole discretion, may deem
advisable. At any such sale or sales of the Collateral, the Collateral
need not be in view of those present and attending the sale, nor at the
same location at which the sale is being conducted. Lender shall have the
right to conduct such sales on the Borrowers' premises or elsewhere and
shall have the right to use the Borrowers' premises without charge for such
sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use, without charge, the Borrowers'
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in advertising for sale
and selling any Collateral and the Borrowers' rights under all licenses and
all franchise agreements shall inure to Lender's benefit but Lender shall
have no obligations thereunder. 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 setoff the amount of such price
against the Liabilities. The proceeds realized from the sale of any
Collateral shall be applied first to the costs, expenses and attorneys'
fees and expenses incurred by Lender for collection and for acquisition,
completion, protection, removal, storage, sale and delivery of the
Collateral; second
to interest due upon any of the Liabilities; and third to the principal
of the Liabilities. Lender shall account to the Borrowers for any
surplus. If any deficiency shall arise, the Borrowers shall remain liable
to Lender therefor.
12.6 Notice. The Borrowers agree that any notice required to be given by
------
Lender of a sale, lease, or other disposition of any of the Collateral or any
other intended action by Lender, which is personally delivered to the Borrowers
or which is deposited in the United States mail, postage prepaid and duly
addressed to the Borrowers at the address set forth in Section 13.10, at least
-------------
five (5) days prior to any such public sale, lease or other disposition or other
action being taken, or the time after which any private sale of the Collateral
is to be held, shall constitute commercially reasonable and fair notice thereof
to the Borrowers.
13. MISCELLANEOUS
-------------
13.1 Appointment of Lender as the Borrowers' Lawful Attorney-In-Fact. Each
---------------------------------------------------------------
Borrower, irrevocably designates, makes, constitutes and appoints Lender (and
all persons designated by Lender) as such Borrower's true and lawful attorney
and agent-in-fact (this power of attorney is coupled with an interest) and
Lender, or Lender's agent, may, without notice to such Borrower:
(a) At any time hereafter, endorse by writing or stamp such
Borrower's name on any checks, notes, drafts or any other payment relating
to the Collateral which comes into the possession of Lender or under
Lender's control and deposit the same to the account of Lender for
application to the Liabilities;
(b) At any time after the occurrence of a Event of Default, in
such Borrower's or Lender's name: (i) demand payment of the Collateral;
(ii) enforce payment of the Collateral, by legal proceedings or otherwise;
(iii) exercise all of such Borrower's rights and remedies with respect to
the collection of the Collateral; (iv) settle, adjust, compromise, extend
or renew the Accounts and the Special Collateral; (v) settle, adjust or
compromise any legal proceedings brought to collect the Collateral; (vi) if
permitted by applicable law, sell or assign the Collateral upon such terms,
for such amounts and at such time or times as Lender deems advisable; (vii)
satisfy and release the Accounts and Special Collateral; (viii) take
control, in any manner, of any item of payment or proceeds referred to in
Section 4.3; (ix) prepare, file and sign such Borrower's name on any proof
-----------
of claim in Bankruptcy or similar document against any Account Debtor; (x)
prepare, file and sign such Borrower's name on any notice of lien,
assignment or satisfaction of lien or similar document in connection with
the Collateral; (xi) do all acts and things necessary, in Lender's sole
discretion, to fulfill such Borrower's obligations under this Agreement;
(xii) endorse by writing or stamp the name of such Borrower upon any
chattel paper, document, instrument, invoice, freight xxxx, xxxx of lading
or similar document or agreement relating to the Collateral; and (xiii) use
the information recorded on or contained in any data processing equipment
and computer hardware and software relating to the Collateral to which such
Borrower has access; and
(c) At any time after the occurrence of an Event of Default
notify the post office authorities to change the address for delivery of
such Borrower's mail to
an address designated by Lender and receive, open and dispose of all mail
addressed to such Borrower.
13.2 Modification of Agreement; Assignment or Sale of Interest. This
---------------------------------------------------------
Agreement and the Ancillary Agreements may not be modified, altered or amended,
except by an agreement in writing signed by the Borrowers and Lender. The
Borrowers may not sell, assign or transfer this Agreement or the Ancillary
Agreements or any portion hereof or thereof, including, without limitation, the
Borrowers' right, title, interest, remedies, powers, or duties hereunder or
thereunder. The Borrowers hereby consent to Lender's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement or the Ancillary Agreements or of any portion hereof or thereof,
including, without limitation, Lender's right, title, interest, remedies,
powers, or duties hereunder or thereunder.
13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket Expenses. If, at
-------------------------------------------------------------
any time or times, whether prior or subsequent to the date hereof and regardless
of the existence of a Default or an Event of Default, Lender incurs legal or
other costs and expenses or employs counsel, accountants, advisors, consultants
and/or other professionals for advice or other representation or services in
connection with:
(a) The preparation, negotiation, execution and administration of
this Agreement, all Ancillary Agreements, any amendment of or modification
of this Agreement or the Ancillary Agreements or any sale or attempted sale
of any interest herein to a Participant;
(b) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, any Borrower or any other Person) in any way
relating to the Collateral, this Agreement, the Ancillary Agreements or the
affairs of any of the Borrowers;
(c) Any attempt to enforce any rights of Lender or any
Participant against any Borrower or any other Person which may be obligated
to Lender or such Participant by virtue of this Agreement or the Ancillary
Agreements, including, without limitation, the Account Debtors;
(d) Any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of any of the Collateral; or
(e) Any inspection, verification, protection, collection, sale,
liquidation or other disposition of any of the Collateral, including
without limitation, Lender's periodic or special audits of the Borrowers'
books and records;
then, in any such event, the reasonable attorneys' and paralegals' fees and
expenses arising from such services and all reasonably incurred expenses, costs,
charges and other fees of or paid by Lender in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section shall be payable by the Borrowers to Lender upon demand and shall be
additional Liabilities. Without limiting the generality of the foregoing, such
expenses, costs, charges and fees may include bank charges and fees,
accountants' fees, costs and expenses, court costs, fees and expenses,
photocopying and duplicating expenses, court reporter fees, costs and expenses,
long distance telephone charges, air
express charges, telegram charges, secretarial over-time charges, and expenses
for travel, lodging and food paid or incurred in connection with the
performance of all such services. Notwithstanding the foregoing, in no event
shall the Borrowers be liable to Lender for the above-described costs and
expenses incurred by Lender through the Closing Date in an aggregate amount in
excess of $85,000.
13.4 Waiver by Lender. Lender's failure, at any time or times hereafter,
----------------
to require strict performance by the Borrowers of any provision of this
Agreement or the Ancillary Agreements shall not constitute a waiver, or affect
or diminish any right of Lender thereafter to demand strict compliance and
performance herewith or therewith. Any suspension or waiver by Lender of a
Default under this Agreement or the Ancillary Agreements shall not suspend,
waive or affect any other Default under this Agreement or the Ancillary
Agreements, whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements, warranties,
covenants and representations of the Borrowers contained in this Agreement or
the Ancillary Agreements and no Default under this Agreement or the Ancillary
Agreements shall be deemed to have been suspended or waived by Lender, unless
such suspension or waiver is by an instrument in writing signed by an officer of
Lender and directed to the Borrowers specifying such suspension or waiver.
13.5 Severability. Wherever possible, each provision of this Agreement and
------------
the Ancillary Agreements shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or the Ancillary Agreements.
13.6 Parties; Entire Agreement. This Agreement and the Ancillary
-------------------------
Agreements shall be binding upon and inure to the benefit of the respective
successors and assigns of the Borrowers and Lender. The Borrowers' respective
successors and assigns shall include, without limitation, a trustee, receiver or
debtor-in-possession of or for any of the Borrowers. Nothing contained in this
Section shall be deemed to modify Section 13.2. This written Agreement, the
------------
Ancillary Agreements and the other documents described or contemplated herein
represent the final agreement between the parties, embody the entire agreement
and understanding between the parties hereto and thereto, supersede all prior
agreements and understandings related to the subject matter hereof and thereof,
and may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.
13.7 Conflict of Terms. The provisions of the Ancillary Agreements are
-----------------
incorporated in this Agreement by this reference. Except as otherwise provided
in this Agreement and except as otherwise provided in the Ancillary Agreements
by specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in any Ancillary Agreement, the provision contained in this
Agreement shall govern and control.
13.8 Waiver by Borrower. Except as otherwise provided for in this
------------------
Agreement, each Borrower waives (a) presentment, demand and protest, notice of
protest, notice of presentment, 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
such Borrower may in any way be liable and hereby ratifies and confirms
whatever Lender may do in this regard; (b) all rights to notice and a hearing
prior to Lender's taking possession or control of, or to Lender's replevy,
attachment or levy upon, 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; and (c) the benefit of all valuation, appraisement, extension and
exemption laws. Each Borrower acknowledges that it has been advised by its own
counsel with respect to this Agreement and the transactions evidenced by this
Agreement. Each Borrower further agrees that (y) Lender shall have no
obligation to take, and such Borrower shall have the sole responsibility for
taking, any and all steps to preserve rights against any and all Account
Debtors and against any and all prior parties to any note, chattel paper,
draft, trade acceptance, or other instrument for the payment of money covered
by the security interest whether or not in Lender's possession and (z) Lender
shall not be responsible to such Borrower for loss or damage resulting from
Lender's failure to enforce any Accounts or to collect any moneys due or to
become due thereunder or other proceeds constituting Collateral hereunder
unless such loss or damage results from Lender's gross negligence or willful
misconduct.
13.9 Governing Law, Venue. This Agreement has been delivered for
--------------------
acceptance by Lender in Los Angeles County, California and shall be governed by
and construed in accordance with the internal laws (as opposed to the conflicts
of law provisions) of the State of California as the same may from time to time
be in effect, including without limitation the Uniform Commercial Code as
adopted in California. Each Borrower hereby (a) irrevocably submits to the
jurisdiction of any state or federal court located in Los Angeles County,
California over any action or proceeding to enforce or defend any matter arising
from or related to this Agreement; (b) waives personal service of any and all
process upon such Borrower, and consents that all such service of process be
made by messenger, certified mail or registered mail directed to such Borrower
at the address set forth in Section 13.10 and service so made shall be deemed to
-------------
be completed upon the earlier of actual receipt or three (3) days after the same
shall have been posted to such Borrower's address; (c) irrevocably waives, to
the fullest extent such Borrower may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding; (d)
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law; and (e) agrees not to institute
any legal action or proceeding against Lender or any of Lender's directors,
officers, employees, agents or property, concerning any matter arising out of or
relating to this Agreement in any court other than one located in Los Angeles
County, California. Nothing in this Section shall affect or impair Lender's
right to serve legal process in any manner permitted by law or Lender's right to
bring any action or proceeding against any Borrower or any Borrower's property
in the courts of any other jurisdiction.
13.10 Notice. Except as otherwise provided herein or in the Ancillary
------
Agreements:
(a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Ancillary
Agreement must be in writing and must be mailed, telecopied or delivered to
the appropriate party at the address set forth below or, as to any party
hereto or to any Ancillary Agreement, at any other address as may be
designated by it in a written notice sent to all other
parties in accordance with this Section; and
(b) Any notice, request, demand, direction or other communication
given by telecopier will be confirmed within 48 hours by letter mailed or
delivered to the appropriate party at its respective address. Except as
otherwise expressly provided herein or in any Ancillary Agreement, if any
notice, request, demand, direction or other communication required or
permitted by any Loan Document is given by mail it will be effective on the
earlier of receipt or the third calendar day after deposit in the United
States mail with first class or airmail postage prepaid; if given by
telecopier, when sent; or if given by personal delivery, when delivered.
If to Lender, at:
Sanwa Business Credit Corporation
000 Xxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Regional Credit Manager
Telephone (000) 000-0000
Telecopier (000) 000-0000
If to Borrowers, at:
c/o Electronic Integrated Solutions, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxx
Vice President - Operations
Telephone (000) 000-0000
Telecopier (000) 000-0000
13.11 Section Titles, Etc.. The Section titles and table of contents, if
--------------------
any, contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto. All references herein to Sections, paragraphs, clauses and
other subdivisions refer to the corresponding Sections, paragraphs, clauses and
other subdivisions of this Agreement; and the words "herein", "hereof",
"hereby", "hereto", "hereunder", and words of similar import refer to this
Agreement as a whole and not to any particular Section, paragraph, clause or
subdivision hereof. All Exhibits which are referred to herein or attached
hereto are hereby incorporated by reference.
13.12 Course of Dealing. No course of dealing between Lender and the
-----------------
Borrowers or any third party and no delay or omission by Lender in exercising
any right or remedy hereunder or under any Ancillary Agreement or with respect
to any Liabilities shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. All
rights and remedies of Lender are cumulative.
13.13 Setoff. Without limiting any other right of Lender, whenever Lender
------
has the right to declare any Liabilities to be immediately due and payable
(whether or not it has so declared), Lender at its sole election may setoff
against the Liabilities any and all monies then or thereafter owed to the
Borrowers by Lender in any capacity, whether or not the Liabilities or the
obligation to pay such monies owed by Lender is then due, and Lender shall be
deemed to have exercised such right of setoff immediately at the time of such
election even though any charge therefor is made or entered on Lender's records
subsequent thereto.
13.14 Nonliability of Lender. The Borrowers acknowledge and agree that:
----------------------
(a) Any inspections of any Collateral made by or through Lender
are for purposes of administration of advances made hereunder only and the
Borrowers are not entitled to rely upon the same;
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to Lender pursuant to this Agreement or the
Ancillary Agreements, Lender shall not be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal effect of the
same, or of any term, provision or condition thereof, and such acceptance
or approval thereof shall not constitute a warranty or representation to
anyone with respect thereto by Lender;
(c) The relationship between each Borrower and Lender is, and
shall at all times remain, solely that of a borrower and lender; Lender
shall not under any circumstance be construed to be a partner or joint
venturer of any Borrower; Lender shall not under any circumstance be deemed
to be in a fiduciary relationship with any Borrower; Lender does not
undertake or assume any responsibility or duty to any Borrower to select,
review, inspect, supervise, pass judgment upon or inform such Borrower of
any matter in connection with its property or the operations of such
Borrower; each Borrower shall rely entirely upon its own judgment with
respect to such matters; and any review, inspection, supervision, exercise
of judgment or supply of information undertaken or assumed by Lender in
connection with such matters is solely for the protection of Lender and
neither such Borrower nor any other Person is entitled to rely thereon; and
(d) Lender shall not be responsible or liable to any Person for
any loss, damage, liability or claim of any kind relating to injury or
death to such Persons or damage to property not caused by Lender and caused
by the actions, inaction or negligence of any Borrower and each Borrower
hereby indemnifies and holds Lender harmless from any such loss, damage,
liability or claim.
13.15 Time of the Essence. Time is of the essence hereunder and under the
-------------------
Ancillary Agreements.
13.16 Indemnification.
---------------
If after receipt of any payment of all or any part of the
Indebtedness, Lender is for any
reason compelled to surrender such payment to any Person, because such payment
is determined to be void or voidable as a preference, impermissible setoff, or
a diversion of trust funds, or for any other reason, this Agreement shall
continue in full force and the Borrowers shall be liable to, and shall
indemnify and hold Lender harmless for, the amount of such payment
surrendered. The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by Lender in
reasonable reliance upon such payment, and any such contrary action so taken
shall be without prejudice to Lender's rights under this Agreement and shall
be deemed to have been conditioned upon such payment having become final and
irrevocable. The provisions of this Section shall survive the termination of
this Agreement.
Each Borrower agrees to indemnify, save and hold harmless Lender and
its directors, officers, agents, attorneys and employees (collectively the
"Indemnitees") from and against: (i) Any and all claims, demands, actions or
causes of action that are asserted against any Indemnitee by any Person if the
claim, demand, action or cause of action directly or indirectly relates to a
claim, demand, action or cause of action that such Person asserts or may assert
against such Borrower, or any Affiliate or any officer, director or shareholder
of such Borrower and such claim, demand, action or cause of action arises out of
or relates to this Agreement or the Ancillary Agreements, the use of proceeds of
any advance, or the relationship of such Borrower and Lender under this
Agreement; (ii) Any and all claims, demands, actions or causes of action if the
claim, demand, action or cause of action arises out of or relates to such
Borrower's compliance or noncompliance with the requirements of any
environmental law; (iii) Any administrative or investigative proceeding by any
governmental agency arising out of or related to a claim, demand, action or
cause of action described in clauses (i) or (ii) above; and (iv) Any and all
liabilities, losses, costs or expenses (including reasonable attorneys' fees and
---------
disbursements and other professional services) that any Indemnitee suffers or
incurs as a result of the assertion of any foregoing claim, demand, action or
cause of action; provided that no Indemnitee shall be entitled to
--------
indemnification for any loss caused by its own gross negligence or willful
misconduct. Each Indemnitee is authorized to employ counsel of its own choosing
in enforcing its rights hereunder and in defending against any claim, demand,
action or cause of action covered by this Section; provided that each Indemnitee
--------
shall endeavor, in connection with any matter covered by this Section which also
involves other Indemnitees, to use reasonable efforts to avoid unnecessary
duplication of effort by counsel for all Indemnitees. Whenever practicable,
upon obtaining actual knowledge of any event that would entitle Lender to be
indemnified under this Section, Lender shall endeavor to provide notice to the
Borrowers of such fact and Lender shall cooperate with Borrower to endeavor to
minimize the liabilities for which Lender is entitled to be indemnified. Any
obligation or liability of Borrower to any Indemnitee under this Section shall
survive the expiration or termination of this Agreement and the repayment of all
Liabilities and the payment and performance of all other obligations under this
Agreement owed to Lender.
13.17 Suretyship Waivers and Consents. (a) The obligations of each Borrower
-------------------------------
are independent of the obligations of all of the other Borrowers. Each Borrower
expressly waives any right to require Lender to proceed against any other
Borrower, to proceed against or exhaust any Collateral or any other security for
the Liabilities or to pursue any remedy Lender may have at any time. Each
Borrower agrees that Lender may proceed against any one or more of the Borrowers
and/or the Collateral in such order and manner as Lender shall determine in its
sole and absolute discretion. A separate action or actions may
be brought and prosecuted against any one or more of the Borrowers whether an
action is brought or prosecuted against any other Borrower or with respect to
any Collateral or whether any other Person shall be joined in any such action
or actions. Each Borrower expressly waives the benefit of any statute(s) of
limitations affecting its liability under this Agreement or the Ancillary
Documents or the enforcement of the Liabilities or any rights of Lender
created or granted under this Agreement or the Ancillary Documents. Lender's
rights hereunder and under the Ancillary Documents shall be reinstated and
revived, and the obligations and liability of each Borrower hereunder and
thereunder shall continue, with respect to any amount at any time paid on
account of the Liabilities which thereafter shall be required to be restored
or returned by Lender upon the bankruptcy, insolvency or reorganization of any
Borrower, or otherwise, all as though such amount had not been paid.
(b) Each Borrower expressly waives any and all defenses now or
hereafter arising or asserted by reason of (i) any disability or other defense
of any other Borrower or with respect to the Liabilities; (ii) the cessation for
any cause whatsoever of the liability of any other Borrower and (iii) any act or
omission of Lender or others that directly or indirectly results in or aids the
discharge or release of any other Borrower or the Liabilities or any Collateral
or guaranty therefor by operation of law or otherwise. Each Borrower agrees that
any amounts received by Lender from whatever source on account of the
Liabilities may be applied by Lender toward the payment of such of the
Liabilities and in such order of application as Lender may from time to time
elect; and, notwithstanding any payments made by any Borrower, such Borrower
shall have no right of subrogation, reimbursement, exoneration, indemnity,
contribution or any other rights that would result in such Borrower being deemed
a creditor of any other Borrower under the federal Bankruptcy Code or any other
law or for any other purpose and such Borrower hereby irrevocably waives all
such rights, the right to assert any such rights and any right to enforce any
remedy which Lender now or may hereafter have against any Borrower and hereby
irrevocably waives any benefit of and any right to participate in, any security
now or hereafter held by Lender, whether any of the foregoing rights arise in
equity, at law or by contract.
(c) Each Borrower represents and warrants to Lender that it has
established adequate means of obtaining from each of the other Borrowers, on a
continuing basis, financial and other information pertaining to the businesses,
operations and condition (financial and otherwise) of each of the other
Borrowers and its properties, and each Borrower now is and hereafter will be
completely familiar with the businesses, operations and condition (financial and
otherwise) or each of the other Borrowers and their properties. Each Borrower
hereby expressly waives and relinquishes any duty on the part of Lender (should
any such duty exist) to disclose to any Borrower any matter, fact or thing
related to the businesses, operations or condition (financial or otherwise) of
any Borrower or their properties, whether now known or hereafter known by
Lender.
(d) Each Borrower represents and warrants that each of the
waivers set forth herein is made with each Borrower's full knowledge of its
significance and consequences, and that under the circumstances the waivers are
reasonable and not contrary to public policy or law. If any of such waivers is
determined to be contrary to any applicable law or public policy, such waiver
shall be effective only to the
maximum extent permitted by law.
13.18 WAIVER OF RIGHT TO TRIAL BY JURY. THE PARTIES TO THIS AGREEMENT
--------------------------------
ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT
OCCASIONED BY NONJURY TRIALS. THE PARTIES TO THIS AGREEMENT AGREE AND STIPULATE
THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL JUDGE IN A COURT BY MEANS
OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE FOREGOING, AND AS A
SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year specified at the beginning hereof.
BORROWERS:
---------
ELECTRONIC INTEGRATED SOLUTIONS,
a California corporation
By: /s/ XXXXXX X. XXXXXX
------------------------------
Xxxxxx X. Xxxxxx,
President
EDUCATIONAL INDUSTRIAL
SALES, INCORPORATED
a California corporation
By: /s/ XXXXXX X. XXXXXX
------------------------------
Xxxxxx X. Xxxxxx,
President
By: /s/ XXXXXX X. XXXXXXX
------------------------------
Xxxxxx X. Xxxxxxx,
Secretary
XXXXXX MEDIA SALES, INC.
a Texas corporation
By: /s/ XXXXXX X. XXXXXX
------------------------------
Xxxxxx X. Xxxxxx,
President
By: /s/ XXXXXX X. XXXXXXX
------------------------------
Xxxxxx X. Xxxxxxx,
Secretary
X. XXXXXXXXXXXX ENTERPRISES, INC.
a Texas corporation
By: /s/ XXXXXX X. XXXXXX
------------------------------
Xxxxxx X. Xxxxxx,
President
By: /s/ XXXXXX X. XXXXXXX
------------------------------
Xxxxxx X. Xxxxxxx,
Secretary
LENDER:
------
SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By /s/ XXXXXXX XXXXXX
-------------------------------
Title First Vice President
-----------------------------
