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Exhibit 10.33
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (FLORIDA)
AS LENDER
AND
DIGITAL LIGHTWAVE, INC.
AS BORROWER
DATED: OCTOBER 10, 2000
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INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit B Borrowing Base Certificate
Schedule 8.4 Existing Liens
Schedule 8.6 Litigation
Schedule 8.8 Bank Accounts
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
(i)
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TABLE OF CONTENTS
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SECTION 1. DEFINITIONS 1
SECTION 2. CREDIT FACILITIES 8
2.1 Revolving Loans 8
2.2 Letter of Credit Accommodations 9
2.3 Availability Reserves 12
SECTION 3. INTEREST AND FEES 12
3.1 Interest 12
3.2 Closing Fee 12
3.3 Facility Fee 13
3.4 Servicing Fee 13
3.5 Unused Line Fee 13
SECTION 4. CONDITIONS PRECEDENT 13
4.1 Conditions Precedent to Initial Loans and
Letter of Credit Accommodations 13
4.2 Conditions Precedent to All Loans and
Letter of Credit Accommodations 13
SECTION 5. GRANT OF SECURITY INTEREST 15
SECTION 6. COLLECTION AND ADMINISTRATION 16
6.1 Borrower's Loan Account 16
6.2 Statements 16
6.3 Collection of Accounts 16
6.4 Payments 18
6.5 Authorization to Make Loans 18
6.6 Use of Proceeds 18
SECTION 7. COLLATERAL REPORTING AND COVENANTS 19
7.1 Collateral Reporting 19
7.2 Accounts Covenants 19
7.3 Inventory Covenants 21
7.4 Equipment Covenants 21
7.5 Power of Attorney 22
7.6 Right to Cure 22
7.7 Access to Premises 23
SECTION 8. REPRESENTATIONS AND WARRANTIES 23
8.1 Corporate Existence, Power and Authority; Subsidiaries 23
8.2 Financial Statements; No Material Adverse Change. 24
8.3 Chief Executive Office; Collateral Locations. 24
8.4 Priority of Liens; Title to Properties 24
8.5 Tax Returns 24
8.6 Litigation 24
8.7 Compliance with Other Agreements and Applicable Laws 25
8.8 Bank Accounts 25
8.9 Accuracy and Completeness of Information. 25
8.10 Survival of Warranties; Cumulative 25
(ii)
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SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS 25
9.1 Maintenance of Existence 25
9.2 New Collateral Locations 26
9.3 Compliance with Laws, Regulations, Etc. 26
9.4 Payment of Taxes and Claims 26
9.5 Insurance 26
9.6 Financial Statements and Other Information 27
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. 28
9.8 Encumbrances 28
9.9 Indebtedness 29
9.10 Loans, Investments, Guarantees, Etc. 29
9.11 Dividends and Redemptions 30
9.12 Transactions with Affiliates 30
9.13 Additional Bank Accounts 31
9.14 Adjusted Net Worth 31
9.15 Costs and Expenses 31
9.16 Further Assurances 31
SECTION 10. EVENTS OF DEFAULT AND REMEDIES 32
10.1 Events of Default 32
10.2 Remedies 34
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERSAND
CONSENTS; GOVERNING LAW 35
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver 35
11.2 Waiver of Notices 36
11.3 Amendments and Waivers 37
11.4 Waiver of Counterclaims 37
11.5 Indemnification 37
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS 38
12.1 Term 38
12.2 Notices 39
12.3 Partial Invalidity 39
12.4 Successors 39
12.5 Entire Agreement 40
(iii)
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated October 10, 2000 is entered
into by and between Congress Financial Corporation (Florida), a Florida
corporation ("Lender") and Digital Lightwave, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
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WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans
and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless
the context otherwise requires. All references to Borrower and Lender pursuant
to the definitions set forth in the recitals hereto, or to any other person
herein, shall include their respective successors and assigns. The words
"hereof", "herein", "hereunder", "this Agreement" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not
any particular provision of this Agreement and as this Agreement now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced. The word "including" when used in this Agreement shall mean
"including, without limitation". An Event of Default shall exist or continue or
be continuing until such Event of Default is waived in accordance with Section
11.3 or is cured in a manner satisfactory to Lender, if such Event of Default
is capable of being cured as determined by Lender. Any accounting term used
herein unless otherwise defined in this Agreement shall have the meanings
customarily given to such term in accordance with GAAP. For purposes of this
Agreement, the following terms shall have the respective meanings given to them
below:
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1.1 "Accounts" shall mean all present and future rights of
Borrower to payment for goods sold or leased or for services rendered, which
are not evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Net Worth" shall mean as to any Person, at any
time, in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its subsidiaries (if any),
the amount equal to: (a) the difference between: (i) the aggregate net book
value of all assets of such Person and its subsidiaries, calculating the book
value of inventory for this purpose on a first-in-first-out basis, after
deducting from such book values all appropriate reserves in accordance with
GAAP (including all reserves for doubtful receivables, obsolescence,
depreciation and amortization) and (ii) the aggregate amount of the
indebtedness and other liabilities of such Person and its subsidiaries
(including tax and other proper accruals) plus (b) indebtedness of such Person
and its subsidiaries which is subordinated in right of payment to the full and
final payment of all of the Obligations on terms and conditions acceptable to
Lender.
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and
revise in good faith reducing the amount of Revolving Loans and Letter of
Credit Accommodations which would otherwise be available to Borrower under the
lending formula(s) provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in good faith, do or may
affect either (i) the Collateral or any other property which is security for
the Obligations or its value, (ii) the assets, business or prospects of
Borrower or any Obligor or (iii) the security interests and other rights of
Lender in the Collateral (including the enforceability, perfection and priority
thereof) or (b) to reflect Lender's good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect or (c) to reflect outstanding Letter of Credit
Accommodations as provided in Section 2.2 hereof or (d) in respect of any state
of facts which Lender determines in good faith constitutes an Event of Default
or may, with notice or passage of time or both, constitute an Event of Default.
1.4 "Blocked Accounts" shall have the meaning set forth in
Section 6.3 hereof.
1.5 "Change of Control" shall mean (a) the transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of Borrower to any Person or group (as such term is used in Section
13(d)(3) of the Securities Exchange Act of 1934); (b) the liquidation or
dissolution of Borrower or the adoption of a plan by the stockholders of
Borrower relating to the dissolution or liquidation of Borrower; (c) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) of beneficial ownership, directly or
indirectly, of fifty (50%) percent or more of the voting power of the total
outstanding voting stock of Borrower; and (d) the occupation of a majority of
seats (other than vacant seats) on the Board of Directors of Borrower by
Persons who were neither (i) nominated by a majority of the then Board of
Directors of Borrower nor (ii) appointed by such majority of directors.
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1.6 "Collateral" shall have the meaning set forth in Section 5
hereof.
1.7 "Eligible Accounts" shall mean Accounts created by Borrower
which are and continue to be acceptable to Lender based on the criteria set
forth below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide
sale and delivery of goods by Borrower or rendition of services by Borrower in
the ordinary course of its business which transactions are completed in
accordance with the terms and provisions contained in any documents related
thereto;
(b) such Accounts are not unpaid more than ninety (90)
days after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on
consignment, guaranteed sale, sale and return, sale on approval, or other terms
under which payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor
with respect to such Accounts is located in the United States of America, or,
at Lender's option, if either: (i) the account debtor has delivered to Borrower
an irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender and payable only in the United States of America and in U.S. dollars,
sufficient to cover such Account, in form and substance satisfactory to Lender
and, if required by Lender, the original of such letter of credit has been
delivered to Lender or Lender's agent and the issuer thereof notified of the
assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress or
"milestone" xxxxxxxx, xxxx and hold invoices or retainage invoices, except as
to xxxx and hold invoices, if Lender shall have received an agreement in
writing from the account debtor, in form and substance satisfactory to Lender,
confirming the unconditional obligation of the account debtor to take the goods
related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has
not asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by
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Borrower to such account debtor or claimed owed by such account debtor may be
deemed Eligible Accounts);
(h) there are no facts, events or occurrences which
would impair the validity, enforceability or collectability of such Accounts or
reduce the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority,
valid and perfected security interest of Lender and any goods giving rise
thereto are not, and were not at the time of the sale thereof, subject to any
liens except those permitted in this Agreement;
(j) neither the account debtor nor any officer or
employee of the account debtor with respect to such Accounts is an officer,
employee or agent of or affiliated with Borrower directly or indirectly by
virtue of family membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts
are not any foreign government, the United States of America, any State,
political subdivision, department, agency or instrumentality thereof, unless,
if the account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any
similar State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are
threatened or pending against the account debtors with respect to such Accounts
which might result in any material adverse change in any such account debtor's
financial condition;
(m) such Accounts of a single account debtor or its
affiliates do not constitute more than twenty (20%) percent (or such higher
amount(s) as Lender may, in its sole discretion, approve from time to time on a
case-by-case basis) of all otherwise Eligible Accounts (but the portion of the
Accounts not in excess of such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who
has Accounts unpaid more than ninety (90) days after the date of the original
invoice for them which constitute more than fifty (50%) percent of the total
Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose
total indebtedness to Borrower does not exceed the credit limit with respect to
such account debtors as determined by Lender from time to time (but the portion
of the Accounts not in excess of such credit limit may be deemed Eligible
Accounts);
(p) such Accounts are not listed (or included) on the
most recent deferred revenue report which has been supplied to Lender pursuant
to this Agreement; and
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(q) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.8 "Eligible Inventory" shall mean Inventory consisting of
finished goods held for resale in the ordinary course of the business of
Borrower and non-proprietary raw materials for such finished goods which are
acceptable to Lender on an item-by-item basis based on the criteria set forth
below. In general, Eligible Inventory shall not include (a) work-in-process;
(b) components which are not part of finished goods; (c) spare parts for
equipment; (d) packaging and shipping materials; (e) supplies used or consumed
in Borrower's business; (f) Inventory at premises other than those owned and
controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the owner or
operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) xxxx and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory
which is not subject to the first priority, valid and perfected security
interest of Lender; (k) returned, damaged and/or defective Inventory; (l)
Inventory purchased or sold on consignment; and (m) proprietary raw materials.
General criteria for Eligible Inventory may be established and revised from
time to time by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.9 "Equipment" shall mean all of Borrower's now owned and
hereafter acquired equipment, machinery, computers and computer hardware and
software (whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used
in connection therewith, and substitutions and replacements thereof, wherever
located.
1.10 "Event of Default" shall mean the occurrence or existence of
any event or condition described in Section 10.1 hereof.
1.11 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the amount of the Revolving Loans
available to Borrower as of such time (without regard to the Maximum Credit
limit) based on the applicable lending formulas multiplied by the Net Amount of
Eligible Accounts and the Value of Eligible Inventory, as determined by Lender,
and subject to the sublimits and Availability Reserves from time to time
established by Lender hereunder, minus (b) the sum of: (i) the amount of all
then outstanding and unpaid Obligations, plus (ii) the aggregate amount of all
trade payables of Borrower which are more than sixty (60) days past due as of
such time plus (iii) the amount of checks issued by
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Borrower to pay trade payables which are more than sixty (60) days past due as
of such time, but not yet sent and the book overdraft of Borrower.
1.12 "Financing Agreements" shall mean, collectively, this
Agreement and all notes, guarantees, security agreements and other agreements,
documents and instruments now or at any time hereafter executed and/or
delivered by Borrower or any Obligor in connection with this Agreement, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.13 "GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except
that, for purposes of Section 9.14 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.14 "Information Certificate" shall mean the Information
Certificate of Borrower constituting Exhibit A hereto containing material
information with respect to Borrower, its business and assets provided by or on
behalf of Borrower to Lender in connection with the preparation of this
Agreement and the other Financing Agreements and the financing arrangements
provided for herein.
1.15 "Inventory" shall mean all of Borrower's now owned and
hereafter existing or acquired raw materials, work in process, finished goods
and all other inventory of whatsoever kind or nature, wherever located.
1.16 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any
Obligor or (b) with respect to which Lender has agreed to indemnify the issuer
or guaranteed to the issuer the performance by Borrower of its obligations to
such issuer.
1.17 "Loans" shall mean the Revolving Loans.
1.18 "Maximum Credit" shall mean the amount of $10,000,000.
1.19 "Net Amount of Eligible Accounts" shall mean the gross amount
of Eligible Accounts less (a) sales, excise or similar taxes included in the
amount thereof and (b) returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.
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1.20 "Obligations" shall mean any and all Revolving Loans, Letter
of Credit Accommodations and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to Lender
and/or its affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including the payment of interest and other amounts which
would accrue and become due but for the commencement of such case, whether or
not such amounts are allowed or allowable in whole or in part in such case),
whether direct or indirect, absolute or contingent, joint or several, due or
not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.21 "Obligor" shall mean any guarantor, endorser, acceptor,
surety or other person liable on or with respect to the Obligations or who is
the owner of any property which is security for the Obligations, other than
Borrower.
1.22 "OEM Agreement" shall mean that certain OEM Contract dated as
of May 24, 1999 between Lucent Technologies, Inc. and Borrower.
1.23 "Payment Account" shall have the meaning set forth in Section
6.3 hereof.
1.24 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as
amended), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint
venture or other entity or any government or any agency or instrumentality or
political subdivision thereof.
1.25 "Prime Rate" shall mean the rate announced by First Union
National Bank, or its successors, from time to time as its prime rate, whether
or not such announced rate is the best rate available at such bank.
1.26 "Records" shall mean all of Borrower's present and future
books of account of every kind or nature, purchase and sale agreements,
invoices, ledger cards, bills of lading and other shipping evidence,
statements, correspondence, memoranda, credit files and other data relating to
the Collateral or any account debtor, together with the tapes, disks, diskettes
and other data and software storage media and devices, file cabinets or
containers in or on which the foregoing are stored (including any rights of
Borrower with respect to the foregoing maintained with or by any other person).
1.27 "Revolving Loans" shall mean the loans now or hereafter made
by Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
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1.28 "Value" shall mean, as determined by Lender in good faith,
with respect to Inventory, the lower of (a) cost computed on a
first-in-first-out basis in accordance with GAAP or (b) market value.
SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to Borrower from time
to time in amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount
of Eligible Accounts, plus
(ii) the lesser of: (A) the sum of thirty-five
(35%) percent of the Value of Eligible Inventory consisting
of finished goods plus twenty-five (25%) percent of the Value
of Eligible Inventory consisting of non-proprietary raw
materials for such finished goods or (B) $1,000,000, less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time,
upon not less than five (5) days prior notice to Borrower, (i) reduce the
lending formula with respect to Eligible Accounts to the extent that Lender
determines in good faith that: (A) the dilution with respect to the Accounts
for any period (based on the ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash to (2) the aggregate amount
of total sales) has increased in any material respect or may be reasonably
anticipated to increase in any material respect above historical levels, or (B)
the general creditworthiness of account debtors has declined or (ii) reduce the
lending formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for
any period has changed in any material respect or (B) the liquidation value of
the Eligible Inventory, or any category thereof, has decreased, or (C) the
nature and quality of the Inventory has deteriorated. In determining whether to
reduce the lending formula(s), Lender may consider events, conditions,
contingencies or risks which are also considered in determining Eligible
Accounts, Eligible Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount
of the Loans and the Letter of Credit Accommodations outstanding at any time
shall not exceed the Maximum Credit. In the event that the outstanding amount
of any component of the Loans, or the aggregate amount of the outstanding Loans
and Letter of Credit Accommodations, exceed the amounts available under the
lending formulas, the sublimits for Letter of Credit Accommodations set forth
in Section 2.2(d) or the Maximum Credit, as applicable, such event shall not
limit, waive or otherwise affect
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any rights of Lender in that circumstance or on any future occasions and
Borrower shall, upon demand by Lender, which may be made at any time or from
time to time, immediately repay to Lender the entire amount of any such
excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on
Revolving Loans based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B),
Lender may treat the then undrawn amounts of outstanding Letter of Credit
Accommodations for the purpose of purchasing Eligible Inventory as Revolving
Loans to the extent Lender is in effect basing the issuance of the Letter of
Credit Accommodations on the Value of the Eligible Inventory being purchased
with such Letter of Credit Accommodations. In determining the actual amounts of
such Letter of Credit Accommodations to be so treated for purposes of the
sublimit, the outstanding Revolving Loans and Availability Reserves shall be
attributed first to any components of the lending formulas in Section 2.1(a)
that are not subject to such sublimit, before being attributed to the
components of the lending formulas subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions
contained herein, at the request of Borrower, Lender agrees to provide or
arrange for Letter of Credit Accommodations for the account of Borrower
containing terms and conditions acceptable to Lender, Borrower and the issuer
thereof. Any payments made by Lender to any issuer thereof and/or related
parties in connection with the Letter of Credit Accommodations shall constitute
additional Revolving Loans to Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged
by any bank or issuer in connection with the Letter of Credit Accommodations,
Borrower shall pay to Lender a letter of credit fee at a rate equal to one and
one-quarter (1.25%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding month,
except that Borrower shall pay to Lender such letter of credit fee, at Lender's
option, without notice, at a rate equal to three and one-quarter (3.25%)
percent per annum on such daily outstanding balance for: (i) the period from
and after the date of termination or non-renewal hereof until Lender has
received full and final payment of all Obligations related to such Letter of
Credit Accommodations (notwithstanding entry of a judgment against Borrower)
and (ii) the period from and after the date of the occurrence of an Event of
Default for so long as such Event of Default is continuing as determined by
Lender. Such letter of credit fee shall be calculated on the basis of a three
hundred sixty (360) day year and actual days elapsed and the obligation of
Borrower to pay such fee shall survive the termination or non-renewal of this
Agreement.
(c) No Letter of Credit Accommodations shall be
available unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to the
Maximum Credit and any Availability Reserves) are equal to or greater than: (i)
if the proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of (A) the percentage equal to one hundred (100%)
percent minus the
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then applicable percentage set forth in Section 2.1(a)(ii)(A) above of the
Value of such Eligible Inventory, plus (B) freight, taxes, duty and other
amounts which Lender estimates must be paid in connection with such Inventory
upon arrival and for delivery to one of Borrower's locations for Eligible
Inventory within the United States of America and (ii) if the proposed Letter
of Credit Accommodation is for any other purpose, an amount equal to one
hundred (100%) percent of the face amount thereof and all other commitments and
obligations made or incurred by Lender with respect thereto. Effective on the
issuance of each Letter of Credit Accommodation, an Availability Reserve shall
be established in the applicable amount set forth in Section 2.2(c)(i) or
Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in connection therewith shall not at any
time exceed $2,500,000. At any time an Event of Default exists or has occurred
and is continuing, upon Lender's request, Borrower will either furnish cash
collateral to secure the reimbursement obligations to the issuer in connection
with any Letter of Credit Accommodations or furnish cash collateral to Lender
for the Letter of Credit Accommodations, and in either case, the Revolving
Loans otherwise available to Borrower shall not be reduced as provided in
Section 2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless
from and against any and all losses, claims, damages, liabilities, costs and
expenses which Lender may suffer or incur in connection with any Letter of
Credit Accommodations and any documents, drafts or acceptances relating
thereto, including any losses, claims, damages, liabilities, costs and expenses
due to any action taken by any issuer or correspondent with respect to any
Letter of Credit Accommodation. Borrower assumes all risks with respect to the
acts or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any
goods subject to any Letter of Credit Accommodations or any documents, drafts
or acceptances thereunder. Borrower hereby releases and holds Lender harmless
from and against any acts, waivers, errors, delays or omissions, whether caused
by Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation except for any acts, waivers,
errors, delays or omissions to the extent resulting from Lender's gross
negligence or willful misconduct. The provisions of this Section 2.2(e) shall
survive the payment of Obligations and the termination or non-renewal of this
Agreement.
(f) Nothing contained herein shall be deemed or
construed to grant Borrower any right or authority to pledge the credit of
Lender in any manner. Lender shall have no liability of any kind with respect
to any Letter of Credit Accommodation provided by an issuer other than Lender
unless Lender has duly executed and delivered to such issuer the application or
a guarantee or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrower shall be bound by any interpretation made in good faith
by Lender, or any other issuer or correspondent under or in connection with any
Letter of Credit Accommodation or any documents, drafts or acceptances
thereunder, notwithstanding that such interpretation may be
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inconsistent with any instructions of Borrower. Lender shall have the sole and
exclusive right and authority to, and Borrower shall not: (i) at any time an
Event of Default exists or has occurred and is continuing, (A) approve or
resolve any questions of non-compliance of documents, (B) give any instructions
as to acceptance or rejection of any documents or goods or (C) execute any and
all applications for steamship or airway guaranties, indemnities or delivery
orders, and (ii) at all times, (A) grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances, or
documents, and (B) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of
any of the applications, Letter of Credit Accommodations, or documents, drafts
or acceptances thereunder or any letters of credit included in the Collateral.
Lender may take such actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted
or undertaken by Borrower to any issuer or correspondent in any application for
any Letter of Credit Accommodation, or any other agreement in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall
be deemed to have been granted or undertaken by Borrower to Lender. Any duties
or obligations undertaken by Lender to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Lender in favor of any issuer or correspondent relating to any Letter of Credit
Accommodation, shall be deemed to have been undertaken by Borrower to Lender
and to apply in all respects to Borrower.
2.3 Availability Reserves. All Revolving Loans otherwise
available to Borrower pursuant to the lending formulas and subject to the
Maximum Credit and other applicable limits hereunder shall be subject to
Lender's continuing right to establish and revise Availability Reserves.
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SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the
outstanding principal amount of the non-contingent Obligations at the rate of
three-quarters of one (.75%) percent (decreasing to one-half of one (.50%)
percent effective upon Lender's review and approval of Borrower's audited
financial statements for fiscal year end December 31, 2000 satisfactorily
reflecting net income in an amount not less than $15,000,000) per annum in
excess of the Prime Rate, except that, at Lender's option, without notice,
Borrower shall pay to Lender interest at the rate of two and three-quarters
(2.75%) percent (or two and one-half (2.50%) percent if the aforesaid rate
decrease is then effective) per annum in excess of the Prime Rate: (i) on the
non-contingent Obligations for (A) the period from and after the date of
termination or non-renewal hereof until such time as Lender has received full
and final payment of all such Obligations (notwithstanding entry of any
judgment against Borrower), and (B) the period from and after the date of the
occurrence of an Event of Default for so long as such Event of Default is
continuing as determined by Lender and (ii) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default).
(b) Interest shall be payable by Borrower to Lender
monthly in arrears not later than the first day of each calendar month and
shall be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed. The interest rate shall increase or decrease by an amount
equal to each increase or decrease in the Prime Rate effective on the first day
of the month after any change in such Prime Rate is announced. The increase or
decrease shall be based on the Prime Rate in effect on the last day of the
month in which any such change occurs. All interest accruing hereunder on and
after an Event of Default or termination or non-renewal hereof shall be payable
on demand. In no event shall charges constituting interest payable by Borrower
to Lender exceed the maximum amount or the rate permitted under any applicable
law or regulation, and if any part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee
the amount of $75,000, which shall be fully earned as of and payable on the
date hereof.
3.3 Facility Fee. Borrower shall pay to Lender annually a
facility fee in an amount equal to $25,000 while this Agreement is in effect
and for so long thereafter as any of the Obligations are outstanding, which fee
shall be fully earned as of and payable in advance on each anniversary of the
date hereof.
3.4 Servicing Fee. Borrower shall pay to Lender monthly a
servicing fee in an amount equal to $1,000 in respect of Lender's services for
each month (or part thereof) while this Agreement remains in effect and for so
long thereafter as any of the Obligations are outstanding,
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which fee shall be fully earned as of and payable in advance on the date hereof
and on the first day of each month hereafter.
3.5 Unused Line Fee. Borrower shall pay to Lender monthly an
unused line fee at a rate equal to three-eighths of one (.375%) percent per
annum calculated upon the amount by which $10,000,000 exceeds the average daily
principal balance of the outstanding Revolving Loans and Letter of Credit
Accommodations during the immediately preceding month (or part thereof) while
this Agreement is in effect and for so long thereafter as any of the
Obligations are outstanding, which fee shall be payable on the first day of
each month in arrears.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower of their respective financing arrangements with
Borrower and the termination and release by it or them, as the case may be, of
any interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by it or each of them, including, but
not limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any
Obligor in favor of such existing lender or lenders, in form acceptable for
recording in the appropriate government office;
(b) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected and first
priority security interests in and liens upon the Collateral and any other
property which is intended to be security for the Obligations or the liability
of any Obligor in respect thereof, subject only to the security interests and
liens permitted herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received
all information and copies of all documents, including records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in
the assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event
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shall have occurred which would impair the ability of Borrower or any Obligor
to perform its obligations hereunder or under any of the other Financing
Agreements to which it is a party or of Lender to enforce the Obligations or
realize upon the Collateral;
(e) Lender shall have completed a field review of the
Records and such other information with respect to the Collateral as Lender may
require to determine the amount of Revolving Loans available to Borrower, the
results of which shall be satisfactory to Lender, not more than three (3)
business days prior to the date hereof;
(f) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement
and the other Financing Agreements, including acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by
such persons to the Collateral and agreements permitting Lender access to, and
the right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(g) Lender shall have received evidence of insurance and
loss payee endorsements required hereunder and under the other Financing
Agreements, in form and substance reasonably satisfactory to Lender, and
certificates of insurance policies and/or endorsements naming Lender as loss
payee;
(h) the Excess Availability as determined by Lender, as
of the date hereof, shall be not less than $3,000,000 after giving effect to
the initial Loans made or to be made and Letter of Credit Accommodations issued
or to be issued in connection with the initial transactions hereunder;
(i) Lender shall have received, in form and substance
reasonably satisfactory to Lender, such opinion letters of counsel to Borrower
with respect to the Financing Agreements and such other matters as Lender may
request; and
(j) the other Financing Agreements and all instruments
and documents hereunder and thereunder shall have been duly executed and
delivered to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein
and in the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such
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representations and warranties had been made on and as of the date of the
making of each such Loan or providing each such Letter of Credit Accommodation
and after giving effect thereto;
(b) Borrower shall be in compliance with the Excess
Availability requirement specified in Section 9.15;
(c) if no non-contingent Obligations are then
outstanding, Lender shall have received, at least five (5) days prior to the
requested funding date for any Loan, the current schedules and borrowing base
certificate referenced in Section 7.1(a) and Section 7.1(e), respectively; and
(d) no Event of Default and no event or condition which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations under or in
connection with any of the Financing Agreements, Borrower hereby grants to
Lender a continuing security interest in, a lien upon, and a right of set off
against, and hereby assigns to Lender as security, the following property and
interests in property of Borrower, whether now owned or hereafter acquired or
existing, and wherever located, but excluding any rights under contracts which
would be breached or violated by such grant and assignment (collectively, the
"Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate
and fixtures), chattel paper, documents, instruments, securities and other
investment property, letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether
for safekeeping, pledge, custody, transmission, collection or otherwise, and
all present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including (a)
rights and remedies under or relating to guaranties, contracts of suretyship,
letters of credit and credit and other insurance related to the Collateral, (b)
rights of stoppage in transit, replevin, repossession, reclamation and other
rights and remedies
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of an unpaid vendor, lienor or secured party, (c) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Accounts or other Collateral, including returned, repossessed
and reclaimed goods, and (d) deposits by and property of account debtors or
other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more
loan account(s) on its books in which shall be recorded (a) all Loans, Letter
of Credit Accommodations and other Obligations and the Collateral, (b) all
payments made by or on behalf of Borrower and (c) all other appropriate debits
and credits as provided in this Agreement, including fees, charges, costs,
expenses and interest. All entries in the loan account(s) shall be made in
accordance with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s)
maintained by Lender for Borrower pursuant to the provisions of this Agreement,
including principal, interest, fees, costs and expenses. Each such statement
shall be subject to subsequent adjustment by Lender but shall, absent manifest
errors or omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within forty-five (45) days after the date such statement
has been mailed by Lender. Until such time as Lender shall have rendered to
Borrower a written statement as provided above, the balance in Borrower's loan
account(s) shall be presumptive evidence of the amounts due and owing to Lender
by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its
expense, blocked accounts or lockboxes and related blocked accounts (in either
case, "Blocked Accounts"), as Lender may specify, with such banks as are
acceptable to Lender into which Borrower shall promptly deposit and, following
the occurrence of an Event of Default or if Excess Availability (as determined
by Lender) is ever less than $3,000,000, direct its account debtors to directly
remit all payments on Accounts and all payments constituting proceeds of
Inventory or other Collateral in the identical
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form in which such payments are made, whether by cash, check or other manner.
The banks at which the Blocked Accounts are established shall enter into an
agreement, in form and substance satisfactory to Lender, providing that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to
time on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to such bank account of Borrower or
Lender as Lender may from time to time designate for such purpose ("Payment
Account"). Borrower agrees that all payments made to such Blocked Accounts or
other funds received and collected by Lender, whether on the Accounts or as
proceeds of Inventory or other Collateral or otherwise shall be the property of
Lender, but shall be thereafter, until the occurrence of an Event of Default,
or Excess Availability (as determined by Lender) is ever less than $3,000,000
deposited into Borrower's operating account.
(b) For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the business day of receipt by Lender of
immediately available funds in Lender's Payment Account provided such payments
and notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next business day.
For the purposes of calculating interest on the Obligations, such payments or
other funds received will, unless they are being received by Borrower as
hereinabove permitted, be applied (conditional upon final collection) to the
Obligations one (1) business day following the date of receipt of immediately
available funds by Lender in its Payment Account provided such payments or
other funds and notice thereof are received in accordance with Lender's usual
and customary practices as in effect from time to time and within sufficient
time to credit Borrower's loan account on such day, and if not, then on the
next business day. If such payments or other funds are being received by
Borrower as hereinabove permitted, Lender shall, instead of such one day's
interest, be paid an administrative fee in an equivalent amount.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, (i) following the
occurrence of an Event of Default or if Excess Availability (as determined by
Lender) is ever less than $3,000,000, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control, and (ii) at all times, immediately
upon receipt thereof, shall deposit or cause the same to be deposited in the
Blocked Accounts, or remit the same or cause the same to be remitted, in kind,
to Lender. In no event shall the same be commingled with Borrower's own funds
following the occurrence of an Event of Default or if Excess Availability (as
determined by Lender) is ever less than $3,000,000. Borrower agrees to
reimburse Lender on demand for any amounts owed or paid to any bank at which a
Blocked Account is established or any other bank or person involved in the
transfer of funds to or from the Blocked Accounts arising out of Lender's
payments to or indemnification of such bank or person. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
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6.4 Payments. All Obligations shall be payable to Lender's
Payment Account as provided in Section 6.3 or such other place as Lender may
designate from time to time. Lender may apply payments received or collected
from Borrower or for the account of Borrower (including the monetary proceeds
of collections or of realization upon any Collateral) to such of the
Obligations, whether or not then due, in such order and manner as Lender
determines. At Lender's option, all principal, interest, fees, costs, expenses
and other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of Borrower. Borrower
shall make all payments to Lender on the Obligations free and clear of, and
without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions,
withholding, restrictions or conditions of any kind. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrower shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon written
(including facsimile) instructions received from anyone purporting to be an
officer of Borrower or other authorized person or, at the discretion of Lender,
if such Loans are necessary to satisfy any Obligations. All requests for Loans
or Letter of Credit Accommodations hereunder shall specify the date on which
the requested advance is to be made or Letter of Credit Accommodations
established (which day shall be a business day) and the amount of the requested
Loan. Requests received after 11:00 a.m. Miami, Florida time on any day shall
be deemed to have been made as of the opening of business on the immediately
following business day. All Loans and Letter of Credit Accommodations under
this Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrower when deposited to the credit of
Borrower or otherwise disbursed or established in accordance with the
instructions of Borrower or in accordance with the terms and conditions of this
Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of
the Loans provided by Lender to Borrower hereunder only for: (a) payments to
each of the persons listed in the disbursement direction letter furnished by
Borrower to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital
and other proper corporate
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purposes of Borrower not otherwise prohibited by the terms hereof. None of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause any of the Loans to be
considered a "purpose credit" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a weekly basis so
long as any non-contingent Obligations are outstanding schedules of Accounts,
sales made, deferred revenue, credits issued and cash received; (b) on a
monthly basis or more frequently as Lender may request, (i) perpetual inventory
reports, (ii) inventory reports by category and (iii) agings of accounts
payable, (c) upon Lender's request, (i) copies of customer statements and
credit memos, remittance advices and reports, and copies of deposit slips and
bank statements, (ii) copies of shipping and delivery documents, and (iii)
copies of purchase orders, invoices and delivery documents for Inventory and
Equipment acquired by Borrower; (d) agings of accounts receivable on a monthly
basis or more frequently as Lender may request; (e) within fifteen (15) days
after the end of each month, a borrowing base certificate in the form attached
hereto and made a part hereof as Exhibit B to this Agreement (or as may be
subsequently specified by Lender), with appropriate insertions therein, signed
by Borrower's chief financial officer and dated such date; and (f) such other
reports as to the Collateral as Lender shall request from time to time. If any
of Borrower's records or reports of the Collateral are prepared or maintained
by an accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any
material delay in Borrower's performance of any of its obligations to any
account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof, (ii) all material adverse
information relating to the financial condition of any account debtor and (iii)
any event or circumstance which, to Borrower's knowledge would cause any then
existing Accounts to no longer constitute Eligible Accounts because they may
not be collected pursuant to their original terms. No credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted
to any account debtor without Lender's consent, except in the ordinary course
of Borrower's business in accordance with practices and policies previously
disclosed in writing to Lender. So long as no Event of Default exists or has
occurred and is continuing, Borrower shall settle, adjust or compromise any
claim, offset, counterclaim or dispute with any account debtor. At any time
that
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an Event of Default exists or has occurred and is continuing, Lender shall, at
its option, have the exclusive right to settle, adjust or compromise any claim,
offset, counterclaim or dispute with account debtors or grant any credits,
discounts or allowances.
(b) Without limiting the obligation of Borrower to
deliver any other information to Lender, Borrower shall promptly report to
Lender any return of Inventory by any one account debtor if the inventory so
returned in such case has a value in excess of $250,000. At any time that
Inventory is returned, reclaimed or repossessed, the Account (or portion
thereof) which arose from the sale of such returned, reclaimed or repossessed
Inventory shall not be deemed an Eligible Account. In the event any account
debtor returns Inventory when an Event of Default exists or has occurred and is
continuing, Borrower shall, upon Lender's request, (i) hold the returned
Inventory in trust for Lender, (ii) segregate all returned Inventory from all
of its other property, (iii) dispose of the returned Inventory solely according
to Lender's instructions, and (iv) not issue any credits, discounts or
allowances with respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown
on any invoice delivered to Lender or schedule thereof delivered to Lender
shall be true and complete, (ii) no payments shall be made thereon except
payments immediately delivered to Lender pursuant to the terms of this
Agreement, (iii) no credit, discount or allowance in the amount of $50,000 or
more, or extension or agreement for any of the foregoing shall be granted to
any account debtor except as reported to Lender in accordance with this
Agreement and except for credits, discounts, allowances or extensions made or
given in the ordinary course of Borrower's business in accordance with
practices and policies previously disclosed to Lender, (iv) there shall be no
setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Lender in accordance with
the terms of this Agreement, (v) none of the transactions giving rise thereto
will violate any applicable State or Federal laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in
accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by
mail, telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full recourse to
Borrower, all chattel paper and instruments which Borrower now owns or may at
any time acquire immediately upon Borrower's receipt thereof, except as Lender
may otherwise agree.
(f) Lender may, at any time or times that an Event of
Default exists or has occurred and is continuing, (i) notify any or all account
debtors that the Accounts have been assigned to Lender and that Lender has a
security interest therein and Lender may direct any or all accounts debtors to
make payment of Accounts directly to Lender, (ii) extend the time of payment
of, compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any
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terms or conditions, any and all Accounts or other obligations included in the
Collateral and thereby discharge or release the account debtor or any other
party or parties in any way liable for payment thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Accounts or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its interests. At any time that an Event of Default exists or has occurred
and is continuing, at Lender's request, all invoices and statements sent to any
account debtor shall state that the Accounts and such other obligations have
been assigned to Lender and are payable directly and only to Lender and
Borrower shall deliver to Lender such originals of documents evidencing the
sale and delivery of goods or the performance of services giving rise to any
Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a)
Borrower shall at all times maintain inventory records reasonably satisfactory
to Lender, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, Borrower's cost therefor and
daily withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any Inventory
from the locations set forth or permitted herein, without the prior written
consent of Lender, except for sales of Inventory in the ordinary course of
Borrower's business and except to move Inventory directly from one location set
forth or permitted herein to another such location; (d) upon Lender's request,
Borrower shall, at its expense, no more than once in any twelve (12) month
period, but at any time or times as Lender may request on or after an Event of
Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender or upon
which Lender is expressly permitted to rely; (e) Borrower shall produce, use,
store and maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) Borrower assumes all responsibility and liability arising from or relating
to the production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrower to
repurchase such Inventory, except in the ordinary course of Borrower's business
in accordance with practices and policies previously disclosed to Lender; (h)
Borrower shall keep the Inventory in good and marketable condition; and (i)
Borrower shall not, without prior written notice to Lender, acquire or accept
any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) upon
Lender's request, Borrower shall, at its expense, at any time or times as
Lender may request on or after an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the
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Equipment in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender; (b) Borrower shall keep the Equipment in good
order, repair, running and marketable condition (ordinary wear and tear
excepted); (c) Borrower shall use the Equipment with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with all material applicable laws; (d) the Equipment is and shall be
used in Borrower's business and not for personal, family, household or farming
use; (e) Borrower shall not remove any Equipment having a value, in the
aggregate or individually, of $250,000 or more from the locations set forth or
permitted herein, except to the extent necessary to have any Equipment repaired
or maintained in the ordinary course of the business of Borrower or to move
Equipment directly from one location set forth or permitted herein to another
such location and except for the movement of motor vehicles used by or for the
benefit of Borrower in the ordinary course of business; (f) the Equipment is
now and shall remain personal property and Borrower shall not permit any of the
Equipment to be or become a part of or affixed to real property; and (g)
Borrower assumes all responsibility and liability arising from the use of the
Equipment unless in Lender's possession.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor, and
(viii) do all acts and things which are necessary, in Lender's determination,
to fulfill Borrower's obligations under this Agreement and the other Financing
Agreements and (b) at any time to (i) take control in any manner of any item of
payment or proceeds thereof, (ii) have access to any lockbox or postal box into
which Borrower's mail is deposited, (iii) endorse Borrower's name upon any
items of payment or proceeds thereof and deposit the same in the Lender's
account for application to the Obligations, (iv) endorse Borrower's name upon
any chattel paper, document, instrument, invoice, or similar document or
agreement relating to any Account or any goods pertaining thereto or any other
Collateral, (v) sign Borrower's name on any verification of Accounts and
notices thereof to account debtors and (vi) execute in Borrower's name and file
any UCC financing statements or amendments thereto. Borrower hereby releases
Lender and its officers, employees and designees from any liabilities arising
from any act or acts under this power of attorney and in furtherance thereof,
whether of omission or commission, except as a result of Lender's own gross
negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) cure any
default by Borrower under any agreement with a third party or pay or bond on
appeal any judgment entered against
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Borrower, (b) discharge taxes, liens, security interests or other encumbrances
at any time levied on or existing with respect to the Collateral and (c) pay
any amount, incur any expense or perform any act which, in Lender's judgment,
is necessary or appropriate to preserve, protect, insure or maintain the
Collateral and the rights of Lender with respect thereto. Lender may add any
amounts so expended to the Obligations and charge Borrower's account therefor,
such amounts to be repayable by Borrower on demand. Lender shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of Borrower. Any payment
made or other action taken by Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
accordingly.
7.7 Access to Premises. From time to time as requested by Lender,
at the cost and expense of Borrower, (a) Lender or its designee shall have
complete access to all of Borrower's premises during normal business hours and
after notice to Borrower, or at any time and without notice to Borrower if an
Event of Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender
may reasonably request, and (c) use during normal business hours such of
Borrower's personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred
and is continuing for the collection of Accounts and realization of other
Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries.
Borrower is a corporation duly organized and in good standing under the laws of
its state of incorporation and is duly qualified as a foreign corporation and
in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on Borrower's financial
condition, results of operation or business or the rights of Lender in or to
any of the Collateral. The execution, delivery and performance of this
Agreement, the other Financing Agreements and the transactions contemplated
hereunder and thereunder are all within Borrower's corporate powers, have been
duly authorized and are not in contravention of law or the terms of Borrower's
certificate of incorporation, by-laws, or other organizational documentation,
or any indenture, agreement or undertaking to which Borrower is a party or by
which Borrower or its property are bound. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of
Borrower enforceable in
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accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Lender have been prepared in accordance with GAAP and
fairly present the financial condition and the results of operation of Borrower
as at the dates and for the periods set forth therein. Except as disclosed in
any interim financial statements furnished by Borrower to Lender prior to the
date of this Agreement, there has been no material adverse change in the
assets, liabilities, properties and condition, financial or otherwise, of
Borrower, since the date of the most recent audited financial statements
furnished by Borrower to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief
executive office of Borrower and Borrower's principal Records concerning
Accounts are located only at the address set forth below and its only other
places of business and the only other locations of Collateral, if any, are the
addresses set forth in the Information Certificate, subject to the right of
Borrower to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are
not owned by Borrower and sets forth the owners and/or operators thereof and to
the best of Borrower's knowledge, the holders of any mortgages on such
locations.
8.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and the other
Financing Agreements constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject only to the liens
indicated on Schedule 8.4 hereto and the other liens permitted under Section
9.8 hereof. Borrower has valid and legal or good and marketable title to all of
its properties and assets subject to no liens, mortgages, pledges, security
interests, encumbrances or charges of any kind, except those granted to Lender
and such others as are specifically listed on Schedule 8.4 hereto or permitted
under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to
be filed by it. All information in such tax returns, reports and declarations
is complete and accurate in all material respects. Borrower has paid or caused
to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information
Certificate and on Schedule 8.6 hereto, there is no present investigation by
any governmental agency pending, or to the best of Borrower's knowledge
threatened, against or affecting Borrower, its assets or business and there is
no action, suit, proceeding or claim by any Person pending, or to the best of
Borrower's
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knowledge threatened, against Borrower or its assets or goodwill, or against or
affecting any transactions contemplated by this Agreement, which if adversely
determined against Borrower would result in any material adverse change in the
assets, business or prospects of Borrower or would impair the ability of
Borrower to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce any
Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws.
Borrower is not in default in any material respect under, or in violation in
any material respect of any of the terms of, any agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound and Borrower is in compliance in all material
respects with all applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or local
governmental authority.
8.8 Bank Accounts. All of the deposit accounts, investment
accounts or other accounts in the name of or used by Borrower maintained at any
bank or other financial institution are set forth on Schedule 8.8 hereto,
subject to the right of Borrower to establish new accounts in accordance with
Section 9.13 below.
8.9 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any material
fact necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.10 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times
preserve, renew and keep in full, force and effect its corporate existence and
rights and franchises with respect thereto and maintain in full force and
effect all material permits, licenses, trademarks, tradenames, approvals,
authorizations, leases and contracts necessary to carry on the business as
presently or proposed to
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be conducted. Borrower shall give Lender thirty (30) days prior written notice
of any proposed change in its corporate name, which notice shall set forth the
new name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change
certified by the Secretary of State of the jurisdiction of incorporation of
Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location
within the continental United States provided Borrower (a) gives Lender thirty
(30) days prior written notice of the intended opening of any such new location
and (b) executes and delivers, or causes to be executed and delivered, to
Lender such agreements, documents, and instruments as Lender may deem
reasonably necessary or desirable to protect its interests in the Collateral at
such location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at
all times, comply in all material respects with all material laws, rules,
regulations, licenses, permits, approvals and orders of any Federal, State or
local governmental authority applicable to it.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
discharge all taxes, assessments, contributions and governmental charges upon
or against it or its properties or assets, except for taxes the validity of
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books. Borrower shall be liable for any tax or
penalties (other than income taxes, franchise taxes and any penalties related
thereto) imposed on Lender as a result of the financing arrangements provided
for herein and Borrower agrees to indemnify and hold Lender harmless with
respect to the foregoing, and to repay to Lender on demand the amount thereof,
and until paid by Borrower such amount shall be added and deemed part of the
Loans, provided, that, nothing contained herein shall be construed to require
Borrower to pay any income or franchise taxes attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to
form, amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance.
Borrower shall cause Lender to be named as a loss payee and an additional
insured (but without any liability for any premiums) under such insurance
policies and Borrower shall obtain
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non-contributory lender's loss payable endorsements to all insurance policies
in form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the
Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in
which true and complete entries shall be made of all dealings or transactions
of or in relation to the Collateral and the business of Borrower and its
subsidiaries (if any) in accordance with GAAP and Borrower shall furnish or
cause to be furnished to Lender: (i) within thirty (30) days after the end of
each fiscal month and within sixty (60) days after the end of each fiscal
quarter, monthly or quarterly (as applicable) unaudited consolidated financial
statements, and, if Borrower has any subsidiaries, unaudited consolidating
financial statements (including in each case balance sheets, statements of
income and loss, statements of cash flow, and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial position and
the results of the operations of Borrower and its subsidiaries as of the end of
and through such fiscal month or quarter and (ii) within one hundred twenty
(120) days after the end of each fiscal year, audited consolidated financial
statements and, if Borrower has any subsidiaries, audited consolidating
financial statements of Borrower and its subsidiaries (including in each case
balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower and its subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrower and its subsidiaries
as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of
the details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for
the Obligations or which would result in any material adverse change in
Borrower's business, properties, assets, goodwill or condition, financial or
otherwise, (ii) any change in the management of Borrower, and (iii) the
occurrence of any Event of Default or event which, with the passage of time or
giving of notice or both, would constitute an Event of Default.
(c) Borrower shall within seven (7) days after the
sending or filing thereof furnish or cause to be furnished to Lender copies of
all reports which Borrower sends to its stockholders generally and copies of
all reports and registration statements which Borrower files with the
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Securities and Exchange Commission, any national securities exchange or the
National Association of Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to
Lender such budgets, forecasts, projections and other information respecting
the Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency upon a written order,
subpoena, direction or other request of such court or government agency (with
reasonable notice to Borrower) or to any participant or assignee or prospective
participant or assignee. Borrower hereby irrevocably authorizes and directs all
accountants or auditors to, after the occurrence of any Event of Default,
deliver to Lender, at Borrower's expense, copies of the financial statements of
Borrower and any reports or management letters prepared by such accountants or
auditors on behalf of Borrower and to disclose to Lender such information as
they may have regarding the business of Borrower. Any documents, schedules,
invoices or other papers delivered to Lender may be destroyed or otherwise
disposed of by Lender one (1) year after the same are delivered to Lender,
except as otherwise designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc.
Borrower shall not, directly or indirectly, (a) without Lender's prior written
consent, which will not be unreasonably withheld, merge into or with or
consolidate with any other Person or permit any other Person to merge into or
with or consolidate with it, or (b) sell, assign, lease, transfer, abandon or
otherwise dispose of any stock or indebtedness to any other Person or any of
its assets to any other Person (except for (i) sales of Inventory in the
ordinary course of business, (ii) consignment sales permitted by the OEM
Agreement, and (iii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $250,000 for all such Equipment disposed of in any
fiscal year of Borrower), or (c) form or acquire any subsidiaries, or (d) wind
up, liquidate or dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or
suffer to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings
diligently pursued and available to Borrower and with respect to which adequate
reserves have been set aside on its books; (c) non-consensual statutory liens
(other than liens securing the payment of taxes) arising in the ordinary course
of Borrower's business to the extent: (i) such liens secure indebtedness which
is not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning
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restrictions, easements, licenses, covenants and other restrictions affecting
the use of real property which do not interfere in any material respect with
the use of such real property or ordinary conduct of the business of Borrower
as presently conducted thereon or materially impair the value of the real
property which may be subject thereto; (e) purchase money security interests in
Equipment and purchase money mortgages on real estate not to exceed $250,000
and capital leases not to exceed $2,000,000, in the aggregate at any time
outstanding so long as such security interests and mortgages do not apply to
any property of Borrower other than the Equipment or real estate so acquired,
and the indebtedness secured thereby does not exceed the cost of the Equipment
or real estate so acquired, as the case may be; (f) the security interests and
liens set forth on Schedule 8.4 hereto; (g) non-exclusive licenses to use
intellectual property granted to third parties in the ordinary course of
Borrower's business; and (h) Borrower's obligations to provide goods on
consignment pursuant to the OEM Agreement.
9.9 Indebtedness. Borrower shall not incur, create, assume,
become or be liable in any manner with respect to, or permit to exist, any
obligations or indebtedness, except: (a) the Obligations; (b) trade obligations
and normal accruals in the ordinary course of business not yet due and payable,
or with respect to which the Borrower is contesting in good faith the amount or
validity thereof by appropriate proceedings diligently pursued and available to
Borrower, and with respect to which adequate reserves have been set aside on
its books; (c) product indemnities and warranties and other similar
indebtedness (whether contingent or non-contingent) incurred by the Borrower in
the ordinary course of business; (d) purchase money indebtedness (including
capital leases) to the extent not incurred or secured by liens (including
capital leases) in violation of any other provision of this Agreement; (e)
indebtedness owed to Digital Lightwave Leasing Corporation in an aggregate
outstanding amount not to exceed $1,000,000 at any time; and (f) the
indebtedness set forth on Schedule 9.9 hereto; provided, that, (i) Borrower may
only make regularly scheduled payments of principal and interest in respect of
such indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date hereof,
or, in the case of the indebtedness specified in clauses (c) and (e) above, in
the ordinary course of business; provided, that, such payments shall be
permitted in the case of the indebtedness specified in clause (e) above only
if, at the time of and immediately after such payment, either no Loan is
outstanding or Borrower shall have Excess Availability, as determined by
Lender, of not less than $2,000,000, (ii) Borrower shall not, directly or
indirectly, (A) amend, modify, alter or change the terms of such indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, or (B) redeem, retire, defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) Borrower shall furnish to Lender all notices or demands in
connection with such indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not,
directly or indirectly, make any loans or advance money or property to any
person, or invest in (by capital contribution, dividend or otherwise) or
purchase or repurchase the stock or indebtedness or all or a substantial part
of the assets or property of any person, or guarantee, assume, endorse, or
otherwise become
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responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except: (a) the endorsement of instruments for collection or deposit in the
ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of the
Borrower or to bearer and delivered to Lender, and (iii) commercial paper rated
A1 or P1; provided, that, as to any of the foregoing, unless waived in writing
by Lender, Borrower shall take such actions as are deemed necessary by Lender
to perfect the security interest of Lender in such investments, (c) loans to
employees which, when combined with the amount of incentive payments made to
employees during any fiscal year, do not, at any time, exceed an outstanding
balance of $250,000, (d) the product indemnities and warranties permitted
pursuant to Section 9.9 above, (e) intercompany loans or other contributions
made by Borrower to Digital Lightwave Leasing Corporation in an amount not to
exceed $1,000,000, and (f) the loans, advances and guarantees set forth on
Schedule 9.10 hereto; provided, that, as to such loans, advances and
guarantees, (i) Borrower shall not, directly or indirectly, (A) amend, modify,
alter or change the terms of such loans, advances or guarantees or any
agreement, document or instrument related thereto, or (B) as to such
guarantees, redeem, retire, defease, purchase or otherwise acquire the
obligations arising pursuant to such guarantees, or set aside or otherwise
deposit or invest any sums for such purpose, and (ii) Borrower shall furnish to
Lender all notices or demands in connection with such loans, advances or
guarantees or other indebtedness subject to such guarantees either received by
Borrower or on its behalf, promptly after the receipt thereof, or sent by
Borrower or on its behalf, concurrently with the sending thereof, as the case
may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any cash dividends on account of any shares of class
of capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make
any other distribution (by reduction of capital or otherwise) in respect of any
such shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Except as may be otherwise
expressly permitted pursuant to clause (e) of Section 9.10 above, Borrower
shall not, directly or indirectly, (a) purchase, acquire or lease any property
from, or sell, transfer or lease any property to, any officer, director, agent
or other person affiliated with Borrower, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair
and reasonable terms no less favorable to the Borrower than Borrower would
obtain in a comparable arm's length transaction with an unaffiliated person or
(b) make any payments of management, consulting or other fees for management or
similar services, or of any indebtedness owing to any officer, employee,
shareholder, director or other person affiliated with Borrower except (i)
incentive payments to employees which, when combined with loans outstanding to
employees at any time, do not exceed $250,000 in any fiscal year, and (ii)
reasonable compensation to officers, employees and directors for services
rendered to Borrower in the ordinary course of business.
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9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.8 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as
Lender may establish and (b) as to any accounts used by Borrower to make
payments of payroll, taxes or other obligations to third parties, after prior
written notice to Lender.
9.14 Adjusted Net Worth. Borrower shall, at all times, maintain
Adjusted Net Worth of not less than $30,000,000.
9.15 Excess Availability. Borrower shall, at all times while any
Loan is outstanding, maintain Excess Availability (without deducting past due
trade payables or the amount of checks issued by Borrower to pay trade
payables, but not yet sent and the book overdraft of Borrower), as determined
by Lender, of not less than $2,000,000.
9.16 Costs and Expenses. Borrower shall pay to Lender on demand
all costs, expenses, filing fees and taxes paid or payable in connection with
the preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and
all other documents related hereto or thereto, including any amendments,
supplements or consents which may hereafter be contemplated (whether or not
executed) or entered into in respect hereof and thereof, including: (a) all
costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) all insurance
premiums, appraisal fees and search fees; (c) costs and expenses of remitting
loan proceeds, collecting checks and other items of payment, and establishing
and maintaining the Blocked Accounts, together with Lender's customary charges
and fees with respect thereto; (d) charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations; (e)
costs and expenses of preserving and protecting the Collateral; (f) costs and
expenses paid or incurred in connection with obtaining payment of the
Obligations, enforcing the security interests and liens of Lender, selling or
otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this Agreement and the other Financing Agreements or defending any claims
made or threatened against Lender arising out of the transactions contemplated
hereby and thereby (including preparations for and consultations concerning any
such matters); (g) all out-of-pocket expenses and costs heretofore and from
time to time hereafter incurred by Lender during the course of periodic field
examinations of the Collateral and Borrower's operations, plus a per diem
charge at the rate of $750 per person per day (not to exceed $13,000 in the
aggregate during any fiscal year, prior to the occurrence of an Event of
Default and excluding Lender's initial survey) for Lender's examiners in the
field and office; and (h) the reasonable fees and disbursements of counsel
(including legal assistants) to Lender in connection with any of the foregoing.
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9.17 Further Assurances. At the request of Lender at any time and
from time to time, Borrower shall, at its expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary
or reasonably proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of the other
Financing Agreements. Lender may at any time and from time to time request a
certificate from an officer of Borrower representing that all conditions
precedent to the making of Loans and providing Letter of Credit Accommodations
contained herein are satisfied. In the event of such request by Lender, Lender
may, at its option, cease to make any further Loans or provide any further
Letter of Credit Accommodations until Lender has received such certificate and,
in addition, Lender has determined that such conditions are satisfied. Where
permitted by law, Borrower hereby authorizes Lender to execute and file one or
more UCC financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or
more of the following events are referred to herein individually as an "Event
of Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay when due any of the
Obligations or (ii) Borrower or any Obligor fails to perform any of the
covenants contained in Sections 9.6(a), 9.6(c), 9.6(d), 9.16, and 9.17 of this
Agreement and such failure shall continue for five (5) days; provided, that,
such five (5) day period shall not apply in the case of any failure to observe
any such covenant which is not capable of being cured at all or within such
five (5) day period or which has been the subject of a prior failure within a
six (6) month period or (iii) Borrower fails to perform any of the terms,
covenants, conditions or provisions contained in this Agreement or any of the
other Financing Agreements other than those described in Sections 10.1(a)(i)
and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact
made by Borrower to Lender in this Agreement, the other Financing Agreements or
any other agreement, schedule, confirmatory assignment or otherwise shall when
made or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform
any of the terms, covenants, conditions or provisions of any guarantee,
endorsement or other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered
against Borrower or any Obligor in excess of $500,000 in any one case or in
excess of $500,000 in the aggregate and shall remain undischarged or unvacated
for a period in excess of thirty (30) days or execution shall at any time not
be effectively stayed, or any judgment other than for the payment of money, or
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injunction, attachment, garnishment or execution is rendered against Borrower
or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general
partner of an Obligor which is a partnership) dies or Borrower or any Obligor,
which is a partnership, limited liability company, limited liability
partnership or a corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however
defined or evidenced), makes an assignment for the benefit of creditors, makes
or sends notice of a bulk transfer or calls a meeting of its creditors or
principal creditors;
(g) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed against Borrower or any Obligor or all
or any part of its properties and such petition or application is not dismissed
within thirty (30) days after the date of its filing or Borrower or any Obligor
shall file any answer admitting or not contesting such petition or application
or indicates its consent to, acquiescence in or approval of, any such action or
proceeding or the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of
the United States of America now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at a law or equity) is filed by Borrower or any Obligor or for all or
any part of its property; or
(i) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any indebtedness for borrowed
money owing to any person other than Lender, or any capitalized lease
obligations, contingent indebtedness in connection with any guarantee, letter
of credit, indemnity or similar type of instrument in favor of any person other
than Lender, in any case in an amount in excess of $100,000, which default
continues for more than the applicable cure period, if any, with respect
thereto which allows for the acceleration of such obligations or the exercise
of any other post-default remedy, or any default by Borrower or any Obligor
under any material contract, lease, license or other obligation to any person
other than Lender, which default continues for more than the applicable cure
period, if any, with respect thereto and allows for the cancellation of such
contract, lease, license or other obligation or the exercise of any other
post-default remedy;
(j) any Change of Control;
(k) the indictment or threatened indictment of Borrower
or any Obligor under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against Borrower or any Obligor,
pursuant to which statute or proceedings the penalties or
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remedies sought or available include forfeiture of any of the property of
Borrower or such Obligor;
(l) there shall be a material adverse change in the
business, assets or prospects of Borrower or any Obligor after the date hereof;
or
(m) there shall be an event of default under any of the
other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has
occurred and is continuing, Lender shall have all rights and remedies provided
in this Agreement, the other Financing Agreements, the Uniform Commercial Code
and other applicable law, all of which rights and remedies may be exercised
without notice to or consent by Borrower or any Obligor, except as such notice
or consent is expressly provided for hereunder or required by applicable law.
All rights, remedies and powers granted to Lender hereunder, under any of the
other Financing Agreements, the Uniform Commercial Code or other applicable
law, are cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event
of Default exists or has occurred and is continuing, Lender may, in its
discretion and without limitation, (i) accelerate the payment of all
Obligations and demand immediate payment thereof to Lender (provided, that,
upon the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become immediately due and
payable), (ii) with or without judicial process or the aid or assistance of
others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (iii) require
Borrower, at Borrower's expense, to assemble and make available to Lender any
part or all of the Collateral at any place and time designated by Lender, (iv)
collect, foreclose, receive, appropriate, setoff and realize upon any and all
Collateral, (v) remove any or all of the Collateral from any premises on or in
which the same may be located for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose, (vi) sell,
lease, transfer, assign, deliver or otherwise dispose of any and all Collateral
(including entering into contracts with respect thereto, public or private
sales at any exchange, broker's board, at any office of Lender or elsewhere) at
such prices or terms as Lender may deem reasonable, for cash, upon credit or
for future delivery, with the Lender having the right to purchase the whole or
any part of the Collateral at any such public sale, all of the foregoing being
free from any right or equity of redemption of Borrower, which right or equity
of redemption is hereby expressly waived and released by Borrower and/or (vii)
terminate this Agreement. If any of the Collateral is sold or leased by Lender
upon credit
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terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the
time after which any private sale or other intended disposition of Collateral
is to be made, shall be deemed to be reasonable notice thereof and Borrower
waives any other notice. In the event Lender institutes an action to recover
any Collateral or seeks recovery of any Collateral by way of prejudgment
remedy, Borrower waives the posting of any bond which might otherwise be
required.
(c) Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of the Obligations, in whole or in
part and in such order as Lender may elect, whether or not then due. Borrower
shall remain liable to Lender for the payment of any deficiency with interest
at the highest rate provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence
of an Event of Default or an event which with notice or passage of time or both
would constitute an Event of Default, Lender may, at its option, without
notice, (i) cease making Loans or arranging for Letter of Credit Accommodations
or reduce the lending formulas or amounts of Revolving Loans and Letter of
Credit Accommodations available to Borrower and/or (ii) terminate any provision
of this Agreement providing for any future Loans or Letter of Credit
Accommodations to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Florida
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit
to the non-exclusive jurisdiction of the State of Florida and the United States
District Court for the Southern District of Florida and waive any objection
based on venue or forum non conveniens with respect to any action instituted
therein arising under this Agreement or any of the other Financing Agreements
or in any way connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Lender shall have the
right to bring any
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action or proceeding against Borrower or its property in the courts of any
other jurisdiction which Lender deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against Borrower
or its property).
(c) Borrower hereby waives personal service of any and
all process upon it and consents that all such service of process may be made
by certified mail (return receipt requested) directed to its address set forth
on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon Borrower in any other manner
provided under the rules of any such courts.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER
AND LENDER EACH 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
BORROWER OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT
WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower
(whether in tort, contract, equity or otherwise) for losses suffered by
Borrower in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Agreement, or any act,
omission or event occurring in connection herewith, unless it is determined by
a final and non-appealable judgment or court order binding on Lender, that the
losses were the result of acts or omissions constituting gross negligence or
willful misconduct. In any such litigation, Lender shall be entitled to the
benefit of the rebuttable presumption that it acted in good faith and with the
exercise of ordinary care in the performance by it of the terms of this
Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the
Collateral and this Agreement, except such as are expressly provided for
herein. No notice to or demand on Borrower which Lender may elect to give shall
entitle Borrower to any other or further notice or demand in the same, similar
or other circumstances.
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11.3 Amendments and Waivers. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or discharged orally or by
course of conduct, but only by a written agreement signed by an authorized
officer of Lender, and as to amendments, as also signed by an authorized
officer of Borrower. Lender shall not, by any act, delay, omission or otherwise
be deemed to have expressly or impliedly waived any of its rights, powers
and/or remedies unless such waiver shall be in writing and signed by an
authorized officer of Lender. Any such waiver shall be enforceable only to the
extent specifically set forth therein. A waiver by Lender of any right, power
and/or remedy on any one occasion shall not be construed as a bar to or waiver
of any such right, power and/or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any nature (other
then compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender,
and its directors, agents, employees and counsel, harmless from and against any
and all losses, claims, damages, liabilities, costs or expenses imposed on,
incurred by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in this Section may be unenforceable because it violates any law or
public policy, Borrower shall pay the maximum portion which it is permitted to
pay under applicable law to Lender in satisfaction of indemnified matters under
this Section. The foregoing indemnity shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
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SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements
shall become effective as of the date set forth on the first page hereof and
shall continue in full force and effect for a term ending on the date two (2)
years from the date hereof (the "Renewal Date"), and from year to year
thereafter, unless sooner terminated pursuant to the terms hereof; provided,
that, Lender may, at its option, extend the Renewal Date to the date three (3)
years from the date hereof by giving Borrower notice at least sixty (60) days
prior to the second (2nd) anniversary of this Agreement. Lender or Borrower
(subject to Lender's right to extend the Renewal Date as provided above) may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding
and unpaid Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure Lender from
loss, cost, damage or expense, including attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received
final and indefeasible payment. Such payments in respect of the Obligations and
cash collateral shall be remitted by wire transfer in Federal funds to such
bank account of Lender, as Lender may, in its discretion, designate in writing
to Borrower for such purpose. Interest shall be due until and including the
next business day, if the amounts so paid by Borrower to the bank account
designated by Lender are received in such bank account later than 12:00 noon,
Miami, Florida time.
(b) No termination of this Agreement or the other
Financing Agreements shall relieve or discharge Borrower of its respective
duties, obligations and covenants under this Agreement or the other Financing
Agreements until all Obligations have been fully and finally discharged and
paid, and Lender's continuing security interest in the Collateral and the
rights and remedies of Lender hereunder, under the other Financing Agreements
and applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason (other than Borrower's refinancing
of the Obligations with First Union National Bank (or any other affiliates of
Lender) at any time after October 9, 2001) this Agreement is terminated prior
to the end of the then current term or renewal term of this Agreement, in view
of the impracticality and extreme difficulty of ascertaining actual damages and
by mutual agreement of the parties as to a reasonable calculation of Lender's
lost profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
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Amount Period
------ ------
(iii) 1.5% of Maximum Credit From the date hereof to and including
October 9, 2001
(iv) 1.0% of Maximum Credit From October 10, 2001 to and including
October 9, 2002
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be
in writing and (a) made to Lender at its address set forth below and to
Borrower at its chief executive office set forth below, or to such other
address as either party may designate by written notice to the other in
accordance with this provision, and (b) deemed to have been given or made: if
delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of
receipt; if by nationally recognized overnight courier service with
instructions to deliver the next business day, one (1) business day after
sending; and if by certified mail, return receipt requested, five (5) days
after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is
held to be invalid or unenforceable, such invalidity or unenforceability shall
not invalidate this Agreement as a whole, but this Agreement shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements
and any other document referred to herein or therein shall be binding upon and
inure to the benefit of and be enforceable by Lender, Borrower and their
respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Lender. Lender may, after notice to Borrower, assign its rights and delegate
its obligations under this Agreement and the other Financing Agreements and
further may assign, or sell participations in, all or any part of the Loans,
the Letter of Credit Accommodations or any other interest herein to another
financial institution or other person, in which event, the assignee or
participant shall have, to the extent of such assignment or participation, the
same rights and benefits as it would
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have if it were the Lender hereunder, except as otherwise provided by the terms
of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
------ --------
CONGRESS FINANCIAL CORPORATION DIGITAL LIGHTWAVE, INC.
(FLORIDA)
By: By:
---------------------------- -------------------------------
Title: Title:
------------------------- ----------------------------
Address: Chief Executive Office:
-------- -----------------------
000 Xxxxxxxx Xxxxxx
Xxxxx 000 00000 Xxxxxxxxx Xxxxx
Xxxxx, Xxxxxxx 00000 Xxxxxxxxxx, Xxxxxxx 00000
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EXHIBIT "A"
INFORMATION CERTIFICATE
OF
DIGITAL LIGHTWAVE, INC.
Dated: May 12, 2000
Congress Financial Corporation
(Florida)
000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx, Xxxxxxx 00000
In order to assist you in the continuing evaluation of the financing you are
considering of Digital Lightwave, Inc. (the "Corporation") and to expedite the
preparation of any documentation which may be required and to induce you to
provide such financing to the Corporation, we represent and warrant to you the
following information about the Corporation, its organizational structure and
other matters of interest to you:
1. The full and exact name of the Corporation as set forth in its
Certificate of Incorporation is:
Digital Lightwave, Inc.
---------------------------------------------------------------------
---------------------------------------------------------------------
2. The Corporation uses and owns the following trade name(s) in the
operation of its business (e.g. billing, advertising, etc.; note: do
not include names which are product names only):
Digital Lightwave, Inc., Digital Lightwave, DLI, DIGL
---------------------------------------------------------------------
---------------------------------------------------------------------
In the event any trade name appears on an invoice, a sample copy of
such invoice is annexed.
3. The date of incorporation of the Corporation was March 1996 under the
laws of the State of Delaware*, and the Corporation is in good
standing under those laws. The Corporation has never been involved in
a bankruptcy or reorganization except: (explain)
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
* Merged with Digital Lightwave, Inc., a California corporation incorporated in
February 1991.
A-1
46
4. The Corporation is duly qualified and authorized to transact business
as a foreign corporation in the following states and is in good
standing in such states:
Florida
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
5. Since the date of incorporation, the corporate name of the Corporation
has been changed as follows:
Date Prior Name
---- ----------
Not Applicable - No name changes
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
6. Since the date of incorporation, the Corporation has made or entered
into the following mergers or acquisitions:
None other than merger of predecessor California corporation
---------------------------------------------------------------------
with surviving Delaware corporation (see #3)
---------------------------------------------------------------------
7. The chief executive office of the Corporation is located at:
0000 Xxxxxxxxx Xxxxx Xxxxxxxxxx Xxxxxxx 00000
---------------------------------------------------------------------
Street Address City State County
8. The bank and records of the Corporation pertaining to accounts,
contract rights, inventory, etc. are located at (if other than the
chief executive office referred to in Section 7 above):
Same as above
---------------------------------------------------------------------
Xxxxxx Xxxxxxx Xxxx Xxxxx Xxxxxx
X-0
00
0. The Corporation has other places of business and/or maintains
inventory or other assets at the following addresses (indicate whether
locations are owned, leased or operated by third parties and if leased
or operated by third parties, their name and address):
0000 Xxxxxx Xxxxxxx, Xxxxxx X 0&0, Xxxxxxx, XX 00000
Leased from Cali-Realty
----------------------------------------------------------------------
Xxxxxx Xxxxxxx Xxxx Xxxxx Lessor/Operator
00000 Xxxxxxxxx Xxxx, Xxxxx 000, Xx. Xxxxxxxxxx, XX 00000
Leased from Pinellas Business*
----------------------------------------------------------------------
Xxxxxx Xxxxxxx Xxxx Xxxxx Lessor/Operator
000 Xxxxxxxx Xxxxxx, Xxxxx 000X, Xxxxxxx, XX 00000
Leased from Highland March+
----------------------------------------------------------------------
Xxxxxx Xxxxxxx Xxxx Xxxxx Lessor/Operator
10. The premises listed below owned by the Corporation are subject to
mortgages as follows (state name and address of mortgagee and
approximate principal balance of mortgage):
Location Mortgage Principal Balance
--------- -------- ----------------
N/A
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
11. The places of business or other locations of any assets used by the
Corporation during the last four (4) months other than those listed
above are as follows:
N/A
-------------------- -------------------- --------------------
Street Address City State
-------------------- -------------------- --------------------
Street Address City State
-------------------- -------------------- --------------------
Street Address City State
* lease expires July 2000
+ lease expires August 2000
X-0
00
00. The Corporation is affiliated with, or has ownership in, the following
corporations (including subsidiaries):
Chief Jurisdiction Ownership
Executive of Percentage or
Name Office Incorporation Relationship
---- --------- ------------- -------------
Digital Lightwave
Leasing Corporation Delaware 100% Subsidiary
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
13. The Federal Employer Identification Number of the Corporation is as
follows:
95-43I3013
----------------------------------------------------------------------
14. There is no provision in the Certificate of Incorporation or By-laws
of the Corporation, or in the laws of the State of its incorporation,
requiring any vote or consent of shareholders to borrow or to
authorize the mortgage or pledge of or creation of a security interest
in any assets of the Corporation or any subsidiary. Such power is
vested exclusively in its Board of Directors.
15. The officers of the Corporation and their respective titles are as
follows:
Title Name
----- ----
Chairman, CEO & President Xxxxx Xxxxxxxxx
------------------------------ ------------------------------
EVP, Finance, CFO & Secretary Xxxxxx X. Xxxxx
------------------------------ ------------------------------
Controller Xxxxxxx X. Xxxxxxx
------------------------------ ------------------------------
EVP, Sales Xxxxxx Xxxx
------------------------------ ------------------------------
EVP, Research & Development Xxx Xxxxxx
------------------------------ ------------------------------
VP, Production Xxxxx Xxxxx
------------------------------ ------------------------------
The following will have signatory powers as to all your of
transactions with the Corporation:
Xxxxx Xxxxxxxxx, Xxxxxx X. Xxxxx, Xxxxxxx X. Xxxxxxx
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
16. With respect to the officers noted above, such officers are affiliated
with or have ownership in the following corporations (indicate name
and address of affiliated companies, type of operations, ownership
percentage or other relationship):
None other than those described in Part III (pgs. 55-56) of the
----------------------------------------------------------------------
Company's Form 10-K dated March 30, 2000 (copy attached)
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
X-0
00
00. The members of the Board of Directors of the Corporation are:
Xxxxx Xxxxxxxxx - Chairman
----------------------------------------------------------------------
Xxxxxxx Xxxxxxxx
----------------------------------------------------------------------
Xxxxxxx Xxxxxxx
----------------------------------------------------------------------
Xxxxx X. Xxxx
----------------------------------------------------------------------
18. The name of the stockholders of the Corporation and their stock
holdings are as follows (if stock is widely held indicate only
stockholders owning 10% or more of the voting stock):
Name No. of Shares Percentage
---- ------------- ----------
Xxxxx X. Xxxx 18,441,750 63.7%
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
19. There are no judgments or litigation pending by or against the
Corporation, its subsidiaries and/or affiliates or any of its
officers/principals, except as follows:
Reference is made to Part I, Item 3 -- "Legal Proceedings" on pages
----------------------------------------------------------------------
22-23 and Item 8, Note 15 -- "Legal Proceedings" on pages 51-52 of the
----------------------------------------------------------------------
Company's Form 10-K regarding these matters.
----------------------------------------------------------------------
----------------------------------------------------------------------
20. At the present time, there are no delinquent taxes due (including, but
not limited to, all payroll taxes, personal property taxes, real
estate taxes or income taxes) except as follows:
The Company is currently reviewing an assessment from the State of
----------------------------------------------------------------------
Florida regarding Sales and Use Taxes from 1994 to 1998. The Company
----------------------------------------------------------------------
believes that it has established appropriate reserves and is reviewing
----------------------------------------------------------------------
the matter with its accountants.
----------------------------------------------------------------------
21. The Corporation's assets are owned and held free and clear of any
security interests, liens or attachments, except as follows:
Amount of
Lienholder Assets Debt Secured
---------- ------ ------------
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
The Company utilizes equipment under capital or operating leases from
various companies. The attached Schedule A identifies the amounts
under the lease as of 12/31/99.
X-0
00
00. The Corporation has not guaranteed and is not otherwise liable for the
obligations of others, except as follows:
Amount of
Debtor Creditor Obligation
------ -------- ----------
N/A
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
-------------------- -------------------- -------------------
23. The Corporation does not own or license any trademarks, patents,
copyrights or other intellectual property, except as follows (indicate
type of intellectual property and whether owned or licensed,
registration number, date of registration, and, if licensed, the name
and address of the licensor):
Summary of Patents and Trademarks is attached as Schedule B.
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
24. The Corporation does not have any deposit or investment accounts with
any bank, savings and loan or other financial institution, except as
follows for the purposes and of the types indicated:
Bank Account No. Purpose/Type
---- ----------- -------------
Short term
Banc of America 836725 investments
-------------------- -------------------- -------------------
First Union CD*
-------------------- -------------------- -------------------
*Secures letter of credit relating to lease of Corporate Offices
25. The Corporation's fiscal year ends: December 31
-----------------------------------
26. With regard to any pension or profit sharing plan:
(a) A determination as to qualification has been issued.
(b) Funding is on a current basis and in compliance with
established requirements.
27. Certified Public Accountants for the Corporation is the firm of:
Name PricewaterhouseCoopers
------------------------------------------------------------------
Address 000 X. Xxxxxx Xxxxxx, Xxxxx 0000, Xxxxx, XX 000000
---------------------------------------------------------------
Partner Handling Relationship Xxxxxxx Xxxxx
-----------------------------------------
Were statements uncertified for any fiscal year? No
----------------------
X-0
00
00. Prompt written notice will be given you of any change or amendment
with respect to any of the foregoing. Until such notice is received by
you, you shall be entitled to rely upon the foregoing in all respects.
Very truly yours,
CORPORATE SEAL TO BE
AFFIXED HEREINBELOW Digital Lightwave, Inc.
---------------------------------
By: /s/ Xxxxx Xxxxxxxxx
-----------------------------
Xxxxx Xxxxxxxxx
Title: Chairman, CEO & President
--------------------------
By: /s/ Xxxxxx X. Xxxxx
-----------------------------
Xxxxxx X. Xxxxx
Title: EVP, CFO and Secretary
--------------------------
A-7
52
EXHIBIT "B"
BORROWING BASE CERTIFICATE
Borrower: Digital Lightwave, Inc.
Date:
COMPUTATION OF COLLATERAL
A. Accounts Receivable Balance From Previous Report 0
B. Add: Sales
C. Less: Credit Memos
D. Adjustments
E. Less: Gross Collections
Discounts
F. New Accounts Receivable Balance (as of / /2000 ) 0
G. Less: Ineligible Accounts as of the Aging Date 0
1. Amounts over 90 days from invoice date or 60 days past due 0
2. Tainted / Balance of 50% over 90 days from invoice 0
3. Aged Credits 0
4. Capital Lease Contra
Telogy 0
Newcourt 0
5. Accrued Returns and Allowances - a/o / /00 0
6. Reclassed Prepayments 0
7. Deferred Revenue 0
8. Accrued Warranty Reserves - a/o / /00 0
9. AR Cap Limitation at 20% 0
10. Contra Accounts 0
9. Other
10. Total Ineligible Accounts Receivable 0
H. Eligible Accounts (F minus G10) 0
I. LOAN VALUE OF ELIGIBLE ACCOUNTS RECEIVABLE (85% OF H) 0
J. Raw Material and WIP Inventory (as of / /00 ) 0
K. Less: Ineligible Inventory calculated for month end:
1. Holding (awaiting inspection) 0
2. Work-in-process 0
3. Expense Clearing (Return to vendor / dispose) 0
4. Proprietary raw materials (80% of "Stores") 0
5. Expense (Obsolete / dispose) 0
6. Other
7. Total Ineligible RM and WIP Inventory 0
L. Eligible RM and WIP Inventory (J minus K7) 0
M. LOAN VALUE OF ELIGIBLE INVENTORY (25% OF L) 0
N. Finished Goods Inventory (as of 6/30/00) 0
O. Less: Ineligible Inventory calculated for month end:
1. Clearing (Inventory related to deferred revenue) 0
2. Other
3. Total Ineligible RM and WIP Inventory 0
Eligible RM and WIP Inventory (N minus O3) 0
B-1
53
LOAN VALUE OF ELIGIBLE INVENTORY (25% OF L) 0
P. TOTAL AVAILABILITY 0
COMPUTATION OF LOAN
Q. Loan Balance Per Previous Report 0
R. Less: Collections 0
Net only repayments
S. Plus: Borrowings Since Previous Report 0
T. ADJUSTED LOAN BALANCE 0
U. Letters of Credit (35% of Documentary, 100% of Standby) 0
V. EXCESS AVAILABILITY (P MINUS T & U) 0
W. CASH IN BANK (AS OF / /00) 0
The undersigned represents and warrants that the foregoing is true,
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations, warranties, definitions and
conditions set forth in the Loan and Security Agreement dated September __,
2000 (the "Loan Agreement") between the undersigned and Congress Financial
Corporation (Florida)("Lender"). The undersigned, being an authorized officer
having the title inscribed below of DIGITAL LIGHTWAVE, INC. (the "Company"),
and, in such capacity, being familiar with the matters set forth herein and
duly authorized and empowered to issue this Certificate for and on behalf of
the Company, does hereby certify to Lender, in connection with and pursuant to
that certain Loan Agreement (capitalized terms used herein, without definition,
having the meanings given to such terms in the Loan Agreement) that, as of the
date of this Certificate, there exists no Event of Default or event or
condition which, with notice or passage of time or both, would constitute an
Event of Default.
Digital Lightwave, Inc. Attachments: Accounts Receivable Aged Trial
Balance
Support to Ending Inventory
By: Accounts Payable Aged Trial Balance
---------------------
Name: Deferred Revenue report
---------------------
Title: Detailed" Financial Report Package
---------------------
Updated Capital Lease Schedule
B-2
54
SCHEDULE 8.6
LITIGATION
As of April 9, 1998, 23 class action complaints (which were
subsequently consolidated into a single action) alleging violations of the
federal securities laws during certain periods in 1997 and 1998 had been filed
in the United States District Court for the Middle District of Florida, on
behalf of purchasers of our Common Stock. The complaints named as defendants
the Company, Xxxxx X. Xxxx, a current director of the Company and our former
Chairman and Chief Executive Officer, Xxxxxx X. Xxxxx, the Company's Executive
Vice President, Finance, Chief Financial Officer and Secretary, and other
former corporate officers. The complaints allege that the Company and certain
officers during the relevant time period violated Sections 10(b) and 20(a) of
the Securities Exchange Act by, among other things, issuing to the investing
public false and misleading financial statements and press releases concerning
the Company's revenues, income and earnings, which artificially inflated the
price of our Common Stock.
On July 23, 1998, the Company entered into a memorandum of
understanding for the settlement of these class action complaints. In late
October 1998, a Stipulation of Settlement was filed with the court and on
December 21, 1998, the court preliminarily approved the settlement. On April
30, 1999, the District Court entered a final judgment approving the settlement.
The settlement consists of $4.25 million in cash, to be paid to plaintiffs
primarily by a claim on the Company's directors and officers liability
insurance policy, and the issuance of up to 1.8 million shares of Common Stock.
The Company recorded a one-time charge of $8.5 million during 1998 as a result
of the settlement. On July 21, 1999, the Company issued 289,350 shares of
Common Stock in partial satisfaction of the total shares required under this
settlement. Those shares were not to be distributed, sold or hypothecated until
after the appeal of the settlement, discussed below, was fully resolved.
On May 20, 1999, a lead plaintiff in the class action suit filed a
notice of appeal with the Eleventh Circuit Court of Appeals. On March 16, 2000,
all parts of the appeal pertaining to the Company were dismissed with
prejudice. The remaining portion of the appeal was dismissed with prejudice on
September 29, 2000. The District Court judgment approving settlement of the
securities class actions now is final. Following this judgment, the Company has
issued substantially all remaining shares of Common Stock in satisfaction of
the total shares required under this settlement.
On August 5, 1999, as a complete settlement of an investigation of us
being conducted by the U.S. Securities and Exchange Commission relating to the
circumstances underlying the restatement of our financial results, we agreed
voluntarily to consent to the entry of a permanent injunction enjoining us from
violations of Sections 10(b), 13(a) and 13(b)(2) of the Securities Exchange Act
of 1934, and Rules 10b-5, 12b-20 and 13a-13 thereunder. The Commission's
complaint and the settlement with the Company were filed with the United States
District Court for the Middle District of Florida on March 29, 2000. In
connection with the same investigation, on March 29, 2000, the Commission's
complaint filed in the District Court also alleges that Dr. Zwan, a director
and former Chairman and Chief Executive Officer of the Company, violated
Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933,
Section 10(b) of the Securities Exchange Act of 1934, and Rules 10b-5 and
13b2-2 thereunder, and that he aided and abetted the Company's alleged
violations of Sections 13(a) and 13(b)(2) of the Exchange Act, and Rules 13a-13
and 12b-20 thereunder. In addition, the Commission concurrently settled
administrative proceedings against Xxxxxx X. Xxxxx, the Company's Executive
Vice President, Finance, Chief Financial Officer and Secretary, and two other
former officers of the Company. Xx. Xxxxx, without admitting or denying the
Commission's findings, consented to the entry of an order that he cease and
desist from committing or causing any violation or future violation of Sections
13(a), 13(b)(2)(A) and 12(b)(2)(B) of the Exchange Act, and Rules 12b-20 and
13a-13 thereunder.
On November 5, 1997, Xxxx Xxxxx Xxxxx ("Plaintiff"), an early stage
investor, commenced an action in the United States District Court for the
Southern District of Ohio against Xx. Xxxxx X. Xxxx, our former Chairman of the
Board and Chief Executive Officer, and Digital Lightwave ("Defendants"). An
amended complaint filed December 15, 1997 alleged violations of Section 10(b)
of the Securities Exchange Act, violations of state corporation statutes, and
various common law violations by Defendants in connection
55
with Plaintiff's sale to our predecessor in November 1995, pursuant to a
previously granted option exercisable by Dr. Zwan and/or our predecessor, of
4,900 shares of stock in our predecessor, an amount equivalent to 19,215,686
shares of our common stock. The amended complaint sought, among other things,
(1) rescission of the sale of the shares transferred by Plaintiff and (2)
damages of $235 million, together with interest. On October 20, 1998, Digital
Lightwave and Dr. Zwan entered into an agreement with Plaintiff to settle the
action. The settlement agreement provided, among other things, for dismissal of
the action with prejudice, for a $500,000 payment by us to Plaintiff for his
attorneys' fees and granted Plaintiff an option, for 10 years, to purchase for
$1 per share 2 million shares of Dr. Zwan's Digital Lightwave stock. Pursuant
to that agreement, the action was dismissed with prejudice on November 13,
1998. The Company recorded a $3.0 million charge to earnings consisting of the
cash payment and the valuation our options upon settlement.
On April 21, 1999, Plaintiff filed an action in the United States
District Court for the Southern District of Ohio against the Defendants
alleging that the terms of the settlement agreement entered into between the
parties had been breached and requesting that the settlement agreement be
specifically enforced and that damages in excess of $75,000 be awarded or,
alternatively, that the settlement agreement be set aside. In response to this
action, the Company filed a motion to dismiss for failure to state a claim
against the Company. On March 30, 2000, the Court granted in part and denied in
part the Company's motion to dismiss. On May 1, 2000, Plaintiff filed an
amended complaint alleging two breach of contract claims against the Company.
The Company believes it has fulfilled its obligations under the settlement
agreement and that the claims against it are without merit. Accordingly, on
June 30, 2000, the Company filed a motion seeking summary judgment in its
favor. On August 24, 2000, the Court granted the Company's motion for summary
judgment in its entirety. The Company intends to seek entry of a judgment in
its favor based upon the summary judgment order. The case remains pending
against Dr. Zwan and the trial scheduled to commence on January, 2001. There
can be no assurance that judgment ultimately will be entered in the Company's
favor or that, even if judgment is entered, plaintiffs will not successfully
appeal the judgment. Additionally, there can be no assurance that the Company
ultimately will prevail in the action or that the action will not have a
material adverse effect on the Company.
On November 23, 1999, Xxxx X. Xxxxxx, a former officer of Digital
Lightwave, commenced an arbitration proceeding against us alleging breach of
his employment agreement, violation of the Florida Whistleblower statute and
breach of an indemnification agreement and our Company bylaws. As relief, Xx.
Xxxxxx seeks $500,000, attorney fees, interest and stock options exercisable
for 656,666 shares of our Common Stock. We have filed our answer denying Xx.
Xxxxxx'x allegations, and alleging multiple affirmative defenses and
counterclaims. Our counterclaims against Xx. Xxxxxx seek repayment of loans
totaling approximately $113,000, plus interest. The arbitration hearing is
scheduled to be held in December, 2000. We intend to vigorously oppose Xx.
Xxxxxx'x claim. However, there can be no assurance that we will succeed in
defending this action or that we will prevail on our counterclaims.
56
SCHEDULE 8.8
BANK ACCOUNTS
DIGITAL LIGHTWAVE, INC.
SCHEDULE 8.8-BANK ACCOUNTS
FIRST UNION NATIONAL BANK
ABA # 000000000
FOR DIGITAL LIGHTWAVE, INC.
ACCOUNT NAME ACCOUNT NUMBER
--------------------------------------------------------------------
Operating Account
Direct Deposit ZBA
Payroll Account
Health Insurance Account
401K Account
Flex Benefit account
First Union Short Term Investment
First Union Certificate of Deposit
FOR DIGITAL LIGHTWAVE LEASING CORPORATION
ACCOUNT NAME ACCOUNT NUMBER
--------------------------------------------------------------------
DLI Leasing Account
First Union Short Term Investment
BANK OF AMERICA*
ABA # 000000000
FOR DIGITAL LIGHTWAVE, INC.
ACCOUNT NAME ACCOUNT NUMBER
--------------------------------------------------------------------
Operating Account
Bank of America Short Term Investment
Bank of America Certificate of Deposit
FOR DIGITAL LIGHTWAVE LEASING CORPORATION
ACCOUNT NAME ACCOUNT NUMBER
--------------------------------------------------------------------
DLI Leasing Account
Bank of America Short Term Investment
* in process of closing these accounts
1
57
SCHEDULE 8.4
EXISTING LIENS (CAPITAL LEASE)
DIGITAL LIGHTWAVE, INC.
SCHEDULE 8.4-EXISTING LIENS (CAPITAL LEASES)
LEASE END OF ACQUISITION
COMPANY ACCOUNT # DESCRIPTION INCEPTION LEASE PRICE
------- --------- ----------- --------- ----- -----
CONESCO 4333-3 ANT-20 ADVANCE 08/01/98 08/01/01 $92,699.00
BIRMINGHAM, MI RCVR REFER $10,495.00
XXXXXXXX XXXXXXX CART $774.99
AMERICAN BUSINESS LEASING 18596-01 OSCILLOSCOPE 08/01/98 08/01/01 $31,470.00
000-000-0000 EXT. 6227 SIGNAL GENERATOR $14,250.00
HEWLETT PACKARD 10944A SPECTRUM ANALYZER 10/15/98 10/15/01 $35,648.50
XXX XXXXXXXX TRACKING GENERATOR $10,044.00
000-000-0000
NEWCOURT LEASING CORP. 684347 TEKTRONIX ST 2400 07/01/98 07/01/01 $67,970.00
CAPITAL LEASE 0465986-10 SDH SONET
SCHEDULE # 10
NEWCOURT LEASING CORP. 708660 SAMPO MULTI MEDIA EQUIP 04/01/99 03/01/02 $29,138.08
SCHEDULE 30
NEWCOURT FINANCIAL 9905553-000 ANDO AP9940 & AP9455 12/01/02 $501,504.80
SCHEDULE # 001
NEWCOURT FINANCIAL 1103260-ESR HP83484A 01/01/00 12/01/02 $16,129.92
1103260-ESR HP83485B $24,255.36
NEWCOURT FINANCIAL 9906062 ANDO SPECTRUM ANALYZER 02/01/00 01/01/03 $197,668.75
SCHEDULE # 2 ANDO SPECTRUM ANALYZER
AQ8201A
AQ8201-02
AQ801-11
AQ8201-12
NEWCOURT FINANCIAL 9907253-000 HP86100A 05/01/00 04/01/03 $16,853.76
SCHEDULE # 3
NEWCOURT FINANCIAL 113076-ESR TEK TDS794D O SCOPE W/OPT 07/01/00 06/01/01 $88,099.00
2C & 38
NEWCOURT FINANCIAL 112380-ESR E1 TEST SET 05/01/00 04/01/01 $3,285.00
NEWCOURT FINANCIAL 1107008-ESR TEK TDSPSM1 JITTER 05/01/00 04/01/01 $68,153.04
TEK TDS794D, F
FINOVA LEASING
SMALL BUSINESS LEASING 003729-001 OPTICAL SPECTRUM ANALYZER 01/01/99 12/01/01 $42,500.00
(ROCKFORD IND) TUNABLE LASER SOURCE $50,000.00
XXXX XXXXX-XXXX
000-000-0000
TELOGY - 314597 XXXXX # 00000 SONET TEST CERJAC 06/15/98 06/01/01 $68,658.59
000-000-0000 MODEL # HP E4480A
TELOGY 0030471100 XXXXX # 00000 ANT 20 (3035-42) 01/01/99 12/01/01 $35,210.99
JITTER GENERATOR
JITTER METER
TELOGY 80387 TEK TLA714 W/OPTIONS 08/01/99 08/01/02 $26,946.96
79968 TEK TLA7N2 W/OPTIONS 08/01/02
79969 SOR DCS60-18E W/OPTIONS
58
SCHEDULE 9.9
INDEBTEDNESS
DIGITAL LIGHTWAVE, INC.
SCHEDULE 9.9-INDEBTNESS
AMOUNTS OWED
REMAINING
LEASE END OF BALANCE
COMPANY ACCOUNT # DESCRIPTION INCEPTION LEASE AS OF 9/30/00
------- --------- ----------- --------- ------ -------------
CONESCO 4333-3 ANT-20 ADVANCE 08/01/98 08/01/01 $32,292.05
BIRMINGHAM, MI RCVR REFER
XXXXXXXX XXXXXXX CART
AMERICAN BUSINESS LEASING 18596-01 OSCILLOSCOPE 08/01/98 08/01/01 $21,541.62
000-000-0000 EXT. 6227 SIGNAL GENERATOR
HEWLETT PACKARD 10944A SPECTRUM ANALYZER 10/15/98 10/15/01 $17,046.96
XXX XXXXXXXX TRACKING GENERATOR
000-000-0000
NEWCOURT LEASING CORP. 684347 TEKTRONIX ST 2400 07/01/98 07/01/01 $19,458.26
CAPITAL LEASE 0465986-10 SDH SONET
SCHEDULE # 10
NEWCOURT LEASING CORP. 708660 SAMPO MULTI MEDIA EQUIP 04/01/99 03/01/02 $15,500.91
SCHEDULE 30
NEWCOURT FINANCIAL 9905553-000 ANDO AP9940 & AP9455 12/01/02 $390,914.50
SCHEDULE # 001
NEWCOURT FINANCIAL 1103260-ESR HP83484A 01/01/00 12/01/02 $35,646.82
1103260-ESR HP83485B
NEWCOURT FINANCIAL 9906062 ANDO SPECTRUM ANALYZER 02/01/00 01/01/03 $172,516.18
SCHEDULE # 2 ANDO SPECTRUM ANALYZER
AQ8201A
AQ8201-02
AQ801-11
AQ8201-12
1
59
NEWCOURT FINANCIAL 9907253-000 HP86100A 05/01/00 04/01/03 $ 13,466.10
SCHEDULE # 3
NEWCOURT FINANCIAL 113076-ESR TEK TDS794D O SCOPE W/OPT 07/01/00 06/01/01 $ 42,538.86
2C & 38
NEWCOURT FINANCIAL 112380-ESR E1 TEST SET 05/01/00 04/01/01 $ 2,475.66
NEWCOURT FINANCIAL 1107008-ESR TEK TDSPSM1 JITTER 05/01/00 04/01/01 $ 62,844.16
TEK TDS794D, F
FINOVA LEASING
SMALL BUSINESS LEASING 003729-001 OPTICAL SPECTRUM ANALYZER 01/01/99 12/01/01 $ 44,924.95
(ROCKFORD IND) TUNABLE LASER SOURCE
XXXX XXXXX-XXXX
000-000-0000
TELOGY - 314597 XXXXX # 00000 SONET TEST CERJAC 06/15/98 06/01/01 $ 17,368.40
000-000-0000 MODEL # HP E4480A
TELOGY 0030471100 XXXXX # 00000 ANT 20 (3035-42) 01/01/99 12/01/01 $ 4,846.87
JITTER GENERATOR
JITTER METER
TELOGY 80387 TEK TLA714 W/OPTIONS 08/01/99 08/01/02 $ 18,168.10
-----------
79968 TEK TLA7N2 W/OPTIONS 08/01/02
79969 SOR DCS60-18E W/OPTIONS
NET AMOUNT OWED BY CORPORATE $911,550.40
===========
2
60
AMOUNTS DUE
-----------
Digital Lightwave Leasing Corp Equipment underlying various 1/98-4/99 $ 1,002,134.62
third-party leases
Less cash collected at $ (351,159.24)
--------------
Corporate
on Leasings behalf
NET DUE TO CORPORATE $ 650,975.38
==============
3
61
SCHEDULE 9.10
EXISTING LOANS, ADVANCES AND GUARANTEES
DIGITAL LIGHTWAVE, INC.
SCHEDULE 9.10-EXISTING LOANS, ADVANCES AND GUARANTEES
Xxxxx Xxxxx $ 50,000.00 Relocation Advance; due within 60 days
of advance date
Travel advances are made to employees as a normal course of business.
1
