Committed Revolving Facility
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with Letter of Credit Provisions
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CREDIT AND SECURITY AGREEMENT
Dated as of February 21, 1997
GATEWAY DATA SCIENCES CORPORATION, an Arizona corporation, and GATEWAY
CREDIT CORPORATION, an Arizona corporation (jointly, the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE I
Definitions
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Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis.
"Advance" means an advance to the Borrower by the Lender under
the Credit Facility.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control", when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Banking Day" means a day other than a Saturday on which banks
are generally open for business in Phoenix, Arizona.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
"Borrowing Base" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of
(a) the Commitment, or
(b) the sum of
(i) the lesser of (A) 80% of Eligible Accounts,
or (B) Three Million Dollars ($3,000,000),
plus
(ii) the lesser of (A) 50% of Eligible Inventory,
or (B) Two Hundred Fifty Thousand Dollars
($250,000).
The dollar amount in section (b)(ii)(B) above may be increased by
Lender to Five Hundred Thousand Dollars ($500,000) if Borrower obtains
a signed written agreement with International Business Machines
Corporation ("IBM"), satisfactory to Lender in its sole discretion,
providing in substance that IBM terminates any and all claims it may
have to a security interest in any of the Collateral.
"Collateral" means all of the Equipment, General Intangibles,
Inventory and Receivables, together with all substitutions and
replacements for and products of any of the foregoing and together with
proceeds of any and all of the foregoing and, in the case of all
tangible Collateral, together with all accessions and together with (i)
all accessories, attachments, parts, equipment and repairs now or
hereafter attached or affixed to or used in connection with any such
goods, and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning specified in Section
4.1(d) hereof.
"Commitment" means Three Million Dollars ($3,000,000.00),
unless said amount is reduced pursuant to Section 2.9(b) hereof, in
which event it means the amount to which said amount is reduced.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II hereof.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Rate" means at any time three percent (3%) over the
Floating Rate, which Default Rate shall change when and as the Floating
Rate changes.
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"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(1) That portion of Accounts over Ninety (90) days
past invoice date except as to those Accounts owed by
Xxxxxxxxx North America, Inc., Just for Feet, Inc., Guess?,
Inc., Factory Card Outlet of America LTD., Inc. and Illinois
Consolidated which shall be deemed eligible until over 120
days past invoice date;
(2) That portion of Accounts that are disputed or
subject to a claim of offset or a contra account;
(3) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(4) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government with respect to which the Borrower
has provided evidence satisfactory to the Lender that (A) the
Lender has a first priority perfected security interest and
(B) such Accounts may be enforced by the Lender directly
against such unit of government under all applicable laws);
(5) Accounts owed by an account debtor located
outside the United States which are not backed by a bank
letter of credit assigned to the Lender, in the possession of
the Lender and acceptable to the Lender in all respects, in
its sole discretion;
(6) Accounts owed by an account debtor that is the
subject of bankruptcy proceedings or has gone out of business;
(7) Accounts owed by Cyclone Software Corporation, an
Arizona corporation, or any shareholder, subsidiary,
Affiliate, officer or employee of the Borrower;
(8) Accounts not subject to a duly perfected security
interest in favor of the Lender or which are subject to any
lien, security interest or claim in favor of any Person other
than the Lender;
(9) That portion of Accounts that have been
restructured, extended, amended or modified;
(10) That portion of Accounts that constitutes
finance charges, service charges or sales or excise taxes;
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(11) That portion of Accounts that constitutes
deferred revenue or customer deposits;
(12) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 15% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (1), (2) or (9) above; and
(13) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
generally accepted accounting principles; provided, however, that the
following shall not in any event be deemed Eligible Inventory:
(1) Inventory that is: in-transit; located at any
warehouse or other premises not approved by the Lender in
writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements
to perfect a first priority security interest in such
inventory; covered by any negotiable or non-negotiable
warehouse receipt, xxxx of lading or other document of title;
on consignment to or from any other person or subject to any
bailment;
(2) Supplies, packaging or parts inventory;
(3) Work-in-process inventory;
(4) Inventory that is damaged, slow moving, obsolete
or not currently saleable in the normal course of the
Borrower's operations;
(5) Inventory that Borrower has received in trade,
that is used or that the Borrower has returned, has attempted
to return, is in the process of returning or intends to return
to the vendor thereof;
(6) Inventory that is subject to a security interest
in favor of any Person other than the Lender;
(7) Software, category 000 (miscellaneous) Inventory,
manuals and publications, services, and inventory located at
IBM Consolidation Centers; and
(8) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12
hereof.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all
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present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list
herewith or hereafter furnished to the Lender by the Borrower.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" has the meaning specified in Section 8.1
hereof.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus one and one-half percent (1.50%), which Floating Rate
shall change when and as the Base Rate changes.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future patents, patent applications, patent rights, copyrights,
licenses, trademarks (including without limitation the trademark
"MARKETBUILDER"), trade names, trade secrets, customer or supplier
lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of
the Borrower's business.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies
or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and
wherever located.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.3
hereof.
"Lockbox" has the meaning specified in Section 4.1(e) hereof.
"Loan Documents" means this Agreement, the Note, the Security
Documents, and all other documents relating to any of the foregoing.
"Minimum Interest Charge" has the meaning specified in Section
2.8(c) hereof.
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"Net Income" has the meaning specified in Section 6.12 hereof.
"Net Worth" has the meaning specified in Section 6.13 hereof.
"Note" means the Revolving Note of the Borrower payable to the
order of the Lender in substantially the form attached hereto as
Exhibit A.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Obligation of Reimbursement" has the meaning specified in
Section 2.4 hereof.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit E attached
hereto.
"Receivables" means all of Borrower's accounts, as such term
is defined in the UCC, together with each and every right of the
Borrower to the payment of money, whether such right to payment now
exists or hereafter arises, whether such right to payment arises out of
a sale, lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Security Documents" means the Collateral Account Agreement
and the Lockbox Agreement, each as described in Section 4.1 hereof, and
the UCC-1 Financing Statement.
"Security Interest" has the meaning specified in Section 3.1
hereof.
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"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Sections 2.5 and
3.6 hereof.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Termination Date" means February 21, 2000.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.12 hereof as the state
whose laws shall govern this Agreement, or in any other state whose
laws are held to govern this Agreement or any portion hereof.
ARTICLE II
Amount and Terms of the Credit Facility
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Section 2.1 Advances. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make Advances to the Borrower from time to
time during the period from the date hereof to and including the Termination
Date, or the earlier date of termination in whole of the Credit Facility
pursuant to Sections 2.9(a) or 8.2 hereof, in an aggregate amount at any time
outstanding not to exceed the Borrowing Base less the L/C Amount, which Advances
shall be secured by the Collateral as provided in Article III hereof. The Credit
Facility shall be a revolving facility and it is contemplated that the Borrower
will request Advances, make prepayments and request additional Advances. The
Borrower agrees to comply with the following procedures in requesting Advances
under this Section 2.1:
(a) The Lender shall not make any Advance under this Section
2.1 if, after giving effect to such requested Advance, the sum of the
outstanding and unpaid Advances under this Section 2.1 or otherwise would exceed
the Borrowing Base less the L/C Amount.
(b) Each request for an Advance under this Section 2.1 shall
be made to the Lender prior to 11:00 a.m. Mountain Standard Time of the day of
the requested Advance by the Borrower. Each request for an Advance may be made
in writing or by telephone, specifying the date of the requested Advance and the
amount thereof, and shall be by (i) any officer of the Borrower; or (ii) any
person designated as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Lender; or (iii) any person reasonably believed by the
Lender to be an officer of the Borrower or such a designated agent.
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(c) Upon fulfillment of the applicable conditions set forth in
Article IV hereof, the Lender shall disburse loan proceeds by crediting the same
to the Borrower's demand deposit account maintained with Norwest Bank, Arizona,
National Association, unless the Lender and the Borrower shall agree in writing
to another manner of disbursement. Upon request of the Lender, the Borrower
shall promptly confirm each telephonic request for an Advance by executing and
delivering an appropriate confirmation certificate to the Lender. The Borrower
shall be obligated to repay all Advances under this Section 2.1 notwithstanding
the failure of the Lender to receive such confirmation and notwithstanding the
fact that the person requesting the same was not in fact authorized to do so.
Any request for an Advance under this Section 2.1, whether written or
telephonic, shall be deemed to be a representation by the Borrower that (i) the
condition set forth in Section 2.1(a) hereof has been met, and (ii) the
conditions set forth in Section 4.2 hereof have been satisfied as of the time of
the request.
Section 2.2 Note. All Advances made by the Lender under this Article II
shall be evidenced by and repayable with interest in accordance with the Note.
The principal of the Note shall be payable as provided herein and on the earlier
of the Termination Date or acceleration by the Lender pursuant to Section 8.2
hereof, and shall bear interest as provided herein.
Section 2.3 Issuance of Letters of Credit.
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to issue or cause to be issued by an Issuer one or
more letters of credit for the account of the Borrower (each a "Letter of
Credit") from time to time during the period from the date hereof until the
earlier of the Termination Date or date the Credit Facility has been terminated
pursuant to Section 8.2(a) hereof, in an aggregate amount at any time
outstanding not to exceed the lesser of $500,000 or the Borrowing Base less the
sum of (i) all outstanding and unpaid Advances hereunder and (ii) the unpaid
amount of the Obligation of Reimbursement. Each Letter of Credit, if any, shall
be issued pursuant to a separate L/C Application entered into between the
Borrower and the Lender as co-applicants for the benefit of the Issuer,
completed in a manner satisfactory to the Lender and the Issuer. The terms and
conditions set forth in each such L/C Application shall supplement the terms and
conditions hereof, but in the event of inconsistency between the terms of any
such L/C Application and the terms hereof, the terms hereof shall control.
(b) No Letter of Credit shall be issued under this Section 2.3
if, after the issuance of such requested Letter of Credit, the sum of the face
amounts of all issued and outstanding Letters of Credit would exceed the lesser
of $500,000 or the Borrowing Base less the sum of (i) all outstanding and unpaid
Advances hereunder and (ii) the unpaid amount of the Obligation of
Reimbursement.
(c) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(d) Any request for the issuance of a Letter of Credit under
this Section 2.3 shall be deemed to be a representation by the Borrower that (i)
the condition set forth in Section
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2.3(b) hereof has been met, and (ii) the statements set forth in Section 4.2
hereof are correct as of the time of the request.
Section 2.4 Payment of Amounts Drawn Under Letters of Credit. The
Borrower acknowledges that the Lender, as co-applicant, will be liable to the
Issuer of any Letter of Credit for reimbursement of any and all draws thereunder
and all other amounts required to be paid under the applicable L/C Application.
Accordingly, the Borrower agrees to pay to the Lender any and all amounts
required to be paid under the applicable L/C Application, when and as required
to be paid thereby, and the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts drawn
under such Letter of Credit plus any and all reasonable charges and expenses
that the Issuer or the Lender may pay or incur relative to such draw, plus
interest on all such amounts, charges and expenses as set forth below (all such
amounts are hereinafter referred to, collectively, as the "Obligation of
Reimbursement").
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amounts, charges and expenses payable by the Borrower to the
Lender under this Section 2.4, accrued from the date any such draft, charge or
expense is paid by the Issuer until payment in full by the Borrower at the
Default Rate.
If the Borrower fails to pay to the Lender promptly the amount of its Obligation
of Reimbursement in accordance with the terms hereof and the L/C Application
pursuant to which such Letter of Credit was issued, the Lender is hereby
irrevocably authorized and directed, in its sole discretion, to make an Advance
in an amount sufficient to discharge the Obligation of Reimbursement, including
all interest accrued thereon but unpaid at the time of such Advance, and such
Advance shall be evidenced by the Note and shall bear interest as provided in
Section 2.8 hereof.
Section 2.5 Special Account. If the Lender terminates the Credit
Facility pursuant to Section 8.2(a), or the Credit Facility is otherwise
terminated for any reason whatsoever, while any Letter of Credit is outstanding,
the Borrower shall thereupon pay the Lender in immediately available funds for
deposit in the Special Account an amount equal to the maximum aggregate amount
available to be drawn under all Letters of Credit then outstanding, assuming
compliance with all conditions for drawing thereunder. The Special Account shall
be maintained for the Lender by any financial institution acceptable to the
Lender. Any interest earned on amounts deposited in the Special Account shall be
credited to the Special Account. Amounts on deposit in the Special Account may
be applied by the Lender at any time or from time to time to the Borrower's
Obligation of Reimbursement or any other Obligations, in the Lender's sole
discretion, and shall not be subject to withdrawal by the Borrower so long as
the Lender maintains a security interest therein. The Lender agrees to transfer
any balance in the Special Account to the Borrower at such time as the Lender is
required to release its security interest in the Special Account under
applicable law.
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Section 2.6 Increased Costs and Reduced Return.
(a) If the Lender shall determine that, after the date hereof,
the adoption of any applicable law, rule or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Issuer or the
Lender or its parent corporation with any requirement or directive (whether or
not having the force of law) of any such authority, central bank or comparable
agency:
(i) shall subject the Issuer or the Lender or its
parent corporation to any tax, duty or other similar charge with respect to any
Letter of Credit, the Advances or the Note or shall change the basis of taxation
of payments to the Issuer or the Lender or its parent corporation of the
Reimbursement Obligation, of the principal of or interest on the Advances or of
any other amounts due under this Agreement in respect of any Letter of Credit,
the Advances or the Note (except for any change in respect of any tax imposed on
the overall income of the Issuer or the Lender or its parent corporation); or
(ii) shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the account of, or credit
extended by, the Issuer or the Lender or its parent corporation or shall impose
on the Issuer or the Lender or its parent corporation any other condition
affecting any Letter of Credit, the Advances or the Note;
and the result of any of the foregoing is to increase the cost to the Issuer or
the Lender or its parent corporation of issuing or maintaining any Letter of
Credit or of making or maintaining any Advances, or to reduce the amount of any
sum received or receivable by the Issuer or the Lender or its parent corporation
under the application and agreement pursuant to which the Letter of Credit was
issued, this Agreement or the Note with respect thereto, by an amount deemed by
the Lender or its parent corporation to be material, then upon demand by the
Lender, the Borrower shall pay to the Lender such additional amount or amounts
as will compensate the Issuer or the Lender or its parent corporation for such
increased cost or reduction.
(b) If the Lender shall determine that the adoption after the
date hereof of any applicable law, rule or regulation regarding capital
adequacy, or any change therein after the date hereof, any change after the date
hereof in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender or its parent corporation
with any guideline or request issued after the date hereof regarding capital
adequacy (whether nor not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the Lender's or the Lender's parent corporation's capital as a
consequence of any Letters of Credit, Advances or the Lender's obligations
hereunder to a level below that which the Lender or its parent corporation could
have achieved but for such adoption, change or compliance (taking into
consideration the Lender's policies with respect to capital adequacy and those
of the Lender's parent corporation) by an amount deemed to the Lender or its
parent corporation to be material, then from time to time
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on demand by the Lender, the Borrower shall pay to the Lender such additional
amount or amounts as will compensate the Lender or its parent corporation for
such reduction.
(c) Certificates of the Lender sent to the Borrower from time
to time claiming compensation under this Section, stating the reason therefor
and setting forth in reasonable detail the calculation of the additional amount
or amounts to be paid to the Lender hereunder shall be conclusive absent
manifest error. In determining such amounts, the Lender or its parent
corporation may use any reasonable averaging and attribution methods.
Section 2.7 Obligations Absolute. The obligations of the Borrower
arising under this Agreement shall be absolute, unconditional and irrevocable,
and shall be paid strictly in accordance with the terms of this Agreement, under
all circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), or other person or entity,
whether in connection with this Agreement, the transactions contemplated herein
or in the Related Documents or any unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2.8 Interest.
(a) The principal of the Advances outstanding from time to
time during any month shall bear interest (computed on the basis of actual days
elapsed in a 360-day year) at the Floating Rate; provided, however, that from
the first day of any month during which any Default or Event of Default occurs
or exists at any time, in the Lender's discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding from time
to time shall bear interest at the Default Rate; and provided, further, that in
any event no rate change shall be put into effect which would result in a rate
greater than the highest rate
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permitted by law. Interest accruing on the principal balance of the Advances
outstanding from time to time shall be payable on the first day of the next
succeeding month and on the Termination Date or prepayment in full. Borrower
agrees that the interest rate contracted for includes the interest rate set
forth herein plus any other charges or fees set forth herein and costs and
expenses incident to this transaction paid by Borrower to the extent same are
deemed interest under applicable law.
(b) If any Person shall acquire a participation in Advances
under this Agreement and shall elect to accept interest with respect to such
participation at a lesser rate than the Floating Rate, the rate of interest
payable by the Borrower with respect to such participation shall be such lesser
rate of interest, if, to the extent that and so long as such Person shall hold
such participation. The Lender shall not be obligated to request, induce or
permit any Person to acquire or to retain any participation at all or in any
particular amount or at any particular rate of interest or on any particular
terms.
(c) Notwithstanding the interest payable pursuant to Section
2.8(a) hereof, the Borrower shall be liable to the Lender for interest hereunder
of not less than $5,000.00 per calendar month (the "Minimum Interest Charge")
during the term of this Agreement, and the Borrower shall pay any deficiency
between the Minimum Interest Charge and the amount of interest otherwise
calculated under Sections 2.8(a) and 2.8(b) hereof on the date and in the manner
provided in Section 2.8(a) hereof.
Section 2.9 Voluntary Prepayment; Termination of Agreement by the
Borrower; Permanent Reduction of the Commitment.
(a) Except as otherwise provided herein, the Borrower may, in
its discretion, prepay the Advances in whole at any time or from time to time in
part. The Borrower may terminate this Agreement at any time, so long as no
Letter of Credit has been issued and is outstanding with an expiration date
after such date, and, subject to payment and performance of all Obligations, may
obtain any release or termination of the Security Interest to which the Borrower
is otherwise entitled by law by (i) giving at least 30 days' prior written
notice to the Lender of the Borrower's intention to terminate this Agreement;
and (ii) paying the Lender a prepayment fee, due and payable on the prepayment
date, in an amount equal to (A) three percent (3%) of the Commitment amount if
prepayment is made on or before February 21, 1998; or, (B) two percent (2%) of
the Commitment amount if prepayment is made after February 21, 1998 and on or
before February 21, 1999; or (C) one percent (1%) of the Commitment amount if
prepayment is made after February 21, 1999 and before February 21, 2000, if the
Borrower terminates this Agreement effective as of any date other than the
Termination Date. However, no prepayment fee shall be due if prepayment is made
directly from the cash flow generated from the Borrower's business operations,
or, if the Credit Facility is repaid through a refinancing from a Norwest Bank
facility.
(b) The Borrower may at any time and from time to time, upon
at least 30 days' prior written notice to the Lender, permanently reduce in part
the Commitment; provided, however, that no reduction shall reduce the Commitment
to an amount less than the then-aggregate amount of the Advances; and provided,
further, that if the Borrower shall elect
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permanently to reduce in part the Commitment at any time other than the
Termination Date, the Borrower shall pay to the Lender a premium, due and
payable simultaneously with the giving of the notice, in an amount equal to (A)
three percent (3%) of the reduction amount if the reduction is made on or before
February 21, 1998; or, (B) two percent (2%) of the reduction amount if the
reduction is made after February 21, 1998 and on or before February 21, 1999; or
(C) one percent (1%) of the reduction amount if the reduction is made after
February 21, 1999 and before February 21, 2000.
Section 2.10 Mandatory Prepayment. Without notice or demand, if the sum
of the outstanding principal balance of the Advances plus the L/C Amount shall
at any time exceed the Borrowing Base, the Borrower shall (i) first, immediately
prepay the Advances to the extent necessary to eliminate such excess; and (ii)
if prepayment in full of the Advances is insufficient to eliminate such excess,
pay to the Lender in immediately available funds for deposit in the Special
Account an amount equal to the remaining excess. Any payment received by the
Lender under this Section 2.10 or under Section 2.9 may be applied to the
Obligation of Reimbursement or the Advances, including interest thereon and any
fees, commissions, costs and expenses hereunder and under the Security
Documents, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine. In addition to the foregoing, Borrower shall
pay to Lender a daily overadvance charge of One Hundred Dollars ($100.00) per
day for any period of time during which the sum of the outstanding principal
balance of the Advances plus the L/C Amount exceeds the Borrowing Base. During
any time period when there is an Event of Default under this Agreement, the
daily overadvance charge will be Two Hundred Dollars ($200.00) per day.
Section 2.11 Payment. All payments of principal of and interest on the
Advances, the Obligation of Reimbursement, the commissions and fees hereunder
and amounts required to be paid to the Lender for deposit in the Special Account
shall be made to the Lender in immediately available funds. The Borrower hereby
authorizes the Lender, in its discretion at any time or from time to time and
without request by the Borrower, to make an Advance to the extent necessary to
pay any such amounts and any fees, costs or expenses hereunder or under the
Security Documents.
Section 2.12 Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.13 Use of Proceeds. The proceeds of Advances and each Letter
of Credit issued or caused to be issued shall be used by the Borrower to
refinance the Borrower's existing obligations to Concord Growth Capital and for
ordinary working capital purposes.
Section 2.14 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to any and all Advances made or
repaid, interest accrued or paid under this Agreement, outstanding Letters of
Credit and fees thereon and the Borrower's Obligation of Reimbursement. All
entries made on any such record shall be presumed correct
13
until the Borrower establishes the contrary. On demand by the Lender, the
Borrower will admit and certify in writing the exact principal balance that the
Borrower then asserts to be outstanding to the Lender for Advances under this
Agreement and the amount of any Letters of Credit outstanding. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless specific written notice of exception is given to
the Lender by the Borrower within 30 days after its receipt by the Borrower.
Section 2.15 Setoff. The Borrower agrees that the Lender may at any
time or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any indebtedness owed to the Lender by the Borrower
(for Advances, the Obligation of Reimbursement or the amounts required to be
paid to the Lender for deposit in the Special Account or for any other
transaction or event), whether or not due. In addition, each other Person
holding a participating interest in any Advances made to the Borrower by the
Lender shall have the right to appropriate or setoff any deposit or other
liability then owed by such Person to the Borrower, whether or not due, and
apply the same to the payment of said participating interest, as fully as if
such Person had lent directly to the Borrower the amount of such participating
interest.
Section 2.16 Fees.
(a) The Borrower hereby agrees to pay the Lender a fully
earned and non-refundable origination fee of fifteen thousand dollars
($15,000.00), due and payable upon the execution of this Agreement.
Lender hereby acknowledges it has previously received said amount.
(b) The Borrower agrees to pay to the Lender a commitment fee
at the rate of twenty-five one hundredths percent (.25%) per annum on the
average daily unused portion of the Commitment from the date hereof to and
including the Termination Date, due and payable monthly in arrears on the first
day of each month, commencing March, 1997, provided that any such commitment fee
remaining unpaid on the termination of the Credit Facility or acceleration of
the Note by the Lender pursuant to Section 8.2 hereof shall be due and payable
on the date of such termination or acceleration. Such fee shall be calculated on
the basis of actual days elapsed in a 360-day year. If the total in any month of
(i) the amount of interest calculated under Sections 2.8(a) and 2.8(b) hereof
plus (ii) the commitment fee under this Section 2.16(b), is $5,000 or less,
Borrower's timely payment of the Minimum Interest Charge for said month will
also satisfy Borrower's obligation under this Section 2.16(b) for that month.
(c) The Borrower agrees to pay the Lender a commission with
respect to each Letter of Credit, if any, accruing on a daily basis and computed
at the annual rate of three percent (3%) of the available amount of such Letter
of Credit (as it may be changed from time to time) from and including the date
of issuance of such Letter of Credit until such date as such Letter of Credit
shall terminate by its terms, payable annually in advance, and prorated for any
part of a full calendar year in which such Letter of Credit remains outstanding.
The foregoing commission shall be in addition to any and all fees, commissions
and charges of any Issuer of a Letter of Credit with respect to or in connection
with such Letter of Credit.
14
(d) The Borrower agrees to pay the Lender, on written demand,
the administrative fees charged by the Issuer in connection with the honoring of
drafts under any Letter of Credit, amendments thereto, transfers thereof and all
other activity with respect to the Letters of Credit.
(e) The Borrower hereby agrees to pay the Lender, on demand,
audit fees of $50.00 per hour per auditor in connection with any audits or
inspections by the Lender of any collateral or the operations or business of the
Borrower, together with all actual out-of-pocket costs and expenses incurred in
conducting any such audit or inspection.
ARTICLE III
Security Interest
-----------------
Section 3.1 Grant of Security Interest. The Borrower hereby assigns and
grants to the Lender a security interest (collectively referred to as the
"Security Interests") in the Collateral, as security for the payment and
performance of each and every debt, liability and obligation of every type and
description which the Borrower may now or at any time hereafter owe to the
Lender (whether such debt, liability or obligation now exists or is hereafter
created or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower, and whether
it is direct or indirect, due or to become due, absolute or contingent, primary
or secondary, liquidated or unliquidated, or sole, joint, several or joint and
several, and including specifically, but not limited to, the Obligation of
Reimbursement and all indebtedness of the Borrower arising under this Agreement,
the Note, any L/C Application completed by the Borrower or any other loan or
credit agreement or guaranty between the Borrower and the Lender, whether now in
effect or hereafter entered into; all such debts, liabilities and obligations
are herein collectively referred to as the "Obligations").
Section 3.2 Notification of Account Debtors and Other Obligors. In
addition to the rights of the Lender under Section 6.10 hereof, with respect to
any and all rights to payment constituting Collateral the Lender may at any time
(either before or after the occurrence of an Event of Default) notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, xxx for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as agent and attorney in fact of the Borrower,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
15
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether before or after the occurrence of any Event of
Default, the Lender may (but need not), in the Lender's name or in the
Borrower's name, execute and deliver proof of claim, receive all such monies,
endorse checks and other instruments representing payment of such monies, and
adjust, litigate, compromise or release any claim against the issuer of any such
policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time after the occurrence and
during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
xxxxx xxxx to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease
and terminate upon the earlier of (i) payment in full and discharge of all
Obligations, and (ii) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, in the event that the Lender does pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time incurred
by or imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks (including without limitation the trademark "MARKETBUILDER"),
franchises, trade names, copyrights and patents of the Borrower for the purpose
of selling, leasing or otherwise disposing of any or all Collateral following an
Event of Default.
Section 3.6 Security Interest in Special Account and Collateral
Account. The Borrower hereby pledges, and grants to the Lender a security
interest in, all funds held in the Special Account and in the Collateral Account
from time to time and all proceeds thereof, as security for the payment of all
present and future Obligations of Reimbursement and all other Obligations.
16
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent and Conditions Subsequent to Making
the Initial Advance or Issuing the Initial Letter of Credit.
Conditions Precedent. The obligation of the Lender to make the initial Advance
or issuing or causing to be issued any Letter of Credit under the Credit
Facility shall be subject to the condition precedent that the Lender shall have
received all of the following, each in form and substance satisfactory to the
Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Note, properly executed on behalf of the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
subordination, disclaimer and consent with respect to each such lease.
(d) A Collateral Account Agreement, duly executed by the
Borrower and Norwest Bank, Arizona, National Association, pursuant to which the
Borrower and the institution establish a depository account (the "Collateral
Account") in the name of and under the sole and exclusive control of the Lender,
from which such institution agrees to transfer finally collected funds to the
Lender for application to the Advances.
(e) A Lockbox Agreement, duly executed by the Borrower and
Norwest Bank Arizona, National Association, pursuant to which the Borrower
agrees to maintain and direct account debtors to make payment to a lockbox for
the benefit of the Lender (the "Lockbox"), from which Lockbox such institution
shall transfer funds to the Collateral Account.
(f) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements have been filed and remain in
effect against the Borrower, except those financing statements relating to liens
permitted pursuant to Section 7.1 hereof and those financing statements filed by
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interests granted hereunder, to the extent the
Security Interests are capable of being perfected by filing. Without limiting
the foregoing, the Lender shall have also received, in form and substance
satisfactory to the Lender, termination of: (i) that certain financing statement
in favor of secured party Concord Growth Corporation filed September 21, 1995
with the Arizona Secretary of State as document number 847410; and (ii) that
certain financing statement in favor of secured party Sundance Venture Partners,
L.P. filed January 10, 1996 with the Arizona Secretary of State as document
number 861997.
(g) A certificate of the Secretary or an Assistant Secretary
of the Borrower, certifying as to (i) the resolutions of the directors and, if
required, the shareholders of the
17
Borrower, authorizing the execution, delivery and performance of this Agreement
and the Security Documents, (ii) the articles of incorporation and bylaws of the
Borrower, and (iii) the signatures of the officers or agents of the Borrower
authorized to execute and deliver this Agreement, the Security Documents and
other instruments, agreements and certificates, including Advance requests, on
behalf of the Borrower.
(h) A current certificate issued by the Secretary of State of
the state of the Borrower's incorporation, certifying that the Borrower is in
compliance with all corporate organizational requirements of such state.
(i) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(j) A certificate of an officer of the Borrower confirming, in
his personal capacity, the representations and warranties set forth in Article V
hereof.
(k) An opinion of counsel to the Borrower, addressed to the
Lender.
(l) Certificates of the insurance required hereunder, with all
hazard insurance containing a loss payee endorsement in favor of the Lender and
with all liability insurance naming the Lender as an additional insured.
(m) Payment of the fees and commissions due through the date
of the initial Advance or Letter of Credit under Section 2.16 hereof and
expenses incurred by the Lender through such date and required to be paid by the
Borrower under Section 9.7 hereof.
(n) Such other documents as the Lender in its sole discretion
may require.
Conditions Subsequent. On or before the 60th day following the date of this
Agreement, the Lender shall have received, in form and substance satisfactory to
the Lender, termination of: that certain Notice of Federal Tax Lien Under
Internal Revenue Laws, filed April 8, 1992 with the Arizona Secretary of State
as document number 700990. Default in the performance of these conditions
subsequent shall be an Event of Default under Section 8.1 (d) of this Agreement.
Section 4.2 Conditions Precedent to All Advances. The obligation of the
Lender to make each Advance or to issue or cause to be issued any Letter of
Credit shall be subject to the further conditions precedent that on such date:
(a) the representations and warranties contained in Article V
hereof are correct on and as of the date of such Advance or issuance of Letter
of Credit as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
18
(b) no event has occurred and is continuing, or would result
from such Advance or the issuance of such Letter of Credit, as the case may be,
which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number. The
Borrower is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Arizona, and is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary. The Borrower has all requisite power
and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its corporate existence, the Borrower has done
business solely under the names set forth in Exhibit B hereto. The chief
executive office and principal place of business of the Borrower is located at
the address set forth in Exhibit B hereto, and all of the Borrower's records
relating to its business or the Collateral are kept at that location. All
Inventory and Equipment is located at that location or at one of the other
locations set forth in Exhibit B hereto. The Borrower's tax identification
number is correctly set forth in Section 9.4.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower, (b) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
19
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Exhibit B attached
hereto, the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender audited financial statements of the Borrower
for its fiscal year ended January 31, 1996 and unaudited financial statements of
the Borrower for the months ended October 31, 1996, and those statements fairly
present the financial condition of the Borrower on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower.
Section 5.6 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its Affiliates or the properties of the Borrower or any
of its Affiliates before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which, if
determined adversely to the Borrower or any of its Affiliates, would have a
material adverse effect on the financial condition, properties or operations of
the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 Taxes. To Borrower's and its Affiliates' knowledge, the
Borrower and its Affiliates have paid or caused to be paid to the proper
authorities when due all federal, state and local taxes required to be withheld
by each of them. The Borrower and its Affiliates have filed all federal, state
and local tax returns which to the knowledge of the officers of the Borrower or
any Affiliate, as the case may be, are required to be filed, and the Borrower
and its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest balance
sheet referred to in Section 5.5 hereof and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for (i)
mortgages, security interests and liens permitted by Section 7.1 hereof, and
(ii) in the case of any such property which is not Collateral or other
collateral described in the Security Documents, covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower as presently conducted.
20
No financing statement naming the Borrower as debtor is on file in any office
except to perfect only security interests permitted by Section 7.1 hereof.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).
Section 5.11 Default. To the Borrower's knowledge, the Borrower is in
compliance with all provisions of all agreements, instruments, decrees and
orders to which it is a party or by which it or its property is bound or
affected, the breach or default of which could have a material adverse effect on
the financial condition, properties or operations of the Borrower.
Section 5.12 Environmental Protection. The Borrower has obtained all
permits, licenses and other authorizations which are required under federal,
state and local laws and regulations relating to emissions, discharges, releases
of pollutants, contaminants, hazardous or toxic materials, or wastes into
ambient air, surface water, ground water or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") at the Borrower's facilities or in
connection with the operation of its facilities. The Borrower shall provide
copies of all such permits, licenses and other authorizations to the Lender upon
the Lender's request. The Borrower also shall provide to the Lender copies of
all environmental investigation and inspection reports available to the Borrower
that pertain to Borrower's facilities, upon the Lender's request. Except as
previously disclosed to the Lender in writing, the Borrower and all activities
of the Borrower at its facilities comply with all Environmental Laws and with
all terms and conditions of any required permits, licenses and authorizations
applicable to the Borrower with respect thereto. Except as previously disclosed
to the Lender in writing, the Borrower is also in compliance with all
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in Environmental Laws or
contained in any plan, order, decree, judgment or notice of which the Borrower
is aware. Except as previously disclosed to the Lender in writing, the Borrower
is not aware of, nor has the Borrower received notice of, any events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance with, or which may give
rise to any liability under, any Environmental Laws. Except as previously
disclosed to the Lender in writing, the Borrower has received no inquiry from
any federal, state or local agency concerning Borrower's facilities or any
adjacent properties involving possible environmental contamination or violations
of any Environmental
21
Laws, and has no knowledge of any such inquiry to any party concerning
Borrower's facilities or any adjacent properties. Borrower agrees to notify
Lender promptly in writing of any inquiries by third parties or regulatory
agencies concerning the possible presence of environmental contamination on
Borrower's facilities or any adjacent properties or concerning any possible
violations of Environmental Laws involving Borrower's facilities or any adjacent
properties. The Lender shall have the right to enter Borrower's facilities for
the purpose of conducting environmental investigations, including taking soil
and water samples, during Borrower's normal business hours of operation.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interests and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected first security interest in all Collateral
and all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.16 Borrower's Relationship With IBM. Borrower purchases
computer equipment and related goods from International Business Machines
Corporation ("IBM"), for resale or lease to Borrower's customers. Borrower does
not receive any credit terms from IBM, and Borrower has no payment obligations
to IBM pursuant to any credit terms. Further, Borrower does not intend to seek
or receive any credit terms from IBM during the term of this Credit Facility.
22
ARTICLE VI
Affirmative Covenants of the Borrower
-------------------------------------
So long as the Note shall remain unpaid, the Credit Facility shall be
outstanding or any Letter of Credit shall be outstanding, the Borrower will
comply with the following requirements, unless the Lender shall otherwise
consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within ninety (90)
days after the end of each fiscal year of the Borrower, audited financial
statements of the Borrower with the unqualified opinion of independent certified
public accountants selected by the Borrower and acceptable to the Lender, which
annual financial statements shall include the balance sheet of the Borrower as
at the end of such fiscal year and the related statements of income, retained
earnings and cash flows of the Borrower for the fiscal year then ended,
prepared, if the Lender so requests, on a consolidating and consolidated basis
to include any Affiliates, all in reasonable detail and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the accounting practices applied in the financial statements referred to in
Section 5.5 hereof, together with (i) a report signed by such accountants
stating that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or Event of
Default hereunder and all relevant facts in reasonable detail to evidence, and
the computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12 through 6.13 and Section 7.10 hereof;
and (ii) a certificate of the chief financial officer of the Borrower stating
that such financial statements have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the accounting
practices reflected in the annual financial statements referred to in Section
5.5 hereof and whether or not such officer has knowledge of the occurrence of
any Default or Event of Default hereunder and, if so, stating in reasonable
detail the facts with respect thereto;
(b) as soon as available and in any event within twenty (20)
days after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the end of and
for such month and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Affiliates, in reasonable detail and stating in comparative form the figures for
the corresponding date and periods in the previous year, all prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the accounting practices reflected in the financial statements
referred to in Section 5.5 hereof, subject to year-end audit adjustments; and
accompanied by a certificate of the chief financial officer of the Borrower,
substantially in the form of Exhibit D hereto stating (i) that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices reflected
in the financial statements referred to in Section 5.5 hereof, subject to
year-end audit adjustments, (ii) whether or not such officer has
23
knowledge of the occurrence of any Default or Event of Default hereunder not
theretofore reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, (iii) all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.12 through 6.13 and
Section 7.10 hereof, and (iv) that Borrower has not sought or received any
credit terms from IBM and does not contemplate or intend to seek or receive any
credit terms from IBM.
(c) within fifteen (15) days after the end of each month,
agings of the Borrower's accounts receivable and its accounts payable and an
inventory certification report as at the end of such month;
(d) at least thirty (30) days before the beginning of each
fiscal year of the Borrower, the projected balance sheets and income statements
for each month of such year, each in reasonable detail, representing the good
faith projections of the Borrower and certified by the Borrower's chief
financial officer as being the most accurate projections available and identical
to the projections used by the Borrower for internal planning purposes, together
with such supporting schedules and information as the Lender may in its
discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.6
hereof or which seek a monetary recovery against the Borrower in excess of Ten
Thousand Dollars ($10,000.00);
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the chief financial officer of the
Borrower setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the chief financial officer of the Borrower setting forth
details as to such failure and the action which the Borrower proposes to take
with respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation;
24
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims by customers of the Borrower; (ii) any goods returned to or
recovered by the Borrower; and (iii) any change in the persons constituting the
officers and directors of the Borrower;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(l) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Borrower shall file with
the Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the violation
by the Borrower of any law, rule or regulation, the non-compliance with which
could materially and adversely affect its business or its financial condition;
and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with generally accepted accounting
principles consistently applied and, upon request of the Lender, will permit any
officer, employee, attorney or accountant for the Lender to audit, review, make
extracts from or copy any and all corporate and financial books and records of
the Borrower at all times during ordinary business hours, to send and discuss
with account debtors and other obligors requests for verification of amounts
owed to the Borrower, and to discuss the affairs of the Borrower with any of its
directors, officers, employees or agents. The Borrower will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Borrower will at any time and
from time to time upon request of the Lender send requests for verification of
accounts or notices of assignment to account debtors and other obligors.
Section 6.4 Compliance with Laws; Environmental Indemnity. The Borrower
will (a) comply with the requirements of applicable laws and regulations, the
non-compliance with which would materially and adversely affect its business or
its financial condition, (b) comply with all applicable Environmental Laws and
obtain any permits, licenses or similar approvals 25
required by any such Environmental Laws, and (c) use and keep the Collateral,
and will require that others use and keep the Collateral, only for lawful
purposes, without violation of any federal, state or local law, statute or
ordinance. The Borrower will indemnify, defend and hold the Lender harmless from
and against any claims, loss or damage to which the Lender may be subjected as a
result of any past, present or future existence, use, handling, storage,
transportation or disposal of any hazardous waste or substance or toxic
substance by the Borrower or on property owned, leased or controlled by the
Borrower. This indemnification agreement shall survive the termination of this
Agreement and payment of the indebtedness hereunder.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interests, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and so long
as the Collateral and Lender's lien thereon is not in any manner impaired by any
enforcement remedy available to the tax levying entity during the period of such
contest.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
judgment of the Lender, desirable in the conduct of the Borrower's business and
not disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except the Security Interests and other security
interests permitted by Section 7.1 hereof.
Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible
26
Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request, with
any loss payable to the Lender to the extent of its interest, and all policies
of such insurance shall contain a lender's loss payable endorsement for the
benefit of the Lender. All policies of liability insurance required hereunder
shall name the Lender as an additional insured.
Section 6.8 Preservation of Corporate Existence. The Borrower will
preserve and maintain its corporate existence and all of its rights, privileges
and franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 Lockbox; Collateral Account. (a) The Borrower will
irrevocably direct all present and future Account debtors and other Persons
obligated to make payments constituting Collateral to make such payments
directly to the Lockbox. All of the Borrower's invoices, account statements and
other written or oral communications directing, instructing, demanding or
requesting payment of any Account or any other amount constituting Collateral
shall conspicuously direct that all payments be made to the Lockbox and shall
include the Lockbox address. All payments received in the Lockbox shall be
processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account
or, at the Lender's option, to deliver to the Lender, all collections on
Accounts, contract rights, chattel paper and other rights to payment
constituting Collateral, and all other proceeds of Collateral, which the
Borrower may receive directly notwithstanding its direction to Account debtors
and other obligors to make payments to the Lockbox, immediately upon receipt
thereof, in the form received, except for the Borrower's endorsement when deemed
necessary. Until delivered to the Lender or deposited in the Collateral Account,
all proceeds or collections of Collateral shall be held in trust by the Borrower
for and as the property of the Lender and shall not be commingled with any funds
or property of the Borrower. Amounts deposited in the Collateral Account shall
not bear interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations. All such collections shall
constitute proceeds of Collateral and shall not constitute payment of any
Obligation. Collected funds from the Collateral Account shall be transferred to
the Lender's general account, and the Lender may deposit in its general account
or in the Collateral Account any and all collections received by it directly
from the Borrower. The Lender may commingle such funds with other property of
the Lender or any other person. The Lender from time to time at its discretion
may, after allowing: (i) two (2) Banking Days after deposit in the Collateral
Account; and (ii) one (1) Banking Day after deposit in the Lender's account
(Account number 00-28695 at Norwest Bank, Minnesota, National Association),
apply such funds to the payment of any and all Obligations, in any order or
manner of application satisfactory to the Lender. All items delivered to the
Lender or deposited in the Collateral Account shall be subject to final payment.
If any such item is returned uncollected, the Borrower will immediately pay the
Lender, or, for items deposited
27
in the Collateral Account, the bank maintaining such account, the amount of that
item, or such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be liable as
an endorser on all items deposited in the Collateral Account, whether or not in
fact endorsed by the Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10
hereof, immediately upon the occurrence of such failure, without notice or lapse
of time), the Lender may, but need not, perform or observe such covenant on
behalf and in the name, place and stead of the Borrower (or, at the Lender's
option, in the Lender's name) and may, but need not, take any and all other
actions which the Lender may reasonably deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the satisfaction
of security interests, liens or encumbrances, the performance of obligations
owed to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
Section 6.12 Net Income Covenant. "Net Income" means after tax net
income of the Borrower from continuing operations determined on a consolidating
and consolidated basis. Borrower will for the fiscal quarter ending January 31,
1997 achieve a minimum Net Income of Five Hundred Thirty Thousand Dollars
($530,000). Thereafter, Borrower will, as of the last day of each fiscal quarter
beginning with the quarter ending April 30, 1997, achieve a minimum Net Income
as follows:
$500,000 for the fiscal quarter ending April 30;
$550,000 for the fiscal quarter ending July 31;
$550,000 for the fiscal quarter ending October 31; and
$600,000 for the fiscal quarter ending January 31.
Section 6.13 Net Worth Covenant. "Net Worth" means the net worth of
Borrower determined in accordance with generally accepted accounting principles
consistent with those used in preparing Borrower's most recent consolidating and
consolidated audited financial
28
statement. Subject to periodic increases as listed below, Borrower will at all
times from and after January 31, 1997 maintain a minimum book Net Worth of Seven
Million Two Hundred Thousand Dollars ($7,200,000) as of the last day of each
calendar month. So long as this Agreement remains in effect, such minimum book
Net Worth shall be increased as of the end of each fiscal quarter over the
previous fiscal quarter's minimum book Net Worth, as follows:
Increase of $500,000 for the fiscal quarter ending April 30;
Increase of $550,000 for the fiscal quarter ending July 31;
Increase of $550,000 for the fiscal quarter ending October 31; and
Increase of $600,000 for the fiscal quarter ending January 31.
ARTICLE VII
Negative Covenants
------------------
So long as the Note shall remain unpaid, the Credit Facility shall be
outstanding or any Letter of Credit shall be outstanding, the Borrower agrees
that, without the prior written consent of the Lender:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing:
(a) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Exhibit
C hereto, securing indebtedness for borrowed money permitted under Section 7.2
hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower so long as the Borrower
is in, and maintains, compliance with every other provision of this Agreement.
Notwithstanding any contrary provision in this Agreement, Borrower will not seek
or receive any credit terms from IBM or permit any perfected security interest
in the Collateral in favor of IBM.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money, or any other indebtedness or
liability evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Exhibit C hereto; and
29
(c) indebtedness relating to liens permitted in accordance
with Section 7.1(c) hereof.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in existence on
the date hereof and listed in Exhibit C hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without limitation
Cyclone Software Corporation, an Arizona corporation or any partnership or joint
venture, except:
(1) investments in direct obligations of the United
States of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of America
having a maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Xxxxx'x Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(2) travel advances or loans to officers and
employees of the Borrower not exceeding at any one time an aggregate of Ten
Thousand Dollars ($10,000.00); and
(3) advances in the form of progress payments,
prepaid rent or security deposits.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof and listed
in Exhibit B hereto.
Section 7.5 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly; provided, however, that if the Borrower
is an S Corporation within the meaning of the Internal Revenue Code of 1986, as
amended, or shall become such an S Corporation with the Lender's consent under
Section
30
7.16 hereof, and after first providing such supporting documentation as the
Lender may request, the Borrower may pay dividends in an amount equal to the
amount of state and federal income tax which would be due by each shareholder
with respect to income deemed to be received by such shareholder from the
Borrower as a result of the Borrower's status as an S Corporation at the highest
marginal income tax rate for federal and state (for the state or states in which
each shareholder is liable for income taxes with respect to such income) income
tax purposes, after taking into account any deduction for state income taxes in
calculating the federal income tax liability.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrower will not expend or
contract to expend more than One Million Three Hundred Thousand Dollars
($1,300,000.00) in the aggregate during any fiscal year, or more than One
Million Three Hundred Thousand Dollars ($1,300,000.00) in any one transaction,
for the lease, purchase or other acquisition of any capital asset, or for the
lease of any other asset, whether payable currently or in the future.
Section 7.11 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by generally accepted
accounting principles. The Borrower will not adopt, permit or consent to any
change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend,
31
subordinate, cancel or terminate the obligation of any account debtor or other
obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10 hereof.
Section 7.14 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interests. The Borrower will not change
its name.
Section 7.16 Organizational Documents; S Corporation Status. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The Borrower will not become an S Corporation within
the meaning of the Internal Revenue Code of 1986, as amended, or, if the
Borrower already is such an S Corporation, it shall not change or rescind its
status as an S Corporation.
Section 7.17 Salaries. If the Borrower is not in compliance with any of
the following sections of this Agreement: 6.5, 6.10, 6.12, 6.13, 7.1 through and
including 7.13, and 7.19, then the Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than twenty percent (20%) in any one fiscal year, for
all such persons in the aggregate, or pay any such increase from any source
other than profits earned in the year of payment. Notwithstanding the foregoing,
the Borrower may pay bonuses which have been approved by the Borrower's Board of
Directors.
Section 7.18 Change in Ownership. The Borrower will not issue or sell
any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the Borrower
will not permit or suffer to occur the sale, transfer, assignment, pledge or
other disposition of any or all of the issued and outstanding shares of stock of
the Borrower.
Section 7.19 Obtaining Credit From IBM. The Borrower will not seek,
receive or accept any credit terms from IBM during the term of this Credit
Facility.
32
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any interest on or principal of
the Note when it becomes due and payable; or
(b) Failure to pay when due any amount specified in Section
2.4 hereof relating to the Borrower's Obligation of Reimbursement, or failure to
pay immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.5 or 2.10
hereof; or
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement; or
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; or
(e) The Borrower shall be or become insolvent, or admit in
writing its inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply for or
consent to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the application
or consent of the Borrower; or the Borrower shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding relating to it under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application or otherwise)
against the Borrower; or any judgment, writ, warrant of attachment, garnishment
or execution or similar process shall be issued or levied against a substantial
part of the property of the Borrower; or
(f) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor; or
(g) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement shall
prove to have been incorrect in any material respect when deemed to be
effective; or
(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of Fifty Thousand Dollars
($50,000.00) and the continuance of such judgment, decree or order unsatisfied
and in effect for any period of 30 consecutive days
33
without a stay of execution (unless such judgment, decree or order is for a
claim covered by insurance and there is no dispute regarding insurance
coverage); or
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which any such evidence
of indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture, other instrument or
lease; or
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed to make
any quarterly contribution required with respect to any Plan under Section
412(m) of the Internal Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination with any such failures
that the Lender may determine are likely to occur in the future, result in the
imposition of a lien on the assets of the Borrower in favor of the Plan; or
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any obligations of the
Borrower hereunder or under any note; or
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
prior written consent of the Lender; or
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued; or
(n) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder; or
(o) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 Rights and Remedies. Upon the occurrence of an Event of
Default or at any time thereafter, the Lender may exercise any or all of the
following rights and remedies:
34
(a) The Lender may, by notice to the Borrower, declare the
Credit Facility to be terminated, whereupon the same shall forthwith terminate;
(b) The Lender may, by notice to the Borrower, declare to be
forthwith due and payable the entire unpaid principal amount of the Note then
outstanding, all interest accrued and unpaid thereon, all amounts payable under
this Agreement and any other Obligations, whereupon the Note, all such accrued
interest and all such amounts and Obligations shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which are hereby expressly waived by the Borrower;
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower,
including without limitation any funds on deposit with the Lender, whether or
not matured, to the payment of the Advances, including interest accrued thereon,
and of all other sums then owing by the Borrower hereunder, including, without
limitation, the Obligation of Reimbursement;
(d) The Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in immediately
available funds for deposit in the Special Account pursuant to Sections 2.10 and
3.6 hereof an amount equal to the maximum aggregate amount available to be drawn
under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder;
(e) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(f) hereof, the entire unpaid principal amount of the
Note and the Obligation of Reimbursement (whether contingent or funded), all
interest accrued and unpaid thereon, all other amounts payable under this
Agreement and any other Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice
35
shall be deemed commercially reasonable if given (in the manner specified in
Section 9.3) at least ten calendar days prior to the date of intended
disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay on the
part of the Lender in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under the
Loan Documents. The remedies provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed to the party to whom notice is being given at its address as
set forth below and, if telecopied, transmitted to that party at its telecopier
number set forth below:
If to the Borrower:
Gateway Data Sciences Corporation
0000 Xxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
and
Gateway Credit Corporation
0000 Xxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
36
If to the Lender:
Norwest Business Credit, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx, 0xx Xxxxx
Mail Station 9025
Phoenix, Arizona 85012-2501
Telecopier: (000) 000-0000
Attention: Xxxxx Xxxxx Xxxxx
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II hereof shall not
be effective until received by the Lender.
Section 9.4 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Gateway Data Sciences Corporation
0000 Xxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Federal Tax Identification No. 00-0000000
and
Gateway Credit Corporation
0000 Xxxx Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Norwest Business Credit, Inc.
0000 Xxxxx Xxxxxxx Xxxxxx, 0xx Xxxxx
Mail Station 9025
Phoenix, Arizona 85012-2501
Section 9.5 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the
37
Lender may reasonably request in order to secure, protect, perfect or enforce
the Security Interests or the rights of the Lender under this Agreement (but any
failure to request or assure that the Borrower executes, delivers or endorses
any such item shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interests, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
Section 9.6 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.7 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, any Letters of Credit, and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including without
limitation all such costs, expenses and fees incurred in connection with the
negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interests.
Section 9.8 Indemnity. In addition to the payment of expenses pursuant
to Section 9.7 hereof and the environmental indemnity pursuant to Section 6.4
hereof, the Borrower agrees to indemnify, defend and hold harmless the Lender,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees and agents of the foregoing (the "Indemnitees"),
from and against (i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this Agreement and the other Loan Documents or the making of the
Advances or issuance of any Letter of Credit, and (ii) any and all liabilities,
losses, damages, penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) in connection with any investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against such Indemnitee, in any manner relating to or arising out of or in
connection with the making of the Advances, the issuance of any Letter of
Credit, this Agreement and all other Loan Documents or the use or intended use
of the proceeds of the Advances or any Letter of Credit (the
38
"Indemnified Liabilities"). If any investigative, judicial or administrative
proceeding arising from any of the foregoing is brought against any Indemnitee,
upon request of such Indemnitee, the Borrower, or counsel designated by the
Borrower and satisfactory to the Indemnitee, will resist and defend such action,
suit or proceeding to the extent and in the manner directed by the Indemnitee,
at the Borrower's sole cost and expense. Each Indemnitee will use its best
efforts to cooperate in the defense of any such action, suit or proceeding. If
the foregoing undertaking to indemnify, defend and hold harmless may be held to
be unenforceable because it violates any law or public policy, the Borrower
shall nevertheless make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. The obligation of the Borrower under this Section 9.8 shall survive the
termination of this Agreement and the discharge of the Borrower's other
Obligations.
Section 9.9 Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the participants, successors or assigns of the Lender.
Section 9.10 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.11 Binding Effect; Assignment; Complete Agreement; Sharing of
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written consent of the
Lender. This Agreement, together with the Loan Documents, comprises the complete
and integrated agreement of the parties on the subject matter hereof and
supersedes all prior agreements, written or oral, on the subject matter hereof.
Without limitation of the Lender's right to share information regarding the
Borrower and its Affiliates with Lender's participants, accountants, lawyers and
other advisors, the Lender may share at any time with Norwest Corporation, and
all direct and indirect subsidiaries of Norwest Corporation, any and all
information the Lender may have in its possession regarding the Borrower and its
Affiliates, and the Borrower waives any right of confidentiality it may have
with respect to such sharing of such information.
Section 9.12 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. Each party
consents to the personal jurisdiction of the state and federal courts located in
the State of Arizona in connection with any controversy related to this
Agreement, waives any argument that venue in any such forum is not convenient
and agrees that any litigation initiated by any of them in connection with this
Agreement shall be venued in either the Superior Court of Maricopa County,
Arizona, or the Xxxxxx Xxxxxx Xxxxxxxx Xxxxx, Xxxxxxxx of Arizona.
39
The parties waive any right to trial by jury in any action or proceeding based
on or pertaining to this Agreement.
Section 9.13 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.14 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
GATEWAY DATA SCIENCES CORPORATION, an
Arizona corporation
By /s/ Xxxxxxx X. Xxxxxx
------------------------------
Its President
-----------------------------
By /s/ Xxxxxx X. Xxxxxx
------------------------------
Its V.P. Finance & Treasurer
-----------------------------
GATEWAY CREDIT CORPORATION, an
Arizona corporation
By /s/ Xxxxxxx X. Xxxxxx
------------------------------
Its President
-----------------------------
By
------------------------------
Its
-----------------------------
NORWEST BUSINESS CREDIT, INC.,
a Minnesota corporation
By /s/ Xxxxx Xxxxx Xxxxx
------------------------------
Its Vice President
-----------------------------
41
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$3,000,000.00 Phoenix, Arizona
____________, 1997
For value received, the undersigned, GATEWAY DATA SCIENCES CORPORATION,
an Arizona corporation and GATEWAY CREDIT CORPORATION, an Arizona corporation
(jointly, the "Borrower"), hereby promise to pay on February 21, 2000 to the
order of Norwest Business Credit, Inc., a Minnesota corporation (the "Lender"),
at its main office in Phoenix, Arizona, or at any other place designated at any
time by the holder hereof, in lawful money of the United States of America and
in immediately available funds, the principal sum of THREE MILLION AND N0/100
DOLLARS ($3,000,000.00) or, if less, the aggregate unpaid principal amount of
all advances made by the Lender to the Borrower pursuant to that certain Credit
and Security Agreement (the "Credit Agreement") of even date herewith by and
between the Lender and the Borrower, together with interest on the principal
amount hereunder remaining unpaid from time to time, computed on the basis of
the actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
Agreement. The principal hereof and interest accruing thereon shall be due and
payable as provided in the Credit Agreement. This Note may be prepaid only in
accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
The Borrower agrees that the interest rate contracted for includes the
interest rate set forth herein plus any other charges or fees set forth herein
and costs and expenses incident to this transaction paid by the Borrower to the
extent the same are deemed interest under applicable law.
A-1
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
GATEWAY DATA SCIENCES CORPORATION, an
Arizona corporation
By____________________________
Its_________________________
By____________________________
Its_________________________
GATEWAY CREDIT CORPORATION, an
Arizona corporation
By____________________________
Its_________________________
By____________________________
Its_________________________
A-2
