EXHIBIT 10.13
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TBCC
LOAN AND SECURITY AGREEMENT
BORROWER: PILOT NETWORK SERVICES, INC.,
A CALIFORNIA CORPORATION
ADDRESS: 0000 XXXXXX XXXXXXX XXXXXXX
XXXXXXX, XXXXXXXXXX 00000
DATE: MAY 11, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into as of the above date, between
the above borrower (the "Borrower"), having its chief executive office and
principal place of business at the address shown above, and TRANSAMERICA
BUSINESS CREDIT CORPORATION, a Delaware corporation, ("TBCC") having its
principal office at 0000 Xxxx Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxx 00000
and having an office at 00000 Xxxxxxx Xxxx., Xxxxx 000, Xxxxxx, Xxxxxxxxxx
00000. The Schedule to this Agreement (the "Schedule") being signed concurrently
is an integral part of this Agreement. (Definitions of certain terms used in
this Agreement are set forth in Section 9 below.) The parties agree as follows:
1. LOANS.
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1.1. Loans. TBCC, subject to the terms and conditions of this Agreement,
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agrees to make loans (the "Loans") to Borrower, from time to time during the
period from the date of this Agreement to the Maturity Date set forth in the
Schedule, at Borrower's request, in an aggregate principal amount at any one
time outstanding not to exceed the Credit Limit shown on the Schedule. If at any
time the total outstanding Loans and other monetary Obligations exceed said
limit, Borrower shall repay the excess immediately without demand. Borrower
shall use the proceeds of all Loans solely for lawful general business purposes.
1.2. Due Date. The Loans, all accrued interest and all other monetary
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Obligations shall be payable in full on the Maturity Date. Borrower may borrow,
repay and reborrow Loans (other than any Term Loans), in whole or in part, in
accordance with the terms of this Agreement.
1.3. Loan Account. TBCC shall maintain an account on its books in the name
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of Borrower (the "Loan Account"). All Loans and advances made by TBCC to
Borrower or for Borrower's account and all other monetary Obligations will be
charged to the Loan Account. All amounts received by TBCC from Borrower or for
Borrower's account will be credited to the Loan Account. TBCC will send Borrower
a monthly statement reflecting the activity in the Loan Account, and each such
monthly statement shall be an account stated between Borrower and TBCC and shall
be final conclusive and binding absent manifest error.
1.4 Collection of Receivables. Borrower shall remit to TBCC all
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Collections relating to trade Receivables (and such other Receivables as TBCC
may request from time to time) including all checks, drafts and other documents
and instruments evidencing remittances in payment (collectively referred to as
"Items of Payment") within one Business Day after receipt, in the same form as
received, with any necessary endorsements. For purposes of calculating interest
due to TBCC, credit will be given for Collections and all other proceeds of
Collateral and other payments to TBCC three Business Days after receipt of
cleared funds. Borrower's Loan Account will be credited only with the net
amounts actually received in payment of Receivables, and such payments shall be
credited to the Obligations in such order as TBCC shall determine in its
discretion. Pending delivery to TBCC, Borrower will not commingle any Items of
Payment with any of its other funds or property, but will segregate them from
the other assets of Borrower and will hold them in trust and for the account and
as the property of TBCC. Borrower hereby agrees to endorse any Items of Payment
upon the request of TBCC.
1.5. Reserves. TBCC may, from time to time, in its Good Faith business
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judgment: (i) establish and modify reserves against Eligible Receivables, (ii)
modify advance rates with respect to Eligible Receivables, (iii) modify the
standards of eligibility set forth in the definitions of Eligible Receivables,
and (iv) establish reserves against available Loans.
1.6. Term.
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(a) The term of this Agreement shall be from the date of this
Agreement to the Maturity Date set forth in the Schedule, unless sooner
terminated in accordance with the terms of this Agreement, provided that the
Maturity Date
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TBCC LOAN AND SECURITY AGREEMENT
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shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date. On the Maturity Date or on any earlier termination of
this Agreement Borrower shall pay in full all Obligations, and notwithstanding
any termination of this Agreement all of TBCC's security interests and all of
TBCC's other rights and remedies shall continue in full force and effect until
payment and performance in full of all Obligations.
(b) This Agreement may be terminated prior to the Maturity Date as
follows: (i) by Borrower, effective three business days after written notice of
termination is given to TBCC; or (ii) by TBCC at any time after the occurrence
of an Event of Default, without notice, effective immediately. If this Agreement
is terminated by Borrower or by TBCC under this Section 1.6(b), Borrower shall
pay to TBCC a termination fee (the "Termination Fee") in the amount shown on the
Schedule. The Termination Fee shall be due and payable on the effective date of
termination. Notwithstanding the foregoing, Borrower shall have no principal
of, or interest on any of the Loans or any other monetary Obligations are
outstanding, except upon prepayment of all Obligations and the satisfaction of
all other conditions set forth in the Loan Documents. Other than with respect to
the Termination Fee set forth above, the Borrower may pay the Loans and other
Obligations arising under this Agreement and the Revolving Credit Note of even
date herewith, as modified from time to time at any time without penalty or any
other additional cost to the Borrower, provided that the foregoing shall not
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limit or otherwise affect any termination or prepayment fee with respect to
other indebtedness owing to TBCC under any other document, instrument or
agreement.
1.7. Payment Procedures. Borrower hereby authorizes TBCC to charge the Loan
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Account with the amount of all interest, fees, expenses and other payments to be
made hereunder and under the other Loan Documents. TBCC may, but shall not be
obligated to, discharge Borrower's payment obligations hereunder by so charging
the Loan Account. Whenever any payment to be made hereunder is due on a day that
is not a Business Day, the payment may be made on the next succeeding Business
Day and such extension of time shall be included in the computation of the
amount of interest due.
1.8. Conditions to Initial Loan. The obligation of TBCC to make the initial
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Loan is subject to the satisfaction of the following conditions prior to or
concurrent with such initial Loan, and Borrower shall cause all such conditions
to be satisfied by the Closing Deadline set forth in the Schedule.
(a) Except for the filing of termination statements under the Uniform
Commercial Code by the existing lender to Borrower whose loans are being repaid
with the Loan proceeds, no consent or authorization of, filing with or other act
by or in respect of any Governmental Authority or any other Person is required
in connection, with the execution, delivery, performance, validity or
enforceability of this Agreement, or the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or the
continuing operations of the Borrower following the consummation of such
transactions.
(b) TBCC and its counsel shall have performed (i) a review satisfactory to
TBCC of all the Material Contracts and other assets of the Borrower, the
financial condition of the Borrower, including all of its tax, litigation,
environmental and other potential contingent liabilities, and the corporate and
capital structure of the Borrower and (ii) a pre-closing audit and collateral
review, in each case with results satisfactory to TBCC.
(c) TBCC shall have received the following, each dated the date of the
initial Loan or as of an earlier date acceptable to TBCC, in form and substance
satisfactory to TBCC and its counsel: (i) a Depository Account Agreement duly
executed by the Borrower and its Bank on TBCC's standard form; (ii)
acknowledgment copies of Uniform Commercial Code financing statements (naming
TBCC as secured party and the Borrower as debtor), duly filed in all
jurisdictions that TBCC deems necessary or desirable to perfect and protect the
Liens created hereunder, and Official Uniform Commercial Code searches in such
jurisdictions, showing such financing statements of record; (iii) the opinion of
counsel for the Borrower in the form attached hereto as Exhibit A; (iv)
certified copies of all policies of insurance required by this Agreement and the
other Loan Documents, together with loss payee endorsements for all such
policies naming TBCC as lender loss payee and an additional insured; (v) Copies
of the Borrower's articles or certificate of incorporation, certified as true,
correct and complete by the secretary of state of Borrower's state of
incorporation within 45 days of the date hereof; (vi) copies of the bylaws of
the Borrower and a copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Agreement,
the other Loan Documents, and the transactions contemplated hereby and thereby,
attached to which is a certificate of the Secretary or an Assistant Secretary of
the Borrower certifying (A) that such copies of the bylaws and resolutions are
true, complete and accurate copies thereof, have not been amended or modified
since the date of such certificate and are in full force and effect and (B) the
incumbency, names and true signatures of the officers of the Borrower; (vii) a
good standing certificate from the Secretary of State of Borrower's state of
incorporation and each state in which the Borrower is qualified as a foreign
corporation, each dated within ten days of the date hereof; (viii) such other
agreements and instruments as TBCC reasonably deems necessary in its sole and
absolute discretion in connection with the transactions contemplated hereby.
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TBCC LOAN AND SECURITY AGREEMENT
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1.9. Conditions to Lending. The obligation of TBCC to make any Loan is
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subject to the satisfaction of the following conditions precedent:
(a) There shall be no pending or, to the knowledge of Borrower after
due inquiry, threatened litigation, proceeding, inquiry or other action relating
to this Agreement, or any other Loan Document, or which could be expected to
have a Material Adverse Effect in the judgment of TBCC.
(b) Borrower shall be in compliance with all Requirements of Law and
Material Contracts, other than such noncompliance that could not have a Material
Adverse Effect;
(c) The Liens in favor of TBCC shall have been duly perfected and
shall constitute first priority Liens, except for Permitted Liens;
(d) All representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Loan as if then made, other than representations and warranties that
expressly relate solely to an earlier date, in which case they shall have been
true and correct as of such earlier date;
(e) No Default or Event of Default shall have occurred and be
continuing or would result from the making of the requested Loan as of the date
of such request; and
(f) No Material Adverse Effect shall have occurred.
2. INTEREST AND FEES.
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2.1. Interest. Borrower shall pay TBCC interest on all outstanding Loans
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and other monetary Obligations, at the interest rate set forth in the Schedule.
Interest shall be payable monthly in arrears on the first Business Day of each
month, and on the Maturity Date. Following the occurrence and during the
continuance of any Event of Default, the interest rate applicable to all
Obligations shall be increased by two percent per annum.
2.2. Fees. Borrower shall pay TBCC the fees set forth in the Schedule.
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2.3. Calculations. All interest and fees under this Agreement shall be
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calculated on the basis of a year of 360 days for the actual number of days
elapsed in the period for which such interest or fees are payable.
2.4 Taxes. Any and all payments by Borrower under this Agreement or any
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other Loan Document shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges or
withholdings and penalties, interest and all other liabilities with respect
thereto, excluding in the case of TBCC, taxes imposed on its net income and
franchise taxes imposed on it by the jurisdiction under the laws of which TBCC
is organized or any political subdivision thereof.
3. SECURITY.
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3.1. Grant of Security Interest. To secure the payment and performance when
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due of all of the Obligations, Borrower hereby grants to TBCC a security
interest in all of its present and future Receivables, Inventory, Equipment,
Other Property, and other Collateral, wherever located provided that TBCC shall
have no security interest in any of the IP Assets.
3.2. Other Liens; Location of Collateral. Borrower represents, warrants and
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covenants that all of the Collateral and the IP Assets are and will at all times
continue to be, free and clear of all Liens, other that Permitted Liens and
Liens in favor of TBCC, except it is understood that TBCC does not have a
security interest in IP Assets. All Collateral is and will continue to be
maintained at the locations shown on the Schedule.
3.3. Receivables.
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(a) Schedules. As often as reasonably requested by TBCC, Borrower
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shall execute and deliver to TBCC written schedules of Receivables and Eligible
Receivables (but the failure to execute or deliver any schedule shall not affect
or limit TBCC's security interest in all Receivables). On TBCC's reasonable
request, Borrower shall also furnish to TBCC copies of invoices to customers and
shipping and delivery receipts. Borrower shall deliver to TBCC the originals of
all letters of credit, notes, and instruments as defined in the Uniform
Commercial Code in its favor and such endorsements or assignments as TBCC may
reasonably request (other than with respect to notes receivables from the
employees of the Borrower with respect to the loans made to employees in
accordance with the ordinary custom and practices of the Borrower with respect
to the making of any such loans).
(b) Records, Collections. Borrower shall report all customer credits
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to TBCC, on the regular reports to TBCC in the form from time to time specified
by TBCC, Borrower shall notify TBCC of all returns and recoveries of merchandise
and of all claims asserted with respect to merchandise, on its regular reports
to TBCC. Borrower shall not settle or adjust any dispute or claim, or grant any
discount, credit or allowance or accept any return of merchandise, except in the
ordinary course of its business, without TBCC's prior written consent.
(c) Representations. Borrower represents and warrants to TBCC that
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each Receivable with respect to which Loans are requested by Borrower shall, on
the date each Loan is requested and made, represent and undisputed, bona fide,
existing, unconditional obligation of the account debtor created by the sale,
delivery, and acceptance of goods or the condition of services, in the ordinary
course of Borrower's business, and meet the Minimum Eligibility Requirements set
forth in Section 9.1(n) or represent Receivables relating to advance payments by
the account debtors with respect to service contracts that are satisfactory to
TBCC in its discretion and that otherwise meet the Minimum eligibility
Requirements set forth in Section 9.1(n).
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TBCC LOAN AND SECURITY AGREEMENT
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3.4. Inventory. Borrower shall maintain full, accurate and complete records
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respecting the Inventory describing the kind, type and quantity of the Inventory
and Borrower's cost therefor, withdrawals therefrom and additions thereto,
including a perpetual inventory for work in process and finished goods.
3.5. Equipment. Borrower shall at all times keep correct and accurate
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records itemizing and describing the location, kind, type, age and condition of
the Equipment, Borrower's cost therefor and accumulated depreciation thereof and
retirements, sales, or other dispositions thereof. Borrower shall keep all of
its Equipment in a satisfactory state of repair and satisfactory operating
condition in accordance with industry standards, ordinary wear and tear
excepted. No Equipment shall be annexed or affixed to or become part of any
realty, unless the owner of the realty has executed and delivered a Landlord
Waiver in such form as TBCC shall specify. Where Borrower is permitted to
dispose of any Equipment under this Agreement or by any consent thereto
hereafter given by TBCC, Borrower shall do so at arm's length, in good faith and
by obtaining the maximum amount of recovery practicable therefor and without
impairing the operating integrity or value of the remaining Equipment.
3.6. Further Assurances. Borrower will perform any and all steps that TBCC
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may reasonably request to perfect TBCC's security interests in the Collateral,
including, without limitation, executing and filing financing and continuation
statements in form and substance satisfactory to TBCC. If TBCC determines it is
reasonably necessary or desirable to do so in light of the then existing
circumstances, TBCC is hereby authorized by Borrower to sign Borrower's name or
file any financing statements or similar documents or instruments covering the
Collateral whether or not Borrower's signature appears thereon, Borrower agrees,
from time to time, at TBCC's request, to file notices of Liens, financing
statements, similar document or instruments, and amendments, renewals and
continuations thereof, and cooperate with TBCC, in connection with the continued
perfection and protection of the Collateral. If any Collateral is in the
possession or control of any Person other than a public warehouseman where the
warehouse receipt is in the name of or held by TBCC, Borrower shall notify such
Person of TBCC's security interest therein and, upon request, instruct such
Person or Persons to hold all such Collateral for the account of TBCC and
subject to TBCC's instructions, provided that the foregoing requirement shall
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not apply to Equipment located at the premises of the Borrower's customers in
the ordinary course of business. If so requested by TBCC, Borrower will deliver
to TBCC warehouse receipts covering any Collateral located in warehouses showing
TBCC as the beneficiary thereof and will also cause the warehouseman to execute
and deliver such agreements as TBCC may request relating to waivers of liens by
such warehouseman and the release of the Inventory to TBCC on its demand.
Borrower shall defend the Collateral against all claims and demands of all
Persons.
3.7. Power of Attorney. Borrower hereby appoints and constitutes TBCC as
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Borrower's attorney-in-fact (i) to request at any time from account debtors
verification of information concerning Receivables and the amount owing thereon
in accordance with procedures of which TBCC has advised the Borrower, (ii) upon
the occurrence and during the continuance of an Event of Default, to convey any
item of Collateral to any purchaser thereof, (iii) to give or sign Borrower's
name to any notices or statements necessary or desirable to create or continue
the Lien on any Collateral granted hereunder if TBCC determines it is reasonably
necessary or desirable to do so in light of the then existing circumstances, and
(iv) to make any payment or take any act necessary or desirable to protect or
preserve any Collateral. TBCC's authority hereunder shall include, without
limitation, the authority to execute and give receipt for any certificate of
ownership or any document, transfer title to any item of Collateral and take any
other actions arising from or incident to the powers granted to TBCC under this
Agreement. This power of attorney is coupled with an interest and is irrevocable
during the term of this agreement.
4. Representations and Warranties of Borrower. Borrower represents and
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warrants as follows:
4.1. Organization, Good Standing and Qualification. Borrower (i) is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of California set (ii) has the corporate power and authority to own
its properties and assets and to transact the businesses in which it is engaged
and (iii) is duly qualified, authorized to do business and in good standing in
each jurisdiction where it is engaged in business, except to the extent that the
failure to so qualify or be in good standing would not have a Material Adverse
Effect.
4.2. Locations of Offices, Records and Collateral. The address of the
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principal place of business and chief executive office of Borrower is, and the
books and records of Borrower and all of its chattel paper and records relating
to Collateral are maintained exclusively in the possession of Borrower at, the
address of Borrower specified in heading of this Agreement. Borrower has places
of business, and Collateral is located, only at such address and at the
addresses set forth in the Schedule.
4.3 Authority. Borrower has the requisite corporate power and authority to
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execute, deliver and perform its obli-
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TBCC LOAN AND SECURITY AGREEMENT
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gations under each of the Loan Documents. All corporate action necessary for the
execution, delivery and performance by Borrower of the Loan Documents has been
taken.
4.4. Enforceability. This Agreement is, and, when executed and delivered,
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each other Loan Document will be, the legal, valid and binding obligation of
Borrower enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and general principles of equity.
4.5. No Conflict. The execution, delivery and performance of each Loan
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Document by Borrower does not and will not contravene (i) any of the Governing
Documents, (ii) any Requirement of Law or (iii) any Material Contract and will
not result in the imposition of any Liens other than in favor of TBCC.
4.6. Consents and Filings. No consent, authorization or approval of, or
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filing with or other act by, any shareholders of Borrower or any Governmental
Authority or other Person is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement or any other
Loan Document, the consummation of the transactions contemplated hereby or
thereby or the continuing operations of Borrower following such consummation,
except (i) those that have been obtained or made, and (ii) the filing of
financing statements under the Uniform Commercial Code.
4.7. Solvency. Borrower is Solvent and will be Solvent upon the completion
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of all transactions contemplated to occur on or before the date of this
Agreement (including, without limitation, the Loans to be made on the date of
this Agreement).
4.8. Financial Data. Borrower has provided to TBCC complete and accurate
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Financial Statements, which have been prepared in accordance with GAAP (except
with respect to the notes thereto) consistently applied throughout the periods
involved and fairly present the financial position and results of operations of
Borrower for each of the periods covered. Borrower has no Contingent Obligation
or liability for taxes, unrealized losses, unusual forward or long-term
commitments or long-term leases, which is not reflected in such Financial
Statements or the footnotes thereto. Since the last date covered by such
Financial Statements, there has been no sale, transfer or other disposition by
Borrower of any material part of its business or property (including any capital
stock of any other Person) material in relation to the financial condition of
Borrower at said date. Since said date, (i) there has been no change,
occurrence, development or event which has had or could reasonably be expected
to have a Material Adverse Effect and (ii) none of the capital stock of Borrower
has been redeemed, retired, purchased or otherwise acquired for value by
Borrower except that the Borrower has previously repurchased shares of Common
Stock of the Borrower from its employees, officers, directors, consultants and
other person performing services for the Borrower pursuant to the Borrower's
option to repurchase such shares at cost or upon the occurrence of certain
events, such as termination of employment.
4.9. Accuracy and Completeness of Information. All data, reports and
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information previously, now or hereafter furnished by or on behalf of Borrower
to TBCC or the Auditors are or will be true and accurate in all material
respects on the date as of which such data, reports and information are dated or
certified, and not incomplete by omitting to state any material fact necessary
to make such data, reports and information not materially misleading at such
time. There are not facts now known to Borrower which individually or in the
aggregate would reasonably be expected to have a Material Adverse Effect and
which have not been disclosed in writing to TBCC.
4.10. No Joint Ventures, Partnerships or Subsidiaries. Borrower is not
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engaged in any joint venture or partnership with any other Person. Borrower has
no Subsidiaries.
4.11. Corporate and Trade Name. During the past five years, Borrower has
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not been known by or used any other corporate, trade or fictitious name except
for its name as set forth on the signature page of this Agreement and the other
names specified in the Schedule.
4.12. No Actual or Pending Material Modification of Business. There exists
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no actual or, to the best of Borrower's knowledge after due inquiry, threatened
termination, cancellation or limitation of, or any modification or change in the
business relationship of Borrower with any customer or group of customers whose
purchases individually or in the aggregate are material to the operation of
Borrower's business or with any material supplier.
4.13. No Broker's or Finder's Fees. No broker or finder brought about this
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Agreement or the Loans. No broker's or finder's fees or commissions will be
payable by Borrower to any Person in connection with the transactions
contemplated by this Agreement.
4.14. Taxes and Tax Returns. Borrower has properly completed and timely
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filed all income tax returns it is required to file. The information filed is
complete and accurate in all material respects. All deductions taken in such
income tax returns are appropriate and in accordance with applicable laws and
regulations, except deductions that may have been disallowed but are being
challenged in good faith and for which adequate reserves have been made in
accordance with GAAP. All taxes, assessments, fees and other governmental
charges for periods beginning prior to the date of this Agreement have been
timely paid (or, if not yet due, adequate reserves therefor have been
established) and Borrower has no liability for taxes in excess of the amounts so
paid or reserves so established. No deficiencies for taxes have been claimed,
proposed or assessed by any taxing or other Governmental Authority against
Borrower and no notice of any take Lien has been filed. There are no pending or
threatened audits, investigations or claims for or relating to
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TBCC LOAN AND SECURITY AGREEMENT
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any liability for taxes and there are not matters under discussion with any
Governmental Authority which could result in an additional liability for taxes.
No extension of a statute of limitations relating to taxes, assessments, fees or
other governmental charges is in effect with respect to Borrower.
Borrower is not a party to and does not have any obligations under any written
tax sharing agreement or agreement regarding payments in lieu of taxes.
4.15. No Judgments or Litigation. No judgments, orders, writs or decrees
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are outstanding against Borrower, nor is there now pending or, to the knowledge
of Borrower after due inquiry, threatened litigation, contested claim,
investigation, arbitration, or governmental proceeding by or against Borrower
that (i) could individually or in the aggregate be likely in the reasonably
business judgment of TBCC to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of this Agreement, any other
Loan Document or the consummation of the transactions contemplated hereby or
thereby.
4.16. Investments; Contracts. Borrower (i) has not committed to make any
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Investment; (ii) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, bylaw or other corporate
restriction or any injunction, order, restriction or decree, which would
materially and adversely affect its business, operations, assets or financial
condition; (iii) is not a party to any "take or pay" contract as to which it is
the purchaser; or (iv) has no material contingent or long-term liability,
including management contracts (excluding employment contracts of full-time
individual officers or employees), which could have a Material Adverse Effect.
4.17. No Defaults; Legal Compliance. Borrower is not in default under any
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term of any Material Contract or in violation of any Requirement of Law, nor is
Borrower subject to any investigation with respect to a claimed violation of any
Requirement of Law.
4.18. Rights in Collateral; Priority of Liens. All Collateral and all IP
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Assets are owned or leased by Borrower, free and clear of any and all Liens in
favor of third parties, other than Permitted Liens. The Liens granted to TBCC
pursuant to the Loan Documents constitute valid, enforceable and perfected
first-priority Liens on the Collateral, except for Permitted Liens.
4.19. Intellectual Property. Set forth in the written Representations and
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Warranties of Borrower previously delivered to TBCC is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights
(registered), and all applications therefor and licenses thereof, of Borrower.
Borrower owns or licenses all material patents, trademarks, service-marks,
logos, tradenames, trade secrets, know-how, copyrights, or licenses and other
rights with respect to any of the foregoing, which are necessary or advisable
for the operation of its business as presently conducted or proposed to be
conducted in accordance with the current business plans of the Borrower. To the
best of its knowledge after due inquiry, Borrower has not infringed any patent,
trademark, service-xxxx, tradename, copyright, license or other right owned by
any other Person by the sale or use of any product, process, method, substance,
part or other material presently contemplated to be sold or used, where such
sale or use would reasonably be expected to have a Material Adverse Effect and
no claim or litigation is pending, or to the best of Borrower's knowledge,
threatened against or affecting Borrower that contests its right to sell or use
any such product, process, method, substance, part or other material.
4.20. Labor Matters. There are no existing or threatened strikes, lockouts
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or other disputes relating to any collective bargaining or similar agreement to
which Borrower is a party which would, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
4.21. Licenses and Permits. Borrower has obtained and holds in full force
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and effect, all franchises, licenses, leases, permits, certificates,
authorizations, qualifications, casements, rights of way and other rights and
approvals which are necessary or advisable for the operation of its business as
presently conducted and as proposed to be conducted in accordance with the
current business plans of the Borrower except where the failure to possess any
of the foregoing (individually or in the aggregate) would not have a Material
Adverse Effect.
4.22. Government Regulation. Borrower is not subject to regulation under
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the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, the Investment Company Act of 1940, or any other
Requirement of Law that limits its ability to incur indebtedness or its ability
to consummate the transactions contemplated by this Agreement and the other Loan
Documents.
4.23. Business and Properties. The business of Borrower is not affected (as
-----------------------
of the date that this representation is made or is deemed to be made) by any
fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, bail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that could reasonably be expected
to have a Material Adverse Effect.
4.24. Affiliate Transactions. Borrower is not a party to or bound by any
----------------------
agreement or arrangement (whether oral or written) to which any Affiliate of
Borrower is a party except (i) in the ordinary course of and pursuant to the
reasonable requirements of the business of Borrower, (ii) upon fair and
reasonable terms no less favorable to Borrower than it could obtain in a
comparable arm's-length transaction with an unaffiliated Person and (iii) in
connection with the status of an affiliate as a shareholder of the Borrower
regarding agreements executed in connection with the purchase by such person of
the preferred and common stock of the Borrower.
-6-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
4.25. Survival of Representations. All representations made by Borrower in
---------------------------
this Agreement and in any other Loan Document executed and delivered by it in
connection herewith shall survive the execution and delivery hereof and thereof
and the closing of the transactions contemplated hereby and thereby.
5. AFFIRMATIVE COVENANTS OF THE BORROWER. Until termination of this Agreement
-------------------------------------
and payment and satisfaction of all Obligations:
5.1 Corporate Existence. Borrower shall (i) maintain its corporate
-------------------
existence, (ii) maintain in full force and effect all material licenses, bonds,
franchises, leases, trademarks, qualifications and authorizations to do
business, and all material patents, contracts and other rights necessary or
advisable to the conduct of its business as now conducted and as now
contemplated to conducted by the Borrower, and (iii) continue in, and limit its
operations to, the same lines of business as presently conducted by it. Nothing
in this Agreement is intended to restrict the Borrower from undertaking a public
offering of its stock.
5.2 Maintenance of Property. Borrower shall keep all property useful and
-----------------------
necessary to its business in good working order and condition (ordinary wear and
tear excepted) in accordance with its past operating practices.
5.3 Affiliate Transactions. Borrower shall conduct transactions with any
----------------------
of its Affiliates on an arm's-length basis or other basis no less favorable to
Borrower and which are approved by the board of Directors of Borrower.
5.4. Taxes. Borrower shall pay when due (i) all tax assessments, and other
-----
governmental charges and levies imposed against it or any of its property and
(ii) all lawful claims that, if unpaid, might by law become a Lien upon its
property; provided, however, that, unless such tax assessment, charge, levy or
-------- -------
claim has become a Lien on any of the property of Borrower, it need not be paid
if it is being contested in good faith, by appropriate proceedings diligently
conducted and an adequate reserve or other appropriate provision shall have been
made therefor as required in accordance with GAAP.
5.5. Requirements of Law. Borrower shall comply with all Requirements of
-------------------
Law applicable to it, including, without limitation, all applicable Federal,
State, local or foreign laws and regulations, including, without limitation,
those relating to environmental matters, employee matters, the Employee
Retirement Income Security Act of 1974, and the collection, payment and deposit
of employees' income, unemployment and social security taxes, provided that
--------
Borrower shall not be deemed in violation hereof if Borrower's failure to comply
with any of the foregoing would not require more than $50,0000 to cure the same.
5.6. Insurance. Borrower shall maintain public liability insurance,
---------
business interruption insurance, third party property damage insurance and
replacement value insurance on its assets (including the Collateral) under such
policies of insurance, with such insurance companies, in such amounts and
covering such risks as are at all times satisfactory to TBCC in its commercially
reasonably judgment, all of which policies covering the Collateral shall name
TBCC as an additional insured and lender loss payee in case of loss, and contain
other provisions as TBCC may reasonably require to protect fully TBCC's interest
in the Collateral and any payments to be made under such policies.
5.7. Books and Records; Inspections. Borrower shall (i) maintain books and
------------------------------
records (including computer records) pertaining to the Collateral and the IP
Assets in such detail, form and scope as is consistent with good business
practice and (ii) provide TBCC and its agents reasonable access to the premises
of Borrower at any time and from time to time, during the normal business hours
and upon reasonable notice under the circumstances (provided that prior to an
Event of Default TBCC agrees that it will conduct no more than three audits per
calendar year as set forth herein), and at any time on and after the occurrence
of a Default or Event of Default, for the purposes of (A) inspecting and
verifying the Collateral, (B) inspecting and copying (at Borrower's expense) any
and all records pertaining thereto and to the IP Assets, and (C) discussing the
affairs, finances and business of Borrower with any officer, employee or
director of Borrower or with the Auditors. Borrower shall reimburse TBCC for the
reasonable travel and related expenses of TBCC's employees or, at TBCC's option,
of such outside accountants or examiners as may be retained by TBCC to verify or
inspect Collateral, records or documents of Borrower on a regular basis or for a
special inspection if TBCC deems the same appropriate. If TBCC's own employees
are used, Borrower shall also pay therefor $600 per person per day (or such
other amount as shall represent TBCC's then current standard charge for the
same), or, if outside examiners or accountants are used, Borrower shall also pay
TBCC such sum as TBCC may be obligated to pay as fees therefor.
5.8. Notification Requirements. Borrower shall give TBCC the following
-------------------------
notices and other documents;
(a) Notice of Defaults. Borrower shall give TBCC written notice of
------------------
any Default or Event of Default within two Business Days after becoming aware of
the same.
(b) Proceedings or Adverse Changes. Borrower shall give TBCC written
------------------------------
notice of any of the following, promptly, and in any event within five Business
days after Borrower becomes aware of any of the following: (i) any proceeding
being instituted or threatened by or against it in any federal, state, local or
foreign court or before any commission or other regulatory body involving a sum,
together
-7-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
with the sum involved in all other similar proceedings, in excess of $200,000
or, if for a lesser amount, could have a Material Adverse Effect in the
aggregate, (ii) any order, judgment or decree being entered against Borrower or
any of its properties or assets involving a sum, together with the sum of all
other orders, judgments or decrees, in excess of $100,000 in the aggregate, and
(iii) any actual or prospective change, development or event which has had or
could reasonably be expected to have a Material Adverse Effect.
(c) Change of Name or Chief Executive Officer Opening Additional
------------------------------------------------------------
Places of Business. Borrower shall give TBCC at least 20 days prior written
------------------
notice of any change of Borrower's corporate name or its chief executive office
or of the opening of any additional place of business where any Collateral is
located, other than for the locating of Equipment on the premises of the
customers of the Borrower in the ordinary course of Borrower's business,
provided that with respect to sales offices locations only, Borrower shall give
TBCC reasonably prompt notice regarding the opening thereof.
(d) Casualty Loss. Borrower shall (i) provide written notice to
-------------
TBCC, promptly, and in any event within ten Business Days after Borrower becomes
aware, of any material damage to the destruction of or any other material loss
to any asset or property owned or used by Borrower other than any such asset or
property with a net book value (individually or in the aggregate) less than,
$20,000 or any condemnation, confiscation or other taking, in whole or in part,
or any event that otherwise diminishes so as to render impracticable or
unreasonable the use of such asset or property owned or used by Borrower
together with the amount of the damage, destruction, loss or diminution in value
and (ii) diligently file and prosecute its claim or claims for any award or
payment in connection with any of the foregoing.
5.9. Qualify to Transact Business. Borrower shall qualify to transact
----------------------------
business as a foreign corporation in each jurisdiction where the nature or
extent of its business or the ownership of its property requires it to be so
qualified or authorized and where failure to qualify or be authorized would have
a Material Adverse Effect.
5.10. Financial Reporting. Borrower shall timely deliver to TBCC the
-------------------
following financial information: the information set forth in the Schedule, and,
when requested by TBCC in its good-faith judgment, any further information
respecting Borrower or any Collateral. Borrower authorizes TBCC to communicate
directly with its officers, employees and Auditors and to examine and make
abstracts from its books and records. Borrower authorizes its Auditors to
disclose to TBCC any and all financial statements, work papers and other
information of any kind that they may have with respect to Borrower and its
business and financial and other affairs. Borrower shall deliver a letter
addressed to the Auditors requesting them to comply with the provisions of this
paragraph when requested by TBCC.
5.11. Payment of Liabilities. Borrower shall pay and discharge, in the
----------------------
ordinary course of business, all Indebtedness, except where the same may be
contested in good faith by appropriate proceedings and adequate reserves with
respect thereto have been provided on the books and records of Borrower in
accordance with GAAP.
5.12. Trademarks. Borrower shall do and cause to be done all things
----------
reasonably necessary to preserve and keep in full force and effect all of its
material registrations of trademarks, service marks and other marks, trade names
and other trade rights.
5.13. Proceeds of Collateral. Without limiting any of the other terms of
----------------------
this Agreement, and without implying any consent to any sale or other transfer
of Collateral in violation of any provision of this Agreement, Borrower shall
deliver to TBCC all proceeds of any sale or other transfer or disposition of any
Collateral, immediately upon receipt of the same and in the same form as
received, with any necessary endorsements, and Borrower will not commingle any
such proceeds with any of its other funds or property, but will segregate them
from the other assets of Borrower and will hold them in trust and for the
account and as the property of TBCC provided that the foregoing shall not apply
to the permitted sales of assets as set forth in Section 6.4 hereof.
5.14. Solvency. Borrower shall be Solvent at all times.
--------
6. NEGATIVE COVENANTS. Until termination of this Agreement and payment and
------------------
satisfaction of all Obligations:
6.1. Contingent Obligations. Borrower will not (without the written
----------------------
consent of TBCC), directly or indirectly, incur, assume, or suffer to exist any
Contingent Obligation, excluding indemnities given in connection with this
Agreement or the other Loan Documents in favor of TBCC or in connection with the
sale of Inventory or other asset dispositions permitted hereunder or indemnities
given in connection with the Borrower's entering into service contracts,
equipment lease transactions, marketing agreements, in any initial public
offering of the stock of the Borrower or in other agreements entered into the
ordinary course of the Borrower's business.
-8-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
6.2. Corporate Changes, Borrower will not (without the written consent to
-----------------
TBCC) directly or indirectly, merge or consolidate with any Person, or liquidate
or dissolve (or suffer any liquidation or dissolution).
6.3. Change in Nature of Business. borrower will not at any time make any
----------------------------
material change in the lines of its business as carried on at the date of this
Agreement or enter into any new line of business.
6.4. Sales of Assets. Borrower will not, directly or indirectly, in any
---------------
fiscal year, sell, transfer or otherwise dispose of any assets, or grant any
option or other right to purchase or otherwise acquire any assets other than (i)
Equipment with an aggregate value of less than $100,000 the proceeds of which
shall be paid to TBCC and applied to the Obligations to the extent that TBCC has
a first priority security interest therein or to the extent that any proceeds
arising therefrom remain after the holder of a first priority security has
received any amount due it , and (ii) sales of Inventory in the ordinary course
of business.
6.5. Cancellation of Debt. Borrower will not cancel any claim or debt
--------------------
owned to it, except in the ordinary course of business.
6.6. Loans to Other Persons. Borrower will not at any time make loans or
----------------------
advance any credit (except to trade debtors in the ordinary course of business)
to any Person in excess of $100,000 in the aggregate at any time for all such
loans and $100,000 in the aggregate outstanding at any one time for loans make
to employees in connection with the purchase of the stock of the borrower by
such employees or the Borrower.
6.7. Liens. Borrower will not, directly or indirectly, at any time create,
-----
incur, assume or suffer to exist any Lien on or with respect to any of the
Collateral, other than Liens created hereunder and by any other Loan Document;
and Permitted Liens.
6.8. Dividends, Stock Redemptions. Borrower will not, directly or
----------------------------
indirectly, pay any dividends or distributions on, purchase, redeem or retire
any shares of any class of its capital stock or any warrants, options or right
to purchase any such capital stock, whether now or hereafter outstanding
("Stock"), or make any payment on account of or set apart assets for a sinking
or other analogous fund for, the purchase, redemption, defeasance, retirement or
other acquisition of its Stock, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Borrower, except for dividends paid solely in stock of the
Borrower provided that the foregoing restriction shall not apply to the
repurchase of Common Stock of the Borrower from its employees, officers,
directors, consultants and other persons performing services for the Borrower
Borrower pursuant to the Borrower's option to repurchase such shares at cost or
upon the occurrence of certain events, such as termination of employment
provided that the aggregate amount paid by the borrower in any fiscal year shall
not exceed $200,000 provided, further, that the foregoing restriction shall not
-------- -------
affect the exercise, cancellation, expiration or termination of warrants,
options or rights to purchase any capital stock of the Borrower.
6.9. Investments in Other Persons. Borrower will not, directly or
----------------------------
indirectly, at any time make or hold any investment in any Person (whether in
cash, securities or other property of any kind) other than Investments in Cash
Equivalents and other Investments in an aggregate amount not to exceed $100,000
outstanding at any one time.
6.10. Partnerships: Subsidiaries; Joint Ventures Management Contracts.
---------------------------------------------------------------
Borrower will not at any time create any direct or indirect Subsidiary, enter
into any joint venture or similar arrangement or become a partner in any general
or limited partnership or enter into any management contract (other than an
employment contract for the employment of an officer or employee entered into in
the regular course of Borrower's business) permitting third party management
rights with respect to Borrower's business, except with respect to rights
granted in connection with the sale of the Borrower's securities. Further,
notwithstanding the foregoing, TBCC consents to the creation by the Borrower of
a subsidiary in the United Kingdom
6.11. Fiscal Year. Borrower will not change its fiscal year.
-----------
6.12. Accounting Changes. Borrower will not at any time make or permit any
------------------
change in accounting policies or reporting practices, except as required by or
in compliance with GAAP.
6.13. Broker's or Finders Fees. Borrower will not pay or incur any broker's
------------------------
or finder's fees in connection with this Agreement or the transactions
contemplated hereby.
6.14. Unusual Terms of Sale. Borrower will not sell goods or products on
---------------------
extended terms, consignment terms, on a progress billing or xxxx and hold basis,
or on any other unusual terms, except that Borrower may effect such sales as are
in its ordinary course of business consistent with its past business practices
even though such sales may be on extended terms or on a progress billing or xxxx
and hold basis.
-9-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
6.15. Amendments of Material Contracts. Borrower will not amend, modify,
--------------------------------
cancel or terminate, or permit the amendment, modification, cancellation or
termination of, any Material Contract, if such amendment, modification,
cancellation or termination of, any Material Contract, if such amendment,
modification, cancellation or termination could have a Material Adverse Effect.
6.16. Sale and Leaseback Obligations. Borrower will not at any time create,
------------------------------
incur or assume any obligations as lessee for the rental of real or personal
property in connection with any sale and leaseback transaction.
6.17. Acquisition of Stock or Assets. Borrower will not acquire or commit
------------------------------
or agree to acquire all or any stock, securities or assets of any other Person
other than Inventory and Equipment acquired in the ordinary course of business
other than as otherwise permitted under Section 6.9 hereof, without duplication
of the permitted amount thereunder.
7. EVENTS OF DEFAULT.
-----------------
7.1. Events of Default. The occurrence of any of the following events
-----------------
shall constitute an "Event of Default";
(a) Borrower shall fail to pay any principal, interest, fees,
expenses or other Obligations when payable, whether at stated maturity, by
acceleration, or otherwise; provided that such amounts are stated in a loan
account that is provided to the Borrower, or is to be provided to the Borrower,
in accordance with the standard practices of TBCC relating thereto; or
(b) Borrower shall default in the performance or observance of any
agreement, covenant, condition, provision of term contained in Section 1.1, 1.2,
1.4, 3.3, 5.7, 5.13, 6 (and its Sections and subsections), or 8.1 of this
Agreement, or Borrower shall fail to perform in any material respect, in any
material respect, any nonmonetary Obligation which by its nature cannot be
cured; or
(c) Borrower shall default in the performance or observance of any
other agreement, covenant, condition, provision or term of this Agreement (other
than those referred to in Section 7.1(a) above or Section 7.1 (b) above) or any
other Loan Document, and such failure continues uncured for a period of ten
Business Days after the date it occurs; or
(d) Borrower or any Guarantor shall dissolve, wind up or otherwise
cease to conduct its business; or
(e) Borrower or any Guarantor shall become the subject of (i) an
insolvency Event except as set forth in clause (e) of the definition of
Insolvency Event or (ii) an Insolvency Event as set forth in clause (c) of the
definition of Insolvency Event that is not dismissed within sixty days; or
(f) any representation or warranty make by or on behalf of Borrower
to TBCC, under this Agreement or with respect to any written materials that have
been provided to TBCC shall be incorrect or misleading in any material respect
when make or deemed made; or
(g) A change in the ownership or control of more than 50% of the
voting stock of the Borrower compared to such ownership on the date of this
Agreement provided an Event of Default shall not arise by virtue of a greater
percentage change due to the initial public offering of the common stock of the
Borrower.
(h) any judgment or order for the payment of money in excess of
$50,000 shall be rendered against Borrower and shall not be stayed, vacated,
bonded or discharged within thirty days provided that with respect to any
judgment order for $50,000 or less at no time shall there exist a lien, by
operation of law or otherwise, on any of the Collateral; or
(i) Borrower or any Guarantor shall deny or disaffirm its
obligations under any of the Loan Documents or any Liens granted in connection
therewith or shall otherwise challenge any of its obligations under any of the
Loan Documents; or any Liens granted in any of the Collateral shall be
determined to be void, voidable or invalid, are subordinated or are not given
the priority contemplated by this Agreement, or
(j) any Loan Document shall for any reason cease to create a valid
and perfected Lien on the Collateral purported to be covered thereby, of first
priority (except for Permitted Liens) (such event or occurrence being a
"Lien/Priority Failure") provided that an Event of Default shall not arise for
--------
ten days of (I) the Lien/Priority Failure results solely from the action or
inaction of TBCC, (II) the Lien/Priority Failure during such ten day period is
rectified in a, manner satisfactory to TBCC in its sole desecration and (III)
if no other lien at any time (other than Permitted Liens) has been established
that attains a higher priority with respect to any of the Collateral compared to
the then position of TBCC as a result of such Lien/Priority Failure, provided,
--------
further, that no loans by TBCC are required to be made by TBCC during such
-------
Lien/Priority Failure period.
(k) the independent public accountants for Borrower shall deliver a
Qualified opinion on any Financial Statement; or
(l) Borrower (i) shall fail to pay any Indebtedness in excess of
$100,000 owing to any Person other than TBCC or any interest or premium thereon,
when due (whether at scheduled maturity or by required prepayment, acceleration,
-10-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
demand or otherwise), or (ii) shall otherwise be in breach or default in any of
its obligations under any agreement with respect to any such Indebtedness, if
the effect of such breach, default or failure to pay is to cause such
Indebtedness to become due or redeemed or permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holders) to declare such
indebtedness due or require such Indebtedness to be redeemed prior to its stated
maturity; or
(m) the occurrence of any event or condition that, in TBCC's
judgment, could reasonably be expected to have a Material Adverse Effect; or (n)
a default or event of default occurs under the equipment financing facility that
TBCC has entered into with Borrower, as such facility is amended, restated,
supplemented or otherwise modified from time to time.
TBCC may cause making any Loans hereunder during any of the above cure periods,
and thereafter if any Event of Default has occurred and is continuing.
7.2. Remedies. Upon the occurrence and during the continuance of an Event
--------
of Default, TBCC shall have all rights and remedies under applicable law and the
Loan Documents, and TBCC may do any or all of the following:
(a) Declare all Obligations to be immediately due and payable
(except with respect to any Event of Default with respect to Borrower set forth
in Section 7.1(e), in which case all Obligations shall automatically become
immediately due and payable) without presentment, demand, protest or any other
action or obligation of TBCC.
(b) Cease making any Loans or other extensions of credit to Borrower
of any kind.
(c) Take possession of all documents, instruments, files and records
(including the copying of any computer records) relating to the Receivables or
other Collateral and use (at the expense of Borrower) such supplies or space of
Borrower at Borrower's places of business necessary to administer and collect
the Receivables and other Collateral;
(d) Accelerate or extend the time of payment, compromise, issue
credits, or bring suit on the Receivables and other Collateral (in the name of
Borrower or TBCC) and otherwise administer and collect the Receivables and other
Collateral;
(e) Sell, assign and deliver the Receivables and other Collateral,
with or without advertisement, at public or private sale, for cash, on credit or
otherwise, subject to applicable law; and
(f) Foreclose the security interests created pursuant to the Loan
Documents by any available procedure, take possession of any or all of the
Collateral, with or without judicial process and enter any premises where any
Collateral may be located for the purpose of taking possession of or removing
the same.
(g) TBCC may bid or become a purchaser at any sale, free from
any right of redemption, which right is expressly waived by Borrower, if
permitted under applicable law. If notice of intended disposition of any
Collateral is required by law, it is agreed that ten days' notice shall
constitute reasonable notification. Borrower will assemble the Collateral and
make it available at such locations as TBCC may specify, whether at the premises
of Borrower or elsewhere, and will make available to TBCC the premises and
facilities of borrower for the purpose of TBCC's taking possession of or
removing the Collateral or putting the Collateral in salable form.
7.3. Receivables. Upon the occurrence and during the continuance of an
-----------
Event of Default, or at any time that TBCC believes in good faith that fraud has
occurred or that Borrower has failed to deliver the proceeds of Receivables or
other Collateral to TBCC as required by this Agreement or any other Loan
Document, TBCC may (i) settle or adjust disputes or claims directly with account
debtors for amounts and upon terms which it considers advisable, and (ii) notify
account debtors on the Receivables and other Collateral that the Receivables and
Collateral have been assigned to TBCC, and that payments in respect thereof
shall be made directly to TBCC. If an Event of Default has occurred and is
continuing or TBCC reasonably believes in good faith that fraud has occurred, or
that Borrower has failed to deliver the proceeds of Receivables or other
Collateral to TBCC as required by this Agreement or any other Loan Document,
Borrower hereby irrevocably authorizes and appoints TBCC, or any Person TBCC may
designate, as it attorney-in-fact, at Borrower sole cost and expense, to
exercise, all of the following powers, which are coupled with an interest and
are irrevocable, until all of the Obligations have been indefeasibly paid and
satisfied in full in cash : (A) to receive, take, endorse, sign, assign and
deliver, all in the name of TBCC or Borrower, any and all checks, notes,
drafts, and other documents or instruments relating to the Collateral; (B) to
receive, open and dispose of all mail addressed to Borrower and to notify postal
authorities to change the address for delivery thereof to such address as TBCC
may designate; and (C) to take or bring, in the name of TBCC or Borrower, all
steps, actions, suits or proceedings deemed by TBCC necessary or desirable to
enforce or effect collection of Receivables and other Collateral or file and
sign Borrower's name on a proof of claim in bankruptcy or similar document
against any obligor of Borrower.
7.4. Right of Setoff. In addition to all rights of offset that TBCC may
---------------
have under applicable law, upon the occurrence and during the continuance of any
Event of Default, and whether or not TBCC has made any demand or the Obligations
of Borrower have matured, TBCC shall have the right to appropriate and apply to
the payment of the Obligations of Borrower all deposits and other obligations
then or thereafter owing by TBCC to or for the credit of the account of
Borrower. In the event that TBCC exercises any of its rights under this Section,
TBCC shall provide notice to Borrower of such exercise, provided that
-11-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
the failure to give such notice shall not affect the validity of the exercise of
such rights.
7.5. License for Use of Software and Other Intellectual Property. After
-----------------------------------------------------------
the occurrence and during the continuance of an Event of Default, unless
expressly prohibited by any licensor thereof, TBCC is hereby granted a license
to use all computer software programs, data bases, processes, trademarks,
tradenames and materials used by Borrower in connection with its businesses or
in connection with the Collateral.
7.6. No Marshalling; Deficiencies; Remedies Cumulative. The net cash
-------------------------------------------------
proceeds resulting form TBCC's exercise of any of its rights with respect to
Collateral, including any and all Collections (after deducting all of TBCC's
reasonable expenses related thereto), shall be applied by TBCC to such of the
Obligations in such order as TBCC shall elect in its sole and absolute
disecretion, whether due or to become due. Borrower shall remain liable to TBCC
for any deficiencies and TBCC shall remit to Borrower or its successor or
assign, any surplus resulting therefrom. The remedies specified in this
Agreement are cumulative, may be exercised in such order and with respect to
such Collateral as TBCC may deem desirable and are not intended to be exclusive,
and the full or partial exercise of any other available remedy under this
Agreement, under any other Loan Document, at equity or at law.
7.7. Waivers. Borrower hereby waives any bonds, security or sureties
-------
required by any statue, rule or any other law as an incident to any taking of
possession by TBCC of any Collateral. Borrower also waives any damages (direct,
consequential or otherwise) occasioned by the enforcement of TBCC's rights under
this Agreement for any other Loan Document including the taking of possession of
any Collateral or the giving of notice to any account debtor or the collection
of any Receivable or other Collateral (other than damages that are the result of
acts of omissions constituting gross negligence or willful misconduct of TBCC).
These waivers and all other waivers provided for in this Agreement and the other
Loan Documents have been negotiated by the parties and Borrower acknowledges
that it has been represented by counsel of its own choice and has consulted such
counsel with respect to its rights hereunder.
7.8. Right to Make Payments. In the event that Borrower shall fail to
----------------------
purchase or maintain insurance required hereunder, or to pay any tax,
assessment, government charge or levy, except as the same may be otherwise
permitted hereunder, or in the event that any Lien prohibited hereby shall not
be paid in full or discharged, or in the event that Borrower shall fail to
perform or comply with any other covenant, promise or obligation to TBCC
hereunder or under any other Loan Document, TBCC may (but shall not be required
to) perform, pay, satisfy, discharge or bond the same for the account of
Borrower, and all amounts so paid by TBCC shall be treated as a Loan hereunder
to Borrower and shall constitute part of the Obligations.
8. ASSIGNMENTS AND PARTICIPATIONS.
------------------------------
8.1. Assignments. Borrower shall not assign this Agreement or any right or
-----------
obligation hereunder without the prior written consent of TBCC. TBCC may assign
(without the consent of Borrower) to one or more Persons all or a portion of its
rights and obligations under this Agreement and the other Loan Documents
provided, however, that such assignment shall in no way affect Borrower's rights
and obligations under the Agreement or the other Loan Documents, other than
regarding the fact that a new entity shall be the lender hereunder. TBCC agrees
to use its commercially reasonable efforts to provide to Borrower with at least
five Business Days' notice prior to the effective date of any such assignment.
8.2. Participations. TBCC may sell participations in or to all or a
--------------
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of the Loans); provided, however, that TBCC's
obligations under this Agreement shall remain unchanged.
8.3. Disclosure. TBCC may, in connection with any permitted assignment or
----------
participation or proposed assignment or participation pursuant to this
Agreement, disclose to the assignee or participant or proposed assignee or
participant any information relating to Borrower furnished to TBCC by or on
behalf of Borrower provided that such information is not provided to a
competitor the Borrower (as understood to be so by TBCC) and such disclosure is
otherwise made in accordance with Section 10.13 (A) hereof.
9. DEFINITIONS.
-----------
9.1 General Definitions. As used herein, the following terms shall have
-------------------
the meanings herein specified (to be equally applicable to both the singular and
plural forms of the terms defined);
(a) "Affiliate" means as to any Person, any other Person who directly
---------
or indirectly controls, is under common control with, is controlled by or is a
director or officer of such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common control
with") means possession, directly or indirectly, of the power to direct or cause
the direction of management or policies (whether through ownership of voting
securities or partnership or other ownership interests, by contract or
otherwise), provided that, in any event, any Person who owns directly or
indirectly twenty percent (20%) or more of the securities having ordinary voting
power for the election of the members of the board of directors or other
governing body of a corporation or twenty percent (20%) or more of the
securities having ordinary voting power for the election of the members of the
board of directors or other governing body of a corporation or twenty percent
(20%) or more of the partnership or other ownership interests of any other
Person (other than as a limited partner of such other Person) will be deemed to
control such corporation, partnership or other Person.
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
(b) "Agreement" means this Loan and Security Agreement, as amended,
---------
supplemented or otherwise modified from time to time.
(c) "Auditors" means a nationally recognized firm of independent
--------
public accountants selected by Borrower and reasonably satisfactory to TBCC.
(d) "Bankruptcy Code" means Title 11 of the United States Code
---------------
entitled "Bankruptcy," as that title may be amended from time to time, or any
successor statue.
(e) "Borrowing" means a borrowing of Loans.
---------
(f) "Business Day" means any day other than a Saturday, Sunday, or
------------
any other day on which commercial banks in Chicago, Illinois are required or
permitted by law to close.
(g) "Cash Equivalents" means (i) securities issued, guaranteed or
----------------
insured by the United States or any of its agencies with maturities of not more
than one year from the date acquired; (ii) certificates of deposit with
maturities of not more than one year from the date acquired, issued by any U.S.
federal or state chartered commercial bank of recognized standing which has
capital and unimpaired surplus in excess of $100,000,000; (iii) investments in
money market funds registered under the Investment Company Act of 1940; and (iv)
other instruments, commercial paper or investments acceptable to TBCC in its
sole discretion.
(h) "Collateral" means Receivables, Inventory, Equipment, and Other
----------
Property, and all additions and accessions thereto and substitutions and
replacements therefor and improvements thereon, and all proceeds (whether cash
or other property) and products thereof, including, without limitation, all
proceeds of insurance covering the same and all tort claims in connection
therewith, and all records, files, computer programs and files, data and
writings relating to the foregoing, and all equipment containing the foregoing.
(i) "Collections" means all cash, funds, checks, notes, instruments,
-----------
and other form of remittance rendered by account debtors in respect of payment
of Receivables and my other payments received by Borrower with respect to any
other Collateral.
(j) "Compliance Certificate" means a certificate as to compliance
----------------------
with the Obligations, on TBCC's standard form (in effect from time to time).
(k) "Contingent Obligation" means any direct, indirect, contingent or
---------------------
non-contingent guaranty or obligation for the Indebtedness of another Person,
except endorsements in the ordinary course of business.
(l) "Default" means any of the events specified in Section 7.1,
-------
whether or not any of the requirements for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
(m) "Eligible Inventory" [Inapplicable]
------------------
(n) "Eligible Receivables" means and includes only those Receivables
--------------------
which TBCC in its sole discretion deems eligible for borrowing, based on such
consideration as TBCC in its sole discretion may deem appropriate from time to
time and less any such reserves as TBCC in its sole discretion deems eligible
for borrowing, based on such considerations as TBCC in its sole discretion may
deem appropriate from time to time and less any such reserves as TBCC, in its
sole discretion, may require. Without limiting the fact that the determination
of which Receivables are eligible for borrowing is a matter of TBCC's sole
discretion, the following (the "Minimum Eligibility Requirements") are the
--------------------------------
minimum requirements for a Receivable to be an Eligible Receivable: (i) the
Receivable must not be outstanding for more than 90 days from its invoice date,
(ii) the Receivable must not represent progress xxxxxxxx, or be due under a
fulfillment or requirements contract with the account debtor, (iii) the
Receivable must not be subject to any contingencies (including Receivables
arising from sales on consignment, guaranteed sale or other terms pursuant to
which payment by the account debtor may be conditional), (iv) the Receivable
must not be owing from an account debtor with whom the Borrower has any dispute
(whether or not relating to the particular Receivable), (v) the Receivable must
not be owing from an Affiliate of Borrower, (vi) the Receivable must not be
owing from an account debtor which is subject to any insolvency or bankruptcy
proceeding, or whose financial condition is not acceptable to TBCC, or which,
fails or goes out of a material portion of its business, (vii) the Receivable
must not be owing from the United States or any department, agency or
instrumentality thereof (unless there has been compliance, to TBCC's
satisfaction, with the United States Assignment of Claims Act), (viii) the
Receivable must not be owing from an account debtor located outside the United
States or Canada (unless pre-approved by TBCC in its discretion in writing, or
backed by a letter of credit satisfactory to TBCC, or FCIA insured satisfactory
to TBCC), (ix) the Receivable must not be owing from an account debtor to whom
Borrower is or may be liable for goods purchased from such account debtor or
otherwise. Receivables owing from one account debtor will not be deemed Eligible
Receivables to the extent they exceed 25% of the total eligible Receivables
outstanding. In addition, if more than 50% of the Receivables owing from an
account debtor are outstanding more than 90 days from their invoice date
(without regard to unapplied credits) or are otherwise not eligible Receivables,
then all Receivables owing from that account debtor will be deemed ineligible
for borrowing. TBCC may, from time to time, in its sole discretion, revise the
Minimum Eligibility Requirements, upon written notice to the Borrower.
(o) "Equipment" means all machinery, equipment, furniture, fixtures,
---------
conveyors, tools, materials, storage and handling equipment, hydraulic presses,
cutting equipment, computer equipment and hardware, including central processing
units, terminals, drives, memory units, printers, keyboards, screens,
peripherals and input or output devices, molds, dies, stamps, vehicles, and
other equipment of every kind and nature and wherever situated now or hereafter
owned by Borrower or in which Borrower may have any interest as lessee or
otherwise (to the extent of such interest), together with all additions and
accessions thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, know-how, warranties and records in connection therewith,
all rights against suppliers, warrantors,
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
manufacturers, sellers or others in connection therewith, and together with all
substitutes for any of the foregoing.
(p) "Event of Default" means the occurrence of any of the events
----------------
specified in Section 7.1.
(q) "Financial Statements" means the balance sheets, profit and loss
--------------------
statements, statements of cash flow, and statements of changes in intercompany
accounts, if any, for the period specified, prepared in accordance with GAAP and
consistent with prior practices.
(r) "GAAP" means generally accepted accounting principles set forth
----
in the opinions and pronouncements of the Account Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination. Whenever any accounting
term is used herein which is not otherwise defined, it shall be interpreted in
accordance with GAAP.
(s) "Good Faith" means "good faith" as defined in the Uniform
----------
Commercial Code, from time to time in effect in the State of Illinois.
(t) "Governing Documents" means the articles or certificate of
-------------------
incorporation and by-laws of Borrower.
(u) "Governmental Authority" means any nation or government, any
----------------------
state or other political subdivision thereof or any entity exercising executive,
legislative, judicial, regulatory or administrative functions thereof or
pertaining thereto.
(v) "Guarantor" means any present or future guarantor of any or all
---------
of the Obligations.
(w) "Indebtedness" means, with respect to any Person, as of the date
------------
of determination any indebtedness, liability or obligation of such Person
(including without limitation obligations under capital leases and contingent
obligations).
(x) "Insolvency Event" means, with respect to any Person, the
----------------
occurrence of any of the following: (a) such Person shall be adjudicated
insolvent or bankrupt, or shall generally fail to pay or admit in writing its
inability to pay its debts as they become due, (b) such Person shall seek
dissolution or reorganization or the appointment of a receiver, trustee,
custodian or liquidator for it or a substantial portion of its property, assets
or business or to effect a plan or other arrangement with its creditors, (c)
such Person shall make a general assignment for the benefit of its creditors, or
consent to or acquiesce in the appointment of a receiver, trustee, custodian or
liquidator for a substantial portion of its property, assets or business, (d)
such Person shall file a voluntary petition under any bankruptcy, insolvency or
similar law or take a corporate or similar act in furtherance thereof, or (e)
such Person, or a substantial portion of its property, assets or business shall
become the subject of an involuntary proceeding or petition for its dissolution,
reorganization, and such proceeding is not dismissed or stayed within sixty
days, or the appointment of a receiver, trustee, custodian or liquidator, and
such receiver is not dismissed within sixty days.
(x-1) "IP Assets" means with respect to the Borrower, all of its
---------
patents, patent applications, copyrights, trade secrets, trademarks, trade
names, service marks and names, logos, designs, blueprints, plans, know-how.
Excluded Licenses, Excluded Programs and Excluded Service Contracts (as each of
the foregoing three capitalized terms are defined in the definition of "Other
Property")
(y) "Inventory" means all present and future goods intended for
---------
sale, lease or other disposition by Borrower including, without limitation, all
raw materials, work in process, finished goods and other retail inventory, goods
in the possession of outside processors or other third parties, goods consigned
to Borrower to the extent of its interest therein as consignee, materials and
supplies of any kind, nature or description which are or might be used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of any such goods, and all documents of title or documents
representing the same.
(z) "Investment" in any Person means, as of the date of
----------
determination thereof, any payment or contribution, or commitment to make a
payment or contribution, by any Person including, without limitation, property
contributed or committed to be contributed by any Person, on its account for or
in connection with its acquisition of any stock, bonds, notes, debentures,
partnership or other ownership interest or any other security of the Person in
whom such Investment is made of any evidence of indebtedness by reason of a
loan, advance, extension of credit, guaranty or other similar obligation for any
debt, liability or indebtedness of such Person in whom the Investment is made.
(aa) "Lien" means any lien, claim, charge, pledge, security interest,
----
assignment, hypothecation, deed of trust, mortgage, lease, conditional sale,
retention of title or other preferential arrangement having substantially the
same economic effect us any of the foregoing, whether voluntary or imposed by
law.
(bb) "Loan Account" has the meaning specified in Section 1.3.
------------
(cc) "Loan Documents" means this Agreement and all present and future
--------------
documents and instruments delivered or to be delivered by Borrower or any of its
Affiliates or any Guarantor under, in connection with or relating to this
Agreement, as each of the same may be amended, supplemented or otherwise
modified from time to time.
(dd) "Loans" means the loans and financial accommodations made by
-----
TBCC hereunder.
(ee) "Material Adverse Effect" means (i) a material adverse effect on
-----------------------
the business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower, (ii) the impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of TBCC to enforce the Obligations or realize upon the
Collateral or (iii) a material
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TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
adverse effect on the value of the Collateral or the amount which TBCC would be
likely to receive (after giving consideration to delays in payment and costs of
enforcement) in the liquidation of the Collateral.
(ff) "Material Contract" means any contract or other arrangement to
-----------------
which Borrower is a party (other than the Loan Documents) for which breach,
nonperformance, cancellation or failure to renew could have a Material Adverse
Effect.
(gg) "Obligations" means and includes all loans (including the
-----------
Loans), advances, debts, liabilities, obligations, covenants and duties owing by
Borrower to TBCC of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, which may arise under, out
of, or in connection with, this Agreement any other Loan Document or any other
agreement executed in connection herewith or therewith, whether or not for the
payment of money, whether arising by reason of an extension of credit, opening,
guaranteeing or confirming of a letter of credit, opening, guaranteeing or
confirming of a letter of credit, loan, guaranty, indemnification or in any
other manner, whether direct of indirect (including those acquired by
assignment, purchase, discount or otherwise), whether absolute or contingent,
due or to become due, now due or hereafter arising and however acquired. The
term includes, without limitation, all interest (including interest accruing on
or after an Insolvency Event, whether or not an allowed claim), charges,
expenses, commitment, facility, closing and collateral management fees, letter
of credit fees, reasonable attorneys' fees, and any other sum property
chargeable to Borrower under this Agreement, the other Loan Documents or any
other agreement executed in connection herewith or therewith.
(hh) "Other Property" means all present and future: instruments,
--------------
documents, documents of title, securities, investment securities, bonds, notes,
promissory notes, drafts, acceptances, letters of credit and rights to receive
proceeds of letters of credit, deposit accounts, chattel paper, certificates,
insurance policies, insurance proceeds, leases, computer tapes, causes of
action, judgments, claims against third parties, leasehold rights in any
personal property, books, ledgers, files and records, general intangibles
(including without limitation, all contract rights, tax refunds, rights to
receive tax refunds, royalties, licenses excluding, however, those licenses
where the Borrower is the licensee (the "Excluded Licenses"), permits, franchise
rights, authorizations, customer lists, rights of indemnification, contribution
and subrogation, computer programs, discs and software relating only to such
programs, discs or software that encompass or address accounting functions of
the Borrower (the other programs, discs or software are referred to collectively
as the "Excluded Programs"), computer service contracts excluding, however,
those computer service contracts where the Borrower is the recipient of the
services contracted thereunder (the "Excluded Service Contracts"), goodwill,
deposits, choses in action, telephone numbers and rights thereto, credits,
reserves, and all forms of obligations whatsoever now or hereafter owing to
Borrower), all property at any time in the procession or under the control of
TBCC, and all security given by Borrower to TBCC pursuant to any other Loan
Document or agreement. Notwithstanding the foregoing, "Other Property" shall not
include patents, patent applications, copyrights, trade secrets, trademarks,
trade names, service marks and names, logos, designs, blueprints, plans, know-
how, the Excluded Licenses, the Excluded Programs and the Excluded Service
Contracts.
(ii) "Permitted Liens" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced and be continuing (i) Liens for taxes, assessments and other
governmental charges or levies or the claims or demands of landlords, carriers,
warehousemen, mechanics, laborers, materialmen and other like Persons arising by
operation of law in the ordinary course of business for sums which are not yet
due and payable, (ii) deposits or pledges to secure the payment of workmen's
compensation, unemployment insurance or other social security benefits or
obligations, public or statutory obligations, surety or appeal bonds, bid or
performance bonds, or other obligations of a like nature incurred in the
ordinary course of business (but nothing in this clause(ii) shall permit the
creation of Liens on Receivables or Inventory or Other Property), (iii) zoning
restrictions, casements, encroachments, licenses, restrictions, or covenants on
the use of the Property which do not materially impair either the use of the
Property in the operation of the business of Borrower or the value of the
Property, (iv) rights of general application reserved to or vested in any
municipality or other governmental, statutory or public authority to control or
regulate property, or to use property in a manner which does not materially
impair the use of the property for the purposes for which it is held by
Borrower, (v) state and municipal Liens for personal property taxes which are
not yet due and payable, and (vi) Purchase Money Liens.
(jj) "Person" means any individual, sole proprietorship, partnership,
------
joint venture, limited liability company, trust unincorporated organization,
joint stock company, association, corporation, institution, entity, party or
government (including any division, agency or department thereof) or any other
legal entity, whether acting in an individual, fiduciary or other capacity, and,
as applicable, the successors, heirs and assigns of each.
(kk) "Plan" means any employee benefit plan, program or arrangement
----
maintained or contributed to by Borrower or with respect to which it may incur
liability.
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TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
(ll) "Purchase Money Lien" means a Lien on any item of Equipment created
-------------------
substantially simultaneously with the acquisition of such Equipment for the
purpose of financing such acquisition, provided that such Lien shall attach only
to the Equipment acquired.
(mm) "Qualification" or "Qualified" means, with respect to any report of
------------- ---------
independent public accountants covering Financial Statements, a material
qualification to such report (i) resulting from a limitation on the scope of
examination of such Financial Statements or the underlying data, (ii) as to the
capability of Borrower to continue operations as a going concern or (iii) which
could be eliminated by changes in Financial Statements or notes thereto covered
by such report (such as by the creation of or increase in a reserve or a
decrease in the carrying value of assets) and which if so eliminated by the
making of any such change and after giving effect thereto would result in a
Default or an Event of Default.
(nn) "Receivables" means all present and future accounts and accounts
-----------
receivable, together with all security therefor and guaranties thereof and all
rights and remedies relating thereto, including any right of stoppage in
transit.
(oo) "Retirement of Law" means (a) the Governing Documents, (b) any law,
-----------------
treaty, rule, regulation, order or determination of an arbitrator, court or
other Governmental Authority or (c) any franchise, license, lease, permit,
certificate, authorization, qualification, easement, right of way, right or
approval binding on Borrower or any of its property.
(pp) "Schedule" means the Schedule to this Agreement being signed concurrently
--------
by Borrower and TBCC, as amended from time to time.
(qq) "Solvent" means when used with respect to any Person that as of the date
-------
as to which such Person's solvency is to be measured; (b) it has sufficient
capital to conduct its business; and (c) it is able to meet its debts as they
mature.
(rr) "Subsidiary" means, as to any Person, a corporation or other entity in
----------
which that Person directly or indirectly owns or controls shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or appoint other managers of such corporation or other
entity.
9.2 Accounting Terms and Determinations. Unless otherwise defined or
-----------------------------------
specified herein, all accounting terms used in this Agreement shall be construed
in accordance with GAAP, applied on a basis consistent in all material respects
with the Financial Statements delivered to TBCC on or before the date of this
Agreement. All accounting determinations for purposes of determining compliance
with this Agreement shall be made in accordance with GAAP as in effect on the
date of this Agreement and applied on a basis consistent in all material
respects with the audited Financial Statements delivered to TBCC on or before
the date of this Agreement. The Financial Statements required to be delivered
hereunder, and all financial records, shall be maintained in accordance with
GAAP. If GAAP shall change from the basis used in preparing the audited
Financial Statements delivered to TBCC on or before the date of this Agreement,
the Compliance Certificates required to be delivered pursuant to this Agreement
shall include calculations setting forth the adjustments necessary to
demonstrate how Borrower is in compliance with the Financial Covenants (if any)
based upon GAAP as in effect on the date of this Agreement.
9.3. Other Terms: Headings: Construction. Unless otherwise defined herein,
-----------------------------------
terms used herein that are defined in the Uniform Commercial Code, from time to
time in effect in the State of Illinois, shall have the meanings set forth
therein. Each of the words "hereof," "herein," and "hereunder" refer to this
Agreement as a whole. The term "including", whenever used in this Agreement
shall mean "including (but not limited to)". An Event of Default shall
"continue" or be "continuing" unless and until such Event of Default has been
waived or cured within the grace period specified therefor under Section 7.1.
References' to Articles, Sections, Annexes, Schedules, and Exhibits are internal
references to this Agreement, and to its attachments, unless otherwise
specified. The headings and any Table of Contents are for convenience only and
shall not affect the meaning or construction of any provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against TBCC or Borrower under any rule of construction or
otherwise.
10. GENERAL PROVISIONS.
------------------
10.1. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
-------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY DISPUTE ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS. WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS.
10.2. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE BORROWER AND TBCC
--------------------------
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY
BY STATE AND FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS, AND THE COURTS TO
WHICH AN APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT TBCC SHALL HAVE
THE RIGHT, TO THE EXTENT PERMITTED, BY APPLICABLE LAW, TO PROCEED AGAINST THE
BORROWER OR ITS PROPERTY IN ANY LOCATION REASONABLY SELECTED BY TBCC IN GOOD
FAITH TO ENABLE TBCC TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR
-16-
TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
OTHER COURT ORDER IN FAVOR OF TBCC. THE BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT
BY TBCC. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF
THE COURT IN WHICH TBCC HAS COMMENCED A PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
10.3. SERVICE OF PROCESS. THE BORROWER HEREBY IRREVOCABLY DESIGNATES CT
------------------
CORPORATION SYSTEM, 0000 XXXXXX XXXXXX, XXXXXXXXXX, XXXXXXXX 00000, AS THE
DESIGNEE AND AGENT OF THE BORROWER TO RECEIVE, FOR AND ON BEHALF OF THE BORROWER
SERVICE OF PROCESS IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT. IT IS UNDERSTOOD THAT A COPY OF SUCH
PROCESS SERVED ON SUCH AGENT AT ITS ADDRESS WILL BE PROMPTLY FORWARDED BY MAIL
TO THE BORROWER, BUT THE FAILURE OF THE BORROWER TO RECEIVE SUCH COPY SHALL NOT
AFFECT IN ANY WAY THE SERVICE OF SUCH PROCESS. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.4. LIMITATION OF LIABILITY. TBCC SHALL HAVE NO LIABILITY TO THE BORROWER
-----------------------
(WHETHER SOUNDING IN TORT, CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE
BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE
TRANSACTIONS OR RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON TBCC THAT THE
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF TBCC. THE BORROWER HEREBY WAIVES ALL FUTURE CLAIMS
AGAINST TBCC FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
10.5. Delays, Partial Exercise of Remedies. No delays or omission of TBCC to
------------------------------------
exercise any right or remedy hereunder shall impair any such right or operate as
a waiver thereof. No single or partial exercise by TBCC of any right or remedy
shall preclude any other or further exercise thereof, or preclude any other
right or remedy.
10.6. Notices. Except as otherwise provided herein, all notices and
-------
correspondence hereunder shall be in writing and sent by certified or registered
mail, return receipt requested, by overnight delivery service, with all charges
prepaid, or by telecopier followed by a hard copy sent by regular mail, to the
parties at their addresses set forth in the heading to this Agreement. All such
notices and correspondence shall be deemed given (i) if sent by certified or
registered mail, three Business Days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by telecopier transmission, when receipt
of such transmission is acknowledged. Borrower's and TBCC's telecopier numbers
for purpose of notice hereunder are set forth in the Schedule; each party's
number may be changed by written notice to the other party.
10.7. Indemnification; Reimbursement of Expenses of Collection. Borrower
--------------------------------------------------------
hereby indemnifies and agrees, whether or not any of the transactions
contemplated by this Agreement or the other Loan Documents are consummated, to
defend and hold harmless (on an after-tax basis) TBCC, its successors and
assigns and their respective directors, officers, agents, employees, advisors,
shareholders, attorneys and Affiliates (each, an "Indemnified Party") from and
-----------------
against any and all losses, claims, damages, liabilities, deficiencies,
obligations, fines, penalties, actions (whether threatened or existing),
judgments, suits (whether threatened or existing) or expenses (including,
without limitation, reasonable fees and disbursements of counsel, experts,
consultants and other professionals) incurred by any of them (collectively,
"Claims") (except, in the case of each Indemnified Party, to the extent that any
------
Claim is determined in a final and non-appealable judgment by a court of
competent jurisdiction to have directly resulted from such Indemnified Party's
gross negligence or willful misconduct) arising out of or by reason of (i) any
litigation, investigation, claim or proceeding which arises out of or is related
to (A) Borrower, or this Agreement any other Loan Document or the transactions
contemplated hereby or thereby, (B) any actual or proposed use by Borrower of
the proceeds of the Loans, or (C) TBCC's entering into this Agreement or any
other Loan Document or any other agreements and documents relating hereto,
including, without limitation, amounts paid in settlement, court costs and the
reasonable fees and disbursements of counsel incurred in connection with any
such litigation, investigation, claim or proceeding, (ii) any remedial or other
action taken by Borrower in connection with compliance by Borrower, or any of
its properties, with any federal, state or local environmental laws, rules or
regulations, and (iii) any pending, threatened or actual action, claim,
proceeding or suit by any shareholder or director or Borrower or any actual or
purported violation of Borrower's charter, by-laws or any other agreement or
instrument to which Borrower is a party or by which any of its properties is
bound. In addition and without limiting the generality of the foregoing,
Borrower shall, upon demand, pay to TBCC all reasonable costs and expenses
incurred by TBCC (including the reasonable fees and disbursements of counsel and
other professionals) in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents, and pay to
TBCC all reasonable costs and expenses (including the reasonable fees and
disbursements of counsel and other professionals) paid or incurred by TBCC
-17-
TBCC LOAN AND SECURITY AGREEMENT
----------------------------------------------------------------------
in order to enforce of defend any of its rights under or in respect of this
Agreement, any other Loan Document or any other document or instrument now or
hereafter executed and delivered in connection herewith, collect the Obligations
or otherwise administer this Agreement, foreclose or otherwise realize upon the
Collateral or any part thereof, prosecute actions against, or defend actions by,
account debtors; commence, intervene in, or defend actions by, account debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
TBCC's security interest in, the Collateral; and otherwise represent TBCC in any
litigation relating to Borrower. Without limiting the generality of the
foregoing, Borrower shall pay TBCC a fee with respect to each wire transfer in
the amount of $15 plus all bank charges and a fee of $15 for all returned checks
plus all bank charges. If either TBCC or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. If and to the extent that the Obligations of Borrower hereunder are
unenforceable for any reason. Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of the Obligations which is
permissible under applicable law. Borrower's obligations under Section 2.4 and
this Section shall survive any termination of this Agreement and the other Loan
Documents and the payment in full of the Obligations, and are in addition to,
and not in substitution of, any of the other Obligations.
10.8. Amendments and Waivers. Any provision of this Agreement or any other
----------------------
Loan Document may be amended or waived if, but only if, such amendment or waiver
is in writing and signed by Borrower and TBCC and then any such amendment or
waiver shall be effective only to the extent set forth therein. The failure of
TBCC at any time or times to require Borrower to strictly comply with any of the
provisions of this Agreement or any other present or future agreement between
Borrower and TBCC shall not waive or diminish any right of TBCC later to demand
and receive strict compliance therewith. Any waiver of any default shall not
waive or affect any other default, whether prior or subsequent and whether or
not similar. None of the provisions of this Agreement or any other agreement
now or in the future executed by Borrower and delivered to TBCC shall be deemed
to have been waived by any act or knowledge of TBCC or its agents or employees,
but only by a specific written waiver signed by an authorized officer of TBCC
and delivered to Borrower.
10.9. Counterparts; Telecopied Signatures. This Agreement and any waiver or
-----------------------------------
amendment hereto may be executed in counterparts and by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but both of which shall together constitute one and the same
instrument. This Agreement and each of the other Loan Documents and any notices
given in connection herewith or therewith may be executed and delivered by
telecopier or other facsimile transmission all with the same force and effect as
if the same was a fully executed and delivered original manual counterpart.
10.10. Severability. In case any provision in or obligation under this
------------
Agreement or any other Loan Document shall be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
10.11. Joint and Several Liability. If Borrower consists of more than one
---------------------------
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
10.12. Maximum Rate. Notwithstanding anything to the contrary contained
------------
elsewhere in this Agreement or in any other Loan Document, the parties hereto
hereby agree that all agreements between them under this Agreement and the other
Loan Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to TBCC for the use, forbearance, or
detention of the money loaned to Borrower and evidenced hereby or thereby or for
the performance or payment of any covenant or obligation contained herein or
therein, exceed the maximum non-usurious interest rate, if any, that at any time
or from time to time may be contracted for, taken, reserved, charged or received
on the Obligations, under the laws of the State of Illinois (or the laws of any
other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Agreement and the other Loan Documents), or under
applicable federal laws which may presently or hereafter be in effect and which
allow a higher maximum non-usurious interest rate than under the laws of the
State of Illinois (or such other jurisdiction), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Agreement and the other Loan Documents executed
in connection herewith, and any available exemptions, exceptions and exclusions
(the "Highest Lawful Rate"). If due to any circumstance whatsoever, fulfilment
of any provisions of this Agreement or any of the other Loan Documents at the
time performance of such provision shall be due shall exceed the Highest Lawful
Rate, then, automatically, the obligation to be fulfilled shall be modified or
reduced to the extent necessary to limit such interest to the Highest Lawful
Rate, and if from any such circumstance TBCC should ever receive anything of
value deemed interest by applicable law which would exceed the Highest Lawful
Rate, such excessive interest shall be applied to the reduction of the principal
amount then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then
-18-
TBCC LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
outstanding Obligations, such excess shall be refunded to Borrower. All sums
paid or agreed to be paid to TBCC for the use, forbearance, or detention of the
Obligations and other indebtedness of Borrower to TBCC shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness, until payment in full thereof, so
that the actual rate of interest on account of all such indebtedness does not
exceed the Highest Lawful Rate throughout the entire term of such indebtedness.
The terms and provisions of this Section shall control every other provision of
this Agreement, the other Loan Documents and all other agreements between the
parties hereto.
10.13. Entire Agreement; Successors and Assigns. This Agreement and the other
----------------------------------------
Loan Documents constitute the entire agreement between the parties, supersede
any prior written and verbal agreements between them, and shall bind and benefit
the parties and their respective successors and permitted assigns. There are no
------------
oral understandings, oral representations or oral agreements between the parties
--------------------------------------------------------------------------------
which are not set forth in this Agreement or in other written agreements signed
-------------------------------------------------------------------------------
by the parties in connection herewith.
-------------------------------------
10.13A CONFIDENTIAL INFORMATION. IN HANDLING ANY CONFIDENTIAL INFORMATION
TBCC SHALL EXERCISE THE SAME DEGREE OF CARE THAT IT EXERCISES WITH RESPECT TO
ITS OWN PROPRIETARY INFORMATION OF THE SAME TYPES TO MAINTAIN THE CONFIDENTIALLY
OF ANY NON-PUBLIC INFORMATION THEREBY RECEIVED OR RECEIVED PURSUANT TO THIS
AGREEMENT EXCEPT THAT DISCLOSURE OF SUCH INFORMATION MAY BE MADE (I) TO THE
SUBSIDIARIES OR AFFILIATES OF TBCC IN CONNECTION WITH THEIR PRESENT OR
PROSPECTIVE BUSINESS RELATIONS WITH BORROWER, (II) TO PROSPECTIVE TRANSFEREES OR
PURCHASERS OF ANY INTEREST IN THE LOANS, PROVIDED THAT THEY HAVE ENTERED INTO A
COMPARABLE CONFIDENTIALITY AGREEMENT IN FAVOR OF BORROWER AND HAVE DELIVERED A
COPY TO BORROWER, (III) AS REQUIRED BY LAW, REGULATIONS, RULE OR ORDER,
SUBPOENA, JUDICIAL ORDER OR SIMILAR ORDER, (IV) AS MAY BE REQUIRED IN CONNECTION
WITH THE EXAMINATION, AUDIT OR SIMILAR INVESTIGATION OF TBCC, AND (V) AS TBCC
MAY DEEM APPROPRIATE IN CONNECTION WITH THE EXERCISE OF ANY REMEDIES HEREUNDER.
CONFIDENTIAL INFORMATION HEREUNDER SHALL NOT INCLUDE INFORMATION THAT EITHER;
(A) IS IN THE PUBLIC DOMAIN OR IN THE KNOWLEDGE OR POSSESSION OF TBCC WHEN
DISCLOSED TO TBCC, OR BECOMES PART OF THE PUBLIC DOMAIN AFTER DISCLOSURE TO TBCC
THROUGH NO FAULT OF TBCC; OR (B) IS DISCLOSED TO TBCC BY A THIRD PARTY, PROVIDED
TBCC DOES NOT HAVE ACTUAL KNOWLEDGE THAT SUCH THIRD PARTY IS PROHIBITED FROM
DISCLOSING SUCH INFORMATION.
10.14. MUTUAL WAIVER OF JURY TRIAL. TBCC AND BORROWER EACH HEREBY WAIVE THE
---------------------------
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO; (I) THIS AGREEMENT; OR (II) ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN TBCC AND BORROWER; OR (III) ANY CONDUCT,
ACTS OR OMISSIONS OF TBCC OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH TBCC OR
BORROWER ; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
BORROWER:
PILOT NETWORK SERVICES, INC.
By: [SIGNATURE ILLEGIBLE]
--------------------------------------
Title: CEO
-----------------------------------
TBCC:
TRANSAMERICA BUSINESS CREDIT CORPORATION
By:______________________________________
Title:___________________________________
-19-
--------------------------------------------------------------------------------
TBCC
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: PILOT NETWORK SERVICES, INC.,
ADDRESS: 0000 XXXXXX XXXXXXX XXXXXXX
XXXXXXX, XXXXXXXXXX 00000
DATE: MAY 11, 1998
This schedule is an integral part of the Loan and Security Agreement between
TRANSAMERICA BUSINESS CREDIT CORPORATION ("TBCC") and the above borrower
("Borrower") of even date.
1. CREDIT LIMIT (Section 1.1):
An amount (the "Credit Limit") not to exceed the lesser of:
(i) $1,500,000 at any one time outstanding; or (ii) 85% of
the amount of Borrower's Eligible Receivables (as defined
in Section 9.1(n) above).
For purposes of determining compliance with the Credit
Limit set forth in Section 1.1 of this Loan Agreement,
loans outstanding under the Master Loan and Security
Agreement dated as of September 1, 1997 between Borrower
and TBCC (the "Equipment Loan Agreement") shall not be
taken into account, but for all other purposes of this Loan
Agreement all present and future loans and all other
present and future indebtedness, liabilities and
obligations of Borrower under the Equipment Loan Agreement
shall be included in the "Obligations" as used in this Loan
Agreement. In the event of any conflicts between the
provisions of this Agreement and the Equipment Loan
Agreement, the provision that grants TBCC greater rights
shall control.
2. INTEREST. (Section 2.1): The interest rate in effect throughout each calendar
month during the term of this Agreement shall be the
highest "Base Rate" in effect during such month, plus 2%
per annum, provided that the interest rate in effect in
each month shall not be less than 9% per annum, and
provided that the interest charged for each month shall be
a minimum of $7,500, regardless of the amount of the
Obligations outstanding. Interest shall be calculated on
the basis of a 360-day year for the actual number of days
elapsed. "Base Rate" shall mean the higher of (a) the
highest prime, base or equivalent rate of interest
announced from time to time by Citibank, N.A., First
National Bank of Chicago and Bank of America National Trust
and Savings Association (which may not be the lowest rate
of interest charged by such bank) and (b) the published
annualized rate for 90-day dealer commercial paper which
appears in the "Money Rates" section of The Wall Street
---------------
Journal.
--------
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
3. FEES (Section 2.2):
Loan Fee: $15,000, payable concurrently herewith.
Termination Fee: An amount equal to $5,000 multiplied by
each month (or portion thereof) from the effective date of
termination to the Maturity Date, which Termination Fee shall
be payable on the date of termination.
4. MATURITY DATE (Section 1.6): MAY 31, 1999 (the "Maturity Date"), subject to
automatic renewal and early termination as
provided in Section 1.6 above.
5. REPORTING (Section 5.10): Borrower shall provide TBCC with the following
reports:
(a) Monthly Financial Statements. Monthly unaudited
-----------------------------
financial statements, as soon as available, and in any
event within 30 days after the end of each month.
(b) Monthly Receivable Agings. Monthly Receivable agings,
--------------------------
aged by invoice date, within 10 days after the end of
each month.
(c) Monthly Payable Agings. Monthly accounts payable
-----------------------
agings, aged by invoice date, and outstanding or held
check registers within 10 days after the end of each
month.
(d) Monthly Compliance Certificates. As soon as available,
--------------------------------
but not later than thirty days after the end of each
month, a Compliance Certificate, with an attached
schedule of calculations demonstrating compliance or
indicating non-compliance with any Financial Covenants.
(e) Quarterly Financial Statements. Quarterly unaudited
-------------------------------
financial statements, as soon as available, and in any
event within 30 days after the end of each fiscal
quarter of Borrower.
(f) Annual Financial Statements. As soon as available, but
----------------------------
not later than 90 days after the end of the Borrower's
fiscal year, (A) Borrower's annual audited Financial
Statements; (B) a comparison in reasonable detail to the
prior year's audited Financial Statements; (C) the
Auditors' opinion without Qualification, a "Management
Letter" and a statement indicating that the Auditors
have not obtained knowledge of the existence of any
Default or Event of Default during their audit; (D) a
narrative discussion of Borrower's financial condition
and results of operations and the liquidity and capital
resources for such fiscal year.
6. BORROWER INFORMATION:
(a). Prior Names of Borrower (Section 4.11): Orpheus Network
Services, Inc.
(b). Prior Trade Names of Borrower (Section 4.11): None
(c). Existing Trade Names of Borrower (Section 4.11): None
-2-
TBCC SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------------------------------------------
(d). Other Places of Business and Locations of Collateral (Section 4.2);
See Representations and Warranties form of the Borrower dated
March 30, 1998.
7. FACSIMILE NUMBERS:
Borrower: (000) 000-0000
TBCC: (000) 000-0000
8. CLOSING DEADLINE (Section 1.8): MAY 31, 1998
Borrower: TBCC:
PILOT NETWORK SERVICES, INC. TRANSAMERICA BUSINESS CREDIT CORPORATION
By[SIGNATURE ILLEGIBLE] By___________________________________
---------------------------
President or Vice President Title________________________________
-3-
EXHIBIT A
Form of Legal Opinion
-4-
