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EXHIBIT 10.4
$100,000,000
BUSINESS CREDIT AND SECURITY AGREEMENT
Dated as of March 1, 1997
AMONG
CATALINK DIRECT, INC.,
CATALINK DIRECT (PENNSYLVANIA), INC.
AND
DEUTSCHE FINANCIAL SERVICES CORPORATION
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BUSINESS CREDIT AND SECURITY AGREEMENT
BETWEEN: DEUTSCHE FINANCIAL SERVICES CORPORATION, a Nevada corporation ("DFS")
AND: CATALINK DIRECT, INC., a Delaware corporation ("Catalink") and
CATALINK DIRECT (PENNSYLVANIA), INC., a Delaware corporation
("Catalink PA") (Catalink and Catalink PA sometimes hereinafter being
referred to individually and collectively as "Borrower").
EFFECTIVE DATE: March 1, 1997
1. RECITALS
Borrower has requested that DFS provide Borrower with a credit facility
for working capital and inventory acquisition purposes. Catalink PA is a
wholly-owned subsidiary of Catalink, and Catalink is a wholly-owned subsidiary
of Elcom International, Inc., a Delaware corporation ("Elcom"), all of which do
business among each other and with third parties as an integrated family of
companies, and accordingly, each Borrower desires to have the availability of
one common credit facility instead of separate credit facilities. Each Borrower
has requested that DFS extend such a common credit facility. Each Borrower and
Elcom acknowledges that DFS will be lending against, and relying on a lien upon,
substantially all of Borrower's assets even though the proceeds of any
particular Loan made hereunder may not be advanced directly to such Borrower,
and that such Borrower will nevertheless benefit by the making of all such Loans
by DFS and the availability of a single credit facility of a size greater than
each could independently warrant.
2. DEFINITIONS
Terms defined in this Agreement shall have initial capital letters.
Those terms are defined below, in this Section 2, and elsewhere in this
Agreement. All financial and accounting terms used herein and not otherwise
defined, shall be defined in accordance with GAAP.
"AAA" shall have the meaning set forth in Section 14.2.
"Account Debtor" shall mean any Person who is or who may become obligated to
Borrower under, with respect to, or on account of an Account, general intangible
or other Collateral.
"Accounts" shall have the meaning given to that term in the UCC, and, to the
extent not included therein, shall also mean all accounts, leases, contract
rights, chattel paper, general intangibles, choses in action and instruments,
including any Lien or other security interest that secures or may secure any of
the foregoing, plus all books, invoices, documents and other records in any form
evidencing or relating to any of the foregoing, now owned or hereafter acquired
by Borrower.
"Affiliates" shall mean: (i) any individual who is an officer or director of
a Person; and (ii) any Person who directly or indirectly controls, is controlled
by, or is under common control or ownership with, another Person.
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For the purposes of this definition, the term "control" shall mean the ownership
of or the ability to direct or control 10% or more of the beneficial interest in
the applicable entity.
"Agreement" shall mean this Business Credit and Security Agreement, and any
amendments hereto.
"Average Daily Balance" shall have the meaning set forth in Section 3.6.
"Borrowing Base" shall mean, as of any date of determination, an amount
equal to the sum of the Eligible Account Availability plus the Eligible
Inventory Availability, less Borrower's from time to time outstanding
Indebtedness to DFS under the Floorplan Inventory Loan Facility.
"Borrowing Base Certificate" shall have the meaning set forth in Section
3.3(a).
"Business" shall mean the marketing, sale, and distribution of computers
and related equipment.
"Business Day" shall mean any day other than Saturdays, Sundays, legal
holidays designated by Federal law, and any other day on which DFS' office is
closed.
"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the consolidated balance sheet of Borrower and the Subsidiaries in
respect of (a) the acquisition (including, without limitation, acquisition by
entry into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other fixed assets
or leaseholds, and (b) to the extent related to and not included in clause (a),
materials, contract labor and direct labor (excluding expenditures properly
chargeable to repairs or maintenance in accordance with GAAP).
"Collateral" shall mean all items described in Section 6.1.
"Credit Facility" shall have the meaning set forth in Section 3.1.
"Daily Charge" shall have the meaning set forth in Section 3.6.
"Daily Contract Balance" shall have the meaning set forth in Section 3.6.
"Daily Rate" shall have the meaning set forth in Section 3.6.
"Debt" shall have the meaning set forth in Section 9.3.
"Default" shall have the meaning set forth in Section 10.
"Default Interest Rate" shall have the meaning set forth in Section 3.9.
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"DFS Companies" shall have the meaning set forth in Section 14.1.
"Disputes" shall have the meaning set forth in Section 14.1.
"Effective Date" shall mean the date set forth in the heading on page 1 of
this Agreement.
"Eligible Accounts" shall mean all Accounts that are not Ineligible
Accounts.
"Eligible Account Availability" shall have the meaning set forth in Section
3.3(a).
"Eligible Inventory" means Borrower's finished goods Inventory that is owned
by Borrower free and clear of all Liens, security interests and encumbrances of
any third parties, except for the Permitted Liens, that is not obsolete or
unmerchantable, that is in good, new and salable condition that conforms to the
representations and warranties of Section 8.26 of this Agreement, and which DFS
deems, in its reasonable credit judgment, to be acceptable for financing.
"Eligible Inventory Availability" shall have the meaning set forth in
Section 3.2(b).
"Environmental Laws" shall mean the Resource Conservation and Recovery Act,
as amended, the Toxic Substances Control Act, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the Solid
Waste Disposal Act, as amended, the Water Pollution Control Act, as amended, the
Clean Air Act, as amended, the Clean Water Act, as amended, and any successor or
comparable federal or state statutes, now existing or later enacted, or any
regulation promulgated under any of such federal or state statutes relating to
the protection of the environment.
"Environmental Lien" shall mean a Lien in favor of any governmental entity
for (a) any liability under any Environmental Law, or (b) damages arising from
or costs incurred by such governmental entity in response to a spillage,
disposal, or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance.
"Equipment" shall have the meaning as given to that term in the UCC, and, to
the extent not included therein, shall also mean all equipment, machinery, trade
fixtures, furnishings, furniture, supplies, materials, tools, machine tools,
office equipment, appliances, apparatus, parts and all attachments,
replacements, substitutions, accessions, additions and improvements to any of
the foregoing.
"Excess Advances" shall have the meaning given in Section 5.2.
"FAA" shall have the meaning set forth in Section 14.5.
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"Floorplan Inventory Loan" shall have the meaning set forth in Section 3.2.
"GAAP" shall mean generally accepted accounting principles, consistently
applied.
"Guarantor" shall mean a guarantor of any of the Obligations.
"Hazardous Material" shall mean any and all hazardous or toxic substances,
materials or wastes as defined or listed under the Environmental Laws.
"Indebtedness" shall mean any sum for borrowed money owed by Borrower or any
Subsidiary to a Person and shall include any debt guaranteed by Borrower or any
Subsidiary, any debt as to which the Borrower has granted or permitted to exist
a Lien on any asset even if non-recourse, letter of credit reimbursement
obligations, and capitalized lease obligations.
"Indemnified Liabilities" shall have the meaning set forth in Section 12.1.
"Indemnitees" shall have the meaning set forth in Section 12.1.
"Ineligible Accounts" shall mean: (a) Accounts created from the sale of
goods and services on non-standard terms and/or that allow for payment to be
made more than forty-five (45) days from date of sale; (b) Accounts unpaid: (i)
more than one-hundred twenty (120) days from date of invoice if the Account
Debtor is the United States of America, any state, or any local government, or
any department, agency, instrumentality or subdivision thereof (herein, a
"Governmental Account Debtor"); provided, however, that at no time shall there
be Eligible Accounts of such Governmental Account Debtors in excess of a maximum
outstanding principal amount of $2,000,000, or (ii) more than ninety (90) days
from date of invoice if the Account Debtor is not a Governmental Account Debtor;
(c) all Accounts of any Account Debtor if fifty percent (50%) or more of the
outstanding balance of such Accounts are unpaid more than ninety (90) days from
the date of invoice; (d) Accounts for which the Account Debtor is an officer,
director, shareholder, partner, member, owner, employee, agent, parent,
Subsidiary, or Affiliate of, or is related to, Borrower or has common
shareholders, officers, directors, owners, partners or members with Borrower;
(e) consignment sales; (f) Accounts for which the payment is or may be
conditional; (g) Accounts for which the Account Debtor is not a commercial or
institutional entity or is not a resident of the United States or Canada; (h)
Accounts with respect to which any warranty or representation provided in
Section 8.19 is not true and correct; (i) Accounts which represent goods or
services purchased for a personal, family or household purpose; (j) Accounts
which represent goods used for demonstration purposes or loaned by Borrower to
another party; (k) Accounts which are progress payment, barter, or contra
accounts; and (l) any and all other Accounts which DFS deems to be ineligible in
its reasonable credit judgment.
"Intangibles" shall have the meaning set forth in Section 9.3.
"Inventory" shall have the meaning given to that term in the UCC, and, to
the extent not included therein, shall also mean all of Borrower's merchandise,
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materials, finished goods, work-in-process, component materials, packaging,
shipping materials, parts and other tangible personal property, now owned or
hereafter acquired and held for sale or which contribute to the finished
products or the sale, promotion, storage and shipment thereof, whether located
at facilities owned or leased by Borrower, or in the course of transport to or
from facilities owned or leased by Borrower.
"Lantec" shall mean Elcom Group Limited, a corporation organized and
existing under the laws of the United Kingdom.
"Lantec Group" shall mean Lantec, its parent corporation Elcom International
Limited, a corporation organized and existing under the laws of the United
Kingdom, and all of the subsidiaries of Lantec and Elcom International Limited.
"Lien" shall mean any security interest, mortgage, pledge, lien,
hypothecation, judgment lien or similar legal process, charge, encumbrance,
title retention agreement or analogous instrument or device (including, without
limitation, the interest of lessors under capitalized leases and the interest of
a vendor under any conditional sale or other title retention agreement),
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting any of Borrower's property.
"Loan" shall mean any advance made to or for the benefit of Borrower
pursuant to this Agreement, including but not limited to any Floorplan Inventory
Loan, any Working Capital Loan and any Overadvance Loan.
"Loan Documents" shall mean all documents executed by Borrower pursuant to
any financial accommodation between Borrower and DFS and all documents entered
into in connection with the transaction herein contemplated. The term "Loan
Documents" includes, but is not limited to, this Agreement, financing
statements, all pledges, mortgages, deeds of trust, leasehold mortgages,
security agreements, guaranties, assignments, subordination agreements, and any
future or additional documents or writings executed under the terms of this
Agreement or any amendments or modifications hereto.
"Monthly Reports" shall have the meaning given in Section 3.12(b).
"Obligations" shall mean all liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Borrower
(and/or any of its Subsidiaries and Affiliates) to DFS, whether primary or
secondary, joint or several, direct, contingent, fixed or otherwise, secured or
unsecured, or whether arising under this Agreement, any other Loan Document or
any other agreement now or hereafter executed by Borrower (or any of its
Subsidiaries or Affiliates) and delivered to DFS. Obligations will include,
without limitation, any third party claims against Borrower (or any of its
Subsidiaries or Affiliates) satisfied or acquired by DFS. Obligations will also
include all obligations of Borrower to pay to DFS: (a) any and all sums
reasonably advanced by DFS to preserve or protect the Collateral or the value of
the Collateral or to preserve, protect, or perfect DFS' security interests in
the Collateral; (b) in the event of any proceeding to enforce the collection of
the Obligations after a Default, the reasonable expenses of retaking, holding,
preparing for sale, selling or otherwise disposing of or realizing on the
Collateral, or expenses of any exercise by DFS of its rights, together with
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reasonable attorneys' fees, expenses of collection and court costs, as provided
in the Loan Documents; and (c) any other indebtedness or liability of Borrower
to DFS, whether direct or indirect, absolute or contingent, now or hereafter
arising.
"OSHA Law" shall mean the Occupational Safety and Health Act of 1970, any
successor thereto, and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"Other Reports" shall have the meaning set forth in Section 3.12(c).
"Overadvance Facility" shall have the meaning set forth in Section 3.4.
"Overadvance Loan" shall mean a Loan made pursuant to the terms of Section
3.4.
"PAS" shall have the meaning set forth in Section 3.2(b).
"Permitted Liens" shall mean: (a) Liens for taxes, assessments or other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate action and as to which adequate reserves shall have
been set aside in conformity with GAAP; (b) Liens of mechanics, materialmen,
landlords, warehousemen, carriers and similar Liens arising in the future in the
ordinary course of business for sums not yet delinquent, or being contested in
good faith if a reserve or other appropriate provision in accordance with GAAP
shall have been made therefor and which are, in addition, satisfactory to DFS in
its reasonable discretion; (c) statutory Liens incurred in the ordinary course
of business in connection with workers' compensation, unemployment insurance,
social security, and similar items for sums not yet delinquent or being
contested in good faith, if a reserve or other appropriate provision in
accordance with GAAP; (d) lessor's Liens arising from operating leases entered
into in the ordinary course of business; (e) Liens arising from legal
proceedings, so long as such proceedings are being contested in good faith by
appropriate proceedings, appropriate reserves have been established therefor in
accordance with GAAP, and so long as execution is stayed and bonded on appeal on
all judgments resulting from any such proceedings; (f) Liens in favor of DFS
granted hereunder; and (g) Purchase Money Liens securing Permitted Purchase
Money Indebtedness which is not incurred in violation of Section 9.2.12.
"Permitted Purchase Money Indebtedness" shall mean Purchase Money
Indebtedness of Borrower incurred in compliance with Section 9.2.12 which is
secured by a Purchase Money Lien and which, when aggregated with the principal
amount of all other such Indebtedness and the capitalized lease obligations of
Borrower at the time outstanding, does not exceed $15,000,000. For the purposes
of this definition, the principal amount of any Purchase Money Indebtedness
consisting of capitalized leases shall be computed as a capitalized lease
obligation.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization, and a government or any department or agency thereof.
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"Prime Rate" shall mean a fluctuating interest rate per annum equal to the
prime rate of interest announced publicly from time to time (whether or not
charged in each instance) by The Chase Manhattan Bank (or any successor thereof)
as its prime rate. Each change in the Prime Rate shall become effective on the
day the applicable reference bank announces a change in its prime rate. If any
of the banks listed above discontinue the practice of announcing or publishing a
prime rate during the term of this Agreement, then DFS may, in its reasonable
judgment, designate a comparable bank and/or publicly announced rate to be
thereafter used as a basis for determining Prime Rate. Borrower acknowledges
that any bank listed above may extend credit at rates of interest less than its
announced prime rate.
"Purchase Money Indebtedness" shall mean and include:
(i) Indebtedness for the payment of all or any part of the purchase
price of any assets,
(ii) any Indebtedness incurred at the time of or within ten (10) days
prior to or after the acquisition of any assets for the purpose of financing all
or any part of the purchase price thereof, and
(iii) any renewals, extensions or refinancings thereof, but not any
increases beyond the original principal amounts thereof outstanding at the time.
"Purchase Money Lien" shall mean a Lien upon assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the assets the purchase price of which was financed through the incurrence of
such Purchase Money Indebtedness.
"SPP" shall have the meaning set forth in Section 3.2(b).
"Statement of Transaction" shall have the meaning set forth in Section
3.2(a).
"Subordinated Debt" shall have the meaning set forth in Section 9.3.
"Subsidiaries" shall mean any corporation in which a Borrower or a
subsidiary of a Borrower owns or controls greater than 50% of the voting
securities, or any partnership or joint venture in which a Borrower or a
subsidiary of a Borrower owns or controls greater than 50% of the aggregate
equitable interest. The term "Subsidiary" means any one of the Subsidiaries.
"Tangible Net Worth" shall have the meaning set forth in Section 9.3.
"Total Credit Limit" shall have the meaning set forth in Section 3.1.
"Total Working Capital Credit Limit" shall have the meaning set forth in
Section 3.3.
"UCC" shall mean the Uniform Commercial Code as in effect in the
Commonwealth of Massachusetts and any successor statute, together with any
regulations thereunder, in each case as in effect from time to time. References
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to sections of the UCC shall be construed to also refer to any successor
sections.
"Unmatured Default" shall mean any event which, but for the passage of time
or notice, or both, would be a Default.
"Value" means the cost to Borrower of Borrower's Eligible Inventory
(exclusive of discounts, rebates, credits (including, without limitation price
protection credits), incentive payments and all other general intangibles
relating to such ), as determined in accordance with GAAP.
"Weekly Report" shall have the meaning set forth in Section 3.12(a).
"Working Capital Loan" shall have the meaning set forth in Section 3.3.
3. CREDIT FACILITY
3.1 Total Credit Facility. In consideration of Borrower's payment and
performance of its Obligations and subject to the terms and conditions contained
in this Agreement, DFS agrees to provide, and Borrower agrees to accept, an
aggregate credit facility (the "Credit Facility") of up to One Hundred Million
Dollars ($100,000,000) (the "Total Credit Limit"). The Credit Facility shall be
available in the form of the following types of Loans: (a) Floorplan Inventory
Loans, (b) Working Capital Loans, and (c) Overadvance Loans. No Loans need be
made by DFS if Borrower is in Default or if there exists any Unmatured Default.
This is an agreement regarding the extension of credit, and not the provision of
goods or services.
3.2 Floorplan Inventory Loans. Subject to the terms of this Agreement,
DFS may provide to Borrower floorplan financing for the acquisition of Inventory
from vendors approved by DFS in DFS' reasonable credit judgment (each advance
being a "Floorplan Inventory Loan"), up to an aggregate unpaid principal amount
at any time not to exceed Forty Seven Million Dollars ($47,000,000)
(collectively, the "Floorplan Inventory Loan Facility"). DFS may, however, at
any time and without notice to Borrower, elect not to finance any Inventory sold
by particular vendors who are in default of their obligations to DFS. DFS may at
any time suspend or terminate the relationship or approval of any vendor. DFS
will use reasonable efforts to attempt to give Borrower prior notice of such
suspension or termination.
(a) Financing Terms and Statements of Transaction. Borrower and
DFS agree that certain financial terms of any advance made by DFS as a Floorplan
Inventory Loan under this Agreement, whether regarding finance charges, other
fees, maturities, curtailments or other financial terms, are not set forth
herein because such terms depend, in part, upon the availability of vendor
discounts, payment terms or other incentives, prevailing economic conditions,
DFS' floorplanning volume with Borrower and with Borrower's vendors, and other
economic factors which may vary over time. Borrower and DFS further agree that
it is therefore in their mutual best interest to set forth in this Agreement
only the general terms of Borrower's Floorplan Inventory Loans. Upon agreeing to
finance a particular item of Inventory for Borrower, DFS will send Borrower a
Statement of Transaction identifying such inventory and the applicable financial
terms ("Statement of Transaction"). Unless Borrower
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notifies DFS in writing of any objection within fifteen (15) days after a
Statement of Transaction is mailed to Borrower: (a) the amount shown on such
Statement of Transaction will be an account stated; (b) Borrower will have
agreed to all rates, charges and other terms shown on such Statement of
Transaction; (c) Borrower will have agreed that the items of Inventory
referenced in such Statement of Transaction are being financed by DFS at
Borrower's request; and (d) such Statement of Transaction will be incorporated
herein by reference, will be made a part hereof as if originally set forth
herein, and will constitute an addendum hereto. If Borrower objects to the terms
of any Statement of Transaction, Borrower agrees to pay DFS for such Inventory
in accordance with the most recent terms for similar Inventory to which Borrower
has not objected (or, if there are no prior terms, at the lesser of the Prime
Rate or at the maximum lawful contract rate of interest permitted under
applicable law).
(b) Payment Terms. Borrower will immediately pay DFS the principal
indebtedness owed DFS on each item of Inventory financed by DFS (as shown on the
Statement of Transaction identifying such Inventory) on the earliest occurrence
of any of the following events: (a) when such Inventory is lost, stolen or
damaged to the extent that such loss, theft or damage is not adequately insured
under an insurance policy which names DFS as loss payee; (b) in strict
accordance with any curtailment schedule for such Inventory (as shown on the
Statement of Transaction identifying such Inventory); (c) for Inventory financed
under Scheduled Payment Program ("SPP") terms (as shown on the Statement of
Transaction identifying such Inventory), in strict accordance with the
installment payment schedule; and (d) when otherwise required under the terms of
any financing program agreed to in writing by the parties. Regardless of the SPP
terms pertaining to any Inventory financed by DFS, if DFS determines that the
current outstanding debt which Borrower owes to DFS exceeds the aggregate
wholesale invoice price of such Inventory in Borrower's possession, Borrower
will immediately upon demand pay DFS the difference between such outstanding
debt and the aggregate wholesale invoice price of such Inventory. If Borrower
from time to time is required to make immediate payment to DFS of any past due
obligation discovered during any Inventory review, or at any other time,
Borrower agrees that acceptance of such payment by DFS shall not be construed to
have waived or amended the terms of its financing program. The proceeds of any
Inventory received by Borrower will be held by Borrower in trust for DFS'
benefit, for application as provided in this Agreement. DFS may apply: (i)
payments to reduce finance charges first and then principal, regardless of
Borrower's instructions; and (ii) principal payments to the oldest (earliest)
invoice for Inventory financed by DFS, but, in any event, all principal payments
will first be applied to such Inventory which is sold, rented, leased, or
otherwise disposed of or unaccounted for, or lost, stolen or damaged to the
extent that such loss, theft or damage is not adequately insured under an
insurance policy which names DFS as a loss payee. Any third party discount,
rebate, bonus or credit granted to Borrower for any Inventory will not reduce
the debt Borrower owes DFS until DFS has received payment therefor in cash.
Borrower will: (1) pay DFS even if any Inventory is defective or fails to
conform to any warranties extended by any third party; (2) not assert against
DFS any claim or defense Borrower has against any third party; and (3) indemnify
and hold DFS harmless against all claims and defenses asserted by any buyer of
the Inventory relating to the condition of, or any representations regarding,
any of the Inventory. Borrower waives all rights of offset Borrower may have
against DFS.
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3.3 Working Capital Loans. Subject to the terms of this Agreement, DFS
agrees, for so long as no Default exists, to provide to Borrower, and Borrower
agrees to accept, working capital financing (each advance being a "Working
Capital Loan") on Eligible Accounts and Eligible Inventory in the maximum
aggregate unpaid principal amount at any time equal to the lesser of (i) the
Borrowing Base and (ii) Fifty Million Dollars ($50,000,000) ("Total Working
Capital Credit Limit"). A request for a Working Capital Loan shall be made, or
shall be deemed to be made, as provided in Section 5.1 hereof.
(a) Eligible Accounts. On receipt of each Borrowing Base Certificate in
form and substance acceptable to DFS (the "Borrowing Base Certificate"), DFS
will credit Borrower with (i) eighty-five percent (85%) of the net amount of the
Eligible Accounts which are, absent error or other discrepancy, listed in such
Borrowing Base Certificate arising from Account Debtors other than Xxxxx Xxxxxx
and Traveler's Insurance and (ii) ninety percent (90%) of the net amount of the
Eligible Accounts which are, absent error or other discrepancy, listed in such
Borrowing Base Certificate arising from Account Debtors Xxxxx Xxxxxx and
Traveler's Insurance up to a maximum principal amount outstanding at any time
with respect thereto of $15,000,000 ("Eligible Account Availability"). For
purposes hereof, the net amount of Eligible Accounts at any time shall be the
face amount of such Eligible Accounts less any and all returns, discounts (which
may, at DFS' option, be calculated on shortest terms), credits, rebates,
allowances, or excise taxes of any nature at any time issued, owing, claimed by
Account Debtors, granted, outstanding or payable in connection with such
Accounts at such time.
(b) Eligible Inventory. On receipt of each Borrowing Base Certificate,
DFS will credit Borrower with the lesser of (i) fifty percent (50%) of the Value
of Eligible Inventory which is, absent error or other discrepancy, listed in
such Borrowing Base Certificate, and (ii) Five Million Dollars ($5,000,000)
(such lesser amount being called the "Eligible Inventory Availability").
(c) Interest. Borrower hereby agrees to pay interest to DFS, on the
Daily Contract Balance owed under Borrower's Working Capital Loans at a rate
that is equal to the Prime Rate minus one percentage point (1.0%) per annum.
3.4 Overadvance Facility. Subject to the terms of this Agreement, DFS
agrees, for so long as no Default exists, to provide Borrower, and Borrower
agrees to accept, overadvance financing for the purposes described herein (each
advance being an "Overadvance Loan"), up to an aggregate unpaid principal amount
not to exceed at any time Three Million Dollars ($3,000,000), on and subject to
the following terms and conditions (the "Overadvance Facility"):
(a) An Overadvance Loan may be made to satisfy Borrower's working
capital needs to the extent they exceed the formula-determined Borrowing Base;
(b) An Overadvance Loan may also be made to satisfy Borrower's
Obligations to the extent that as of the date of any Monthly Report, (i) the
principal amount of Loans hereunder (exclusive of the principal amount of any
outstanding Overadvance Loans), exceeds (ii) the Borrowing Base plus one hundred
percent (100%) of the total aggregate wholesale invoice price of all of
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Borrower's Inventory financed by DFS with Floorplan Inventory Loans that is
unsold and in Borrower's possession and control as of the date of such Monthly
Report;
(c) Each Overadvance Loan shall be due and payable ninety (90) days
after the date thereof;
(d) the Guaranty shall not be in default and shall be in full force
and effect at the time any Overadvance Loan is made;
(e) Borrower will pay DFS finance charges on the principal amount of
any Overadvance Loan outstanding at the end of each day at a rate that is one
percentage point (1.00%) per annum above the Prime Rate; and
(f) except as provided to the contrary in clauses (a) through (e)
above, Overadvance Loans pursuant to this Section 3.4 shall be subject to all
other terms and conditions of this Agreement.
Notwithstanding anything else herein, the total outstanding principal amount
of all Loans under this Agreement shall not at any time exceed $100,000,000.
Borrower shall have signed and sent to DFS, if DFS so requests, a request,
setting forth in writing the amount of the proposed Overadvance Loan; provided,
however, that the foregoing condition shall not prevent DFS, if it so elects in
its sole discretion, from making an Overadvance Loan pursuant to Borrower's
non-written request therefor.
3.5 Mandatory Prepayment. If at any time and for any reason the
aggregate amount of outstanding Loans (excluding therefrom any outstanding
Overadvance Loans) exceeds the Borrowing Base, Borrower will, immediately upon
demand, repay an amount of such Loans made to it by DFS hereunder equal to such
excess. In addition, Borrower shall immediately pay DFS whatever sums may be
necessary from time to time to remain in compliance with the Total Credit Limit
and the Total Working Capital Credit Limit, as such limits may change from time
to time, including, without limitation, as a result of any Collateral no longer
being deemed an Eligible Account or Eligible Inventory, or as a result of any
change in the Value of any Eligible Inventory, or in the amount of any Eligible
Account.
3.6 Calculation of Charges.
(a) Floorplan Inventory Loans. Borrower will pay DFS finance charges on
the outstanding principal debt Borrower owes DFS for each item of Inventory
financed by DFS under a Floorplan Inventory Loan at the rate(s) shown on the
Statement of Transaction identifying such Inventory, unless Borrower objects
thereto as provided in Section 3.2(a). The finance charges attributable to such
rates will: (i) be computed based on a 360 day year; (ii) be calculated by
multiplying the Daily Charge (as defined below) by the actual number of days in
the applicable billing period; and (iii) accrue from the invoice date of the
Inventory identified on such Statement of Transaction, until DFS receives full
payment of the principal debt Borrower owes DFS in good funds in accordance with
DFS' payment recognition policy and DFS applies such payment to Borrower's
principal debt in accordance with the terms of this Agreement. The annual
percentage rate of the finance charges will be calculated from the invoice date
of any item of Inventory financed by DFS, regardless of any period
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during which any finance charge subsidy shall be paid or payable by any third
party.
(b) Working Capital Loans. Borrower will pay DFS finance charges on the
Daily Contract Balance (as defined below) at the rate shown in Section 3.3(c).
The finance charges attributable to such rate will: (i) be computed based on a
360 day year; (ii) be calculated with respect to each day by multiplying the
Daily Rate (as defined below) by the Daily Contract Balance; and (iii) accrue
from the date of a Working Capital Loan advanced to or for the benefit of
Borrower, until DFS receives full payment of the principal debt Borrower owes
DFS in good funds in accordance with DFS' payment recognition policy and DFS
applies such payment to Borrower's principal debt in accordance with the terms
of this Agreement.
(c) Definitions. The "Daily Charge" is the product of the Daily Rate
multiplied by the Average Daily Balance. The "Daily Rate" is the quotient of the
applicable annual rate provided herein or in any Statement of Transaction
divided by 360. The "Daily Contract Balance" is the amount of outstanding
principal debt which Borrower owes DFS on the Working Capital Loans at the end
of each day after DFS has credited payments which it has received on the Working
Capital Loans. The "Average Daily Balance" is the quotient of: (i) the sum of
the outstanding principal debt owed DFS on each day of a billing period for each
item of Inventory identified on the Statement of Transaction, divided by (ii)
the actual number of days in such billing period.
3.7 Billing Statement. DFS will send Borrower a monthly billing
statement identifying all charges due on Borrower's account with DFS. The
charges specified on each billing statement will be: (a) due and payable in full
immediately on receipt; and (b) an account stated, absent manifest error. DFS
may adjust the billing statement at any time to conform to applicable law and
this Agreement.
3.8 Loan Proceeds. The parties intend that all indebtedness incurred
hereunder shall be governed exclusively by the terms of this Agreement and the
other Loan Documents, and shall not, unless requested by DFS, be evidenced by
notes or other evidences of indebtedness. Upon any such request, Borrower will
immediately execute and deliver any such note or other evidence reasonably
requested by DFS. Any fees, charges or expenses charged to DFS by any bank for
payments made by DFS at Borrower's request shall be immediately payable by
Borrower. All advances and other obligations of Borrower made hereunder will
constitute a single obligation.
3.9 Default Interest Rate. If a Default occurs, and unless and until
cured, DFS may without prior demand, raise the rate of interest accruing on the
disbursed unpaid principal balance of any Loan by three percentage points (3%)
above the rate of interest, if any, otherwise applicable (the "Default Interest
Rate"), whether or not DFS elects to accelerate the unpaid principal balances as
a result of a Default. DFS will use reasonable efforts to attempt to notify
Borrower before imposing the Default Interest Rate permitted by this Section.
3.10 Interest Rate After Certain Events. If a judgment is entered
against Borrower for sums due under any of the Obligations, as applicable, the
amount of the judgment entered (which may include principal,
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interest, reasonable attorneys' fees and costs) shall bear interest at the
judgment rate as permitted under applicable law as of the date of entry of the
judgment. All Obligations of Borrower described in clauses (a) and (b) of the
definition thereof shall bear interest at the Default Interest Rate.
3.11 Verification Rights of DFS. DFS may, without notice to Borrower
and at any time or times hereafter verify the validity, amount or any other
matter relating to any Account by mail, telephone or other means, in the name of
Borrower or DFS.
3.12 Reports.
(a) Weekly Reports. Borrower agrees to provide DFS with a report
each week, or more frequently if requested by DFS, in such form as is
satisfactory to DFS, including supporting information regarding, but not limited
to, a Borrowing Base Certificate (the "Weekly Report"). The Weekly Report will
be received by DFS each Thursday after the date of the Agreement by noon (in the
event that DFS is not open for business on a Thursday then the Weekly Report
will be due by noon of the next business day that DFS is open for business), or
more frequently if so requested by DFS.
(b) Monthly Reports. Borrower agrees to provide to DFS by the 15th
day of each month, or more frequently if requested by DFS, in each case as of
the last day of the immediately prior month, or other date, as applicable, each
of the following: (i) Inventory report including the current Inventory status,
showing the lower of cost (determined on a "first-in, first-out" basis) or
market value thereof; (ii) aging of Accounts sorted by Account Debtor, and aged
by invoice date with detail concerning each such invoice to include the invoice
number, date, dollar amount and credit detail, if any; and (iii) if Borrower's
system is able to produce such reports, an aging of Borrower's accounts payable
sorted by payee, and aged by purchase date with detail concerning each such
purchase to include the purchase date, dollar amount and credit detail, if any
(the "Monthly Reports").
(c) Other Reports. Borrower agrees to provide DFS within five (5)
Business Days after each request by DFS any other report or information
reasonably requested by DFS (the "Other Reports").
(d) Accuracy of Reports. The Weekly Report, Monthly Reports and
the Other Reports will be true and correct in all respects. Borrower
acknowledges DFS' reliance on the truthfulness and accuracy of each Weekly
Report, Monthly Report and the Other Reports.
3.13 Establishment of Reserves. Notwithstanding the foregoing
provisions of Section 3.3, DFS shall have the right to establish reserves in
such amounts, and with respect to such matters, as DFS shall deem necessary or
appropriate, against the amount of Working Capital Loans which Borrower may
otherwise request under Section 3.3, including, without limitation, with respect
to (a) price adjustments, damages, unearned discounts, returned products or
other matters for which credit memoranda are issued in the ordinary course of
Borrower's business; (b) shrinkage, spoilage and obsolescence of Inventory; (c)
slow moving Inventory; (d) other sums chargeable against Borrower as Working
Capital Loans under any section of this Agreement; and (e) such other matters,
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events, conditions or contingencies as to which DFS, in its reasonable credit
judgment determines reserves should be established from time to time hereunder.
3.14 Capital Adequacy.
(a) In the event that DFS shall have determined that the adoption
of any law, rule or regulation regarding capital adequacy, or any change therein
or in the interpretation or application thereof or compliance by DFS with any
request or directive regarding capital adequacy (whether or not having the force
of law) from any central bank or governmental authority, does or shall have the
effect of reducing the rate of return on DFS' capital as a consequence of its
obligations hereunder to a level below that which DFS could have achieved but
for such adoption, change or compliance (taking into consideration DFS' policies
with respect to capital adequacy), then from time to time, after submission by
DFS to Borrower of a written demand therefor and a calculation of such
reduction, Borrower shall pay to DFS such additional amount or amounts as will
compensate DFS for such reduction.
(b) A certificate of DFS claiming entitlement to payment as set
forth in Section 3.14(a) above shall be conclusive in the absence of manifest
error. Such certificate shall set forth the nature of the occurrence giving rise
to such payment, the additional amount or amounts to be paid to DFS, and the
method by which such amounts were determined. In determining such amount, DFS
may use any reasonable averaging and attribution method.
3.15 Collections. Borrower will direct all Account Debtors to make all
remittances to, and Borrower will deposit all collections on Accounts received
directly by Borrower into, an account or accounts of Borrower designated by and
blocked in favor of DFS. All funds in such accounts immediately shall become the
property of DFS and Borrower shall obtain the agreement of such banks to waive
any offset rights against the funds so deposited. Until delivery to such
account(s), Borrower will keep such remittances separate and apart from
Borrower's own funds so that they are capable of identification as the property
of DFS and will be held in trust for DFS. DFS may, upon the occurrence and
during the continuance of a Default, notify any Account Debtor of the assignment
of Accounts and collect the same. Upon the occurrence and during the continuance
of a Default, all proceeds received or collected by DFS with respect to
Accounts, and reserves and other property of Borrower in possession of DFS, may
be held by DFS without interest to Borrower until all Obligations are paid in
full or applied by DFS on account of the Obligations. DFS may release to
Borrower such portions of such reserves and proceeds as DFS may reasonably
determine.
3.16 Advancements. If Borrower fails to (a) perform any of the
affirmative covenants contained herein, (b) protect or preserve the Collateral
or (c) protect or preserve the status and priority of the Liens and security
interest of DFS in the Collateral, DFS may make advances to perform those
obligations. DFS will use reasonable efforts to attempt to give Borrower notice
prior to making such an advancement. All sums so advanced will be due and
payable upon demand and will immediately upon advancement become secured by the
security interests created by this Agreement and will be subject to the terms
and provisions of this Agreement and all of the Loan Documents. DFS may add all
sums so advanced, plus any expenses or costs incurred by DFS, including
reasonable attorney's fees, as outstanding Loans as DFS may designate in its
sole discretion. The provisions of this Section will not be construed to prevent
the institution of rights and remedies of DFS upon the occurrence of a
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Default. Any provisions in this Agreement to the contrary notwithstanding, the
authorizations contained in this Section will impose no duty or obligation on
DFS to perform any action or make any advancement on behalf of Borrower and are
for the sole benefit and protection of DFS.
3.17 Continuing Requirements - Accounts. Borrower will: (a) if from
time to time required by DFS, promptly after their creation, deliver to DFS
copies of all invoices, delivery evidences and other such documents relating to
each Account; (b) other than in the ordinary course of the Business, not permit
or agree to any extension, compromise or settlement or make any change to any
Account; (c) affix appropriate endorsements or assignments upon all such items
of payment and proceeds so that the same may be properly deposited by DFS to
DFS' account; (d) immediately notify DFS in writing which Accounts may be deemed
Ineligible Accounts; and (e) xxxx all chattel paper and instruments now owned or
hereafter acquired by it to show that the same are subject to DFS' security
interest and immediately thereafter deliver such chattel paper and instruments
to DFS with appropriate endorsements and assignments to DFS.
3.18 Floorplan Paydown. In the event:
(i) Borrower's outstanding Obligations to DFS under Borrower's
Floorplan Inventory Loan Facility exceeds, at any time;
(ii)(a) the Borrowing Base, minus
(b) Borrower's outstanding Working Capital Loans;
(the amount of such excess being the "Excess Floorplan Outstandings");
then Borrower will immediately pay to DFS, as a reduction of Borrower's
total current outstanding Indebtedness to DFS under the Floorplan Inventory Loan
Facility, the amount of any such Excess Floorplan Outstandings.
4. TERM OF AGREEMENT.
4.1 Termination. This Agreement will continue in full force and effect
and be non-cancellable for two (2) years from the Effective Date (except that it
may be terminated by DFS in the exercise of its rights and remedies upon Default
by Borrower) and shall be subject to automatic one-year renewal periods
thereafter unless at least 180 days prior to the expiration of such initial
period or any renewal period, either party shall have addressed the other of its
intention not to renew this Agreement; provided however, that Borrower may
terminate this Agreement prior to such date upon: (a) at least 90 days prior
written notice to DFS; (b) payment to DFS of all Obligations; and (c) payment to
DFS of the fee described in Section 4.3 below:
Termination on any date other than the anniversary date will not entitle
Borrower to a refund of any fee. DFS shall be entitled to payment of all fees
upon Default by Borrower which would have been payable during the original term
of this Agreement, or any extension thereof, but for such early termination. Any
accelerated fees represent liquidated damages and not a penalty. Any such
written notice of termination delivered by Borrower to DFS shall be irrevocable.
It is understood that Borrower may elect to terminate this Agreement in its
entirety only, no section or lending facility may be terminated singly.
4.2 Effect of Termination. Borrower will not be relieved from any
Obligations to DFS arising out of DFS' advances or commitments made before
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the effective termination date of this Agreement. DFS will retain all of its
rights, interests and remedies hereunder until Borrower has paid all of
Borrower's Obligations to DFS. All waivers set forth within this Agreement will
survive any termination of this Agreement.
4.3 Right of First Refusal. Despite anything to the contrary provided
in Sections 4.1 and 4.2, upon Borrower's notice to DFS of its intention to
terminate this Agreement, DFS will have the right to extend the term of this
Agreement to the end of the original term or the next succeeding renewal term,
whichever period is longer, by notifying Borrower, within thirty (30) days of
its receipt of such notice of termination, of DFS' willingness to substantially
meet the following quantifiable provisions of any alternative financing which
has been offered to Borrower (such information to be provided to DFS with
Borrower's notice of its intention to terminate): (i) interest, (ii) charges,
(iii) advance rates, and (iv) eligibility of Collateral. Upon receipt of DFS'
notification of its willingness to substantially meet the above terms of any
alternative financing, this Agreement and the other Loan Documents will continue
in full force and effect except as to any of the above terms which will be
amended as required pursuant to this Subsection.
If, however, Borrower elects not to accept such alternative financing from
DFS, Borrower must pay to DFS a fee equal to one quarter of one percent (0.25%)
of the Total Credit Limit.
Subject to the terms of the sentence immediately following, if DFS chooses
not to exercise its rights hereunder with respect to any alternative financing
which has been offered to Borrower during the first year of this Agreement, the
Agreement and the other Loan Documents shall terminate in accordance with the
terms hereof and upon Borrower's payment to DFS of a fee equal to one half of
one percent (0.5%) of the Total Credit Limit. The foregoing notwithstanding, if
as the result of a transaction which, upon closure, would result in the merger
of Borrower with and into a third party, with Borrower not being the survivor,
Borrower delivers notice of its intention to terminate this Agreement within the
first year hereof, Borrower shall not be obligated to pay DFS the fee set forth
in the sentence immediately preceding. If DFS chooses not to exercise its rights
hereunder with respect to any alternative financing which has been offered to
Borrower after the first year of this Agreement, the Agreement and the other
Loan Documents shall terminate in accordance with the terms hereof without any
obligation of Borrower to pay any fees described in this Section 4.3.
5. BORROWING AND REPAYMENT PROCEDURES
5.1. Borrowing Procedures.
(a) Generally. A request for a Working Capital Loan shall be made, or
shall be deemed to be made, in the following manner: (i) Borrower may give DFS
written notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date;
(ii) the becoming due of any amount required to be paid under this Agreement as
interest not otherwise paid by Borrower shall be deemed irrevocably to be a
request for a Working Capital Loan on the due date in the amount required to pay
such interest; and (iii) the becoming due of any other Obligations not otherwise
paid by Borrower shall be deemed irrevocably to be a request for a Working
Capital Loan on the due date in the amount then so due.
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For purposes of subpart (i) above, Borrower agrees that DFS may rely and act
upon any request for a Working Capital Loan from any individual who DFS, absent
gross negligence or willful misconduct, believes to be a representative of
Borrower who is serving as one of the following officers of Borrower:
President; Vice President and Controller; Secretary; Chief Financial Officer;
Treasurer; Assistant Controller and Agent.
(b) Conditions Precedent to Each Working Capital Loan. Without limiting
the applicability of the conditions precedent set forth in Section 7 below to
DFS' obligation to make any Working Capital Loan, the obligation of DFS to make
any Working Capital Loan shall be subject to the further conditions precedent
that, on the date of each such Working Capital Loan:
(i) The following statements shall be true: (A) the representations and
warranties contained in Section 8 hereof are correct in all material respects on
and as of the date of such Working Capital Loan as though made on and as of such
date, and (B) there exists no Default or Unmatured Default, nor would any
Default or Unmatured Default result from the making of the Working Capital Loan
requested by Borrower;
(ii) Borrower shall have signed and sent to DFS, if DFS so requests, a
request for advance, setting forth in writing the amount of the Working Capital
Loan requested; provided, however, that the foregoing condition precedent shall
not prevent DFS, if it so elects in its sole discretion, from making a Working
Capital Loan pursuant to Borrower's non-written request therefor;
(iii) DFS shall have received a current Borrowing Base Certificate,
signed by the Borrower, in accordance with the provisions of Section 3.12(a)
hereof; and
(iv) DFS shall have received such other approvals, opinions or
documents as it may reasonably request.
Borrower agrees that the making of a request by Borrower for a Working Capital
Loan, shall constitute a certification by Borrower and the Person(s) executing
or giving the same that all representations and warranties of Borrower herein
are true in all material respects as of the date thereof and that all required
conditions to the making of the Working Capital Loan have been met.
5.2 Excess Advances. DFS, in its sole and absolute discretion, may
elect to permit the total unpaid balance of Loans to exceed the Total Credit
Limit (the "Excess Advances"), and no such event or occurrence shall cause or
constitute a waiver by DFS of its right to demand payment of all or any part of
the Loans at any time within the terms of this Agreement or to refuse, in its
sole and absolute discretion, to make such further Loans. Any such Excess
Advances shall be payable immediately upon demand therefor, unless otherwise
specifically agreed to by DFS, and shall bear interest at the Prime Rate plus
one percent (1%) per annum.
5.3 All Loans One Obligation. All Obligations of Borrower to DFS under
this Agreement and all other agreements between Borrower and DFS shall
constitute one obligation to DFS secured by the security interest granted in
this Agreement, and by all other Liens heretofore, now, or at any time or
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times hereafter granted by Borrower. All of the rights of DFS set forth in this
Agreement shall apply to any modification of or supplement to this Agreement, or
Exhibits hereto, unless otherwise agreed in writing.
5.4 Payments of Principal and Interest. All payments and amounts due
hereunder by Borrower shall be made and be payable without set-off and shall be
made to DFS on the date due at its office(s) responsible for Borrower's account,
or at such other place which DFS may designate to Borrower in writing. Any
payments received after such time shall be deemed received on the next Business
Day. Whenever any payment to be made hereunder shall be stated to be due on a
date other than a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
payment of interest or any fees.
5.5 Collection Days. All payments and all amounts received hereunder
will be credited by DFS to Borrower's account on the day that good funds have
been deposited into DFS' blocked collection account and swept by DFS into DFS'
general operating account.
6. SECURITY FOR THE OBLIGATIONS
6.1 Grant of Security Interest. To secure payment of all of Borrower's
current and future Obligations and to secure Borrower's performance of all of
the provisions under this Agreement and the Other Agreements, Borrower grants
DFS a security interest in all of Borrower's inventory, equipment, fixtures,
accounts, contract rights, chattel paper, security agreements, instruments,
deposit accounts, reserves, documents and general intangibles; and all
judgments, claims, insurance policies, and payments owed or made to Borrower
thereon; all whether now owned or hereafter acquired, all attachments,
accessories, accessions, returns, repossessions, exchanges, substitutions and
replacements thereto, and all proceeds thereof. All such assets are collectively
referred to herein as the "Collateral." All such terms for which meanings are
provided in the Uniform Commercial Code are used herein with such meanings. All
Collateral financed by DFS, and all proceeds thereof, will be held in trust by
Borrower for DFS, with such proceeds being payable in accordance with this
Agreement. Borrower covenants with DFS that DFS may realize upon all or part of
any Collateral in any order it desires and any realization by any means upon any
Collateral will not bar realization upon any other Collateral. Borrower's
liability under this Agreement is direct and unconditional and will not be
affected by the release or nonperfection of any security interest granted
hereunder.
6.2 Future Advances. DFS' security interests shall secure all
current and all future advances to Borrower made by DFS under the Loan
Documents.
6.3 Financing Statements. Borrower shall execute and deliver to DFS for
the benefit of DFS such financing statements, certificates of title and original
documents as may be required by DFS with respect to DFS' security interests.
6.4 Guaranties. Borrower shall cause Elcom to execute and deliver a
collateralized guaranty of the Obligations secured by a first priority,
perfected security interest in the assets described therein.
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6.5 Further Assurances. Borrower will execute and deliver to DFS, at
such time or times as DFS may request, all financing statements, security
agreements, assignments, certificates, affidavits, reports, schedules, and other
documents and instruments that DFS may reasonably deem necessary to perfect and
maintain perfected DFS' security interests in the Collateral and to fully
consummate the transactions contemplated under all Loan Documents. All filing,
recording or registration fees shall be payable by Borrower.
6.6 Intellectual Property. Borrower shall execute and deliver a
collateral assignment of patents, copyrights and trademarks in form and
substance reasonably acceptable to DFS granting DFS a first priority security
interest in and to the items listed in Exhibit 8.21 in form acceptable for
recordation.
7. CONDITIONS PRECEDENT
All duties and obligations of DFS under the Loan Documents on the Effective
Date, and at all times during the term of this Agreement, are specifically
subject to the full and continued satisfaction by Borrower of the conditions
precedent set forth below.
7.1 Conditions Precedent. The following conditions must be satisfied
as of the Effective Date:
(a) DFS' Counsel. DFS' counsel must approve of all matters pertaining to (i)
title to the Collateral; (ii) the form, substance and due execution of all
Loan Documents; (iii) Borrower's organizational documents; and (iv) all
other legal matters, including the application of any laws relating to
usury.
(b) Material Change. There must not have been any material adverse change,
between September 30, 1996 and the Effective Date, in the condition of
Borrower, the condition of the Business, the value and condition of the
Collateral, the structure of Borrower other than as contemplated herein, or
in the financial information, audits and the like obtained by DFS.
(c) Perfected Liens. DFS shall have a perfected first priority Lien and
security interest in the Collateral, subject only to the Permitted Liens.
(d) Insurance. Borrower shall provide DFS with certificates of insurance
evidencing that Borrower has obtained the insurance as required in Section
9.1.2.
(e) Laws. Borrower and its Subsidiaries shall be in compliance with all
applicable laws and governmental regulations, including, but not limited to,
all Environmental Laws, the failure to comply with which would have a
material adverse effect on Borrower or its Subsidiaries, on a consolidated
basis, or the Business.
(f) Certificates of Good Standing. A certificate of good standing for
Borrower (or other similar certificate) must be delivered to DFS, from the
appropriate governmental authority of Borrower's state of incorporation and
other jurisdictions in which any material Collateral is located, dated not
earlier than 30 days prior to the Effective Date.
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(g) Opinion of Borrower's Counsel. DFS must receive a written opinion from
counsel for Borrower, dated the Effective Date, and addressed to and for the
benefit of DFS, in form and substance satisfactory to DFS.
(h) UCC Searches. DFS must receive a certificate from a provider of
financing statement searches acceptable to DFS which identifies all
financing statements of public record not more than 5 days before the
Effective Date, that pertain to the Collateral.
(i) Other Documents. DFS must receive such other documents, certificates,
submissions, insurance policies and other matters as reasonably requested by
DFS relating to the transaction herein contemplated.
(j) CFO's Certificate. DFS must receive a certificate in the form attached
hereto as Exhibit 7.1(j) with respect to Borrower's compliance with all of
the terms and conditions in the Loan Documents.
(k) Articles of Incorporation. A certified copy of the Articles of
Incorporation, By-Laws and the resolutions of the directors of Borrower
authorizing the transactions contemplated by this Agreement.
(l) Secretary's Certificate of Resolution and Incumbency. DFS must
receive a certificate in the form attached hereto as Exhibit 7.1(l).
(m) Pre-closing Expenses. Borrower shall pay to DFS all fees and expenses
required under this Agreement that are due on or before the Effective Date.
(n) Pre-closing Reviews. DFS must complete reviews with satisfactory
results of Borrower's Inventory and Accounts. All costs and expenses for
such pre-closing reviews will be included within the pre-closing expenses.
(o) Payoff Letter. A lien release and payoff letter executed by any and
all lienholders on any of the Collateral, other than with respect to the
Permitted Liens.
8. REPRESENTATIONS AND WARRANTIES
To induce DFS to enter into this Agreement, Borrower makes the
representations and warranties set forth below, all of which will remain true in
all material respects during the term of this Agreement. Borrower acknowledges
DFS' justifiable right to rely upon the representations and warranties set forth
below.
8.1 Financial Statements. Elcom's audited consolidated financial
statements as of December 31, 1995 and Elcom's unaudited consolidated financial
statements as of September 30, 1996, copies of which have been previously
submitted to DFS, have been prepared in conformity with GAAP and present fairly
the financial condition of Elcom and its consolidated Subsidiaries as at such
dates and the results of their operations for the periods then ended. Borrower
warrants and represents to DFS that all financial statements and information
relating to Borrower or any Guarantor which have been or may hereafter be
delivered by Borrower or any Guarantor, excluding any forecasts or projections,
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are true and correct and have been and will be prepared in accordance GAAP
excluding footnotes and, with respect to such previously delivered statements or
information, there has been no material adverse change in the financial or
business condition of Borrower or any Guarantor since the submission to DFS,
either as of the date of delivery, or, if different, the date specified therein,
and Borrower acknowledges DFS' reliance thereon.
8.2 Non-Existence of Defaults. Neither Borrower nor any of its
Subsidiaries is in default with respect to any material amount of its existing
Indebtedness. The making and performance of this Agreement and all other Loan
Documents, will not immediately, or with the passage of time, the giving of
notice, or both: (a) violate the provisions of the bylaws or any other corporate
document of Borrower; (b) violate any laws to the best of Borrower's knowledge
after diligent inquiry; (c) result in a material default under any contract,
agreement, or instrument to which Borrower is a party or by which Borrower or
its properties are bound; or (d) result in the creation or imposition of any
security interest in, or Lien or encumbrance upon, any of the Collateral except
the Permitted Liens.
8.3 Litigation. Set forth on Exhibit 8.3 is a list of all actions,
suits, investigations or proceedings pending or, in the knowledge of Borrower,
threatened against Borrower or any of its Subsidiaries, as of the date hereof in
which there is a reasonable probability of an adverse decision which would
materially and adversely affect Borrower, the Business, or the Collateral.
8.4 Material Adverse Changes. Borrower does not know of or reasonably
expect any material adverse change in the Business, or in Borrower's or any of
its Subsidiaries' assets, liabilities, properties, or condition, financial or
otherwise, including changes in Borrower's financial condition from September
30, 1996 through the Effective Date.
8.5 Title to Collateral. Except as set forth on Exhibit 8.5, Borrower
has good and marketable title to all of the Collateral, free and clear of any
and all Liens, claims and encumbrances, other than the Permitted Liens.
8.6 Corporate Status. Borrower and each of the Subsidiaries is a
corporation duly organized and validly existing, in good standing, with
perpetual corporate existence, under the laws of their respective jurisdictions
of formation. Borrower and its Subsidiaries have the corporate power and
authority to own their properties and to transact the Business in which they are
engaged and presently propose to engage. Borrower and each Subsidiary is duly
qualified as a foreign corporation and in good standing in all states where the
nature of their Business or the ownership or use of their property requires such
qualification, and where failure to so qualify would have a material adverse
effect on its Business, operations or financial condition.
8.7 Subsidiaries. Exhibit 8.7 hereto lists the Subsidiaries as of
the Effective Date, excluding, however, the Lantec Group.
8.8 Power and Authority. Borrower has the corporate power to borrow and
to execute, deliver and carry out the terms and provisions of the Loan
Documents. Borrower has taken or caused to be taken all necessary corporate
action to authorize the execution, delivery and performance of this Agreement
and all other Loan Documents and the borrowing thereunder.
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8.9 Place of Business. Catalink's chief executive office and principal
place of business is located at 00 Xxxxxx Xxx, Xxxxxxx, XX 00000. Catalink PA's
chief executive office and principal place of business is located at 000
Xxxxxxxx Xxxxxx, Xxxxxxx, XX 00000. Borrower's records concerning the Collateral
are kept at such chief executive offices, or will be kept at such other place
that Borrower informs DFS of not less than 30 days in advance of relocation.
8.10 Enforceability of the Loan Documents. The Loan Documents executed
by Borrower are the valid and binding obligations of Borrower and are
enforceable against Borrower in accordance with their terms, except as limited
by bankruptcy, insolvency, or other laws of general application relating to
equitable principles and the enforcement of creditors' rights.
8.11 Taxes. Catalink's federal tax identification number is 00-0000000.
Catalink PA's federal tax identification number is 00-0000000. Borrower has: (a)
filed all federal, state and local tax returns and other reports that it is
required by law to file, (b) paid or caused to be paid all taxes, assessments
and other governmental charges that are due and payable, the failure of which to
pay would have a material adverse effect on the Business, except those contested
in good faith and in accordance with accepted procedures, and for which adequate
reserves have been established in accordance with GAAP, and (c) made adequate
provision for the payment of such taxes, assessments or other charges accruing
but not yet payable. Borrower has no knowledge of any deficiency or additional
assessment in a material amount in connection with any taxes, assessments or
charges.
8.12 Compliance with Laws. Borrower, to the best of its knowledge after
diligent inquiry, has complied, and shall cause each Subsidiary to comply, in
all material respects with all applicable laws, including any Environmental Laws
and any zoning laws, the failure to comply with which would have a material
adverse effect on Borrower and its Subsidiaries on a consolidated basis.
8.13 Consents. Borrower and the Subsidiaries have obtained all material
consents, permits, licenses, approvals or authorization of, or effected the
filing, registration or qualification with, any governmental entity which is
required to be obtained or effected by Borrower and the Subsidiaries in
connection with the Business or the execution and delivery of this Agreement and
the other Loan Documents the failure of which to obtain or effect would have a
material adverse effect on Borrower and its Subsidiaries on a consolidated
basis.
8.14 Purpose. Borrower will use the advances which DFS makes under the
Credit Facility solely for lawful purposes and as described in Section 3 hereof.
8.15 Condition of the Business. All material assets used in the conduct
of the Business are in good operating condition and repair and are fully usable
in the ordinary course thereof, reasonable wear and tear excepted.
8.16 Capital. All issued shares and all outstanding shares in the
Subsidiaries are validly issued pursuant to proper authorization of the board of
directors of such Subsidiary, and are fully paid, and non-assessable. Except as
described on Exhibit 8.16, there are no outstanding subscriptions, warrants,
options, calls or commitments, obligations or securities convertible or
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exchangeable for shares of any stock of Elcom or the Subsidiaries. Elcom and the
Subsidiaries shall give DFS thirty days (30) prior written notice before
entering any agreement to register any new issues of equity or debt securities
under the Securities Act of 1933, as amended, or any state securities law, which
are not so registered on the Effective Date. All of Elcom's and the Subsidiary's
issued shares and outstanding capital stock are fully paid and non-assessable,
and each such Person's capital structure is as set forth on Exhibit 8.16,
excluding, however, the Lantec Group.
8.17 Location of Collateral. Exhibit 8.17 describes the locations where
any material amount of the Collateral is located or stored as of the date
hereof, excepting therefrom any location where a non-material amount of
Collateral utilized in the ordinary course of Business as equipment, fixtures or
sales or demonstration items.
8.18 Real Property. Neither Borrower nor any Subsidiary (excluding the
Lantec Group) owns or leases any real property where any material amount of the
Collateral is located or stored, except as set forth on Exhibit 8.18 attached
hereto.
8.19 Warranties and Representations-Accounts. For each Account listed
by Borrower on any Borrowing Base Certificate, Borrower warrants and represents
to DFS that at all times: (a) such Account is genuine; (b) such Account is not
evidenced by a judgment or promissory note or similar instrument or agreement;
(c) it represents an undisputed bona fide transaction completed in accordance
with the terms of the invoices and purchase orders relating thereto; (d) the
goods sold or services rendered which resulted in the creation of such Account
have been delivered or rendered to and are expected to be accepted by the
Account Debtor; (e) the amounts shown on the Borrowing Base Certificate,
Borrower's books and records and all invoices and statements delivered to DFS
with respect thereto are owing to Borrower and are not contingent; (f) no
payments have been or will be made thereon except payments turned over to DFS;
(g) there are no offsets, counterclaims or disputes existing or asserted with
respect thereto and Borrower has not made any agreement with the Account Debtor
for any deduction or discount of the sum payable thereunder except regular
discounts allowed by Borrower in the ordinary course of its business for prompt
payment; (h) there are no facts or events which in any way impair the validity
or enforceability thereof or reduce the amount payable thereunder from the
amount shown on the Borrowing Base Certificate, Borrower's books and records and
the invoices and statements delivered to DFS with respect thereto; (i) to the
best of Borrower's knowledge, all persons acting on behalf of the Account Debtor
thereon have the authority to bind the Account Debtor; (j) the goods sold or
transferred giving rise thereto are not subject to any Lien, claim, encumbrance
or security interest which is superior to that of DFS; (k) such Account is
subject to DFS' perfected, first priority security interest and no other Lien
other than a Permitted Lien; and (l) there are no proceedings or actions known
to Borrower which are threatened or pending against the Account Debtor thereon
which might reasonably be expected to result in any material adverse change in
such Account Debtor's financial condition.
Notwithstanding the foregoing provisions of Section 8.19(g) above, only that
portion of such Account equal to the offset, counterclaim or dispute shall not
be considered an Eligible Account.
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8.20 Environmental, Health and Safety Matters. Except as disclosed on
Exhibit 8.20: To the best of Borrower's knowledge: (a) the operations of
Borrower and each of the Subsidiaries complies in all material respects with (i)
all applicable Environmental Laws, and (ii) all applicable OSHA Laws; (b) none
of the operations of Borrower or any Subsidiary are subject to any judicial or
administrative proceeding alleging the Violation of any Environmental Law or
OSHA Law; (c) to the best of Borrower's knowledge, none of the operations of
Borrower or any Subsidiary is the subject of federal or state investigation
evaluating whether any remedial action is needed to respond to (i) a spillage,
disposal or release into the environment of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance, or (ii) any unsafe or unhealthful condition at any premises of
Borrower or any Subsidiary; (d) neither Borrower nor any Subsidiary has filed
any notice under any Environmental Law or OSHA Law indicating or reporting (i)
any past or present spillage, disposal or release into the environment of, or
treatment, storage or disposal of, any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance or (ii)
any unsafe or unhealthful condition at any premises of Borrower or any
Subsidiary; and (e) neither Borrower nor any Subsidiary has any known contingent
liability in connection with (i) any spillage, disposal or release into the
environment of, or otherwise with respect to, any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance or (ii) any unsafe or unhealthful condition at any premises of
Borrower or any Subsidiary.
8.21 Patents, Copyrights, Trademarks, Etc. The Borrower and each of the
Subsidiaries possesses or has the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of its business, without known material conflict with the rights of
others. All such licenses, patents, trademarks, trade names, service marks and
copyrights, and applications therefor existing on the date hereof are listed on
Exhibit 8.21.
8.22 Solvency. The Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent and
able to pay its respective debts as they mature.
8.23 Leases. Exhibit 8.23(a) attached hereto is a complete listing of
all material capitalized leases of Borrower and Exhibit 8.23(b) attached hereto
is a complete listing of all material operating leases of Borrower.
8.24 Labor Relations. Except as described on Exhibit 8.24 attached
hereto and made a part hereof, neither Borrower nor any of its Subsidiaries is a
party to any collective bargaining agreement, and there are no material
grievances, disputes or controversies with any union or any other organization
of Borrower's employees, or threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or organization.
8.25 Business Locations; Agent for Process. Except as described on
Exhibit 8.25 attached hereto and made a part hereof, during the preceding seven
(7) year period, Borrower has had no office, place of business
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or agent for service of process located in any state or county other than as
shown Exhibit 8.17, provided, however, that with respect to the predecessor
corporation to Catalink PA, Borrower makes the foregoing representation only to
the best of Borrower's knowledge.
8.26 Warranties and Representations-Inventory. For each item of
Inventory listed by Borrower on any Borrowing Base Certificate, Borrower
covenants, warrants and represents to DFS that at all times: (a) except for
Inventory in transit, Inventory will be kept only at the locations indicated on
Exhibit 8.17; (b) no Inventory is or will be produced in violation of the
Federal Fair Labor Standards Act; (c) Borrower now keeps and will keep
materially correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and the listed
selling price thereof, the daily withdrawals therefrom and the additions
thereto; (d) Inventory is not and will not be stored with a bailee, repairman,
warehouseman or similar party without DFS' prior written consent, and Borrower
will, concurrently with delivery to such party, cause any such party to issue
and deliver to DFS, in form acceptable to DFS, warehouse receipts, in DFS' name
evidencing the storage of such Inventory, and waivers of warehouseman's liens in
favor of DFS; (e) Borrower will pay all taxes, rents, business taxes, and the
like on the premises where the Inventory is located; and (f) Borrower will not
rent, lease, lend, demonstrate, pledge, consign, transfer or secrete any of the
Inventory or use any of the Inventory for any purpose other than exhibition and
sale to buyers in the ordinary course of business, without DFS' prior written
consent.
8.27 Reaffirmation. Each request for a Loan made by Borrower pursuant
to this Agreement or any of the other Loan Documents shall constitute (a) an
automatic representation and warranty by Borrower to DFS that there does not
then exist any Default or Unmatured Default, and (b) a reaffirmation as of the
date of said request of all of the representations and warranties of Borrower
that are not being made as of a specific date contained in this Agreement and
the other Loan Documents.
8.28 Survival of Representations and Warranties. Borrower covenants,
warrants and represents to DFS that all representations and warranties of
Borrower contained in this Agreement or any of the other Loan Documents shall be
true at the time of Borrower's execution of this Agreement and the other Loan
Documents, and shall survive the execution, delivery and acceptance thereof by
DFS and the parties thereto and the closing of the transactions described
therein or related thereto.
9. BORROWER'S COVENANTS
9.1 Affirmative Covenants. During the term of this Agreement and
thereafter for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to by DFS in writing, it shall perform
all the acts and promises required by this Agreement and all the acts and
promises set forth below.
9.1.1 Payment and Performance. Borrower will pay and perform
all Obligations in full when and as due hereunder.
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9.1.2 Insurance.
(a) Type of Insurance. Borrower will at all times cause the
Business and the Collateral to be insured by insurers of
reasonable financial soundness and having an A. M. Best
rating of A or better, with such policies, against such
risks and in such amounts as are appropriate for reasonably
prudent businesses in Borrower's industry and of Borrower's
size and financial strength.
(b) Requirements as to Insurance Policies. The policies of
insurance which Borrower is required to carry shall comply
with the requirements listed below:
(i) Each such policy shall provide that it may not be
canceled or allowed to lapse at the end of a policy period
without at least 30 days' prior written notice to DFS;
(ii) Each liability and hazard insurance policy shall
name DFS as an additional insured; and
(iii) Each property insurance policy required hereunder
shall contain a standard lender's loss payable clause in
favor of DFS. Such insurance policies shall also contain
lender's loss payable endorsements satisfactory to DFS
providing, among other things, that any loss shall be
payable in accordance with the terms of such policy
notwithstanding any act of Borrower which might otherwise
result in forfeiture of such insurance;
(c) Collection of Claims. Borrower will promptly advise DFS
of any insured casualty and Borrower agrees that DFS may
direct all insurance proceeds therefrom to be paid directly
to DFS to the extent that such loss is not adequately
insured under an insurance policy which names DFS as a loss
payee, and hereby appoints DFS its attorney-in-fact for
such purpose.
(d) Blanket Policies. Any insurance required hereunder
may be supplied by means of a blanket or umbrella
insurance policy.
(e) Delivery of Policies or Certificates of Insurance.
Borrower shall deliver to DFS certificates of insurance
issued by insurers to evidence that the insurance
maintained by Borrower complies with the requirements
hereunder.
9.1.3 Collection of Receivables; Sale of Inventory. Borrower will
collect its Accounts and sell its Inventory only in the ordinary course of
business, unless written permission to the contrary is obtained from DFS.
9.1.4 Notice of Litigation and Proceedings. Borrower will give
prompt notice to DFS of: (a) any material litigation or proceeding
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(including fines and penalties of any public authority) in which it, or any of
the Subsidiaries is a party in which there is a reasonable probability of an
adverse decision which would require it or any of the Subsidiaries to pay money
or deliver assets, whether or not the claim is considered to be covered by
insurance; (b) any class action litigation against it, regardless of size; and
(c) the institution of any other suit or proceeding that might reasonably be
expected to materially and adversely affect its or any of its Subsidiary's
operations, financial condition, property or the Business.
9.1.5 Payment of Indebtedness to Third Persons. Borrower will, and
will cause each Subsidiary to, pay, when due, all Indebtedness and any other
liability due third persons, except when the amount thereof is being contested
in good faith by appropriate proceedings and with adequate reserves therefor in
accordance with GAAP being set aside by Borrower or such Subsidiary.
9.1.6 Notice of Change of Business Location. Borrower will notify
DFS 30 days in advance of: (a) any change in or discontinuation of the locations
listed on Exhibit 8.17, Borrower's principal place of business, or any of the
Subsidiaries' existing offices or places of business, (b) the establishment of
any new places of business relating to the Business which would be required to
be set forth on Exhibit 8.18, and (c) any change in or addition to the locations
where Borrower's Inventory or records are kept.
9.1.7 Payment of Taxes. Borrower will, and will cause each
Subsidiary to, pay or cause to be paid, prior to delinquency, all taxes,
assessments and charges or levies imposed upon it or on any of its property or
that it is required to withhold and pay over to the taxing authority or that it
must pay on its income, the failure of which to pay would have a material
adverse effect on Borrower individually, or on Borrower and the Subsidiaries on
a consolidated basis, except where contested in good faith by appropriate
proceedings with adequate reserves therefor, in accordance with GAAP, having
been set aside by Borrower or such Subsidiary. However, Borrower will and will
cause each Subsidiary to, pay or cause to be paid all such taxes, assessments,
charges or levies immediately whenever foreclosure of any Lien that attaches on
the Collateral reasonably appears to be imminent.
9.1.8 Further Assurances. Borrower agrees to, and will cause each
Subsidiary (excluding the Lantec Group) to, execute such other and further
documents, including, without limitation, deeds of trust, promissory notes,
security agreements, financing statements, continuation statements, certificates
of title, and the like as may from time to time in the reasonable opinion of DFS
be necessary to perfect, confirm, establish, re-establish, continue, or complete
the security interests, collateral assignments and Liens in the Collateral, and
the purposes and intentions of this Agreement.
9.1.9 Maintenance of Status. Borrower will take all necessary
steps to (a) preserve its, and each Subsidiary's, existence as a corporation,
(b) preserve Borrower's and the Subsidiaries' franchises and permits, and (c)
comply with all present and future material agreements to which Borrower, or any
of the Subsidiaries, is subject, and (d) maintain, and cause each Subsidiary to
maintain, its qualification and good standing in all states in which such
qualification is necessary or in which the failure to be so qualified might have
a material adverse effect on the financial condition or properties of Borrower
or the Business. Borrower will not change the nature of the Business during the
term of this Agreement.
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9.1.10 Financial Statements; Reporting Requirements;
Certification as to Events of Defaults. During the term of this Agreement,
Borrower will furnish two copies of the following to DFS:
(a) within 120 days after the end of each fiscal year, annual
financial statements for Elcom and its Subsidiaries as of the end
of such fiscal year, consisting of a consolidated balance sheet,
consolidated statement of operations, consolidated statements of
cash flows and consolidated statement of stockholder's equity, in
comparative form, together with a narrative description of the
financial condition and results of operations and the liquidity
and capital resources of Elcom and its Subsidiaries and setting
forth in comparative form the corresponding figures for the
corresponding period of the prior fiscal year discussing the
reasons for any significant variations. The statements and balance
sheet will be audited by an independent firm of certified public
accountants selected by Elcom and acceptable to DFS (DFS hereby
confirming that Xxxxxx Xxxxxxxx LLP and Touche Xxxx are such
acceptable accountants), and certified by that firm of certified
public accountants to have been prepared in accordance with GAAP.
The certified public accountants will render an unqualified
opinion as to such statements and balance sheets. DFS hereby
acknowledges that any such consolidating financial statements may
need subsequent adjustments. DFS will have the absolute and
irrevocable right, from time to time, to discuss the affairs of
Elcom and its Subsidiaries directly with the independent certified
public accountant after prior notice to Elcom and the reasonable
opportunity of Elcom and its Subsidiaries to be present at any
such discussions;
(b) by the 45th day of each quarter, Elcom's Quarterly Report on
Form 10-Q delivered to the Securities and Exchange Commission
("SEC");
(c) by the 45th day of each quarter, a certificate of the
President, or Chief Financial Officer, in the form of Exhibit
9.1.10(c) attached hereto, of Borrower stating that such Person
has reviewed the provisions of the Loan Documents and that a
review of the activities of Borrower during such quarter has been
made by or under such Person's supervision with a view to
determining whether Borrower has observed and performed all of
Borrower's obligations under the Loan Documents, and that, to the
best of such Person's knowledge, information and belief, on behalf
of the Borrower and in such Person's capacity as an officer of
Borrower, Borrower has observed and performed each and every
undertaking contained in the Loan Documents and is not at the time
in default in the observance or performance of any of the terms
and conditions thereof or, if Borrower will be so in default,
specifying all of such defaults and events of which such Person
may have knowledge;
(d) by the end of each fiscal year, an annual budget, balance
sheet and income statement with cash flow projections for the
following fiscal year; all such information shall be subject to
DFS' obligation of confidentiality to Borrower, but which shall
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permit DFS to share such information with any participant in the
Loans;
(e) promptly upon receipt thereof, copies of all final reports and
final management letters submitted to Elcom or any of the
Subsidiaries (excluding the Lantec Group) by independent
accountants in connection with any annual or interim audit of the
books of Elcom or such Subsidiaries made by such accountants;
(f) copies of any and all reports, filings and other documentation
delivered to the SEC by or on behalf of Elcom promptly after the
delivery thereof, including but not limited to the Annual Report
on Form 10-K; and
(g) any other statements, reports and other information as DFS may
reasonably request concerning the financial condition or
operations of Borrower, Elcom and their respective properties.
Beginning with the calendar year commencing January 1, 1998 and
thereafter, Borrower shall be obligated to deliver to DFS consolidating
financial statements in the form and at the times required for the foregoing
financial statements.
9.1.11 Notice of Existence of Default. Borrower will, and will
cause its Subsidiaries to, promptly notify DFS of: (a) the existence of any
known condition or event, which constitutes a Default or an Unmatured Default
and (b) the actual or threatened termination, suspension, lapse or
relinquishment of any material license, authorization, permit or other right
granted Borrower or for Borrower's benefit and used in the Business, or granted
to any of its Subsidiaries or for any such Subsidiaries' benefit, by any
governmental agency material to the Business.
9.1.12 Compliance with Laws. Borrower will, and will cause its
Subsidiaries to, comply in all material respects with all applicable laws,
rules, regulations and orders to the extent non-compliance therewith would have
a material adverse effect on the condition (financial or otherwise) of Borrower,
the Business or the Collateral.
9.1.13 Maintenance of Collateral. Borrower will maintain all
material Collateral and every part thereof in good condition and repair,
ordinary wear and tear excepted. Borrower will not permit the value of the
Collateral to be materially impaired. Borrower will defend the Collateral
against all claims and legal proceedings by persons other than DFS. Borrower
will not transfer the Collateral from the premises where now located (other than
Inventory sold in the ordinary course of business and other Collateral
transferred in the ordinary course of business), or permit any material
Collateral to become a fixture or accession (unless so affixed on the Effective
Date) to any goods which are not items of Collateral, without the prior written
approval of DFS. Borrower will not permit the Collateral to be used in violation
of any applicable law, regulations, or any policy of insurance the violation of
which would have a material adverse effect on the condition (financial or
otherwise) of Borrower, the Business or the Collateral. As to Collateral
consisting of instruments and chattel paper, Borrower will preserve rights in it
against prior parties.
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9.1.14 Collateral Records and Statements. Borrower will keep such
accurate and complete books and records pertaining to the Collateral in such
detail and form as DFS reasonably requires, including, but not limited to:
schedules of inventory; original orders; invoices; shipping documents; billing
settlements and receivables; sold receivables; Inventory listing containing
model, serial number (if available) and location. Other reporting will be
available upon request by DFS, including, but not be limited to, accounts
payable agings in such form as the DFS' reasonably requires, but, with respect
to any accounts payable agings, only to the extent that Borrower's information
system is capable of producing such reports. The statements will be in the form
and will contain the information as is reasonably prescribed by DFS.
9.1.15 Inspection of Collateral. DFS and any third party appraiser
selected by DFS may examine the Collateral at any time, and from time to time
during normal business hours. DFS and any third party appraiser selected by DFS
will have full access to, and the right to: (a) review, inspect and make
abstracts and copies from Borrower's books and records pertaining to the
Collateral, and (b) inspect and examine Inventory and check and test the same as
to quality, quantity, Value and condition, wherever located, at any time during
reasonable business hours, and from time to time. Borrower will assist DFS and
any third party appraiser selected by DFS in so doing. Borrower will pay a fee
to DFS in the amount of $2,250 per quarter for such Collateral reviews and any
other reviews performed under the Loan Documents as frequently as DFS shall
reasonably determine, but at least quarterly, and Borrower agrees that such fee
is not interest but rather reimburses DFS for its out-of-pocket and allocated
overhead expenses incurred in conducting such audits.
9.1.16 Landlord's Agreements. Borrower will provide or cause to be
provided, on the Effective Date, landlord waivers and agreements in a form
acceptable to DFS, as DFS shall reasonably request, with respect to leased real
property as described on Exhibit 8.17, as applicable, and with respect to any
future leases which would be required to be listed on Exhibit 8.17, prior to
entering into them.
9.1.17 Reimbursement for Bank Charges. Borrower will reimburse
DFS for all charges made by banks for collection of checks and other items of
payment and for transfer of funds to or from Borrower.
9.2 Negative Covenants. During the term of this Agreement and
thereafter, for so long as any Obligations are outstanding and unpaid, Borrower
covenants that unless otherwise consented to in writing by DFS, Borrower shall
not perform or cause or permit to be performed the following acts:
9.2.1 Change of Name, Etc. Borrower and the Subsidiaries
(excluding the Lantec Group) will not change their name, or begin to trade under
any assumed names or trade names without thirty (30) days prior written notice
to DFS. Borrower will not, and will not permit any Subsidiary (excluding the
Lantec Group) to, change its manner of organization, enter into any mergers,
consolidations, reorganizations or recapitalizations without DFS' prior written
consent other than as contemplated herein, except for any such transaction which
results in the indefeasible satisfaction in full of all Obligations to DFS and
termination of this Agreement in accordance with the terms hereof.
9.2.2 Sale or Transfer of Assets. Except in the ordinary course of
business, or except as consented to in writing by DFS, Borrower and
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the Subsidiaries will not sell, transfer, lease (including sale-leaseback) or
otherwise dispose of all or any substantial part of their assets. This provision
will not apply to any sale if the proceeds of such sale pay the Obligations in
full.
9.2.3 Encumbrance of Assets. Borrower will not, and will not
permit a Subsidiary to, mortgage, pledge, grant or permit to exist a security
interest in or Lien upon any of the Collateral, now owned or hereafter acquired
except for the Permitted Liens.
9.2.4 Acquisition of Stock or Assets; New Subsidiaries. Borrower
and the Subsidiaries (excluding the Lantec Group) will not, without DFS' prior
written consent, which consent shall not be unreasonably withheld, acquire, or
enter into any agreement, commitment letter or letter of intent to acquire, all
or substantially all the assets of, equity interest or stock in, another
business, nor will the Borrower hereafter create any new United States
Subsidiaries.
9.2.5 False Certificates or Documents. Borrower has not and will
not, and will not permit any Subsidiary to, furnish DFS with any certificate or
other document that contains any untrue statement of material fact or that omits
to state a material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
9.2.6 Assignment. Borrower will not assign or attempt to assign
the Loan Documents or any of its interests under the Loan Documents, except in
favor of DFS.
9.2.7 Transactions with Affiliates. Borrower will not enter into
any contracts, leases, sales or other transactions with any Affiliate on terms
less favorable than could be obtained generally by Borrower from a
non-Affiliate.
9.2.8 [Reserved]
9.2.9 Capital Expenditures. Borrower will not make, or commit to
make, any expenditure for capital improvements (including, without limitation,
capitalized leases) or the acquisition of capital goods in excess of Seven
Million Five Hundred Thousand Dollars ($7,500,000) per year without the prior
written consent of DFS.
9.2.10 Loans by Borrower. Except for the loans described on
Exhibit 9.2.10 attached hereto, which such loans shall not be amended, modified,
refinanced or otherwise revised without the prior written consent of DFS, upon
the occurrence and during the continuance of a Default of the financial
covenants set forth in Section 9.3 hereof, Borrower will not, and will not
permit any Subsidiary (excluding the Lantec Group) to, make any loan to any
Person, except for loans in anticipation of reasonable and normally reimbursable
business expenses and trade credit extended in the ordinary course of Business.
9.2.11 Fiscal Year. Borrower will not, and will not permit any
Subsidiary (excluding the Lantec Group) to, change its fiscal year-end without
sixty (60) days prior written notice to DFS.
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9.2.12 Total Indebtedness. Borrower shall not create, incur,
assume, or suffer to exist, or permit any Subsidiary (excluding the Lantec
Group) to create, incur or suffer to exist, any Indebtedness, except:
(a) the Obligations;
(b) Subordinated Debt;
(c) Indebtedness of any Subsidiary to Borrower; and
(d) Accounts payable to trade creditors and current operating
expenses (other than for money borrowed) incurred in the ordinary
course of business which are aged not more than thirty (30) days
past due, unless actively contested in good faith and by
appropriate and lawful proceedings and for which adequate reserves
have been established in accordance with GAAP; and
(e) Permitted Purchase Money Indebtedness;
9.2.13 Adverse Transactions. Borrower will not enter into any
transaction, or permit any Subsidiary to enter into any transaction, which
materially and adversely affects or may materially and adversely affect the
Collateral or Borrower's ability to repay the Obligations or permit or agree to
any material extension, compromise or settlement or make any change or
modification of any kind or nature with respect to any Account, including any of
the terms relating thereto, other than discounts and allowances in the ordinary
course of business, all of which shall be reflected in the Borrowing Base
Certificate submitted to DFS pursuant to Section 3.3 of this Agreement.
9.2.14 Guaranties. Borrower will not guarantee, assume, endorse or
otherwise, in any way, become directly or contingently liable with respect to
the Indebtedness of any Person, except by endorsement of instruments or items of
payment for deposit or collection and except for that certain Guaranty in favor
of IBM Credit Corporation dated as of November 21, 1996 given by Catalink on
behalf of Catalink PA.
9.2.15 Xxxx-and-Hold Sales, Etc. Borrower will not make a sale to
any customer on a xxxx-and-hold, guaranteed sale, sale and return, sale on
approval or consignment basis, or any sale on a repurchase or return basis,
except, with respect to xxxx-and-hold sales, for such sales in the ordinary
course of Borrower's business.
9.2.16 [RESERVED]
9.2.17 Margin Securities. Borrower will not own, purchase or
acquire, or permit any Subsidiary to own, purchase or acquire, (or enter, or
permit any Subsidiary to enter, into any contract to purchase or acquire) any
"margin security" as defined by any regulation of the Federal Reserve Board as
now in effect or as the same may hereafter be in effect unless, prior to any
such purchase or acquisition or entering into any such contract, DFS shall have
received an opinion of counsel satisfactory to DFS to the effect that such
purchase or acquisition will not cause this Agreement to violate Regulations G
or U or any other regulation of the Federal Reserve Board then in effect.
9.2.18 [RESERVED]
9.2.19 Tax Consolidation. Borrower will not file or consent to
the filing of any consolidated income tax return with any Person other than a
Subsidiary or Elcom.
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9.2.20 Stock Redemption. Borrower will not redeem or purchase any
of its outstanding capital stock, warrants in favor of anyone other than DFS, or
stock options or convert or permit such stock, warrants or options to be
converted into cash, nor has or shall Borrower guaranty to any of its
shareholders any minimum stock price or valuation.
9.3 FINANCIAL COVENANTS.
9.3.1 Amounts.
(a) Borrower agrees that on a consolidated basis with Elcom, it will at
all times maintain the following:
(i) a Tangible Net Worth plus Subordinated Debt in the combined
amount of not less than Forty-Five Million Dollars ($45,000,000);
(ii) a ratio of Debt to Tangible Net Worth plus Subordinated Debt
of not more than Three and one-half to One (3.5:1.0);
(b) During any fiscal year of Elcom, not more than one fiscal quarter
thereof shall evidence a before tax loss, excluding any expense charges
relating to the Intangibles, as determined in accordance with GAAP; and
(c) For each fiscal year of Elcom, Elcom shall achieve before tax
income, excluding any expense charges relating to the Intangibles, as
determined in accordance with GAAP, of not less than one dollar
($1.00).
For purposes of this paragraph: (i) "Tangible Net Worth" means the book
value of Borrower's assets less liabilities (including as liabilities
all reserves for contingencies and other potential liabilities),
excluding from such assets all Intangibles; (ii) "Intangibles" means
and includes general intangibles (as that term is defined in the
Uniform Commercial Code); accounts receivable and advances due from
officers, directors, member, owner, employees, stockholders and
affiliates; leasehold improvements net of depreciation; licenses; good
will; prepaid expenses; escrow deposits; covenants not to compete; the
excess of cost over book value of acquired assets; franchise fees;
organizational costs; finance reserves held for recourse obligations;
capitalized research and development costs; and such other similar
items as DFS may from time to time determine in DFS' sole discretion;
(iii) "Debt" means all of Borrower's liabilities and indebtedness for
borrowed money of any kind and nature whatsoever other than
Subordinated Debt (as defined below), whether direct or indirect,
absolute or contingent, and including obligations under capitalized
leases, guaranties or with respect to which Borrower has pledged assets
to secure performance, whether or not direct recourse liability has
been assumed by Borrower; provided that Debt shall not include any
liability item on Elcom's financial statements which represents a
minority ownership interest in any Subsidiary; and (iv) "Subordinated
Debt" means all of Borrower's Debt which is subordinated to the payment
of Borrower's liabilities to DFS by an agreement in form and substance
satisfactory to DFS plus any liability item on Elcom's financial
statements which represents a
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minority ownership interest in any Subsidiary. The foregoing terms will
be determined in accordance with GAAP consistently applied, and on a
consolidated basis based upon the consolidated and consolidating
financial statements of Elcom ("Financial Covenants").
9.3.2 Covenant Compliance Certificate. The President or Chief
Financial Officer of Elcom will certify to DFS by the 10th Business day after
Elcom's filing of its 10-Q with the SEC, or more often if requested by DFS, that
Borrower is in compliance with the Financial Covenants as set forth in a form
acceptable to DFS in its sole discretion.
10. DEFAULT/REMEDIES
Borrower will be in default under this Agreement (each, a "Default")
if:
(a) Borrower breaches any terms, covenants, warranties or
representations contained herein, or in any other Loan Document;
(b) any Guarantor breaches any terms, covenants, warranties or
representations contained in any guaranty or other agreement between the
Guarantor and DFS;
(c) any representation, statement, report or certificate made or
delivered by Borrower or any Guarantor to DFS is not accurate when made;
(d) Borrower fails to pay any portion of Borrower's debts to DFS when
due and payable hereunder or under any other agreement between DFS and Borrower;
(e) Borrower abandons any Collateral;
(f) Borrower or any Guarantor is or becomes in default in the payment
of any debt owed to any third party;
(g) a money judgment issues against Borrower or any Guarantor which,
in the aggregate, at any time exceed $1,000,000;
(h) an attachment, sale or seizure issues or is executed against any
assets of Borrower or against any assets of any Guarantor;
(i) any individual Guarantor dies;
(j) Borrower ceases existence as a corporation, partnership, trust or
limited liability company;
(k) Borrower ceases or suspends business;
(l) Borrower or any Guarantor makes a general assignment for the
benefit of creditors;
(m) Borrower or any Guarantor becomes insolvent or voluntarily or
involuntarily becomes subject to the Federal Bankruptcy Code, any state
insolvency law or any similar law;
(n) any receiver is appointed for any of Borrower's or any Guarantor's
assets;
(o) any guaranty of Borrower's debts to DFS is terminated without the
prior written consent of DFS;
(p) Borrower loses any material franchise, permission, license or
right to sell or deal in any Collateral;
(q) Borrower or any Guarantor misrepresents Borrower's or such
Guarantor's financial condition or organizational structure;
(r) any of the Collateral becomes subject to any Lien, claim,
encumbrance or security interest other than a Permitted Lien;
(s) Borrower shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any material
part of its Business; or any material lease or agreement pursuant to which
Borrower leases, uses or occupies any property shall be canceled or terminated
prior to the expiration of its stated term, or any part of the Collateral shall
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be taken through condemnation or the value thereof shall be impaired through
condemnation;
(t) Xxxxxx X. Xxxxxxx shall cease to beneficially own or control (by
vote) at least 10% of the issued and outstanding capital stock of Elcom; or
(u) DFS determines in good faith that it is insecure with respect to
any of the Collateral or the payment of any part of Borrower's Obligations.
In the event of a Default:
(i) DFS may at any time at DFS' election, without notice or demand to
Borrower, do any one or more of the following: cease making further
Loans and declare all or any of the Obligations immediately due and
payable, together with all costs and expenses of DFS' collection
activity, including, without limitation, all reasonable attorneys'
fees; exercise any or all rights under applicable law (including,
without limitation, the right to possess, transfer and dispose of the
Collateral); and/or cease extending any additional credit to Borrower.
(ii) Borrower will segregate and keep the Collateral in trust for DFS, and
in good order and repair, and will not sell, rent, lease, consign,
otherwise dispose of or use any Collateral, nor further encumber any
Collateral.
(iii) Upon DFS' oral or written demand, Borrower will immediately deliver
the Collateral to DFS, in good order and repair, at a place specified
by DFS, together with all related documents; or DFS may, in DFS' sole
discretion and without notice or demand to Borrower, take immediate
possession of the Collateral together with all related documents.
(iv) DFS may, without notice, apply the Default Interest Rate.
(v) DFS may, without notice to Borrower and at any time or times
hereafter enforce payment and collect, by legal proceedings or
otherwise, Accounts in the name of Borrower or DFS; and take control
of any cash or non-cash items of payment or proceeds of Accounts and
of any rejected, returned, repossessed or stopped in transit goods
relating to Accounts. DFS may at its sole election and without demand
enter, with or without process of law, any premises where Collateral
might be and, without charge or liability to DFS therefor do one or
more of the following: (i) take possession of the Collateral and use
or store it in said premises or remove it to such other place or
places as DFS may deem convenient; (ii) take possession of all or part
of such premises and the Collateral and place a custodian in the
exclusive control thereof until completion of enforcement of DFS'
security interest in the Collateral or until DFS' removal of the
Collateral and, (iii) remain on such premises and use the same,
together with Borrower's materials, supplies, books and records, for
the purpose of liquidating or collecting such Collateral and
conducting and preparing for disposition of such Collateral.
(vi) Upon the occurrence of a Default under Sections 10. (l), (m), or (n),
all Obligations shall automatically be accelerated and due and payable
and the Default Interest Rate shall automatically apply as of the date
of the first occurrence of such Default, without any prior notice,
demand or action of any type on the part of DFS.
All of DFS' rights and remedies are cumulative. DFS' failure to exercise any
of DFS' rights or remedies hereunder will not waive any of DFS' rights or
remedies as to any past, current or future Default.
11. SALE OF COLLATERAL
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Borrower agrees that if DFS conducts a private sale of any Collateral
by requesting bids from 10 or more dealers or distributors in that type of
Collateral, any sale by DFS of such Collateral in bulk or in parcels within 120
days of: (a) DFS' taking possession and control of such Collateral; or (b) when
DFS is otherwise authorized to sell such Collateral; whichever occurs last, to
the bidder submitting the highest cash bid therefor, is a commercially
reasonable sale of such Collateral under the Uniform Commercial Code. Borrower
agrees that the purchase of any Collateral by a vendor, as provided in any
agreement between DFS and the vendor, if any, is a commercially reasonable
disposition and private sale of such Collateral under the Uniform Commercial
Code, and no request for bids shall be required. Borrower further agrees that 7
or more days prior written notice will be commercially reasonable notice of any
public or private sale (including any sale to a vendor). Borrower irrevocably
waives any requirement that DFS retain possession and not dispose of any
Collateral until after an arbitration hearing, arbitration award, confirmation,
trial or final judgment. If DFS disposes of any such Collateral other than as
herein contemplated, the commercial reasonableness of such disposition will be
determined in accordance with the laws of the state governing this Agreement.
12. INDEMNIFICATIONS
12.1 General Indemnity. In addition to the payment of reasonable
expenses and attorneys' fees, if applicable, whether or not the transactions
contemplated hereby shall be consummated, Borrower agrees to indemnify, pay and
hold DFS and the officers, directors, employees, agents, and affiliates of DFS
and such holders (collectively called the "Indemnitees") harmless from and
against, any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for any of such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not any of such Indemnitees shall be designated a party thereto),
that may be imposed on, incurred by, or asserted against the Indemnitees, in any
manner relating to or arising out of the Loan Documents, the statements
contained in any commitment letters delivered by DFS, DFS' agreement to make the
Loans or any other payment hereunder, or the use or intended use of the proceeds
of any of the Loans hereunder (the "Indemnified Liabilities"); provided,
however, that Borrower shall have no obligation to an Indemnitee hereunder with
respect to Indemnified Liabilities in any manner relating to or arising from the
gross negligence or willful misconduct of an Indemnitee. To the extent that the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, Borrower shall contribute the maximum portion that it is permitted to
pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them. The
provisions of the undertakings and indemnification set out in this Section 12.1
shall survive satisfaction and payment of the Obligations and termination of
this Agreement.
12.2 Environmental and Safety and Health Indemnity. Borrower hereby
indemnifies the Indemnitees and agrees to hold the Indemnitees harmless from and
against any and all losses, liabilities, damages, injuries, costs, expenses and
claims of any and every kind whatsoever (including, without
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limitation, court costs and reasonable attorneys' fees) which at any time or
from time to time may be paid, incurred or suffered by, or asserted against, an
Indemnitee for, with respect to, or as a direct or indirect result of the
violation by Borrower or any Subsidiary, of any Environmental Law or OSHA Law;
or with respect to, or as a direct or indirect result of (a) the presence on or
under, or the escape, seepage, leakage, spillage, disposal, discharge, emission
or release from, properties utilized by Borrower and/or any Subsidiary in the
conduct of its business into or upon any land, the atmosphere, or any
watercourse, body of water or wetland, of any Hazardous Material or other
hazardous, toxic or dangerous waste, substance or constituent, or other
substance (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under the Environmental
Laws) or (b) the existence of any unsafe or unhealthful condition on or at any
premises utilized by Borrower and/or any Subsidiary in the conduct of its
business. The provision of and undertakings and indemnification set out in this
Section 12.2 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
13. OTHER TERMS
13.1 Amendment, Changes and Modification. The Loan Documents may be
amended, changed or modified only as may be agreed upon in writing by Borrower
and DFS from time to time.
13.2 Binding Effect. The Loan Documents will be binding upon the
parties, their successors and assigns, provided, however, that Borrower shall
not assign or attempt to assign this Agreement, any other Loan Document or any
of its interests under the Loan Documents, without the prior written consent of
DFS.
13.3 Broker Fee. Neither party is obligated to pay any premium or
other charge, brokerage fee or commission in connection with the agreements set
forth herein. Each party will indemnify the other and hold it harmless from any
such claim arising out of such party's acts or those of its representatives.
13.4 Entire Agreement. The Loan Documents embody the entire agreement
of the parties relating to the Credit Facility. There are no promises, terms,
conditions, obligations or warranties other than those contained in the Loan
Documents. The Loan Documents supersede all prior communications,
representations or agreements, verbal or written, between the parties relating
to the Credit Facility.
13.5 Headings. The headings to the sections of this Agreement are
included only for the convenience of the parties and will not have the effect of
defining, diminishing or enlarging the rights of the parties or affecting the
construction or interpretation of any portion of this Agreement.
13.6 Incorporation by Reference. All other Loan Documents are
incorporated herein by this reference and are made a part of this Agreement as
if fully set forth herein. This Agreement, prior to such incorporation, controls
in the event of any conflict with the terms of any other Loan Documents.
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13.7 Interpretation. For the purpose of construing this Agreement,
unless the context otherwise requires, words in the singular will be deemed to
include words in the plural, and vice versa.
13.8 Notices. Any notice under the Loan Documents, will be in writing.
Any notice to be given or document to be delivered under the Loan Documents will
be deemed to have been duly given upon delivery, if delivered in person or by
any expedited delivery service which provides proof of delivery, upon tested
telex or facsimile transmission, or on the fifth Business Day after mailing, if
mailed by certified mail, return receipt requested, postage prepaid mail,
addressed to DFS or Borrower at the appropriate addresses. DFS will use
reasonable efforts to deliver any notice DFS is required to give to Borrower;
provided, however, that failure by DFS to actually give any such notice will not
be deemed to be a waiver of any rights or remedies of DFS. The addresses for
notices are those set forth below or such other addresses as may be hereafter
specified by written notice by the parties:
to DFS: Deutsche Financial Services Corporation
000 Xxxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Regional Vice President
Facsimile No.: (000) 000-0000
with a copy to: Deutsche Financial Services Corporation
000 Xxxxxxxxx Xxxxxx Xxxxx
Xx. Xxxxx, XX 00000-0000
Attention: General Counsel
Facsimile No.:(000) 000-0000
to Borrower: Catalink Direct, Inc.
00 Xxxxxx Xxx
Xxxxxxx, XX 00000
Attention: Chief Financial Officer
Facsimile No.: (000) 000-0000
with a copy to: Xxxxxx, Halter & Xxxxxxxx
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxx 00000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
Facsimile No.: (000) 000-0000
13.9 No Third Party Beneficiary Rights and Reliance. No Person not a
party to this Agreement will have any benefit under this Agreement nor have
third-party beneficiary rights as a result of any of the Loan Documents, nor
will any party be entitled to rely on any actions or inactions of DFS or its
agents, all of which are done for the sole benefit and protection of DFS.
13.10 Protection or Preservation of Collateral. DFS will not have any
contractual duty to protect, insure, collect or realize upon the Collateral or
preserve rights in it against prior parties. DFS will not be responsible or
liable for any shortage, discrepancy, damage, loss or destruction of any part of
the Collateral regardless of the cause, other than any such shortage,
discrepancy, damage, loss, or destruction to the Collateral in any manner
relating to or arising from the gross negligence or willful misconduct of DFS.
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13.11 Relationship of the Parties. Neither DFS on the one hand nor
Borrower on the other hand will be deemed a partner, joint venturer or related
entity of the other by reason of the Loan Documents.
13.12 Reversal of Payments. To the extent that Borrower makes a
payment or payments to DFS, which payment or payments or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or preferential,
set aside or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law, or equitable cause,
then to the extent of such payment or proceeds received, the Credit Facility
will be revived and continue in full force and effect, as if such payment or
proceeds had not been received by DFS.
13.13 Severability. If any provision of this Agreement (either
generally, or as to a specific application to a set of facts) will be held to be
invalid, illegal or unenforceable, such invalidity, illegality or
unenforceability will not affect any other provision of this Agreement (either
in its entirety, or as to or the application of such provision to any other set
of facts), but this Agreement will be construed as if such invalid, illegal or
unenforceable provision never had been included in this Agreement.
13.14 Maximum Interest. Borrower acknowledges that DFS intends to
strictly conform to the applicable usury laws governing this Agreement.
Regardless of any provision contained herein or in any other document executed
or delivered in connection herewith or therewith, DFS shall never be deemed to
have contracted for, charged or be entitled to receive, collect or apply as
interest on this Agreement (whether termed interest herein or deemed to be
interest by judicial determination or operation of law), any amount in excess of
the maximum amount allowed by applicable law, and, if DFS ever receives,
collects or applies as interest any such excess, such amount which would be
excessive interest will be applied first to the reduction of the unpaid
principal balances of advances under this Agreement, and, second, any remaining
excess will be paid to Borrower. In determining whether or not the interest paid
or payable under any specific contingency exceeds the highest lawful rate,
Borrower and DFS shall, to the maximum extent permitted under applicable law:
(a) characterize any non-principal payment (other than payments which are
expressly designated as interest payments hereunder) as an expense or fee rather
than as interest; (b) exclude voluntary pre-payments and the effect thereof; and
(c) spread the total amount of interest throughout the entire term of this
Agreement so that the interest rate is uniform throughout such term.
13.15 Waivers by DFS. DFS may at any time or from time to time waive
all or any rights under any of the Loan Documents, but any waiver or indulgence
at any time or from time to time will not constitute, unless specifically so
expressed by DFS in writing, a future waiver by DFS of performance by Borrower.
13.16 Survival. The grant of security interest herein to secure all
Obligations, and all provisions relating to the Collateral will survive
termination of this Agreement and will remain in full force and effect until all
Obligations have been paid in full and this Agreement has been terminated. The
Agreement to arbitrate all Disputes will survive termination of this Agreement.
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13.17 Participations; Assignments. DFS may, without the consent of
Borrower, grant participations in or assign, at any time and from time to time
hereafter, its interest in this Agreement or any Loan Document, or of any
portion thereof.
13.18 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
13.19 Information. DFS may provide to any third party any credit,
financial or other information on Borrower that DFS may from time to time
possess.
13.20 Release. Borrower releases DFS from all claims and causes of
action which Borrower may now or hereafter have for any loss or damage to it
claimed to be caused by or arising from: (a) any failure of DFS to protect,
enforce or collect, in whole or in part, any Account; (b) DFS' notification to
any Account Debtors thereon of DFS' security interest in any of the Accounts;
(c) DFS' directing any Account Debtor to pay any sum owing to Borrower directly
to DFS; and (d) any other act or omission to act on the part of DFS, its
officers, agents or employees, except for willful misconduct or gross
negligence. DFS will have no obligation to preserve rights to Accounts against
prior parties.
13.21 Miscellaneous. Time is of the essence regarding Borrower's
performance of its obligations to DFS notwithstanding any course of dealing or
custom on DFS' part to grant extensions of time. Borrower's liability under this
Agreement is direct and unconditional and will not be affected by the release or
nonperfection of any security interest granted hereunder. DFS will have the
right to refrain from or postpone enforcement of this Agreement or any other
Loan Documents without prejudice and the failure to strictly enforce the Loan
Documents will not be construed as having created a course of dealing between
DFS and Borrower contrary to the specific terms of the Loan Documents or as
having modified, released or waived the same. The express terms of this
Agreement and the other Loan Documents will not be modified by any course of
dealing, usage of trade, or custom of trade which may deviate from the terms
hereof. If Borrower fails to pay any taxes, fees or other obligations which may
impair DFS' interest in the Collateral, or fails to keep the Collateral insured,
DFS may, but shall not be required to, pay such taxes, fees or obligations and
pay the cost to insure the Collateral, and the amounts paid will be: (a) an
additional debt owed by Borrower to DFS, which shall be subject to finance
charges as provided herein; and (b) due and payable immediately in full.
Borrower agrees to pay all of DFS' reasonable attorneys' fees and expenses
incurred by DFS in enforcing DFS' rights hereunder.
13.22 Waivers by Borrower. Borrower irrevocably waives notice of: DFS'
acceptance of this Agreement, presentment, demand, protest, nonpayment,
nonperformance, and dishonor. Borrower and DFS irrevocably waive all rights to
claim any punitive and/or exemplary damages. Borrower waives all rights of
offset and counter claims Borrower may have against DFS. Borrower waives all
notices of default and non-payment at maturity of any or all of the Accounts.
13.23 NO ORAL AGREEMENTS. ORAL AGREEMENTS OR COMMITMENTS TO LEND
MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
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PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH
IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS
WE MAY LATER AGREE IN WRITING TO MODIFY IT. THERE ARE NO UNWRITTEN AGREEMENTS
BETWEEN THE PARTIES.
13.24 Supplement. If Borrower and DFS have heretofore executed other
agreements in connection with all or any part of the Collateral, this Agreement
shall supplement each and every other agreement previously executed by and
between Borrower and DFS, and in that event, this Agreement shall neither be
deemed a novation nor a termination of such previously executed agreement nor
shall execution of this Agreement be deemed a satisfaction of any obligation
secured by such previously executed agreement. Notwithstanding the foregoing,
this Agreement shall be deemed a termination of (a) the Agreement For Wholesale
Financing dated April 11, 1994, between DFS and Catalink; (b) the Business
Financing Agreement dated April 11, 1994, between DFS and Catalink; (c) the
Agreement for Wholesale Financing dated May 31, 1995, between DFS and Catalink
PA; (d) the Business Financing Agreement dated May 31, 1995, between DFS and
Catalink PA; (e) the Agreement for Wholesale Financing, between DFS and Computer
Specialities, Inc. dated November 23, 1994; and (f) the Business Financing
Agreement, between DFS and Computer Specialities, Inc. dated May 31, 1995, each
as amended.
13.25 Use of Counsel and Receipt of Agreement. Borrower acknowledges
that it has received a true and complete copy of this Agreement. Borrower
acknowledges that it has (a) had representation of counsel during negotiation of
this Agreement, and (b) read and understood this Agreement.
13.26 Facsimiles, Etc. Notwithstanding anything herein to the
contrary: (a) DFS may rely on any facsimile copy, electronic data transmission
or electronic data storage of any statement, billing statement, Statement of
Transaction, financial statements or other reports, and (b) such facsimile copy,
electronic data transmission or electronic data storage will be deemed an
original, and the best evidence thereof for all purposes, including, without
limitation, under this Agreement or any other Loan Documents, and for all
evidentiary purposes before any arbitrator, court or other adjudicatory
authority.
13.27 Power of Attorney. Borrower irrevocably appoints DFS (and any
Person designated by it) as Borrower's true and lawful Attorney with full power
to at any time, in the discretion of DFS (whether or not Default has occurred)
to: (a) endorse the name of Borrower upon any of the items of payment of
proceeds of the Collateral and deposit the same in the account of DFS for
application to the Obligations; (b) sign the name of Borrower to verify the
accuracy of the Accounts; (c) sign the name of Borrower on any document or
instrument that DFS shall deem necessary or appropriate to perfect and maintain
perfected the security interests in the Collateral under this Agreement and
other Loan Documents; (d) initiate and settle any insurance claim and endorse
Borrower's name on any check, instrument or other item of payment; (e) endorse
the name of Borrower upon financing statements, instruments, Certificates of
Title and Statements of Origin pertaining to the Collateral; (f) supply omitted
information and correct errors in any documents between DFS and Borrower; and
(g) do anything reasonable to preserve and protect the Collateral and DFS'
rights and interest therein. In the event of a Default, Borrower irrevocably
appoints DFS (and any Person designated by it) as Borrower's true and lawful
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Attorney with full power to at any time, in the discretion of DFS to: (i) demand
payment, enforce payment and otherwise exercise all of Borrower's rights, and
remedies with respect to the collection of any Accounts; (ii) settle, adjust,
compromise, extend or renew any Accounts; (iii) settle, adjust or compromise any
legal proceedings brought to collect any Accounts; (iv) sell or assign any
Accounts upon such terms, for such amounts and at such time or times as DFS may
deem advisable; (v) discharge and release any Accounts; (vi) prepare, file and
sign Borrower's name on any Proof of Claim in Bankruptcy or similar document
against any Account Debtor; (vii) endorse the name of Borrower upon any chattel
paper, document, instrument, invoice, freight xxxx, xxxx of lading or similar
document or agreement relating to any Account or goods pertaining thereto; and
(viii) take control in any manner of any item of payments or proceeds and for
such purpose to notify the Postal Authorities to change the address for delivery
of mail addressed to Borrower to such address as DFS may designate. This power
of attorney is for value and coupled with an interest and is irrevocable so long
as any Obligations remain outstanding and by DFS exercising such right, DFS
shall not waive any right against Borrower until the Obligations are paid in
full.
13.28 Expenses. Borrower agrees, whether or not any Loan is made
hereunder, to pay DFS upon demand for all reasonable expenses, including
reasonable fees of attorneys for DFS (who may be employees of DFS), incurred by
(a) DFS in connection with the preparation, negotiation, and execution of this
Agreement and any other Loan Document, (b) DFS in connection with the
preparation of any and all amendments to this Agreement and any other Loan
Document, and all search, recording, filing, and registration expenses, and (c)
DFS in connection with the enforcement of the Borrower's obligations hereunder
or under any other Loan Document. Borrower also agrees to (i) indemnify and hold
DFS harmless from any loss or expense which may arise or be created by the
acceptance of telephonic or other instructions for making Loans, except for any
loss or expense arising from DFS' gross negligence or willful misconduct
(provided, however, that reliance alone upon telephonic or other instructions
shall not itself be deemed to constitute gross negligence or willful
misconduct), and (ii) to pay and save DFS harmless from all liability for, any
stamp or other taxes which may be payable with respect to the execution or
delivery of this Agreement or any of the other Loan Documents. Borrower's
obligations under this Section 13.28 shall survive any termination of this
Agreement.
13.29 Joint and Several Liability. Notwithstanding anything herein to
the contrary, each Borrower is primarily and jointly and severally liable for
all Obligations. If and to the extent a Borrower shall be deemed a guarantor of
the other Borrower hereunder, such Borrower's joint liability for any
Obligations of such other Borrower shall be deemed to be a guaranty of payment
and performance, and not of collection. A Default by one Borrower shall be
deemed a Default by the other Borrower.
14. BINDING ARBITRATION.
14.1 Arbitrable Claims. Except as otherwise specified below, all actions,
disputes, claims and controversies under common law, statutory law or in equity
of any type or nature whatsoever (including, without limitation, all torts,
whether regarding negligence, breach of fiduciary duty, restraint of trade,
fraud, conversion, duress, interference, wrongful replevin, wrongful
sequestration, fraud in the inducement, usury or any other tort, all contract
actions, whether regarding express or implied terms, such as implied covenants
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of good faith, fair dealing, and the commercial reasonableness of any Collateral
disposition, or any other contract claim, all claims of deceptive trade
practices or lender liability, and all claims questioning the reasonableness or
lawfulness of any act), whether arising before or after the date of this
Agreement, and whether directly or indirectly relating to: (a) this Agreement
and/or any amendments and addenda hereto, or the breach, invalidity or
termination hereof; (b) any previous or subsequent agreement between DFS and
Borrower; (c) any act committed by DFS or by any parent company, subsidiary or
affiliated company of DFS (the "DFS Companies"), or by any employee, agent,
officer or director of a DFS Company whether or not arising within the scope and
course of employment or other contractual representation of the DFS Companies
provided that such act arises under a relationship, transaction or dealing
between DFS and Borrower; and/or (d) any other relationship, transaction or
dealing between DFS and Borrower (collectively the "Disputes"), will be subject
to and resolved by binding arbitration.
14.2 Administrative Body. All arbitration hereunder will be conducted by the
American Arbitration Association ("AAA"). If the AAA is dissolved, disbanded or
becomes subject to any state or federal bankruptcy or insolvency proceeding, the
parties will remain subject to binding arbitration which will be conducted by a
mutually agreeable arbitral forum. The parties agree that all arbitrator(s)
selected will be attorneys with at least five (5) years secured transactions
experience. The arbitrator(s) will decide if any inconsistency exists between
the rules of any applicable arbitral forum and the arbitration provisions
contained herein. If such inconsistency exists, the arbitration provisions
contained herein will control and supersede such rules. The site of all
arbitration proceedings will be in Norfolk County, Massachusetts.
14.3 Discovery. Discovery permitted in any arbitration proceeding commenced
hereunder is limited as follows. No later than thirty (30) days after the filing
of a claim for arbitration, the parties will exchange detailed statements
setting forth the facts supporting the claim(s) and all defenses to be raised
during the arbitration, and a list of all exhibits and witnesses. No later than
twenty-one (21) days prior to the arbitration hearing, the parties will exchange
a final list of all exhibits and all witnesses, including any designation of any
expert witness(es) together with a summary of their testimony; a copy of all
documents and a detailed description of any property to be introduced at the
hearing. Under no circumstances will the use of interrogatories, requests for
admission, requests for the production of documents or the taking of depositions
be permitted. However, in the event of the designation of any expert
witness(es), the following will occur: (a) all information and documents relied
upon by the expert witness(es) will be delivered to the opposing party, (b) the
opposing party will be permitted to depose the expert witness(es), (c) the
opposing party will be permitted to designate rebuttal expert witness(es), and
(d) the arbitration hearing will be continued to the earliest possible date that
enables the foregoing limited discovery to be accomplished.
14.4 Exemplary or Punitive Damages. The Arbitrator(s) will not have the
authority to award exemplary or punitive damages.
14.5 Confidentiality of Awards. All arbitration proceedings, including
testimony or evidence at hearings, will be kept confidential, although any award
or order rendered by the arbitrator(s) pursuant to the terms of this Agreement
may be entered as a judgment or order in any state or federal court
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and may be confirmed within the federal judicial district which includes the
residence of the party against whom such award or order was entered. This
Agreement concerns transactions involving commerce among the several states. The
Federal Arbitration Act, Title 9 U.S.C. Sections 1 et seq., as amended ("FAA")
will govern all arbitration(s) and confirmation proceedings hereunder.
14.6 Prejudgment and Provisional Remedies. Nothing herein will be construed
to prevent DFS' or Borrower's use of bankruptcy, receivership, injunction,
repossession, replevin, claim and delivery, sequestration, seizure, attachment,
foreclosure, dation and/or any other prejudgment or provisional action or remedy
relating to any Collateral for any current or future debt owed by either party
to the other. Any such action or remedy will not waive DFS' or Borrower's right
to compel arbitration of any Dispute.
14.7 Attorneys' Fees. If either Borrower or DFS brings any other action for
judicial relief with respect to any Dispute (other than those set forth in
Section 14.6) the party bringing such action will be liable for and immediately
pay all of the other party's costs and expenses (including reasonable attorneys'
fees) incurred to stay or dismiss such action and remove or refer such Dispute
to arbitration. If either Borrower or DFS brings or appeals an action to vacate
or modify an arbitration award and such party does not prevail, such party will
pay all costs and expenses, including attorneys' fees, incurred by the other
party in defending such action. Additionally, if Borrower sues DFS or institutes
any arbitration claim or counterclaim against DFS in which DFS is the prevailing
party, Borrower will pay all costs and expenses (including reasonable attorneys'
fees) incurred by DFS in the course of defending such action or proceeding.
14.8 Limitations. Any arbitration proceeding must be instituted: (a) with
respect to any Dispute for the collection of any debt owed by either party to
the other, within two (2) years after the date the last payment was received by
the instituting party; and (b) with respect to any other Dispute, within two (2)
years after the date the incident giving rise thereto occurred, whether or not
any damage was sustained or capable of ascertainment or either party knew of
such incident. Failure to institute an arbitration proceeding within such period
will constitute an absolute bar and waiver to the institution of any proceeding,
whether arbitration or a court proceeding, with respect to such Dispute.
14.9 Survival After Termination. The agreement to arbitrate will survive
the termination of this Agreement.
15. INVALIDITY/UNENFORCEABILITY OF BINDING ARBITRATION. IF THIS AGREEMENT IS
FOUND TO BE NOT SUBJECT TO ARBITRATION, ANY LEGAL PROCEEDING WITH RESPECT TO ANY
DISPUTE WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A
JURY. BORROWER AND DFS WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING.
16. GOVERNING LAW. Borrower acknowledges and agrees that this and all other
agreements between Borrower and DFS have been substantially negotiated, and will
be substantially performed, in the Commonwealth of Massachusetts. Accordingly,
Borrower agrees that all Disputes will be governed by, and construed in
accordance with, the laws of such state, except to the extent inconsistent with
the provisions of the FAA which shall control and govern all arbitration
proceedings hereunder.
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IN WITNESS WHEREOF, the parties have, by their duly authorized
officers, executed this Agreement as of the Effective Date.
THIS AGREEMENT CONTAINS BINDING ARBITRATION, JURY WAIVER AND PUNITIVE DAMAGES
WAIVER PROVISIONS
ATTEST: CATALINK DIRECT, INC.
By: /s/ Xxxxxx X. Xxxxxx By: /s/ X. X. Xxxxxxx
-------------------- --------------------------------
Assistant Secretary Print Name: X.X. Xxxxxxx
Title: Chief Financial Officer
ATTEST: CATALINK DIRECT (PENNSYLVANIA), INC.
By: /s/ Xxxxxx X. Xxxxxx By: /s/ X. X. Xxxxxxx
-------------------- --------------------------------
Assistant Secretary Print Name: X.X. Xxxxxxx
Title: Chief Financial Officer
DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ A. D. Hartford
-------------------------------
Print Name: A. D. Hartford
Title: Regional Branch Manager
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