CREDIT AND SECURITY AGREEMENT Dated as of ___, 2007
|
Exhibit
99.2
BY
AND BETWEEN
QSGI,
INC.,
QUALTECH
INTERNATIONAL CORPORATION,
QUALTECH
SERVICES GROUP, INC.
AND
XXXXX
FARGO BANK, NATIONAL ASSOCIATION
Acting
through its Xxxxx Fargo Business Credit operating
division
|
|
____,
2007
|
TABLE
OF CONTENTS
Dated
as
of ___, 2007
QSGI
INC., QUALTECH INTERNATIONAL CORPORATION, and QUALTECH SERVICES GROUP, INC.,
each a Delaware corporation (collectively, the “Borrower”), and XXXXX FARGO
BANK, NATIONAL ASSOCIATION (as more fully defined in Article I herein, the
“Lender”) acting through its Xxxxx Fargo Business Credit operating division,
hereby agree as follows:
Article
I
DEFINITIONS
Section
1.1 Definitions.
Except
as otherwise expressly provided in this Agreement, the following terms shall
have the meanings given them in this Section:
“Accounts”
shall have the meaning given it under the UCC.
“Accounts
Advance Rate” means up to eighty-five percent (85%), or such lesser rate as the
Lender in its sole discretion may deem appropriate from time to time.
“Advance”
means a Revolving Advance.
“Affiliate”
or “Affiliates” means any Person controlled by, controlling or under common
control with the Borrower, including any Subsidiary of the Borrower. For
purposes of this definition, “control,” when used with respect to any specified
Person, means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by
contract or otherwise.
“Aggregate
Face Amount” is defined in Section 2.9(e).
“Agreement”
means this Credit and Security Agreement.
“Availability”
means the amount, if any, by which the Borrowing Base exceeds the outstanding
principal balance of the Revolving Note.
“Book
Net
Worth” means the aggregate of the common and preferred shareholders’ equity in
the Borrower, determined in accordance with GAAP.
“Borrowing
Base” means at any time the lesser of:
(a) The
Maximum Line Amount; or
(b) Subject
to change from time to time in the Lender’s sole discretion, the sum
of:
(i) The
product of the Accounts Advance Rate times Eligible Accounts, plus
(ii) The
lesser of (A) forty-five percent (45%) times the lower of cost or market value
of Eligible Inventory, (B) the sum of (1) 130% times the amount determined
by
clause (i) above plus (2) the amount of pre-sold Eligible Inventory as Lender
may in its sole discretion determine, or (B) $3,000,000,
less
(iv) The
Borrowing Base Reserve, less
(v) Indebtedness
that the Borrower owes to the Lender that has not yet been advanced on the
Revolving Note, including, without limitation, the L/C Amount, and the dollar
amount that the Lender in its discretion believes is a reasonable determination
of the Borrower’s credit exposure with respect to any swap, derivative, foreign
exchange, hedge, deposit, treasury management or other similar transaction
or
arrangement offered to Borrower by Lender that is not described in Article
II of
this Agreement.
“Borrowing
Base Reserve” means, as of any date of determination, such amounts (expressed as
either a specified amount or as a percentage of a specified category or item)
as
the Lender may from time to time establish and adjust in reducing Availability
(a) to reflect events, conditions, contingencies or risks which, as determined
by the Lender, do or may affect (i) the Collateral or its value, (ii) the
assets, business or prospects of the Borrower, or (iii) the security interests
and other rights of the Lender in the Collateral (including the enforceability,
perfection and priority thereof), or (b) to reflect the Lender’s judgment that
any collateral report or financial information furnished by or on behalf of
the
Borrower to the Lender is or may have been incomplete, inaccurate or misleading
in any material respect, or (c) in respect of any state of facts that the Lender
determines constitutes a Default or an Event of Default.
"Business
Day" means a day on which the Federal Reserve Bank of New York is open for
business and, if such day relates to a LIBOR Advance, a day on which dealings
are carried on in the London interbank eurodollar market.
“Capital
Expenditures” means for a period, any expenditure of money during such period
for the lease, purchase or other acquisition of any capital asset, or for the
lease of any other asset whether payable currently or in the
future.
“Change
of Control” means the occurrence of any of the following events:
(a) Xxxx
Xxxxxxx ceases to own at least 1,240,000 of the outstanding shares
of QSGI,
Inc. or Xx Xxxxxxxx ceases to own at least 1,015,000 of the outstanding shares
of QSGI, Inc.
(b) Any
two
of Xxxx Xxxxxxx, Xxxx Xxxxxxxx or Xx Xxxxxxxx shall cease to actively manage
the
Borrower’s day-to-day business activities; provided, however, if any two of Xxxx
Xxxxxxx, Xxxx Xxxxxxxx or Xx Xxxxxxxx shall cease to actively manage the
Borrower’s day-to-day business activities in a consecutive twelve (12) month
period,
a
replacement officer, reasonably acceptable to Lender, may assume the duties
and
responsibilities vacated by such person within sixty (60) days
thereafter.
“Collateral”
means all of the Borrower’s Accounts, chattel paper and electronic chattel
paper, deposit accounts, documents, Equipment, General Intangibles, goods,
instruments,
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Inventory,
Investment Property, letter-of-credit rights, letters of credit, all sums on
deposit in any Collateral Account, and any items in any Lockbox; together with
(i) all substitutions and replacements for and products of any of the
foregoing; (ii) in the case of all goods, all accessions; (iii) all
accessories, attachments, parts, equipment and repairs now or hereafter attached
or affixed to or used in connection with any goods; (iv) all warehouse
receipts, bills of lading and other documents of title now or hereafter covering
such goods; (v) all collateral subject to the Lien of any Security
Document; (vi) any money, or other assets of the Borrower that now or
hereafter come into the possession, custody, or control of the Lender;
(vii) all sums on deposit in the Special Account; (viii) proceeds of
any and all of the foregoing; (ix) books and records of the Borrower, including
all mail or electronic mail addressed to the Borrower relating to the business
(and excluding communications, operations of the business and work that are
covered by the attorney-client privilege); and (x) all of the foregoing, whether
now owned or existing or hereafter acquired or arising or in which the Borrower
now has or hereafter acquires any rights.
“Collateral
Account” means the “Lender Account” as defined in the Wholesale Lockbox and
Collection Account Agreement.
“Collection
Account Agreement” means the Collection Account Agreement by and between the
Borrower and the Lender, dated the same date as this Agreement.
“Commercial
Letter of Credit Agreement” means an agreement governing the issuance of
documentary letters of credit by the Lender, entered into between the Borrower
as applicant and the Lender as issuer.
“Commitment”
means the Lender’s commitment to make Advances to, and to issue Letters of
Credit for the account of, the Borrower.
“Constituent
Documents” means with respect to any Person, as applicable, such Person’s
certificate of incorporation, articles of incorporation, by-laws, certificate
of
formation, articles of organization, limited liability company agreement,
management agreement, operating agreement, shareholder agreement, partnership
agreement or similar document or agreement governing such Person’s existence,
organization or management or concerning disposition of ownership interests
of
such Person or voting rights among such Person’s owners.
“Credit
Facility” means the credit facility under which Revolving Advances and Letters
of Credit may
be
made available to the Borrower by the Lender under Article II.
“Debt”
means of a Person as of a given date, all items of indebtedness or liability
which in accordance with GAAP would be included in determining total liabilities
as shown on the liabilities side of a balance sheet for such Person and shall
also include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under
GAAP.
“Default”
means an event that, with giving of notice or passage of time or both, would
constitute an Event of Default.
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“Default
Period” means any period of time beginning on the day a Default or Event of
Default occurs and ending on the date identified by the Lender in writing as
the
date that such Default or Event of Default has been cured or
waived.
“Default
Rate” means an annual interest rate in effect during a Default Period or
following the Termination Date, which interest rate shall be equal to three
percent (3%) over the applicable Floating Rate or the LIBOR Advance Rate, as
the
case may be, as such rate may change from time to time.
“Dilution”
means, as of any date of determination, a percentage, based upon the experience
of the trailing six (6) month period ending on the date of determination, which
is the result of dividing (a) actual bad debt write-downs, discounts,
advertising allowances, credits, or other dilutive items with respect to the
Accounts as determined by Lender in its sole discretion during such period,
by
(b) the Borrower’s net sales during such period (excluding extraordinary items)
plus the amount of clause (a).
“Director”
means a director if the Borrower is a corporation, a governor or manager if
the
Borrower is a limited liability company, or a general partner if the Borrower
is
a partnership.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from
time
to time.
“ERISA
Affiliate” means any trade or business (whether or not incorporated) that is a
member of a group which includes the Borrower and which is treated as a single
employer under Section 414 of the IRC.
“Eligible
Accounts” means all unpaid Accounts of the Borrower arising from the sale or
lease of goods or the performance of services, net of any credits, but excluding
any such Accounts having any of the following characteristics:
(i) That
portion of Accounts not paid within 60 days of the due date (but not more
than 120 days after the invoice date) and the entire balance of any Account
where more than twenty-five percent (25%) of the amount due has remained unpaid
90 days or more after the invoice date;
(ii) That
portion of Accounts related to goods or services with respect to which the
Borrower has received notice of a claim or dispute, which are subject to a
claim
of offset or a contra account, or which reflect a reasonable reserve for
warranty claims or returns;
(iii) That
portion of Accounts not yet earned by the final delivery of goods or rendition
of services, as applicable, by the Borrower to the customer, including progress
xxxxxxxx, and that portion of Accounts for which an invoice has not been sent
to
the applicable account debtor;
(iv) Accounts
constituting (i) proceeds of copyrightable material unless such copyrightable
material shall have been registered with the United States Copyright Office,
or
(ii) proceeds of patentable inventions unless such patentable inventions have
been registered with the United States Patent and Trademark Office;
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(v) Accounts
owed by any unit of government, whether foreign or domestic (provided,
however,
that
there shall be included in Eligible Accounts that portion of Accounts owed
by
such units of government for which the Borrower has provided evidence
satisfactory to the Lender that (A) the Lender has a first priority
perfected security interest and (B) such Accounts may be enforced by the
Lender directly against such unit of government under all applicable
laws);
(vi) Accounts
denominated in any currency other than United States dollars;
(vii) Accounts
owed by an account debtor located outside the United States which are not
(A) backed by a bank letter of credit naming the Lender as beneficiary or
assigned to the Lender, in the Lender’s possession or control, and with respect
to which a control agreement concerning the letter-of-credit rights is in
effect, and acceptable to the Lender in all respects, in its sole discretion,
or
(B) covered by a foreign receivables insurance policy acceptable to the
Lender in its sole discretion;
(viii) Accounts
owed by an account debtor that has poor credit, is insolvent, the subject of
bankruptcy proceedings or has gone out of business;
(ix) Accounts
owed by an Owner, Subsidiary, Affiliate, Officer or employee of the
Borrower;
(x) Accounts
not subject to a duly perfected security interest in the Lender’s favor or which
are subject to any Lien in favor of any Person other than the
Lender;
(xi) That
portion of Accounts that has been restructured, extended, amended or
modified;
(xii) That
portion of Accounts that constitutes advertising, finance charges, service
charges or sales or excise taxes;
(xiii) Accounts
owed by an account debtor, regardless of whether otherwise eligible, to the
extent that the aggregate balance of such Accounts exceeds fifteen percent
(15%)
(or, at Lender’s sole discretion for certain account debtors approved by Lender,
as otherwise agreed) of the aggregate amount of all Accounts;
(xiv) Accounts
owed by an account debtor, regardless of whether otherwise eligible, if
twenty-five percent (25%) or more of the total amount of Accounts due from
such
debtor is ineligible under clauses (i), (ii), or (x) above;
and
(xv) Accounts,
or portions thereof, otherwise deemed ineligible by the Lender in its sole
discretion.
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“Eligible
Inventory” means all Inventory of the Borrower, valued at the lower of cost or
market in accordance with GAAP; but excluding any Inventory having any of the
following characteristics:
(i) Inventory
that is: in-transit; located at any warehouse, job site or other premises not
approved by the Lender in writing; not subject to a duly perfected first
priority security interest in the Lender’s favor; subject to any lien or
encumbrance that is subordinate to the Lender’s first priority security
interest; covered by any negotiable or non-negotiable warehouse receipt, xxxx
of
lading or other document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless such consignee
or
bailee has executed an agreement with the Lender;
(ii) Supplies,
packaging, maintenance parts
or
sample Inventory, or customer supplied parts or Inventory;
(iii) Work-in-process
Inventory;
(iv) Inventory
that is damaged, defective, obsolete, slow moving or not currently saleable
in
the normal course of the Borrower’s operations, or the amount of such Inventory
that has been reduced by shrinkage;
(v) Inventory
that the Borrower has returned, has attempted to return, is in the process
of
returning or intends to return to the vendor thereof;
(vi) Inventory
that is perishable or live;
(vii) Inventory
manufactured by the Borrower pursuant to a license unless the applicable
licensor has agreed in writing to permit the Lender to exercise its rights
and
remedies against such Inventory;
(viii) Inventory
that is subject to a Lien in favor of any Person other than the Lender;
(ix) Inventory
stored at locations holding less than ten (10%) of the aggregate value of
Borrower’s Inventory; and
(x) Inventory
otherwise deemed ineligible by the Lender in its sole discretion.
“Environmental
Law” means any federal, state, local or other governmental statute, regulation,
law or ordinance dealing with the protection of human health and the
environment.
“Equipment”
shall have the meaning given it under the UCC.
“Event
of
Default” is defined in Section 7.1.
“Financial
Covenants” means the covenants set forth in Section 6.2.
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“Floating
Rate” means an annual interest rate equal to the sum of the Prime
Rate, which interest rate shall change when and as the Prime Rate
changes.
“Floating
Rate Advance” means an Advance bearing interest at the Floating Rate.
“Funding
Date” is defined in Section 2.1.
“GAAP”
means generally accepted accounting principles, applied on a basis consistent
with the accounting practices applied in the financial statements described
in
Section 5.6.
“General
Intangibles” shall have the meaning given it under the UCC.
“Hazardous
Substances” means pollutants, contaminants, hazardous substances, hazardous
wastes, petroleum and fractions thereof, and all other chemicals, wastes,
substances and materials listed in, regulated by or identified in any
Environmental Law.
“Indebtedness”
is used herein in its most comprehensive sense and means any and all advances,
debts, obligations and liabilities of the Borrower to the Lender, heretofore,
now or hereafter made, incurred or created, whether voluntary or involuntary
and
however arising, whether due or not due, absolute or contingent, liquidated
or
unliquidated, determined or undetermined, including under any swap, derivative,
foreign exchange, hedge, deposit, treasury management or other similar
transaction or arrangement at any time entered into by the Borrower with the
Lender, and whether the Borrower may be liable individually or jointly with
others, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
“Indemnified
Liabilities” is defined in Section 8.6
“Indemnitees”
is defined in Section 8.6.
“IRC”
means the Internal Revenue Code of 1986, as amended from time to
time.
“Infringement”
or “Infringing” when used with respect to Intellectual Property Rights means any
infringement or other violation of Intellectual Property Rights.
“Intellectual
Property Rights” means all actual or prospective rights arising in connection
with any intellectual property or other proprietary rights, including all rights
arising in connection with copyrights, patents, service marks, trade dress,
trade secrets, trademarks, trade names or mask works.
“Interest
Payment Date” is defined in Section 2.8(a).
"Interest
Period" means the period that commences on (and includes) the Business Day
on
which either a LIBOR Advance is made or continued or on which a Floating Rate
Advance is converted to a LIBOR Advance and ending on (but excluding) the
Business Day numerically corresponding to such date that is one, three, six,
or
twelve months thereafter as designated by the Borrower, during which period
the
outstanding principal balance of the LIBOR Advance shall bear interest at the
LIBOR Advance Rate; provided,
however,
that:
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(a) No
Interest Period may be selected for an Advance for a principal amount less
than
Five Hundred Thousand Dollars ($500,000), and no more than five (5) different
Interest Periods may be outstanding at any one time;
(b) If
an
Interest Period would otherwise end on a day which is not a Business Day, then
the Interest Period shall end on the next Business Day thereafter, unless that
Business Day is the first Business Day of a month, in which case the Interest
Period shall end on the last Business Day of the preceding month);
(c) No
Interest Period applicable to a Revolving Advance may end later than the
Maturity Date; and
(d) In
no
event shall the Borrower select Interest Periods with respect to Advances which,
in the aggregate, would require payment of a contracted funds breakage fee
under
this Agreement in order to make required principal payments.
“Inventory”
shall have the meaning given it under the UCC.
“Inventory
Advance Rate” means up to forty-five percent (45%), or such lesser rate as the
Lender in its sole discretion may deem appropriate from time to
time.
“Investment
Property” shall have the meaning given it under the UCC.
“L/C
Amount” means the sum of (i) the aggregate face amount of any issued and
outstanding Letters of Credit and (ii) the unpaid amount of the Obligation
of Reimbursement.
“L/C
Application” means an application for the issuance of standby or documentary
letters of credit pursuant to the terms of a Standby Letter of Credit Agreement
or a Commercial Letter of Credit Agreement, in form acceptable to the Lender.
“Lender”
means Xxxxx Fargo Bank, National Association in its broadest and most
comprehensive sense as a legal entity, and is not limited in its meaning to
Lender’s Xxxxx Fargo Business Credit operating division, or to any other
operating division of Lender.
“Letter
of Credit” is defined in Section 2.4(a).
"LIBOR"
means the rate per annum (rounded upward, if necessary, to the nearest whole
1/8th of one (1%)) determined pursuant to the following formula:
LIBOR
= Base
LIBOR
100%
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LIBOR Reserve Percentage
(i)"Base
LIBOR" means the rate per annum for United States dollar deposits quoted by
the
Lender as the Inter-Bank Market Offered Rate, with the understanding that such
rate is quoted by the Lender for the purpose of calculating effective rates
of
interest for loans making reference thereto, on the first day of a Interest
Period for delivery of funds on said date for a period of time approximately
equal to the number of days in such Interest Period and in an amount
approximately equal to the principal amount to which such Interest Period
applies. The Borrower understands and agrees that the Lender may base its
quotation of the Inter-Bank Market Offered Rate upon such offers or other market
indicators of the Inter-Bank Market as the Lender in its discretion deems
appropriate including the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
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(ii)"LIBOR
Reserve Percentage" means the reserve percentage prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for "Eurocurrency
Liabilities" (as defined in Regulation D of the Federal Reserve Board, as
amended), adjusted by the Lender for expected changes in such reserve percentage
during the applicable Interest Period.
“LIBOR
Advance” means an Advance bearing interest at the LIBOR Advance Rate.
“LIBOR
Advance Rate” means an annual interest rate equal to the sum of LIBOR plus two
and one-half percent (2.5%).
“Licensed
Intellectual Property” is defined in Section 5.11(c) .
“Lien”
means any security interest, mortgage, deed of trust, pledge, lien, charge,
encumbrance, title retention agreement or analogous instrument or device,
including the interest of each lessor under any capitalized lease and the
interest of any bondsman under any payment or performance bond, in, of or on
any
assets or properties of a Person, whether now owned or subsequently acquired
and
whether arising by agreement or operation of law.
“Loan
Documents” means this Agreement, the Revolving Note, each L/C Application
and the
Security Documents, together with every other agreement, note, document,
contract or instrument to which the Borrower now or in the future may be a
party
and which is required by the Lender.
“Loan
Year” is defined in Section 2.6(c).
“Lockbox”
means “Lockbox” as defined in the Wholesale Lockbox and Collection Account
Agreement.
“Material
Adverse Effect” means any of the following:
(i) A
material adverse effect on the business, operations, results of operations,
prospects, assets, liabilities or financial condition of the
Borrower;
(ii) A
material adverse effect on the ability of the Borrower to perform its
obligations under the Loan Documents;
(iii) A
material adverse effect on the ability of the Lender to enforce the Indebtedness
or to realize the intended benefits of the Security Documents, including a
material adverse effect on the validity or enforceability of any Loan Document
or of any rights against any Guarantor, or on the status, existence, perfection,
priority (subject to Permitted Liens) or enforceability of any Lien securing
payment or performance of the Indebtedness; or
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(iv) Any
claim
against the Borrower or threat of litigation which if determined adversely
to
the Borrower would cause the Borrower to be liable to pay an amount exceeding
$$350,000 or would result in the occurrence of an event described in
clauses (i), (ii) and (iii) above.
“Maturity
Date” has the meaning given in Section 2.10.
“Maximum
Line Amount” means $7,500,000, unless this amount is reduced pursuant to Section
2.10, in which event it means such lower amount.
“Minimum
Interest Charge” has the meaning given in Section 2.6(c).
“Multiemployer
Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to
which the Borrower or any ERISA Affiliate contributes or is obligated to
contribute.
“Net
Cash
Proceeds” means in connection with any asset sale, the cash proceeds (including
any cash payments received by way of deferred payment whether pursuant to a
note, installment receivable or otherwise, but only as and when actually
received) from such asset sale, net of (i) attorneys’ fees, accountants’ fees,
investment banking fees, brokerage commissions and amounts required to be
applied to the repayment of any portion of the Debt secured by a Lien not
prohibited hereunder on the asset which is the subject of such sale, and (ii)
taxes paid or reasonably estimated to be payable as a result of such asset
sale.
“Net
Income” means fiscal year-to-date after-tax net
income from continuing operations, including
extraordinary losses but excluding extraordinary
gains, all as determined in accordance with GAAP.
“Net
Loss” means fiscal year-to-date after-tax net loss from continuing operations as
determined in accordance with GAAP.
“Net
Orderly Liquidation Value” means a professional opinion of the estimated most
probable Net Cash Proceeds which could typically be realized at a properly
advertised and professionally managed liquidation sale, conducted under orderly
sale conditions for an extended period of time (usually six to nine months),
under the economic trends existing at the time of the appraisal.
“Obligation
of Reimbursement” means the obligation of the Borrower to reimburse the Lender
pursuant to the terms of the Standby Letter of Credit Agreement and the
Commercial Letter of Credit Agreement and any applicable L/C
Application.
“Officer”
means with respect to the Borrower, an officer if the Borrower is a corporation,
a manager if the Borrower is a limited liability company, or a partner if the
Borrower is a partnership.
“OFAC”
is
defined in Section 6.12(c).
“Original
Maturity Date” means [_______
__, 20__].
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"Overadvance"
means the amount, if any, by which the outstanding principal balance of the
Revolving Note, plus the L/C Amount, is in excess of the then-existing Borrowing
Base.
“Owned
Intellectual Property” is defined in Section 5.11(a).
“Owner”
means with respect to the Borrower, each Person having legal or beneficial
title
to an ownership interest in the Borrower or a right to acquire such an
interest.
“Patent
and Trademark Security Agreement” means each Patent and Trademark Security
Agreement now or hereafter executed by the Borrower in favor of the
Lender.
“Pension
Plan” means a pension plan (as defined in Section 3(2) of ERISA) maintained for
employees of the Borrower or any ERISA Affiliate and covered by Title IV of
ERISA.
“Permitted
Lien” and “Permitted Liens” are defined in Section 6.3(a) .
“Person”
means any individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust, unincorporated organization
or
government or any agency or political subdivision thereof.
“Plan”
means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained
for employees of the Borrower or any ERISA Affiliate.
“Premises”
means all locations where the Borrower conducts its business or has any rights
of possession, including the locations legally described in Exhibit C attached
hereto.
“Prime
Rate” means at any time the rate of interest most recently announced by the
Lender at its principal office as its Prime Rate, with the understanding that
the Prime Rate is one of the Lender’s base rates, and serves as the basis upon
which effective rates of interest are calculated for those loans making
reference thereto, and is evidenced by the recording thereof in such internal
publication or publications as the Lender may designate. Each change in the
rate
of interest shall become effective on the date each Prime Rate change is
announced by the Lender.
“Reportable
Event” means a reportable event (as defined in Section 4043 of ERISA), other
than an event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the Pension Benefit Guaranty
Corporation.
“Revolving
Advance” is defined in Section 2.1.
“Revolving
Note” means the Borrower’s revolving promissory note, payable to the order of
the Lender in substantially the form of Exhibit A hereto, as same may be renewed
and amended from time to time, and all replacements thereto.
“Security
Documents” means this Agreement, the Wholesale Lockbox and Collection Account
Agreement,[the Patent and Trademark Security Agreement(s), the Trademark
Security Agreement(s), and the Copyright Security Agreement(s),]and any other
document delivered to the Lender from time to time to secure the
Indebtedness.
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“Security
Interest” is defined in Section 3.1.
“Servicer”
means the Lender, or such other Person as the Lender may from time to time
designate.
“Servicing
Agent” is defined in Section 8.14.
“Special
Account” means a specified cash collateral account maintained with Lender or
another financial institution acceptable to the Lender in connection with
Letters of Credit, as contemplated by Section 2.5.
“Standby
Letter of Credit Agreement” means an agreement governing the issuance of standby
letters of credit by Lender entered into between the Borrower as applicant
and
Lender as issuer.
“Subsidiary”
means any Person of which more than fifty percent (50%) of the outstanding
ownership interests having general voting power under ordinary circumstances
to
elect a majority of the board of directors or the equivalent of such Person,
regardless of whether or not at the time ownership interests of any other class
or classes shall have or might have voting power by reason of the happening
of
any contingency, is at the time directly or indirectly owned by the Borrower,
by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
“Termination
Date” means the earliest of (i) the Maturity Date, (ii) the date the Borrower
terminates the Credit Facility, or (iii) the date the Lender demands payment
of
the Indebtedness, following an Event of Default, pursuant to Section
7.2.
“UCC”
means the Uniform Commercial Code in effect in the state designated in this
Agreement as the state whose laws shall govern this Agreement, or in any other
state whose laws are held to govern this Agreement or any portion of this
Agreement.
“Unused
Amount” is defined in Section 2.7(b).
“Wholesale
Lockbox and Collection Account Agreement” means the Wholesale Lockbox and
Collection Account Agreement by and between the Borrower and the Lender dated
the same date as this Agreement.
Section
1.2 Other
Definitional Terms; Rules of Interpretation.
The
words “hereof”, “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP.
All
terms defined in the UCC and not otherwise defined herein have the meanings
assigned to them in the UCC. References to Articles, Sections, subsections,
Exhibits, Schedules and the like, are to Articles, Sections and subsections
of,
or Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided. The words “include”, “includes” and “including” shall be deemed to be
followed by the phrase “without limitation”. Unless the context in which used
herein otherwise clearly requires, “or” has the inclusive meaning represented by
the phrase “and/or”. Defined terms include in the singular number the plural and
in the plural number the singular. Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or
instrument as amended or modified and in effect from time to time in accordance
with the terms thereof (and, if applicable, in accordance with the terms hereof
and the other Loan Documents), except where otherwise explicitly provided,
and
reference to any promissory note includes any promissory note which is an
extension or renewal thereof or a substitute or replacement therefor. Reference
to any law, rule, regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified, replaced
or
reenacted, in whole or in part, and in effect on the determination date,
including rules and regulations promulgated thereunder.
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Article
II
AMOUNT
AND TERMS OF THE CREDIT FACILITY
Section
2.1 Revolving
Advances.
The
Lender agrees, subject to the terms and conditions of this Agreement, to make
advances (“Revolving Advances”) to the Borrower from time to time from the date
that all of the conditions set forth in 4.1 are satisfied (the “Funding Date”)
to and until (but not including) the Termination Date in an amount not in excess
of the Maximum Line Amount. The Lender shall have no obligation to make a
Revolving Advance to the extent that the amount of the requested Revolving
Advance exceeds Availability. The Borrower’s obligation to pay the Revolving
Advances shall be evidenced by the Revolving Note and shall be secured by the
Collateral. Within the limits set forth in this Section 2.1, the Borrower may
borrow, prepay pursuant to Section 2.10, and reborrow.
Section
2.2 Procedures
for Requesting Advances.
The
Borrower shall comply with the following procedures in requesting Revolving
Advances:
(a) Type
of
Advances. Each Advance shall be funded as either a Floating Rate Advance or
a
LIBOR Advance, as the Borrower shall specify in a request delivered to the
Lender conforming to the requirements of Section 2.2(b); Floating Rate Advances
and LIBOR Advances may be outstanding at the same time. The initial request
for
a LIBOR Advance shall be in an amount not less than $2,000,000. Each subsequent
request for a LIBOR Advance shall be in multiples of $500,000, with a minimum
request of at least $500,000; provided,
however,
the
Borrower shall be permitted to request and have one, but not more than one,
LIBOR Advance in an amount of not less than $200,000 outstanding at any time.
LIBOR Advances shall not be available during Default Periods.
(b) Time
for Requests.
The
Borrower shall request each Advance not later than the Cut-off Time on the
Business Day immediately
preceding the Business Day on
which the
Advance is to be made.
Each
request that conforms to the terms of this Agreement shall be effective upon
receipt by the Lender, shall be in writing or by telephone or telecopy
transmission, and shall be confirmed in writing by the Borrower if so requested
by the Lender,
by
(i) an Officer of the Borrower; or (ii) a Person designated as the
Borrower’s agent by an Officer of the Borrower in a writing delivered to the
Lender; or (iii) a Person whom the Lender reasonably believes to be an
Officer of the Borrower or such a designated agent, which confirmation shall
specify whether the Advance shall be a Floating Rate Advance or a LIBOR Advance
and, with respect to any LIBOR Advance, shall specify the principal amount
of
the LIBOR Advance and the Interest Period applicable thereto. The Borrower
shall
repay all Advances even if the Lender does not receive such confirmation and
even if the Person requesting an Advance was not in fact authorized to do so.
Any request for an Advance, whether written or telephonic, shall be deemed
to be
a representation by the Borrower that the conditions set forth in Section 4.2
have been satisfied as of the time of the request.
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(c) Disbursement.
Upon
fulfillment of the applicable conditions set forth in Article IV, the
Lender shall disburse the proceeds of the requested Advance by crediting the
same to the Borrower’s demand deposit account maintained with the Lender unless
the Lender and the Borrower shall agree in writing to another manner of
disbursement.
Section
2.3 LIBOR
Advances.
(a) Converting
Floating Rate Advances to LIBOR Advances; Procedures. So long as no Default
Period is in effect, the Borrower may convert all or any part of the principal
amount of any outstanding Floating Rate Advance into a LIBOR Advance by
requesting that the Lender convert same no later than the Cut-off Time on the
Business Day immediately preceding the Business Day on which the Borrower wishes
the conversion to become effective. Each request that conforms to the terms
of
this Agreement shall be effective upon receipt by the Lender and shall be
confirmed in writing by the Borrower if the Lender so requests by any Officer
or
designated agent identified in Section 2.2(b) or Person reasonably believed
by
the Lender to be such an Officer or designated agent, which request shall
specify the Business Day on which the conversion is to occur, the total amount
of the Floating Rate Advance to be converted, and the applicable Interest
Period. Each such conversion shall occur on a Business Day, and the aggregate
amount of Floating Rate Advances converted to LIBOR Advances shall be in
multiples of $500,000, with a minimum conversion amount of at least
$500,000.
(b) Procedures
at End of an Interest Period. Unless the Borrower requests a new LIBOR Advance
in accordance with the procedures set forth below, or prepays the principal
of
an outstanding LIBOR Advance at the expiration of an Interest Period, the Lender
shall automatically and without request of the Borrower convert each LIBOR
Advance to a Floating Rate Advance on the last day of the relevant Interest
Period. So long as no Default exists, the Borrower may cause all or any part
of
any maturing LIBOR Advance to be renewed as a new LIBOR Advance by requesting
that the Lender continue the maturing Advance as a LIBOR Advance no later than
the Cut-off Time on the Business Day immediately
preceding the Business Day constituting the first day of the new Interest
Period. Each such request shall be confirmed in writing by the Borrower upon
the
Lender’s request by any Officer or designated agent identified in Section
2.2(b), which confirmation shall be effective upon receipt by the Lender, and
which shall specify the amount of the expiring LIBOR Advance to be continued
and
the applicable Interest Period. Each new Interest Period shall begin on a
Business Day and the amount of each LIBOR Advance shall be in multiples of
$500,000, with a minimum Advance of at least $2,000,000, provided,
however,
the
Borrower shall be permitted to request and have one, but not more than one,
LIBOR Advance in an amount of not less than $200,000 outstanding at any
time.
(c) Setting
and Notice of Rates. The Lender shall, with respect to any request for a LIBOR
Advance under Section 2.2 or a conversion or renewal of a LIBOR Advance under
this Section 2.3, provide the Borrower with a LIBOR quote for each Interest
Period identified by the Borrower on the Business Day on which the request
was
made, if the request is received by the Lender prior to the Cut-off Time, or
for
requests received by the Lender after the Cut-off Time, on the next Business
Day
or on the Business Day on which the Borrower has requested that the LIBOR
Advance be made effective. If the Borrower does not immediately accept a LIBOR
quote, the quoted rate shall expire and any subsequent request from Borrower
for
a LIBOR quote shall be subject to redetermination by the Lender of the
applicable LIBOR for the LIBOR Advance.
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(d) Taxes
and
Regulatory Costs. The Borrower shall pay the Lender with respect to any Advance,
upon demand and in addition to any other amounts due or to become due hereunder,
any and all (i) withholdings, interest equalization taxes, stamp taxes or other
taxes (except income and franchise taxes) imposed by any domestic or foreign
governmental authority and related in any manner to LIBOR, and (ii) future,
supplemental, emergency or other changes in the LIBOR Reserve Percentage,
assessment rates imposed by the Federal Deposit Insurance Corporation, or
similar requirements or costs imposed by any domestic or foreign governmental
authority or resulting from compliance by the Lender with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority and related in any manner to LIBOR to the extent
they are not included in the calculation of LIBOR. In determining which of
the
foregoing are attributable to any LIBOR option available to the Borrower
hereunder, any reasonable allocation made by the Lender among its operations
shall be conclusive and binding upon the Borrower.
Section
2.4 Letters
of Credit.
(a) The
Lender agrees, subject to the terms and conditions of this Agreement, to issue,
at any time after the Funding Date and prior to the Termination Date, one or
more irrevocable standby or documentary letters of credit (each, a “Letter of
Credit”) for the Borrower’s account. The Lender will not issue any Letter of
Credit if the aggregate face amounts of all outstanding Letters of Credit,
including the then current requested Letter of Credit to be issued would exceed
the lesser of:
(i) $1,000,000
, or
(ii) Availability.
Each
Letter of Credit, if any, shall be issued pursuant to a separate L/C Application
made by the Borrower to the Lender, which must be completed in a manner
satisfactory to the Lender. The terms and conditions set forth in each such
L/C
Application shall supplement the terms and conditions of the Standby Letter
of
Credit Agreement or the Commercial Letter of Credit Agreement, as
applicable.
(b) No
Letter
of Credit shall be issued with an expiry date later than one (1) year from
the
date of issuance or the Maturity Date in effect as of the date of issuance,
whichever is earlier. (c) Any
request for issuance of a Letter of Credit shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2
have
been satisfied as of the date of the request.
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(d) If
a
draft is submitted under a Letter of Credit when the Borrower is unable, because
a Default Period exists or for any other reason, to obtain a Revolving Advance
to pay the Obligation of Reimbursement, the Borrower shall pay to the Lender
on
demand and in immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date of the draft until
payment in full at the Default Rate. Notwithstanding the Borrower’s inability to
obtain a Revolving Advance for any reason, the Lender is irrevocably authorized,
in its sole discretion, to make a Revolving Advance in an amount sufficient
to
discharge the Obligation of Reimbursement and all accrued but unpaid interest
thereon.
Section
2.5 Special
Account.
If the
Credit Facility is terminated for any reason while any Letter of Credit is
outstanding, the Borrower shall thereupon pay the Lender in immediately
available funds for deposit in the Special Account an amount equal to the L/C
Amount plus any anticipated fees and costs. If the Borrower fails to promptly
make any such payment in the amount required hereunder, then the Lender may
make
a Revolving Advance against the Credit Facility in an amount sufficient to
fulfill this obligation and deposit the proceeds to the Special Account. The
Special Account shall be an interest bearing account either maintained with
the
Lender or with a financial institution acceptable to the Lender. Any interest
earned on amounts deposited in the Special Account shall be credited to the
Special Account. The Lender may apply amounts on deposit in the Special Account
at any time or from time to time to the Indebtedness in the Lender’s sole
discretion. The Borrower may not withdraw any amounts on deposit in the Special
Account as long as the Lender maintains a security interest therein. The Lender
agrees to transfer any balance in the Special Account to the Borrower when
the
Lender is required to release its security interest in the Special Account
under
applicable law.
Section
2.6 Interest; Default
Interest Rate; Application of Payments; Participations; Usury.
(a) Interest.
Except
as provided in Section 2.3, Section 2.6(d) and Section 2.6(g), the principal
amount of each Advance shall bear interest as a Floating Rate
Advance.
(b) Reserved.
(c) Reserved.
(d) Default
Interest Rate.
At any
time during any Default Period or following the Termination Date, in the
Lender’s sole discretion and without waiving any of its other rights or
remedies, the principal of the Revolving Note shall bear interest at the Default
Rate or such lesser rate as the Lender may determine, effective as of the first
day of the month in which any Default Period begins through the last day of
such
Default Period, or any shorter time period that the Lender may determine. The
decision of the Lender to impose a rate that is less than the Default Rate
or to
not impose the Default Rate for the entire duration of the Default Period shall
be made by the Lender in its sole discretion and shall not be a waiver of any
of
its other rights and remedies, including its right to retroactively impose
the
full Default Rate for the entirety of any such Default Period or following
the
Termination Date.
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(e) Application
of Payments. Payments
shall be applied to the Indebtedness on the Business Day of receipt by the
Lender in the Lender’s general account, but the amount of principal paid shall
continue to accrue interest at the interest rate applicable under the terms
of
this Agreement from the calendar day the Lender receives the payment, and
continuing through the end of the second Business
Day following receipt of the payment.
(f) Participations.
If any
Person shall acquire a participation in the Advances or the Obligation of
Reimbursement, the Borrower shall be obligated to the Lender to pay the full
amount of all interest calculated under this Section 2.6, along with all other
fees, charges and other amounts due under this Agreement, regardless if such
Person elects to accept interest with respect to its participation at a lower
rate than that calculated under this Section 2.6, or otherwise elects to accept
less than its prorata share of such fees, charges and other amounts due under
this Agreement.
(g) Usury.
In any
event no rate change shall be put into effect which would result in a rate
greater than the highest rate permitted by law. Notwithstanding anything to
the
contrary contained in any Loan Document, all agreements which either now are
or
which shall become agreements between the Borrower and the Lender are hereby
limited so that in no contingency or event whatsoever shall the total liability
for payments in the nature of interest, additional interest and other charges
exceed the applicable limits imposed by any applicable usury laws. If any
payments in the nature of interest, additional interest and other charges made
under any Loan Document are held to be in excess of the limits imposed by any
applicable usury laws, it is agreed that any such amount held to be in excess
shall be considered payment of principal hereunder, and the indebtedness
evidenced hereby shall be reduced by such amount so that the total liability
for
payments in the nature of interest, additional interest and other charges shall
not exceed the applicable limits imposed by any applicable usury laws, in
compliance with the desires of the Borrower and the Lender. This provision
shall
never be superseded or waived and shall control every other provision of the
Loan Documents and all agreements between the Borrower and the Lender, or their
successors and assigns.
Section
2.7 Fees.
(a) Origination
Fee.
The
Borrower shall pay the Lender a fully earned and non-refundable origination
fee
of $75,000, due and payable on the Funding Date; provided, however, that if
the
Funding Date is after December 31, 2006, such origination fee shall be $65,000.
(b) Unused
Line Fee.
For the
purposes of this Section 2.7(b), “Unused Amount” means the Maximum Line Amount
reduced by outstanding Revolving Advances and the L/C Amount. The Borrower
agrees to pay to the Lender an unused line fee at the rate of one quarter of
one
percent (0.25%) per annum on the average daily Unused Amount from the date
of
this Agreement to and including the Termination Date, due and payable monthly
in
arrears on the first day of the month and on the Termination Date.
(c) Monthly
Monitoring Fee.
The
Borrower agrees to pay to the Lender a monthly monitoring fee in the amount
of
$750 per month, due and payable monthly in arrears on the first day of each
month and on the Termination Date.
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(d) Collateral
Exam Fees.
(i) The
Borrower shall pay the Lender fees in connection with any collateral exams,
audits or inspections conducted by or on behalf of the Lender of any Collateral
or the Borrower’s operations or business at the rates established from time to
time by the Lender as its collateral exam fees (which fees are currently $950
per day per collateral examiner) together with all actual out-of-pocket costs
and expenses incurred in conducting any such collateral examination or
inspection;
provided,
however,
that so
long as no Default or Event of Default has occurred, the Borrower shall not
be
required to pay more than $35,000, plus actual out-of-pocket costs and expenses,
for all such exams, audits or inspections during any fiscal year.
(ii) The
Lender may, from time to time, engage a third party to calculate ineligible
collateral for the purposes of the Borrowing Base and to perform certain other
collateral monitoring services. The Lender currently utilizes Collateral
Services, Inc. for such purpose. The Borrower shall pay the Lender an initial
set-up fee of $750 for such service and shall, in addition, pay the Lender
a
monthly fee at the rates established from time to time by Collateral Services,
Inc. to cover the cost thereof (which fees are currently ____________ ($____)).
(e) Letter
of Credit Fees.
The
Borrower shall pay to the Lender a fee with respect to each Letter of Credit
that has been issued, if any, which fee shall be calculated on a per diem basis
at an annual rate equal to two percent
(2.0%) of the aggregate amount that may then be drawn under the Letter of
Credit, assuming compliance with all conditions for drawing (the “Aggregate Face
Amount”), from and including the date of issuance of the Letter of Credit until
the date that the Letter of Credit terminates or is returned to the Lender,
which fee shall be due and payable monthly in arrears on the first day of each
month and on the date that the Letter of Credit terminates or is returned to
the
Lender; provided,
however,
effective as of the first day of the month in which any Default Period begins
through the last day of such Default Period, or any shorter time period that
the
Lender may determine, in the Lender’s sole discretion and without waiving any of
its other rights and remedies, such fee shall increase to five percent
(5.0%) of
the
Aggregate Face Amount. The foregoing fee shall be in addition to any and all
other fees, commissions and charges imposed by Lender with respect to or in
connection with such Letter of Credit.
(f) Letter
of Credit Administrative Fees.
The
Borrower shall pay all administrative fees charged by Lender in connection
with
the honoring of drafts under any Letter of Credit, amendments thereto, transfers
thereof and all other activity with respect to the Letters of Credit at the
then
- current rates published by Lender for such services rendered on behalf of
customers of Lender generally.
(g) Termination
and Line Reduction Fees.
If (i)
the Lender terminates the Credit Facility during a Default Period, or if (ii)
the Borrower terminates or reduces the Credit Facility on a date prior to the
Maturity Date, then the Borrower shall pay the Lender as liquidated damages
and
not as a penalty a termination fee in an amount equal to a percentage of the
Maximum Line Amount (or the reduction of the Maximum Line Amount, as the case
may be) calculated as follows: (A) two percent (2%) if the termination or
reduction occurs on or before
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the
first
anniversary of the Funding Date; (B) one percent (1%) if the termination or
reduction occurs after the first anniversary of the Funding Date, but on or
before the second anniversary of the Funding Date; and (C) one half of one
percent (0.5%) if the termination or reduction occurs after the second
anniversary of the Funding Date. In the event the Borrower requests the Lender’s
approval of an acquisition and the Lender does not agree to provide additional
credit to Borrower in order to finance such acquisition and Borrower must obtain
other financing, the foregoing termination or line reduction fees will be
reduced by one half of one percent (0.5%); provided, however, if Lender approves
such acquisition and refinances this facility with Lender, no termination fee
shall be due. No termination fee shall be due in the event that (i) the Lender
chooses not to renew the Credit Facility as provided in Section 2.10(b), or
(ii)
the Borrower terminates or reduces the Credit Facility no more than six (6)
months prior to the Maturity Date.
(h) Contracted
Funds Breakage Fees.
The
Borrower may prepay the principal amount of the Revolving Note at any time
in
any amount, whether voluntarily or by acceleration, provided,
however,
that if
the principal amount of any Revolving Note LIBOR Advance is prepaid, the
Borrower shall pay to the Lender immediately upon demand a contracted funds
breakage fee equal to the sum of the discounted monthly differences for each
month from the month of prepayment through the month in which such Interest
Period matures, calculated as follows for each such month:
(i)Determine
the
amount of interest which would have accrued each month on the amount prepaid
at
the interest rate applicable to such amount had it remained outstanding until
the last day of the applicable Interest Period.
(ii)Subtract
from the
amount determined in (i) above the amount of interest which would have accrued
for the same month on the amount prepaid for the remaining term of such Interest
Period at LIBOR in effect on the date of prepayment for new loans made for
such
term in a principal amount equal to the amount prepaid.
(iii)If
the
result obtained in (ii) for any month is greater than zero, discount that
difference by LIBOR used in (ii) above.
The
Borrower acknowledges that prepayment of the Revolving Note may result in the
Lender incurring additional costs, expenses or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses or liabilities.
The Borrower therefore agrees to pay the above-described contracted funds
breakage fee and agrees that said amount represents a reasonable estimate of
the
contracted funds breakage costs, expenses and/or liabilities of the
Lender.
(i) Reserved.
(j) Overadvance
Fees.
The
Borrower shall pay an Overadvance fee in the amount of $500.00 for each day
or
portion thereof during which an Overadvance exists, regardless of how the
Overadvance arises or whether or not the Overadvance has been agreed to in
advance by the Lender. The acceptance of payment of an Overadvance fee by the
Lender shall not be deemed to constitute either consent to the Overadvance
or a
waiver of the resulting Event of Default, unless the Lender specifically
consents to the Overadvance in writing and waives the Event of Default on
whatever conditions the Lender deems appropriate.
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(k) Other
Fees and Charges.
The
Lender may from time to time impose additional fees and charges as consideration
for Advances made in excess of Availability or for other events that constitute
an Event of Default or a Default hereunder, including fees and charges for
the
administration of Collateral by the Lender, and fees and charges for the late
delivery of reports, which may be assessed in the Lender’s sole discretion on
either an hourly, periodic, or flat fee basis, and in lieu of or in addition
to
imposing interest at the Default Rate.
Section
2.8 Time
for
Interest Payments; Payment on Non-Business Days; Computation of Interest and
Fees.
(a) Time
For Interest Payments.
Accrued
and unpaid interest accruing on Floating Rate Advances shall be due and payable
on the first day of each month and on the Termination Date (each an "Interest
Payment Date"), or if any such day is not a Business Day, on the next succeeding
Business Day. Interest will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of advance to
the
Interest Payment Date. If an Interest Payment Date is not a Business Day,
payment shall be made on the next succeeding Business Day. Interest
accruing on each LIBOR Advance shall be due and payable on the last day of
the
applicable Interest Period; provided,
however,
for
Interest Periods that are longer than one month, interest shall nevertheless
be
due and payable monthly on the last day of each month, and on the last day
of
the Interest Period.
(b) Payment
on Non-Business Days.
Whenever any payment to be made hereunder shall be stated to be due on a day
which is not a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in
the
computation of interest on the Advances or the fees hereunder, as the case
may
be.
(c) Computation
of Interest and Fees.
Interest accruing on the outstanding principal balance of the Advances and
fees
hereunder outstanding from time to time shall be computed on the basis of actual
number of days elapsed in a year of 360 days.
Section
2.9 Lockbox
and Collateral Account; Sweep
of
Funds.
(a) Lockbox
and Collateral Account.
(i) The
Borrower shall instruct all account debtors to pay all Accounts directly to
the
Lockbox. If, notwithstanding such instructions, the Borrower receives any
payments on Accounts, the Borrower shall deposit such payments into the
Collateral Account. The Borrower shall also deposit all other cash proceeds
of
Collateral regardless of source or nature directly into the Collateral Account.
Until so deposited, the Borrower shall hold all such payments and cash proceeds
in trust for and as the property of the Lender and shall not commingle such
property with any of its other funds or property. All deposits in the Collateral
Account shall constitute proceeds of Collateral and shall not constitute payment
of the Indebtedness.
(ii) All
items
deposited in the Collateral Account shall be subject to final payment. If any
such item is returned uncollected, the Borrower will immediately pay the Lender,
or, for items deposited in the Collateral Account, the bank maintaining such
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account,
the amount of that item, or such bank at its discretion may charge any
uncollected item to the Borrower’s commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the Collateral
Account, whether or not in fact endorsed by the Borrower.
(b) Sweep
of Funds.
The
Lender shall from time to time, in accordance with the Wholesale Lockbox and
Collection Account Agreement, cause funds in the Collateral Account to be
transferred to the Lender’s general account for payment of the Indebtedness.
Amounts deposited in the Collateral Account shall not be subject to withdrawal
by the Borrower, except after payment in full and discharge of all Indebtedness.
Section
2.10 Voluntary
Prepayment; Reduction of the Maximum Line Amount; Termination of the Credit
Facility by the Borrower; Automatic Renewal.
(a)
Except as otherwise provided herein, the Borrower may prepay the Advances in
whole at any time or from time to time in part. The Borrower may terminate
the
Credit Facility or reduce the Maximum Line Amount at any time if it
(i) gives the Lender at least 90 days advance written notice prior to the
proposed Termination Date, and (ii) pays the Lender applicable termination,
prepayment and contracted funds breakage fees, and Maximum Line Amount reduction
fees in accordance with the terms of this Agreement. Any reduction in the
Maximum Line Amount shall be in multiples of $100,000, and with a minimum
reduction of at least $500,000.
If the
Borrower terminates the Credit Facility or reduces the Maximum Line Amount
to
zero, all Indebtedness shall be immediately due and payable, and if the Borrower
gives the Lender less than the required 90 days advance written notice, then the
interest rate applicable to borrowings evidenced by Revolving Note shall be
the
Default Rate for the period of time commencing 90 days prior to the proposed
Termination Date through the date that the Lender actually receives such written
notice. If the Borrower does not wish the Lender to consider renewal of the
Credit Facility on the next Maturity Date, then the Borrower shall give the
Lender at least 90 days written notice prior to the Maturity Date that it will
not be requesting renewal. If the Borrower fails to give the Lender such timely
notice, then the interest rate applicable to borrowings evidenced by the
Revolving Note shall be the Default Rate for the period of time commencing
90
days prior to the Maturity Date through the date that the Lender actually
receives such written notice.
(b)
Unless terminated by the Borrower in accordance with the foregoing, the Credit
Facility shall remain in effect until the Original Maturity Date and,
thereafter, at Lender’s option shall be renewed for successive one year periods
(the Original Maturity Date and each anniversary date thereof to which the
Credit Facility has been extended is herein referred to as a “Maturity Date”).
If Lender chooses not to renew the Credit Facility, it shall provide Borrower
three (3) months written notice thereof prior to the Maturity Date.
Section
2.11 Mandatory
Prepayment.
Without notice or demand, if the sum of the outstanding principal balance of
the
Revolving Advances plus the L/C Amount shall
at
any time exceed the Borrowing Base, the Borrower shall (i) first,
immediately prepay the Revolving Advances to the extent necessary to eliminate
such excess; and (ii) if prepayment in full of the Revolving Advances is
insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any
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21
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voluntary
or mandatory prepayment received by the Lender may be applied to the
Indebtedness, in such order and in such amounts as the Lender in its sole
discretion may determine from time to time.
Section
2.12 Revolving
Advances to Pay Indebtedness.
Notwithstanding the terms of Section 2.1, the Lender may, in its discretion
at
any time or from time to time, without the Borrower’s request and even if the
conditions set forth in Section 4.2 would not be satisfied, make a Revolving
Advance in an amount equal to the portion of the Indebtedness from time to
time
due and payable.
Section
2.13 Use
of
Proceeds. The Borrower shall use the proceeds of Advances and each Letter of
Credit for ordinary working capital purposes.
Section
2.14 Liability
Records. The Lender may maintain from time to time, at its discretion, records
as to the Indebtedness. All entries made on any such record shall be presumed
correct until the Borrower establishes the contrary. Upon the Lender’s demand,
the Borrower will admit and certify in writing the exact principal balance
of
the Indebtedness that the Borrower then asserts to be outstanding. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless the Borrower gives the Lender specific written
notice of exception within 30 days after receipt.
Article
III
SECURITY
INTEREST; OCCUPANCY; SETOFF
Section
3.1 Grant
of Security Interest.
The
Borrower hereby pledges, assigns and grants to the Lender, a lien and security
interest (collectively referred to as the “Security Interest”) in the
Collateral, as security for the payment and performance of: (a) all present
and
future Indebtedness of the Borrower to the Lender; (b) all obligations of the
Borrower and rights of the Lender under this Agreement; and (c) all present
and
future obligations of the Borrower to the Lender of other kinds. Upon request
by
the Lender, the Borrower will grant to the Lender a
security interest in all commercial tort claims that the Borrower may have
against any Person.
Section
3.2 Notification
of Account Debtors and Other Obligors. The Lender may at any time (whether
or
not a Default Period then exists) notify any account debtor or other Person
obligated to pay the amount due that such right to payment has been assigned
or
transferred to the Lender for security and shall be paid directly to the Lender.
The Borrower will join in giving such notice if the Lender so requests. At
any
time after the Borrower or the Lender gives such notice to an account debtor
or
other obligor, the Lender may, but need not, in the Lender’s name or in the
Borrower’s name, demand, xxx for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement with
or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor. The Lender
may, in the Lender’s name or in the Borrower’s name, as the Borrower’s agent and
attorney-in-fact, notify the United States Postal Service to change the address
for delivery of the Borrower’s mail to any address designated by the Lender,
otherwise intercept the Borrower’s mail, and receive, open and dispose of the
Borrower’s mail, applying all
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22
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Collateral
as permitted under this Agreement and holding all other mail for the Borrower’s
account or forwarding such mail to the Borrower’s last known
address.
Section
3.3 Assignment
of Insurance. As additional security for the payment and performance of the
Indebtedness, the Borrower hereby assigns to the Lender any and all monies
(including proceeds of insurance and refunds of unearned premiums) due or to
become due under, and all other rights of the Borrower with respect to, any
and
all policies of insurance now or at any time hereafter covering the Collateral
or any evidence thereof or any business records or valuable papers pertaining
thereto, and the Borrower hereby directs the issuer of any such policy to pay
all such monies directly to the Lender. At any time, whether or not a Default
Period then exists, the Lender may (but need not), in the Lender’s name or in
the Borrower’s name, execute and deliver proof of claim, receive all such
monies, endorse checks and other instruments representing payment of such
monies, and adjust, litigate, compromise or release any claim against the issuer
of any such policy. Any monies received as payment for any loss under any
insurance policy mentioned above (other than liability insurance policies)
or as
payment of any award or compensation for condemnation or taking by eminent
domain, shall be paid over to the Lender to be applied, at the option of the
Lender, either to the prepayment of the Indebtedness or shall be disbursed
to
the Borrower under staged payment terms reasonably satisfactory to the Lender
for application to the cost of repairs, replacements, or restorations. Any
such
repairs, replacements, or restorations shall be affected with reasonable
promptness and shall be of a value at least equal to the value of the items
or
property destroyed prior to such damage or destruction.
Section
3.4
Occupancy.
(a) The
Borrower hereby irrevocably grants to the Lender the right to take exclusive
possession of the Premises at any time during a Default Period without notice
or
consent.
(b) The
Lender may use the Premises only to hold, process, manufacture, sell, use,
store, liquidate, realize upon or otherwise dispose of goods that are Collateral
and for other purposes that the Lender may in good xxxxx xxxx to be related
or
incidental purposes.
(c) The
Lender’s right to hold the Premises shall cease and terminate upon the earlier
of (i) payment in full and discharge of all Indebtedness and termination of
the Credit Facility, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to
purchasers.
(d) The
Lender shall not be obligated to pay or account for any rent or other
compensation for the possession, occupancy or use of any of the Premises;
provided,
however,
that if
the Lender does pay or account for any rent or other compensation for the
possession, occupancy or use of any of the Premises, the Borrower shall
reimburse the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees, duties,
imposts, charges and expenses at any time incurred by or imposed upon the Lender
by reason of the execution, delivery, existence, recordation, performance or
enforcement of this Agreement or the provisions of this Section
3.4.
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Section
3.5 License.
Without limiting the generality of any other Security Document, the Borrower
hereby grants to the Lender a non-exclusive, worldwide and royalty-free license
to use or otherwise exploit all Intellectual Property Rights of the Borrower
for
the purpose of: (a) completing the manufacture of any in-process materials
during any Default Period so that such materials become saleable Inventory,
all
in accordance with the same quality standards previously adopted by the Borrower
for its own manufacturing and subject to the Borrower’s reasonable exercise of
quality control; and (b) selling, leasing or otherwise disposing of any or
all Collateral during any Default Period.
Section
3.6 Financing
Statement.
The
Borrower authorizes the Lender to file from time to time, such financing
statements against collateral described as “all personal property” or “all
assets” or describing specific items of collateral including commercial tort
claims as the Lender deems necessary or useful to perfect the Security Interest.
All financing statements filed before the date hereof to perfect the Security
Interest were authorized by the Borrower and are hereby re-authorized. A carbon,
photographic or other reproduction of this Agreement or of any financing
statements signed by the Borrower is sufficient as a financing statement and
may
be filed as a financing statement in any state to perfect the security interests
granted hereby. For this purpose, the Borrower represents and warrants that
the
following information is true and correct:
Name
and
address of Debtor:
00
Xxxx
Xxxxx
Xxxxxxxxxx,
XX 00000
Federal
Employer Identification No. _______________________
Organizational
Identification No. __________________________
Qualtech
International Corporation
00
Xxxx
Xxxxx
Xxxxxxxxxx,
XX 00000
Federal
Employer Identification No. _______________________
Organizational
Identification No. __________________________
Qualtech
Services Group, Inc.
00
Xxxx
Xxxxx
Xxxxxxxxxx,
XX 00000
Federal
Employer Identification No. _______________________
Organizational
Identification No. __________________________
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24
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Name
and
address of Secured Party:
Xxxxx
Fargo Bank, National Association
0000
XXX
Xxxxxxxxx
Xxxxxxxxxxxx,
XX 00000
Section
3.7 Setoff.
The
Lender may at any time or from time to time, at its sole discretion and without
demand and without notice to anyone, setoff any liability owed to the Borrower
by the Lender, whether or not due, against any Obligation, whether or not due.
In addition, each other Person holding a participating interest in any
Indebtedness shall have the right to appropriate or setoff any deposit or other
liability then owed by such Person to the Borrower, whether or not due, and
apply the same to the payment of said participating interest, as fully as if
such Person had lent directly to the Borrower the amount of such participating
interest.
Section
3.8 Collateral.
This Agreement does not contemplate a sale of accounts, contract rights or
chattel paper, and, as provided by law, the Borrower is entitled to any surplus
and shall remain liable for any deficiency. The Lender’s duty of care with
respect to Collateral in its possession (as imposed by law) shall be deemed
fulfilled if it exercises reasonable care in physically keeping such Collateral,
or in the case of Collateral in the custody or possession of a bailee or other
third Person, exercises reasonable care in the selection of the bailee or other
third Person, and the Lender need not otherwise preserve, protect, insure or
care for any Collateral. The Lender shall not be obligated to preserve any
rights the Borrower may have against prior parties, to realize on the Collateral
at all or in any particular manner or order or to apply any cash proceeds of
the
Collateral in any particular order of application. The Lender has no obligation
to clean-up or otherwise prepare the Collateral for sale. The Borrower waives
any right it may have to require the Lender to pursue any third Person for
any
of the Indebtedness.
Article
IV
CONDITIONS
OF LENDING
Section
4.1 Conditions
Precedent to the Initial Advances and Letter of Credit.
The
Lender’s obligation to make the initial Advances or to cause any Letters of
Credit to be issued shall
be
subject to the condition precedent that the Lender shall have received all
of
the following, each properly executed by the appropriate party and in form
and
substance satisfactory to the Lender:
(a) This
Agreement.
(b) The
Revolving Note.
(c) A
Standby
Letter of Credit Agreement and a Commercial Letter of Credit Agreement, and
L/C
Application for each Letter of Credit that the Borrower wishes to have issued
thereunder.
(d) A
true
and correct copy of any and all leases pursuant to which the Borrower is leasing
the Premises, together with a landlord’s disclaimer and consent with respect to
each such lease.
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25
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(e) A
true
and correct copy of any and all mortgages pursuant to which the Borrower has
mortgaged the Premises, together with a mortgagee’s disclaimer and consent with
respect to each such mortgage.
(f) A
true
and correct copy of any and all agreements pursuant to which the Borrower’s
property is in the possession of any Person other than the Borrower, together
with, in the case of any goods held by such Person for resale, (i) a
consignee’s acknowledgment and waiver of Liens, (ii) UCC financing
statements sufficient to protect the Borrower’s and the Lender’s interests in
such goods, and (iii) UCC searches showing that no other secured party has
filed a financing statement against such Person and covering property similar
to
the Borrower’s other than the Borrower, or if there exists any such secured
party, evidence that each such secured party has received notice from the
Borrower and the Lender sufficient to protect the Borrower’s and the Lender’s
interests in the Borrower’s goods from any claim by such secured
party.
(g) An
acknowledgment and waiver of Liens from each warehouse in which the Borrower
is
storing Inventory.
(h) A
true
and correct copy of any and all agreements pursuant to which the Borrower’s
property is in the possession of any Person other than the Borrower, together
with, (i) an acknowledgment and waiver of Liens from each subcontractor who
has possession of the Borrower’s goods from time to time, (ii) UCC
financing statements sufficient to protect the Borrower’s and the Lender’s
interests in such goods, and (iii) UCC searches showing that no other
secured party has filed a financing statement covering such Person’s property
other than the Borrower, or if there exists any such secured party, evidence
that each such secured party has received notice from the Borrower and the
Lender sufficient to protect the Borrower’s and the Lender’s interests in the
Borrower’s goods from any claim by such secured party.
(i) Reserved.
(j) Reserved.
(k) The
Wholesale Lockbox and Collection Account Agreement.
(l) Control
agreements with each bank at which the Borrower maintains deposit
accounts.
(m) A
Patent
and Trademark Security Agreement.
(n) Current
searches of appropriate filing offices showing that (i) no Liens have been
filed and remain in effect against the Borrower except Permitted Liens or Liens
held by Persons who have agreed in writing that upon receipt of proceeds of
the
initial Advances, they will satisfy, release or terminate such Liens in a manner
satisfactory to the Lender, and (ii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the extent
the Security Interest is capable of being perfected by filing.
(o) A
certificate of the Borrower’s Secretary or Assistant Secretary certifying that
attached to such certificate are (i) the resolutions of the Borrower’s
Directors and, if required,
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26
-
Owners,
authorizing the execution, delivery and performance of the Loan Documents,
(ii) true, correct and complete copies of the Borrower’s Constituent
Documents, and (iii) examples of the signatures of the Borrower’s Officers
or agents authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance requests, on the
Borrower’s behalf.
(p) A
current
certificate issued by the Secretary of State of Delaware, certifying that the
Borrower is in compliance with all applicable organizational requirements of
the
State of Delaware.
(q) Evidence
that the Borrower is duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by it makes such licensing or qualification
necessary.
(r) A
certificate of an Officer of the Borrower confirming, in his personal capacity,
the representations and warranties set forth in Article V.
(s) Reserved.
(t) Certificates
of the insurance required hereunder, with all hazard insurance containing a
lender’s loss payable endorsement in the Lender’s favor and with all liability
insurance naming the Lender as an additional insured.
(u) Reserved.
(v) Reserved.
(w) Reserved.
(x) Payment
of all fees due under the terms of this Agreement through the date of the
initial Advance or the issuance of any Letter of Credit hereunder, and payment
of all expenses incurred by the Lender through such date and that are required
to be paid by the Borrower under this Agreement.
(y) Evidence
that after making the initial Revolving Advance, satisfying all obligations
owed
to the Borrower’s prior lender, satisfying all trade payables older than
60 days from invoice date, book overdrafts and closing costs, Availability
shall be not less than $1,000,000.
(z) A
Customer Identification Information form and such other forms and verification
as the Lender may need to comply with the U.S.A. Patriot Act.
(aa) Such
other documents as the Lender in its sole discretion may require.
Section
4.2 Conditions
Precedent to All Advances and Letters of Credit. The Lender’s obligation to make
each Advance or to cause the issuance of a Letter of Credit shall be subject
to
the further conditions precedent that:
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27
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(a) the
representations and warranties contained in Article V are correct on and as
of the date of such Advance or issuance of a Letter of Credit as though made
on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no
event
has occurred and is continuing, or would result from such Advance or issuance
of
a Letter of Credit which constitutes a Default or an Event of
Default.
Article
V
REPRESENTATIONS
AND WARRANTIES
The
Borrower represents and warrants to the Lender as follows:
Section
5.1 Existence
and Power; Name; Chief Executive Office; Inventory and Equipment Locations;
Federal Employer Identification Number and Organizational Identification Number.
The Borrower is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Delaware and is duly licensed or
qualified to transact business in all jurisdictions where the character of
the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary. The Borrower has all requisite power
and authority to conduct its business, to own its properties and to execute
and
deliver, and to perform all of its obligations under, the Loan Documents. During
its existence, the Borrower has done business solely under the names set forth
in Schedule 5.1. The Borrower’s chief executive office and principal place of
business is located at the address set forth in Schedule 5.1, and all of the
Borrower’s records relating to its business or the Collateral are kept at that
location. All Inventory and Equipment is located at that location or at one
of
the other locations listed in Schedule 5.1. The Borrower’s federal employer
identification number and organization identification number are correctly
set
forth in Section 3.6.
Section
5.2 Capitalization.
Schedule 5.2 constitutes a correct and complete list of all Persons holding
ownership interests and rights to acquire ownership interests which if fully
exercised would cause such Person to hold more than five percent (5%) of all
ownership interests of the Borrower on a fully diluted basis, and an
organizational chart showing the ownership structure of all Subsidiaries of
the
Borrower.
Section
5.3 Authorization
of Borrowing; No Conflict as to Law or Agreements. The execution, delivery
and
performance by the Borrower of the Loan Documents and the borrowings from time
to time hereunder have been duly authorized by all necessary corporate action
and do not and will not (i) require any consent or approval of the
Borrower’s Owners; (ii) require any authorization, consent or approval by,
or registration, declaration or filing with, or notice to, any governmental
department, commission, board, bureau, agency or instrumentality, domestic
or
foreign, or any third party, except such authorization, consent, approval,
registration, declaration, filing or notice as has been obtained, accomplished
or given prior to the date hereof; (iii) violate any provision of any law,
rule or regulation (including Regulation X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or decree presently
in
effect having applicability to the Borrower or of the Borrower’s Constituent
Documents; (iv) result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other material agreement, lease
or
instrument to which the Borrower is a party or by which it or its properties
may
be bound or affected; or (v) result in, or require, the creation or
imposition of any Lien (other than the Security Interest) upon or with respect
to any of the properties now owned or hereafter acquired by the
Borrower.
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Section
5.4 Legal
Agreements. This Agreement constitutes and, upon due execution by the Borrower,
the other Loan Documents will constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance
with
their respective terms.
Section
5.5 Subsidiaries.
Except as set forth in Schedule 5.5 hereto, the Borrower has no
Subsidiaries.
Section
5.6 Financial
Condition; No Adverse Change.
The
Borrower has furnished to the Lender its audited financial statements for its
fiscal year ended December 31, 2005 and
unaudited financial statements for the fiscal-year-to-date period ended December
8, 2006, and
those
statements fairly present the Borrower’s financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with GAAP. Since the date of the most
recent financial statements, there has been no change in the Borrower’s
business, properties or condition (financial or otherwise) which has had a
Material Adverse Effect.
Section
5.7 Litigation.
There are no actions, suits or proceedings pending or, to the Borrower’s
knowledge, threatened against or affecting the Borrower or any of its Affiliates
or the properties of the Borrower or any of its Affiliates before any court
or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any
of
its Affiliates, would have a Material Adverse Effect on the financial condition,
properties or operations of the Borrower or any of its Affiliates.
Section
5.8 Regulation U.
The Borrower is not engaged in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulation U
of
the Board of Governors of the Federal Reserve System), and no part of the
proceeds of any Advance will be used to purchase or carry any margin stock
or to
extend credit to others for the purpose of purchasing or carrying any margin
stock.
Section
5.9 Taxes.
The Borrower and its Affiliates have paid or caused to be paid to the proper
authorities when due all federal, state and local taxes required to be withheld
by each of them. The Borrower and its Affiliates have filed all federal, state
and local tax returns which to the knowledge of the Officers of the Borrower
or
any Affiliate, as the case may be, are required to be filed, and the Borrower
and its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received
by
any of them to the extent such taxes have become due.
Section
5.10 Titles
and Liens. The Borrower has good and absolute title to all Collateral free
and
clear of all Liens other than Permitted Liens. No financing statement naming
the
Borrower as debtor is on file in any office except to perfect only Permitted
Liens.
Section
5.11 Intellectual
Property Rights.
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29
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(a) Owned
Intellectual Property.
Schedule 5.11 is a complete list of all patents, applications for patents,
trademarks, applications to register trademarks, service marks, applications
to
register service marks, mask works, trade dress and copyrights for which the
Borrower is the owner of record (the “Owned Intellectual Property”). Except as
disclosed on Schedule 5.11, (i) the Borrower owns the Owned Intellectual
Property free and clear of all restrictions (including covenants not to xxx
a
third party), court orders, injunctions, decrees, writs or Liens, whether by
written agreement or otherwise, (ii) no Person other than the Borrower owns
or has been granted any right in the Owned Intellectual Property, (iii) all
Owned Intellectual Property is valid, subsisting and enforceable and
(iv) the Borrower has taken all commercially reasonable action necessary to
maintain and protect the Owned Intellectual Property.
(b) Agreements
with Employees and Contractors.
The
Borrower has entered into a legally enforceable agreement with each of its
employees and subcontractors obligating each such Person to assign to the
Borrower, without any additional compensation, any Intellectual Property Rights
created, discovered or invented by such Person in the course of such Person’s
employment or engagement with the Borrower (except to the extent prohibited
by
law), and further requiring such Person to cooperate with the Borrower, without
any additional compensation, in connection with securing and enforcing any
Intellectual Property Rights therein; provided,
however,
that
the foregoing shall not apply with respect to employees and subcontractors
whose
job descriptions are of the type such that no such assignments are reasonably
foreseeable.
(c) Intellectual
Property Rights Licensed from Others.
Schedule 5.11 is a complete list of all agreements under which the Borrower
has
licensed Intellectual Property Rights from another Person (“Licensed
Intellectual Property”) other than readily available, non-negotiated licenses of
computer software and other intellectual property used solely for performing
accounting, word processing and similar administrative tasks (“Off-the-shelf
Software”) and a summary of any ongoing payments the Borrower is obligated to
make with respect thereto. Except as disclosed on Schedule 5.11 and in written
agreements, copies of which have been given to the Lender, the Borrower’s
licenses to use the Licensed Intellectual Property are free and clear of all
restrictions, Liens, court orders, injunctions, decrees, or writs, whether
by
written agreement or otherwise. Except as disclosed on Schedule 5.11, the
Borrower is not obligated or under any liability whatsoever to make any
payments of a material nature by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property
Rights.
(d) Other
Intellectual Property Needed for Business.
Except
for Off-the-shelf Software and as disclosed on Schedule 5.11, the Owned
Intellectual Property and the Licensed Intellectual Property constitute all
Intellectual Property Rights used or necessary to conduct the Borrower’s
business as it is presently conducted or as the Borrower reasonably foresees
conducting it.
(e) Infringement.
Except
as disclosed on Schedule 5.11, the Borrower has no knowledge of, and has not
received any written claim or notice alleging, any Infringement of another
Person’s Intellectual Property Rights (including any written claim that the
Borrower must license or refrain from using the Intellectual Property Rights
of
any third party) nor, to the Borrower’s
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30
-
knowledge,
is there any threatened claim or any reasonable basis for any such
claim.
Section
5.12 Plans.
Except
as disclosed to the Lender in writing prior to the date hereof, neither the
Borrower nor any ERISA Affiliate (a) maintains or has maintained any Pension
Plan, (b) contributes or has contributed to any Multiemployer Plan or (c)
provides or has provided post-retirement medical or insurance benefits with
respect to employees or former employees (other than benefits required under
Section 601 of ERISA, Section 4980B of the IRC or applicable state law). Neither
the Borrower nor any ERISA Affiliate has received any notice or has any
knowledge to the effect that it is not in full compliance with any of the
requirements of ERISA, the IRC or applicable state law with respect to any
Plan.
No Reportable Event exists in connection with any Pension Plan. Each Plan which
is intended to qualify under the IRC is so qualified, and no fact or
circumstance exists which may have an adverse effect on the Plan’s tax-qualified
status. Neither the Borrower nor any ERISA Affiliate has (i) any
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the IRC) under any Plan, whether or not waived, (ii) any liability
under Section 4201 or 4243 of ERISA for any withdrawal, partial withdrawal,
reorganization or other event under any Multiemployer Plan or (iii) any
liability or knowledge of any facts or circumstances which could result in
any
liability to the Pension Benefit Guaranty Corporation, the Internal Revenue
Service, the Department of Labor or any participant in connection with any
Plan
(other than routine claims for benefits under the Plan).
Section
5.13 Default.
The Borrower is in compliance with all provisions of all agreements,
instruments, decrees and orders to which it is a party or by which it or its
property is bound or affected, the breach or default of which could have a
Material Adverse Effect.
Section
5.14 Environmental
Matters.
(a) Except
as
disclosed on Schedule 5.14, there are not present in, on or under the Premises
any Hazardous Substances in such form or quantity as to create any material
liability or obligation for either the Borrower or the Lender under the common
law of any jurisdiction or under any Environmental Law, and no Hazardous
Substances have ever been stored, buried, spilled, leaked, discharged, emitted
or released in, on or under the Premises in such a way as to create any such
material liability.
(b) Except
as
disclosed on Schedule 5.14, the Borrower has not disposed of Hazardous
Substances in such a manner as to create any material liability under any
Environmental Law.
(c) Except
as
disclosed on Schedule 5.14, there have not existed in the past, nor are there
any threatened or impending requests, claims, notices, investigations, demands,
administrative proceedings, hearings or litigation relating in any way to the
Premises or the Borrower, alleging material liability under, violation of,
or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto.
(d) Except
as
disclosed on Schedule 5.14, the Borrower’s businesses are and have in the past
always been conducted in accordance with all Environmental Laws and all
licenses,
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31
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permits
and other authorizations required pursuant to any Environmental Law and
necessary for the lawful and efficient operation of such businesses are in
the
Borrower’s possession and are in full force and effect, nor has the Borrower
been denied insurance on grounds related to potential environmental liability.
No permit required under any Environmental Law is scheduled to expire within
12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(e) Except
as
disclosed on Schedule 5.14, the Premises are not and never have been listed
on
the National Priorities List, the Comprehensive Environmental Response,
Compensation and Liability Information System or any similar federal, state
or
local list, schedule, log, inventory or database.
(f) The
Borrower has delivered to the Lender all environmental assessments, audits,
reports, permits, licenses and other documents describing or relating in any
way
to the Premises or the Borrower’s businesses.
Section
5.15 Submissions
to Lender. All financial and other information provided to the Lender by or
on
behalf of the Borrower in connection with the Borrower’s request for the credit
facilities contemplated hereby (i) is true and correct in all material
respects, (ii) does not omit any material fact necessary to make such
information not misleading and, (iii) as to projections, valuations or
proforma financial statements, presents a good faith opinion as to such
projections, valuations and proforma condition and results.
Section
5.16 Financing
Statements.
The
Borrower has authorized the filing of financing statements sufficient when
filed
to perfect the Security Interest and the other security interests created by
the
Security Documents. When such financing statements are filed in the offices
noted therein, the Lender will have a valid and perfected security interest
in
all Collateral which is capable of being perfected by filing financing
statements. None of the Collateral is or will become a fixture on real estate,
unless a sufficient fixture filing is in effect with respect
thereto.
Section
5.17 Rights
to
Payment. Each right to payment and each instrument, document, chattel paper
and
other agreement constituting or evidencing Collateral is (or, in the case of
all
future Collateral, will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, setoff or counterclaim,
of the account debtor or other obligor named therein or in the Borrower’s
records pertaining thereto as being obligated to pay such
obligation.
Section
5.18
Financial Solvency. Both before and after giving effect to the all of the
transactions contemplated in the Loan Documents, none of the Borrower or its
Affiliates:
(a) Was
or
will be “insolvent”, as that term is used and defined in Section 101(32) of the
United States Bankruptcy Code and Section 2 of the Uniform Fraudulent Transfer
Act;
(b) Has
unreasonably small capital or is engaged or about to engage in a business or
a
transaction for which any remaining assets of the Borrower or such Affiliate
are
unreasonably small;
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(c) By
executing, delivering or performing its obligations under the Loan Documents
or
other documents to which it is a party or by taking any action with respect
thereto, intends to, nor believes that it will, incur debts beyond its ability
to pay them as they mature;
(d) By
executing, delivering or performing its obligations under the Loan Documents
or
other documents to which it is a party or by taking any action with respect
thereto, intends to hinder, delay or defraud either its present or future
creditors; and
(e) At
this
time contemplates filing a petition in bankruptcy or for an arrangement or
reorganization or similar proceeding under any law of any jurisdiction, nor,
to
the best knowledge of the Borrower, is the subject of any actual, pending or
threatened bankruptcy, insolvency or similar proceedings under any law of any
jurisdiction.
Article
VI
COVENANTS
So
long
as the Indebtedness shall remain unpaid, or the Credit Facility shall remain
outstanding, the Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing:
Section
6.1 Reporting
Requirements.
The
Borrower will deliver, or cause to be delivered, to the Lender each of the
following, which shall be in form and detail acceptable to the
Lender:
(a) Annual
Financial Statements.
As soon
as available, and in any event within 105 days after the end of each fiscal
year of the Borrower, the Borrower’s audited financial statements with the
unqualified opinion of independent certified public accountants selected by
the
Borrower and acceptable to the Lender, which annual financial statements shall
include the Borrower’s balance sheet as at the end of such fiscal year and the
related statements of the Borrower’s income, retained earnings and cash flows
for the fiscal year then ended, prepared, if the Lender so requests, on a
consolidating and consolidated basis to include any Affiliates, all in
reasonable detail and prepared in accordance with GAAP, together with
(i) copies of all management letters prepared by such accountants;
(ii) a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge, except
as
specifically stated, of any Default or Event of Default and all relevant facts
in reasonable detail to evidence, and the computations as to, whether or not
the
Borrower is in compliance with the Financial Covenants; and (iii) a
certificate of the Borrower’s chief financial officer stating that such
financial statements have been prepared in accordance with GAAP, fairly
represent the Borrower’s financial position and the results of its operations,
and whether or not such Officer has knowledge of the occurrence of any Default
or Event of Default and, if so, stating in reasonable detail the facts with
respect thereto.
(b) Monthly
Financial Statements.
As soon
as available and in any event within 25 days after the end of each month,
the unaudited/internal balance sheet and statements of income and retained
earnings of the Borrower as at the end of and for such month and for the year
to
date period then ended, prepared, if the Lender so requests, on a consolidating
and
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consolidated
basis to include any Affiliates, in reasonable detail and stating in comparative
form the figures for the corresponding date and periods in the previous year,
all prepared in accordance with GAAP, subject to year-end audit adjustments
and
which fairly represent the Borrower’s financial position and the results of its
operations; and accompanied by a certificate of the Borrower’s chief financial
officer, substantially in the form of Exhibit B hereto stating (i) that
such financial statements have been prepared in accordance with GAAP, subject
to
year-end audit adjustments, and fairly represent the Borrower’s financial
position and the results of its operations, (ii) whether or not such
Officer has knowledge of the occurrence of any Default or Event of Default
not
theretofore reported and remedied and, if so, stating in reasonable detail
the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the Borrower
is
in compliance with the Financial Covenants.
(c) Collateral
Reports.
Within
15
days
after the end of each month, or more frequently if the Lender so requires,
the
Borrower’s accounts receivable listing and aging, the Borrower’s accounts
payable and aging, and a calculation of the Borrower’s Accounts and Eligible
Accounts as at the end of such month or shorter time period. Within 10 days
after the end of each month or more frequently if the Lender so requests, the
Borrower’s accounts payable, a detailed inventory report, an inventory
certification report, and a calculation of the Borrower’s Inventory and Eligible
Inventory as at the end of such month or shorter time period. The Borrower
shall
submit its accounts receivable agings and inventory reports electronically
to
Lender via its vendor, Collateral Services, Inc.
(d) Projections.
No
later than thirty (30) days after the beginning of each fiscal year, the
Borrower’s projected balance sheets, income statements, statements of cash flow
and projected Availability for each month of such fiscal year, each in
reasonable detail. Such items will be certified by the Officer who is the
Borrower’s chief financial officer as being the most accurate projections
available and identical to the projections used by the Borrower for internal
planning purposes and be delivered with a statement of underlying assumptions
and such supporting schedules and information as the Lender may in its
discretion require.
(e) Supplemental
Reports.
Weekly,
or more frequently if the Lender so requires, the Borrower’s “daily collateral
reports”, receivables schedules, collection reports, copies of invoices to
account debtors, signed and dated shipment documents and delivery receipts
for
goods sold to said account debtors.
(f) Litigation.
Immediately after the commencement thereof, notice in writing of all litigation
and of all proceedings before any governmental or regulatory agency affecting
the Borrower (i) of the type described in Section 5.14(c) or
(ii) which seek a monetary recovery against the Borrower in excess of
$150,000.
(g) Defaults.
When
any Officer of the Borrower becomes aware of the probable occurrence of any
Default or Event of Default, and no later than 3 days after such Officer becomes
aware of such Default or Event of Default, notice of such occurrence, together
with a detailed statement by a responsible Officer of the Borrower of the steps
being taken by the Borrower to cure the effect thereof.
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34
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(h) Plans.
As soon
as possible, and in any event within 30 days after the Borrower knows or
has reason to know that any Reportable Event with respect to any Pension Plan
has occurred, a statement signed by the Officer who is the Borrower’s chief
financial officer setting forth details as to such Reportable Event and the
action which the Borrower proposes to take with respect thereto, together with
a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation. As soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution required with respect to
any
Pension Plan under Section 412(m) of the IRC, the Borrower will deliver to
the
Lender a statement signed by the Officer who is the Borrower’s chief financial
officer setting forth details as to such failure and the action which the
Borrower proposes to take with respect thereto, together with a copy of any
notice of such failure required to be provided to the Pension Benefit Guaranty
Corporation. As soon as possible, and in any event within ten days after the
Borrower knows or has reason to know that it has or is reasonably expected
to
have any liability under Sections 4201 or 4243 of ERISA for any withdrawal,
partial withdrawal, reorganization or other event under any Multiemployer Plan,
the Borrower will deliver to the Lender a statement of the Borrower’s chief
financial officer setting forth details as to such liability and the action
which the Borrower proposes to take with respect thereto.
(i) Disputes.
Promptly upon knowledge thereof, notice of (i) any disputes or claims by
the Borrower’s customers exceeding
$50,000 individually or $150,000 in the aggregate during any fiscal year;
(ii) credit memos; and (iii) any goods returned to or recovered by the
Borrower.
(j) Officers
and Directors.
Promptly upon knowledge thereof, notice of any change in the persons
constituting the Borrower’s Officers and Directors.
(k) Collateral.
Promptly upon knowledge thereof, notice of any loss of or material damage to
any
Collateral or of any substantial adverse change in any Collateral or the
prospect of payment thereof.
(l) Commercial
Tort Claims.
Promptly upon knowledge thereof, notice of any commercial tort claims it may
bring against any Person, including the name and address of each defendant,
a
summary of the facts, an estimate of the Borrower’s damages, copies of any
complaint or demand letter submitted by the Borrower, and such other information
as the Lender may request.
(m) Intellectual
Property.
(i) 30
days
prior written notice of Borrower’s intent to acquire material Intellectual
Property Rights; except for transfers permitted under Section 6.18, the Borrower
will give the Lender 30 days prior written notice of its intent to dispose
of
material Intellectual Property Rights and upon request shall provide the Lender
with copies of all proposed documents and agreements concerning such
rights.
(ii) Promptly
upon knowledge thereof, notice of (A) any Infringement of its Intellectual
Property Rights by others, (B) claims that the Borrower is Infringing
another
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35
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Person’s
Intellectual Property Rights and (C) any threatened cancellation,
termination or material limitation of its Intellectual Property
Rights.
(iii) Promptly
upon receipt, copies of all registrations and filings with respect to its
Intellectual Property Rights.
(n) Reports
to Owners.
Promptly upon their distribution, copies of all financial statements, reports
and proxy statements which the Borrower shall have sent to its
Owners.
(o) SEC
Filings.
Promptly after the sending or filing thereof, copies of all regular and periodic
reports which the Borrower shall file with the Securities and Exchange
Commission or any national securities exchange.
(p) Tax
Returns of Borrower. As
soon
as possible, and in any event no later than five days after they are due to
be filed, copies of the state and federal income tax returns and all schedules
thereto of the Borrower.
(q) Reserved.
(r) Violations
of Law.
Promptly upon knowledge thereof, notice of the Borrower’s violation of any law,
rule or regulation, the non-compliance with which could have a Material Adverse
Effect on the Borrower.
(s)
Other
Reports.
From
time to time, with reasonable promptness, any and all receivables schedules,
inventory reports, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as
the
Lender may request and as are generally required for similar
transactions.
Section
6.2 Financial
Covenants.
(a) Minimum
Book Net Worth. The Borrower will maintain, during each period described below,
its Book Net Worth, determined as of the end of each month, in an amount not
less than the amount set forth for each such period (numbers appearing between
“< >” are negative):
|
Period
|
Minimum
Book Net Worth
|
|
December
31, 2006 Through March 30, 2007
|
$12,300,000
|
|
March
31, 2007 Through June 29, 2007
|
$12,300,000
|
|
June
30, 2007 Through September 29, 2007
|
$12,480,000
|
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36
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|
September
30, 2007 Through December 30, 2007
|
$12,560,000
|
|
December
31, 2007 Through March 30, 2008
|
$12,890,000
|
|
March
31, 2008 Through June 29, 2008
|
$12,920,000
|
|
June
30, 2008 Through September 29, 2008
|
$13,050,000
|
|
September
30, 2008 Through December 30, 2008
|
$13,180,000
|
|
December
31, 2008 Through March 30, 2009
|
$13,410,000
|
|
March
31, 2009 Through June 29, 2009
|
$13,440,000
|
|
June
30, 2009 Through September 29, 2009
|
$13,570,000
|
|
September
30, 2009 Through December 30, 2009
|
$13,700,000
|
|
Commencing
December 31, 2009 and at all times thereafter
|
$13,930,000
|
(b) Minimum
Net Income. The Borrower will achieve, for each period described below, Net
Income on a fiscal year to date basis, of not less than the amount set forth
for
each such period (numbers appearing between “< >” are
negative):
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37
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|
Period
Ending
|
Minimum
Net Income
|
|
March
31, 2007
|
$(250,000)
|
|
June
30, 2007
|
$250,000
|
|
September
30, 2007
|
$400,000
|
|
December
31, 2007
|
$800,000
|
|
March
31, 2008
|
$100,00
|
|
June
30, 2008
|
$300,000
|
|
September
30, 2008
|
$500,000
|
|
December
31, 2008
|
$800,000
|
|
March
31, 2009
|
$100,00
|
|
June
30, 2009
|
$300,000
|
|
September
30, 2009
|
$500,000
|
|
December
31, 2009
|
$800,000
|
(c) Capital
Expenditures.
The
Borrower will not incur or contract to incur Capital Expenditures of more than
$400,000
in
the
aggregate during any fiscal year.
Section
6.3 Permitted
Liens; Financing Statements.
(a) The
Borrower will not create, incur or suffer to exist any Lien upon or of any
of
its assets, now owned or hereafter acquired, to secure any indebtedness;
excluding,
however,
from
the operation of the foregoing, the following (each a “Permitted Lien”;
collectively, “Permitted Liens”):
(i) In
the
case of any of the Borrower’s property which is not Collateral, covenants,
restrictions, rights, easements and minor irregularities in title which do
not
materially interfere with the Borrower’s business or operations as presently
conducted;
(ii) Liens
in
existence on the date hereof and listed in Schedule 6.3 hereto, securing
indebtedness for borrowed money permitted under this Agreement;
(iii) The
Security Interest and Liens created by the Security Documents; and
(iv) Purchase
money Liens relating to the acquisition of machinery and equipment of the
Borrower not exceeding the lesser of cost or fair market value thereof not
exceeding $100,000 for any one purchase or $250,000 in the aggregate during
any
fiscal year, and
so
long as no Default Period is then in existence and none would exist immediately
after such acquisition.
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38
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(b) The
Borrower will not amend any financing statements in favor of the Lender except
as permitted by law. Any authorization by the Lender to any Person to amend
financing statements in favor of the Lender shall be in writing.
Section
6.4 Indebtedness.
The
Borrower will not incur, create, assume or permit to exist any indebtedness
or
liability on account of deposits or advances or any indebtedness for borrowed
money or letters of credit issued on the Borrower’s behalf, or any other
indebtedness or liability evidenced by notes, bonds, debentures or similar
obligations, except:
(a) Any
existing or future Indebtedness or any other obligations of the Borrower to
the
Lender;
(b) Any
indebtedness of the Borrower in existence on the date hereof and listed in
Schedule 6.4 hereto; and
(c) Any
indebtedness relating to Permitted Liens.
Section
6.5 Guaranties.
The Borrower will not assume, guarantee, endorse or otherwise become directly
or
contingently liable in connection with any obligations of any other Person,
except:
(a) The
endorsement of negotiable instruments by the Borrower for deposit or collection
or similar transactions in the ordinary course of business; and
(b) Guaranties,
endorsements and other direct or contingent liabilities in connection with
the
obligations of other Persons, in existence on the date hereof and listed in
Schedule 6.4 hereto.
Section
6.6 Investments
and Subsidiaries. The Borrower will not make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in,
any
other Person or Affiliate, including any partnership or joint venture, nor
purchase or hold beneficially any stock or other securities or evidence of
indebtedness of any other Person or Affiliate, except:
(a) Investments
in direct obligations of the United States of America or any agency or
instrumentality thereof whose obligations constitute full faith and credit
obligations of the United States of America having a maturity of one year or
less, commercial paper issued by U.S. corporations rated “A-1” or “A-2” by
Standard & Poor’s Ratings Services or “P-1” or “P-2” by Xxxxx’x
Investors Service or certificates of deposit or bankers’ acceptances having a
maturity of one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of deposit or
bankers’ acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(b) Travel
advances or loans to the Borrower’s Officers and employees not exceeding at any
one time an aggregate of $15,000;
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39
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(c) Prepaid
rent not exceeding one month or security deposits; and
(d) Current
investments in the Subsidiaries in existence on the date hereof and listed
in
Schedule 5.5 hereto.
Section
6.7 Dividends
and Distributions.
The Borrower
will not declare or pay any dividends (other than dividends payable solely
in
stock of the Borrower) on any class of its stock, or make any payment on account
of the purchase, redemption or other retirement of any shares of such stock,
or
other securities or evidence of its indebtedness or make any distribution in
respect thereof, either directly or indirectly; provided, however,
that so
long as there does not exist a Default or Event of Default, the Borrower may
pay
dividends in an aggregate amount not to exceed $280,000 per fiscal year,
excluding dividends paid in stock.
Section
6.8 Reserved.
Section
6.9 Reserved.
Section
6.10 Books
and
Records; Collateral Examination, Inspection and Appraisals.
(a) The
Borrower will keep accurate books of record and account for itself pertaining
to
the Collateral and pertaining to the Borrower’s business and financial condition
and such other matters as the Lender may from time to time request in which
true
and complete entries will be made in accordance with GAAP and, upon the Lender’s
request, will permit any officer, employee, attorney, accountant or other agent
of the Lender to audit, review, make extracts from or copy any and all company
and financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower’s affairs with any of its Directors, Officers, employees or agents.
(b) The
Borrower hereby irrevocably authorizes all accountants and third parties to
disclose and deliver to the Lender or its designated agent, at the Borrower’s
expense, all financial information, books and records, work papers, management
reports and other information in their possession regarding the Borrower.
(c) The
Borrower will permit the Lender or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral or any other property of the
Borrower at any time during ordinary business hours; provided, however,
that so
long as there does not exist a Default or an Event of Default, Lender shall
provide seven (7) Business Days prior notice of any such examination or
inspection.
(d) The
Lender may also, from time to time, obtain at the Borrower’s expense an
appraisal of Inventory and Collateral by an appraiser acceptable to the Lender
in its sole discretion.
Section
6.11 Account
Verification.
(a) The
Lender or its agent may at any time and from time to time send or require the
Borrower to send requests for verification of accounts or notices of assignment
to account debtors and other obligors. The Lender or its agent may also at
any
time and from time to time telephone account debtors and other obligors to
verify accounts.
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40
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(b) The
Borrower shall pay when due each account payable due to a Person holding a
Permitted Lien (as a result of such payable) on any Collateral.
Section
6.12 Compliance
with Laws.
(a) The
Borrower shall (i) comply, and cause each Subsidiary to comply, with the
requirements of applicable laws and regulations, the non-compliance with which
would materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and keep
the Collateral, only for lawful purposes, without violation of any federal,
state or local law, statute or ordinance.
(b) Without
limiting the foregoing undertakings, the Borrower specifically agrees that
it
will comply, and cause each Subsidiary to comply, with all applicable
Environmental Laws and obtain and comply with all permits, licenses and similar
approvals required by any Environmental Laws, and will not generate, use,
transport, treat, store or dispose of any Hazardous Substances in such a manner
as to create any material liability or obligation under the common law of any
jurisdiction or any Environmental Law.
(c) The
Borrower shall (i) ensure, and cause each Subsidiary to ensure, that no Owner
shall be listed on the Specially Designated Nationals and Blocked Person List
or
other similar lists maintained by the Office of Foreign Assets Control ("OFAC"),
the Department of the Treasury or included in any Executive Orders, (ii) not
use
or permit the use of the proceeds of the Credit Facility or any other financial
accommodation from the Lender to violate any of the foreign asset control
regulations of OFAC or other applicable law, (iii) comply, and cause each
Subsidiary to comply, with all applicable Bank Secrecy Act laws and regulations,
as amended from time to time, and (iv) otherwise comply with the USA Patriot
Act
as required by federal law and the Lender's policies and practices.
Section
6.13 Payment
of Taxes and Other Claims.
The
Borrower will pay or discharge, when due, (a) all taxes, assessments and
governmental charges levied or imposed upon it or upon its income or profits,
upon any properties belonging to it (including the Collateral) or upon or
against the creation, perfection or continuance of the Security Interest, prior
to the date on which penalties attach thereto, (b) all federal, state and
local taxes required to be withheld by it, and (c) all lawful claims for
labor, materials and supplies which, if unpaid, might by law become a Lien
upon
any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section
6.14 Maintenance
of Properties.
(a) The
Borrower will keep and maintain the Collateral and all of its other properties
necessary or useful in its business in good condition, repair and working order
(normal wear and tear excepted) and will from time to time replace or repair
any
worn, defective or broken parts; provided,
however,
that
nothing in this covenant shall prevent the Borrower from discontinuing the
operation and maintenance of any of its properties if such discontinuance is,
in
the Borrower’s judgment, desirable in the conduct of the Borrower’s business and
not disadvantageous in any material respect to the Lender. The Borrower will
take all commercially reasonable steps necessary to protect and maintain its
Intellectual Property Rights.
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41
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(b) The
Borrower will defend the Collateral against all Liens, claims or demands of
all
Persons (other than the Lender) claiming the Collateral or any interest therein.
The Borrower will keep all Collateral free and clear of all Liens except
Permitted Liens. The Borrower will take all commercially reasonable steps
necessary to prosecute any Person Infringing its Intellectual Property Rights
and to defend itself against any Person accusing it of Infringing any Person’s
Intellectual Property Rights.
Section
6.15 Insurance.
The
Borrower will obtain and at all times maintain insurance with insurers
acceptable to the Lender, in such amounts, on such terms (including any
deductibles) and against such risks as may from time to time be required by
the
Lender, but in all events in such amounts and against such risks as is usually
carried by companies engaged in similar business and owning similar properties
in the same general areas in which the Borrower operates. Without limiting
the
generality of the foregoing, the Borrower will at all times maintain business
interruption insurance including coverage for force majeure and keep all
tangible Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as the Lender may reasonably request,
with
any loss payable to the Lender to the extent of its interest, and all policies
of such insurance shall contain a lender’s loss payable endorsement for the
Lender’s benefit. All policies of liability insurance required hereunder shall
name the Lender as an additional insured.
Section
6.16 Preservation
of Existence. The Borrower will preserve and maintain its existence and all
of
its rights, privileges and franchises necessary or desirable in the normal
conduct of its business and shall conduct its business in an orderly, efficient
and regular manner.
Section
6.17 Delivery
of Instruments, etc. Upon request by the Lender, the Borrower will promptly
deliver to the Lender in pledge all instruments, documents and chattel paper
constituting Collateral, duly endorsed or assigned by the Borrower.
Section
6.18 Sale
or
Transfer of Assets; Suspension of Business Operations.
The
Borrower will not sell, lease, assign, transfer or otherwise dispose of
(i) the stock of any Subsidiary, (ii) all or a substantial part of its
assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than
the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not transfer any
part
of its ownership interest in any Intellectual Property Rights and will not
permit any agreement under which it has licensed Licensed Intellectual Property
to lapse, except that the Borrower may transfer such rights or permit such
agreements to lapse if it shall have reasonably determined that the applicable
Intellectual Property Rights are no longer useful in its business. If the
Borrower transfers any Intellectual Property Rights for value, the Borrower
will
pay over the proceeds to the Lender for application to the Indebtedness. The
Borrower will not license any other Person to use any of the Borrower’s
Intellectual Property Rights, except that the Borrower may grant licenses in
the
ordinary course of its business in connection with sales of Inventory or
provision of services to its customers.
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Section
6.19 Consolidation
and Merger; Asset Acquisitions. The Borrower will not consolidate with or merge
into any Person, or permit any other Person to merge into it, or acquire (in
a
transaction analogous in purpose or effect to a consolidation or merger) all
or
substantially all the assets of any other Person.
Section
6.20 Sale
and
Leaseback. The Borrower will not enter into any arrangement, directly or
indirectly, with any other Person whereby the Borrower shall sell or transfer
any real or personal property, whether now owned or hereafter acquired, and
then
or thereafter rent or lease as lessee such property or any part thereof or
any
other property which the Borrower intends to use for substantially the same
purpose or purposes as the property being sold or transferred.
Section
6.21 Restrictions
on Nature of Business. The Borrower will not engage in any line of business
materially different from that presently engaged in by the Borrower and will
not
purchase, lease or otherwise acquire assets not related to its
business.
Section
6.22 Accounting.
The Borrower will not adopt any material change in accounting principles other
than as required by GAAP. The Borrower will not adopt, permit or consent to
any
change in its fiscal year.
Section
6.23 Discounts,
etc. After notice from the Lender, the Borrower will not grant any discount,
credit or allowance to any customer of the Borrower or accept any return of
goods sold. The Borrower will not at any time modify, amend, subordinate, cancel
or terminate the obligation of any account debtor or other obligor of the
Borrower.
Section
6.24 Plans.
Except as disclosed to the Lender in writing prior to the date hereof, neither
the Borrower nor any ERISA Affiliate will (i) adopt, create, assume or become
a
party to any Pension Plan, (ii) incur any obligation to contribute to any
Multiemployer Plan, (iii) incur any obligation to provide post-retirement
medical or insurance benefits with respect to employees or former employees
(other than benefits required by law) or (iv) amend any Plan in a manner that
would materially increase its funding obligations.
Section
6.25 Place
of
Business; Name. The Borrower will not transfer its chief executive office or
principal place of business, or move, relocate, close or sell any business
location. The Borrower will not permit any tangible Collateral or any records
pertaining to the Collateral to be located in any state or area in which, in
the
event of such location, a financing statement covering such Collateral would
be
required to be, but has not in fact been, filed in order to perfect the Security
Interest. The Borrower will not change its name or jurisdiction of
organization.
Section
6.26 Constituent
Documents; S Corporation Status. The Borrower will not amend its Constituent
Documents. The Borrower will not become an S Corporation.
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Section
6.27 Performance
by the Lender.
If the
Borrower at any time fails to perform or observe any of the foregoing covenants
contained in this Article VI or elsewhere herein, and if such failure shall
continue for a period of ten calendar days after the Lender gives the Borrower
written notice thereof (or in the case of the agreements contained in Section
6.13 and Section 6.15, immediately upon the occurrence of such failure, without
notice or lapse of time), the Lender may, but need not, perform or observe
such
covenant on behalf and in the name, place and stead of the Borrower (or, at
the
Lender’s option, in the Lender’s name) and may, but need not, take any and all
other actions which the Lender may reasonably deem necessary to cure or correct
such failure (including the payment of taxes, the satisfaction of Liens, the
performance of obligations owed to account debtors or other obligors, the
procurement and maintenance of insurance, the execution of assignments, security
agreements and financing statements, and the endorsement of instruments); and
the Borrower shall thereupon pay to the Lender on demand the amount of all
monies expended and all costs and expenses (including reasonable attorneys’ fees
and legal expenses) incurred by the Lender in connection with or as a result
of
the performance or observance of such agreements or the taking of such action
by
the Lender, together with interest thereon from the date expended or incurred
at
the Default Rate. To facilitate the Lender’s performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender’s delegate, acting alone, as the Borrower’s attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower hereunder.
Article
VII
EVENTS
OF DEFAULT, RIGHTS AND REMEDIES
Section
7.1 Events
of
Default.
“Event
of Default”, wherever used herein, means any one of the following
events:
(a) Default
in the payment of the Revolving Note, any Obligation of Reimbursement, or any
default with respect to any other Indebtedness due from Borrower to Lender
as
such Indebtedness becomes due and payable;
(b) Default
in the performance, or breach, of any covenant or agreement of the Borrower
contained in this Agreement; provided,
however,
that
failure to provide the financial statements as required by Section 6.1(a) and
(b) hereof shall only constitute an Event of Default if Borrower fails to
provide such statements by no later than seven (7) days after the date required
by such sections more than twice in any fiscal year;
(c) An
Overadvance arises as the result of any reduction in the Borrowing Base, or
arises in any manner on terms not otherwise approved of in advance by the Lender
in writing;
(d) A
Change
of Control shall occur;
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(e) Any
Financial Covenant shall become inapplicable due to the lapse of time and the
failure of the Lender and the Borrower to come to any agreement to amend any
such covenant to cover future periods that is acceptable to the Lender in the
Lender’s sole discretion;
(f) The
Borrower or any Guarantor shall be or become insolvent, or admit in writing
its
or his inability to pay its or his debts as they mature, or make an assignment
for the benefit of creditors; or the Borrower or any Guarantor shall apply
for
or consent to the appointment of any receiver, trustee, or similar officer
for
it or him or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the application
or consent of the Borrower or such Guarantor, as the case may be; or the
Borrower or any Guarantor shall institute (by petition, application, answer,
consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding relating
to
it or him under the laws of any jurisdiction; or any such proceeding shall
be
instituted (by petition, application or otherwise) against the Borrower or
any
such Guarantor; or any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Borrower or any Guarantor;
(g) A
petition shall be filed by or against the Borrower or any Guarantor under the
United States Bankruptcy Code or the laws of any other jurisdiction naming
the
Borrower or such Guarantor as debtor;
(h) Reserved.
(i) Any
representation or warranty made by the Borrower in this Agreement, by any
Guarantor in any Guaranty delivered to the Lender, or by the Borrower (or any
of
its Officers) or any Guarantor in any agreement, certificate, instrument or
financial statement or other statement contemplated by or made or delivered
pursuant to or in connection with this Agreement or any such Guaranty shall
be
incorrect in any material respect;
(j) The
rendering against the Borrower of a final judgment, decree or order for the
payment of money in excess of $100,000 and the continuance of such judgment,
decree or order unsatisfied and in effect for any period of 30 consecutive
days without a stay of execution;
(k) A
default
under any bond, debenture, note or other evidence of material indebtedness
of
the Borrower owed to any Person other than the Lender, or under any indenture
or
other instrument under which any such evidence of indebtedness has been issued
or by which it is governed, or under any material lease or other contract,
and
the expiration of the applicable period of grace, if any, specified in such
evidence of indebtedness, indenture, other instrument, lease or
contract;
(l) Any
Reportable Event, which the Lender determines in good faith might constitute
grounds for the termination of any Pension Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Pension
Plan, shall have occurred and be continuing 30 days after written notice to
such effect shall have been given to the Borrower by the Lender; or a trustee
shall have been appointed by an appropriate United States District Court to
administer any Pension Plan; or the Pension Benefit Guaranty Corporation shall
have instituted proceedings to terminate any Pension Plan or to appoint a
trustee to administer any Pension Plan; or the Borrower or any ERISA Affiliate
shall have filed for a distress termination of any Pension Plan under Title
IV
of ERISA; or the Borrower or any ERISA Affiliate shall have failed to make
any
quarterly contribution required with respect to any Pension Plan under Section
412(m) of the IRC, which the Lender determines in good faith may by itself,
or
in combination with any such failures that the Lender may determine are likely
to occur in the future, result in the imposition of a Lien on the Borrower’s
assets in favor of the Pension Plan; or any withdrawal, partial withdrawal,
reorganization or other event occurs with respect to a Multiemployer Plan which
results or could reasonably be expected to result in a material liability of
the
Borrower to the Multiemployer Plan under Title IV of ERISA;
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(m) An
event
of default shall occur under any Security Document;
(n) Default
in the payment of any amount owed by the Borrower to the Lender other than
any
Indebtedness arising hereunder;
(o) Reserved.
(p) Reserved.
(q) The
Lender believes in good faith that the prospect of payment in full of any part
of the Indebtedness, or that full performance by the Borrower under the Loan
Documents, is impaired, or that there has occurred any material adverse change
in the business or financial condition of the Borrower;
(r) There
has
occurred any breach, default or event of default by or attributable to, any
Affiliate under any agreement between the Affiliate and the Lender;
or
(s) The
indictment of any Director, Officer, Guarantor, or any Owner of the Borrower
for
a felony offence under state or federal law.
Section
7.2 Rights
and Remedies.
During
any Default Period, the Lender may exercise any or all of the following rights
and remedies:
(a) The
Lender may, by notice to the Borrower, declare the Commitment to be terminated,
whereupon the same shall forthwith terminate;
(b) The
Lender may, by notice to the Borrower, declare the Indebtedness to be forthwith
due and payable, whereupon all Indebtedness shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which the Borrower hereby expressly waives;
(c) The
Lender may, without notice to the Borrower and without further action, apply
any
and all money owing by the Lender to the Borrower to the payment of the
Indebtedness;
(d) The
Lender may exercise and enforce any and all rights and remedies available upon
default to a secured party under the UCC, including the right to take possession
of Collateral, or any evidence thereof, proceeding without judicial process
or
by judicial process (without a prior hearing or notice thereof, which the
Borrower hereby expressly waives) and the right to sell, lease or otherwise
dispose of any or all of the Collateral (with or without giving any warranties
as to the Collateral, title to the Collateral or similar warranties), and,
in
connection therewith, the Borrower will on demand assemble the Collateral and
make it available to the Lender at a place to be designated by the Lender which
is reasonably convenient to both parties;
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(e) The
Lender may make demand upon the Borrower and, forthwith upon such demand, the
Borrower will pay to the Lender in immediately available funds for deposit
in
the Special Account pursuant to Section 2.5 an amount equal to the aggregate
maximum amount available to be drawn under all Letters of Credit then
outstanding, assuming compliance with all conditions for drawing
thereunder;
(f) The
Lender may exercise and enforce its rights and remedies under the Loan
Documents;
(g) The
Lender may without regard to any waste, adequacy of the security or solvency
of
the Borrower, apply for the appointment of a receiver of the Collateral, to
which appointment the Borrower hereby consents, whether or not foreclosure
proceedings have been commenced under the Security Documents and whether or
not
a foreclosure sale has occurred; and
(h) The
Lender may exercise any other rights and remedies available to it by law or
agreement.
Notwithstanding
the foregoing, upon the occurrence of an Event of Default described in Section
7.1(f) or (g), the Indebtedness shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind. If
the
Lender sells any of the Collateral on credit, the Indebtedness will be reduced
only to the extent of payments actually received. If the purchaser fails to
pay
for the Collateral, the Lender may resell the Collateral and shall apply any
proceeds actually received to the Indebtedness.
Section
7.3 Certain
Notices. If notice to the Borrower of any intended disposition of Collateral
or
any other intended action is required by law in a particular instance, such
notice shall be deemed commercially reasonable if given (in the manner specified
in Section 8.3) at least ten calendar days before the date of intended
disposition or other action.
Article
VIII
MISCELLANEOUS
Section
8.1 No
Waiver; Cumulative Remedies; Compliance with Laws. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof
or
the exercise of any other right, power or remedy under the Loan Documents.
The
remedies provided in the Loan Documents are cumulative and not exclusive of
any
remedies provided by law. The Lender may comply with any applicable state or
federal law requirements in connection with a disposition of the Collateral
and
such compliance will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral.
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Section
8.2 Amendments,
Etc. No amendment, modification, termination or waiver of any provision of
any
Loan Document or consent to any departure by the Borrower therefrom or any
release of a Security Interest shall be effective unless the same shall be
in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
Section
8.3 Notices;
Communication of Confidential Information; Requests for
Accounting.
Except
as otherwise expressly provided herein, all notices, requests, demands and
other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United
States mail, (c) sent by overnight courier of national reputation,
(d) transmitted by telecopy, or (e) sent as electronic mail, in each case
delivered or sent to the party to whom notice is being given to the business
address, telecopier number, or e mail address set forth below next to its
signature or, as to each party, at such other business address, telecopier
number, or e mail address as it may hereafter designate in writing to the other
party pursuant to the terms of this Section. All such notices, requests, demands
and other communications shall be deemed to be an authenticated record
communicated or given on (a) the date received if personally delivered,
(b) when deposited in the mail if delivered by mail, (c) the date
delivered to the courier if delivered by overnight courier, or (d) the date
of transmission if sent by telecopy or by e mail, except that notices or
requests delivered to the Lender pursuant to any of the provisions of
Article II shall not be effective until received by the Lender. All
notices, financial information, or other business records sent by either party
to this Agreement may be transmitted, sent, or otherwise communicated via such
medium as the sending party may deem appropriate and commercially reasonable;
provided,
however,
that
the risk that the confidentiality or privacy of such notices, financial
information, or other business records sent by either party may be compromised
shall be borne exclusively by the Borrower. All requests for an accounting
under
Section 9-210 of the UCC (i) shall be made in a writing signed by a Person
authorized under Section 2.2(b), (ii) shall be personally delivered, sent
by registered or certified mail, return receipt requested, or by overnight
courier of national reputation, (iii) shall be deemed to be sent when
received by the Lender and (iv) shall otherwise comply with the requirements
of
Section 9-210. The Borrower requests that the Lender respond to all such
requests which on their face appear to come from an authorized individual and
releases the Lender from any liability for so responding. The Borrower shall
pay
the Lender the maximum amount allowed by law for responding to such
requests.
Section
8.4 Further
Documents. The Borrower will from time to time execute, deliver, endorse and
authorize the filing of any and all instruments, documents, conveyances,
assignments, security agreements, financing statements, control agreements
and
other agreements and writings that the Lender may reasonably request in order
to
secure, protect, perfect or enforce the Security Interest or the Lender’s rights
under the Loan Documents (but any failure to request or assure that the Borrower
executes, delivers, endorses or authorizes the filing of any such item shall
not
affect or impair the validity, sufficiency or enforceability of the Loan
Documents and the Security Interest, regardless of whether any such item was
or
was not executed, delivered or endorsed in a similar context or on a prior
occasion).
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Section
8.5 Costs
and
Expenses.
The
Borrower shall pay on demand all costs and expenses, including reasonable
attorneys’ fees, incurred by the Lender in connection with the Indebtedness,
this Agreement, the Loan Documents, any Letter of Credit and any other document
or agreement related hereto or thereto, and the transactions contemplated
hereby, including all such costs, expenses and fees incurred in connection
with
the negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Indebtedness and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section
8.6 Indemnity.
In
addition to the payment of expenses pursuant to Section 8.5, the Borrower shall
indemnify, defend and hold harmless the Lender, and any of its participants,
parent corporations, subsidiary corporations, affiliated corporations, successor
corporations, and all present and future officers, directors, employees,
attorneys and agents of the foregoing (the “Indemnitees”) from and against any
of the following (collectively, “Indemnified Liabilities”):
(i) Any
and
all transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of the Loan
Documents or the making of the Advances;
(ii) Any
claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Section 5.14 proves to be incorrect
in
any respect or as a result of any violation of the covenant contained in Section
6.12(b) ; and
(iii) Any
and
all other liabilities, losses, damages, penalties, judgments, suits, claims,
costs and expenses of any kind or nature whatsoever (including the reasonable
fees and disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether or not
such
Indemnitee shall be designated a party thereto, which may be imposed on,
incurred by or asserted against any such Indemnitee, in any manner related
to or
arising out of or in connection with the making of the Advances and the Loan
Documents or the use or intended use of the proceeds of the Advances.
If
any
investigative, judicial or administrative proceeding arising from any of the
foregoing is brought against any Indemnitee, upon such Indemnitee’s request, the
Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower’s sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because
it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower’s
obligations under this Section 8.6 shall survive the termination of this
Agreement and the discharge of the Borrower’s other obligations
hereunder.
Section
8.7 Participants.
The Lender and its participants, if any, are not partners or joint venturers,
and the Lender shall not have any liability or responsibility for any
obligation, act or omission of any of its participants. All rights and powers
specifically conferred upon the Lender may be transferred or delegated to any
of
the Lender’s participants, successors or assigns.
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49
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Section
8.8 Execution
in Counterparts; Telefacsimile Execution. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when
so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Delivery of an executed counterpart of this Agreement by telefacsimile shall
be
equally as effective as delivery of an original executed counterpart of this
Agreement. Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart of this
Agreement but the failure to deliver an original executed counterpart shall
not
affect the validity, enforceability, and binding effect of this
Agreement.
Section
8.9 Retention
of Borrower’s Records. The Lender shall have no obligation to maintain any
electronic records or any documents, schedules, invoices, agings, or other
papers delivered to the Lender by the Borrower or in connection with the Loan
Documents for more than 30 days after receipt by the Lender. If there is a
special need to retain specific records, the Borrower must inform the Lender
of
its need to retain those records with particularity, which must be delivered
in
accordance with the notice provisions of Section 8.3 within 30 days of the
Lender taking control of same.
Section
8.10 Binding
Effect; Assignment; Complete Agreement; Sharing Information. The Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns, except that the Borrower shall
not
have the right to assign its rights thereunder or any interest therein without
the Lender’s prior written consent. To the extent permitted by law, the Borrower
waives and will not assert against any assignee any claims, defenses or set-offs
which the Borrower could assert against the Lender. This Agreement shall also
bind all Persons who become a party to this Agreement as a borrower. This
Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. To the
extent that any provision of this Agreement contradicts other provisions of
the
Loan Documents, this Agreement shall control. Without limiting the Lender’s
right to share information regarding the Borrower and its Affiliates with the
Lender’s participants, accountants, lawyers and other advisors, the Lender and
Xxxxx Fargo Bank may share any and all information they may have in their
possession regarding the Borrower and its Affiliates, and the Borrower waives
any right of confidentiality it may have with respect to such sharing of
information.
Section
8.11 Severability
of Provisions. Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof.
Section
8.12 Headings.
Article, Section and subsection headings in this Agreement are included herein
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
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Section
8.13 Governing
Law; Jurisdiction, Venue; Waiver of Jury Trial.
The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of New York. The
parties hereto hereby (i) consent to the personal jurisdiction of the state
and federal courts located in the State of New York in connection with any
controversy related to this Agreement; (ii) waive any argument that venue
in any such forum is not convenient; (iii) agree that any litigation
initiated by the Lender or the Borrower in connection with this Agreement or
the
other Loan Documents may be venued in either the state or federal courts located
in the City
of
Xxx Xxxx, Xxxxxx xx Xxx Xxxx, Xxxxx xx Xxx Xxxx; and
(iv) agree that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
THE
BORROWER AND THE LENDER WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW
OR
IN EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT
OR
ANY OTHER LOAN DOCUMENT.
[Signatures
on next page.]
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by
their respective officers thereunto duly authorized as of the date first above
written.
|
00
Xxxx Xxxxx
Xxxxxxxxxx,
XX 00000
Telecopier:
_______________________
Attention:
________________________
e-mail:
___________________________
|
By:
________________________________
____________________________________
Its
________________________________
|
|
00
Xxxx Xxxxx
Xxxxxxxxxx,
XX 00000
Telecopier:
_______________________
Attention:
________________________
e-mail:
___________________________
|
QUALTECH
INTERNATIONAL CORPORATION
By:
________________________________
____________________________________
Its
________________________________
|
|
00
Xxxx Xxxxx
Xxxxxxxxxx,
XX 00000
Telecopier:
_______________________
Attention:
________________________
e-mail:
___________________________
|
QUALTECH
SERVICES GROUP, INC.
By:
________________________________
____________________________________
Its
________________________________
|
|
Xxxxx
Fargo Bank, National Association Xxxxx Fargo Business Credit
MAC-
Telecopier:
Attention:
__________________________
e-mail:
______________@xxxxxxxxxx.xxx
|
XXXXX
FARGO BANK,
NATIONAL
ASSOCIATION
By:
________________________________
________________________________
Its
Vice President
|
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52
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Table
of Exhibits and Schedules
Exhibit
A Form
of
Revolving Note
Exhibit
B Compliance
Certificate
Exhibit
C Premises
Schedule
5.1 Trade
Names, Chief Executive Office, Principal Place of Business, and Locations of
Collateral
Schedule
5.2 Capitalization
and Organizational Chart
Schedule
5.5 Subsidiaries
Schedule
5.7 Litigation
Matters
Schedule
5.11 Intellectual
Property Disclosures
Schedule
5.14 Environmental
Matters
Schedule
6.3 Permitted
Liens
Schedule
6.4 Permitted
Indebtedness and Guaranties
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53
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Exhibit
A to Credit and Security Agreement
REVOLVING
NOTE
$7,500,000_______________,
200_
For
value
received, the undersigned, QSGI Inc., Qualtech International Corporation and
Qualtech Services Group, Inc., each a Delaware corporation (collectively, the
“Borrower”), jointly and severally hereby promise to pay to the order of XXXXX
FARGO BANK, NATIONAL ASSOCIATION (the “Lender”), acting through its Xxxxx Fargo
Business Credit operating division, on the Termination Date referenced in the
Credit and Security Agreement dated the same date as this Revolving Note that
was entered into by the Lender and the Borrower (as amended from time to time,
the “Credit Agreement”), at Lender’s office located at 000
Xxxx
00xx
Xxxxxx,
00xx
Xxxxx,
Xxx Xxxx, Xxx Xxxx 00000,
or at
any other place designated at any time by the holder hereof, in lawful money
of
the United States of America and in immediately available funds, the principal
sum of Seven Million Five Hundred Dollars ($7,500,000) or the aggregate unpaid
principal amount of all Revolving Advances made by the Lender to the Borrower
under the Credit Agreement, together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Revolving Note is fully paid at the rate from time to time in effect under
the Credit Agreement.
This
Revolving Note is the Revolving Note referenced in the Credit Agreement, and
is
subject to the terms of the Credit Agreement, which provides, among other
things, for acceleration hereof. Principal and interest due hereunder shall
be
payable as provided in the Credit Agreement, and this Revolving Note may be
prepaid only in accordance with the terms of the Credit Agreement. This
Revolving Note is secured, among other things, pursuant to the Credit Agreement
and the Security Documents as therein defined, and may now or hereafter be
secured by one or more other security agreements, mortgages, deeds of trust,
assignments or other instruments or agreements.
The
Borrower shall pay all costs of collection, including reasonable attorneys’ fees
and legal expenses if this Revolving Note is not paid when due, whether or
not
legal proceedings are commenced.
Presentment
or other demand for payment, notice of dishonor and protest are expressly
waived.
By:
________________________
Name:
______________________
Its:
Secretary
A-1
QUALTECH
INTERNATIONAL CORPORATION
By:
________________________
Name:
______________________
Its:
Secretary
QUALTECH
SERVICES GROUP, INC.
By:
_________________________
Name:
_______________________
Its:
Secretary
A-2
Exhibit
B to Credit and Security Agreement
COMPLIANCE
CERTIFICATE
To: Xxxxx
Fargo Bank, National Association
Date: [___________________,
200____]
Subject: Financial
Statements
In
accordance with our Credit and Security Agreement dated as of January ___,
2007 (as
amended from time to time, the “Credit Agreement”), attached are the financial
statements of QSGI Inc., Qualtech International Corporation, and Qualtech
Services Group, Inc. (collectively, the “Borrower”) as of and for [_________________,
200__ _](the
“Reporting Date”) and the year-to-date period then ended (the “Current
Financials”). All terms used in this certificate have the meanings given in the
Credit Agreement.
I
certify
that the Current Financials have been prepared in accordance with GAAP, subject
to year-end audit adjustments, and fairly present the Borrower’s financial
condition as of the date thereof.
I
further
hereby certify as follows: Events
of Default.
(Check
one):
|
The
undersigned does not have knowledge of the occurrence of a Default
or
Event of Default under the Credit Agreement except as previously
reported
in writing to the Lender.
|
|
The
undersigned has knowledge of the occurrence of a Default or Event
of
Default under the Credit Agreement not previously reported in writing
to
the Lender and attached hereto is a statement of the facts with respect
to
thereto. The Borrower
acknowledges that pursuant to Section 2.6(d) of the Credit Agreement,
the
Lender may impose the Default Rate at any time during the resulting
Default Period.
|
Material
Adverse Change in Litigation Matters of the Borrower. I further hereby certify
as follows (check one):
|
The
undersigned has no knowledge of any material adverse change to the
litigation exposure of the Borrower or any of its Affiliates or of
any
Guarantor.
|
|
The
undersigned has knowledge of material adverse changes to the litigation
exposure of the Borrower or any of its Affiliates or of any Guarantor
not
previously disclosed in Schedule 5.7. Attached to this Certificate
is a
statement of the facts with respect
thereto.
|
Financial
Covenants.
I
further hereby certify as follows (check and complete each of the
following):
B-1
1. Minimum
Book Net Worth.
Pursuant to Section 6.2(a) of the Credit Agreement, as of the Reporting Date,
the Borrower’s Book Net Worth was $____________ , which satisfies
does
not
satisfy the requirement that such amount be not less than the applicable amount
set forth in the table below (numbers appearing between “< >“ are
negative) on the Reporting Date:
|
Period
|
Minimum
Book Net Worth
|
|
December
31, 2006 Through March 30, 2007
|
$12,300,000
|
|
March
31, 2007 Through June 29, 2007
|
$12,300,000
|
|
June
30, 2007 Through September 29, 2007
|
$12,480,000
|
|
September
30, 2007 Through December 30, 2007
|
$12,560,000
|
|
December
31, 2007 Through March 30, 2008
|
$12,890,000
|
|
March
31, 2008 Through June 29, 2008
|
$12,920,000
|
|
June
30, 2008 Through September 29, 2008
|
$13,050,000
|
|
September
30, 2008 Through December 30, 2008
|
$13,180,000
|
|
December
31, 2008 Through March 30, 2009
|
$13,410,000
|
|
March
31, 2009 Through June 29, 2009
|
$13,440,000
|
|
June
30, 2009 Through September 29, 2009
|
$13,570,000
|
B-2
|
September
30, 2009 Through December 30, 2009
|
$13,700,000
|
|
Commencing
December 31, 2009 and at all times thereafter
|
$13,930,000
|
2. Minimum
Net Income.
Pursuant to Section 6.2(b) of the Credit Agreement, as of the Reporting Date,
the Borrower’s Net Income was $____________ , which satisfies
does
not
satisfy the requirement that such amount be not less than the applicable amount
set forth in the table below (numbers appearing between “< >“ are
negative) on the Reporting Date:
|
Period
Ending
|
Minimum
Net Income
|
|
March
31, 2007
|
$(250,000)
|
|
June
30, 2007
|
$250,000
|
|
September
30, 2007
|
$400,000
|
|
December
31, 2007
|
$800,000
|
|
March
31, 2008
|
$100,00
|
|
June
30, 2008
|
$300,000
|
|
September
30, 2008
|
$500,000
|
|
December
31, 2008
|
$800,000
|
|
March
31, 2009
|
$100,00
|
|
June
30, 2009
|
$300,000
|
|
September
30, 2009
|
$500,000
|
|
December
31, 2009
|
$800,000
|
3. Capital
Expenditures.
Pursuant to Section 6.2(c) of the Credit Agreement, for the year-to-date period
ending on the Reporting Date, the Borrower has expended or contracted to expend
during the fiscal year ended [_______________,
200___,_] for
Capital Expenditures, [_$___________________]
in
the
aggregate, which satisfies
does
not satisfy the requirement that such expenditures not exceed
$400,000 in
the
aggregate.
B-3
Attached
hereto are all relevant facts in reasonable detail to evidence, and the
computations of the financial covenants referred to above. These computations
were made in accordance with GAAP.
QSGI
Inc
By:
_______________________
Name:
_________________
Its
Chief
Financial Officer
Qualtech
International Corporation
By:
_______________________
Name:
_________________
Its
Chief
Financial Officer
Qualtech
Services Group, Inc.
By:
_______________________
Name:
__________________
Its
Chief
Financial Officer
B-4
Exhibit
C to Credit and Security Agreement
PREMISES
The
Premises referred to in the Credit and Security Agreement are legally described
as follows:
00
Xxxx
Xxxxx, Xxxxxxxxxx, XX 00000
0000
Xxxx
Xxxxxxxxx Xxxx., Xxxxx, XX 00000
C-1
Schedule
5.1 to Credit and Security Agreement
TRADE
NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF
BUSINESS,
AND
LOCATIONS OF COLLATERAL
TRADE
NAMES
XxxxxXxxxXxxxXxxxx.xxx
Solid
in Everything We DO
Chief
Executive Office/Principal Place of Business
000
Xxxxx
Xxxx Xxx, Xxxxx 000, Xxxx Xxxxx, XX 00000
Other
Inventory and Equipment Locations
0000
Xxxx Xxxxxxxxx Xxxx., Xxxxx, XX 00000
00
Xxxx Xxxxx, Xxxxxxxxxx, XX 00000
S-5.
1-1
Schedule
5.2 to Credit and Security Agreement
CAPITALIZATION
AND ORGANIZATIONAL CHART
|
Holder
|
Type
of Rights/Stock
|
No.
of shares
(after
exercise of all
rights
to acquire shares)
|
Percent
interest on a
fully
diluted basis
|
|
Public
Company
|
Approx
3300 Common Stockholders
|
Approx
31,200,000 shares
|
|
Attach
organizational chart showing the ownership structure of all Subsidiaries of
the
Borrower.
QSGI
INC. owns 100% of the shares of stock of Qualtech International Corporation
and
Qualtech Services Group, Inc.; QSGI INC. owns 99% of the shares of stock of
QSGI
- INDIA, Pvt Ltd. And Qualtech International Corporation owns
1%
S-5.
2-1
Schedule
5.5 to Credit and Security Agreement
Subsidiaries
See
5.2 Above
S-5.
5-1
Schedule
5.7 to Credit and Security Agreement
LITIGATION
MATTERS IN EXCESS OF $10,000.00
QSGI
INC. is the Plaintiff in the following Suits:
Case
Number 06-80442- CIV, United States District Court, Southern District of
Florida; Amount in controversy, approximately $450,000;
Case
Number 27CV06-11992, District Court, Hennepin County, Minnesota; amount in
dispute approximately $44,000.
S-5.
2-1
Schedule
5.11 to Credit and Security Agreement
Intellectual
Property Disclosures
Service
Xxxx: Reg. No. 3,027,762 - Solid In Everything We Do;
Trademark/
Service Xxxx Application 78473368, QSGI Data Center
Hardware;
Trademark/
Service Xxxx 78473385, QSGI, Data Center Maintenance;
Trademark/
Service Xxxx 78473325, QSGI (subject to a Settlement Agreement with OSGI
ALLIANCE);
Trademark/
Service Xxxx Application 78952196, XXXX.XXX;
Trademark/
Service Xxxx Application 78952185, ERASEYOURHARDDRIVE;
Trademark/
Service Xxxx Application 78952193, EYHD
S-5.
11-1
Schedule
5.14 to Credit and Security Agreement
ENVIRONMENTAL
MATTERS
Lender
acknowledges that Borrower is, in part, in the business assisting third parties
dispose of materials which are, or may now or hereafter be considered
Hazardous Substances. As such, Hazardous Substances may be stored at the
Premises, from time to time, in Borrowers ordinary course of
business.
Lender
acknowledges that Borrower is, in part, in the business assisting third parties
dispose of materials which are, or may now or hereafter be considered
Hazardous Substances. As such, third parties may make claims against Borrower
with respect to the disposal of Hazardous Substances.
Lender
acknowledges that Borrower is, in part, in the business assisting third parties
dispose of materials which are, or may now or hereafter be considered
Hazardous Substances. As such, Governmental Agencies, may take any or all
of the following actions with respect to Borrower, including but not
limited to: claims requests, notices, investigations, demands,
administrative proceedings, hearings or litigation alleging material liability
under, violation of, or noncompliance with any Environmental Law or any license,
permit or other authorization.
S-5.
2-1
Schedule
6.3 to Credit and Security Agreement
PERMITTED
LIENS
|
Creditor
|
Collateral
|
Jurisdiction
|
Filing
Date
|
Filing
No.
|
|
None
|
||||
S-6.
3-1
Schedule
6.4 to Credit and Security Agreement
Permitted
Indebtedness and Guaranties
INDEBTEDNESS
|
Creditor
|
Principal
Amount
|
Maturity
Date
|
Monthly
Payment
|
Collateral
|
|
None
|
||||
GUARANTIES
|
Primary
Obligor
|
Amount
and Description of Obligation Guaranteed
|
Beneficiary
of Guaranty
|
|
None
|
||
S-6.
4-1
