EXHIBIT 10.27
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LOAN AND SECURITY AGREEMENT DATED NOVEMBER 25, 1996 BETWEEN
THE REGISTRANT AND BRANCH BANKING AND TRUST COMPANY
Exhibit 10.27
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LOAN AND SECURITY AGREEMENT
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THIS LOAN AND SECURITY AGREEMENT is entered into as of November 25, 1996, by and
between Scansource, Inc., a South Carolina, Corporation ("Borrower"), and BRANCH
BANKING AND TRUST COMPANY OF SOUTH CAROLINA, a South Carolina banking
corporation ("Bank").
STATEMENT OF PURPOSE
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Borrower has requested Bank, and Bank has agreed, to extend a Revolving Credit
Loan to Borrower in an initial maximum aggregate principal amount outstanding
not to exceed FIFTEEN MILLION DOLLARS ($15,000,000.00). Bank may, in its sole
discretion without any obligation or requirement to do so, extend additional
credit to Borrower in excess of the initial maximum aggregate principal amount
which additional credit shall be subject to the terms and conditions of this
Agreement and shall be secured by the Loan Documents. In consideration of the
promises contained in this Agreement, Borrower and Bank enter into the following
Agreement on the terms and conditions set out below.
AGREEMENT
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SECTION I. DEFINITIONS.
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When used in this Agreement, the following terms shall have the following
meanings (defined terms shall have the same meaning when used in either the
singular or plural):
"Accounts," "Chattel Paper," "Documents," "Equipment," "General Intangibles,"
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"Goods," "Instruments," and "Inventory" shall have the same respective meanings
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as are given to those terms in the Uniform Commercial Code of South Carolina.
"Adjusted LIBOR Rate" shall have the meaning assigned to it in the Addendum to
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the Revolving Credit Promissory Note.
"Affiliate" means a Person (other than a Subsidiary): (i) which, directly or
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indirectly, through one or more intermediaries controls, or is controlled by, or
is under common control with, Borrower; (ii) which beneficially owns or holds
five percent (5%) or more of any class of the voting stock of Borrower; or (iii)
five percent (5%) or more of the voting stock (or in the case of a Person which
is not a corporation, five percent (5%) or more of the equity interests) of
which is beneficially owned or held by Borrower or a Subsidiary. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Applicable Margin" means the margin which will be added to LIBOR, as defined in
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the Addendum to the Revolving Credit Promissory Note, to form the Adjusted LIBOR
Rate. Such margin will vary depending on the Borrower's Indebtedness to
Tangible Net Worth ratio, as determined by the Borrower's quarterly 10Q reports
to be provided to the Bank. The margin adjustments will become effective upon
the Bank's receipt of such 10Q reports. The margin adjustments will occur no
more than once per quarter and such adjustments are as set forth herein below:
Debt to Tangible Net Worth Margin
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Less than or equal to 1.00:1.00 200 basis points
Between 1.01:1.00 and 1.25:1.00 210 basis points
Between 1.26:1.00 and 1.50:1.00 215 basis points
Between 1.51:1.00 and 1.75:1.00 240 basis points
Between 1.76:1.00 and 2.00:1.00 265 basis points
"Agreement" means this Loan and Security Agreement.
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"Availability" means the difference, from time to time, between the lesser of
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the (i) Commitment, or (ii) Borrowing Base, reduced by the (A) aggregate
principal amount of the Revolving Credit Loan outstanding, and (B) Letter of
Credit Reserve.
"Borrowing Base" means, based on the most recent Collateral Report which as of
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the date of determination has been received by Bank, the aggregate of (A) 80% of
the net amount of Eligible Receivables, and (B) 40% of the net amount of
Eligible Raw Inventory and 40% of Eligible Finished Inventory. Bank, in its
sole and unqualified discretion, may, from time to time apply a greater or
lesser percentage to Eligible Receivables and Eligible Inventory in determining
the Borrowing Base.
"Business Day" shall mean each day when Bank is open for business.
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"Closing" shall have the meaning assigned to it in Paragraph 3.01.
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"Collateral" shall mean all of the property described in Paragraph 4.02 and any
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other property, of every kind and nature, which is the subject of any other
agreement securing any part or all of the Obligations.
"Collateral Report" means a report on Bank's standard form, or in such other
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form as Bank may require, prepared by Borrower in accordance with Bank's
instructions and delivered to the Bank within 15 days of each month-end,
certified by the Chief Financial Officer or other authorized officer of
Borrower, regarding the Receivables and Inventory of Borrower and other
Collateral, if applicable.
"Collections" shall have the meaning assigned to it in Paragraph 2.04(A).
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"Commitment" shall have the meaning assigned to it in Paragraph 2.01(A).
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"Default Rate" shall mean the Prime Rate plus three hundred and fifty (350)
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basis points. "Prime Rate" shall mean that interest rate so denominated and set
by Bank from time to time as an interest rate basis for borrowings. The Prime
Rate is one of several interest rate bases used by Bank, and Bank lends at rates
above and below the Prime Rate.
"Eligible Finished Inventory" means all Inventory of Borrower which: (i) is
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owned by Borrower, free and clear of any security interest, liens and claims
whatsoever, including but not limited to lien of IBM Credit Corporation; (ii)
Borrower has the right to convey as security for the Obligations; (iii) is in
first class order, condition and repair and which is in salable condition; (iv)
has been held by Borrower for sale or lease less than six (6) months without
being sold and/or leased; (v) is finished and not work-in-process; (vi) is
stored and/or housed at a location owned, leased or otherwise controlled by
Borrower; (vii) does not cause and/or present unusual danger to the health
and/or safety of individual(s) and/or the environment; (viii) does not violate
any Laws; and (ix) is otherwise deemed eligible by Bank in its sole discretion.
"Eligible Inventory" means all Eligible Finished Inventory and Eligible Raw
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Inventory of Borrower.
"Eligible Raw Inventory" means all Inventory of Borrower which satisfies all of
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the requirements for constituting Eligible Finished Inventory with the exception
of subparts (iv) and (v), and which is otherwise deemed eligible by Bank in its
sole discretion.
"Eligible Receivables" means those Receivables of Borrower, each of which meets
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the following requirements: (i) such Receivable arose in the ordinary course of
Borrower's business, (ii) the right to payment has been fully earned by
completed performance and, if Inventory is involved, such Inventory has been
shipped by Borrower (or if not shipped by Borrower, are held by Borrower under a
"xxxx and hold" arrangement approved in writing by Bank in its sole discretion),
(iii) the Receivable includes only that portion which is not subject to any
offset, defense, counterclaim, credit, allowance or adjustment, (iv) Borrower's
title to such Receivable is absolute and is subject to no prior assignment,
claim, lien or security interest, (v) the full amount reflected on Borrower's
books and on any invoice or statement delivered to Bank related to such
Receivable is owing to Borrower and no partial payment has been made on such
Account, (vi) such Receivable is due and payable not more than thirty (30) days
from invoice date and no more than ninety (90) days (or such other period as
Bank may by written notice to Borrower approve) have elapsed from invoice date;
(vii) such Receivable did not arise out of a contract or purchase order
containing provisions prohibiting assignment thereof or the creation of a
security interest therein, and Borrower has received no note, trade acceptance,
draft or other instrument with respect to such Receivable or in payment of such
Account, (viii) Borrower has received no notice of the death of the account
debtor or of the dissolution, termination of existence, insolvency, bankruptcy,
appointment of a receiver for any part of the property of, or assignment for the
benefit of creditors made by, the account debtor, (ix) such Receivable is not
payable by any Affiliate of Borrower, (x) such Receivable is not payable by any
foreign Person (provided that Persons present in possessions of the United
States of America shall not be considered foreign Persons), unless such
Receivable is payable in the full amount of the face value of such Receivable in
United States dollars and is supported by an irrevocable letter of credit in
form and substance acceptable to Bank and issued by a bank satisfactory to Bank
(and, if requested by Bank, such letter of credit or the proceeds thereof, as
Bank shall require, have been assigned to Bank); (xi) such Receivable is not
payable by the United States of America or any political subdivision or agency
thereof, unless Bank and Borrower have complied with the Assignment of Claims
Act with respect to such Receivable; (xii) the account debtor for such
Receivable is not located in the State of New Jersey unless Borrower has filed a
Notice of Business Activities Report with the New Jersey Division of Taxation
for the then current year; (xiii) such Receivable is not payable by any Person
who is the account debtor for other Receivables and who is past due (as provided
in (vi) above) with regard to fifty percent (50%) or more of the aggregate
amount of such other Receivables; (xiv) such Receivable is not, at the
discretion of Bank, deemed doubtful for collection for whatever reason; (xv)
such Receivable is not a contra account; (xvi) such Receivable is not an account
in dispute for any reason; (xvii) such Receivable does not represent a
commission or expense receivable; and (xviii) such Receivable does not represent
a retainage associated with a receivable.
"ERISA" shall have the meaning assigned to it in Paragraph 5.01(I).
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"Event of Default" shall have the meaning assigned to it in Paragraph 7.01.
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"Fixed Assets" means any asset that would, in accordance with GAAP, be required
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to be classified and accounted for as a capital asset.
"GAAP" means generally accepted accounting principles in the United States
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consistently applied.
"Indebtedness" means, as to Borrower, all items of indebtedness, obligation or
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liability for borrowed money, for the deferred purchase price of fixed assets or
services, or otherwise, whether matured or unmatured, liquidated or
unliquidated, direct or contingent, joint or several, including, but without
limitation: (i) all indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary course
of business) or discounted with recourse; (ii) all indebtedness in effect
guaranteed, directly or indirectly, through agreements, contingent or otherwise,
to: (A) purchase such indebtedness; (B) purchase, sell or lease (as lessee or
lessor) property, products, materials or supplies or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
such indebtedness or to assure the owner of the indebtedness against loss; or
(C) supply funds to or in any other manner invest in the debtor; (iii) all
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indebtedness secured by (or for which the holder of such indebtedness has a
right, contingent or otherwise, to be secured by) any mortgage, deed of trust,
pledge, lien, security interest or other charge or encumbrance upon property
owned or acquired subject thereto, whether or not the liabilities secured
thereby have been assumed; (iv) capitalized lease obligations; (v) current
liabilities in respect of unfunded vested benefits under plans covered by ERISA
and the regulations issued thereunder; or (vi) obligations under acceptance
facilities.
"Laws" means all ordinances, statutes, rules, regulations, orders, injunctions,
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writs or decrees of any government or political subdivision or agency thereof,
or any court or similar entity established by any authority thereof, including,
without limitation, the Environmental Protection Act, the Occupational Safety
and Health Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental, Response, Compensation and Liability Act of 1980, and the
Superfund Reauthorization and Amendments Act of 1986, all as amended from time
to time, and all rules and regulations issued under any of such laws.
"Letter of Credit Obligations" means all obligations of Borrower and any
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Affiliate or Subsidiary of Borrower to repay Bank all amounts advanced by Bank
in connection with any letter(s) of credit or similar arrangement(s), whether
heretofore, now or hereafter issued on behalf of Borrower or any of its
Affiliates or Subsidiaries.
"Letter of Credit Reserve" shall have the meaning assigned to it in Paragraph
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2.01.
"Loan" means the Revolving Credit Loan.
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"Loan Documents" means this Agreement and any other document evidencing,
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securing or otherwise relating to the Obligations, or required to be delivered
by Borrower under this Agreement, as any such documents may be extended,
modified, renewed or substituted.
"Lock Box Account" shall have the meaning assigned to it in Paragraph 2.04(A).
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"Obligations" means (i) the obligation of Borrower to pay the principal of and
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interest on the Loan in accordance with the terms of the Revolving Credit
Promissory Note and this Agreement and to satisfy all of its other liabilities
to Bank under this Agreement, whether now existing or hereafter incurred,
including any extensions, modifications, renewals or substitutions; (ii) the
obligation of Borrower to repay to Bank all amounts advanced by Bank under this
Agreement on behalf of Borrower, including, but without limitation, advances for
principal or interest, payments to prior secured parties, mortgagees or lienors,
or for taxes, levies, insurance, rent, repairs to or maintenance or storage of
any of the Collateral; and (iii) the obligation of Borrower to reimburse Bank,
on demand, for all of Bank's reasonable expenses and costs, including the
reasonable fees and expenses of its counsel, in connection with the preparation,
entering into, administration, amendment, modification or enforcement of this
Agreement and the documents required under this Agreement, including, without
limitation, any proceeding brought or threatened to enforce payment of any of
the obligations referred to in clauses (i) and (ii) above.
"Other Obligations" means all obligations, liabilities, Indebtedness, duties and
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responsibilities of Borrower to Bank other than the Obligations, under any and
all agreements, instruments and other documents, whether now existing or
hereafter incurred, including any extensions, modifications, renewals or
substitutions thereof.
"Permitted Liens" means (i) liens for taxes, assessments or similar charges,
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incurred in the ordinary course of business that are not yet due and payable or
that are being contested in good faith and with due diligence by appropriate
proceedings; (ii) pledges or deposits made in the ordinary course of business to
secure payment of workers' compensation, or to participate in any fund in
connection with workers' compensation, unemployment insurance, old-age pensions
or other social security programs; (iii) liens of mechanics, materialmen,
warehousemen, carriers or other like liens, securing obligations incurred in the
ordinary course of business that are not yet due and payable; (iv) good faith
pledges or deposits made in the ordinary course of business to secure
performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases, not in excess of twenty percent (20%) of the
aggregate amount due thereunder, or to secure statutory obligations, or surety,
appeal, indemnity, performance or other similar bonds required in the ordinary
course of business; (v) encumbrances consisting of zoning restrictions,
easements or other restrictions on the use of real property, none of which
materially impairs the use of such property by Borrower in the operation of its
business, and none of which is violated in any material respect by existing or
proposed restrictions on land use; (vi) liens in favor of Bank; (vii) other
existing liens set forth or described on Exhibit "A", and any renewals and
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extensions thereof; (viii) purchase money security interests granted to secure
the purchase price of assets which receives the prior written approval of Bank;
and (ix) the following, if the validity or amount is being contested in good
faith by appropriate and lawful proceedings, so long as levy and execution have
been stayed and continue to be stayed and they do not, in the aggregate,
materially detract from the value of the property of Borrower, or materially
impair their use in the operation of its business: (A) claims or liens for
taxes, assessments or charges due and payable and subject to interest or
penalty; (B) claims, liens and encumbrances upon, and defects of title to, real
or personal property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the merits; (C) claims
or liens of mechanics, materialmen, warehousemen, carriers or other like liens;
and (D) adverse judgments on appeal.
"Person" means any individual, corporation, partnership, association, joint-
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stock company, trust, unincorporated organization, joint venture, court or
government or political subdivision or agency.
"Prime Rate" shall have the meaning assigned to it in Paragraph 2.05.
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"Rate" shall have the meaning assigned to it in Paragraph 2.05.
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"Receivables" means all obligations of every kind at any time owing to Borrower
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(whether now existing or hereafter arising, and whether classified under the
Uniform Commercial Code as Accounts, Instruments, Contract Rights, Chattel
Paper, General Intangibles or otherwise), all proceeds thereof, all security
therefor and all of Borrower's rights to goods or other property sold or leased
which may be represented by such property.
"Records" means correspondence, memoranda, tapes, discs, papers, books and other
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documents, or transcribed information of any type, whether expressed in ordinary
or machine language.
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"Revolving Credit Loan" shall have the meaning assigned to it in Paragraph
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2.01(A).
"Revolving Credit Promissory Note" shall have the meaning assigned to it in
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Paragraph 2.02.
"Subsidiary" of a Person means any corporation of which more than fifty percent
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(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly or indirectly, through one or more intermediaries, by such
Person.
"Tangible Net Worth" means, at any date, the shareholders' equity determined in
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accordance with GAAP, less (i) all accounts receivable due from shareholders,
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directors, officers, Affiliates, Subsidiaries, partners, members or managers,
and (ii) the net value of all intangible assets, plus all Indebtedness which is
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fully and expressly subordinated in writing to Bank and Bank's right to receive
payment in full of all the Obligations and Other Obligations, on terms and
conditions acceptable to Bank.
SECTION II. THE LOAN.
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2.01 The Revolving Credit Loan.
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(A) Subject to the terms of this Agreement, Bank has agreed to make available
to Borrower for Borrower's use from time to time during the term of this
Agreement, pursuant to the Credit Line Sweep Account Service Agreement, a
total line of credit ("Revolving Credit Loan") at any time equal to the
lesser of (a) $15,000,000.00 ("Commitment") or (b) the Borrowing Base;
provided, however, Bank shall retain as a non-disbursed reserve from the
Revolving Credit Loan an amount equal to the Letter of Credit Obligations
(the "Letter of Credit Reserve"). Borrower shall submit a completed
Collateral Report to Bank at least once a month (within 15 days of month-
end) so long as any Obligations are outstanding.
(B) Notwithstanding anything contained in this Agreement or any other Loan
Document to the contrary, unless otherwise agreed by Bank, the aggregate
outstanding principal amount of advances based on (i) Eligible Inventory
shall at no time exceed Five Million and no/100 DOLLARS ($5,000,000.00);
and (ii) Eligible Receivables shall at no time exceed FIFTEEN MILLION AND
NO/100 DOLLARS ($15,000,000). In the event the aggregate amount of
Eligible Inventory-based advances and/or Eligible Receivables-based
advances shall at any time exceed the foregoing limits (whether by reason
of Bank classifying Eligible Inventory and/or Eligible Receivables as
ineligible, or otherwise), Borrower shall immediately, without demand,
repay so much of the Loan as is necessary in order that the aggregate
amount of Inventory-based advances and/or Eligible Receivables-based
advances shall not exceed such limits. Borrower agrees that the amount
advanced and the acceptability and value of Inventory and/or Eligible
Receivables are and shall be entirely in Bank's sole discretion and that
Bank shall have the right at any time to revise any limit placed by Bank
upon the amount of such advances or upon the valuation of Inventory and/or
Eligible Receivables, or Bank may, in its sole discretion, refuse to make
further advances. Inventory values shall not exceed the lower of cost or
market and, if applicable, shall be reduced by the LIFO reserve.
2.02 The Revolving Credit Promissory Note. The Loan shall be evidenced by a
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promissory note, payable to the order of Bank in the amount of Bank's Commitment
(the "Revolving Credit Promissory Note").
2.03 Payment of Principal on the Revolving Credit Promissory Note.
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(A) Unless sooner payable by reason of an Event of Default and acceleration
under Paragraphs 7.01 and 7.02, the principal of the Revolving Credit
Promissory Note and the remaining Obligations shall be payable on the
termination of this Agreement; provided, however, that Borrower may borrow,
pay, reborrow and repay the Loan from time to time; provided, further,
however, that the aggregate outstanding principal amount of the Loan shall
at no time exceed the lesser of the Commitment or the Borrowing Base, less
the amount of the Letter of Credit Reserve. In addition, that portion of
the Obligations consisting of the principal amount of the Loan shall be
payable to the extent of any Collections with respect to the Receivables,
which Collections may be applied as described in Paragraph 2.04 on the date
such Collections are received.
(B) In the event that the aggregate principal amount of the Loan outstanding
shall at any time exceed the lesser of the Commitment or the Borrowing
Base, less the amount of the Letter of Credit Reserve, Borrower shall
immediately upon demand repay so much of the Loan as is necessary in order
that the aggregate principal amount of the Loan outstanding shall not
exceed the lesser of the Commitment or the Borrowing Base, less the amount
of the Letter of Credit Reserve.
2.04 Payment and Collections.
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(A) Borrower shall maintain at Borrower's expense an account (the "Lock Box
Account") with Bank in Borrower's name and to which all monies, checks,
notes, drafts or any other form of payment relating to and/or proceeds of
the Receivables (the "Collections") shall be deposited for application on
account of the Obligations and the Other Obligations as provided in this
Paragraph 2.04; and (i) direct each of its account debtors in writing to
remit all payments with respect to Receivables for deposit in the Lock Box
Account in such form as Bank may approve; in each case no later than the
first Business Day following receipt of Bank's election under this
Paragraph. Borrower shall not be permitted to withdraw any amounts from
the Lock Box Account or change the procedures under Bank's Lock Box Account
agreement. Borrower further agrees not to change any directive to its
account debtors as described in clause (ii) above without the prior written
consent of Bank, and in the event Borrower changes any such instructions to
its account debtors without Bank's consent, Borrower acknowledges and
agrees that such actions would be an express violation of this Agreement,
would cause irreparable damage to Bank for which there would be no adequate
remedy at law, and agrees and consents to specific performance of the terms
and provisions of this Agreement. Borrower acknowledges and agrees that
all Collections to the Lock Box Account shall be swept from the Lock Box
Account with such frequency as Bank may desire. Borrower further
acknowledges that all Collections shall be the sole and exclusive property
of Bank, to the extent of the outstanding Obligations and Other
Obligations, immediately upon the receipt of such items in the Lock Box
Account by Bank, by Borrower if received by Borrower (in which event
Borrower shall hold all such items in trust for Bank prior to delivery to
Bank) or otherwise; provided, however, that no such item received by Bank
shall constitute payment to Bank unless such item is actually collected by
Bank. Notwithstanding anything to the contrary in this Agreement, all
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Collections shall, solely for purposes of determining the occurrence of an
Event of Default, be deemed received upon actual receipt by Bank, unless
such item is subsequently dishonored for any reason whatsoever.
(B) Upon Bank's election under Paragraph 2.04(A). Borrower appoints any person
that Bank may from time to time designate as Borrower's attorney with
power, at any time hereafter, to (i) endorse Borrower's name on any checks,
notes, acceptances, money orders, drafts or other forms of payment or
security that may come into Bank's possession; (ii) sign Borrower's name on
any invoice or xxxx of lading relating to any Collateral, on drafts against
customers, on schedules and assignments of Receivables, on notices of
assignment, financing statements and other public records, on verifications
of accounts and on notices to customers; (iii) sign Borrower's name to the
proofs of claim against any account debtor on behalf of Borrower; (iv)
notify the post office authorities to change the address for delivery of
Borrower's Lockbox mail to an address designated by Bank; (v) receive, open
and dispose of all Lockbox mail addressed to Borrower; (vi) send requests
for verification of Accounts to customers or account debtors and (vii) do
all things necessary to carry out this Agreement. Neither Bank nor the
attorney will be liable for any acts or omissions or for any error of
judgment or mistake of fact or law in connection with the activities
described in or contemplated by the first sentence of this Paragraph
2.04(B), except for such acts or omissions which constitute gross
negligence, willful misconduct or bad faith. This power, being coupled
with an interest, is irrevocable so long as any Receivables assigned to
Bank or in which Bank has a security interest remain unpaid or until the
Obligations and Other Obligations have been fully satisfied.
(C) After the occurrence of an Event of Default, Borrower irrevocably waives
the right to direct the application of any and all payments at any time or
times hereafter which may be received by Bank from or for the benefit of
Borrower, and Borrower does hereby irrevocably agree that Bank shall have
the continuing exclusive right to apply and reapply any and all such
payments received at any time or times hereafter in such manner as Bank may
deem advisable, notwithstanding any entry by Bank upon any of its books and
records.
(D) To the extent that Borrower makes a payment(s) to Bank or Bank enforces its
security interests and liens or exercises its right of set-off, and such
payment(s) or the proceeds of such enforcement or set-off are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable claim, then
to the extent of such recovery, the liability originally intended to be
satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such enforcement or set-off had not
occurred and shall be Obligations secured by the Collateral.
2.05 Interest Rate and Fees.
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(A) Interest on the Loan shall accrue and be paid as follows:
(1) Interest on the principal balance of the Loan, from time to time
outstanding, will accrue at the Adjusted LIBOR Rate. Changes in the
Adjusted LIBOR Rate shall be effective on the date of such change.
(2) Interest shall be calculated on the basis of a three hundred sixty (360)
day year, and interest shall be charged for the actual number of days the
Loan is outstanding, and shall be payable by Borrower on the 26th day of
each month, commencing the 26th day of the calendar month immediately
following the date of this Agreement or if such day is not a Business Day,
on the next succeeding business day. Such payments of interest shall be
effected by Bank's debits on the dates such interest is due on Borrower's
account with Bank, or, if insufficient funds are in such account, by
advances of the Loan to Borrower on the date such interest is due, subject
to the provisions hereof and so long as there is Availability. Bank is
authorized by Borrower to effect such payment of interest (and any other
amounts due under this Agreement to Bank from Borrower or any Subsidiary or
Affiliate) by such debits or such advances as the case may be. In the
event there are insufficient funds in such account and there is no
Availability, Borrower shall be required to pay such interest to Bank when
due.
(3) Upon and after the occurrence of an Event of Default, and during the
continuance of such Event of Default, the Obligations shall bear interest
at the Default Rate per annum.
(B) If, at any time, the Adjusted LIBOR Rate shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum rate of
interest permitted by any applicable Laws, then, for such time as the
Adjusted LIBOR Rate would be deemed excessive, its application shall be
suspended and there shall be charged instead the maximum rate of interest
permissible under such Laws and any amounts collected in excess of the
permissible amount shall be deemed a prepayment of principal on the
Revolving Credit Promissory Note.
(C) On the execution of this Agreement, Borrower shall pay to Bank a commitment
fee of six tenths of one percent (.06%) of the initial maximum aggregate
principal amount of the Loan extended under this Agreement, and, in the
event this Agreement is extended pursuant to Paragraph 8.01, Borrower shall
also pay six tenths of one percent (.06%) of the maximum aggregate
principal amount of the credit line available to Borrower at the time of
each extension. Borrower shall pay an examination fee not to exceed TWO
THOUSAND DOLLARS ($2,000.00) per examination, plus reasonable travel
expenses, to be reimbursed as incurred by Bank for audits of the books and
records of Borrower as authorized under this Agreement. The Bank reserves
the right to perform an unlimited number of on-site examinations but may
only charge Borrower for four (4) on-site examinations per year. Bank is
authorized by Borrower to effect any such payments by debiting Borrower's
account with Bank on the date such amounts are due, or otherwise as
described in Paragraph 2.05(A)(2).
2.06 Payment to Bank. All sums payable to Bank under this Agreement shall be
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paid in United States dollars in immediately available funds to Bank at its
principal office in Greenville, South Carolina. Bank may, at its sole
discretion, effect payment of all such sums by debiting Borrower's account with
Bank or as otherwise described in Paragraph 2.05(A)(2). Bank shall send Borrower
statements of all amounts due under this Agreement, which statements shall be
considered correct and conclusively binding on Borrower absent manifest error
unless Borrower notifies Bank to the contrary within thirty (30) days of the
receipt by Borrower of any statement which it deems to be incorrect.
2.07 Compensating Balances. Please see Schedule "AA" attached hereto and
---------------------
incorporated herein.
5
2.08 Banking Relationship. If the Borrower fails to maintain its primary
--------------------
depository relationship with the Bank throughout the term of the Loan, the
Applicable Margin shall be increased by one quarter of one percent (.25%).
SECTION III. CONDITIONS PRECEDENT.
--------------------
The obligation of Bank to make the Loan under this Agreement is subject to the
following conditions precedent:
3.01 Documents Required for the Closing. Borrower shall have delivered to Bank
----------------------------------
on or prior to the date of this Agreement ("Closing"), the Revolving Credit
Promissory Note to the order of Bank and for a principal amount equal to the
Commitment and shall have delivered to Bank on or prior to the date of Closing
or concurrently with the Closing, the following:
(A) Duly executed UCC financing statements;
(B) A certified (as of the date of Closing) copy of resolutions of Borrower's
board of directors or other governing body or authority authorizing the
execution, delivery and performance of this Agreement, the Revolving Credit
Promissory Note, and the Loan Documents;
(C) A certificate (as of the date of Closing) of Borrower's Secretary or other
official having similar responsibilities as to the incumbency and
signatures of the officers of Borrower signing this Agreement, the
Revolving Credit Promissory Note, the Loan Documents and each other
document to be delivered pursuant hereto;
(D) A certificate (as of the date of Closing) signed by the President or a Vice
President or other official having similar responsibilities of Borrower and
to the effect that: (i) the representations and warranties set forth in
Paragraph 5.01 are true as of the date of the Closing; and (ii) no Event of
Default under this Agreement, and no event which, with the giving of notice
or passage of time or both, would become an Event of Default, has occurred
as of such date;
(E) A Collateral Report dated no more than one month prior to Closing;
(G) An opinion from legal counsel for Borrower as to the status of Borrower,
the enforceability of the Loan Documents, and such other matters as Bank
shall require;
(H) Bank's standard form lock box, cash management or account sweep agreement;
(L) Such other documents or agreements as Bank or its counsel may reasonably
require to evidence or secure the Loan including, without limitation, any
security agreement or such other documents required to cross-default and
cross-collateralize the Obligations and the Other Obligations.
3.02 Certain Events. At the time of Closing or any borrowing under the
--------------
Revolving Credit Promissory Note:
(A) No Event of Default shall have occurred and be continuing, and no event
shall have occurred and be continuing that, with the giving of notice or
passage of time or both, would be an Event of Default;
(B) No material adverse change shall have occurred in the financial or
operating condition or prospects of Borrower since the date of this
Agreement;
(C) All the Loan Documents shall have remained in full force and effect; and
(D) Each request for an advance of the Loan shall constitute a representation
and warranty by Borrower as to: (i) the satisfaction in respect of such
request of the conditions referred to in (A), (B) and (C) of this
Paragraph; (ii) the proper segregation of all of Borrower's Inventory
located at 0000 Xxxxxx Xxxx, Xxxxxx 0-00, Xxxxxxx, Xxxxxxxxx 00000 from all
assets of any landlord, other tenants, sublessor, or sublessee or any other
party; (iii) the fact that all of Borrower's Inventory, in any location, is
properly labelled as such; and (iv) that all Inventory is located only as
permitted and described herein.
SECTION IV. COLLATERAL SECURITY.
-------------------
4.01 Composition of the Collateral. The Collateral shall stand as one general,
-----------------------------
continuing collateral security for all Obligations and may be retained by Bank
until all Obligations and Other Obligations have been satisfied in full.
4.02 Rights in Property Held by Borrower. As security for the prompt
-----------------------------------
satisfaction of all Obligations, Borrower assigns to Bank all of its right,
title and interest in and to, and grants Bank a lien upon and security interest
in, all of the following, wherever located, whether now owned or hereafter
acquired, together with all replacements, attachments, accessions, alterations,
accessories, products and proceeds (including, without limitation, insurance
proceeds) thereof: all assets of the Borrower, including but not limited to:
(i) Accounts; (ii) Inventory (including goods intended for sale, use or lease by
Borrower or to be furnished by Borrower under contracts of service), all raw
materials, work-in-process, finished goods, Inventory that may be rejected,
returned, reclaimed, repossessed or stopped in transit, and materials and
supplies; (iii) Goods, (iv) Equipment; (v) Chattel Paper; (vi) General
Intangibles (including without limitation tax refund claims); (vii) Instruments;
(viii) Documents; (ix) rights as seller of Inventory; (x) Receivables;(xi) all
Records pertaining to any Collateral; and (xii) to the extent not otherwise
specified above, the assets, properties and rights described on the attached
Exhibit "B".
-----------
4.03 Priority of Liens. The liens on all Collateral shall be first and prior
-----------------
liens except for Permitted Liens.
4.04 Financing Statements.
--------------------
(A) Borrower will: (i) join with Bank in executing such financing statements
(including amendments and continuation statements) in form satisfactory to
Bank; (ii) pay or reimburse Bank for all costs and taxes of filing or
6
recording in such public offices as Bank may designate; and (iii) take such
other steps as Bank may reasonably direct, including the noting of Bank's
lien on the Collateral and on any certificates of title, all to perfect
Bank's interest in the Collateral.
(B) In addition to the foregoing, and not in limitation:
(1) A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement and may be filed in any appropriate
office; and
(2) To the extent lawful, Borrower appoints Bank as its attorney-in-fact
(without requiring Bank to act as such) to execute any financing statement
in the name of Borrower, and to perform all other acts that Bank deems
appropriate to perfect and continue its security interest in, and to
protect and preserve, the Collateral, including leasing warehouses to Bank
or its designee, transferring Collateral thereto or to public warehouses,
placing and maintaining signs, appointing custodians and maintaining such
Records with respect to the Collateral as Bank may reasonably request. If
any Collateral is in the possession or control of any other party, Borrower
shall notify all such parties of Bank's security interest therein, and
instruct all such parties to hold all such Collateral for Bank's account
and subject to Bank's instructions.
4.05 Landlords' Waivers. Borrower will cause the landlord/owner of any real
------------------
property leased by Borrower to execute and deliver to Bank, within sixty (60)
days of the date hereof, an instrument in form and substance satisfactory to
Bank, by which such landlord/owner waives its rights, if any, to any part of the
Collateral.
4.06 Cross Collateralization. The Collateral shall constitute cross-collateral
-----------------------
for the Other Obligations, without apportionment or designation as to any
particular Other Obligation, and all of such Other Obligations howsoever and
whensoever incurred shall be secured by all of the Collateral, howsoever and
whensoever acquired, and Bank shall have the right in its sole discretion, to
determine the order in which Bank's rights in or remedies against the Collateral
are to be exercised and which portions of the Collateral are to be proceeded
against and the order of application of proceeds of the Collateral as against
any particular Other Obligation. Bank shall have no obligation to xxxxxxxx any
of the Collateral or apply the same in any fashion. In addition to the
Collateral, all liens, security interests and collateral with respect to any
Other Obligations shall constitute cross-collateral for all Obligations without
apportionment or designation as to any particular Obligation, and all
Obligations howsoever and whensoever incurred shall be secured by all such other
collateral, howsoever and whensoever acquired, and Bank shall have the right, in
its sole discretion, to determine the order in which Bank's rights in or
remedies against such other collateral are to be exercised and which portions of
the other collateral are to be proceeded against and the order of application of
proceeds of the other collateral against particular Obligations. Bank shall
have no obligation to xxxxxxxx any of such other collateral or apply the same in
any fashion.
4.07 Location of Collateral. The Collateral shall be kept only at the following
----------------------
locations: 0 Xxxxx Xxxxx, Xxxxx X, Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000 and 0000
Xxxxxx Xxxx Xxxxxx 0-00, Xxxxxxx, Xxxxxxxxx 00000, and shall not be removed
except for purposes of sale in the regular course of Borrower's business.
Borrower shall provide Bank with written notice ten (10) days prior to any
change in the location of any of the places where any part of the Collateral is
kept or the establishment of any new, or the discontinuance of any existing,
places of business or places where Collateral is kept.
4.08 Sale of Inventory. Until the occurrence of an Event of Default, Borrower
-----------------
may, subject to the provisions of this Agreement and the Loan Documents, sell
finished Inventory in the ordinary course of Borrower's business; however, in no
event shall Borrower make any sale of Inventory outside the ordinary course of
business or which would cause a breach of Borrower's warranties, representations
and covenants under this Agreement. A sale of Inventory in the ordinary course
of Borrower's business does not include a transfer in partial or total
satisfaction of a debt owing by Borrower. Borrower agrees to report the receipt
or creation of all sales or other dispositions of Inventory to Bank and promptly
deliver such proceeds to Bank. Borrower agrees to execute and deliver to Bank,
in form satisfactory to Bank, a formal assignment or schedule of Receivables or
other proceeds resulting from the sale or other disposition of Inventory, but in
the absence of such assignment or schedule this Agreement shall constitute such
assignment or schedule and the grant of a security interest therein.
4.09 Processing of Inventory. Borrower authorizes Bank to pay and charge to
-----------------------
Borrower any amounts Bank deems necessary for any processing or finishing of
Inventory in order to obtain a release of such Inventory from any processor,
mechanic, artisan or finisher. Borrower agrees to pay Bank all of Bank's
expenses of processing, finishing, selling and storing, handling, insuring and
shipping the Inventory and any and all of the other costs and expenses which
Bank may incur in protecting or enforcing Bank's security interest in the
Inventory or the proceeds or products thereof. All sums payable by Borrower
under this Paragraph shall be due on demand, deemed a part of the Obligations
and secured by the Collateral, including the Inventory.
4.10 Exculpation of Bank. Unless directly caused by the Bank's willful
-------------------
misconduct, Bank shall not be liable or responsible for and Borrower releases
Bank from any and all causes of action or claims which Borrower may now or
hereafter have for any loss or damage to Borrower claimed to be caused by or
arising from: (a) the safekeeping of Collateral; (b) any damage to any
Collateral occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value of Collateral; or (d) any act or default of any carrier,
warehouseman, bailee or forwarding agency. All risk of loss, damage or
destruction of Collateral shall be borne by Borrower.
7
SECTION V. REPRESENTATIONS AND WARRANTIES.
------------------------------
5.01 Original. To induce Bank to enter into this Agreement, Borrower represents
--------
and warrants to Bank as follows:
(A) Borrower is a corporation duly organized, validly existing and in good
standing under the Laws of the state of its incorporation or organization;
Borrower has the lawful power to own its properties and to engage in the
business it conducts, and is duly qualified and in good standing as a
foreign corporation in the jurisdictions where the nature of its business
or the location of property owned by it makes such qualification necessary;
the states in which Borrower is qualified to do business are set forth on
Exhibit "C"; the addresses of all places of business of Borrower, the
-----------
addresses at which any of the Collateral is or shall be located are as set
forth in Exhibit "D"; and Borrower maintains its books and records relating
-----------
to Accounts, Contract Rights and General Intangibles at its offices at 0
Xxxxx Xxxxx, Xxxxx X, Xxxxxxxxxx, X.X. 00000.
(B) Borrower is not in default with respect to any of its existing
Indebtedness.
(C) The execution of this Agreement, the Revolving Credit Promissory Note and
the Loan Documents, and the performance of the transactions contemplated
hereunder and thereunder will not (or, with the passage of time, the giving
of notice, or both): (i) violate the charter or bylaw provisions of
Borrower, or, to the best of Borrower's knowledge, violate any Laws or
result in a default under any contract, agreement or instrument to which
Borrower is a party or by which Borrower or its property is bound; or (ii)
result in the creation or imposition of any security interest in, or lien
or encumbrance upon, any of the assets of Borrower, except in favor of
Bank.
(D) Borrower has the power and authority to enter into and perform its
obligations under this Agreement, the Revolving Credit Promissory Note and
the Loan Documents, and has taken all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, the
Revolving Credit Promissory Note and the Loan Documents.
(E) This Agreement and the Loan Documents are, and the Revolving Credit
Promissory Note and all other Loan Documents when executed and delivered
will be, valid, binding and enforceable in accordance with their respective
terms subject as to enforcement of remedies to bankruptcy, insolvency,
reorganization or other Laws relating to the enforcement of creditors'
rights generally and to moratorium laws from time to time in effect and to
limitations on equitable remedies.
(F) Except as otherwise permitted in this Agreement (in connection with
Permitted Liens or otherwise), Borrower has filed all federal, state and
local tax returns and other tax-related reports, unless contested in good
faith by appropriate proceedings, it is required by Laws to file prior to
the date of this Agreement and which are material to the conduct of its
business; has paid or caused to be paid all taxes, assessments and other
governmental charges that are due and payable prior to the date of this
Agreement, and has made adequate provision for the payment of such taxes,
assessments or other charges accruing but not yet payable; Borrower has no
knowledge of any deficiency or additional assessment in connection with any
taxes, assessments or charges not provided for on its books.
(G) All financial statements delivered to Bank have been prepared in accordance
with GAAP. Such financial statements contain no material misstatement or
omission and fairly present the financial condition, assets and liabilities
of Borrower and its Subsidiaries on a consolidated basis as of the
respective dates thereof and the results of operations of Borrower and its
Subsidiaries on a consolidated basis as of the respective dates thereof and
for the respective periods then ended. Since the date of the most recent
financial statement, there has been no material adverse change in assets,
liabilities, financial condition or prospects of Borrower or any Subsidiary
or in the results of operations of Borrower or any Subsidiary, and neither
Borrower nor any of its Subsidiaries has incurred any obligation or
liability that materially and adversely affect its financial condition,
business operations or properties, or has entered into any material
contract not contemplated by this Agreement and not in the ordinary course
of business consistent with past practice.
(H) Each consent, approval or authorization of, or filing, registration or
qualification with, any Person required to be obtained or effected by
Borrower in connection with the execution and delivery of this Agreement,
the Revolving Credit Promissory Note and the Loan Documents or the
undertaking or performance of any Obligation has been duly obtained or
effected.
(I) All Defined Benefit Pension Plans, if any, as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), of Borrower
meet, as of the date of this Agreement, the minimum funding standards of
Section 302 of ERISA, and with respect to all Employee Benefit Plans, as
defined in ERISA, of Borrower, no Reportable Event or Prohibited
Transaction, as defined in ERISA, has occurred.
(J) Borrower has no Subsidiaries except as shown on attached Exhibit "E".
-----------
(K) All Inventory (i) is and shall be of good and merchantable quality, free
from any and all defects and not obsolete except as noted in Borrower's
periodic Inventory reports provided to Bank; (ii) is and shall be subject
to internal controls and management procedures (including, but not limited
to, a physical inventory) conducted by Borrower and satisfactory to Bank;
and (iii) meets and shall meet all standards imposed by any governmental
authority having jurisdiction over such Inventory, its use and/or sale. No
Inventory (a) has been or shall be consigned without Bank's prior written
consent; and (b) is or shall ever be stored with a bailee, warehouseman or
similar party without Bank's prior written consent and in such event
Borrower will, concurrently with delivery to such party, cause any such
party to issue and deliver to Bank, in form acceptable to Bank, warehouse
receipts in Bank's name evidencing the storage of such Inventory.
(L) There are no material actions, suits, investigations or proceedings pending
or, to the knowledge of Borrower, threatened against or affecting Borrower
before any court or administrative officer or agency. Borrower is not in
violation of or in default under any applicable Law, order, decree, writ
or injunction.
(M) Borrower has good, indefeasible and merchantable title in fee simple (or
its equivalent under applicable law) to, and ownership of, the assets
reflected in Borrower's most recent financial statement delivered to Bank,
8
and all of its other assets, free and clear of all liens, claims, security
interests and encumbrances, except for the Permitted Liens and as shown on
Exhibit "A".
-----------
(N) No dangerous, hazardous or toxic substances, pollutants, contaminants,
chemicals, wastes or materials, within the meaning of any applicable Laws
(collectively "Hazardous Substances") are unlawfully stored or located upon
any premises owned by Borrower. Borrower has not stored or located any
Hazardous Substances upon any premises leased, controlled or used by
Borrower or any of its Subsidiaries. To the best of Bank's knowledge, no
part of any such premises, including the groundwater located thereon and
thereunder, is presently contaminated by any such Hazardous Substance. All
activities and operations of Borrower and its Subsidiaries meet the
requirements of all applicable environmental Laws. Borrower has never sent
a Hazardous Substance to a site which, pursuant to any Law, (i) has been
placed on the "National Priorities List" or "CERCLIS List" of hazardous
wastes (or any similar state list) or (ii) is subject to a claim, an
administrative order or other request to take removal or remedial action or
to pay for the cost of cleaning up such a site. Borrower has timely filed
all reports required to be filed, has acquired all necessary certificates,
approvals and permits and has generated and maintained all required data,
documentation and records under applicable environmental Laws.
(O) No representation or warranty by Borrower contained in this Agreement or in
any certificate or other document furnished by Borrower pursuant to this
Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary to make such representation or warranty not
misleading in light of the circumstances under which it was made.
5.02 Survival. All the representations and warranties set forth in Paragraph
--------
5.01 shall survive until all Obligations are satisfied in full.
SECTION VI. BORROWER'S COVENANTS.
--------------------
Borrower covenants and agrees with Bank that, so long as Borrower may borrow
under the Commitment and so long as any of the Obligations remain unsatisfied,
it will comply with the following covenants:
6.01 Affirmative Covenants.
---------------------
(A) Borrower will use the proceeds of the Loan only for the following
purposes(s): finance permanent working capital requirements and no other
purpose. Borrower will furnish Bank such evidence as it may reasonably
require with respect to such use(s).
(B) Borrower will furnish Bank:
(1) Within fifteen (15) days after the close of each monthly accounting period
in each fiscal year: (a) income statements of Borrower for such monthly
period; (b) balance sheets of Borrower as of the end of such monthly
period; (c) current aging of all accounts payable and accounts receivable;
and (d) an Inventory report in such form and content as Bank may reasonably
require, all in reasonable detail, subject to year-end audit adjustments
and certified by Borrower's President or Chief Financial Officer to have
been prepared in accordance with GAAP except for any inconsistencies
explained in such certificate. Borrower will provide the Bank with
earnings reports and press releases as soon as available.
(2) Within fifty-five (55) days after the close of each quarter in each fiscal
year, Borrower's 10Q report.
(3) Within one hundred twenty (120) days after the close of each fiscal year
(A) financial statements (income statement, balance sheet and statement of
cash flows at a minimum) of Borrower, as of the end of such year, in
reasonable detail, including all supporting schedules and comments; the
statements to be unqualified and audited by independent certified public
accountants acceptable to Bank, and certified by such accountants to have
been prepared in accordance with GAAP, except for any inconsistencies
explained in such certificate. Bank shall have the right, from time to
time, to discuss Borrower's affairs directly with Borrower's independent
certified public accountants after notice to Borrower and opportunity of
Borrower to be present at any such discussions; (B) a 10K report.
(4) Contemporaneously with each quarterly and year-end financial report
required by the foregoing paragraphs (1), (2), and (3), a certificate of
the President or Chief Financial Officer of Borrower stating that he has
individually reviewed the provisions of this Agreement and that a review of
the activities of Borrower during such yearly or quarterly period, as the
case may be, has been made by him or under his supervision, with a view to
determining whether Borrower has fulfilled all its obligations under this
Agreement, and that, to the best of his knowledge, Borrower has observed
and performed each undertaking contained in this Agreement and is not in
default in the observance or performance of any of the provisions of this
Agreement or, if Borrower shall be in default, specifying all such defaults
and events of which it may have knowledge.
(5) By the fifteenth (15th) day of each month, an aging of Receivables, dated
as of the last day of the immediately preceding monthly accounting period.
(6) At least monthly during the term of this Agreement, a Collateral Report
dated no more than three business days prior to its submission to Bank.
(7) Two copies of its Annual Corporation Tax Returns within thirty (30) days of
filing.
(8) Such other financial information as the Bank may reasonably request from
time to time.
(C) Borrower shall at all times comply with all Securities and Exchange
Commission reporting requirements, rules and/or regulations, as applicable
to Borrower.
(D) Borrower will maintain, or cause to be maintained, public liability
insurance and fire and extended coverage insurance on all assets owned by
it, all in such form and amounts as are consistent with industry practices
and with such insurers as may be satisfactory to Bank. Such policies shall
9
contain a provision whereby they cannot be canceled except after at least
thirty (30) days' written notice to Bank. Such policies to the extent they
insure any of the Collateral shall be payable to Bank as its interest may
appear. Borrower will furnish to Bank such evidence of insurance as Bank
may require. Borrower agrees that, in the event it fails to pay or cause
to be paid the premium on any such insurance, Bank may do so and be
reimbursed by Borrower therefor on demand with interest thereon at Bank's
Rate. Borrower assigns to Bank any returned or unearned premiums that may
be due Borrower upon cancellation of any such policies for any reason
whatsoever and directs the insurers to pay Bank any amounts so due. Bank
is appointed Borrower's attorney-in-fact (without requiring Bank to act as
such) to endorse any check which may be payable to Borrower and to collect
such returned or unearned premiums or the proceeds of such insurance, and
any amount so collected may be applied by Bank toward satisfaction of any
of the Obligations or Other Obligations.
(E) Borrower will pay or cause to be paid when due, all taxes, assessments and
charges or levies imposed upon it or its property or which it is required
to withhold and pay over, except where contested in good faith by
appropriate proceedings with adequate reserves therefor having been set
aside on its books. Borrower shall pay or cause to be paid all such taxes,
assessments, charges or levies forthwith whenever foreclosure on any lien
that attaches appears imminent.
(F) Borrower will, when requested so to do, make available for inspection and
photocopy by duly authorized representatives of Bank any of its books and
Records, and will furnish Bank any information regarding its business
affairs and financial condition within a reasonable time after request by
Bank.
(G) Borrower will take all necessary steps to preserve its existence and
franchises and comply with all present and future Laws applicable to it in
the operation of its business, and all material agreements to which it is
subject.
(H) Borrower will collect its Accounts and Receivables only in the ordinary
course of business.
(I) Borrower will keep accurate and complete Records of its Accounts, Inventory
and Receivables consistent with sound business practices, which in the case
of Inventory shall itemize and describe the kind, type, quality and
quantity, cost therefor and selling price thereof, and the daily
withdrawals therefrom and the additions thereto.
(J) Borrower will pay when due (or within applicable grace periods) all
Indebtedness due third Persons, except when the amount is being contested
in good faith by appropriate proceedings and with adequate reserves having
been set aside on the books of Borrower.
(K) Borrower will notify Bank promptly if it becomes aware of the occurrence of
any Event of Default or of any fact, condition or event that with the
giving of notice or passage of time or both, could become an Event of
Default, or of the failure of Borrower to observe any of its undertakings
under this Agreement.
(L) Borrower will notify Bank ten (10) days in advance of any change in the
location of any of its places of business or of the establishment of any new, or
the discontinuance of any existing, place of business or of the locations at
which any of the Collateral is kept.
(M) Borrower will: (1) fund all its Defined Benefit Pension Plans, if any, in
accordance with no less than the minimum funding standards required under ERISA;
(2) furnish Bank, promptly after the filing of the same, with copies of all
reports or other statements filed with the United States Department of Labor or
the Internal Revenue Service with respect to all Employee Benefit Plans; and (3)
promptly advise Bank of the occurrence of any Reportable Event or Prohibited
Transaction (as defined in ERISA) with respect to any Employee Benefit Plan.
(N) Borrower will furnish to Bank written reports, in addition to the other
reports and certificates required of Borrower under this Agreement,
detailing the aging and collection of Receivables, and containing such
information as Bank may specify. Such reports shall be furnished by
Borrower to Bank as provided above.
(O) If any Inventory, the sale of which gave rise to an Account, in excess of
$100,000.00 in the aggregate in any fiscal year is returned to or
repossessed by Borrower, Borrower shall promptly report any such return or
repossession to Bank in writing and, if within three Business Days after
receipt by Bank of such written report, Bank fails to issue specific
instructions to Borrower concerning such Inventory, Borrower shall have the
right to dispose of such Inventory in accordance with sound business
practices, subject, however, to Bank's security interest in such Collateral
and in any proceeds arising from the disposition of such Inventory.
(P) Borrower will maintain at all times a Tangible Net Worth of not less than
$14,400,000.00 as of June 30, 1996, which amount shall increase by not less
than $300,000.00 as of the end of each of Borrower's quarter-ended periods.
Quarterly compliance shall be measured by the Borrower's quarterly 10Q
report and annual compliance will be measured by the Borrower's accountant-
prepared audited fiscal year-end financial statements.
(Q) Borrower will maintain a maximum total Indebtedness to Tangible Net Worth
ratio of 2.0 to 1.0 during the term of the Loan. For purposes of this
Subparagraph (Q), all Indebtedness which is fully and expressly
subordinated in writing to Bank and Bank's right to payment in full of all
of the Obligations and Other Obligations, on terms and conditions
acceptable to Bank, shall be deemed excluded from the term "Indebtedness."
(R) Borrower shall allow Bank and its agents and representatives at all times
to have access to Borrower's premises for purposes of examining and
inspecting the Collateral and all Records pertaining thereto.
(S) Borrower shall maintain all of its Equipment in good working order and
condition, and shall not permit any Equipment to become a fixture to real
estate or an accession to any other property. Borrower shall, immediately
upon Bank's demand, deliver to Bank any and all evidences of ownership of,
certificates of title to and applications for title to any of the
Equipment.
6.02 Negative Covenants.
------------------
10
(A) Borrower will not change its name, enter into any merger, consolidation,
reorganization or recapitalization, or reclassify its capital stock or
other equity interests, except for a merger between Borrower and a domestic
Subsidiary of Borrower, so long as Borrower is the surviving or continuing
corporation in any such merger.
(B) Borrower will not sell, transfer, lease or otherwise dispose of all or
(except in the ordinary course of business) any material part of its assets
except (1) a transfer of any property to a Subsidiary of Borrower and (2)
dispositions expressly permitted by this Agreement.
(C) Borrower will not mortgage, pledge, grant or permit to exist a security
interest in or lien upon any of its assets of any kind, now owned or
hereafter acquired, except for Permitted Liens.
(D) Borrower will not, without Bank's prior written consent, become liable,
directly or indirectly, as guarantor or otherwise, for any obligation of
any other Person, except for the endorsement of commercial paper for
deposit or collection in the ordinary course of business.
(E) Borrower will not incur, create, assume or permit to exist any Indebtedness
except: (1) the Loan; (2) Indebtedness existing as of this date; (3)
business expenses and trade indebtedness incurred in the ordinary course of
business; (4) contingent Indebtedness permitted by Paragraph 6.02(D); (5)
Indebtedness permitted by this Agreement; (6) During fiscal year 1997,
additional Indebtedness of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000.00);
(F) During fiscal year 1997, Borrower's capital expenditures shall not exceed
SEVEN HUNDRED FIFTY THOUSAND DOLLARS AND NO/100 DOLLARS ($750,000.00).
(G) Borrower will not redeem, purchase or retire any of its capital stock or
other equity interests except pursuant to any existing agreement shown on
the attached Exhibit "F".
-----------
(H) Borrower will not acquire any stock in, or all or substantially all of the
assets of, any Person other than its Subsidiaries.
(I) Borrower will not furnish Bank any certificate or other document that
contains any untrue statement of material fact or that omits to state a
material fact necessary to make it not misleading in light of the
circumstances under which it was furnished.
(J) Borrower will not directly or indirectly apply any part of the proceeds of
the Loan to the purchasing or carrying of any "margin stock" within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System, or any regulations, interpretations or rulings issued thereunder.
(K) Borrower shall not incur operating leases for machinery, real estate or
equipment which in the aggregate annually require payments in excess of ONE
HUNDRED FIFTY THOUSAND DOLLARS ($150,000.00).
SECTION VII. DEFAULT
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7.01 Events of Default. The occurrence of any one or more of the following
-----------------
events shall constitute an Event of Default under this Agreement:
(A) Borrower shall fail to make payment of any of the Obligations when due or
declared due, and such failure shall continue for three (3) days after
receipt by the Borrower of written notice from Bank.
(B) Borrower shall fail to observe or perform any non-monetary obligation to be
observed or performed by it under this Agreement or under any of the Loan
Documents or any other documents to which it is a party relating to the
Loan, and such failure shall continue for fifteen (15) days after receipt
by the Borrower of written notice from the Bank.
(C) Borrower shall fail to make payment of any Other Obligation when due or
declared due, and such failure shall continue beyond any applicable grace
period therefor.
(D) Borrower shall fail to observe or perform any non-monetary obligation to be
observed or performed by it in connection with any Other Obligation, and
such failure shall continue beyond any applicable grace period therefor.
(E) Borrower shall fail to pay any Indebtedness and such failure shall continue
beyond the later of (i) any applicable grace period therefor or (ii) three
(3) days after receipt of written notice from Bank to Borrower, or Borrower
shall suffer to exist any other event of default under any agreement
relating to such Indebtedness.
(F) Any financial statement, representation, warranty or certificate made or
furnished by Borrower to Bank in connection with this Agreement or as an
inducement to Bank to enter into this Agreement, or in any separate
statement or document to be delivered under this Agreement to Bank, shall
be materially false, incorrect or incomplete when made.
(G) Borrower shall admit in writing its inability to pay its debts as they
mature, or shall make an assignment for the benefit of or any of its
creditors.
(H) Proceedings in bankruptcy or for reorganization of Borrower, or for the
readjustment of any of its debts, under the Bankruptcy Code, as amended, or
under any other Laws, whether state or federal, for the relief of insolvent
debtors, now or hereafter existing, shall be commenced by Borrower, or
shall be commenced against Borrower and shall not be discharged within
sixty (60) days of their commencement.
(I) A receiver, custodian or trustee shall be appointed for Borrower or for any
substantial part of its assets, or any proceedings shall be instituted for
the dissolution or the full or partial liquidation of Borrower, and such
receiver, custodian or trustee shall not be discharged within sixty (60)
days of his appointment, or such proceedings shall not be discharged within
11
sixty (60) days of their commencement, or Borrower shall discontinue
business or materially change the nature of its business.
(J) Borrower shall suffer final judgment(s) for payment of money aggregating in
excess of TWENTY-FIVE THOUSAND DOLLARS and NO/100 DOLLARS ($25,000.00) and
shall not discharge all such judgment(s) within a period of sixty (60) days
unless, pending further proceedings, execution has not been commenced or if
commenced has been effectively stayed.
(K) A judgment creditor of Borrower shall lawfully obtain and retain for at
least five (5) days possession of any material portion of the Collateral by
any lawful means, including, but without limitation, levy, distraint,
replevin or self-help.
(L) The cancellation, termination, expiration, qualification or any other
change in any agreement guaranteeing the obligations of Borrower under the
Revolving Credit Promissory Note or this Agreement.
(M) The failure of the Intercreditor Agreement by and between the Bank and IBM
Credit Corporation dated as of April 8, 1996, the Attachment A thereto and any
and all modifications, amendments or supplements thereto, to adequately protect
the Bank's interest in the Collateral, in Bank's sole discretion.
(N) The failure of the Borrower to provide to the Bank the Landlords' Waivers
required in Section 4.05 hereof within the time allotted therein.
(O) The failure of the Borrower to provide the Bank with a recorded copy of the
Uniform Commercial Code Termination Statement executed by International Business
Machines referencing a financing statement filed on March 29, 1994, No. 94-
294410, as well as the official results of a UCC-1 financing statement search
request, certified correct by the Secretary of State of the State of Tennessee,
evidencing only those filings approved by the Bank, in its sole discretion, each
of such documents to be provided to the Bank within forty-five (45) days of the
date of this Agreement.
(P) The failure of the Borrower to provide the Bank with a Good-Standing
Certificate from the State of Tennessee within sixty (60) days of the date of
this Agreement.
7.02 Acceleration. Bank may, immediately and without notice upon the occurrence
------------
of an Event of Default, declare all Obligations to be, and the Obligations shall
become, due and payable without further action of any kind.
7.03 Remedies. After any acceleration, as provided for in Paragraph 7.02, the
--------
Commitment of Bank shall terminate and Bank shall have, in addition to the
rights and remedies given it by this Agreement, the Revolving Credit Promissory
Note and the Loan Documents, all rights and remedies allowed by all applicable
Laws, including, but without limitation, the Uniform Commercial Code as enacted
in any jurisdiction in which any Collateral may be located and the right to take
legal action against Borrower or institute proceedings for the collection of all
amounts unpaid and outstanding under the Revolving Credit Promissory Note.
Without limiting the generality of the foregoing, Bank may immediately, without
demand of performance and without other notice (except as specifically required
by this Agreement or the Loan Documents) or demand whatsoever to Borrower, all
of which are expressly waived, and without advertisement, sell at public or
private sale or otherwise realize upon, at such place as Bank may determine, or
elsewhere, the whole or, from time to time, any part of the Collateral, or any
interest which Borrower may have in the Collateral. After deducting from the
proceeds of sale or other disposition of the Collateral all expenses (including
all reasonable expenses for legal services), Bank shall apply such proceeds
toward the payment of the Obligations. Any remainder of the proceeds after
satisfaction in full of the Obligations shall be distributed as required by
applicable Laws. Notice of any sale or other disposition shall be given to
Borrower at least fifteen (15) days before the time of any intended public sale
or of the time after which any intended private sale or other disposition of the
Collateral is to be made, which Borrower agrees shall be reasonable notice of
such sale or other disposition. Borrower agrees to assemble, or to cause to be
assembled, at its own expense, the Collateral at such place or places as Bank
shall reasonably designate. At any such sale or other disposition, Bank may, to
the extent permissible under applicable Laws, purchase the whole or any part of
the Collateral, free from any right of redemption on the part of Borrower which
right is waived and released. Without limiting the generality of any of the
rights and remedies conferred upon Bank under this Paragraph, Bank may, to the
full extent permitted by applicable Laws:
(A) Enter upon the premises of Borrower, and take immediate possession of the
Collateral, either personally or by means of a receiver appointed by a
court of competent jurisdiction;
(B) At Bank's option, use, operate, manage and control the Collateral in any
lawful manner;
(C) Collect and receive all rents, income, revenue, earnings, issues and
profits;
(D) Maintain, repair, renovate, alter or remove the Collateral as Bank may
determine in its reasonable discretion, and discharge any liens, security
interests or other encumbrances and any taxes at any time levied or placed
on any of the Collateral;
(E) Notify account debtors that Receivables have been assigned to Bank and
collect them directly in Bank's name;
(F) Endorse Borrower's name on any check, note, acceptance, draft or other form
of payment or security payable to Borrower that may come into the
possession of Bank; sign Borrower's name on any invoice or xxxx of lading
relating to any Receivable and on drafts against account debtors and on
drafts against letters of credit issued for the benefit of account debtors;
(G) Notify the post office authorities to change the address for delivery of
Borrower's Lockbox mail to an address designated by Bank and receive, open
and dispose of all Lockbox mail addressed to Borrower;
(H) Require that all full or partial payments of Receivables which are made
directly to Borrower or which otherwise come into Borrower's possession be
received by Borrower in trust for Bank and immediately delivered by
Borrower to Bank in the form received; and
12
(I) Make such payments and incur such costs as Bank deems necessary to enforce
the payment or performance of the Obligations, all such costs being due on
demand, deemed a part of the Obligations and secured by the Collateral.
SECTION VIII. TERMINATION.
-----------
8.01 Term. This Agreement shall terminate on October 31, 1998 ("Original Term")
----
if not terminated sooner by the Bank, as provided herein. Either Bank or
Borrower may terminate this Agreement and its Commitment at the end of the
Original Term or any renewal term by giving the other prior written notice of
its intention to terminate. In addition, Bank may terminate this Agreement at
any time without further notice following the occurrence of an Event of Default
under Paragraph 7.01.
8.02 Effect of Termination. No termination of this Agreement shall in any way
---------------------
(i) affect or impair Bank's security interest in and lien on the Collateral (or
any other collateral or security) or any real estate or any other right or
privilege under this Agreement or under the Revolving Credit Promissory Note or
any other agreement related to this Agreement, (ii) relieve Borrower from any of
its duties and obligations under this Agreement or under the Revolving Credit
Promissory Note or such other agreements including, without limitation, the
Obligations or (iii) relieve any other Person primarily or secondarily liable
for the Obligations from its obligations and duties to Bank.
SECTION IX. MISCELLANEOUS.
-------------
9.01 Appointment of Bank as Attorney in Fact. Borrower appoints Bank its
---------------------------------------
attorney-in-fact (without requiring Bank to act as such) with power and for the
purposes of taking such action as, and at the times permitted by Paragraph 7.03
(A) through (I). This power, being coupled with an interest, shall be
irrevocable so long as any part of the Obligations is outstanding.
9.02 Further Assurance. From time to time, Borrower will execute and deliver to
-----------------
Bank such additional documents and will provide such additional information as
Bank may reasonably require to carry out the terms of this Agreement and be
informed of Borrower's status and affairs.
9.03 Notices. Any notices or consents required or permitted by this Agreement
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shall be in writing and shall be deemed to have been validly served, given or
received three (3) days after deposit in the United States Mails, with postage
prepaid, return receipt requested, or on the date of delivery to the Bank or
Borrower, as applicable, by hand delivery, telex or telegram, as follows, unless
such address is changed by written notice given in accordance with the terms of
this Agreement:
(A) If to Borrower:
Scansource, Inc.
0 Xxxxx Xxxxx Xxxxx X
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxx X. Xxxxxx
(B) If to Bank: With a copy to:
Branch Banking and Trust Company Xxxxxx Xxxxxxx Xxxxx & Scarborough
X.X. Xxx 000 X.X. Xxx 00000
Xxxxxxxxxx, X.X. 29602 Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxxx X. Xxxxxx Attn: Xxxxxx X. Xxxxxx
9.04 Waiver and Release by Borrower. To the maximum extent permitted by
------------------------------
applicable Laws, Borrower:
(A) Waives (except as may otherwise be provided in this Agreement): (1)
presentment for payment, demand, protest, notice or non-payment or dishonor
and of protest with respect to the Revolving Credit Promissory Note; and
(2) notice and opportunity to be heard, after acceleration in the manner
provided in Paragraph 7.02, before exercise by Bank of the remedies of
self-help, set-off or of other summary procedures permitted by any
applicable Laws or by any agreement with Borrower and, except where
required by this Agreement or by any applicable Laws, notice of any other
action taken by Bank; and
(B) Releases Bank and its officers, attorneys, agents and employees from all
claims for loss or damage caused by any act or omission on the part of any
of them except gross negligence or willful misconduct.
9.05 Applicable Law. The substantive laws of South Carolina shall govern the
--------------
construction of this Agreement and the rights and remedies of the parties.
9.06 Binding Effect, Assignment and Entire Agreement. This Agreement shall
-----------------------------------------------
inure to the benefit of, and shall be binding upon, the respective successors
and permitted assigns of the parties. Borrower has no right to assign any of
its rights or obligations under this Agreement without the prior written consent
of Bank. This Agreement, and the documents executed and delivered pursuant to
this Agreement, constitute the entire agreement between the parties, and may be
amended only by a writing signed by each party.
9.07 Severability. If any provision of this Agreement shall be held invalid
------------
under any applicable Laws, such invalidity shall not affect any other provision
of this Agreement that can be given effect without the invalid provision, and,
to this end, the provisions are severable.
9.08 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute but one and the same instrument.
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9.09 Seal. This Agreement is intended to take effect as an instrument under
----
seal.
IN WITNESS WHEREOF, the parties have duly executed this Agreement under
seal as of the date first above written.
WITNESSES: BANK:
----
/s/ XXXXX X. XXXXX BRANCH BANKING AND TRUST COMPANY OF
--------------------------- SOUTH CAROLINA
By: /s/ XXXXXXX X. XXXXXX
--------------------------- ---------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
BORROWER:
--------
SCANSOURCE, INC., a South Carolina corporation
By: /s/ XXXXXXX X. XXXXXX
---------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Financial Officer
ATTEST:
/s/ XXXX XXXXXXXX Secretary
-------------------
[AFFIX CORPORATE SEAL]
14
INDEX OF EXHIBITS
A. List of Existing Liens
B. Collateral Description
C. List of States Where Borrower is Qualified to Transact
Business
D. List of Places of Business of Borrower
E. List of Subsidiaries of Borrower
F. Agreements
