EXHIBIT 10.27
================================================================================
LOAN AND SECURITY AGREEMENT
by and between
WAM!NET INC.
and
FOOTHILL CAPITAL CORPORATION
Dated as of July 16, 1999
================================================================================
TABLE OF CONTENTS
-----------------
Page(s)
-------
1. DEFINITIONS AND CONSTRUCTION...........................................1
1.1 Definitions......................................................1
1.2 Accounting Terms................................................13
1.3 Code............................................................13
1.4 Construction....................................................13
1.5 Schedules and Exhibits..........................................13
2. LOAN AND TERMS OF PAYMENT.............................................13
2.1 Revolving Advances..............................................13
2.2 Intentionally Omitted...........................................14
2.3 Term Loan.......................................................14
2.4 Intentionally Omitted...........................................14
2.5 Overadvances....................................................14
2.6 Interest: Rates, Payments, and Calculations....................15
2.7 Collection of Accounts..........................................16
2.8 Crediting Payments; Application of Collections..................16
2.9 Designated Account..............................................16
2.10 Maintenance of Loan Account; Statements of Obligations..........16
2.11 Fees............................................................17
3. CONDITIONS; TERM OF AGREEMENT.........................................17
3.1 Conditions Precedent to the Initial Advance and the Term Loan...17
3.2 Conditions Precedent to all Advances and the Term Loan. .......19
3.3 Conditions Subsequent...........................................20
3.4 Term; Automatic Renewal.........................................20
3.5 Effect of Termination...........................................20
3.6 Early Termination by Borrower...................................20
3.7 Termination Upon Event of Default...............................20
4. CREATION OF SECURITY INTEREST.........................................21
4.1 Grant of Security Interest......................................21
4.2 Negotiable Collateral...........................................21
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral...........................................21
4.4 Delivery of Additional Documentation Required...................21
4.5 Power of Attorney...............................................21
4.6 Right to Inspect................................................22
5. REPRESENTATIONS AND WARRANTIES........................................22
5.1 No Encumbrances.................................................22
5.2 Domestic Recurring Contract Xxxxxxxx............................22
i
5.3 Domestic Unencumbered Equipment.................................22
5.4 Equipment.......................................................22
5.5 Location of Inventory and Equipment.............................22
5.6 Inventory Records...............................................23
5.7 Location of Chief Executive Office; FEIN........................23
5.8 Due Organization and Qualification; Subsidiaries................23
5.9 Due Authorization; No Conflict..................................23
5.10 Litigation......................................................24
5.11 No Material Adverse Change. ....................................24
5.12 No Intent to Hinder, Etc........................................24
5.13 Employee Benefits...............................................24
5.14 Environmental Condition.........................................24
6. AFFIRMATIVE COVENANTS.................................................25
6.1 Accounting System...............................................25
6.2 Collateral Reporting............................................25
6.3 Financial Statements, Reports, Certificates.....................25
6.4 Tax Returns.....................................................26
6.5 Stock Pledge....................................................26
6.6 Intentionally Omitted...........................................26
6.7 Title to Equipment..............................................27
6.8 Maintenance of Equipment........................................27
6.9 Taxes...........................................................27
6.10 Insurance.......................................................27
6.11 No Setoffs or Counterclaims.....................................28
6.12 Location of Inventory and Equipment.............................28
6.13 Compliance with Laws............................................29
6.14 Employee Benefits...............................................29
6.15 Leases..........................................................30
6.16 Year 2000 Compliance............................................30
7. NEGATIVE COVENANTS....................................................30
7.1 Indebtedness....................................................30
7.2 Liens...........................................................30
7.3 Restrictions on Fundamental Changes.............................31
7.4 Disposal of Assets..............................................31
7.5 Change Name.....................................................31
7.6 Guarantee.......................................................31
7.7 Nature of Business..............................................31
7.8 Prepayments and Amendments......................................31
7.9 Change of Control...............................................31
7.10 Intentionally Omitted...........................................31
7.11 Distributions...................................................32
7.12 Accounting Methods..............................................32
7.13 Investments.....................................................32
ii
7.14 Transactions with Affiliates....................................32
7.15 Suspension......................................................32
7.16 Compensation....................................................32
7.17 Use of Proceeds.................................................32
7.18 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees............................33
7.19 No Prohibited Transactions Under ERISA..........................33
7.20 Financial Covenants.............................................33
7.21 Capital Expenditures............................................35
8. EVENTS OF DEFAULT.....................................................35
9. FOOTHILL'S RIGHTS AND REMEDIES........................................36
9.1 Rights and Remedies.............................................36
9.2 Remedies Cumulative.............................................38
10. TAXES AND EXPENSES....................................................38
11. WAIVERS; INDEMNIFICATION..............................................39
11.1 Demand; Protest; etc............................................39
11.2 Foothill's Liability for Collateral.............................39
11.3 Indemnification.................................................39
12. NOTICES...............................................................39
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................40
14. DESTRUCTION OF BORROWER'S DOCUMENTS...................................41
15. GENERAL PROVISIONS....................................................41
15.1 Effectiveness...................................................41
15.2 Successors and Assigns..........................................41
15.3 Section Headings................................................42
15.4 Interpretation..................................................42
15.5 Severability of Provisions......................................42
15.6 Amendments in Writing...........................................42
15.7 Counterparts; Telefacsimile Execution...........................42
15.8 Revival and Reinstatement of Obligations........................42
15.9 Confidentiality.................................................42
15.10 Integration.....................................................43
iii
SCHEDULES AND EXHIBITS
----------------------
Schedule D-1 Domestic Unencumbered Equipment
Schedule P-1 Permitted Liens
Schedule R-1 Real Property Collateral
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Schedule 7.14 Transactions with Affiliates
Exhibit C-1 Form of Compliance Certificate
iv
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
July 16, 1999, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 00000 Xxxxx Xxxxxx Xxxxxxxxx,
Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000 and WAM!NET INC., a Minnesota
corporation ("Borrower"), with its chief executive office located at 000 Xxxx
Xxx Xxxxx, Xxxxx, Xxxxxxxxx 00000.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods or the rendition of
services by Borrower, irrespective of whether earned by performance, and
any and all credit insurance, guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control
with or is a director or officer of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the
power to vote 10% or more of the securities having ordinary voting power
for the election of directors or the direct or indirect power to direct the
management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Authorized Person" means any officer or other employee of Borrower.
"Average Unused Portion of Maximum Revolving Amount" means, as of any
date of determination, (a) the Maximum Revolving Amount, less (b) the
average Daily Balance of Advances that were outstanding during the
immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
X.X.X.xx. 101 et seq.), as amended, and any successor statute.
1
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any
ERISA Affiliate has been an "employer" (as defined in Section 3(5) of
ERISA) within the past six years.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets (including the Collateral) or liabilities;
all information relating to Borrower's business operations or financial
condition; and all computer programs, disk or tape files, printouts, runs,
or other computer prepared information.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934) other than MCI WorldCom, Silicon
Graphics, Inc. or their respective Affiliates becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of more than 15% of the total voting power
of all classes of stock then outstanding of Borrower entitled to vote in
the election of directors which percentage shall be increased to 20% upon
consummation of the IPO.
"Closing Date" means the date of the first to occur of the making of
the initial Advance or the funding of the Term Loan.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following, except for Excluded Assets:
(a) the Accounts,
(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Investment Property,
(g) the Negotiable Collateral,
(h) the Real Property Collateral,
2
(i) any money, or other assets of Borrower that now or hereafter
come into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering any or
all of the Collateral, and any and all Accounts, Borrower's Books,
Equipment, General Intangibles, Inventory, Investment Property,
Negotiable Collateral, Real Property, money, deposit accounts, or
other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or
any portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgment agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a
Lien upon, or having rights or interests in the Equipment or Inventory, in
each case, in form and substance reasonably satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and other
items of payment (including, insurance proceeds, proceeds of cash sales,
Equipment sales, rental proceeds, and tax refunds) except for proceeds
from: (a) the IPO or any other private or public sale by Borrower of equity
or debt instruments, (b) Equipment financing, and (c) sale of Excluded
Assets.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C-1 and delivered by the chief accounting officer of Borrower to
Foothill.
"Daily Balance" means, with respect to each day during the term of
this Agreement, the amount of an Obligation owed at the end of such day.
"Default" means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
"Designated Account" means account number 51-06036 of Borrower
maintained with Borrower's Designated Account Bank, or such other deposit
account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means First National Bank of Chicago, whose
office is located at 000 X. Xxxxxx Xxxxxx, Xxxxx 0000 0xx Xxxxx, Xxxxxxx,
Xxxxxxxx 00000, and whose ABA number is 071-000013.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrower to Foothill regarding the extensions of credit to be
made on the Closing Date, the form and substance of which shall be
satisfactory to Foothill.
"Dollars or $" means United States dollars.
"Domestic Eligible Accounts" means those Accounts created by Borrower
in the ordinary course of business, that arise out of Borrower's rendition
of services, that strictly comply with each and all of
3
the representations and warranties respecting Accounts made by Borrower to
Foothill in the Loan Documents, and that are and at all times continue to
be acceptable to Foothill in all respects; provided, however, that
standards of eligibility may be fixed and revised from time to time by
Foothill in Foothill's reasonable credit judgment. Eligible Accounts shall
not include the following:
(a) Accounts that the Account Debtor has failed to pay: (i)
within 90 days of invoice date or (ii) 60 days from original due date;
(b) Accounts owed by an Account Debtor or its Affiliates where
50% or more of all Accounts owed by that Account Debtor (or its
Affiliates) are deemed ineligible under clause (a) above;
(c) Accounts with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Intentionally Omitted;
(e) Accounts that are not payable in Dollars or with respect to
which the Account Debtor: (i) does not maintain its chief executive
office in the United States, or (ii) is not organized under the laws
of the United States or any State thereof;
(f) Accounts with respect to which the Account Debtor is either
(i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to
which Borrower has complied, to the satisfaction of Foothill, with the
Assignment of Claims Act, 31 U.S.C. ss. 3727), or (ii) any state of
the United States (exclusive, however, of Accounts owed by any State
that does not have a statutory counterpart to the Assignment of Claims
Act);
(g) Accounts with respect to which the Account Debtor is a
creditor of Borrower, has or has asserted a right of setoff, has
disputed its liability, or has made any claim with respect to the
Account;
(h) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed 10% of all Eligible Accounts, to
the extent of the obligations owing by such Account Debtor in excess
of such percentage;
(i) Accounts with respect to which the Account Debtor is subject
to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts the collection of which Foothill, in its reasonable
credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts with respect to which the services giving rise to
such Account have not been performed, except for the service fee which
is billed monthly in advance; and
(l) Accounts with respect to which the Account Debtor is located
in the states of New Jersey, Minnesota, or West Virginia (or any other
state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its
remedies against such Account Debtor in the
4
courts or through any judicial process of such state), unless Borrower
has qualified to do business in New Jersey, Minnesota, West Virginia,
or such other states, or has filed a Notice of Business Activities
Report with the applicable division of taxation, the department of
revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement.
"Domestic Eligible Inventory" means Inventory consisting of first
quality unallocated equipment hardware that is not currently used, but that
is intended to be used within 90 days in the ordinary course of Borrower's
business, that are located at or in-transit between Borrower's premises
identified on Schedule 6.12, that strictly comply with each and all of the
representations and warranties respecting Inventory made by Borrower to
Foothill in the Loan Documents, and that are and at all times continue to
be acceptable to Foothill in all respects; provided, however, that
standards of eligibility may be fixed and revised from time to time by
Foothill in Foothill's reasonable credit judgment. In determining the
amount to be so included, Inventory shall be valued at the lower of cost or
market on a basis consistent with Borrower's current and historical
accounting practices. An item of Inventory shall not be included in
Domestic Eligible Inventory if:
(a) it is not owned solely by Borrower or Borrower does not have
good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on
Schedule 6.12;
(c) it is not subject to a valid and perfected first priority
security interest in favor of Foothill;
(d) it consists of goods rejected by Borrower's customers or
goods in transit; and
(e) it is obsolete, work-in-process, a component that is not part
of finished goods, or constitutes spare parts, packaging and shipping
materials, supplies used or consumed in Borrower's business, Inventory
subject to a Lien in favor of any third Person, xxxx and hold goods,
defective goods, "seconds," or Inventory acquired on consignment.
"Domestic Recurring Contract Xxxxxxxx" means revenues arising from
monthly xxxxxxxx from Account Debtors whose Accounts are payable in Dollars
and which: (a) maintain their chief executive office in the United States
or (b) are organized under the laws of the United States or any state
thereof.
"Domestic Unencumbered Equipment" means Equipment in the United States
at one of the locations set forth on Schedule 6.12 that is not subject to
Liens other than those in favor of Foothill and that is listed on Schedule
D-1.
"Early Termination Premium" has the meaning set forth in Section 3.6.
"EBITDA" means the consolidated net income of Borrower and its
Subsidiaries (excluding extraordinary items) for the prior three month
period (a) plus all interest expense, income tax expense, depreciation and
amortization (including amortization of any goodwill or other intangibles)
for the period, (b) plus or minus losses or gains attributable to any fixed
asset sales in the period and (c) plus or minus
5
any other non-cash charges or extraordinary income or expenses which have
been subtracted or added in calculating consolidated net income for the
period.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts,
goods (other than consumer goods, farm products, or Inventory), wherever
located, including, (a) any assets acquired by Borrower with the proceeds
of a Capital Expenditure Loan, (b) any interest of Borrower in any of the
foregoing, and (c) all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C.ss.ss.1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Borrower under IRC Section 414(b), (b) any trade or business subject to
ERISA whose employees are treated as employed by the same employer as the
employees of Borrower under IRC Section 414(c), (c) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any organization subject
to ERISA that is a member of an affiliated service group of which Borrower
is a member under IRC Section 414(m), or (d) solely for purposes of Section
302 of ERISA and Section 412 of the IRC, any party subject to ERISA that is
a party to an arrangement with Borrower and whose employees are aggregated
with the employees of Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit
Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan
in a distress termination (as described in Section 4041(c) of ERISA), (d)
the institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) that provides a basis
under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or
the appointment of a trustee to administer, any Benefit Plan or
Multiemployer Plan, or (ii) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or
complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA,
of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means Borrower's cash and cash equivalents plus
Borrower's unused borrowing availability pursuant to Section 2.1(a).
"Excluded Assets" means assets of Borrower that are: (a) subject to
Liens set forth on Schedule P-1 where the documents respecting the Liens
prohibit Borrower from granting junior Liens in such assets or (b)
outstanding shares of capital stock of Borrower's Subsidiaries other than
Wam!Net Holdings (UK), Ltd. Notwithstanding anything set forth in this
definition, Excluded Assets shall not include Borrower's Accounts, Domestic
Eligible Inventory or Domestic Unencumbered Equipment.
6
"Existing Lender" means First National Bank of Chicago.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower under any of the Loan
Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with
Borrower, including, fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches
(including tax lien, litigation, and UCC searches and including searches
with the patent and trademark office, the copyright office), filing,
recording, publication, appraisal (including periodic Personal Property
Collateral or Real Property Collateral appraisals), real estate surveys,
real estate title policies and endorsements, and environmental audits;
costs and expenses incurred by Foothill in the disbursement of funds to
Borrower (by wire transfer or otherwise); charges paid or incurred by
Foothill resulting from the dishonor of checks; costs and expenses paid or
incurred by Foothill to correct any default or enforce any provision of the
Loan Documents, or in gaining possession of, maintaining, handling,
preserving, storing, shipping, selling, preparing for sale, or advertising
to sell the Personal Property Collateral or the Real Property Collateral,
or any portion thereof, irrespective of whether a sale is consummated;
costs and expenses paid or incurred by Foothill in examining Borrower's
Books; costs and expenses of third party claims or any other suit paid or
incurred by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's relationship with Borrower or any guarantor; and Foothill's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, or defending the
Loan Documents (including reasonable attorneys fees and expenses incurred
in connection with a "workout," a "restructuring," or an Insolvency
Proceeding concerning Borrower or any guarantor of the Obligations),
irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes, or regulations, choses or things
in action, goodwill, patents, trade names, trademarks, service marks,
copyrights, purchase orders, customer lists, rights to payment and other
rights under any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or tapes,
literature, reports, catalogs, deposit accounts, insurance premium rebates,
tax refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by- laws, or other organizational or governing documents of
any Person.
7
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Gross Margin" means net revenues less communication charges and costs
of goods sold as a percentage of net revenues.
"Hazardous Materials" means (a) substances that are defined or listed
in, or otherwise classified pursuant to, any applicable laws or regulations
as "hazardous substances," "hazardous materials," "hazardous wastes,"
"toxic substances," or any other formulation intended to define, list, or
classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive
toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived
substances, natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical equipment that
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other
obligations of Borrower in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
obligations of Borrower under capital leases, (d) all obligations or
liabilities of others secured by a Lien on any property or asset of
Borrower, irrespective of whether such obligation or liability is assumed,
and (e) any obligation of Borrower guaranteeing or intended to guarantee
(whether guaranteed, endorsed, co-made, discounted, or sold with recourse
to Borrower) any indebtedness, lease, dividend, letter of credit, or other
obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Intangible Assets" means, with respect to any Person, that portion of
the book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Intellectual Property Security Agreement" means that certain
Intellectual Property Security Agreement, of even date herewith, between
Borrower and Foothill.
"Inventory" means all present and future inventory in which Borrower
has any interest, including goods held for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"Investment Property" means all of Borrower's presently existing and
hereafter acquired or arising investment property (as that term is defined
in Section 9115 of the Code).
8
"IPO" means an underwritten initial public offering of shares of
Borrower's Common Stock, $.01 par value with net proceeds to Borrower of
not less than $70,000,000.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, any Person other than the owner of the property, whether
such interest shall be based on the common law, statute, or contract,
whether such interest shall be recorded or perfected, and whether such
interest shall be contingent upon the occurrence of some future event or
events or the existence of some future circumstance or circumstances,
including the lien or security interest arising from a mortgage, deed of
trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement,
security agreement, adverse claim or charge, conditional sale or trust
receipt, or from a lease, consignment, or bailment for security purposes
and also including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Real Property.
"Liquidation Value" means that value as defined by the Appraisal
Institute, in The Dictionary of Real Estate Appraisal (third edition, pages
210-211), under a marketing period of six months, as determined by an
appraiser acceptable to Foothill.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement Letter, the
Lockbox Agreements, Intellectual Property Security Agreement, the
Mortgages, any note or notes executed by Borrower and payable to Foothill,
and any other agreement entered into, now or in the future, in connection
with this Agreement.
"Lockbox Account" shall mean a depositary account established pursuant
to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating Procedural
Agreements and those certain Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means First National Bank of Chicago or such other
banks as may be agreed to by Foothill and Borrower from time to time.
"Lockboxes" has the meaning set forth in Section 2.7.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower, (b) the material
impairment of Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of Foothill to enforce the Obligations
or realize upon the Collateral, (c) a material adverse effect on the value
of the Collateral or the amount that Foothill would be likely to receive
(after giving consideration
9
to delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's
Liens with respect to the Collateral.
"Maximum Amount" means the Maximum Revolving Amount plus the
outstanding principal balance of the Term Loan.
"Maximum Revolving Amount" means, as of any date of determination,
$10,000,000.
"Mortgages" means one or more mortgages, deeds of trust, or deeds to
secure debt, executed by Borrower in favor of Foothill, the form and
substance of which shall be satisfactory to Foothill, that encumber the
Real Property Collateral and the related improvements thereto.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or
any ERISA Affiliate has contributed, or was obligated to contribute, within
the past six years.
"NADS" means network access devices.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, Investment Property,
securities (including the shares of stock of Subsidiaries of Borrower),
documents, personal property leases (wherein Borrower is the lessor), and
chattel paper.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), contingent reimbursement obligations under any
outstanding Letters of Credit, premiums (including Early Termination
Premiums), liabilities (including all amounts charged to Borrower's Loan
Account pursuant hereto), obligations, fees, charges, costs, or Foothill
Expenses (including any fees or expenses that, but for the provisions of
the Bankruptcy Code, would have accrued), lease payments, guaranties,
covenants, and duties owing by Borrower to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan Documents or
pursuant to any other agreement between Foothill and Borrower, and
irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing
from Borrower to others that Foothill may have obtained by assignment or
otherwise, and further including all interest not paid when due and all
Foothill Expenses that Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise.
"Overadvance" has the meaning set forth in Section 2.5.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"Permitted Investments" shall mean (i) cash equivalents, (ii) loans
not to exceed $750,000 in the aggregate at any time outstanding, and travel
advances extended to officers and employees of the Borrower in the ordinary
course of business, (iii) investments existing on the Closing Date in
Subsidiaries and additional investments in the ordinary course of business
in wholly-owned Subsidiaries so long as Borrower has not less than
$10,000,000 of Excess Availability after making such investments, (iv)
investments by the
10
Borrower, in an aggregate amount not to exceed $250,000, in loans or
extensions of credit granted in the ordinary course to purchasers or
lessees of the products sold or leased by the Borrower as long as the
Borrower is not in default under this Agreement, (v) marketable, direct
obligations payable by the United States of America maturing within 365
days of the date of purchase, (vi) commercial paper issued by corporations,
each of which shall have consolidated net worth of at least $250,000,000,
(vii) commercial paper issued by United States corporations rated A-1 by
Standard & Poors Corporation or P-1 by Xxxxx'x Investor Services or
certificates of deposit or banker's 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.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for
unpaid taxes that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the
interests of lessors under operating leases and purchase money security
interests and Liens of lessors under capital leases to the extent that the
acquisition or lease of the underlying asset is permitted under Section
7.21 and so long as the Lien only attaches to the asset purchased or
acquired and only secures the purchase price of the asset, (e) Liens
arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary
course of business of Borrower and not in connection with the borrowing of
money, and which Liens either (i) are for sums not yet due and payable, or
(ii) are the subject of Permitted Protests, (f) Liens arising from deposits
made in connection with obtaining worker's compensation or other
unemployment insurance, (g) Liens or deposits to secure performance of
bids, tenders, or leases (to the extent permitted under this Agreement),
incurred in the ordinary course of business of Borrower and not in
connection with the borrowing of money, (h) Liens arising by reason of
security for surety or appeal bonds in the ordinary course of business of
Borrower, (i) Liens of or resulting from any judgment or award that would
not cause a Material Adverse Change and as to which the time for the appeal
or petition for rehearing of which has not yet expired, or in respect of
which Borrower is in good faith prosecuting an appeal or proceeding for a
review, and in respect of which a stay of execution pending such appeal or
proceeding for review has been secured, (j) Liens with respect to the Real
Property Collateral that are exceptions to the commitments for title
insurance issued in connection with the Mortgages, as accepted by Foothill,
(k) with respect to any Real Property that is not part of the Real Property
Collateral, easements, rights of way, zoning and similar covenants and
restrictions, and similar encumbrances that customarily exist on properties
of Persons engaged in similar activities and similarly situated and that in
any event do not materially interfere with or impair the use or operation
of the Collateral by Borrower or the value of Foothill's Lien thereon or
therein, or materially interfere with the ordinary conduct of the business
of Borrower, (l) liens on Real Property and the related fixtures, but not
including the Real Property Collateral and the related fixtures until the
Term Loan has been fully repaid, and (m) Liens in connection with the
financing of Equipment purchased by Borrower which is subsequently financed
by a lender, to the extent that the acquisition of the underlying assets is
permitted under Section 7.21, and so long as the Lien is only attached to
the asset purchased or acquired and the proceeds of such Equipment, and
only secures the purchase price of the asset, and the ancillary costs of
the financing agreements.
"Permitted Protest" means the right of Borrower to protest any Lien
(other than any such Lien that secures the Obligations), tax (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), or rental payment, provided that (a) a reserve with respect to such
obligation is established on the books of Borrower in an amount that is
reasonably satisfactory to Foothill, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (c) Foothill is
satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Liens
of Foothill in and to the Collateral.
11
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business
trusts, or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than the
Real Property Collateral.
"Plan" means any employee benefit plan, program, or arrangement
maintained or contributed to by Borrower or with respect to which it may
incur liability.
"Real Property" means any estates or interests in real property now
owned or hereafter acquired by Borrower.
"Real Property Collateral" means the parcel or parcels of real
property and the related improvements thereto identified on Schedule R-1.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Xxxxx Fargo Bank, National Association, or any
successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived
under applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA that provides benefits to individuals
after termination of their employment, other than as required by Section
601 of ERISA.
"Subsidiary" of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors (or appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.
"Term Loan" has the meaning set forth in Section 2.3.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Year 2000 Compliant" means, with regard to any Person, that all
software utilized by and material to the business operations or financial
condition of, such entity are able to interpret and manipulate data on and
involving all calendar dates correctly and without causing any abnormal
ending scenario in any material respects, including in relation to dates in
and after the year 2000.
12
1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3. Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein.
1.4. Construction. Unless the context of this Agreement clearly requires
otherwise, references to the plural include the singular, references to the
singular include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning represented by
the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. An Event of Default shall "continue"
or be "continuing" until such Event of Default has been waived in writing by
Foothill. Section, subsection, clause, schedule, and exhibit references are to
this Agreement unless otherwise specified. Any reference in this Agreement or in
the Loan Documents to this Agreement or any of the Loan Documents shall include
all alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, and supplements, thereto and thereof, as
applicable.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to make advances ("Advances") to Borrower in an amount outstanding
not to exceed at any one time the lesser of (i) the Maximum Revolving
Amount or (ii) the Borrowing Base. For purposes of this Agreement,
"Borrowing Base", as of any date of determination, shall mean:
(y) prior to repayment of the Term Loan in full, the lesser of
(i) 100% of Borrower's Domestic Recurring Contract Xxxxxxxx for the
immediately prior trailing three months and (ii) 100% of Borrower's
Collections from Domestic Recurring Contract Xxxxxxxx for the
immediately prior trailing three months, and after repayment of the
Term Loan in full, an amount equal to 50% of the sum of: (i) Domestic
Eligible Accounts, (ii) of the value of Domestic Eligible Inventory,
and (iii) the net book value of Domestic Unencumbered Equipment, minus
(z) the aggregate amount of reserves, if any, established by
Foothill under Sections 2.1(b), 6.15, and 10.
(b) Anything to the contrary in this Section 2.1 notwithstanding,
Foothill may (i) reduce the advance rates based upon Domestic Recurring
Contract Xxxxxxxx without declaring an Event of
13
Default if it determines that there has occurred a Material Adverse Change;
and (ii) establish reserves against the Borrowing Base in such amounts as
Foothill in its reasonable judgment (from the perspective of an asset-based
lender) shall deem necessary or appropriate, including reserves on account
of (y) sums that Borrower is required to pay (such as taxes, assessments,
insurance premiums, or, in the case of leased assets, rents or other
amounts payable under such leases) and has failed to pay under any section
of this Agreement or any other Loan Document and (z) without duplication of
the foregoing, amounts owing by Borrower to any Person to the extent
secured by a Lien on, or trust over, any of the Collateral, which Lien or
trust, in the reasonable determination of Foothill (from the perspective of
an asset-based lender), would be likely to have a priority superior to
Foothill's Liens (such as landlord liens, ad valorem taxes, or sales taxes
where given priority under applicable law) in and to such item of the
Collateral.
(c) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any
time during the term of this Agreement.
2.2 Intentionally Omitted.
2.3 Term Loan. Foothill has agreed to make a term loan (the "Term Loan") to
Borrower in the original principal amount of the lesser of: (a) 10,000,000 and
(b) 50% of the Quick Sale Value of the Real Property Collateral. The Term Loan
shall be repaid in installments of principal in the following amounts:
============================================================================
Month Installment Amount
============================================================================
1 through 18 Interest Only
----------------------------------------------------------------------------
19 through 23 $210,000
----------------------------------------------------------------------------
24 Remaining Balance
============================================================================
Each such installment shall be due and payable on the first day of each month
commencing on the first day of February 1, 2001 and continuing on the first day
of each succeeding month until and including the date on which the unpaid
balance of the Term Loan is paid in full. Interest shall be payable monthly in
accordance with Section 2.6(e). The outstanding principal balance and all
accrued and unpaid interest under the Term Loan shall be due and payable upon
the termination of this Agreement, whether by its terms, by prepayment, by
acceleration, or otherwise. The unpaid principal balance of the Term Loan may be
prepaid in whole or in part without penalty or premium at any time during the
term of this Agreement upon 30 days prior written notice by Borrower to
Foothill, all such prepaid amounts to be applied to the installments due on the
Term Loan in the inverse order of their maturity. All amounts outstanding under
the Term Loan shall constitute Obligations. So long as no Event of Default has
occurred and is continuing and Borrower has provided Foothill with the stock
pledge required in Section 6.5, Foothill shall reconvey its Mortgages and
release its Liens and fixture filings on the Real Property Collateral upon
payment, in full in cash, of the Term Loan.
2.4 Intentionally Omitted.
2.5 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Section 2.1 is greater than
either the Dollar or percentage limitations set forth in Section 2.1 (an
"Overadvance"), Borrower immediately shall pay to Foothill, in cash, the amount
of such excess to be used by Foothill first, to repay Advances outstanding under
Section 2.1.
14
2.6 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. Except as provided in clause (c) below, all
Obligations shall bear interest on the Daily Balance at a per annum rate of
1.75 percentage points above the Reference Rate.
(b) Intentionally Omitted.
(c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default, all Obligations shall bear interest on the Daily
Balance at a per annum rate equal to 5.75 percentage points above the
Reference Rate.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 8.00% per annum. Minimum
monthly interest shall be charged based upon an average Daily Balance
(including the Term Loan) of $4,000,000. To the extent that interest
accrued hereunder at the rate set forth herein would be less than the
foregoing minimum daily rate or Daily Balance, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the
minimum rate and minimum Daily Balance.
(e) Payments. Interest shall be due and payable, in arrears, on the
first day of each month during the term hereof. Borrower hereby authorizes
Foothill, at its option, without prior notice to Borrower, to charge such
interest, all Foothill Expenses (as and when incurred), the fees and
charges provided for in Section 2.11 (as and when accrued or incurred), and
all installments or other payments due under the Term Loan or any Loan
Document to Borrower's Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any interest
not paid when due shall be compounded and shall thereafter accrue interest
at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement
is 8.00% per annum. In the event the Reference Rate is changed from time to
time hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such
change in the Reference Rate. All interest and fees chargeable under the
Loan Documents shall be computed on the basis of a 360 day year for the
actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates
of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said
rate or rates of interest or manner of payment exceeds the maximum
allowable under applicable law, then, ipso facto as of the date of this
Agreement, Borrower is and shall be liable only for the payment of such
maximum as allowed by law, and payment received from Borrower in excess of
such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess.
15
2.7 Collection of Accounts. Borrower shall at all times maintain lockboxes
(the "Lockboxes") and, immediately after the Closing Date, shall instruct all
Account Debtors with respect to the Accounts, General Intangibles, and
Negotiable Collateral of Borrower to remit all Collections in respect thereof to
such Lockboxes. Borrower, Foothill, and the Lockbox Banks shall enter into the
Lockbox Agreements, which among other things shall provide for the opening of a
Lockbox Account for the deposit of Collections at a Lockbox Bank. Borrower
agrees that all Collections and other amounts received by Borrower from any
Account Debtor or any other source immediately upon receipt shall be deposited
into a Lockbox Account. No Lockbox Agreement or arrangement contemplated thereby
shall be modified by Borrower without the prior written consent of Foothill.
Upon the terms and subject to the conditions set forth in the Lockbox
Agreements, all amounts received in each Lockbox Account shall be wired each
Business Day into an account (the "Foothill Account") maintained by Foothill at
a depositary selected by Foothill.
2.8 Crediting Payments; Application of Collections. The receipt of any
Collections by Foothill (whether from transfers to Foothill by the Lockbox Banks
pursuant to the Lockbox Agreements or otherwise) immediately shall be applied
provisionally to reduce the Obligations outstanding under Section 2.1, but shall
not be considered a payment on account unless such Collection item is a wire
transfer of immediately available federal funds and is made to the Foothill
Account or unless and until such Collection item is honored when presented for
payment. From and after the Closing Date, Foothill shall be entitled to charge
Borrower for one Business Day of `clearance' or `float' at the rate set forth in
Section 2.6(a)(i) or Section 2.6(c)(i), as applicable, on all Collections that
are received by Foothill (regardless of whether forwarded by the Lockbox Banks
to Foothill, whether provisionally applied to reduce the Obligations under
Section 2.1, or otherwise). This across-the-board one Business Day clearance or
float charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging one
Business Day of interest on such Collections. Should any Collection item not be
honored when presented for payment, then Borrower shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.9 Designated Account. Foothill is authorized to make the Advances and the
Term Loan, under this Agreement based upon telephonic or other instructions
received from anyone purporting to be an Authorized Person, or without
instructions if pursuant to Section 2.6(e). Borrower agrees to establish and
maintain the Designated Account with the Designated Account Bank for the purpose
of receiving the proceeds of the Advances requested by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
Advance requested by Borrower and made by Foothill hereunder shall be made to
the Designated Account.
2.10 Maintenance of Loan Account; Statements of Obligations. Foothill shall
maintain an account on its books in the name of Borrower (the "Loan Account") on
which Borrower will be charged with all Advances and the Term Loan made by
Foothill to Borrower or for Borrower's account, including, accrued interest,
Foothill Expenses, and any other payment Obligations of Borrower. In accordance
with Section 2.8,
16
the Loan Account will be credited with all payments received by Foothill from
Borrower or for Borrower's account, including all amounts received in the
Foothill Account from any Lockbox Bank. Foothill shall render statements
regarding the Loan Account to Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrower and Foothill
unless, within 30 days after receipt thereof by Borrower, Borrower shall deliver
to Foothill written objection thereto describing the error or errors contained
in any such statements or except for manifest error.
2.11 Fees. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of $200,000;
(b) Unused Line Fee. On the first day of each month during the term of
this Agreement, an unused line fee in an amount equal to 0.25% per annum
times the Average Unused Portion of the Maximum Revolving Amount;
(c) Intentionally Omitted.
(d) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $750 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of
Borrower and for setting up electronic reporting of Collateral by Borrower
performed by personnel employed by Foothill; and, the actual charges paid
or incurred by Foothill if it elects to employ the services of one or more
third Persons to perform such financial analyses and examinations (i.e.,
audits) of Borrower or to appraise the Collateral; provided, however, that
prior to the occurrence of an Event of Default and the continuation
thereof, Borrower shall not be responsible to pay for more than three
financial examinations of Borrower in any 12 month period.
(e) Servicing Fee. On the first day of each month during the term of
this Agreement, and thereafter so long as any Obligations are outstanding,
a servicing fee in an amount equal to $5,000.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance and the Term Loan. The
obligation of Foothill to make the initial Advance and the Term Loan is subject
to the fulfillment, to the satisfaction of Foothill and its counsel, of each of
the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before July 21, 1999;
(b) Foothill shall have received searches reflecting the filing of its
financing statements;
(c) Foothill shall have received each of the following documents, duly
executed, and each such document shall be in full force and effect:
(i) the Lockbox Agreements;
17
(ii) the Disbursement Letter;
(iii) the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the termination by
Existing Lender of its Liens in and to the properties and assets of
Borrower;
(iv) the Intellectual Property Security Agreement; and
(v) the Mortgages.
(d) Foothill shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and performance of this Agreement and
the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's Governing
Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(f) Foothill shall have received a certificate of status with respect
to Borrower, dated within 10 days of the Closing Date, such certificate to
be issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good
standing in such jurisdiction;
(g) Foothill shall have received certificates of status with respect
to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions
in which its failure to be duly qualified or licensed would constitute a
Material Adverse Change, which certificates shall indicate that Borrower is
in good standing in such jurisdictions;
(h) Foothill shall have received a certificate of insurance, together
with the endorsements thereto, as are required by Section 6.10, the form
and substance of which shall be satisfactory to Foothill and its counsel;
(i) Foothill's counsel shall have reviewed the Indenture, dated as of
March 5, 1998, for Borrower's 13 1/4% Senior Discount Notes due 2005,
Series A and B and Borrower's Service Agreements with Borrower's major
customers;
(j) Foothill shall have received such Collateral Access Agreements
from lessors, warehousemen, bailees, and other third persons as Foothill
may require;
(k) Foothill shall have received an opinion of Borrower's counsel in
form and substance satisfactory to Foothill in its reasonable discretion;
(l) Foothill shall have received (i) an appraisal of the Real Property
Collateral satisfactory to Foothill, and (ii) mortgagee title insurance
policies (or marked commitments to issue the same) for the Real Property
Collateral issued by a title insurance company satisfactory to Foothill
(each a "Mortgage
18
Policy" and, collectively, the "Mortgage Policies") in amounts satisfactory
to Foothill assuring Foothill that the Mortgages on such Real Property
Collateral are valid and enforceable first priority mortgage Liens on such
Real Property Collateral free and clear of all defects and encumbrances
except Permitted Liens, and the Mortgage Policies shall otherwise be in
form and substance reasonably satisfactory to Foothill;
(m) Foothill shall have received a phase-I environmental report and a
real estate survey shall have been completed with respect to the Real
Property Collateral and copies thereof delivered to Foothill; the
environmental consultants and surveyors retained for such reports or
surveys, the scope of the reports or surveys, and the results thereof shall
be acceptable to Foothill in its sole discretion;
(n) Foothill shall have received satisfactory evidence that all tax
returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises
(including real property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest;
(o) Foothill shall have received background checks for each of
Borrower's key officers, the results of which are satisfactory to Foothill;
(p) Borrower shall have not less than $15,000,000 of Excess
Availability after paying the closing fee to Foothill and with Borrower's
accounts payable being paid within their terms; and
(q) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2 Conditions Precedent to all Advances and the Term Loan. The following
shall be conditions precedent to all Advances and the Term Loan:
(a) the representations and warranties contained in this Agreement and
the other Loan Documents shall be true and correct in all respects on and
as of the date of such extension 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);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result
from the making thereof; and
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates.
3.3 Conditions Subsequent. As conditions subsequent to initial closing
hereunder, Borrower shall perform or cause to be performed the following (the
failure by Borrower to so perform or cause to be performed constituting an Event
of Default):
19
(a) within 30 days of the Closing Date, deliver to Foothill the
certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill and its counsel, and
(b) within 15 days of the Closing Date, deliver control agreements, in
form acceptable to Foothill, for all of Borrower's investment accounts; and
(c) within 30 days of the Closing Date, deliver to Foothill the letter
to management from Borrower's accountants for the fiscal year ended
December 31, 1998.
3.4 Term; Automatic Renewal. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on the date (the "Renewal Date") that is
two years from the Closing Date and automatically shall be renewed for
successive one year periods thereafter, unless sooner terminated pursuant to the
terms hereof. Either party may terminate this Agreement effective on the Renewal
Date or on any anniversary of the Renewal Date by giving the other party at
least 90 days prior written notice. The foregoing notwithstanding, Foothill
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.
3.5 Effect of Termination. On the date of termination of this Agreement,
all Obligations immediately shall become due and payable without notice or
demand. No termination of this Agreement, however, shall relieve or discharge
Borrower of Borrower's duties, Obligations, or covenants hereunder, and
Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide additional credit hereunder is terminated. If
Borrower has sent a notice of termination pursuant to the provisions of Section
3.4, but fails to pay the Obligations in full on the date set forth in said
notice, then Foothill may, but shall not be required to, renew this Agreement
for an additional term of one year.
3.6 Early Termination by Borrower. The provisions of Section 3.4 that allow
termination of this Agreement by Borrower only on the Renewal Date and certain
anniversaries thereof notwithstanding, Borrower has the option, at any time upon
90 days prior written notice to Foothill, to terminate this Agreement by paying
to Foothill, in cash, the Obligations, in full, together with a premium (the
"Early Termination Premium") equal to the greater of (a) the total interest on
all Obligations for the immediately preceding six months, and (b) $200,000.
3.7 Termination Upon Event of Default. If Foothill terminates this
Agreement upon the occurrence and continuation of an Event of Default, in view
of the impracticability and extreme difficulty of ascertaining actual damages
and by mutual agreement of the parties as to a reasonable calculation of
Foothill's lost profits as a result thereof, Borrower shall pay to Foothill upon
the effective date of such termination, a premium in an amount equal to the
Early Termination Premium. The Early Termination Premium shall be presumed to be
the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this Section
3.7 shall be deemed included in the Obligations.
20
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Foothill a
continuing security interest in all currently existing and hereafter acquired or
arising Personal Property Collateral in order to secure prompt repayment of any
and all Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Foothill's security
interests in the Personal Property Collateral shall attach to all Personal
Property Collateral without further act on the part of Foothill or Borrower.
Anything contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in the ordinary
course of business, Borrower has no authority, express or implied, to dispose of
any item or portion of the Personal Property Collateral or the Real Property
Collateral.
4.2 Negotiable Collateral. In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, Borrower,
immediately upon the request of Foothill, shall endorse and deliver physical
possession of such Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.
At any time, Foothill or Foothill's designee may, with prior notice to Borrower,
(a) notify customers or Account Debtors of Borrower that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Foothill or that
Foothill has a security interest therein, and (b) collect the Accounts, General
Intangibles, and Negotiable Collateral directly and charge the collection costs
and expenses to the Loan Account; provided, however, that Foothill's failure to
provide Borrower with prior notice pursuant to this Section 4.3, shall not
create any liability to Foothill or impair any of its rights under this
Agreement. Borrower agrees that it will hold in trust for Foothill, as
Foothill's trustee, any Collections that it receives and immediately will
deliver said Collections to Foothill in their original form as received by
Borrower.
4.4 Delivery of Additional Documentation Required. At any time upon the
request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, control agreements, endorsements of
certificates of title, affidavits, reports, notices, schedules of accounts, and
all other documents that Foothill reasonably may request, in form satisfactory
to Foothill, to perfect and continue perfected Foothill's security interests in
the Collateral, and in order to fully consummate all of the transactions
contemplated hereby and under the other the Loan Documents.
4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Foothill (and any of Foothill's officers, employees, or agents
designated by Foothill) as Borrower's true and lawful attorney, with power to
(a) if Borrower refuses to, or fails timely to execute and deliver any of the
documents described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) at any time that an Event of Default has
occurred and is continuing, sign Borrower's name on any invoice or xxxx of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors, (c) send requests for verification of Accounts, (d) endorse Borrower's
name on any Collection item that may come into Foothill's possession, (e) at any
time that an Event of Default has occurred and is continuing, notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower, (f) at any time that an Event of Default has occurred
and is continuing, make, settle, and adjust all claims under
21
Borrower's policies of insurance and make all determinations and decisions with
respect to such policies of insurance, and (g) at any time that an Event of
Default has occurred and is continuing, settle and adjust disputes and claims
respecting the Accounts directly with Account Debtors, for amounts and upon
terms that Foothill determines to be reasonable, and Foothill may cause to be
executed and delivered any documents and releases that Foothill determines to be
necessary. The appointment of Foothill as Borrower's attorney, and each and
every one of Foothill's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully and finally repaid and
performed and Foothill's obligation to extend credit hereunder is terminated.
4.6 Right to Inspect. Foothill (through any of its officers, employees, or
agents) shall have the right, from time to time hereafter to inspect Borrower's
Books and to check, test, and appraise the Collateral in order to verify
Borrower's financial condition or the amount, quality, value, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower makes
the following representations and warranties which shall be true, correct, and
complete in all respects as of the date hereof, and shall be true, correct, and
complete in all respects as of the Closing Date, and at and as of the date of
the making of each Advance and the Term Loan, as though made on and as of the
date of such Advance or the Term Loan (except to the extent that such
representations and warranties relate solely to an earlier date) and such
representations and warranties shall survive the execution and delivery of this
Agreement:
5.1 No Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens.
5.2 Domestic Recurring Contract Xxxxxxxx. The Domestic Recurring Contract
Xxxxxxxx are bona fide existing obligations created by the rendition of services
to Account Debtors in the ordinary course of Borrower's business,
unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. Borrower has not received
notice of actual or imminent bankruptcy, insolvency, or material impairment of
the financial condition of any Account Debtor whose obligations to Borrower
exceed $10,000 without promptly providing notice thereof to Foothill.
5.3 Domestic Unencumbered Equipment. All of the Domestic Unencumbered
Equipment is listed on Schedule D-1 which schedule may be modified, from time to
time, by Borrower: (a) to add additional Equipment and (b) to delete Equipment
with the prior written consent of Foothill, which consent will not be
unreasonably withheld.
5.4 Equipment. All of the Equipment is used or held for use in Borrower's
business and is fit for such purposes in all material respects.
5.5 Location of Inventory and Equipment. The Inventory and Equipment are
not stored with a bailee, warehouseman, or similar party (without Foothill's
prior written consent) and are located only at the locations identified on
Schedule 6.12 or otherwise permitted by Section 6.12.
22
5.6 Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive office of
Borrower is located at the address indicated in the preamble to this Agreement
or such address as may be changed pursuant to Section 7.18 and Borrower's FEIN
is 00-0000000.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in good standing under
the laws of the jurisdiction of its incorporation and qualified and
licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified reasonably could be expected to
cause a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate list of
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction
of their incorporation; (ii) the number of shares of each class of common
and preferred stock authorized for each of such Subsidiaries; and (iii) the
number and the percentage of the outstanding shares of each such class
owned directly or indirectly by Borrower. All of the outstanding capital
stock of each such Subsidiary has been validly issued and is fully paid and
non-assessable.
(c) Except as set forth on Schedule 5.8, no capital stock (or any
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible
into or exercisable for capital stock) of any direct or indirect Subsidiary
of Borrower is subject to the issuance of any security, instrument,
warrant, option, purchase right, conversion or exchange right, call,
commitment or claim of any right, title, or interest therein or thereto.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party do not and will not
(i) violate any provision of federal, state, or local law or regulation
(including Regulations T, U, and X of the Federal Reserve Board) applicable
to Borrower, the Governing Documents of Borrower, or any order, judgment,
or decree of any court or other Governmental Authority binding on Borrower,
(ii) conflict with, result in a breach of, or constitute (with due notice
or lapse of time or both) a default under any material contractual
obligation or material lease of Borrower, (iii) result in or require the
creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of Borrower, other than Permitted Liens, or (iv)
require any approval of stockholders or any approval or consent of any
Person under any material contractual obligation of Borrower except for any
approvals or consents that have already been obtained.
(c) Other than the filing of appropriate financing statements, fixture
filings, and mortgages, the execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents
23
to which Borrower is a party do not and will not require any registration
with, consent, or approval of, or notice to, or other action with or by,
any federal, state, foreign, or other Governmental Authority or other
Person.
(d) This Agreement and the Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when
executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium, or
similar laws relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to its properties
and assets pursuant to this Agreement and the other Loan Documents are
validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10 Litigation. There are no actions or proceedings pending by or against
Borrower before any court or administrative agency and Borrower does not have
knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that, if decided
adversely to Borrower, would not cause a Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to
Borrower that have been delivered by Borrower to Foothill have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
fairly present Borrower's financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been a
Material Adverse Change with respect to Borrower since the date of the latest
financial statements submitted to Foothill on or before the Closing Date.
5.12 No Intent to Hinder, Etc. No transfer of property is being made by
Borrower and no obligation is being incurred by Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay, or defraud either present or future creditors of
Borrower.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or any
of their ERISA Affiliates maintains or contributes to any Benefit Plan, other
than those listed on Schedule 5.13. Borrower, each of its Subsidiaries and each
ERISA Affiliate have satisfied the minimum funding standards of ERISA and the
IRC with respect to each Benefit Plan to which it is obligated to contribute. No
ERISA Event has occurred nor has any other event occurred that may result in an
ERISA Event that reasonably could be expected to result in a Material Adverse
Change. None of Borrower or its Subsidiaries, any ERISA Affiliate, or any
fiduciary of any Plan is subject to any direct or indirect liability with
respect to any Plan under any applicable law, treaty, rule, regulation, or
agreement. None of Borrower or its Subsidiaries or any ERISA Affiliate is
required to provide security to any Plan under Section 401(a)(29) of the IRC.
5.14 Environmental Condition. None of Borrower's properties or assets has
ever been used by Borrower or in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials except in compliance with
applicable laws or except as provided in the phase I - environmental report.
Except as provided in the phase 1 - environmental report,
24
none of Borrower's properties or assets has ever been designated or identified
in any manner pursuant to any environmental protection statute as a Hazardous
Materials disposal site, or a candidate for closure pursuant to any
environmental protection statute. No Lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned or operated by Borrower. Borrower has not received a summons,
citation or notice of violation from the Environmental Protection Agency or any
other federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing or disposing of Hazardous Materials into the
environment.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower shall
do all of the following:
6.1 Accounting System. Maintain a standard and modern system of accounting
that enables Borrower to produce financial statements in accordance with GAAP,
and maintain records pertaining to the Collateral that contain information as
from time to time may be requested by Foothill. Borrower also shall keep a
modern inventory reporting system that shows all additions, sales, claims,
returns, and allowances with respect to the Inventory.
6.2 Collateral Reporting. Provide Foothill with the following documents at
the following times in form satisfactory to Foothill: (a) on a monthly basis, so
long as the Term Loan is outstanding, and, in any event, by no later than the
15th day of each month during the term of this Agreement, (1) a detailed
calculation of the Borrowing Base and a summary aging, by vendor, of Borrower's
accounts payable and any book overdraft, (b) on a weekly basis after the Term
Loan is no longer outstanding, a calculation of the Borrowing Base, (c) upon
request, copies of invoices in connection with the Accounts, customer
statements, credit memos, remittance advices and reports, deposit slips, and
delivery documents for Inventory and Equipment acquired by Borrower, purchase
orders and invoices, (d) on a quarterly basis, a detailed list of Borrower's
customers, (e) on a monthly basis, a calculation of the Dilution for the prior
month; (f) upon request, Borrower's electronic data to the extent that it may
reasonably be provided, and (g) such other reports as to the Collateral or the
financial condition of Borrower as Foothill may request from time to time.
Original invoices shall be mailed by Borrower to each Account Debtor and, at
Foothill's direction, the invoices shall indicate on their face that the Account
has been assigned to Foothill and that all payments are to be made directly to
Foothill.
6.3 Financial Statements, Reports, Certificates. Deliver to Foothill: (a)
as soon as available, but in any event within 30 days after the end of each
month during each of Borrower's fiscal years, a company prepared balance sheet,
income statement, and statement of cash flow covering Borrower's operations
during such period; and (b) as soon as available, but in any event within 90
days after the end of each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Foothill and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP, together with a certificate of such accountants addressed to Foothill
stating that such accountants do not have knowledge of the existence of any
Default or Event of Default. Such audited financial statements shall include a
balance sheet, profit and loss statement, and statement of cash flow and, if
prepared, such accountants' letter to management. If Borrower is a parent
25
company of one or more Subsidiaries or Affiliates, or is a Subsidiary or
Affiliate of another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial statements prepared on a
consolidating basis so as to present Borrower and each such related entity
separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to Foothill Borrower's
Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current
Reports, and any other filings made by Borrower with the Securities and Exchange
Commission, if any, as soon as the same are filed, or any other information that
is provided by Borrower to its shareholders, and any other report reasonably
requested by Foothill relating to the financial condition of Borrower.
Each month, together with the financial statements provided pursuant to
Section 6.3(a), Borrower shall deliver to Foothill a Compliance Certificate
signed by its chief financial officer to the effect that: (i) all financial
statements delivered or caused to be delivered to Foothill hereunder have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present the financial condition of Borrower, (ii) the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an earlier
date), (iii) for each month that also is the date on which a financial covenant
in Section 7.20 is to be tested, Borrower is in compliance at the end of such
period with the applicable financial covenants contained in Section 7.20 (and
demonstrating such compliance in reasonable detail), and (iv) on the date of
delivery of such certificate to Foothill there does not exist any condition or
event that constitutes a Default or Event of Default (or, in the case of clauses
(i), (ii), or (iii), to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its independent
certified public accountants authorizing them to communicate with Foothill and
to release to Foothill whatever financial information concerning Borrower that
Foothill may request. Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of Borrower's financial statements, papers related
thereto, and other accounting records of any nature in their possession, and to
disclose to Foothill any information they may have regarding Borrower's business
affairs and financial conditions.
6.4 Tax Returns. Deliver to Foothill copies of each of Borrower's future
federal income tax returns, and any amendments thereto, within 30 days of the
filing thereof with the Internal Revenue Service.
6.5 Stock Pledge. Pledge to Foothill 66% of the outstanding shares of
capital stock of Wam!Net Holdings (UK), Ltd. concurrently with the release of
the Real Property Collateral.
6.6 Intentionally Omitted.
26
6.7 Title to Equipment. Upon Foothill's request, Borrower immediately shall
deliver to Foothill, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment that
are not subject to Permitted Liens.
6.8 Maintenance of Equipment. Maintain the Equipment in good operating
condition and repair (ordinary wear and tear excepted), and make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Other than those items of Equipment that
constitute fixtures on the Closing Date, Borrower shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and such Equipment shall at all times remain personal property. Notwithstanding
the foregoing, in the event the Equipment cannot be efficiently repaired, as
determined by Borrower in its reasonable discretion, Borrower shall be allowed
to sell or otherwise dispose of such Equipment from time to time in the ordinary
course of its business.
6.9 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower
or any of its property to be paid in full, before delinquency or before the
expiration of any extension period, except to the extent that the validity of
such assessment or tax shall be the subject of a Permitted Protest. Borrower
shall make due and timely payment or deposit of all such federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Foothill, on demand, appropriate certificates attesting
to the payment thereof or deposit with respect thereto. Borrower will make
timely payment or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state
disability, and local, state, and federal income taxes, and will, upon request,
furnish Foothill with proof satisfactory to Foothill indicating that Borrower
has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Personal Property Collateral insured against
loss or damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Personal Property Collateral, as well as
errors and omission insurance and insurance against larceny, embezzlement, and
criminal misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type necessary
to insure the Improvements and Chattels (as such terms are defined in the
Mortgages), for the full replacement cost thereof, against any loss by fire,
lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage,
elevator collision, and other risks from time to time included under "extended
coverage" policies, in such amounts as Foothill may require, but in any event in
amounts sufficient to prevent Borrower from becoming a co-insurer under such
policies, (ii) combined single limit bodily injury and property damages
insurance against any loss, liability, or damages on, about, or relating to each
parcel of Real Property Collateral, in an amount of not less than $2,000,000;
(iii) business rental insurance covering annual receipts for a 12 month period
for each parcel of Real Property Collateral; and (iv) insurance for such other
risks as Foothill may require. Replacement costs, at Foothill's option, may be
redetermined by an insurance appraiser, satisfactory to Foothill, not more
frequently than once every 12 months at Borrower's cost.
27
(c) All such policies of insurance shall be in such form, with such
companies, and in such amounts as may be reasonably satisfactory to Foothill.
All insurance required herein shall be written by companies which are authorized
to do insurance business in the State of California. All hazard insurance and
such other insurance as Foothill shall specify, shall contain a California Form
438BFU (NS) mortgagee endorsement, or an equivalent endorsement satisfactory to
Foothill, showing Foothill as a loss payee thereof, and shall contain a waiver
of warranties. Every policy of insurance referred to in this Section 6.10 shall
contain an agreement by the insurer that it will not cancel such policy except
after 30 days prior written notice to Foothill and that any loss payable
thereunder shall be payable notwithstanding any act or negligence of Borrower or
Foothill which might, absent such agreement, result in a forfeiture of all or a
part of such insurance payment and notwithstanding (i) occupancy or use of the
Real Property Collateral for purposes more hazardous than permitted by the terms
of such policy, (ii) any foreclosure or other action or proceeding taken by
Foothill pursuant to the Mortgages upon the happening of an Event of Default and
during its continuance, or (iii) any change in title or ownership of the Real
Property Collateral. Borrower shall deliver to Foothill certified copies of such
policies of insurance and evidence of the payment of all premiums therefor.
(d) Original policies or certificates thereof satisfactory to Foothill
evidencing such insurance shall be delivered to Foothill at least 30 days prior
to the expiration of the existing or preceding policies. Borrower shall give
Foothill prompt notice of any loss covered by such insurance. Foothill shall
have the right to adjust all losses payable under any such insurance policies
regarding Collateral (other than the Real Property Collateral unless any loss
relating thereto is not adjusted within 90 days of Borrower's claim) in which it
has a first priority Lien without any liability to Borrower whatsoever in
respect of such adjustments; provided, however, that Borrower shall have the
right, prior to the occurrence of an Event of Default, to adjust all losses that
are less than $250,000 in the aggregate in any of Borrower's fiscal years. Any
monies received as payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Foothill to be applied
at the option of Foothill either to the prepayment of the Obligations without
premium, in such order or manner as Foothill may elect, or shall be disbursed to
Borrower under stage payment terms satisfactory to Foothill for application to
the cost of repairs, replacements, or restorations. All repairs, replacements,
or restorations shall be effected 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. Upon the occurrence of an Event of Default, and
during its continuance, Foothill shall have the right to apply all prepaid
premiums to the payment of the Obligations in such order or form as Foothill
shall determine.
(e) Borrower shall not take out separate insurance concurrent in form or
contributing in the event of loss with that required to be maintained under this
Section 6.10, unless Foothill is included thereon as named insured with the loss
payable to Foothill under a standard California 438BFU (NS) Mortgagee
endorsement, or its local equivalent. Borrower immediately shall notify Foothill
whenever such separate insurance is taken out, specifying the insurer thereunder
and full particulars as to the policies evidencing the same, and originals of
such policies immediately shall be provided to Foothill.
6.11 No Setoffs or Counterclaims. Make payments hereunder and under the
other Loan Documents by or on behalf of Borrower without setoff or counterclaim
and free and clear of, and without deduction or withholding for or on account
of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and Equipment
only at the locations identified on Schedule 6.12; provided, however, that: (a)
Borrower may have Equipment located
28
outside of the United States with a book value not to exceed $100,000 in the
aggregate, (b) Borrower may have Equipment and Inventory at trade shows for up
to 30 days at a time, and (c) Borrower may amend Schedule 6.12 so long as such
amendment occurs by written notice to Foothill not less than 30 days prior to
the date on which the Inventory or Equipment is moved to such new location, so
long as such new location is within the continental United States, and so long
as, at the time of such written notification, Borrower provides any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests in such assets and also provides to Foothill a
Collateral Access Agreement.
6.13 Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any governmental authority, including
the Fair Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which, individually
or in the aggregate, would not have and could not reasonably be expected to
cause a Material Adverse Change.
6.14 Employee Benefits.
(a) Deliver to Foothill: (i) promptly, and in any event within 10 Business
Days after Borrower or any of its Subsidiaries knows or has reason to know that
an ERISA Event has occurred that reasonably could be expected to result in a
Material Adverse Change, a written statement of the chief financial officer of
Borrower describing such ERISA Event and any action that is being taking with
respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC. Borrower or
such Subsidiary, as applicable, shall be deemed to know all facts known by the
administrator of any Benefit Plan of which it is the plan sponsor, (ii)
promptly, and in any event within three Business Days after the filing thereof
with the IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate with respect
to such request, and (iii) promptly, and in any event within three Business Days
after receipt by Borrower, any of its Subsidiaries or, to the knowledge of
Borrower, any ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan, copies of each
such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request, each of the
following: (i) a copy of each Plan (or, where any such plan is not in writing,
complete description thereof) (and if applicable, related trust agreements or
other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
29
6.15 Leases. Pay when due all rents and other amounts payable under any
leases to which Borrower is a party or by which Borrower's properties and assets
are bound, unless such payments are the subject of a Permitted Protest. To the
extent that Borrower fails timely to make payment of such rents and other
amounts payable when due under its leases, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.16 Year 2000 Compliance. Borrower shall be Year 2000 Compliant on or
before September 30, 1999.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, Borrower will
not do any of the following:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or otherwise
become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in Schedule 7.1;
(c) Indebtedness secured by Permitted Liens;
(d) Indebtedness secured by the Real Property Collateral after
repayment, in full, of the Term Loan;
(e) Unsecured Indebtedness; and
(f) refinancings, renewals, or extensions of Indebtedness permitted
under clauses (b) through (e) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not
materially impair the prospects of repayment of the Obligations by
Borrower, (ii) the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the original aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a
shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness
that is refinanced was subordinated in right of payment to the Obligations,
then the subordination terms and conditions of the refinancing Indebtedness
must be at least as favorable to Foothill as those applicable to the
refinanced Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets, of any
kind, whether now owned or hereafter acquired (including the outstanding shares
of capital stock of Wam!Net Limited (UK)), or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of Permitted
Liens to the extent that the original Indebtedness is refinanced under Section
7.1(d) and so long as the replacement Liens only encumber those assets or
property that secured the original Indebtedness). Foothill agrees to subordinate
or, if necessary, to
30
release its security interest in Borrower's Equipment and related assets for
purposes of financing by other Persons as provided in the definition of
Permitted Liens so long as no Event of Default has occurred and is continuing.
7.3 Restrictions on Fundamental Changes. Enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets.
7.4 Disposal of Assets. Sell, lease, assign, transfer, or otherwise dispose
of any of Borrower's properties or assets other than: (a) sales of Inventory or
Equipment to buyers in the ordinary course of Borrower's business as currently
conducted, (b) transfers of Equipment to Subsidiaries with a book value not to
exceed $100,000 in the aggregate, (c) transfer of the Real Property Collateral
to a Subsidiary concurrently or after repayment in full, in cash, of the Term
Loan and (d) sales of Equipment that cannot be efficiently repaired, as
determined by Borrower in its reasonable discretion, in an amount not to exceed
$100,000 in the aggregate in any of Borrower's fiscal years.
7.5 Change Name. Change Borrower's corporate structure (within the meaning
of Section 9402(7) of the Code) or, without not less than 30 days prior written
notice to Foothill, change Borrower's name, FEIN, or identity, or add any new
fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with respect
to the obligations of any third Person except by endorsement of instruments or
items of payment for deposit to the account of Borrower or which are transmitted
or turned over to Foothill.
7.7 Nature of Business. Make any material change in the principal nature of
Borrower's business.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section
7.1(f), prepay, redeem, retire, defease, purchase, or otherwise acquire any
Indebtedness owing to any third Person, other than the Obligations in
accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or change
any of the terms or conditions of any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Sections 7.1(b), (c), or (d); provided, however, that after
completion of the IPO, Borrower may take such actions with respect to
Equipment leases and Indebtedness secured by Equipment.
7.9 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
7.10 Intentionally Omitted.
31
7.11 Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than capital stock) on, or purchase, acquire,
redeem, or retire any of Borrower's capital stock, of any class, whether now or
hereafter outstanding except for acquisitions, redemption or retirement of
shares of Borrower's outstanding capital stock in an amount not to exceed
$200,000 in the aggregate in any 12-month period, so long as no Event of Default
has occurred and is continuing; provided, however, that this Section 7.11 shall
be amended upon consummation of the IPO to reflect any provisions reasonably
relating to this covenant that are included in the IPO.
7.12 Accounting Methods. Modify or change its method of accounting or enter
into, modify, or terminate any agreement currently existing, or at any time
hereafter entered into with any third party accounting firm or service bureau
for the preparation or storage of Borrower's accounting records without said
accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition. Borrower waives the
right to assert a confidential relationship, if any, it may have with any
accounting firm or service bureau in connection with any information requested
by Foothill pursuant to or in accordance with this Agreement, and agrees that
Foothill may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.13 Investments. Except for Permitted Investments, directly or indirectly
make, acquire, or incur any liabilities (including contingent obligations) prior
to completion of the IPO, and after completion of the IPO in excess of $250,000
in the aggregate for or in connection with (a) the acquisition of the securities
(whether debt or equity) of, or other interests in, a Person, (b) loans,
advances, capital contributions, or transfers of property to a Person, or (c)
the acquisition of all or substantially all of the properties or assets of a
Person; provided, however, that Borrower may enter into transactions in excess
of the above amount with the consent of Foothill which consent shall not be
unreasonably withheld.
7.14 Transactions with Affiliates. Except as provided on Schedule 7.14,
directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower's business, upon fair and reasonable terms, that are fully
disclosed to Foothill, and that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 Compensation. Increase the annual fee or per-meeting fees paid to
directors during any year by more than 20% over the prior year; pay or accrue
total cash compensation, during any year, to Borrower's current officers and
senior management employees in an aggregate (and officers and senior management
employees hired after the date of this Agreement for the second year and all
subsequent years of their employment) amount in excess of 120% of that paid or
accrued in the prior year without the prior written consent of Foothill which
consent shall not be unreasonably withheld. This Section 7.16 shall
automatically be deleted upon the consummation of the IPO.
7.17 Use of Proceeds. Use the proceeds of the Advances and the Term Loan
made hereunder for any purpose other than (a) on the Closing Date, to pay
transactional costs and expenses incurred in connection with this Agreement, and
(b) thereafter, consistent with the terms and conditions hereof, for its lawful
and permitted corporate purposes.
32
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees. Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Foothill and so long as,
at the time of such written notification, Borrower provides any financing
statements necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in any
prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC
for which a statutory or class exemption is not available or a private
exemption has not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any accumulated
funding deficiency (as defined in Sections 302 of ERISA and 412 of the
IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to fail, to pay timely
required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate, any
Benefit Plan where such event would result in any liability of Borrower,
any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make any
required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay any
required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that
either of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is
required to provide security to such Plan under Section 401(a)(29) of the
IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw, from
any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $50,000.
7.20 Financial Covenants. Fail to maintain:
33
(a) Gross Margin. Gross Margin of at least the following percentages
as of the end of the following fiscal quarters:
Fiscal Quarter Ending Minimum Gross Margin
--------------------- --------------------
September 30, 1999 18%
December 31, 1999 30%
March 31, 2000 40%
June 30, 2000 43%
September 30, 2000 and each 46%
quarter thereafter
(b) NADS. As of the end of the following fiscal quarters, an installed
base of NADS in the United States of at least the following number:
Fiscal Quarter Ending Minimum NADS
--------------------- ------------
September 30, 1999 1,700
December 31, 1999 2,000
March 31, 2000 2,400
June 30, 2000 2,800
September 30, 2000 and each 3,000
quarter thereafter
(c) EBITDA. EBITDA of not less than the following amounts as of the
end of the following fiscal quarters:
Fiscal Quarter Ending Minimum EBITDA
--------------------- --------------
September 30, 1999 -$20,000,000
December 31, 1999 -$17,000,000
March 31, 2000 -$12,000,000
June 30, 2000 -$ 9,000,000
September 30, 2000 -$ 8,000,000
December 31, 2000 -$ 7,000,000
March 31, 2001 -$ 6,000,000
June 30, 2001 -$ 5,000,000
The financial covenants set forth in Sections 7.20 and 7.21 shall be
amended upon consummation of the IPO using the projections used by the
underwriters in the IPO . In addition, the financial covenants set forth in
Sections 7.20 and 7.21 shall be amended upon consummation of a private
equity investment with net proceeds of not less than $70,000,000 using the
projections used in the private equity sale, provided the amendment in the
case of the private equity sale shall be subject to the consent of
Foothill, which consent shall not be unreasonably withheld, conditioned or
delayed.
34
7.21 Capital Expenditures. Make capital expenditures in any fiscal year in
excess of the amounts set forth below:
Capital Expenditures
Fiscal Year Ending Maximum Capital Expenditures
------------------ ----------------------------
December 31, 1999 $40,000,000
December 31, 2000 $55,000,000
December 31, 2001 $60,000,000
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of
default (each, an "Event of Default") under this Agreement:
8.1 If Borrower fails to pay when due and payable or when declared due and
payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2 If Borrower fails to perform, keep, or observe: (a) any term,
provision, condition, covenant, or agreement contained in Section 6.2, Section
6.3 or Section 6.9 and such failure continues for a period of five days after
such failure, (b) any term, provision, condition, covenant, or agreement
contained in Section 6.4, Section 6.12 or Section 6.15 and such failure
continues for a period of 10 days after such failure, or (c) any other term,
provision, covenant, or agreement contained in this Agreement, in any of the
Loan Documents, or in any other present or future agreement between Borrower and
Foothill;
8.3 If there is a Material Adverse Change;
8.4 If any material portion of Borrower's properties or assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any third Person and such attachment, seizure or levy,
and if such attachment, seizure, warrant or levy is for $100,000 or less, it is
not released or satisfied within 15 days of its occurrence; provided, however,
that Foothill may reserve the amount of such attachment, seizure, warrant or
levy;
8.5 If an Insolvency Proceeding is commenced by Borrower;
8.6 If an Insolvency Proceeding is commenced against Borrower and any of
the following events occur: (a) Borrower consents to the institution of the
Insolvency Proceeding against it; (b) the petition commencing the Insolvency
Proceeding is not timely controverted; (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period,
Foothill shall be relieved of its obligation to extend credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion
of the properties or assets of, or to operate all or any substantial portion of
the business of, Borrower; or (e) an order for relief shall have been issued or
entered therein;
35
8.7 If Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of Lien, levy, or assessment in excess of $100,000 is filed
of record with respect to any of Borrower's properties or assets by the United
States Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or debts,
in excess of $100,000 in the aggregate, owing at any time hereafter to any one
or more of such entities becomes a Lien, whether xxxxxx or otherwise, upon any
of Borrower's properties or assets and the same is not paid on the payment date
thereof; provided, however, that Foothill may reserve the amount of such Lien;
8.9 If a judgment or other claim becomes a Lien or encumbrance upon any
material portion of Borrower's properties or assets, and if such Lien is for
$100,000 or less and the Lien or encumbrance is not released or bonded against
within 30 days of its creation; provided, however, that Foothill may reserve the
amount of such Lien;
8.10 If there is a default in any material agreement to which Borrower is a
party with one or more third Persons and such default (a) occurs at the final
maturity of the obligations thereunder, or (b) results in a right by such third
Person(s), irrespective of whether exercised, to accelerate the maturity of
Borrower's obligations thereunder;
8.11 If Borrower makes any payment on account of Indebtedness that has been
contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of the
subordination provisions applicable to such Indebtedness; or
8.12 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default Foothill may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement, under any of the Loan Documents, or under
any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Personal Property
Collateral or the Real Property Collateral and without affecting the
Obligations;
36
(d) Settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which Foothill considers advisable, and in such
cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection
therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
(f) Without notice to or demand upon Borrower or any guarantor, make
such payments and do such acts as Foothill considers necessary or
reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Personal Property Collateral if Foothill so
requires, and to make the Personal Property Collateral available to
Foothill as Foothill may designate. Borrower authorizes Foothill to enter
the premises where the Personal Property Collateral is located, to take and
maintain possession of the Personal Property Collateral, or any part of it,
and to pay, purchase, contest, or compromise any encumbrance, charge, or
Lien that in Foothill's determination appears to conflict with its security
interests and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's owned or leased premises, Borrower hereby
grants Foothill a license to enter into possession of such premises and to
occupy the same, without charge, for up to 120 days in order to exercise
any of Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Without notice to Borrower (such notice being expressly waived),
and without constituting a retention of any collateral in satisfaction of
an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower
held by Foothill (including any amounts received in the Lockbox Accounts),
or (ii) indebtedness at any time owing to or for the credit or the account
of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits of
Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Personal Property Collateral. Foothill is hereby granted a license or
other right to use, without charge, Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Personal Property Collateral, in completing production of,
advertising for sale, and selling any Personal Property Collateral and
Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(j) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including Borrower's
premises) as Foothill determines is commercially reasonable. It is not
necessary that the Personal Property Collateral be present at any such
sale;
37
(k) Foothill shall give notice of the disposition of the Personal
Property Collateral as follows:
(1) Foothill shall give Borrower and each holder of a security
interest in the Personal Property Collateral who has filed with
Foothill a written request for notice, a notice in writing of the time
and place of public sale, or, if the sale is a private sale or some
other disposition other than a public sale is to be made of the
Personal Property Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage
prepaid, to Borrower as provided in Section 12, at least 10 days
before the date fixed for the sale, or at least 10 days before the
date on or after which the private sale or other disposition is to be
made; no notice needs to be given prior to the disposition of any
portion of the Personal Property Collateral that is perishable or
threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than
Borrower claiming an interest in the Personal Property Collateral
shall be sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill also shall give
notice of the time and place by publishing a notice one time at least
10 days before the date of the sale in a newspaper of general
circulation in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale; and
(m) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by Borrower.
Any excess will be returned, without interest and subject to the rights of
third Persons, by Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill shall
constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments, insurance
premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits
or furnish any required proof of payment or deposit, all as required under the
terms of this Agreement, then, to the extent that Foothill determines that such
failure by Borrower could result in a Material Adverse Change, in its discretion
and without prior notice to Borrower, Foothill may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's Loan Account as Foothill deems necessary to protect
Foothill from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type described in Section 6.10, and take any action
with respect to such policies as Foothill deems prudent. Any such amounts paid
by Foothill shall constitute Foothill Expenses. Any such payments made by
Foothill shall not constitute an agreement by Foothill to make similar payments
in the
38
future or a waiver by Foothill of any Event of Default under this Agreement.
Foothill need not inquire as to, or contest the validity of, any such expense,
tax, or Lien and the receipt of the usual official notice for the payment
thereof shall be conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which Borrower may in any way be liable.
11.2 Foothill's Liability for Collateral. So long as Foothill complies with
its obligations, if any, under Section 9207 of the Code, Foothill shall not in
any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall be
borne by Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
Foothill, each Participant, and each of their respective officers, directors,
employees, counsel, agents, and attorneys-in-fact (each, an "Indemnified
Person") harmless (to the fullest extent permitted by law) from and against any
and all claims, demands, suits, actions, investigations, proceedings, and
damages, and all reasonable attorneys fees and disbursements and other costs and
expenses actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other Loan Document shall be in writing
and (except for financial statements and other informational documents which may
be sent by first-class mail, postage prepaid) shall be personally delivered or
sent by registered or certified mail (postage prepaid, return receipt
requested), overnight courier, or telefacsimile to Borrower or to Foothill, as
the case may be, at its address set forth below:
39
If to Borrower: WAM!NET INC.
000 Xxxx Xxx Xxxxx
Xxxxx, Xxxxxxxxx 00000
Attn: Xxxx Xxxxxx, Director of Finance
Fax No. 000.000.0000
with copies to: LARKIN, HOFFMAN, XXXX &
XXXXXXXX, LTD.
1500 Norwest Financial Center
0000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Fax No. 000.000.0000
If to Foothill: FOOTHILL CAPITAL CORPORATION
00000 Xxxxx Xxxxxx Xxxxxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attn: Business Finance Division Manager
Fax No. 000.000.0000
with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER
000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Fax No. 000.000.0000
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or three
days after the deposit thereof in the mail. Borrower acknowledges and agrees
that notices sent by Foothill in connection with Sections 9504 or 9505 of the
Code shall be deemed sent when deposited in the mail or personally delivered,
or, where permitted by law, transmitted by telefacsimile or other similar method
set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE
PARTIES AGREE THAT ALL ACTIONS OR
40
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION
OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered to
Foothill may be destroyed or otherwise disposed of by Foothill four months after
they are delivered to or received by Foothill, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers and makes
arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder to an Affiliate, to a non-Affiliate if it is
part of any assignment of a significant portion of Foothill's loan portfolio or
any time after the occurrence of an Event of Default, and no consent or approval
by Borrower is required in connection with any such assignment. Any other
assignment by Foothill shall be subject to Borrower's consent, which consent
shall not be unreasonably withheld. Foothill reserves the right to sell, assign,
transfer, negotiate, or grant participations in all or any part of, or any
interest in Foothill's rights and benefits hereunder. In connection with any
such assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill thereafter shall be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
41
15.3 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each section applies equally to this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
15.6 Amendments in Writing. This Agreement can only be amended by a writing
signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. 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.
15.8 Revival and Reinstatement of Obligations. If the incurrence or payment
of the Obligations by Borrower or any guarantor of the Obligations or the
transfer by either or both of such parties to Foothill of any property of either
or both of such parties should for any reason subsequently be declared to be
void or voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of
property (collectively, a "Voidable Transfer"), and if Foothill is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Foothill is required or elects to repay or
restore, and as to all reasonable costs, expenses, and attorneys fees of
Foothill related thereto, the liability of Borrower or such guarantor
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
15.9 Confidentiality. Foothill agrees to hold any information which it may
receive from Borrower pursuant to this Agreement in confidence, except for
disclosure (a) to its Affiliates and to other lenders and their respective
Affiliates with a reason to know, each of whom shall be made aware of the terms
of this Section 15.9 and shall be deemed bound thereby; (b) to legal counsel,
accountants and other professional advisors to that lender, or to a transferee,
each of whom shall be made aware of the terms of this Section 15.9 and shall be
deemed bound thereby; (c) to regulatory officials having the authority to
require such disclosure;
42
(d) to any Person as requested pursuant to or required by law, regulation or
legal process, provided, if practical, Foothill will give Borrower prior notice
of such disclosure; (e) to the extent reasonably required in connection with any
legal proceeding involving the Borrower or any of its Subsidiaries to which
Foothill or its respective Affiliates may be a party; and (f) to the extent
reasonably required in connection with the exercise of any remedy hereunder.
15.10 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
43
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the 16th day of July, 1999.
WAM!NET INC.,
a Minnesota corporation
By /s/ Xxxx Xxxxxx
--------------------------------
Xxxx Xxxxxx
Title: Director of Finance
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Xxxxxxx X. Xxxxx
--------------------------------
Xxxxxxx X. Xxxxx
Title: Vice President
44
COMPLIANCE CERTIFICATE SAMPLE COPY
(Loan and Security Agreement Section 6.3)
Date _______________, 199_
FOOTHILL CAPITAL CORPORATION
00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxxxx, Xxxxxxxxxx 00000-0000
Attention: ________________________
RE: Loan and Security Agreement, dated as of July 16, 1999 (the "Agreement")
by and between FOOTHILL CAPITAL CORPORATION ("Foothill") and
WAM!NET INC. ("Borrower").
Dear _______________:
In accordance with Section 6.3 of the Agreement, this letter shall serve as
certification to Foothill that to the best of my knowledge: (i) all financial
statements have been prepared in accordance with GAAP and fairly represent the
financial condition of Borrower, (ii) the representations and warranties of
Borrower set forth in the Agreement and other Loan Documents are true and
correct in all material respects on and as of the date of this certification,
(iii) as demonstrated on Exhibit 1 attached hereto, Borrower is in compliance
with each of its financial covenants set forth in Section 7.20 of the Agreement
as of the date of this certification, and (iv) there does not exist any
condition or event that constitutes a Default or Event of Default. Such
certification is made as of the fiscal month ending ______________, 199___.
Sincerely,
Director of Finance
45
