EXHIBIT 10.33
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of November 7, 1997, by and between TIER
TECHNOLOGIES, INC., a California corporation ("Borrower"), and XXXXX FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITAL
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Borrower has requested from Bank the credit accommodations described below,
and Bank has agreed to provide the Credits to Borrower on the terms and
conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
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DEFINITIONS
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As used herein, the terms defined in the preceding paragraphs shall have
the meanings set forth therein, and the following terms shall have the meanings
set forth after each, with all such meanings equally applicable to the singular
and plural of the terms defined:
"AAA" shall have the meaning set forth in Section 8.11(b) hereof.
"Applicable Line of Credit Margin" shall mean the following during each
fiscal quarter based on Borrower's ratio of Total Liabilities to Tangible Net
Worth for the immediately preceding fiscal quarter:
Ratio of Total Liabilities Applicable Line
to Tangible Net Worth of Credit Margin
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4.0 to 1.0 or greater 1.50%
3.0 to 1.0 or greater but
less than 4.0 to 1.0 1.25%
2.0 to 1.0 or greater but
less than 3.0 to 1.0 0.75%
1.0 to 1.0 or greater but
less than 2.0 to 1.0 0.25%
Less than 1.0 to 1.0 0%
"Applicable Term Commitment Margin" shall mean the following during each
fiscal quarter based on Borrower's ratio of Total
Liabilities to Tangible Net Worth for the immediately preceding fiscal quarter:
Ratio of Total Liabilities Applicable Term
to Tangible Net Worth Commitment Margin
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4.0 to 1.0 or greater 1.75%
3.0 to 1.0 or greater but
less than 4.0 to 1.0 1.50%
2.0 to 1.0 or greater but
less than 3.0 to 1.0 1.00%
1.0 to 1.0 or greater but
less than 2.0 to 1.0 0.50%
Less than 1.0 to 1.0 0%
"Bankruptcy Code" shall mean the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time.
"Business Day" shall mean any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.
"Companies" shall mean Borrower and each Subsidiary.
"Credits" shall mean the Line of Credit and the Term Commitment.
"Dispute" shall have the meaning set forth in Section 8.11(a) hereof.
"Current Ratio" shall mean total current assets divided by total current
liabilities.
"EBITDA" shall mean net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense and amortization expense.
"EBITDA Coverage Ratio" shall mean EBITDA divided by the aggregate of total
interest expense plus the prior period current maturity of long-term debt and
the prior period current maturity of subordinated debt.
"Eligible Accounts Receivable" shall mean trade accounts created in the
ordinary course of any Company's business, upon which such Company's right to
receive payment is absolute and not contingent upon the fulfillment of any
condition whatsoever, and
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in which Bank has a perfected security interest of first priority, and shall not
include:
(i) any account which is more than ninety (90) days from the invoice
date;
(ii) that portion of any account for which there exists any right of
setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;
(iii) any account which represents an obligation of the United States
government or any agency or instrumentality thereof (but not any State, the
District of Columbia, any territory or any political subdivision thereof),
except accounts which represent obligations of the United States government
and for which the appropriate U.S. Government Assignment of Claims Act
forms have been duly executed and acknowledged;
(iv) any account which represents an obligation of an account debtor
located in a foreign country, except for any such account covered by
foreign credit insurance acceptable to Bank;
(v) any account which arises from the sale or lease to or performance
of services for, or represents an obligation of, an employee, affiliate,
partner, member, parent or subsidiary of any Company;
(vi) any account which represents an obligation of any account debtor
when twenty-five percent (25%) or more of the Companies' accounts from such
account debtor are not eligible pursuant to (i) above;
(vii) that portion of any account from an account debtor (other than
Xxxxxx Xxxxxxxxxxx or the State of Missouri) which represents the amount
by which the Companies' total accounts from said account debtor exceeds
twenty-five percent (25%) of the Companies' total accounts, and that
portion of any account from Xxxxxx Xxxxxxxxxxx or the State of Missouri
which represents the amount by which the Companies' total accounts from
either such account debtor exceeds thirty percent (30%) of the Companies'
total accounts;
(viii) any account deemed ineligible by Bank when Bank, in its
reasonable discretion, deems the creditworthiness or financial condition of
the account debtor, or the industry in which the account debtor is engaged,
to be unsatisfactory.
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"Equipment Leases" shall mean those capital leases, if any, entered into
between Bank and Borrower to finance equipment acquisitions under the Term
Commitment subfeature therefor, as defined more fully in Section 2.2(c) hereof.
"ERISA" shall mean the Employment Retirement Income Security Act of 1974,
as amended or recodified from time to time.
"Event of Default" shall have the meaning set forth in Section 7.1 hereof.
"Guarantors" shall mean, only during such time as the guaranties described
in Section 2.6 hereof are in effect, Xxxxx X. Xxxxxxx, Xxxxxxx X. Xxxxxx, Xxxxx
X. XxXxxx and Xxxxxxx X. Xxxxxxx.
"Line of Credit" shall mean a revolving credit accommodation available to
Borrower in the maximum principal amount of $4,500,000, as defined more fully in
Section 2.1 hereof.
"Line of Credit Note" shall mean a promissory note executed by Borrower to
evidence advances under the Line of Credit, substantially in the form of Exhibit
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A attached hereto.
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"Loan Documents" shall mean this Agreement, the Notes and each other
document, contract and instrument required hereby or at any time hereafter
delivered to Bank in connection herewith.
"Notes" shall mean the Line of Credit Note and the Term Commitment Note.
"Plan" shall mean a defined employee benefit pension plan, as defined in
ERISA.
"Prime Rate" shall mean at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof in such
internal publication or publications as Bank may designate.
"Subsidiary" shall mean Tier Australia and Tier UK.
"Tangible Net Worth" shall mean the aggregate of total stockholders' equity
plus subordinated debt, less any intangible assets and any advances to
shareholders and/or employees.
"Term Commitment" shall mean a revolving credit accommodation available to
Borrower in the maximum principal amount of $500,000, as defined more fully in
Section 2.2 hereof.
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"Term Commitment Note" shall mean a promissory note executed by Borrower to
evidence advances under the Line of Credit, substantially in the form of Exhibit
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B attached hereto.
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"Tier Australia" shall mean Tier Technologies (Australia) Pty Limited, an
Australian proprietary company.
"Tier UK" shall mean Tier Technologies (United Kingdom), Inc., a Delaware
corporation doing business in the United Kingdom.
"Total Liabilities" shall mean the aggregate of current liabilities and
non-current liabilities less subordinated debt and contingent deferred payments
related to acquisitions.
ARTICLE II
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THE CREDITS
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SECTION 2.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this
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Agreement, Bank hereby agrees to make advances to Borrower under the Line of
Credit from time to time up to and including December 31, 1998, not to exceed at
any time the aggregate principal amount of Four Million Five Hundred Thousand
Dollars ($4,500,000), the proceeds of which shall be used by Borrower for
general corporate purposes. Borrower's obligation to repay advances under the
Line of Credit shall be evidenced by the Line of Credit Note, all terms of which
are incorporated herein by this reference.
(b) Limitation on Borrowings. Outstanding borrowings under the Line of
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Credit, to a maximum of the principal amount set forth above, shall not at any
time exceed an aggregate of eighty percent (80%) of the Companies' Eligible
Accounts Receivable, as determined by Bank upon receipt and review of all
collateral reports required hereunder and such other documents and collateral
information as Bank may from time to time require; provided however, that
notwithstanding the foregoing, outstanding borrowings against Tier Australia's
Eligible Accounts Receivable shall not at any time exceed an aggregate of One
Million Australian Dollars (A$1,000,000). Borrower acknowledges that said
borrowing base was established by Bank with the understanding that, among other
items, the aggregate of all discounts, credits and allowances for the
immediately preceding three (3) months at all times shall be less than five
percent (5%) of the Companies' gross sales for said period. If such dilution of
the Companies' accounts for the immediately preceding three (3) months at any
time exceeds five percent (5%) of the Companies' gross sales for said period, or
if there at any time exists any other matters, events, conditions or
contingencies
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which Bank reasonably believes may affect payment of any portion of the
Companies' accounts, Bank, in its reasonable discretion, may reduce the
foregoing advance rate against Eligible Accounts Receivable to a percentage
appropriate to reflect such additional dilution and/or establish additional
reserves against Eligible Accounts Receivable. Bank shall give Borrower prompt
notice of any such reduction in the advance rate and/or additional reserves
against Eligible Account Receivable and of the dilution that percentage that
gave rise to such change.
(c) Borrowing and Repayment. Borrower may from time to time during the
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term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
SECTION 2.2. TERM COMMITMENT.
(a) Term Commitment. Subject to the terms and conditions of this
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Agreement, Bank hereby agrees to make advances to Borrower under the Term
Commitment from time to time up to and including December 31, 1998, not to
exceed the aggregate principal amount of Five Hundred Thousand Dollars
($500,000), the proceeds of which shall be used to assist with Borrower's
purchase of new equipment. Borrower's obligation to repay advances under the
Term Commitment shall be evidenced by the Term Commitment Note, all terms of
which are incorporated herein by this reference.
(b) Limitation on Borrowings. Each advance under the Term Commitment
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shall be available to a maximum of eighty percent (80%) of the cost of the
equipment purchased with the proceeds thereof, net of sales tax and installation
costs, as evidenced by the seller's invoice therefor.
(c) Equipment Lease Subfeature. As a subfeature under the Term
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Commitment, Bank agrees from time to time during the term thereof, if requested
by Borrower, to finance equipment acquisitions through Equipment Leases so long
as the requested Equipment Lease meets Bank's policies and parameters then in
effect for capital lease financing. Each Equipment Lease shall be for a term not
greater than two (2) years and subject to such other terms and conditions as
Bank shall determine at the time requested, and shall be evidenced by an
Equipment Lease in form and substance satisfactory to Bank, in its reasonable
discretion. The amount financed under each Equipment Lease shall be reserved
under the Term Commitment and shall not be available for advances thereunder.
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(d) Borrowing and Repayment. Borrower may from time to time during the
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period in which Bank will make advances under the Term Commitment borrow and
partially or wholly repay its outstanding borrowings, and reborrow, subject to
all the limitations, terms and conditions contained herein; provided however,
that the total outstanding borrowings under the Term Commitment (whether as
advances or Equipment Leases) shall not at any time exceed the maximum principal
amount available thereunder, as set forth above. The outstanding principal
balance of all advances under the Term Commitment as of December 31, 1998 shall
be amortized over two (2) years and shall be repaid in twenty-four (24) monthly
installments as set forth in the Term Commitment Note.
(e) Prepayment. Borrower may prepay principal on advances under the Term
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Commitment at any time, in any amount and without penalty.
SECTION 2.3. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
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shall bear interest at a rate per annum equal to the Prime Rate in effect from
time to time plus the Applicable Line of Credit Margin, which initially shall be
1.50%. The outstanding principal balance of the Term Commitment shall bear
interest at a rate per annum equal to the Prime Rate in effect from time to time
plus the Applicable Term Commitment Margin, which initially shall be 1.75%.
(b) Computation and Payment. Interest shall be computed on the basis of a
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360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Notes.
(c) Commitment Fee. Borrower shall pay to Bank a non-refundable
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commitment fee for the Term Commitment equal to One Thousand Two Hundred Fifty
Dollars ($1,250), which commitment fee shall be due and payable in full upon
execution of this Agreement.
(d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
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three-eighths percent (0.375%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a quarterly basis by Bank and shall be
due and payable by Borrower in arrears within five (5) days after each billing
is sent by Bank.
SECTION 2.4. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all principal, interest and fees due under each Credit by charging Borrower's
demand deposit account number 4584-477244 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there
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be insufficient funds in any such demand deposit account to pay all such sums
when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
SECTION 2.5. COLLATERAL. As security for all indebtedness of Borrower to
Bank subject hereto, Borrower hereby grants to Bank a security interest of first
priority in all of Borrower's accounts receivable, general intangibles and other
rights, inventory and equipment, and Borrower shall cause each Subsidiary to
grant to Bank a security interest of first priority in all such Subsidiary's
accounts receivable, general intangibles and other rights to payment (with all
of the foregoing referred to collectively as the "Collateral"). Notwithstanding
the foregoing, Bank's security interest from Tier Australia shall be limited in
amount to Collateral with a value of One Million Australian Dollars
(A$1,000,000). All of the foregoing shall be evidenced by and subject to the
terms of such security agreements, financing statements and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank, within ten (10) calendar days after receipt of
each billing from Bank, for all costs and expenses incurred by Bank in
connection with any of the foregoing security, including without limitation,
filing fees and costs of appraisals, audits and title insurance.
SECTION 2.6. GUARANTIES. All indebtedness of Borrower to Bank shall be
guaranteed by each Guarantor in the maximum amount of Five Million Dollars
($5,000,000), inclusive of all principal, interest, fees, costs and expenses.
Each such guaranty shall be evidenced by and subject to the terms of a guaranty
substantially in the form of Exhibit C attached hereto. Said guaranties shall be
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terminated by Bank at such time, if any, as (a) Borrower has successfully
completed an initial public offering, and (b) immediately following the close of
such initial public offering Borrower has provided to Bank proforma financial
statements prepared by Borrower and in form and substance satisfactory to Bank,
reflecting Borrower's ratio of Total Debt to Tangible Net Worth to be less than
1.0 to 1.0.
ARTICLE III
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REPRESENTATIONS AND WARRANTIES
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Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 3.1. LEGAL STATUS. Borrower and Tier UK are corporations and
Tier Australia is a proprietary company, each of
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which is duly organized and existing and in good standing under the laws of the
state or country in which it is organized, and each of which licensed to do
business (and is in good standing as a foreign corporation, if applicable) in
all jurisdictions in which such qualification or licensing is required or in
which the failure to so qualify or to be so licensed could have a material
adverse effect on such Company.
SECTION 3.2. AUTHORIZATION AND VALIDITY. The Loan Documents have been
duly authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of the Company or non-Bank other party which executes the same,
enforceable in accordance with their respective terms, subject to the effect of
general principles of equity and the effect of bankruptcy, insolvency or similar
laws.
SECTION 3.3. NO VIOLATION. The execution, delivery and performance by
each Company of its respective Loan Documents (a) do not violate any provision
of any law or regulation, (b) contravene any provision of the Articles or
Certificate of Incorporation, Certificate of Registration, By-Laws or other
organizational documents of such Company, or (c) result in any breach of or
default under any contract, obligation, indenture or other instrument to which
any Company is a party or by which any Company may be bound, where such breach
or default gives rise to the right of acceleration of such contract, obligation,
indenture or instrument.
SECTION 3.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which, if adversely decided, could have a material adverse
effect on the financial condition or operation of Borrower, or of the Companies
taken as a whole, other than those disclosed by Borrower to Bank in writing
prior to the date hereof.
SECTION 3.5. CORRECTNESS OF FINANCIAL STATEMENT. The consolidated and
consolidating financial statements of the Companies dated September 30, 1997,
true copies of which have been delivered by Borrower to Bank prior to the date
hereof, (a) are complete and correct in all material respects and present fairly
the financial condition of the Companies, (b) disclose all liabilities of the
Companies that are required to be reflected or reserved against under generally
accepted accounting principles, whether liquidated or unliquidated, fixed or
contingent, and (c) have been prepared in accordance with generally accepted
accounting principles consistently applied. Since the date of such financial
statements there has been no material adverse change in the financial condition
of the Companies, nor has Borrower mortgaged, pledged, granted a security
interest in or
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otherwise encumbered any of its assets or properties, or any Subsidiary
mortgaged, pledged, granted a security interest in or otherwise encumbered any
of the Collateral, except in favor of Bank or as otherwise permitted by Bank in
writing.
SECTION 3.6. INCOME TAX RETURNS. Borrower has no knowledge of any
pending assessments or adjustments of any Company's income tax payable with
respect to any year.
SECTION 3.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which any Company is a party or by which any Company
may be bound that requires the subordination in right of payment of any of such
Company's obligations subject to this Agreement to any other obligation of such
Company.
SECTION 3.8. PERMITS, FRANCHISES. Each Company possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law, where the failure to so possess would
have a material adverse effect on the financial condition or operations of
Borrower, or of the Companies taken as a whole.
SECTION 3.9. ERISA. Each of Borrower and Tier UK is in compliance in all
material respects with all applicable provisions of ERISA; neither Borrower nor
Tier UK has violated any provision of any Plan maintained or contributed to by
such Company; no Reportable Event as defined in ERISA has occurred and is
continuing with respect to any Plan initiated by Borrower or Tier UK; each of
Borrower and Tier UK has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.
SECTION 3.10. OTHER OBLIGATIONS. No Company is in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation, where such
default gives rise to the right of acceleration of such lease, commitment,
contract, instrument or obligation.
SECTION 3.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability
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Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic
Substances Control Act, as any of the same may be amended, modified or
supplemented from time to time. None of the operations of Borrower is the
subject of any federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Borrower has no
material contingent liability in connection with any release of any toxic or
hazardous waste or substance into the environment.
ARTICLE IV
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CONDITIONS
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SECTION 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the granting
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of each of the Credits shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
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satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes from Borrower.
(ii) Corporate Resolution: Borrowing from Borrower.
(iii) Certificate of Incumbency from Borrower and Tier U.K.
(iv) Corporate Resolution: Third Party Collateral from Tier U.K.
(v) Such documents as are appropriate under the laws of the
Australian Capital Territory to authorize the grant by Tier
Australia of its security interests required hereunder and to
certify that those signing on behalf of Tier Australia are duly
authorized to do so.
(vi) Initial borrowing base certificate from Borrower.
(vii) All Security Agreements, UCC Financing Statements and other
applicable documents from each Company as are required by Bank or
under applicable law to create and perfect the security interests
described in Section 2.5 hereof.
(viii) All Continuing Guaranties required by Section 2.6 hereof.
(ix) UCC Termination Statements with respect to any security interests
in the assets of any Company
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existing in favor of WestAmerica Bank as of the date of this
Agreement.
(x) An analysis, reasonably satisfactory to Bank, with respect to the
authority of Tier Australia and Tier U.K. to grant to Bank the
security interests required hereby and the methods for creating
and perfecting (or the reasonable equivalent thereof under
applicable local law) said security interests.
(xi) Such other documents as Bank may require under any other Section
of this Agreement.
(c) Financial Condition. There shall have been no material adverse change,
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as reasonably determined by Bank, in the financial condition or business of
Borrower or any Guarantor, or of the Companies taken as a whole, nor any
material decline, as reasonably determined by Bank, in the market value of any
Collateral or a substantial or material portion of the assets of Borrower, or of
the Companies taken as a whole.
(d) Insurance. Borrower shall have delivered to Bank evidence of insurance
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coverage on all property of each Company, in form, substance, amounts, covering
risks and issued by companies satisfactory to Bank, and where required by Bank,
with loss payable endorsements in favor of Bank, including without limitation,
evidence that Bank has been named as loss payee on any insolvency risk, credit
risk and political risk insurance currently issued to any Company by The
Insurance Company of the State of Pennsylvania under Policy No. 649-9662 issued
July 31, 1997, and all endorsements to said Policy.
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and in
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each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which
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may be required in connection with such extension of credit.
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ARTICLE V
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AFFIRMATIVE COVENANTS
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Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, and where applicable shall cause each Subsidiary
to, unless Bank otherwise consents in writing:
SECTION 5.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein, and, immediately upon demand by Bank,
the amount by which the outstanding principal balance of any of the Credits at
any time exceeds any limitation on borrowings applicable thereto.
SECTION 5.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time during normal
business hours and upon reasonable notice, to inspect, audit and examine such
books and records, to make copies of the same, and to inspect the properties of
any Company; provided however, that so long as there exists no Event of Default,
Borrower shall be obligated to reimburse Bank for any costs and expenses
incurred in conducting only one (1) such audit and examination during each
fiscal year of Borrower.
SECTION 5.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year,
unqualified audited consolidated and consolidating financial statements of the
Companies, prepared by a certified public accountant acceptable to Bank, to
include balance sheet, income statement, statement of cash flow and all
footnotes;
(b) not later than 45 days after and as of the end of each fiscal quarter,
consolidated and consolidating financial statements of the Companies, prepared
by Borrower, to include balance sheet and income statement;
(c) not later than 20 days after and as of the end of each month, a
borrowing base certificate, an aged listing of accounts receivable and accounts
payable, and a reconciliation of ineligible accounts, prepared by Borrower for
each Company, together with a summary of such information for the Companies on a
combined basis;
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(d) not later than 90 days after and as of the end of each fiscal year of
Borrower, a personal financial statement of each Guarantor, prepared by such
Guarantor, to include balance sheet, and within 15 days after filing, but in no
event later than each October 15, a copy of each Guarantor's filed Federal
income tax return for such year;
(e) from time to time such other information as Bank may reasonably
request.
SECTION 5.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of each Company's business; and comply with the provisions of all
documents pursuant to which each Company is organized and/or which govern any
Company's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable to any Company
and/or its business.
SECTION 5.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that in
which each Company is engaged, including but not limited to fire, extended
coverage, public liability, flood, property damage and workers' compensation,
with all such insurance carried with companies and in amounts satisfactory to
Bank, and deliver to Bank from time to time at Bank's request schedules setting
forth all insurance then in effect.
SECTION 5.6. FACILITIES. Keep all properties useful or necessary to each
Company's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 5.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as any Company may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which such
Company has made provision, to Bank's satisfaction, for eventual payment thereof
in the event such Company is obligated to make such payment.
SECTION 5.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against any Company, an adverse determination
of which could reasonably be expected to have a material adverse effect on
Borrower, or on the Companies taken as a whole.
-14-
SECTION 5.9. FINANCIAL CONDITION. Maintain the Companies' financial
condition on a consolidated basis as follows using generally accepted accounting
principles consistently applied and used consistently with prior practices
(except to the extent modified by the definitions herein):
(a) Current Ratio not at any time less than 1.0 to 1.0 through December
30, 1998, and 1.2 to 1.0 thereafter.
(b) Tangible Net Worth not at any time less than $1,200,000 initially,
with said amount to increase as of the end of each fiscal quarter by an amount
equal to 75% of the Companies' consolidated net income for such fiscal quarter
plus 100% of the net cash proceeds received by Borrower from any stock offering
during such fiscal quarter, all as reflected on the Companies' quarterly
financial statements required by Section 5.3(b) hereof.
(c) Total Liabilities divided by Tangible Net Worth not at any time
greater than that specified below for each period:
(i) 5.0 to 1.0 through December 30, 1997;
(ii) 4.5 to 1.0 from December 31, 1997, through June 29, 1998;
(iii) 4.0 to 1.0 from June 30, 1998, through September 29, 1998;
(iv) 3.0 to 1.0 from September 30, 1998, through December 30, 1998;
and
(v) 2.75 to 1.0 at December 31, 1998 and thereafter.
(d) Pre-tax profit not less than $1.00 on a quarterly basis, determined as
of each fiscal quarter end.
(e) EBITDA Coverage Ratio not less than 2.0 to 1.0 as of each fiscal
quarter end, determined on a rolling four-quarter basis.
SECTION 5.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default of
which Borrower has, or reasonably should have, knowledge, or any condition,
event or act which with the giving of notice or the passage of time or both
would constitute an Event of Default and of which Borrower has, or reasonably
should have, knowledge; (b) any change in the name or the organizational
structure of any Company; (c) the occurrence and nature of any Reportable Event
or Prohibited Transaction, each as defined in ERISA, or any funding deficiency
with respect to any Plan; or (d) any termination or cancellation
-15-
of any insurance policy which any Company is required to maintain, or any
uninsured or partially uninsured loss through liability or property damage, or
through fire, theft or any other cause affecting any Company's property in
excess of an aggregate of $50,000.
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not, and will not permit the
Subsidiaries to, without Bank's prior written consent:
SECTION 6.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article II hereof.
SECTION 6.2. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) trade debt incurred in the normal course of any Company's business, (c)
additional purchase money obligations incurred, or capital leases entered into,
in connection with equipment acquisitions in amounts not to exceed an aggregate
of $500,000 outstanding at any time, and (d) any other liabilities of any
Company existing as of, and disclosed to Bank prior to, the date hereof.
SECTION 6.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
any Company's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of any
Company's assets except in the ordinary course of its business.
SECTION 6.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for deposit
or collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of any Company as security
for, any liabilities or obligations of any other person or entity, except any of
the foregoing in favor of Bank.
-16-
SECTION 6.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity in excess of an aggregate of $1,000,000
at any time outstanding, except any of the foregoing existing as of, and
disclosed to Bank prior to, the date hereof.
SECTION 6.6. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of any Company's
assets now owned or hereafter acquired, except (a) any of the foregoing in favor
of Bank, (b) purchase money security interests and/or liens under capital leases
as security for obligations permitted by Section 6.2 hereof, and (c) any of the
foregoing existing as of, and disclosed to Bank in writing prior to, the date
hereof.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
SECTION 7.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) The failure to pay when due (i) any regularly scheduled principal, or
interest at any time owing under any of the Credits, or (ii) any fees or other
amounts payable under any of the Loan Documents (other than amounts referred to
in clause (i) of this subsection (a)) within ten (10) calendar days after
Borrower's receipt of demand therefor from Bank.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by any Company or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of thirty (30) days from its occurrence; provided however,
that if such default is not capable of being cured within thirty (30) days and
the Company or other party in default has commenced and is diligently pursuing
such cure, said cure period shall be extended for such additional time, but not
to exceed sixty (60) days, as is reasonably required to cure the default.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which any Company or Guarantor has
incurred any debt
-17-
or other liability to any person or entity, including Bank, and with respect to
any such default which by its nature can be cured, such default shall continue
past the end of all cure periods, if any, applicable thereto.
(e) The occurrence of any of the following which is not released or
satisfied within thirty (30) days from the date thereof, and solely with respect
to the Guarantors which are in amounts in excess of an aggregate of $50,000: (i)
the filing of a notice of judgment lien against any Company or Guarantor; (ii)
the recording of any abstract of judgment against any Company or Guarantor in
any county in which such Company or Guarantor has an interest in real property;
(iii) the service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of any Company or
Guarantor; or (iv) the entry of a judgment against any Company or Guarantor.
(f) Any Company or Guarantor shall become insolvent, or shall suffer or
consent to or apply for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to pay its
debts as they become due, or shall make a general assignment for the benefit of
creditors; any Company or Guarantor shall file a voluntary petition in
bankruptcy, or seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Code, or
under any state or federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against any Company or Guarantor, or any Company or Guarantor shall file an
answer admitting the jurisdiction of the court and the material allegations of
any involuntary petition; or any Company or Guarantor shall be adjudicated a
bankrupt, or an order for relief shall be entered against any Company or
Guarantor by any court of competent jurisdiction under the Bankruptcy Code or
any other applicable state or federal law relating to bankruptcy, reorganization
or other relief for debtors.
(g) The death or incapacity of any Guarantor during such time as the
guaranties required by Section 2.6 hereof are in effect. The dissolution or
liquidation of any Company; or any Company, or any of its respective directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of such Company.
SECTION 7.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due
-18-
and payable without presentment, demand, protest or notice of dishonor, all of
which are hereby expressly waived by Borrower; (b) the obligation, if any, of
Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all rights, powers and
remedies available under each of the Loan Documents, or accorded by law,
including without limitation the right to resort to any or all security for any
of the Credits and to exercise any or all of the rights of a beneficiary or
secured party pursuant to applicable law. All rights, powers and remedies of
Bank may be exercised at any time by Bank and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided by law or
equity.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
SECTION 8.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 8.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: TIER TECHNOLOGIES, INC.
0000 Xxxxx Xxxx. Xxxxx 000
Xxxxxx Xxxxx, XX 00000
Fax: (000) 000-00000
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
Mt. Diablo Regional Commercial Banking Xxxxxx
0000 Xxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Fax: (000) 000-0000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent
-19-
by telecopy, upon receipt if received during normal business hours on a Business
Day, and otherwise on the immediately following Business Day.
SECTION 8.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank, within ten (10) calendar days after receipt of each billing from Bank, the
full amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel), expended or incurred by Bank in connection
with (a) the negotiation and preparation of this Agreement and the other Loan
Documents, Bank's continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or defense
of any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Company or any other person or
entity.
SECTION 8.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any of the Credits, any Company, Guarantor or its respective
business, or any collateral required hereunder.
SECTION 8.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to the Credits and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only in writing signed by each party
hereto.
SECTION 8.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or
-20-
claim in connection with, this Agreement or any other of the Loan Documents to
which it is not a party.
SECTION 8.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 8.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 8.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 8.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 8.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration in accordance with the terms of this Agreement.
A "Dispute" shall mean any action, dispute, claim or controversy of any kind,
whether in contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any way
pertaining to, any of the Loan Documents, or any past, present or future
extensions of credit and other activities, transactions or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary or other remedies pursuant to any of the Loan
Documents. Any party may by summary proceedings bring an action in court to
compel arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other
-21-
administrator. If there is any inconsistency between the terms hereof and any
such rules, the terms and procedures set forth herein shall control. All
statutes of limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to matters
directly relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court having jurisdiction;
provided however, that nothing contained herein shall be deemed to be a waiver
by any party that is a bank of the protections afforded to it under 12 U.S.C.
(S)91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, (iii) shall have the power to award recovery of all costs
and fees, to order discovery, to impose sanctions and to take such other actions
as they deem necessary to the same extent a judge could pursuant to the Federal
Rules of Civil Procedure, the California Rules of Civil Procedure or other
applicable law, and (iv) shall not have the power to make any award which is not
supported by substantial evidence or which is based on legal error. All Dispute
shall be decided by a single arbitrator.
(e) Real Property Collateral; Judicial Reference. Notwithstanding anything
--------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any
-22-
rights or benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations of
the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
TIER TECHNOLOGIES, INC. XXXXX FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Xxxxxx X. Xxxx By: /s/ Xxxx Xxxxxxx
---------------------- --------------------
Xxxx Xxxxxxx
Title: Chief Financial Officer Vice President
-----------------------
-23-
SECURITY AGREEMENT
1. GRANT OF SECURITY INTEREST. For valuable consideration, the
undersigned TIER TECHNOLOGIES, INC. ("Debtor"), hereby grants and transfers to
XXXXX FARGO BANK, NATIONAL ASSOCIATION ("Bank") a security interest in all of
the property of Debtor described as follows (collectively, the "Collateral"):
(a) all Debtor's accounts, deposit accounts, chattel paper, instruments,
documents and general intangibles (collectively, "Rights to Payment"), now
existing or at any time hereafter, and prior to the termination hereof, arising
(whether they arise from the sale, lease or other disposition of inventory or
from performance of contracts for service, manufacture, construction, repair or
otherwise or from any other source whatsoever), including all securities,
guaranties, warranties, indemnity agreements, insurance policies and other
agreements pertaining to the same or the property described therein, and in all
goods returned by or repossessed from Debtor's customers;
(b) all Debtor's inventory, goods held for sale or lease or to be
furnished under contracts for service, goods so leased or furnished, raw
materials, component parts, work in process or materials used or consumed in
Debtor's business (collectively, "Inventory"), and all warehouse receipts, bills
of lading and other documents evidencing goods owned or acquired by Debtor, and
all goods covered thereby, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, and all
products thereof, whether in the possession of Debtor, warehousemen, bailees or
any other person, or in process of delivery, and whether located at Debtor's
places of business or elsewhere;
(c) all Debtor's goods, tools, machinery, furnishings, furniture and other
equipment (collectively, "Equipment"), now or at any time hereafter, and prior
to the termination hereof, owned or acquired by Debtor, wherever located,
whether in the possession of Debtor or any other person and whether located on
Debtor's property or elsewhere, and all improvements, replacements, accessions
and additions thereto;
together with whatever is receivable or received when any of the Collateral or
the proceeds thereof are sold, leased, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, including
without limitation, all Rights to Payment, including returned premiums, with
respect to any insurance relating to any of the foregoing, and all Rights to
Payment with respect to any cause of action affecting or relating to any of the
foregoing (collectively, "Proceeds").
2. OBLIGATIONS SECURED. The obligations secured hereby (the
"Obligations") are the payment and performance of: (a) all present and future
Indebtedness of Debtor to Bank under or in connection with that certain Credit
Agreement between Debtor and Bank dated as of November 7, 1997, as amended from
time to time (collectively, with all substitutions therefor and replacements
thereof, the "Credit Agreement"); and (b) all obligations and Indebtedness of
Debtor and rights of Bank under this Agreement and the other Loan Documents (as
defined in the Credit Agreement). The word "Indebtedness" is used herein in its
most comprehensive sense and includes any and all advances, debts, obligations
and liabilities of Debtor heretofore, now or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, whether due or
not due, absolute or contingent, liquidated or unliquidated, determined or
undetermined, and whether Debtor may be liable individually or jointly with
others, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
3. TERMINATION. This Agreement will terminate upon the performance of
all of the Obligations, and the termination of all commitments of Bank to extend
credit to Debtor under the Credit Agreement or any other Loan Documents existing
at the time Bank receives written notice from Debtor of the termination of this
Agreement.
4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans
hereunder, such obligations, if any, being set forth in the Credit Agreement.
Any money received by Bank in respect of the Collateral may be deposited, at
Bank's option, into a non-interest bearing account over which Debtor shall have
no control, and the same shall, for all purposes, be deemed Collateral
hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Bank that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except the lien created hereby or
as otherwise agreed to by Bank, or as heretofore disclosed by Debtor to Bank, in
writing; (d) all statements contained herein and, where applicable, in the
Collateral are true and complete in all material respects; (e) no financing
statement covering any of the Collateral or Proceeds, and naming any secured
party other than Bank, is on file in any public office; (f) where Collateral
consists of Rights to Payment, to the best of Debtor's knowledge all persons
appearing to be obligated on the Collateral and Proceeds have authority and
capacity to contract and are bound as they appear to be, all property subject to
chattel paper has been properly registered
-2-
and filed in compliance with law and to perfect the interest of Debtor in such
property, and all such Collateral and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (g) where the Collateral consists of Equipment, Debtor is not in the
business of selling goods of the kind included within such Collateral, and
Debtor acknowledges that no sale of any such Collateral, including without
limitation, any such Collateral which Debtor may deem to be surplus, has been
consented to or acquiesced in by Bank, except as specifically set forth in
writing by Bank.
6. COVENANTS OF DEBTOR.
(a) Debtor agrees in general: (i) to pay all Obligations secured hereby
when due; (ii) to indemnify Bank against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto, except
to the extent the foregoing arise out of the gross negligence or willful
misconduct of Bank; (iii) to pay in accordance with Section 15 hereof all costs
and expenses, including reasonable attorneys' fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank's interest therein and/or
the realization, enforcement and exercise of Bank's rights, powers and remedies
hereunder; (iv) to permit Bank to exercise its powers; (v) to execute and
deliver such documents as Bank reasonably deems necessary to create, perfect and
continue the security interests contemplated hereby; and (vi) not to change its
chief place of business or the places where Debtor keeps any of the Collateral
or Debtor's records concerning the Collateral and Proceeds without first giving
Bank written notice of the address to which Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and Proceeds, unless Bank
agrees otherwise in writing: (i) where applicable or practicable, to insure the
Collateral with Bank as loss payee, in form, substance and amounts, under
agreements, against risks and liabilities, and with insurance companies
reasonably satisfactory to Bank; (ii) where applicable, to operate the
Collateral in accordance with all applicable statutes, rules and regulations
relating to the use and control thereof, and not to use any Collateral for any
unlawful purpose or in any way that would void any insurance required to be
carried in connection therewith; (iii) not to remove the Collateral from
Debtor's premises, except (A) for deliveries of Inventory to buyers in the
ordinary course of Debtor's business, (B) Collateral which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Collateral from its state of
domicile for a period in excess of thirty (30) calendar days, and (C) Collateral
which consists of personal computers and
-3-
similar office equipment used by Debtor's employees, consultants, agents and
subcontractors in the ordinary course of Debtor's business at off-site
locations; (iv) to pay when due all license fees, registration fees and other
charges in connection with any Collateral; (v) not to permit any lien on the
Collateral or Proceeds, including without limitation, liens arising from repairs
to or storage of the Collateral, except in favor of Bank and except in
connection with purchase money security interests and/or capital leases to the
extent permitted by the Credit Agreement; (vi) not to sell, hypothecate or
dispose of, nor permit the transfer by operation of law of, any of the
Collateral or Proceeds or any interest therein, except (A) sales of Inventory to
buyers in the ordinary course of Debtor's business, and (B) replacement of
Equipment in the ordinary course of Debtor's business; (vii) to permit Bank to
inspect the Collateral at any time upon reasonable notice during normal business
hours; (viii) to keep, in accordance with generally accepted accounting
principles, complete and accurate records regarding all Collateral and Proceeds,
and to permit Bank to inspect the same and make copies thereof at any reasonable
time during normal business hours; (ix) if requested by Bank after the
occurrence of an Event of Default, to receive and use reasonable diligence to
collect Rights to Payment and Proceeds, in trust and as the property of Bank,
and to immediately endorse as appropriate and deliver such Rights to Payment and
Proceeds to Bank daily in the exact form in which they are received together
with a collection report in form satisfactory to Bank; (x) not to commingle
Rights to Payment or Proceeds, or collections thereunder, with other property;
(xi) to give only normal allowances and credits and to advise Bank thereof
immediately in writing if they affect any Rights to Payment or Proceeds in any
material respect; (xii) from time to time, when requested by Bank, to prepare
and deliver a schedule of all Collateral and Proceeds subject to this Agreement
and to assign in writing and deliver to Bank all accounts, contracts, leases and
other chattel paper, instruments, documents and other evidences thereof; (xiii)
in the event Bank elects to receive payments of Rights to Payment or Proceeds
hereunder, to pay all expenses incurred by Bank in connection therewith,
including expenses of accounting, correspondence, collection efforts, reporting
to account or contract debtors, filing, recording, record keeping and expenses
incidental thereto; and (xiv) to provide any service and do any other acts which
may be necessary to maintain, preserve and protect all Collateral and, as
appropriate and applicable, to keep all Collateral in good and saleable
condition, to deal with the Collateral in accordance with the standards and
practices adhered to generally by users and manufacturers of like property, and
to keep all Collateral and Proceeds free and clear of all defenses, rights of
offset and counterclaims.
7. POWERS OF BANK. Debtor appoints Bank its true attorney in fact to
perform any of the following powers, which are coupled
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with an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Bank's officers and employees, or any of them:
(a) whether or not an Event of Default has occurred: (i) to perform any
obligation of Debtor hereunder in Debtor's name or otherwise if Debtor has
failed to so perform after such notice as is reasonable under the then existing
circumstances; (ii) to give notice to account debtors or others of Bank's rights
in the Collateral and Proceeds; (iii) to release security; (iv) to prepare,
execute, file, record or deliver notes, assignments, schedules, designation
statements, financing statements, continuation statements, termination
statements, statements of assignment, applications for registration or like
papers to perfect, preserve or release Bank's interest in the Collateral and
Proceeds; (v) to verify facts concerning the Collateral and Proceeds by inquiry
of obligors thereon, or otherwise, in its own name or a fictitious name; (vi) to
prepare, adjust, execute, deliver and receive payment under insurance claims,
and to collect and receive payment of and endorse any instrument in payment of
loss or returned premiums or any other insurance refund or return, and to apply
such amounts received by Bank, at Bank's sole option, toward repayment of the
Indebtedness or replacement of the Collateral; and (vii) to enter onto Debtor's
premises in inspecting the Collateral; and
(b) after an Event of Default has occurred: (i) to enforce Bank's rights
and make extension agreements with respect to the Collateral; (ii) to release
persons liable on Collateral or Proceeds and to give receipts and acquittances
and compromise disputes in connection therewith; (iii) to resort to security in
any order; (iv) to take cash, instruments for the payment of money and other
property to which Bank is entitled; (v) to endorse, collect, deliver and receive
payment under instruments for the payment of money constituting or relating to
Proceeds; (vi) to make withdrawals from and to close deposit accounts or other
accounts with any financial institution, wherever located, into which Proceeds
may have been deposited, and to apply funds so withdrawn to payment of
Obligations; (vii) to preserve or release the interest evidenced by chattel
paper to which Bank is entitled hereunder and to endorse and deliver evidences
of title incidental thereto; (viii) to exercise all rights, powers and remedies
which Debtor would have, but for this Agreement, with respect to all Collateral
and Proceeds subject hereto; and (ix) to do all acts and things and execute all
documents in the name of Debtor or otherwise, deemed by Bank as necessary,
proper and convenient in connection with the preservation, perfection or
enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against
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the Collateral and Proceeds, and upon the failure of Debtor to do so, Bank at
its option may pay any of them and shall be the sole judge of the legality or
validity thereof and the amount necessary to discharge the same. Any such
payments made by Bank shall be obligations of Debtor to Bank, due and payable
within ten (10) calendar days after receipt of each billing from Bank, together
with interest at a rate determined in accordance with the provisions of Section
15 hereof, and shall be secured by the Collateral and Proceeds, subject to all
terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any defined Event of Default
under the Credit Agreement shall constitute an "Event of Default" under this
Agreement.
10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall
have the right to declare immediately due and payable all or any of the
Obligations and to terminate any commitments to make loans or otherwise extend
credit to Debtor. Bank shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver all Collateral and/or Proceeds directly
to Bank. All rights, powers, privileges and remedies of Bank shall be
cumulative. No delay, failure or discontinuance of Bank in exercising any
right, power, privilege or remedy hereunder shall affect or operate as a waiver
of such right, power, privilege or remedy; nor shall any single or partial
exercise of any such right, power, privilege or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy. Any waiver, permit, consent or
approval of any kind by Bank of any default hereunder, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing. It is agreed that public or private sales,
for cash or on credit, to a wholesaler or retailer or investor, or user of
property of the types subject to this Agreement, or public auction, are all
commercially reasonable since differences in the sales prices generally realized
in the different kinds of sales are ordinarily offset by the differences in the
costs and credit risks of such sales. While an Event of Default exists: (a)
Debtor will deliver to Bank from time to time, as requested by Bank, current
lists of all Collateral and Proceeds; (b) Debtor will not dispose of any of the
Collateral or Proceeds except on terms approved by Bank; (c) at Bank's request,
Debtor will assemble and deliver all Collateral and Proceeds, and books and
records pertaining thereto, to Bank at a reasonably convenient place designated
by Bank; and (d) Bank may, without notice to Debtor, enter onto Debtor's
premises and take possession of the Collateral. With respect to any sale by
Bank of any Collateral
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subject to this Agreement, Debtor hereby expressly grants to Bank the right to
sell such Collateral using any or all of Debtor's trademarks, trade names, trade
name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Obligations, Bank may transfer all or any part of the Collateral
or Proceeds and shall be fully discharged thereafter from all liability and
responsibility with respect to any of the foregoing so transferred, and the
transferee shall be vested with all rights and powers of Bank hereunder with
respect to any of the foregoing so transferred; but with respect to any
Collateral or Proceeds not so transferred, Bank shall retain all rights, powers,
privileges and remedies herein given. Any proceeds of any disposition of any of
the Collateral or Proceeds, or any part thereof, may be applied by Bank to the
payment of expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Obligations in such order of application as Bank
may from time to time elect.
12. STATUTE OF LIMITATIONS. Until all Obligations shall have been paid in
full and all commitments by Bank to extend credit to Debtor have been
terminated, the power of sale and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Obligations or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Obligations.
13. MISCELLANEOUS. (a) The obligations of Debtor are joint and several;
(b) Debtor hereby waives any right (i) to require Bank to make any presentment
or demand, or give any notice of nonpayment or nonperformance, protest, notice
of protest or notice of dishonor hereunder, (ii) to direct the application of
payments or security for any of the Obligations, or any indebtedness of
customers of Debtor, or (iii) to require proceedings against others or to
require exhaustion of security; and (c) Debtor hereby consents to extensions,
forbearances or alterations of the terms of the Obligations, the release or
substitution of security, and the release of any guarantors; provided however,
that in each instance, Bank believes in good faith that the action in question
is commercially reasonable in that it does not unreasonably increase the risk of
nonpayment of the Obligations. Until all Obligations shall have been paid in
full, Debtor shall not have any right of subrogation or contribution, and Debtor
hereby waives any benefit of or right to participate in any of the Collateral or
Proceeds or any other security now or hereafter held by Bank.
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14. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Debtor or to Bank at its address
specified in, and given in accordance with the terms of, the Credit Agreement.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Bank, within
ten (10) calendar days after receipt of each billing from Bank, the full amount
of all payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of
Bank's in-house counsel), expended or incurred by Bank in exercising any right,
power, privilege or remedy conferred by this Agreement or in the enforcement
thereof, whether incurred at the trial or appellate level, in an arbitration
proceeding or otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to Debtor or in any way affecting any of the Collateral or
Bank's ability to exercise any of its rights or remedies with respect thereto.
All of the foregoing shall be paid by Debtor with interest from the date due
until paid in full at a rate per annum equal to the greater of ten percent (10%)
or the Prime Rate in effect from time to time.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended or
modified only in writing signed by Bank and Debtor.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of California.
Debtor warrants that its chief executive office is located at 0000 Xxxxx
Xxxxxxxxx, Xxxxx 000, Xxxxxx Xxxxx, XX 00000. Debtor further warrants that none
of the Collateral (except goods in transit and Equipment used at off-site
locations as permitted by Section 6(b)(iii)(C) hereof) is located or domiciled
at any other address.
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IN WITNESS WHEREOF, this Agreement has been duly executed as of November 7,
1997.
TIER TECHNOLOGIES, INC.
By: /s/ Xxxxxx X. Xxxx
---------------------------
Title: Chief Financial Officer
------------------------
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