CREDIT AND SECURITY AGREEMENT
THIS
CREDIT AND SECURITY AGREEMENT (the
“Agreement”) is dated November 20, 2007 , and is entered into between
GVI
Security, Inc.,
a
Delaware corporation (“Company”), and Xxxxx
Fargo Bank, National Association (as
more
fully defined in Exhibit A, “Xxxxx Fargo”), acting through its Xxxxx Fargo
Business Credit operating
division.
RECITALS
Company
has asked Xxxxx Fargo to provide it with a $15,000,000 revolving line of credit
(the “Line of Credit”) to repay certain indebtedness of Company, for working
capital purposes and for facilitating the issuance of documentary
or standby letters of credit. Xxxxx
Fargo is agreeable to meeting Company’s request, provided that Company agrees to
the terms and conditions of this Agreement.
For
purposes of this Agreement, capitalized terms not otherwise defined in the
Agreement shall have the meaning given them in Exhibit A.
1. Amount
and Terms of the Line of Credit
1.1 Line
of Credit; Limitations on Borrowings; Termination Date; Use of
Proceeds.
(a) Line
of Credit and Limitations on Borrowing.
Xxxxx
Fargo shall make advances (each an “Advance”, and collectively the “Advances”)
to Company under the Line of Credit that, together with the L/C Amount, shall
not at any time exceed in the aggregate the lesser
of
(i) $15,000,000 (the “Maximum Line Amount”), or (ii) the Borrowing
Base limitations described in Section 1.2. Within these limits, Company may
periodically borrow, prepay in whole or in part, and reborrow. Xxxxx
Fargo has no obligation to make an Advance during a Default Period or at any
time Xxxxx Fargo believes that an Advance would result in an Event of
Default.
(b) Maturity
and Termination Dates.
Company
may request Advances from the date that the conditions set forth in Section
3 of
this Agreement are satisfied until the earlier of: (i) November 20, 2010
(the “Maturity Date”), (ii) the date Company terminates the Line of Credit,
or (iii) the date Xxxxx Fargo terminates the Line of Credit following an
Event of Default. (The earliest of these dates is the “Termination Date.”)
(c) Use
of
Line of Credit Proceeds.
Company
shall use the proceeds of each Line of Credit Advance and each Letter of Credit
for ordinary working capital purposes (including fees and expenses incurred
in
connection with this Agreement) and to repay certain indebtedness of
Company.
(d) Revolving
Note.
Company’s obligation to repay Advances on the Line of Credit, regardless of how
the Advances were initiated under Section 1.3 of this Agreement, shall be
evidenced by a revolving promissory note (as periodically renewed, amended
or
replaced, the “Revolving Note”).
1.2 Borrowing
Base; Mandatory Prepayment.
(a) Borrowing
Base.
Aggregate unreimbursed Advances, plus the L/C Amount, shall not at any time
exceed the borrowing base (the “Borrowing Base”), which is an amount equal to:
(i) 85% of Eligible Accounts, plus
(ii) the lesser of (A) 85% of Net Orderly Liquidation Value of
Eligible Inventory, (B) $8,500,000 or (C) 60% of Eligible Inventory,
less
(iii) the Borrowing Base Reserve, less
(iv) Indebtedness that Company owes Xxxxx Fargo that has not been advanced
on the Revolving Note, less
(v) Indebtedness that Xxxxx Fargo in its sole discretion finds on the date
of determination to be equal to Xxxxx Fargo’s net credit exposure with respect
to any swap, derivative, foreign exchange, hedge, deposit, treasury management
or similar product or transaction extended to Company by Xxxxx Fargo that do
not
otherwise constitute Advances under this Agreement.
(b) Mandatory
Prepayment; Overadvances.
If
unreimbursed Advances evidenced by the Revolving Note plus the L/C Amount exceed
the Borrowing Base at any time, then Company shall immediately prepay the
Revolving Note in an amount sufficient to eliminate the excess, and if payment
in full of the Revolving Note is insufficient to eliminate this excess and
the
L/C Amount continues to exceed the Borrowing Base, then Company shall deliver
cash to Xxxxx Fargo in an amount equal to the remaining excess for deposit
to
the Special Account, unless in each case, Xxxxx Fargo has delivered to Company
an Authenticated Record consenting to the resulting Overadvance prior
to its
occurrence, in which event the Overadvance shall be temporarily permitted on
such terms and conditions as Xxxxx Fargo in its sole discretion may deem
appropriate, including the payment of additional fees or interest, or
both.
1.3 Procedures
for Advances.
(a) Line
of Credit Advances to Operating Account.
Line of
Credit Advances shall be credited to Company’s operating account #4121160162
maintained with Xxxxx Fargo (the “Operating Account”), unless Xxxxx Fargo and
Company agree in a Record Authenticated by both parties to disburse to another
account.
(i) Advances
upon Company’s Request.
Advances may be funded upon Company’s request. No request will be deemed
received until Xxxxx Fargo acknowledges receipt, and Company, if requested
by
Xxxxx Fargo, confirms the request in an Authenticated Record. Company shall
repay all Advances, even if the Person requesting the Advance on behalf of
Company lacked authorization.
(A) Floating
Rate Advances.
If
Company wants a Floating Rate Advance, it shall make the request no later than
11:59 a.m. Central Time on the Business Day on which it wants the Floating
Rate
Advance to be funded, which request shall specify the principal Advance amount
being requested.
(B) LIBOR
Advances.
If
Company wants a LIBOR Advance, it shall make the request no later than
11:59
a.m. Central
Time on the Business Day
immediately preceding the Business Day on which it wants the LIBOR Advance
to be
funded, which request shall specify both the principal Advance amount and
Interest Period being requested. No more than five separate LIBOR Advance
Interest Periods may be outstanding at any time. Each LIBOR Advance shall be
in
multiples of $500,000 and the initial LIBOR Advance shall be in the minimum
amount of at least $2,000,000 and thereafter, each LIBOR Advance shall be in
the
minimum amount of at least $1,000,000. LIBOR Advances shall not be available
during Default Periods.
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(b) Protective
Advances; Advances to Pay Indebtedness Due.
Xxxxx
Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole
discretion for any reason at any time, without Company’s compliance with any of
the conditions set forth in this Agreement, and (i) disburse the proceeds
directly to third Persons in order to protect Xxxxx Fargo’s interest in
Collateral or to perform any of Company’s obligations under this Agreement, or
(ii) apply the proceeds to the amount of any Indebtedness then due and payable
to Xxxxx Fargo.
1.3A LIBOR
Advances.
(a) Procedure
for Converting Floating Rate Advances to LIBOR Advances.
Company
may convert all or any part of the principal amount of an outstanding Floating
Rate Advance to a LIBOR Advance, provided that no Default Period is in effect,
and that Company’s request is received by Xxxxx Fargo no later than 11:59
a.m. Central
Time on the Business Day
immediately preceding the Business Day on which Company wishes the conversion
to
become effective. Each request shall specify the principal amount of the
Floating Rate Advance to be converted, the Business Day of conversion and
Interest Period desired, and shall be confirmed in an Authenticated Record
if
requested by Xxxxx Fargo. Each conversion to a LIBOR Advance shall be in
multiples of $500,000 and the initial LIBOR Advance shall be in the minimum
amount of at least $2,000,000 and thereafter, each LIBOR Advance shall be in
the
minimum amount of at least $1,000,000.
(b) Expiring
LIBOR Advance Interest Periods.
Unless
Company requests a new LIBOR Advance in accordance with the procedures set
forth
below, or prepays the principal of an outstanding LIBOR Advance at the
expiration of an Interest Period, Xxxxx Fargo shall automatically convert each
LIBOR Advance to a Floating Rate Advance on the last day of the expiring
Interest Period. So long as no Default Period exists, Company may request that
all or part of any expiring LIBOR Advance be renewed as a new LIBOR Advance,
provided that Xxxxx Fargo receives the request no later than 11:59
a.m. Central
Time on the Business Day
immediately preceding the Business Day that constitutes the first day of the
new
Interest Period. Each request shall specify the principal amount of the expiring
LIBOR Advance to be continued and Interest Period desired, and shall be
confirmed in an Authenticated Record if requested by Xxxxx Fargo. Each LIBOR
Advance renewal shall be in multiples of $500,000.
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(c) Quotation
of LIBOR Advance Interest Rates.
Xxxxx
Fargo shall, with respect to any request for a new or renewal LIBOR Advance,
or
the conversion of a Floating Rate Advance to a LIBOR Advance, provide Company
with a LIBOR quote for each Interest Period identified by Company on the
Business Day on which the request was made, if the request is received by Xxxxx
Fargo no later than 11:59
a.m. Central
Time on the Business Day
immediately preceding the Business Day on which Company has requested that
the
LIBOR Advance be made effective. If Company does not immediately accept a LIBOR
quote, the quoted rate shall expire and any subsequent request for a LIBOR
quote
shall be subject to redetermination by Xxxxx Fargo.
(d) Taxes
and Regulatory Costs.
Company
shall pay on demand to Xxxxx Fargo with respect to any LIBOR Advance, in
addition to any other amounts due or to become due under this Agreement, all
(i)
withholdings, interest equalization taxes, stamp taxes or other taxes (except
income and franchise taxes) imposed by any domestic or foreign governmental
authority that is related to LIBOR, and (ii) future, supplemental, emergency
or
other changes in the LIBOR Reserve Percentage, assessment rates imposed by
the
Federal Deposit Insurance Corporation, or similar costs imposed by any domestic
or foreign governmental authority or resulting from compliance by Xxxxx Fargo
with any request or directive (whether or not having the force of law) from
any
central bank or other governmental authority that is related to LIBOR to the
extent they are not included in the calculation of LIBOR. In determining which
of these amounts are attributable to an existing LIBOR Advance, any reasonable
allocation made by Xxxxx Fargo among its operations shall be conclusive and
binding upon Company.
1.4 Collection
of Accounts and Application to Revolving Note.
(a) Xxxxx
Fargo’s Collection Account.
Company
has granted a security interest to Xxxxx Fargo in the Collateral, including
all
Accounts. Except as otherwise agreed by both parties in an Authenticated Record,
all Proceeds of Accounts and other Collateral, upon receipt or collection,
shall
be deposited each Business Day into a non interest bearing demand deposit
account owned by and maintained with Xxxxx Fargo (the “Collection Account”).
Funds so deposited (“Account Funds”) are the property of Xxxxx Fargo, and may
only be withdrawn from the Collection Account by Xxxxx Fargo.
(b) Payment
of Accounts by Company’s Account Debtors.
Company
shall instruct all account debtors to pay Accounts owed to Company as follows:
(i) Payments
by Check.
If
account debtors are making payments by check, Company will instruct that all
such payments be sent directly to Company’s post office box (the “Lockbox”), to
which Xxxxx Fargo has been given exclusive access by separate agreement, and
Xxxxx Fargo shall deposit all such payments received into the Lockbox directly
to the Collection Account.
(ii) Wire
Transfers through Ready RemitSM
Service.
If
Company has separately contracted with Xxxxx Fargo to use the Xxxxx Fargo Ready
RemitSM
service
(“Ready Remit”), Company may instruct account debtors to make payments by wire
transfer that conform to the requirements of Ready Remit, and all conforming
payments shall be wire transferred directly to Xxxxx Fargo’s general account.
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(iii) All
Other Forms of Payment.
If
account debtors are making payment by any means other than by check, or by
check
for delivery to Xxxxx Fargo without initial delivery to the Lockbox, Company
will instruct that all such payments be sent directly to Xxxxx Fargo for deposit
to the Collection Account pursuant to such other product or service agreed
to by
the parties in a service description to the Master Agreement for Treasury
Management Services.
If
Company receives a payment or the Proceeds of Collateral directly, Company
will
promptly deposit the payment or Proceeds into the Collection Account. Until
deposited, Company shall hold all such payments and Proceeds in trust for Xxxxx
Fargo as its property without commingling with other funds or property. All
deposits held in the Collection Account shall constitute Proceeds of Collateral
and shall not constitute the payment of Indebtedness.
(c) Application
of Payments to Revolving Note.
(i) Payments
Received into the Collection Account.
Account
Funds deposited to the Collection Account will be processed in accordance with
the terms of the Collection Account service description to the Master Agreement
for Treasury Management Services. Xxxxx Fargo will withdraw Account Funds
deposited to the Collection Account and pay down borrowings on the Line of
Credit by applying them to the Revolving Note on the first Business Day
following the Business Day of deposit to the Collection Account.
(ii) Payments
Received via Ready Remit.
If
Company uses Ready Remit, conforming wire transfers received directly by Xxxxx
Fargo shall be applied to the Revolving Note on the Business Day of receipt,
if
received no later than 12:30 p.m. Central Time, or the next Business Day if
received after 12:30 p.m. Central Time.
1.5 Liability
Records. Xxxxx
Fargo shall maintain accounting and bookkeeping records of all Advances and
payments under the Line of Credit and all other Indebtedness due to Xxxxx Fargo
in such form and content as Xxxxx Fargo in its sole discretion deems
appropriate. Xxxxx Fargo’s calculation of current Indebtedness shall be presumed
correct unless proven otherwise by Company. Upon Xxxxx Fargo’s request, Company
will admit and certify in a Record the exact principal balance of the
Indebtedness that Company then believes to be outstanding. Any billing statement
or accounting provided by Xxxxx Fargo shall be conclusive and binding unless
Company notifies Xxxxx Fargo in a detailed Record of its intention to dispute
the billing statement or accounting within 30 days of receipt.
1.6 Floating
Rate; LIBOR Advance Rate; Interest Related Matters; Application of
Payments.
(a) Floating
Rate; LIBOR Advance Rate.
Except
as otherwise provided in this Agreement, the unpaid principal amount of each
Advance evidenced by the Revolving Note shall accrue interest at either
(i) an annual interest rate equal to the sum of the Prime Rate plus the
applicable Margin, which interest rate shall change whenever the Prime Rate
changes (the “Floating Rate”); or (ii) an annual interest rate equal to the
sum of LIBOR plus the applicable Margin (the “LIBOR Advance Rate”). Multiple
Advances may accrue interest at both the Floating Rate and at the LIBOR Advance
Rate at the same time, subject to the limitations set forth in Section
1.3(a)(i).
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The
Margins through and including the adjustment occurring as specified below shall
be three-quarters of one percent (0.75%) for Floating Rate Advances, and three
and one-quarter of one percent (3.25%) for LIBOR Advances. The Margins shall
be
adjusted to one-quarter of one percent (0.25%) for Floating Rate Advances,
and
two and three-quarters of one percent (2.75%) for LIBOR Advances if, and only
if, Company’s Net Income as of the fiscal year ending December 31, 2008 is
greater than or equal to $1,000,000.
A
reduction in the Margins will be made following receipt of Company’s financial
statements required by Section
5.1(a)
this
Agreement for the fiscal year ending December 31, 2008. The reduction in the
Margin change shall become effective not more than 30 days after the date of
Xxxxx Fargo’s receipt of such financial statements. Notwithstanding the
foregoing, no reduction in any Margin will be made if a Default Period
exists at the time that such reduction would otherwise be made.
If
amended or restated financial statements would change previously calculated
Margins, or if Xxxxx Fargo determines that any financial statements have
materially misstated Company’s financial condition, then Xxxxx Fargo may, using
the most accurate information available to it, recalculate the financial test
or
tests governing the Margins and retroactively increase the Margins from the
date
of receipt of such amended or restated financial statements and charge Company
additional interest, which may be imposed on Company from the date on which
the
Margins had been decreased by Xxxxx Fargo in reliance on the financial
statements that have been amended or restated.
(b) Default
Interest Rate.
Commencing on the day an Event of Default occurs, through and including the
date
(i) that the Event of Default has been waived or (ii) identified by Xxxxx Fargo
in a Record as the date that the Event of Default has been cured, (each such
period a “Default Period”), or during a time period specified in Section 1.9 of
this Agreement, or at any time following the Termination Date, in Xxxxx Fargo’s
sole discretion and without waiving any of its other rights or remedies, the
principal amount of the Revolving Note shall bear interest at a rate that is
two
percent (2.0%) above the contractual rate set forth in Section 1.6(a) of this
Agreement (the “Default Rate”), or any lesser rate that Xxxxx Fargo may deem
appropriate, starting on the first day of the month in which the Default Period
begins through the last day of that Default Period, or any shorter time period
to which Xxxxx Fargo may agree in an Authenticated Record.
(c) Interest
Accrual on Payments Applied to Revolving Note.
Payments received by Xxxxx Fargo other than by wire transfer shall be applied
to
the Revolving Note as provided in Section 1.4(c)(i) of this Agreement, but
the
principal amount paid down shall continue to accrue interest through the end
of
the first Business Day following the Business Day that the payment was applied
to the Revolving Note. If Company uses Ready Remit, then payments received
by
Xxxxx Fargo shall be applied to Indebtedness advanced on the Revolving Note
as
provided in Section 1.4(c)(ii) of this Agreement, but the amount of principal
paid shall continue to accrue interest through the end of the first Business
Day
following the Business Day that the payment was applied to the Revolving
Note.
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(d) Usury.
In any
event no rate change shall be put into effect that would result in a rate
greater than the highest rate permitted by law. Notwithstanding anything to
the
contrary contained in any Loan Document, all agreements which either now are
or
which shall become agreements between Company and Xxxxx Fargo are hereby limited
so that in no contingency or event whatsoever shall the total liability for
payments in the nature of interest, additional interest and other charges exceed
the applicable limits imposed by any applicable usury laws. If any payments
in
the nature of interest, additional interest and other charges made under any
Loan Document are held to be in excess of the limits imposed by any applicable
usury laws, it is agreed that any such amount held to be in excess shall be
considered payment of principal hereunder, and the indebtedness evidenced hereby
shall be reduced by such amount so that the total liability for payments in
the
nature of interest, additional interest and other charges shall not exceed
the
applicable limits imposed by any applicable usury laws, in compliance with
the
desires of Company and Xxxxx Fargo. This provision shall never be superseded
or
waived and shall control every other provision of the Loan Documents and all
agreements between Company and Xxxxx Fargo, or their respective successors
and
assigns. Unless preempted by federal law or as permitted under the sentence
immediately following this sentence, the Floating Rate, the LIBOR Advance Rate
or the Default Rate, as applicable, from time to time in effect under this
Agreement may not exceed the “weekly ceiling” from time to time in effect under
Chapter 303 of the Texas Finance Code (Vernon’s Texas Code Annotated), as
amended from time to time (the “Texas
Finance Code”).
If
the applicable state or federal law is amended in the future to allow a greater
rate of interest to be charged under this Agreement than is presently allowed
by
applicable state or federal law, then the limitation of interest hereunder
shall
be increased to the maximum rate of interest allowed by applicable state or
federal law as amended, which increase shall be effective hereunder on the
effective date of such amendment, and all interest charges owing to Xxxxx Fargo
by reason thereof shall be payable in accordance with Section
1.6
hereof.
1.7 Fees.
(a) Origination
Fee.
Company
shall pay Xxxxx Fargo a one time origination fee of $37,500, which shall be
fully earned and payable upon the execution of this Agreement.
(b) Unused
Line Fee.
Company
shall pay Xxxxx Fargo an annual unused line fee of one-quarter of one percent
(0.25%) of the daily average of the Maximum Line Amount reduced by outstanding
Advances and the L/C Amount (the “Unused Amount”), from the date of this
Agreement to and including the Termination Date, which unused line fee shall
be
payable monthly in arrears on the first day of each month and on the Termination
Date.
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(c) Collateral
Exam Fees.
Company
shall pay Xxxxx Fargo fees in connection with any collateral exams, audits
or
inspections conducted by or on behalf of Xxxxx Fargo at the current rates
established from time to time by Xxxxx Fargo as its collateral exam fees (which
fees are currently $850 per eight-hour day per collateral examiner), together
with all actual out-of-pocket costs and expenses incurred in conducting any
collateral examination or inspection.
(d) Termination
and Line Reduction Fees.
If (i)
Xxxxx Fargo terminates the Line of Credit during a Default Period, or if (ii)
Company terminates the Line of Credit on a date prior to the Maturity Date,
or
if (iii) Company and Xxxxx Fargo agree to reduce the Maximum Line Amount, then
Company shall pay Xxxxx Fargo as liquidated damages a termination or reduction
fee in an amount equal to a percentage of the Maximum Line Amount (or the
reduction of the Maximum Line Amount, as the case may be) calculated as follows:
(A) two percent (2.0%) if the termination occurs on or before the first
anniversary of the first Advance; (B) one percent (1.0%) if the termination
or reduction occurs after the first anniversary of the first Advance, but on
or
before the second anniversary of the first Advance; and (C) one-quarter of
one percent (0.25%) if the termination or reduction occurs after the second
anniversary of the first Advance.
(e) Letter
of Credit Fees.
Company
shall pay a fee with respect to each Letter of Credit issued by Xxxxx Fargo
of
two percent (2.0%) per annum of the aggregate undrawn amount of the Letter
of
Credit (the “Aggregate Face Amount”) accruing daily from and including the date
the Letter of Credit is issued until the date that it either expires or is
returned, which shall be payable monthly in arrears on the first day of each
month and on the date that the Letter of Credit either expires or is returned;
and following an Event of Default, this fee shall increase to four percent
(4.0%) per annum of the Aggregate Face Amount, commencing on the first day
of
the month in which the Default Period begins and continuing through the last
day
of such Default Period, or any shorter time period that Xxxxx Fargo in its
sole
discretion may deem appropriate, without waiving any of its other rights and
remedies.
(f) Letter
of Credit Administrative Fees.
Company
shall pay all administrative fees charged by Xxxxx Fargo in connection with
the
honoring of drafts under any Letter of Credit, and any amendments to or
transfers of any Letter of Credit, and any other activity with respect to the
Letters of Credit at the current rates published by Xxxxx Fargo for such
services rendered on behalf of its customers generally.
(g) Other
Fees and Charges.
Xxxxx
Fargo may impose additional fees and charges during a Default Period for (i)
waiving an Event of Default, or for (ii) the administration of Collateral by
Xxxxx Fargo. All such fees and charges shall be imposed at Xxxxx Fargo’s sole
discretion following oral notice to Company on either an hourly, periodic,
or
flat fee basis, and in lieu of or in addition to imposing interest at the
Default Rate, and Company’s request for an Advance following such notice shall
constitute Company’s agreement to pay such fees and charges.
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(h) Contracted
Funds Breakage Fees.
Company
may prepay the principal amount of the Revolving Note at any time in any amount,
whether voluntarily or by acceleration, provided,
however,
that if
the principal amount of any Revolving Note LIBOR Advance is prepaid, Company
shall pay to Xxxxx Fargo immediately upon demand a contracted funds breakage
fee
equal to the sum of the discounted monthly differences for each month from
the
month of prepayment through the month in which such Interest Period matures,
calculated as follows for each such month:
(i) Determine
the
amount of interest which would have accrued each month on the amount prepaid
at
the interest rate applicable to such amount had it remained outstanding until
the last day of the applicable Interest Period.
(ii) Subtract
from the
amount determined in (i) above the amount of interest which would have accrued
for the same month on the amount prepaid for the remaining term of such Interest
Period at LIBOR in effect on the date of prepayment for new loans made for
such
term in a principal amount equal to the amount prepaid.
(iii) If
the
result obtained in (ii) for any month is greater than zero, discount that
difference by LIBOR used in (ii) above.
Company
acknowledges that prepayment of the Revolving Note may result in Xxxxx Fargo
incurring additional costs, expenses or liabilities, and that it is difficult
to
ascertain the full extent of such costs, expenses or liabilities. Company
therefore agrees to pay the above-described contracted funds breakage fee and
agrees that said amount represents a reasonable estimate of the contracted
funds
breakage costs, expenses and/or liabilities of Xxxxx Fargo.
1.8 Interest
Accrual; Principal and Interest Payments; Computation.
(a) Interest
Payments and Interest Accrual.
Accrued
and unpaid interest shall be due and payable on the first day of each month
(each an “Interest Payment Date”) and on the Termination Date. Interest shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of Advance to the Interest Payment Date.
(b) Payment
of Revolving Note Principal.
The
principal amount of the Revolving Note shall be paid from time to time as
provided in Section 1.2(b), and shall be fully due and payable on the
Termination Date. All payments of principal will be applied first to Floating
Rate Advances and then to LIBOR Advances so as to avoid contracted funds
breakage costs.
(c) Payments
Due on Non-Business Days.
If an
Interest Payment Date or the Termination Date falls on a day which is not a
Business Day, payment shall be made on the next Business Day, and interest
shall
continue to accrue during that time period.
(d) Computation
of Interest and Fees.
Interest accruing on the outstanding principal balance of the Revolving Note
and
fees payable under this Agreement shall be computed on the basis of the actual
number of days elapsed in a year of 360 days.
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1.9 Termination,
Reduction or Non-Renewal of Line of Credit by Company;
Notice.
(a) Termination
by Company after Advance Notice.
Company
may terminate or reduce the Line of Credit at any time prior to the Maturity
Date, if it (i) delivers an Authenticated Record notifying Xxxxx Fargo of
its intentions at least 30 days prior to the proposed Termination Date,
(ii) pays Xxxxx Fargo the termination fee set forth in Section 1.7(d) of
this Agreement, and (iii) pays the Indebtedness in full or down to the reduced
Maximum Line Amount.
(b) Non-Renewal
by Company; Notice.
If
Company does not wish Xxxxx Fargo to consider renewal of the Line of Credit
on
the next Maturity Date, Company shall deliver an Authenticated Record to Xxxxx
Fargo at least 30 days prior to the Maturity Date notifying Xxxxx Fargo of
its
intention not to renew. If Company fails to deliver to Xxxxx Fargo such timely
notice, then the Revolving Note shall accrue interest at the Default Rate
commencing on the 30th
day
prior to the Maturity Date and continuing through the date that Xxxxx Fargo
receives delivery of an Authenticated Record giving it actual notice of
Company’s intention not to renew.
1.10 Letters
of Credit
(a) Issuance
of Letters of Credit; Amount.
Xxxxx
Fargo, subject to the terms and conditions of this Agreement, shall issue,
on or
after the date that Xxxxx Fargo is obligated to make its first Advance under
this Agreement and prior to the Termination Date, one or more irrevocable
standby or documentary letters of credit (each, a “Letter of Credit”, and
collectively, “Letters of Credit”) for Company’s account. Xxxxx Fargo will not
issue any Letter of Credit if the face amount of the Letter of Credit would
exceed the lesser of: (i) $2,000,000 less the L/C Amount, or (ii) the Borrowing
Base.
(b) Additional
Letter of Credit Documentation.
Prior
to requesting issuance of a Letter of Credit, Company shall first execute and
deliver to Xxxxx Fargo a Standby Letter of Credit Agreement, a Commercial Letter
of Credit Agreement, an L/C Application, and any other documents that Xxxxx
Fargo may request, which shall govern the issuance of the Letter of Credit
and
Company’s obligation to reimburse Xxxxx Fargo for any related Letter of Credit
draws (the “Obligation of Reimbursement”).
(c) Expiration.
No
Letter of Credit shall be issued that has an expiry date that is later than
one
(1) year from the date of issuance, or the Maturity Date in effect on the date
of issuance, whichever is earlier.
(d) Obligation
of Reimbursement During Default Periods.
If
Company is unable, due to the existence of a Default Period or for any other
reason, to obtain an Advance to pay any Obligation of Reimbursement, Company
shall pay Xxxxx Fargo on demand and in immediately available funds, the amount
of the Obligation of Reimbursement together with interest, accrued from the
date
presentment of the underlying draft until reimbursement in full at the Default
Rate. Xxxxx Fargo is authorized, alternatively and in its sole discretion,
to
make an Advance in an amount sufficient to discharge the Obligation of
Reimbursement and pay all accrued but unpaid interest and fees with respect
to
the Obligation of Reimbursement.
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1.11 Special
Account. If
the
Line of Credit is terminated for any reason while a Letter of Credit is
outstanding, or if after prepayment of the Revolving Note the L/C Amount
continues to exceed the Borrowing Base, then Company shall promptly pay Xxxxx
Fargo in immediately available funds for deposit to the Special Account, an
amount equal, as the case may be, to either (a) the L/C Amount plus any
anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds
the Borrowing Base. If Company fails to pay these amounts promptly, then Xxxxx
Fargo may in its sole discretion make an Advance to pay these amounts and
deposit the proceeds to the Special Account. The Special Account shall be an
interest bearing account maintained with Xxxxx Fargo or any other
financial institution acceptable to Xxxxx Fargo. Xxxxx Fargo may in its sole
discretion apply amounts on deposit in the Special Account to the Indebtedness.
Company may not withdraw amounts deposited to the Special Account until the
Line
of Credit has been terminated and all outstanding Letters of Credit have either
been returned to Xxxxx Fargo or have expired and the Indebtedness has been
fully
paid.
2. Security
Interest and Occupancy of Company’s Premises
2.1 Grant
of Security Interest.
Company
hereby pledges, assigns and grants to Xxxxx Fargo, a first priority Lien and
security interest (collectively referred to as the “Security Interest”) in the
Collateral, as security for the payment and performance of the Indebtedness.
Following request by Xxxxx Fargo, Company shall xxxxx Xxxxx Fargo a Lien and
security interest in all commercial tort claims that it may have against any
Person.
2.2 Notifying
Account Debtors and Other Obligors;
Collection of Collateral.
Xxxxx
Fargo may at any time that a Default Period exists and anytime Xxxxx Fargo
reasonably believes necessary deliver a Record giving an account debtor or
other
Person obligated to pay an Account, a General Intangible, or other amount due,
notice that the Account, General Intangible, or other amount due has been
assigned to Xxxxx Fargo for security and must be paid directly to Xxxxx Fargo.
Company shall join in giving such notice and shall Authenticate any Record
giving such notice upon Xxxxx Fargo’s request. After Company or Xxxxx Fargo
gives such notice, Xxxxx Fargo may, but need not, in Xxxxx Fargo’s or in
Company’s name, demand, xxx for, collect or receive any money or property at any
time payable or receivable on account of, or securing, such Account, General
Intangible, or other amount due, or grant any extension to, make any compromise
or settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any account debtor or other
obligor. Xxxxx Fargo may, in Xxxxx Fargo’s name or in Company’s name, as
Company’s agent and attorney-in-fact, notify the United States Postal Service to
change the address for delivery of Company’s mail to any address designated by
Xxxxx Fargo, otherwise intercept Company’s mail, and receive, open and dispose
of Company’s mail, applying all Collateral as permitted under this Agreement and
holding all other mail for Company’s account or forwarding such mail to
Company’s last known address.
2.3 Assignment
of Insurance.
As
additional security for the Indebtedness, Company hereby assigns to Xxxxx Fargo
all rights of Company under every policy of insurance covering the Collateral
and all business records and other documents relating to it, and all monies
(including proceeds and refunds) that may be payable under any policy, and
Company hereby directs the issuer of each policy to pay all such monies directly
to Xxxxx Fargo. At any time, whether or not a Default Period then exists, Xxxxx
Fargo may (but need not), in Xxxxx Fargo’s or Company’s name, execute and
deliver proofs of claim, receive payment of proceeds and endorse checks and
other instruments representing payment of the policy of insurance, and adjust,
litigate, compromise or release claims against the issuer of any
policy.
Any
monies in excess of $25,000 received under any insurance policy assigned to
Xxxxx Fargo, other than liability insurance policies, or received as payment
of
any award or compensation for condemnation or taking by eminent domain, shall
be
paid to Xxxxx Fargo and, as determined by Xxxxx Fargo in its sole discretion,
either be applied to prepayment of the Indebtedness or disbursed to Company
under staged payment terms reasonably satisfactory to Xxxxx Fargo for
application to the cost of repairs, replacements, or restorations which shall
be
effected with reasonable promptness and shall be of a value at least equal
to
the value of the items or property destroyed.
-11-
2.4 Company’s
Premises
(a) Xxxxx
Fargo’s Right to Occupy Company’s Premises.
Company
hereby grants to Xxxxx Fargo the right, at any time during a Default Period
and
without notice or consent, to take exclusive possession of all
locations where Company conducts its business or has any rights of possession,
including the locations described on Exhibit B (the “Premises”), until the
earlier of (i) payment in full and discharge of all Indebtedness and
termination of the Line of Credit, or (ii) final sale or disposition of all
items constituting Collateral and delivery of those items to
purchasers.
(b) Xxxxx
Fargo’s Use of Company’s Premises.
Xxxxx
Fargo may use the Premises to store, process, manufacture, sell, use, and
liquidate or otherwise dispose of items that are Collateral, and for any other
incidental purposes deemed appropriate by Xxxxx Fargo in good
faith.
(c) Company’s
Obligation to Reimburse Xxxxx Fargo.
Xxxxx
Fargo shall not be obligated to pay rent or other compensation for the
possession or use of any Premises, but if Xxxxx Fargo elects to pay rent or
other compensation to the owner of any Premises in order to have access to
the
Premises, then Company shall promptly reimburse Xxxxx Fargo all such amounts,
as
well as all taxes, fees, charges and other expenses at any time payable by
Xxxxx
Fargo with respect to the Premises by reason of the execution, delivery,
recordation, performance or enforcement of any terms of this
Agreement.
2.5 License.
Without
limiting the generality of any other Security Document, Company hereby grants
to
Xxxxx Fargo a non-exclusive, worldwide and royalty-free license to use or
otherwise exploit all Intellectual Property Rights of Company for the purpose
of: (a) completing the manufacture of any in-process materials during any
Default Period so that such materials become saleable Inventory, all in
accordance with the same quality standards previously adopted by Company for
its
own manufacturing and subject to Company’s reasonable exercise of quality
control; and (b) selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
-12-
2.6 Financing
Statements.
Company
authorizes Xxxxx Fargo to file financing statements describing Collateral to
perfect Xxxxx Fargo’s Security Interest in the Collateral, and Xxxxx Fargo may
describe the Collateral as “all personal property” or “all assets” or describe
specific items of Collateral including commercial tort claims as Xxxxx Fargo
may
consider necessary or useful to perfect the Security Interest. All financing
statements filed before the date of this Agreement to perfect the Security
Interest were authorized by Company and are hereby re-authorized. Following
the termination of the Line of Credit and payment of all Indebtedness, Xxxxx
Fargo shall, at Company’s expense and within the time periods required under
applicable law, release or terminate any filings or other agreements that
perfect the Security Interest.
2.7 Setoff.
Xxxxx
Fargo may at any time, in its sole discretion and without demand or notice
to
anyone, setoff any liability owed to Company by Xxxxx Fargo against any
Indebtedness, whether or not due.
2.8 Collateral.
This
Agreement does not contemplate a sale of Accounts or chattel paper, and, as
provided by law, Company is entitled to any surplus and shall remain liable
for
any deficiency. Xxxxx Fargo’s duty of care with respect to Collateral in its
possession (as imposed by law) will be deemed fulfilled if it exercises
reasonable care in physically keeping such Collateral, or in the case of
Collateral in the custody or possession of a bailee or other third Person,
exercises reasonable care in the selection of the bailee or third Person, and
Xxxxx Fargo need not otherwise preserve, protect, insure or care for such
Collateral. Xxxxx Fargo shall not be obligated to preserve rights Company may
have against prior parties, to liquidate the Collateral at all or in any
particular manner or order or apply the Proceeds of the Collateral in any
particular order of application. Xxxxx Fargo has no obligation to clean-up
or
prepare Collateral for sale. Company waives any right it may have to require
Xxxxx Fargo to pursue any third Person for any of the Indebtedness.
2.9 Notices
Regarding Disposition of Collateral.
If
notice to Company of any intended disposition of Collateral or any other
intended action is required by applicable law in a particular situation, such
notice will be deemed commercially reasonable if given in the manner specified
in Section 7.4 at least ten calendar days before the date of intended
disposition or other action.
3. Conditions
Precedent
3.1 Conditions
Precedent to Initial Advance
and Issuance of Initial Letter of Credit.
Xxxxx
Fargo’s obligation to make the initial Advance or issue the first Letter of
Credit shall be subject to the condition that Xxxxx Fargo shall have received
this Agreement and each of the Loan Documents, fees, and other documents and
information described in Exhibit C, duly executed and in form and content
satisfactory to Xxxxx
Fargo.
3.2 Additional
Conditions Precedent to All Advances and Letters of Credit.
Xxxxx
Fargo’s obligation to make any Advance (including the initial Advance) or issue
any Letter of Credit shall be subject to the further additional conditions:
(a)
that
the representations and warranties described in Exhibit D are correct on the
date of the Advance or the issuance of the Letter of Credit, except to the
extent that such representations and warranties relate solely to an earlier
date; and (b)
that
no event has occurred and is continuing, or would result from the requested
Advance or issuance of the Letter of Credit that would result in an Event of
Default.
-13-
4. Representations
and Warranties
To
induce
Xxxxx Fargo to enter into this Agreement, Company makes the representations
and
warranties described in Exhibit D. Any request for an Advance will be deemed
a
representation by Company that all representations and warranties described
in
Exhibit D are true and correct as of the time of the request, unless they relate
exclusively to an earlier date. Company shall promptly deliver a Record
notifying Xxxxx Fargo of any change in circumstance that would affect the
accuracy of any representation or warranty, unless the representation and
warranty specifically relates to an earlier date.
5. Covenants
So
long
as the Indebtedness remains unpaid, or the Line of Credit has not been
terminated, Company shall comply with each of the following covenants, unless
Xxxxx Fargo shall consent otherwise in an Authenticated Record delivered to
Company.
5.1 Reporting
Requirements.
Company
shall deliver to Xxxxx Fargo the following information, compiled where
applicable using GAAP consistently applied, in form and content acceptable
to
Xxxxx Fargo:
(a) Annual
Financial Statements.
As soon
as available and in any event within 120 days after Company’s fiscal year
end, financial statements of Parent audited by an independent certified public
accountant firm reasonably acceptable to Xxxxx Fargo (it being acknowledged
that
Xxxxxxxx & Company P.A. is acceptable), which shall
include Parent’s balance sheet, income statement, and statement of retained
earnings and cash flows prepared on a consolidated basis to include all
Subsidiaries of Parent, and, if requested by Xxxxx Fargo, on a consolidating
basis to include all Subsidiaries of Parent. The
annual financial statements shall be accompanied by a Compliance Certificate
in
the form of Exhibit E that is signed by Company’s chief financial officer.
Each
Compliance Certificate that accompanies an annual financial statement shall
also
be accompanied by copies of all management letters prepared by Company’s
accountants.
(b) Monthly
Financial Statements.
As soon
as available and in any event within 30 days after the end of each month, a
Company prepared balance sheet, income statement, and statement of retained
earnings prepared for that month and for the year-to-date period then ended,
prepared, on a consolidated basis to include all Subsidiaries of Parent, and,
if
requested by Xxxxx Fargo, on a consolidating basis to include all Subsidiaries
of Parent, and stating in comparative form the figures for the corresponding
date and periods in the prior fiscal year, subject to year-end adjustments.
The
financial statements shall be accompanied
by a Compliance Certificate in the form of Exhibit E that is signed by Company’s
chief financial officer.
-14-
(c) Collateral
Reports.
No
later than 10 days after each month end (or more frequently if Xxxxx Fargo
shall
request it), detailed agings of Company’s accounts receivable and accounts
payable,
a
detailed inventory report, an inventory certification report and a calculation
of Company’s Accounts, Eligible Accounts, Inventory and Eligible Inventory as of
the end of that month or shorter time period requested by Xxxxx
Fargo.
(d) Projections.
No
later than 30 days after approval by Company’s Directors, Company’s projected
balance sheet and income statement and statement of cash flows for each month
of
the next fiscal year, accompanied by a certificate of Company’s chief financial
officer to the effect that such projections have been prepared in good faith
on
the basis of reasonable assumptions.
(e) Supplemental
Reports.
Weekly,
or more frequently if Xxxxx Fargo requests, Company’s standard form of “daily
collateral report”, together with receivables schedules, collection reports, and
copies of invoices, shipment documents and delivery receipts for goods sold
to
account debtors.
(f) Litigation.
No
later than three days after discovery, a Record notifying Xxxxx Fargo of any
litigation or other proceeding before any court or governmental agency
which
seeks a monetary recovery against Company in excess of $50,000.
(g) Intellectual
Property.
(i)
No
later than 30 days before it acquires material Intellectual Property Rights,
a
Record notifying Xxxxx Fargo of Company’s intention to acquire such rights; (ii)
except for transfers permitted under Section 5.17, no later than 15 days before
it disposes of material Intellectual Property Rights, a Record notifying Xxxxx
Fargo of Company’s intention to dispose of such rights, along with copies of all
proposed documents and agreements concerning the disposal of such rights as
requested by Xxxxx Fargo; (iii) promptly upon knowledge thereof, a Record
notifying Xxxxx Fargo of (A) any material Infringement of Company’s Intellectual
Property Rights by any Person, (B) claims that Company is materially Infringing
another Person’s Intellectual Property Rights and (C) any threatened
cancellation, termination or limitation of Company’s material Intellectual
Property Rights; and (iv) promptly upon receipt, copies of all registrations
and
filings with respect to Company’s Intellectual Property Rights.
(h) Defaults.
No
later than three days after learning of the probable occurrence of any Event
of
Default, a Record describing in detail the Event of Default and the steps being
taken by Company to cure the
Event
of Default.
(i) Disputes.
Promptly upon discovery, a Record notifying Xxxxx Fargo of (i) any disputes
or claims by Company’s customers involving sums in excess of $50,000;
(ii) credit memos not previously reported in Section 5.1(e) involving sums
in excess of $50,000; and (iii) any goods returned to or recovered by
Company outside of the ordinary course of business
with a
value in excess of $50,000.
-15-
(j) Changes
in Responsible Officers and Directors.
Promptly following occurrence, a Record notifying Xxxxx Fargo of any change
in
the persons constituting Company’s Responsible Officers and
Directors.
(k) Collateral.
Promptly upon discovery, a Record notifying Xxxxx Fargo of any loss of or
material damage to any Collateral or of any substantial adverse change in any
Collateral or the prospect of its payment.
(l) Commercial
Tort Claims.
Promptly upon discovery, a Record notifying Xxxxx Fargo of any commercial tort
claims brought by Company against any Person, including the name and address
of
each defendant, a summary of the facts, an estimate of Company’s damages, copies
of any complaint or demand letter submitted by Company, and such other
information as Xxxxx Fargo may request.
(m) Reports
to Stockholders.
Promptly upon distribution, copies of all financial statements, reports, proxy
statements and filings with the Securities and Exchange Commission which Parent
shall have sent to its stockholders.
(n) Tax
Returns of Company.
No
later than five days after they are required to be filed, copies of
Company’s signed and dated state and federal income tax returns and all related
schedules, and copies of any extension requests.
(o) Violations
of Law.
No
later than three days after discovery of any violation, a Record notifying
Xxxxx
Fargo of Company’s violation of any law, rule or regulation, the non-compliance
with which could materially and adversely affect the financial condition,
properties or operations of Company.
(p) Other
Reports.
From
time to time, with reasonable promptness, all receivables schedules, inventory
reports, collection reports, deposit records, equipment schedules, invoices
to
account debtors, shipment documents and delivery receipts for goods sold, and
such other materials, reports, records or information as Xxxxx Fargo may
reasonably request.
5.2 Financial
Covenants.
Company
agrees to comply with the financial covenants described below, which shall
be
calculated using GAAP consistently applied, except as they may be otherwise
modified by the following capitalized definitions:
(a) Minimum
Net Income.
Company
shall achieve Net Income for (a) the quarter ending December 31, 2007 of not
less than $150,000, (b) the quarter ending March 31, 2008 of not less than
$<60,000>, and (c) for each fiscal quarter ending thereafter of not less
than $75,000 (numbers appearing between “< >“ are negative).
(b) Minimum
Debt Service Coverage Ratio.
Company
shall maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.0,
measured as of the last day of each quarter for the four quarters then most
recently ended.
-16-
(c) Capital
Expenditures.
Company
shall not incur or contract to incur Capital Expenditures of more than $100,000
from the Closing Date through December 31, 2007 and, thereafter, $500,000
in the aggregate during any fiscal year.
5.3 Other
Liens and Permitted Liens.
(a) Other
Liens; Permitted Liens.
Company
shall not create, incur or suffer to exist any Lien upon any of its assets,
now
owned or later acquired, as security for any indebtedness, with the exception
of
the following (each a “Permitted Lien”; collectively, “Permitted
Liens”):
(i) In
the case of real property, covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with Company’s
business or operations as presently conducted; (ii) Liens in existence on the
date of this Agreement that are described in Exhibit F and secure indebtedness
for borrowed money permitted under Section 5.4; (iii) The Security Interest
and
Liens created by the Security Documents; (iv) Purchase money Liens relating
to
the acquisition of Equipment not exceeding the lesser of cost or fair market
value and so long as no Default Period is then in existence and none would
exist
immediately after such acquisition, (v) Liens for taxes not yet due or which
are
being contested in good faith if adequate reserves with respect thereto are
maintained on Company’s books; (vi) Carriers’, warehousemen’s, mechanic’s,
materialmen’s, repairmen’s or other like Liens arising in the ordinary course of
business which are not overdue or which are being contested in good faith,
and
(vii) Pledges or deposits in the ordinary course of business in connection
with
workers’ compensation, unemployment insurance and other social security
legislation.
(b) Financing
Statements.
Company
shall not authorize the filing of any financing statement by any Person as
Secured Party with respect to any of Company’s assets, other than Xxxxx Fargo,
except with respect to Permitted Liens. Company shall not amend any financing
statement filed by Xxxxx Fargo as Secured Party except as permitted by
law.
5.4 Indebtedness.
Company
shall not incur, create, assume or permit to exist any indebtedness or liability
on account of deposits or letters of credit issued on Company’s behalf, or
advances or any indebtedness for borrowed money of any kind, whether or not
evidenced by an instrument, except: (a)
indebtedness arising under this Agreement; (b)
indebtedness of Company described in Exhibit F; (c)
indebtedness secured by Permitted Liens; and (d) indebtedness on terms and
conditions acceptable to Xxxxx Fargo that is subordinated to the indebtedness
under this Agreement pursuant to a Subordination Agreement in form and substance
acceptable to Xxxxx Fargo in its sole discretion.
5.5 Guaranties.
Company
shall not assume, guarantee, endorse or otherwise become directly or
contingently liable for the obligations of any Person, except: (a)
the
endorsement of negotiable instruments by Company for deposit or collection
or
similar transactions in the ordinary course of business; and (b)
guaranties, endorsements and other direct or contingent liabilities in
connection with the obligations of other Persons in existence on the date of
this Agreement and described in Exhibit F.
-17-
5.6 Investments
and Subsidiaries.
Company
shall not make or permit to exist any loans or advances to, or make any
investment or acquire any interest whatsoever in, any Person or Affiliate,
including any partnership or joint venture, nor purchase or hold beneficially
any stock or other securities or evidence of indebtedness of any Person or
Affiliate, except:
(a) Investments
in direct obligations of the United States of America or any of its political
subdivisions whose obligations constitute the full faith and credit obligations
of the United States of America and have a maturity of one year or less,
commercial paper issued by U.S. corporations rated “A-1” or “A-2” by
Standard & Poor’s Ratings Services or “P-1” or “P-2” by Xxxxx’x
Investors Service or certificates of deposit or bankers’ acceptances having a
maturity of one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of deposit or
bankers’ acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(b) Travel
advances or loans to Company’s Officers and employees not exceeding at any one
time an aggregate of
$50,000;
(c) Prepaid
rent not exceeding one month or security deposits;
(d) Current
investments in those Subsidiaries in existence on the date of this Agreement
which are identified on Exhibit D;
and
(e) Other
investments made after the date hereof not to exceed an aggregate amount of
$100,000.
5.7 Dividends
and Distributions.
Except
as set forth in this Agreement,
Company
shall not declare or pay any dividends (other than dividends payable solely
in
stock of Company) on any class of its stock, or make any payment on account
of
the purchase, redemption or retirement of any shares of its stock, or other
securities or evidence of its indebtedness or make any distribution regarding
its stock, either directly or indirectly.
5.8 Salaries.
Company
shall not pay excessive or unreasonable salaries, bonuses, commissions,
consultant fees or other compensation; or increase the salary, bonus,
commissions, consultant fees or other compensation of any Director, Officer
or
consultant, or any member of their families, by more than 20% in any one year,
either individually or for all such Persons in the aggregate unless such amount
has been approved by the compensation committee of the Parent, or pay such
an
increase from any source other than profits earned in the year of
payment.
5.9 Books
and Records; Collateral
Examination; Inspection and Appraisals.
(a) Books
and Records; Inspection.
Company
shall keep complete and accurate books and records with respect to the
Collateral and Company’s business and financial condition and any other matters
that Xxxxx Fargo may reasonably request, in accordance with GAAP. Company shall
permit any employee, attorney, accountant or other agent of Xxxxx Fargo to
audit, review, make extracts from and copy any of its books and records at
any
time during ordinary business hours and, so long as no Default Period exists,
upon reasonable advance notice, and to discuss Company’s affairs with any of its
Directors, Officers, employees, or agents.
-18-
(b) Authorization
to Company’s Agents to Make Disclosures to Xxxxx Fargo.
Company
authorizes all accountants and other Persons acting as its agent to disclose
and
deliver to Xxxxx Fargo’s employees, accountants, attorneys and other Persons
acting as its agent, at Company’s expense, all financial information, books and
records, work papers, management reports and other information in their
possession regarding Company.
(c) Collateral
Exams and Inspections.
Company
shall permit Xxxxx Fargo’s employees, accountants, attorneys or other Persons
acting as its agent, to examine and inspect any Collateral or any other property
of Company at any time during ordinary business hours, but generally once each
quarter and no less than three times each calendar year. If Company maintains
an
average excess Borrowing Base availability of at least $3,000,000 over the
applicable prior three-month period and Company is in compliance with all
covenants and terms of the Loan Documents, then Xxxxx Fargo, in its sole
discretion, may waive the next scheduled Collateral exam.
(d) Collateral
Appraisals.
Xxxxx
Fargo may also obtain, from time to time, but no less than one time each
calendar year, at Company’s expense, a
Collateral Appraisal by an appraiser acceptable to Xxxxx Fargo in its sole
discretion.
5.10 Account
Verification;
Payment of Permitted Liens.
(a) Account
Verification.
Xxxxx
Fargo or its agents may (i) contact account debtors and other obligors at any
time to verify Company’s Accounts; and (ii) require Company to send requests for
verification of Accounts or send notices of assignment of Accounts to account
debtors and other obligors.
(b) Covenant
to Pay Permitted Liens.
Company
shall pay when due each account payable due to any Person holding a Permitted
Lien (as a result of such payable) on any Collateral.
5.11 Compliance
with Laws.
(a) General
Compliance with Applicable Law; Use of Collateral.
Company
shall (i) comply, and cause each Subsidiary to comply, with the
requirements of applicable laws and regulations, the non-compliance with which
would materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and keep
the Collateral, only for lawful purposes, without violation of any federal,
state or local law, statute or ordinance.
(b) Compliance
with Federal Regulatory Laws.
Company shall (i) prohibit and cause each Subsidiary to prohibit, any Person
that is an Officer from being listed on the Specially Designated Nationals
and
Blocked Person List or other similar lists maintained by the Office of Foreign
Assets Control (“OFAC”), the Department of the Treasury or included in any
Executive Orders, (ii) not permit the proceeds of the Line of Credit or any
other financial accommodation extended by Xxxxx Fargo to be used in any way
that
violates any foreign asset control regulations of OFAC or other applicable
law,
(iii) comply, and cause each Subsidiary to comply, with all applicable Bank
Secrecy Act laws and regulations, as amended from time to time, and (iv)
otherwise comply with the USA Patriot Act and Xxxxx Fargo’s related policies and
procedures.
-19-
5.12 Payment
of Taxes and Other Claims.
Company
shall pay or discharge, when due, and cause each Subsidiary to pay or discharge,
when due, (a) all taxes, assessments and governmental charges levied or
imposed upon it or upon its income or profits, upon any properties belonging
to
it (including the Collateral) or upon or against the creation, perfection or
continuance of the Security Interest, prior to the date on which penalties
attach, (b) all federal, state and local taxes required to be withheld by
it, and (c) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a Lien upon any properties of Company, although
Company shall not be required to pay any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which proper reserves have been
made.
5.13 Maintenance
of Collateral and Properties.
(a) Company
shall keep and maintain the Collateral and all of its other properties necessary
or useful in its business in good condition, repair and working order (normal
wear and tear excepted) and will from time to time replace or repair any worn,
defective or broken parts, although Company may discontinue the operation and
maintenance of any properties if Company believes that such discontinuance
is
desirable to the conduct of its business and not disadvantageous in any material
respect to Xxxxx Fargo. Company
shall take all commercially reasonable steps necessary to protect and maintain
its Intellectual Property material to its business.
(b) Company
shall defend the Collateral against all Liens, claims and demands of all third
Persons claiming any interest in the Collateral. Company shall keep all
Collateral free and clear of all Liens except permitted Liens. Company shall
take all commercially reasonable steps necessary to prosecute any Person
Infringing its Intellectual Property Rights and to defend itself against any
Person accusing it of Infringing any Person’s Intellectual Property Rights.
5.14 Insurance.
Company
shall at all times maintain insurance with insurers acceptable to Xxxxx Fargo,
in such amounts, on such terms (including any deductibles) and against such
risks as Xxxxx Fargo may reasonably require, in such amounts and against such
risks as is usually carried by companies engaged in similar business and owning
similar properties in the same geographical areas in which Company operates.
Company shall also, at all times and without limitation maintain business
interruption insurance (including force majeure coverage) and keep all tangible
Collateral insured against risks of fire (including so-called extended
coverage), theft, collision (for Collateral consisting of motor vehicles) and
such other risks and in such amounts as Xxxxx Fargo may reasonably request,
with
any loss payable to Xxxxx Fargo to the extent of its interest, and all policies
of such insurance shall contain a lender’s loss payable endorsement for Xxxxx
Fargo’s benefit.
-20-
5.15 Preservation
of Existence.
Company
shall preserve and maintain its existence and all of its rights, privileges
and
franchises necessary or desirable in the normal conduct of its
business.
5.16 Delivery
of Instruments, etc.
Upon
request by Xxxxx Fargo, Company shall promptly deliver to Xxxxx Fargo in pledge
all instruments, documents and chattel paper constituting Collateral, duly
endorsed or assigned by Company.
5.17 Sale
or Transfer of Assets; Suspension of Business Operations.
Company
shall not sell, lease, assign, transfer or otherwise dispose of (a) the
stock of any Subsidiary, (ii), (b) all or a substantial part of its assets,
or (c) any Collateral or any interest in Collateral (whether in one
transaction or in a series of transactions) to any other Person other than
the
sale of Inventory in the ordinary course of business and shall not liquidate,
dissolve or suspend business operations, other than for dispositions of obsolete
or worn out property in the ordinary course of business. Company
shall not transfer any part of its ownership interest in any Intellectual
Property Rights and shall not permit its rights as licensee of Licensed
Intellectual Property to lapse, except that Company may transfer such rights
or
permit them to lapse if it has reasonably determined that such Intellectual
Property Rights are no longer useful or material to its business. If Company
transfers any Intellectual Property Rights for value, Company shall pay the
Proceeds to Xxxxx Fargo for application to the Indebtedness. Company shall
not
license any other Person to use any of Company’s Intellectual Property Rights,
except that Company may grant licenses in the ordinary course of its business
in
connection with sales of Inventory or the provision of services to its
customers.
5.18 Consolidation
and Merger; Asset Acquisitions.
Company
shall not consolidate with or merge into any other entity, or permit any other
entity to merge into it, or acquire (in a transaction analogous in purpose
or
effect to a consolidation or merger) all or substantially all of the assets
of
any other entity.
5.19 Sale
and Leaseback.
Company
shall not enter into any arrangement, directly or indirectly, with any other
Person or entity whereby Company shall sell or transfer any real or personal
property, whether owned now or acquired in the future, and then rent or lease
all or part of such property or any other property which Company intends to
use
for substantially the same purpose or purposes as the property being sold or
transferred.
5.20 Restrictions
on Nature of Business.
Company
will not engage in any line of business materially different from that presently
engaged in by Company, and will not purchase, lease or otherwise acquire any
material assets not related to its business.
5.21 Accounting.
Company
will not adopt any material change in accounting principles except as required
by GAAP, consistently applied. Company will not change its fiscal
year.
5.22 Discounts,
etc.
After
notice from Xxxxx Fargo, Company will not grant any discount, credit or
allowance to any customer of Company or accept any return of goods sold, except
for such discounts, credits, allowances or returns, provided by Company in
the
ordinary course of business consistent with past practice. Company will not
at
any time modify, amend, subordinate, cancel or terminate any Account except
in
the ordinary course of business consistent with past practice.
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5.23 Place
of Business; Name.
Without
60 days prior written notice to Xxxxx Fargo, Company will not (i) transfer
its
chief executive office or principal place of business, or move, relocate, close
or sell any business Premises, or (ii) permit any tangible Collateral or any
records relating to the Collateral to be located in any state or area in which,
in the event of such location, a financing statement covering such Collateral
would be required to be, but has not in fact been, filed in order to perfect
the
Security Interest. Without 30 days prior written notice to Xxxxx Fargo, Company
will not change its name or jurisdiction of organization.
5.24 Constituent
Documents; S Corporation Status.
Company
will not materially amend its Constituent Documents without first obtaining
the
prior written consent of Xxxxx Fargo. Within 10 days of any immaterial amendment
to its Constituent Documents, Company will deliver to Xxxxx Fargo a copy of
such
amendment. Company will not become an S Corporation.
5.25 Performance
by Xxxxx
Fargo.
If
Company fails to perform or observe any of its obligations under this Agreement
at any time, Xxxxx Fargo may, but need not, perform or observe them on behalf
of
Company and may, but need not, take any other actions which Xxxxx Fargo may
reasonably deem necessary to cure or correct this failure; and Company shall
pay
Xxxxx Fargo upon demand the amount of all costs and expenses (including
reasonable attorneys’ fees and legal expense) incurred by Xxxxx Fargo in
performing these obligations, together with interest on these amounts at the
Default Rate.
5.26 Xxxxx
Fargo Appointed as Company’s Attorney in Fact.
To
facilitate Xxxxx Fargo’s performance or observance of Company’s obligations
under this Agreement, Company hereby irrevocably appoints Xxxxx Fargo and Xxxxx
Fargo’s agents, as Company’s attorney in fact (which appointment is coupled with
an interest) with the right (but not the duty) to create, prepare, complete,
execute, deliver, endorse or file on behalf of Company any instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and any other agreements required to be obtained, executed,
delivered or endorsed by Company in accordance with the terms of this
Agreement.
5.27 Post-Closing
Matters
(a) Rapor
Dissolution.
Company
shall use commercially reasonable efforts to complete the liquidation and
dissolution of Rapor, Inc., a Florida corporation (“Rapor”), in accordance with
all applicable law, on or before December 20, 2007 (the "Rapor Dissolution");
provided, that prior to the Rapor Dissolution, Company shall not permit Rapor
to
own, lease, manage or operate any properties or assets (including cash) at
any
time; provided,
further
that; to
the extent that the Rapor Dissolution has not occurred on or before December
20,
2007, Company shall deliver to Xxxxx Fargo such additional Security Documents
as
Xxxxx Fargo shall request in its sole discretion, including, but not limited
to
a Guaranty and a Guarantor Security Agreement, each executed on behalf of
Rapor.
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(b) Samsung
Collateral Assignment.
Company
shall use commercially reasonable efforts to deliver to Xxxxx Fargo on or before
December 20, 2007 the collateral assignment of the Samsung Agreement, whereby
Company shall assign all of Company’s rights in the Samsung Agreement to Xxxxx
Fargo, such collateral assignment to be in form and substance satisfactory
to
Xxxxx Fargo in its sole discretion.
(c) Landlord
Waiver.
Company
shall deliver to Xxxxx Fargo on or before December 20, 2007 a landlord waiver
or
subordination, in form and substance reasonably acceptable to Xxxxx Fargo,
executed by the landlord and Company for the property located at 0000 Xxxxx
Xxxxxx Xxxxx, #000, Xxxxxxxxxx, Xxxxx 00000 and a true and correct copy of
the
lease related to such property.
6. Events
of Default and Remedies
6.1 Events
of Default.
An
“Event of Default” means any of the following:
(a) Company
fails to pay any Indebtedness as it becomes due and payable;
(b) Company
fails to observe or perform any covenant or agreement of Company set forth
in
this Agreement or in any Loan Document; provided,
that
with respect to an Event of Default of Sections
5.11
and
5.13,
such
Event of Default continues unremedied for more than two Business Days and with
respect to an Event of Default of Sections 5.1,
5.10
and
5.12,
such
Event of Default continues unremedied for more than ten Business
Days;
(c) [Reserved].
(d) A
Change
of Control shall occur;
(e) Company
or any Guarantor becomes insolvent or admits in a Record an inability to pay
debts as they mature, or Company or any Guarantor makes an assignment for the
benefit of creditors; or Company or any Guarantor applies for or consents to
the
appointment of any receiver, trustee, or similar officer for the benefit of
Company or any Guarantor, or for any of their properties; or any receiver,
trustee or similar officer is appointed without the application or consent
of
Company or such Guarantor; or any judgment, writ, warrant of attachment or
execution or similar process is issued or levied against a substantial part
of
the property of Company or any Guarantor;
(f) Company
or any Guarantor files a petition under any chapter of the United States
Bankruptcy Code or under the laws of any other jurisdiction naming Company
or
such Guarantor as debtor; or any such petition is instituted against Company
or
any such Guarantor; or Company or any Guarantor institutes (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, debt arrangement, dissolution, liquidation or similar proceeding
under the laws of any jurisdiction; or any such proceeding is instituted (by
petition, application or otherwise) against Company or any such
Guarantor
and is
not dismissed within 30 days;
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(g) Any
representation or warranty made by Company in this Agreement or by any Guarantor
in any Guaranty, or by Company (or any of its Officers) or any Guarantor in
any
agreement, certificate, instrument or financial statement or other statement
delivered to Xxxxx Fargo in connection with this Agreement or pursuant to such
Guaranty is untrue or misleading in any material respect when delivered to
Xxxxx
Fargo;
(h) A
final,
non-appealable arbitration award, judgment, or decree or order for the payment
of money in an amount in excess of $50,000 which is not insured or subject
to
indemnity, is entered against Company which is not immediately stayed or
appealed;
(i) Company
is in default with respect to any bond, debenture, note or other evidence of
material indebtedness issued by Company that is held by any third Person other
than Xxxxx Fargo, or under any instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any material
lease or other contract (including without limitation the Samsung Agreement),
and the applicable grace period, if any, has expired;
(j) Company
liquidates, dissolves, terminates or suspends its business operations or
otherwise fails to operate its business in the ordinary course, or merges with
another Person; or sells or attempts to sell all or substantially all of its
assets;
(k) Company
fails to pay any indebtedness or obligation in excess of $10,000 owed to Xxxxx
Fargo which is unrelated to the Line of Credit or this Agreement as it becomes
due and payable;
(l) Any
Guarantor repudiates or purports to revokes the Guarantor’s Guaranty, or fails
to perform any obligation under such Guaranty, or any individual Guarantor
dies
or becomes incapacitated, or any other Guarantor ceases to exist for any
reason;
(m) Company
engages in any act prohibited by any Subordination Agreement, or makes any
payment on Subordinated Indebtedness (as defined in the Subordination Agreement)
that the Subordinated Creditor was not contractually entitled to
receive;
(n) Any
event
or circumstance occurs that Xxxxx Fargo in good faith believes may impair the
prospect of payment of all or part of the Indebtedness, or Company’s ability to
perform material obligations under any of the Loan Documents, or there occurs
any material adverse change in the business or financial condition of Company.
(o) Any
Director, Responsible Officer, Guarantor or stockholder who owns at least 20%
of
the issued and outstanding common stock of
Company is indicted for a felony offence under state or federal law, or Company
hires a Responsible Officer or appoints a Director who has been convicted of
any
such felony offense, or a Person becomes stockholder who owns at least 20%
of
the issued and outstanding common stock of
Company who has been convicted of any such felony offense.
6.2 Rights
and Remedies.
During
any Default Period, Xxxxx Fargo may exercise any or all of the following rights
and remedies:
(a) Xxxxx
Fargo may terminate the Line of Credit;
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(b) Xxxxx
Fargo may declare the Indebtedness to be immediately due and payable and
accelerate payment of the Revolving Note, and all Indebtedness shall immediately
become due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which Company hereby expressly
waives;
(c) Xxxxx
Fargo may, without notice to Company, apply any money owing by Xxxxx Fargo
to
Company to payment of the Indebtedness;
(d) Xxxxx
Fargo may exercise and enforce any rights and remedies available upon default
to
a secured party under the UCC, including the right to take possession of
Collateral, proceeding with or without judicial process (without a prior hearing
or notice of hearing, which Company hereby expressly waives) and sell, lease
or
otherwise dispose of Collateral (with or without giving any warranties as to
the
Collateral, title to the Collateral or similar warranties), and Company will
upon Xxxxx Fargo’s demand assemble the Collateral and make it available to Xxxxx
Fargo at any place designated by Xxxxx Fargo which is reasonably convenient
to
both parties;
(e) Xxxxx
Fargo may exercise and enforce its rights and remedies under the Loan Documents;
(f) Company
will pay Xxxxx Fargo upon demand in immediately available funds an amount equal
to the Aggregate Face Amount plus any anticipated costs and fees for deposit
to
the Special Account pursuant to Section 1.11;
(g) Xxxxx
Fargo may for any reason apply for the appointment of a receiver of the
Collateral, to which appointment Company hereby consents; and
(h) Xxxxx
Fargo may exercise any other rights and remedies available to it by law or
agreement.
Upon
the
occurrence of an Event of Default
described in Section 6.1(e) or (f), Company’s Indebtedness shall immediately and
automatically become due and payable without presentment, demand, protest or
notice of any kind.
7. miscellaneous
7.1 No
Waiver; Cumulative Remedies.
No
delay or any single or partial exercise by Xxxxx Fargo of any right, power
or
remedy under the Loan Documents shall constitute a waiver of any other right,
power or remedy under the Loan Documents. No notice to or demand on Company
in
any circumstance shall entitle Company to any additional notice or demand in
any
other circumstances. The remedies provided in the Loan Documents are cumulative
and not exclusive of any remedies provided by law. Xxxxx Fargo may comply with
applicable law in connection with a disposition of Collateral, and such
compliance will not be considered to adversely affect the commercial
reasonableness of any sale of the Collateral.
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7.2 Amendment
of Loan Documents; Consents and Waivers; Authentication.
No
amendment or modification of any Loan Documents, or consent to or waiver of
any
Event of Default, or consent to or waiver of the application of any covenant
or
representation set forth in any of the Loan Documents, or any release of Xxxxx
Fargo’s Security Interest in any Collateral, shall be effective unless it has
been agreed to by Xxxxx Fargo and memorialized in a Record that: (a)
specifically states that it is intended to amend or modify specific Loan
Documents, or waive any Event of Default or the application of any covenant
or
representation of any terms of specific Loan Documents, or is intended to
release Xxxxx Fargo’s Security Interest in specific Collateral; and (b) is
Authenticated by the signature of an authorized employee of both parties, or
by
an authorized employee of Xxxxx Fargo with respect to a consent or waiver.
The
terms of an amendment, consent or waiver memorialized in any Record shall be
effective only to the extent, and in the specific instance, and for the limited
purpose to which Xxxxx Fargo has agreed.
7.3 Execution
in Counterparts; Delivery of Counterparts.
This
Agreement and all other Loan Documents, and any amendment or modification to
them may be Authenticated by the parties in any number of counterparts, each
of
which, once authenticated and delivered in accordance with the terms of this
Section 7.3, will be deemed an original, and all such counterparts, taken
together, shall constitute one and the same instrument. Delivery by fax or
by
encrypted e-mail or e-mail file attachment of any counterpart to any Loan
Document Authenticated by an authorized signature will be deemed the equivalent
of the delivery of the original Authenticated instrument. Company shall send
the
original Authenticated counterpart to Xxxxx Fargo by first class U.S. mail
or by
overnight courier, but Company’s failure to deliver a Record in this form shall
not affect the validity, enforceability, and binding effect of this Agreement
or
the other Loan Documents.
7.4 Notices,
Requests, and Communications; Confidentiality.
Except
as otherwise expressly provided in this Agreement:
(a) Delivery
of Notices, Requests and Communications.
Any
notice, request, demand, or other communication by either party that is required
under the Loan Documents to be in the form of a Record (but excluding any Record
containing information Company must report to Xxxxx Fargo under Section 5.1
of
this Agreement) may be delivered (i) in person, (ii) by first class U.S.
mail, (iii) by overnight courier of national reputation, or (iv) by fax, or
the Record may be sent as an Electronic Record and delivered (v) by an encrypted
e-mail, or (vi) through Xxxxx Fargo’s Commercial
Electronic Office®
(“CEO®”)
portal or other secure electronic channel to which the parties have agreed.
(b) Addresses
for Delivery.
Delivery of any Record under this Section 7.4 shall be made to the appropriate
address set forth on the last page of this Agreement (which either party may
modify by a Record sent to the other party), or through Xxxxx Fargo’s
CEO
portal
or other secure electronic channel to which the parties have agreed.
(c) Date
of Receipt.
Each
Record sent pursuant to the terms of this Section 7.4 will be deemed to have
been received on (i) the date of delivery if delivered in person,
(ii) two Business Days after the date deposited in the mail if sent by
mail, (iii) one Business Day after the date delivered to the courier if
sent by overnight courier, (iv) the date of transmission if sent by fax, or
(v) the date of transmission, if sent as an Electronic Record by electronic
mail or through Xxxxx Fargo’s CEO
portal
or
similar secure electronic channel to which the parties have agreed; except
that
any
request for an Advance or any other notice, request, demand or other
communication from Company required under Section 1 of this Agreement, and
any
request for an accounting under Section 9-210 of the UCC, will not be deemed
to
have been received until actual receipt by Xxxxx Fargo on a Business Day by
an
authorized employee of Xxxxx Fargo.
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(d) Confidentiality
of Unencrypted E-mail.
Company
acknowledges that if it sends an Electronic Record to Xxxxx Fargo without
encryption by e-mail or as an e-mail file attachment, there is a risk that
the
Electronic Record may be received by unauthorized Persons, and that by so doing
it will be deemed to have accepted this risk and the consequences of any such
unauthorized disclosure.
7.5 Company
Information Reporting; Confidentiality.
Except
as otherwise expressly provided in this Agreement:
(a) Delivery
of Company Information Records.
Any
information that Company is required to deliver under Section 5.1 in the form
of
a Record may be delivered to Xxxxx Fargo (i) in person, or by (ii) first
class U.S. mail, (iii) overnight courier of national reputation, or
(iv) fax, or the Record may be sent as an Electronic Record (v) by
encrypted e-mail, or (vi) through the file upload service of Xxxxx Fargo’s
CEO
portal
or other secure electronic channel to which the parties have agreed.
(b) Addresses
for Delivery.
Delivery of any Record to Xxxxx Fargo under this Section 7.5 shall be made
to
the appropriate address set forth on the last page of this Agreement (which
Xxxxx Fargo may modify by a Record sent to Company), or through Xxxxx Fargo’s
CEO
portal
or other secure electronic channel to which the parties have agreed.
(c) Date
of Receipt.
Each
Record sent pursuant to this Section will be deemed to have been received on
(i)
the date of delivery, if delivered in person, (ii) two Business Days after
the
date deposited in the mail if sent by mail, (iii) one Business Day after the
date delivered by courier if sent by overnight courier, (iv) the date of
transmission if sent by fax, or (v) the date of transmission, if sent as an
Electronic Record by electronic mail or through Xxxxx Fargo’s CEO
portal
or
similar secure electronic channel to which the parties have agreed.
(d) Authentication
of Company Information Records.
Company
shall Authenticate any Record delivered (i) in person, or by U.S. mail,
overnight courier, or fax, by the signature of the Officer or employee of
Company who prepared the Record; (ii) as an Electronic Record sent via encrypted
e-mail, by the signature of the Officer or employee of Company who prepared
the
Record by any file format signature that is acceptable to Xxxxx Fargo, or by
a
separate certification signed and sent by fax; or (iii) as an Electronic Record
via the file upload service of Xxxxx Fargo’s CEO
portal
or
similar secure electronic channel to which the parties have agreed, through
such
credentialing process as Xxxxx Fargo and Company may agree to under the
CEO
agreement.
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(e) Certification
of Company Information Records.
Any
Record (including any Electronic Record) Authenticated and delivered to Xxxxx
Fargo under this Section 7.5 will be deemed to have been certified as materially
true, correct, and complete by Company and each Officer or employee of Company
who prepared and Authenticated the Record, and may be legally relied upon by
Xxxxx Fargo without regard to method of delivery or transmission.
(f) Confidentiality
of Company Information Records Sent by Unencrypted E-mail.
Company
acknowledges that if it sends an Electronic Record to Xxxxx Fargo without
encryption by e-mail or as an e-mail file attachment, there is a risk that
the
Electronic Record may be received by unauthorized Persons, and that by so doing
it will be deemed to have accepted this risk and the consequences of any such
unauthorized disclosure. Company acknowledges that it may deliver Electronic
Records containing Company information to Xxxxx Fargo by e-mail pursuant to
any
encryption tool acceptable to Xxxxx Fargo and Company, or through Xxxxx Fargo’s
CEO
portal
file upload service without risk of unauthorized disclosure.
7.6 Further
Documents.
Company
will from time to time execute, deliver, endorse and authorize the filing of
any
instruments, documents, conveyances, assignments, security agreements, financing
statements, control agreements and other agreements that Xxxxx Fargo may
reasonably request in order to secure, protect, perfect or enforce the Security
Interest or Xxxxx Fargo’s rights under the Loan Documents (but any failure to
request or assure that Company executes, delivers, endorses or authorizes the
filing of any such item shall not affect or impair the validity, sufficiency
or
enforceability of the Loan Documents and the Security Interest, regardless
of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
7.7 Costs
and Expenses.
Company
shall pay on demand all costs and expenses, including reasonable attorneys’
fees, incurred by Xxxxx Fargo in connection with the Indebtedness, this
Agreement, the Loan Documents, or any other document or agreement related to
this Agreement, and the transactions contemplated by this Agreement, including
all such costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection
and
enforcement of the Indebtedness and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement
of
the Security Interest.
7.8 Indemnity.
In
addition to its obligation to pay Xxxxx Fargo’s expenses under the terms of this
Agreement, Company shall indemnify, defend and hold harmless Xxxxx Fargo, its
parent Xxxxx Fargo & Company, and any of its affiliates and successors, and
all of their present and future officers, directors, employees, attorneys and
agents (the “Indemnitees”) from and against any of the following (collectively,
“Indemnified Liabilities”):
(a) Any
and
all transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of the Loan
Documents or the making of the Advances;
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(b) Any
claims, loss or damage to which any Indemnitee may be subjected if any
representation or warranty contained in Exhibit D proves to be incorrect in
any
respect or as a result of any violation of the covenants contained in Section
5.12; and
(c) Any
and
all other liabilities (INCLUDING ALL STRICT LIABILITIES), losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including the reasonable fees and disbursements of counsel) in
connection with this Agreement and any other investigative, administrative
or
judicial proceedings, whether or not such Indemnitee shall be designated a
party
to such proceedings, which may be imposed on, incurred by or asserted against
any such Indemnitee, in any manner related to or arising out of or in connection
with the making of the Advances and the Loan Documents or the use or intended
use of the proceeds of the Advances, with the exception of any Indemnified
Liability caused by the gross negligence or willful misconduct of an
Indemnitee.
If
any
investigative, judicial or administrative proceeding described in this Section
is brought against any Indemnitee, upon the Indemnitee’s request, Company, or
counsel designated by Company and satisfactory to the Indemnitee, will resist
and defend the action, suit or proceeding to the extent and in the manner
directed by the Indemnitee, at Company’s sole cost and expense. Each Indemnitee
will use its best efforts to cooperate in the defense of any such action, suit
or proceeding. If this agreement to indemnify is held to be unenforceable
because it violates any law or public policy, Company shall nevertheless make
the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities to the extent permissible under applicable law.
Company’s obligations under this Section shall survive the termination of this
Agreement and the discharge of Company’s other obligations under this Agreement.
IT
IS THE INTENTION OF COMPANY AND COMPANY AGREES THAT THE INDEMNITIES CONTAINED
IN
THIS AGREEMENT SHALL APPLY WITH RESPECT TO THE INDEMNIFIED MATTERS, WHICH MAY
BE
IN WHOLE OR IN PART CAUSED BY OR MAY ARISE OUT OF THE SOLE, CONTRIBUTORY OR
COMPARATIVE NEGLIGENCE OR ANY STRICT LIABILITY OF ANY
INDEMNITEE;
HOWEVER,
SUCH INDEMNITIES SHALL NOT EXTEND TO AN OTHERWISE INDEMNIFIED MATTER TO THE
EXTENT THAT IT ARISES OUT OF THE INDEMNITEE’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
7.9 Retention
of Company’s Records.
Xxxxx
Fargo shall have no obligation to maintain Electronic Records or retain any
documents, schedules, invoices, agings, or other Records delivered to Xxxxx
Fargo by Company in connection with the Loan Documents for more than 30 days
after receipt by Xxxxx Fargo.
If there
is a special need to retain specific Records, Company must notify Xxxxx Fargo
of
its need to retain or return such Records with particularity, which notice
must
be delivered to Xxxxx Fargo in accordance with the terms of this Agreement
at
the time of the initial delivery of the Record to Xxxxx Fargo.
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7.10 Binding
Effect; Assignment; Complete Agreement.
The
Loan Documents shall be binding upon and inure to the benefit of Company and
Xxxxx Fargo and their respective successors and assigns, except that Company
shall not have the right to assign its rights under this Agreement or any
interest in this Agreement without Xxxxx Fargo’s prior consent, which must be
confirmed in a Record Authenticated by Xxxxx Fargo. To the extent permitted
by
law, Company waives and will not assert against any assignee any claims,
defenses or set-offs which Company could assert against Xxxxx Fargo. This
Agreement shall also bind all Persons who become a party to this Agreement
as a
borrower. This Agreement, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter of this
Agreement and supersedes all prior agreements, whether oral or evidenced in
a
Record AND
WITHOUT LIMITING THE FOREGOING, COMPANY AGREES THAT THIS AGREEMENT AND THE
OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
To the
extent that any provision of this Agreement contradicts other provisions of
the
Loan Documents other than this Agreement, this Agreement shall control.
7.11 Sharing
of Information.
Xxxxx
Fargo may share any information that it may have regarding Company and its
Affiliates with its accountants, lawyers, and other advisors, and Xxxxx Fargo
and each direct and indirect subsidiary of Xxxxx Fargo & Company may also
share any information that they have with each other, and Company waives any
right of confidentiality it may have with respect to the sharing of all such
information as provided under this Section 7.11.
7.12 Severability
of Provisions.
Any
provision of this Agreement which is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms of this Agreement.
7.13 Headings.
Section
and subsection headings in this Agreement are included for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
7.14 Governing
Law; Jurisdiction, Venue; Waiver of Jury Trial.
The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Texas. The parties
to this Agreement (a) consent to the personal jurisdiction of the state and
federal courts located in the State of Texas in connection with any controversy
related to this Agreement; (b) waive any argument that venue in any such
forum is not convenient; (c) agree that any litigation initiated by Xxxxx
Fargo or Company in connection with this Agreement or the other Loan Documents
may be venued in either the state or federal courts located in the City of
Dallas, County of Dallas, Texas and (d) agree that a final judgment in any
such suit, action or proceeding shall be conclusive and may be enforced in
other
jurisdictions by suit on the judgment or in any other manner provided by
law.
7.15 Non-applicability
of Chapter 346.
Company
and Purchaser hereby agree that, except for Section 346.004 thereof, the
provisions of Chapter 346 of the Texas Finance Code (regulating certain
revolving credit loans and revolving tri-party accounts)
shall not apply to this Agreement or any of the other Loan
Documents.
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7.16 Company’s
Waiver of Rights Under Texas Deceptive Trade Practices
Act.
COMPANY
HEREBY WAIVES ITS RIGHTS UNDER THE DECEPTIVE TRADE PRACTICES—CONSUMER PROTECTION
ACT, SECTION § 17.41 ET
SEQ.
TEXAS
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF COMPANY’S OWN SELECTION, THE
COMPANY VOLUNTARILY CONSENTS TO THIS WAIVER. COMPANY EXPRESSLY WARRANTS AND
REPRESENTS THAT COMPANY (A) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION RELATIVE TO XXXXX FARGO, AND (B) HAS BEEN REPRESENTED BY LEGAL COUNSEL
IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
-31-
|
COMPANY
AND LENDER WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION AT LAW
OR IN
EQUITY OR IN ANY OTHER PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT
OR ANY OTHER LOAN DOCUMENT.
|
|
|
GVI SECURITY, INC.
By: /s/
Xxxxxx
Xxxxxxx
Xxxxxx Xxxxxxx
Chief Financial Officer
|
XXXXX
FARGO BANK, NATIONAL
ASSOCIATION
By:
/s/
Xxxx
Xxxxxxxxx
Xxxx
Xxxxxxxxx
Vice
President
|
THE
PARTIES TO THIS AGREEMENT have
executed this Agreement through their duly authorized officers as of the date
set forth above.
|
XXXXX
FARGO BANK,
NATIONAL
ASSOCIATION
By:
/s/
Xxxx
Xxxxxxxxx
Xxxx
Xxxxxxxxx
Vice
President
|
GVI
SECURITY, INC.
By:
/s/ Xxxxxx
Xxxxxxx
Xxxxxx
Xxxxxxx
Chief
Financial Officer
|
|
MAC-T5322-021
0000
Xxxxxxx Xxxx Xxxx., Xxx. 000
Xxxxx,
Xxxxx 00000
Fax:
(000) 000-0000
Attention:
Xxxx Xxxxxxxxx
e-mail:
xxxx.xxxxxxxxx@xxxxxxxxxx.xxx
|
0000
Xxxxx Xxxxxx Xx., #000
Xxxxxxxxxx,
Xxxxx 00000
Fax:
(000) 000-0000
Attention:
Xxxxxx Xxxxxxx, CFO
e-mail:
xxxxxxxx@xxxxx.xxx
Federal
Employer Identification No.:
00-0000000
Organizational
Identification No.: 3196283
|
Credit
and
Security Agreement - Short Form (Committed).doc 8/21/2007 5:51:29
PM
REVOLVING
NOTE
|
$15,000,000.00
|
November
20
2007
|
FOR
VALUE
RECEIVED,
the
undersigned, GVI SECURITY, INC., a Delaware corporation (the “Company”), hereby
promises to pay to the order of XXXXX FARGO BANK, NATIONAL ASSOCIATION (“Xxxxx
Fargo”), acting through its XXXXX
FARGO BUSINESS
CREDIT operating division, on the Termination Date described in the Credit
and
Security Agreement dated November 20, 2007 (as amended from time to time, the
“Agreement”) and entered into between Xxxxx Fargo and Company, at Xxxxx Fargo’s
office at 0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000, Xxxxx, Xxxxx 00000, or at any
other place designated at any time by the holder, in lawful money of the United
States of America and in immediately available funds, the principal sum of
FIFTEEN MILLION DOLLARS ($15,000,000.00) or the aggregate unpaid principal
amount of all Advances made by Xxxxx Fargo to Company under the terms of the
Agreement, together with interest on the principal balance computed on the
basis
of actual days elapsed in a 360-day year, from the date of this Revolving Note
until this Revolving Note is fully paid at the rate from time to time in effect
under the terms of the Agreement. Principal and interest accruing on the unpaid
principal balance of this Revolving Note shall be due and payable as provided
in
the Agreement. This Revolving Note may be prepaid only in accordance with the
Agreement.
This
Revolving Note is the Revolving Note referred to in the Agreement, and is
subject to the terms of the Agreement, which provides, among other things,
for
the acceleration of this Revolving Note. This Revolving Note is secured, among
other things, by the Agreement and the Security Documents as defined in the
Agreement, and by any other security agreements, mortgages, deeds of trust,
assignments or other instruments or agreements that may subsequently be given
for good and valuable consideration as security for this Revolving
Note.
Company
shall pay all costs of collection, including reasonable attorneys’ fees and
legal expenses if this Revolving Note is not paid when due, whether or not
legal
proceedings are commenced.
Presentment
or other demand for payment, notice of dishonor and protest are expressly
waived.
|
GVI
SECURITY, INC.
|
|
|
By:
|
|
|
Name:
|
|
|
Its:
President
|
Exhibit
A to Credit and Security Agreement
DEFINITIONS
“Account
Funds” is defined in Section 1.4(a).
“Accounts”
shall have the meaning given it under the UCC.
“Advance”
and “Advances” is defined in Section 1.1(a).
“Affiliate”
or “Affiliates” means Parent and
any
other Person controlled by, controlling or under common control with Company,
including any Subsidiary of Company. For purposes of this definition, “control,”
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of 25% or more of the voting securities of such Person, by
contract or otherwise.
“Aggregate
Face Amount” means the aggregate amount that may then be drawn under each
outstanding Letter of Credit, assuming compliance with all conditions for
drawing.
“Agreement”
means this Credit and Security Agreement.
“Authenticated”
means (a) to have signed; or (b) to have executed or to have otherwise adopted
a
symbol, or have encrypted or similarly processed a Record in whole or in part,
with the present intent of the authenticating Person to identify the Person
and
adopt or accept a Record.
“Borrowing
Base” is defined in Section 1.2(a).
“Borrowing
Base Reserve” means, as of any date of determination, an amount or a percent of
a specified category or item that Xxxxx Fargo establishes in its sole discretion
from time to time to reduce availability under the Borrowing Base (a) to reflect
events, conditions, contingencies or risks which affect the assets, business
or
prospects of Company, or the Collateral or its value, or the enforceability,
perfection or priority of Xxxxx Fargo’s Security Interest in the Collateral, as
the term “Collateral” is defined in this Agreement, or (b) to reflect Xxxxx
Fargo’s judgment that any collateral report or financial information relating to
Company and furnished to Xxxxx Fargo may be incomplete, inaccurate or misleading
in any material respect.
“Business
Day” means a day on which the Federal Reserve Bank of New York is open for
business.
“Capital
Expenditures” means for a period, any expenditure of money during such period
for the purchase or construction of assets, or for improvements or additions
to
such assets, in each case, which are capitalized on Company’s balance sheet,
excluding Company expenditures for the lease of its offices and
warehouse.
“CEO”
is
defined in Section 7.4(a).
A-1
“Change
of Control” means the occurrence of any of the following events:
(a) Any
Person, entity or “group” (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934) who does not have an ownership interest
in
Company on the date of the initial Advance is or becomes the “beneficial owner”
(as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934,
except that any such Person, entity or group will be deemed to have “beneficial
ownership” of all securities that such Person, entity or group has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than twenty-five percent (25%) of
the
voting power of all classes of ownership of Company;
(b) During
any consecutive two-year period, individuals who at the beginning of such period
constituted the board of Directors of Company (together with any new Directors
whose election to such board of Directors, or whose nomination for election
by
the stockholders of Company, was approved by a vote of two thirds of the
Directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the board of
Directors of Company then in office; and
(c) The
failure of Xxxxx Xxxxx and Xxxxxx Xxxxxxx to be involved in the senior
management of Company, unless, within 90 days of termination of their
involvement, they are replaced with management acceptable to Xxxxx Fargo in
its
reasonable discretion.
“Collateral”
means all of Company’s Accounts, chattel paper and electronic chattel paper,
deposit accounts, documents, Equipment, General Intangibles, goods, instruments,
Inventory, Investment Property, Intellectual Property Rights, letter-of-credit
rights, letters of credit, all sums on deposit in any Collection Account, and
any items in any Lockbox; together with (a) all substitutions and
replacements for and products of such property; (b) in the case of all
goods, all accessions; (c) all accessories, attachments, parts, Equipment
and repairs now or subsequently attached or affixed to or used in connection
with any goods; (d) all warehouse receipts, bills of lading and other
documents of title that cover such goods now or in the future; (e) all
collateral subject to the Lien of any of the Security Documents; (f) any
money, or other assets of Company that come into the possession, custody, or
control of Xxxxx Fargo now or in the future; (g) Proceeds of any of the
above Collateral; (h) books and records of Company, including all mail or e-mail
addressed to Company; and (i) all of the above Collateral, whether now owned
or
existing or acquired now or in the future or in which Company has rights now
or
in the future.
“Collection
Account” is defined in Section 1.4(a), and though owned by Xxxxx Fargo as both
depositor and as depository bank, the Collection Account is maintained in
accordance with the terms of Xxxxx Fargo’s Commercial Account Agreement in
effect for demand deposit accounts.
“Compliance
Certificate” is defined in Section 5.1(a) and is in the form of Exhibit
E.
A-2
“Commercial
Letter of Credit Agreement” means an agreement governing the issuance of
documentary letters of credit entered into between Company as applicant and
Xxxxx Fargo as issuer.
“Constituent
Documents” means with respect to any Person, as applicable, that Person’s
certificate of incorporation, articles of incorporation, by-laws, certificate
of
formation, articles of organization, limited liability company agreement,
management agreement, operating agreement, shareholder agreement, partnership
agreement or similar document or agreement governing such Person’s existence,
organization or management or concerning disposition of ownership interests
of
such Person or voting rights among such Person’s owners.
“Current
Maturities of Long Term Debt” means, during a period beginning and ending on
designated dates, the amount of Company’s long-term debt and capitalized leases
which become due during the that period (other than leases of Company’s offices
and warehouse).
“Debt”
means of a Person as of a given date, all items of indebtedness or liability
which in accordance with GAAP would be included in determining total liabilities
as shown on the liabilities side of a balance sheet for such Person and shall
also include the aggregate payments required to be made by such Person at any
time under any lease that is considered a capitalized lease under
GAAP.
“Debt
Service Coverage Ratio” means (a) the sum of (i) Funds from Operations
plus
(ii) Interest Expense minus
(iii) unfinanced Capital Expenditures divided by (b) the sum of
(i) Current Maturities of Long Term Debt plus
(ii) Interest Expense.
“Default
Period” is defined in Section 1.6(b).
“Default
Rate” is defined in Section 1.6(b).
“Director”
means a director if Company is a corporation, or a governor or manager if
Company is a limited liability company.
“Electronic
Record” means a Record that is created, generated, sent, communicated, received,
or stored by electronic means, but does
not
include
any Record that is sent, communicated, or received by fax.
“Eligible
Accounts” means all unpaid Accounts of Company arising from the sale or lease of
goods or the performance of services, net of any credits, but
excluding:
(a) That
portion of Accounts unpaid 90 days or more after the invoice
date;
(b) That
portion of Accounts related to goods or services with respect to which Company
has received notice of a claim or dispute, which are subject to a claim of
offset or a contra account, or which reflect a reasonable reserve for warranty
claims or returns;
(c) That
portion of Accounts not yet earned by the final delivery of goods or that
portion of Accounts not yet earned by the final rendition of services by Company
to the account debtor, including with respect to both goods and services,
progress xxxxxxxx, and that portion of Accounts for which an invoice has not
been sent to the applicable account debtor;
A-3
(d) Accounts
constituting (i) Proceeds of copyrightable material unless such
copyrightable material shall have been registered with the United States
Copyright Office, or (ii) Proceeds of patentable inventions unless such
patentable inventions have been registered with the United States Patent and
Trademark Office;
(e) Accounts
owed by any unit of government, whether foreign or domestic (except that there
shall be included in Eligible Accounts that portion of Accounts owed by such
units of government for which Company has provided evidence satisfactory to
Xxxxx Fargo that (i) Xxxxx Fargo’s Security Interest constitutes a
perfected first priority Lien in such Accounts, and (ii) such Accounts may
be enforced by Xxxxx Fargo directly against such unit of government under all
applicable laws);
(f) Accounts
denominated in any currency other than United States Dollars;
(g) Accounts
owed by an account debtor located outside the United States which are not
(i) backed by a bank letter of credit naming Xxxxx Fargo as beneficiary or
assigned to Xxxxx Fargo, in Xxxxx Fargo’s possession or control, and with
respect to which a control agreement concerning the letter-of-credit rights
is
in effect, and acceptable to Xxxxx Fargo in all respects, in its sole
discretion, or (ii) covered by a foreign receivables insurance policy
acceptable to Xxxxx Fargo in its sole discretion;
(h) Accounts
owed by an account debtor that is insolvent, the subject of bankruptcy
proceedings or has gone out of business;
(i) Accounts
owed by any Subsidiary, Affiliate, Officer or employee of Company;
(j) Accounts
not subject to the Security Interest or which are subject to any Lien in favor
of any Person other than Xxxxx Fargo;
(k) That
portion of Accounts that has been restructured, extended, amended or
modified;
(l) That
portion of Accounts that constitutes advertising, finance charges, service
charges or sales or excise taxes;
(m) Accounts
owed by an account debtor (other than Accounts owed by Wal-Mart Stores, Inc.
or ADI,
regardless of whether otherwise eligible, to the extent that the aggregate
balance of such Accounts exceeds 15% of or, in the case of Wal-Mart Stores,
Inc., to the extent that the aggregate balance of such Accounts exceeds 20%
of
or, in the case of ADI, to the extent that the aggregate balance of such
Accounts exceeds 35% of the aggregate amount of all Accounts;
(n) Accounts
owed by an account debtor, regardless of whether otherwise eligible, if 25%
or
more of the total amount of Accounts due from such debtor is ineligible under
clauses (a), (b), or (k) above; and
A-4
(o) Accounts,
or portions of Accounts, otherwise deemed ineligible by Xxxxx Fargo in its
sole
discretion.
“Eligible
Inventory” means all Inventory of Company, valued at the lower of cost or market
in accordance with GAAP; but excluding Inventory having any of the following
characteristics:
(a) Inventory
that is: other than with respect to in-transit inventory, not located at 0000
Xxxxx Xxxxxx Xxxxx, Xxxxxxxxxx, Xxxxx 00000 or located at any warehouse, job
site or other premises not approved by Xxxxx Fargo in an Authenticated Record
delivered to Company; not subject to a duly perfected first priority Lien in
Xxxxx Fargo’s favor; covered by any negotiable or non-negotiable warehouse
receipt, xxxx of lading or other document of title; on consignment from any
consignor; or on consignment to any consignee or subject to any bailment unless
the consignee or bailee has executed an agreement with Xxxxx Fargo;
(b) Inventory
in-transit not covered by insurance policies, documents of title and other
documentation satisfactory to Xxxxx Fargo and all other Inventory in-transit
in
excess of $2,000,000;
(c) Supplies,
fabricated parts packaging, parts or sample Inventory, or customer supplied
parts of Inventory;
(d) Work-in-process
Inventory;
(e) Inventory
that is damaged, defective, obsolete (including Inventory with respect to which
Company has had the SKU on hand longer than one year from purchase without
any
sales of such Inventory), slow moving (including Inventory with respect to
which
Company has more than a one-year supply on hand of the SKU based on the previous
12-month sales, to the extent of such excess supply, but excluding Inventory
that Company has carried for less than 12 months) or not currently saleable
in
the normal course of Company’s operations, or the amount of such Inventory that
has been reduced by shrinkage;
(f) Inventory
that Company has returned, has attempted to return, is in the process of
returning or intends to return to the vendor of the Inventory;
(g) Inventory
that is perishable or live;
(h) Inventory
manufactured or acquired by Company pursuant to a license agreement unless
the
applicable licensor has agreed in a Record that has been Authenticated by
licensor to permit Xxxxx Fargo to exercise its rights and remedies against
such
Inventory;
(i) Inventory
that is subject to a Lien in favor of any Person other than Xxxxx Fargo;
(j) Inventory
otherwise deemed ineligible by Xxxxx Fargo in its sole discretion.
“Equipment”
shall have the meaning given it under the Uniform Commercial Code in effect
in
the state whose laws govern this Agreement.
A-5
“Event
of
Default” is defined in Section 6.1.
“Floating
Rate” is defined in Section 1.6(a).
“Floating
Rate Advance” means an Advance bearing interest at the Floating Rate.
“Funds
from Operations” means for a given period, the sum of (a) Net Income,
(b) depreciation and amortization, (c) any increase (or decrease) in
deferred income taxes, (d) any increase (or decrease) in lifo reserves, and
(e) other non-cash items, each as determined for such period in accordance
with GAAP.
“GAAP”
means generally accepted accounting principles, applied on a basis consistent
with the accounting practices applied in the financial statements described
on
Exhibit D.
“General
Intangibles” shall have the meaning given it under the UCC.
“Guarantor(s)”
means Parent and any other Person now or in the future guaranteeing the
Indebtedness through the issuance of a Guaranty.
“Guarantor
Security Agreement(s)” means a security agreement executed by a Guarantor in
favor of Xxxxx Fargo.
“Guaranty”
means an unconditional continuing guaranty executed by a Guarantor in favor
of
Xxxxx Fargo (if more than one, the “Guaranties”).
“Indebtedness”
is used in its most comprehensive sense and means any debts, obligations and
liabilities of Company to Xxxxx Fargo, whether incurred in the past, present
or
future, whether voluntary or involuntary, and however arising, and whether
due
or not due, absolute or contingent, liquidated or unliquidated, determined
or
undetermined, and including without limitation indebtedness arising under any
swap, derivative, foreign exchange, hedge, deposit, treasury management or
any
similar transaction or arrangement that Company may enter into at any time
with
Xxxxx Fargo, whether or not Company may be liable individually or jointly with
others, or whether recovery upon such Indebtedness may subsequently become
unenforceable.
“Indemnified
Liabilities” is defined in Section 7.8.
“Indemnitees”
is defined in Section 7.8.
“Intellectual
Property Rights” means all actual or prospective rights arising in connection
with any intellectual property or other proprietary rights, including all rights
arising in connection with copyrights, patents, service marks, trade dress,
trade secrets, trademarks, trade names or mask works.
“Interest
Expense” means for a fiscal year-to-date period, Company’s total gross interest
expense during such period (excluding interest income), and shall in any event
include (a) interest expensed (to the extent paid or payable in cash) on
all Debt, (b) the amortization of all cash fees payable in connection with
the incurrence of Debt to the extent included in interest expense, and
(c) the portion of any capitalized lease obligation allocable to interest
expense; provided
that,
Interest Expense shall not include non-cash expenses in respect of original
issuance discounts or “PIK” interest.
A-6
“Interest
Payment Date” is defined in Section 1.8(a).
“Interest
Period” means the period that commences on (and includes) the Business Day on
which either a LIBOR Advance is made or continued or on which a Floating Rate
Advance is converted to a LIBOR Advance, and ending on (but excluding) the
Business Day numerically corresponding to that date that falls one, three,
six
months or one year afterward (as designated by Company), during which period
the
outstanding principal amount of the LIBOR Advance shall bear interest at the
LIBOR Advance Rate; provided,
however,
that:
(a) If
an
Interest Period would otherwise end on a day which is not a Business Day, then
it shall end on the next Business Day, unless that day is the first Business
Day
of a month, in which case the Interest Period shall end on the last Business
Day
of the preceding month;
(b) No
Interest Period applicable to an Advance may end later than the Maturity Date;
and
(c) In
no
event shall Company select Interest Periods with respect to LIBOR Advances
which
would result in the payment of a contracted funds breakage fee under this
Agreement in order to make required principal payments.
“Inventory”
shall have the meaning given it under the UCC.
“Inventory
Appraisal” shall mean an appraisal of Company’s Inventory delivered in
accordance with Section
5.9(d),
satisfactory to Xxxxx Fargo in its sole discretion.
“Investment
Property” shall have the meaning given it under the UCC.
“L/C
Amount” means the sum of (a) the Aggregate Face Amount of any outstanding
Letters of Credit, plus (b) the amount of each Obligation of Reimbursement
that either remains unreimbursed or has not been paid through an Advance on
the
Line of Credit.
“L/C
Application” means an application for the issuance of standby or documentary
Letters of Credit pursuant to the terms of a Standby Letter of Credit Agreement
or Commercial Letter of Credit Agreement, in form acceptable to Xxxxx Fargo.
“Letter
of Credit” and “Letters of Credit” are each defined in Section
1.10(a).
“LIBOR”
means the rate per annum (rounded upward, if necessary, to the nearest whole
1/8th
of one
percent (1%)) determined pursuant to the following formula:
|
LIBOR
=
|
Base
LIBOR
|
|
|
100%
- LIBOR Reserve Percentage
|
A-7
(a) “Base
LIBOR” means the rate per annum for United States dollar deposits quoted by
Xxxxx Fargo as the Inter-Bank Market Offered Rate, with the understanding that
such rate is quoted by Xxxxx Fargo for the purpose of calculating effective
rates of interest for loans making reference to it, on the first day of an
Interest Period for delivery of funds on that date for a period of time
approximately equal to the number of days in that Interest Period and in an
amount approximately equal to the principal amount to which that Interest Period
applies. Company understands and agrees that Xxxxx Fargo may base its quotation
of the Inter-Bank Market Offered Rate upon such offers or other market
indicators of the Inter-Bank Market as Xxxxx Fargo in its discretion deems
appropriate including the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
(b) “LIBOR
Reserve Percentage” means the reserve percentage prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for “Eurocurrency
Liabilities” (as defined in Regulation D of the Federal Reserve Board, as
amended), adjusted by Xxxxx Fargo for expected changes in such reserve
percentage during the applicable Interest Period.
“LIBOR
Advance” means an Advance bearing interest at the LIBOR Advance Rate.
“LIBOR
Advance Rate” is defined in Section 1.6(a).
“Lien”
means any security interest, mortgage, deed of trust, pledge, lien, charge,
encumbrance, title retention agreement or analogous instrument or device,
including the interest of each lessor under any capitalized lease and the
interest of any bondsman under any payment or performance bond, in, of or on
any
assets or properties of a Person, whether now owned or subsequently acquired
and
whether arising by agreement or operation of law.
“Line
of
Credit” is defined in the Recitals.
“Loan
Documents” means this Agreement, the Revolving Note, each Guaranty, each
Subordination Agreement, each Patent and Trademark Security Agreement, each
Standby Letter of Credit Agreement, each Commercial Letter of Credit Agreement,
any L/C Applications, and the Security Documents, together with every other
agreement, note, document, contract or instrument to which Company now or in
the
future may be a party and which may be required by Xxxxx Fargo.
“Lockbox”
is defined in Section 1.4(b)(i), and is subject to the terms of the Lockbox
service description to the Master Agreement for Treasury Management
Services.
“Margin”
means a rate per annum, expressed as a percentage, as more fully described
in
Section 1.6(a).
“Master
Agreement for Treasury Management Services” means the Master Agreement for
Treasury Management Services, the related Acceptance of Services, and each
and
every service description governing all deposit and treasury management products
offered by Xxxxx Fargo to Company.
“Material
Adverse Effect” means any of the following:
A-8
(a) A
material adverse effect on the business, operations, results of operations,
prospects, assets, liabilities or financial condition of Company;
(b) A
material adverse effect on the ability of Company to perform its obligations
under the Loan Documents;
(c) A
material adverse effect on the ability of Xxxxx Fargo to enforce the
Indebtedness or to realize the intended benefits of the Security Documents,
including a material adverse effect on the validity or enforceability of any
Loan Document or of any rights against any Guarantor, or on the status,
existence, perfection, priority (subject to Permitted Liens) or enforceability
of any Lien securing payment or performance of the Indebtedness; or
(d) Any
claim
against Company or threat of litigation which if determined adversely to Company
would cause Company to be liable to pay an amount exceeding $10,000 or would
result in the occurrence of an event described in clauses (a), (b) and (c)
above.
“Maturity
Date” is defined in Section 1.1(b).
“Maximum
Line Amount” is defined in Section 1.1(a).
“Net
Income” means with respect to any period, after-tax and after-stockholder
dividends and distributions net income from continuing operations, excluding
extraordinary losses and extraordinary gains, all as determined in accordance
with GAAP, plus all non-cash expense in respect of equity awards and issuances,
original issuance discount expense and other non-cash interest
expense.
“Net
Orderly Liquidation Value” shall mean, at any time, the value of the Company’s
Inventory, at such time in an orderly liquidation, taking into account all
costs, fees and expenses estimated to be incurred by Xxxxx Fargo in connection
with such liquidation, based upon the most recent Inventory
Appraisal.
“Obligation
of Reimbursement” is defined in Section 1.10(b).
“OFAC”
is
defined in Section 5.12(b).
“Officer”
means an officer of Company.
“Operating
Account” is defined in Section 1.3(a), and maintained in accordance with the
terms of Xxxxx Fargo’s Commercial Account Agreement in effect for demand deposit
accounts.
“Overadvance”
means the amount, if any, by which the outstanding principal balance of the
Revolving Note , plus the L/C Amount, is in excess of the then-existing
Borrowing Base.
“Owned
Intellectual Property” is defined in Exhibit D.
“Parent”
means GVI Security Solutions, Inc., a Delaware corporation.
A-9
“Patent
and Trademark Security Agreement” means each Patent and Trademark Security
Agreement entered into between Company and Xxxxx Fargo.
“Permitted
Lien” and “Permitted Liens” are defined in Section 5.3(a).
“Person”
means any individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company, trust, unincorporated organization
or
government or any agency or political subdivision of a governmental
entity.
“Premises”
is defined in Section 2.4(a).
“Prime
Rate” means at any time the rate of interest most recently announced by Xxxxx
Fargo at its principal office as its Prime Rate, with the understanding that
the
Prime Rate is one of Xxxxx Fargo’s base rates, and serves as the basis upon
which effective rates of interest are calculated for those loans making
reference to it, and is evidenced by its recording in such internal publication
or publications as Xxxxx Fargo may designate. Each change in the rate of
interest shall become effective on the date each Prime Rate change is announced
by Xxxxx Fargo.
“Proceeds”
shall have the meaning given it under the UCC.
“Rapor”
is defined in Section 5.27.
“Rapor
Dissolution” is defined in Section 5.27.
“Ready
Remit” is defined in Section 1.4(b)(ii), and is subject to the terms of the
Ready Remit service description to the Master Agreement for Treasury Management
Services.
“Record”
means information that is inscribed on a tangible medium or that is stored
in an
electronic or other medium and is retrievable in perceivable form, and includes
all information that is required to be reported by Company to Xxxxx Fargo
pursuant to Section 5.1.
“Responsible
Officer” means with respect to Company, its president, chief executive officer,
chief financial officer, chief operating officer, secretary, treasurer or any
other executive officer.
“Revolving
Note” is defined in Section 1.1(d).
“Samsung
Agreement” means that certain Distribution Agreement dated
October 2, 2006 between Samsung Electronics Co., Ltd. and
Company.
“Security
Documents” means this Agreement, the Patent and Trademark Security Agreement(s),
the Guarantor Security Agreement(s), the Pledge Agreement(s) and any other
document delivered to Xxxxx Fargo from time to time to secure the
Indebtedness.
“Security
Interest” is defined in Section 2.1.
A-10
“Special
Account” means a specified cash collateral account maintained with Xxxxx Fargo
or another financial institution acceptable to Xxxxx Fargo in connection with
each undrawn Letter of Credit issued by Xxxxx Fargo, as more fully described
in
Section 1.11.
“Standby
Letter of Credit Agreement” means an agreement governing the issuance of standby
letters of credit by Xxxxx Fargo entered into between Company as applicant
and
Xxxxx Fargo as issuer.
“Subordinated
Creditor(s)” means any Person now or in the future subordinating indebtedness of
Company held by that Person to the payment of the Indebtedness.
“Subordination
Agreement” means a subordination agreement executed by a Subordinated Creditor
in favor of Xxxxx Fargo (if more than one, the “Subordination
Agreements”).
“Subsidiary”
means any Person of which more than 50% of the outstanding ownership interests
having general voting power under ordinary circumstances to elect a majority
of
the board of directors or the equivalent of such Person, irrespective of whether
or not at the time ownership interests of any other class or classes shall
have
or might have voting power by reason of the happening of any contingency, is
at
the time directly or indirectly owned by Company, by Company and one or more
other Subsidiaries, or by one or more other Subsidiaries.
“Termination
Date” is defined in Section 1.1(b).
“Texas
Finance Code” is defined in Section 1.6(d).
“UCC”
means the Uniform Commercial Code in effect in the state designated in this
Agreement as the state whose laws shall govern this Agreement, or in any other
state whose laws are held to govern this Agreement or any portion of this
Agreement.
“Unused
Amount” is defined in Section 1.7(b).
“Xxxxx
Fargo” means Xxxxx Fargo Bank, National Association in its broadest and most
comprehensive sense as a legal entity, and is not limited in its meaning to
the
Xxxxx Fargo Business Credit operating division, or to any other operating
division of Xxxxx Fargo.
A-11
Exhibit
B to Credit and Security Agreement
PREMISES
The
Premises referred to in the Credit and Security Agreement are legally described
as follows:
0000
Xxxxx Xxxxxx Xx., #000
Xxxxxxxxxx,
XX 00000
B-1
Exhibit
C to Credit and Security Agreement
CONDITIONS
PRECEDENT
|
(a)
|
The
Revolving Note.
|
|
(b)
|
The
Master Agreement for Treasury Management Services, the Acceptance
of
Services, and related service description for each credit related
product
or service that is described in this Agreement.
|
|
(c)
|
A
Standby Letter of Credit Agreement and a Commercial Letter of Credit
Agreement, and a separate L/C Application for each Letter of Credit
that
Company has requested that Xxxxx Fargo
issue.
|
|
(d)
|
A
Guaranty of each Guarantor, pursuant to which each Guarantor
unconditionally guarantees the full and prompt payment of all
Indebtedness.
|
|
(e)
|
A
Guarantor Security Agreement of each Guarantor, pursuant to which
each
Guarantor grants a security interest in favor of Xxxxx
Fargo.
|
|
(f)
|
The
Pledge Agreement (along with the original stock certificates pledged
thereunder, with stock powers endorsed in
blank).
|
|
(g)
|
A
true and correct copy of every agreement pursuant to which Company’s
property is in the possession of a Person other than Company, together
with, in the case of any goods held by such Person for resale, (i) a
consignee’s acknowledgment and waiver of Liens, (ii) UCC financing
statements sufficient to protect Company’s and Xxxxx Fargo’s interests in
such goods, and (iii) UCC searches showing that no other secured
party has filed a financing statement against such Person and covering
property similar to Company’s other than Company, or if there exists any
such secured party, evidence that each such party has received notice
from
Company and Xxxxx Fargo sufficient to protect Company’s and Xxxxx Fargo’s
interests in Company’s goods from any claim by such secured
party.
|
|
(h)
|
A
true and correct copy of any agreements pursuant to which Company’s
property is in the possession of any Person other than Company, together
with (i) an Acknowledgment and Waiver of Liens from each landlord or
mortgagee who has or may in the future have possession of Company’s goods
from time to time, (ii) UCC financing statements sufficient to
protect Company’s and Xxxxx Fargo’s interests in such goods, and
(iii) UCC searches showing that no other secured party has filed a
financing statement covering such Person’s property other than Company, or
if there exists any such secured party, evidence that the secured
party
has received notice from Company and Xxxxx Fargo sufficient to protect
Company’s and Xxxxx Fargo’s interests in Company’s goods from any claim by
such secured party.
|
|
(i)
|
Current
searches of appropriate filing offices showing that (i) no Liens have
been filed and remain in effect against Company except Permitted
Liens or
Liens held by Persons who have agreed in an Authenticated Record
that upon
receipt of proceeds of the initial Advances, they will satisfy, release
or
terminate such Liens in a manner satisfactory to Xxxxx Fargo, and
(ii) Xxxxx Fargo has duly filed all financing statements necessary to
perfect the Security Interest, to the extent the Security Interest
is
capable of being perfected by
filing.
|
C-1
|
(j)
|
A
certificate of Company’s secretary or assistant secretary certifying that
attached to such certificate are (i) the resolutions of Company’s
Directors and, if required, stockholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) true, correct
and complete copies of Company’s Constituent Documents, and
(iii) examples of the signatures of Company’s Officers or agents
authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance requests,
on
Company’s behalf.
|
|
(k)
|
A
current certificate of good standing or status issued by the secretary
of
state or other appropriate authority for Company’s state of
organization.
|
|
(l)
|
Evidence
that Company is duly licensed or qualified to transact business in
all
jurisdictions where the character of the property owned or leased
or the
nature of the business transacted by it makes such licensing or
qualification necessary.
|
|
(m)
|
A
certificate of an appropriate Officer of Company confirming, the
representations and warranties set forth in this
Agreement.
|
|
(n)
|
Certificates
of the insurance required under this Agreement, with all hazard insurance
containing a lender’s loss payable endorsement in Xxxxx Fargo’s favor and
with all liability insurance naming Xxxxx Fargo as an additional
insured.
|
|
(o)
|
The
Patent and Trademark Security
Agreement(s).
|
|
(p)
|
Payment
of fees and commissions due under this Agreement through the date
of
initial Advance, and any expenses incurred by Xxxxx Fargo through
such
date and payable by Company, including all legal expenses incurred
through
the date of this Agreement.
|
|
(q)
|
Evidence
that after making the initial Advance, satisfying all obligations
owed to
Company’s prior lender, satisfying all trade payables older than 30 days
from invoice date, book overdrafts and closing costs, availability
as
measured by subtracting the initial Advance from the Maximum Line
Amount
or the Borrowing Base shall be not less than
$1,000,000.
|
|
(r)
|
A
Customer Identification Information form and such other forms and
verification as Xxxxx Fargo may need to comply with the U.S.A. Patriot
Act.
|
|
(s)
|
Payment
of the fees due under Section 1.7 through the date of the initial
Advance
or issuance of a Letter of Credit, plus reimbursement of and costs
and
expenses incurred by Xxxxx Fargo through such date that are required
to be
paid by Company under Section 7.7, including any legal expenses incurred
through such date.
|
|
(t)
|
Evidence
that there has been no material adverse change in the financial condition
or otherwise of Company since September 30,
2007.
|
|
(u)
|
Xxxxx
Fargo shall have received a satisfactory Inventory
Appraisal.
|
C-2
|
(v)
|
Xxxxx
Fargo shall have conducted and been satisfied with the results of
such
other due diligence (including customer and vendor references, background
checks and other confirmations), as it in its sole discretion may
require.
|
|
(w)
|
Such
other documents as Xxxxx Fargo in its sole discretion may
require.
|
C-3
Exhibit
D to Credit and Security Agreement
REPRESENTATIONS
AND WARRANTIES
Company
represents and warrants to Xxxxx Fargo as follows:
(a) Existence
and Power; Name; Chief Executive Office; Inventory and Equipment Locations;
Federal Employer Identification Number and Organizational Identification
Number.
Company
is a corporation duly organized, validly existing and in good standing under
the
laws of the State of Delaware and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing
or
qualification necessary, except where the failure to be so qualified would
not
be material. Company has all requisite power and authority to conduct its
business, to own its properties and to execute and deliver, and to perform
all
of its obligations under, the Loan Documents. During its existence, Company
has
done business solely under the names set forth below in addition to its correct
legal name. Company’s chief executive office and principal place of business is
located at the address set forth below, and all of Company’s records relating to
its business or the Collateral are kept at that location. All Inventory and
Equipment is located at that location or at one of the other locations set
forth
below. Company’s name, Federal Employer Identification Number and Organization
Identification Number are correctly set forth at the end of the Agreement next
to Company’s signature.
|
Trade
Names
|
|
GVI
Security Inc. d/b/a Samsung CCTV
[GVI
d/b/a Samsung CCTV]
|
|
Chief
Executive Office / Principal Place of Business
|
|
0000
Xxxxx Xxxxxx Xx., #000
Xxxxxxxxxx,
Xxxxx 00000
|
|
Other
Inventory and Equipment Locations
|
|
None
|
(b) Ownership.
Company
is a wholly-owned subsidiary of Parent.
(c) Authorization
of Borrowing; No Conflict as to Law or Agreements.
The
execution, delivery and performance by Company of the Loan Documents and
borrowing under the Line of Credit have been duly authorized and do not
(i) require the consent or approval of Company’s stockholders;
(ii) require the authorization, consent or approval by, or registration,
declaration or filing with, or notice to, any governmental agency or
instrumentality, whether domestic or foreign, or any other Person, except to
the
extent obtained, accomplished or given prior to the date of this Agreement;
(iii) violate any provision of any law, rule or regulation (including
Regulation X of the Board of Governors of the Federal Reserve System) or of
any order, writ, injunction or decree presently in effect having applicability
to Company or of Company’s Constituent Documents; (iv) result in a breach
of or constitute a default or event of default under any indenture or loan
or
credit agreement or any other material agreement, lease or instrument to which
Company is a party or by which it or its properties may be bound or affected;
or
(v) result in, or require, the creation or imposition of any Lien (other
than the Security Interest) upon or with respect to any of the properties now
owned or subsequently acquired by Company.
D-1
(d) Legal
Agreements.
This
Agreement constitutes and, upon due execution by Company, the other Loan
Documents will constitute the legal, valid and binding obligations of Company,
enforceable against Company in accordance with their respective
terms.
(e) Subsidiaries
and Affiliates.
Company
does not have any Subsidiaries.
(f) Financial
Condition; No Adverse Change.
Company
has furnished to Xxxxx Fargo Parent’s audited financial statements for its
fiscal year ended December 31, 2006 and unaudited financial statements for
the
fiscal-year-to-date period ended September 30, 2007 and those statements fairly
present Company’s financial condition as of those dates and the results of
Company’s operations and cash flows for the periods then ended and were prepared
in accordance with GAAP. Since the date of the most recent financial statements,
there has been no material adverse change in Company’s business, properties or
condition (financial or otherwise).
(g) Litigation.
There
are no actions, suits or proceedings pending or, to Company’s knowledge,
threatened against or affecting Company, Parent or any of Parent’s Subsidiaries
or the properties of Company, Parent or any of Parent’s Subsidiaries before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which, if determined adversely to Company,
Parent or any of Parent’s Subsidiaries, would result in a final judgment or
judgments against Company, Parent or any of Parent’s Subsidiaries in an amount
in excess of $10,000, apart from those matters specifically set forth
below.
|
Litigation
Matters in Excess of $10,000
|
|
Xxxx
Xxxxxxx vs. GVI Security, Inc. dba Samsung
CCTV
|
(h) Intellectual
Property Rights.
(i) Owned
Intellectual Property.
Set
forth below is a complete list of all registered patents, applications for
patents, registered trademarks, applications to register trademarks, registered
service marks, applications to register service marks and registered copyrights
for which Company is the owner of record and that are material to Company’s
business individually or in the aggregate (the “Owned Intellectual Property”).
Except as set forth below, (A) Company owns the Owned Intellectual Property
free and clear of all restrictions (including covenants not to xxx any Person),
court orders, injunctions, decrees, writs or Liens, whether by agreement
memorialized in a Record Authenticated by Company or otherwise, (B) no
Person other than Company owns or has been granted any right in the Owned
Intellectual Property, (C) all Owned Intellectual Property is valid,
subsisting and enforceable, and (D) Company has taken all commercially
reasonable action necessary to maintain and protect the Owned Intellectual
Property.
D-2
(ii) Intellectual
Property Rights Licensed from Others.
Set
forth below is a complete list of all agreements under which Company has
licensed Intellectual Property Rights from another Person (“Licensed
Intellectual Property”) other than readily available, non-negotiated licenses of
computer software and other intellectual property used solely for performing
accounting, word processing and similar administrative tasks (“Off-the-shelf
Software”) and a summary of any ongoing payments Company is obligated to make
with respect thereto. Except as set forth below or in any other Record, copies
of which have been given to Xxxxx Fargo, Company’s licenses to use the Licensed
Intellectual Property are free and clear of all restrictions, Liens, court
orders, injunctions, decrees, or writs, whether by agreed to in a Record
Authenticated by Company or otherwise. Except as set forth below, Company is
not
contractually obligated to make royalty payments of a material nature, or pay
fees to any owner of, licensor of, or other claimant to, any Intellectual
Property Rights.
(iii) Other
Intellectual Property Needed for Business.
Except
for Off-the-shelf Software and as set forth below, the Owned Intellectual
Property and the Licensed Intellectual Property constitute all Intellectual
Property Rights used or necessary to conduct Company’s business as it is
presently conducted or as Company reasonably foresees conducting
it.
(iv) Infringement.
Except
as set forth below, Company has no knowledge of, and has not received notice
either orally or in a Record alleging, any Infringement of another Person’s
Intellectual Property Rights (including any claim set forth in a Record that
Company must license or refrain from using the Intellectual Property Rights
of
any Person) nor, to Company’s knowledge, is there any threatened claim or any
reasonable basis for any such claim.
| Intellectual Property Disclosures | |||
|
Serial
Number
|
Reg.
Number
|
Trademark
|
|
|
78536807
|
3134222
|
GVI
|
|
|
78536805
|
3128005
|
GVI
|
|
|
78511873
|
3011496
|
GVI
|
|
|
78511869
|
3015703
|
GVI
|
|
|
78479662
|
3072895
|
GVI
|
|
|
78479659
|
3008911
|
GVI
|
|
|
78479652
|
3011292
|
GVI
|
|
|
78479647
|
3072894
|
GVI
|
|
D-3
(i) Taxes.
Company, Parent and Parent’s Subsidiaries have paid or caused to be paid to the
proper authorities when due all federal, state and local taxes required to
be
withheld by each of them. Company, Parent and Parent’s Subsidiaries have filed
all federal, state and local tax returns which to the knowledge of the Officers
of Company, Parent and Parent’s Subsidiaries, as the case may be, are required
to be filed, and Company, Parent and Parent’s Subsidiaries have paid or caused
to be paid to the respective taxing authorities all taxes as shown on these
returns or on any assessment received by any of them to the extent such taxes
have become due.
(j) Titles
and Liens.
Company
has good and absolute title to all Collateral free and clear of all Liens other
than Permitted Liens. No financing statement naming Company as debtor is on
file
in any office except to perfect only Permitted Liens.
(k) No
Defaults.
Company
is in compliance with all provisions of all agreements, instruments, decrees
and
orders to which it is a party or by which it or its property is bound or
affected, the breach or default of which could have a Material Adverse
Effect.
(l) Submissions
to Xxxxx
Fargo.
All
financial and other information provided to Xxxxx Fargo by or on behalf of
Company in connection with Company’s request for the credit facilities
contemplated hereby is (i) true and correct in all material respects,
(ii) does not omit any material fact necessary to make such information not
misleading and, (iii) as to projections, valuations or proforma financial
statements, present a good faith opinion as to such projections, valuations
and
proforma condition and results.
(m) Financing
Statements.
Company
has previously authorized the filing of financing statements sufficient when
filed to perfect the Security Interest and other security interests created
by
the Security Documents. When such financing statements are filed, Xxxxx Fargo
will have a valid and perfected security interest in all Collateral capable
of
being perfected by the filing of financing statements. None of the Collateral
is
or will become a fixture on real estate, unless a sufficient fixture filing
has
been filed with respect to such Collateral.
(n) Rights
to Payment.
Each
right to payment and each instrument, document, chattel paper and other
agreement constituting or evidencing Collateral is (or, in the case of all
future Collateral, will be when arising or issued) the valid, genuine and
legally enforceable obligation, subject to no defense, setoff or counterclaim
of
the account debtor or other obligor named in that instrument other than returns
by customers in the ordinary course of business.
D-4
Exhibit
E to Credit and Security Agreement
COMPLIANCE
CERTIFICATE
To: Xxxxx
Fargo Bank, National Association
Date: ___________________,
200__
Subject: Financial
Statements
In
accordance with our Credit and Security Agreement dated November [___],
2007
(as amended from time to time, the “Credit Agreement”), attached are the
financial statements of GVI Security Solutions, Inc. dated _______________,
200__ (the “Reporting Date”) and the year-to-date period then ended (the
“Current Financials”). All terms used in this certificate have the meanings
given in the Credit Agreement.
A. Preparation
and Accuracy of Financial Statements.
I
certify that the Current Financials have been prepared in accordance with GAAP,
subject to year-end audit adjustments, and fairly present Company’s financial
condition as of the Reporting Date.
B. Name
of Company; Merger and Consolidation.
I
certify that:
(Check
one)
| o |
Company
has not, since the date of the Credit Agreement, changed its name
or
jurisdiction of organization, nor has it consolidated or merged with
another Person.
|
| o |
Company
has, since the date of the Credit Agreement, either changed its name
or
jurisdiction of organization, or both, or has consolidated or merged
with
another Person, which change, consolidation or merger: o was
consented to in advance by Xxxxx Fargo in an Authenticated Record,
and/or ois
more fully described in the statement of facts attached to this
Certificate.
|
|
C.
|
Events
of Default.
I
certify that:
|
(Check
one)
| o |
I
have no knowledge of the occurrence of an Event of Default under
the
Credit Agreement, except as previously reported to Xxxxx Fargo in
a
Record.
|
| o |
I
have knowledge of an Event of Default under the Credit Agreement
not
previously reported to Xxxxx Fargo in a Record, as more fully described
in
the statement of facts attached to this Certificate, and further,
I
acknowledge that Xxxxx Fargo may under the terms of the Credit Agreement
impose the Default Rate at any time during the resulting Default
Period.
|
E-1
|
D.
|
Litigation
Matters.
I
certify that:
|
(Check
one)
| o |
I
have no knowledge of any material adverse change to the litigation
exposure of Company or any of its Affiliates or of any
Guarantor.
|
| o |
I
have knowledge of material adverse changes to the litigation exposure
of
Company or any of its Affiliates or of any Guarantor not previously
disclosed in Exhibit D, as more fully described in the statement
of facts
attached to this Certificate.
|
|
E.
|
Financial
Covenants.
I
further certify that:
|
(Check
and complete each of the following)
1. Minimum
Net Income.
Pursuant to Section 5.2(a) of the Credit Agreement, as of the Reporting Date,
Company’s Net Income was $__________, which o satisfies
o does
not satisfy the requirement that Net Income for (a) the quarter ending December
31, 2007 be not less than $150,000, (b) the quarter ending March 31, 2008 be
not
less than $<60,000>, and (c) for each fiscal quarter ending thereafter be
not less than $75,000 (numbers appearing between “< >“ are negative) on
the Reporting Date.
2. Minimum
Debt Service Coverage Ratio.
Pursuant to Section 5.2(b) of the Credit Agreement, as of the Reporting Date,
Company’s Debt Service Coverage Ratio was ______ to 1.00, which o satisfies
o does
not satisfy the requirement that such ratio be not less than 1.25 to 1.00 on
the
Reporting Date.
3. Capital
Expenditures.
Pursuant to Section 5.2(c) of the Credit Agreement, for the year-to-date period
ending on the Reporting Date, Company has expended or contracted to expend
during the fiscal year ended [_______________,
200___,_]
for
Capital Expenditures, $________________ in the aggregate which o satisfies
o does
not satisfy the requirement that such expenditures not exceed $100,000 from
the
Closing Date through December 31, 2007 and, thereafter, $500,000 in the
aggregate during any fiscal year.
Attached
are statements of all relevant facts and computations in reasonable detail
sufficient to evidence Company’s compliance with the financial covenants
referred to above, which computations were made in accordance with
GAAP.
|
By:
|
|
|
|
|
|
Its
Chief Financial Officer
|
E-2
Exhibit
F to Credit and Security Agreement
PERMITTED
LIENS
|
Creditor
|
Collateral
|
Jurisdiction
|
Filing
Date
|
Filing
No.
|
|
Firstlease,
Inc.
|
Equipment
|
Delaware
|
June
15, 2004
|
41646688
|
|
Firstlease,
Inc.
|
Equipment
|
Delaware
|
August
30, 2004
|
42433680
|
|
Firstlease,
Inc.
|
Equipment
|
Delaware
|
April
6, 0000
|
00000000
|
|
Inter-Tel
Leasing, Inc.
|
Equipment
|
Delaware
|
August
13, 2004
|
42289959
|
INDEBTEDNESS
None
GUARANTIES
None
F-1
