CREDIT AND SECURITY AGREEMENT
Dated as of June 1, 2000
OPEN SEA CORPORATION, d/b/a NEBO PRODUCTS, a Utah corporation
(the "Borrower"), and XXXXX FARGO BUSINESS CREDIT, INC., a Minnesota corporation
(the . "Lender"), hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires;
the terms defined in this Article have the meanings assigned to them in this
Article, and include. the plural as well as the singular; and all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is
defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising out
of the sale or lease of goods or rendition of services by the Borrower on an
open account or deferred payment basis.
"Advance" means a Revolving Advance.
"Affiliate" or "Affiliates" any Person controlled by, controlling or
under common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Availability" means the difference of (i) the Borrowing Base and (ii)
the sum of (A) the outstanding principal balance of the Revolving Note and (B)
the L/C Amount.
"Banking Day" means a day other than a Saturday, Sunday or other day on
which banks are generally not open for business in Minneapolis, Minnesota and
Denver, Colorado.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity in the Borrower, determined in accordance with GAAP.
"Borrowing Base" means, at any time the lesser of:
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(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) 80% of Eligible Accounts, plus
(ii) the lesser of (A) the sum of (I) 50% of the Eligible
Tools Inventory and (II) 35% of the Eligible Tent Inventory or (B)
$500,000.
"Capital Expenditures" for a period means any expenditure of money for
the lease, purchase or other acquisition of any capital asset, or for the lease
of any other asset whether payable currently or in the future.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on deposit in
any Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii)
proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods; and (vi) all sums on deposit in
the Special Account
"Collateral Account" means the Lender Account.
"Collateral Account Agreement" means the Collection Account Agreement
of even date herewith by and among the Borrower, Xxxxx Fargo and the Lender.
"Commitment" means the Lender's commitment to make Advances and to
cause the Issuer to issue Letters of Credit to or for the Borrower's account
pursuant to Article .
"Credit Facility" means the credit facility being made available to the
Borrower by the Lender pursuant to Article II.
"Debt" of any Person means 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 of that Person as at the date
as of which Debt is to be determined. For purposes of determining a Person's
aggregate Debt at any time, "Debt" 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.
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"Default" means an event that, with giving of notice or passage of time
or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day of
any month during which a Default or Event of Default has occurred and ending on
the date the Lender notifies the Borrower in writing that such Default or Event
of Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances, an annual
rate equal to three percent (3%) over the Revolving Floating Rate, which rate
shall change when and as the Revolving Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Accounts" means all unpaid Accounts, net of any credits
except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or more after
the invoice date;
(ii) That portion of Accounts that is disputed or subject
to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the
Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be included
in Eligible Accounts that portion of Accounts owed by such units of
government for which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority perfected
security interest and (B) such Accounts may be enforced by the Lender
directly against such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located outside
the United States which are not (A) backed by a bank letter of credit
naming the Lender asbeneficiary or assigned to the Lender, in the
Lender's possession and acceptable to the Lender in all respects, in
its sole discretion, or (B) covered by a foreign receivables
insurance policy acceptable to the Lender in its sole discretion;
(vi) Accounts owed by an account debtor that is insolvent,
the subject of bankruptcy proceedings or has gone out of business;
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(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien,
security interest or claim in favor of any Person other than the Lender
including without limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured
extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance . charges, service charges or sales or excise
taxes;
(xi) Accounts owed by an account debtor other than The Home
Depot, regardless of whether otherwise eligible, if 10% or more of the
otal amount due under Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above or Accounts owed by The Home Depot,
regardless of whether otherwise eligible, if 25% or more of the
total amount due under Accounts from The Home Depot is eligible under
clauses (i), (ii) or (ix) above;
(xii) That portion of the aggregate Accounts of a single
customer other than The Home Depot that exceeds 15% of all Accounts
of the Borrower or that portion of the aggregate Accounts of The
Home Depot that exceeds 40% of all Accounts of the Borrower; and
(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at the lower
of cost or market value as determined in accordance with GAAP; provided,
however, that the following shall not in any event be deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any warehouse,
job site or other premises not approved by the Lender in writing;
located outside of the states, or localities, as applicable, in which
the Lender has filed financing statements to perfect a first priority
security interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, xxxx of lading or other document of
title; on consignment -from any Person; on consignment to any Person
or subject to any bailment unless such consignee or bailee has
executed an agreement with the Lender;
(ii) Supplies, packaging, maintenance or fabricated parts
or sample Inventory;
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(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete, slow moving or
not currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends to
return to the vendor thereof;
{vi) Inventory that is perishable or live;
(vii) Inventory manufactured by the Borrower pursuant to a
license unless the applicable licensor has agreed in writing to permit
the Lender to exercise its rights and remedies against such Inventory;
(viii) Inventory that is subject to a security interest in
favor of any Person other than the Lender; and
(ix) Inventory otherwise deemed ineligible by the Lender
in its sole discretion.
"Eligible Tent Inventory" means all Eligible Inventory consisting of
tents and sleeping bags.
"Eligible Tool Inventory" means all Eligible Inventory consisting of
tools.
"Environmental Law" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term is
defined in the UCC, whether now owned or hereafter acquired, including but not
limited to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the financial
statements described in Section 5.5
"General Intangibles" means all of the Borrower's general intangibles,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
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applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Guarantors" means X.X. Xxxxxx, Xxxxx Xxxxxx and Xxxxx Xxxxxx.
"Hazardous Substance" has the meaning given in Section 5.12.
"Inventory" means all of the Borrower's inventory, as such term is
defined in the UCC, whether now owned or hereafter acquired, whether consisting
of whole goods, spare parts or components, supplies or materials, whether
acquired, held or furnished for sale, for lease or under service contracts or
for manufacture or processing, and wherever located. ,
"Investment Property" means all of the Borrower's investment property,
as such term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements, securities
accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
"Issuer" means the Issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of any
issued and outstanding Letters of Credit and (ii) the unpaid amount of the
Obligation of Reimbursement.
"L/C Application" means an application and agreement for letters of
credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.2.
"Lender Account" has the meaning given in the Collateral Account
Agreement or the Lockbox Agreement, whichever is applicable.
"Loan Documents" means this Agreement, the Note and the Security
Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox and Collection Agreement by and
among the Borrower, Xxxxx Fargo, Regulus West LLC and the Lender, of even date
herewith.
"Maturity Date" means June 1, 2003.
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"Maximum Line" means $1,000,000, unless said amount is reduced pursuant
to Section 2.10, in which event it means the amount to which said amount is
reduced.
"Minimum Interest Charge" has the meaning given in Section 2.6(b).
"Net Income" means fiscal year-to-date before-tax net income from
continuing operations, as determined in accordance with GAAP.
"Norwest Bank Minnesota" means Norwest Bank Minnesota, National
Association.
"Note" means the Revolving Note.
"Obligations" means the Note and each and every other debt, liability
and obligation of every type and description which the Borrower May now or at
any time hereafter owe to the Lender, whether such debt, liability or obligation
now exists or is hereafter created or incurred, whether it arises in a
transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically,. but not limited to the Obligation of Reimbursement and all
indebtedness-of/he Borrower arising under this Agreement, the Note, any L/C
Application completed by the Borrower, or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Obligation of Reimbursement" has the meaning given in Section 2.3(a).
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its business
and has any rights of possession, including (without limitation) the premises
legally described in Exhibit C attached hereto.
"Prime Rate" means the rate publicly announced from time to time by
Xxxxx Fargo as its "prime rate" or, if such bank ceases to announce a rate so
designated, any similar successor rate designated by the Lender.
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"Receivables" means each and every right of the Borrower to the payment
of money, whether such right to payment now exists or hereafter arises, whether
such right to payment arises out of a sale, lease or other disposition of goods
or other property, out of a rendering of services, out of a loan, out of the
overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future accounts, contract rights, loans and
obligations receivable, chattel papers, bonds, notes and other debt instruments,
tax refunds and rights to payment' in the nature of general intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2 1.
"Revolving Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus three and one half percent (3.50%), which annual rate shall
change when and as the Prime Rate changes.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A hereto
and any note or notes issued in substitution therefor, as the same may hereafter
be amended, supplemented or restated from time to time.
"Security Documents" means this Agreement, the Collateral Account
Agreement, the Lockbox Agreement, and any other document delivered to the Lender
from time to time to secure the Obligations, as the same may hereafter be
amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Special Account" means a specified cash collateral account maintained
by a financial institution acceptable to the Lender in connection with Letters
of Credit, as contemplated by Section 2.4.
"Subordination Agreement" means the Subordination Agreements of even
date herewith, executed by Xxxxx Xxxxxx, S&L Family Trust and SK Management
Trust, each in the Lender's favor and acknowledged by the Borrower, and any
other subordination agreements accepted by the Lender from time to time, as the
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same may hereafter be amended, supplemented or restated from time to time.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii)-the date the
Lender demands payment of the Obligations after an Event of Default pursuant to
Section 8.2.
"WCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 9.13 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 hereof.
"Xxxxx Fargo" means Xxxxx Fargo Bank, N.A.
Section :1.2 Cross References. All references in this
Agreement to Articles, Sections and subsections, shall be to Articles, Sections
and subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.l Revolving Advances. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4. l
are satisfied or waived in writing by the Lender (the "Funding Date") to the
Termination Date (the "Revolving Advances"). The Lender shall have no obligation
to make a Revolving Advance if, after giving effect to such requested Revolving
Advance, the sum of the outstanding and unpaid Revolving Advances under this
Section 2. l or otherwise would exceed the Borrowing Base less the L/C Amount.
The Borrower's obligation to pay the Revolving Advances shall be evidenced by
the Revolving Note and shall be secured by the Collateral as provided in Article
m. Within the limits set forth in this Section 2. l, the Borrower may borrow and
reborrow and prepay pursuant to Section 2. l 0. The Borrower agrees to comply
with the following procedures in requesting Revolving Advances under this
Section 2. l:
(a) The Borrower shall make each request for a Revolving Advance to the
Lender before 11:00 a.m. (Denver time) of the day of the requested Revolving
Advance. Requests may be made in writing or by telephone, specifying the date of
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the requested Revolving Advance and the amount thereof. Each request shall be by
(i) any officer of the Borrower, or (ii) any person designated as the Borrower's
agent by any officer of the Borrower in a writing delivered to the Lender; or
(iii) any person whom the Lender reasonably believes to be an of officer of the
Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving Advance by
crediting the same to the Borrower's demand deposit account maintained with
Xxxxx Fargo unless the Lender and the Borrower shall agree in writing to another
manner of disbursement. Upon the Lender's request, the Borrower shall promptly
confirm each telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall repay all
Advances even if the Lender does not receive such confirmation and even if the
person requesting an Advance was -not in fact authorized to do so. Any request
for an Advance, whether written or telephonic, shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.
Section 2.2 Letters of Credit.
(a) The Lender agrees, on the terms and subject to the conditions
herein set forth, to cause an Issuer to issue, from the Funding Date to the
Termination Date, one or more irrevocable standby or documentary letters of
credit (each, a "Letter of Credit") for the Borrower's account. The Lender shall
have no obligation to cause an Issuer to issue any Letter of Credit if the face
amount of the Letter of Credit to be issued, would exceed the lesser of:
(i) $150,000 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all outstanding
and unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the Borrower and the Lender for the benefit of the
Issuer, completed in a manner satisfactory to the Lender and the Issuer. The
terms and conditions set forth in each such L/C Application shall supplement the
terms and conditions hereof, but if the terms of any such L/C Application and
the terms of this Agreement are inconsistent, the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date later than
the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit under
this Section 2.2 shall be deemed to be a representation by the Borrower that the
conditions set forth in Section 4.2 have been satisfied as of the date of the
request.
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Section 2.3 Payment of Amounts Drawn Under Letters of Credit:
Obligation of Reimbursement
The Borrower acknowledges that the Lender, as co-applicant, will be
liable to the Issuer for reimbursement of any and all draws under Letters of
Credit and for all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower agrees to pay to the Lender any and all
amounts required to be paid under the applicable L/C Application, when and as
required to be paid thereby, and the amounts designated below, when and as
designated:
(a) The Borrower hereby agrees to pay the Lender on the day a draft is
honored under any Letter of Credit a sum equal to all amounts drawn under such
Letter of Credit plus any and all reasonable charges and expenses that the
Issuer or the Lender may pay or incur relative to such draw and the applicable
L/C Application, plus interest on all such amounts, charges and expenses as set
forth below (the Borrower's obligation to pay all such amounts is herein
referred to as the "Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit, the Lender
shall make a Revolving Advance in the amount of the Obligation of Reimbursement
and shall apply the proceeds of such Revolving Advance thereto. Such Revolving
Advance shall be repayable in accordance with and be treated in all other
respects as a Revolving Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the Borrower
is unable, because a Default Period then exists or for any other reason, to
obtain a Revolving Advance to pay the Obligation of Reimbursement, the Borrower
shall pay to the Lender on demand and in immediately available funds, the amount
of the Obligation of Reimbursement together with interest, accrued from the date
of the draft until payment in full at the Default Rate. Notwithstanding the
Borrower's inability to obtain a Revolving Advance for any reason, the Lender is
irrevocably authorized, in its sole discretion, to make a Revolving Advance in
an amount sufficient to discharge the Obligation of Reimbursement and all
accrued but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance made under
this Section 2.3, shall be evidenced by Revolving Note and shall bear interest
as provided in Section 2.6.
Section 2.4 Special Account. If the Credit Facility is terminated for
any reason whatsoever while any Letter of Credit is outstanding, the Borrower
shall thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account' shall be credited to the Special Account. Amounts on
deposit in the Special Account may be applied by the Lender at any time or from
time to time to the Obligations in the Lender's sole discretion, and shall not
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be subject to withdrawal by the Borrower so long as the Lender maintains a
security interest therein. The Lender agrees to transfer any balance in the
Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
Section 2.5 Obligations Absolute. The Borrower's obligations arising
under Section 2.3 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.3, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of Credit
or any agreement or instrument relating to any Letter of Credit (collectively
the "Related Documents");
(b) any amendment or waiver of or any consent to departure from
all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right which
the Borrower may have at any time, against any beneficiary or any transferee of
any Letter of Credit (or any persons or entities for whom any such beneficiary
or any such transferee may be acting), or other person or entity, whether in
connection with this Agreement, the transactions contemplated herein or in the
Related Documents or any unrelated transactions;
(d) any statement or any other document presented under any Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect
or any statement therein being untrue or inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under any
Letter of Credit against presentation of a draft or certificate which does not
strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
Section 2.6 Interest: Minimum Interest Charge; Default Interest: Usury.
(a) Revolving Note Except as set forth in Sections 2.6(c) and 2.6(e),
the outstanding principal balance of the Revolving Note shall bear interest at
the Revolving Floating Rate. Interest accruing on the Revolving Note shall be
due and payable in arrears on the first day of each month.
(b) Minimum Interest Charge. Notwithstanding the interest payable
pursuant to Section 2.6(a), the Borrower shall pay to the Lender interest of not
less than (i) during the months of January, February, March and August of
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each year, $6,000 per calendar month and (ii) at all other times, $8,000 per
calendar month (the "Minimum Interest Charge") during the term of this
Agreement, and the Borrower shall pay any deficiency between the Minimum
Interest Charge and the amount of interest otherwise calculated under Sections
2..6(a) and 2.6(c) on the date and in the manner provided in Section 2.8.
(c) Default Interest Rate. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights and
remedies, the principal of the Advances outstanding from time to time shall bear
interest at the Default Rate, effective for any periods designated by the Lender
from time to time during that Default Period.
(d) Participations If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the Lender to
pay the full amount of all interest calculated under this Agreement, along with
all other fees, charges and other amounts due under this Agreement, regardless
if such Person elects to accept interest with respect to its participation at a
lower rate than the Revolving Floating Rate or otherwise elects to accept less
than its pro rata share of such fees, charges and other amounts due under this
Agreement.
(e) usury. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document, all
agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
any applicable usury laws. If any payments in the nature of interest, additional
interest and other charges made under any Loan Document are held to be in excess
of the limits imposed by any applicable usurer laws, it is agreed that any such
amount held to be in excess shall be considered payment of principal hereunder,
and the indebtedness evidenced hereby shall be reduced by such amount so that
the total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and the
Lender. This provision shall never be superseded or waived and shall control
every other provision of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
Section :2.7 Fees.
(a) Origination Fee. The Borrower hereby agrees to pay the Lender
a fully earned and non-refundable origination fee of one percent (1.00%) of the
Maximum Line, due and payable upon the execution of this Agreement.
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(b) Unused Line Fee. For the purposes of this Section 2.7(b), "Unused
Amount" means the Maximum Line reduced by (i) outstanding Revolving Advances and
(ii) the L/C Amount. The Borrower agrees to pay to the Lender an unused line fee
at the rate of one quarter of one percent (0.25%) per annum on the average daily
Unused Amount from the date of this Agreement to and including the Termination
Date, due and payable monthly in arrears on the first day of the month and on
the Termination Date.
(c) Audit Fees. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted by
the. Lender of any Collateral or the Borrower's operations or business at the
rates established from time to time by the Lender as its audit fees (which fees
are currently $70 per hour per auditor), together with all actual out-of-pocket
costs. and expenses incurred in conducting any such audit or inspection;
provided, however. that except during Default Periods, the Lender shall not
conduct more than four (4) audits per year.
(d) Letter of Credit Fees. The Borrower agrees to pay the Lender a fee
with respect to each Letter of Credit, if any, accruing on a daily basis and
computed at the annual rate of one and one half percent (1.50%) of the aggregate
amount that may then be drawn on all issued and outstanding Letters of Credit
assuming compliance with all conditions for drawing thereunder (the "Aggregate
Face Amount"), from and including the date of issuance of such Letter of Credit
until such date as such Letter of Credit shall terminate by its terms or be
returned to the Lender, due and payable monthly in arrears on the first day of
each month and on the Termination Date; provided however that during Default
Periods, in the Lender's sole discretion and without waiving any of its other
rights and remedies, such fee shall increase to four and one half percept
(4.50%) of the Aggregate Face Amount. The foregoing fee shall be in addition to
any and all fees, commissions and charges of any Issuer of a Letter of Credit
with respect to or in connection with such Letter of Credit.
(e) Letter of Credit Administrative Fees. The Borrower agrees to pay
the Lender, on written demand, the administrative fees charged by the Issuer in
connection with the honoring of drafts under any Letter of Credit, amendments
thereto, transfers thereof and all other activity with respect to the Letters of
Credit at the then-current rates published by the Issuer for such services
rendered on behalf of customers of the Issuer generally.
(f) Facility Fee The Borrower hereby agrees to pay the Lender an annual
facility fee of one half of one percent (0.50%) per annum of the Maximum Line,
due and payable on each anniversary of the Funding Date and on the Termination
Date.
Section 2.8 Computation of Interest and Fees: When Interest Due and
Payable.
Interest accruing on the outstanding principal balance of the Advances and fees
hereunder outstanding from time to time shall be computed on the basis of actual
14
number of days elapsed in a year of 360 days. Interest shall be payable in
arrears on the first day of each month and on the Termination Date.
Section 2.9 Capital Adequacy. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.9:
(a) "Capital Adequacy Rule" means any law, rule, regulation, guideline,
directive, requirement or request regarding capital adequacy, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the force of
law, that applies to any Related Lender. Such rules include rules requiring
financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.
(b) "L/C Rule" means any law, rule, regulation, guideline, directive,
requirement or request regarding letters of credit, or the interpretation or
administration thereof by any governmental or regulatory authority, central bank
or comparable agency, whether or not having the force of law, that applies to
any Related Lender. Such rules include rules imposing taxes, duties or other
similar charges, or mandating reserves, special deposits or similar requirements
against assets of, deposits with or for the account of, or credit extended by
any Related Lender, on letters of credit.
(c) "Return", for any period, means the return as determined by such
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes account of
the Capital Adequacy Rules then in effect and costs of issuing or maintaining
any Letter of Credit. Return may be calculated for each calendar quarter and for
the shorter period between the end of a calendar quarter and the date of
termination in whole of this Agreement.
(d) "Rule Change" means any change in any Capital Adequacy Rule or L/C
Rule occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the date hereof are scheduled to
take place under the existing Capital Adequacy Rules or L/C Rules or any
increases in the capital that any Related Lender is required to maintain to the
extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related :Lender.
(e) "Related Lender" includes (but is not limited to) the Lender, the
Issuer, any parent corporation of the Lender or the Issuer and any assignee of
any interest of the Lender hereunder and any participant in the loans made
hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.9, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
15
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.10 Voluntary Prepayment: Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise provided
herein, the Borrower may prepay the Revolving Advances in whole at any time or
from time to time in part. The Borrower may terminate the Credit Facility or
reduce the Maximum Line at any time if it (i) gives the Lender at least 30 days'
prior written notice and (ii) pays the Lender the termination or line reduction
fees in accordance with Section 2. 11. Any reduction in the Maximum Line must be
in an amount not less than $10,000 or an integral multiple thereof. If the
Borrower reduces the Maximum Line to zero, all Obligations shall be immediately
due and payable. Upon termination of the Credit Facility and payment and
performance of all Obligations, the Lender shall release or terminate the
Security Interest and the Security Documents to which the Borrower is entitled
by law.
Section 2.11 Termination. Line Reduction and prepayment Fees; Waiver of
Termination. prepayment and Line Reduction Fees.
(a) Termination and Line Reduction Fees. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay to the Lender a fee in
an amount equal to a percentage of the Maximum Line (or the reduction, as the
case may be) as follows: (i) three percent (3.0%) if the termination or
reduction occurs on or before the first anniversary of the Funding Date; (ii)
two percent (2.0%) if the termination or reduction occurs after the first
anniversary of the Funding Date but on or before the second anniversary of the
Funding Date; and (iii) one percent (1.0%) if the termination or reduction
occurs after the second anniversary of the Funding Date.
(b) Waiver of Termination, Line Reduction and Prepayment Fees. The
Borrower will not be required to pay the termination and line reduction fees
otherwise due under this Section 2.11 if such termination or line reduction is
made because of refinancing of the Borrower by an affiliate of the Lender.
Section 2.12 Mandatory Prepayment Without notice or demand, if the
outstanding principal balance of the Revolving Advances plus the L/C Amount
shall at any time exceed the Borrowing Base, the Borrower shall (i) first,
immediately prepay the Revolving Advances to the extent necessary to eliminate
such excess and (ii) then, if prepayment in full of the [Revolving Advances is
insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.12 or
under Section 2.10 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
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Section 2.13 Payment. All payments to the Lender shall be made in immediately
available funds and shall be applied to the Obligations one (1) Banking Days
after :receipt by the Lender. The Lender may hold all payments not constituting
immediately available funds for three (3) additional days before applying them
to the Obligations. Notwithstanding anything in Section 2.1, the Borrower hereby
authorizes the Lender, in its discretion at any time or from. time to time
without the Borrower's request and even if the conditions set forth in Section
4.2 would not be satisfied, to make a Revolving Advance in an amount equal to
the portion of the Obligations from time to time due and payable.
Section 2.14 Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.15 Use of Proceeds. The Borrower shall use the proceeds of
Advances and each Letter of Credit, if any, for ordinary working capital
purposes.
Section 2.16 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1 Grant of security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time (whether or not a Default Period then exists) notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, xxx for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
17
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies and adjust, litigate, compromise
or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process, manufacture,
sell, use, store, liquidate, realize upon or otherwise dispose of goods that are
Collateral and for other purposes that the Lender may in good xxxxx xxxx to be
related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations and
termination of the Commitment, and (ii) final sale or disposition of all goods
constituting Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for any rent or
other compensation for the possession, occupancy or use of any of the Premises;
provided, however, that if the Lender does pay or account for any rent or other
compensation for the possession, occupancy or use of any of the Premises, the
Borrower shall reimburse the Lender promptly for the full amount thereof. In
addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or imposed upon
the Lender by reason of the execution, delivery, existence, recordation,
performance or enforcement of this Agreement or the provisions of this Section
3.4.
Section 3.5 License. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
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for the purpose of selling, leasing or otherwise disposing of any or all
Collateral any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Open Sea Corporation
d/b/a NEBO Products
000 Xxxxxxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Xxxxx Fargo Business Credit, Inc.
C7300-300 MAC
0000 Xxxxxxxx
Xxxxxx Xxxxxxxx 00000-0000
Federal Tax Identification No. 00-0000000
Section 3.7 Setoff. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Revolving Advance and
the Initial Letter of Credit. The Lender's obligation to make the initial
Revolving Advance or cause to be issued the initial Letter of Credit hereunder
shall be subject to the condition precedent that the Lender shall have received
all of the following, each in form and substance satisfactory to the Lender:
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(a) This Agreement, properly executed by the Borrower.
(b)The Note, properly executed by the Borrower.
(c) A. true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) A. true and correct copy of any and all mortgages pursuant to
which the Borrower has mortgaged the Premises, together with a mortgagee's
disclaimer and consent with respect to each such mortgage.
(e) A. true and correct copy of any and all agreements pursuant to
which the Borrower's property is in the possession of any Person other than the
Borrower, together with, in the case of any goods held by such Person for
resale, (i) a consignee's acknowledgment and waiver of liens, (ii) UCC financing
statements sufficient to protect the Borrower's and the Lender's interests in
such goods, and (iii) UCC searches showing that no other secured party has filed
a financing statement against such Person and covering property similar to the
Borrower's other than the Borrower, or if there exists any such secured party,
evidence that each such secured party has received notice from the Borrower and
the Lender sufficient to protect the Borrower's and the Lender's interests in
the Borrower's goods from any claim by such secured party.
(f) An acknowledgment and waiver of liens from each warehouse in
which the Borrower is storing Inventory.
(g) A true and correct copy of any and all agreements pursuant to which
the Borrower's property is in the possession of any Person other than the
Borrower, together with, (i) an acknowledgment and waiver of liens from each
subcontractor who has possession of the Borrower's goods from time to time, (ii)
UCC financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other secured
party has filed a financing statement covering such Person's property other than
the Borrower, or if there exists any such secured party, evidence that each such
secured party has received notice from the Borrower and the Lender sufficient to
protect the Borrower's and the Lender's interests in the Borrower's goods from
any claim by such secured party.
(h) The Collateral Account Agreement, properly executed by the
Borrower and Xxxxx Fargo.
(i) The Lockbox Agreement, properly executed by the Borrower,
Xxxxx Fargo and Regulus West LLC.
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(j) The Subordination Agreements, properly executed by Xxxxx Xxxxxx,
S&L Family Trust, SK Management Trust and The Xxxxxxx Group Career Satisfaction
Corporation acknowledged by the Borrower.
(k) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against the
Borrower, (ii) no financing statements or assignments of patents, trademarks or
copyrights have been 1-fled and remain in effect against the Borrower except
those financing statements and assignments of patents, trademarks or copyrights
relating to Permitted Liens or to liens held by Persons who have agreed in
writing that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of patents,
trademarks or copyrights satisfactory to the Lender, and (iii) the Lender has
duly filed all financing statements necessary to perfect the Security Interest,
to the extent the Security Interest is capable of being perfected by filing.
(l) A certificate of the Borrower's Secretary or Assistant Secretary
certifying as to (i) the resolutions of the Borrower's directors and, if
required, shareholders, authorizing the execution, delivery and performance of
the Loan Documents, (ii) the Borrower's articles of incorporation and bylaws,
and (iii) the signatures of the Borrower's officers or agents authorized to
execute and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower's behalf.
(m) A current certificate issued by the Utah Division of Corporations
and Commercial Code, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Utah.
(n) Evidence that the Borrower is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary.
(o) A certificate of an officer of the Borrower confirming in his
personal capacity, the representations and warranties set forth in Article V.
(p) A certificate of an officer of the Borrower confirming, in his
personal capacity, that no financing statements have been executed since March
31, 2000, other than the financing statements executed in favor of the Lender.
(q)An opinion of counsel to the Borrower, addressed to the Lender.
(r) Certificates of the insurance required hereunder, with all hazard
insurance containing a lender's loss payable endorsement in the Lender's favor
and with all liability insurance naming the Lender as an additional insured.
21
(s) A separate guaranty, properly executed by each Guarantor, pursuant
to which each Guarantor unconditionally guarantees the full and prompt payment
of all Obligations.
(t) A waiver of interest, properly executed by the spouse of the
Guarantor, waiving any and all interest such spouse may have in the assets
disclosed to the Lender in the financial statements of the Guarantor and in any
future earnings or assets acquired by the Guarantor.
(u) An opinion of counsel to each Guarantor, addressed to the
Lender.
(v) Availability of $100,000 or more after the initial- Revolving
Advance and the initial Letter of credit.
(w) A side letter regarding delivery by the Borrower of the Borrower's
1999 audited financial statements, properly executed by the Borrower.
(x) All of the Borrower's notes payable, other than the Revolving Note,
shall provide for a maturity date of June 30, 2003 or later.
(y) Payment of the fees and commissions due through the date of the
initial Advance or Letter of Credit under Section 2.5 and expenses incurred by
the Lender through such date and required to be paid by the Borrower under
Section 9.6, including all legal expenses incurred through the date of this
Agreement.
(z) Such other documents as the Lender in its sole discretion may
require.
Section 4.2 Conditions Precedent to All Advances and Letters of Credit.
The Lender's obligation to make each Advance or to cause the Issuer to issue any
Letter of Credit shall be subject to the further conditions precedent that on
such date:
(a) the representations and warranties contained in Article V are
correct on and as of the date of such Advance or issuance of Letter of Credit as
though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result from such
Advance or issuance of Letter of Credit which constitutes a Default or an Event
of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
22
Section 5.1 Corporate Existence and Power: Name: Chief Executive
Office; Inventory Equipment Locations: Tax Identification Number. The Borrower
is a corporation, duly organized, validly existing and in good standing under
the laws of the State of Utah and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or
leased) or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
The Borrower's tax identification number is correctly set forth in Section 3.6
hereto.
Section 5.2 Authorization of Borrowing: No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Schedule 5.4 hereto,
the Borrower has no Subsidiaries.
Section 5.5 Financial Condition: No Adverse Change. The Borrower has
heretofore furnished to the Lender its unaudited financial statements for its
fiscal year ended December 31, 1999 and its unaudited financial statements for
the fiscal year-to-date period ended :March 31, 2000 and those statements fairly
23
present the Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which., if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of-its Affiliates. ". ..
Section 5.7 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No :financing statement naming the Borrower as debtor is on
file in any office except to perfect only Permitted Liens.
Section 5 10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
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(b) Any liability or knows of any fact or circumstances which could
result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which are or which may
become payable to participants or beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on the Borrower's financial condition,
properties or operations.
Section 5.12 Environmental Matters
(a) Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(i) Environmental Law" means any federal, state, local or
other governmental statute, regulation, law or ordinance dealing with
the protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) o the Borrower's best knowledge, there are not present in, on or
under the Premises any Hazardous Substances in such form or quantity as to
create any liability or obligation for either the Borrower or the Lender under
the common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked, discharged,
emitted or released in, on or under the Premises in such a way as to create any
such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any liability
under any Environmental Law.
(d) here are not and there never have been any requests, claims,
notices, investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law or
any license, permit or other authorization issued pursuant thereto. To the
Borrower's best knowledge, no such matter is threatened or impending.
25
(e) To Borrower's best knowledge, the Borrower's businesses are and
have in the past always been conducted in accordance with all Environmental Laws
and all licenses, permits and other authorizations required pursuant to any
Environmental Law and necessary for the lawful and efficient operation of such
businesses are in the Borrower's possession and are in full force and effect. No
permit required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit . will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental assessments,
audits, reports, permits, licenses and other documents describing or relating in
any way to the Premises or the Borrower's businesses.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
Borrower's Affirmative Covenants
26
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after the end
of each fiscal year of the Borrower, the Borrower's audited financial statements
with the unqualified opinion of independent certified. public accountants
selected by the Borrower and acceptable to the Lender, which annual financial
statements shall include the Borrower's balance sheet as at the end of such
fiscal year and the related statements of the Borrower's income, retained
earnings and cash flows for the fiscal year then ended, prepared, if the :Lender
so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with GAAP,
together with (i) copies of all management letters prepared by such accountants;
(ii) a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained no knowledge, except as
specifically stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the requirements set forth in
Sections 6.12, 6.13 and 7.10; and (iii) a certificate of the Borrower's chief
financial officer stating that such financial statements have been prepared in
accordance with GAAP and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so, stating in
reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after the end
of each month, an unaudited/internal balance sheet and statements of income and
retained earnings of the Borrower as at the end of and for such month and for
the year to date period then ended, prepared, if the Lender so requests, on a
consolidating and consolidated basis to include any Affiliates, in reasonable
detail and stating in comparative form the figures for the corresponding date
and periods in the previous year, all prepared in accordance with GAAP, subject
to year-end audit adjustments; and accompanied by a certificate of the
Borrower's chief financial officer, substantially in the form of Exhibit B
hereto stating (i) that such financial statements have been prepared in
accordance with GAAP, subject to year-end audit adjustments, (ii) whether or not
such officer has knowledge of the occurrence of any Default or Event of Default
hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto, and (iii) all relevant facts
in reasonable detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Sections 6 12, 6.13
and 7.10;
27
(c) within 15 days after the end of each month or more frequently if
the Lender so requires, agings of the accounts receivable and accounts payable,
an inventory certification report, and a calculation of the Borrower's Accounts,
Eligible Accounts, Inventory and Eligible Inventory as at the end of such month
or shorter time period;
(d) at least 30 days before the beginning of each fiscal year of the
Borrower, the projected balance sheets and income statements for each month of
such year, each in reasonable detail, representing the Borrower's good faith
projections and certified by the Borrower's chief financial officer as being the
most accurate projections available and identical to the projections used by the
Borrower for internal planning purposes, together with such supporting schedules
and information as the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting the Borrower of the type described in Section 5.12 or which
seek a monetary recovery against the Borrower in excess of $10,000;
(f) as promptly as practicable (but in any event not later than five
business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(g) as soon as possible and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect to
any Plan has occurred, the statement of the Borrower's chief financial officer
setting for the details as to such Reportable Event and the action which the
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after the
Borrower fails to make any quarterly contribution required with respect to any
Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended, the
statement of the Borrower's chief financial officer setting forth details as to
such failure and the action which the Borrower proposes to take with respect
thereto, together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers exceeding $5,000 individually or $10,000 in
the aggregate during any fiscal year; (ii) credit memos; (iii) any goods
returned to or recovered by the Borrower; and (iv) any change in the persons
constituting the Borrower's officers and directors;
28
(j) promptly upon knowledge thereof, notice of any loss of or material
damage to any Collateral or other collateral covered by the Security Documents
or of any substantial adverse change in any Collateral or such other collateral
or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders:
(l) promptly after the sending or filing thereof, copies of all regular
and periodic reports which the Borrower shall file with the Securities and
Exchange Commission or any national securities exchange;
(m) as soon as possible, and in any event by not later than April 30th
of each year, copies of the state and federal tax returns and all schedules
thereto and an updated personal financial statement of each owner of the
Borrower and each Guarantor;
(n) promptly upon knowledge thereof, notice of the Borrower"; violation
of any law, rule or regulation, the non-compliance with which could materially
and adversely affect the Borrower's business or its financial condition;
(o) as soon as possible, and in any event within fifteen (15) days
after the end of each month or more frequently if the Lender so requires, a list
of all of the Borrower's notes payable, other than the Revolving Note, including
the holder of each such note, the original principal balance of each such note,
the current principal balance outstanding under each such note, the monthly
principal and interest payment due under each such note, and the maturity date
of each such note;
(p) daily, with reasonable promptness, any and all receivables
schedules, collection reports, deposit records, adjustments to accounts
receivable and all evidence of shipping, including without limitation bills of
lading, for all invoices equal to or more than $7,500; and
(q) from time to time, with reasonable promptness, any and all
equipment schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
Section 6.2 Books and Records: Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and
29
records of the Borrower at all times during ordinary business hours, to send and
discuss with account debtors and other obligors for verification of amounts owed
to the Borrower, and to discuss the Borrower's affairs with any of its
directors, officers, employees or agents. The Borrower will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and keep
the Collateral, and require that others use and keep the Collateral, only for
lawful purposes, without violation of any federal, state or local law, statute
or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create any
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the other
collateral covered by the Security Documents and all of its other properties
necessary or useful in its business in good condition, repair and working order
(normal wear and tear excepted) and will from time to time replace or repair any
worn, defective or broken parts; provided, however that nothing in this Section
30
6.6 shall prevent the Borrower from discontinuing the operation and maintenance
of any of its properties if such discontinuance is, in the Lender's judgment,
desirable in the conduct of the Borrower's business and not disadvantageous in
any material respect to the-Lender.
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral covered
by the Security Documents free and clear of all security interests, liens and
encumbrances except Permitted Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of' the foregoing, the Borrower will at all
times-keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision. (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to-the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments. etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6 10 Collateral Account.
(a) During a Default Period and thereafter until otherwise directed by
the Lender in its sole discretion, the Borrower shall irrevocably direct all
present and future Account debtors and other Persons obligated to make payments
constituting Collateral to make such payments directly to the Lockbox. During a
Default Period and thereafter until otherwise directed by the Lender in its sole
discretion, all of the Borrower's invoices, account statements and other written
or oral communications directing, instructing, demanding or requesting payment
of any Account or any other amount constituting Collateral shall conspicuously
31
direct that all payments be made to the Lockbox and shall include the Lockbox
address. All payments received. in the Lockbox shall be processed to the
Collateral Account. :
(b) The Borrower agrees to deposit in the Collateral Account or, at the
Lender's option, to deliver to the Lender all collections on Accounts, contract
rights, chattel paper and other rights to payment constituting Collateral, and
all other cash proceeds of Collateral, which the Borrower may receive directly
notwithstanding its direction (if any) to Account debtors and other obligors to
make payments to the Lockbox, immediately upon receipt thereof, in the form
received, except for the Borrower's endorsement when deemed necessary. Until
delivered to the Lender or deposited in the Collateral Account, all proceeds or
collections of Collateral shall be held in trust by the Borrower for and as the
property of the Lender and shall not be commingled with any funds or property of
the Borrower. (All such collections shall constitute proceeds of Collateral and
shall not constitute payment of any Obligation.)
(c) Amounts deposited in the Collateral Account shall not bear interest
and shall not be subject to withdrawal by the Borrower, except after full
payment and discharge of all Obligations.
(d) All deposits in the Collateral Account shall constitute proceeds of
Collateral and shall not constitute payment of the Obligations. The Lender from
time to time at its discretion may, after allowing one (1) Banking Days, apply
deposited funds in the Collateral Account to the payment of the Obligations, in
any order or manner of application satisfactory to the Lender, by transferring
such funds to the Lender's general account.
(e) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is resumed uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral Account,
the bank maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower's commercial account
or other account. The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account, whether or not in fact endorsed by the
Borrower.
Section 6.1 1 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
32
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.11.
Section 6.12 Minimum Book Net Worth. The Borrower will
maintain, during each period described below, its Book Net Worth, determined as
at the end of each month, at an amount not less than the amount set forth
opposite such period (numbers appearing between "( )" are negative):
Period Minimum Book Net Worth
------ ----------------------
The calendar month ending $(246,000)
May 31, 2000
The calendar month ending $(226,000)
June 30, 2000
The calendar month ending $(206,000)
July 31, 2000
The calendar month ending $(186,000)
August 31, 2000
The calendar month ending $(166,000)
September 30, 2000
The calendar month ending $(146,000)
October 31, 2000
The calendar month ending $(126,000)
November 30, 2000
The calendar month ending $(106,000)
December 31, 2000 and
thereafter
Section 6.13 Minimum Net Income. The Borrower will achieve
during each period described below, Minimum Net Income, of not less than the
amount set forth opposite such period (numbers appearing between "( )" are
negative):
33
Period Minimum Net Income
------ ------------------
Five months ending May 31, $(20,000)
2000
Six months ending June 30, $0
2000
Seven months ending July $20,000
31, 2000
Eight months ending August $40,000
31, 2000
Nine months ending $60,000
September 30, 2000
Ten months ending October $80,000
31, 2000
Eleven months ending $100,000
November 30, 2000
Twelve months ending $126,000
December 31, 2000
Section 6.14 New Covenants On or before November 30, 2000, the Borrower
and the Lender shall agree on new covenant levels for Sections 6.12, 6.13 and
7.10 for periods after December 31, 2000. The new covenant levels will be based
on the Borrower's projections for such periods and shall be no less stringent
than the present levels.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to e
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding however, from the operation of the foregoing,
the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents, covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the Borrower's business or operations as presently
conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1 hereto,
securing indebtedness for borrowed money permitted under Section 7.2;
34
(c) the Security Interest and liens and security interests created
by the Security Documents; and :
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the lesser of cost or fair
market value thereof, not exceeding for any one purchase or $10,000 in the
aggregate during any fiscal year]and so long as no Default Period is then in
existence and none would exist immediately after such acquisition.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof
and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent liabilities
in connection with the obligations of other Persons, in existence on the date
hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any stock or
other securities or evidences of indebtedness of, make or permit to exist any
loans or advances to, or make any investment or acquire any interest whatsoever
in, any other Person, including specifically but without limitation any
partnership or joint venture, except:
(b) investments in direct obligations of the United States of America
or any agency or instrumentality thereof whose obligations constitute full faith
and credit obligations of the United States of America having a maturity of one
year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2"
by Standard & Poors Corporation or "P-1 " or "P-2" by Xxxxx'x Investors Service
35
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);
(c) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of $10,000; and
(d) advances in the form of progress payments, prepaid rent not
exceeding one month or security deposits.
(e) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof and listed
in Schedule 5.4
Section 7.5 Dividends. Except as set forth below, the Borrower will not
declare or pay any dividends (other than dividends payable solely in stock of
the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets: Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger: Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $200,000 in the aggregate
during any fiscal year.
36
Section 7.11 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts. etc. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed. to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.15 Place of Business: Name. The Borrower win not transfer its
chief executive office or principal place of business, or move, relocate, close
or sell any 'business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.16 Organizational Documents: S Corporation Status. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws. The :Borrower will not become an S Corporation within
the meaning of the Internal Revenue Code of 1986, as amended.
Section 7.17 Salaries. The Borrower will 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 10% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment.
Section 7.18 Change in Ownership. The Borrower will not issue or sell
any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders, and the Borrower
will not permit or suffer to occur the sale, transfer, assignment, pledge or
other disposition of any or all of the issued and outstanding shares of stock of
the Borrower.
37
Section 7. l9 Payments of Notes Payable. Except as provided in the
Subordination Agreements, the Borrower will not pay any amounts due under any of
the Borrower's notes payable, other than the Revolving Note, unless (a) average
Availability is equal to or more than $ l 00,000 during the period sixty (60)
days prior to any such payment and immediately after any such payment, (b) such
payment is made from the proceeds of the sale of the capital stock of the
Borrower or the capital stock of The Xxxxxxx Group Career Satisfaction
Corporation owned by the Borrower on the date hereof or (c) such note payable is
listed on Schedule 7. l c, hereof and in such case, such amounts, shall be
limited to interest payments only.
ARTICLE VIII
Events of Default. Rights and Remedies
Section 8. l Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they become
due and payable;
(b) Failure to pay when due any amount specified in Section 2.3
relating to the Borrower's Obligation of Reimbursement, or failure to pay
immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.4 or;
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(e) The Borrower or any Guarantor shall be or become insolvent, or
admit in writing its or his inability to pay its or his debts as they mature, or
make an assignment for the benefit of creditors; or the Borrower or any
Guarantor shall apply for or consent to the appointment of any receiver,
trustee, or similar officer for it or him or for all or any substantial part of
its or his property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower or such Guarantor,
as the case may be; or the Borrower or any Guarantor shall institute (by
petition, application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding relating to it or him under the laws of any jurisdiction; or
any such proceeding shall be instituted (by petition, application or other-wise)
against the Borrower or any such Guarantor; or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Guarantor;
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(f) A petition shall be filed by or against the Borrower or any
Guarantor under the United States Bankruptcy Code naming the Borrower or such
Guarantor as debtor;
(g) Any representation or warranty made by the Borrower in this
Agreement, by any Guarantor in any guaranty delivered to the Lender, or by the
Borrower (or any of its officers) or any Guarantor in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant-to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective;
(h) The rendering against the Borrower of a final judgment, decree
or order for the payment of money in excess of $10,000 and the continuance of
such judgment, decree or order unsatisfied and in effect for any period. of 30
consecutive days without a stay of execution;
(i) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower owed to any Person other than the Lender, or under
any indenture or other instrument under which any such evidence of indebtedness
has been issued or by which it is governed, or under any lease of any of the
Premises, and the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture, other instrument or
lease;
(j) Any Reportable Event, which the Lender determines in good faith
might constitute grounds for the termination of any Plan or for the appointment
by the appropriate United States District Court of a trustee to administer any
Plan, shall have occurred and be continuing 30 days after written notice to such
effect shall have been given to the Borrower by the Lender; or a trustee shall
have been appointed by an appropriate United States District Court to administer
any Plan; or the Pension Benefit Guaranty Corporation shall. have instituted
proceedings to terminate any Plan or to appoint a trustee to administer any
Plan; or the Borrower shall have filed for a distress termination of any Plan
under Title IV of ERISA; or the Borrower shall have failed to make any quarterly
contribution required with respect to any Plan under Section 412(m) of the
[eternal Revenue Code of 1986, as amended, which the Lender determines in good
faith may by itself, or in combination with any such failures that the Lender
may determine are likely to occur in the future, result in the imposition of a
lien on the Borrower's assets in favor of the Plan;
(k) An event of default shall occur under any Security Document or
under any other security agreement, mortgage, deed of trust, assignment or other
instrument or agreement securing any obligations of the Borrower hereunder or
under any note;
(l) The Borrower shall liquidate, dissolve, terminate or suspend its
business operations or otherwise fail to operate its business in the ordinary
course, or sell all or substantially all of its assets, without the Lender's
prior written consent;
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(m) The Borrower shall fail to pay, withhold, collect or remit any tax
or tax deficiency when assessed or due (other than any tax deficiency which is
being contested in good faith and by proper proceedings and for which it shall
have set aside on its books adequate reserves there for) or notice of any state
or federal tax liens shall be filed or issued;
(n) Default in the payment of any amount owed by the Borrower to
the Lender other than any indebtedness arising hereunder;
(o) Any Guarantor shall repudiate, purport to revoke or fail to perform
any such Guarantor's obligations under such Guarantor's guaranty in favor of the
Lender, any individual Guarantor shall die or any other Guarantor shall cease to
exist,
(p) The Borrower shall take or participate in any action which would be
prohibited under the provisions of any Subordination Agreement or make any
payment on the Subordinated Indebtedness (as defined in any such Subordination
Agreement) that any Person was not entitled to receive under the provisions of
such Subordination Agreement;
(q) Any event or circumstance with respect to the Borrower shall occur
such that the Lender shall believe in good faith that the prospect of payment of
tall or any part of the Obligations or the performance by the Borrower under the
Loan Documents is impaired or any material adverse change in the business or
financial condition of the Borrower shall occur.
(r) Any breach, default or event of default by or attributable to any
Affiliate under any agreement between such Affiliate and the Lender.
Section 8.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which the :Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower to
the payment of the Obligations;
(d) the Lender may make demand upon the Borrower and, forthwith upon
such demand, the Borrower will pay to the Lender in immediately available funds
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for deposit in the Special Account pursuant to Section 2.14 an amount equal to
the aggregate maximum amount available to be drawn under all Letters of Credit
then outstanding, assuming compliance with all conditions for drawing
thereunder;
(e) the Lender may exercise and enforce any and all rights and remedies
available upon default to a secured party under the UCC, including, without
limitation, the right to take possession of Collateral, or any evidence thereof,
proceeding without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Borrower hereby expressly waives) and the
right to sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the Collateral and
make it available to the Lender at a place to be designated by the Lender which
is reasonably convenient to both parties;
(f) the Lender may exercise and enforce its rights and remedies
under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8 3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver: Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 Amendments. Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
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specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9 3 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower:
Open Sea Corporation
d/b/a NEBO Products
000 Xxxxxxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxx Xxxxxxx
If to the Lender:
Xxxxx Fargo Business Credit, Inc.
C7300-300 MAC
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Tor Hylbom
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
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Section 9.5 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled -to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, -exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses pursuant
to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(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;
(b) any claims, loss or damage to which any Indemnitee may be subjected
if any representation or warranty contained in Section 5.12 proves to be
incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(c) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
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If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 Participants. The Lender and its, participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 Binding Effect: Assignment: Complete Agreement: Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, WFC Holding Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
Section 9.11 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
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Section 9.13 Governing Law: Jurisdiction. Venue: Waiver of Jury The
Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Colorado. Each of the parties
hereto hereby (i) consents to the personal jurisdiction of the state and federal
courts located in the State of Colorado in connection with any controversy
related to this Agreement; (ii) waives any argument that venue in any such forum
is not convenient, (iii) agrees that any litigation initiated by the Lender or
the Borrower in connection with this Agreement or the other Loan Documents shall
be venued in either the District Court of the City and County of Denver,
Colorado, or the United States District Court, District of Colorado; and (iv)
agrees that a final judgment in any such suit, action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY
IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
XXXXX FARGO BUSINESS CREDIT, INC. OPEN SEA CORPORATION, d/b/a NEBO Products
By: /s/ Xxxxxxx Xxxxx By: /s/ Xxxxx Xxxxxx
------------------------------ --------------------------------------
Xxxxxxx Xxxxx Xxxxx Xxxxxx
Its Vice President Its: Chief Executive Officer
