[ARTICLE] 5
XXXXX FARGO BANK LOAN AGREEMENT
This Loan Agreement (this "Agreement") is entered into by and
between HELLO DIRECT, INC. ("Borrower") and XXXXX FARGO BANK, NATIONAL
ASSOCIATION ("Bank") and sets forth the terms and conditions which
govern all Borrower's commercial credit accommodations from Bank,
whether now existing or hereafter granted (each, a "Credit" and
collectively, "Credits"), which terms and conditions are in addition
to those set forth in any other contract, instrument or document
(collectively with this Agreement, the "Loan Documents") required by
this Agreement or heretofore or at any time hereafter delivered to
Bank in connection with any Credit.
I. REPRESENTATIONS AND WARRANTIES. Borrower makes the following
representations and warranties to Bank, which representations and
warranties shall be true as of the date hereof and on the date of each
extension of credit under each Credit with the same effect as though
made on each such date:
(a) Legal Status. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Delaware,
and is qualified or licensed to do business in all jurisdictions in
which such qualification or licensing is required or in which the
failure to be qualified or licensed could have a material adverse
effect on Borrower.
(b) Authorization and Validity. Each of the Loan Documents has been
duly authorized, and upon its execution and delivery to Bank will
constitute a legal, valid and binding obligation of Borrower or the
party which executes the same, enforceable in accordance with its
respective terms.
(c) No Violation. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of
law or regulation, or contravene any provision of Borrower's Articles
of Incorporation or By-Laws, or result in any breach of or default
under any agreement, indenture or other instrument to which Borrower
is a party or by which Borrower may be bound.
(d) No Litigation. There are no pending, or to the best of
Borrower's knowledge threatened, actions, Claims, investigations,
suits or proceedings by or before any governmental authority,
arbitrator, court or administrative agency which could have a material
adverse effect on the financial condition or operation of Borrower
except as disclosed by Borrower to Bank in writing prior to the date
hereof.
(e) .Financial Statements The most recent annual financial
statement of Borrower, and all interim financial statements delivered
to Bank since the date of said annual financial statement, true copies
of which have been delivered by Borrower to Bank prior to the date
hereof, are complete and correct, present fairly the financial
condition of Borrower and disclose all liabilities of Borrower, and
have been prepared in accordance with generally accepted accounting
principles. Since the dates of such financial statements there has
been no material adverse change in the financial condition of
Borrower, nor has Borrower mortgaged, pledged, granted a security
interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
(0 Tax Returns. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to
any year except as disclosed by Borrower to Bank in writing prior to
the date hereof.
II. ADDITIONAL TERMS.
(a) Conditions Precedent. The obligation of Bank to grant any
Credit is subject to the condition that Bank shall have received all
contracts, instruments and documents, duly executed where applicable,
deemed necessary by Bank to evidence such Credit and all terms and
conditions applicable thereto, all of which shall be in form and
substance satisfactory to Bank.
(b) Application of Payment, Each payment made on each Credit shall
be applied first, to any interest then due, second, to any fees and
charges then due, and third, to the outstanding principal balance
thereof.
III. COVENANTS. So long as any Credit remains available or any
amounts under any Credit remain outstanding, Borrower shall, unless
Bank otherwise consents in writing:
(a) Insurance. Maintain and keep in force, for each business in
which Borrower is engaged, insurance of the types and in amounts
customarily carried in similar lines of business, including but not
limited to fire, extended coverage, public liability, property damage
and workers' compensation, carried with companies and in amounts
satisfactory to Bank, and deliver to Bank from time to time at Bank's
request schedules setting forth all insurance then in effect.
(b) Compliance: Laws and Regulations; Year 2000
(i) Preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct
of Borrower's business; and comply with the provisions of all
documents pursuant to which Borrower is organized and/or which govern
Borrower's continued existence and with the requirements of all laws,
rules, regulations and orders of any governmental authority applicable
to Borrower and/or its business, and all state or federal
environmental, hazardous waste, health and safety statutes, and any
rules or regulations adopted pursuant thereto, which govern or affect
any operations and/or properties of Borrower.
(ii) Perform all acts reasonably necessary to ensure that (A)
Borrower and any business in which/ Borrower holds a substantial
interest, and (B) all customers, suppliers and vendors that are
material to Borrower's business, become Year 2000 Compliant in a
timely manner. Such acts shall include, without limitation, performing
a comprehensive review and assessment of all of Borrower's systems and
adopting a detailed plan, with itemized budget, for the remediation,
monitoring and testing of such systems. As used herein, "Year 2000
Compliant" shall mean, in regard to any entity, that all software,
hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such
entity, will properly perform date sensitive functions before, during
and after the year 2000. Borrower shall, immediately upon request,
provide to Bank such certifications or other evidence of Borrower's
compliance with the terms hereof as Bank may from time to time
require.
(c) Other Indebtedness. Not create, incur, assume or permit to
exist any indebtedness or other liabilities, whether secured or
unsecured, matured or unmatured, liquidated or unliquidated, joint or
several, direct or contingent (including any contingent liability
under any guaranty of the obligations of any person or entity), except
(i) the liabilities of Borrower to Bank, (ii) trade debt incurred by
Borrower in the normal course of its business, and (iii) any other
liabilities of Borrower existing as of, and disclosed to Bank in
writing prior to, the date hereof.
(d) Merger; Consolidation; Transfer of Assets. Not merge into or
consolidate with any other entity; nor make any substantial change in
the nature of Borrower's business as conducted as of the date hereof;
nor acquire all or substantially all of the assets of any other person
or entity; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of Borrower's assets except in the
ordinary course of its business.
(e) Pledge of Assets. Not mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of
Borrower's assets now owned or hereafter acquired, except in favor of
Bank and except any of the foregoing existing as of, and disclosed to
Bank in writing prior to, the date hereof.
(f) Financial Statements. Provide to Bank all of the following, in
form and detail satisfactory to Bank, together with such current
financial and other information as Bank from time to time may
reasonably request:
(i) As soon as available, but in no event later than 90 days after
and as of the end of each fiscal year, an audited financial statement
of Borrower, prepared by an independent certified public accountant
acceptable to Bank, to include a balance sheet, income statement and
statement of cash flow, together with all supporting schedules and
footnotes.
(ii) As soon as available, but in no event later than 45 days after
and as of the end of each fiscal quarter, a financial statement of
Borrower, prepared by Borrower and certified as correct by an officer
of Borrower authorized to borrow under the most current Corporate
Borrowing Resolution delivered by Borrower to Bank, to include a
balance sheet and income statement, together with all supporting
schedules and footnotes.
(g) Financial Condition. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently
applied and used consistently with prior practices, except to the
extent modified by the following definitions:
(i) Total Liabilities divided by Tangible Net Worth not at any time
greater than 1.00 to 1.0, with "Total Liabilities" defined as the
aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" defined as the
aggregate of total stockholders' equity plus subordinated debt less
any intangible assets.
(ii) Quick Ratio not at any time less than 1.25 to 1.0, with "Quick
Ratio" defined as the aggregate of unrestricted cash, unrestricted
marketable securities and receivables convertible into cash divided by
total current liabilities.
(iii) Net income after taxes not less than $1.00 on an annual
basis, determined as of each fiscal year end, and pre-tax profit not
less than $1.00 on a quarterly basis, determined as of each fiscal
quarter end.
IV. DEFAULT; REMEDIES.
(a) Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(i) The failure to pay any principal, interest, fees or
other charges when due under any of the Loan Documents.
(ii) Any representation or warranty hereunder or under any
other Loan Document shall prove to be incorrect, false or misleading
in any material respect when made.
(iii) Any violation or breach of any term or condition of this
Agreement or any other of the Loan Documents.
(iv) Any default in the payment or performance of any
obligation, or any defined event of default, under any provisions of
any contract, instrument or document pursuant to which Borrower or any
guarantor hereunder has incurred debt or any other liability of any
kind to any person or entity, including Bank.
(v) The filing of a petition by or against Borrower or any
guarantor hereunder under any provisions of the Bankruptcy Reform Act,
Title 11 of the United States Code, as amended or recodified from time
to time, or under any similar or other law relating to bankruptcy,
insolvency, reorganization or other relief for debtors; the
appointment of a receiver, trustee, custodian or liquidator of or for
any part of the assets or property of Borrower or any such guarantor;
Borrower or any such guarantor becomes insolvent, makes a general
assignment for the benefit of creditors or is generally not paying its
debts as they become due; or any attachment or like levy on any
property of Borrower or any such guarantor.
(vi) Any material adverse change, as determined solely by Bank,
in the financial condition of Borrower.
(vii) The death or incapacity of any individual guarantor
hereunder; or the dissolution or liquidation of Borrower or of any
guarantor hereunder which is a corporation, partnership or other type
of entity.
(viii) Any change in ownership during the term hereof of an
aggregate of 25% or more of the common stock of Borrower.
(b) Remedies. Upon the occurrence of any Event of Default: (i)
the entire balance of principal, interest, fees and charges on each
Credit shall, at Bank's option, become immediately due and payable in
full without presentment, demand, protest or notice of dishonor, all
of which are expressly waived by Borrower; (ii) the obligation, if
any, of Bank to extend any further credit to Borrower under any Credit
shall immediately cease and terminate; and (iii) Bank shall have all
rights, powers and remedies available under each of the Loan
Documents, or accorded by law, including without limitation the right
to resort to any security for any Credit. All rights, powers and
remedies of Bank shall be cumulative.
V. MISCELLANEOUS.
(a) No Waiver. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy;
nor shall any single or partial exercise of any such right, power or
remedy preclude, waive or otherwise affect any other or further
exercise thereof or the exercise of any other right, power or remedy.
Any waiver, permit, consent or approval of any kind by Bank of any
breach of or default under this Agreement, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be
effective only to the extent set forth in writing.
(b) Notices. All notices, requests and demands required under
this Agreement must be in writing, addressed to the applicable party
at its address specified below or to such other address as any party
may designate by written notice to each other party, and shall be
deemed to have been given or made as follows: (i) if personally
delivered, upon delivery; (ii) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first
class and postage prepaid; and (iii) if sent by telecopy, upon
receipt.
(c) Costs, Expenses and Attorneys' Fees Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to
include outside counsel fees and all allocated costs of Bank's in-
house counsel), expended or incurred by Bank in connection with (i)
the negotiation and preparation of this Agreement and the other Loan
Documents, and Bank's continued administration of each Credit, (ii)
the enforcement of Bank's rights and/or the collection of any amounts
which become due to Bank under any of the Loan Documents, and (iii)
the prosecution or defense of any action in any way related to any of
the Loan Documents, including without limitation, any action for
declaratory relief, whether incurred at the trial or appellate level,
in an arbitration proceeding or otherwise, and including any of the
foregoing incurred in connection with any bankruptcy proceeding
(including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(d) Successors; Assignment. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators,
legal representatives, successors and assigns of the parties; provided
however, that Borrower may not assign or transfer its interests or
rights hereunder without Bank's prior written consent. Bank reserves
the right to sell, assign, transfer, negotiate or grant participations
in all or any part of, or any interest in, Bank's rights and benefits
under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or may
hereafter acquire relating to any Credit, Borrower or its business,
any guarantor of any Credit or the business of any such guarantor, or
any collateral for any Credit.
(e) Controlling Agreement; Amendment. In the event of any direct
conflict between any provision of this Agreement and any provision of
any other Loan Document, the terms of this Agreement shall control.
This Agreement may be amended or modified only in writing signed by
Bank and Borrower.
(f) No Third Party Beneficiaries This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person
or entity shall be a third party beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement
or any other Loan Document to which it is not a party.
(g) Severability of Provisions. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law,
such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or any remaining provisions of this Agreement.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of California.
(i) Cancellation of Prior Loan Agreements. This Agreement cancels
and supersedes all prior loan agreements between Borrower and Bank
relating to any Credit.
VI. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean
any action, dispute, claim or controversy of any kind, whether in
contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any
way pertaining to, any of the Loan Documents, or any past, present or
future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the
Loan Documents, including without limitation, any of the foregoing
arising in connection with the exercise of any self-help, ancillary or
other remedies pursuant to any of the Loan Documents. Any party may by
summary proceedings bring an action in court to compel arbitration of
a Dispute. Any party who fails or refuses to submit to arbitration
following a lawful demand by any other party shall bear all costs and
expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered
by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance
with the AAA Commercial Arbitration Rules. All Disputes submitted to
arbitration shall be resolved in accordance with the Federal
Arbitration Act (Title 9 of the United States Code), notwithstanding
any conflicting choice of law provision in any of the Loan Documents.
The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms
and procedures set forth herein shall control. All statutes of
limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by any party that is a bank of the
protections afforded to it under 12 U.S.C. 91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-
help remedies such as setoff, foreclosure against or sale of any real
or personal property collateral or security, or to obtain provisional
or ancillary remedies, including without limitation injunctive relief,
sequestration, attachment, garnishment or the appointment of a
receiver, from a court of competent jurisdiction before, after or
during the pendency of any arbitration or other proceeding. The
exercise of any such remedy shall not waive the right of any party to
compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must
be active members of the California State Bar or retired judges of the
state or federal judiciary of California, with expertise in the
substantive laws applicable to the subject matter of the Dispute.
Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration hearing.
Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of California, (ii) may grant any remedy
or relief that a court of the state of California could order or grant
within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iji) shall have the power to award
recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules
of Civil Procedure or other applicable law. Any Dispute in which the
amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By
submission to a single arbitrator, each party expressly waives any
right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by
majority vote of a panel of three arbitrators; provided however, that
all three arbitrators must actively participate in all hearings and
deliberations.
(e) Judicial Review. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy
exceeds $25,000,000, the arbitrators shall be required to make
specific, written findings of fact and conclusions of law. In such
arbitrations (A) the arbitrators shall not have the power to make any
award which is not supported by substantial evidence or which is based
on legal error, (B) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of
the state of California, and (C) the parties shall have in addition to
the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (1)
whether the findings of fact rendered by the arbitrators are supported
by substantial evidence, and (2) whether the conclusions of law are
erroneous under the substantive law of the state of California.
Judgment confirming an award in such a proceeding may be entered only
if a court determines the award is supported by substantial evidence
and not based on legal error under the substantive law of the state of
California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real properly unless (i) the
holder of the mortgage, lien or security interest specifically elects
in writing to proceed with the arbitration, or (ii) all parties to the
arbitration waive any rights or benefits that might accrue to them by
virtue of the single action rule statute of California, thereby
agreeing that all indebtedness and obligations of the parties, and all
mortgages, liens and security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable. If any such
Dispute is not submitted to arbitration, the Dispute shall be referred
to a referee in accordance with California Code of Civil Procedure
Section 638 et seq., and this general reference agreement is intended
to be specifically enforceable in accordance with said Section 638. A
referee with the qualifications required herein for arbitrators shall
be selected pursuant to the AAA's selection procedures. Judgment upon
the decision rendered by a referee shall be entered in the court in
which such proceeding was commenced in accordance with California Code
of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude
any arbitration proceeding within 180 days of the filing of the
Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof,
except for disclosures of information by a party required in the
ordinary course of its business, by applicable law or regulation, or
to the extent necessary to exercise any judicial review rights set
forth herein. If more than one agreement for arbitration by or between
the parties potentially applies to a Dispute, the arbitration
provision most directly related to the Loan Documents or the subject
matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement as
of May 15, 1998.
HELLO DIRECT, INC. XXXXX FARGO BANK,
By: /s/ Xxxxxxx X. Xxxxxxx By: /s/ Xxxxxxx Xxxxxxx
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Title: V.P. Operations, CFO Title: Senior Vice President
Address: 0000 XXX XXXXXXX Address: 000 Xxxx Xxxxxx Xxxxx
XXX XXXX, XX 00000 3rd Flr
Xxx Xxxx, XX 00000
