Exhibit 10.14
TERM LOAN AND SECURITY AGREEMENT
AMONG
FRONTLINE COMMUNICATIONS CORPORATION,
PROYECCIONES Y VENTAS ORGANIZADAS, S.A. DE C.V.
AND
IIG EQUITY OPPORTUNITIES FUND LTD.
April 3, 2003
TERM LOAN AND SECURITY AGREEMENT
This Term Loan and Security Agreement dated as of April 3, 2003 among
FRONTLINE COMMUNICATIONS CORPORATION, a Delaware corporation ("Frontline"),
PROYECCIONES Y VENTAS ORGANIZADAS, S.A. DE C.V., a Mexico corporation ("Provo")
(Frontline and Provo each a "Borrower" and collectively, the "Borrowers"), and
IIG EQUITY OPPORTUNITIES FUND LTD., a Bermuda company (the "Lender").
The Borrowers have requested that the Lender make a Term Loan (as defined
herein) to the Borrowers, the proceeds of which shall be used by the Borrowers
(a) to pay in full any and all amounts owing to Delanet, Inc., (b) to pay
certain fees and expenses in connection with the Provo Acquisition (as defined
below) and (c) for the Borrowers' general working capital purposes. The parties
wish to provide for the terms and conditions upon which the Term Loan shall be
made.
In consideration of the mutual covenants and undertakings and the terms and
conditions set forth in this Agreement, the parties hereto 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:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(c) all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
"Accounts" means all accounts as such term is defined in the UCC,
including, without limitation, the aggregate unpaid obligations of
customers and other account debtors arising out of the sale or lease of
goods or rendition of services on an open account or deferred payment
basis.
"Affiliate" or "Affiliates" means (a) any Person controlled by,
controlling or under common control with any Borrower, including, without
limitation, any Subsidiary of any Borrower and (b) any Person who is a
director, member, partner, officer or manager of any Borrower, of a
Subsidiary of any Borrower or of any Person described in clause (a) above.
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
2
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Term Loan and Security Agreement, as amended,
modified, supplemented or restated from time to time.
"Business Day" means a day on which the Lender is open for business
that is not a Saturday, Sunday or other day on which banks are required or
permitted to be closed in New York, New York.
"Change of Control" means, with respect to any Person on or after the
Closing Date, any change in the composition of shareholders as of the
Closing Date shall occur which would result in any Person or group
acquiring fifty percent (50%) or more of any class of stock of such Person
or that any Person (or group of Persons acting in concert) shall otherwise
acquire, directly or indirectly (including through Affiliates), the power
to elect a majority of the board of directors of such Person or otherwise
direct the management or affairs of such Person.
"Chattel Paper" means all chattel paper as such term is defined in the
UCC, now owned or hereafter acquired, including, without limitation,
electronic chattel paper, as such term is defined in the UCC.
"Closing Date" means April ___, 2003.
"Collateral" means and includes all now and hereafter acquired assets
of Frontline including, without limitation:
(A) all Inventory;
(B) all Equipment;
(C) all General Intangibles;
(D) all Receivables;
(E) all Chattel Paper;
(F) all Letter-of-Credit Rights;
(G) all Instruments;
(H) the commercial tort claims set forth on Exhibit C;
(I) all books, records, ledgercards, files, correspondence,
computer programs, tapes, disks and related data processing software (owned
by Frontline or in which it has an interest) which at any time evidence or
contain information relating to any or all of (A), (B), (C), (D), (E), (F),
(G) and (H) above or are otherwise necessary or helpful in the collection
thereof or realization thereupon;
3
(J) documents of title, policies and certificates of insurance,
securities, Chattel Paper, other documents or instruments evidencing or
pertaining to any or all of (A), (B), (C), (D) (E), (F), (G), (H) and (I)
above;
(K) all Supporting Obligations and guaranties, including letters
of credit and guarantees issued in support of Receivables, Chattel Paper,
General Intangibles and Investment Property, Liens on real or personal
property, leases, and other agreements and property which in any way secure
or relate to any or all of (A), (B), (C), (D), (E), (F), (G), (H), (I) and
(J) above, or are acquired for the purpose of securing and enforcing any
item thereof;
(L) (i) all cash held as cash collateral to the extent not
otherwise constituting Collateral, all other cash or property at any time
on deposit with or held by the Lender for the account of Frontline (whether
for safekeeping, custody, pledge, transmission or otherwise), (ii) all
present or future deposit accounts (whether time or demand or interest or
non-interest bearing) of Frontline with the Lender or any other Person
including those to which any such cash may at any time and from time to
time be credited, (iii) all Payment Intangibles, (iv) all letter of credit
obligations, (v) all investments and reinvestments (however evidenced) of
amounts from time to time credited to such accounts, (iv) all interest,
dividends, distributions and other proceeds payable on or with respect to
(x) such investments and reinvestments and (y) such accounts, and (v) all
Investment Property; and
(M) all products and proceeds of (A), (B), (C), (D), (E), (F),
(G), (H), (I), (J), (K) and (L) above (including, but not limited to, all
claims to items referred to in (A), (B), (C), (D), (E), (F), (G), (H), (I),
(J), (K) and (L) above) and all claims of Frontline against third parties
(x) for (i) loss of, damage to, or destruction of, and (ii) payments due or
to become due under leases, rentals and hires of any or all of (A), (B),
(C), (D), (E), (F), (G), (H), (I), (J), (K) and (L) above and (y) proceeds
payable under, or unearned premiums with respect to policies of insurance
in whatever form.
Notwithstanding the foregoing, the Collateral shall not include any shares
of capital stock of Provo or Provo's Affiliates owned by Frontline. Solely
for clarification purposes, the Lender confirms that the Collateral does
not include any assets of Provo or any of its Affiliates, including without
limitation, any of the Accounts of Provo or its Affiliates.
"Common Stock" means the common stock, $.01 par value per share, of
Frontline.
"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.
4
"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 Frontline in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent (3%) over
the Interest Rate.
"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.
"Equipment" means all equipment as such term is defined in the UCC,
now owned or hereafter acquired, including, without limitation, equipment,
machinery and goods (excluding Inventory), whether or not constituting
fixtures, including, without limitation: plant and office equipment, tools,
dies, parts, data processing equipment, computer equipment with embedded
software and peripheral equipment, furniture and trade fixtures, trucks,
trailers, loaders and other vehicles and all replacements and substitutions
therefore and all accessions thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" has the meaning specified in Section 9.1.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States of America, applied on a basis consistent
with the accounting practices applied in the financial statements described
in Section 7.5, except for any change in accounting practices to the extent
that, due to a promulgation of the Financial Accounting Standards Board
changing or implementing any new accounting standard, Frontline either (i)
is required to implement such change, or (ii) for future periods will be
required to and for the current period may in accordance with generally
accepted accounting principles implement such change, for its financial
statements to be in conformity with generally accepted accounting
principles (any such change is hereinafter referred to as a "Required GAAP
Change"), provided that Frontline shall fully disclose in such financial
statements any such Required GAAP Change and the effects of the Required
GAAP Change on Frontline's income, retained earnings or other accounts, as
applicable.
"General Intangibles" means all general intangibles as such term is
defined in the UCC, now owned or hereafter acquired, including, without
limitation, Payment Intangibles, trademarks, tradenames, tradestyles, trade
secrets, equipment formulation, manufacturing procedures, quality control
procedures, product specifications, patents, patent applications,
copyrights, registrations, software, contract rights, choses in action,
causes of action, corporate or other business records, inventions, designs,
goodwill,
5
claims under guarantees, licenses, franchises, tax refunds, tax refund
claims, computer programs, computer data bases, computer program flow
diagrams, source codes, object codes and all other intangible property of
every kind and nature.
"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.
"Health-Care-Insurance Receivables" means all health-care-insurance
receivables as such term is defined in the UCC, now owned or hereafter
acquired, including, without limitation, an interest in or claim under a
policy of insurance which is a right to payment of a monetary obligation
for health-care goods or services provided.
"Indemnified Liabilities" has the meaning given to such term in
Section 11.8.
"Indemnitees" has the meaning given to such term in Section 11.8.
"Instruments" means all instruments as such term is defined in the
UCC, now owned or hereafter acquired, including, without limitation, a
negotiable instrument or a certificated security or any other writing which
evidences a right to the payment of money.
"Interest Rate" means an annual rate equal to fourteen percent
(14.00%).
"Inventory" means all inventory as such term is defined in the UCC,
now owned or hereafter acquired, including, without limitation, goods,
merchandise and other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease, all raw materials,
work in process, finished goods and materials and supplies of any kind,
nature or description which are or might be used or consumed in business or
used in selling or furnishing such goods, merchandise and other personal
property, and all documents of title or other documents representing them.
"Investment Property" means all investment property as such term is
defined in the UCC.
"Letter-of-Credit Rights" means all letter-of-credit rights as such
term is defined in the UCC, now owned or hereafter acquired, including,
without limitation, rights to payment or performance under a letter of
credit, whether or not the beneficiary has demanded or is entitled to
demand payment or performance.
"Lien" means any mortgage, security deed, deed of trust, pledge,
hypothecation, assignment, security interest, lien (whether statutory or
otherwise), charge, claim or encumbrance, or preference, priority or other
security agreement or preferential arrangement held or asserted in respect
of any asset of any kind or nature whatsoever including, without
limitation, any conditional sale or other title retention agreement, any
lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the UCC or comparable law of any jurisdiction.
6
"Limited Guaranty" means, collectively, (i) the Limited Guaranty dated
as of the date hereof made by Xxxxxxx X. Xxxx-Xxxxxxxx in favor of Lender
and (ii) the Limited Guaranty dated as of the date hereof made by Xxx X.
Xxxx-Xxxxxxxx in favor of Lender.
"Loan Documents" means this Agreement, the Term Note, the Limited
Guaranty, the Mortgages, the Pledge Agreement, the Registration Rights
Agreement, the Escrow Agreement and all other documents, instruments,
agreements and certificates at any time delivered by any Person executed in
connection herewith or therewith.
"Material Adverse Effect" means a material adverse effect on (i) the
condition, operations, assets, business or prospects of Frontline or the
Borrowers, taken as a whole, (ii) the Borrowers' ability to pay or perform
the Obligations in accordance with the terms hereof or any Loan Document,
(iii) the value of the Collateral, the Liens on the Collateral or the
priority of any such Lien or (iv) the practical realization of the benefits
of the Lender's rights and remedies under this Agreement or any of the
other Loan Documents.
"Maximum Legal Rate" has the meaning given to such term in Section
2.2(c).
"Mortgages" means collectively, each mortgage granted by Xxxxxxx X.
Xxxx-Xxxxxxxx and/or Xxx Xxxx-Xxxxxxxx to Lender on the Real Estate
securing the Obligations.
"Obligations" means and includes the Term Loan and all Debts,
liabilities, obligations, covenants and duties owing by each Borrower to
the Lender (or any Person that directly or indirectly controls or is
controlled by or is under common control with the Lender) of every kind and
description (whether or not evidenced by any note or other instrument and
whether or not for the payment of money or the performance or
non-performance of any act), direct or indirect, absolute or contingent,
due or to become due, contractual or tortious, liquidated or unliquidated,
whether existing by operation of law or otherwise now existing or hereafter
arising including, without limitation, any Debt, liability or obligation
owing from any Borrower to others which the Lender may have obtained by
assignment or otherwise and further including, without limitation, all
interest, charges or any other payments each Borrower is required to make
by law or otherwise arising under or as a result of this Agreement and the
other Loan Documents, together with all reasonable expenses and reasonable
attorneys' fees chargeable to such Borrower's account or incurred by the
Lender in connection with such Borrower's account whether provided for
herein or in any other Loan Document.
"Payment Intangibles" means all payment intangibles as such term is
defined in the UCC, now owned or hereafter acquired, including, without
limitation, a General Intangible under which the account debtor's principle
obligation is a monetary obligation.
"Permitted Liens" means (a) Liens of carriers, warehousemen, artisans,
bailees, mechanics and materialmen incurred in the ordinary course of
business securing sums not overdue; (b) Liens incurred in the ordinary
course of business in connection with worker's compensation, unemployment
insurance or other forms of governmental insurance or benefits, relating to
employees, securing sums (i) not overdue or (ii) being
7
diligently contested in good faith provided that adequate reserves with
respect thereto are maintained on the books of Frontline in conformity with
GAAP, (c) Liens in favor of the Lender, (d) Liens for taxes (i) not yet due
or (ii) being diligently contested in good faith by appropriate
proceedings, provided that adequate reserves with respect thereto are
maintained on the books of Frontline in conformity with GAAP provided,
that, the Lien shall have no effect on the priority of Liens in favor of
the Lender or the value of the assets in which the Lender has a Lien, (e)
zoning restrictions, easements, licenses, or other restrictions on the use
of real property or other minor irregularities in title thereto, so long as
the same do not materially impair the use, value or marketability of such
real estate, (f) Liens upon fixed assets which secures the payment of the
purchase price thereof but only if such Lien shall at all times be confined
solely to the asset the purchase price of which was financed and only if
such Lien secures only such purchase money indebtedness and (g) Liens
specified on Schedule 8.1 hereto.
"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 any
Borrower's employees and covered by Title IV of ERISA.
"Pledge Agreement" means the Pledge Agreement dated as of the date
hereof made by Xxxxxxx X. Xxxx-Xxxxxxxx and Xxxxx Xxxxxxxx in favor of
Lender pursuant to which all of the shares of Common Stock owned by Xxxxxxx
X. Xxxx-Xxxxxxxx and Xxxxx Xxxxxxxx shall be pledged to the Lender as
collateral security for the Obligations.
"Premises" means all premises where any Borrower conducts its business
and has any rights of possession, including, without limitation, the
premises described in Exhibit B attached hereto.
"Provo Acquisition" means the acquisition by Frontline of all of the
capital stock of Provo pursuant to the terms and conditions of the Stock
Purchase Agreement.
"Real Estate" means the real property and the improvements thereon
located at (i) 00 Xxxxx Xxxx, Xxxxx Xxxxx, Xxx Xxxx 00000 and (ii) 0000
Xxxxx Xxxxx, Xxx Xxxxx, Xxxxxxx 00000.
"Receivables" means all Accounts now owned or hereafter acquired,
including, without limitation, each and every right 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 Frontline or by some other
Person who subsequently transfers such Person's interest to Frontline,
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) which Frontline may at any
time have by law or agreement
8
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, Health Care Insurance
Receivables, Chattel Paper, bonds, notes and other debt instruments, tax
refunds and rights to payment in the nature of General Intangibles.
"Receivables Financing Event" means the date upon which Provo enters
into a Receivables Financing Facility.
"Receivables Financing Facility" means any receivables financing
facility entered into by Provo following the Closing Date pursuant to which
Provo agrees to finance any or all of its Accounts; provided, however, the
financial arrangement between the government of Mexico or other Mexican
banking institutions and Provo in connection with the Accounts of Walmart
Stores, Inc. and any of its Affiliates located in Mexico shall not be
deemed a Receivables Financing Facility.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof among Frontline and the purchasers
named therein.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Restricted Securities" means the Shares and any shares of Common
Stock received in respect thereof, in each case which have not then been
sold to the public pursuant to (a) registration under the 1933 Act or (b)
Rule 144 (or similar or successor rule) promulgated under the 1933 Act.
"SEC" means the United States Securities and Exchange Commission (or a
successor thereto).
"SEC Documents" has the meaning given to such term in Section 5.16.
"Shares" means the 500,000 shares of Common Stock to be issued to
Lender pursuant to Section 3.1.
"Stock Purchase Agreement" means that certain Amended and Restated
Stock Purchase Agreement dated as of April ___, 2003 by and among
Frontline, Provo and certain shareholders of Provo.
"Subordinated Lenders" means collectively, Xxx X. Xxxxx, Xxxxxx
Xxxxxxx, Xxxxxxx Xxxxx, Xxxxxxx X. Xxxx, Irrevocable Trust of Xxxxxxx X.
Xxxxxx, Xxxxx Xxxxxxxx, Xxxx Xxxxx and Xxxxx Xxxxxxxxx.
"Subordination Agreement" means the Subordination and Intercreditor
Agreement dated as of the date hereof delivered and executed by each
Subordinated Lender in favor of Lender and acknowledged by Borrower.
9
"Subsidiary" means (i) any corporation of which more than fifty
percent (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 any Borrower, by any Borrower and one or
more other Subsidiaries, or by one or more other Subsidiaries, (ii) any
partnership, limited liability company, entity or joint venture of which
more than fifty percent (50%) of the outstanding equity interests is at the
time, directly or indirectly, owned by any Borrower or (iii) any
partnership of which any Borrower is a general partner.
"Supporting Obligations" means all supporting obligations as such term
is defined in the UCC.
"Term Note" means the promissory note in the aggregate original
principal amount of Five Hundred Fifty Thousand Dollars ($550,000.00)
executed by the Borrowers to the order of the Lender and dated as of the
Closing Date, together with all replacements and substitutions thereof.
"Term Loan" has the meaning given to such term in Section 2.1.
"Transfer" means any sale, transfer, assignment, or other disposition
of any interest in, with or without consideration, any security, including
any disposition of any security or of any interest therein which would
constitute a sale thereof within the meaning of the 1933 Act.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the state designated in Section 11.15 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.
"United States Bankruptcy Code" means Title 11 of the United States
Code entitled "Bankruptcy", as amended, and any successor statute.
"1933 Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Section 1.2. Cross References. All references in this Agreement to
Articles, Sections, subsections, Exhibits and Schedules, shall be to Articles,
Sections, subsections, Exhibits and Schedules of this Agreement unless otherwise
explicitly specified.
ARTICLE II
Amount and Terms of the Term Loan
10
Section 2.1. Term Loan. On the Closing Date, the Lender shall make a term
loan ("Term Loan") to the Borrowers in the amount of Five Hundred and Fifty
Thousand Dollars ($550,000.00). Except as otherwise provided in the immediately
following sentence, the entire unpaid principal balance of the Term Loan, and
any accrued and unpaid interest thereon, shall be payable by the Borrowers to
the Lender ninety (90) days following the Closing Date. Notwithstanding anything
hereinabove to the contrary, the entire unpaid principal balance of the Term
Loan, and any accrued and unpaid interest thereon, shall be immediately due and
payable upon the earlier to occur of (i) the Receivables Financing Event or (ii)
the acceleration of the Obligations pursuant to Section 9.2. The Term Loan shall
be evidenced by the Term Note in substantially the form attached hereto as
Exhibit A.
Section 2.2. Interest; Default Interest; Participations; Usury. Interest
accruing on the Term Loan shall be due and payable in arrears on the last day of
each month.
(a) Interest Rate. Except as set forth in Sections 2.2(b) and 2.2(c),
the outstanding principal balance of the Term Loan shall bear interest at
the Interest Rate.
(b) 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 Term Loan 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.
(c) Usury. In no event shall the aggregate interest payable exceed the
maximum rate permitted under any applicable law or regulation, as in effect
from time to time (the "Maximum Legal Rate") and if any provision of this
Agreement or any other Loan Document is in contravention of any such law or
regulation, interest payable under this Agreement and each other Loan
Document shall be computed on the basis of the Maximum Legal Rate (so that
such interest will not exceed the Maximum Legal Rate) and once the amount
of interest payable hereunder or under the other Loan Documents is less
than the Maximum Legal Rate, the Lender shall not reduce interest payable
hereunder or under any other Loan Document below the amount computed based
upon the Maximum Legal Rate until the aggregate amount of interest paid
equals the amount of interest which would have been payable if the Maximum
Legal Rate had not been imposed.
Section 2.3. Computation of Interest. Interest accruing on the outstanding
principal balance of the Term Loan shall be computed on the basis of actual
number of days elapsed in a year of 360 days.
Section 2.4. Origination Fee. The Borrowers hereby agree to pay the Lender
an origination fee in the amount of $38,500 on the Closing Date. The origination
fee shall be deemed earned as of the Closing Date and shall not be subject to
rebate or proration for any reason.
Section 2.5. Prepayment.
11
(a) Voluntary Prepayment. The Borrowers may prepay the Term Loan in
whole at any time or from time to time in part. All such prepayments shall
be applied against the principal installments of the Term Loan in the
inverse order of the maturities thereof.
(b) Mandatory Prepayment. Upon the receipt of any proceeds received by
a Borrower under a Receivables Financing Facility, the Borrowers shall make
a prepayment of the Term Loan in an amount equal to fifty percent (50%) of
such proceeds. All such prepayments shall be applied against the principal
installments of the Term Loan in the inverse order of the maturities
thereof.
(c) Prepayment Fee. The Borrowers shall pay to the Lender a prepayment
fee in the amount of (a) $7,000 if (i) a prepayment is made by the
Borrowers to the Lender during the period commencing with the Closing Date
and ending on the date that is thirty (30) days after the Closing Date and
(ii) the aggregate amount of prepayments made by the Borrowers after the
Closing Date exceeds $275,000 and (b) $3,500 if (i) a prepayment is made by
the Borrowers to the Lender during the period commencing with the date that
is thirty-one (31) days after the Closing Date and ending on the date that
is sixty (60) days after the Closing Date and (ii) the aggregate amount of
prepayments made by the Borrowers after the Closing Date exceeds $275,000.
Borrowers shall not be required to pay a prepayment fee if the Borrowers
make prepayments following the date that is sixty (60) days after the
Closing Date.
ARTICLE III
Issuance of the Shares
On the Closing Date, as partial consideration for the Term Loan, Frontline
shall issue, sell and deliver to the Lender, and the Lender shall purchase from
Frontline, the Shares.
ARTICLE IV
Lien; Occupancy; Setoff
Section 4.1. Grant of Lien. Frontline hereby pledges, assigns and grants to
the Lender a security interest in and a Lien upon all of the Collateral, as
security for the payment and performance of the Obligations. Frontline
acknowledges and agrees that the defined term Collateral covers all assets of
Frontline except as otherwise provided in the definition of "Collateral".
Frontline hereby authorizes the Lender at any time and from time to time to file
financing and continuation statements and amendments thereto reflecting the
same.
Section 4.2. Notification of Account Debtors and Other Obligors. During a
Default Period, the Lender may at any time 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. Frontline will join in giving such notice if the Lender so requests.
At any time after Frontline 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
Frontline's
12
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) upon the
occurrence and during the continuance of an Event of Default, as Frontline's
agent and attorney-in-fact, notify the United States Postal Service to change
the address for delivery of Frontline's mail to any address designated by the
Lender, otherwise intercept Frontline's mail, and receive, open and dispose of
Frontline's mail, applying all Collateral as permitted under this Agreement and
holding all other mail for Frontline's account or forwarding such mail to
Frontline's last known address.
Section 4.3. Assignment of Insurance. As additional security for the
payment and performance of the Obligations, Frontline 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 Frontline 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 Frontline hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. During a Default Period, the Lender may (but need not), in the Lender's
name or in Frontline'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 4.4. Occupancy.
(a) Frontline 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 (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, Frontline shall reimburse the Lender promptly for the full
amount thereof. In addition, Frontline 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 4.4.
13
Section 4.5. License. Without limiting the generality of any security
agreement granting the Lender a Lien in any or all of the intellectual property
owned by Frontline, Frontline 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 Frontline for the purpose of
selling, leasing or otherwise disposing of any or all Collateral during any
Default Period. Solely for clarification purposes, the Lender confirms that it
does not have a Lien or license in any intellectual property owned by Provo or
any of its Affiliates.
Section 4.6. Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by
Frontline is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests and Liens granted
hereby. For this purpose, the following information is set forth:
Name and address of Frontline:
Frontline Communications Corporation
Xxx Xxxx Xxxx Xxxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
Organizational Identification Number: 2718950
Name and address of the Lender:
IIG Equity Opportunities Fund Ltd.
c/o IIG Capital LLC
0000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Section 4.7. Setoff. Frontline 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 Frontline 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
Frontline, 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
Frontline the amount of such participating interest.
Section 4.8. Power of Attorney. Frontline hereby appoints the Lender or any
other Person whom the Lender may designate as Frontline's attorney, with power,
during a Default Period, to: (i) endorse Frontline's name on any checks, notes,
acceptances, money orders, drafts or other forms of payment or security that may
come into Lender's possession; (ii) sign Frontline's name on any invoice or xxxx
of lading relating to any Receivables of Frontline, drafts against customers,
schedules and assignments of Receivables of Frontline, notices of assignment,
financing statements and other public records, verifications or account and
notices to or from customers; (iii) verify the validity, amount or any other
matter relating to any Receivable of Frontline by mail, telephone, telegraph or
otherwise with account debtors; (iv) execute customs declarations and such other
documents as may be required to clear Inventory of Frontline through customs;
and (v) do all things necessary to carry out this Agreement, any other Loan
Documents and all related documents. Frontline hereby ratifies and approves all
acts of the attorney. Neither the Lender nor the attorney will be liable for any
acts or omissions or for any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is
14
irrevocable so long as any Receivable of Frontline which is assigned to the
Lender or in which the Lender has a security interest remains unpaid and until
any Obligations have been fully satisfied.
Section 4.9. Termination of Lien. The Liens and rights granted to the
Lender hereunder and any other Loan Documents and the financing statements filed
in connection herewith or therewith shall continue in full force and effect,
notwithstanding the termination of this Agreement until (a) all of the
Obligations of the Borrowers have been paid or performed in full after the
termination of this Agreement or the Borrowers have furnished the Lender with an
indemnification satisfactory to the Lender with respect thereto and (b)
Frontline has an executed release of any and all claims which the Borrowers may
have or thereafter have under this Agreement or any other Loan Documents.
Accordingly, Frontline waives any rights which it may have under the UCC to
demand the filing of termination statements with respect to the Collateral, and
the Lender shall not be required to send such termination statements to
Frontline, or to file them with any filing office, unless and until all Loan
Documents shall have been terminated in accordance with its terms and all
Obligations paid in full in immediately available funds.
ARTICLE V
Representations and Warranties of the Borrowers
Each Borrower represents and warrants to the Lender as follows:
Section 5.1. Organization and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Organizational Identification Number.
Frontline is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and Provo is a corporation duly
organized and existing under the laws of the United Mexican States. Each
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. Each
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. Each Borrower's chief
executive office and principal place of business is located at the address set
forth in Schedule 5.1, and all of such Borrower's records relating to its
business or the Collateral are kept at that location. All Inventory and
Equipment of Frontline is located at its chief executive office or at one of the
other locations set forth in Schedule 5.1. Frontline's organizational
identification number is correctly set forth in Section 4.6 hereto.
Section 5.2. Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by each Borrower of the Loan
Documents have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of any Borrower's shareholders;
(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
15
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 any Borrower or
of any Borrower's certificate of incorporation, bylaws or other organizational
document; (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 any Borrower is a party or by which it or its properties may be bound
or affected; (v) contravene any provision of any Borrower's certificate of
incorporation, bylaws or other organizational document or (vi) result in, or
require, the creation or imposition of any Lien upon or with respect to any of
the properties now owned or hereafter acquired by any Borrower.
Section 5.3. Capitalization. As of the date hereof, the authorized capital
stock of Frontline, after giving effect to the issuance of the Shares, is as set
forth on Schedule 5.3 hereto. All of such outstanding shares of capital stock
have been, or upon issuance (including the Shares) will be, validly authorized
and issued, fully paid and non-assessable, and issued in accordance with the
registration provisions of the 1933 Act, or pursuant to valid exemptions
therefrom. Except as disclosed in Schedule 5.3 hereto: (a) no shares of
Frontline's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by Frontline, nor is
any Person entitled to preemptive or similar rights arising out of any agreement
or understanding with Frontline by virtue of any of the Loan Documents; (b)
there are no outstanding options, warrants, scrip rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of capital stock of Frontline, or
contracts, commitments, understandings or arrangements by which Frontline is or
may become bound to issue additional shares of capital stock of Frontline or
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of Frontline; (c) there are no outstanding debt
securities of Frontline; (d) there are no agreements or arrangements under which
Frontline is obligated to register the sale of any of their securities under the
1933 Act; (e) there are no outstanding equity securities of Frontline which
contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which Frontline is or may become
bound to redeem an equity security of Frontline; (f) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Shares; (g) Frontline does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar plan
or agreement; and (h) except as specifically disclosed in its filings made with
the SEC, no Person or group of related Persons, to Frontline's knowledge,
beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
0000 Xxx) or has the right to acquire by agreement with or by obligation binding
upon Frontline beneficial ownership of in excess of 5% of the Common Stock.
Schedule 5.3 contains a true and complete table setting the pro forma
capitalization of Frontline on a fully diluted basis giving effect to: (a) the
issuance of the Shares; (b) any adjustments in other securities resulting from
such issuance; and (c) the exercise or conversion of all outstanding securities.
Section 5.4. Legal Agreements. This Agreement constitutes and, upon due
execution by each Borrower, the other Loan Documents will constitute, the legal,
valid and binding obligations of such Borrower, enforceable against such
Borrower in accordance with their
16
respective terms, except insofar as the enforceability thereof may be limited
(a) by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and (b) by
general principles of equity and public policy (regardless of whether considered
at law or in equity).
Section 5.5. Litigation. Except as otherwise disclosed in Schedule 5.5.
there are no actions, suits or proceedings pending or, to each Borrower's
knowledge, threatened against or affecting such Borrower or the properties of
such Borrower before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to such Borrower could have a Material Adverse Effect.
Section 5.6. Regulation U. No Borrower is 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 5.7. Taxes. Each 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. Each Borrower and its Affiliates have
filed all federal, state and local tax returns that are required to be filed,
and each 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 5.8. Titles and Liens. Frontline has good and absolute title to all
Collateral, free and clear of all Liens, except for Permitted Liens. No
financing statement naming Frontline as debtor is on file in any office except
to perfect Permitted Liens.
Section 5.9. Plans. Except as disclosed to the Lender in writing prior to
the date hereof, no Borrower or any of its Affiliates maintains or has
maintained any Plan. No Borrower or any of its Affiliates 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.
Section 5.10. Default. Each 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.
Section 5.11. Environmental Matters. Except as otherwise disclosed in the
SEC Documents and to the best knowledge of each Borrower:
(a) 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 any Borrower or the Lender under 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.
17
(b) No Borrower has disposed of Hazardous Substances in such a manner
as to create any liability under any Environmental Law.
(c) There 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 any Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law
or any license, permit or other authorization issued pursuant thereto. To
each Borrower's best knowledge, no such matter is threatened or impending.
(d) Each 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 such Borrower's possession and are in full force and effect. No material
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.
(e) To each 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.
(f) Each Borrower has delivered to the Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or such Borrower's
businesses.
Section 5.12. Submissions to the Lender. All financial and other
information provided to the Lender by or on behalf of each Borrower in
connection with such Borrower's request for the credit facility contemplated
hereby is true and correct in all material respects and, as to projections,
valuations or pro forma financial statements, present a good faith opinion as to
such projections, valuations and pro forma condition and results.
Section 5.13. Financing Statements. Frontline has authorized the Lender to
file financing statements sufficient when filed to perfect the Liens created by
the Loan Documents. When such financing statements are filed in the offices
noted therein, the Lender will have a valid and perfected Lien in all Collateral
and all other collateral described in the Loan Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Loan Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.14. 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 other Loan 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 Frontline's records pertaining thereto as being obligated to pay
such obligation.
18
Section 5.15. Intellectual Property. Frontline possesses all of the
licenses, patents, copyrights, trademarks and tradenames necessary to conduct
its business. There has been no assertion or claim of violation or infringement
with respect thereof and all such licenses, patents, copyrights, trademarks and
tradenames are listed on Schedule 5.15.
Section 5.16. SEC Documents and Financial Statements. Since January 1,
2001, Frontline has timely filed with the SEC all forms, reports, schedules,
statements and other documents required to be filed by it under the 1934 Act or
the 1933 Act (such documents, as supplemented and amended since the time of
filing, collectively, the "SEC Documents"). The SEC Documents, including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, at the time filed (and, in the case of
registration statements, on the dates of effectiveness) (a) as of its filing did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and (b) complied in all material respects with the applicable
requirements of the 1934 Act and the 1933 Act, as the case may be and the rules
and regulations thereunder. The financial statements of Frontline together with
any related schedules and notes included in the SEC Documents at the time filed
(and, in the case of registration statements, on the dates of effectiveness)
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), and fairly present (subject in the case of unaudited statements to
normal, recurring audit adjustments) the combined financial position of
Frontline and its Subsidiaries, as of the dates thereof and the combined results
of operations, statements of stockholder equity, and cash flows for the periods
then ended.
Section 5.17. No Public Offer. Assuming the accuracy of the representations
and warranties of the Lender contained in Article VI of this Agreement, the sale
and issuance of the Shares will be exempt from the registration requirements of
Section 5 of the 1933 Act, and the Shares will have been registered or qualified
(or be exempt from registration or qualification) under applicable state
securities laws. Neither Frontline nor anyone acting on its behalf has offered
to any Person securities of Frontline, nor any part thereof, nor any instruments
convertible, exercisable, or exchangeable into such securities, or has solicited
from any Person any offer to acquire the same, in a manner so as to make the
transactions contemplated by this Agreement not exempt from the registration
requirements of Section 5 of the 1933 Act or any state securities laws.
Section 5.18. No Material Misstatements or Omissions. Neither this
Agreement nor any of the Loan Documents contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading. There is no fact or information relating to
the business, prospects, condition (financial or otherwise), affairs,
operations, or assets of Frontline or its Subsidiaries that has not been
disclosed to the Lender in writing by Frontline that could result in a Material
Adverse Effect, including, without limitation, through disclosure in the SEC
Documents. The financial statements and other related financial data furnished
to the Lender by or at the direction of Frontline in connection with the
negotiation of this Agreement do not contain any material misstatement of fact
and, when considered with all other written statements furnished to the Lender
in that connection, such financial statements,
19
related financial data and reserve reports do not omit to state a material fact
or any fact necessary to make the statements contained therein not misleading.
The circumstances and events that are not required to be identified on the
Schedules hereto by reason of the materiality qualifications contained in the
representations and warranties in this Article V, or which are otherwise within
such qualifications, in the aggregate do not have, and could not reasonably be
expected to have, a Material Adverse Effect on Frontline when taken in the
context of all of the assets, obligations and operations of Frontline.
Section 5.19. Fees and Commissions. No Borrower has retained, nor are any
fees due from any Borrower to, any intermediary retained by such party, any
finder, broker, agent, financial advisor, or other intermediary, in connection
with the transactions contemplated by this Agreement and the other Loan
Documents.
ARTICLE VI
Representations and Warranties of the Lender
The Lender represents and warrants to Frontline as follows:
Section 6.1. Purchase for its Own Account. The Lender is purchasing the
Shares, without a view to the distribution thereof in violation of the 1933 Act,
all without prejudice, however, to the right of the Lender at any time, in
accordance with this Agreement or the Loan Documents, lawfully to sell or
otherwise to dispose of all or any part of the Shares held by it.
Section 6.2. Accredited Purchaser. The Lender is an "accredited investor"
within the meaning of Regulation D promulgated under the 1933 Act.
Section 6.3. Authority, Etc. The Lender has the power and authority to
enter into and perform this Agreement and the other Loan Documents and the
execution and performance hereof have been duly authorized by all proper and
necessary action; this Agreement and the other Loan Documents constitute the
valid and legally binding obligation of the Lender, enforceable against it in
accordance with its terms, except insofar as the enforceability thereof may be
limited (a) by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(b) by general principles of equity and public policy (regardless of whether
considered at law or in equity).
Section 6.4. 1933 Act Compliance. The Lender understands that Frontline has
not registered the Shares under the 1933 Act, and the Lender agrees that the
Shares may not be sold or transferred or offered for sale or transfer by it
without registration under the 1933 Act or the availability of an exemption
therefrom.
Section 6.5. Access to Information; Knowledge and Experience. The Lender
(a) has been furnished with or has had access to the information the Lender has
requested from Frontline, (b) has had an opportunity to discuss with management
of Frontline the intended business and financial affairs of Frontline and (C)
has such knowledge and experience in business and financial matters and with
respect to investments in securities similar to the Shares that it is capable of
evaluating the risks and merits of this investment. The Lender's
20
representations in this subsection shall in no way limit the enforceability of
any representation made by Frontline in any of the Loan Documents.
Section 6.6. Liquidity. The Lender has no need for liquidity in its
investment in the Shares and is able to bear the economic risk of its investment
in the Shares and the complete loss of all of such investments.
Section 6.7. Risks. The Lender recognizes that an investment in Frontline
involves certain risks, and has taken full cognizance of, and understands all
of, the risk factors related to the purchase of the Shares.
ARTICLE VII
Affirmative Covenants of the Borrowers
So long as the Obligations shall remain unpaid, or the Term Loan shall
remain outstanding, each Borrower will comply with the following requirements,
unless the Lender shall otherwise consent in writing:
Section 7.1. Reporting Requirements. Each Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
substance acceptable to the Lender:
(a) immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or regulatory
agency affecting any Borrower of the type described in Section 5.11 or
which seek a monetary recovery against any Borrower in excess of One
Hundred Thousand Dollars ($100,000);
(b) as promptly as practicable (but in any event not later than five
(5) Business Days) after an officer of any Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any Loan
Document or any event which constitutes a Default or Event of Default,
notice of such occurrence, together with a detailed statement by a
responsible officer of such Borrower of the steps being taken by such
Borrower to cure the effect of such breach, default or event;
(c) as soon as possible and in any event within thirty (30) days after
any Borrower knows that any Reportable Event with respect to any Plan has
occurred, the statement of such Borrower's chief financial officer setting
forth details as to such Reportable Event and the action which such
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty
Corporation;
(d) as soon as possible, and in any event within ten (10) days after
any 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 such Borrower's chief financial officer setting
forth details as to such failure and the action which such Borrower
proposes to take with respect thereto, together with a copy of any
21
notice of such failure required to be provided to the Pension Benefit
Guaranty Corporation;
(e) promptly upon knowledge thereof, notice of any Borrower's
violation of any law, rule or regulation, the non-compliance with which
could have a Material Adverse Effect; and
(f) Frontline will immediately notify the Lender if at any time it
holds or acquires any commercial tort claim (as defined in the UCC) and
Frontline will enter into a supplement to this Agreement granting to Lender
a Lien in such commercial tort claim and in all proceeds thereof, with such
agreement to be in form and substance satisfactory to the Lender.
Section 7.2. Books and Records; Inspection and Examination. Frontline will
keep accurate books of record and account for itself pertaining to the
Collateral and each Borrower will keep accurate books of records and account for
itself pertaining to such 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, during a Default
Period, 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 records of such Borrower at all times
during ordinary business hours, to send and discuss with account debtors and
other obligors requests for verification of amounts owed to each Borrower, and
to discuss each Borrower's affairs with any of its directors, officers,
employees or agents. During a Default Period, Frontline will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Loan Documents or any other property
of Frontline at any time during ordinary business hours.
Section 7.3. Compliance with Laws.
(a) Each Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which could reasonably be
expected to have a Material Adverse Effect 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, each 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 7.4. Payment of Taxes and Other Claims. Each 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 Xxxx,
00
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 upon any
properties of Frontline; provided, that no Borrower shall 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 7.5. Maintenance of Properties.
(a) Frontline will keep and maintain the Collateral, the other
collateral covered by the other Loan 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 7.5 shall prevent Frontline 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 Frontline's business and not disadvantageous in any material respect to
the Lender.
(b) Frontline will defend the Collateral against all claims or demands
of all Persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) Frontline will keep all Collateral and other collateral covered by
the Loan Documents free and clear of all Liens, except Permitted Liens.
Section 7.6. Insurance. Frontline will bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. At Frontline's own
cost and expense in amounts and with carriers reasonably acceptable to the
Lender, Frontline shall (a) keep all its insurable properties and properties in
which it has an interest insured against the hazards of fire, flood, sprinkler
leakage, those hazards covered by extended coverage insurance and such other
hazards, and for such amounts, as is customary in the case of companies engaged
in businesses similar to Frontline's including, without limitation, business
interruption insurance; (b) at Lender's request, maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to the
Frontline's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Frontline
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Frontline is engaged in business; and (e) at Lender's request, furnish the
Lender with (i) copies of all policies and evidence of the maintenance of such
policies at least thirty (30) days before any expiration date, (ii) endorsements
to such policies naming the Lender as "co-insured" or "additional insured" and
appropriate loss payable endorsements in form and substance satisfactory to the
Lender, naming the Lender as loss payee, and (iii) evidence that as to the
Lender the insurance coverage shall not be impaired or invalidated by any act or
neglect of Frontline and the insurer will provide the Lender with at least
thirty (30) days notice prior to cancellation. At Lender's request, Frontline
shall instruct the insurance carriers that in the event of any loss thereunder,
the
23
carriers shall make payment for such loss to the Lender and not to Frontline and
the Lender jointly. If any insurance losses are paid by check, draft or other
instrument payable to Frontline and the Lender jointly, the Lender may endorse
Frontline's name thereon and do such other things as the Lender may deem
advisable to reduce the same to cash. The Lender is hereby authorized to adjust
and compromise claims. All loss recoveries received by the Lender upon any such
insurance may be applied to the Obligations, in such order as the Lender in its
sole discretion shall determine. Any surplus shall be paid by the Lender to
Frontline or applied as may be otherwise required by law. Any deficiency thereon
shall be paid by Frontline to the Lender, on demand.
Section 7.7. Preservation of Existence. Each Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or reasonably desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
Section 7.8. Delivery of Instruments, etc. During a Default Period, upon
request by the Lender, Frontline will promptly deliver to the Lender in pledge
all instruments, documents and Chattel Paper constituting Collateral, duly
endorsed or assigned by Frontline or accompanied by stock powers, allonges or
other instruments of transfer (executed in blank).
Section 7.9. Performance by the Lender. If any Borrower at any time fails
to perform or observe any of the foregoing covenants contained in this Article
VII or elsewhere herein, the Lender may, but need not, perform or observe such
covenant on behalf and in the name, place and stead of such 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 Liens, 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 statements, and the endorsement
of instruments); and the Borrowers 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 Interest Rate. To facilitate
the Lender's performance or observance of such covenants of each Borrower, each
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as such 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 such 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 such Borrower under this Section 7.9.
Section 7.10. Securities Laws. Frontline will comply with all applicable
federal and state securities laws, rules, regulations and orders in connection
with the issuance of the Shares. Frontline will continue to take all action
necessary to continue the listing or trading of the Common Stock on the American
Stock Exchange or any relevant market or system, if applicable, and will comply
with Frontline's reporting, filing, listing and other requirements thereunder
24
including, without limitation, the listing of the Shares issuable hereunder or
other obligations under the rules of the American Stock Exchange or any relevant
market or system.
Section 7.11. SEC Reporting. Frontline shall remain current in its SEC
reporting obligations.
Section 7.12. Use of Proceeds. The proceeds of the Term Loan shall only be
used by the Borrowers to (a) pay in full any and all amounts owing to Delanet,
Inc., (b) pay any and all fees and expenses in connection with the Provo
Acquisition and (c) for the Borrowers' general working capital purposes.
ARTICLE VIII
Negative Covenants of the Borrowers
So long as the Obligations shall remain unpaid, or the Term Loan shall
remain outstanding, each Borrower agrees that, without the Lender's prior
written consent:
Section 8.1. Liens. No Borrower will create, incur or suffer to exist any
Lien, assignment or transfer upon or of any of its assets, now owned or
hereafter acquired, to secure any indebtedness; excluding Permitted Liens.
Section 8.2. Sale or Transfer of Assets; Suspension of Business Operations.
No Borrower will sell, lease, assign, transfer or otherwise dispose of (i) all
or a substantial part of its assets, or (ii) 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 its Inventory in the ordinary course of business
and will not liquidate, dissolve or suspend business operations. No Borrower
will in any manner transfer any property without prior or present receipt of
full and adequate consideration.
Section 8.3. Consolidation and Merger; Asset Acquisitions; Reorganization.
No Borrower will 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 except for the Provo Acquisition. No Borrower will reincorporate or
reorganize itself under the laws of any jurisdiction other than the jurisdiction
in which it is incorporated or organized as of the date of this Agreement.
Section 8.4. Sale and Leaseback. No Borrower will enter into any
arrangement, directly or indirectly, with any other Person whereby such 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 such Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred other than such an arrangement entered into by Provo in connection
with its owned motor vehicles.
Section 8.5. Restrictions on Nature of Business. No Borrower will engage in
any line of business materially different from that presently engaged in by such
Borrower and will not purchase, lease or otherwise acquire assets not related to
its business.
25
Section 8.6. Defined Benefit Pension Plans. No Borrower will adopt, create,
assume or become a party to any defined benefit pension plan, unless disclosed
to the Lender pursuant to Section 5.9.
Section 8.7. Other Defaults. No Borrower will 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 such Borrower.
Section 8.8. Place of Business; Name. No Borrower will transfer its chief
executive office or principal place of business, or move, relocate, close or
sell any business location, provided, that any Borrower may change such
locations or open a new location provided, that such Borrower provides the
Lender with thirty (30) days prior written notice of such changes or new
location and (ii) in the case of Frontline, prior to such change or opening of a
new location Frontline executes and delivers to the Lender such financing
statements and other agreements as the Lender may request, including, without
limitation, landlord agreements, mortgagee agreements and warehouse agreements,
each in form and substance satisfactory to the Lender. No Borrower will change
its name.
Section 8.9. Organizational Documents. No Borrower will amend its
certificate of incorporation, bylaws or other organizational document or change
its corporate structure.
Section 8.10. Change in Ownership and Management. Except as contemplated
under the Stock Purchase Agreement, no Borrower will issue or sell any equity so
as to change the percentage of voting and non-voting equity owned by such
Borrower's shareholders on the Closing Date, and no Borrower will permit or
suffer to occur the sale, transfer, assignment, pledge or other disposition of
any or all of the issued and outstanding equity interest of such Borrower.
ARTICLE IX
Events of Default, Rights and Remedies
Section 9.1. Events of Default. This Agreement sets forth a non-exclusive
list of certain critical events after the occurrence of which the Lender expects
that it would demand immediate payment of the Obligations and exercise its
remedies. "Event of Default", wherever used herein, means any one of the
following events:
(a) Default in the payment of the Obligations on demand or on any
portion of the Obligations that otherwise becomes due and payable; or
(b) Default in the performance, or breach, of any covenant or
agreement of any Borrower contained in this Agreement; or
(c) Any Borrower 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 any Borrower 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
26
application or consent of such Borrower, as the case may be; or any
Borrower 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 otherwise)
against any Borrower; writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the
property of any Borrower and such proceeding is not dismissed or stayed
within thirty (30) days; or
(d) A petition shall be filed by or against any Borrower under the
United States Bankruptcy Code naming such Borrower as debtor and such
petition is not dismissed or stayed within thirty (30) days; or
(e) Any representation or warranty made by any Borrower in this
Agreement, or by any Borrower (or any of its officers) 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 shall prove to have been incorrect in any material respect when
deemed to be effective; or
(f) The rendering against any Borrower of a final judgment, decree or
order for the payment of money in excess of Fifty Thousand Dollars
($50,000) and the continuance of such judgment, decree or order unsatisfied
and in effect for any period of thirty (30) consecutive days without a stay
of execution; or
(g) 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 thirty (30) days
after written notice to such effect shall have been given to any 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 any Borrower shall
have filed for a distress termination of any Plan under Title IV of ERISA;
or any Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
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 any Borrower's assets in favor of the Plan; or
(h) An event of default shall occur under any Loan Document or under
any other security agreement, mortgage, deed of trust, assignment or other
instrument or agreement securing any Obligations; or
(i) Any 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; or
27
(j) Any 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 therefor) or notice of
any state or federal tax liens shall be filed or issued; or
(k) Any Lien created under any Loan Document for any reason ceases to
be or is not a valid and perfected Lien having a first priority or a lesser
priority to the extent permitted in the Loan Documents; or
(l) The Real Property subject to each Mortgage is not free, clear and
discharged of any and all Liens other than the mortgage granted in favor of
the Lender and those matters expressly permitted under such Mortgage; or
(m) Default in the payment of any amount owed by any Borrower to the
Lender other than any indebtedness arising hereunder; or
(n) Any event or circumstance with respect to any Borrower shall occur
such that the Lender shall believe in good faith that the prospect of
payment of all or any part of the Obligations or the performance by such
Borrower under the Loan Documents is impaired or that shall have a Material
Adverse Effect; or
(o) if SCH or ACH attempt to terminate, challenge the validity of, or
its liability under the Limited Guaranty or the Mortgage;
(p) if SCH or ACH default in its obligations under the Limited
Guaranty or the Mortgage or if any proceeding shall be brought to challenge
the validity, binding effect of the Limited Guaranty or the Mortgage, or
should SCH or ACH breach any representation, warranty or covenant contained
in the Limited Guaranty or the Mortgage or should the Limited Guaranty or
the Mortgage cease to be a valid, binding and enforceable obligation;
(q) any Borrower shall take or participate in any action which would
be prohibited under the provisions of the Subordination Agreement or make
any payment on the Debt subordinated to the Lender that any Person was not
entitled to receive under the provisions of the Subordination Agreement;
(r) Any Change of Control shall occur with respect to any Borrower
other than a Change of Control that occurs as a result of the transactions
contemplated under the Stock Purchase Agreement; or
(s) Lender shall in good xxxxx xxxx itself insecure or unsafe or shall
fear diminution in value, removal or waste of the Collateral; or
(t) The indictment or threatened indictment of any Borrower, any
officer of any Borrower under any criminal statute, or commencement or
threatened commencement of criminal or civil proceeding against any
Borrower or any officer of
28
any Borrower pursuant to which statute or proceeding penalties or remedies
sought or available include forfeiture of any of the property of any
Borrower.
Section 9.2. 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 Borrowers, 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 each
Borrower hereby expressly waives;
(b) The Lender may, without notice to any Borrower and without further
action, apply any and all money owing by the Lender to any Borrower to the
payment of the Obligations;
(c) 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 each Borrower
hereby expressly waives) and the right to sell, lease or otherwise dispose
of any or all of the Collateral, and, in connection therewith, Frontline
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;
(d) The Lender may exercise and enforce its rights and remedies under
the Loan Documents; and
(e) 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 (c) or (d) of Section 9.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind. In addition to all other sums due to the Lender, the
Borrowers shall pay the Lender, for reasonable costs and expenses incurred by
the Lender for internal collection efforts to obtain or enforce payment of the
Receivables of Frontline, an amount equal to fifteen percent (15%) of the net
face amount of any such Receivables collected.
Section 9.3. Certain Notices. If notice to any 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 11.4) at least ten (10) calendar days
before the date of intended disposition or other action.
29
ARTICLE X
Transfer of Securities
Section 10.1. Restriction on Transfer. The Restricted Securities shall not
be transferable except a holder of Restricted Securities may transfer such
Restricted Securities (i) to any Affiliate of such holder or (ii) upon the
conditions specified in this Article X, which conditions are intended to insure
compliance with the provisions of the 1933 Act in respect of the transfer
thereof.
Section 10.2. Restrictive Legends. Each certificate for the Restricted
Securities and each certificate for any such securities issued to subsequent
transferees of any such certificate shall (unless otherwise permitted by the
provisions of Section 10.3 hereof) be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR
APPLICABLE STATE BLUE SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE
SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE TERM LOAN AND
SECURITY AGREEMENT, DATED AS OF APRIL ___, 2003, AMONG THE ISSUER
HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED. UPON THE FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, THE
ISSUER HEREOF HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW
CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED
HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER
HEREOF."
Section 10.3. Notice of Transfer.
(a) Each holder shall, prior to any Transfer of any Restricted
Securities (other than a Transfer referenced in clause (i) of Section 10.1
above), give written notice to Frontline of such holder's intention to
effect such Transfer and to comply in all other respects with the
provisions of this Section 10.3 in making such proposed Transfer. Each such
notice shall describe the manner and circumstances of the proposed
Transfer. Upon request by Frontline, the holder delivering such notice
shall deliver a written opinion, addressed to Frontline, of counsel for
such holder (which may be one of its internal counsels), stating that in
the opinion of such counsel (which opinion shall be reasonably
30
satisfactory to Frontline) such proposed Transfer does not involve a
transaction requiring registration of such Restricted Securities under the
1933 Act. Such holder shall thereupon be entitled to Transfer the
Restricted Securities in accordance with the terms of the notice delivered
to Frontline, if Frontline does not reasonably object to such Transfer and
request such opinion, within five days after delivery of such notice or, if
Frontline does request such opinion, upon its receipt thereof. Each
certificate or other instrument evidencing the securities issued upon the
Transfer of any Restricted Securities (and each certificate or other
instrument evidencing any untransferred balance of such Restricted
Securities) shall bear the legend set forth in Section 10.2 above unless
(i) such opinion of counsel is to the effect that registration of any
future Transfer is not required by the applicable provisions of the 1933
Act or (ii) Frontline shall have waived the requirement of such legend.
(b) Notwithstanding the foregoing provisions of this Section 10.3, the
restrictions imposed by this Section 10.3 upon the transferability of any
Restricted Securities shall cease and terminate when (i) any such
Restricted Securities are sold or otherwise disposed of pursuant to an
effective registration statement under the 1933 Act or as otherwise
contemplated by paragraph (a) above in a manner that does not require that
the Restricted Securities so transferred continue to bear the legend set
forth in Section 10.2 above or (ii) the holder of such Restricted
Securities has met the requirements for Transfer of such Restricted
Securities under Rule 144(k). Whenever the restrictions imposed by this
Section shall terminate, upon the written request of the holder of any
Restricted Securities as to which such restrictions have terminated, as
promptly as practicable but in any event within ten (10) Business Days of
receipt of such request, Frontline shall, without charge, issue, register
and deliver a new instrument not bearing the restrictive legend set forth
in Section 10.2 above and not containing any other reference to the
restrictions imposed by this Section.
ARTICLE XI
Miscellaneous
Section 11.1. 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 11.2. Waivers. Each Borrower waives presentment and protest of any
instrument and notice thereof, notice of default and all other notices to which
such Borrower might otherwise be entitled.
Section 11.3. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by any
Borrower therefrom or any release of a Lien 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
31
the specific purpose for which given. No notice to or demand on any Borrower in
any case shall entitle such Borrower to any other or further notice or demand in
similar or other circumstances.
Section 11.4. 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 Borrowers:
Frontline Communication Corporation
Xxx Xxxx Xxxx Xxxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxx-Xxxxxxxx, CEO
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
and:
Provo, S.A. de X.X.
Xxxxxxxx Xxx Xx. 00
Xxx. Xxxx Xxx
00000 Xxxxxx, D.F.
Attention: Xxxxxxx Xxxxxxxx del Rio Arrangoiz
Telephone: 011 (52.55) 0000-0000
Telecopier: 011 (52.55) 5264-6442, ext. 182
If to the Lender:
IIG Equity Opportunities Fund Ltd.
c/o IIG Capital LLC
0000 Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
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.
32
Section 11.5. Further Documents. Each 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 Lien or the Lender's rights under the Loan Documents (but
any failure to request or assure that a Borrower executes, delivers or endorses
any such item shall not affect or impair the validity, sufficiency or
enforceability of the Loan Documents and the Lien of the Lender, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
Section 11.6. Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or Chattel Paper, and, as provided by law, the
Borrowers are 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
Borrowers 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 11.7. Costs and Expenses. The Borrowers shall pay all of the
Lender's out-of-pocket costs and expenses, including, without limitation,
reasonable fees and disbursements of counsel and appraisers, in connection with
the preparation, execution and delivery of this Agreement and the other Loan
Documents; provided, however, the legal fees of counsel prior to and including
the Closing Date shall not exceed $24,000 excluding disbursements and third
party expenses. The Borrowers shall also pay all of the Lender's fees, charges,
out-of-pocket costs and expenses, including without limitation reasonable fees
and disbursements of counsel and appraisers, in connection with (a) the
prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matter in any way arising out of, related to or connected with
this Agreement or any other Loan Document, (b) the preparation, execution and
delivery of any waiver, any amendment thereto or consent proposed or executed in
connection with the transactions contemplated by this Agreement or the other
Loan Documents, (c) the Lender's obtaining performance of the Obligations under
this Agreement and any other Loan Documents, including, but not limited to, the
enforcement or defense of the Lender's Liens, assignments of rights and Liens
hereunder as valid perfected Liens, (d) any attempt to inspect, verify, protect,
collect, sell, liquidate or otherwise dispose of any Collateral, (e) any
appraisals or re-appraisals of any property (real or personal) pledged to the
Lender by Frontline as Collateral for, or any other Person as security for, the
Obligations hereunder and (f) any consultations in connection with any of the
foregoing. All such costs and expenses together with all filing, recording and
search fees, taxes and interest payable by any Borrower to the Lender shall be
payable on demand and shall be secured by the Collateral.
Section 11.8. Indemnity. In addition to the payment of expenses pursuant to
Section 11.7, each 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
33
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 Term Loan;
(b) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.11
proves to be incorrect in any respect or as a result of any violation of
the covenant contained in Section 7.3(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 and other costs of investigation or defense,
including, without limitation, those incurred on appeal) in connection with
the foregoing as the result of credit having been extended, suspended or
terminated under the Loan Documents with respect to the execution,
delivery, enforcement, performance and administration of or any other way
related to any Loan Document or any transactions referred to or
contemplated herein or therein or contemplated by 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 Term Loan and
the Loan Documents or the use and intended use of the proceeds of the Term
Loan.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
each Borrower, or counsel designated by such 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 Borrowers' 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 Borrowers shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrowers obligation
under this Section 11.8 shall survive the termination of this Agreement and the
discharge of the Borrowers' other obligations hereunder. NO INDEMNITEE SHALL BE
RESPONSIBLE OR LIABLE TO THE BORROWERS OR TO ANY OTHER PARTY TO ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OR ANY OTHER PERSON ASSERTING CLAIMS
DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR
CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN
EXTENDED, SUSPENDED OR TERMINATED UNDER THIS AGREEMENT OR ANY LOAN DOCUMENTS OR
AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
Section 11.9. Revival. Each Borrower further agrees that to the extent such
Borrower makes a payment or payments to the Lender, which payment or payments or
any part thereof are
34
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, or receiver or any other party under
any bankruptcy act, state or federal law, common law or equitable cause, then,
to the extent of such payment or repayment, the obligation or part thereof
intended to be satisfied shall be revived and continued in full force and effect
as if said payment had not been made.
Section 11.10. 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 11.11. Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, telecopied signatures,
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. Any signature delivered by a party via telecopier transmission
shall be deemed an original signature hereto.
Section 11.12. Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of each Borrower and the Lender and their respective successors and assigns,
except that no Borrower shall have the right to assign its rights thereunder or
any interest therein without the Lender's prior written consent. This Agreement,
together with the other 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 each Borrower and its Affiliates
with the Lender's participants, accountants, lawyers and other advisors, the
Lender and all direct and indirect subsidiaries of the Lender, may exchange any
and all information they may have in their possession regarding each Borrower
and its Affiliates, and each Borrower waives any right of confidentiality it may
have with respect to such exchange of such information.
Section 11.13. 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 11.14. 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.
Section 11.15. Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
This Agreement and the other Loan Documents shall be governed by and construed
in accordance with the substantive laws (other than conflict laws) of the State
of New York. The parties hereto hereby (i) consent to the personal jurisdiction
of the state and federal courts located in the County of New York, State of New
York in connection with any controversy related to this Agreement; (ii) waive
any argument that venue in any such forum is not convenient, (iii) agree that
any litigation initiated by the Lender or any Borrower in connection with this
Agreement or the other Loan Documents shall be venued in the United States
District Court of the Southern District of New York; and (iv) agree that a final
judgment in any such suit, action or proceeding
35
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. EACH BORROWER WAIVES PERSONAL
SERVICE OR PROCESS AND CONSENTS THAT SERVICE OF PROCESS UPON SUCH BORROWER MAY
BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO
SUCH BORROWER AT SUCH BORROWER'S ADDRESS APPEARING ON THE LENDER'S RECORDS, AND
SERVICE SO MADE SHALL BE DEEMED COMPLETED TWO (2) DAYS AFTER THE SAME SHALL HAVE
BEEN SO MAILED. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR
ANY OF THE OBLIGATIONS.
Section 11.16. Construction. The parties acknowledge that each party and
its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.
[Signature Page to Follow]
36
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.
FRONTLINE COMMUNICATIONS
CORPORATION, as a Borrower
By: /s/ Xxxxxxx X. Xxxx-Xxxxxxxx
--------------------------------------
Name:
Title: C.E.O.
PROYECCIONES Y VENTAS ORGANIZADAS,
S.A. DE C.V., as a Borrower
By: /s/ Xxxxxxx Xxxxxxxx Del Rio Arrangoiz
--------------------------------------
Name:
Title: Chairman
IIG EQUITY OPPORTUNITIES FUND LTD., as
the Lender
By: /s/ Xxxxxx Xxxxxx
--------------------------------------
Name: Xxxxxx Xxxxxx
Title: Investment Manager
37
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of Term Note
Exhibit B Premises
Exhibit C Commercial Tort Claims
Schedule 5.1 Organization and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Organizational
Identification Number
Schedule 5.3 Capitalization
Schedule 5.5 Litigation
Schedule 5.14 Intellectual Property
Schedule 8.1 Permitted Liens
38
Exhibit A to Term Loan and Security Agreement
Term Note
$550,000.00 New York, New York
April __, 2003
For value received, the undersigned, FRONTLINE COMMUNICATIONS CORPORATION,
a Delaware corporation, and PROYECCIONES Y VENTAS ORGANIZADAS, S.A. DE C.V., a
Mexico corporation (each a "Borrower" and collectively, the "Borrowers"),
hereby, jointly and severally, promise to pay to the order of IIG EQUITY
OPPORTUNITIES FUND LTD., a Bermuda company (the "Lender"), at its offices
located at 0000 Xxxxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or at any other
place designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of Five
Hundred Fifty Thousand and 00/100 Dollars ($550,000.00) together with interest
on the principal amount hereunder remaining unpaid from time to time, computed
on the basis of the actual number of days elapsed and a 360-day year, from the
date hereof until this Note is fully paid at the rate from time to time in
effect under the Term Loan and Security Agreement of even date herewith (as
amended, modified, supplemented and restated from time to time, the "Loan
Agreement") among the Lender and the Borrowers. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Loan
Agreement.
This Note may be prepaid only in accordance with the Loan Agreement.
This Note is issued pursuant, and is subject, to the Loan Agreement, which
provides, among other things, for acceleration hereof. This Note is the Term
Note referred to in the Loan Agreement.
This Note is secured, among other things, pursuant to the Loan Agreement
and the other Loan Documents as therein defined, and may now or hereafter be
secured by one or more other security agreements, mortgages, deeds of trust,
assignments or other instruments or agreements.
Each Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
39
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
FRONTLINE COMMUNICATIONS CORPORATION
By: /s/ Xxxxxxx X. Xxxx-Xxxxxxxx
--------------------------------------
Name:
Title: Chief Executive Officer
PROYECCIONES Y VENTAS ORGANIZADAS,
S.A. DE C.V.
By: /s/ Xxxxxxx Xxxxxxxx Del Rio Arrangoiz
--------------------------------------
Name:
Title: Chairman
40
THE FOLLOWING EXHIBITS HAVE BEEN INTENTIONALLY OMITTED
EXHIBIT B
EXHIBIT C
SCHEDULE 5.1
SCHEDULE 5.3
SCHEDULE 5.5
SCHEDULE 5.14
SCHEDULE 8.1
THE COMPANY WILL PROVIDE COPIES TO THE SEC UPON REQUEST.
41
