EXHIBIT 10.6
Loan and Security Agreement
by and between
CONGRESS FINANCIAL CORPORATION (SOUTHWEST)
as Lender
and
NEI WEBWORLD, INC.
as Borrower
Dated: December 31, 1996
TABLE OF CONTENTS
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Page
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SECTION 1. DEFINITIONS............................................... 1
SECTION 2. CREDIT FACILITIES......................................... 8
2.1 Revolving Loans........................................... 8
2.2 Term Loan A............................................... 9
2.3 Term Loan B............................................... 9
2.4 Capital Expenditures Loans................................ 9
2.5 Availability Reserves..................................... 10
2.6 Maximum Credit and Lending Formulas....................... 10
SECTION 3. INTEREST AND FEES......................................... 10
3.1 Interest.................................................. 10
3.2 Closing Fee............................................... 11
3.3 Servicing Fee............................................. 12
3.4 Commitment Fee............................................ 12
SECTION 4. CONDITIONS PRECEDENT...................................... 12
4.1 Conditions Precedent to Initial Loans..................... 12
4.2 Conditions Precedent to All Loans......................... 14
SECTION 5. GRANT OF SECURITY INTEREST................................ 14
SECTION 6. COLLECTION AND ADMINISTRATION............................. 15
6.1 Borrower's Loan Account................................... 15
6.2 Statements................................................ 16
6.3 Collection of Accounts.................................... 16
6.4 Payments.................................................. 17
6.5 Authorization to Make Loans............................... 17
6.6 Use of Proceeds........................................... 17
SECTION 7. COLLATERAL REPORTING AND COVENANTS........................ 18
7.1 Collateral Reporting...................................... 18
7.2 Accounts Covenants........................................ 18
7.3 Inventory Covenants....................................... 20
7.4 Equipment Covenants....................................... 20
7.5 Power of Attorney......................................... 21
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7.6 Right to Cure............................................. 22
7.7 Access to Premises........................................ 22
SECTION 8. REPRESENTATIONS AND WARRANTIES............................ 22
8.1 Corporate Existence, Power and Authority; Subsidiaries.... 22
8.2 Financial Statements; No Material Adverse Change.......... 23
8.3 Chief Executive Office; Collateral Locations.............. 23
8.4 Priority of Liens; Title to Properties.................... 23
8.5 Tax Returns............................................... 23
8.6 Litigation................................................ 23
8.7 Compliance with Other Agreements and Applicable Laws...... 24
8.8 Accuracy and Completeness of Information.................. 24
8.9 Survival of Warranties; Cumulative........................ 24
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................ 24
9.1 Maintenance of Existence.................................. 24
9.2 New Collateral Locations.................................. 25
9.3 Compliance with Laws, Regulations, Etc.................... 25
9.4 Payment of Taxes and Claims............................... 25
9.5 Insurance................................................. 25
9.6 Financial Statements and Other Information................ 26
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc... 27
9.8 Encumbrances.............................................. 27
9.9 Indebtedness.............................................. 28
9.10 Loans, Investments, Guarantees, Etc....................... 28
9.11 Dividends and Redemptions................................. 29
9.12 Transactions with Affiliates.............................. 29
9.13 Adjusted Net Worth........................................ 29
9.14 Costs and Expenses........................................ 29
9.15 Further Assurances........................................ 30
9.16 Modifications of Other Agreement.......................... 30
9.17 Environmental Action...................................... 30
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................ 30
10.1 Events of Default......................................... 30
10.2 Remedies.................................................. 32
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW............................... 34
11.1 Governing Law; Choice of Forum; Service of Process;
Jury Trial Waiver......................................... 34
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11.2 Waiver of Notices......................................... 35
11.3 Amendments and Waivers.................................... 35
11.4 Waiver of Counterclaims................................... 35
11.5 Indemnification........................................... 35
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.......................... 36
12.1 Term...................................................... 36
12.2 Notices................................................... 37
12.3 Partial Invalidity........................................ 38
12.4 Successors................................................ 38
12.5 Entire Agreement.......................................... 38
12.6 Nonapplicability of Article 5069-15.01 et seq............. 38
12.7 DTPA Waiver............................................... 38
12.8 Oral Agreements Ineffective............................... 39
INDEX TO
EXHIBITS AND SCHEDULES
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Exhibit A Information Certificate
Exhibit B Xxxxxx Note
Exhibit C Management Agreement
Exhibit D Consulting Agreement
Exhibit E WebWorks Note
Schedule 8.4 Existing Liens
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LOAN AND SECURITY AGREEMENT
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This Loan and Security Agreement dated December 31, 1996 is entered
into by and between Congress Financial Corporation (Southwest), a Texas
corporation ("Lender") and NEI WebWorld, Inc., a Texas corporation ("Borrower").
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W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
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All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural. All
references to Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of Default
shall exist or continue or be continuing until such Event of Default is waived
in accordance with Section 11.3. Any accounting term used herein unless
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otherwise defined in this Agreement shall have the meanings customarily given to
such term in accordance with GAAP. For purposes of this Agreement, the
following terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower
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to payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Net Worth" shall mean as to any Person, at any time, in
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accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such
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Person and its subsidiaries (if any), the amount equal to: (a) the difference
between: (i) the aggregate net book value of all assets of such Person and its
subsidiaries, calculating the book value of inventory for this purpose on a
first-in-first-out basis, after deducting from such book values all appropriate
reserves in accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization) and (ii) the aggregate
amount of the indebtedness and other liabilities of such Person and its
subsidiaries (including tax and other proper accruals) plus (b) indebtedness of
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such Person and its subsidiaries which is subordinated in right of payment to
the full and final payment of all of the Obligations on terms and conditions
acceptable to Lender.
1.3 "Applicable Rate" shall have the meaning set forth in Section
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3.1(a) hereof.
1.4 "Availability Reserves" shall mean, as of any date of
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determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans which would otherwise be
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or prospects of Borrower or any Obligor or (iii) the security interests
and other rights of Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Lender's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect or (c) in respect of any state of facts which
Lender determines in good faith constitutes an Event of Default or may, with
notice or passage of time or both, constitute an Event of Default.
1.5 "Capital Expenditures Loans" shall mean the loans now or
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hereafter made by Lender to Borrower as described in Section 2.4 hereof.
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1.6 "Collateral" shall have the meaning set forth in Section 5
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hereof.
1.7 "Consulting Agreement" shall mean that certain Consulting
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Agreement dated February 28, 1994, by and between Borrower and Xxxxxx X.
Xxxxxxx, as in effect on the date hereof and as attached hereto as Exhibit D.
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1.8 "Eligible Accounts" shall mean Accounts created by Borrower which
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are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
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delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
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(b) such Accounts are not unpaid more than sixty (60) days past
the original due date thereof or more than one hundred twenty (120) days after
the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
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(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America, or, at Lender's
option, if either: (i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued or confirmed by a bank satisfactory to
Lender, sufficient to cover such Account, in form and substance satisfactory to
Lender and, if required by Lender, the original of such letter of credit has
been delivered to Lender or Lender's agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender, or (ii) such
Account is subject to credit insurance payable to Lender issued by an insurer
and on terms and in an amount acceptable to Lender, or (iii) such Account is
otherwise acceptable in all respects to Lender (subject to such lending formula
with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress xxxxxxxx, xxxx and
hold invoices or retainage invoices, except as to xxxx and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts;
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
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(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of (i) The Dallas Morning News/A.H. Belo
Corporation or its affiliates do not constitute more than fifty-five percent
(55%) of all otherwise Eligible Accounts, and (ii) any other single account
debtor or its affiliates do not constitute more than thirty percent (30%) of all
otherwise Eligible Accounts (but the portion of the Accounts not in excess of
such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than sixty (60) days after the original due date thereof or
more than one hundred twenty (120) days after the date of the original invoice
for them which constitute more than fifty percent (50%) of the total Accounts of
such account debtor ;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time (but the portion of
the Accounts not in excess of such credit limit may still be deemed Eligible
Accounts); and
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as determined by Lender. General criteria for Eligible
Accounts may be established and revised from time to time by Lender in good
faith. Any Accounts which are not Eligible Accounts shall nevertheless be part
of the Collateral.
1.9 "Eligible Equipment" shall mean Equipment which is subject to a
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first priority, valid and perfected security interest in favor of Lender and
which has otherwise been determined to be acceptable to Lender in good faith.
Any Equipment which is not Eligible Equipment shall nevertheless be part of the
Collateral.
1.10 "Eligible Inventory" shall mean Inventory consisting of raw
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materials for finished goods to be held for resale in the ordinary course of
business, consisting of full rolls of newsprint and coated paper and which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) work-in-process or finished goods; (b)
components which are not part of finished goods; (c) spare parts for equipment;
(d) packaging and shipping materials; (e) supplies used or consumed in
Borrower's business; (f) Inventory at premises other than those owned and
controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the
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owner or operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) xxxx and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) returned, damaged and/or defective Inventory; (l) Inventory
purchased or sold on consignment; or (m) partial rolls of newsprint or coated
paper. General criteria for Eligible Inventory may be established and revised
from time to time by Lender in good faith. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.11 "Eligible Real Estate" shall mean land and improvements thereon
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which are owned in fee by Borrower, are subject to a valid first priority
security interest in favor of Lender and have otherwise been determined to be
acceptable to Lender in good faith.
1.12 "Equipment" shall mean all of Borrower's now owned and hereafter
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acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located, including without limitation all printing presses, collators, paper
cutters, folders, binders and other paper handling equipment.
1.13 "Event of Default" shall mean the occurrence or existence of any
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event or condition described in Section 10.1 hereof.
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1.14 "Excess " shall have the meaning set forth in Section 3.1(b)
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hereof.
1.15 "Excess Availability" shall mean the amount, as determined by
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Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and the Value of Eligible Inventory, as determined by Lender, and subject to the
sublimits and Availability Reserves from time to time established by Lender
hereunder, and (ii) the Maximum Credit, minus (b) the sum of: (i) the amount of
all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of
all then outstanding and unpaid trade payables of Borrower which are more than
sixty (60) days past due as of such time, plus (iii) all costs and expenses
payable by Borrower at closing.
1.16 "Financing Agreements" shall mean, collectively, this Agreement
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and all notes, guarantees, security agreements, deeds of trust and other
agreements, documents and instruments now or at any time hereafter executed
and/or delivered by Borrower or any Obligor in connection with this Agreement,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
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1.17 "GAAP" shall mean generally accepted accounting principles in the
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United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.13 hereof, GAAP shall be determined on the basis of
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such principles in effect on the date hereof and consistent with those used in
the preparation of the audited financial statements delivered to Lender prior to
the date hereof.
1.18 "Information Certificate" shall mean the Information Certificate
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of Borrower constituting Exhibit A hereto containing material information with
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respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.19 "Inventory" shall mean all of Borrower's now owned and hereafter
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existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.20 "Xxxxxx Note" shall mean that certain Subordinated Note dated
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February 28, 1994, in the original principal amount of $500,000, payable to
Xxxxxx X. Xxxxxx, as in effect on the date hereof and as attached hereto as
Exhibit B.
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1.21 "Loans" shall mean the Revolving Loans, the Term Loans and the
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Capital Expenditures Loans.
1.22 "Lockbox Accounts" shall have the meaning set forth in Section
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6.3 hereof.
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1.23 "Management Agreement" shall mean that certain Management
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Agreement dated February 28, 1994, by and between Borrower and Xxxxxx/Xxxxxxx
Merchant Banking Group, Ltd., as in effect on the date hereof and as attached
hereto as Exhibit C.
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1.24 "Market Value" shall mean, for Eligible Real Estate, the fair
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market value of such Eligible Real Estate, as determined by appraisals in form,
scope and methodology acceptable to Lender conducted at Borrower's expense by
appraisers acceptable to Lender.
1.25 "Maximum Credit" shall mean the amount of $9,000,000.
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1.26 "Maximum Legal Rate" shall have the meaning set forth in Section
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3.1(b) hereof.
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1.27 "Net Amount of Eligible Accounts" shall mean the gross amount of
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Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
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1.28 "Obligations" shall mean any and all Revolving Loans, the Term
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Loans, the Capital Expenditures Loans and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to Lender
and/or its affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
1.29 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
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other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.30 "Orderly Liquidation Value" shall mean, for Equipment, the value
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which is attainable through an orderly liquidation of such Equipment within a
time frame of six (6) to twelve (12) months, the balance being sold at a public
auction, as determined by appraisals in form, scope and methodology acceptable
to Lender conducted at Borrower's expense by an appraiser acceptable to Lender.
1.31 "Payment Account" shall have the meaning set forth in Section 6.3
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hereof.
1.32 "Person" or "person" shall mean any individual, sole
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proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.33 "Prime Rate" shall mean the rate from time to time publicly
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announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank.
1.34 "Records" shall mean all of Borrower's present and future books
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of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of Borrower with
respect to the foregoing maintained with or by any other person).
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1.35 "Revolving Loans" shall mean the loans now or hereafter made by
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Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
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1.36 "Subordination Agreements" shall mean, collectively, (i) that
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certain Subordination Agreement dated as of December 30, 1996, executed by
WebWorks in favor of Lender regarding the WebWorks Indebtedness, (ii) that
certain Junior Subordination Agreement dated of even date herewith, executed by
Xxxxxx X. Xxxxxxx in favor of Lender regarding Borrower's obligations under the
Consulting Agreement, and (iii) that certain Junior Subordination Agreement of
even date herewith, executed by Xxxxxx/Xxxxxxx Merchant Banking Group, Ltd., in
favor of Lender regarding Borrower's obligations under the Management Agreement.
1.37 "Term Loan A" shall mean the term loan made by Lender to Borrower
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as provided for in Section 2.2 hereof.
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1.38 "Term Loan B" shall mean the term loan made by Lender to Borrower
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as provided for in Section 2.3 hereof.
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1.39 "Term Loans" shall mean collectively, Term Loan A and Term Loan
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B.
1.40 "Value" shall mean, as determined by Lender in good faith, with
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respect to Inventory, the lower of (a) cost computed on a first-in-first-out
basis in accordance with GAAP or (b) market value.
1.41 "WebWorks" shall mean The WebWorks, Inc.
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1.42 "WebWorks Indebtedness" shall mean that certain Promissory Note
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dated September 13, 1996, executed by Borrower, payable to WebWorks in the
original principal amount of $1,010,000, as amended by that certain Modification
of Promissory Note dated December 30, 1996 and as in effect on the date hereof
and as attached hereto as Exhibit E, and the obligations related thereto.
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SECTION 2. CREDIT FACILITIES
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2.1 Revolving Loans.
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(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the lesser of (i)
$3,750,000 or (ii) the sum of:
(A) eighty-five percent (85%) of the Net Amount of Eligible
Accounts, plus
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(B) the lesser of: (I) sixty percent (60%) of the Value of
Eligible Inventory, or (II) $1,000,000, less
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(C) any Availability Reserves.
(b) Lender may, in its discretion, from time to time (i) reduce
the lending formula with respect to Eligible Accounts to the extent that Lender
determines in good faith that: (A) the dilution with respect to the Accounts for
any period (based on the ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash to (2) the aggregate amount
of total sales) has increased in any material respect or may be reasonably
anticipated to increase in any material respect above historical levels, or (B)
the general creditworthiness of account debtors has declined or (ii) reduce the
lending formula(s) with respect to Eligible Inventory to the extent that Lender
determines that: (A) the number of days of the turnover of the Inventory for any
period has changed in any material respect or (B) the Value of the Eligible
Inventory, or any category thereof, has decreased, or (C) the nature and quality
of the Inventory has deteriorated. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
2.2 Term Loan A. (a) Subject to Section 2.2(b), Lender is making a
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Term Loan A to Borrower in an original principal amount of up to the lesser of
(i) $2,500,000 or (ii) eighty-five percent (85%) of the Orderly Liquidation
Value of Eligible Equipment. The Term Loan A is (a) evidenced by a Term A
Promissory Note in such original principal amount duly executed and delivered by
Borrower to Lender concurrently herewith; (b) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the Term A
Promissory Note, and the other Financing Agreements and (c) secured by all of
the Collateral.
(b) Borrower and Lender acknowledge and agree that as of the
Closing Date, eighty-five percent (85%) of the Orderly Liquidation Value of the
Eligible Equipment is $146,000 less than $2,500,000. Lender is nonetheless
willing to make the Term Loan A in the original principal amount of $2,500,000,
provided, however, that the amount of such difference be established as an
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Availability Reserve.
2.3 Term Loan B. Lender is making a Term Loan B to Borrower in an
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original principal amount of up to the lesser of (i) $750,000 or (ii) fifty
percent (50%) of the Market Value of Eligible Real Estate. The Term Loan B is
(a) evidenced by a Term B Promissory Note in such original principal amount duly
executed and delivered by Borrower to Lender concurrently herewith; (b) to be
repaid, together with interest and other amounts, in accordance with this
Agreement, the Term B Promissory Note, and the other Financing Agreements and
(c) secured by all of the Collateral.
2.4 Capital Expenditures Loans. (a) Subject to the terms and
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conditions contained herein, Lender agrees to make Capital Expenditures Loans to
Borrower from time to time to finance purchases of Equipment for use in its
business. Each Capital Expenditures Loan shall be in the aggregate principal
amount of not less than $250,000 or if greater than $250,000, in
9
integral multiples thereof, and shall not exceed eighty-five percent (85%) of
the invoiced purchase price (excluding installation, freight, taxes, title,
insurance and other related costs) of the Equipment being acquired with the
proceeds of such Capital Expenditures Loan. The aggregate principal amount of
all Capital Expenditures Loans made hereunder shall not exceed $1,000,000 in any
calendar year, or $2,000,000 during the term of this Agreement. Borrower may not
reborrow any amount repaid with respect to any Capital Expenditures Loan. Each
Capital Expenditures Loan shall be (a) evidenced by a Capital Expenditures
Promissory Note in the original principal amount of $2,000,000 duly executed and
delivered by Borrower to Lender concurrently herewith; (b) repaid, together with
interest and other amounts, in accordance with this Agreement, the Capital
Expenditures Promissory Note, and the other Financing Agreements; and (c)
secured by all of the Collateral.
(b) If at any time the aggregate principal amount outstanding
under the Capital Expenditures Loans is greater than eighty-five percent (85%)
of the value of the Equipment financed thereby, as determined by the appraisals
required pursuant to Section 7.4(a) hereof, an amount equal to such difference
--------------
shall immediately be established as an Availability Reserve.
2.5 Availability Reserves. All Revolving Loans otherwise available to
---------------------
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
2.6 Maximum Credit and Lending Formulas. Except in Lender's
-----------------------------------
discretion, the aggregate amount of the Loans outstanding at any time shall not
exceed the Maximum Credit. In the event that the outstanding amount of any
component of the Loans, exceed the amounts available under the lending formulas
or the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions, unless otherwise provided herein, and Borrower shall, upon demand by
Lender, which may be made at any time or from time to time, immediately repay to
Lender the entire amount of any such excess(es) for which payment is demanded.
SECTION 3. INTEREST AND FEES
-----------------
3.1 Interest.
--------
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the Obligations at the following rates (individually called,
as applicable, an "Applicable Rate"): (i) the Term Loans and the Capital
---------------
Expenditures Loans at the rate of one and one-half of one percent (1.5%) per
annum in excess of the Prime Rate and (ii) the Revolving Loans and all other
non-contingent Obligations at the rate of one and one-quarter of one percent
(1.25%) per annum in excess of the Prime Rate, except that Borrower shall pay to
Lender interest, at Lender's option, without notice, at the rate of two (2%)
percent per annum in excess of the Applicable Rate: (A) on the non-contingent
Obligations for the period from and after the date of termination or non-renewal
hereof, or the date of the occurrence of an Event of Default, and for so long as
such Event of Default is continuing as determined by Lender and until such time
as Lender has
10
received full and final payment of all such Obligations (notwithstanding entry
of any judgment against Borrower) and (B) on the Revolving Loans at any time
outstanding in excess of the amounts available to Borrower under Section 2
---------
(whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default, and
this provision shall not be deemed to constitute consent by Lender to any such
excess(es)). All interest accruing hereunder on and after the occurrence of any
of the events referred to in Sections 3.1(a)(A) or 3.1(a)(B) above shall be
------------------ ---------
payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. No
agreements, conditions, provisions or stipulations contained in this Agreement
or any other instrument, document or agreement between Borrower and Lender or
default of Borrower, or the exercise by Lender of the right to accelerate the
payment of the maturity of principal and interest, or to exercise any option
whatsoever contained in this Agreement or any other Financing Agreement, or the
arising of any contingency whatsoever, shall entitle Lender to contract for,
charge, or receive, in any event, interest exceeding the maximum rate of
interest permitted by applicable state or federal law in effect from time to
time (hereinafter "Maximum Legal Rate"). In no event shall Borrower be obligated
------------------
to pay interest exceeding such Maximum Legal Rate and all agreements, conditions
or stipulations, if any, which may in any event or contingency whatsoever
operate to bind, obligate or compel Borrower to pay a rate of interest exceeding
the Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged or received in excess
of the Maximum Legal Rate ("Excess"), Borrower acknowledges and stipulates that
------
any such contract, charge, or receipt shall be the result of an accident and
bona fide error, and that any Excess received by Lender shall be applied, first,
---------
to reduce the principal then unpaid hereunder; second, to reduce the other
Obligations; and third, returned to Borrower, it being the intention of the
parties hereto not to enter at any time into a usurious or otherwise illegal
relationship. Borrower recognizes that, with fluctuations in the Prime Rate and
the Maximum Legal Rate, such a result could inadvertently occur. By the
execution of this Agreement, Borrower covenants that (i) the credit or return of
any Excess shall constitute the acceptance by Borrower of such Excess, and (ii)
Borrower shall not seek or pursue any other remedy, legal or equitable, against
Lender, based in whole or in part upon contracting for, charging or receiving of
any interest in excess of the maximum authorized or receiving of any interest in
excess of the maximum authorized by applicable law. For the purpose of
determining whether or not any Excess has been contracted for, charged or
received by Lender, all interest at any time contracted for, charged or received
by Lender in connection with this Agreement shall be amortized, prorated,
allocated and spread in equal parts during the entire term of this Agreement.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
-----------
amount $45,000, which shall be fully earned as of and payable on the date
hereof.
11
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing
-------------
fee in an amount equal to $1,000 in respect of Lender's services for each month
(or part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee shall be fully
earned as of and payable in advance on the date hereof and on the first day of
each month hereafter.
3.4 Commitment Fee. Borrower shall pay to Lender monthly a commitment
--------------
fee equal at a rate equal to one-quarter of one percent (.25%) per annum
calculated upon the amount by which $3,750,000 exceeds the average daily
principal balance of the outstanding Revolving Loans during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
SECTION 4. CONDITIONS PRECEDENT
--------------------
4.1 Conditions Precedent to Initial Loans. Each of the following is a
-------------------------------------
condition precedent to Lender making the initial Loans hereunder:
(a) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(c) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce the Obligations or realize upon the Collateral;
(d) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender
12
may deem necessary or desirable in order to permit, protect and perfect its
security interests in and liens upon the Collateral or to effectuate the
provisions or purposes of this Agreement and the other Financing Agreements,
including, without limitation, acknowledgments by lessors, mortgagees and
warehousemen of Lender's security interests in the Collateral, waivers by such
persons of any security interests, liens or other claims by such persons to the
Collateral and agreements permitting Lender access to, and the right to remain
on, the premises to exercise its rights and remedies and otherwise deal with the
Collateral;
(f) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(g) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with respect
to the Financing Agreements and such other matters as Lender may request;
(h) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender;
(i) the Excess Availability as determined by Lender, as of the
date hereof, shall be not less than $500,000 after giving effect to the initial
Loans made or to be made in connection with the initial transactions hereunder;
(j) each of WebWorks, Xxxxxx X. Xxxxxxx and Xxxxxx/Xxxxxxx
Merchant Banking Group, Ltd. shall have executed and delivered its respective
Subordination Agreement, which shall be in form, scope and substance
satisfactory to Lender in its sole discretion;
(k) Lender shall have received, in form, scope and methodology
satisfactory to Lender, Phase I hazardous waste and environmental audits, upon
which Lender is expressly entitled to rely, conducted by an independent
environmental engineering firm at Borrower's expense, of all of Borrower's
plants and real estate, stating that in such firm's opinion (i) Borrower is in
compliance in all material respects with all applicable laws, rules,
regulations, ordinances, permits, programs, orders or consent decrees relating
to health, safety or environmental matters or to the manufacture, processing,
distribution, use, treatment, handling, storage or disposal of hazardous waste,
and (ii) there is no material potential or actual liability of Borrower for any
remedial action with respect to any environmental conditions or any other
significant environmental problems;
(l) the accounts payable and cash of Borrower shall be at a level
and in a condition acceptable to Lender;
(m) Lender shall have received a fully paid mortgagee title
insurance policy, in form and substance acceptable to Lender, issued by a title
insurance company satisfactory to
13
Lender, in an amount equal to not less than the Market Value of the Eligible
Real Estate, insuring the deed of trust by which Borrower shall have granted and
conveyed to Lender, as security for the Obligations, a lien upon the Eligible
Real Estate to create a valid lien thereon, with no exceptions which Lender
shall not have approved in writing;
(n) Borrower shall enter into a lockbox agreement acceptable to
Lender;
(o) Lender shall have received a certificate executed by the
President and the Chief Financial Officer of Borrower setting forth in
reasonable detail the sources and uses of the funds in the transactions
contemplated herein;
(p) Lender shall have received a copy of a letter from Borrower
addressed to its accountants authorizing such accountants to disclose to Lender
any and all financial information concerning Borrower requested by Lender in
determining compliance with the covenants set forth herein;
(q) WebWorks shall have consented in writing to the transactions
contemplated herein and in the other Financing Agreements; and
(r) such other documents and information as Lender shall
reasonably request.
4.2 Conditions Precedent to All Loans. Each of the following is an
---------------------------------
additional condition precedent to Lender making Loans to Borrower, including the
initial Loans and any future Loans:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan and after giving
effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
--------------------------
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
----------
5.1 Accounts;
14
5.2 All present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
5.3 All present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records;
5.7 Eligible Real Estate; and
5.8 all products and proceeds of the foregoing, in any form,
including, without limitation, insurance proceeds and all claims against third
parties for loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
-----------------------------
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
15
6.2 Statements. Lender shall render to Borrower each month a
----------
statement setting forth the balance in the Borrower's loan account(s) maintained
by Lender for Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to Borrower
a written statement as provided above, the balance in Borrower's loan account(s)
shall be presumptive evidence of the amounts due and owing to Lender by
Borrower.
6.3 Collection of Accounts.
----------------------
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Lockbox Accounts"), as Lender may specify, with such banks as are acceptable to
----------------
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Lockbox Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Lockbox Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Lockbox Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Lockbox Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
---------------
payments made to such Lockbox Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
(b) For purposes of calculating interest on the Obligations, such
payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) business day following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Revolving Loans available to Borrower
such payments will be applied (conditional upon final collection) to the
Obligations on the business day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Lockbox
Accounts, or remit
16
the same or cause the same to be remitted, in kind, to Lender. In no event shall
the same be commingled with Borrower's own funds. Borrower agrees to reimburse
Lender on demand for any amounts owed or paid to any bank at which a Lockbox
Account is established or any other bank or person involved in the transfer of
funds to or from the Lockbox Accounts arising out of Lender's payments to or
indemnification of such bank or person. The obligation of Borrower to reimburse
Lender for such amounts pursuant to this Section 6.3 shall survive the
-----------
termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
--------
as provided in Section 6.3 or such other place as Lender may designate from time
-----------
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower. Borrower shall make all
payments to Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. BORROWER
SHALL BE LIABLE TO PAY TO LENDER, AND DOES HEREBY INDEMNIFY AND HOLD LENDER
HARMLESS FOR THE AMOUNT OF ANY PAYMENTS OR PROCEEDS SURRENDERED OR RETURNED.
This Section 6.4 shall remain effective notwithstanding any contrary action
-----------
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
-----------
non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the
---------------------------
Loans based upon telephonic or other instructions received from anyone
purporting to be an officer of Borrower or other authorized person or, at the
discretion of Lender, if such Loans are necessary to satisfy any Obligations.
All requests for Loans hereunder shall specify the date on which the requested
advance is to be made (which day shall be a business day) and the amount of the
requested Loan. Requests received after 11:00 a.m. Dallas, Texas time on any day
shall be deemed to have been made as of the opening of business on the
immediately following business day. All Loans under this Agreement shall be
conclusively presumed to have been made to, and at the request of and for the
benefit of, Borrower when deposited to the credit of Borrower or otherwise
disbursed or established in accordance with the instructions of Borrower or in
accordance with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
---------------
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and
17
(b) costs, expenses and fees in connection with the preparation, negotiation,
execution and delivery of this Agreement and the other Financing Agreements. All
other Loans made by Lender to Borrower pursuant to the provisions hereof shall
be used by Borrower only for general operating, working capital, new Equipment
purchases (with respect to the Capital Expenditures Loans) and other proper
corporate purposes of Borrower not otherwise prohibited by the terms hereof.
None of the proceeds will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security or for the purposes of reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
margin security or for any other purpose which might cause any of the Loans to
be considered a "purpose credit" within the meaning of Regulation G of the Board
of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
----------------------------------
7.1 Collateral Reporting. Borrower shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts; (b) on a monthly basis or more
frequently as Lender may request, (i) perpetual inventory reports, (ii)
inventory reports by category and (iii) agings of accounts payable, (c) upon
Lender's request, (i) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower; (d) agings of accounts receivable on a monthly basis or more
frequently as Lender may request; and (e) such other reports as to the
Collateral as Lender shall request from time to time. If any of Borrower's
records or reports of the Collateral are prepared or maintained by an accounting
service, contractor, shipper or other agent, Borrower hereby irrevocably
authorizes such service, contractor, shipper or agent to deliver such records,
reports, and related documents to Lender and to follow Lender's instructions
with respect to further services at any time that an Event of Default exists or
has occurred and is continuing.
7.2 Accounts Covenants.
------------------
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any account debtor
or the assertion of any claims, offsets, defenses or counterclaims by any
account debtor, or any disputes with account debtors, or any settlement,
adjustment or compromise thereof, (ii) all material adverse information relating
to the financial condition of any account debtor and (iii) any event or
circumstance which, to Borrower's knowledge would cause Lender to consider any
then existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Lender's consent, except in the ordinary
course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender. So long as no Event of Default exists
or has occurred and is continuing, Borrower shall settle, adjust or compromise
any claim, offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing, Lender shall,
at its option, have the exclusive right to
18
settle, adjust or compromise any claim, offset, counterclaim or dispute with
account debtors or grant any credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any return of
Inventory by an account debtor having a sales price in excess of $10,000. At any
time that Inventory is returned, reclaimed or repossessed, the related Account
shall not be deemed an Eligible Account. In the event any account debtor returns
Inventory when an Event of Default exists or has occurred and is continuing,
Borrower shall, upon Lender's request, (i) hold the returned Inventory in trust
for Lender, (ii) segregate all returned Inventory from all of its other
property, (iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, and (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence
19
of its agents or attorneys with respect thereto and (iv) take whatever other
action Lender may deem necessary or desirable for the protection of its
interests. At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices and statements sent to any account
debtor shall state that the Accounts and such other obligations have been
assigned to Lender and are payable directly and only to Lender and Borrower
shall deliver to Lender such originals of documents evidencing the sale and
delivery of goods or the performance of services giving rise to any Accounts as
Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
-------------------
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year, but at any time or
times as Lender may request on or after an Event of Default, and promptly
following such physical inventory shall supply Lender with a report in the form
and with such specificity as may be reasonably satisfactory to Lender concerning
such physical count; (c) Borrower shall not remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than once in any twelve (12) month period, but at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender or upon which Lender is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory, with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including, but not limited to, the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto); (f) Borrower assumes all responsibility and liability arising from or
relating to the production, use, sale or other disposition of the Inventory; (g)
Borrower shall not sell Inventory to any customer on approval, or any other
basis which entitles the customer to return or may obligate Borrower to
repurchase such Inventory; (h) Borrower shall keep the Inventory in good and
marketable condition; and (i) Borrower shall not, without prior written notice
to Lender, acquire or accept any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) no less
-------------------
than once per year with respect to any Equipment financed by a Capital
Expenditures Loan and acquired after the most recent appraisal conducted
pursuant to this clause (a), and otherwise, upon Lender's request, Borrower
----------
shall, at its expense, at any time or times as Lender may request on or after an
Event of Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Equipment in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender; (b) Borrower shall keep the
Equipment in good order, repair, running and marketable condition (ordinary wear
and tear excepted); (c) Borrower shall use the Equipment with all reasonable
care and caution and in accordance with applicable standards of any insurance
and in conformity with all applicable laws; (d) the Equipment is and shall be
used in Borrower's
20
business and not for personal, family, household or farming use; (e) Borrower
shall not remove any Equipment from the locations set forth or permitted herein,
except to the extent necessary to have any Equipment repaired or maintained in
the ordinary course of the business of Borrower or to move Equipment directly
from one location set forth or permitted herein to another such location and
except for the movement of motor vehicles used by or for the benefit of Borrower
in the ordinary course of business; (f) the Equipment is now and shall remain
personal property and Borrower shall not permit any of the Equipment to be or
become a part of or affixed to real property; and (g) Borrower assumes all
responsibility and liability arising from the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
-----------------
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or event which with notice or passage
of time or both would constitute an Event of Default exists or has occurred and
is continuing (i) demand payment on Accounts or other proceeds of Inventory or
other Collateral, (ii) enforce payment of Accounts by legal proceedings or
otherwise, (iii) exercise all of Borrower's rights and remedies to collect any
Account or other Collateral, (iv) sell or assign any Account upon such terms,
for such amount and at such time or times as the Lender deems advisable, (v)
settle, adjust, compromise, extend or renew an Account, (vi) discharge and
release any Account, (vii) prepare, file and sign Borrower's name on any proof
of claim in bankruptcy or other similar document against an account debtor,
(viii) notify the post office authorities to change the address for delivery of
Borrower's mail to an address designated by Lender, open all mail addressed to
Borrower, and return (at Borrower's expense) to Borrower any such mail that
Lender determines to be unrelated to the Financing Agreements, Lender's rights
thereunder or Borrower's ability to satisfy the Obligations (and Lender shall
not incur any liability for any failure to do so), and (ix) do all acts and
things which are necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement and the other Financing Agreements and (b) at
any time to (i) take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which Borrower's
mail is deposited, (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Lender's account for application to
the Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. BORROWER HEREBY RELEASES LENDER AND ITS OFFICERS, EMPLOYEES AND
DESIGNEES FROM ANY LIABILITIES ARISING FROM ANY ACT OR ACTS UNDER THIS POWER OF
ATTORNEY AND IN FURTHERANCE THEREOF, WHETHER OF OMISSION OR COMMISSION,
INCLUDING, WITHOUT LIMITATION, AS A RESULT OF LENDER'S OWN NEGLIGENCE, EXCEPT AS
A RESULT OF LENDER'S OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED
PURSUANT TO A FINAL NON-APPEALABLE ORDER OF A COURT OF COMPETENT JURISDICTION.
21
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
-------------
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
------------------
the cost and expense of Borrower, Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours, or at any
time if an Event of Default exists or has occurred and is continuing, for the
purposes of inspecting, verifying and auditing the Collateral and all of
Borrower's books and records, including, without limitation, the Records, and
Borrower shall promptly furnish to Lender such copies of such books and records
or extracts therefrom as Lender may request, and use during normal business
hours such of Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default exists or has
occurred and is continuing for the collection of Accounts and realization of
other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans by Lender to
Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower
------------------------------------------------------
is a corporation duly organized and in good standing under the laws of its state
of incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of
22
Borrower enforceable in accordance with their respective terms. Borrower does
not have any subsidiaries except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
------------------------------------------------
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
--------------------------------------------
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
-----------
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests
--------------------------------------
and liens granted to Lender under this Agreement and the other Financing
Agreements constitute valid and perfected first priority liens and security
interests in and upon the Collateral subject only to the liens indicated on
Schedule 8.4 hereto and the other liens permitted under Section 9.8 hereof.
------------ -----------
Borrower has good and marketable title to all of its properties and assets
subject to no liens, mortgages, pledges, security interests, encumbrances or
charges of any kind, except those granted to Lender and such others as are
specifically listed on Schedule 8.4 hereto or permitted under Section 9.8
------------ -----------
hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a
-----------
timely manner all tax returns, reports and declarations which are required to be
filed by it (without requests for extension except as previously disclosed in
writing to Lender). All information in such tax returns, reports and
declarations is complete and accurate in all material respects. Borrower has
paid or caused to be paid all taxes due and payable or claimed due and payable
in any assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
----------
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened,
23
against Borrower or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, which if adversely determined
against Borrower would result in any material adverse change in the assets,
business or prospects of Borrower or would impair the ability of Borrower to
perform its obligations hereunder or under any of the other Financing Agreements
to which it is a party or of Lender to enforce any Obligations or realize upon
any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is
----------------------------------------------------
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound and Borrower is in compliance in all material respects with all applicable
provisions of laws, rules, regulations, licenses, permits, approvals and orders
of any foreign, Federal, State or local governmental authority.
8.8 Accuracy and Completeness of Information. All information
----------------------------------------
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.9 Survival of Warranties; Cumulative. All representations and
----------------------------------
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
9.1 Maintenance of Existence. Borrower shall at all times preserve,
------------------------
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower providing for the name change certified
by the Secretary of State of the jurisdiction of incorporation of Borrower as
soon as it is available.
24
9.2 New Collateral Locations. Borrower may open any new location
------------------------
within the continental United States provided Borrower gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
executes and delivers, or causes to be executed and delivered, to Lender such
agreements, documents, and instruments as Lender may deem reasonably necessary
or desirable to protect its interests in the Collateral at such location,
including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc. Borrower shall, at all
---------------------------------------
times, comply in all material respects with all laws, rules, regulations,
licenses, permits, approvals and orders of any Federal, State or local
governmental authority applicable to it.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and
---------------------------
discharge all taxes, assessments, contributions and governmental charges upon or
against it or its properties or assets, except for taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower and with respect to which adequate reserves have been
set aside on its books. BORROWER SHALL BE LIABLE FOR ANY TAX OR PENALTIES
IMPOSED ON LENDER AS A RESULT OF THE FINANCING ARRANGEMENTS PROVIDED FOR HEREIN
AND BORROWER AGREES TO INDEMNIFY AND HOLD LENDER HARMLESS WITH RESPECT TO THE
FOREGOING, AND TO REPAY TO LENDER ON DEMAND THE AMOUNT THEREOF, AND UNTIL PAID
BY BORROWER SUCH AMOUNT SHALL BE ADDED AND DEEMED PART OF THE LOANS, provided,
--------
that, nothing contained herein shall be construed to require Borrower to pay any
----
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with
---------
financially sound and reputable insurers insurance with respect to the
Collateral against loss or damage and all other insurance of the kinds and in
the amounts customarily insured against or carried by corporations of
established reputation engaged in the same or similar businesses and similarly
situated. Said policies of insurance shall be satisfactory to Lender as to form,
amount and insurer. Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. All policies shall provide for at
least thirty (30) days prior written notice to Lender of any cancellation or
reduction of coverage and that Lender may act as attorney for Borrower in
obtaining, and at any time an Event of Default exists or has occurred and is
continuing, adjusting, settling, amending and canceling such insurance. Borrower
shall cause Lender to be named as a loss payee and an additional insured (but
without any liability for any premiums) under such insurance policies and
Borrower shall obtain non-contributory lender's loss payable endorsements to all
insurance policies in form and substance satisfactory to Lender. Such lender's
loss payable endorsements shall specify that the proceeds of such insurance
shall be payable to Lender as its interests may appear and further specify that
Lender shall be paid regardless of any act or omission by Borrower or any of its
affiliates. At its option, Lender may apply any insurance proceeds received by
Lender at any time to the cost of repairs or replacement of Collateral and/or to
payment of the Obligations, whether
25
or not then due, in any order and in such manner as Lender may determine or hold
such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
------------------------------------------
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i) within thirty (30) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrower and its subsidiaries as
of the end of and through such fiscal month and (ii) within ninety (90) days
after the end of each fiscal year, audited consolidated financial statements
and, if Borrower has any subsidiaries, audited consolidating financial
statements of Borrower and its subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and for such fiscal
year, together with the opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by Borrower
and reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations or which would result in any material adverse change in Borrower's
business, properties, assets, goodwill or condition, financial or otherwise and
(ii) the occurrence of any Event of Default or event which, with the passage of
time or giving of notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all reports which Borrower
sends to its stockholders generally and copies of all reports and registration
statements which Borrower files with the Securities and Exchange Commission, any
national securities exchange or the National Association of Securities Dealers,
Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
reasonably request. Lender is hereby authorized to deliver a copy of any
financial statement or any other information relating to the business of
Borrower to any court or other government agency or to any participant or
assignee or prospective participant or assignee. Borrower hereby irrevocably
authorizes and directs all accountants or auditors to deliver to Lender, at
Borrower's expense, copies of the financial
26
statements of Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower and to disclose to Lender such
information as they may have regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
--------------------------------------------------------
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it, or (b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person (except for (i) sales of stock
which in the aggregate do not result in the transfer more than 15% of the issued
and outstanding capital stock of Borrower on the date hereof and (ii) original
issuances of stock not otherwise in violation of this Agreement by Borrower with
the proceeds of such issuances being directly owing to Borrower) or any of its
assets to any other Person (except for (i) sales of Inventory in the ordinary
course of business and (ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business of Borrower so long as (A) if an Event
of Default exists or has occurred and is continuing, any proceeds are paid to
Lender and (B) such sales do not involve Equipment having an aggregate fair
market value in excess of $25,000 for all such Equipment disposed of in any
fiscal year of Borrower), or (c) form or acquire any subsidiaries, or (d) wind
up, liquidate or dissolve or (e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer
------------
to exist any security interest, mortgage, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of its assets or properties,
including, without limitation, the Collateral, except: (a) liens and security
------
interests of Lender; (b) liens securing the payment of taxes, either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves have been set aside on its books; (c) non-
consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of Borrower's business to the extent: (i) such
liens secure indebtedness which is not overdue or (ii) such liens secure
indebtedness relating to claims or liabilities which are fully insured and being
defended at the sole cost and expense and at the sole risk of the insurer or
being contested in good faith by appropriate proceedings diligently pursued and
available to Borrower, in each case prior to the commencement of foreclosure or
other similar proceedings and with respect to which adequate reserves have been
set aside on its books; (d) zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property which do not interfere
in any material respect with the use of such real property or ordinary conduct
of the business of Borrower as presently conducted thereon or materially impair
the value of the real property which may be subject thereto; (e) purchase money
security interests in Equipment (including capital leases) and purchase money
mortgages on real estate not to exceed $25,000 in the aggregate at any time
outstanding so long as such security interests and mortgages do not apply to any
property of Borrower other than the Equipment or real estate so acquired, and
the indebtedness secured thereby does not exceed the cost of the Equipment or
real estate so acquired, as the case may be; and (f) the security interests and
liens set forth on Schedule 8.4 hereto.
------------
27
9.9 Indebtedness. Borrower shall not incur, create, assume, become or
------------
be liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except (a) the Obligations; (b) trade obligations and normal
accruals in the ordinary course of business not yet due and payable, or with
respect to which the Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower,
and with respect to which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the extent not
incurred or secured by liens (including capital leases) in violation of any
other provision of this Agreement; (d) indebtedness evidenced by the Xxxxxx
Note, (e) the obligations under the Management Agreement and the Consulting
Agreement, and (f) the WebWorks Indebtedness; provided, that, (i) with respect
-------- ----
to clauses (a) through (c) above, Borrower may only make regularly scheduled
----------- ---
payments of principal and interest in respect of such indebtedness in accordance
with the terms of the agreement or instrument evidencing or giving rise to such
indebtedness as in effect on the date hereof, (ii) with respect to clause (d)
----------
above, Borrower may only make regularly scheduled payments of principal and
interest in respect of such indebtedness in accordance with the terms of the
Xxxxxx Note, but only for so long as (A) no Event of Default, or event or
condition which, with the passage of time, the giving of notice or both, would
constitute an Event of Default, has occurred or would occur as a result of any
such payment, and (B) after giving effect to such payment, Excess Availability
is greater than or equal to $300,000, (iii) with respect to clauses (e) and (f)
----------- ---
above, Borrower may only make payments of principal and interest in respect of
such indebtedness to the extent that such payments are permitted to be demanded
and accepted pursuant to the terms and provisions of the applicable
Subordination Agreement, but only for so long, as (A) no Event of Default, or
event or condition which, with the passage of time, the giving of notice, or
both, would constitute an Event of Default, has occurred or would occur as a
result of any such payment and (B) the amount of Revolving Loans available to
Borrower as of such time based on the applicable lending formulas multiplied by
the Net Amount of Eligible Accounts and the Value of Eligible Inventory, as
determined by Lender, and subject to the sublimits and Availability Reserves
from time to time established by Lender hereunder, is sufficient, (iv) Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of such indebtedness or any agreement, document or instrument related thereto as
in effect on the date hereof, or (B) redeem, retire, defease, purchase or
otherwise acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, and (v) Borrower shall furnish to Lender all notices
or demands in connection with such indebtedness either received by Borrower or
on its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
------------------------------------
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the stock or indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except: (a) the endorsement of instruments for collection or deposit in the
------
ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of the
Borrower or to bearer and delivered to
28
Lender, and (iii) commercial paper rated A1 or P1; provided, that, as to any of
-------- ----
the foregoing, unless waived in writing by Lender, Borrower shall take such
actions as are deemed necessary by Lender to perfect the security interest of
Lender in such investments and (c) the guarantees set forth in the Information
Certificate.
9.11 Dividends and Redemptions. Borrower shall not, directly or
-------------------------
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not enter into any
----------------------------
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person, provided,
--------
however, that Borrower may make payments to Xxxxxx/Xxxxxxx Merchant Banking
-------
Group, Ltd. under the Management Agreement not to exceed $125,000.00 per year
and payments to Xxxxxx X. Xxxxxxx under the Consulting Agreement not to exceed
$30,000.00 per year, except to the extent such payments are not permitted by the
applicable Subordination Agreement or Section 9.9 hereof.
-----------
9.13 Adjusted Net Worth. Borrower shall, at all times, maintain
------------------
Adjusted Net Worth of not less than (i) $1,200,000 (such amount to exclude the
aggregate amount of any cash and non-cash accounting adjustments made in
connection with Borrower's refinancing of its indebtedness with Bank One, Texas,
N.A., Banc One Leasing Corporation, Banc One Texas Leasing Corporation and
Stratford Capital Group, Inc.) during the period from the date hereof through
and including March 31, 1997, and (ii) thereafter, $1,100,000.
9.14 Costs and Expenses. Borrower shall pay to Lender on demand all
------------------
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all costs and expenses of filing or recording (including Uniform Commercial Code
financing statement filing taxes and fees, documentary taxes, intangibles taxes
and mortgage recording taxes and fees, if applicable); (b) all title insurance
and other insurance premiums, appraisal fees and search fees; (c) costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Lockbox Accounts, together with
Lender's customary charges and fees with respect thereto; (d) costs and expenses
of preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations,
29
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including, without limitation, preparations for and consultations
concerning any such matters); (f) all out-of-pocket expenses and costs
heretofore and from time to time hereafter incurred by Lender during the course
of periodic field examinations of the Collateral and Borrower's operations, plus
a per diem charge at the rate of $600 per person per day for Lender's examiners
in the field and office; and (g) the fees and disbursements of counsel
(including legal assistants) to Lender in connection with any of the foregoing.
9.15 Further Assurances. At the request of Lender at any time and from
------------------
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans
contained herein are satisfied. In the event of such request by Lender, Lender
may, at its option, cease to make any further Loans until Lender has received
such certificate and, in addition, Lender has determined that such conditions
are satisfied. Where permitted by law, Borrower hereby authorizes Lender to
execute and file one or more UCC financing statements signed only by Lender.
9.16 Modifications of Other Agreements. Borrower will not agree to any
---------------------------------
modification, amendment or waiver of any of the terms or provisions of documents
evidencing the WebWorks Indebtedness, the Xxxxxx Note, the Management Agreement
or the Consulting Agreement without Lender's prior written consent.
9.17 Environmental Action. Borrower will keep and maintain all of its
--------------------
owned and leased real property in all material respects in compliance with, and
shall not cause or permit such real property to be in any material respect in
violation of, any federal, state, county or local statutes, laws, regulations,
rules, ordinances, codes, standards, orders, licenses and permits of any
governmental authorities relating to environmental matters.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
10.1 Events of Default. The occurrence or existence of any one or
-----------------
more of the following events are referred to herein individually as an "Event of
--------
Default", and collectively as "Events of Default":
------- -----------------
(a) Borrower (i) fails to deliver the information required by
Section 9.6(a) within fifteen (15) days after the due date thereof, or (ii)
--------------
fails to pay when due any of the Obligations or fails to perform any of the
terms, covenants, conditions or provisions contained in
30
this Agreement (including, without limitation, the other covenants in Section
9.6(a)) or any of the other Financing Agreements;
-------
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $50,000 in any one case or in excess of
$100,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any
31
guarantee, letter of credit, indemnity or similar type of instrument in favor of
any person other than Lender, in any case in an amount in excess of $50,000,
which default continues for more than the applicable cure period, if any, with
respect thereto, or any default by Borrower or any Obligor under any material
contract, lease, license or other obligation to any person other than Lender,
which default continues for more than the applicable cure period, if any, with
respect thereto;
(j) any change in the controlling ownership of Borrower;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be a material adverse change in the business,
assets or prospects of Borrower or any Obligor after the date hereof;
(m) there shall be an event of default under any of the other
Financing Agreements;
(n) there shall be any termination or non-renewal of the printing
contract between Borrower and The Dallas Morning News;
(o) Borrower shall fail to have substantively commenced the
analytical and corrective actions suggested by Xxxxxxx/Xxxxxxxxx Associates,
Inc. in the Phase I Environmental Site Assessment dated December 12, 1996, not
later than February 28, 1997; or
(p) an event of default under the documents evidencing the
WebWorks Indebtedness, the Xxxxxx Note, the Management Agreement or the
Consulting Agreement.
10.2 Remedies.
--------
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly
32
against Borrower or any Obligor to collect the Obligations without prior
recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
-------- ----
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
---------------- -------
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or reduce the lending formulas or amounts of Revolving Loans
available to Borrower and/or (ii) terminate any provision of this Agreement
providing for any future Loans to be made by Lender to Borrower and/or (iii)
terminate this Agreement.
33
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
------------------------------------------------------------
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
--------------------------------------------------------------
Waiver.
------
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Texas (without
giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the State of Texas and the United States District
Court for the Northern District of Texas and waive any objection based on venue
or forum non conveniens with respect to any action instituted therein arising
----- --- ----------
under this Agreement or any of the other Financing Agreements or in any way
connected with or related or incidental to the dealings of the parties hereto in
respect of this Agreement or any of the other Financing Agreements or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard only in the
courts described above (except that Lender shall have the right to bring any
action or proceeding against Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against Borrower or its
property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF
THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN
34
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and non-
appealable judgment or court order binding on Lender, that the losses were the
result of acts or omissions constituting gross negligence or willful misconduct.
In any such litigation, Lender shall be entitled to the benefit of the
rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
-----------------
presentment, notice of intent to accelerate, notice of acceleration, protest and
notice of protest and notice of dishonor with respect to any and all instruments
and commercial paper, included in or evidencing any of the Obligations or the
Collateral, and any and all other demands and notices of any kind or nature
whatsoever with respect to the Obligations, the Collateral and this Agreement,
except such as are expressly provided for herein. No notice to or demand on
Borrower which Lender may elect to give shall entitle Borrower to any other or
further notice or demand in the same, similar or other circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
----------------------
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically
set forth therein. A waiver by Lender of any right, power and/or remedy on any
one occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
-----------------------
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 INDEMNIFICATION. BORROWER SHALL INDEMNIFY AND HOLD LENDER, AND
---------------
ITS DIRECTORS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS FROM AND AGAINST ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS OR EXPENSES IMPOSED ON, INCURRED
BY OR ASSERTED AGAINST ANY OF THEM IN CONNECTION WITH ANY LITIGATION,
INVESTIGATION, CLAIM OR PROCEEDING COMMENCED OR THREATENED RELATED TO THE
NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT, PERFORMANCE OR
ADMINISTRATION OF THIS AGREEMENT,
35
ANY OTHER FINANCING AGREEMENTS, OR ANY UNDERTAKING OR PROCEEDING RELATED TO ANY
OF THE TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION, EVENT OR
TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING, WITHOUT LIMITATION, ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, COSTS OR EXPENSES, CAUSED BY THE
LENDER AND LENDER'S DIRECTORS' AGENTS, EMPLOYEES AND COUNSEL, AND FURTHER
INCLUDING, WITHOUT LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE
FEES AND EXPENSES OF COUNSEL. TO THE EXTENT THAT THE UNDERTAKING TO INDEMNIFY,
PAY AND HOLD HARMLESS SET FORTH IN THIS SECTION MAY BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, BORROWER SHALL PAY THE MAXIMUM PORTION WHICH
IT IS PERMITTED TO PAY UNDER APPLICABLE LAW TO LENDER IN SATISFACTION OF
INDEMNIFIED MATTERS UNDER THIS SECTION. THE FOREGOING INDEMNITY SHALL SURVIVE
THE PAYMENT OF THE OBLIGATIONS AND THE TERMINATION OR NON-RENEWAL OF THIS
AGREEMENT.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
--------------------------------
12.1 Term.
----
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date two (2) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
------------
unless sooner terminated pursuant to the terms hereof; provided, that, Lender
-------- ----
may, at its option, extend the Renewal Date to the date three (3) years from the
date hereof by giving Borrower notice at least sixty (60) days prior to the
second anniversary of this Agreement. Lender or Borrower (subject to Lender's
right to extend the Renewal Date as provided above) may terminate this Agreement
and the other Financing Agreements effective on the Renewal Date or on the
anniversary of the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
-------- ----
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such amounts as Lender determines
are reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, including checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such cash collateral shall be remitted by wire transfer in
Federal funds to such bank account of Lender, as Lender may, in its discretion,
designate in writing to Borrower for such purpose. Interest shall be due until
and including the next business day, if the amounts so paid by Borrower to the
bank account designated by Lender are received in such bank account later than
12:00 noon, Dallas, Texas time.
36
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(i) 3% of Maximum Credit First twelve month period following the date of
this Agreement
(ii) 2% of Maximum Credit Second twelve month period following the date of
this Agreement
(iii) 1% of Maximum Credit Any period after the second anniversary of the
date of this Agreement
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be deemed included in
------------
the Obligations.
Notwithstanding the foregoing or any provision of this Agreement,
Borrower may prepay the Term Loan B in full at any time prior to the termination
of this Agreement and no fee or premium shall result therefrom.
12.2 Notices. All notices, requests and demands hereunder shall be in
-------
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
37
12.3 Partial Invalidity. If any provision of this Agreement is held
------------------
to be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and
----------
any other document referred to herein or therein shall be binding upon and inure
to the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans or any other interest
herein to another financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation.
12.5 Entire Agreement. This Agreement, the other Financing
----------------
Agreements, any supplements hereto or thereto, and any instruments or documents
delivered or to be delivered in connection herewith or therewith represents the
entire agreement and understanding concerning the subject matter hereof and
thereof between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
12.6 Nonapplicability of Article 5069-15.01 et seq. Borrower and
----------------------------------------------
Lender hereby agree that, except for Section 15.10(b) thereof, the provisions of
Tex. Rev. Civ. Stat. Xxx. art. 5069-15.01 et seq. (Xxxxxx 1987) (regulating
-- ---
certain revolving credit loans and revolving tri-party accounts) shall not apply
to this Agreement or any of the other Financing Agreements.
12.7 DTPA WAIVER. BORROWER HEREBY WAIVES ALL PROVISIONS OF THE
-----------
DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE XXX.
(S)17.01 ET SEQ. (XXXXXX SUPP. 1987)), OTHER THAN SECTION 17.555 THEREOF
-- ---
PERTAINING TO CONTRIBUTION AND INDEMNITY, AND EXPRESSLY WARRANTS AND REPRESENTS
THAT BORROWER (A) HAS ASSETS OF $5,000,000 OR MORE, (B) HAS KNOWLEDGE AND
EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE BORROWER TO EVALUATE
THE MERITS AND RISKS OF THIS TRANSACTION, (C) IS NOT IN A SIGNIFICANTLY
DISPARATE BARGAINING POSITION RELATIVE TO LENDER, AND (D) HAS BEEN REPRESENTED
BY LEGAL COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
38
12.8 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER
---------------------------
FINANCING AGREEMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE
SAME MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
39
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
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CONGRESS FINANCIAL CORPORATION NEI WEBWORLD, INC.
(SOUTHWEST)
By:______________________________ By: _________________________________
Name:____________________________ Name:________________________________
Title:___________________________ Title: ______________________________
Address: Chief Executive Office:
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0000 Xxxx Xxxxxx, Xxxxx 0000 0000 Xxxxxx Xxx
Xxxxxx, Xxxxx 00000 Xxxxxx, Xxxxx 00000
40
EXHIBIT A
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INFORMATION CERTIFICATE
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[SEE ATTACHED]
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1
EXHIBIT B
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XXXXXX NOTE
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[SEE ATTACHED]
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1
EXHIBIT C
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MANAGEMENT AGREEMENT
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[SEE ATTACHED]
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1
EXHIBIT D
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CONSULTING AGREEMENT
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[SEE ATTACHED]
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1
EXHIBIT E
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WEBWORKS NOTE
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[SEE ATTACHED]
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1
SCHEDULE 8.4
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EXISTING LIENS
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1
