EXHIBIT 10.51
Loan Agreement
This is an agreement dated as of May 30, 2003 between Viisage Technology,
Inc., a Delaware corporation ("Borrower"), and Xxx Acquisition Corp., a
Massachusetts corporation ("Lender").
1. Circumstances of the agreement. Borrower and Lender enter into this
agreement in the following circumstances.
A. Borrower is in the business of developing and implementing
digital identification systems and biometric identification technology. Among
Borrower's customers are (1) state governments and state government agencies
which use Borrower's systems to produce drivers' licenses and other
identification cards, (2) third parties which enter into contracts with state
governments or state government agencies and then engage Borrower by subcontract
to provide identification systems, and (3) third parties which engage Borrower
to provide identification systems in commercial applications.
B. Borrower and Key Equipment Finance, a division of Key Corporate
Capital, Inc. ("KEF"), entered into a Master Equipment Lease Agreement dated
July 13, 2001, as amended on that date and on October 21, 2002 ("KEF Agreement")
pursuant to which KEF agreed to provide financing for the Wisconsin Contract (as
defined below) and the Arkansas Contract (as defined below).
C. Borrower and the State of Arkansas Department of Finance
("Arkansas") entered into a contract designated as Contract No. ST-98-1374,
dated September 1, 1998 ("Arkansas Contract"), which obliged Borrower to furnish
a digital imaging system to be used to produce drivers' licenses ("Arkansas
System"). KEF financed Borrower's performance under the Arkansas Contract
through the KEF Agreement.
D. Borrower and the Department of Transportation of the State of
Wisconsin ("Wisconsin") awarded Borrower the Color Digitized Driver's License &
ID Card Production System Agreement dated February 25, 1997, as most recently
amended by a Second Amendment to Agreement dated November 22, 2000 ("Wisconsin
Contract"), which obliged Borrower to furnish a digital imaging system to be
used to produce drivers' licenses ("Wisconsin System"). KEF financed Borrower's
performance under the Wisconsin Contract through the KEF Agreement.
E. Borrower desires to repay in full the outstanding obligations
owing to KEF under the KEF Agreement with the financing provided by this
agreement.
F. Borrower has also been awarded the following contracts under
which Borrower will furnish a digital imaging system to be used to produce
drivers' licenses ("Other Contracts"):
State/Agency Contract Date/Number System Term
Georgia Dept. of Motor Vehicle Digitized License System Driver's licenses, etc. Two years with
Safety ("Georgia") Contract dated November 12, ("Georgia System") five one year
2002 options
("Georgia Contract")
Oklahoma Dept. of Central Services Purchase Order #BP22488 Driver's licenses Two years with
("Oklahoma") dated November 7, 2002 ("Oklahoma System") four one year
("Oklahoma Contract") options
G. Borrower has requested that Lender provide financing for the
Other Contracts, the Arkansas Contract and the Wisconsin Contract (collectively,
the "Contracts") up to the following amounts (provided that at no time shall the
aggregate amounts outstanding under the Loans exceed $7,000,000) or such lesser
amounts that represent the outstanding balance of all advances (the "Loans"):
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Contract Loan Amount
Georgia Contract $3,000,000.00 ("Georgia Loan")
Arkansas Contract $1,562,307.92 ("Arkansas Loan")
Oklahoma Contract $2,500,000.00 ("Oklahoma Loan")
Wisconsin Contract $ 287,431.31 ("Wisconsin Loan")
H. Lender has approved Borrower's loan requests as of the date
hereof on the terms and conditions set forth in this agreement and in the other
documents signed on this date. Among those conditions is the termination of the
KEF Agreement and the repayment in full of all of the outstanding obligations
owing to KEF.
I. As a matter of administrative convenience the parties wish to set
forth in a single loan agreement their understandings concerning the Loans. That
is the purpose of this agreement.
J. For good and valuable consideration, the receipt and adequacy of
which each party acknowledges, Borrower and Lender agree as follows.
2. Intentionally Left Blank.
3. Intentionally Left Blank.
4. Certain definitions. The following defined terms are used in this
agreement.
A. "Loan Documents" means this agreement and all other instruments,
agreements, and documents signed and delivered to Lender by any person who
purports to be an officer of Borrower, regardless of whether the same are signed
and delivered before, upon, on or after the date of this agreement, in
connection with any aspect of the transactions contemplated by this agreement,
including without implied limitation all promissory notes, security agreements,
account control agreements, and collateral assignments, together with all
amendments, restatements, modifications, replacements, renewals, supplements,
and
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substitutions. A list of the Loan Documents as of the date of this agreement is
attached to this agreement as Exhibit B.
B. "Related Documents" means all agreements and other documents
signed and delivered to Lender between or among any third party and Lender
and/or Borrower, regardless of whether such agreements and other documents are
signed and delivered before, upon, or after the date of this agreement, in
connection with any aspect of the transactions contemplated by this agreement,
together with all amendments, restatements, modifications, replacements,
renewals, supplements, and substitutions. A list of the Related Documents as of
the date of this agreement is attached to this agreement as Exhibit C.
C. "Obligations" means all monetary and non-monetary obligations,
whether of payment, performance, observance, or otherwise, owed to Lender by
Borrower in connection with the transactions contemplated (i) by this agreement,
(ii) by the other Loan Documents, and/or (iii) by the Related Documents,
regardless of whether such obligations are now existing or hereafter arising
liquidated or unliquidated, due or to become due, matured or unmatured,
contingent or absolute, or joint, several, or joint and several.
D. Definitions of the following terms are stated elsewhere in this
agreement:
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Term Section
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Account Control Agreement 7B
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Acquisition 10B
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Additional Advances 5A
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Arkansas, Arkansas Contract, Arkansas System 1C
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Arkansas Loan 1G
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Breach Date 19
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Code 21M
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Collateral 14A
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Commerce 14A
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Commerce Agreement 14A
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Common Stock 23T
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Contract Payments 7B
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Contracts 1G
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Term Section
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Cure Period 19
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Customer 13
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Deposit Account 7B
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ERISA 21M
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Event of Default 24
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FBC 14A
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FBC Agreement 14A
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Fiscal Monthly Close 21A
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GAAP 20B
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Georgia, Georgia Contract, Georgia System 1F
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Georgia Loan 1G
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Identification Division 17
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Initial Business Information 22H
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Intercreditor Agreement 14B
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Invest 10A
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IP Security Agreement 24.1
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IRS 23J
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KEF 1B
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KEF Agreement 1B
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Loans 1L
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Modification 13A
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New Collateral 13C
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New Customer Contract 13A
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Nondisclosure Agreement 27P
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Notes 5A
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Oklahoma, Oklahoma Contract, Oklahoma System 1F
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Oklahoma Loan 1G
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Other Contracts 1F
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Overadvance 8
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PBGC 23J
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Pension Plan, Pension Plans 21M
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Plan, Plans 21M
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Principal Agreements 22A
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Revolver 1B
-------------------------------------------------------------
Security Agreement 14A
-------------------------------------------------------------
State Contract Payments 7B
-------------------------------------------------------------
Third-Party Loans 24
-------------------------------------------------------------
Voidable Transfer 27Q
-------------------------------------------------------------
Wisconsin, Wisconsin Contract, Wisconsin System 1D
-------------------------------------------------------------
Wisconsin Loan 1G
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5. Loans. Subject to the fulfillment, to the satisfaction of the Lender,
of each of the conditions precedent set forth on Exhibit A hereto, the terms and
conditions of this Section 5, and to the other terms and conditions of this
agreement and the other Loan Documents, Lender agrees to lend Borrower up to the
sums of money set forth below (provided that at no time shall the aggregate
amounts outstanding under the Loans exceed $7,000,000):
Loan Name Loan Amount
Georgia Loan $3,000,000.00
Arkansas Loan $1,562,307.92
Oklahoma Loan $2,500,000.00
Wisconsin Loan $ 287,431.31
The obligation of the Lender to continue to extend credit hereunder is
subject to the fulfillment, on or before the date applicable thereto, of each of
the conditions subsequent set forth on Exhibit A hereto. The failure by Borrower
to so perform or cause to be performed such conditions subsequent on or before
the applicable dates shall constitute an Event of Default hereunder.
A. Borrower's indebtedness for the Loans shall be evidenced by
Borrower's promissory notes in the respective face amounts of $3,000,000.00,
$1,562,307.92, $2,500,000.00 and $287,431.31, all dated the date of this
agreement ("Notes"). After the date hereof, the Borrower may request additional
advances ("Additional Advances") as part of each of the Loans which will be
funded at the discretion of the Lender; provided however, in no event will
Additional Advances be funded (i) as long as the aggregate principal and
interest outstanding under the Loans is greater than $7,000,000, or would be
greater than $7,000,000 as a result of making the Additional Advances, (ii) if
the representations and warranties contained in this agreement and the other
Loan Documents are not true and correct in all material respects on and as of
the date of such Additional Advances, as though made on and as of such date
(except to the
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extent that such representations and warranties relate solely to an earlier
date), (iii) if an Event of Default shall have occurred and be continuing on the
date of such Additional Advances, or shall result from the making thereof, or
(iv) if an injunction, writ, restraining order, or other order of any nature
prohibiting, directly or indirectly, the Additional Advances shall have been
issued and remain in force by any governmental agency or authority against
Borrower or Lender. All Additional Advances shall constitute a portion of the
Loans and the Notes for all purposes under this agreement and the Loan
Documents.
B. The proceeds of the Loans shall be used only for the purposes and
in the amounts set forth in Section 6 of this agreement. No material deviations
from such purposes and amounts shall be made without Lender's prior express
written consent.
C. Lender and Borrower intend all of the Loans and all of the Loan
Documents to constitute secured transactions governed by Article 9 of the
Massachusetts Uniform Commercial Code. Without limiting the generality of the
preceding sentence, the parties do not intend the Loans and the Loan Documents
to constitute leases (or finance leases) governed by Article 2A of such Code.
6. Use of the proceeds of the Loans.
A. Borrower shall use the proceeds of each of the Loans only to (i)
repay in full the outstanding obligations owing to KEF under the KEF Agreement,
(ii) finance the development, fabrication, and installation of the Georgia
System and the Oklahoma System and (iii) pay all fees and expenses relating to
the closing of the transactions contemplated by this agreement. Borrower
warrants and represents to Lender that it will use (1) not more than
$3,000,000.00 and $2,500,000 of such proceeds for materials and equipment needed
to fabricate respectively the Georgia System and the Oklahoma System, and (2)
not more than $1,850,000 to
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repay in full the outstanding principal, accrued interest, and accrued fees and
expenses owing to KEF under the KEF Agreement.
B. From time to time at Lender's written request Borrower shall
furnish Lender with written reports concerning all aspects of the performance of
the Contracts, such reports to be (1) delivered to Lender within ten days after
Lender's written request, (2) in such detail as Lender reasonably requests, (3)
signed by a senior officer of Borrower, and (4) accompanied by copies of such
documents as Lender reasonably requests. From time to time at Lender's request,
Borrower also shall arrange for meetings between representatives of Lender and
those of Borrower's senior employees who then are most knowledgeable concerning
the performance of the Contracts.
7. Special provisions concerning all of the Contracts.
A. Borrower warrants and represents to Lender (1) that the copies of
the Contracts attached to this agreement as collective Exhibit E are true and
complete and (2) that the Contracts (a) have not been modified or supplemented,
except as disclosed in Exhibit E, (b) state the entire agreement of the parties,
and (c) are in full force and effect. Borrower further warrants and represents
to Lender (1) that Borrower has (and at all times will have) the personnel and
the technical knowledge necessary for Borrower to perform all of its duties
under the Contracts, and (2) that with respect to the Contracts, Borrower
neither has made any misstatement of material fact nor has failed to disclose
any material fact the omission of which would make any statement materially
misleading. Borrower covenants and agrees with Lender (1) that without Lender's
prior express written consent, which shall not be unreasonably withheld or
delayed, Borrower will not consent to any material modification,
supplementation, or termination of any of the Contracts, (2) that Borrower will
deliver promptly to Lender a copy of
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every notice of a material nature concerning the Contracts, (3) that Borrower
immediately will notify Lender in writing of any circumstance or occurrence
which arguably constitutes a material default by either party to any of the
Contracts, and (4) that in case of any default by Borrower on any of the
Contracts, Borrower shall cure the default promptly and shall take any and all
other actions necessary to prevent termination of such contract.
B. Payments on Contracts. Borrower acknowledges and agrees that one
important condition of Lender's willingness to make the Loans is the protection
of Lender's senior security interest in, and control of, all payments to be made
to Borrower pursuant to the Contracts ("State Contract Payments"). Borrower
covenants and agrees with Lender that (i) Borrower shall arrange with each party
to the Contracts, in a manner satisfactory to Lender, for all State Contract
Payments to be sent directly to the deposit account ("Deposit Account")
previously established pursuant to a certain Account Control and Servicing
Agreement of even date between Lender, Commerce Bank & Trust Company and
Borrower ("Account Control Agreement"), (ii) Lender in its sole discretion may
apply to the Obligations any and all funds in the Deposit Account, and (iii)
Borrower shall maintain at least $120,000 in cash in the Deposit Account at all
times during the term of this Agreement.
8. Payments and Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Lender pursuant to this agreement and
the other Loan Documents is greater than $7,000,000 (an "Overadvance"), Borrower
immediately shall pay to Lender, upon the earlier of its knowledge of the
Overadvance or written notice from Lender, in cash, the amount of such excess,
which amount shall be used by Lender to reduce the Obligations in its
discretion. In addition, Borrower hereby promises to pay to the Lender the
Obligations owed by Borrower to Lender pursuant to this agreement and the other
Loan
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Documents in full as and when due and payable under the terms of this agreement
and the other Loan Documents.
9. Prohibition regarding dividends and distributions. Borrower covenants
and agrees with Lender that it will neither (1) pay any cash dividends to any of
its stockholders nor (2) make any other cash distribution to any of its
stockholders other than in the ordinary course of business.
10. Prohibition regarding loans, investments, and acquisitions.
A. Borrower covenants and agrees with Lender that except as provided
in the next sentence Borrower will not Invest (as defined below) in any business
organization. With Lender's prior express written consent, which shall not be
unreasonably withheld or delayed (and as long as the Commerce Agreement is in
effect shall mirror the determination of Commerce), Borrower may Invest a total
of $250,000 per fiscal year in joint ventures in which Borrower is a joint
venturer. In this Section 10, "Invest" means (i) to lend money, (ii) to guaranty
another's obligations, (iii) to purchase securities, or (iv) to acquire or agree
to acquire any equity interest.
B. Acquisitions. Without Lender's prior express written consent,
which shall not be unreasonably withheld or delayed (and as long as the Commerce
Agreement is in effect shall mirror the determination of Commerce), Borrower
shall not make any Acquisition. "Acquisition" means the purchase or other
acquisition of all or substantially all the assets of (1) any business
organization or (2) any separate division or unit of any business organization.
10.1 Subordinated debt. Borrower shall make no payments of principal on
any debt that is subordinated to all or any part of the Obligations, and at any
time when any Event of Default is outstanding Borrower shall make no payments of
interest on any such subordinated debt.
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11. Restriction on redemption of stock. Borrower covenants and agrees
with Lender that except as provided in the next sentence it will not repurchase,
redeem, or otherwise acquire (1) any shares of its common stock, whenever
issued, or (2) any shares of its preferred stock issued after June 15, 2000.
Pursuant to its profit-sharing plan Borrower may purchase not more than $200,000
per fiscal year of its common stock on the open market in the names of (or for
the benefit of) its profit-sharing plan participants. Borrower further covenants
and agrees that it will not repurchase, redeem, or otherwise acquire any shares
of its preferred stock which were issued and outstanding on June 15, 2000 at any
time when (1) an Event of Default is outstanding or when (2) there exists a
circumstance or occurrence which with the passing of time or the giving of
notice (or both) would constitute an Event of Default.
12. Intentionally left blank.
13. Assurances concerning future customer contracts and other assets.
Lender and Borrower wish to provide for the possibility that after the date of
this agreement Borrower may (i) enter into new contracts to provide goods and/or
services to customers ("Customers") and/or (ii) acquire certain new property
rights.
A. Except as provided in the next two sentences, Borrower shall not
without Lender's prior express written consent (1) enter into any new contract
with a Customer ("New Customer Contract") or (2) renew, modify, or supplement
any existing Contract with a Customer ("Modification"), if it is reasonably
likely that in the performance thereof Borrower would need to incur any
indebtedness for borrowed money. Borrower may enter into any New Customer
Contract without Lender's prior express written consent (1) if it is not
reasonably likely that in the performance of such contract Borrower will need to
incur any indebtedness for borrowed money or (2) if the total of all such
borrowings likely to be made in any one fiscal year on all
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New Customer Contracts does not exceed One Million Dollars ($1,000,000).
Borrower may enter into any Modification without Lender's prior express written
consent (i) if it is not reasonably likely that in the performance of such
Modification Borrower will need to incur any indebtedness for borrowed money or
(ii) if the total of all such indebtedness likely to be incurred in any fiscal
year on all Modifications does not exceed Seven Hundred Fifty Thousand Dollars
($750,000). Whenever Lender's consent is required under the provisions of this
Section 13A, Lender shall notify Borrower of Lender's decision within a
reasonable time. By giving any consent under this Section 13A, Lender shall be
deemed to have (i) consented to Borrower's financing of the New Customer
Contract or Modification through a third party ("Financing Organization") and
(ii) agreed to subordinate its security interest, if any, to a security interest
of the Financing Organization in the New Customer Contract or Modification,
provided that the Financing Organization enters into an intercreditor agreement
on substantially the same terms as are included in the current Intercreditor
Agreement (identified in Section 14 below).
B. Borrower agrees (1) to notify Lender at least fifteen days
before entering into any New Customer Contract (other than routine modifications
and routine change orders made in the ordinary course of business), (2) to
provide Lender with such documents and information as Lender reasonably requests
relating to the New Customer Contract, and (3) within thirty days after signing
the New Customer Contract, unless the New Customer Contract is financed by a
third party in accordance with all applicable provisions of this agreement and
the other Loan Documents and the Related Documents, (a) to obtain from the other
party to the New Customer Contract and to deliver to Lender a written consent
and acknowledgment of Lender's security interest and (b) to deliver to Lender
such documents as Lender decides advisable to perfect its security interest in
the New Customer Contract.
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C. Borrower shall (1) notify Lender within five days after
acquiring any property rights as to which Lender possesses a security interest
and such security interest arguably is not perfected by the financing statements
and other documents then in existence ("New Collateral"), (2) sign and deliver
to Lender within five days after Lender's request such documents as Lender
decides advisable to ensure the perfection of its security interest, if any, in
the New Collateral, and (3) reimburse Lender within five days for such
reasonable legal fees and expenses as Lender may incur in connection with the
matters covered by this Section 13C. Nothing in this Section 13C shall be
construed in derogation of Lender's rights under any other provision of this
agreement, the other Loan Documents, or the Related Documents.
14. Intercreditor Matters.
A. Borrower previously has obtained financing for specific
contracts (a) from KEF pursuant to the KEF Agreement, (b) from Fleet Business
Credit, LLC ("FBC") pursuant to a Purchase Agreement dated September 12, 1996
between Borrower and FBC's predecessor, as amended December 9, 1997, November
20, 1998 (twice), April 26, 1999, June 15, 2000, September 30, 2002, February 7,
2003 and as may be amended from time to time in accordance with the terms hereof
("FBC Agreement"), and (c) from Commerce Bank & Trust Company ("Commerce")
pursuant to a Second Amended and Restated Loan Agreement dated December 12,
2002, as amended of even date herewith and as may be amended from time to time
in accordance with the terms hereof, between Borrower and Commerce ("Commerce
Agreement"). Borrower covenants and agrees with Lender not to amend, modify, or
otherwise change the terms and conditions of the FBC Agreement or the Commerce
Agreement in any way that is reasonably likely to have a materially adverse
effect upon the value of Lender's security interest in the Collateral (as
defined in the Security Agreement ("Security Agreement") dated as of the date
hereof between the Lender and Borrower). Without limiting the generality of the
preceding sentence, Borrower shall not modify
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the FBC Agreement or the Commerce Agreement so as to reduce or diminish the
value of those rights of Borrower that are described in the Intercreditor
Agreement as "Lease Residual Rights". Borrower (1) shall notify Lender in
writing before signing any amendment, modification, or other document that
materially affects the FBC Agreement or the Commerce Agreement, including any
amendment or modification to Section 18 of the Commerce Agreement, (2) shall
notify Lender in writing before signing any new agreement with FBC or Commerce,
and (3) within five business days after such signing shall deliver to Lender a
copy of all such instruments and all related documents.
B. From time to time both FBC and Commerce may hold a security
interest in certain of Borrower's assets and/or may purchase certain of
Borrower's assets, as described in a certain Intercreditor Agreement dated as of
May 30, 2003, among Lender, Commerce, and FBC ("Intercreditor Agreement"). Any
material violation of Lender's rights under the Intercreditor Agreement by FBC
or Commerce shall constitute an Event of Default under this agreement. Borrower
covenants and agrees to notify Lender in writing immediately of any circumstance
or occurrence that constitutes such a violation.
15. Intentionally left blank.
16. Intentionally left blank.
17. Scope of "Identification Division". Borrower's business is divided
into two business units, one of which is known as the "Identification Division."
For purposes of Sections 18 and 19 of this agreement, the term "Identification
Division" means the segment of Borrower's business that contracts to develop and
implement digital identification systems that produce identification cards that
are virtually tamper proof and utilize facial recognition and other
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biometrics with or without cards for the real-time identification (one-to-many)
and verification (one-to-one) of individuals.
18. Financial covenants. Borrower covenants and agrees with Lender that
the financial covenants and all supporting exhibits and definitions found in
Section 18 of the Commerce Agreement, as amended or amended and restated from
time to time, are incorporated herein by this reference as if fully set forth
herein. When provisions in the Commerce Agreement are incorporated by reference
herein, the terms therein shall have the meaning ascribed to them in the
Commerce Agreement unless, when such provisions are read as part of this
agreement, the context otherwise requires, or unless such terms are otherwise
defined in this Agreement. Notwithstanding the termination of the Commerce
Agreement, the terms hereof incorporated by reference from the Commerce
Agreement shall remain in effect herein in the form set forth in the Commerce
Agreement immediately prior to its termination.
19. Cure of financial covenant defaults. A breach of any covenant set
forth in Section 18B, 18C, 18D, or 18E (but not 18A) of the Commerce Agreement
as of the end of any quarter of Borrower's fiscal year ("Breach Date") shall not
constitute an Event of Default if (i) within forty-five days after the end of
the fiscal quarter with respect to which the breach occurred ("Cure Period"),
Borrower obtains either new equity investments or new debt, subordinated on
terms reasonably satisfactory to Lender, which, had it been obtained as of the
Breach Date, would have prevented the breach, (ii) before the end of the Cure
Period, Borrower (a) notifies Lender of the foregoing actions and (b) provides
Lender with such documents and information as Lender requests in connection
therewith, (iii) Borrower accomplishes the foregoing actions without any
violation of the terms and conditions of this agreement or any of the other Loan
Documents, and (iv) no other Event of Default is outstanding at any time during
the Cure Period.
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20. Methodology for determining compliance with covenants.
A. Compliance with all the financial covenants in this agreement
shall be determined from the financial statements submitted to Lender pursuant
to this agreement, together with such other information as Lender obtains.
Borrower shall ensure that such financial statements permit the ready and
accurate calculation of all ratios and other components of the covenants. If
Lender reasonably determines to its satisfaction that such financial statements
do not fully or accurately report the information necessary to calculate such
items, then Borrower shall appropriately revise or supplement the financial
statements within ten days after Lender's written request.
B. If there arises any uncertainty concerning the meaning or
application of any term of any financial covenant, and if generally accepted
accounting principles ("GAAP") are applicable, then GAAP shall control.
Otherwise Borrower agrees to accept Lender's reasonable determination of the
meaning and application of the terms of the covenants. If any uncertainty arises
as to the proper interpretation, methodology, or other aspect of any financial
statements, and if GAAP is applicable, then GAAP shall control. Otherwise
Borrower agrees to accept Lender's reasonable determination regarding the proper
interpretation, methodology, or other aspect of the financial statements.
C. Without limiting the generality of the preceding subsections
20A and 20B, Borrower shall ensure that it properly allocates items to the
Identification Division in accordance with the definition set forth in Section
17. In the event of any uncertainty or dispute concerning such allocations,
Lender's determination made in good faith shall be final and binding upon
Borrower; provided that as long as the Commerce Agreement is in effect, Lender's
determination shall mirror the determination made by Commerce.
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21. Reporting.
A. Borrower agrees to deliver to Lender the following reports and
information on the following conditions and terms:
(1) Within twenty calendar days after each Fiscal Monthly
Close (defined below), (a) internally prepared financial statements of Borrower
as a whole and of the Identification Division as a separate unit covering the
prior month and the fiscal year to date, each such statement to include a
balance sheet, a statement of profit and loss, and a statement of cash flow, (b)
in a form reasonably acceptable to Lender, separate reports of Borrower's and
the Identification Division's cash receipts and disbursements for the prior
month and the fiscal year to date, including separate analyses of Borrower's and
the Identification Division's overall debt position, (c) separate aging lists of
Borrower's and the Identification Division's accounts receivable and accounts
payable, and (d) the Monthly Report in the form attached to this agreement as
Exhibit D, such report to be certified by Borrower's President, Treasurer, Chief
Financial Officer, or Controller, together with a reasonable explanation of the
assumptions and calculations made in preparing the Monthly Report;
(2) Within forty-five days after the end of each quarter of
each of Borrower's fiscal years, (a) internally prepared consolidated,
unconsolidated, and consolidating financial statements of Borrower as a whole
and of the Identification Division as a separate unit, each such statement to
include a balance sheet, a statement of profit and loss, and a statement of cash
flow, (b) a quarterly and overall cash generation trend analysis for each of the
Contracts, and (c) a report of all payables and receivables for the quarter for
each of the Contracts;
(3) Within thirty days after the end of each of Borrower's
fiscal years, (a) an internally prepared business operating plan for Borrower as
a whole and for the
17
Identification Division as a separate unit for the upcoming fiscal year,
including quarterly cash flow projections, and (b) a calendar for the upcoming
fiscal year showing the dates on which, for Borrower's internal purposes,
Borrower plans to close its books each month during such year (each such monthly
closing date being identified in this agreement as a "Fiscal Monthly Close");
(4) Within one hundred twenty days after the end of each of
Borrower's fiscal years, a financial statement of Borrower for the fiscal year
most recently ended, including a statement of profit and loss, a balance sheet,
and a statement of cash flow, audited by BDO Xxxxxxx, LLP, or by another
independent certified public accountant reasonably satisfactory to Lender,
together with any management letter and all other letters, reports, and other
documents given by such accountant to Borrower;
(5) Within ninety days after the end of each fiscal year of
Borrower, internally prepared consolidated, unconsolidated, and consolidating
financial statements of Borrower as a whole and of the Identification Division
as a separate unit, each such statement to include a balance sheet, a statement
of profit and loss, and a statement of cash flow;
(6) Within fifteen days after their filing, copies of all
documents filed by Borrower with the Securities and Exchange Commission
(including segment reporting (x) on a reviewed basis for quarterly statements
and (y) on an audited basis for annual statements); and
(7) At the same times when reports are due to be delivered to
Lender pursuant to the preceding clauses (2) and (5), the applicable Compliance
Certificates in one of the forms attached to this agreement as collective
Exhibit H, such forms to be certified by Borrower's President, Treasurer, Chief
Financial Officer, or Controller, together with a reasonable explanation of the
assumptions and calculations made in preparing the Compliance Certificates.
18
B. All financial statements and reports submitted to Lender shall
be in such form as Lender from time to time reasonably requests. If Lender
reasonably requests additional information and/or documents pertaining to the
business or financial affairs of Borrower, then such information and documents
shall be supplied to Lender within ten days after Lender's request.
C. Borrower agrees to allow Lender and its representatives to
inspect and copy any and all books, records, and other documents and information
(including information stored electronically) concerning its business and
finances. Lender shall be given such access to such documents and information
during business hours, upon reasonable notice, and with such frequency (but not
more than twice per fiscal year, absent an Event of Default) as Lender in good
faith decides advisable. Borrower shall cooperate with Lender during such
inspections and shall instruct its representatives, employees, bookkeepers, and
accountants also to cooperate with Lender.
D. At least quarterly, one or more senior officers of Borrower
shall meet with Lender to assess Borrower's operating performance, performance
under the Contracts and such other issues as Lender designates. Such meetings
shall be held at times reasonably selected by Lender. At such meetings Borrower
(1) shall provide Lender with all documents and information reasonably requested
in good faith by Lender and (2) shall make available any employees, agents and
consultants requested by Lender in good faith.
22. Standard representations and warranties. Borrower warrants and
represents to Lender as follows.
A. Organization. Borrower has been duly organized under the laws
of Delaware; it is in good standing under the laws of (a) Delaware, (b)
Massachusetts, and (c) every
19
other jurisdiction in which it does business; it has the power and authority (i)
to own its assets, (ii) to operate its business as presently conducted, (iii) to
enter into this agreement, the other Loan Documents, and the Related Documents
(all collectively "Principal Agreements") and (iv) to perform and observe its
obligations under the Principal Agreements.
B. Authorization. The signing, delivery, and performance of
the Principal Agreements (1) have been duly authorized by all required votes and
other actions of Borrower and its stockholders and directors, (2) do not and
will not contravene any law or regulation, (3) are in accord with Borrower's
articles of organization, bylaws, and all other governing documents, and (4) do
not and will not constitute a violation of, or a default under, any agreement,
instrument, judgment, order, decree, permit, license, or undertaking binding
upon Borrower or any of the Collateral, nor will the same result in the creation
(other than in favor of Lender) of any mortgage, pledge, security interest,
lien, encumbrance, or charge upon any of the Collateral.
C. Valid and binding obligations. The Principal Agreements
and all of their terms and conditions are valid and binding obligations of
Borrower and are enforceable against Borrower in accordance with such terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting the rights of creditors generally.
D. Approvals. Except as set forth in Exhibit I, attached,
Borrower's signing, delivery, and performance of its obligations under the
Principal Agreements do not require any approval, consent, filing, or
registration with (1) any government or governmental agency or authority, or (2)
any non-governmental entity or person.
E. Ownership of collateral. Subject to the provisions of the
Intercreditor Agreement, at the time the Borrower mortgages, pledges, assigns,
or otherwise transfers to
20
Lender as collateral any interest in any property (1) Borrower is and shall
remain the lawful owner of such interest; (2) Borrower now has and always shall
retain the right to mortgage, pledge, assign, or otherwise transfer such
interest; (3) no such interest now is, or shall be, mortgaged, pledged,
assigned, or otherwise transferred to any person other than Lender, or in any
way encumbered, without Lender's prior express written consent, and (4) Borrower
shall defend the same against the claims and demands of all persons. This
Section 22E shall not be construed to bar Borrower from granting licenses or
sublicenses in the ordinary course of business. Notwithstanding the other
provisions of this Section 22E, Lender consents to (i) the licenses which
Borrower has granted (and in the future may grant) to FBC and Commerce to enable
them to exercise their rights under the FBC Purchase Agreement and the Commerce
Agreement, respectively, and to (ii) other licenses granted in the ordinary
course of business.
F. Intentionally left blank.
G. Changes. Since December 31, 2002 there have been no changes in
the assets, liabilities (contingent or otherwise), financial condition,
operations, prospects, or business of Borrower, the effects of which have been
materially adverse, individually or in the aggregate, except as disclosed in
writing to Lender. Borrower (1) owns assets having a fair salable value in
excess of the amount required to pay the probable liability on its existing and
anticipated debts and other obligations, and (2) has access to adequate capital
for the conduct of its business and the discharge of its debts incurred in
connection therewith as such debts mature.
H. Accuracy of Financial and Business Information. Borrower has
given Lender various documents concerning its financial position, business
operations, business prospects, and related matters, all of which are identified
on the attached Exhibit K ("Initial Business Information"). All the Initial
Business Information is true and accurate in all material
21
respects. Borrower has disclosed to Lender all information which is reasonably
necessary to make the Initial Business Information not misleading as to
Borrower's finances, business, and prospects. Borrower has no reason to believe
that any of the projections and forecasts set forth in the Initial Business
Information do no represent reasonable estimates based on the assumptions
contained therein, but there can be no assurance that the results reflected in
such projections or forecasts will be attained.
I. Events of Default. As of the date of this agreement, no Event
of Default exists, and no circumstance or condition exists which, but for the
passage of time or the giving of notice, or both, would constitute an Event of
Default.
J. Taxes. Borrower has filed all federal, state, and other tax
returns which it is required to file and either has paid in full all required
taxes, assessments, and other governmental charges or has established adequate
reserves for any taxes which it is contesting. Borrower has established adequate
reserves for the payment of all federal, state, and other tax liabilities not
yet due and payable.
K. Litigation. Except as disclosed on Schedule L, attached, there
is pending or threatened against Borrower no litigation, proceeding, or
governmental investigation, administrative or judicial, which if decided
adversely might have a materially adverse effect on Borrower's business,
properties, or condition (whether financial or otherwise) or on its ability to
perform its obligations under the Principal Agreements.
L. Margin rules. No portion of the Loan is being or will be used
to purchase or carry any "margin security" or "margin stock" as such terms are
used in Regulations G and U of the Board of Governors of the Federal Reserve
System, or to extend credit to others for such purposes. Borrower is not engaged
principally in, or has as one of its important activities, the
22
business of extending credit to purchase or carry any such margin security or
margin stock. If requested by Lender, Borrower will furnish Lender with a
statement in conformity with the requirements of Federal Reserve Form U-1
referred to in such Regulations.
M. ERISA. (1) No "Employee Benefit Plan" (as such term is defined
in the Employee Retirement Income Security Act of 1974 and the regulations
thereunder, as the same have been or shall be amended ("ERISA") from time to
time maintained by Borrower (individually a "Plan" and collectively the "Plans")
or trust created thereunder, or any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is defined in Section 406 of
ERISA) which would subject such Plan or Plans or any benefits vested under any
such Plan or Plans (individually the "Pension Plan" and collectively "Pension
Plans") or any trust created thereunder, or any trustee or administrator
thereof, or any party dealing with any Plan or Pension Plan, to a tax or penalty
on prohibited transactions imposed by Section 4972 of the Internal Revenue Code
("Code"); (2) no Pension Plan, Plan, or trust created thereunder has been
terminated, and there have been no reportable events (as that term is defined in
Section 4043 of ERISA) since the effective date of ERISA; (3) no Pension Plan,
Plan, or trust created thereunder has incurred any "accumulated funding
deficiency" (as such term is defined in Section 412(a) of the Code) whether or
not waived, since the effective date of ERISA; and (4) Borrower is not now and
never has been a party to any multi-employer pension or benefit plan.
N. Compliance. Borrower possesses all necessary permits,
approvals, authorizations, consents, licenses, franchises, registrations, and
other rights and privileges (including patents, trademarks, trade names, and
copyrights) to allow it to own and operate its business without any material
violation of law or of the rights of others. Borrower is duly authorized,
qualified, licensed under, and in material compliance with, all laws,
regulations,
23
authorizations, and orders of public authorities to the extent that the same are
necessary or applicable to the ownership and operation of its business.
O. Hazardous materials. Borrower has not violated any local,
state, or federal law or regulation relating to the storage, generation, use,
transportation, treatment, or disposal of solid wastes, and to Borrower's
knowledge no such violation has occurred at any time at, on, or from any real
estate ever owned by Borrower or any predecessor in interest of Borrower. To
Borrower's knowledge there has occurred no spill, discharge, leak, emission,
injection, escape, dumping, or release of any kind of any toxic or hazardous
substances as defined under any applicable local, state, or federal laws or
regulations on any such real estate or into the environment surrounding any such
real estate other than those releases of waste water or air emissions
permissible under such laws or regulations or allowable under valid permits held
by Borrower or any predecessor in interest. Borrower has no knowledge of any
facts which could form a basis for any liabilities, damages, obligations,
losses, or expenses relating to any such environmental conditions. Borrower has
received no notice of responsibility or other notice or demand relating to any
alleged violation of any law or regulation relating to hazardous substances or
environmental conditions.
P. Accuracy of books and records. All books and records of
Borrower accurately reflect in all material respects all matters and
transactions which should be reflected therein.
Q. No Subsidiaries. Except as set forth in Exhibit M, Borrower (1)
has no wholly owned subsidiaries and (2) has no investments in the stock or
securities of any other corporation, firm, partnership, trust, or other entity.
24
R. Insurance. Borrower now maintains and always has maintained
insurance coverage against such risks and in such amounts as is reasonably
necessary to protect its assets against all reasonably foreseeable claims for
property damage, personal injury, and other risks.
23. Standard Covenants. Borrower covenants and agrees with Lender that
as long as any of the Obligations remains to be paid or performed:
A. Legal existence and good standing. Borrower will maintain its
legal existence and good standing in the state of its organization. Borrower
will maintain its qualification to do business in every other state in which it
is currently qualified for so long as such qualification is required by law.
Borrower will qualify to do business in every other state in which such
qualification becomes required by law and thereafter will maintain such
qualification for so long as such qualification is required by law.
B. Conduct of Business. Borrower will duly observe and comply in
all material respects with all applicable laws and all requirements of any
governmental authorities relative to its assets and to the conduct of its
business. Borrower will obtain, maintain, and keep in full force and effect, all
authorizations, approvals, consents, franchises, restrictions, licenses, permits
and other rights and privileges necessary to the proper conduct of its business.
C. Losses and disputes regarding collateral. Borrower immediately
will notify Lender of any event materially adversely affecting any material part
of the Collateral or the value or amount thereof.
D. Maintenance and insurance of assets; other insurance. Borrower
will insure its assets against such hazards and liabilities, in such form and
amounts, and with such insurers, as may be reasonably satisfactory to Lender.
Borrower will maintain insurance against such other risks and liabilities,
including liability for property damage and personal injury, in
25
such form and amounts, and with such insurers, as may be reasonably satisfactory
to Lender. From time to time on Lender's request, and without any request at
least thirty days before any insurance policy is due to expire, Borrower will
provide Lender with certificates of the foregoing insurance policy or policies.
E. Taxes. Borrower will pay or cause to be paid:
(1) All taxes, assessments, and other governmental charges
on or against it or its properties prior to such taxes becoming delinquent,
unless such tax, assessment, or charge is being contested in good faith by
proper legal proceedings and adequate reserves have been established and
maintained therefor;
(2) All excise, sales, and other taxes or charges which
become due and payable with respect to any sale or other transaction giving rise
to any account receivable or other right to the payment of money or with respect
to the collection thereof.
F. Limitations on indebtedness. Borrower shall not incur any New
Indebtedness without Lender's prior express written consent. "New Indebtedness"
includes any actual or contingent liability arising after the date of this
agreement from (1) an extension of credit, (2) a guaranty of another's
indebtedness or obligations, or (3) any other consensual transaction which
creates in Borrower a direct or indirect obligation of future payment; New
Indebtedness does not include, however, (i) indebtedness incurred in financing a
New Customer Contract or a Modification, provided that such financing is
permissible under Section 13A, (ii) indebtedness to vendors incurred in the
ordinary course of business, provided that (a) the vendor's invoice is payable
within ninety (90) days after the delivery of the goods or services, and (b)
Borrower's payment of the invoice is not more than thirty (30) days overdue,
unless Borrower is disputing the invoice in good faith, and (iii) indebtedness
owed to Lender.
26
G. Restrictions on liens. [Intentionally omitted in favor
of other Loan Documents.]
H. Restrictions on guarantees. [Intentionally omitted in
favor of Section 10A and Section 23F.]
I. ERISA Compliance. Neither Borrower nor any Pension Plan
of Borrower will:
(1) engage in any prohibited transaction (as defined in
Section 406 of ERISA);
(2) incur any "accumulated funding deficiency" (as
defined in Section 412(a) of the Code or Section 302 of ERISA), whether or not
waived; or
(3) terminate any Pension Plan in a manner which could
result in the imposition of a lien on any property of Borrower.
J. Pension Plans.
(1) With respect to any Pension Plan the benefits under
which are guaranteed in whole or in part by the Pension Benefit Guaranty
Corporation (the "PBGC"), Borrower shall:
(a) Fund each Pension Plan as required by the
provisions of Section 412 of the Code and Section 302 of ERISA;
(b) Cause each Pension Plan to pay all
benefits when due in accordance with applicable law; and
(c) Furnish to Lender (i) written notice of
the occurrence of a Reportable vent (as such term is defined in Section 4043 of
ERISA), such notice to be given promptly, but in any event within five (5) days
of the occurrence
27
of a Reportable Event with respect to a Pension Plan; (ii) a copy of any
request for a waiver of the funding standards or an extension of the
amortization periods required under Section 4122 of the Code and Section
302 of ERISA, such copy to be furnished not later than the date of
submission of the request to the Department of Labor or to the Internal
Revenue Service (the "IRS"), as the case may be; (iii) a copy of any
notice of intent to terminate any Pension Plan, such copy to be
furnished no later than the date of submission to the PBGC; and (iv)
notice that Borrower will or may incur any liability to or on account of
a Pension Plan under Section 4062, 4063, 4064, 4201 or 4204 of ERISA,
such notice to be given within the ten (10) days after Borrower knows or
has reason to know thereof. Any notice to be provided to Lender under
this Section shall include a certificate of Borrower's chief financial
officer setting forth details as to such occurrence and the action, if
any, which is required or proposed to be taken, together with any
notices required or proposed to be filed with or by Borrower, the PBGC,
the IRS, the trustee, or the plan administrator with respect thereto.
(2) Borrower shall furnish to Lender, no later than fifteen
(15) days after the date of filing, a copy of the annual report of each Pension
Plan or Plan (Form 5500 or comparable form) required to be filed with the IRS
and/or the Department of Labor.
K. Notification of default. Within five (5) business days after
becoming aware of the existence of any condition or event which with or without
the giving of notice or the passage of time, or both, would cause or constitute
an Event of Default, Borrower shall give Lender written notice thereof,
specifying the nature of the matter and the action being taken or proposed to be
taken with respect thereto.
28
L. Notification of litigation. Borrower shall notify Lender
in writing of any litigation commenced against it and of any proceeding
commenced against or concerning it by any governmental agency or authority, if
there is any reasonable likelihood that such litigation or proceeding, singly or
in combination with others, reasonably might be expected to have a material
adverse effect upon it. Such notice shall be given within five business days
after the commencement of the action or proceeding.
M. Notification of material adverse change. Borrower shall
notify Lender within five business days after there occurs or arises any
circumstance or event which might reasonably be expected to constitute or cause
either a material adverse change in its financial or business condition or a
material diminution in the value of its tangible or intangible property.
N. Maintenance of books and records. Borrower will keep
adequate records and books of account, in which true and complete entries will
be made reflecting all of the material business and financial transactions
relating to its business and its assets.
O. Inspection by Lender. Borrower will permit Lender from
time to time on reasonable notice to inspect its facilities, assets and business
records and to copy any business records selected by Lender.
P. Further assurances. Borrower shall sign and deliver such
additional documents, instruments, and other papers, and shall take all such
actions, as Lender reasonably requires to assure to Lender its rights under this
agreement and the other Loan Documents and to carry into effect the provisions
and intent of this agreement.
Q. Environmental regulations and hazardous materials.
Borrower will comply in all material respects at all times with any and all
applicable federal, state, and local laws, rules, orders, and regulations
governing hazardous materials, hazardous wastes, or oil as
29
defined in any local, state, or federal laws, rules, orders, and regulations;
and will otherwise comply in all material respects with all laws and regulations
relating to pollution control in all jurisdictions in which it operates.
R. Merger and consolidation. Borrower shall not consolidate
with or merge with or into any other corporation or other entity.
S. Performance of Other Contracts. Borrower shall perform
and observe all of its material duties and obligations under its present and
future contracts and agreements with customers, lenders, lessors, lessees, and
other persons and organizations, including but not limited to the Commerce
Agreement and the FBC Agreement.
24. Events of Default. An event of default under this agreement
("Event of Default") shall be:
(a) any violation, breach, non-compliance, or failure
by or as to Borrower with respect to any duty, obligation, agreement, covenant,
warranty, representation, or other undertaking set forth in this agreement, if
the same has continued beyond the expiration of any expressly applicable cure
period or grace period, unless all four of the following occur: (i) this
agreement provides no specific grace period, (ii) in Lender's good faith opinion
the occurrence or circumstance is readily curable by Borrower; provided that as
long as the Commerce Agreement is in effect Lender's opinion shall mirror the
determination made by Commerce, (iii) Borrower promptly commences to effect a
cure, and (iv) Borrower completes the cure to Lender's reasonable satisfaction
within the shortest reasonable period, which shall not exceed thirty days after
written notice from Lender;
(b) any other event, circumstance, or occurrence which
is specifically designated in this agreement as an Event of Default;
30
(c) any default or event of default by or as to Borrower under
any of the other Loan Documents or the Related Documents, if the same has
continued beyond the expiration of any expressly applicable cure period or grace
period;
(d) any event, circumstance, or occurrence which constitutes a
default under the terms of (i) any other loan or credit facility made or
extended to Borrower by Lender after the date of this agreement, (ii) any loan
or other credit facility extended to Borrower at any time by FBC, Commerce, or
any other person or entity other than Lender, including not only loans and
credit facilities in existence on the date of this agreement but also loans and
credit facilities extended to Borrower hereafter (collectively "Third-Party
Loans"), if the sum of the balance due on such loan, plus the balance due on all
other Third-Party Loans as to which Borrower is in default, exceeds $250,000, or
(iii) any lease of any nature in which Borrower is the lessee and the sum of the
balance remaining to be paid by Borrower, plus the balance remaining to be paid
by Borrower on all other leases on which Borrower is in default, exceeds
$250,000, whether such lease now exists or comes into existence hereafter,
unless such lease default is cured completely in accordance with the terms of
the governing documents;
(e) without limiting the generality of the foregoing
subsection 24(d), (i) any "Termination Event" as defined in the FBC Agreement or
(ii) any "Event of Default" as defined in the Commerce Agreement, unless fully
and timely cured within an expressly applicable notice period or grace period
thereunder;
(f) any material adverse change in Borrower's financial
condition, as determined in good faith by Lender; provided that as long as the
Commerce Agreement is in effect Lender's determination shall mirror the
determination made by Commerce;
(g) the termination of any of the Contracts;
31
(h) the creation of an Overadvance which continues for a
period of 3 business days after the earlier of Borrower's knowledge of the
Overadvance or written notice from Lender; or
(i) any failure by Borrower to perform, keep or observe any
term, provision, condition, or covenant in any other contract or agreement
between the Borrower and Lender, if the same has continued beyond the expiration
of any expressly applicable cure period or grace period.
24.1. Remedies. Upon the occurrence, and during the continuation, of an
Event of Default, the Lender may (a) declare all Obligations, whether evidenced
by this agreement, or by any of the other Loan Documents or the Related
Documents, immediately due and payable (b) cease advancing money to or for the
benefit of Borrower under this agreement, under any of the other Loan Documents,
or under any of the Related Documents, (c) terminate this agreement, any of the
other Loan Documents or any of the Related Documents as to any future liability
or obligation of the Lender, but without affecting any of the Lender's security
interests in the Collateral and without affecting the Obligations, (d) exercise
any other rights and remedies available to it pursuant to the Notes, Security
Agreement or the Intellectual Property Security Agreement dated as of the date
hereof between Borrower and Lender ("IP Security Agreement"), and (e) exercise
any other rights and remedies available to it at law or in equity pursuant to
any of the Loan Documents or any of the Related Documents. The rights and
remedies of the Lender under this agreement, the other Loan Documents, the
Related Documents, and all other agreements shall be cumulative. The Lender
shall have all other rights and remedies not inconsistent herewith as provided
under the Uniform Commercial Code, by law, or in equity. No exercise by the
Lender of one right or remedy shall be deemed an election, and no waiver by the
32
Lender of any Event of Default shall be deemed a continuing waiver. No delay by
the Lender shall constitute a waiver, election, or acquiescence by it.
25. Certain waivers. EACH OF LENDER AND BORROWER HEREBY WAIVES AND
RELEASES IRREVOCABLY ITS RIGHTS (1) TO HAVE A TRIAL BY JURY IN ANY ACTION TO
WHICH LENDER AND BORROWER ARE PARTIES, WHETHER AS PLAINTIFF, DEFENDANT, OR
OTHERWISE, AND (2) TO ASSERT IN ANY SUCH ACTION ANY CLAIM FOR PUNITIVE DAMAGES,
EXEMPLARY DAMAGES, CONSEQUENTIAL DAMAGES, AND ANY OTHER DAMAGES WHATSOEVER OTHER
THAN ACTUAL DAMAGES. In this section the terms "Lender" and "Borrower" include
all the parties' stockholders, directors, officers, employees, attorneys, and
agents. This section is intended by Lender and Borrower to apply with full force
and effect to all of the Loan Documents as if it were set forth in full in each
one of the Loan Documents.
26. Indemnity. Borrower shall indemnify Lender against, and hold
Lender harmless from, any and all losses, damages, liabilities, claims, causes
of action (whether legal, equitable, or administrative), judgments, court costs,
and legal or other expenses (including reasonable attorneys' fees) which Lender
may suffer or incur as a direct or indirect consequence of (a) Lender's
performance of this agreement or any of the other Loan Documents or any of the
Related Documents, including, without limitation, Lender's exercise or failure
to exercise any rights, remedies, or powers; (b) Borrower's failure to perform
any of Borrower's obligations as and when required by this agreement or by any
of the other Loan Documents or the Related Documents, including, without
limitation, any failure, at any time, of any representation or warranty of
Borrower to be true and correct and any failure by Borrower to satisfy any
condition; (c) any claim or cause of action of any kind by any person or entity
to the effect that Lender is in
33
any way responsible or liable for any act or omission by Borrower, whether on
account of any theory of derivative liability or otherwise; (d) any act or
omission by Borrower or any other person or entity, with respect to any of the
Contracts; or (e) any claim or cause of action of any kind by any person or
entity which would have the effect of denying Lender the full benefit or
protection of any provision of the Loan Documents or the Related Documents.
Lender's rights of indemnity shall not be directly or indirectly limited,
prejudiced, impaired, or eliminated in any way by any finding or allegation that
Lender's conduct is active, passive, or subject to any other classification, or
that Lender is directly or indirectly responsible under any theory of any kind,
character, or nature for any act or omission by Borrower or any other person or
entity except Lender. Notwithstanding the foregoing, Borrower shall not be
obligated to indemnify Lender with respect to any intentional tort, gross
negligence, or act of bad faith which Lender itself is determined by the
judgment of a court of competent jurisdiction to have committed. Borrower shall
pay any indebtedness arising under this Section 26 to Lender immediately upon
demand by Lender. Borrower's obligations under this Section 26 shall survive the
termination of this agreement.
27. Miscellaneous.
A. Costs. Borrower shall reimburse Lender on demand for all fees,
costs and expenses, including without limitation Lender's reasonable legal fees,
incurred by or on behalf of Lender in connection with (1) the closing of the
transactions contemplated by this agreement and any Additional Advances under
this Agreement, (2) the Account Control Agreement, (3) the future amendment of
this agreement or any of the other Loan Documents, (4) the negotiation or other
resolution of any uncertainty, dispute, or controversy arising from or connected
with the transactions contemplated by this agreement, (5) the enforcement of any
rights or remedies
34
which are made available to Lender by the specific terms of this agreement, by
the specific terms of any of the other Loan Documents, or by law, and (6) the
Loan Agreement dated May __, 2003 between Lender and Fleet National Bank. The
costs and expenses covered by this Section 27A shall include, without implied
limitation, all costs and expenses incurred by Lender (including reasonable
legal fees) in connection with any bankruptcy case, bankruptcy proceeding, or
other bankruptcy matter in which Borrower is a debtor, regardless of the
capacity or capacities in which Lender is involved in any such bankruptcy.
Nothing in this Section 27A shall be construed to limit Lender's rights or
Borrower's obligations under any other provision of this agreement.
B. Termination. This agreement shall terminate when the Loans have
been paid in full pursuant to the terms of the Notes or at the election of the
Lender upon the occurrence and during the continuation of an Event of Default,
provided however, Sections 26 and 27A shall survive termination. On the date of
the termination of this agreement, all Obligations immediately shall become due
and payable without notice or demand. No termination of this agreement, however,
shall relieve or discharge Borrower of its duties, Obligations, or covenants
hereunder and the Lender's security interest in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and the
Lender's obligations to provide additional credit hereunder have been
terminated. When this agreement has been terminated and all of the Obligations
have been fully and finally discharged and the Lender's obligations to provide
additional credit under the Loan Documents have been terminated irrevocably,
Lender will, at Borrower's sole expense, execute and deliver any Uniform
Commercial Code termination statements, lien releases and other similar
discharge or
35
release documents (and, if applicable, in recordable form) as are reasonably
necessary to release, as of record, the Lender's security interest with respect
to the Collateral.
C. Modification. This agreement may be amended only in a writing
which is signed by both parties to this agreement and is designated as an
amendment of this agreement.
D. Governing law; venue. This agreement has been negotiated and
signed in Massachusetts, and it will be administered primarily in Massachusetts.
All parties have relied upon the applicability of the internal laws of
Massachusetts. Accordingly, this agreement shall be interpreted and enforced in
accordance with the internal laws of Massachusetts, without giving effect to any
law or doctrine which would dictate application of the law of another state. The
parties further agree that Massachusetts is the proper venue for any action by
Borrower arising from or relating to the Obligations. Accordingly, Borrower
covenants and agrees with Lender (a) not to commence against Lender any action
in any court sitting outside Massachusetts, (b) not to seek to transfer to any
court sitting outside Massachusetts any action commenced in Massachusetts, and
(c) not to oppose on grounds of improper venue or forum non conveniens any
action commenced by Lender in a court sitting in Massachusetts. Borrower
acknowledges that the provisions of this section warrant enforcement in equity.
E. Binding effect. This agreement is binding upon the successors
and assigns of both parties, and it inures to the benefit of such successors and
assigns; provided, however, that neither party shall have the right to assign
any of its rights or obligations under this Agreement or otherwise in connection
with the Loans without the prior written consent of the other.
36
F. Severability. Even if one or more provisions of this agreement
are determined by a court to be invalid or unenforceable, the remaining
provisions of this agreement nevertheless shall continue in effect.
G. Remedies cumulative. All rights and remedies afforded Lender
by this agreement are cumulative; none shall be construed to limit or impair any
rights or remedies afforded Lender by the other Loan Documents or by law.
H. No waiver. No failure to act, omission, or forbearance by
Lender to exercise its rights under any or all of the Loan Documents shall
constitute a waiver by Lender of such right, regardless of how long such failure
to act, omission, or forbearance continues, unless Lender expressly waives such
right in writing. No waiver by Lender of any in one instance shall constitute a
waiver in any other instance unless Lender expressly so states in writing.
I. Corrections. Borrower agrees to sign and deliver to Lender
such instruments as Lender reasonably requests to correct any of the Loan
Documents which Lender reasonably determines needs correction. Lender shall bear
all its own expenses in connection therewith.
J. No assignment. None of Borrower's rights under this agreement
may be assigned, pledged, or otherwise transferred, nor may any of Borrower's
duties be delegated.
K. No Third Parties Benefited. This agreement is entered into for
the sole protection and benefit of Lender and Borrower and their permitted
successors and assigns. No other person or entity shall have any right of action
under this agreement.
L. Notices. All notices given under this agreement shall be given
in writing and shall be deemed served upon (1) actual receipt by the addressee
or (2) if mailed, upon the expiration of seventy-two (72) hours after deposit in
United States Postal Service by certified
37
mail, postage prepaid, addressed to the address of Borrower or Lender appearing
below, which addresses may be changed by notice given in the same manner:
Borrower: Lender:
00 Xxxxxx Xxxx 00 Xxxxxx Xxxx
Xxxxxxxxx, XX 00000 Xxxxxxxxx, XX 00000
Attention: Chief Financial Officer Attention: Chief Financial
Officer
With a copy to:
Xxxxxx X. Xxxxxxxxx Xxxxx X. Xxxxxxxxx, P.C.
Xxxxxxx, Xxxxxxx and Xxxxxx, LLP Xxxxxx, Hall & Xxxxxxx
0000 Xxxxxx Xxxxxxxx Xxxxx, Xxxxx 000 Xxxxxxxx Xxxxx
Xxxxxx, XX 00000 00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
M. Relationship of Parties. For purposes of this agreement, the
relationship of Borrower and Lender is, and shall at all times remain, solely
that of borrower and lender.
N. Entire agreement. This agreement, the other Loan Documents and
the Related Documents set forth the parties' entire understanding, superseding
all prior negotiations, promises, and agreements.
O. Counterparts; Telefacsimile Execution. This agreement may be
executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same agreement. Delivery of an executed counterpart of this agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this agreement. Any party delivering an executed counterpart of
this agreement by telefacsimile also shall deliver an original executed
counterpart of this agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and
38
binding effect of this agreement. The foregoing shall apply to each other Loan
Document mutatis mutandis.
P. Nondisclosure agreement. Borrower and Lender are parties to a
certain "Confidentiality Agreement" dated May 30, 2003 ("Nondisclosure
Agreement"), which restricts Lender's dissemination of certain documents and
information relating to the Borrower.
Q. Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower should for any reason subsequently be
declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the United States Bankruptcy Code
relating to fraudulent conveyances, preferences, or other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if the Lender is required to repay or restore, in
whole or in part, any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such Voidable Transfer, or the
amount thereof that the Lender is required or elects to repay or restore, and as
to all reasonable costs, expenses, and attorneys fees of the Lender related
thereto, the liability of Borrower automatically shall be revived, reinstated,
and restored and shall exist as though such Voidable Transfer had never been
made.
39
Signed as a sealed instrument May 30, 2003.
Witnesses: Parties:
XXX ACQUISITION CORP.
Xxxx X. Xxxxxxxxxx /s/ Xxxxxx Xxx
------------------ By: -------------------------------
Name: Xxxxxx Xxx
Title: President and CEO
VIISAGE TECHNOLOGY, INC.
Xxxx X. Albertelle /s/ Xxxxxxx X. Xxxxx
------------------ By: -------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Senior VP and CFO
40
Index of Exhibits
A. Conditions Precedent and Conditions Subsequent
B. Loan Documents (Section 4A).
C. Related Documents (Section 4B).
D. Monthly Report (Section 21A(1)).
E. Contracts (Section 7A).
F. [Reserved.]
G. [Reserved.]
H. Compliance Certificates (Section 21A). I. Consents and Approvals (Section
22D).
J. [Reserved.]
K. Initial Business Information (Section 22H).
L. Litigation (Section 22K).
M. Interests in other entities (Section 22Q).
41
Exhibit A
Conditions Precedent
1. Lender shall have received all financing statements required by
Lender, and Lender shall have received searches reflecting the filing of all
such financing statements;
2. Lender shall have received each of the following documents, in form
and substance satisfactory to Lender, duly executed, and each such document
shall be in full force and effect:
(a) a letter from KEF to Lender respecting the amount necessary to repay
in full all of the obligations of Borrower owing to KEF and to obtain a release
of all of the liens existing in favor of KEF in and to the assets of Borrower,
together with Uniform Commercial Code termination statements and other
documentation evidencing the termination by KEF of its liens in and to the
properties and assets of Borrower;
(b) the Loan Agreement;
(c) the Georgia Note;
(d) the Arkansas Note;
(e) the Oklahoma Note;
(f) the Wisconsin Note;
(g) the Security Agreement;
(h) the Account Control Agreement;
(i) a Collateral Assignment of Contacts between the Borrower and Lender
for each of the Contracts;
(j) an instructional letter executed and delivered by Borrower to Lender
regarding the Loans to be made on the date hereof;
(k) the Related Documents;
(l) the Nondisclosure Agreement;
(m) the IP Security Agreement;
(n) the amendment dated the date hereof to the FBC Agreement;
(o) the amendment dated the date hereof to the Commerce Agreement;
3. Lender shall have received a certificate from the Secretary of
Borrower attesting to the resolutions of Borrower's Board of Directors
authorizing its execution, delivery, and
42
performance of this agreement, the other Loan Documents and the Related
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute the same;
4. Lender shall have received copies of Borrower's Certificate of
Incorporation and Bylaws, as amended, modified, or supplemented, certified by
the Secretary of Borrower;
5. Lender shall have received a certificate of status with respect to
Borrower, dated within 10 days of the date of this agreement, such certificate
to be issued by the appropriate officer of the jurisdiction of organization of
Borrower, which certificate shall indicate that Borrower is in good standing in
such jurisdiction;
6. Lender shall have received certificates of status with respect to
Borrower, each dated within 30 days of the date of this agreement, such
certificates to be issued by the appropriate officer of the states of Georgia,
Arkansas, Oklahoma and Wisconsin, which certificates shall indicate that such
Borrower is in good standing in such jurisdictions;
7. Borrower shall pay all Lender's costs and expenses, including without
limitation Lender's reasonable legal fees, incurred in connection with the
transactions evidenced by this agreement;
8. Borrower shall have received all approvals or consents required by any
third party in connection with the execution and delivery by Borrower of this
agreement, any other Loan Document or the Related Documents or with the
consummation of the transactions contemplated hereby and thereby except as set
forth below; and
9. All other documents and legal matters in connection with the
transactions contemplated by this agreement shall have been delivered, executed,
or recorded and shall be in form and substance satisfactory to Lender.
Conditions Subsequent
1. Within 60 days of the date of this agreement, Borrower shall have
received all approvals or consents required by the States of Georgia, Arkansas,
Oklahoma and Wisconsin in connection with the execution and delivery by Borrower
of this agreement, any other Loan Document or the Related Documents or with the
consummation of the transactions contemplated hereby and thereby.
43
Exhibit B
Loan Documents
The following is a list of the Loan Documents as of the date of this agreement:
1. Loan Agreement.
2. Georgia Note.
3. Arkansas Note.
4. Oklahoma Note.
5. Wisconsin Note.
6. Security Agreement.
7. Account Control Agreement.
8. The Collateral Assignments of Contacts between the Borrower and
Lender for each of the Contracts.
9. The instructional letter executed and delivered by Borrower to Lender
regarding the Loans to be made on the date of this agreement.
10. Nondisclosure Agreement.
11. IP Security Agreement.
44
Exhibit C
Related Documents
The following is a list of the Related Documents as of the date of this
agreement:
1. Consents by Georgia, Arkansas, Oklahoma and Wisconsin.
2. Intercreditor Agreement.
3. Consent by Commerce.
4. Commerce Agreement.
5. FBC Agreement.
45
Exhibit D
Monthly Report
See Attached.
46
Exhibit D
FORM OF MONTHLY REPORT
Cash Flow Analysis for Contract
Name of Contract
Xxxxxxxx
--------------------------------------------------------------------------------
Remaining Cash Contract Value
--------------------------------------------------------------------------------
Contract Expenses
Inventory Adjustment
--------------------------------------------------------------------------------
Estimated Cash to Complete
--------------------------------------------------------------------------------
Leasing Draws
Principal Payments
Debt Balance
Remaining Interest
--------------------------------------------------------------------------------
Remaining Cash Profit
--------------------------------------------------------------------------------
CP % of Contract Value
Excess Cash per Acct Ctrl Agment
Interest Payment
47
Exhibit E
Contracts
See the following state contracts attached:
Arkansas
Georgia
Oklahoma
Wisconsin
48
Exhibit H-1
Quarterly Compliance Certificate
Pursuant to Section 21 of a certain Loan Agreement ("Loan Agreement")
dated May 30, 2003, between Viisage Technology, Inc. ("Borrower") and Xxx
Acquisition Corp. ("Lender"), I certify to Lender as follows:
A. Profitability.
(1) For the quarter of Borrower's fiscal year ending _______________,
_______ ("Quarter End"), the Identification Division's net income,
excluding consideration of income taxes, was $____________.
(2) For the quarter of Borrower's fiscal year ending _______________,
____, Borrower's net income, excluding consideration of income taxes, was
$________.
B. Net worth. At Quarter End, Borrower's Tangible Net Worth was
$_____________. The minimum required by the Loan Agreement was $_________.
C. Debt to worth. At Quarter End, the ratio of Borrower's Indebtedness
to its Tangible Net Worth was ________ to 1.00.
D. Debt service coverage. At Quarter End, the ratio of the
Identification Division's Operating Cash Flow to its Debt Service Liability, for
the four most recent quarters, was ____________ to 1.00.
E. Capital expenditures. During Borrower's current fiscal year to date
through Quarter End, Borrower's internally financed capital expenditures total
$____________.
F. Cash. As of Quarter End, Borrower had $_________ of unencumbered
cash.
Borrower is in compliance with the covenants referenced in paragraphs
________ of this certificate. Borrower is not in compliance with the covenants
referenced in paragraphs _________ of this certificate.
I further certify that in calculating the figures stated above I have
followed all applicable provisions of the Loan Agreement and have interpreted
all capitalized terms in accordance with the applicable provisions of the Loan
Agreement.
Viisage Technology, Inc.
Date: ____________ By:_________________________
49
Exhibit H-2
Annual Compliance Certificate
Pursuant to Section 21 of a certain Agreement ("Loan Agreement") dated
May 30, 2003, between Viisage Technology, Inc. ("Borrower") and Xxx Acquisition
Corp. ("Lender"), I certify to Lender as follows:
A. Annual Profitability. For the fiscal year ending ______________,
_______ ("Year End"), Borrower's net income, excluding consideration of income
taxes, was $___________.
B. Net worth. At Year End, Borrower's Tangible Net Worth was
$_____________. The minimum required by the Loan Agreement was $___________.
C. Debt to worth. At Year End, the ratio of Borrower's Indebtedness to
its Tangible Net Worth was ________ to 1.00.
D. Debt service coverage. At Year End, the ratio of the Identification
Division's Operating Cash Flow to its Debt Service Liability, for the entire
fiscal year, was ____________ to 1.00.
E. Capital expenditures. During the fiscal year just ended, Borrower's
internally financed capital expenditures totaled $____________.
Borrower is in compliance with the covenants referenced in paragraphs
________ of this certificate. Borrower is not in compliance with the covenants
referenced in paragraphs _________ of this certificate.
I further certify that in calculating the figures stated above I have
followed all applicable provisions of the Loan Agreement and have interpreted
all capitalized terms in accordance with the applicable provisions of the Loan
Agreement.
Viisage Technology, Inc.
Date: ____________ By:_________________________
50
EXHIBIT I
Approvals
1. Commerce
2. The State of Wisconsin
3. The State of Georgia
4. The State of Oklahoma
5. The State of Arkansas
51
EXHIBIT K
Initial Business Information
1. Cash Flow Analysis of Borrower for the 6 month period ending October 30,
2002.
2. Cash Flow Forecast of Borrower for the 12 month period ending April 30, 2004.
52
Exhibit L
Litigation
None
53
Exhibit M
Subsidiaries and Investments
1. VIDS Acquisition Corporation, a Delaware corporation.
2. Viisage Australia, Ltd., an Australian entity.
54
