EXHIBIT 10.8
LOAN AND SECURITY AGREEMENT
TeleSpectrum Worldwide Inc.
TLSP Trademarks, Inc.
TLSP Investments, Inc.
with
Mellon Bank, N.A.
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS AND INTERPRETATION..................... -1-
1.1 Terms Defined...................................... -1-
1.2 Accounting Principles.............................. -9-
SECTION 2. THE LOANS.......................................... -9-
2.1 Revolving Credit - Description..................... -9-
2.2 Letters of Credit:................................. -10-
2.3 Advances, Conversions, Renewals and Payments....... -11-
2.4 Interest........................................... -12-
2.5 Additional Interest Provisions..................... -14-
2.6 Fees............................................... -15-
2.7 Prepayments........................................ -16-
2.8 Use of Proceeds.................................... -16-
2.9 Indemnity/Loss of Margin........................... -16-
2.10 Capital Adequacy................................... -17-
SECTION 3. COLLATERAL......................................... -17-
3.1 Description........................................ -17-
3.2 Lien Documents..................................... -19-
3.3 Other Actions...................................... -19-
3.4 Searches........................................... -19-
3.5 Landlord's Waivers................................. -19-
3.6 Filing Security Agreement.......................... -20-
3.7 Power of Attorney.................................. -20-
3.8 Verifications...................................... -20-
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES....... -20-
4.1 Resolutions, Opinions, and Other Documents......... -20-
4.2 Absence of Certain Events.......................... -21-
4.3 Warranties and Representations at Closing.......... -22-
4.4 Compliance with this Agreement..................... -22-
4.5 Officer's Certificate.............................. -22-
4.6 Closing............................................ -22-
4.7 Non-Waiver of Rights............................... -22-
SECTION 5. REPRESENTATIONS AND WARRANTIES..................... -22-
5.1 Corporate Organization and Validity................ -22-
5.2 Places of Business................................. -23-
5.3 Pending Litigation................................. -23-
5.4 Title to Properties................................ -23-
5.5 Governmental Consent............................... -24-
5.6 Taxes.............................................. -24-
5.7 Financial Statements............................... -24-
5.8 Full Disclosure.................................... -24-
5.9 Subsidiaries....................................... -24-
5.10 Guarantees, Contracts, etc......................... -25-
5.11 Government Regulations, etc........................ -25-
5.12 Business Interruptions............................. -26-
5.13 Names.............................................. -26-
5.14 Other Associations................................. -26-
5.15 Environmental Matters.............................. -27-
5.16 Regulation O....................................... -27-
5.17 Capital Stock...................................... -27-
5.18 Solvency........................................... -28-
5.19 Investment Company................................. -28-
5.20 Patents, Trademarks, Etc........................... -28-
SECTION 6. AFFIRMATIVE COVENANTS.............................. -28-
6.1 Payment of Taxes and Claims........................ -28-
6.2 Maintenance of Properties and Corporate Existence.. -28-
6.3 Business Conducted................................. -30-
6.4 Litigation......................................... -30-
6.5 Bank Accounts...................................... -30-
6.6 Employee Benefit Plans............................. -30-
6.7 Warranties for Future Advances..................... -31-
6.8 Financial Covenants................................ -31-
6.9 Financial and Business Information................. -32-
6.10 Officers' and Accountant's Certificates............ -33-
6.11 Inspection......................................... -33-
6.12 Tax Returns and Reports............................ -34-
6.13 Information to Participant......................... -34-
6.14 Material Adverse Developments...................... -34-
6.15 Name Changes, Places of Business................... -34-
SECTION 7. NEGATIVE COVENANTS:................................ -34-
7.1 Merger, Consolidation, Dissolution or Liquidation.. -34-
7.2 Acquisitions....................................... -35-
7.3 Liens and Encumbrances............................. -35-
7.4 Transactions With Affiliates or Subsidiaries....... -35-
7.5 Guarantees......................................... -36-
7.6 Distributions, Redemptions and Other Indebtedness.. -36-
7.7 Loans and Investments.............................. -36-
7.8 Use of Lenders' Name............................... -36-
7.9 Miscellaneous Covenants............................ -36-
7.10 Change in Executive Management..................... -37-
SECTION 8. DEFAULT............................................ -37-
8.1 Events of Default.................................. -37-
8.2 Cure............................................... -39-
8.3 Rights and Remedies on Default..................... -39-
8.4 Nature of Remedies................................. -40-
8.5 Set-Off............................................ -40-
SECTION 9. MISCELLANEOUS...................................... -41-
9.1 GOVERNING LAW...................................... -41-
9.2 Integrated Agreement............................... -41-
9.3 Waiver............................................. -41-
9.4 Time............................................... -42-
9.5 Expenses of Lender and Lender...................... -42-
9.6 Brokerage.......................................... -42-
9.7 Notices............................................ -42-
9.8 Headings........................................... -43-
9.9 Survival........................................... -43-
9.10 Successors and Assigns............................. -44-
9.11 Duplicate Originals................................ -44-
9.12 Modification....................................... -44-
9.13 Signatories........................................ -44-
9.14 Third Parties...................................... -44-
9.15 Discharge of Taxes, Borrowers' Obligations, Etc.... -44-
9.16 Withholding and Other Tax Liabilities.............. -44-
9.17 CONSENT TO JURISDICTION............................ -45-
9.18 Waiver of Jury Trial............................... -45-
EXHIBIT LIST
------------
Exhibit 2.1(d) - Form of Borrowing Base Certificate
Exhibit 2.2 - Form of Letter of Credit Agreement
Exhibit 5.1 - Borrower's States of Qualifications
Exhibit 5.2 - Places of Business
Exhibit 5.3 - Judgments, Proceedings, Litigation and Orders
Exhibit 5.4 - Existing Liens and Claims
Exhibit 5.7 - Federal Tax Identification Numbers
Exhibit 5.9 - Subsidiary and Affiliates
Exhibit 5.10 - Existing Guaranties, Investments and Borrowings,
Leases and Employment Agreements
Exhibit 5.11 - Employee Benefit Plans
Exhibit 5.12 - Business Interruptions
Exhibit 5.13(a) - Schedule of Names
Exhibit 5.13(b) - Trademarks, Patents and Copyrights
Exhibit 5.14 - Other Associations
Exhibit 5.15 - Environmental Disclosure
Exhibit 5.17 - Capital Stock
Exhibit 5.19 - Required Licenses
Exhibit 6.10 - Form of Compliance Certificate
LOAN AND SECURITY AGREEMENT
---------------------------
This Loan and Security Agreement ("Agreement"), dated as of April __, 1998,
is entered into by and among TELESPECTRUM WORLDWIDE INC., a Delaware corporation
("TWI"), TLSP TRADEMARKS, INC., a Delaware Corporation, and TLSP INVESTMENTS,
INC., a Delaware corporation (all of the foregoing collectively, "Borrowers" and
individually, "Borrower"), and MELLON BANK, N.A. ("Lender").
BACKGROUND
----------
A. Borrower desires to establish financing arrangements with Lender to
permit its uninterrupted and continuous business operations. Lender is willing
to make loans and grant extensions of credit to Borrower, under the terms and
provisions hereinafter set forth.
B. The parties desire to define the terms and conditions of their
relationship and reduce them to writing.
TERMS AND CONDITIONS
--------------------
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1 Terms Defined: As used in this Agreement, the following terms have
-------------
the following respective meanings:
Account - Any right to payment for goods sold or leased or for
-------
services rendered which is not evidenced by an instrument or chattel paper,
whether or not it has been earned by performance.
Account Debtor - Any Person obligated on any Account owing to any
--------------
Borrower.
Advance(s) - Any monies advanced or credit extended to Borrowers by
----------
Lender under the Revolving Credit, including without limitation cash advances
and the issuance of Letters of Credit.
Affiliate - Section 7.4.
---------
Agreement - This Loan and Security Agreement, as it may hereafter be
---------
amended, supplemented or replaced from time to time.
Applicable Base Rate Margin - one-half percent (.50%) per annum,
---------------------------
provided however, that upon receipt of Borrowers' fiscal year end audited
financial statements, for the fiscal year ending December 31, 1998 and for each
fiscal year thereafter, and provided that no Event of Default has occurred, the
"Applicable Base Rate Margin" shall be redetermined prospectively in accordance
with the ratio of Borrowers' Funded Debt to EBITDA as set forth in the following
matrix:
Ratio of Funded Debt to EBITDA Applicable Base Rate Margin
------------------------------ ---------------------------
Equal to or greater than 3.00:1 .50%
Less than 3.00:1 but equal to or greater than 2.25:1 .25%
Less than 2.25:1 but equal to or greater than 1.50:1 0%
Less than 1.50:1 0%
The above pricing index shall be measured annually and shall be effective five
(5) days after receipt of the fiscal year end audited financial statements
referenced above. If Borrowers fail to deliver their fiscal year end audited
financial statements for any fiscal year just ended to Lender within ninety (90)
days after the end of such fiscal year (and without limiting Lender's rights
under Sections 2.5(e) and 8), then the "Applicable Base Rate Margin" shall
immediately be set at one-half percent (.50%) and shall continue at such rate
until Lender's receipt of Borrowers' fiscal year end audited financial
statements for the then current fiscal year.
Applicable LIBOR Rate Margin - two and one-half percent (2.5%) per annum,
----------------------------
provided however, that upon receipt of Borrowers' fiscal year end audited
financial statements, commencing with the fiscal year ending December 31, 1998
and for each fiscal year thereafter, and provided that no Event of Default has
occurred, the "Applicable LIBOR Rate Margin" shall be redetermined prospectively
in accordance with the ratio of Borrowers' Funded Debt to EBITDA as set forth in
the following matrix:
Ratio of Funded Debt to EBITDA Applicable LIBOR Rate Margin
------------------------------ ----------------------------
Equal to or greater than 3.00:1 2.50%
Less than 3.00:1 but equal to or greater than 2.25:1 2.25%
Less than 2.25:1 but equal to or greater than 1.50:1 1.75%
Less than 1.50:1 1.50%
The above pricing index shall be measured annually and shall be effective upon
receipt of the fiscal year end audited financial statements referenced above.
If Borrowers fail to deliver their fiscal year end audited financial statements
for any fiscal year just ended to Lender within ninety (90) days after the end
of such fiscal year (and without limiting Lender's rights under Sections 2.5(e)
and 8), then the "Applicable LIBOR Rate Margin" shall immediately be set at two
and one-half percent (2.5%) and shall continue at such rate until Lender's
receipt of Borrowers' fiscal year end audited financial statements for the then
current fiscal year.
Authorized Officer - Any officer or employee of Borrowers authorized by
------------------
Borrowers to request Advances as set forth in a Borrowing Authorization.
Base Rate - The greater of: (i) the Prime Rate or (ii) one-half percent
---------
(1/2%) in excess of the effective Federal Funds Rate.
Base Rate Loan - That portion of the Loans on which interest accrues at the
--------------
Base Rate plus the Applicable Base Rate Margin.
Base Rate Option - Section 2.4(a).
----------------
Borrowing Authorization - A document signed and delivered to Lender by an
-----------------------
Authorized Officer of Borrowers.
Borrowing Base - As of any date of determination, an amount equal to the
--------------
sum of: (i) eighty percent (80%) of Eligible Accounts, plus (ii) eighty percent
----
(80%) of Projected Monthly Xxxxxxxx, minus (iii) the L/C Reserve, minus (iv) any
----- -----
other reserves taken from time to time by Lender.
Borrowing Base Certificate - Section 2.1(d).
--------------------------
Business Day - Any day that is not a Saturday or Sunday or day on which
------------
Lender is required or permitted to close, and solely with respect to LIBOR Rate
Loans requested by Borrowers, shall mean any day on which Lender is able to
determine the LIBOR Rate for such requested LIBOR Rate Loan.
Capital Expenditures - Any expenditure that would be classified as a
--------------------
capital expenditure on a statement of cash flow of Borrowers prepared
in accordance with GAAP, consistently applied.
Cash Collateral Account - Section 2.3(b).
-----------------------
Cash Flow - Net Income plus depreciation, amortization and non-cash
---------
subordinated interest expense, minus all Unfunded Capital Expenditures and all
scheduled principal payments made on long term indebtedness.
Closing - Section 4.6.
-------
Closing Date - Section 4.6.
------------
Collateral - Section 3.1.
----------
Collateral Management Fee - Section 2.6(e).
-------------------------
Concentration Reserve - An amount equal to the greater of (i) $750,000 or
---------------------
(ii) a number representing the highest dollar amount of xxxxxxxx in the
immediately preceding calendar month for any customer of any Borrower.
Current Assets - All assets that should be classified as current assets on
--------------
a balance sheet of Borrowers prepared in accordance with GAAP.
Current Liabilities - All liabilities that should be classified as current
-------------------
liabilities on a balance sheet of Borrowers prepared in accordance with GAAP,
including without limitation, in any event for covenant purposes only, the
Loans.
Current Ratio - The ratio of (i) Current Assets to (ii) Current
-------------
Liabilities.
Debt to Tangible Net Worth Ratio - The ratio of (i) total Liabilities to
--------------------------------
(ii) Tangible Net Worth.
Default Rate - Section 2.5(c).
------------
Distribution -
------------
(1) Dividends or other distributions of any kind on capital stock of any
Borrower;
(2) The redemption, repurchase or acquisition of such stock or
interests or of warrants, rights or other options to purchase such stock or
interests.
EBITDA - Net Income before interest, taxes, depreciation and amortization,
------
all of the foregoing as would be shown on a statement of earnings of Borrowers
prepared in accordance with GAAP.
Eligible Accounts - All Accounts of any Borrower meeting all of the
-----------------
following specifications: (i) the Account is lawfully and exclusively owned by
such Borrower and subject to no Lien other than Liens of Lender, and such
Borrower has the right of assignment thereof and the power to grant a security
interest therein; (ii) the Account is valid and enforceable representing the
indebtedness of an Account Debtor not more than 90 days past the original
invoice date; (iii) the Account is not subject to any defense, set-off,
counterclaim, dispute, deduction, discount, credit, chargeback, freight claim,
allowance or adjustment of any kind; (iv) no part of any goods, the sale or
lease of which has given rise to the Account, has been returned, rejected, lost
or damaged; (v) if the Account arises from the sale of goods by such Borrower,
such sale was an absolute sale and not on consignment or on approval or on a
sale-or-return basis or subject to any other repurchase or return agreement, and
such goods have been shipped to the Account Debtor or its designee; (vi) if the
Account arises from the performance of services, such services have actually
been performed; (vii) the Account arose in the ordinary
course of such Borrower's business; (viii) no notice of the bankruptcy,
receivership, reorganization, liquidation, dissolution, or insolvency of the
Account Debtor has been received by Lender or Borrower; (ix) the Account Debtor
is not a Subsidiary, Affiliate or employee of any Borrower and does not control
any Borrower and is not under the control of or under common control with any
Borrower; (x) it is not an Account of an Account Debtor having its principal
place of business or executive office outside of the United States unless such
Account is guaranteed in full by an irrevocable letter of credit satisfactory to
Lender and assigned and delivered to Lender; (xi) the Account does not represent
a sale to the government of the United States or any subdivision thereof unless
such Borrower has complied, for the benefit of Lender, with the Federal
Assignment of Claims Act; (xii) the Account, together with all other Accounts
owing from the same Account Debtor, represents no more than fifteen percent
(15%) of all of the Accounts of Borrowers; (xiii) not more than fifty percent
(50%) of the aggregate balance of all Accounts owing from the Account Debtor
obligated on the Account are outstanding more than ninety (90) days past their
invoice date; (xiv) the Account is payable in lawful money of the United States;
and (xv) the Account meets such other specifications and requirements which may
from time to time be established by Lender. Eligible Accounts shall not include
that portion of an Account representing interest or late charges for past due
balances or debit memos. Lender is willing, however, upon Borrowers' request, to
consider including (such consideration to be given in Lender's sole discretion
under such guidelines as Lender may apply concerning the validity,
enforceability, lien priority, performance, or collectibility of or other
criteria applicable to the Account) an Account of a foreign Account Debtor as an
Eligible Account where such Account would not otherwise meet the requirements of
clause (x) above.
ERISA - The Employee Retirement Income Security Act of 1974, as the same
-----
may be amended, from time to time.
Executive Management - The chief executive officer and chief financial
--------------------
officer of TWI.
Event of Default - Section 8.1.
----------------
Expenses - Section 10.5.
--------
Facility Fee - Section 2.6(a).
------------
Federal Funds Rate - The daily rate of interest announced from time to time
------------------
by the Board of Governors of the Federal Reserve System in
publications H.15 as the "Federal Funds Rate."
Foreign Subsidiaries - TeleSpectrum Worldwide (Canada), Inc. and Tarp
--------------------
(Europe) Limited.
Funded Debt - All indebtedness of any Borrower or Borrowers for borrowed
-----------
money, including, without limitation, capitalized lease obligations.
Funded Debt to EBITDA - The ratio of (i) Funded Debt to (ii) EBITDA.
---------------------
GAAP - Generally accepted accounting principles applied in a manner
----
consistent with the most recent audited financial statements of Borrower
referred to in Section 5.7 herein.
Good Business Day - Any Business Day when banks in Philadelphia,
-----------------
Pennsylvania, New York, New York and London, England are open for business.
Xxxxxx Division - The business and assets of the Xxxxxx Division of TWI.
---------------
Inventory - As defined in the UCC.
---------
Investment Property - As defined in the UCC.
-------------------
IRS - Section 6.7.
---
Letters of Credit - Section 2.2(a).
-----------------
L/C Fees - Section 2.6(c).
--------
L/C Reserve - Section 2.2.
-----------
L/C Sublimit - $1,500,000.
------------
Liabilities - All liabilities of every kind as would be shown on a
-----------
balance sheet of Borrower prepared in accordance with GAAP.
LIBOR Based Rate - The LIBOR Rate plus the Applicable LIBOR Rate Margin.
----------------
LIBOR Based Rate Loan - That portion of the Loans on which interest
---------------------
accrues at the LIBOR Based Rate.
LIBOR Interest Period - Section 2.5(b)(ii).
---------------------
LIBOR Rate - An annual rate of interest determined by Lender as being the
----------
rate available to Lender at approximately 11:00 a.m. London time in the London
Interbank Market, as referenced by Reuters Screen "LIBOR", in accordance with
the usual practice in such market, for the LIBOR Interest Period elected by
Borrower, in effect two Good Business Days prior to the funding date for a
requested LIBOR Based Rate Loan (including those requested in connection with
the conversion of a Base Rate Loan to a LIBOR Based Rate Loan in accordance with
Section 2.5 hereof), or for a LIBOR Based Rate Loan which Borrower has elected
to continue as a LIBOR Based Rate Loan beyond the expiration of the then current
LIBOR Interest Period with respect thereto, for deposits of dollars in amounts
equal (as nearly as may be estimated) to the amount of the LIBOR Based Rate Loan
which shall then be loaned by the Lender to Borrower as of the time of such
determination, as such rate may be adjusted by the reserve percentage applicable
during the LIBOR Interest Period in effect (or if more than one such percentage
shall be applicable, the daily average of such percentages for those days in
such LIBOR Interest Period during which any such percentage shall be so
applicable) under regulations issued from time to time by the Board of Governors
of the Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including without limitation, any emergency, supplemental
or other marginal reserve requirement) for Lender with respect to liabilities or
assets consisting of or including "Eurocurrency Liabilities" as such term is
defined in Regulation D of the Board of Governors of the Federal Reserve System,
as in effect from time to time, having a term equal to such LIBOR Interest
Period ("Eurocurrency Reserve Requirement"), as reasonably applied to loans of
this type generally by the asset based loan department of Lender. Such
adjustment shall be effectuated by calculating, and the LIBOR Rate shall be
equal to, the quotient of (i) the offered rate divided by (ii) one minus the
Eurocurrency Reserve Requirement.
Lien - Any interest of any kind or nature in property securing an
----
obligation owed to, or a claim of any kind or nature in Property by, a Person
other than the owner of the Property, whether such interest is based on the
common law, statute, regulation or contract, and including, but not limited to,
a security interest or lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt, a capitalized lease, consignment or bailment
for security purposes, a trust, or an assignment, or as a result of the issuance
of any execution or distraint process against Borrower. The term "Lien" shall
include without limitation, reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and other title
exceptions and encumbrances affecting Property other than those which would not
materially interfere with Borrowers' use of the Property and would not
materially detract from the value of the Property. For the purposes of this
Agreement, Borrowers shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
Loans - The unpaid balance of Advances under the Revolving Credit
-----
(including, without limitation, all unreimbursed draws on Letters of
Credit, unless expressly stated otherwise).
Loan Documents - This Agreement, the Revolving Credit Note, and all
--------------
agreements, instruments and documents executed and/or delivered from time to
time pursuant to this Agreement or in connection therewith, as amended or
replaced from time to time.
Lockbox Agreement - That certain Lockbox Agreement(s) between Borrower and
-----------------
Lender executed and delivered by Borrowers to Lender as it or they may be
amended, supplemented or replaced from time to time.
Lockbox - Section 2.3(b).
-------
Log Report - That certain weekly report prepared by Borrowers reflecting
----------
the status of work performed (but not yet billed) by Borrowers on current
projects and to include, at a minimum, the amount of time spent per project
since the date of the last report, the rate at which each component of time is
to be billed and the projected amount to be billed for such work performed
reflected by such report.
Material Adverse Effect - Any fact, circumstance, event or condition
-----------------------
causing or likely to cause a material adverse effect on (a) the financial
condition, assets, operating status or projected financial condition (i) of TWI
or (ii) all Borrowers taken as a whole, (b) the ability of Borrowers to perform
their obligations under this Agreement or under any Loan Document, or (c) the
ability of Lender to enforce the rights purported to be granted to them under
this Agreement or any Loan Document.
Maturity Date - Four (4) years from the date hereof.
-------------
Net Income - For any period, the net earnings (or loss) after taxes of
----------
Borrowers for such period less extraordinary gains plus extraordinary non-cash
---- ----
losses, as such would appear on a statement of income of Borrowers, prepared in
accordance with GAAP.
Obligations - All existing and future liabilities and obligations of every
-----------
kind or nature at any time owing by any Borrower or Borrowers (jointly or
severally) to Lender in connection with the Loan Documents (including, without
limitation, this Agreement, the Revolving Credit Note) and the transactions
contemplated hereby and thereby or administration thereof, whether joint or
several, related or unrelated, primary or secondary, matured or contingent,
direct or indirect, due or to become due, and whether principal, interest, fees
or Expenses, including, without limitation, Obligations in respect of the
Revolving Credit whether related to cash
Advances or Letters of Credit (whether drawn or undrawn) and any extensions,
modifications, substitutions, increases and renewals thereof, and the payment of
all reasonable amounts advanced by Lender to preserve, protect and enforce
rights hereunder and in the Collateral and all Expenses incurred in connection
therewith and herewith.
Overadvances - Any amounts by which the outstanding Loans at any time
------------
exceed the Borrowing Base.
PBGC - Section 6.6.
----
Permitted Liens - Section 7.3.
---------------
Person - An individual, partnership, corporation, trust, unincorporated
------
association or organization, joint venture, limited liability company or
partnership, or any other entity.
Potential Default - An event which with the passage of time, the giving of
-----------------
notice, or both would constitute an Event of Default.
Prime Rate - That per annum rate designated or announced by Lender at its
----------
principal office from time to time as its prime rate of interest, which may be
greater or less than other interest rates charged by Lender to other borrowers
and is not solely based or dependent upon the interest rate which Lender may
charge any particular borrower or class of borrowers.
Projected Weekly Xxxxxxxx - The number(s) representing the projected amount
-------------------------
to be billed shown on the weekly Log Report provided to Lender, the inclusion of
which is deemed a representation by Borrower that such amount would meet all of
the specifications of an Eligible Account other than the existence of an
invoice.
Projected Monthly Xxxxxxxx - Ninety percent (90%) of the sum of
--------------------------
Projected Weekly Xxxxxxxx for and only for the then current calendar month,
minus the Concentration Reserve.
-----
Property - Any interest in any kind of property or asset, whether real,
--------
personal or mixed, or tangible or intangible.
Regulation D - Regulation D of the Board of Governors of the Federal
------------
Reserve System, comprising Part 204 of Title 12, Code of Federal Regulations, as
amended, and any successor thereto.
Revolving Credit - Section 2.1(a).
----------------
Revolving Credit Limit - $20,000,000 (subject to Section 2.1(a)(ii)
----------------------
hereof).
Revolving Credit Note - Section 2.1(b).
---------------------
Revolving Credit Term - Section 2.1(c).
---------------------
Subordinated Debt - All indebtedness of Borrowers subject to payment terms
-----------------
and subordination provisions acceptable to Lender in its discretion.
Subsidiary - Any corporation more than fifty percent (50%) of whose voting
----------
stock is legally and beneficially owned directly or indirectly by a Borrower or
owned by a corporation more than fifty percent (50%) of whose voting stock is
legally and beneficially owned directly or indirectly by a Borrower.
Tangible Net Worth - The amount by which the assets (excluding trademarks,
------------------
goodwill, covenants not to compete, deferred closing costs and all other assets
as would be characterized as intangible assets under GAAP) exceed all
Liabilities as would be shown on a balance sheet of Borrowers, prepared in
accordance with GAAP.
Termination Fee - Section 2.6(d).
---------------
UCC - The Uniform Commercial Code as adopted in the Commonwealth of
---
Pennsylvania at 13 Pa.C.S.A. (S)1101 et seq.
-- ---
Unfunded Capital Expenditures - Capital Expenditures made with (i) use of
-----------------------------
cash Advances or (ii) Borrowers' own funds obtained other than (A) through
equity contributed subsequent to the Closing or (B) purchase money or other
financing or lease transactions.
Unused Revolver - means the Revolving Credit Limit minus the outstanding
---------------
Loans plus the undrawn amounts under all issued and outstanding Letters of
Credit.
Unused Line Fee - Section 2.6(b).
---------------
Working Capital - Current Assets minus Current Liabilities.
---------------
1.2 Accounting Principles: Where the character or amount of any asset or
---------------------
liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP, to the
extent applicable, except as otherwise expressly provided in this Agreement.
SECTION 2. THE LOANS
2.1 Revolving Credit - Description:
------------------------------
(a) (i) Subject to the terms and conditions of this Agreement,
Lender hereby establishes for the benefit of Borrowers a revolving credit
facility (collectively, the "Revolving Credit") which shall include Advances
extended by Lender to or for the benefit of Borrowers from time to time
hereunder. The aggregate principal amount of all Loans (including any Advances
being requested by Borrowers as of the time of measurement thereof) shall not,
at any time, exceed the lesser of the Revolving Credit Limit or the Borrowing
Base and the aggregate amount of all Loans and Letters of Credit shall not
exceed the Revolving Credit Limit. Subject to such limitation, the outstanding
balance of Loans may fluctuate from time to time, to be reduced by repayments
made by Borrowers, to be increased by future Advances which may be made by
Lender and, subject to the provisions of Section 8 below, shall be due and
payable on the Maturity Date. If the aggregate principal amount of all Loans at
any time exceeds the lesser of the Revolving Credit Limit or the Borrowing Base,
and without prejudice to any other rights of Lender, Borrowers shall immediately
repay such excess in full. Lender has the right at any time and from time to
time, in its discretion, to create and set aside reserves against availability
under the Borrowing Base in such amounts as it may deem appropriate.
(ii) Notwithstanding any other provision hereof, a cap of $10,000,000
shall exist on all Advances under the Revolving Credit Limit, unless and until
Lender and Lender's counsel have completed all due diligence determined by them
to be necessary with respect to the creation of the Revolving Credit including,
without limitation, Lender's field examination of all Borrowers, and have found
(in Lender's sole discretion) the results of such review satisfactory in all
respects. Lender shall use its best efforts to complete such due diligence
within thirty (30) days after the Closing Date. If such due diligence is not
completed within ninety (90) days after the Closing Date, the Revolving Credit
Limit shall, at Borrowers' option, after five (5) days written notice from
Borrowers to Lender, be reduced to $10,000,000.
(b) At Closing, Borrowers shall jointly and severally execute and deliver a
promissory note to Lender in the amount of the Revolving Credit Limit (as may be
amended, modified, supplemented, restated or replaced from time to time, the
"Revolving Credit Note"). The Revolving Credit Note shall evidence Borrowers'
absolute unconditional obligation to repay Lender for all outstanding Loans,
with interest as herein and therein provided. Each and every Advance under the
Revolving Credit shall be deemed evidenced by the Revolving Credit Note, which
is deemed incorporated herein by reference and made a part hereof.
(c) The term ("Revolving Credit Term") of the Revolving Credit shall expire
on the Maturity Date. On such date, unless having been sooner
accelerated by Lender or sooner terminated by Borrowers pursuant to Section
2.8(d) hereof, all Obligations shall be due and payable in full, and as of such
date no further Advances shall be available from Lender.
(d) Borrowers shall deliver to Lender, no later than the Second Business
Day of each week unless Lender requests more frequent delivery, a borrowing base
certificate in the form of Exhibit 2.1(d) attached hereto and made a part hereof
("Borrowing Base Certificate"), executed by an Authorized Officer, prepared as
of the close of business on the last Business Day of the week immediately
preceding Borrowers' transmittal thereof.
2.2 Letters of Credit:
-----------------
(a) As a part of the Revolving Credit and subject to its terms and
conditions (including, without limitation, the Borrowing Base) Lender shall make
available to Borrowers documentary/merchandise letters of credit and standby
letters of credit (collectively "Letters of Credit"), the outstanding undrawn
amount of which shall not exceed, in the aggregate at any one time the L/C
Sublimit. Notwithstanding the foregoing, all Letters of Credit shall be in form
and substance satisfactory to Lender. No documentary/merchandise letter of
credit shall be issued with an expiry date greater than 90 days from the date of
issuance and no standby letter of credit shall be issued with an expiry date
later than one year from the date of issuance, but in no event shall any Letter
of Credit carry an expiry date later than the Maturity Date. Borrowers shall
execute and deliver to Lender all letter of credit agreements, applications and
other documents required by Lender for such purposes, all such agreements and
documents to be in form and substance satisfactory to Lender in its sole
discretion.
(b) Lender shall be immediately, absolutely and unconditionally
reimbursed, without offset or deduction of any kind, by Borrowers for draws made
under a Letter of Credit. Such reimbursement shall be made, at the option of
Lender, by either a cash payment by Borrower or by Lender automatically making
or having deemed made (without further request or approval of Borrowers), a cash
Advance under the Revolving Credit (regardless of whether availability then
exists under the Borrowing Base). The sum of one hundred percent (100%) of the
face amount of Letters of Credit issued and outstanding, as well as unpaid
reimbursement obligations of Borrowers with respect to drafts on Letters of
Credit which have been paid by Lender, shall constitute a reserve against the
Borrowing Base ("L/C Reserve").
2.3 Advances, Conversions, Renewals and Payments:
--------------------------------------------
(a) Except to the extent otherwise set forth in this Agreement, all
payments of principal and of interest on the Revolving Credit, the Facility Fee,
the Expenses, the Unused Line Fee, the L/C Fees, and all other charges and any
other Obligations of Borrowers hereunder, shall be made to Lender at its main
Philadelphia banking office, Mellon Bank Center, 0000 Xxxxxx Xxxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx, xx Xxxxxx Xxxxxx dollars, in immediately available
funds. Lender shall have the unconditional right and discretion to make a cash
Advance under the Revolving Credit to pay, and/or to charge Borrowers' operating
account with Lender for, all of Borrowers' Obligations as they become due from
time to time under this Agreement including without limitation, interest,
principal, fees and reimbursement of Expenses. All payments received by check
or wire transfer by Lender after 3:00 p.m. Philadelphia time on any day shall be
credited against the Obligations on the succeeding Business Day.
(b) Borrowers shall maintain a lockbox and/or blocked account(s)
("Lockbox") with Lender, and a non-interest bearing depository account(s) ("Cash
Collateral Account") with Lender (subject to the provisions of this
subparagraph, and the Lockbox Agreement). Borrowers have agreed with Lender
that all collections of Accounts will be paid directly from any Account Debtor
into the Lockbox. In accordance with Lender's standard practice, funds shall
then be transferred to the Cash Collateral Account, which funds shall be applied
by Lender, to reduce the outstanding indebtedness under the Revolving Credit,
with future Advances considered by Lender under the conditions set forth in this
Section 2; provided, however, that if (i) no Event of Default has occurred and
is continuing, (ii) the only Loans or other principal Obligations outstanding
are LIBOR Based Rate Loans and/or constitute Letters of Credit, and (iii) no
Overadvances are outstanding, funds in the Cash Collateral Account shall, if
requested by Borrowers, be deposited into Borrowers' deposit account with
Lender. All collections of Accounts and proceeds of other Collateral received
by Borrowers shall be held in trust for Lender and immediately remitted, in
--
specie, to Lender for deposit in the Cash Collateral Account. Borrowers shall
------
have no right of access to or withdrawal from the Lockbox or the Cash Collateral
Account; provided that if there are no outstanding Obligations, then all
collections of Accounts shall be transferred to Borrowers' operating account
with Lender at such time as such collections have become collected funds. All
funds transferred from the Cash Collateral Account for application to Borrowers'
Obligations shall be subject to a one (1) day funds clearance charge payable to
Lender calculated and applied in accordance with the funds clearance procedures
of the asset based lending department of Lender. Funds in the Cash Collateral
Account at any time shall not accrue interest.
(c) (i) Cash Advances which may be made by Lender from time to time under
the Revolving Credit shall be made available for the use and benefit of
Borrowers by crediting such proceeds to the operating account of TWI with Lender
for the benefit of all Borrowers.
(ii) All cash Advances subject to the Base Rate Option requested by
Borrowers under the Revolving Credit must be requested by 12:00 P.M.,
Philadelphia time, on the date such Advance is to be made, which must be a
Business Day. All cash Advances subject to the LIBOR Rate Option or conversions
from cash Advances subject to the Base Rate Option to the LIBOR Rate Option,
requested by Borrowers must be requested by 11:00 A.M. Philadelphia time, three
Good Business Days prior to the date of such requested cash Advance. If
Borrowers do not have the required availability for such requested Advance under
the Borrowing Base or the Revolving Credit Limit on the date any such LIBOR
Based Rate Loan is to be made, then Lender shall not be required to make such
Advance. All requests for a cash Advance may be made either by telephone or in
writing, provided that all telephonic requests are, upon Lender's request, to be
confirmed by Borrowers in writing on the same day, and further provided that
unless Lender advises Borrowers to the contrary such written confirmation may be
sent by telecopy or facsimile transmission.
2.4 Interest:
--------
(a) Base Rate Option - The unpaid principal balance of Loans,
----------------
including amounts drawn and not yet reimbursed under Letters of Credit, unless
subject to the LIBOR Rate Option, shall bear interest, subject to the terms
hereof, at the per annum rate equal to the Base Rate plus the Applicable Base
Rate Margin ("Base Rate Option"). Changes in the Base Rate shall become
effective on the same day as Lender announces a change in its Prime Rate or, if
applicable, on the same day as the Board of Governors of the Federal Reserve
System announces a change in the Federal Funds Rate. Interest on Base Rate Loans
shall be due and payable in arrears on the first day of each calendar month
commencing the first day of the first full month following the Closing Date.
(b) LIBOR Rate Option:
-----------------
(i) So long as no Event of Default is outstanding, Borrowers shall
have the option to have the unpaid principal balance of Loans under the
Revolving Credit bear interest at the LIBOR Based Rate ("LIBOR Rate Option"),
provided that LIBOR Rate Loans shall be in minimum increments of $500,000 and
there shall be no more than three (3) LIBOR Rate Loans outstanding at any one
time.
(ii) LIBOR Based Rate Loans shall be selected for a period of
either one (1) month, two (2) months, three (3) months or six (6) months
duration, as the Borrowers may elect, during which the LIBOR Based Rate is
applicable ("LIBOR Interest Period"); provided, however, that (a) if the LIBOR
Interest Period would otherwise end on a day which shall not be a Good Business
Day, such LIBOR Interest Period shall be extended to the next succeeding Good
Business Day, unless such Good Business Day falls in another calendar month, in
which case such LIBOR Interest Period shall end on the next preceding Good
Business Day subject to clause (c) below; (b) interest shall accrue from and
including the first day of each LIBOR Interest Period to, but excluding the day
on which any LIBOR Interest Period expires; and (c) with respect to any LIBOR
Interest Period which begins on the last Good Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the calendar
month at the end of such LIBOR Interest Period), the LIBOR Interest Period shall
end on the last Good Business Day of a calendar month. Interest on a LIBOR Based
Rate Loan shall be due and payable on the last day of each LIBOR Interest Period
(and also at the end of three (3) months with respect to a LIBOR Interest Period
of longer than three (3) months). No LIBOR Interest Period may end after the
Maturity Date. Subject to all of the terms and conditions applicable to a
request that a new cash Advance be a LIBOR Based Rate Loan, Borrowers may extend
a LIBOR Based Rate Loan as of the last day of the LIBOR Interest Period to a new
LIBOR Based Rate Loan or may convert all or a portion of the Loans subject to
the Base Rate Option to a LIBOR Based Rate Loan. If Borrowers fail to notify the
Lender of the LIBOR Interest Period for a subsequent LIBOR Based Rate Loan at
least three (3) Good Business Days prior to the last day of the then current
LIBOR Interest Period of an outstanding LIBOR Based Rate Loan, then such
outstanding LIBOR Based Rate Loan shall become a loan subject to the Base Rate
Option at the end of the current LIBOR Interest Period for such outstanding
LIBOR Based Rate Loan and shall accrue interest in accordance with Section
2.4(a) above.
(iii) The LIBOR Rate may be automatically adjusted by Lender on a
prospective basis to take into account the additional or increased cost of
maintaining any necessary reserves for Eurodollar deposits or increased costs
due to changes in applicable law or regulation or the interpretation thereof
occurring subsequent to the commencement of the then applicable LIBOR Interest
Period, including but not limited to changes in tax laws (except changes of
general applicability in corporate income tax laws as they affect financial
institutions) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve
System (or any successor), excluding any such changes that have resulted in a
payment pursuant to Section 2.10 hereof, that increase the cost to Lender of
funding the LIBOR Based Rate Loan. Lender shall promptly give Borrowers notice
of such a determination and adjustment, which determination shall be conclusive
as to the correctness of the fact and the amount of such adjustment, absent
manifest error. Borrowers may, by written notice to Lender, (A) request Lender
to furnish to Borrowers a statement setting forth the basis for adjusting such
LIBOR Based Rate and the method for determining the amount of such adjustment;
and/or (B) prepay the LIBOR Based Rate Loan with respect to which such
adjustment is made, subject to the requirements of Section 2.9 below.
(iv) In the event that Borrowers shall have requested the LIBOR
Rate Option in accordance with Section 2.4(b) and Lender shall have reasonably
determined that Eurodollar deposits equal to the amount of the principal of the
requested LIBOR Based Rate Loan and for the LIBOR Interest Period specified are
unavailable, impractical or unlawful, or that the rate based on the LIBOR Rate
will not adequately and fairly reflect the cost of funds of the LIBOR Based Rate
applicable to the specified LIBOR Interest Period, of making or maintaining the
principal amount of the requested LIBOR Based Rate Loan specified by Borrowers
during the LIBOR Interest Period specified, or that by reason of circumstances
affecting Eurodollar markets, adequate and reasonable means do not exist for
ascertaining the rate based on the LIBOR Rate applicable to the specified LIBOR
Interest Period, Lender shall promptly give notice of such determination to
Borrowers that the rate based on the LIBOR Rate is not available. A
determination by Lender hereunder shall be prima facie evidence of the
correctness of the fact and amount of such additional costs or unavailability.
Upon such a determination, (A) the right of Borrowers to select, convert to, or
maintain a LIBOR Based Rate Loan at the rate based on the LIBOR Rate shall be
suspended until Lender shall have notified Borrowers that such conditions shall
have ceased to exist, and (B) the Loans subject to the requested LIBOR Rate
Option shall accrue interest in accordance with Section 2.4(a) above.
(v) In the event that, as a result of any changes in applicable
law or regulation or the interpretation thereof, it becomes unlawful for Lender
to make or to continue to fund or maintain LIBOR Based Rate Loans or to
maintain Eurodollar liabilities sufficient to fund any LIBOR Based Rate Loan
subject to the LIBOR Based Rate, then Lender shall immediately notify Borrowers
thereof and Lender's obligations to make, convert to, or maintain a LIBOR Based
Rate Loan at the LIBOR Based Rate shall be suspended until such time as such
Lender may again cause the LIBOR Based Rate to be applicable to its share of any
LIBOR Based Rate Loans and the Loans
subject to the LIBOR Based Rate shall accrue interest in accordance with Section
2.4(a) above. Promptly after becoming aware that it is no longer unlawful for
such Lender to maintain such Eurodollar liabilities, Lender shall notify
Borrowers thereof and such suspension shall cease to exist.
2.5 Additional Interest Provisions.
------------------------------
(a) Calculation of Interest: Interest on all Loans and other
-----------------------
Obligations, regardless of the rate option, shall be based on a three hundred
sixty (360) day year and charged for the actual number of days elapsed.
(b) Limitation on LIBOR Based Rate Loans: Upon the occurrence and
------------------------------------
during continuance of an Event of Default, Lender may in its sole discretion
eliminate the availability of LIBOR Based Rate Loans.
(c) Default Rate: After the occurrence and during the continuance
------------
of an Event of Default hereunder, Lender may increase the per annum effective
rate of interest on all Loans outstanding under the Revolving Credit, including
amounts drawn and not yet reimbursed under Letters of Credit, regardless of the
rate option, to a rate equal to two percentage (2%) points in excess of the
applicable interest rate (the "Default Rate").
(d) Conversion: At Lender's option, following the occurrence of an
----------
Event of Default and written notice from Lender that the Obligations have been
accelerated, all LIBOR Based Rate Loans shall convert to a Base Rate Loan, which
conversion is independent of Lender's rights under Section 2.5(c).
(e) Continuation of Interest Charges: All contractual rates of
--------------------------------
interest chargeable hereunder, regardless of the rate option, shall continue to
accrue and be paid even after default, maturity, acceleration, judgment,
bankruptcy, insolvency proceedings of any kind or the happening of any event or
occurrence similar or dissimilar.
(f) Applicable Interest Limitations: In no contingency or event
-------------------------------
whatsoever shall the aggregate of all amounts deemed interest hereunder and
charged or collected pursuant to the terms of this Agreement exceed the highest
rate permissible under any law which a court of competent jurisdiction shall, in
a final determination, deem applicable hereto. In the event that such court
determines Lender has charged or received interest hereunder in excess of the
highest applicable rate, Lender shall, in its sole discretion, apply and set off
such excess interest received by Lender against other Obligations due or to
become due and such rate shall automatically be reduced to the maximum rate
permitted by such law.
2.6 Fees:
----
(a) Facility Fee: In consideration of Lender's agreement to
------------
establish the Revolving Credit, Borrowers have paid to Lender a non-refundable
facility fee in the amount of $100,000 ("Facility Fee").
(b) Unused Line Fee: So long as the Revolving Credit is
---------------
outstanding and has not been terminated pursuant to the terms hereof, Borrower
shall unconditionally pay to Lender a non-refundable fee ("Unused Line Fee")
equal to three eighths of one percent (.375%) per annum of the average daily
Unused Revolver. The Unused Line Fee shall be computed and paid on a monthly
basis, in arrears, on the first day of each calendar month, beginning on the
first day of the first calendar month after the initial Advance hereunder.
(c) Letter of Credit Fees: Borrowers shall pay to Lender letter of
---------------------
credit fees equal to: one percent (1%)of the face amount of
documentary/merchandise letters of credit upon and as a condition of the
issuance thereof, and one percent (1%) per annum of the face amount of each
standby letter of credit on the first day of each calendar quarter in advance.
Borrowers shall also pay to Lender all of Lender's standard charges (including
without limitation all cable and wire transfer charges) for the account of
Lender for the issuance, amendment, negotiation/payment, extension and
cancellation of each such Letter of Credit. All such fees are collectively, the
"L/C Fees".
(d) Termination Fee: In the event there occurs any termination
---------------
of the Revolving Credit by Lender or Borrowers (provided, if Borrowers initiate
such termination, Borrowers must give at least sixty (60) days prior written
notice to Lender of their intent to terminate) for any reason whatsoever prior
to the Maturity Date, Borrowers shall pay to Lender (in addition to payment of
all other Obligations, including its obligation, if any, under Sections 2.6(e)
and 2.9 hereof) a prepayment premium ("Termination Fee") in an amount equal to
three percent (3%) of the aggregate of the Revolving Credit Limit if such
termination occurs during the first year of the Revolving Credit, two percent
(2%) of the aggregate of the Revolving Credit Limit if the termination occurs
during the second year of the Revolving Credit and one and one-half percent
(1.5%) of the aggregate of the Revolving Credit Limit if such termination occurs
at any time thereafter prior to the Maturity Date. In any such case, the
commitments of Lender hereunder shall cease as of such date of termination.
(e) Collateral Management Fee: So long as the Revolving Credit
-------------------------
is outstanding and has not been terminated pursuant to the terms hereof,
Borrowers shall unconditionally pay to Lender, a non-refundable collateral
management fee in the amount of $2,000 per month payable annually in advance
("Collateral Management Fee").
(f) Calculation of Fees: All fees provided for in this Section 2.6
-------------------
shall be based on a three hundred sixty (360) day year and charged for the
actual number of days elapsed.
2.7 Prepayments:
-----------
(a) LIBOR Based Rate Loans: No portion of any LIBOR Based Rate Loan
----------------------
may be prepaid at any time unless Borrowers first satisfy in full its
obligations under Section 2.9 below arising from such prepayment.
(b) Base Rate Loans: Subject to Sections 2.6(b) and (d), Base Rate
---------------
Loans may be prepaid at any time and from time to time in whole or in part
without premium or penalty.
(c) Proceeds of Collateral: Borrowers shall, upon the receipt of
----------------------
proceeds of any Collateral, hold such proceeds in trust for Lender and
immediately remit in specie, all such proceeds to Lender, which funds shall be
-- ------
applied in conformity with the provisions of Section 2.3(b) above applicable to
funds in the Cash Collateral Account.
2.8 Use of Proceeds: The extensions of credit under and proceeds of
---------------
Advances under the Revolving Credit shall be used for (i) refinancing Borrowers'
existing borrowed indebtedness, and (ii) working capital and any other lawful
purpose not otherwise prohibited under this Agreement.
2.9 Indemnity/Loss of Margin:
------------------------
(a) Borrowers shall indemnify, defend and hold harmless Lender against
any and all loss, liability, cost or expense which Lender may sustain or incur
as a consequence of (i) any failure of Borrowers to obtain, convert or extend
any LIBOR Based Rate Loan after notice thereof has been given to Lender; (ii)
any payment, prepayment, termination or conversion of a LIBOR Based Rate Loan
made for any reason on a date other than the last day of the applicable LIBOR
Interest Period; or (iii) any failure of Borrowers to have the required
availability under the Borrowing Base for a requested Advance subject to the
LIBOR Rate Option. Borrowers shall pay the full amount thereof to Lender, on
demand by Lender.
(b) In the event that any present or future law, rule, regulation,
treaty or official directive or the interpretation or application thereof by any
central bank, monetary authority or governmental authority, or the compliance
with any guideline or request of any central bank, monetary authority or
governmental authority (whether or not having the force of law) imposes,
modifies or deems applicable any deposit insurance, reserve, special deposit, or
other similar requirement with respect to deposits in or for the account of, or
loans or advances or commitment to make loans or advances by, or letters of
credit issued or commitment to issue letters of credit by Lender and the result
of any of the foregoing is to increase the costs of a Lender, reduce the income
receivable by or return on equity of Lender or impose any expense upon Lender
with respect to any advances or extensions of credit or commitments to make
advances or extensions of credit under this Agreement, such Lender shall so
notify Borrowers in writing. Upon notice from Lender, Borrowers agree to pay
Lender the amount of such increase in cost, reduction in income, reduced return
on equity or capital, or additional expense after presentation by Lender of a
statement concerning such increase in cost, reduction in income, reduced return
on equity or capital, or additional expense. Such statement shall set forth a
brief explanation of the amount and Lender's calculation of the amount (in
determining such amount such Lender may use any reasonable averaging and
attribution methods), which statement shall be conclusively deemed correct
absent manifest error.
2.10 Capital Adequacy: If any present or future law, governmental rule,
----------------
regulation, policy, guideline, directive or similar requirement (whether or not
having the force of law) imposes, modifies, or deems applicable any capital
adequacy, capital maintenance or similar requirement which affects the manner in
which Lender allocates capital resources to its commitments (including any
commitments hereunder), and as a result thereof, in the opinion of Lender, the
rate of return on Lender's capital with regard to the Loans and/or its
obligations hereunder is reduced to a level below that which Lender could have
achieved but for such circumstances taking into account such Lender's policies
regarding capital adequacy, then in such case and upon notice from Lender to
Borrowers, from time to time, Borrowers shall pay Lender such additional amount
or amounts as shall compensate Lender for such reduction in its rate of return.
Such notice shall contain the statement of Lender with regard to any such amount
or amounts which shall, in the absence of manifest error, be binding upon
Borrowers. In determining such amount, Lender may use any reasonable method of
averaging and attribution that it deems applicable.
SECTION 3. COLLATERAL
3.1 Description: As security for the payment of the Obligations, and
-----------
satisfaction by Borrowers of all covenants and undertakings contained in this
Agreement and the other Loan Documents:
(a) Borrowers hereby each assign and grant to Lender, a continuing
first lien on and security interest in, upon and to all of its following
described Property ("Collateral"):
(i) Accounts, Contract Rights, Etc. - All now owned and hereafter
-------------------------------
acquired, created, or arising Accounts, accounts receivable, notes receivable,
contract rights, chattel paper, documents (including documents of title),
instruments and letters of credit;
(ii) Inventory - All now owned or hereafter acquired Inventory of
---------
every nature and kind, wherever located;
(iii) Equipment - All now owned or hereafter acquired equipment,
---------
including without limitation machinery, vehicles, furniture and fixtures,
wherever located, and all replacements, parts, accessories, substitutions and
additions thereto;
(iv) General Intangibles - All now owned and hereafter acquired,
-------------------
created or arising general intangibles of every kind and description, including,
but not limited, to all existing and future customer lists, choses in action,
loans, claims, books, records, patents and patent applications, copyrights,
trademarks, tradenames, tradestyles, trademark applications, blueprints,
drawings, designs and plans, trade secrets, contracts, contract rights,
distributorship agreements, licenses, license agreements, formulae, tax and any
other types of refunds, rights to or in employee or other pension, retirement or
similar plans and any assets thereof, or any portion thereof, including without
limitation refunds for overpayments, distributions upon termination, reversion
of any surplus assets or otherwise, returned and unearned insurance premiums,
rights and claims under insurance policies relating to the Collateral, and
computer information, software, records and data;
(v) Deposit Accounts - All now existing and hereafter acquired or
----------------
arising deposit, money market, savings and investment accounts, and certificates
of deposit, of every nature, wherever located, and all documents and records
associated therewith;
(vi) Investment Property - All now existing and hereafter
-------------------
acquired or created investment property;
(vii) Property in Lender's Possession - All Property, now or
-------------------------------
hereafter in Lender's possession; and
(viii) Proceeds - The proceeds (including, without limitation,
--------
insurance proceeds), whether cash or non-cash, of all of the foregoing.
(b) Each Borrower shall pledge to Lender all of the capital stock in
each domestic Subsidiary owned by it and each Borrower and Subsidiary shall
pledge to Lender sixty-five percent (65%) of the capital stock of each Foreign
Subsidiary owned by it.
(c) The Loans and all other Obligations shall constitute one
obligation of Borrower, secured by the Collateral.
3.2 Lien Documents: At Closing and thereafter as Lender deems necessary,
--------------
Borrowers shall execute and deliver to Lender, or have executed and delivered
(all in form and substance reasonably satisfactory to Lender):
(a) Financing Statements - Financing statements pursuant to the UCC,
--------------------
which Lender may file in any jurisdiction where any Collateral is or may be
located (as determined by Lender) and in any other jurisdiction that Lender
deems appropriate; and
(b) Other Agreements - Any other agreements, documents, instruments
----------------
and writings, including, without limitation, patent and trademark security
agreements, reasonably required by Lender to evidence, perfect or protect
Lender's liens and security interest in the Collateral or as Lender may
reasonably request from time to time.
3.3 Other Actions: In addition to the foregoing, Borrowers shall do
-------------
anything further that may be lawfully and reasonably required by Lender to
secure Lender and effectuate the intentions and objects of this Agreement,
including, but not limited to, the execution and delivery of lockbox agreements,
continuation statements, amendments to financing statements, security
agreements, contracts and any other documents required hereunder. At Lender's
request, Borrowers shall also immediately deliver (with execution by Borrowers
of all necessary documents or forms to reflect Lender's Lien thereon) to Lender,
the originals of all items for which Lender must receive possession to obtain a
perfected security interest, including without limitation, all notes, letters of
credit, documents of title, chattel paper, warehouse receipts, instruments, and
any other similar instruments constituting Collateral.
3.4 Searches: Lender shall, prior to or at Closing, and thereafter as
--------
Lender may reasonably determine from time to time, at Borrowers' expense, obtain
the following searches (the results of which are to be consistent with the
warranties made by Borrowers in this Agreement):
(a) UCC Searches: UCC searches with the Secretary of State and local
------------
filing office of each state where Borrowers maintain their executive office, a
place of business, or assets;
(b) Judgments, Etc.: Judgment, federal tax lien and corporate tax
---------------
lien searches, in all applicable filing offices of each state searched under
subparagraph (a) above.
Borrowers shall, prior to or at Closing and at its expense, obtain and
deliver to Lender good standing certificates showing Borrowers to be in good
standing in its state of incorporation and in each other state or foreign
country in which it is doing and presently intends to do business except any
such jurisdiction for which such failure to be so qualified is not likely to
have a Material Adverse Effect.
3.5 Landlord's Waivers: Borrowers will as of the Closing Date provide
------------------
Lender with a landlord's waiver, acceptable to Lender, for its principal
facility in King of Prussia, Pennsylvania and use its good faith efforts to
cause each landlord, mortgagee and/or warehouseman of all premises occupied by
any of the Borrowers or to be occupied by any of the Borrowers or where
Collateral at any time is held, to execute and deliver to Lender as of or as
soon as reasonably practicable after the Closing an instrument, in form and
substance reasonably satisfactory to Lender, under which such landlord,
mortgagee or warehouseman waives its/his/their right to distrain on or foreclose
against the Collateral and agrees to allow Lender to remain on such premises to
dispose of or deal with any Collateral located thereon.
3.6 Filing Security Agreement: A carbon, photographic or other
-------------------------
reproduction or other copy of this Agreement or of a financing statement is
sufficient as and may be filed in lieu of a financing statement.
3.7 Power of Attorney: Each of the officers of Lender is hereby
-----------------
irrevocably made, constituted and appointed the true and lawful attorney for
each Borrower without requiring any of them to act as such with full power of
substitution to do the following: (a) endorse the name of any Borrower upon
any and all checks, drafts, money orders and other instruments for the payment
of monies that are payable to such Borrower and constitute collections on such
Borrower's Accounts or proceeds of other
Collateral; (b) execute in the name of any Borrower any financing statements,
schedules, assignments, instruments, documents and statements that such Borrower
is obligated to give Lender hereunder or is necessary to perfect Lender's
security interest or lien in the Collateral; (c) to verify validity, amount or
any other matter relating to the Collateral by mail, telephone, telecopy or
otherwise in accordance with the customary procedures of Lender's asset based
lending department; and (d) following an Event of Default, do such other and
further acts and deeds in the name of any such entity that Lender may reasonably
deem necessary or desirable to enforce any Account or realize upon any other
Collateral. This power of attorney is coupled with an interest, and is
irrevocable until the Obligations are indefeasibly paid in full.
3.8 Verifications: Lender shall be entitled to verify validity, amount,
-------------
or any other matter relating to the Collateral by mail, telephone, telecopy or
otherwise in accordance with the customary procedures of Lender's asset-based
lending department.
SECTION 4. CLOSING AND CONDITIONS PRECEDENT TO ADVANCES
Closing under this Agreement is subject to the following conditions precedent
(all documents to be in form and substance satisfactory to Lender and Lender's
counsel):
4.1 Resolutions, Opinions, and Other Documents: Borrowers shall have
------------------------------------------
delivered to Lender the following:
(a) this Agreement and the Revolving Credit Note all properly
executed;
(b) each Loan Document;
(c) certified copies of (i) resolutions of the board of directors of
each Borrower authorizing the execution of this Agreement, and the Revolving
Credit Note to be issued hereunder and each document required to be delivered by
Borrowers pursuant to any Section hereof and (ii) each Borrower's Articles or
Certificate of Incorporation and By-laws;
(d) an incumbency certificate for each Borrower identifying all
Authorized Officers, with specimen signatures;
(e) a written opinion of Borrowers' independent counsel addressed to
Lender and opinions of such other counsel as Lender deems necessary;
(f) certification by the chief financial officer of each Borrower that
(other than losses reflected on Borrowers' draft financial statements for
January and February, 1998 delivered to Lender) there has not occurred any
material adverse change in the operations and condition (financial or otherwise)
of any Borrower since December 31, 1997, as reflected on the draft financial
statements as of such date previously delivered to Lender.
(g) payment by Borrowers of all fees owing to Lender including,
without limitation, the Facility Fee and Expenses of Lender incurred to the
Closing Date;
(h) Uniform Commercial Code, judgment, federal and state tax lien
searches against each Borrower, at Borrowers' expense, showing that the Property
of Borrowers are not subject to any Liens except for Permitted Liens, together
with good standing and corporate tax lien search certificates showing no Liens
on any Borrower's Property and showing each Borrower to be in good standing in
each jurisdiction as required by Section 3.4 above;
(i) an initial Borrowing Base Certificate, dated and prepared as of
the Closing Date, evidencing that, after taking into account (i) all closing
payments, costs, and Expenses; (ii) all of Borrowers' current obligations
consistent with past customs and practices of Borrower (without deferral
thereof); and (iii) all initial Advances under the Revolving Credit, Borrower
has a minimum excess borrowing availability of at least $5,000,000 under the
Borrowing Base; and
(j) Cash Collateral Account Agreements, along with a Lockbox
Agreement, all in form and substance satisfactory to Lender.
(k) Stock Pledge Agreements reflecting the stock pledge described in
Section 3.1(b) above, together with delivery of original share certificates and
stock powers endorsed in blank.
(l) Evidence satisfactory to Lender (in Lender's sole discretion) that
Borrowers have completed the sale of the Xxxxxx Division generating cash sale
proceeds of at least $22,750,000 and that the Borrowers' financing arrangements
with its prior revolving credit lenders have been terminated.
4.2 Absence of Certain Events: At the Closing Date, no Event of Default
-------------------------
hereunder shall have occurred and be continuing, and no event shall have
occurred and be continuing which, with the passage of time, or the giving of
notice, or both, would constitute an Event of Default hereunder.
4.3 Warranties and Representations at Closing: The warranties and
-----------------------------------------
representations contained in Section 5 as well as any other Section of this
Agreement shall be true and correct in all material respects on the Closing Date
with the same effect as though made on and as of that date. Borrowers shall not
have taken any action or permitted any condition to exist which would have been
prohibited by any Section hereof.
4.4 Compliance with this Agreement: Borrowers shall have performed and
------------------------------
complied in all material respects, with all agreements, covenants and conditions
contained herein including, without limitation, the provisions of Sections 6 and
7 hereof, which are required to be performed or complied with by Borrowers
before or at the Closing Date.
4.5 Officer's Certificate: Lender shall have received a certificate, dated
---------------------
the Closing Date, and signed by the chief financial officer or a senior
financial executive of each Borrower certifying that all of the conditions
specified in this Section have been fulfilled, no Event of Default is then
outstanding and such other matters as Lender may request.
4.6 Closing: Subject to the conditions of this Section 4, the Revolving
-------
Credit shall be made available on the date ("Closing Date") this Agreement is
executed and all of the conditions contained in Section 4.1 hereof are completed
(the "Closing").
4.7 Non-Waiver of Rights: By completing the Closing hereunder, or by
--------------------
making advances hereunder, Lender does not thereby waive a breach of any
warranty or representation made by Borrowers hereunder or any agreement,
document, or instrument delivered to Lender, or otherwise referred to herein,
and any claims and rights of Lender resulting from any breach or
misrepresentation by Borrowers are specifically reserved by Lender.
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce Lender to complete the Closing and make the initial Advances under
the Revolving Credit to Borrowers, each Borrower warrants and represents to
Lender that the following statements are true and correct as to Borrowers:
5.1 Corporate Organization and Validity:
-----------------------------------
(a) Each Borrower is a corporation duly organized and validly
existing under the laws of its state of incorporation, is duly qualified, is
validly existing and in good standing and has lawful power and authority to
engage in the business it conducts in each state where the nature and extent of
its business requires qualification, except where the failure to so qualify is
not likely to have a Material Adverse Effect. A list of all states and other
jurisdictions where each Borrower is qualified to do business is attached hereto
as Exhibit "5.1" and made a part hereof.
(b) The making and performance of this Agreement and the other Loan
Documents will not violate or result in a default (immediately or with the
passage of time) under any law, government rule or regulation, or the charter,
minutes or bylaw provisions of any Borrower, or any material contract, agreement
or instrument to which any Borrower is a party, or by which any Borrower is
bound. No Borrower is in violation of or has knowingly caused any Person to
violate any term of any material agreement or instrument to which it or such
Person is a party or by which it may be bound or of its charter, minutes or its
bylaws.
(c) Each Borrower has all requisite corporate power and authority to
enter into and perform this Agreement and to incur the obligations herein
provided for, and has taken all proper and necessary corporate action to
authorize the execution, delivery and performance of this Agreement, and the
documents and related agreements required hereby.
(d) This Agreement, the Revolving Credit Note to be issued hereunder,
and all related agreements and documents required to be executed and delivered
by Borrowers hereunder, when delivered, will be valid and binding upon
Borrowers, and enforceable in accordance with their respective terms subject to
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally.
5.2 Places of Business: The only places of business of each Borrower, and
------------------
the places where such Borrower keeps and intends to keep its Property and
records concerning its Property, are at the addresses listed in Exhibit "5.2"
attached hereto and made a part hereof. Each Borrower's chief executive office
(the place from which it manages its business operations and where its primary
business records are located) is listed in Exhibit "5.2" hereto.
5.3 Pending Litigation: There are no judgments or judicial or
------------------
administrative orders, proceedings, litigation or, to Borrower's knowledge,
investigations (civil or criminal) pending, or threatened, against any Borrower
in any court or before any governmental authority or arbitration board or
tribunal except as shown in Exhibit "5.3", none of which being likely to have a
Material Adverse Effect. No Borrower is in default with respect to any order of
any court, governmental authority, regulatory agency or arbitration board or
tribunal. No Borrower nor any executive officer of any Borrower has been
indicted or convicted in connection with or is engaging in any criminal conduct,
or is currently subject to any lawsuit or proceeding or, to any Borrower's
knowledge, under investigation in connection with any anti-racketeering or
criminal conduct or activity.
5.4 Title to Properties: Each Borrower has good and marketable title to
-------------------
all the Property constituting Collateral free from Liens, except those of
Lender, and free from the claims of any other Person, except for Permitted Liens
and those Liens set forth on Exhibit "5.4" attached hereto and made a part
hereof.
5.5 Governmental Consent: Neither the nature of any Borrower's Business
--------------------
or Property, nor any relationship between any Borrower and any other Person, nor
any circumstance affecting any Borrower in connection with the issuance or
delivery of this Agreement or the other Loan Documents, is such as to require a
consent, approval or authorization of, or filing, registration or qualification
with, any governmental authority on the part of any Borrower in connection with
the execution and delivery of this Agreement or the issuance or delivery of the
other Loan Documents.
5.6 Taxes: All tax returns required to be filed by Borrower in any
-----
jurisdiction have in fact been filed, and all material taxes, assessments, fees
and other governmental charges upon any Borrower, or upon any of its Property,
income or franchises, which are shown to be due and payable on such returns have
been paid, except for those taxes being contested in good faith with due
diligence by appropriate proceedings for which appropriate reserves have been
maintained under GAAP. No Borrower is aware of any proposed additional tax
assessment or tax to be assessed against or applicable to any Borrower that
would be reasonably likely to have a Material Adverse Effect.
5.7 Financial Statements: Borrowers' annual audited balance sheet as of
--------------------
December 31, 1997, and the related income statement and statement of cash flow
as of such date, accompanied by the unqualified report thereon, by Borrowers'
independent certified public accountants, (complete copies of which have been
delivered to Lender), and the pro forma financial statements in the Prospectus
have been prepared in accordance with GAAP and present fairly, the financial
position of Borrowers on a consolidated and consolidating basis as of such date
and the results of Borrowers' operations for such period. Each Borrower's
fiscal year ends on December 31 of each calendar year and each Borrower's
federal tax identification number is as set forth on Exhibit "5.7" attached
hereto and made apart hereof.
5.8 Full Disclosure: Neither the financial statements referred to in
---------------
Section 5.7, nor this Agreement nor any other Loan Document or any financial
projections, written reports or other financial statements or reports furnished
by any Borrower to Lender in connection with the negotiation of the Revolving
Credit or contained in any financial statements or documents relating to any
Borrower, as of the time they were furnished, contained any untrue statement of
a material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading. To the best of Borrowers'
knowledge, there is no fact known to any Borrower which has not been disclosed
in writing to Lender which has or could have a Material Adverse Effect.
5.9 Subsidiaries: No Borrower has any Subsidiaries or Affiliates, except
------------
as listed on Exhibit "5.9" attached hereto and made a part hereof.
5.10 Guarantees, Contracts, etc.:
---------------------------
(a) Borrowers do not own or hold equity or long term debt investments
in, have any outstanding advances to, or serve as guarantor, surety or
accommodation maker for the obligations of, or have any outstanding borrowings
from, any Person, or have entered into any leases for real or personal property
(whether as landlord or tenant), except for its existing investments in the
Subsidiaries listed on Exhibit 5.9 and as described in Exhibit "5.10" attached
hereto and made a part hereof.
(b) No Borrower is a party to any contract or agreement, or subject to
any charter or other corporate restriction, which has or could have a Material
Adverse Effect.
(c) Except as otherwise specifically provided in this Agreement, no
Borrower has agreed or consented to cause or permit any of its Property whether
now owned or hereafter acquired to be subject in the future (upon the happening
of a contingency or otherwise) to a Lien not permitted by this Agreement.
5.11 Government Regulations, etc.:
----------------------------
(a) The use of the proceeds of and Borrowers' issuance of the
Revolving Credit Notes will not directly or indirectly violate or result in a
violation of Section 7 of the Securities Exchange Act of 1934, as amended,
Regulations U, T, G and X of the Board of Governors of the Federal Reserve
System, 12 C.F.R., Chapter II. No Borrower either owns nor intends to carry or
purchase any "margin stock" within the meaning of said Regulation U.
(b) Borrowers have obtained all licenses, permits, franchises and
other governmental authorizations necessary for the ownership of their Property
and for the conduct of their business, except those which, if not obtained,
would not have a Material Adverse Effect.
(c) As of the date hereof, no employee pension benefit plan ("Pension
Plan") (as defined in Section 3(2) of ERISA) maintained or contributed to by any
Borrower or under which any Borrower could have any liability under ERISA (i)
has failed to meet the minimum funding standards established in Section 302 of
ERISA, except for any such failure that is not material or corrected in full
prior to the date hereof; (ii) has failed to comply in any material respect with
all applicable requirements of ERISA and of the Internal Revenue Code, including
all applicable rulings and regulations thereunder, (iii) has engaged in or been
involved in a prohibited transaction under Section 406 of ERISA or Section 4975
of the Internal Revenue Code which would subject any Borrower to any material
liability, or (iv) has been terminated if such termination would subject any
Borrower to any material liability. No Borrower has assumed, or received notice
of a claim asserted against any Borrower for, withdrawal liability (as described
in Section 4207 of ERISA) with respect to any multiemployer pension plan and no
Borrower is a member of any Controlled Group (as defined in ERISA) except with
respect to the other Borrowers only. Each Borrower has timely made all
contributions when due with respect to any multiemployer pension plan to which
it contributes and no event has occurred which would trigger a claim against any
Borrower for withdrawal liability with respect to any multiemployer pension plan
to which such Borrower contributes. All such Pension Plans and multiemployer
pension plans are listed on Exhibit "5.11" attached hereto and made a part
hereof.
(d) Borrowers are not in violation of, and have not received written
notice that any of them is in violation of, or has knowingly caused any Person
to violate any applicable statute, regulation or ordinance of the United States
of America, or of any state, city, town, municipality, county or of any other
jurisdiction, or of any agency, or department thereof, (including without
limitation, the Telemarketing and Consumer Fraud and Abuse Prevention Act of
1994 or any regulations promulgated by the Federal Trade Commission in
connection therewith) where such violation or violations would, individually or
in the aggregate, have a Material Adverse Effect.
5.12 Business Interruptions: Except as set forth in Exhibit "5.12" hereof,
----------------------
within two (2) years prior to the date hereof, none of the business, Property or
operations of any Borrower have been materially and adversely affected in any
way by any casualty, strike, lockout, combination of workers, order of the
United States of America, or any state or local government, or any political
subdivision or agency thereof, directed against any Borrower. There are no
pending or threatened labor disputes, strikes, lockouts or similar occurrences
or grievances affecting the business being operated by any Borrower.
5.13 Names, Patents, Trademarks, Etc.:
--------------------------------
(a) Within five (5) years prior to the Closing Date, no Borrower has
conducted business under or used any other name (whether corporate or assumed)
except for the names shown on Exhibit "5.13(a)", attached hereto and made a
part hereof. TWI is the sole owner of all trade or fictitious names listed on
such Exhibit "5.13(a)" and any and all business done and all invoices issued in
such trade names are TWI's sales, business and invoices. Each trade name of TWI
represents a division or trading style of TWI and not a separate corporate
subsidiary or affiliate or independent entity.
(b) All registered trademarks, patents or copyrights, or such as to
which applications for registration have been submitted, which any Borrower
uses, plans to use or has a right to use are listed on Exhibit "5.13(b)"
attached hereto and made a part hereof. Each Borrower is the sole owner of such
Property except to the extent any other Person has claims or rights in such
Property, as such claims and rights are described on such Exhibit "5.13(b)". To
the best of Borrowers' knowledge, no Borrower is in violation of any rights of
any other Person with respect to such Property. Except as set forth on such
Exhibit "5.13(b)", (i) no Borrower requires any patents, trademarks or other
intellectual property, or any license(s) to use any patents, trademarks or other
intellectual property in order to sell Inventory in the ordinary course of
business; and (ii) Lender will not require any patents, trademarks or other
intellectual property or any licenses to use the same in order to sell any of
such Inventory after the occurrence of an Event of Default.
5.14 Other Associations: Borrowers are not engaged and do not have an
------------------
interest in any joint venture or partnership with any other Person except as
described on Exhibit "5.14" hereto and made a part hereof.
5.15 Environmental Matters: Except as disclosed on Exhibit 5.15 attached
---------------------
hereto and made part hereof, Borrowers have no knowledge of:
(a) the presence of, or use in violation of any applicable
Environmental Law, any Hazardous Substances on any of the real property on which
the Collateral is located, or
(b) any on-site spills, releases, discharges, disposal or storage of
Hazardous Substances that have occurred or are presently occurring on any of
such real property in violation of any applicable Environmental Law, or
(c) any spills, releases, discharges or disposal of Hazardous
Substances that have occurred or are presently occurring at other real
properties in violation of any applicable Environmental Law as a result of the
activities or omissions of any Borrower or for which any Borrower is reasonably
likely to be held responsible, or
(d) of any notice, summons, citation or other communication sent to
any Borrower from any state or federal agency concerning any intentional or
unintentional action or conduct, inaction or omission, past or present which is
or may be in violation of any applicable Environmental Law.
As used herein, the term "Hazardous Substances" means any substances defined or
designated as hazardous or toxic waste, hazardous or toxic material, hazardous
or toxic substance or similar term, as defined or designated under any
Environmental Law applicable to such real property.
5.16 Regulation O: No director, executive officer or principal shareholder
------------
of any Borrower is a director, executive officer or principal shareholder of
Lender. For the purposes hereof the terms "director" (when used with reference
to a Lender), "executive officer" and "principal shareholder" have the
respective meanings assigned thereto in Regulation O issued by the Board of
Governors of the Federal Reserve System.
5.17 Capital Stock: The authorized and outstanding capital stock of each
-------------
Borrower is as set forth on Exhibit "5.17" attached hereto and made a part
hereof. All of the outstanding capital stock of each Borrower has been duly and
validly authorized and issued and is fully paid and non-assessable and has been
sold and delivered to the holders thereof in compliance with, or under valid
exemption from, all Federal and state laws and the rules and regulations of all
regulatory bodies thereof governing the sale and delivery of securities. Except
for the rights and obligations set forth in Exhibit "5.17", there are no
subscriptions, warrants, options, calls, commitments, rights or agreements by
which each Borrower or any of its shareholders is bound relating to the
issuance, transfer, voting or redemption of shares of its capital stock or any
preemptive rights held by any Person with respect to the
shares of a Borrower's capital stock. Except as set forth in Exhibit "5.17", no
Borrower has issued any securities convertible into or exchangeable for shares
of its capital stock or any options, warrants or other rights to acquire such
shares or securities convertible into or exchangeable for such shares.
5.18 Solvency: Each Borrower is solvent, able to pay its debts as they
--------
become due, and has capital sufficient to carry on its business and all
businesses in which it is about to engage, and now owns Property having a value
both at fair valuation and at present fair salable value greater than the amount
required to pay its debts. Each Borrower will not be rendered insolvent by the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby by or by any of the other Loan Documents or by the
transactions contemplated hereunder or thereunder.
5.19 Investment Company: No Borrower is an "investment company" registered
------------------
or required to be registered under the Investment Company Act of 1940, as
amended, nor is any Borrower controlled by such a company.
SECTION 6. AFFIRMATIVE COVENANTS
Each Borrower covenants that until all of the Obligations to Lenders are paid
and satisfied in full and the Revolving Credit has been terminated:
6.1 Payment of Taxes and Claims: Each Borrower shall pay, before they
---------------------------
become delinquent,
(a) all material taxes, assessments and governmental charges or levies
imposed upon it or its Property, and
(b) all material claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other Persons entitled to the benefit of
statutory or common law Liens, which, if unpaid, would result in the imposition
of a Lien upon its Property; provided, however, that Borrowers shall not be
required to pay any such tax, assessment, charge, levy, claim or demand if the
amount, applicability or validity thereof shall at the time be contested in good
faith and by appropriate proceedings by Borrowers, and if Borrowers shall have
set aside on their books adequate reserves in respect thereof, in accordance
with GAAP; which deferment of payment is permissible so long as no Lien other
than a Permitted Lien has been entered and such Borrower's title to, and its
right to use, its Property are not materially adversely affected thereby.
6.2 Maintenance of Properties and Corporate Existence:
-------------------------------------------------
(a) Property - Each Borrower shall maintain its Property in good
--------
condition and make all renewals, replacements, additions, betterments and
improvements thereto in the ordinary course of business, as Borrowers deem
reasonably necessary in good faith in the exercise of its business judgment, and
will pay and discharge when due the cost of repairs and maintenance to its
Property.
(b) Property Insurance - Each Borrower shall maintain insurance on all
------------------
insurable tangible Property against fire, flood, casualty and such other hazards
(including, without limitation, extended coverage, workmen's compensation,
boiler and machinery) in such amounts, with such deductibles and with such
insurers as are customarily used by companies operating in the same industry as
Borrowers and reasonably acceptable to Lender. At or prior to Closing,
Borrowers shall furnish Lender with a schedule of all such insurance prepared by
its insurance broker, and certificates of insurance with respect thereto
(including the text of the Lender's Loss Payable Clause in favor of Lender
required below), or such other evidence of insurance as Lender may require.
Borrowers shall furnish Lender with a copy of such policy within thirty (30)
days after Closing. In the event Borrowers fail to procure or cause to be
procured any such insurance or to timely pay or cause to be paid the premium(s)
on any such insurance, Lender may do so for Borrowers, but Borrowers shall
continue to be liable for the same. The policies of all casualty insurance with
respect to the Inventory and Equipment shall contain standard Lender's Loss
Payable Clauses issued in favor of Lender indicating that Lender is sole Lender
Loss Payee, under which all losses thereunder with respect to the Inventory and
Equipment shall be paid to Lender as Lender's interest may appear. Such
policies shall expressly provide that the requisite insurance cannot be altered
or canceled without thirty (30) days prior written notice to Lender
notwithstanding the act or neglect of any Borrower. Each Borrower hereby
appoints Lender as its attorney-in-fact, exercisable at Lender's option (without
any obligation to do so), to endorse any check which may be payable to such
Borrower, and to file proofs of loss with respect to any insurance claims, and,
after an Event of Default, to negotiate a settlement of any insurance claims, in
order to collect the proceeds of such insurance and any amount or amounts
collected by any Borrower or Lender pursuant to the provisions of this paragraph
may be applied by Lender to the Obligations. Each Borrower further covenants
that all insurance premiums due and owing under their current casualty policies
have been paid. Each Borrower also agrees to notify Lender, promptly, upon any
receipt of a notice of termination, cancellation, or non-renewal from its
insurance company of any such policy.
(c) Public and Products Liability Insurance - Borrowers shall
---------------------------------------
maintain, and shall deliver to Lender upon Lender's request evidence of, public
liability, products liability and business interruption insurance in such
amounts as are reasonably acceptable to Lender, but in any event not more than
are customary for companies in the same or similar businesses located in the
same or similar area.
(d) Financial Records - Consistent with the existing practice of
-----------------
TWI, each Borrower shall keep current and accurate books of records and accounts
in which full and correct entries will be made of all of its business
transactions, and will reflect in its financial statements adequate accruals and
appropriations to reserves, all in accordance with GAAP. No Borrower shall
change its fiscal year end date.
(e) Corporate Existence and Rights - Each Borrower shall do (or cause
------------------------------
to be done) all things necessary to preserve and keep in full force and effect
its existence, good standing in all jurisdictions where its failure to be in
good standing might result in a Material Adverse Effect, and all of its rights,
licenses and franchises, the absence of which might result in a Material Adverse
Effect.
(f) Compliance with Laws - Each Borrower shall (i) be in compliance
--------------------
in all material respects with any and all laws, ordinances, governmental rules
and regulations, and court or administrative orders or decrees to which it is
subject, whether federal, state or local, (including, without limitation,
Environmental Laws); and (ii) obtain and maintain any and all licenses, permits,
franchises or other governmental authorizations necessary to the ownership of
its Property or to the conduct of its business, which violation or failure to
obtain or maintain causes or might cause a Material Adverse Effect. Each
Borrower shall timely satisfy all assessments, fines, costs and penalties
imposed by any governmental body against such Borrower or any Property of such
Borrower subject to the provisions of Section 6.1 above.
6.3 Business Conducted: Each Borrower shall continue in the Borrowers'
------------------
Business using its best efforts to maintain its customers and goodwill. No
Borrower shall engage, directly or indirectly, in any material respect, in any
line of business substantially different from the Borrowers' Business.
6.4 Litigation: Each Borrower, upon having knowledge thereof, shall give
----------
prompt notice to Lender of (a) the commencement against any Borrower of any
litigation claiming from any Borrower more than $100,000 in excess of any
available insurance coverage such Borrower may have for such claim for which
coverage has been acknowledged by such insurer, and (b) any other claims made
against such Borrower, or investigations or proceedings commenced against such
Borrower the existence of which or adverse disposition of which might have a
Material Adverse Effect.
6.5 Bank Accounts: Each Borrower shall maintain its principal depository
-------------
and disbursement account(s) with Lender.
6.6 Employee Benefit Plans: Each Borrower will (a) fund all of its
----------------------
Pension Plans in a manner that will satisfy the minimum funding standards of
Section 302 of ERISA, or will promptly satisfy any accumulated funding
deficiency that arises under Section 302 of ERISA, (b) furnish Lender, promptly
upon Lender's request of the same, with copies of all reports or other
statements filed with the United States Department of Labor, the Pension Benefit
Guaranty Corporation ("PBGC") or the Internal Revenue Service ("IRS") with
respect to all Pension Plans, or which such Borrower, or any member of a
Controlled Group (as defined in Title IV of ERISA or the Internal Revenue Code)
of which any Borrower is also a member, may receive from the United States
Department of Labor, the IRS or the PBGC, with respect to all such Pension
Plans, and (c) promptly upon discovery advise Lender of the occurrence of any
reportable event (as defined in Section 4043 of ERISA, other than a reportable
event for which the thirty (30) day notice requirement has been waived by the
PBGC) or prohibited transaction (under Section 406 of ERISA or Section 4975 of
the Internal Revenue Code) with respect to any such Pension Plans and the action
which such Borrower proposes to take with respect thereto. Each Borrower will
make all contributions when due with respect to any multiemployer pension plan
to which it contributes and will promptly advise Lender (i) upon its receipt of
notice of the assertion against it of a claim for withdrawal liability, (ii)
upon discovery of the occurrence of any event which, to the best of such
Borrower's knowledge, would trigger the assertion of a claim for withdrawal
liability against any Borrower, and (iii) upon the occurrence of any event
which, to the best of such Borrower's knowledge upon its learning of the same,
would place Borrower in a Controlled Group, any member of which (including any
Borrower) may be subject to a claim for withdrawal liability, whether liquidated
or contingent, which could have a Material Adverse Effect.
6.7 Warranties for Future Advances: Each request by any Borrower for an
------------------------------
Advance under the Revolving Credit in any form following the Closing Date shall
constitute an automatic representation and warranty (the truth and accuracy of
each such representation and warranty of which being a further condition to the
funding of each Advance) by Borrowers to the effect that (without waiving,
impairing or limiting the rights of Lender under Section 8 below):
(a) There has not occurred any event or occurrence since the date of
delivery of Borrower's most recent financial statements which has resulted in,
or has had, a Material Adverse Effect.
(b) No Event of Default or Potential Default then exists;
(c) Each Advance is within and complies with the terms and conditions
of this Agreement including without limitation the notice provisions contained
in Section 2.3 hereof; and
(d) Each representation and warranty set forth in Section 5 of this
Agreement is then true and correct in all material respects; provided that
Borrowers may update all Exhibits and prepare additional Exhibits so that all
such Exhibits and the representations and warranties, taken together, accurately
reflect the state of any Borrower's affairs as of the date of a request for an
Advance by giving written notice thereof to Lender, and further provided that
such updated and additional Exhibits do not reflect events or conditions which
constitute violations of Section 6 or 7 hereof or otherwise reflect a Material
Adverse Effect.
6.8 Financial Covenants: Borrowers shall maintain and comply with the
-------------------
following financial covenants (calculated on the basis of GAAP):
(a) Working Capital: Borrowers shall have and maintain Working
---------------
Capital, on a consolidated basis, of not less than: $6,500,000 as of Closing
Date and at all times through July 30, 1998; $5,750,000 as of July 31, 1998 and
at all times through December 30, 1998; and $5,500,000 as of December 31, 1998
and at all times thereafter.
(b) Tangible Net Worth: Borrowers shall have and maintain a
------------------
Tangible Net Worth, on a consolidated basis, of not less than:
Amount Period
------ ------
$51,905,000 as of December 31, 1997 and at all
times through January 30, 1998,
$48,400,000 as of January 31, 1998 and at all
times through February 27, 1998,
$46,000,000 as of February 28, 1998 and at all
times through March 30, 1998,
$39,900,000 as of March 31, 1998 and at all
times through April 29, 1998,
$38,300,000 as of April 30, 1998 and at all
times through May 30, 1998,
$36,800,000 as of May 31, 1998 and at all
times through June 29, 1998,
$35,400,000 as of June 30, 1998 and at all
times through August 30, 1998,
$34,900,000 as of August 31, 1998 and at all
times through December 30, 1999,
$38,400,000 as of December 31, 1999 and at all
times through December 30, 2000,
$41,900,000 as of December 31, 2000 and at all
times through December 30, 2001, and
$45,400,000 as of December 31, 2001 and at all
times thereafter.
(c) Net Income: Borrowers shall achieve a Net Income (each respective
----------
calculation to be on a cumulative basis for each multi-month period in a given
fiscal year covered thereby), on a consolidated basis, of not less than (or in
the case of a loss, not to exceed):
Amount Period
------ ------
($3,500,000) one month ending January 31, 1998,
($5,900,000) two months ending February 28, 1998,
($12,000,000) three months ending March 31, 1998,
($13,600,000) four months ending April 30, 1998,
($15,100,000) five months ending May 31, 1998,
($16,500,000) six months ending June 30, 1998,
($16,500,000) seven months ending July 31, 1998,
($17,000,000) eight months ending August 31, 1998
and also for the period commencing on
January 1, 1998 through the last day of each
subsequent month through December 31, 1998,
$875,000 three months ending March 31, 1999,
and also the first three months of each
fiscal year thereafter,
$1,750,000 six months ending June 30, 1999,
and also the first six months of each
fiscal year thereafter,
$2,625,000 nine months ending September 30, 1999,
and also the first nine months of each
fiscal year thereafter, and
$3,500,000 fiscal year ending December 31, 1999,
and also for each fiscal year thereafter.
(d) Current Ratio: Borrowers shall have and maintain a Current
-------------
Ratio, on a consolidated basis, of not less than: 0.75:1 as of Closing Date
through June 29, 1998; and 1.00:1 as of June 30, 1998 and at all times
thereafter.
(e) Debt to Tangible Net Worth Ratio: Borrowers shall have and
--------------------------------
maintain a Debt to Tangible Net Worth Ratio, on a consolidated basis, not to
exceed 1.25:1 at all times.
(f) Capital Expenditures: Borrowers shall not expend for Capital
--------------------
Expenditures in excess of: $7,500,000 during the fiscal year ending December 31,
1998; $12,000,000 during the fiscal year ending December 31, 1999; and
$10,000,000 during the fiscal year ending December 31, 2000, and during each
year thereafter, all on a noncumulative basis.
6.9 Financial and Business Information: Borrowers shall deliver to Lender
----------------------------------
the following:
(a) Financial Statements and Collateral Reports: such data, reports,
-------------------------------------------
statements and information, financial or otherwise, as Lender may reasonably
request, including, without limitation:
(i) within ninety (90) days after the end of each fiscal year of
Borrowers, financial statements of Borrowers for such year on a consolidated and
consolidating basis, eliminating inter-company transactions, including the
balance sheet as at the end of such fiscal year and a statement of cash flows
and income statement for such fiscal year, setting forth in the consolidated
statements in comparative form, the corresponding figures as at the end of and
for the previous fiscal year, all in reasonable detail, including all supporting
schedules and if requested management letters, and audited and certified on an
unqualified basis by independent public accountants of recognized standing,
selected by Borrowers and reasonably satisfactory to Lender, to have been
prepared in accordance with GAAP.
(ii) within thirty (30) days after the end of each calendar month,
internally prepared financial statements for Borrowers, including balance sheet,
income statement and statements of cash flows, prepared in accordance with GAAP,
without footnotes and subject to normal year end adjustments, all in form and
substance reasonably satisfactory to Lender.
(iii) within fifteen (15) days of the end of each calendar month,
Borrowers' accounts receivable aging report, accounts payable aging report,
inventory certificates and such other reports as Lender deems reasonably
necessary.
(iv) at least once every week, Borrowers' weekly reports of actual
sales, (if prepared for such week), collections, credit adjustments together
with weekly Log Report and all other information pertaining to Accounts, all in
form and substance satisfactory to Lender.
(v) at least sixty (60) days prior to the end of each fiscal year,
annual projections of profit and loss, cash flows and balance sheets and
availability prepared on a monthly basis in a manner consistent with the prior
year's financial statements, all in form and substance satisfactory to Lender.
(b) Notice of Event of Default - promptly upon becoming aware of the
--------------------------
existence of any condition or event which constitutes an Event of Default under
this Agreement, or which with the passage of time or the giving of notice, or
both, could become an Event of Default hereunder, a written notice specifying
the nature and period of existence thereof and what action Borrower is taking
(and proposes to take) with respect thereto;
(c) Notice of Claimed Default - promptly upon receipt by Borrowers,
-------------------------
notice of default, oral or written, given to Borrower by any creditor for
borrowed money in excess of $100,000;
(d) Securities and Other Reports - if any Borrower shall be required
----------------------------
to file reports with the Securities and Exchange Commission pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, promptly upon
its becoming available, a true
and correct copy of each financial statement, report, notice and proxy statement
sent by such Borrower to stockholders generally, and, a copy of each regular or
periodic report (including, without limitation, all 10K and 10-Q reports), and
any registration statement, or prospectus in respect thereof, filed by such
Borrower with any securities exchange or with federal or state securities and
exchange commissions or any successor agency.
6.10 Officers' and Accountant's Certificates: Along with the set of
---------------------------------------
financial statements and other reports delivered to Lender at the end of each
quarter and fiscal year, as applicable, pursuant to Section 6.9 (a) hereof,
Borrowers shall deliver to Lender (a) a certificate (in the form of Exhibit
"6.10" attached hereto and made a part hereof) from the chief financial officer
of Borrowers; and (b) with respect to the annual statements of Borrowers, a
certificate from Borrowers' independent certified public accountant, addressed
to Lender, (i) stating that Borrowers are authorized to deliver such financial
statements and its certifications thereof to Lender pursuant to this Agreement,
and (ii) having attached the calculations required to establish whether or not
Borrowers were in compliance with Section 6.8.
6.11 Inspection: So long as Borrowers are indebted to Lender, Borrowers
----------
will permit any of Lender's officers or other representatives to visit and
inspect any of the locations of any Borrower at any time during normal business
hours to examine and audit all of Borrowers' books of account, re cords,
reports and other papers, to make copies and extracts therefrom and to discuss
its affairs, finances and accounts with its officers, employees and independent
certified public accountants. Borrowers hereby irrevocably authorize and direct
all such accountants and auditors to exhibit and deliver to Lender copies of any
and all of Borrowers' financial statements or other accounting records of any
sort in the accountant's or auditor's possession. All such inspections and
audits shall be at Borrowers' expense at the standard rates charged by Lender
for such activities (plus Lender's reasonable out-of-pocket expenses).
6.12 Tax Returns and Reports: At Lender's request from time to time,
-----------------------
Borrowers shall promptly furnish Lender with copies of their annual federal and
state income tax returns. Each Borrower further agrees that, if requested by
Lender, it shall promptly furnish Lender with copies of all reports filed by it
with any federal, state or local governmental authority or agency, board or
commission.
6.13 Information to Participant: Lender may divulge to any participant,
--------------------------
co-lender or assignee or prospective participant, co-lender or assignee it is
permitted to obtain in the Revolving Credit, or any portion thereof, all
information, and furnish to such Person copies of any reports, financial
statements, certificates, and documents obtained under any provision of this
Agreement, or related agreements and documents, provided such Person agrees to
keep all non-public information and copies confidential (excepting delivery of
such documents (a) to its officers, attorneys or accountants, (b) as required by
court order or statute, or (c) as required under regulatory procedures and
guidelines).
6.14 Material Adverse Developments: Borrowers agree that immediately upon
-----------------------------
becoming aware of any development or other information which would reasonably be
expected to have or cause a Material Adverse Effect, it shall give to Lender
telephonic or telegraphic notice specifying the nature of such development or
information and such anticipated effect. In addition, such verbal communication
shall be confirmed by written notice thereof to Lender on the next Business Day
after such verbal notice is given.
6.15 Name Changes, Places of Business: Each Borrower shall give not less
--------------------------------
than thirty (30) days prior written notice to Lender of any name change or
change in the location of any of its respective places of business, of the
places where records concerning the Collateral are kept, or the establishment of
any new, or the discontinuance of any existing place of business.
SECTION 7. NEGATIVE COVENANTS:
Borrowers covenant that until all of the Obligations to Lenders are paid and
satisfied in full and the Revolving Credit has been terminated:
7.1 Merger, Consolidation, Dissolution or Liquidation:
-------------------------------------------------
(a) No Borrower shall sell, lease, license, transfer or otherwise
dispose of its Property, other than Inventory, equipment or real estate sold in
the ordinary course of business.
(b) No Borrower shall merge or consolidate with any other Person or
commence a dissolution or liquidation.
7.2 Acquisitions: No Borrower shall acquire all or a material portion of
------------
the stock, securities or assets of any Person in any transaction or in any
series of related transactions or enter into any sale and leaseback transaction.
7.3 Liens and Encumbrances: No Borrower shall: (i) execute a negative
----------------------
pledge agreement with any Person other than Lender covering any of its Property
or (ii) cause or permit or agree or consent to cause or permit in the future
(upon the happening of a contingency or otherwise), its Property (including,
without limitation, the Collateral), whether now owned or hereafter acquired, to
be subject to a Lien or be subject to any claim except for Permitted Liens. As
used herein, "Permitted Liens" means:
(a) Liens securing taxes, assessments or governmental charges or
levies or the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords, and other like persons, provided the payment thereof is
not at the time required by Section 6.1;
(b) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment, insurance, social
security and other like laws;
(c) Liens described in Exhibit 5.4;
(d) Liens constituting purchase money security interests, capitalized
lease obligations or finance leases hereafter created by any Borrower to Persons
providing financing for Capital Expenditures permitted under this Agreement so
long as each obligation secured by a Lien permitted by this subparagraph (d)
does not exceed 100% of the total cost (including interest) to acquire and
install such Property and such Lien extends only to the Property actually
acquired with such financing; and
(e) Security deposits provided to landlords of real property leased
and occupied by any Borrower.
7.4 Transactions With Affiliates or Subsidiaries:
--------------------------------------------
(a) No Borrower shall enter into any transaction with any Affiliate or
Subsidiary including, without limitation, the purchase, sale, or exchange of
Property, or the loaning or giving of funds to any Affiliate or any Subsidiary,
unless (i) such Subsidiary or Affiliate is engaged in a business substantially
related to the business conducted by such Borrower or Subsidiary, and the
transaction is in the ordinary course of and pursuant to the reasonable
requirements of such Borrower or Subsidiary and such other entity's business and
upon terms substantially the same and no less favorable to such Borrower or
Subsidiary as it would obtain in a comparable arm's-length transactions with any
Person not an Affiliate or a Subsidiary, and (ii) such transaction is not
otherwise prohibited hereunder. (An "Affiliate" means any entity which directly
or indirectly through one or more intermediaries controls or is controlled by or
is under common control with any Borrower. Control may be by ownership,
contract, or otherwise.)
(b) No Borrower shall create or acquire any Subsidiary.
7.5 Guarantees: Excepting the endorsement in the ordinary course of
----------
business of negotiable instruments for deposit or collection, no Borrower shall
become or be liable, directly or indirectly, primary or secondary, matured or
contingent, in any manner, whether as guarantor, surety, accommodation maker, or
otherwise, for the existing or future indebtedness of any kind of any Person
(other than a Borrower).
7.6 Distributions, Redemptions and Other Indebtedness: No Borrower shall:
-------------------------------------------------
(a) declare or pay or make any forms of Distribution to its shareholders, their
successors or assigns; (b) make any prepayments on any existing or future
indebtedness for borrowed money to any Person; or (c) hereafter borrow money
other than from Lender hereunder except in connection with borrowed money giving
rise to a Permitted Lien under Section 7.3(d).
7.7 Loans and Investments: No Borrower shall not make or have outstanding
---------------------
loans, advances, extensions of credit or capital contributions to, or
investments in, any Person other than advances made to employees for travel,
expenses and other business related activities, in the ordinary course of
Borrower's business, in an aggregate amount not to exceed $250,000.
7.8 Use of Lenders' Name: No Borrower shall use any Lender's name (or the
--------------------
name of any of any Lender's affiliates) in connection with any of its business
operations except to identify the existence of the Revolving Credit and the name
of the Lender in the ordinary course of Borrower's business. Nothing herein
contained is intended to permit or authorize any Borrower to make any commitment
or contract on behalf of Lender.
7.9 Miscellaneous Covenants:
-----------------------
(a) No Borrower shall become or be a party to any contract or
agreement which at the time of becoming a party to such contract or agreement
(1) materially impairs such Borrower's ability to perform under this Agreement
or any Loan Document or (2) impairs such Borrower's ability to perform under any
other instrument, agreement or document to which such Borrower is a party or by
which it is or may be bound as would be reasonably likely to have a Material
Adverse Effect.
(b) No Borrower shall carry or purchase any "margin stock" within the
meaning of Regulations U, G, T or X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II.
7.10 Change in Executive Management: Borrowers shall not remove or replace
------------------------------
any Person who is a member of Executive Management without the prior written
consent of the Lender, such consent not to be unreasonably withheld. In the
event of the death of any member of Executive Management, Borrowers shall have
ninety (90) days to replace such Person, and any such replacement shall be
acceptable to the Lender in its reasonable discretion.
SECTION 8. DEFAULT
8.1 Events of Default: Each of the following events shall constitute an
-----------------
event of default ("Event of Default") and Lender shall have the option to
declare the Obligations immediately due and payable, all without demand, notice,
presentment or protest or further action of any kind (it also being understood
that the occurrence of any of the events or conditions set forth in
subparagraphs (j), (k) or (l) shall automatically cause an acceleration of the
Obligations):
(a) Payments - if Borrowers fail to make any payment of principal or
--------
interest, including any Overadvance, or any fees, under the Revolving Credit on
the due date of such payment; or
(b) Other Charges - if Borrowers fail to pay any other charges,
-------------
Expenses or other monetary obligations owing to Lender arising out of or
incurred in connection with this Agreement, as applicable; or
(c) Covenant Defaults - if Borrowers fail to perform, comply with or
-----------------
observe any affirmative or negative covenant or undertaking contained in this
Agreement; or
(d) Financial Information - if any statement, report, financial
---------------------
statement, or certificate made or delivered at any time by Borrower or any of
its officers, employees or Lenders, to Lender is not true and correct, in all
material respects, when made; or
(e) Uninsured Loss - if there shall occur any uninsured damage to
--------------
or loss, theft, or destruction with respect to any portion of any Property of
any Borrower which (a) is in excess of $250,000, or (b) is reasonably likely to
result in a Material Adverse Effect; or
(f) Warranties or Representations - if any warranty, representation or
-----------------------------
other statement by or on behalf of any Borrower contained in or pursuant to this
Agreement, or in any document, agreement or instrument furnished in compliance
with, relating to, or in reference to this Agreement, is false, erroneous, or
misleading in any material respect when made or deemed made; or
(g) Agreements with Others - if there shall be any default by any
----------------------
Borrower beyond any grace period under any agreement with any other creditor for
borrowed money in excess of $100,000, and (i) such default consists of the
failure to pay any principal, premium or interest with respect to such
indebtedness, or (ii) such default consists of the failure to perform any
covenant or agreement with respect to such indebtedness, if the effect of such
default is to cause or to permit the relevant creditor to cause Borrowers'
obligations which are the subject thereof to become due prior to their maturity
date or prior to their regularly scheduled date of payment;
(h) Other Agreements with Lender - if any Borrower breaches or
----------------------------
violates the terms of, or if a default or an Event of Default occurs under, any
other existing or future agreement (related or unrelated) between any Borrower
and Lender; or
(i) Judgments - if any final judgment is entered against any Borrower
---------
for the payment of money in excess of $250,000 which shall not be satisfied,
dismissed or bonded pending appeal within 30 days after the entry thereof; or
(j) Assignment for Benefit of Creditors, etc. - if any Borrower
-----------------------------------------
makes or proposes an assignment for the benefit of creditors generally, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter owned or conducted by any
Borrower; or
(k) Bankruptcy, Dissolution, etc. - upon the commencement of any
-----------------------------
action for the dissolution or liquidation of any Borrower, or the commencement
of any case or proceeding for reorganization or liquidation of any Borrower's
debts under the Bankruptcy Code or any other state or federal law, now or
hereafter enacted for the relief of debtors, whether instituted by or against
any Borrower; provided, however, that Borrowers shall have sixty (60) days to
obtain the dismissal or discharge of any involuntary proceeding filed against
such Borrower, it being understood that during such sixty (60) day period,
Lender shall not be obligated to make Advances hereunder and Lender may seek
adequate protection in any bankruptcy proceeding; or
(l) Receiver - upon the appointment of a receiver, liquidator,
--------
custodian, trustee or similar official or fiduciary for any Borrower or for a
material portion of any Borrower's Property; or
(m) Execution Process, Seizure, etc. - if any Property of any
--------------------------------
Borrower, with a cost in excess of $250,000 is seized by any governmental entity
(federal, state or local), landlord or other Person without any Borrower's
consent; or
(n) Termination of Business - if any Borrower ceases any material
-----------------------
portion of its business operations as presently conducted; or
(o) Pension Benefits, etc. - if any Borrower fails to comply with
----------------------
ERISA, so that grounds exist to permit the appointment of a trustee under ERISA
to administer Borrowers' employee plans or to allow the Pension Benefit Guaranty
Corporation to institute proceedings to appoint a trustee to administer such
plan(s), or to permit the entry of a Lien to secure any deficiency or claim; or
(p) Criminal Conduct and Investigations - if any Borrower commits or
-----------------------------------
is indicted for committing any crime or if any proceeding or investigation by
any governmental body is pending an adverse disposition of which would be
reasonably likely to result in the forfeiture of any material Property of any
Borrower to any governmental entity, federal, state or local; or
(q) Material Adverse Effect - the happening of any event or occurrence
-----------------------
which results in or causes a Material Adverse Effect.
8.2 Cure - Nothing contained in this Agreement or the Loan Documents shall
----
be deemed to compel Lender, at any time, to accept a cure of any Event of
Default hereunder.
8.3 Rights and Remedies on Default:
------------------------------
(a) In addition to all other rights, options and remedies granted or
available to Lender under this Agreement or the Loan Documents, or otherwise
available at law or in equity, upon or at any time after the occurrence and
during the continuance of an Event of Default, or any event which with the
giving of notice or the passage of time, or both, would become an Event of
Default, Lender shall have the option to withhold or cease making Advances under
the Revolving Credit.
(b) In addition to all other rights, options and remedies granted or
available to Lender under this Agreement or the Loan Documents (each of which is
also then exercisable by Lender), Lender may, in its discretion, upon or at any
time after the occurrence and during the continuance of an Event of Default,
terminate the Revolving Credit.
(c) In addition to all other rights, options and remedies granted or
available to Lender, under this Agreement or the Loan Documents (each of which
is also then exercisable by Lender), upon or at any time after the occurrence
and during the continuance of an Event of Default, Borrowers shall be obligated
to deliver and pledge to Lender cash collateral in the amount of all outstanding
Letters of Credit.
(d) In addition to all other rights, options and remedies granted or
available to Lender under this Agreement or the Loan Documents (each of
which is also then exercisable by Lender), Lender may, upon or at any time
following the occurrence of an Event of Default exercise all rights under the
UCC and any other applicable law or in equity, and under all Loan Documents
permitted to be exercised after the occurrence of an Event of Default, including
the following rights and remedies (which list is given by way of example and is
not intended to be an exhaustive list of all such rights and remedies):
(i) The right to take possession of, send notices regarding and
collect directly the Collateral, with or without judicial process (including
without limitation the right to notify the United States postal authorities to
redirect mail addressed to any Borrower to an address designated by Lender); or
(ii) By its own means or with judicial assistance, enter any
Borrower's premises and take possession of the Collateral, or render it
unusable, or dispose of the Collateral on such premises in compliance with
subsection (e) below, without any liability for rent, storage, utilities or
other sums, and Borrowers shall not resist or interfere with such action; or
(iii) Require Borrowers at Borrowers' expense to assemble all or
any part of the Collateral and make it available to Lender at any place
designated by Lender;
(iv) The right to reduce the Revolving Credit Limit or the advance
rates, or to reduce, modify, take additional reserves under the Borrowing Base
or any portion thereof or to modify the terms and conditions upon which Lender
may be willing to consider making Advances under the Revolving Credit.
(e) Borrowers hereby agree that a notice received by it at least ten
(10) days before the time of any intended public sale or of the time after which
any private sale or other disposition of the Collateral is to be made, shall be
deemed to be reasonable notice of such sale or other disposition. If permitted
by applicable law, any perishable inventory or Collateral which threatens to
speedily decline in value or which is sold on a recognized market may be sold
immediately by Lender without prior notice to Borrowers. Borrowers covenant and
agree not to interfere with or impose any obstacle to Lender's exercise of its
rights and remedies with respect to the Collateral, after the occurrence of an
Event of Default hereunder.
8.4 Nature of Remedies: All rights and remedies granted Lender hereunder
------------------
and under the Loan Documents, or otherwise available at law or
in equity, shall be deemed concurrent and cumulative, and not alternative
remedies, and Lender may proceed with any number of remedies at the same time
until all Obligations are satisfied in full. The exercise of any one right or
remedy shall not be deemed a waiver or release of any other right or remedy, and
Lender, upon or at any time after the occurrence of an Event of Default, may
proceed against Borrowers (or any one or more of them) or any of the Collateral,
at any time, under any agreement, with any available remedy and in any order.
8.5 Set-Off: If any bank account of any Borrower with Lender or any
-------
participant is attached or otherwise liened or levied upon by any third party,
Lender (and such participant) shall have and be deemed to have, without notice
to Borrowers, the immediate right of set-off and may apply the funds or amount
thus set-off against any of the Obligations hereunder.
SECTION 9. MISCELLANEOUS
9.1 GOVERNING LAW: THIS AGREEMENT, AND ALL RELATED AGREEMENTS AND
-------------
DOCUMENTS, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE PROVISIONS OF THIS AGREEMENT, THE
OTHER LOAN DOCUMENTS AND ALL OTHER AGREEMENTS AND DOCUMENTS REFERRED TO HEREIN
ARE TO BE DEEMED SEVERABLE, AND THE INVALIDITY OR UNENFORCE ABILITY OF ANY
PROVISION SHALL NOT AFFECT OR IMPAIR THE REMAINING PROVISIONS WHICH SHALL
CONTINUE IN FULL FORCE AND EFFECT.
9.2 Integrated Agreement: The Revolving Credit Note, the other Loan
--------------------
Documents, all related agreements, and this Agreement shall be construed as
integrated and complementary of each other, and as augmenting and not
restricting Lender's rights and remedies. If, after applying the foregoing, an
inconsistency still exists, the provisions of this Agreement shall constitute an
amendment thereto and shall control.
9.3 Waiver:
------
(a) No omission or delay by Lender in exercising any right or power
under this Agreement or any related agreements and documents will impair such
right or power or be construed to be a waiver of any default, or Event of
Default or an acquiescence therein, and any single or partial exercise of any
such right or power will not preclude other or further exercise thereof or the
exercise of any other right, and as to Borrowers no waiver will be valid unless
in writing and signed by Lender and then only to the extent specified.
(b) Each Borrower releases and shall indemnify, defend and hold
harmless Lender, and its officers, employees and agents, of and from any claims,
demands, liabilities, obligations, judgments, injuries, losses, damages and
costs and expenses (including, without limitation, reasonable legal fees)
resulting from (i) acts or conduct of any Borrower under, pursuant or related to
this Agreement and the other Loan Documents, (ii) any Borrower's breach or
violation of any representation, warranty, covenant or undertaking contained in
this Agreement or the other Loan Documents, and (iii) any Borrower's failure to
comply with any or all laws, statutes, ordinances, governmental rules,
regulations or standards, whether federal, state or local, or court or
administrative orders or decrees, (including without limitation environmental
laws, etc.) and all costs, expenses, fines, penalties or other damages resulting
therefrom, unless resulting from acts or conduct of Lender constituting wilful
misconduct or gross negligence. The obligations of Borrowers under this Section
9.3(b) shall survive the occurrence of any and all events whatsoever, including
without limitation, payment of the Obligations or investigation by or knowledge
of Lender.
9.4 Time: Whenever Borrowers shall be required to make any payment, or
----
perform any act, on a day which is not a Business Day, such payment may be made,
or such act may be performed, on the next succeeding Business Day except with
respect to the repayment of LIBOR Based Loans as set forth in Section
2.4(b)(ii). Time is of the essence in the performance under all provisions of
this Agree ment and all related agreements and documents.
9.5 Expenses of Lender: At Closing and from time to time thereafter,
------------------
Borrowers will pay all reasonable expenses of Lender on demand (including,
without limitation, search costs, audit fees, appraisal fees, environmental fees
and the reasonable fees and expenses of legal counsel for Lender) relating to
this Agreement, and all related agreements and documents, including, without
limitation, expenses incurred in the analysis, negotiation, preparation,
closing, administration, enforcement of this Agreement and the other Loan
Documents, the enforcement, protection and defense of the rights of Lender in
and to the Obligations and Collateral or otherwise hereunder, and any expenses
relating to extensions, amendments, waivers or consents pursuant to the
provisions hereof, or any related agreements and documents or relating to
agreements with other creditors, or termination of this Agree ment. Borrowers
further agree to pay, or reimburse Lender for, all reasonable out-of-pocket
costs and expenses, including without limitation attorneys' fees, incurred in
connection with the enforcement, protection and defense of their rights in and
to the Obligations and the Collateral or otherwise hereunder, following
acceleration of the Obligations after the occurrence of an Event of Default
hereunder. Collectively all of the foregoing are referred to as the "Expenses."
9.6 Brokerage: This transaction was brought about and entered into by
---------
Lender and Borrowers acting as principals and without any brokers, Lenders or
finders being the effective procuring cause hereof. Borrowers represent that
they have not committed Lender to the payment of any brokerage fee, commission
or charge in connection with this transaction. If any such claim is made on
Lender by any broker, finder or agent or other person, Borrowers hereby
indemnify, defend and save such party harmless against such claim and further
will defend, with counsel satisfactory to Lender, any action or actions to
recover on such claim, at Borrowers' own cost and expense, including such
party's reasonable counsel fees. Borrowers further agree that until any such
claim or demand is adjudicated in such party's favor, the amount demanded shall
be deemed a liability of Borrowers under this Agreement.
9.7 Notices:
-------
(a) Any notices or consents required or permitted by this Agreement shall
be in writing and shall be deemed given if delivered in person or if sent by
telecopy or by nationally recognized overnight courier, or via first class,
Certified or Registered mail, postage prepaid, as follows, unless such address
is changed by written notice hereunder:
If to Lender: Mellon Bank, X.X.
Xxxxxx Bank Center
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Vice President
Facsimile No.: (000) 000-0000
With copies to: Blank Rome Comisky & XxXxxxxx LLP
Xxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esquire
Facsimile No.: (000) 000-0000
If to Borrower: TeleSpectrum Worldwide, Inc.
000 Xxxxx Xxxxx Xxxx
Xxxx xx Xxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxx, Xx.
Facsimile No.: (000) 000-0000
With copies to: Xxxxxx Xxxxx & Xxxxxxx LLP
0000 Xxx Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxx, Esquire
Facsimile No.: (000) 000-0000
(b) Any notice sent by Lender or Borrowers by any of the above methods
shall be deemed to be given when so received.
(c) Lender shall be fully entitled to rely upon any facsimile
transmission or other writing purported to be sent by any Authorized Officer
(whether requesting an Advance or otherwise) as being genuine and authorized.
9.8 Headings: The headings of any paragraph or Section of this Agreement
--------
are for convenience only and shall not be used to interpret any provision of
this Agreement.
9.9 Survival: All warranties, representations, and covenants made by
--------
Borrowers herein, or in any agreement referred to herein or on any certificate,
document or other instrument delivered by it or on its behalf under this
Agreement, shall be considered to have been relied upon by Lender, and shall
survive the delivery to Lender of the Revolving Credit Note, regardless of any
investigation made by Lender. All statements in any such certificate or other
instrument prepared and/or delivered for the benefit of Lender shall constitute
warranties and representations by Borrowers hereunder. Except as otherwise
expressly provided herein, all covenants made by Borrowers hereunder or under
any other agreement or instrument shall be deemed continuing until all
Obligations are satisfied in full.
9.10 Successors and Assigns: This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and assigns of each of the parties.
Borrowers may not transfer, assign or delegate any of its duties or obligations
hereunder.
9.11 Duplicate Originals: Two or more duplicate originals of this
-------------------
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument. This
Agreement may be executed in counterparts, all of which counterparts taken
together shall constitute one completed fully executed document.
9.12 Modification: No modification hereof or any agreement referred to
------------
herein shall be binding or enforceable unless in writing and signed by Borrowers
and Lender except as provided in Section 9 hereof. Any modification in
accordance with the terms hereof shall be binding on all parties hereto, whether
or not each is a signatory thereto.
9.13 Signatories: Each individual signatory hereto represents and warrants
-----------
that he/she is duly authorized to execute this Agreement on behalf of his
principal and that he/she executes the Agreement in such capacity and not as a
party.
9.14 Third Parties: No rights are intended to be created hereunder, or
-------------
under any related agreements or documents for the benefit of any third party
donee, creditor or incidental beneficiary. Nothing contained in this Agreement
shall be construed as a delegation to Lender of Borrowers' duty of performance,
including, without limitation, Borrowers' duties under any account or contract
with any other Person.
9.15 Discharge of Taxes, Borrowers' Obligations, Etc.: Lender, in its sole
------------------------------------------------
discretion, shall have the right at any time, and from time to time, if
Borrowers fail to timely perform, to: (a) pay for the performance of any of
Borrowers' Obligations hereunder, and (b) discharge taxes or Liens, at any time
levied or placed on any Borrower's Property in violation of this Agreement
unless such entity is in good faith with due diligence by appropriate
proceedings contesting such taxes or Liens and maintaining proper reserves
therefor in accordance with GAAP. Expenses and advances shall be added to the
Revolving Credit, bear interest at the same rate (under the Base Rate Option)
applied to the Revolving Credit, until reimbursed to Lender. Such payments and
advances made by Lender shall not be construed as a waiver by Lender or Lender
of an Event of Default under this Agreement.
9.16 Withholding and Other Tax Liabilities: Lender shall have the right to
-------------------------------------
refuse to make any Advances from time to time unless Borrowers shall, at
Lender's request, have given to Lender evidence, reasonably satisfactory to
Lender, that they have properly deposited or paid, as required by law, all
withholding taxes and all federal, state, city, county or other taxes due up to
and including the date of the requested Advance. Copies of deposit slips
showing payment shall likewise constitute satisfactory evidence for such
purpose. In the event that any lien, assessment or tax liability against
Borrowers shall arise in favor of any taxing authority, whether or not notice
thereof shall be filed or recorded as may be required by law, Lender shall have
the right (but shall not be obligated, nor shall Lender hereby assume the duty)
to pay any such lien, assessment or tax liability by virtue of which such
charge shall have arisen; provided, however, that Lender shall not pay any such
tax, assessment or lien if the amount, applicability or validity thereof is
being contested in good faith and by appropriate proceedings by such entity. In
order to pay any such lien, assessment or tax liability, Lender shall not be
obliged to wait until said lien, assessment or tax liability is filed before
taking such action as hereinabove set forth. Any sum or sums which Lender shall
have paid for the discharge of any such lien shall be added to the Revolving
Credit and shall be paid by Borrower to Lender with interest thereon (at the
applicable rate under the Base Rate Option), upon demand, and Lender shall be
sub rogated to all rights of such taxing authority against Borrowers.
9.17 CONSENT TO JURISDICTION: EACH BORROWER AND LENDER HEREBY IRREVOCABLY
-----------------------
CONSENT TO THE JURISDICTION OF THE COURTS OF COMMON PLEAS OF PHILADELPHIA,
COMMONWEALTH OF PENNSYLVANIA OR THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF PENNSYLVANIA IN ANY AND ALL ACTIONS AND PROCEEDINGS WHETHER ARISING
HEREUNDER OR UNDER ANY OTHER AGREEMENT OR UNDERTAKING AND IRREVOCABLY AGREE TO
SERVICE OF PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO THE ADDRESS OF
THE APPROPRIATE PARTY SET FORTH HEREIN.
9.18 Waiver of Jury Trial: AS AN INDEPENDENT COVENANT, EACH BORROWER AND
--------------------
LENDER HEREBY WAIVE ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION
WITH ANY LITIGATION COMMENCED BY OR AGAINST ANY OF THEM WITH RESPECT TO RIGHTS
AND OBLIGATIONS OF THE PARTIES HERETO OR UNDER THE LOAN DOCUMENTS WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement the
day and year first above written.
LENDER:
------
MELLON BANK, N.A.
By: ________________________________
Xxxxxx X. Xxxxxx
Vice President
BORROWERS:
---------
TELESPECTRUM WORLDWIDE, INC.
By: ________________________________
Xxxxxxx X. Xxxxxxx, Xx.
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
TLSP INVESTMENTS, INC.
By: ________________________________
Xxxxxxx X. Xxxxxxx, Xx.
Chief Financial Officer
TLSP TRADEMARKS, INC.
By: ________________________________
Xxxxxxx X. Xxxxxxx, Xx.
Chief Financial Officer
