CREDIT AGREEMENT
BY AND BETWEEN
INTERLOTT TECHNOLOGIES, INC.
AND
FIFTH THIRD BANK
DATED AS OF JANUARY 25, 2001
TABLE OF CONTENTS
Section 1. .......................................................................................Definitions 1
Section 2...............................................................................................Loans 1
2.1 Revolving Loans...........................................................................1
2.2 Interest on Revolving Loans...............................................................3
2.3 Maximum Interest Rate.....................................................................4
2.4 Termination of LIBOR Pricing Option.......................................................4
2.5 Illegality of Funding.....................................................................4
2.6 Increased Costs, Etc......................................................................4
2.7 Payments..................................................................................5
2.8 Accounting................................................................................5
2.9 Costs.....................................................................................6
2.10 Fees......................................................................................6
2.11 Field Audit...............................................................................6
2.12 Letters of Credit.........................................................................7
Section 3......................................................................Representations And Warranties 9
3.1 Organization and Qualification............................................................9
3.2 Due Authorization.........................................................................9
3.3 Litigation................................................................................9
3.4 Margin Stock..............................................................................9
3.5 Business..................................................................................9
3.6 Licenses, etc.............................................................................9
3.7 Laws and Taxes...........................................................................10
3.8 Financial Condition......................................................................10
3.9 Title....................................................................................10
3.10 Defaults.................................................................................10
3.11 Environmental Laws.......................................................................11
3.12 Subsidiaries and Partnerships............................................................11
3.13 ERISA....................................................................................11
Section 4...............................................................................Affirmative Covenants 11
4.1 Books and Records........................................................................11
4.2 Financial Statements.....................................................................12
4.3 Condition and Repair.....................................................................13
4.4 Insurance................................................................................13
4.5 Taxes....................................................................................13
4.6 Existence; Business......................................................................13
4.7 Compliance with Laws.....................................................................14
4.8 Notice of Default........................................................................14
4.9 Costs....................................................................................14
4.10 Depository/Banking Services..............................................................14
4.11 Other Amounts Deemed Loans...............................................................14
4.12 Assignment of Lease Proceeds.............................................................15
4.13 Leases...................................................................................15
4.14 Intellectual Property....................................................................15
Section 5..................................................................................Negative Covenants 15
5.1 Indebtedness.............................................................................15
5.2 Prepayments..............................................................................15
5.3 [Intentionally Omitted]..................................................................15
5.4 [Intentionally Omitted]..................................................................15
5.5 Pledge or Encumbrance of Assets..........................................................15
5.6 Guarantees and Loans.....................................................................15
5.7 Share Interest; Distributions............................................................16
5.8 [Intentionally Deleted]..................................................................16
5.9 Merger Purchase of Assets; Disposition of Assets.........................................16
5.10 Transactions with Affiliates.............................................................16
5.11 Investments..............................................................................16
5.12 Indebtedness to Tangible Net Worth.......................................................17
5.13 Minimum Tangible Net Worth...............................................................17
5.14 Interest Coverage Ratio..................................................................17
Section 6......................................................................Events of Default and Remedies 17
6.1 Events of Default........................................................................17
6.2 Remedies.................................................................................19
6.3 Setoff...................................................................................19
6.4 Default Rate.............................................................................19
6.5 [Intentionally Deleted]..................................................................19
6.6 No Remedy Exclusive......................................................................19
6.7 Effect of Termination....................................................................19
6.8 [Intentionally Deleted]..................................................................20
Section 7................................................................................Conditions Precedent 20
7.1 Conditions to Initial Loans..............................................................20
7.2 Conditions to Each Revolving Loan........................................................21
Section 8............................................................................Miscellaneous Provisions 22
8.1 Miscellaneous............................................................................22
8.2 Waiver by Borrower.......................................................................22
8.3 Binding Effect...........................................................................22
8.4 Subsidiaries.............................................................................22
8.5 Security.................................................................................22
8.6 Survival.................................................................................23
8.7 Delay or Omission........................................................................23
8.8 Notices..................................................................................23
8.9 No Partnership...........................................................................23
8.10 Indemnification..........................................................................24
8.11 Governing Law; Jurisdiction..............................................................24
CREDIT AGREEMENT
This Credit Agreement (the "Agreement") is entered into as of the 25th
day of January, 2001, by and between INTERLOTT TECHNOLOGIES, INC., a Delaware
Corporation, ("Borrower") and FIFTH THIRD BANK, an Ohio banking corporation,
located at 00 Xxxxxxxx Xxxxxx Xxxxx, Xxxxxxxxxx, Xxxx 00000 ("Bank").
Section 1. Definitions.
Certain capitalized terms have the meanings set forth on Exhibit 1
hereto or in the Security Agreement. All financial terms used in this Agreement
but not defined on Exhibit 1 or in the Security Agreement have the meanings
given to them by generally accepted accounting principles. All other undefined
terms have the meanings given to them in the Ohio Uniform Commercial Code.
Section 2. Loans.
2.1. Revolving Loans. (a) Subject to the terms and conditions hereof,
Bank hereby extends to Borrower a line of credit facility (the "Facility") under
which Bank will make loans (the "Revolving Loans") to Borrower at Borrower's
request from time to time during the term of this Agreement in amounts not
exceeding the lesser of (A) Twenty Five Million Dollars ($25,000,000.00) less
Letter of Credit Liabilities, or (B) the sum of (i) 85% of the net amount of
Borrower's Eligible Accounts plus (ii) the lesser of (a) 50% of the net amount
of Borrower's Eligible Inventory or (b) Three Million Five Hundred Thousand
Dollars ($3,500,000.00) plus (iii) 70% of the net amount of Borrower's Eligible
Lease Payments less (iv) Letter of Credit Liabilities. Notwithstanding the
foregoing, Bank may create and maintain reserves taken as reductions of
Revolving Loan availability (the "Reserves") from time to time based on such
credit and collateral considerations as Bank may commercially reasonably deem
appropriate. Borrower may borrow, prepay (without penalty or charge), and
reborrow under the Facility, provided that the principal amount of all Revolving
Loans outstanding at any one time under the Facility will not exceed Twenty Five
Million Dollars ($25,000,000.00) less the Letter of Credit Liabilities. If the
amount of Revolving Loans outstanding at any time under the Facility exceeds the
limits set forth above, Borrower will immediately pay the amount of such excess
to Bank in cash, provided however if the excess results from the Bank taking
Reserves which had not been previously taken or from Bank deeming previously
Eligible Accounts, Eligible Inventory or Eligible Lease Payments to be no longer
eligible, then Borrower will, within two (2) days of written notice from Bank,
pay the amount of the excess to Bank in cash. In the event Borrower fails to pay
such excess, Bank may, in its discretion, setoff such amount against Borrower's
accounts at Bank.
(b) Bank will make Revolving Loans by crediting the amount
thereof to Borrower's Operating Account (as hereinafter defined) at the Bank.
Revolving Loan proceeds will be used for the refinance of Borrowers existing
credit facility with Firstar Bank, N.A., for general working capital purposes,
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for Acquisitions, to pay off Indebtedness of Borrower permitted under Section
5.1 of this Agreement or to make dividends or redemptions permitted under
Section 5.7 of this Agreement.
(c) On the date hereof, Borrower will duly issue and deliver
to Bank a Revolving Note in the form of Exhibit 2.1 as amended from time to
time (the "Revolving Note"), in the principal amount of Twenty Five Million
Dollars ($25,000,000.00) bearing interest as specified in this Agreement.
(d) Borrower shall maintain Lock Box Account No. 2678 with
Bank (the "Lock Box"). Borrower shall direct all Debtors to pay all amounts due
to Borrower and the proceeds of all Collateral (as defined in the Security
Agreement) to the Lock Box which amounts Borrower shall cause to be deposited
into the Collection Account No. 00000000 with Bank (the "Collection Account").
As long as the Revolving Loans shall be outstanding, the Collection Account
shall be the property of Bank to be applied in accordance with the terms of this
Agreement. If any proceeds of any Collateral are received by Borrower, the
Borrower shall hold such proceeds in trust for Bank and not commingle them with
such Borrower's other funds, and shall promptly deliver them to Bank. When
proceeds of the Collateral are deposited into the Collection Account, they will
be credited by Bank on the day which such funds have cleared and become
collected funds (the "Hold Period"), against the outstanding principal amount of
the Revolving Loans. All such credits shall be conditional credits subject to
collection. Any item not finally paid shall be charged to Borrower whether or
not the item is returned.
(e) Bank will apply funds in the Collection Account on a daily
basis to the payment of the Revolving Loans automatically and without notice,
request or demand by Borrower, in accordance with Bank's automatic sweep
program. However, in no event will the principal amount of the Facility exceed
the amount provided for in clause (a) of this Section. Bank reserves the right
to reasonably change the provisions and mechanics of its automatic sweep program
in a separate writing to Borrower and such change need not be reflected by an
amendment to this Agreement in order to be effective.
(f) Borrower shall maintain Operating Account No. 00000000
with Bank (the "Operating Account"). The Operating Account shall be maintained
as a controlled disbursement account whereby Revolving Loans shall automatically
be made by Bank in amounts necessary to make disbursements by Borrower provided,
however such Revolving Loans shall not exceed the limits of the facility as set
forth in Section 2.1(a) of this Agreement and such automatic Revolving Loans
shall not be subject to a Pricing Option unless the notice hereinafter set forth
is given by Borrower. Borrower must give Bank written or telephonic notice of
its intention to borrow under this Agreement not later than 12:00 noon on the
Business Day of the proposed borrowing date for Revolving Loans that are subject
to a Pricing Option. Bank is authorized to make Revolving Loans subject to a
Pricing Option based on the telephonic or other instructions received from
anyone purporting to be an authorized representative of Borrower. Bank will make
Revolving Loans by crediting the amount thereof to the Operating Account of
Borrower at the Bank.
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(g) The term of the Facility will expire on December 31, 2003
(the "Termination Date") and the Revolving Note will become payable in full on
that date.
2.2 Interest on Revolving Loans.
(a) Subject to the terms and conditions of this Agreement,
the Revolving Loans shall bear interest as follows:
(i) on amounts subject to a Pricing Option, at an
annual rate equal to the LIBOR Rate plus the Applicable Revolver LIBOR Margin,
each as in effect on the first day of the relevant LIBOR Interest Period; and
(ii) on amounts not subject to a Pricing Option, at
an annual rate equal to the Prime Rate plus the Applicable Revolver Prime Margin
in effect on each date.
(b) Subject to the terms and conditions of this Agreement,
Borrower may from time to time elect to have a Pricing Option apply to a portion
of the principal amount outstanding on the Revolving Loans, as specified by
Borrower, for a permissible LIBOR Interest Period specified by Borrower.
Borrower shall make each such election by giving notice (which notice shall be
irrevocable) to Bank in the manner and by the deadline specified in paragraph
2.1 hereof.
(c) Borrower's right to elect a Pricing Option for any portion
of outstanding Revolving Loans is subject to the following limitation: (i) the
total number of Pricing Options outstanding at any one time under this Agreement
shall not exceed four; (ii) Borrower may not elect a Pricing Option at a time
when an Event of Default has occurred and the Event of Default is Continuing and
has not been waived; (iii) no LIBOR Interest Period shall end later than the
maturity date of the Revolving Note evidencing the borrowing of the relevant
principal amount; (iv) the principal amount that can be subject to a Pricing
Option is $500,000.00 or multiples of $100,000.00 above such amount or the
entire outstanding amount of the Revolving Loans; and (v) once a Pricing Option
has been selected for a portion of the Revolving Loans, no other Pricing Option
may apply to such portion until the expiration of the LIBOR Interest Period
applicable to the first Pricing Option.
(d) Interest on the principal amount subject to a Pricing
Option is payable on the last day of the relevant LIBOR Interest Period.
Interest on the principal amount of the Revolving Loans not subject to a Pricing
Option is payable in arrears on the first Business Day of each calendar month.
In addition, all accrued interest is payable at maturity (whether by
acceleration, notice of intention to prepay or otherwise).
(e) Interest on the Revolving Loans shall be computed on the
basis of a 360-day year and charged for the actual number of days involved. The
interest rate applicable to amounts not subject to any Pricing Option shall
change automatically upon each change in the Prime Rate. Upon the occurrence of
an Event of Default and the Event of Default is Continuing, the Revolving Loans
shall bear interest at the Borrower Default Rate; this provision does not
constitute a waiver of any Event of Default or an agreement by Bank or Banks to
permit any late payments whatsoever.
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(f) Borrower shall have the right to prepay the Revolving
Loans in whole at any time, or in part from time to time, without a prepayment
penalty, provided that, at any time when a Pricing Option is in effect, no
prepayment of such portion of the principal amount of the Revolving Loans as is
subject to such Pricing Option shall be made except on the last day of the
applicable Interest Period unless such prepayment shall include all fees and
costs relating to such prepayment including but not limited to break funding
fees. Each notice of prepayment shall be irrevocable and shall obligate Borrower
to prepay the amount stated therein on the date stated therein.
2.3 Maximum Interest Rate. In no event shall the interest rate and
other charges hereunder 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 a court determines that Bank has received
interest and other charges hereunder in excess of the highest permissible rate
applicable hereto, such excess shall be deemed received on account of, and shall
automatically be applied to reduce, the principal balance of the Loans and the
provisions hereof shall be deemed amended to provide for the highest permissible
rate. If there are no Obligations outstanding, Bank shall refund to Borrower
such excess.
2.4 Termination of LIBOR Pricing Option. Borrower's right to elect a
LIBOR Pricing Option shall be terminated automatically if Eurodollar deposits
which have a maturity corresponding to the proposed LIBOR Interest Period, in an
amount equal to the amount requested by Borrower to be subject to a LIBOR
Pricing Option, are not readily available in the London Inter-Bank Eurocurrency
Market, or that, by reason of circumstances affecting such market, adequate and
reasonable methods do not exist for ascertaining the interest rate applicable to
such deposits for the proposed LIBOR Interest Period and Bank, by telephonic or
telegraphic or other written notice, notifies Borrower of the same.
2.5 Illegality of Funding. Notwithstanding anything herein contained to
the contrary, if at any time any change in any law, regulation or official
directive, or in the interpretation thereof, by an governmental body charged
with the administration thereof, shall make it unlawful, or any central bank or
other governmental authority shall assert that it is unlawful, for Bank to fund
or maintain its funding in Eurodollars of any portion of the principal amount of
the Revolving Loans or otherwise to give effect to Bank's obligations as
contemplated hereby, (i) Bank may by facsimile or other written notice thereof
to Borrower declare Bank's obligations in respect of the LIBOR Pricing Option to
be terminated forthwith, and (ii) all LIBOR Pricing Options then in effect shall
forthwith cease to be in effect, and interest shall from and after such date be
calculated at the interest rate applicable to amounts to which no Pricing Option
applies; and (iii) Borrower's right to elect LIBOR Pricing Options is terminated
until Bank notifies Borrower that Borrower's right to elect LIBOR Pricing
Options is reinstated.
2.6 Increased Costs, Etc.
(a) If, due to either (i) the introduction of or any change in
or in the interpretation of any law or regulation or (ii) the compliance with
any guideline or request from any central bank or other governmental authority
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(whether or not having the force of law), there shall be any increase in the
cost to Bank of agreeing to make or of making, funding or maintaining the
Facility subject to the LIBOR Pricing Option, then from time to time, upon
written demand by Bank, Borrower shall pay to Bank additional amounts sufficient
to compensate Bank for such increased cost if similar costs are actually charged
by Bank to all other borrowers similarly situated. A certificate as to the
amount of such increased cost submitted to Borrower by Bank shall be conclusive
and binding for all purposes, absent manifest error.
(b) If compliance with any law or regulation or any guideline
or request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by Bank or any corporation controlling Bank and
that the amount of such capital is increased by the existence of such Bank's
commitment to lend hereunder and other commitments of such type or by the
existence of outstanding Revolving Loans (or similar obligations), then, upon
written demand by Bank, Borrower shall pay to Bank, from time to time as
specified by Bank, additional amounts sufficient to compensate Bank in the light
of such circumstances, to the extent that Bank reasonably determines such
increase in capital to be allocable to the existence of Bank's Revolving Loans
or commitment to lend hereunder and if similar costs are actually charged by
Bank to all other borrowers similarly situated. A certificate as to such amounts
submitted to Borrower by Bank shall be conclusive and binding for all purposes,
absent manifest error.
(c) If, with respect to any LIBOR Pricing Option the LIBOR
Rate for any LIBOR Interest Period will not adequately reflect the cost to Bank
of making the Revolving Loans subject to the relevant LIBOR Pricing Option for
such LIBOR Interest Period, Bank shall forthwith so notify Borrower in writing,
whereupon Borrower's right to elect any LIBOR Pricing Option shall be suspended
until the circumstances causing such suspension no longer exist.
2.7 Payments. Each payment, including each prepayment, of principal and
interest on the Notes shall be made by Borrower to Bank at its office set forth
in paragraph 8.8 hereof by 2:00 p.m., Cincinnati time, on the due date for such
payment. The failure of Borrower to make any such payment by noon, Cincinnati
time, shall not constitute a default hereunder, provided that such payment is
made on such due date, but any such payment made after noon, Cincinnati time, on
such due date shall be deemed to have been made on the next Business Day for the
purpose of calculating interest on amounts outstanding on the Notes. If any
payment hereunder or under the Notes shall be due and payable on a day which is
not a Business Day the maturity thereof shall, except as otherwise provided in
the definition of LIBOR Interest Period, be extended to the next Business Day,
and interest shall be payable at the applicable rate specified herein during
such extension.
2.8 Accounting. After the end of each calendar month, Bank will:
(a) if Bank so elects, charge Borrower's account for any or
all amounts due to Bank under this Agreement for interest, expenses and the like
and notify Borrower of such charges; and
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(b) render to Borrower a statement of Borrower's loan account
with Bank hereunder, which statement shall be considered correct and to have
been accepted by Borrower and, absent manifest error, shall be conclusively
binding upon Borrower unless Borrower notifies Bank in writing of any
discrepancy within thirty (30) days from the mailing of such statement.
2.9 Costs. Borrower shall pay to Bank its costs and expenses
(including, without limitation, reasonable attorneys' fees, court costs,
litigation and other expense) incurred or paid by Bank in negotiating,
documenting, administering and enforcing this Agreement and the Loan Documents
and in establishing, maintaining, protecting, perfecting or enforcing any of
Bank's rights or Borrower's Obligations, including, without limitation, any and
all such costs and expenses incurred or paid by Bank in defending Bank's title
or right to the Collateral or in collecting or enforcing payment of the
Collateral and all costs of filing financing, continuation or termination
statements with respect to the Collateral. Notwithstanding the foregoing the
attorney fees with respect to the preparation and negotiation of the Loan
Documents shall not exceed $11,500.00.
2.10 Fees.
(a) Collateral Management Fee: So long as this Agreement is
in effect, Borrower will pay to Bank a Collateral Management Fee at a rate of
$1,000.00 a month which shall be payable on the first day of each month in
arrears for the previous calendar month.
(b) Unused Facility Fee: So long as this Agreement is in
effect, Borrower will pay to Bank an unused facility fee at an annual rate equal
to .125% of that portion of the Facility that is not outstanding on each day(the
"Unused Facility Fee"), which will be payable on the first (1st) day of each
calendar quarter in arrears for the previous calendar quarter with a final
payment due on the termination of this Agreement.
2.11 Field Audit. Bank shall have the right to perform field audits of
Borrower as requested by Bank and as long as no Event of Default exists and no
Event of Default is Continuing such field audits shall be during normal business
hours and upon three (3) days prior notice. Borrower shall fully cooperate with
Bank in regards to such field audit and shall give Bank access to all books and
records and Borrower's facilities for such field audit during normal business
hours. Borrower shall pay Bank a field audit fee of $400.00 per diem payable
within ten (10) days of the conclusion of the field audit. Notwithstanding the
foregoing during said period in which no Event of Default exists and no Event of
Default is Continuing, Bank shall endeavor to limit the field audits to not more
than one field audit per calendar year and in said event of only one field audit
per calendar year the field examination fee shall not exceed $1,200.00 per
calendar year.
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2.12 Letters of Credit. (a) Bank agrees on the terms and conditions
hereinafter set forth, to issue letters of credit for the account of Borrower
from time to time on any Business Day during the period from the Closing Date
until 90 days before the Termination Date (the "Letters of Credit"), subject to
the conditions that (i) the aggregate Available Amount for all Letters of Credit
outstanding at any point in time does not exceed at any time the Standby and
Commercial Letter of Credit Commitment and (ii) the Available Amount for each
such Letter of Credit plus the outstanding principal amount of Revolving Loans
does not exceed maximum principal amounts of Revolving Loans permitted under
Section 2.1(a) of this Agreement. No Letter of Credit shall have an expiration
date (including all rights of Borrower or the beneficiary to require renewal)
later than the Termination Date. Subject to the limits referred to above,
Borrower may request the issuance of Letters of Credit under this Section
(herein referred to as the "Letter of Credit Facility"), repay any Letter of
Credit Advances resulting from drawings thereunder and request the issuance of
additional Letters of Credit under this section.
(b) The payment of Bank of a draft drawn under any Letter of Credit
shall constitute for all purposes of this Agreement an irrevocable request by
Borrower for Revolving Loans in the amount of such draw, bearing interest at the
rate then applicable to Revolving Loans to which no Pricing Option applies.
However, if for any reason the conditions to the making of Revolving Loans are
not satisfied on the date payment of such draft is made or Bank cannot make
Revolving Loans for any other reason, the payment by Bank of a draft drawn under
any Letter of Credit shall instead constitute for all purposes of this Agreement
the making by Bank of a Letter of Credit Advance ("Letter of Credit Advance"),
in the amount of such draft. Letter of Credit Advances shall bear interest at
the Borrower Default Rate until paid pursuant to this Agreement.
(c) The obligations of Borrower under this Agreement, any Letter of
Credit, any application for a Letter of Credit (an "Application") and any other
agreement or instrument relating to any Letter of Credit or Letter of Credit
Advance (collectively, the "Letter of Credit Related Documents") shall be
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of such Letter of Credit Related Document under all circumstances,
including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of any of the
Letter of Credit Related Documents;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of Borrower in respect of
any Letter of Credit Related Document or any other amendment or waiver of or any
consent to departure from all or any of the Letter of Credit Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that any Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such beneficiary
or any such transferee may be acting), Bank or any other Person, whether in
connection with the transactions contemplated by the Letter of Credit Related
Documents or any unrelated transaction;
(iv) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
7
(v) payment by Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the term of
such Letter of Credit, unless such noncompliance is evident on the face of the
documents presented to Bank;
(vi) any exchange, release or non-perfection of any Collateral
or other collateral; or
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, Borrower or a guarantor.
(d) If any Letter of Credit are outstanding on the Termination Date,
Borrower shall deposit with Bank cash or other liquid collateral acceptable to
Bank, in an amount at least equal to the Available Amount of all outstanding
Letters of Credit, to be held by Bank pursuant to a cash collateral agreement
acceptable to Bank in its reasonable discretion.
(e) If Bank determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by Bank or any corporation
controlling Bank and that the amount of such capital is increased by the
existence of Bank's commitment to lend or issue Letters of Credit hereunder and
other commitments of such type or by the existence of outstanding Revolving
Loans or Letters of Credit (or similar obligations), then, upon written demand
by Bank, Borrower shall pay to Bank from time to time as specified by Bank,
additional amounts sufficient to compensate Bank in the light of such
circumstances, to the extent that Bank reasonably determines such increase in
capital to be allocable to the existence of Bank's Revolving Loans or commitment
to lend hereunder or to the issuance or maintenance of any Letters of Credit. A
certificate as to such amounts submitted to Borrower by Bank shall be conclusive
and binding for all purposes, absent manifest error.
(f) Borrower shall pay to Bank a letter of credit fee equal to the
Bank's standard Letter of Credit fees (which are currently as set forth on
Exhibit. 2.12 (f)) payable upon issuance of Letter of Credit(s) ("Letter of
Credit Fee") with respect to the stated amount of each Letter of Credit.
Borrower shall also be responsible for fees customarily charged by the Bank in
connection with the issuance, drawings or transfers of a Letter of Credit. All
computations of interest and fees shall be made by Bank; interest and all fees
stated as an annual rate shall be calculated on the basis of a year of 360 days,
and charged in each case for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such interest or
fees are payable. Each determination by Bank of an interest rate or fee
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
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Section 3. Representations And Warranties.
Except as disclosed on the Disclosure Schedule attached as Exhibit 3,
Borrower hereby warrants and represents to Bank the following:
3.1 Organization and Qualification. Borrower is a duly organized,
validly existing corporation in good standing under the laws of the State of
Delaware, has the power and authority (corporate and otherwise) to carry on its
business and to enter into and perform this Agreement, the Notes and the other
Loan Documents, is qualified and licensed to do business in each jurisdiction in
which failure to be so qualified or licensed would have a material adverse
effect on the Borrower. All information provided by Borrower to Bank with
respect to Borrower and its operations is true and correct in all material
respects.
3.2. Due Authorization. The execution, delivery and performance by
Borrower of this Agreement, the Security Agreement, the Notes and the other Loan
Documents have been duly authorized by all necessary corporate action, and will
not contravene any law or any governmental rule or order binding on Borrower, or
the certificate of incorporation or bylaws of Borrower, nor violate any
agreement or instrument by which Borrower is bound except any anti-assignment
clause in a Lease or other contract with any lottery (if any) nor result in the
creation of a Lien on any assets of Borrower except the Lien granted to Bank
herein. Borrower has duly executed and delivered this Agreement, the Security
Agreement, the Notes and the other Loan Documents and they are valid and binding
obligations of Borrower enforceable according to their respective terms except
as limited by equitable principles and by bankruptcy, insolvency or similar laws
affecting the rights of creditors generally. No notice to or consent by any
governmental body is needed in connection with the transaction, except as
required by any Lease or other contract with any lottery.
3.3. Litigation. There are no suits or proceedings pending
or threatened against Borrower, and no proceedings before any governmental body
are pending or threatened against Borrower.
3.4 Margin Stock. No part of the Loans will be used to purchase or
carry, or to reduce or retire or refinance any credit incurred to purchase or
carry, any margin stock (within the meaning of Regulations U and X of the Board
of Governors of the Federal Reserve System) or to extend credit to others for
the purpose of purchasing or carrying any margin stock. If requested by Bank,
Borrower will furnish to Bank statements in conformity with the requirements of
Federal Reserve Form U-1.
3.5 Business. Borrower is not a party to or subject to any agreement or
restriction which in the opinion of Borrower's management is so unusual or
burdensome that it might have a material adverse effect on Borrower's business,
properties or prospects.
3.6 Licenses, etc.. Borrower has obtained any and all licenses,
permits, franchises, governmental authorizations, patents, trademarks,
copyrights or other rights necessary for the ownership of its properties and the
9
advantageous conduct of its business. Borrower possesses adequate licenses,
patents, patent applications, copyrights, trademarks, trademark applications,
and trade names to continue to conduct its business as currently conducted by
it, without any conflict with the rights of any other person or entity. All of
the foregoing are in full force and effect and none of the foregoing are in
known conflict with the rights of others.
3.7 Laws and Taxes. Borrower is in material compliance with all
material laws, regulations, rulings, orders, injunctions, decrees, conditions or
other requirements applicable to or imposed upon Borrower by any law or by any
governmental authority, court or agency. Borrower has filed all required tax
returns and reports that are now required to be filed by it in connection with
any federal, state and local tax, duty or charge levied, assessed or imposed
upon Borrower or its assets, including unemployment, social security, and real
estate taxes. Borrower has paid all taxes which are now due and payable except
for the current Arizona privilege tax dispute in which the disputed amount shall
not exceed $250,000.00. No taxing authority has asserted or assessed any
additional tax liabilities against Borrower which are outstanding on the date of
this Agreement, and Borrower has not filed for any extension of time for the
payment of any tax or the filing of any tax return or report.
3.8 Financial Condition. All financial information relating to Borrower
which has been or may hereafter be delivered by Borrower or on its behalf to
Bank fairly reflects the financial conditions or results of operations of
Borrower and has been prepared in accordance with generally accepted accounting
principles consistently applied except for internally prepared financial
information shall not include footnotes or year end adjustments. Borrower had at
the date of such financial statement no material obligations or liabilities of
any kind not disclosed in that financial information, and there has been no
material adverse change in the financial condition of Borrower nor has Borrower
suffered any material damage, destruction or loss which has adversely affected
its business or assets since the submission of the most recent Borrower's
financial statement by Borrower to Bank.
3.9 Title. Borrower has good and marketable title to the assets
reflected on the most recent balance sheet submitted to Bank, free and clear
from all liens and encumbrances of any kind, except for (collectively, the
"Permitted Liens"): (a) current taxes and assessments not yet due and payable,
(b) liens and encumbrances, if any, reflected or noted on such balance sheet or
notes thereto, (c) assets disposed of in the ordinary course of business, (d)
any security interests, pledges, assignments or mortgages granted to Bank to
secure the repayment or performance of the Obligations, (e) normal easements or
rights of way or similar restrictions on real property which do not adversely
affect Borrower's use of said real estate, (f) ordinary arms length market
leases of Borrower's assets to third parties as reflected or noted on such
balance sheet or notes thereto, and (g) purchase money security interests or
capital leases permitted pursuant to Section 5.1 of this Agreement.
3.10 Defaults. Borrower is in material compliance in the aggregate with
all material agreements applicable to it and there does not now exist any
material in the aggregate default or violation by Borrower of or under any of
the terms, conditions or obligations of (a) its Certificate of Incorporation or
Bylaws, or (b) any material indenture, mortgage, deed of trust, franchise,
permit, contract, agreement or other material instrument to which Borrower is a
party or by which it is bound, and the consummation of the transactions
contemplated by this Agreement will not result in such default or violation.
10
3.11 Environmental Laws. (a) Borrower has obtained all material
permits, licenses and other authorizations or approvals which are required under
Environmental Laws and Borrower is in compliance in all material respects with
all terms and conditions of the required permits, licenses, authorizations and
approvals, and is also in compliance in all material respects with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental Laws.
(b) Borrower is not aware of, and has not received notice of, any past,
present or future events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent compliance or
continued compliance, in any material respect, with Environmental Laws, or may
give rise to any material common law or legal liability, or otherwise form the
basis of any material claim, action, demand, suit, proceeding, hearing, study or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, chemical, or industrial, toxic or hazardous substance or waste.
(c) There is no civil, criminal or administrative action suit, demand,
claim, hearing, notice or demand letter, notice of violation, investigation or
proceeding pending or threatened against Borrower, relating in any way to
Environmental Laws.
3.12 Subsidiaries and Partnerships. Borrower has no subsidiaries
and is not a party to any partnership agreement or joint venture agreement.
3.13 ERISA. Borrower and all individuals or entities which along with
Borrower would be treated as a single employer under ERISA or the Internal
Revenue Code of 1986, as amended (an "ERISA Affiliate"), are in compliance in
all material respects with all of their obligations to contribute to any
"employee benefit plan" as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, and any regulations promulgated
thereunder from time to time ("ERISA"). Borrower and each of its ERISA
Affiliates are in compliance in all material respects with ERISA, and there
exists no event described in Section 4043(b) thereof ("Reportable Event").
Section 4. Affirmative Covenants.
4.1 Books and Records. Borrower will maintain proper books of account
and records and enter therein complete and accurate entries and records of all
of its transactions in accordance with generally accepted accounting principles
and give representatives of Bank access thereto at all reasonable times,
including permission to examine, copy and make abstracts from any such books and
records and such other information which might be helpful to Bank in evaluating
the status of the Loans as it may reasonably request from time to time. Borrower
will give Bank reasonable access to the Collateral and the other property
securing the Obligations for the purpose of performing examinations thereof and
to verify its condition or existence.
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4.2 Financial Statements. Borrower will maintain a standard
and modern system for accounting and will furnish to Bank:
(a) Within forty-five (45) days after the end of each month, a
copy of Borrower's internally prepared financial statements for that month and
for the year to date in a form reasonably acceptable to Bank, prepared and
certified as complete and correct, subject to changes resulting from year-end
adjustments, by the principal financial officer of Borrower;
(b) Within ninety (90) days after the end of each fiscal year,
a copy of Borrower's financial statements for that year audited by a firm of
independent certified public accountants acceptable to Bank (which acceptance
will not be unreasonably withheld), and accompanied by a standard audit opinion
of such accountants without qualification;
(c) All of the statements referred to in (a) and (b) above
shall be in conformance with generally accepted accounting principles except
that in regard to financial statements delivered under 4.2(a) such financial
statements shall not have footnotes or year end adjustments;
(d) With the statements submitted under (a) and (b) above, a
certificate in the form as set forth in Exhibit 4.2 (d) signed by the principal
financial officer of Borrower, (i) stating he is familiar with all documents
relating to Bank and that no Event of Default specified in this Agreement, nor
any event which upon notice or lapse of time, or both would constitute such an
Event of Default, has occurred, or if any such condition or event existed or
exists, specifying it and describing what action Borrower has taken or proposes
to take with respect thereto, and (ii) setting forth, in summary form, figures
showing the financial status of Borrower in respect of the financial
restrictions contained in this Agreement;
(e) Prior to the end of each fiscal year, a projected income
statement and projected statement of cash flow for the subsequent fiscal year
prepared in accordance with generally accepted accounting principles
consistently applied;
(f) Immediately upon any CFO, CEO, COO or other senior officer
that deals with the Credit Agreement and or the Loan Documents of Borrower
("Responsible Officer of Borrower") obtaining knowledge of any condition or
event which constitutes or, after notice or lapse of time or both, constitutes
an Event of Default, a certificate of such person specifying the nature and
period of the existence thereof, and what action Borrower has taken or is taking
or proposes to take in respect thereof;
(g) Upon request, copies of all federal, state and local
income tax returns and such other information as Bank may reasonably request,
including but not limited to, a listing of all transactions with affiliates of
Borrower;
12
(h) On the date hereof and within forty-five (45) days after
the end of each calendar month, Borrower will deliver to Bank a Collateral
Report in the form as set forth in Exhibit 4.2(h) and Account Receivable Aging
Reports in the form regularly used by Bank's commercial loan customers provided
however if Borrower's monthly availability on average for the prior calendar
month is on average less than $1,000,000.00 then Bank may require and Borrower
shall provide Collateral Reports more frequently (but not more frequently than
weekly) as requested by Bank; and
(i) With all financial statements delivered to Bank as
provided in (a) and (b) above, Borrower shall deliver to Bank a Compliance
Certificate in the form attached hereto as 4.2(d) confirming, in addition to the
other information set forth therein, the Borrower's compliance with the
financial covenants set forth herein and that no Event of Default has occurred.
If at any time Borrower has any additional subsidiaries which have
financial statements that could be consolidated with those of Borrower under
generally accepted accounting principles, the financial statements required by
subsections (a) and (b) above will be the financial statements of Borrower and
all such subsidiaries prepared on a consolidated basis.
4.3 Condition and Repair. Borrower will maintain its assets in good
repair and working order (normal wear and tear excepted) and will make all
appropriate repairs and replacements thereof except for obsolete assets or
assets no longer used in Borrower's business.
4.4 Insurance. Borrower will insure its properties and business against
loss or damage of the kinds and in the amounts customarily insured against by
corporations with established reputations engaged in the same or similar
business as Borrower. All such policies will (a) be issued by financially sound
and reputable insurers, (b) name Bank as an additional insured and, where
applicable, as loss payee under a lender loss payable endorsement reasonably
satisfactory to Bank, and (c) will provide for thirty (30) days written notice
to Bank before such policy is altered or canceled all of which will be evidenced
by a Certificate of Insurance delivered to Bank by Borrower on the date of
execution of this Agreement.
4.5 Taxes. Borrower will pay when due all taxes, assessments and other
governmental charges imposed upon it or its assets, franchises, business, income
or profits before any penalty or interest accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which by law might be a lien or charge upon any of its
assets, provided that (unless any material item or property would be lost,
forfeited or materially damaged as a result thereof) no such charge or claim
need be paid if it is being diligently contested in good faith, if Bank is
notified in advance of such contest and if Borrower establishes an adequate
reserve or other appropriate provision required by generally accepted accounting
principles .
4.6 Existence; Business. Borrower will (a) maintain its
existence, and (b) engage primarily in business of the same general character as
that now conducted.
13
4.7 Compliance with Laws. Borrower will comply with all federal, state
and local laws, regulations and orders applicable to Borrower or its assets
including but not limited to all Environmental Laws, in all respects material to
Borrower's business, assets or prospects and will immediately notify Bank of any
violation of any material rule, regulation, statute, ordinance, order or law
relating to the public health or the environment and of any complaint or
notifications received by Borrower regarding to any material environmental or
safety and health rule, regulation, statute, ordinance or law.
4.8 Notice of Default. Borrower will, within three (3) days of its
knowledge thereof, give written notice to Bank of: (a) the occurrence of any
event or the existence of any condition which would be, after notice or lapse of
applicable grace periods, an Event of Default, and (b) the occurrence of any
event or the existence of any condition which would prohibit Borrower from
continuing to make the representations set forth in this Agreement.
4.9 Costs. Borrower will pay to Bank its fees, costs and expenses
(including, without limitation, reasonable attorneys' fees, other professionals'
fees, appraisal fees, environmental assessment fees (including Phase I and Phase
II assessments), expert fees, court costs, litigation and other expense
(collectively, "Costs") incurred or paid by Bank in connection with the
negotiating, documenting (the cost of negotiating and documenting being subject
to the limitations set forth in Section 2.9 of this Agreement), administering
and enforcing the Facility, the Loans and the Loan Documents and the defense,
preservation and protection of Bank's rights and remedies thereunder, including
without limitation, its security interest in the Collateral or any other
property pledged to secure the Loans, whether incurred in bankruptcy,
insolvency, foreclosure or other litigation or proceedings or otherwise. The
Costs will be due and payable upon demand by Bank. If Borrower fails to pay the
Costs when upon such demand, Bank is entitled to disburse such sums as an
advance under the Facility. Thereafter, the Costs will bear interest from the
date incurred or disbursed at the highest rate set forth in the Notes. This
provision will survive the termination of this Agreement and/or the repayment of
any amounts due or the performance of any Obligation.
4.10 Depository/Banking Services. So long as this Agreement is in
effect, Bank will be the principal depository in which a majority of Borrower's
funds are deposited, and the principal bank of account of Borrower, as long as
this Agreement is in effect, and Borrower will maintain in its principal bank
account at all times collected funds of at least .75% of the total amount of the
Facility and shall grant Bank the first and last opportunity to provide any
corporate banking services required by Borrower and its Affiliates, including,
without limitation, payroll, cash management, treasury management, and employee
benefit plan services.
4.11 Other Amounts Deemed Loans. If Borrower fails to pay any tax,
assessment, governmental charge or levy or to maintain insurance within the time
permitted or required by this Agreement, or to discharge any Lien prohibited
hereby, or to comply with any other Obligation, Bank may, but shall not be
obligated to, pay, satisfy, discharge or bond the same for the account of
Borrower, and to the extent permitted by law and at the option of Bank, all
monies so paid by Bank on behalf of Borrower will be deemed Loans and
Obligations.
14
4.12 Assignment of Lease Proceeds. Borrower shall use its best efforts
to deliver to the Bank original fully executed Assignment of Lease Proceeds for
all of Borrower's Leases executed by Borrower and all lessees within sixty (60)
days of the Closing Date or for Leases executed after the Closing Date within
sixty (60) days of the execution of the Lease. All Assignments of Lease Proceeds
shall be in the form set forth in Exhibit 7.1 (g) or with such minor variations
therefrom as reasonably approved by Bank.
4.13 Leases. Borrower shall make available for review by Bank copies of
all Borrower's Leases executed by Borrower and all lessees at the Closing and
shall deliver copies of all new Leases executed by Borrower and lessees after
the Closing within five (5) days of execution.
4.14 Intellectual Property. Borrower shall, within ten (10) days of
request by Bank, execute and deliver to Bank such security documents as
reasonably requested by Bank to perfect a first priority security interest in
the intellectual property of Borrower including but not limited to the
Borrower's trademarks and patents.
Section 5. Negative Covenants.
5.1 Indebtedness. Borrower will not incur, create, assume or permit to
exist any additional Indebtedness for borrowed money (other than the
Obligations) or Indebtedness on account of deposits, advances or progress
payments under contracts, notes, bonds, debentures or similar obligations or
other indebtedness evidenced by notes, bonds, debentures, capitalized leases or
similar obligations in excess of $750,000.00 in the aggregate in any calendar
year without the written consent of Bank in its sole discretion except that the
limitation contained herein shall not apply to performance bonds required to be
obtained in connection with lottery Leases.
5.2 Prepayments. Borrower will not voluntarily prepay any Indebtedness
owing by Borrower prior to the stated maturity date thereof other than (i) the
Obligations and (ii) Indebtedness to trade creditors where the prepayment will
result in a discount on the amount due or is paid in the ordinary course of
business.
5.3 [Intentionally Omitted]
5.4 [Intentionally Omitted]
5.5 Pledge or Encumbrance of Assets. Other than the Permitted Liens,
Borrower will not create, incur, assume or permit to exist, arise or attach any
Lien in any present or future asset, except for Liens to Bank, Liens existing on
the date of this Agreement which have been disclosed to and approved by Bank and
Liens imposed by law which secure amounts not at the time due and payable.
5.6 Guarantees and Loans. Borrower will not enter into any direct or
indirect guarantees other than by endorsement of checks for deposit or other
15
than in the ordinary course of business nor make any advance or loan other than
in the ordinary course of business as presently conducted, including, without
limitation, loans and advances to employees, officers or directors of Borrower
except for (i) advances to employees, officers or directors for travel,
entertainment and similar expenses in amounts outstanding at any given time not
to exceed $500,000.00, (ii) a presently outstanding loan to Xxxxxx Xxxxx in the
amount of $280,000 which may be increased by not more than $350,000 and which
shall be paid off at such time as Borrower makes the Preferred Share Redemption
and, (iii) other loans to officers, directors or employees in amounts in the
aggregate outstanding at any one time not to exceed $500,000.
5.7 Share Interest; Distributions. Borrower will not (a) declare or pay
any distributions excepting dividends to equity shareholders (provided however
dividends to equity shareholders may not be made at such time as there is an
Event of Default and an Event of Default is Continuing or where such dividend
shall cause an Event of Default) (b) make any payments of any kind to its
shareholders (including, without limitation, debt repayments, payments for goods
or services or otherwise, but excluding ordinary salary payments to shareholders
employed by Borrower and dividends to shareholders) or (c) redeem any shares of
its equity interests in any fiscal year except the redemption on or about April
1, 2001 or at any time thereafter of all the issued and outstanding preferred
stock of Borrower for redemption price of $1,350,000.00 (the "Preferred Share
Redemption").
5.8 [Intentionally Deleted]
5.9 Merger Purchase of Assets; Disposition of Assets. Borrower
will not (a) merge or consolidate with any corporation, including but not
limited to affiliates except in regards to an Acquisition or (b) sell, transfer
or otherwise dispose of all or substantially all of its assets, whether now
owned or hereafter acquired .
5.10 Transactions with Affiliates. Borrower will not (except as
permitted under Section 5.6 hereof) (a) directly or indirectly issue any
guarantee for the benefit of any of its Affiliates, (b) directly or indirectly
make any loans or advances to or investments in any of its Affiliates, (c) enter
into any transaction with any of its Affiliates, other than transactions entered
into on an arm's length basis in the normal course of Borrower's business, or
(d) divert (or permit anyone to divert) any of its business opportunities to any
Affiliate or any other corporate or business entity in which Borrower or its
shareholders hold a direct or indirect interest.
5.11 Investments. Borrower will not purchase or hold beneficially any
stock, securities or evidences of indebtedness of, or make any investment or
acquire any interest in, any other firm, partnership, corporation or entity
other than in regards to an Acquisition and/or short term investments of excess
working capital in one or more of the following: (a) investments (of one year or
less) in direct or guaranteed obligations of the United States, or any agencies
thereof; and (b) investments (of one year or less) in certificates of deposit of
banks or trust companies organized under the laws of the United States or any
jurisdiction thereof, provided that such banks or trust companies are insured by
the Federal Deposit Insurance Corporation and have capital in excess of
$25,000,000.
16
5.12 Indebtedness to Tangible Net Worth. Borrower will not permit its
ratio of Indebtedness to Tangible Net Worth as measured at the end of each
calendar quarter to exceed 1.50:1.00 at any one time provided however at such
time as Borrower has redeemed all of its issued and outstanding preferred stock
the maximum ratio shall automatically change to 1.60:1.00.
5.13 Minimum Tangible Net Worth. Borrower will not permit its Tangible
Net Worth to be less than $18,500,000.00 as of the calendar quarter ended
September 30, 2000 and for each calendar quarter thereafter the Borrowers
Tangible Net Worth shall not be less than said amount increased by $125,000.00
for each such calendar quarter thereafter provided however the minimum amount of
Borrower's Tangible Net Worth will be decreased by the dollar amount of
Borrower's redemption of all of Borrowers preferred stock on or before April 1,
2001 or thereafter.
5.14 Interest Coverage Ratio. Borrower shall maintain at all times on a
twelve (12) month trailing basis of no less than a 5.00:1.00 ratio with respect
to the (a) EBITDA to (b) the sum of interest expense of Borrower plus Current
Maturities of Long Term Debt plus dividends to shareholders of Borrower. The
Interest Coverage Ratio shall be measured at the end of each calendar quarter
commencing December 31, 2000 for the trailing twelve (12) calendar month period.
Section 6. Events of Default and Remedies.
6.1 Events of Default. Any of the following events will be an
Event of Default ("Event of Default"):
(a) any representation or warranty made by Borrower herein or in any of
the Loan Documents is incorrect when made or reaffirmed and such
misrepresentations and/or breached warranties in the aggregate are material; or
(b) Borrower defaults in the payment of any principal or interest
on any Obligation for two (2) business days after such payment is due and
payable, by acceleration or otherwise; or
(c) Borrower fails to observe or perform any covenant, condition or
agreement herein and fails to cure such default within 30 days of the earlier of
(i) written notice thereof from Bank to Borrower if such default is not known by
a Responsible Officer of Borrower or (ii) knowledge of a Responsible Officer of
such default, provided that such 30 day grace period will not apply to (i) a
breach of any covenant which in Bank's good faith judgment is incapable of cure,
(ii) any failure to maintain insurance or permit inspection of the Collateral or
of the books and records of Borrower, (iii) any breach in any negative covenant
set forth in Section 5 hereof, or (iv) any breach of any covenant which has
already occurred; or
(d) a court enters a decree or order for relief with respect to
Borrower in an involuntary case under any applicable bankruptcy, insolvency or
other similar law then in effect, or appoints a receiver, liquidator, assignee,
17
custodian, trustee, sequestrator (or other similar official) of Borrower or for
any substantial part of its property, or orders the wind-up or liquidation of
its affairs; or a petition initiating an involuntary case under any such
bankruptcy, insolvency or similar law is filed and is pending for forty-five
(45) days without dismissal; or
(e) Borrower commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law in effect, or makes any general
assignment for the benefit of creditors, or fails generally to pay its debts as
such debts become due, or takes corporate action in furtherance of any of the
foregoing; or
(f) Borrower defaults under the terms of any Indebtedness or lease
involving obligations of the Borrower in the aggregate of $100,000.00 or more
and such default gives any creditor or lessor the right to accelerate the
maturity of any such indebtedness or lease payments which right is not contested
by Borrower or is determined by any court of competent jurisdiction to be valid;
or
(g) final judgment of the payment of money is rendered against Borrower
and remains undischarged for 10 days during which execution is not effectively
stayed; or
(h) the dissolution of Borrower; or
(i) the commencement of any foreclosure proceedings, proceedings in aid
of execution, attachment actions, levies against, or the filing by any taxing
authority of a lien which is not discharged within ten (10) days of Borrower's
knowledge thereof against any of the Collateral or any property securing the
repayment of any of the Obligations; or
(j) the loss, theft or substantial damage to the Collateral or any
property securing the repayment of the Obligations which is not fully covered by
insurance (subject to a reasonable deductible) if the result of such occurrence
will be, in Bank's reasonable judgment, the failure or inability of Borrower to
continue substantially normal operation of its business within thirty (30) days
of the date of such occurrence; or
(k) (i) the validity or effectiveness of any of the Loan Documents or
its transfer, grant, pledge, mortgage, or assignment by the party executing such
Loan Document is impaired; (ii) any party executing any of the Loan Documents
asserts that any of such Loan Documents is not a legal, valid and binding
obligation of the party thereto enforceable in accordance with its terms; (iii)
the security interest or Lien purporting to be created by any of the Loan
Documents will for any reason (other than as a result of Bank's fault) cease to
be a valid, perfected lien subject to no other liens other than Liens permitted
by the terms of this Agreement; or (iv) any Loan Document is amended,
hypothecated, subordinated, terminated or discharged, or if any person is
released from any of its covenants or obligations under any of the Loan
Documents except as permitted by Bank in writing; or
(l) Bank has called for additional security from the assets of
Borrower and the Borrower has not furnished such additional security on demand;
or
18
(m) a Reportable Event (as defined in ERISA) occurs with respect to any
employee benefit plan maintained by Borrower for its employees other than a
Reportable Event caused solely by a decrease in employment; or a trustee is
appointed by a United States District Court to administer any employee benefit
plan; or the Pension Benefit Guaranty Corporation institutes proceedings to
terminate any of Borrower's employee benefit plans; or
(n) the filing of any lien or charge against the Collateral or any
part thereof which is not removed to the satisfaction of Bank within a period of
30 days thereafter; or
(o) the abandonment by Borrower of all or any material part of the
Collateral.
6.2 Remedies. If any Event of Default occurs and the Event of Default
is Continuing, Bank may (i) cease advancing money hereunder, (ii) declare all
Obligations to be immediately due and payable, whereupon such Obligations will
immediately become due and payable, (iii) exercise any and all rights and
remedies provided by applicable law and the Loan Documents, (iv) proceed to
realize upon the Collateral or any property securing the Obligations, including,
without limitation, causing all or any part of the Collateral to be transferred
or registered in its name or in the name of any other person, firm or
corporation, with or without designation of the capacity of such nominee, all
without presentment, demand, protest, or notice of any kind, each of which are
hereby expressly waived by Borrower. Borrower shall be liable for any deficiency
remaining after disposition of any Collateral, and waives all valuation and
appraisement laws.
6.3 Setoff. If any Event of Default occurs and the Event of Default is
Continuing, Bank is authorized, without notice to Borrower, to offset and apply
to all or any part of the Obligations all moneys, credits and other property of
any nature whatsoever of Borrower now or at any time hereafter in the possession
of, in transit to or from, under the control or custody of, or on deposit with
(whether held by Borrower individually or jointly with another party), Bank,
including but not limited to certificates of deposit.
6.4 Default Rate. After the occurrence of an Event of Default and the
Event of Default is Continuing, all amounts of principal outstanding as of the
date of the occurrence of such Event of Default will accrue interest at the
Default Rate, in Bank's sole discretion, without notice to Borrower. This
provision does not constitute a waiver of any Events of Default or an agreement
by Bank to permit any late payments whatsoever.
6.5 [Intentionally Deleted]
6.6 No Remedy Exclusive. No remedy set forth herein is exclusive of any
other available remedy or remedies, but each is cumulative and in addition to
every other remedy available under this Agreement, the Loan Documents or as may
be now or hereafter existing at law, in equity or by statute. Borrower waives
any requirement of marshaling of assets which may be secured by any of the Loan
Documents.
6.7 Effect of Termination. The termination of this Agreement will not
affect any rights of either party or any obligation of either party to the
19
other, arising prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights created or Obligations incurred prior to such termination
have been fully disposed of, concluded or liquidated. The security interest,
lien and rights granted to Bank hereunder and under the Loan Documents will
continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that no Loans are outstanding to Borrower, until all of
the Obligations, have been paid in full.
6.8 [Intentionally Deleted]
Section 7. Conditions Precedent.
7.1 Conditions to Initial Loans. Bank will have no obligation to make
or advance any Revolving Loan until Borrower has delivered to Bank at or before
the closing date, in form and substance satisfactory to Bank:
(a) Executed versions of the Revolving Note in the form
of Exhibit 2.1 attached hereto.
(b) A Certificate of Borrower in the form of Exhibit
7.1(b) and all attachments thereto.
(c) A favorable opinion of counsel to Borrower,
substantially in the form of Exhibit 7.1(c) attached hereto.
(d) An executed version of the Security Agreement in the form
of Exhibit 8.5 attached hereto along with a completed version on Schedule I
attached thereto entitled "Specific Representations".
(e) All appropriate financing statements (Form UCC-1) and
consents or waivers of landlords, warehousemen and mortgagees, as requested by
Bank.
(f) A letter to each lessee under the Leases executed by the
Borrower in the form as set forth as Exhibit 7.1(f) directing the lessee under
the Lease to send payments or proceeds from the Lease to the Lock Box.
(g) All executed Assignment of Lease Proceeds received by the
Borrower as of the Closing Date from the lessees under the Leases in
substantially the form as set forth in Exhibit 7.1(g) attached hereto.
(h) UCC searches, tax lien and litigation searches, insurance
certificates, notices or other documents which Bank may require to reflect,
perfect or protect Bank's first priority lien in the Collateral and all other
property pledged to secure the Obligations and to fully consummate this
transaction.
20
(i) All requisite releases of liens, termination statements
and satisfactions of mortgages necessary to release all liens and encumbrances
against the Collateral and any other property pledged to secure the Loans and
all requisite waivers and subordination agreements, in a form satisfactory to
Bank, to be executed and delivered by Borrower's landlords and mortgagees which
are necessary to grant Bank a first lien in the Collateral, including but not
limited to all Inventory and Equipment of Borrower.
(j) Borrower will pay to Bank all out of pocket expenses
incurred by Bank in connection with the preparation of this Agreement and
accompanying documents and the consummation of the transactions contemplated
hereby subject to the limitation set forth in Section 2.9 of this Agreement.
(k) A Certificate of Insurance as described in Section 4.4
hereof.
(l) A Collateral Report in the form as set forth in Exhibit
4.2(h).
(m) A Mortgage of Intellectual Property of Borrower in a form
reasonably acceptable to Bank.
(n) A Pay off Letter executed by Firstar, N.A., in a form
acceptable to Bank.
(o) Bank shall have completed to its reasonable satisfaction
an audit of the books and records of Borrower, including the Collateral. It is
understood, however, that any such audit by Bank will in no respect waive Bank's
rights to pursue remedies upon an Event of Default.
(p) Such additional information and materials as Bank may
reasonably request.
7.2 Conditions to Each Revolving Loan. On the date of each
Revolving Loan, the following statements will be true:
(a) All of the representations and warranties contained
herein and in the Loan Documents will be correct in all material respects as
though made on such date;
(b) No event will have occurred and be continuing, or would
result from such Revolving Loan, which constitutes an Event of Default, or would
constitute an Event of Default but for the requirement that notice be given or
lapse of time or both;
(c) The aggregate unpaid principal amount of the Revolving
Loans after giving effect to such Revolving Loan will not violate the lending
limits set forth in Section 2.1 of this Agreement.
The acceptance by Borrower of the proceeds of each Revolving
Loan will be deemed to constitute a representation and warranty by Borrower that
21
the conditions in Section 7.2 of this Agreement, other than those that have been
waived in writing by Bank, have been satisfied.
Section 8. Miscellaneous Provisions.
8.1 Miscellaneous. This Agreement, the exhibits and the other Loan
Documents are the complete agreement of the parties hereto and supersede all
previous understandings relating to the subject matter hereof. This Agreement
may be amended only in writing signed by the party against whom enforcement of
the amendment is sought. This Agreement may be executed in counterparts. If any
part of this Agreement is held invalid, illegal or unenforceable, the remainder
of this Agreement will not in any way be affected. This Agreement is and is
intended to be a continuing agreement and will remain in full force and effect
until the Loans are finally and irrevocably paid in full and the Facility is
terminated.
8.2 Waiver by Borrower. Borrower waives notice of non-payment, demand,
presentment, protest or notice of protest of any Accounts or other Collateral,
and all other notices (except those notices specifically provided for in this
Agreement); consents to any renewals or extensions of time of payment thereof.
Borrower hereby waives all suretyship defenses, including but not limited to,
all defenses set forth in Section 3-605 of the Uniform Commercial Code, as
revised in 1990 (the "UCC"). Such waiver is entered to the full extent permitted
by Section 3-605 (i) of the UCC.
8.3 Binding Effect. This Agreement will be binding upon and inure to
the benefit of the respective legal representatives, successors and assigns of
the parties hereto; however, Borrower may not assign or transfer any of its
rights or delegate any of its Obligations under this Agreement or any of the
Loan Documents, by operation of law or otherwise. Bank (and any subsequent
assignee) may transfer and assign any of its rights or delegate any of its
duties under this Agreement or may transfer or assign partial interests or
participation in the Loans to other persons. Bank may disclose to all
prospective and actual assignees and participants all financial, business and
other information about a Borrower, which Bank may possess at any time.
8.4 Subsidiaries. If Borrower has any additional Subsidiaries at any
time during the term of this Agreement, the term "Borrower" in each
representation, warranty and covenant herein will mean "Borrower" and each
Subsidiary individually and in the aggregate, and Borrower will cause each
Subsidiary to be in compliance therewith.
8.5 Security. The Obligations are secured as provided herein, in this
Agreement, the Security Agreement, in the Loan Documents and in each other
document or agreement which by its terms secures the repayment or performance of
the Obligations. Notwithstanding anything contained in the Credit Agreement or
the Loan Documents to the contrary, to the extent of any prohibition in a Lease
applicable thereto, the assignment of the payments and/or rights under each
Lease from Borrower to Bank shall not be effective as to each Debtor under a
Lease until such time as the Assignment of Lease Proceeds shall be executed by
such Debtor.
22
8.6 Survival. All representations, warranties, covenants and agreements
made by Borrower herein and in the Loan Documents will survive the execution and
delivery of this Agreement, the Loan Documents and the issuance of the Notes.
8.7 Delay or Omission. No delay or omission on the part of Bank in
exercising any right, remedy or power arising from any Event of Default will
impair any such right, remedy or power or any other right, remedy or power or be
considered a waiver or any right, remedy or power or any Event of Default nor
will the action or omission to act by Bank upon the occurrence of any Event of
Default impair any right, remedy or power arising as a result thereof or affect
any subsequent Event of Default of the same or different nature.
8.8 Notices. Any notices under or pursuant to this Agreement will be
deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, addressed as follows:
To Borrower: INTERLOTT TECHNOLOGIES, INC.
0000 Xxxxxxxxxx Xxx
Xxxxx, Xxxx 00000-0000
Attention: Xxxxxx X. Xxxxxx
With a copy to: Xxxxxxx X. Xxxxxxxxx, Esq.
Xxxx, Xxxxxxxxxx & Xxxxxxxxx, LLP
1800 Firstar Tower
000 Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000
To Bank: Fifth Third Bank
00 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000
Attention: Xxxxxxx X. Xxxxxx
With a copy to: Xxxxxxx X. Xxxxxx, Esq.
Statman, Harris, Xxxxxx & Xxxxxx, LLC
4100 Xxxxx Tower
000 Xxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000
Either party may change such address by sending written notice of the
change to the other party.
8.9 No Partnership. Nothing contained herein or in any of the Loan
Documents is intended to create or will be construed to create any partnership,
joint venture or other relationship between Bank and Borrower other than as
expressly set forth herein or therein and will not create any joint venture,
partnership or other relationship.
23
8.10 Indemnification. If after receipt of any payment of all or part of
the Obligations, Bank is for any reason compelled to surrender such payment to
any person or entity, because such payment is determined to be void or voidable
as a preference, impermissible setoff, or diversion of trust funds, or for any
other reason, this Agreement will continue in full force and effect and Borrower
will be liable to, and will indemnify, save and hold Bank, its officers,
directors, attorneys, and employees harmless of and from the amount of such
payment surrendered. The provisions of this Section will be and remain effective
notwithstanding any contrary action which may have been taken by Bank in
reliance on such payment, and any such contrary action so taken will be without
prejudice to Bank's rights under this Agreement and will be deemed to have been
conditioned upon such payment becoming final, indefeasible and irrevocable. In
addition, Borrower will indemnify, defend, save and hold Bank, its officers,
directors, attorneys, and employees harmless of, from and against all claims,
demands, liabilities, judgments, losses, damages, costs and expenses, joint or
several (including all accounting fees and attorneys' fees reasonably incurred),
that Bank or any such indemnified party may incur arising out of this Agreement,
any of the Loan Documents or any act taken by Bank hereunder except for the
willful misconduct or gross negligence of such indemnified party. The provisions
of this Section will survive the termination of this Agreement.
8.11 Governing Law; Jurisdiction. This Agreement, the Notes and the
other Loan Documents will be governed by the domestic laws of the State of Ohio.
Borrower agrees that the state and federal courts in Xxxxxxxx County, Ohio, or
any other court in which Bank initiates proceedings have exclusive jurisdiction
over all matters arising out of this Agreement, and that service of process in
any such proceeding will be effective if mailed to Borrower at its address
described in the Notices section of this Agreement. BANK AND BORROWER HEREBY
WAIVE THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, Borrower and Bank have executed this Agreement by
their duly authorized officers as of the date first above written.
INTERLOTT TECHNOLOGIES, INC.
By: /s/Xxxxxx X. Xxxxxx
-----------------------------
Its: Chief Financial Officer
-----------------------------
FIFTH THIRD BANK
By: /s/X.X. Xxxxxxxxxx
-----------------------------
Its: Vice President
-----------------------------
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EXHIBIT 1
DEFINITIONS
1. Accounts" means all accounts (whether or not Eligible Accounts),
contract rights, instruments, documents, chattel paper, and all
obligations in any form arising out of the sale or lease of goods or
the rendition of services by Borrower; all guaranties, letters of
credit and other security for any of the above; all merchandise
returned to or reclaimed by Borrower; and all books and records
(including computer programs, tapes and data processing software)
evidencing an interest in or relating to the above.
2. "Acquisitions" means any purchase of assets from a third party or
merger or consolidation with a third party (all of the foregoing being
in the same business as Borrower) which (i) requires a purchase price
consisting of cash payments at closing or required thereafter in
connection with the closing plus assumed liabilities (in accordance
with general accepted accounting principles), but exclusive of any
contingent obligations that would not be treated as a liability in
accordance with generally accepted accounting principles and/or any
contingent liabilities associated with earn out or deferred payment
provisions based on future performance, of not more than fifty percent
(50%) of the average excess availability under the Revolving Loans for
the thirty day period prior to the acquisition and (ii) Borrower has
delivered to Bank at least thirty (30) days prior to the acquisition
projected proforma financial statements for the Borrower for the
period after the acquisition to the Termination Date in a form
reasonably acceptable to the Bank prepared in accordance with
generally accepted accounting principles and certified as complete and
correct by an officer of Borrower and evidencing future compliance
with the terms of the Agreement in a manner reasonably acceptable to
Bank.
3. "Affiliate" means, as to Borrower, (a) any person or entity which,
directly or indirectly, is in control of, is controlled by or is under
common control with, Borrower, or (b) any person who is a director,
officer or employee (i) of Borrower or (ii) of any person described in
the preceding clause (a). For purposes of this definition, control of
a person shall mean (a) the power, direct or indirect, (i) to vote ten
percent (10%) or more of the securities having ordinary voting power
for the election of directors of such person or (ii) to direct or
cause the direction of the management and policies of such person
whether by contract or otherwise, or (b) the ownership, direct or
indirect, of ten percent (10%) or more of any class of equity
securities of such person.
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4. "Applicable Margins" shall mean the Applicable Revolver LIBOR Margin
and the Applicable Revolver Prime Margin.
5. "Applicable Revolver Prime Margin" shall mean the Applicable Revolver
Prime Margin expressed as a percentage, shall be - .25% from the date
of execution of the Agreement until the first Calculation Date, and
thereafter determined based on the Indebtedness to EBITDA Ratio of
Borrower as follows:
Applicable Revolver Prime Margin Indebtedness to EBITDA Ratio
- .25% Less than 1.50:1.00
- .25% Less than 1.75:1.00 but greater
than or equal to 1.50:1.00
0% Greater than or equal to 1.75:1.00
The Indebtedness to EBITDA Ratio shall be calculated as set forth in
the definition of Indebtedness to EBITDA Ratio on each Calculation
Date.
6. "Applicable Revolver LIBOR Margin" shall mean the Applicable Revolver
LIBOR Margin or expressed as a percentage, shall be 1.75% from the
date of execution of this Agreement until the first Calculation Date
and thereafter as determined based on the Indebtedness to EBITDA Ratio
of Borrower, as follows:
Applicable Revolver LIBOR Margin Indebtedness to EBITDA Ratio
1.625% Less than 1.50:1.00
1.75% Less than 1.75:1.00 but greater
than or equal to 1.50:1.00
2.00% Greater than or equal to 1.75:1.00
The Indebtedness to EBITDA Ratio shall be calculated as set forth in
the definitions of Indebtedness to EBITDA Ratio on each Calculation
Date.
7. "Assignment of Lease Proceeds" shall have the meaning as set forth in
Section 7.1 (g) of the Agreement.
8. "Available Amount" of any Letter of Credit means, at any time, the
maximum amount available to be drawn under such Letter of Credit at
such time (assuming compliance at such time with all conditions to
drawing).
26
9. "Bank Affiliate" means Bank, Fifth Third Leasing Company, and every
other entity of which Fifth Third Bancorp is the majority owner.
10. "Business Day" means any day on which U.S. Federal Reserve Bank is
open in Cincinnati, Ohio for the transaction of its normal business,
and if the applicable day relates to LIBOR matters, a day on which
dealings in U.S. Dollar deposits are also carried on in the London
interbank market and banks are open for business in London.
11. "Calculation Date" means in regards to the calculation of Indebtedness
to EBITDA Ratio the first day of the calendar month following the
month of receipt by Bank from Borrower of Borrower's audited financial
statement for any calendar year end period or receipt from Borrower by
Bank of Borrower's 10K or 10Q for any other calendar quarter provided
however if such audited financial statement, 10K or 10Q is received in
the last three (3) business days of the month it shall be deemed
received in the next calendar month. Borrower shall deliver to Bank
its audited calendar year end financial statement within 5 days of its
receipt by Borrower and its 10K or 10Q within five (5) days of filing
by the Borrower.
12. "Collateral" has the meaning assigned to that term in the Security
Agreement.
13. "Collection Account" has the meaning assigned to that term in Section
2.1 of this Agreement.
14. "Current Maturities of Long Term Debt" means that portion of the
principal amount of Long Term Debt which must be repaid during the
period for which the determination is made.
15. "Debtors" means Borrower's customers and all other persons who are
obligated or indebted to Borrower in any manner, whether directly or
indirectly, primarily or secondarily, contingently or otherwise, with
respect to Accounts or General Intangibles.
16. "Default Rate" means three percent (3%) in excess of the interest rate
otherwise in effect under amounts outstanding under the Notes. In no
event will the interest rate accruing under such Notes be increased to
be in excess of the maximum interest rate permitted by applicable
state or federal usury laws then in effect.
27
17. "EBITDA" means net income of Borrower before taxes, interest expense,
depreciation and amortization expenses for a given period.
18. "Eligible Accounts" means those accounts which are due and payable
within ninety (90) days from the invoice date, in which Bank has been
granted a valid first priority security interest and strictly comply
with all of Borrower's warranties and representations to Bank; but
Eligible Accounts will not include the following: (a) Accounts which
are due and have not been paid within ninety (90) days of the invoice
date; (b) Accounts with respect to which the Debtor is a shareholder,
officer, employee or agent of Borrower, or a corporation more than 5%
of the stock of which is owned by any of such persons or an affiliate;
(c) Accounts with respect to which the Debtor is not a resident of the
United States unless such account is supported by a letter of credit
in a form reasonably acceptable to Bank which letter of credit and the
proceeds therefrom have been assigned to the Bank; (d) Accounts with
respect to which the Debtor is the United States or any department,
agency or instrumentality of the United States unless Assignment of
Claims Act has been complied with or Bank has expressly waived that
requirement with respect to specific receivables; (e) Accounts with
respect to which the Debtor is a subsidiary of, related to, affiliated
or has common officers or directors with Borrower; (f) any Accounts of
a particular Debtor only for the amount that Borrower is liable to
that Debtor for goods sold or services rendered by that Debtor to such
Borrower; (g) any and all Accounts owed by a particular Debtor when
50% or more of the total Accounts of such Debtor are more than ninety
(90) days unpaid from the invoice date; (h) any Accounts owed by a
Debtor who does not meet Bank's standards of creditworthiness, in
Bank's commercially reasonable credit judgment exercised in good
faith; (i) any Accounts owed by any Debtor which has filed or has had
filed against it a petition for bankruptcy, insolvency, reorganization
or any other type of relief under insolvency laws; (j) any Accounts
owed by a Debtor which has made an assignment for the benefit of
creditors; (k) any Accounts deemed to ineligible by Bank based upon
credit and collateral considerations as Lender may deem appropriate,
in Bank's commercially reasonable judgment exercised in good faith;
(l) deposits; (m) accrued rebates; and (n) any Account which relates
to a Lease and/or is included as an Eligible Lease Payment.
19. "Eligible Inventory" means Inventory owned by Borrower of finished
goods or raw materials (but excluding work in progress) valued at the
lower of cost or fair market value on a first in, first out basis, in
accordance with generally accepted accounting principles consistently
applied, and excluding (a) obsolete, slow moving or unsalable items,
(b) any Inventory not in the actual possession of Borrower at its 7697
00
Xxxxxxxxxx Xxx, Xxxxx, Xxxx location or such other locations for which
Bank has a perfected security interest, (c) any Inventory subject to a
Lien or claim of title of a government authority under 32 C.F.R.
Section 7-104.35(b)/FAR 52.232.16 and (d) other Inventory deemed
ineligible by Bank based on commercially reasonable credit and
collateral considerations of Bank. Inventory which is deemed to be
Eligible Inventory, but which subsequently fails to meet the foregoing
criteria for Eligible Inventory, shall immediately cease to be
Eligible Inventory for the purpose of determining the total amount of
Revolving Loans that may be made to Borrower hereunder.
20. "Eligible Lease Payments" means those Lease payments on Leases for
lottery equipment due from Debtors to Borrower from the date of
calculation to the earlier of (i) 24 months or (ii) the date of
completion of the Lease, excluding any option or renewal periods which
have not been exercised in writing and strictly comply with all of
Borrower's warranties and representations to Bank; but Eligible Lease
Payments will not include the following: (a) Any Lease and related
Lease payments only for as long as and for which two or more monthly
Lease payments have not been paid within thirty (30) days of the due
date or have not been paid within ninety (90) days of the invoice
date; (b) Lease payments with respect to which the Debtor is a
shareholder, officer, employee or agent of Borrower, or a corporation
more than 5% of the stock of which is owned by any of such persons or
an affiliate; (c) Lease payments with respect to which the Debtor is
not a resident of the United States unless such Lease payment is
supported by a letter of credit in a form reasonably acceptable to
Bank which letter of credit and the proceeds therefrom have been
assigned to the Bank; (d) Lease payments with respect to which the
Debtor is the United States or any department, agency or
instrumentality of the United States unless Borrower has assigned its
interests in such Lease payments to Bank pursuant to Federal
Assignment of Claims Act or Bank has expressly waived that requirement
with respect to specific Lease payments; (e) Lease payments with
respect to which the Debtor is any State of the United States or any
city, town municipality or division thereof unless Borrower has
assigned its interests in such Lease payments to Bank pursuant to
applicable law or Bank has expressly waived that requirement with
respect to specific Lease payments; (f) Lease payments with respect to
which the Debtor is a subsidiary of, related to, affiliated or has
common officers or directors with Borrower; (g) any Lease payments
owed by a Debtor who does not meet Bank's standards of
creditworthiness, in Bank's commercially reasonable credit judgment
exercised in good faith; (h) any Lease payments owed by any Debtor
which has filed or has had filed against it a petition for bankruptcy,
insolvency, reorganization or any other type of relief under
insolvency laws; (i) any Lease payments owed by a Debtor which has
made an assignment for the benefit of creditors; (j) any Lease
payments deemed to ineligible by Bank based upon credit and collateral
considerations as Lender may deem appropriate, in Bank's commercially
reasonable judgment exercised in good faith; and (k) Lease payments on
29
Leases for which the Bank has not received fully executed Assignment
of Lease Proceeds within sixty (60) days of the Closing Date or for
the Leases executed after the Closing Date within sixty (60) days of
the execution of such Lease.
21. "Environmental Laws" means all federal, state, local and foreign laws
relating to pollution or protection of the environment, including laws
relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including without
limitation ambient air, surface water, ground water or land), or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances
or wastes, and any and all regulations, codes, plans, orders, decrees,
judgments, injunctions, notices or demand letters issued, entered,
promulgated or approved thereunder.
22. "ERISA" means the Federal Employee Retirement Income Security Act of
1974.
23. "Event(s) of Default" will have the meaning set forth in Section 6.1
of the Agreement.
24. "Event of Default is Continuing" shall mean that an Event of Default
has occurred and has not been cured by the Borrower, provided however
an Event of Default cannot be cured in the following circumstances:
(i) a breach of any covenant which in Bank's good faith judgment is
incapable of cure, (ii) any failure to maintain insurance in
accordance with the terms of the Agreement or related documents
(provided however one breach of the maintenance of insurance during
the term of this Agreement for a period of not more than three (3)
business days prior to its cure shall be capable of cure) or failure
to permit inspection of the Collateral or books and records of the
Borrower, or (iii) more than two (2) breaches of Section 6.1(b) of the
Agreement in any calendar year.
25. "Facility" will have the meaning set forth in Section 2.1 hereof.
26. "Indebtedness" means (a) all items (except items of capital stock, of
capital surplus, of general contingency reserves or of retained
earnings, deferred income taxes, and amount attributable to minority
interests, if any) which in accordance with generally accepted
accounting principles would be included in determining total
liabilities on a consolidated basis as shown on the liability side of
a balance sheet as at the date as of which Indebtedness is to be
determined, (b) all indebtedness secured by any mortgage, pledge, lien
or conditional sale or other title retention agreement to which any
property or asset owned or held is subject, whether or not the
30
indebtedness secured thereby will have been assumed (excluding
non-capitalized leases which may amount to title retention agreements
but including capitalized leases), and (c) all indebtedness of others
which Borrower or any Subsidiary has directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business), discounted or sold with recourse or
agreed (contingently or otherwise) to purchase or repurchase or
otherwise acquire, or in respect of which Borrower or any Subsidiary
has agreed to apply or advance funds (whether by way of loan, stock
purchase, capital contribution or otherwise) or otherwise to become
directly or indirectly liable.
27. "Indebtedness to EBITDA" means the ratio of Borrower's Indebtedness to
the Borrower's EBITDA. The Indebtedness to EBITDA Ratio shall be
calculated for each calendar quarter on each Calculation Date and
shall be effective from each Calculation Date to the subsequent
Calculation Date. The calculation of the Indebtedness to EBITDA Ratio
shall be based upon Borrower's audited year end financial statement
for the year end calculation and upon applicable securities filing
forms 10Q or 10K for other calendar quarterly periods. The calculation
shall be made on a trailing twelve month basis. The first calculation
period shall commence for the twelve month period ending December 31,
2000.
28. "Indebtedness to Tangible Net Worth Ratio" means the ratio of
Borrower's total Indebtedness to Borrower's Tangible Net Worth.
29. "Issuing Bank" means Fifth Third Bank, as issuer of the Letters of
Credit.
30. "Lease" means lease for lottery equipment with the lessor being
Borrower and lessee being third party Debtors.
31. "Letter(s) of Credit" means the standby or commercial letter of credit
issued from time to time by the Bank as requested by Borrower pursuant
to Section 2.12.
32. "Letter of Credit Advance" means an advance made by Issuing Bank
pursuant to Section 2.12.
33. "Letter of Credit Facility" means the arrangement for issuance of
Letters of Credit set forth in Section 2.12.
34. "Letter of Credit Liability" means, as of any date of determination,
all of the then-existing liabilities of Borrower to Bank in respect of
Letters of Credit issued pursuant to Section 2.12 of this Agreement,
whether such liability is contingent or fixed, and shall consist of
the sum of (a) the aggregate Available Amount of all Letters of Credit
then outstanding, plus (b) the aggregate amount that has been paid by,
and not been reimbursed to, Bank under Letters of Credit.
31
35. "Letter of Credit Related Documents" has the meaning specified in
Section 2.12.
36 "LIBOR Interest Period" means any 30, 60 or 90 day period selected by
Borrower, commencing on any Business Day. If a LIBOR Interest Period
so selected would otherwise end on a date which is not a Business Day,
such LIBOR Interest Period shall instead end on the next Business Day,
provided, however, that if such next Business Day shall fall in a
succeeding month, such LIBOR Interest Period shall instead end on the
preceding Business Day.
37. "LIBOR Pricing Option" means the option granted pursuant to this
Agreement to have all or a portion of the interest on the principal
amount of the Revolving Note computed with reference to a Revolver
LIBOR Rate.
38. "LIBOR Rate" means, as applied to any LIBOR Interest Period, the rate
(adjusted for LIBOR Reserves if Bank is required to maintain LIBOR
Reserves with respect to the relevant loan) being asked on an amount
of Eurodollar deposits equal to the principal amount of the Revolving
Note which is to be subject to a LIBOR Pricing Option, and which has a
maturity corresponding to the LIBOR Interest Period in question, as
reported by the TELERATE rate reporting system (or any successor), as
determined by Bank by noon of the date upon which a LIBOR Interest
Period is to commence. Each determination by Bank of the LIBOR Rate
shall be conclusive in the absence of manifest error.
39. "LIBOR Reserves" mean, for any principal amount which is subject to a
LIBOR Pricing Option for any LIBOR Interest Period therefor, the daily
average maximum rate (expressed as a decimal) at which reserves
(including any marginal, supplemental or emergency reserves) are
required to be maintained during such Interest Period under Regulation
D established by the Board of Governors of the Federal Reserve System
(or any successor rule or regulation) by Bank against "Eurocurrency
Liabilities" (as such term is used in Regulation D) but without
benefit of credit or proration, exemptions or offsets that might
otherwise be available to Bank from time to time under Regulation D.
Without limiting the effect of the foregoing, LIBOR Reserves shall
reflect any other reserves required to be maintained by a Bank against
(1) any category of liabilities that includes deposits by reference to
which the LIBOR Interest Rate for loans is to be determined; or (2)
any category of extension of credit or other assets that are subject
to an interest rate based on the LIBOR Rate.
32
40. "Lien" means any security interest, mortgage, pledge, assignment, lien
or other encumbrance of any kind, including interests of vendors or
lessors under conditional sale contracts and capitalized leases.
41. "Loan Documents" means this Agreement, the Revolving Note, the
Security Agreement, and every other document or agreement executed by
any party evidencing, guarantying or securing any of the Obligations;
and "Loan Document" means any one of the Loan Documents.
42. "Loans" means the Revolving Loans.
43. "Lock Box" has the meaning assigned thereto as set forth in Section
2.1(d) hereof.
44. "Long Term Debt" means Indebtedness which either by its terms is not
payable in full within one year from the date incurred, or the
repayment of which may, at the option of the obligor, be extended for
a period of more than one year from the date incurred.
45. "Note" means the Revolving Note.
46. "Obligation(s)" means all loans, advances, indebtedness, liabilities
and obligations of Borrower owed to Bank or each of Bank Affiliate of
every kind and description whether now existing or hereafter arising
including without limitation, those owed by Borrower to others and
acquired by Bank or any Bank Affiliate, by purchase, assignment or
otherwise, and whether direct or indirect, primary or as guarantor or
surety, absolute or contingent, liquidated or unliquidated, matured or
unmatured, whether or not secured by additional collateral, and
including without limitation all liabilities, obligations and
indebtedness arising under this Agreement, the Notes and the other
Loan Documents, all obligations to perform or forbear from performing
acts, all amounts represented by letters of credit now or hereafter
issued by Bank for the benefit of or at the request of Borrower, and
all expenses and attorneys' fees incurred by Bank and any Bank
Affiliate under this Agreement or any other document or instrument
related to any of the foregoing.
47. "Operating Account" has the meaning assigned thereto as set forth in
Section 2.1(f) hereof.
48. "Permitted Liens" has the meaning assigned thereto as set forth in
Section 3.9 hereof.
33
49. "Person" means any individual, Firm, partnership, joint venture,
corporation, association, business enterprise, trust, governmental
body or other entity, whether acting in an individual, fiduciary, or
other capacity.
50. "Pricing Option" means a LIBOR Pricing Option or Prime Rate Pricing
Option exercised by Borrower pursuant to the provisions hereof.
51. "Preferred Share Redemption" has the meaning assigned to that term in
Section 5.7 of this Agreement.
52. "Prime Rate" means the rate of interest per annum announced to be its
prime rate from time to time by Bank at its principal office in
Cincinnati, Ohio whether or not Bank will at times lend to borrowers
at lower rates of interest or, if there is no such prime rate, then
its base rate or such other rate as may be substituted by Bank for the
prime rate.
53. "Reserves" has the meaning assigned to that term in Section 2.1 of
this Agreement.
54. "Responsible Officer of Borrower" has the meaning assigned to that
term in Section 4.2(f) of this Agreement.
55. "Revolving Loans" has the meaning assigned to that term in Section 2.1
of this Agreement.
56. "Revolving Note" has the meaning assigned to that term in Section 2.1
of this Agreement.
57. "Security Agreement" means the Security Agreement of even date
herewith between Borrower and Bank, securing the Obligations.
58. "Standby and Commercial Letter of Credit Commitment" means One Million
Dollars ($1,000,000.00).
59. "Subsidiary" means any corporation, limited liability company,
partnership, or other entity of which Borrower directly or indirectly
owns or controls at the time outstanding stock, or ownership interest
having under ordinary circumstances (not depending on the happening of
a contingency) voting power to elect a majority of the board of
directors or shareholders of said corporation or other entity.
60. "Tangible Net Worth" means the total of the capital stock (less
treasury stock), paid-in surplus, general contingency reserves and
retained earnings (deficit) of Borrower in accordance with generally
accepted accounting principles, after eliminating all inter-company
34
items and all amounts properly attributable to minority interests, if
any, in the stock and surplus of any Subsidiary plus subordinated debt
there to Borrower's shareholders as a result of cash loans to the
Borrower, minus the following items (without duplication of
deductions) if any, appearing on the consolidated balance sheet of
Borrower: (i) all deferred charges (less amortization, unamortized
debt discount and expense and corporate organization expenses); (ii)
the book amount of all assets which would be treated as intangibles
under generally accepted accounting principles, including, without
limitation, such items as good-will, trademark applications, trade
names, service marks, brand names, copyrights, patents, patent
applications and licenses, and rights with respect to the foregoing;
(iii) the amount by which aggregate net inventories or aggregate net
securities appearing on the consolidated balance sheet exceed the
lower of cost or market value (at the date of such balance sheet)
thereof; (iv) any subsequent write-up in the book amount of any asset
resulting from a revaluation thereof from the book amount entered upon
acquisition of such asset; and (v) any outstanding stock warrants.
61. "Termination Date" shall have the meaning set forth in Section 2.1.
35
EXHIBIT 2.1
REVOLVING NOTE
$25,000,000.00
Cincinnati, Ohio
January 25, 2001
(Effective Date)
On December 31, 2003, INTERLOTT TECHNOLOGIES, INC. a Delaware
corporation ("Borrower"), for value received, hereby promises to pay to the
order of FIFTH THIRD BANK, an Ohio banking corporation (the "Bank"), at its
offices, located at 00 Xxxxxxxx Xxxxxx Xxxxx, Xxxxxxxxxx, Xxxx 00000, in lawful
money of the United States of America and in immediately available funds, the
principal sum of Twenty Five Million Dollars ($25,000,000.00) or such lesser
unpaid principal amount as may be advanced by Bank pursuant to the terms of the
Credit Agreement of even date herewith by and between Borrower and Bank, as the
same may be amended from time to time (the "Agreement"). All defined terms
contained herein but not defined herein shall have the meaning as set forth in
the Agreement.
The principal balance outstanding hereunder, will bear interest from
the date of the first advance until paid the interest rate as provided in the
Agreement.
On December 31, 2003, all outstanding principal and all accrued and
unpaid interest will be due and payable. Interest will be calculated based on a
360-day year and charged for the actual number of days elapsed, and will be
payable in arrears on the first day of each calendar month except for interest
subject to a Pricing Option which shall be payable as set forth in the
Agreement. After maturity, whether by acceleration or otherwise, this Note will
bear interest (computed and adjusted in the same manner, and with the same
effect, as interest hereon prior to maturity) payable on demand, at a rate per
annum equal to the Default Rate, until paid, and whether before or after the
entry of judgment hereon.
The Prime Rate means the rate of interest per annum announced to be its
Prime Rate from time to time by Bank at its principal office Cincinnati, Ohio
whether or not Bank will at times lend to borrowers at lower rates of interest,
or, if there is no such Prime Rate, then its base rate or such other rate as may
be substituted by Bank for the Prime Rate.
The principal amount of each loan made by Bank under this Note and the
amount of each prepayment made by Borrower under this Note will be recorded by
Bank on the schedule attached hereto or in the regularly maintained data
processing records of Bank. The aggregate unpaid principal amount of all loans
set forth in such schedule or in such records will be presumptive evidence of
the principal amount owing and unpaid on this Note. However, failure by Bank to
36
make any such entry will not limit or otherwise affect Borrower's obligations
under this Note or the Agreement.
All payments received by Bank under this Note will be applied first to
payment of amounts advanced by Bank on behalf of Borrower or which may be due
for insurance, taxes and attorneys' fees or other charges to be paid by Borrower
pursuant to the Agreement and the Loan Documents (as defined in the Agreement),
then to accrued interest on this Note, then to principal which will be repaid in
the inverse order of maturity.
This Note is the Revolving Note referred to in the Agreement, and is
entitled to the benefits, and is subject to the terms, of the Agreement.
Capitalized terms used but not otherwise defined herein will have the meanings
attributed thereto in the Agreement. The principal of this Note is prepayable in
the amounts and under the circumstances, and its maturity is subject to
acceleration upon the terms, set forth in the Agreement. Except as otherwise
expressly provided in the Agreement, if any payment on this Note becomes due and
payable on a day other than one on which Bank is open for business (a "Business
Day"), the maturity thereof will be extended to the next Business Day, and
interest will be payable at the rate specified herein during such extension
period.
After the occurrence of an Event of Default and the Event of Default is
Continuing, all amounts of principal outstanding as of the date of the
occurrence of such Event of Default will bear interest at the Default Rate, in
Bank's sole discretion, without notice to Borrower. This provision does not
constitute a waiver of any Events of Default or an agreement by Bank to permit
any late payments whatsoever.
Any prepayments under this Note in advance of any amortized payments
will be applied to reduce the outstanding principal amount of this Note in the
inverse chronological order of maturity.
In no event will the interest rate on this Note exceed the highest rate
permissible under any law which a court of competent jurisdiction will, in a
final determination, deem applicable hereto. In the event that a court
determines that Bank has received interest and other charges under this Note in
excess of the highest permissible rate applicable hereto, such excess will be
deemed received on account of, and will automatically be applied to reduce the
amounts due to Bank from Borrower under this Note, other than interest, and the
provisions hereof will be deemed amended to provide for the highest permissible
rate. If there are no such amounts outstanding, Bank will refund to Borrower
such excess.
Borrower and all endorsers, sureties, guarantors and other persons
liable on this Note hereby waive presentment for payment, demand, notice of
dishonor, protest, notice of protest and all other demands and notices in
connection with the delivery, performance and enforcement of this Note, and
consent to one or more renewals or extensions of this Note.
This Note may not be changed orally, but only by an instrument in
writing.
37
This Note is being delivered in, is intended to be performed in, will
be construed and enforceable in accordance with, and be governed by the internal
laws of, the State of Ohio without regard to principles of conflict of laws.
Borrower agrees that the State and Federal courts in Xxxxxxxx County, Ohio or
any other court in which Bank initiates proceedings will have exclusive
jurisdiction over all matters arising out of this Note, and that service of
process in any such proceeding will be effective if mailed to Borrower at its
address described in the Notices section of the Agreement. BORROWER HEREBY
WAIVES THE RIGHT TO TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE.
INTERLOTT TECHNOLOGIES, INC.
By: ____________________________
Its: ___________________________
38
EXHIBIT 8.5
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is entered into as of the 25th day of January,
2001, by and between INTERLOTT TECHNOLOGIES, INC., a Delaware corporation (the
"Borrower") and FIFTH THIRD BANK, an Ohio banking corporation (the "Bank").
Section 1. Definitions:
1.1 Specific Definitions. The following definitions will apply:
(a) "Accounts" means all accounts, accounts receivable, contract
rights, instruments, documents, chattel paper, and all obligations in any form
including but not limited to those arising out of the sale or lease of goods or
the rendition of services by Borrower; all guaranties, letters of credit and
other security for any of the above; all merchandise returned to or reclaimed by
Borrower; and all books and records (including computer programs, tapes and data
processing software) evidencing an interest in or relating to the above.
(b) "Debtors" means Borrower's customers and all other persons
obligated to Borrower on Accounts.
(c) "Equipment" means all machinery, machine tools, equipment,
fixtures, office equipment, furniture, furnishings, motors, motor vehicles,
tools, dies, parts, jigs, goods (including, without limitation, each of the
items of equipment set forth on any schedule which is either now or in the
future attached to Bank's copy of this Agreement), and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
thereto, and all supplies used or useful in connection therewith.
(d) "General Intangibles" means all general intangibles, choses in
action, causes of action, obligations or indebtedness owed to Borrower from any
source whatsoever, and all other intangible personal property of every kind and
nature (other than Accounts) including without limitation patents, trademarks,
trade names, service marks, copyrights and applications for any of the above,
and goodwill, trade secrets, licenses, franchises, rights under agreements, tax
refund claims, and all books and records including all computer programs, disks,
tapes, printouts, customer lists, credit files and other business and financial
records, and the equipment containing any such information.
(e) "Inventory" means any and all goods, supplies, wares, merchandises
and other tangible personal property, including raw materials, work in process,
supplies and components, and finished goods, whether held for sale or lease, or
furnished or to be furnished under any contract for service, or otherwise and
also including products of and accessions to inventory, packing and shipping
39
materials, and all documents of title, whether negotiable or non-negotiable,
representing any of the foregoing.
(f) "Lien" means any security interest, mortgage, pledge, assignment,
lien or other encumbrance of any kind, including interests of vendors or lessors
under conditional sale contracts or capital leases.
(g) In addition to the foregoing, the definitions of the terms
Accounts, Inventory, Equipment and General Intangibles will have the meanings
attributed thereto in the applicable version of the Uniform Commercial Code
adopted in the jurisdiction where Secured Party's principal place of business is
located, as such definitions may be enlarged or expanded from time to time by
amendment or judicial decision.
1.2 Other Definitions. Capitalized terms not defined herein
have the meanings set forth in the Credit Agreement of even date herewith
between Borrower and Bank (the "Credit Agreement"). All other undefined terms
will have the meaning given to them in the Ohio Uniform Commercial Code.
Section 2. Security.
2.1 Security Interest of Bank. To induce Bank to make the Loans, and as
security for all Obligations, Borrower hereby assigns to Bank as collateral and
grants to Bank a continuing first priority pledge and security interest, subject
only to Permitted Liens, in the following property of Borrower (the
"Collateral"), whether now owned or existing or hereafter acquired or arising
and regardless of where it is located:
(a) all Accounts;
(b) all Inventory;
(c) all Equipment;
(d) all General Intangibles;
(e) all proceeds and products of Collateral and all additions and
accessions to, replacements of, insurance or condemnation proceeds of, and
documents covering Collateral, all tort or other claims against third parties
arising out of damage or destruction of Collateral, all property received wholly
or partly in trade or exchange for Collateral, all fixtures, all leases of
Collateral and all rents, revenues, issues, profits and proceeds arising from
the sale, lease, license, encumbrance, collection, or any other temporary or
permanent disposition, of the Collateral or any interest therein; and
(f) all instruments, chattel paper, documents, securities, money, cash,
letters of credit, warrants, dividends, distributions, contracts, agreements,
contract rights or other property, owned by Borrower or in which Borrower has an
interest, which now or hereafter are at any time in the possession or control of
Bank or in transit by mail or carrier to or in the possession of any third party
40
acting on behalf of Bank, without regard to whether Bank received the same in
pledge, for safekeeping, as agent for collection or transmission or otherwise or
whether Bank had conditionally released the same, and the proceeds thereof, all
rights to payment from all claims against Secured Party, and any deposit
accounts of Borrower with Bank, including certificates of deposit, all demand,
time, savings, passbook or other accounts.
2.2 Assignment of Lease Payments. As further security for the repayment
of the Obligations, Borrower hereby assigns to Bank all of the rents, issues,
profits or payments due or to come due under any real or personal property
leases to which it is or may become a party as Lessor, including but not limited
to any and all Leases of lottery equipment by any third party lessee (the
"Leases"). Bank may demand, collect, and receive from any lessee all rents,
issues, profits charges, or other amounts of whatever nature due or to come due
under any such Lease, endorse the name of Borrower on any checks, notes, other
instruments for the payment of money, deposit the same in bank accounts, and
apply the proceeds in repayment of the Obligations, pursuant to the terms of the
Credit Agreement. Borrower shall execute such Assignment of Lease Proceeds or
other documents reasonably requested by Bank necessary to cause the lessees on
any of the Leases to direct payment to Bank. Borrower shall notify Bank of any
new, additional or replacement Leases within five (5) business days of the
execution thereof. Borrower shall not in any material respect, without prior
written consent of Bank, amend, assign, modify, cancel or surrender any of the
Leases provided however the foregoing does not prohibit Borrower from making
immaterial amendments to Leases. Notwithstanding the foregoing, Bank shall not
be responsible for the performance of any obligation of Borrower under the
Lease, which shall remain the sole obligation of Borrower. Notwithstanding
anything contained in the Credit Agreement or the Loan Documents to the
contrary, to the extent of any prohibition in a Lease applicable thereto, the
assignment of the payments and/or rights under each Lease from Borrower to Bank
shall not be effective as to each Debtor under a Lease until such time as the
Assignment of Lease Proceeds shall be executed by such Debtor.
2.3 Representations in Schedule I. The representations and warranties
in Schedule I attached hereto entitled the Specific Representation Schedule are
true and correct. Except as otherwise permitted hereunder, Borrower will not
change its name, transfer executive offices or maintain records with respect to
Accounts at any location other than the present locations specified in that
schedule.
2.4 Provisions Concerning Accounts. (a) Borrower represents and
warrants that each Account reflected in Borrower's books and records and on each
Collateral Report submitted to Bank is, or at the time it arises will be owned
by Borrower free and clear of all Liens in favor of any third party other than
Bank, will be a bona fide existing obligation created by the final sale and
delivery goods or the completed performance of services by Borrower in the
ordinary course of its business, will be for a liquidated amount maturing as
stated in the supporting data covering such transaction, and will not be subject
to any known deduction, offset, counterclaim, return privilege or other
41
condition, except as reflected on Borrower's books and records and on all
Collateral Reports delivered to Bank. Borrower will not redate any invoices. Any
allowances between Borrower and its customers will be in accordance with the
usual customary practices of Borrower, as they exist at this time.
(b) Any officer, employee or agent of Bank will have the right, at any
time or times hereafter, in the name of Bank or its nominee (including
Borrower), to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, or otherwise. After an Event of Default and the
Event of Default is Continuing, Bank or its designee may at any time notify
Debtors that Accounts have been assigned to Bank or of Bank's security interest
therein, and after default by Borrower hereunder collect the same directly and
charge all collection costs and expenses to Borrower's account.
(c) If Borrower becomes aware that a Debtor disputes liability or makes
any claim with respect to an Account in excess of $10,000 or that a receivership
petition or petition under any chapter of the federal bankruptcy act is filed by
or against a Debtor, or that a Debtor dissolves, makes an assignment for the
benefit of creditors, becomes insolvent, fails or goes out of business, or that
any other event occurs which adversely affects the value of any Account owed by
a debtor, Borrower will immediately notify Bank of each such event where such
event is material in nature. After an Event of Default and the Event of Default
is Continuing, Borrower will not grant any discounts, credit or allowances to
any Debtor and will not accept returns of merchandise without Bank's consent.
After an Event of Default and the Event of Default is Continuing, Bank may
settle disputes and claims directly with Debtors, and in such cases, Bank will
credit Borrower's account with the net amounts collected from such disputed
Accounts, after expenses of collection.
(d) Borrower appoints Bank or Bank's designee as its attorney-in-fact
to endorse Borrower's name on any checks, notes, acceptances, money orders,
drafts or other forms of payment or security that may come into Bank's
possession; to sign Borrower's name on any invoice or xxxx of lading relating to
any Accounts or Inventory, on drafts against Debtors, on schedules and
assignments of Accounts or Inventory, on notices of assignment and other public
records, on verifications of Accounts and on notices to Debtors; to notify post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Bank, to receive and open all mail addressed to Borrower
and to retain all mail relating to Collateral and forward all other mail to
Borrower; to send requests for verification of accounts to customers or Debtors,
and to do all things necessary to carry out or enforce this Agreement. Borrower
ratifies and approves all acts of Bank as attorney-in-fact. Bank as
attorney-in-fact will not be liable for any acts or omissions, or for any error
of judgment or mistake of fact or law except for bad faith. This power, being
coupled with an interest, is irrevocable until all Obligations have been fully
satisfied; provided that Bank will not exercise this power until after an Event
of Default and the Event of Default is Continuing.
(e) If any Accounts will arise out of a contract with the United States
of America or any department, agency, subdivision or instrumentality thereof,
Borrower will promptly notify Bank and will perfect Bank's Lien in such Accounts
under the provisions of the Federal laws on assignment of claims.
42
2.5 Provisions Concerning General Intangibles. Borrower represents and
warrants that Borrower owns all of the General Intangibles in which Borrower
grants Bank a Lien, free and clear of any Liens in favor of any person other
than Bank. Borrower will preserve all patents, trademarks, copyrights and the
like which are necessary or useful for the conduct of its business.
2.6 Provisions Concerning Inventory. (a) Borrower represents and
warrants that each item of Inventory will be valued by Borrower at the lower of
cost or market on a FIFO basis. Borrower has informed Bank on Schedule I of all
places where Borrower maintains Inventory other than machines on lease, repair
parts held by field representatives and demo machines loaned to state lotteries
or has maintained Inventory other than machines on lease, repair parts held by
field representatives and demo machines loaned to state lotteries at any time
during the past four months, including, without limitations, facilities leased
and operated by Borrower and locations neither owned nor leased by Borrower.
Schedule I indicates whether the premises are those of a warehouseman or other
party. No Inventory other than machines on lease, repair parts held by field
representatives and demo machines loaned to state lotteries will be removed from
the current locations or stored at locations other than the current locations
disclosed to Bank on Schedule I, except (i) for the purpose of sale or lease in
the ordinary course of Borrower's business or (ii) upon 30 days' written notice
to Bank, to such other locations as to which all action required to perfect and
protect Bank's lien in such Inventory has been taken. Inventory may be moved
from one current location to another.
(b) Borrower will keep all Inventory (except for obsolete and damaged
Inventory no longer necessary for the business of Borrower) in good order and
condition and will maintain full, accurate and complete books and records with
respect to Inventory at all times.
(c) Except during the continuance of an Event of Default, Borrower may
sell Inventory in the ordinary course of its business (which does not include a
transfer in full or partial satisfaction of indebtedness).
(d) If any Inventory is stored with a bailee, warehouseman or similar
party at any time, Borrower so storing such Inventory will inform Bank of that
fact and will take all steps requested by Bank so that Bank retains a first
priority perfected Lien in those assets.
(e) Borrower has not purchased any of the Collateral in a bulk transfer
or in a transaction which was outside the ordinary course of the seller's
business, except as set forth on an exhibit attached hereto.
2.7 Provisions Concerning Equipment. (a) Borrower warrants and
represents that Borrower has informed Bank on Schedule I of all places where any
of Borrower's Equipment is located or has been located at any time during the
past four months. No Equipment will be moved to any location not disclosed to
Bank on Schedule I but Equipment may be moved from one such location to another.
43
In addition, Borrower may move Equipment from job site to job site provided that
Borrower will provide Bank with prior written notice if any Equipment with a
book value in excess of $50,000 is to be moved to and maintained at a particular
job site for a period in excess of three months.
(b) Except for obsolete Equipment and Equipment no longer necessary for
the Borrower's business, Borrower will keep and maintain the Equipment in good
operating condition and repair, make all necessary replacements so that its
value and operating efficiency is maintained and preserved. Borrower will
immediately notify Bank of any material loss or damage to the Collateral.
(c) Borrower will, upon the request of Bank, if Borrower has more than
five (5) vehicles, immediately deliver to Bank all certificates of title or
applications for title or the like for any vehicles, ships or airplanes covered
by certificates of title. Borrower will take all steps necessary to perfect
Bank's Lien in such assets.
(d) Borrower will not permit any item of Equipment to become a fixture
to real estate or accession to other property and the Equipment is now and will
at all times remain and be personal property, except with the prior written
consent of Bank. If any of the Collateral is or may become a fixture, Borrower
will obtain from all persons with an interest in the relevant real estate such
waivers or subordinations as Bank reasonably requires.
2.8 Liens. Borrower has good and marketable title to its respective
Collateral, and the Liens granted to Bank in this Agreement are fully perfected
first priority Liens in the Collateral with priority over the rights of every
person other than Borrower and the holders of any Permitted Liens in the
Collateral. Borrower is the owner of all personal property in its possession,
and all assets of Borrower are owned free, clear and unencumbered, except for
the Lien of Bank and except for Liens imposed by law which secure amounts not
yet due and payable and Permitted Liens.
2.9 Further Assurances. (a) Borrower will execute and deliver to Bank
at Bank's request all financing statements, continuation statements and other
documents that Bank may reasonably request, in form satisfactory to Bank, to
perfect and maintain perfected Bank's security interest in the Collateral and to
fully consummate all transactions contemplated under this Agreement. Borrower
hereby irrevocably makes, constitutes and appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's true and lawful
attorney with power to sign the name of Borrower on any such documents.
(b) If any Collateral, including proceeds, consists of a letter of
credit, advice of credit, instrument, money, negotiable documents, chattel paper
or similar property (collectively, "Negotiable Collateral") Borrower will,
immediately upon receipt thereof, endorse and assign such Negotiable Collateral
over to Bank and deliver actual physical possession of the Negotiable Collateral
to Bank.
(c) Bank may inspect and verify Borrower's books and records at any
time or times hereafter, during usual business hours, in order to verify the
amount or condition of the Collateral, or any other matter relating to the
Collateral or Borrower's financial condition. Borrower will promptly make
available to Bank copies of all books and records requested by Bank.
44
2.10 Other Amounts Deemed Loans. If Borrower fails to pay any tax,
assessment, government charge or levy or to maintain insurance within the time
permitted by this Agreement or the Credit Agreement, or to discharge any Lien
prohibited hereby, or to comply with any other obligation, Bank may, but will
not be required to, pay, satisfy, discharge or bond the same of the account of
Borrower, and to the extent permitted by law any and all monies so paid out will
be secured by the Collateral.
2.11 Borrower Remains Liable. Borrower will remain liable under any
contracts and agreements included in the Collateral to perform all of its duties
and obligations thereunder to the same extent as if this Agreement had not been
executed, and Bank will not have any obligation or liability under such
contracts and agreements by reason of this Agreement or otherwise.
2.12 Insurance. Borrower will insure the Collateral against loss or
damage of the kinds and in the amounts customarily insured against by
corporations with established reputations engaged in the same or similar
business as Borrower. All such policies will (a) be issued by financially sound
and reputable insurers, (b) name Bank as an additional insured and, where
applicable, as loss payee under a lender loss payable endorsement satisfactory
to Bank, and (c) will provide for thirty (30) days written notice to Bank before
such policy is altered or canceled all of which will be evidenced by a
Certificate of Insurance delivered to Bank by Borrower on the date of execution
of this Agreement.
Section 3 Events of Default and Remedies.
3.1 Events of Default. Any of the following events will be an
Event of Default:
(a) any representation or warranty made herein by Borrower is incorrect
when made or reaffirmed and such misrepresentation and/or breach of warranties
are material in the aggregate; or
(b) Borrower fails to keep its assets insured as required herein or in
the Credit Agreement, or material uninsured damage to or loss, theft or
destruction of the Collateral occurs; or
(c) Borrower fails to observe or perform any covenant, condition or
agreement herein and the failure or inability of Borrower to cure such default
within 30 days of the earlier of (i) written notice thereof from Bank to
Borrower if such default is not known by a Responsible Officer of Borrower or
(ii) knowledge of a Responsible Officer of such default, provided that such 30
day grace period will not apply to (i) a breach of any covenant which in Bank's
45
good faith judgment is incapable of cure, (ii) any failure to maintain insurance
or permit inspection of the Collateral or of the books and records of Borrower,
or (iii) any breach of any covenant which has already occurred; or
(d) an Event of Default occurs and the Event of Default is Continuing
under the Credit Agreement, the Loan Documents or any document or agreement
evidencing or securing the Obligations.
3.2 Remedies. If any Event of Default and the Event of Default is
Continuing, in addition to the remedies provided in the Credit Agreement:
(a) Bank may resort to the rights and remedies of a secured party under
the Uniform Commercial Code including the right to enter any premises of
Borrower, with or without legal process and take possession of the Collateral
and remove it and any records pertaining thereto and/or remain on such premises
and use it for the purpose of collecting, preparing and disposing of the
Collateral;
(b) Bank may ship, reclaim, recover, store, finish, maintain and repair
the Collateral, and may sell the Collateral at public or private sale, and
Borrower will be credited with the net proceeds of such sale only when they are
actually received by Bank and any requirement of reasonable notice of any
disposition of the Collateral will be satisfied if such notice is sent to
Borrower 10 days prior to such disposition;
(c) Borrower will upon request of Bank assemble the Collateral and
any records pertaining thereto and make them available at a place designated by
Bank; or
(d) Bank may use, in connection with any assembly or disposition of the
Collateral, any trademark, trade name, tradestyle, copyright, patent right,
trade secret or technical process used or utilized by Borrower.
3.3 No Remedy Exclusive. No remedy set forth herein is exclusive of any
other available remedy or remedies, but each is cumulative and in addition to
every other remedy given under this Agreement or the Credit Agreement or now or
hereafter existing at law or in equity or by statute.
Section 4 Miscellaneous Provisions.
4.1 Miscellaneous. No delay or omission to exercise any right will
impair any such right or be a waiver thereof, and a waiver on one occasion will
be limited to that particular occasion. This Agreement may be amended only in
writing signed by the party against whom enforcement of the amendment is sought.
This Agreement may be executed in counterparts. If any part of this Agreement is
held invalid, the remainder of this Agreement will not be affected thereby.
4.2 Binding Effect. This Agreement will be binding upon and inure to
the benefit of the respective legal representatives, successors and assigns of
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the parties hereto; however, Borrower may not assign any of its rights or
delegate any of its obligations hereunder. Bank (and any subsequent assignee)
may transfer and assign this Agreement or may assign partial interests or
participation in the Loans to other persons.
4.3 Subsidiaries. If Borrower has any additional Subsidiaries at any
time during the term of this Agreement, the term "Borrower" in each
representation, warranty and covenant herein will mean "Borrower and each
Subsidiary individually and in the aggregate," and Borrower will cause each
Subsidiary to be in compliance therewith.
4.4 Financing Statement. Borrower hereby authorizes Bank to file a copy
of this Agreement as a Financing Statement under the Uniform Commercial Code
with appropriate county and state government authorities necessary to perfect
the Bank's security interest in the Collateral as set forth herein.
4.5 Notices. Any notices under or pursuant to this agreement will be
deemed duly sent when delivered in hand or when mailed by registered or
certified mail, return receipt requested, to the addresses then provided for in
the Notices section of the Credit Agreement.
4.6 Governing Law; Jurisdiction. This Agreement will be governed by the
domestic laws of the State of Ohio. Borrower agrees that the state and federal
courts in Xxxxxxxx County, Ohio or any other court in which Bank initiates
proceedings have exclusive jurisdiction over all matters arising out of this
Agreement, and that service of process in any such proceeding will be effective
if mailed to Borrower at its address described in the Notices section of the
Credit Agreement. BANK AND BORROWER HEREBY WAIVE THE RIGHT TO TRIAL BY JURY OF
ANY MATTERS ARISING OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
IN WITNESS WHEREOF, Borrower and Bank have executed this Security
Agreement by their duly authorized officers as of the date first above written.
INTERLOTT TECHNOLOGIES, INC.
By: _____________________________
Its: ____________________________
FIFTH THIRD BANK
By: _____________________________
Its: ____________________________
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