SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported) December 9, 1999
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FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
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(Exact name of Registrant as specified in its charter)
Pennsylvania
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(State or other jurisdiction of incorporation)
0-14841 22-2476703
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(Commission File Number) (IRS Employer Identification Number)
One Franklin Plaza, Burlington, New Jersey 08016-4907
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(Address of Principal Executive Offices)
Registrant's telephone number, (609) 386-2500
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ITEM 5 OTHER EVENTS
On December 9, 1999 Franklin Electronic Publishers, Incorporated
(the "Registrant") entered into a $25,000,000 secured financing facility with
the Banc of America Commercial Finance Corporation and prepaid $10,000,000 in
principal of its Senior Notes using a portion of the proceeds from such secured
financing facility.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits:
1. Franklin Electronic Publishers, Incorporated Press Release,
dated December 9, 1999.
2. Loan and Security Agreement, dated December 7, 1999
3. Second Amendment to Note Purchase Agreement, dated December 7,
1999
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRANKLIN ELECTRONIC PUBLISHERS, INC.
By /s/ Gregory J. Winsky
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Name: Gregory J. Winsky
Title: Senior Vice President
Date: December 13, 1999
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EXHIBIT 1
FRANKLIN CLOSES REFINANCING WITH
BANC OF AMERICA AND SENIOR NOTEHOLDERS
Burlington, NJ, December 9, 1999 - Franklin Electronic Publishers, Inc.
(NYSE: FEP) today announced that the Company has entered into a $25,000,000
secured financing facility with the Banc of America Commercial Finance
Corporation at a rate of 3/8% over the prime rate. The Company added that it had
prepaid $10,000,000 in principal of its Senior Notes from the proceeds of this
new credit facility and that the Senior Note Agreements have been restructured
to allow the Company to continue to operate under the Agreements going forward.
After application of the prepayment, which was made without penalty, the
aggregate outstanding principal of the Senior Notes is $14,000,000.
Franklin Electronic Publishers, Inc. (NYSE:FEP), is the worldwide market leader
in handheld electronic books, including the popular BOOKMAN(TM) series. The
Company is also the exclusive producer and distributor of ROLODEX(TM)
Electronics brand of personal information management products. Franklin has sold
more than 21,000,000 electronic books and currently publishes more than 200
titles, including dictionaries and bilingual dictionaries; encyclopedias;
Bibles; entertainment titles; education and tutorial publications; and medical
reference works. Franklin products, available in twelve languages, are sold in
45,000 retail outlets worldwide, and through catalogs. More information about
Franklin can be found at http://www.franklin.com. The Company has sales and
distribution subsidiaries in the United Kingdom, France, Germany, the Benelux
countries, Canada, Australia and Mexico, and production management offices in
Tokyo and Hong Kong.
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Except for the historical information contained herein, the matters discussed
throughout this release, including, but not limited to, those that are stated as
the Company's belief or expectation or preceded by the word "should" are forward
looking statements that involve risks to and uncertainties in the Company's
business, including, among other things, the timely availability and acceptance
of new electronic reference products, organizers, and computer companion
products, changes in technology, the impact of competitive electronic products,
the management of inventories, the Company's dependence on third party component
suppliers and manufacturers, including those that provide Franklin-specific
parts, and other risks and uncertainties that may be detailed from time to time
in the Company's reports filed with the Securities and Exchange Commission.
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# # #
December 9, 1999
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Banc of America Commercial Finance Corporation
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Loan and Security Agreement
This Loan and Security Agreement (as it may be amended, this "Agreement")
is entered into as of December 7, 1999 among BANC OF AMERICA COMMERCIAL FINANCE
CORPORATION, THROUGH ITS COMMERCIAL FUNDING DIVISION, ("Lender"), having an
address at 1177 Avenue of the Americas, 36th Floor, New York, New York 10036,
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED, a Pennsylvania corporation ("US
Borrower"), having its chief executive office at One Franklin Plaza, Burlington,
New Jersey 08016 ("US Borrower's Address"), FRANKLIN ELECTRONIC PUBLISHERS
(EUROPE) LTD., a limited liability private English company ("English Borrower"),
having its chief executive office at 11 & 12 Windmill Business Village,
Brooklands Close, Sunburg, Middlesex TW16 704, England ("English Borrower's
Address"), and FRANKLIN ELECTRONIC PUBLISHERS (DEUTSCHLAND) GMBH, a German
limited liability company ("German Borrower"), having its chief executive office
at Kapellenstrabe 13 D-85622 Feldkirchen b. Munchen, Germany ("German Borrower's
Address"); each of US Borrower, English Borrower and German Borrower herein
being referred to individually as a "Borrower" and together as "Borrowers"). The
Schedules to this Agreement are an integral part of this Agreement and are
incorporated herein by reference. Terms used, but not defined elsewhere, in this
Agreement are defined in Schedule B.
1. LOANS AND CREDIT ACCOMMODATIONS.
1.1 Amount. Subject to the terms and conditions contained in this
Agreement, Lender will:
(a) Revolving Loans and Credit Accommodations. From time to time
during the Term at a Borrower's request, make revolving loans to such Borrower
("Revolving Loans"), and make letters of credit, bankers acceptances and other
credit accommodations ("Credit Accommodations") available to such Borrower, in
each case to the extent that such Borrower has sufficient US Borrower
Availability, English Borrower Availability or German Borrower Availability, as
applicable, and there is sufficient Aggregate Availability, each at the time of
such request to cover, dollar for dollar, the requested Revolving Loan or Credit
Accommodation of such Borrower; provided, that after giving effect to such
Revolving Loan or Credit Accommodation, (x) the outstanding balance of all
monetary Obligations (including (A) the principal balance of any Term Loan and,
(B) solely for the purpose of determining compliance with this provision, the
Credit Accommodation Balance less the undrawn face amount, if any, of
outstanding Credit Accommodations for which the applicable Borrower has provided
cash collateral to Lender in the manner set forth in Section 7.3) will not
exceed the Maximum Facility Amount set forth in Section 1(a) of Schedule A, and
(y) none of the other Loan Limits set forth in Section 1 of Schedule A will be
exceeded. All of the foregoing loan requests shall be made by US Borrower on
behalf of the Borrower indicated on the loan request.
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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(b) Term Loan. Make (i) on the date of this Agreement an advance to
a Borrower computed with respect to the value of such Borrower's Eligible
Equipment owned by such Borrower on the date of this Agreement (the "Equipment
Advance") in the principal amount, if any, set forth in Section 2(a)(i) of
Schedule A for such Borrower, (ii) on the date of this Agreement an advance to a
Borrower computed with respect to the value of such Borrower's Eligible Real
Property (the "Real Property Advance") in the principal amount, if any, set
forth in Section 2(a)(ii) of Schedule A for such Borrower and (iii) in Lender's
sole and absolute discretion and upon at least fifteen days prior written
request by a Borrower, one or more advances to such Borrower computed with
respect to the value of such Borrower's Capital Expenditure Equipment to be
acquired with the proceeds of such advance (each, a "Capital Expenditure
Advance") in a principal amount, if any, set forth in Section 2(a)(iii) of
Schedule A for such Borrower. The Equipment Advance, the Real Property Advance
and all Capital Expenditure Advances are collectively referred to as the "Term
Loan." Each Capital Expenditure Advance will be evidenced by a term note in the
form attached hereto as Exhibit A. All of the foregoing loan requests shall be
made by US Borrower on behalf of the Borrower indicated on the loan request.
1.2 Reserves. Lender may from time to time establish and revise such
reserves as Lender deems appropriate in its sole discretion reasonably exercised
("Reserves") to reflect (i) events, conditions, contingencies or risks which
affect or may affect (A) the Collateral or its value, or the security interests
and other rights of Lender in the Collateral or (B) the assets, business or
prospects of any Borrower or any Obligor, (ii) Lender's good faith concern that
any Collateral report or financial information furnished by or on behalf of any
Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or
misleading in any material respect, (iii) any fact or circumstance which Lender
determines in good faith constitutes, or could constitute, a Default or Event of
Default or (iv) any other events or circumstances which Lender determines in
good faith make the establishment or revision of a Reserve prudent. Without
limiting the foregoing, Lender shall (x) in the case of each Credit
Accommodation issued and outstanding for the purchase of Inventory (a) which
meets the criteria for Eligible Inventory set forth in clauses (i), (ii), (iii),
(v) and (vi) of the definition of Eligible Inventory, (b) which is or will be in
transit to one of the locations set forth in Section 9(d) of Schedule A for US
Borrower, (c) which is fully insured in a manner satisfactory to Lender and (d)
with respect to which Lender is in possession of all bills of lading and all
other documentation which Lender has requested, all in form and substance
satisfactory to Lender in its sole discretion, establish a Reserve equal to the
cost of such Inventory (plus all duties, freight, taxes, insurance, costs and
other charges and expenses relating to such Credit Accommodation or such
Eligible Inventory) multiplied by a percentage equal to 100% minus the Inventory
Advance Rate applicable to Eligible Inventory and (y) in the case of any other
Credit Accommodation issued for any purpose, establish a Reserve equal to the
full amount of such Credit Accommodation plus all costs and other charges and
expenses relating to such Credit Accommodation. In addition, (x) Lender shall
establish a permanent Reserve in the amount, if any, set forth in Section 1(f)
of Schedule A, and (y) if the outstanding principal balance of any Term Loan
advance with respect to Eligible Equipment exceeds the percentage, if any, set
forth in Section 2(a)(i) or 2(a)(iii) of Schedule A of the appraised value
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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of such Eligible Equipment, Lender may establish an additional Reserve in the
amount of such excess (and, for this purpose, if payments of principal on the
Term Loan advances against Eligible Equipment and Real Property are not
calculated separately, payments of principal of the Term Loan made by the
applicable Borrower shall be deemed to apply to the Term Loan advance with
respect to Eligible Equipment and Real Property, respectively, in proportion to
the original principal amounts of such advances) (it being understood that this
clause (y) shall only be applicable in the event that any Equipment Advance is
outstanding). Lender may, in its sole discretion reasonably exercised, establish
and revise Reserves by deducting them in determining Availability or by
reclassifying Eligible Accounts or Eligible Inventory as ineligible. In no event
shall the establishment of a Reserve in respect of a particular actual or
contingent liability obligate Lender to make advances hereunder to pay such
liability or otherwise obligate Lender with respect thereto.
1.3 Other Provisions Applicable to Credit Accommodations. Lender may, in
its sole discretion and on terms and conditions acceptable to Lender, make
Credit Accommodations available to a Borrower either by issuing them, or by
causing other financial institutions to issue them supported by Lender's
guaranty or indemnification; provided, that after giving effect to each Credit
Accommodation, the Credit Accommodation Balance will not exceed the Credit
Accommodation Limit set forth in Section 1(e) of Schedule A. Any amounts paid by
Lender in respect of a Credit Accommodation will be treated for all purposes as
a Revolving Loan which shall be secured by the Collateral and bear interest, and
be payable, in the same manner as a Revolving Loan. Each Borrower agrees to
execute all documentation required by Lender or the issuer of any Credit
Accommodation in connection with any such Credit Accommodation.
1.4 Repayment. Accrued interest on all monetary Obligations shall be
payable in arrears on the first Business Day of each month. Principal of the
Term Loan shall be repaid as set forth in Section 2(b) of Schedule A. If at any
time any of the Loan Limits are exceeded, including without limitation as a
result of currency fluctuations, the applicable Borrower will immediately pay to
Lender such amounts (or provide cash collateral to Lender to the extent any such
Loan Limits are exceeded with respect to the Credit Accommodation Balance in the
manner set forth in Section 7.3), as shall cause each such Borrower to be in
full compliance with all of the Loan Limits. Notwithstanding the foregoing,
Lender may, in its sole discretion, make or permit Revolving Loans, the Term
Loan, any Credit Accommodations or any other monetary Obligations to be in
excess of any of the Loan Limits; provided, that the applicable Borrower shall,
upon Lender's demand, pay to Lender such amounts as shall cause each such
Borrower to be in full compliance with all of the Loan Limits. All unpaid
monetary Obligations shall be payable in full on the Maturity Date (as defined
in Section 7.1) or, if earlier, the date of any early termination pursuant to
Section 7.2.
1.5 Intentionally Omitted.
1.6 Currency. All Loans and Credit Accommodations shall be made and repaid
in Dollars.
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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1.7 Payments Free and Clear. Subject to the terms hereof, any and all
payments by each Borrower under this Agreement or any other Loan Document shall
be made free and clear of and without deduction for any and all present or
future tax, levy, impost, duty, deduction, withholding, any other similar
charges and any and all liabilities (including without limitation, fines,
penalties, interest and expenses) in lieu thereof or for non-collection on or in
respect thereof (collectively, "Withholding Taxes"). If either (i) a Borrower is
required by law to deduct any Withholding Taxes from or in respect of any sum
payable hereunder to Lender or (ii) Lender shall be subject to any of the
foregoing in respect of any sum payable hereunder, such Borrower shall (a)
forthwith pay to Lender a supplemental payment on an After-Tax Basis, after
making any or all required deductions, so that Lender shall receive an amount
equal to the sum it would have received had no such deductions by such Borrower
been made, and had no such payments been required by Lender, and (b) make such
deductions and pay the full amount deducted to the relevant taxing authority in
accordance with applicable law. In addition, Borrowers jointly and severally
agree to pay on an After-Tax Basis any present or future stamp or documentary
taxes, any excise or property taxes, or other charges or similar levies that
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any Loan
Document.
1.8 Limitation on Joint and Several Liability. Wherever in this Agreement
an Obligation is described as the joint and several obligation or liability of
Borrowers, such Obligation shall be joint and several only to the extent
permitted by applicable law. Except for Obligations which are expressly
described in this Agreement as being joint and several, Obligations pertaining
to Loans or other financial accommodations extended to under or pursuant to this
Agreement shall be deemed to be the obligations or liabilities of that Borrower
only, and the other Borrowers shall not be liable therefor pursuant to this
Agreement; provided, that nothing contained in this sentence shall affect the
obligations and liabilities of any Borrower under any guaranty given by it of
any Obligations owing by the other Borrowers.
2. INTEREST AND FEES.
2.1 Interest. All Loans and other monetary Obligations shall bear interest
at the Interest Rate(s) set forth in Section 3 of Schedule A, except where
expressly set forth to the contrary in this Agreement or another Loan Document;
provided, that after the occurrence of an Event of Default, all Loans and other
monetary Obligations shall, at Lender's option, bear interest at a rate per
annum equal to two percent (2%) in excess of the rate otherwise applicable
thereto (the "Default Rate") until paid in full (notwithstanding the entry of
any judgment against any Borrower or the exercise of any other right or remedy
by Lender), and all such interest shall be payable on demand. Changes in the
Interest Rate shall be effective as of the date of any change in the Prime Rate.
Notwithstanding anything to the contrary contained in this Agreement, the
aggregate of all amounts deemed to be interest hereunder and charged or
collected by Lender is not intended to exceed the highest rate permissible under
any applicable law, but if it should, such interest shall automatically be
reduced to the
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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extent necessary to comply with applicable law and Lender will refund to
Borrowers any such excess interest received by Lender.
2.2 Fees. Each Borrower shall jointly and severally pay Lender the
following fees, which are in addition to all interest and other sums payable by
Borrowers to Lender under this Agreement, and are not refundable:
(a) Commitment Fee. A commitment fee (the "Commitment Fee") in the
amount set forth in Section 6(a) of Schedule A, which shall be deemed to be
fully earned as of, and payable on, the date hereof.
(b) Intentionally Omitted.
(c) Intentionally Omitted.
(d) Unused Line Fee. An unused line fee (the "Unused Line Fee") at a
rate equal to the percentage per annum set forth in Section 6(d) of Schedule A
of the amount by which the $20,000,000 exceeds the average monthly outstanding
principal balance of the Loans and the Credit Accommodation Balance during the
immediately preceding month (or part thereof), which fee shall be payable, in
arrears, on the first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date.
(e) Intentionally Omitted.
(f) Intentionally Omitted.
(g) Intentionally Omitted.
(h) Credit Accommodation Fees. The fees relating to Credit
Accommodations (or guaranties thereof by Lender) in the amount set forth in
Section 6(i) of Schedule A (the "Credit Accommodation Fees"), payable, in
arrears, on the first day of each month so long as any of the Obligations are
outstanding and on the Maturity Date, plus all costs and fees charged by the
issuer, payable as and when such costs and fees are charged.
2.3 Computation of Interest and Fees. All interest and fees shall be
calculated daily on the closing balances in the Loan Account based on the actual
number of days elapsed in a year of 360 days. For purposes of calculating
interest and fees, if the outstanding daily principal balance of the Revolving
Loans is a credit balance, such balance shall be deemed to be zero.
2.4 Loan Account; Monthly Accountings. Lender shall maintain a separate
loan account for each Borrower reflecting all advances, charges, expenses and
payments made with respect to each such Borrower pursuant to this Agreement (the
"Loan Accounts"), and shall provide Borrowers with a monthly accounting
reflecting the activity in the Loan Accounts. Each accounting shall be deemed
correct, accurate and binding on each Borrower and an account stated (except for
reverses and reapplications of payments made and
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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corrections of errors discovered by Lender), unless Borrowers notify Lender in
writing to the contrary within sixty days after such account is rendered,
describing the nature of any alleged errors or omissions. However, Lender's
failure to maintain the Loan Accounts or to provide any such accounting shall
not affect the legality or binding nature of any of the Obligations. Interest,
fees and other monetary Obligations due and owing under this Agreement
(including fees and other amounts paid by Lender to issuers of Credit
Accommodations) may, in Lender's discretion, be charged to the applicable Loan
Account, and will thereafter be deemed to be Revolving Loans of the applicable
Borrower and will bear interest at the same rate as other Revolving Loans.
3. SECURITY INTEREST.
3.1 Security Interest Granted by US Borrower. To secure the full payment
and performance of all of the Obligations, US Borrower hereby grants to Lender a
continuing security interest in all of US Borrower's property and interests in
property, whether tangible or intangible, now owned or in existence or hereafter
acquired or arising, wherever located, including US Borrower's interest in all
of the following, whether or not eligible for lending purposes: (i) all
Accounts, Chattel Paper, Instruments, Documents, Goods (including Inventory,
Equipment, farm products and consumer goods), Investment Property, General
Intangibles, Deposit Accounts and money, (ii) all proceeds and products of all
of the foregoing (including proceeds of any insurance policies, proceeds of
proceeds and claims against third parties for loss or any destruction of any of
the foregoing) and (iii) all books and records relating to any of the foregoing.
3.2 Security Interest Granted by English Borrower and German Borrower. The
full payment and performance of all of the Obligations shall be secured by
Liens, granted in favor of Lender upon all property and interests in property of
English Borrower and German Borrower, whether tangible or intangible, now owned
or in existence or hereafter acquired or arising, wherever located, including
all property and interests in property of the types described in Section 3.1,
which Liens shall be evidenced by agreements, instruments and documents, in form
and substance acceptable to Lender, executed by English Borrower and German
Borrower, respectively.
4. ADMINISTRATION.
4.1 Lock Boxes and Blocked Accounts. Each Borrower will, at its expense,
establish (and revise from time to time as Lender may require) collection
procedures acceptable to Lender, in Lender's sole discretion, for the collection
of checks, wire transfers and other proceeds of Accounts ("Account Proceeds"),
which shall include (or may include with respect to the following clause (i))
(i) after the occurrence of a Default or Event of Default, directing all Account
Debtors to send all such Account Proceeds directly to a post office box
designated by Lender either in the name of such Borrower (but as to which Lender
has exclusive access) or, at Lender's option, in the name of Lender (a "Lock
Box") or (ii) depositing all Account Proceeds received by such Borrower into one
or more bank
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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accounts maintained in Lender's name (each, a "Blocked Account"), under an
arrangement acceptable to Lender with a depository bank acceptable to Lender,
pursuant to which all funds deposited into each Blocked Account are to be
transferred to Lender in such manner, and with such frequency, as Lender shall
specify (it being understood that (A) prior to the occurrence of a Default or
Event of Default, Account Proceeds of up to the Dollar Equivalent of $250,000 in
the aggregate may be retained each month by German Borrower to the extent such
amounts are necessary to pay German Borrower's current operating expenses, (B)
English Borrower shall direct all of its Account Debtors to (x) send all Account
Proceeds directly to a Blocked Account or (y) with respect to Account Proceeds
in the form of checks, send such Account Proceeds to English Borrower and
English Borrower shall promptly deposit the full amount of such checks into a
Blocked Account and (C) once Lender actually receives the funds initially
deposited into a Blocked Account, such funds will be applied to the Obligations
in accordance with this Agreement) or (iii) depositing all Account Proceeds
received by such Borrower into one or more bank accounts, under an arrangement
acceptable to Lender with a depository bank acceptable to Lender, pursuant to
which all funds deposited into such accounts are pledged to Lender or (iv) a
combination of the foregoing. Each Borrower agrees to execute, and to cause its
depository banks to execute, such Lock Box and Blocked Account agreements and
other documentation as Lender shall require from time to time in connection with
the foregoing.
4.2 Remittance of Proceeds. Except as provided in Section 4.1 and Section
5.18(iv), all proceeds arising from the sale or other disposition of any
Collateral of any Borrower shall be delivered, in kind, by such Borrower to
Lender in the original form in which received by such Borrower not later than
the following Business Day after receipt by such Borrower. Until so delivered to
Lender, each applicable Borrower shall hold such proceeds separate and apart
from such Borrower's other funds and property in an express trust for Lender.
Nothing in this Section 4.2 shall limit the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.3 Application of Payments. Lender may, in its sole discretion, apply,
reverse and re-apply all cash and non-cash proceeds of Collateral or other
payments received with respect to the Obligations, in such order and manner as
Lender shall determine, whether or not the Obligations (other than with respect
to Term Loans) are due, and whether before or after the occurrence of a Default
or an Event of Default. For purposes of determining Availability, such amounts
will be credited to the Loan Account and the Collateral balances to which they
relate upon Lender's receipt of advice from Lender's Bank (set forth in Section
11 of Schedule A) that such items have been credited to Lender's account at
Lender's Bank (or upon Lender's deposit thereof at Lender's Bank in the case of
payments received by Lender in kind), in each case subject to final payment and
collection. However, for purposes of computing interest on the Obligations, such
items shall be deemed applied by Lender one Business Day after Lender's receipt
of advice of deposit thereof at Lender's Bank.
4.4 Notification; Verification. Lender or its designee may, from time to
time, (i) whether or not a Default or Event of Default has occurred, verify
directly with the Account
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Debtors the validity, amount and other matters relating to the Accounts and
Chattel Paper, by means of mail, telephone or otherwise, either in the name of
the applicable Borrower or such other name as Lender may choose (other than
Lender or any other lending institution) or, after the occurrence of a Default
or Event of Default, in the name of Lender; (ii) whether or not a Default or
Event of Default has occurred, notify Account Debtors that Lender has a security
interest in the Accounts and that payment thereof is to be made directly to
Lender; and (iii) after the occurrence of a Default or Event of Default with
respect to Accounts and Chattel Paper of US Borrower and German Borrower and
whether or not a Default or Event of Default has occurred with respect to
Accounts and Chattel Paper of English Borrower, demand, collect or enforce
payment of any Accounts and Chattel Paper (but without any duty to do so).
4.5 Power of Attorney. Each Borrower hereby grants to Lender by way of
security an irrevocable power of attorney, coupled with an interest, authorizing
and permitting Lender (acting through any of its officers, employees, attorneys
or agents), at any time (whether or not a Default or Event of Default has
occurred and is continuing, except as expressly provided below), at Lender's
option, but without obligation, with or without notice to such Borrower, and at
such Borrower's expense, to do any or all of the following, in such Borrower's
name or otherwise: (i) execute on behalf of such Borrower any documents that
Lender may, in its sole discretion, deem advisable in order to perfect and
maintain Lender's security interests in the Collateral, to exercise a right of
such Borrower or Lender, or to fully consummate all the transactions
contemplated by this Agreement and the other Loan Documents (including such
financing statements, continuation financing statements and similar documents,
and amendments thereto, as Lender shall deem necessary or appropriate) and to
file as a financing statement any copy of this Agreement or any financing
statement or similar document signed by such Borrower; (ii) after the occurrence
of a Default or Event of Default, execute on behalf of such Borrower any
document exercising, transferring or assigning any option to purchase, sell or
otherwise dispose of or lease (as lessor or lessee) any real or personal
property which is part of the Collateral or in which Lender has an interest;
(iii) after the occurrence of a Default or Event of Default with respect to
Accounts of US Borrower and German Borrower and whether or not a Default or
Event of Default has occurred with respect to Accounts of English Borrower,
execute on behalf of such Borrower any invoices relating to any Accounts, any
draft against any Account Debtor, any proof of claim in bankruptcy, any notice
of Lien or claim, and any assignment or satisfaction of mechanic's,
materialman's or other Lien; (iv) after the occurrence of a Default or Event of
Default with respect to Accounts of US Borrower and German Borrower and whether
or not a Default or Event of Default has occurred with respect to Accounts of
English Borrower, execute on behalf of such Borrower any notice to any Account
Debtor; (v) receive and otherwise take control in any manner of any cash or
non-cash items of payment or proceeds of Collateral; (vi) endorse such
Borrower's name on all checks and other forms of remittances received by Lender;
(vii) pay, contest or settle any Lien, charge, encumbrance, security interest
and adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same; (viii) after
the occurrence of a Default or Event of Default, grant extensions of time to
pay, compromise claims relating to,
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and settle Accounts, Chattel Paper and General Intangibles for less than face
value and execute all releases and other documents in connection therewith; (ix)
pay any sums required on account of such Borrower's taxes or to secure the
release of any Liens therefor; (x) pay any amounts necessary to obtain, or
maintain in effect, any of the insurance described in Section 5.12; (xi) settle
and adjust, and give releases of, any insurance claim that relates to any of the
Collateral and obtain payment therefor; (xii) instruct any third party having
custody or control of any Collateral or books or records belonging to, or
relating to, such Borrower to give Lender the same rights of access and other
rights with respect thereto as Lender has under this Agreement; and (xiii) after
the occurrence of a Default or Event of Default, change the address for delivery
of such Borrower's mail and receive and open all mail addressed to such
Borrower. Any and all sums paid, and any and all costs, expenses, liabilities,
obligations and reasonable attorneys' fees incurred, by Lender with respect to
the foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. Each Borrower agrees that
Lender's rights under the foregoing power of attorney or any of Lender's other
rights under this Agreement or the other Loan Documents shall not be construed
to indicate that Lender is in control of the business, management or properties
of any Borrower.
4.6 Disputes. Each Borrower shall promptly notify Lender of all disputes
or claims relating to (i) Accounts and Chattel Paper which any Borrower at any
time requested be classified as Eligible Accounts, (ii) Accounts and Chattel
Paper if such disputes or claims pertain to amounts in excess of the Dollar
Equivalent of $10,000 or $100,000 in the aggregate or (iii) any Accounts and
Chattel Paper after the occurrence of a Default or Event of Default. No Borrower
will, without Lender's prior written consent, compromise or settle any Account
or Chattel Paper for less than the full amount thereof, grant any extension of
time of payment of any Account or Chattel Paper, release (in whole or in part)
any Account Debtor or other person liable for the payment of any Account or
Chattel Paper or grant any credits, discounts, allowances, deductions, return
authorizations or the like with respect to any Account or Chattel Paper; except
that prior to the occurrence of an Event of Default, each Borrower may take any
of such actions in the ordinary course of its business, provided that such
Borrower promptly reports the same to Lender.
4.7 Invoices. At Lender's request after the occurrence of an Event of
Default, each Borrower will (i) cause all invoices and statements which it sends
to Account Debtors or other third parties to be marked, in a manner satisfactory
to Lender, to reflect Lender's security interest therein or (ii) inform the
applicable Account Debtors that the Accounts have been assigned to Lender. Each
Borrower will cause all such invoices and statements to comply with Section 5.4.
All such invoices and statements of (i) US Borrower shall be denominated in
Dollars, (ii) English Borrower shall be denominated in Dollars or British Pound
Sterling and (iii) German Borrower shall be denominated in Deutschemarks or
Euro.
4.8 Inventory.
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(a) Returns. Provided that no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to any Borrower in the
ordinary course of its business, such Borrower will promptly determine the
reason for such return and promptly issue a credit memorandum to the Account
Debtor in the appropriate amount (sending a copy to Lender). After the
occurrence and during the continuation of an Event of Default, no Borrower will
accept any return without Lender's prior written consent. Upon Lender's written
demand after the occurrence of an Event of Default, each Borrower will (i) hold
the returned Inventory in trust for Lender; (ii) segregate all returned
Inventory from all of such Borrower's other property; (iii) conspicuously label
the returned Inventory as Lender's property; and (iv) immediately notify Lender
of the return of such Inventory, specifying the reason for such return, the
location and condition of the returned Inventory and, at Lender's request,
deliver such returned Inventory to Lender at an address specified by Lender.
(b) Other Covenants. No Borrower will, without Lender's prior
written consent, (i) store any Inventory with any warehouseman or other third
party other than as set forth in Section 9(d) of Schedule A for such Borrower or
(ii) sell any Inventory, which any Borrower at any time requested be classified
as Eligible Inventory, on a sale-or-return, guaranteed sale, consignment, or
other contingent basis, except as set forth in Section 14 of Schedule A. All of
the Inventory has been produced only in accordance with the Fair Labor Standards
Act of 1938 and all rules, regulations and orders promulgated thereunder and all
other similar legislation of any other applicable jurisdiction.
4.9 Access to Collateral, Books and Records. At reasonable times, and on
one Business Day's notice, prior to the occurrence of a Default or an Event of
Default, and at any time and with or without notice after the occurrence of a
Default or an Event of Default, Lender or its agents shall have the right to
inspect the Collateral, and the right to examine and copy each Borrower's books
and records. Lender shall take steps (similar to the steps it takes with its own
confidential information) to keep confidential all information obtained in any
such inspection or examination, but Lender shall have the right to disclose any
such information to its auditors, regulatory agencies, attorneys and
participants, and pursuant to any subpoena or other legal process, provided that
Lender advises such recipients of the confidential nature of such information.
Each Borrower agrees to give Lender access to any or all of such Borrower's
premises to enable Lender to conduct such inspections and examinations. Such
inspections and examinations shall be at Borrowers' joint and several expense
and the charge therefor shall be $650 per person per day (or after the
occurrence of a Default or Event of Default, such higher amount as shall
represent Lender's then current standard charge), plus reasonable out-of-pocket
expenses. Lender may, at Borrowers' joint and several expense, use each
Borrower's personnel, computer and other equipment, programs, printed output and
computer readable media, supplies and premises for the collection, sale or other
disposition of Collateral to the extent Lender, in its sole discretion, deems
appropriate. Each Borrower hereby irrevocably authorizes all accountants and
third parties to disclose and deliver to Lender, at Borrowers' joint and several
expense, all financial information, books and records, work papers, management
reports and other information in their possession regarding such Borrower. Each
Borrower will not enter into any agreement
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with any accounting firm, service bureau or third party to store such Borrower's
books or records at any location other than US Borrower's Address, English
Borrower's Address or German Borrower's Address, as applicable, without first
obtaining Lender's written consent (which consent may be conditioned upon such
accounting firm, service bureau or other third party agreeing to give Lender the
same rights with respect to access to books and records and related rights as
Lender has under this Agreement).
5. REPRESENTATIONS, WARRANTIES AND COVENANTS.
To induce Lender to enter into this Agreement, each Borrower represents,
warrants and covenants as follows (it being understood that (i) each such
representation and warranty will be deemed remade as of the date on which each
Loan is made and each Credit Accommodation is provided and shall not be affected
by any knowledge of, or any investigation by, Lender, and (ii) the accuracy of
each such representation, warranty and covenant will be a condition to each Loan
and Credit Accommodation):
5.1 Existence and Authority. Each Borrower is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, formation or organization. Each Borrower is qualified, licensed
and registered to do business in all jurisdictions in which any failure to do so
would have a material adverse effect on such Borrower. The execution, delivery
and performance by each Borrower of this Agreement and all of the other Loan
Documents have been duly and validly authorized, do not violate such Borrower's
articles or certificate of incorporation, by-laws or other organizational
documents, or any law or any agreement or instrument or any court order which is
binding upon such Borrower or its property, do not constitute grounds for
acceleration of any indebtedness or obligation under any agreement or instrument
which is binding upon such Borrower or its property, and do not require the
consent of any Person other than the consent of the "Purchasers" under the
Existing Note Agreement which such consent was obtained on or before the initial
date of this Agreement. This Agreement and such other Loan Documents have been
duly executed and delivered by, and are enforceable against, each Borrower, and
all other Obligors who have signed them, in accordance with their respective
terms. Sections 9(g) and 9(h) of Schedule A set forth the ownership of each
Borrower and the names and ownership of each Borrower's Subsidiaries as of the
date of this Agreement.
5.2 Name; Trade Names and Styles. The name of each Borrower set forth in
the heading to this Agreement is its correct and complete legal name as of the
date hereof. Listed in Sections 9(a), 9(b) and 9(c) of Schedule A are all prior
names of each Borrower and all of each Borrower's present and prior trade names.
Each Borrower shall give Lender at least thirty days' prior written notice
before changing its name or doing business under any other name. Each Borrower
has complied with all laws relating to the conduct of business under a
fictitious business name. Each Borrower represents and warrants that (i) each
trade name does not refer to another corporation or other legal entity; (ii) all
Accounts invoiced under any such trade names are owned exclusively by such
Borrower and are subject to the security interest of Lender and the other terms
of this Agreement and (iii) all schedules of
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Accounts, including any sales made or services rendered using any trade name
shall show such Borrower's name as assignor.
5.3 Title to Collateral; Permitted Liens. Borrowers have good and
marketable title to the Collateral. No Equipment, Inventory or any other assets
of any Borrower is subject to any retention of title claims. The Collateral now
is and will remain free and clear of any and all liens, charges, security
interests, encumbrances and adverse claims, except for Permitted Liens. Lender
now has, and will continue to have, a first-priority perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted Liens,
and each Borrower will at all times defend Lender and the Collateral against all
claims of others. None of the Collateral which is Equipment is or will be
affixed to any real property (other than the real property located at US
Borrower's Address so long as Lender has a mortgage, in form and substance
satisfactory to Lender, covering such real property) in such a manner, or with
such intent, as to become a fixture. Except for (i) US Borrower's leased
facility located at 122 Burrs Road, Westampton, New Jersey 08060 (it being
understood that no Inventory located at such Westampton facility shall be
classified as Eligible Inventory until such time, if any, that US Borrower
delivers to Lender a landlord's waiver with respect to such facility in form and
substance satisfactory to Lender) and (ii) leases or subleases as to which a
Borrower has delivered to Lender a landlord's waiver in form and substance
satisfactory to Lender (it being understood that neither English Borrower nor
German Borrower are required to obtain a landlord's waiver with respect to
leased real property located in England or Germany until such time, if any, that
Lender requests such Borrower to obtain any such waivers), no Borrower is a
lessee or sublessee under any real property lease or sublease pursuant to which
the lessor or sublessor may obtain any rights in any of the Collateral, and no
such lease or sublease now prohibits, restrains, impairs or conditions, or will
prohibit, restrain, impair or condition, any Borrower's right to remove any
Collateral from the premises. Neither the aggregate fair market value nor the
aggregate book value of the Collateral located at the above noted Westampton
facility exceeds $1,500,000. Except for warehouses as to which a Borrower has
delivered to Lender a warehouseman's waiver in form and substance satisfactory
to Lender, no Borrower is a bailor of any Goods at any warehouse under an
arrangement pursuant to which the warehouseman may obtain any rights in any of
the Collateral. Prior to causing or permitting any Collateral to be located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), each Borrower shall,
whenever requested by Lender, cause each such third party to execute and deliver
to Lender, in form and substance acceptable to Lender, such waivers and
subordinations as Lender shall specify, so as to ensure that Lender's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Each Borrower will keep in full force and effect, and will comply
with all the terms of, any lease of real property where any of the Collateral
now or in the future may be located.
5.4 Accounts and Chattel Paper. As of each date reported by a Borrower,
all Accounts which such Borrower has reported to Lender as being Eligible
Accounts comply in all respects with the criteria for eligibility established by
Lender and in effect at such time,
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including without limitation criteria pertaining to currency denominations. All
Accounts and Chattel Paper are genuine and in all respects what they purport to
be, arise out of a completed, bona fide and unconditional and non-contingent
sale and delivery of goods or rendition of services by a Borrower in the
ordinary course of its business and in accordance with the terms and conditions
of all purchase orders, contracts or other documents relating thereto, to the
knowledge of Borrowers after due inquiry each Account Debtor thereunder had the
capacity to contract at the time any contract or other document giving rise to
such Accounts and Chattel Paper were executed, and the transactions giving rise
to such Accounts and Chattel Paper comply with all applicable laws and
governmental rules and regulations. No Account or Chattel Paper has terms which
restrict or prohibit, in any manner whatsoever, an assignment to Lender or the
granting of a Lien thereon to Lender. With respect to Accounts and Chattel Paper
of English Borrower and German Borrower, such Accounts, and all invoices, sales
contracts and other documents evidencing such Accounts, expressly provide that
they are governed by English law and German law respectively.
5.5 Investment Property. Each Borrower will take any and all actions
required or requested by Lender, from time to time, to (i) cause Lender to
obtain exclusive control of any Investment Property in a manner acceptable to
Lender and (ii) obtain from any issuers of Investment Property and such other
Persons as Lender shall specify, for the benefit of Lender, written confirmation
of Lender's exclusive control over such Investment Property and take such other
actions as Lender may request to perfect Lender's security interest in such
Investment Property. For purposes of this Section 5.5, Lender shall have
exclusive control of Investment Property if (A) such Investment Property
consists of certificated securities and such applicable Borrower delivers such
certificated securities to Lender (with appropriate endorsements if such
certificated securities are in registered form); (B) such Investment Property
consists of uncertificated securities and either (x) such applicable Borrower
delivers such uncertificated securities to Lender or (y) the issuer thereof
agrees, pursuant to documentation in form and substance satisfactory to Lender,
that it will comply with instructions originated by Lender without further
consent by such Borrower; and (C) such Investment Property consists of security
entitlements and either (x) Lender becomes the entitlement holder thereof or (y)
the appropriate securities intermediary agrees, pursuant to documentation in
form and substance satisfactory to Lender, that it will comply with entitlement
orders originated by Lender without further consent by such applicable Borrower.
5.6 Place of Business; Location of Collateral. US Borrower's Address,
English Borrower's Address and German Borrower's Address is the chief executive
office of US Borrower, English Borrower and German Borrower, respectively, and
the location of the books and records of US Borrower, English Borrower and
German Borrower, respectively. In addition, except as provided in the
immediately following sentence, each Borrower has places of business and
Collateral located only at the locations set forth on Sections 9(d) and 9(e) of
Schedule A for such Borrower. Each Borrower will give Lender at least thirty
days' prior written notice before opening any additional place of business,
changing its chief executive office or the location of its books and records, or
moving any of the Collateral to a location other than US Borrower's Address,
English Borrower's Address or German
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Borrower's Address, as applicable, or to one of the locations set forth in
Sections 9(d) and 9(e) of Schedule A for such Borrower, and will execute and
deliver all financing statements and other agreements, instruments and documents
which Lender shall require as a result thereof.
5.7 Financial Condition, Statements and Reports. All financial statements
delivered to Lender by or on behalf of each Borrower have been prepared in
conformity with GAAP and completely and fairly reflect the financial condition
of such Borrower, at the times and for the periods therein stated. Between the
last date covered by any such financial statement provided to Lender and the
date hereof (or, with respect to the remaking of this representation in
connection with the making of any Loan or the providing of any Credit
Accommodation, the date such Loan is made or such Credit Accommodation is
provided), there has been no material adverse change in the financial condition
or business of any Borrower. Each Borrower is solvent and able to pay its debts
(other than contingent debts of English Borrower and German Borrower arising
from the guaranty given in connection with this Agreement by each such Borrower
of Obligations owing by the other Borrowers) as they come due, and has
sufficient capital to carry on its business as now conducted and as proposed to
be conducted. All schedules, reports and other information and documentation
delivered by each Borrower to Lender with respect to the Collateral are, or will
be, when delivered, true, correct and complete as of the date delivered or the
date specified therein.
5.8 Tax Returns and Payments; Pension Contributions. Each Borrower has
timely filed all tax returns and reports required by applicable law, has timely
paid all applicable taxes, assessments, deposits and contributions owing by such
Borrower and will timely pay all such items in the future as they became due and
payable. Each Borrower may, however, defer payment of any contested taxes;
provided, that such Borrower (i) in good faith contests such Borrower's
obligation to pay such taxes by appropriate proceedings promptly and diligently
instituted and conducted; (ii) notifies Lender in writing of the commencement
of, and any material development in, the proceedings; (iii) posts bonds or takes
any other steps required to keep the contested taxes from becoming a Lien upon
any of the Collateral and (iv) maintains adequate reserves therefor in
conformity with GAAP. Each Borrower is unaware of any claims or adjustments
proposed for any of such Borrower's prior tax years which could result in
additional taxes becoming due and payable by such Borrower. Each Borrower has
paid, and shall continue to pay, all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and such Borrower has not withdrawn from participation in,
permitted partial or complete termination of, or permitted the occurrence of any
other event with respect to, any such plan which could result in any liability
of such Borrower, including any liability to the Pension Benefit Guaranty
Corporation or any other governmental agency.
5.9 Compliance with Laws. Each Borrower has complied in all material
respects with all provisions of all applicable laws and regulations, including
those relating to such Borrower's ownership of real or personal property, the
conduct of such Borrower's business,
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license requirements, the payment and withholding of taxes, ERISA and other
employee matters, safety and environmental matters.
5.10 Litigation. Section 9(f) of Schedule A discloses all claims,
proceedings, litigation or investigations pending or (to the best of each
Borrower's knowledge) threatened against any Borrower. There is no claim, suit,
litigation, proceeding or investigation pending or (to the best of each
Borrower's knowledge) threatened by or against or affecting any Borrower in any
court or before any governmental agency (or any basis therefor known to any
Borrower) which has a reasonable likelihood of resulting, either separately or
in the aggregate, in any material adverse change in the financial condition or
business of any Borrower, or in any material impairment in the ability of any
Borrower to carry on its business in substantially the same manner as it is now
being conducted. Each Borrower will promptly inform Lender in writing of any
claim, proceeding, litigation or investigation in the future threatened or
instituted by or against any Borrower which (i) involves damages in excess of
$50,000 or (ii) has a reasonable likelihood or resulting, either separately or
in the aggregate, in a material adverse change in the financial condition or
business of any Borrower, or in a material impairment in the ability of any
Borrower to carry on its business in substantially the same manner as it is now
being conducted.
5.11 Use of Proceeds. All proceeds of all Loans will be used solely for
lawful business purposes.
5.12 Insurance. Each Borrower will at all times carry property, liability
and other insurance, with insurers acceptable to Lender, in such form and
amounts, and with such deductibles and other provisions, as Lender shall
require, and Borrowers will provide evidence of such insurance to Lender, so
that Lender is satisfied that such insurance is, at all times, in full force and
effect. Each property insurance policy shall name Lender as loss payee and shall
contain a lender's loss payable endorsement in form acceptable to Lender, each
liability insurance policy shall name Lender as an additional insured, and each
business interruption insurance policy shall be collaterally assigned to Lender,
all in form and substance satisfactory to Lender. All policies of insurance
shall provide that they may not be cancelled or changed without at least thirty
days' prior written notice to Lender, shall contain breach of warranty coverage,
and shall otherwise be in form and substance satisfactory to Lender. Upon
receipt of the proceeds of any such insurance, Lender shall apply such proceeds
in reduction of the Obligations as Lender shall determine in its sole
discretion. Each Borrower will promptly deliver to Lender copies of all reports
made to insurance companies. All presently existing and future claims against
any insurance company of any Borrower are hereby assigned to Lender.
5.13 Financial and Collateral Reports. Each Borrower has kept and will
keep adequate records and books of account with respect to its business
activities and the Collateral in which proper entries are made in accordance
with GAAP reflecting all its financial transactions, and will cause to be
prepared and furnished to Lender the following
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(all to be prepared in accordance with GAAP, unless such Borrower's certified
public accountants concur in any change therein and such change is disclosed to
Lender):
(a) Collateral Reports. On or before the fifteenth day of each
month, an aging of each Borrower's Accounts (detailing, among other things, the
currency in which each Account is denominated, each Account balance in such
currency's and the Dollar Equivalent of each such Account balance), Chattel
Paper and notes receivable, and weekly Inventory reports, all in such form, and
together with such additional certificates, schedules and other information with
respect to the Collateral or the business of such Borrower or any Obligor, as
Lender shall request; provided, that any Borrower's failure to execute and
deliver the same shall not affect or limit Lender's security interests and other
rights in any of the Accounts, nor shall Lender's failure to advance or lend
against a specific Account affect or limit Lender's security interest and other
rights therein. Together with each such schedule, each Borrower shall furnish
Lender with copies (or, at Lender's request, originals) of all contracts,
orders, invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Accounts, and each Borrower warrants the genuineness of all of the foregoing. In
addition, each Borrower shall deliver to Lender the originals of all
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts, immediately upon receipt
thereof and in the same form as received, with all necessary endorsements.
Lender may destroy or otherwise dispose of all documents, schedules and other
papers delivered to Lender pursuant to this Agreement (other than originals of
Instruments, Chattel Paper, security agreements, guaranties and other documents
and property evidencing or securing any Accounts) six months after Lender
receives them, unless Borrowers requests their return in writing in advance and
arrange for their return to Borrowers at Borrowers' joint and several expense.
(b) Annual Statements. Not later than (i) ninety days after the
close of each fiscal year of US Borrower and (ii) nine months after the close of
each fiscal year of English Borrower and German Borrower, unqualified (except
for a qualification for a change in accounting principles with which the
accountant concurs) audited financial statements of each such Borrower and its
Subsidiaries (provided, that such financial statements of US Borrower do not
need to cover any non-US Subsidiaries) as of the end of such year, on a
consolidated basis (together with unaudited consolidating financial statements),
certified by a firm of independent certified public accountants of recognized
standing selected by Borrowers but acceptable to Lender, together with a copy of
any management letter issued in connection therewith and a letter from such
accountants acknowledging that Lender is relying on such financial statements;
(c) Interim Statements. Not later than thirty days after the end of
each month hereafter, including the last month of Borrowers' fiscal year,
unaudited interim financial statements of Borrowers and their Subsidiaries as of
the end of such month and of the portion of Borrowers' fiscal year then elapsed,
on a consolidated and consolidating basis, certified by the principal financial
officer of Borrowers as prepared in accordance with GAAP and fairly
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presenting the consolidated financial position and results of operations of
Borrowers and their Subsidiaries for such month and period subject only to
changes from audit and year-end adjustments and except that such statements need
not contain notes;
(d) Projections, Etc. Such business projections, Availability
projections, business plans, budgets and cash flow statements for Borrowers and
their Subsidiaries as Lender shall request from time to time;
(e) Shareholder Reports, Etc. Promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which any Borrower has made available to its shareholders
and copies of any regular, periodic and special reports or registration
statements which any Borrower files with the Securities and Exchange Commission
or any governmental authority which may be substituted therefor, or any national
securities exchange;
(f) ERISA Reports. Upon request by Lender, copies of any annual
report to be filed pursuant to the requirements of ERISA or any similar
legislation of any other applicable jurisdiction in connection with each plan
subject thereto; and
(g) Other Information. Such other data and information (financial
and otherwise) as Lender, from time to time, may reasonably request, bearing
upon or related to the Collateral or a Borrower's and each of its Subsidiary's
financial condition or results of operations.
5.14 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Lender with respect to any Collateral or in any manner
relating to a Borrower, such Borrower shall, without expense to Lender, make
available such Borrower and its officers, employees and agents, and such
Borrower's books and records, without charge, to the extent that Lender may deem
them reasonably necessary in order to prosecute or defend any such suit or
proceeding.
5.15 Maintenance of Collateral, Etc. Each Borrower will maintain all of
its Equipment in good working condition, ordinary wear and tear excepted, and no
Borrower will use the Collateral for any unlawful purpose. Each Borrower will
immediately advise Lender in writing of any material loss or damage to the
Collateral and of any investigation, action, suit, proceeding or claim relating
to the Collateral or which may result in an adverse impact upon any Borrower's
business, assets or financial condition.
5.16 Notification of Changes; Etc. Each Borrower will promptly notify
Lender in writing of any change in its officers or directors, the opening of any
new bank account or other deposit account, or any material adverse change in the
business or financial affairs of any Borrower or the existence of any
circumstance which would make any representation or warranty of any Borrower
untrue in any material respect or constitute a material breach of any covenant
of any Borrower, including without limitation any breach of the Existing Note
Agreement or any other Existing Note Loan Document.
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5.17 Further Assurances. Each Borrower agrees, at its expense, to take all
actions, and execute or cause to be executed and delivered to Lender all
promissory notes, security agreements, agreements with landlords, mortgagees and
processors and other bailees, subordination and intercreditor agreements and
other agreements, instruments and documents as Lender may request from time to
time, to perfect and maintain Lender's security interests in and Liens on the
Collateral and to fully effectuate the transactions contemplated by this
Agreement.
5.18 Negative Covenants. Except as set forth in Section 13 of Schedule A,
no Borrower will, without Lender's prior written consent, (i) merge, amalgamate
or consolidate with another Person, form any new Subsidiary or acquire any
interest in any Person; (ii) acquire any assets except in the ordinary course of
business and as otherwise permitted by this Agreement and the other Loan
Documents; (iii) enter into any transaction outside the ordinary course of
business; (iv) sell or transfer any Collateral or other assets, except that each
Borrower may sell finished goods Inventory in the ordinary course of its
business; (v) make any loans to, or investments in, any Affiliate or other
Person in the form of money or other assets; (vi) incur any debt outside the
ordinary course of business; (vii) guaranty or otherwise become liable with
respect to the obligations of another party or entity; (viii) pay or declare any
dividends or other distributions on such Borrower's stock, if such Borrower is a
corporation (except for dividends payable solely in capital stock of such
Borrower) or with respect to any equity interests, if such Borrower is not a
corporation; (ix) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of such Borrower's capital stock or other equity interests; (x)
make any change in such Borrower's capital structure, other than equity
issuances to the extent that after giving effect to any such issuances no
Default or Event of Default shall have occurred; (xi) dissolve or liquidate or
elect to dissolve or liquidate; (xii) pay any principal or interest on any
indebtedness owing to an Affiliate; (xiii) enter into any transaction with an
Affiliate other than on arms-length terms; (xiv) amend or modify the terms of
the Existing Note Agreement or any other Existing Note Loan Agreement or (xv)
agree to do any of the foregoing.
5.19 Financial Covenants.
(a) Intentionally Omitted.
(b) Net Worth. In the event that Aggregate Availability is less than
$6,000,000 at any time, Borrowers will maintain a net worth of at least the
amount set forth in Section 8(b) of Schedule A.
(c) Intentionally Omitted.
(d) Intentionally Omitted.
(e) Intentionally Omitted.
(f) Intentionally Omitted.
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(g) Intentionally Omitted.
(h) Intentionally Omitted.
5.20 Year 2000 Compliance. Each Borrower has (i) initiated a review and
assessment of all areas within its and each of its Subsidiaries' business and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by such Borrower or any of its Subsidiaries (or its suppliers
and vendors) may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline for addressing the Year 2000 Problem
on a timely basis, and (iii) to date, implemented that plan in accordance with
that timetable. Each Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its Subsidiaries' business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000 (that is, be "Year 2000 Compliant"), except to the extent that a failure
to do so could not reasonably be expected to have a material adverse effect on
any Borrower's business or operations or on the condition or value of the
Collateral (a "Material Adverse Effect"). Each Borrower will promptly notify
Lender in the event such Borrower discovers or determines that any computer
application (including those of its suppliers and vendors) that is material to
its or any of its Subsidiaries' business and operations will not be Year 2000
Compliant on a timely basis, except to the extent that such failure could not
reasonably be expected to have a Material Adverse Effect.
5.21 Euro. Each Borrower employs systems sufficient to account for the
introduction and adoption of the Euro.
5.22 Intellectual Property. Each Borrower owns, possesses or licenses or
has the right to use all the patents, trademarks, service marks, trade names,
copyrights, licenses and other intellectual property (collectively,
"Intellectual Property") necessary for the present conduct of its business
without any known conflict with the rights of others. Neither English Borrower
nor German Borrower own, possess or license any Intellectual Property or has the
right to use any Intellectual Property, that is necessary for the conduct of its
business (other than rights of German Borrower with respect to the tradename
"Systech", which Borrowers represent and warrant is not material to the business
of any Borrower) or would be necessary for Lender to liquidate any portion of
the Collateral, other than Intellectual Property of US Borrower. Except as set
forth on Section 9(f) of Schedule A, no claim has been asserted to any Borrower
which is currently pending that its use of its Intellectual Property or the
conduct of its business does or may infringe upon the Intellectual Property
rights of any third party. US Borrower's license agreements and similar
arrangements relating to its Inventory (a) permits (and does not restrict)
Lender, or any other Person designated by Lender, to liquidate any or all of the
Collateral and (b) would permit the continued use by US Borrower, or Lender or
any of their respective assignees, for any period of time deemed necessary by
Lender, of such license agreements and such similar arrangements and the right
to sell
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Inventory subject to such license agreements and similar arrangements. Neither
English Borrower nor German Borrower have any license agreements or similar
arrangements relating to its Inventory that is necessary for the conduct of its
business or would be necessary for Lender to liquidate any portion of the
Collateral. The consummation and performance of the transactions and actions
contemplated by this Agreement and the other Loan Documents, including without
limitation, the exercise by Lender of any of its rights or remedies under
Section 8.2, will not result in the termination or impairment of any Borrower's
ownership or rights relating to its Intellectual Property. No Borrower is in
breach of, or default under, any term of any license or sublicense with respect
to any of its Intellectual Property and to the knowledge of each Borrower, no
other party to such license or sublicense is in breach thereof or default
thereunder, and such license is valid and enforceable.
5.23 Existing Note Agreement. No Borrower is in default or breach of any
term of the Existing Note Agreement or any other Existing Note Loan Agreement.
As of the initial date of this Agreement, US Borrower is in pro-forma compliance
with each of the financial covenants set forth in the Existing Note Purchase
Agreement.
6. RELEASE AND INDEMNITY.
6.1 Release. Each Borrower hereby releases Lender and its Affiliates and
their respective directors, officers, employees, attorneys and agents and any
other Person affiliated with or representing Lender (the "Released Parties")
from any and all liability arising from acts or omissions under or pursuant to
this Agreement, whether based on errors of judgment or mistake of law or fact,
except for those arising from willful misconduct or gross negligence. However,
in no circumstance will any of the Released Parties be liable for lost profits
or other special or consequential damages. Such release is made on the date
hereof and remade upon each request for a Loan or Credit Accommodation by a
Borrower. Without limiting the foregoing, except with respect to Lender's
willful misconduct or gross negligence:
(a) Lender shall not be liable for (i) any shortage or discrepancy
in, damage to, or loss or destruction of, any goods, the sale or other
disposition of which gave rise to an Account; (ii) any error, act, omission, or
delay of any kind occurring in the settlement, failure to settle, collection or
failure to collect any Account; (iii) settling any Account in good faith for
less than the full amount thereof; or (iv) any of a Borrower's obligations under
any contract or agreement giving rise to an Account; and
(b) In connection with Credit Accommodations or any underlying
transaction, Lender shall not be responsible for the conformity of any goods to
the documents presented, the validity or genuineness of any documents, delay,
default or fraud by a Borrower, shippers and/or any other Person. Each Borrower
agrees that any action taken by Lender, if taken in good faith, or any action
taken by an issuer of any Credit Accommodation, under or in connection with any
Credit Accommodation, shall be binding on such Borrower and shall not create any
resulting liability to Lender. In furtherance thereof, Lender shall have the
full
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right and authority to clear and resolve any questions of non-compliance of
documents, to give any instructions as to acceptance or rejection of any
documents or goods, to execute for Each Borrower's account any and all
applications for steamship or airway guaranties, indemnities or delivery orders,
to grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances or documents, and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the Credit Accommodations or applications
and other documentation pertaining thereto.
6.2 Indemnity. Each Borrower hereby agrees to indemnify the Released
Parties and hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties, costs
and expenses (including attorneys' fees), of every nature, character and
description, which the Released Parties may sustain or incur based upon or
arising out of any of the transactions contemplated by this Agreement or the
other Loan Documents or any of the Obligations, including any transactions or
occurrences relating to the issuance of any Credit Accommodation, the Collateral
relating thereto, any drafts thereunder and any errors or omissions relating
thereto (including any loss or claim due to any action or inaction taken by the
issuer of any Credit Accommodation) (and for this purpose any charges to Lender
by any issuer of Credit Accommodations shall be conclusive as to their
appropriateness and may be charged to the Loan Account), or any other matter,
cause or thing whatsoever occurred, done, omitted or suffered to be done by
Lender relating to such Borrower or the Obligations (except any such amounts
sustained or incurred as the result of the willful misconduct of the Released
Parties). Notwithstanding any provision in this Agreement to the contrary, the
indemnity agreement set forth in this Section shall survive any termination of
this Agreement.
6.3 Currency Indemnity. If, for the purposes of obtaining judgment in any
court in any jurisdiction with respect to this Agreement or any other Loan
Document, it becomes necessary to convert into the currency of such jurisdiction
(the "Judgment Currency") any amount due under this Agreement or under any other
Loan Document in any currency other than the Judgment Currency (the "Currency
Due"), then conversion shall be made at the Spot Rate on the Business Day before
the day on which judgment is given. In the event that there is a change in the
Spot Rate between the Business Day before the day on which the judgment is given
and the date of receipt by Lender of the amount due, Borrowers shall, on the
date of receipt by Lender, pay such additional amounts, if any, or be entitled
to receive reimbursement of such amount, if any as may be necessary to ensure
that the amount received by Lender on such date is the amount in the Judgment
Currency which when converted at the Spot Rate on the date of receipt by Lender
is the amount then due under this Agreement or such other Loan Document in the
Currency Due. If the amount of the Currency Due which Lender is so able to
purchase is less than the amount of the Currency Due originally due to it,
Borrowers shall jointly and severally indemnify and save Lender harmless from
and against loss or damage arising as a result of such deficiency. This
indemnity shall (i) constitute an obligation separate and independent from the
other obligations contained in this Agreement and the other Loan Documents, (ii)
give rise to a
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separate and independent cause of action, (iii) apply irrespective of any
indulgence granted by Lender from time to time, (iv) survive the payment in full
of the Obligations and the termination of this Agreement, and (v) continue in
full force and effect notwithstanding any judgment or order for a liquidated sum
in respect of an amount due under this Agreement or any other Loan Document or
under any judgment or order.
7. TERM.
7.1 Maturity Date. Lender's obligation to make Loans and to provide Credit
Accommodations under this Agreement shall initially continue in effect for a
term (the "Initial Term") from the date of this Agreement until the Initial
Maturity Date set forth in Section 7 of Schedule A; provided, that the Initial
Maturity Date shall automatically be extended (the Initial Maturity Date, as it
may be so extended, being referred to as the "Maturity Date") for successive
additional terms of three years each (each a "Renewal Term"), unless one party
gives written notice to the other, not less than sixty days prior to the
Maturity Date, that such party elects not to extend the Maturity Date. This
Agreement and the other Loan Documents and Lender's security interests in and
Liens upon the Collateral, and all representations, warranties and covenants of
each Borrower contained herein and therein, shall remain in full force and
effect after the Maturity Date until all of the monetary Obligations are
indefeasibly paid in full.
7.2 Early Termination. Lender's obligation to make Loans and to provide
Credit Accommodations under this Agreement may be terminated prior to the
Maturity Date as follows: (i) by all Borrowers, effective thirty business days
after written notice of termination is given to Lender or (ii) by Lender at any
time after the occurrence of an Event of Default, with notice (provided, that no
notice need be given with respect to any Event of Default described in Section
8.1(vii) or (viii)), effective immediately; provided, that if any Affiliate of a
Borrower is also a party to a financing arrangement with Lender, no such early
termination shall be effective unless such Affiliate simultaneously terminates
its financing arrangement with Lender. If so terminated under this Section 7.2,
Borrowers shall jointly and severally pay to Lender an early termination fee
(the "Early Termination Fee") in the amount set forth in Section 6(h) of
Schedule A. Such fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations. In addition, if Borrowers so
terminate and repay the Obligations without having provided Lender with at least
thirty days' prior written notice thereof, an additional amount equal to thirty
days of interest at the applicable Interest Rate(s), based on the average
outstanding amount of the Obligations for the six month period immediately
preceding the date of termination.
7.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrowers shall pay in full all Obligations,
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if, on the Maturity
Date or on any earlier effective date of termination, there are
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any outstanding Credit Accommodations, then on such date Borrowers shall provide
to Lender cash collateral in an amount equal to 110% of the Credit Accommodation
Balance to secure all of the Obligations (including estimated attorneys' fees
and other expenses) relating to said Credit Accommodations or such greater
percentage or amount as Lender reasonably deems appropriate, pursuant to a cash
pledge agreement in form and substance satisfactory to Lender.
7.4 Effect of Termination. No termination shall affect or impair any right
or remedy of Lender or relieve any Borrower of any of the Obligations until all
of the monetary Obligations have been indefeasibly paid in full. Upon
indefeasible payment and performance in full of all of the monetary Obligations
(and the provision of cash collateral with respect to any Credit Accommodation
Balance as required by Section 7.3) and termination of this Agreement, Lender
shall promptly deliver to each Borrower, as applicable, termination statements,
requests for reconveyances and such other documents as may be reasonably
required to terminate Lender's security interests in the Collateral.
8. EVENTS OF DEFAULT AND REMEDIES.
8.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrowers shall give
Lender immediate written notice thereof: (i) if any warranty, representation,
statement, report or certificate made or delivered to Lender by any Borrower or
any Borrower's officers, employees or agents is untrue or misleading; (ii) if
any Borrower fails to pay when due any principal or interest on any Loan or any
other monetary Obligation; (iii) if any Borrower breaches any covenant or
obligation contained in this Agreement or any other Loan Document or fails to
perform any other non-monetary Obligation; (iv) if any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
or permitted to exist on all or any part of the Collateral (provided, this
clause (iv) shall not apply to Collateral of English Borrower or German Borrower
at such times, if any, that there are no Loans or Credit Accommodations
outstanding to such Borrower); (v) if one or more judgments aggregating in
excess of the Dollar Equivalent of $100,000, or any injunction or attachment, is
obtained against any Borrower (provided, this clause (v) shall not apply to
English Borrower or German Borrower at such times, if any, that there are no
Loans or Credit Accommodations outstanding to such Borrower) or any Obligor
which remains unstayed for more than thirty days or is enforced; (vi) the
occurrence of any default under any financing agreement, security agreement or
other agreement, instrument or document executed and delivered by (A) such with,
or in favor of, any Person other than Lender (including without limitation the
Existing Note Agreement and the other Existing Note Loan Agreements) or (B) any
Borrower or any Affiliate of any Borrower with, or in favor of, Lender or any
Affiliate of Lender; (vii) the dissolution, liquidation, death, termination of
existence in good standing, insolvency or business failure or suspension or
cessation of business as usual of any Borrower or any Obligor or the appointment
of a receiver, trustee or custodian for all or any part of the property of, or
an assignment for the benefit of creditors by any Borrower or any Obligor, or
the commencement of any proceeding by any Borrower or any Obligor under any
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reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, or if any Borrower makes or sends a notice of a bulk transfer
or calls a meeting of its creditors; (viii) the commencement of any proceeding
against any Borrower or any Obligor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; (ix) the actual or
attempted revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations, or any security document securing the
Obligations, by any Obligor; (x) if any Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations attempts to limit
or terminate its subordination agreement; (xi) if there is any indictment of any
Borrower or any Obligor under any criminal statute or commencement of criminal
or civil proceedings against any Borrower or any Obligor, pursuant to which the
potential penalties or remedies sought or available include forfeiture of any
property of any Borrower or such Obligor; (xii) if any Borrower makes a payment
under the Existing Note Agreement or any other Existing Note Loan Agreement
other than (A) scheduled interest payments in accordance with Section 9.8 of the
Existing Note Agreement and (B) scheduled principal payments in accordance with
Section 8.1(a) of the Existing Note Agreement; (xiii) if (A) US Borrower ceases
to own 100% of the outstanding equity interests of Franklin Electronic
Publishers Euro-Holdings B.V., a Netherlands corporation or (B) Franklin
Electronic Publishers Euro-Holdings B.V., a Netherlands corporation, ceases to
own 100% of the outstanding equity interests of English Borrower and German
Borrower; (xiv) if there is any change in the chief executive officer, chief
operating officer or chief financial officer of any Borrower without Lender's
prior written consent, which such consent shall not be unreasonably withheld
(provided, that Lender shall have absolute discretion in deciding whether to
consent to any replacement of the chief financial officer of US Borrower); or
(xv) if an Event of Default occurs under any Loan and Security Agreement between
Lender and an Affiliate of any Borrower.
8.2 Remedies. Upon the occurrence and during the continuance of any
Default, and at any time thereafter, Lender, at its option, may cease making
Loans or otherwise extending credit to any or all Borrowers under this Agreement
or any other Loan Document. Upon the occurrence of any Event of Default, and at
any time thereafter, Lender, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by each Borrower), may do any one
or more of the following: (i) cease making Loans or otherwise extending credit
to any or all Borrowers under this Agreement or any other Loan Document; (ii)
accelerate and declare all or any part of the Obligations to be immediately due,
payable and performable, notwithstanding any deferred or installment payments
allowed by any instrument evidencing or relating to any of the Obligations;
(iii) take possession of any or all of the Collateral wherever it may be found,
and for that purpose each Borrower hereby authorizes Lender, without judicial
process, to enter onto any of such Borrower's premises without interference to
search for, take possession of, keep, store, or remove any of the Collateral,
and remain (or cause a custodian to remain) on the premises in exclusive control
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thereof, without charge for so long as Lender deems it reasonably necessary in
order to complete the enforcement of its rights under this Agreement or any
other agreement; provided, that if Lender seeks to take possession of any of the
Collateral by court process, each Borrower hereby irrevocably waives (A) any
bond and any surety or security relating thereto required by law as an incident
to such possession, (B) any demand for possession prior to the commencement of
any suit or action to recover possession thereof and (C) any requirement that
Lender retain possession of, and not dispose of, any such Collateral until after
trial or final judgment; (iv) require any or all Borrowers to assemble any or
all of the Collateral and make it available to Lender at one or more places
designated by Lender which are reasonably convenient to Lender and the
applicable Borrower, and to remove the Collateral to such locations as Lender
may deem advisable; (v) complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Lender shall have the right to use each Borrower's premises,
vehicles and other Equipment and all other property without charge; (vi) sell,
lease or otherwise dispose of any of the Collateral, in its condition at the
time Lender obtains possession of it or after further manufacturing, processing
or repair, at one or more public or private sales, in lots or in bulk, for cash,
exchange or other property, or on credit (a "Sale"), and to adjourn any such
Sale from time to time without notice other than oral announcement at the time
scheduled for Sale (and, in connection therewith, (A) Lender shall have the
right to conduct such Sale on each Borrower's premises without charge, for such
times as Lender deems reasonable, on Lender's premises, or elsewhere, and the
Collateral need not be located at the place of Sale; (B) Lender may directly or
through any of its Affiliates purchase or lease any of the Collateral at any
such public disposition, and if permissible under applicable law, at any private
disposition and (C) any Sale of Collateral shall not relieve any Borrower of any
liability any Borrower may have if any Collateral is defective as to title,
physical condition or otherwise at the time of sale); (vii) demand payment of
and collect any Accounts, Chattel Paper, Instruments and General Intangibles
included in the Collateral and, in connection therewith, each Borrower
irrevocably authorizes Lender to endorse or sign such Borrower's name on all
collections, receipts, Instruments and other documents, to take possession of
and open mail addressed to such Borrower and remove therefrom payments made with
respect to any item of Collateral or proceeds thereof and, in Lender's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Accounts, General Intangibles and the like for less than face value; and (viii)
demand and receive possession of any of each Borrower's federal and state or
other income tax returns and the books and records utilized in the preparation
thereof or relating thereto. In addition to the foregoing remedies, upon the
occurrence any during the continuation of any Event of Default resulting from a
breach of any of the financial covenants set forth in Section 5.19, Lender may,
at its option, upon not less than ten days' prior notice to Borrowers, reduce
any or all of the Advance Rates set forth in Section 1(b) of Schedule A to the
extent Lender, in its sole discretion, deems appropriate. In addition to the
rights and remedies set forth above, Lender shall have all the other rights and
remedies accorded a secured party after default under the UCC and under all
other applicable laws, and under any other Loan Document, and all of such rights
and remedies are cumulative and non-exclusive. Exercise or partial exercise by
Lender of one or more of its rights or remedies shall not be deemed an election
or bar Lender from subsequent exercise or
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partial exercise of any other rights or remedies. The failure or delay of Lender
to exercise any rights or remedies shall not operate as a waiver thereof, but
all rights and remedies shall continue in full force and effect until all of the
Obligations have been fully paid and performed. If notice of any sale or other
disposition of Collateral is required by law, notice at least seven days prior
to the sale designating the time and place of sale in the case of a public sale
or the time after which any private sale or other disposition is to be made
shall be deemed to be reasonable notice, and each Borrower waives any other
notice. If any Collateral is sold or leased by Lender on credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment is collected by Lender.
8.3 Application of Proceeds. Subject to any application required by law,
all proceeds realized as the result of any Sale shall be applied by Lender to
the Obligations in such order as Lender shall determine in its sole discretion.
Any surplus shall be paid to Borrowers or other persons legally entitled
thereto; but each Borrower shall remain liable to Lender for any deficiency. If
Lender, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any Sale, Lender shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Lender of
the cash therefor.
9. GENERAL PROVISIONS.
9.1 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally, by reputable private delivery
service, by regular first-class mail or certified mail return receipt requested,
addressed to Lender or Borrowers at the address shown in the heading to this
Agreement, or by facsimile to the facsimile number shown in Section 9(i) of
Schedule A, or at any other address (or to any other facsimile number)
designated in writing by one party to the other party in the manner prescribed
in this Section 9.1. All notices shall be deemed to have been given when
received or when delivery is refused by the recipient.
9.2 Severability. If any provision of this Agreement, or the application
thereof to any party or circumstance, is held to be void or unenforceable by any
court of competent jurisdiction, such defect shall not affect the remainder of
this Agreement, which shall continue in full force and effect.
9.3 Integration. This Agreement and the other Loan Documents represent the
final, entire and complete agreement among Borrowers and Lender and supersede
all prior and contemporaneous negotiations, oral representations and agreements,
all of which are merged and integrated into this Agreement. THERE ARE NO ORAL
UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT
SET FORTH IN THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.
9.4 Waivers. The failure of Lender at any time or times to require any
Borrower to strictly comply with any of the provisions of this Agreement or any
other Loan Documents
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shall not waive or diminish any right of Lender later to demand and receive
strict compliance therewith. Any waiver of any default shall not waive or affect
any other default, whether prior or subsequent, and whether or not similar. None
of the provisions of this Agreement or any other Loan Document shall be deemed
to have been waived by any act or knowledge of Lender or its agents or
employees, but only by a specific written waiver signed by an authorized officer
of Lender and delivered to Borrowers. Each Borrower waives demand, protest,
notice of protest and notice of default or dishonor, notice of payment and
nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, Instrument, Account, General Intangible, Document, Chattel
Paper, Investment Property or guaranty at any time held by Lender on which such
Borrower is or may in any way be liable, and notice of any action taken by
Lender, unless expressly required by this Agreement, and notice of acceptance
hereof.
9.5 Amendment. The terms and provisions of this Agreement may not be
amended or modified except in a writing executed by each Borrower and a duly
authorized officer of Lender.
9.6 Time of Essence. Time is of the essence in the performance by each
Borrower of each and every obligation under this Agreement and the other Loan
Documents.
9.7 Attorneys Fees and Costs. Each Borrower shall reimburse Lender for all
reasonable attorneys' and paralegals' fees (including in-house attorneys and
paralegals employed by Lender) and all filing, recording, search, title
insurance, appraisal, audit, environmental survey and other costs incurred by
Lender, pursuant to, in connection with, or relating to this Agreement,
including all reasonable attorneys' fees and costs Lender incurs to prepare and
negotiate this Agreement and the other Loan Documents; to obtain legal advice in
connection with this Agreement and the other Loan Documents or any Borrower or
any Obligor; to administer this Agreement and the other Loan Documents
(including the cost of periodic financing statement, tax lien and other searches
conducted by Lender); to enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; to commence,
intervene in, or defend any action or proceeding; to enforce and protect, or to
seek to enforce and protect, any of its rights and interests in any bankruptcy
case of any Borrower, including, without limitation, by initiating and
prosecuting any motion for relief from the automatic stay and by initiating,
prosecuting or defending any other contested matter or adversary proceeding in
bankruptcy; to file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; to examine, audit, copy, and inspect any of
the Collateral or any of any Borrower's books and records; to protect, obtain
possession of, lease, dispose of, or otherwise enforce Lender's security
interests in, the Collateral; and to otherwise represent Lender in any
litigation relating to any Borrower. If either Lender or any Borrower files any
lawsuit against the other predicated on a breach of this Agreement, the
prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys' fees, including reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order, decree,
award or judgment. All attorneys' fees and costs to which Lender may be entitled
pursuant to this Section shall
-27-
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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immediately become part of the Obligations, shall be due on demand, and shall
bear interest from the date of such demand at a rate equal to the highest
interest rate applicable to any of the Obligations.
9.8 Benefit of Agreement; Assignability. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of each Borrower and Lender;
provided, that no Borrower may assign or transfer any of its rights under this
Agreement without the prior written consent of Lender, and any prohibited
assignment shall be void. No consent by Lender to any assignment shall release
any Borrower from its liability for any of the Obligations. Lender shall have
the right to assign all or any of its rights and obligations under the Loan
Documents, and to sell participating interests therein, to one or more other
Persons, and each Borrower agrees to execute all agreements, instruments and
documents requested by Lender in connection with each such assignment and
participation.
9.9 Headings; Construction. Section and subsection headings are used in
this Agreement only for convenience. Each Borrower and Lender acknowledge that
the headings may not describe completely the subject matter of the applicable
Sections or subsections, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Lender or any Borrower under any rule of construction
or otherwise.
9.10 GOVERNING LAW; CONSENT TO FORUM, ETC. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED, AND SHALL BE DEEMED TO HAVE BEEN MADE, IN
NEW YORK COUNTY, NEW YORK, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK. EACH BORROWER HEREBY CONSENTS AND AGREES
THAT THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK OR THE
STATE OR JURISDICTION IN WHICH ANY OF THE COLLATERAL IS LOCATED SHALL HAVE
NON-EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
SUCH BORROWER AND LENDER PERTAINING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENTS
OR ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND WAIVES ANY
OBJECTION WHICH SUCH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS. EACH BORROWER ALSO AGREES THAT ANY CLAIM
OR DISPUTE BROUGHT BY SUCH BORROWER AGAINST LENDER PURSUANT TO THIS AGREEMENT,
ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING OUT OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT SHALL BE BROUGHT
-28-
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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EXCLUSIVELY IN THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW
YORK. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE IN THE MANNER AND SHALL BE
DEEMED RECEIVED AS SET FORTH IN SECTION 9.1 FOR NOTICES, TO THE EXTENT PERMITTED
BY LAW. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT
OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO
PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH
FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN
ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
9.11 WAIVER OF JURY TRIAL, ETC. EACH BORROWER WAIVES (I) THE RIGHT TO
TRIAL BY JURY (WHICH LENDER ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL OR ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR
SUCH BORROWER OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES,
ATTORNEYS OR AGENTS OR ANY OTHER PERSONS AFFILIATED WITH LENDER OR SUCH
BORROWER, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE; (II) THE RIGHT TO
INTERPOSE ANY CLAIMS, DEDUCTIONS, SETOFFS OR COUNTERCLAIMS OF ANY KIND IN ANY
ACTION OR PROCEEDING INSTITUTED BY LENDER WITH RESPECT TO THE LOAN DOCUMENTS OR
ANY MATTER RELATING THERETO, EXCEPT FOR COMPULSORY COUNTERCLAIMS (IT BEING
UNDERSTOOD THAT THIS CLAUSE (II) IS NOT INTENDED TO PROHIBIT ANY BORROWER FROM
BRINGING A SEPARATE ACTION); (III) NOTICE PRIOR TO LENDER'S TAKING POSSESSION OR
CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY
COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES AND (IV) THE
BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS. EACH BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S
ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING
WAIVERS IN ITS FUTURE DEALINGS WITH SUCH BORROWER. EACH BORROWER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND
HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
-29-
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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IN WITNESS WHEREOF, Borrowers and Lender have signed this Agreement as of
the date set forth in the heading.
Borrowers: Lender:
FRANKLIN ELECTRONIC PUBLISHERS, BANC OF AMERICA COMMERCIAL FINANCE
INCORPORATED CORPORATION, THROUGH ITS COMMERCIAL
FUNDING DIVISION
By__________________________________ By_________________________________
Its_________________________________ Its Authorized Signatory
FRANKLIN ELECTRONIC PUBLISHERS
(EUROPE) LTD.
By__________________________________
Its_________________________________
FRANKLIN ELECTRONIC PUBLISHERS
(DEUTSCHLAND) GMBH
By__________________________________
Its_________________________________
-30-
<PAGE>
Banc of America Commercial Finance Corporation
- --------------------------------------------------------------------------------
Schedule A
Description of Certain Terms
This Schedule is an integral part of the Loan and Security Agreement among
Franklin Electronic Publishers, Incorporated, Franklin Electronic Publishers
(Europe) Ltd., Franklin Electronic Publishers (Deutschland) GmbH and Banc of
America Commercial Finance Corporation, through its Commercial Funding Division
(the "Agreement").
1. Loan Limits for Revolving
Loans:
(a) Maximum Facility Amount: $25,000,000
(b) Advance Rates:
(i) Accounts Advance Rate: US Borrower: 80%; provided, that if
the Dilution Percentage of US
Borrower exceeds 10%, then the
Accounts Advance Rate for US
Borrower shall be reduced by 1
percentage point for each percentage
point by which such Dilution
Percentage exceeds 10%
English Borrower: 80%; provided,
that if the Dilution Percentage of
English Borrower exceeds 10%, then
the Accounts Advance Rate for
English Borrower shall be reduced by
1 percentage point for each
percentage point by which such
Dilution Percentage exceeds 10%
German Borrower: 80%; provided, that
if the Dilution Percentage of German
Borrower exceeds 10%, then the
Accounts Advance Rate for German
Borrower shall be reduced by 1
percentage point for each percentage
point by which such Dilution
Percentage exceeds 10%
(ii) Inventory Advance Rates: (1)
- ----------
(1) Such percentages may be adjusted yearly on or around each
anniversary of the date of the Agreement such that the amount
of any Inventory that may be deemed to be Eligible Inventory
does not exceed 80% of the appraised net
A - 1
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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(A) Reference product
finished goods
inventory: 66%
(B) Organizer finished
goods
inventory: 29%
(c) Accounts Sublimit: US Borrower: N/A
English Borrower: N/A
German Borrower: $2,000,000
(d) Inventory Sublimit: $12,000,000 or, if less, 125% of the
aggregate advances against Accounts
at any time of determination
(e) Credit Accommodation
Limit: $4,000,000
(f) Permanent Reserve
Amount: US Borrower: None
English Borrower: None
German Borrower: $200,000
(g) Overadvance Amount: N/A
2. Loan Limits for Term Loan:
(a) Principal Amount:
(i) Equipment Advance: US Borrower: N/A
English Borrower: N/A
German Borrower: N/A
(ii) Real Property
Advance: US Borrower: $3,835,000
English Borrower: N/A
German Borrower: N/A
- --------------------------------------------------------------------------------
orderly liquidation value of such Inventory (as reflected in
an appraisal conducted as of such time by an appraiser
acceptable to Lender).
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
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(iii) Capital Expenditure US Borrower: N/A
Advances: English Borrower: N/A
German Borrower: N/A
(b) Repayment Schedule:
(i) Equipment Advance: N/A
(ii) Real Property
Advance: The Real Property Advance shall be
repaid in equal consecutive monthly
installments of $25,000 payable on
the first day of each calendar month
commencing January, 2000, with the
entire unpaid balance due and
payable on the Maturity Date;
provided, that after any 2 year
period after the date of the
Agreement, the unpaid principal
balance of the Real Property Advance
exceeds 65% of the fair market value
of the Real Property at such time
(as reflected in an appraisal
conducted as of such time by an
appraiser acceptable to Lender),
then US Borrower shall repay such
excess in 6 equal consecutive
monthly installments payable on the
first day of each calendar month
commencing with the month
immediately following the end of
each such 2 year period (which
payments shall be in addition to the
regular amortization payments set
forth above)
(iii) Capital Expenditure
Advances: N/A
3. Interest Rates:
(a) Revolving Loans: .375% per annum in excess of the
Prime Rate
(b) Term Loan: .375% per annum in excess of the
Prime Rate
4. Intentionally Omitted.
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
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5. Maximum Days:
(a) Maximum days after US Borrower: 90 (or 120 with respect
original invoice date to Accounts for which Ingram Micro
for Eligible Accounts: is the Account Debtor)
English Borrower: 90 (or 120 with
respect to Accounts for which Ingram
Micro is the Account Debtor)
German Borrower: 120
(b) Maximum days after US Borrower: 60
original invoice due date
for Eligible Accounts: English Borrower: 60
German Borrower: 60
6. Fees:
(a) Commitment Fee: $150,000, $75,000 of which was paid
pursuant to the commitment letter
among Lender and Borrowers dated
October 6, 1999
(b) Intentionally Omitted.
(c) Intentionally Omitted.
(d) Unused Line Fee: .50% per annum
(e) Intentionally Omitted.
(f) Intentionally Omitted.
(g) Intentionally Omitted.
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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(h) Early Termination Fee: 3% of the Maximum Facility Amount if
terminated during the first year of
the Initial Term or any Renewal
Term, 2% of the Maximum Facility
Amount if terminated during the
second year of the Initial Term or
any Renewal Term, and 1% of the
Maximum Facility Amount if
terminated thereafter and prior to
the Maturity Date; provided, that
there will be no Early Termination
Fee charged if the Loans are repaid
more than 18 months after the date
of the Agreement through financing
provided by Bank of America, N.A. or
any Affiliate of Bank of America,
N.A.
(i) Credit Accommodation 1% per annum of the face amount of
Fees: each open Credit Accommodation
7. Initial Maturity Date: December 7, 2002
8. Financial Covenants:
(a) Intentionally Omitted.
(b) Minimum Net Worth $41,000,000
Requirement:
(c) Intentionally Omitted.
(d) Intentionally Omitted.
(e) Intentionally Omitted.
(f) Intentionally Omitted.
(g) Intentionally Omitted.
(h) Intentionally Omitted.
(i) Intentionally Omitted.
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
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(j) Intentionally Omitted.
9. Borrowers Information:
(a) Prior Names of Borrowers: US Borrower: Franklin Computer
Corporation (such name has not been
used since 1990)
English Borrower: Franklin
Electronic Publishers (UK) Ltd.
German Borrower: Systech
Gesellschaft fur Mobile Datensystemc
GmbH
(b) Prior Trade Names of US Borrower: None
Borrowers: English Borrower: None
German Borrower: Systech
(c) Existing Trade Names of US Borrower: None
Borrowers: English Borrower: None
German Borrower: Systech
(d) Inventory Locations: US Borrower:
One Franklin Plaza
Burlington, New Jersey 08016
122 Burrs Road
Westampton, New Jersey 08060
English Borrower:
11 & 12 Windmill Business Village,
Brooklands Close, Sunburg
Middlesex TW16 704 ENGLAND
Unit 5 West Surey Traongest
Spelthome Lane
Ashford TW15 1UH ENGLAND
German Borrower: Kapellenstrabe 13
D-85622 Feldkirchen b. Munchen,
Germany
(e) Other Locations: US Borrower: None
English Borrower: None
German Borrower: None
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
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(f) Litigation: US Borrower: See attached
English Borrower: None
German Borrower: None
(g) Ownership of Borrowers: US Borrower: Publicly traded company
English Borrower: 100% owned by
Franklin Electronics Publishers
Euro-Holdings B.V., a Netherlands
corporation
German Borrower: 100% owned by
Franklin Electronics Publishers
Euro-Holdings B.V., a Netherlands
corporation
(h) Subsidiaries (and US Borrower: See attached
ownership thereof): English Borrower: None
German Borrower: None
(i) Facsimile Numbers:
US Borrower: (609) 387-2666
Borrowers: English Borrower: 44.1932.891.019
German Borrower: 4989.90899.111
Lender: (212) 597-1675
10. Description of Real Property: The real property owned by US
Borrower and located at: One
Franklin Plaza, Burlington, New
Jersey 08016
11. Lender's Bank: Bank One, NA Chicago
12. Other Covenants: None
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
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13. Exceptions to Negative Section 5.18(iv) of the Agreement is
Covenants: modified to allow US Borrower to
sell Collateral to its Subsidiaries
to the extent that: (i) such
Collateral was originally purchased
by US Borrower on behalf of such
Subsidiary in the ordinary course of
business of each such entity and
(ii) the sale by US Borrower to its
Subsidiary of such Collateral is
made simultaneously with the
delivery of such Collateral by the
seller thereof to US Borrower or
such Subsidiary
Section 5.18(v) and Section
5.18(xii) of the Agreement is
modified to allow (i) US Borrower to
advance all or a portion of the
proceeds it receives from Revolving
Loans to English Borrower and German
Borrower pursuant to intercompany
loans and (ii) German Borrower to
advance all or a portion of the
proceeds it receives from Revolving
Loans to US Borrower and English
Borrower pursuant to intercompany
loans
Section 5.18(v) of the Agreement is
further modified to allow US
Borrower to make loans, in the
ordinary course of business of US
Borrower, to its Subsidiaries in an
aggregate amount not to exceed at
any time $200,000
Section 5.18(vi) of the Agreement is
modified to allow (i) $14,000,000 of
principal indebtedness (such amount
shall be reduced dollar for dollar
by any payment made thereto) under
the Existing Note Agreement and (ii)
"Secondary Notes" (as such term is
defined in Section 9.8 of the
Existing Note Agreement; i.e. PIK
promissory notes which mature on
March 31, 2007) under the Existing
Note Agreement
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
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14. Exceptions to other covenants: None
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
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IN WITNESS WHEREOF, Borrowers and Lender have signed this Schedule A as of
the date set forth in the heading to the Agreement.
Borrowers: Lender:
FRANKLIN ELECTRONICS PUBLISHERS, BANC OF AMERICA COMMERCIAL FINANCE
INCORPORATED CORPORATION, THROUGH ITS COMMERCIAL
FUNDING DIVISION
By_____________________________________
Its____________________________________ By__________________________________
Its Authorized Signatory
FRANKLIN ELECTRONIC PUBLISHERS
(EUROPE) LTD.
By_____________________________________
Its____________________________________
FRANKLIN ELECTRONIC PUBLISHERS
(DEUTSCHLAND) GMBH
By_____________________________________
Its____________________________________
<PAGE>
Banc of America Commercial Finance Corporation
- --------------------------------------------------------------------------------
Schedule B
Definitions
This Schedule is an integral part of the Loan and Security Agreement among
Franklin Electronic Publishers, Incorporated, Franklin Electronic Publishers
(Europe) Ltd., Franklin Electronic Publishers (Deutschland) GmbH and Banc of
America Commercial Finance Corporation, through its Commercial Funding Division
(the "Agreement").
As used in the Agreement, the following terms have the following meanings:
"Account" means any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument or Chattel Paper,
whether or not it has been earned by performance.
"Account Debtor" means the obligor on an Account or Chattel Paper.
"Account Proceeds" has the meaning set forth in Section 4.1.
"Accounts Advance Rate" means the percentage set forth in Section
1(b)(i) of Schedule A.
"Accounts Sublimit" means the amount set forth in Section 1(c) of
Schedule A.
"Advance Rates" means, collectively, the Accounts Advance Rate and
the Inventory Advance Rate.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, member, manager, director, officer, or employee of such Person, any
parent or subsidiary of such Person, or any Person controlling, controlled by or
under common control with such Person or any other Person affiliated, directly
or indirectly, by virtue of family membership, ownership, management or
otherwise.
"After-Tax Basis" means, in the case of any amount paid or payable
to Lender, a basis such that any payment received or deemed to have been
received shall be forthwith supplemented by a further supplemental payment to
Lender so that after taking into account all federal, state, provincial or local
income taxes (other than taxes imposed upon the net income or business profit
Lender), Lender receives an amount equal to the original payment received or
deemed to have been received.
"Aggregate Availability" means, US Borrower Availability plus
English Borrower Availability plus German Borrower Availability.
"Agreement" and "this Agreement" mean the Loan and Security
Agreement of which this Schedule B is a part and the Schedules thereto.
B-1
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C.ss. 101 et ss. seq.).
"Blocked Account" has the meaning set forth in Section 4.1.
"Borrower" has the meaning set forth in the heading to the
Agreement.
"Business Day" means a day other than a Saturday or Sunday or any
other day on which Lender or banks in New York are authorized to close.
"Capital Expenditure Advance" has the meaning set forth in Section
1.1(b).
"Capital Expenditure Equipment" means Eligible Equipment acquired by
a Borrower after the date of this Agreement with Capital Expenditure Advances.
"Chattel Paper" has the meaning set forth in the UCC.
"Collateral" means all property and interests in property in or upon
which a security interest or other Lien is granted pursuant to this Agreement or
the other Loan Documents.
"Commitment Fee" has the meaning set forth in Section 2.2(a).
"Credit Accommodation" has the meaning set forth in Section 1.1(a).
"Credit Accommodation Balance" means the sum of (i) the aggregate
undrawn face amount of all outstanding Credit Accommodations and (ii) all
interest, fees and costs due or, in Lender's estimation, likely to become due in
connection therewith.
"Credit Accommodation Fees" has the meaning set forth in Section
2.2(h).
"Credit Accommodation Limit" means the amount set forth in Section
1(e) of Schedule A.
"Currency Due" has the meaning set forth in Section 6.3.
"Default" means any event which with notice or passage of time, or
both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.1.
"Deposit Account" has the meaning set forth in the UCC.
"Dilution Percentage" means the gross amount of all returns,
allowances, discounts, credits (excluding credits attributed to sales of REX
products), write-offs and similar items relating to a Borrower's Accounts
computed as a percentage of such Borrower's gross
B-2
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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sales, calculated on a ninety (90) day or twelve (12) month rolling average
(which ever period of days results in a higher dilution percentage).
"Document" has the meaning set forth in the UCC.
"Dollar Equivalent" means, at any time, as to any amount denominated
in any currency other than Dollars, the equivalent amount in Dollars as
determined by Lender at such time on the basis of the Spot Rate for the purchase
of Dollars with respect to such currency.
"Dollars" and "$" - lawful money of the United States.
"Early Termination Fee" has the meaning set forth in Section 7.2.
"Eligible Account" means, at any time of determination, an Account
which satisfies the general criteria set forth below and which is otherwise
acceptable to Lender (provided, that Lender may, in its sole discretion, change
the general criteria for acceptability of Eligible Accounts upon at least
fifteen days' prior notice to Borrowers). An Account shall be deemed to meet the
current general criteria if (i) neither the Account Debtor nor any of its
Affiliates is an Affiliate, creditor or supplier of any Borrower; (ii) it does
not remain unpaid more than the earlier to occur of (A) the number of days after
the original invoice date set forth in Section 5(a) of Schedule A or (B) the
number of days after the original invoice due date set forth in Section 5(b) of
Schedule A; (iii) the Account Debtor or its Affiliates are not past due on other
Accounts owing to any Borrower comprising more than 50% of all of the Accounts
owing to Borrower by such Account Debtor or its Affiliates; (iv) all Accounts
owing by the Account Debtor or its Affiliates do not represent more than 20% of
all otherwise Eligible Accounts (provided, that Accounts which are deemed to be
ineligible solely by reason of this clause (iv) shall be considered Eligible
Accounts to the extent of the amount thereof which does not exceed 20% of all
otherwise Eligible Accounts); (v) no covenant, representation or warranty
contained in this Agreement with respect to such Account (including any of the
representations set forth in Section 5.4) has been breached; (vi) the Account is
not subject to any contra relationship, counterclaim, dispute or set-off
(provided, that Accounts which are deemed to be ineligible solely by reason of
this clause (vi) shall be considered Eligible Accounts to the extent of the
amount thereof which is not affected by such contra relationships,
counterclaims, disputes or set-offs); (vii) the Account Debtor's chief executive
office or principal place of business is located in the United States, England,
Germany or Provinces of Canada which have adopted the Personal Property Security
Act or a similar act, unless (A) the sale is fully backed by a letter of credit,
guaranty or acceptance acceptable to Lender in its sole discretion, and if
backed by a letter of credit, such letter of credit has been issued or confirmed
by a bank satisfactory to Lender, is sufficient to cover such Account, and if
required by Lender, the original of such letter of credit has been delivered to
Lender or Lender's agent and the issuer thereof notified of the assignment of
the proceeds of such letter of credit to Lender or (B) such Account is subject
to credit insurance payable to Lender issued by an insurer and on terms and in
an amount acceptable to Lender; (viii) it is absolutely owing to the applicable
Borrower and does not arise from a sale on a bill-and-hold, guarantied sale,
sale-or-return, sale-on-approval, consignment, retainage or any other repurchase
or return basis or consist of progress billings; (ix) Lender shall have verified
the
B-3
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Banc of America Commercial Finance Corporation Loan and Security Agreement
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Account in a manner satisfactory to Lender; (x) the Account Debtor is not the
United States of America or any state or political subdivision (or any
department, agency or instrumentality thereof), unless the applicable Borrower
has complied with the Assignment of Claims Act of 1940 (31 U.S.C. ss.203 et
seq.) or other applicable similar state or local law in a manner satisfactory to
Lender; (xi) it is at all times subject to Lender's duly perfected, first
priority security interest and to no other Lien that is not a Permitted Lien,
and the goods giving rise to such Account (A) were not, at the time of sale,
subject to any Lien except Permitted Liens and (B) have been delivered to and
accepted by the Account Debtor, or the services giving rise to such Account have
been performed by the applicable Borrower and accepted by the Account Debtor;
(xii) the Account is not evidenced by Chattel Paper or an Instrument of any kind
and has not been reduced to judgment; (xiii) the Account Debtor's total
indebtedness to any one Borrower does not exceed the amount of any credit limit
established by such Borrower or Lender and the Account Debtor is otherwise
deemed to be creditworthy by Lender (provided, that Accounts which are deemed to
be ineligible solely by reason of this clause (xiii) shall be considered
Eligible Accounts to the extent the amount of such Accounts does not exceed the
lower of such credit limits); (xiv) there are no facts or circumstances
existing, or which could reasonably be anticipated to occur, which might result
in any adverse change in the Account Debtor's financial condition or impair or
delay the collectibility of all or any portion of such Account; (xv) Lender has
been furnished with all documents and other information pertaining to such
Account which Lender has requested, or which a Borrower is obligated to deliver
to Lender, pursuant to this Agreement; (xvi) a Borrower has not made an
agreement with the Account Debtor to extend the time of payment thereof beyond
the time periods set forth in clause (ii) above; (xvii) a Borrower has not
posted a surety or other bond in respect of the contract under which such
Account arose; and (xviii) the Account is denominated in (A) Dollars, with
respect to Accounts of US Borrower, (B) Dollars or British Pounds Sterling, with
respect to Accounts of English Borrower, or (C) Dollars, Deutschemarks or Euro,
with respect to Accounts of German Borrower.
"Eligible Equipment" means, at any time of determination, Equipment
owned by a Borrower which is not subject to any Lien (other than the Lien
granted to Lender pursuant to the Agreement) and which Lender, in its sole
discretion, deems to be eligible for borrowing purposes.
"Eligible Inventory" means, at any time of determination, Inventory
(other than packaging materials and supplies) of US Borrower which satisfies the
general criteria set forth below and which is otherwise acceptable to Lender
(provided, that Lender may, in its sole discretion, change the general criteria
for acceptability of Eligible Inventory upon at least fifteen days' prior
written notice to Borrowers). Inventory of US Borrower shall be deemed to meet
the current general criteria if (i) it consists of finished goods of reference
products or organizers; (ii) it is in good, new (or refurbished) and saleable
condition; (iii) it is not slow-moving, obsolete, unmerchantable, returned or
repossessed; (iv) it is not in the possession of a processor, consignee or
bailee, or located on premises leased or subleased to any Borrower, or on
premises subject to a mortgage in favor of a Person other than Lender, unless
such processor, consignee, bailee or mortgagee or the lessor or sublessor of
such premises, as the case may be, has executed
B-4
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
- --------------------------------------------------------------------------------
and delivered all documentation which Lender shall require to evidence the
subordination or other limitation or extinguishment of such Person's rights with
respect to such Inventory and Lender's right to gain access thereto; (v) it
meets all standards imposed by any governmental agency or authority; (vi) it
conforms in all respects to any covenants, warranties and representations set
forth in the Agreement; (vii) it is at all times subject to Lender's duly
perfected, first priority security interest and no other Lien except a Permitted
Lien; and (viii) it is situated at an Inventory Location listed in Section 9(d)
of Schedule A for US Borrower.
"Eligible Real Property" means, at any time of determination, Real
Property owned by a Borrower which Lender, in its sole discretion, deems to be
eligible for borrowing purposes.
"English Borrower" has the meaning set forth in the heading of this
Agreement.
"English Borrower's Address" has the meaning set forth in the
heading of this Agreement.
"English Borrower Availability" means with respect to English
Borrower:
(i) the Dollar Equivalent of the aggregate amount of Eligible
Accounts (less maximum existing or asserted taxes, discounts, credits and
allowances) of English Borrower multiplied by the Accounts Advance Rate
set forth in Section 1(b)(i) of Schedule A for English Borrower but not to
exceed the Accounts Sublimit for English Borrower set forth in Section
1(c) of Schedule A;
minus
(ii) all Reserves which Lender has established pursuant to
Section 1.2 with respect to English Borrower (including those to be
established in connection with the requested Revolving Loan or Credit
Accommodation);
minus
(iii) the outstanding balance of all of the monetary
Obligations of English Borrower (excluding the Credit Accommodation
Balance and the principal balance of the Term Loan); and
plus
(iv) the Overadvance Amount for English Borrower, if any, set
forth in Section 1(g) of Schedule A.
"Equipment" means all Goods which are used or bought for use
primarily in business (including farming or a profession) or by a Person who is
a non-profit organization or governmental subdivision or agency and which are
not Inventory, farm products or consumer goods, including all machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies and jigs, and all attachments,
B-5
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
- --------------------------------------------------------------------------------
accessories, accessions, replacements, substitutions, additions or improvements
to, or spare parts for, any of the foregoing.
"Equipment Advance" has the meaning set forth in Section 1.1(b).
"ERISA" means the Employee Retirement Income Security Act of 1974
and all rules, regulations and orders promulgated thereunder.
"Euro" means the currency of participating member states of the
European Union that adopt a single currency in accordance with the Treaty on
European Union of February 7, 1992.
"Event of Default" has the meaning set forth in Section 8.1.
"Existing Note Agreement" means the Note Purchase Agreement dated as
of March 26, 1997, among US Borrower, The Northerwestern Mutual Life Insurance
Company, Alexander Hamilton Life Insurance Company of America and Mutual Life
Insurance Company, as amended by the First Amendment to Note Purchase Agreement
dated as of April 15, 1999 and further amended by the Second Amendment and
Consent to Note Purchase Agreement dated as of December 7, 1999.
"Existing Note Loan Documents" means, collectively, the Note
Agreement and all notes, guaranties, security agreements, certificates and all
other agreements, documents and instruments now or hereafter executed or
delivered by a Borrower or any Obligor in connection with, or to evidence the
transactions contemplated by, the Existing Note Agreement.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States with respect to US Borrower, in England
with respect to English Borrower and in Germany with respect to German Borrower,
consistently applied.
"General Intangibles" has the meaning set forth in the UCC, and
includes all books and records pertaining to the Collateral and other business
and financial records in the possession of each Borrower or any other Person,
inventions, designs, drawings, blueprints, patents, patent applications,
trademarks, trademark applications (other than "intent to use" applications
until a verified statement of use is filed with respect to such applications)
and the goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises, customer
lists, security and other deposits, causes of action and other rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, internet
addresses, proprietary information, purchase orders, and all insurance policies
and claims (including life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, letters of credit, banker's acceptances and guaranties, computer
programs, discs, tapes and tape files in the possession of such Borrower or any
other Person, claims under guaranties, security interests or
B-6
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
- --------------------------------------------------------------------------------
other security held by or granted to such Borrower, all rights to
indemnification and all other intangible property of every kind and nature.
"German Borrower" has the meaning set forth in the heading of this
Agreement.
"German Borrower's Address" has the meaning set forth in the heading
of this Agreement.
"German Borrower Availability" means with respect to German
Borrower:
(i) the Dollar Equivalent of the aggregate amount of Eligible
Accounts (less maximum existing or asserted taxes, discounts, credits and
allowances) of German Borrower multiplied by the Accounts Advance Rate set
forth in Section 1(b)(i) of Schedule A for German Borrower but not to
exceed the sum of the Accounts Sublimit set forth in Section 1(c) of
Schedule A for German Borrower and the Permanent Reserve Amount for set
forth in Section 1(f) of Schedule A for German Borrower;
minus
(ii) all Reserves which Lender has established pursuant to
Section 1.2 with respect to German Borrower (including those to be
established in connection with the requested Revolving Loan or Credit
Accommodation);
minus
(iii) the outstanding balance of all of the monetary
Obligations of German Borrower (excluding the Credit Accommodation Balance
and the principal balance of the Term Loan); and
plus
(iv) the Overadvance Amount for German Borrower, if any, set
forth in Section 1(g) of Schedule A.
"Goods" means all things which are movable at the time the security
interest attaches or which are fixtures (other than money, Documents,
Instruments, Investment Property, Accounts, Chattel Paper, General Intangibles,
or minerals or the like (including oil and gas) before extraction), including
standing timber which is to be cut and removed under a conveyance or contract
for sale, the unborn young of animals, and growing crops.
"Initial Maturity Date" means the date set forth in Section 7 of
Schedule A.
"Initial Term" has the meaning set forth in Section 7.1.
"Instrument" has the meaning set forth in the UCC.
B-7
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
- --------------------------------------------------------------------------------
"Inventory Advance Rate" means the percentage(s) set forth in
Section 1(b)(ii) of Schedule A.
"Inventory Sublimit" means the amount(s) set forth in Section 1(d)
of Schedule A.
"Inventory" means all Goods held for sale or lease or furnished or
to be furnished under contracts of service, including all raw materials, work in
process, finished goods, goods in transit and materials and supplies which are
or might be used or consumed in a business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such Goods,
and all products of the foregoing, and shall include interests in goods
represented by Accounts, returned, reclaimed or repossessed goods and rights as
an unpaid vendor.
"Investment Property" means all "investment property" (as defined in
the UCC) now owned or hereafter acquired by any Borrower including, without
limitation, all securities (certificated and uncertificated), securities
accounts, securities entitlements, commodity contracts and commodity accounts
(as each such term is defined in the UCC).
"Judgment Currency"" has the meaning set forth in Section 6.3.
"Lender" has the meaning set forth in the heading to the Agreement.
"Lien" means any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on common law, statute or contract, including rights of
sellers under conditional sales contracts or title retention agreements and
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property. For the purpose of this Agreement, each Borrower shall be
deemed to be the owner of any property which it has acquired or holds subject to
a conditional sale agreement or other arrangement pursuant to which title to the
property has been retained by or vested in some other Person for security
purposes.
"Loan Accounts" has the meaning set forth in Section 2.4.
"Loan Documents" means, collectively, the Agreement and all notes,
guaranties, security agreements, certificates, landlord's agreements, Lock Box
and Blocked Account agreements and all other agreements, documents and
instruments now or hereafter executed or delivered by a Borrower or any Obligor
in connection with, or to evidence the transactions contemplated by, this
Agreement.
"Loan Limits" means, collectively, the Availability limits and all
other limits on the amount of Loans and Credit Accommodations set forth in this
Agreement.
"Loans" means, collectively, the Revolving Loans and any Term Loan.
"Lock Box" has the meaning set forth in Section 4.1.
B-8
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
- --------------------------------------------------------------------------------
"Material Adverse Effect" has the meaning set forth in Section 5.20.
"Maturity Date" has the meaning set forth in Section 7.1.
"Maximum Facility Amount" means the amount set forth in Section 1(a)
of Schedule A.
"Minimum Loan Amount" means the amount set forth in Section 4 of
Schedule A.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by the applicable Borrower to Lender, whether evidenced by this
Agreement, any other Loan Document or otherwise whether arising from an
extension of credit, opening of a Credit Accommodation, guaranty,
indemnification or otherwise (including all fees, costs and other amounts which
may be owing to issuers of Credit Accommodations and all taxes, duties, freight,
insurance, costs and other expenses, costs or amounts payable in connection with
Credit Accommodations or the underlying goods), whether direct or indirect
(including those acquired by assignment and any participation by Lender in such
Borrower's indebtedness owing to others), whether absolute or contingent,
whether due or to become due, and whether arising before or after the
commencement of a proceeding under the Bankruptcy Code or any similar statute,
including all interest, charges, expenses, fees, attorney's fees, expert witness
fees, audit fees, letter of credit fees, Commitment Fees, Unused Line Fees,
amounts owing under Credit Accommodation Fees and any other sums chargeable to
such Borrower under this Agreement or under any other Loan Document.
"Obligor" means any guarantor, endorser, acceptor, surety or other
person liable on, or with respect to, the Obligations or who is the owner of any
property which is security for the Obligations, other than a Borrower.
"Overadvance Amount" means the amount, if any, set froth in Section
1(g) of Schedule A.
"Permitted Liens" means: (i) purchase money security interests in
specific items of Equipment in an aggregate amount not to exceed the limit set
forth in Section 8(h) of Schedule A; (ii) leases of specific items of Equipment
in an aggregate amount not to exceed the limit set forth in Section 8(i) of
Schedule A; (iii) Liens for taxes not yet due and payable; (iv) additional Liens
which are fully subordinate to the security interests of Lender and are
consented to in writing by Lender; (v) security interests being terminated
concurrently with the execution of this Agreement; (vi) Liens of materialmen,
mechanics or carriers (but excluding Liens in favor of warehousemen) arising in
the ordinary course of business and securing obligations which are not
delinquent; (vii) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in clause
(i) or (ii) above; provided, that any extension, renewal or replacement Lien is
limited to the property encumbered by the existing Lien and the principal amount
of the indebtedness being extended, renewed or refinanced does not increase;
(viii) Liens in favor of customs and revenue authorities
B-9
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
- --------------------------------------------------------------------------------
which secure payment of customs duties in connection with the importation of
goods; and (ix) security deposits posted in connection with real property leases
or subleases. Lender will have the right to require, as a condition to its
consent under clause (iv) above, that the holder of the additional Lien sign an
intercreditor agreement in form and substance satisfactory to Lender, in its
sole discretion, acknowledging that the Lien is subordinate to the security
interests of Lender, and agreeing not to take any action to enforce its
subordinate Lien so long as any Obligations remain outstanding, and that
Borrowers agree that any uncured default in any obligation secured by the
subordinate Lien shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership,
joint venture, limited liability company, trust, unincorporated organization,
association, corporation, government or any agency or political division
thereof, or any other entity.
"Prime Rate" means, at any given time, the prime rate as quoted in
The Wall Street Journal as the base rate on corporate loans posted as of such
time by at least 75% of the nation's 30 largest banks (which rate is not
necessarily the lowest rate offered by such banks).
"Real Property" means the real property described in Section 10 of
Schedule A.
"Real Property Advance" has the meaning set forth in Section 1.1(b)
"Released Parties" has the meaning set forth in Section 6.1.
"Renewal Term" has the meaning set forth in Section 7.1.
"Reserves" has the meaning set forth in Section 1.2.
"Revolving Loans" has the meaning set forth in Section 1.1(a).
"Sale" has the meaning set forth in Section 8.2.
"Spot Rate" means with respect to a currency, the rate quoted by as
quoted in The Wall Street Journal as the exchange rate for the purchase of such
currency with another currency 1 Business Day prior to the date as of which the
foreign exchange settlement is made.
"Subsidiary" means any corporation or other entity of which a Person
owns, directly or indirectly, through one or more intermediaries, more than 50%
of the capital stock or other equity interest at the time of determination.
"Term" means the period commencing on the date of this Agreement and
ending on the Maturity Date.
"Term Loan" has the meaning set forth in Section 1.1(b).
B-10
<PAGE>
Banc of America Commercial Finance Corporation Loan and Security Agreement
- --------------------------------------------------------------------------------
"UCC" means, at any given time, the Uniform Commercial Code as
adopted and in effect at such time in the State of New York.
"Unused Line Fee" has the meaning set forth in Section 2.2(d).
"US Borrower" has the meaning set forth in the heading of this
Agreement.
"US Borrower's Address" has the meaning set forth in the heading of
this Agreement.
"US Borrower Availability" means with respect to US Borrower:
(i) the aggregate amount of Eligible Accounts (less maximum
existing or asserted taxes, discounts, credits and allowances) of US
Borrower multiplied by the Accounts Advance Rate set forth in Section
1(b)(i) of Schedule A for US Borrower but not to exceed the Accounts
Sublimit set forth in Section 1(c) of Schedule A for US Borrower;
minus
(ii) the lower of cost or market value of Eligible Inventory
of US Borrower multiplied by the Inventory Advance Rate(s) set forth in
Section 1(b)(ii) of Schedule A for US Borrower, but not to exceed the
Inventory Sublimit(s) set forth in Section 1(d) of Schedule A for US
Borrower;
(iii) all Reserves which Lender has established pursuant to
Section 1.2 with respect to US Borrower (including those to be established
in connection with the requested Revolving Loan or Credit Accommodation);
minus
(iv) the outstanding balance of all of the monetary
Obligations (excluding the Credit Accommodation Balance and the principal
balance of the Term Loan) of US Borrower; and
plus
(v) the Overadvance Amount for US Borrower, if any, set forth
in Section 1(g) of Schedule A.
"Withholding Taxes" has the meaning set forth in Section 1.7.
"Year 2000 Compliant" has the meaning set forth in Section 5.20.
"Year 2000 Problem" has the meaning set forth in Section 5.20.
B-11
<PAGE>
All accounting terms used in this Agreement, unless otherwise indicated,
shall have the meanings given to such terms in accordance with GAAP. All other
terms contained in this Agreement, unless otherwise indicated, shall have the
meanings provided by the UCC, to the extent such terms are defined therein. The
term "including," whenever used in this Agreement, shall mean "including but not
limited to." The singular form of any term shall include the plural form, and
vice versa, when the context so requires. References to Sections, subsections
and Schedules are to Sections and subsections of, and Schedules to, this
Agreement. All references to agreements and statutes shall include all
amendments thereto and successor statutes in the case of statutes.
IN WITNESS WHEREOF, Borrowers and Lender have signed this Schedule B as of
the date set forth in the heading to the Agreement.
Borrowers: Lender:
FRANKLIN ELECTRONICS PUBLISHERS, BANC OF AMERICA COMMERCIAL FINANCE
INCORPORATED CORPORATION, THROUGH ITS COMMERCIAL
FUNDING DIVISION
By_____________________________________
Its____________________________________ By__________________________________
Its Authorized Signatory
FRANKLIN ELECTRONIC PUBLISHERS
(EUROPE) LTD.
By_____________________________________
Its____________________________________
FRANKLIN ELECTRONIC PUBLISHERS
(DEUTSCHLAND) GMBH
By_____________________________________
Its____________________________________
B-12
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
SECOND AMENDMENT AND CONSENT
TO NOTE PURCHASE AGREEMENT
$40,000,000 Principal Amount
7.71% Senior Notes
Due March 31, 2007
Dated as of December 7, 1999
To Each of the Holders of Senior Notes
of Franklin Electronic Publishers,
Incorporated Named in the
Attached Schedule I
Ladies and Gentlemen:
Reference is made to the Note Purchase Agreement dated as of March 27,
1997 among Franklin Electronic Publishers, Incorporated (the "Company") and each
of the Purchasers named in Schedule A to the Note Agreement (as amended, the
"Note Agreement"), pursuant to which the Company issued $40,000,000 principal
amount of its 7.71% Senior Notes due March 31, 2007 (the "Notes"). You are
referred to herein individually as a "Holder" and collectively as the "Holders."
Capitalized terms used and not otherwise defined herein shall have the meanings
ascribed to them in the Note Agreement.
The Company is not in compliance with various covenants contained in
Article 10 of the Note Agreement and expects to continue to be in noncompliance
with such covenants. The Holders have waived the Company's noncompliance with
such covenants through the date of this Second Amendment pursuant to a Waiver
dated November 11, 1999.
The Company has requested the modification of certain of the covenants and
other provisions contained in the Note Agreement and the consent of the Holders
to permit it to enter into a credit facility. The Holders are willing to grant
an amendment on the terms and conditions hereinafter set forth.
In consideration of the premises and for good and valuable consideration,
the receipt and sufficiency of which are acknowledged, the Company and the
Holders agree as follows:
<PAGE>
SECTION 1. AMENDMENTS
1.1. Amendment of Section 1. Section 1 of the Note Agreement is amended to
include the following final sentence:
"The Notes will be secured pursuant to the Security Documents by a Lien,
which Lien will be junior to Liens in favor of the Banks, on the
Collateral."
1.2. Amendment of Section 7.1. Section 7.1 of the Note Agreement is
amended by deleting the word "and" at the end of Section 7.1(f), by
redesignating Section 7.1(g) as Section 7.1(h) and by adding a new Section
7.1(g) to read in its entirety as follows:
(g) Collateral Reports - upon request of such holder, copies of all
reports concerning the Collateral that are provided to the Banks,
concurrently with their delivery to the Banks; and
1.3. Amendment of Section 7.2. The reference in Section 7.2(a) of the Note
Agreement to "Section 10.14" is amended to read "Section 10.16."
1.4. Amendment of Section 8.1.
1.4.1. Section 8.1(a) of the Note Agreement is amended to read in
its entirety as follows:
"(a) On or prior to June 30, 2000 (including on the date of
effectiveness of the Second Amendment), and on March 31, 2001 and each
March 31 thereafter to and including March 31, 2005, the Company will
prepay $2,000,000 principal amount (or such lesser principal amount as
shall then be outstanding) of the Notes at 100% of the principal amount
prepaid and without payment of the Make-Whole Amount or any premium,
provided that upon any partial prepayment of the Notes pursuant to
Sections 8.1(b), 8.2 or 10.3, or purchase of the Notes permitted by
Section 8.5, the principal amount of each required prepayment of the Notes
becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the
aggregate unpaid principal amount of the Notes is reduced as a result of
such prepayment or purchase. The remaining unpaid principal amount of the
Notes is payable on March 31, 2006."
1.4.2. Section 8.1(c) of the Note Agreement is amended to read in
its entirety as follows:
"(c) Intentionally omitted."
1.4.3. Section 8.1 of the Note Agreement is amended to include the
following paragraph at the end of such Section:
"(e) Contemporaneously with the execution and delivery of the Second
Amendment by the Company and each holder of Notes, but without additional
2
<PAGE>
notice to such holders, the Company shall prepay the Notes in a principal
amount not less than $10,000,000 at 100% of such principal amount so
prepaid, plus accrued interest. Such prepayment shall not require the
Company to make any additional payment, including, but not limited to,
payment of the Make-Whole Amount, and shall be allocated in accordance
with the provisions of Section 8.3 of the Note Agreement."
1.5. Amendment of Section 8.2. Section 8.2 of the Note Agreement is
amended to read in its entirety as follows:
"8.2. Optional Prepayments.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes, in a
principal amount not less than $1,000,000 in the case of a partial
prepayment (without the payment of any additional amount, including the
Make-Whole Amount, except as provided below), as follows:
(a) at 100% of the principal amount so prepaid, plus accrued
interest, during the period commencing on the date on which the
Second Amendment becomes effective and ending December 31, 2000;
(b) at 102.5% of the principal amount so prepaid, plus accrued
interest, during the period commencing on January 1, 2001 and ending
December 31, 2001; and
(c) at 105% of the principal amount so prepaid, plus accrued
interest, thereafter.
The Company will give each holder of Notes written notice of each optional
prepayment under this Section 8.2 not less than 30 days and not more than
60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes to be
prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with Section 8.3), and the
interest to be paid on the prepayment date with respect to such principal
amount being prepaid."
1.6. Amendment of Section 9.7. Section 9.7 of the Note Agreement is
amended to read in its entirety as follows:
"9.7. Intentionally Omitted."
1.7. Addition of Section 9.8. New Section 9.8 is added to the Note
Agreement to read in its entirety as follows:
3
<PAGE>
"9.8. Interest.
Commencing October 1, 1999, on each interest payment date
specified in the Notes, the Company shall pay (a) interest in cash on the
Notes at the rate of 11% per annum and (b) additional interest on the
Notes at a rate of 2% per annum, or such lesser applicable rate as
specified below (the "PIK Percentage"), in cash or, in lieu of cash and at
the Company's option, through the issuance of additional Notes ("Secondary
Notes") in an aggregate principal amount equal to the amount of interest
(rounded to the nearest whole cent) that would be payable with respect to
such Notes if such interest (the "PIK Portion") were paid in cash;
provided that the Company shall pay cash in lieu of issuing Secondary
Notes in any denominations of less than $1,000 (determined for each holder
of Notes with respect to the aggregate principal amount of Notes held by
such holder as shown in the note register of the Company). On each
interest payment date on which the Company elects to pay the PIK Portion
through the issuance of Secondary Notes, the Company shall issue and
deliver Secondary Notes to each holder of Notes, in the aggregate
principal amount required to pay such PIK Portion, together with cash in
the amount necessary to pay the portion of the interest due on such
interest payment date that is payable in cash. Any Secondary Note so
issued shall be dated the applicable interest payment date, shall mature
on March 31, 2006, shall be governed by, and subject to, the terms,
provisions and conditions of this Agreement, and shall bear interest from
and after such date in the same manner as, and have the same rights and
benefits as, the Notes previously issued. Any Secondary Notes shall be in
substantially the form of Exhibit 1 but shall be issued with the
designation "PIK" on its face. The Company shall pay any interest payable
on or after the date of maturity of any Note solely in cash.
The PIK Percentage shall be reduced upon the prepayment by the
Company of the $2,000,000 required to be paid on or prior to June 30, 2000
in accordance with the provisions of Section 8.1(a) (in addition to the
$10,000,000 prepayment required by Section 4.3 of the Second Amendment) in
principal amount of the Notes as follows: (i) one percent in the event
that such prepayment is made on the date of effectiveness of the Second
Amendment or (ii) one-half of one percent in the event that such
prepayment is made after the date of effectiveness of the Second Amendment
and on or prior to June 30, 2000. Such reduction shall be effective from
the date such optional prepayment is received in full by the holders of
the Notes. No adjustment in the PIK Percentage shall be made until the
full $2,000,000 prepayment has been made.
In the event of any prepayments in addition to those referred
to in the preceding paragraph, the PIK Percentage shall be further reduced
by one-third of one percent for each "qualifying optional prepayment" by
the Company of $1,000,000 in principal amount of the Notes pursuant to
Section 8.2 on or prior to September 30, 2000. Such reduction shall be
effective from the date such optional prepayment is received in full by
the holders of the Notes. The
4
<PAGE>
$10,000,000 prepayment required by Section 4.3 of the Second Amendment
shall not affect the PIK Percentage. For purposes of this paragraph,
"qualifying optional prepayment" means a prepayment using the proceeds (A)
of the sale by the Company of its equity securities or (B) of Indebtedness
of the Company subordinated to the Notes on terms satisfactory to the
Required Holders.
The Company shall have the right to aggregate amounts of
interest payable in the form of Secondary Notes to any holder of Notes and
issue to such holder a single Secondary Note in payment thereof."
1.8. Amendment of Section 10.3. Section 10.3 of the Note Agreement is
amended to read in its entirety as follows:
"10.3. Sale of Assets.
Except as permitted by Section 10.2, the Company will not, and
will not permit any Subsidiary to, sell, lease, transfer or otherwise
(including by way of merger) dispose of (collectively a "Disposition") any
assets, including any shares of capital stock of Subsidiaries, in one or a
series of transactions, other than in the ordinary course of business, to
any Person, except to the Company or a Wholly-Owned Subsidiary, unless (i)
no Default or Event of Default has occurred and is continuing and (ii) the
net proceeds of such Disposition are applied to reduce outstanding
Indebtedness of the Company or its Subsidiaries that is not subordinated
to the Notes. Any such reduction in Indebtedness shall be permanent and,
therefore, such proceeds shall not be applied to Indebtedness of a
revolving nature absent a corresponding permanent reduction in the
commitment of the holders of such Indebtedness to lend on a revolving
basis. Any prepayment of Notes pursuant to this Section 10.3 shall be in
accordance with Section 8.2, without regard to the minimum prepayment
requirements thereof."
1.9. Amendment of Section 10.4. Section 10.4 of the Note Agreement is
amended by deleting the word "and" at the end of Section 10.4(g), by replacing
the period at the end of Section 10.4(h) with "; and" and by adding a new
Section 10.4(i) to read in its entirety as follows:
"(i) The first priority Lien on the Collateral, as such term is
defined herein and in the New Credit Agreement, in favor of the Banks as
contemplated by the New Credit Agreement."
1.10. Amendment of Section 10.6. Section 10.6(b) of the Note Agreement is
amended to read in its entirety as follows:
"(b) Indebtedness not exceeding $25,000,000 in aggregate principal
amount from time to time outstanding under the New Credit Agreement;"
1.11. Amendment of Section 10.8. Section 10.8 of the Note Agreement is
amended to read in its entirety as follows:
5
<PAGE>
"10.8. Interest Coverage.
The Company will not at any time permit the ratio of EBITDA to
Consolidated Interest Expense to be less than:
(a) 2.25 to 1.0 for the period of two consecutive fiscal
quarters ending December 31, 1999;
(b) 2.5 to 1.0 for the period of three consecutive fiscal
quarters ending March 31, 2000;
(c) 2.5 to 1.0 for the period of four consecutive fiscal
quarters ending June 30, 2000;
(d) 2.75 to 1.0 for the period of four consecutive fiscal
quarters ending September 30, 2000; and
(e) 3.0 to 1.0 for each period of four consecutive fiscal
quarters ending on the last day of each fiscal quarter commencing
with the quarter ending December 31, 2000."
1.12. Amendment of Section 10.9. Section 10.9 of the Note Agreement is
amended to read in its entirety as follows:
"10.9. Fixed Charge Ratio.
The Company will not at any time permit the ratio of (i)
EBITDA plus one-third of Consolidated Rental Expense to (ii) Consolidated
Fixed Charges to be less than:
(a) 2.0 to 1.0 for the period of two consecutive fiscal
quarters ending December 31, 1999;
(b) 2.25 to 1.0 for the period of three consecutive fiscal
quarters ending March 31, 2000;
(c) 2.25 to 1.0 for the period of four consecutive fiscal
quarters ending June 30, 2000;
(d) 2.5 to 1.0 for the period of four consecutive fiscal
quarters ending September 30, 2000; and
(e) 2.5 to 1.0 for each period of four consecutive fiscal
quarters ending on the last day of each fiscal quarter commencing
with the quarter ending December 31, 2000."
6
<PAGE>
1.13. Amendment of Section 10.10. Section 10.10 of the Note Agreement is
amended to read in its entirety as follows:
"10.10. Consolidated Net Worth.
The Company will not permit Consolidated Net Worth at the end
of any fiscal quarter to be less than $40,000,000 plus the cumulative sum
of 50% of Consolidated Net Income (without reduction for any losses) for
each fiscal year ending after March 31, 1999."
1.14. Amendment of Section 10.11. The heading of Section 10.11 of the Note
Agreement is amended to read as follows:
"10.11. Restricted Payments; Restricted Investments."
1.15. Addition of Section 10.15. New Section 10.15 is added to the Note
Agreement to read as follows:
"10.15. Current Asset Coverage.
The Company will not at any time permit the ratio of
Consolidated Current Assets to the principal amount of Notes then
outstanding to be less than 1.0 to 1.0."
1.16. Addition of Section 10.16. New Section 10.16 is added to the Note
Agreement to read as follows:
"10.16. Amendment of New Credit Agreement.
The Company will not amend, modify or change the New Credit
Agreement in any way without the prior written consent of the Required
Holders, except that without such consent (i) waivers may be requested and
given thereunder, (ii) the rate of interest and amounts of fees payable
thereunder may be reduced and (iii) the financial covenants contained
therein may be relaxed."
1.17. Amendment of Section 11. Section 11(c) of the Note Agreement is
amended to read in its entirety as follows:
"(c) the Company defaults in the performance of or compliance with
(i) any term contained in Section 7.1(d) or Sections 10.1 through 10.16,
or (ii) any term contained in any Security Document and such default
continues beyond any period of grace provided therein."
1.18. Amendment of Section 22. New Section 22.7 is added to the Note
Agreement to read as follows:
7
<PAGE>
"22.7. Action in respect of Collateral.
Notwithstanding anything to the contrary in any Security
Document, the holders of the Notes agree to take action in respect of the
Collateral only with the consent or pursuant to the direction of the
Required Holders. Any proceeds received pursuant to the enforcement of the
Liens in favor of the holders by any holder of Notes shall be shared
ratably, net of expenses, with all holders of Notes. Each holder of Notes
agrees (i) that any action in respect of the Collateral shall be brought
in the name of all holders of Notes and (ii) to execute all documents
reasonably necessary to institute or pursue any such actions.
No holder of Notes shall have any liability to any other
holder of Notes or to the Company for actions it has taken, or omitted
from taking, in respect of the Collateral, except upon a finding of gross
negligence or willful misconduct on the part of such holder of Notes.
Failure of a holder to exercise any rights in respect of the Collateral
shall not constitute gross negligence or willful misconduct."
1.19. Amendment of Schedule B.
1.19.1. Schedule B of the Note Agreement is amended to include the
following defined terms:
"'Banks' means Banc of America Commercial Finance Corporation,
through its Commercial Funding Division, and any other institutions party
to the New Credit Agreement.
'Collateral' means (i) all assets of the Company subject to
the Lien created by the Security Documents and (ii) any assets of the
Company or any Subsidiary subsequently subjected to any Lien securing the
Notes pursuant to Section 5.2 of the Second Amendment.
'Consolidated Current Assets' means, as of any date, (a) cash
of the Company and its Subsidiaries on such date, plus (b) 85% of the sum
of accounts receivable and inventory of the Company and its Subsidiaries
on such date (each as determined in accordance with GAAP), less (c) the
principal amount of Indebtedness then outstanding under the New Credit
Agreement (excluding any amount allocated to fixed assets).
'PIK Percentage' is defined in Section 9.8.
'PIK Portion' is defined in Section 9.8.
'Secondary Notes' is defined in Section 9.8.
8
<PAGE>
'Second Amendment' means the Second Amendment and Consent to
Note Agreement dated as of December 7, 1999 between the Company and each
other institution named in the signature pages thereto.
'Security Documents' means the mortgages, deeds of trust,
security agreements, financing statements and any other agreements or
documents entered into by the Company or any Subsidiary creating Liens
securing the Notes and other obligations payable by the Company or any
Subsidiary pursuant to this Agreement."
1.19.2. The following definitions are amended to read in their
entirety as follows:
"'Consolidated Interest Expense' means, for any period, the
consolidated interest expense (including imputed interest on Capitalized
Lease Obligations, but excluding interest paid in the form of Secondary
Notes) of the Company and its Subsidiaries for such period determined in
accordance with GAAP.
'New Credit Agreement' means the Loan and Security Agreement
dated as of December 7, 1999 among the Company, Franklin Electronic
Publishers (Europe) Ltd., Franklin Electronic Publishers (Deutschland)
GmbH and the Banks, as it may hereafter be amended, modified or changed.
'Restricted Investments' means any Investment of the Company
and its Subsidiaries other than:
(a) property or assets to be used or consumed in the ordinary
course of business;
(b) current assets (as determined in accordance with GAAP)
arising from the sale of goods and services in the ordinary course
of business;
(c) Investments in Wholly-Owned Subsidiaries existing at the
time of effectiveness of the Second Amendment;
(d) Advances not exceeding $250,000 in the aggregate at any
time to officers and employees in the ordinary course of business;
(e) Investments in:
(i) commercial paper and loan participations maturing in
270 days or less from the date of issuance which at the
time of acquisition are rated in one of the top two rating
classifications by at least one credit rating agency of
recognized national standing;
9
<PAGE>
(ii) certificates of deposit or banker's acceptances
maturing within two years from the date of acquisition
issued by commercial banks (A) having capital, surplus and
undistributed profits (or their equivalent) of at least
$100,000,000, or (B) assets of at least $1,000,000,000,
and whose long-term debt is rated in one of the top two
rating classifications by at least one credit rating
agency of recognized national standing;
(iii) obligations maturing within two years from the date
of acquisition (A) of or fully guaranteed by the United
States of America or an agency thereof or (B) of a foreign
government of at least comparable credit quality;
(iv) repurchase agreements, having a term of not more than
90 days and fully collateralized with obligations of the
type described in clause (iii), with a bank satisfying the
requirements of clause (ii); and
(v) money market mutual funds primarily investing in
Investments described in foregoing clauses (i) through
(iv).
For purposes of this Agreement, an Investment shall be valued at the
lesser of (i) cost and (ii) the value at which such Investment is to be
shown on the books of the Company and its Subsidiaries in accordance with
GAAP."
1.20. Amendment of Exhibit 1. Exhibit 1 to the Note Agreement is amended
in the form attached as Exhibit 1 to this Second Amendment.
SECTION 2. REAFFIRMATION; REPRESENTATIONS AND WARRANTIES
2.1. Reaffirmation of Note Agreement. The Company reaffirms its agreement
to comply with each of the covenants, agreements and other provisions of the
Note Agreement and the Notes, including the additions and amendments of such
provisions effected by this Second Amendment.
2.2. Note Agreement. The Company represents and warrants that, subject to
the effectiveness of this Second Amendment, the representations and warranties
contained in the Note Agreement are true and correct as of the date hereof,
except for such changes, facts, transactions and occurrences that have arisen
since April 15, 1999 in the ordinary course of business and such other matters
as have been previously disclosed in writing by the Company to the Holders.
2.3. No Default or Event of Default. After giving effect to the
transactions contemplated hereby, there will exist no Default or Event of
Default.
2.4. Authorization. The execution, delivery and performance by the Company
of this Second Amendment have been duly authorized by all necessary corporate
and other action and
10
<PAGE>
do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. Each of the Note Agreement and this
Second Amendment constitutes the legal, valid and binding obligations of the
Company, enforceable against it in accordance with its respective terms, without
defense, counterclaim or offset.
SECTION 3. [RESERVED]
SECTION 4. EFFECTIVE DATE
This Second Amendment shall become effective as of the date set forth
above upon satisfaction of the following conditions:
4.1. Consent of Holders to Second Amendment. The Holders of 100% of the
aggregate principal amount of the Notes outstanding shall have executed
counterparts of this Second Amendment.
4.2. Consent of Holders to New Credit Agreement. The Holders of 100% of
the aggregate principal amount of the Notes outstanding shall have consented to
the form and substance of the New Credit Agreement, such consent to evidenced by
the execution by the Holders of this Second Amendment.
4.3. Prepayment. The Company shall have prepaid at least $10,000,000
principal amount of the Notes at 100% of such principal amount so prepaid, plus
accrued interest, which prepayment shall not require the Company to make any
additional payment, including, but not limited to, payment of the Make-Whole
Amount. Such prepayment shall be allocated in accordance with the provisions of
Section 8.3 of the Note Agreement. Notes evidencing the PIK Portion of the
accrued interest being paid pursuant to this Section 4.3 must be issued within
five Business Days of the effective date of this Second Amendment and failure by
the Company to issue and deliver such Notes shall constitute an Event of Default
under the Note Agreement.
4.4. Amendment Fee. Each Holder, whether or not such Holder executes this
Second Amendment, shall have received payment of an amendment fee equal to 0.25%
of the principal amount of the outstanding Notes held by such Holder prior to
the application of the prepayment described in Section 4.3.
4.5. Opinion of Company Counsel. The Holders shall have received an
opinion of counsel for the Company, in form and substance satisfactory to the
Holders and their special counsel, to the effect set forth in Section 2.4.
4.6. Expenses. The Company shall have paid all fees and expenses of
special counsel to the Holders.
4.7. Security Interest. The Holders shall have (i) received executed
Security Documents satisfactory to the Holders in a form such that the proper
filing thereof will create perfected Liens on the Collateral, junior only to the
Liens in favor of the Banks, and (ii) entered into an agreement with the Banks
for the subordination of the Liens in favor of the Holders to the Liens in favor
of the Banks.
11
<PAGE>
SECTION 5. MISCELLANEOUS
5.1. Filing and Recording Security Documents. The Company agrees to
provide such information, execute such documents and take such other actions
necessary for the Holders to effect the proper filing of the Security Documents
within seven Business Days following a request therefor by any Holder, and the
failure of the Company to do so shall constitute an Event of Default under the
Note Agreement.
5.2. Foreign Collateral. So long as the Holders request, prior to January
30, 2000, the Company to do the following, the Company agrees, and agrees to
cause its Subsidiaries, Franklin Electronic Publishers (Europe) Ltd. and
Franklin Electronic Publishers (Deutschland) GmbH, to, execute such security
documents and take such other steps as may be requested by the Holders to
further secure the Notes with a Lien on the assets of such Subsidiaries;
provided, that such Lien (a) only covers assets that are then subject to Liens
in favor of the Banks, (b) is junior to the Liens in favor of the Banks pursuant
to a subordination agreement in form and substance acceptable to the Banks and
the Holders, and (c) shall only be required to be granted to the extent that the
Holders and the Banks determine that such Liens can be granted without
significant risk of Material liability to the Company or any of its Subsidiaries
or any liability to the Banks. Failure by the Company to comply with this
Section 5.2 shall constitute an Event of Default under the Note Agreement.
5.3. Ratification. Except to the extent amended, modified, deleted or
added to hereby, the terms and provisions of the Note Agreement, including the
representations and warranties contained therein, shall remain in full force and
effect and are ratified, confirmed, remade and approved in all respects as of
the date hereof.
5.4. Reference to and Effect on the Note Agreement and the Notes. Upon the
final effectiveness of this Second Amendment, (a) each reference in the Note
Agreement and in other documents describing or referencing the Note Agreement to
the "Agreement," "Note Agreement," "hereunder," "hereof," "herein," or words of
like import referring to the Note Agreement, shall mean and be a reference to
the Note Agreement, as amended hereby and (b) each reference to a "Note" or
"Notes" shall mean and include any or all Notes and any or all Secondary Notes.
5.5. Binding Effect. This Second Amendment shall be binding upon and inure
to the benefit of the respective successors and assigns of the parties hereto.
5.6. Governing Law. This Second Amendment shall be governed by and
construed in accordance with New York law.
5.7. Counterparts. This Second Amendment may be executed in any number of
counterparts, each executed counterpart constituting an original, but altogether
only one instrument.
5.8. Exchange of Notes. It shall not be necessary for the Holders to
surrender their Notes in exchange for new Notes. However, upon any surrender for
exchange or transfer, Notes issued in exchange or in connection with a transfer
shall be in the form of the attached Exhibit 1.
12
<PAGE>
5.9. Waiver. The Holders waive through the date of this Second Amendment
any Default or Event of Default under the Note Agreement resulting from the
Company's failure to comply with the provisions of Sections 10.8 (Interest
Coverage), 10.9 (Fixed Charge Ratio) and 10.10 (Consolidated Net Worth) of the
Note Agreement from the period beginning April 1, 1999 and ending September 30,
1999. This waiver is limited to its terms and shall not constitute a waiver of
any other term, condition, representation or covenant under the Note Agreement
or any of the other agreements, documents or instruments executed and delivered
in connection therewith.
13
<PAGE>
If you are in agreement with the foregoing, please sign the accompanying
counterpart of this Second Amendment and return it to the Company, whereupon the
foregoing shall become a binding agreement between you and the Company upon
satisfaction of the conditions set forth in Section 4 of this Second Amendment.
FRANKLIN ELECTRONIC PUBLISHERS,
INCORPORATED
By:_____________________________________
Name:___________________________________
Title:__________________________________
The foregoing is hereby agreed
to as of the date thereof.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_______________________________
ALEXANDER HAMILTON LIFE
INSURANCE COMPANY OF AMERICA
By:__________________________________
Name:________________________________
Title:_______________________________
PACIFIC LIFE INSURANCE COMPANY
By:__________________________________
Name:________________________________
Title:_______________________________
By:__________________________________
Name:________________________________
Title:_______________________________
S-1
<PAGE>
SCHEDULE I
Information as to Holders of Notes
Outstanding Principal
Name of Holder Amount of Notes
- -------------- ---------------
The Northwestern Mutual Life Insurance Company $13,200,000
Alexander Hamilton Life Insurance Company of America 6,000,000
Pacific Life Insurance Company 4,800,000
-----------
$24,000,000
Schedule I
<PAGE>
EXHIBIT 1
[FORM OF NOTE]
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
SENIOR SECURED NOTE DUE MARCH 31, 2006
No. [_____] [Date]
$_________ PPN ___________
FOR VALUE RECEIVED, the undersigned, FRANKLIN ELECTRONIC PUBLISHERS,
INCORPORATED (herein called the "Company"), a corporation organized and existing
under the laws of the State of Pennsylvania, hereby promises to pay to [name of
purchaser] or registered assigns, the principal sum of _______________ DOLLARS
on March 31, 2006, with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of 13% per
annum (or such lesser applicable rate as specified in the Note Purchase
Agreement referred to below), from the date hereof, payable semiannually, on
March 31 and September 30 of each year, commencing with the March 31 or
September 30 next succeeding the date hereof, until the principal hereof shall
have become due and payable and (b) to the extent permitted by law on any
overdue payment (including any overdue prepayment) of principal, any overdue
payment of interest and any overdue payment of any Make-Whole Amount and
Modified Make-Whole Amount (as defined in the Note Purchase Agreements), payable
semiannually as aforesaid (or, at the option of the registered holder hereof, on
demand), at a rate per annum from time to time equal to the greater of (i) 2%
over the then applicable rate or (ii) 2% over the rate of interest publicly
announced by The Chase Manhattan Bank from time to time in New York City as its
"base" or "prime" rate.
Except as hereinafter provided, payments of principal of, interest
on and any Make-Whole Amount or Modified Make Whole Amount with respect to this
Note are to be made in lawful money of the United States of America at the
principal office of the Company in Burlington, New Jersey or at such other place
as the Company shall have designated by written notice to the holder of this
Note as provided in the Note Purchase Agreements referred to below. As provided
in the Note Purchase Agreement, on each interest payment date the Company shall
pay (i) interest in cash on this Note at the rate of 11% per annum and (ii)
additional interest at a rate of 2% per annum, or such lesser applicable rate as
specified in the Note Purchase Agreement (the "PIK Percentage"), in cash or, in
lieu of cash and at the Company's option (other than the interest payment date
that is the date of maturity of this Note), through the issuance of additional
Notes ("Secondary Notes") in an aggregate principal amount equal to the amount
of interest (rounded to the nearest whole cent) that would be payable with
respect to such Note if such
Exhibit 1
<PAGE>
interest (the "PIK Portion") were paid in cash; provided that the Company shall
pay cash in lieu of issuing Secondary Notes in any denominations of less than
$1,000 (determined for each holder of Notes with respect to the aggregate
principal amount of Notes held by such holder as shown in the note register of
the Company). On each interest payment date on which the Company elects to pay
the PIK Portion through the issuance of Secondary Notes, the Company shall issue
and deliver Secondary Notes to the holder, in the aggregate principal amount
required to pay such PIK Portion, together with cash in the amount necessary to
pay the portion of the interest due on such interest payment date that is
payable in cash. Each Secondary Note shall mature on March 31, 2006, shall be
governed by, and subject to, the terms, provisions and conditions of the Note
Purchase Agreements, and shall bear interest from and after such date in the
same manner as, and have the same rights and benefits as, this Note. Any
Secondary Notes shall be in substantially the form of this Note but shall be
issued with the designation "PIK" on its face. The Company shall pay any
interest payable on or after the date of maturity of any Note solely in cash.
This Note is one of a series of Senior Secured Notes (herein called
the "Notes") issued pursuant to separate Note Purchase Agreements, dated as of
March 27, 1997 (as from time to time amended, the "Note Purchase Agreements"),
between the Company and the respective Purchasers named therein and is entitled
to the benefits thereof. Each holder of this Note will be deemed, by its
acceptance hereof, (i) to have agreed to the confidentiality provisions set
forth in Section 20 of the Note Purchase Agreements and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreements. The
rights of the holder of this Note in the Collateral securing this Note may be
subject to one or more lien subordination agreements with Banc of America
Commercial Finance Corporation, acting through its Commercial Funding Division.
This Note is a registered Note and, as provided in the Note Purchase
Agreements, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
The Company will make required prepayments of principal on the dates
and in the amounts specified in the Note Purchase Agreements. This Note is also
subject to optional prepayment, in whole or from time to time in part, at the
times and on the terms specified in the Note Purchase Agreements, but not
otherwise.
If an Event of Default, as defined in the Note Purchase Agreements,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount and Modified Make-Whole Amount) and with the effect
provided in the Note Purchase Agreements.
2
Exhibit 1
<PAGE>
This Agreement shall be construed and enforced in accordance with,
and the rights of parties shall be governed by, the law of the State of New York
excluding choice-of-law principles of such State that would require the
application of the laws of a jurisdiction other than such State.
FRANKLIN ELECTRONIC PUBLISHERS,
INCORPORATED
By: ______________________________
Name: ______________________________
Title:______________________________
3
Exhibit 1
