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UNITED STATES
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): November 17, 1998
COMPUTONE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-16172 23-2472952
- ------------------ ----------- ------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1060 Windward Ridge Parkway, Suite 100, Alpharetta, GA 30005
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(Address of principal executive offices)
Registrant's telephone number, including area code: (770) 625-0000
N/A
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(Former name or former address, if changed since last report)
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Item 5. Other Events.
On November 19, 1998, the Registrant obtained funding under a line of
credit with Emergent Business Capital Asset Based Lending, Inc. ("Emergent")
providing for borrowings up to $1,650,000 and $150,000 based on levels of
eligible accounts receivable and inventory, respectively. The borrowings are
made pursuant to the terms and conditions of a Loan and Security Agreement dated
November 17, 1998 between the Registrant and Emergent, a copy of which is filed
as Exhibit 10.88 hereto. Reference is made to the Loan and Security Agreement
for further information regarding terms and conditions of the Registrant's
borrowings thereunder. The line of credit bears interest at a rate of prime
plus 2%. On November 17, 1998, approximately $1,025,000 was available under the
Loan and Security agreement. Borrowings are collateralized principally by
accounts receivable, inventory and equipment owned by the Registrant. Concurrent
with this funding, the Registrant paid in full its outstanding indebtedness to
Heller Financial, Inc. in the amount of approximately $370,000. Funds available
under this line of credit will be used primarily for working capital purposes
and for product development expenses.
Effective October 29, 1998, the Registrant engaged Keith H. Daniel, in a
consulting capacity, to serve as Acting Chief Financial Officer of the
Registrant for a term continuing until January 28, 1999. Mr. Daniel has been a
financial consultant since August 1998, was Chief Financial Officer for Space
Master International, Inc. from September 1996 to August 1998 and previously
held financial management positions with Sivaco Wire Group and Keystone
Consolidated Industries, Inc.
Item 7. Financial Statements and Exhibits.
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(a) Financial statements business required:
Not applicable
(b) ProForma financial information:
Not applicable.
(c) Exhibits:
Reference is made to the Exhibit Index contained on page 4 of
the Form 8-K Report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMPUTONE CORPORATION
Date: November 24, 1998
By: /s/ Keith H. Daniel
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Keith H. Daniel
Acting Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ------------------------------------------------------------
10.88 Loan and Security Agreement dated November 17, 1998 between
Computone Corporation and Emergent Business Capital Asset
Based Lending, Inc. and exhibits thereto.
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Exhibit 10.88
LOAN AND SECURITY AGREEMENT
BETWEEN
COMPUTONE CORPORATION ("DEBTOR")
ADDRESS: 1060 WINDWARD RIDGE PARKWAY, SUITE 100, ALPHARETTA, GA 30005
(Chief executive office if more than one place of business)
AND
Emergent Business Capital Asset Based Lending, Inc. ("Secured Party")
6100 Lake Forrest Drive, Suite 240, Atlanta, Georgia 30328
DATED : November 17, 1998
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TABLE OF CONTENTS
PAGE #
1. DEFINITIONS................................................ 6
1.1 Certain Specific Terms..................................... 6
1.2 Singular and Plurals....................................... 9
1.3 U.C.C. Definitions......................................... 10
1.4 Section References......................................... 10
2. ADVANCES................................................... 10
2.1 Requests for an Advance.................................... 10
2.2 Proceeds of an Advance..................................... 10
2.3 Establishment of Reserves.................................. 10
3. COLLATERAL AND INDEBTEDNESS SECURED........................ 10
3.1 Security Interest.......................................... 10
3.2 Other Collateral........................................... 11
3.3 Indebtedness Secured....................................... 11
4. CONDITIONS TO ADVANCES..................................... 11
4.1 Corporate Action........................................... 11
4.2 Corporate Documents........................................ 11
4.3 Opinions................................................... 11
4.4 Transaction Documents...................................... 11
4.5 Third Party Action......................................... 11
4.6 Assignment of Representations, Warranties and Indemnities.. 12
4.7 Other Matters.............................................. 12
5. REPRESENTATIONS AND WARRANTIES............................. 12
5.1 Corporate Existence........................................ 12
5.2 Corporate Capacity......................................... 12
5.3 Validity of Receivables.................................... 12
5.4 Inventory.................................................. 12
5.5 Title to Collateral........................................ 13
5.6 Notes Receivable........................................... 13
5.7 Equipment.................................................. 13
5.8 Place of Business.......................................... 13
5.9 Financial Condition........................................ 13
5.10 Taxes...................................................... 13
5.11 Litigation................................................. 13
5.12 ERISA Matters.............................................. 13
5.13 Environmental Matters...................................... 14
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5.14 Validity of Transaction Documents............................ 14
5.15 No Consent or Filing......................................... 14
5.16 No Violations................................................ 14
5.17 Trademarks and Patents....................................... 14
5.18 Contingent Liabilities....................................... 15
5.19 Solvency..................................................... 15
5.20 Compliance with Laws......................................... 15
5.21 Licenses, Permits, Etc....................................... 15
5.22 Margin Stock................................................. 15
5.23 Commissions.................................................. 15
5.24 Labor Contracts.............................................. 15
5.25 Consolidated Subsidiaries.................................... 15
5.26 Accuracy of Representations.................................. 15
5.27 Authorized Shares............................................ 15
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY........... 15
6.1 Receivable Schedule.......................................... 15
6.2 Invoices..................................................... 16
6.3 Aging Reports................................................ 16
6.4 Inventory Reports............................................ 16
6.5 Notes and Other Instruments.................................. 16
6.6 Chattel Paper................................................ 16
6.7 Other Documents.............................................. 16
7. COLLECTIONS.................................................. 16
7.1 Delivery of Proceeds to Secured Party........................ 16
7.2 Application of Proceeds...................................... 17
7.3 Debtor to Forward Schedules to Secured Party................. 17
8. PAYMENT OF PRINCIPAL, INTEREST, FEES AND COSTS AND EXPENSES.. 17
8.1 Promise to Pay Principal..................................... 17
8.2 Promise to Pay Interest...................................... 17
8.3 Promise to Pay Fees.......................................... 17
8.4 Promise to Pay Costs and Expenses............................ 17
8.5 Method of Payment of Principal, Interest, Fees,
and Costs and Expenses..................................... 18
8.6 Computation of Daily Outstanding Balance..................... 18
8.7 Account Stated............................................... 19
9. PROCEDURES AFTER SCHEDULING RECEIVABLES...................... 19
9.1 Returned Merchandise......................................... 19
9.2 Credits and Extensions....................................... 19
9.3 Returned Instruments......................................... 19
9.4 Debit Memoranda.............................................. 20
9.5 Notes Receivable............................................. 20
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10. AFFIRMATIVE COVENANTS.................................. 20
10.1 Financial Statements................................... 20
10.2 Government and Other Special Receivables............... 20
10.3 Terms of Sale.......................................... 20
10.4 Books and Records...................................... 21
10.5 Inventory in Possession of Third Parties............... 21
10.6 Examinations........................................... 21
10.7 Verification of Collateral............................. 21
10.8 Responsible Parties.................................... 21
10.9 Taxes.................................................. 21
10.10 Litigation............................................. 21
10.11 Insurance.............................................. 21
10.12 Good Standing; Business................................ 22
10.13 Net Working Capital; Consolidated Tangible Net Worth... 22
10.14 Pension Reports........................................ 22
10.15 Notice of Non-Compliance............................... 22
10.16 Compliance with Environmental Laws..................... 22
10.17 Defend Collateral...................................... 22
10.18 Use of Proceeds........................................ 22
10.19 Compliance with Laws................................... 23
10.20 Maintenance of Property................................ 23
10.21 Licenses, Permits, etc................................. 23
10.22 Trademarks and Patents................................. 23
10.23 ERISA.................................................. 23
10.24 Maintenance of Ownership............................... 23
10.25 Activities of Consolidated Subsidiaries................ 23
11. NEGATIVE COVENANTS..................................... 23
11.1 Location of Inventory, Equipment and Business Records.. 23
11.2 Borrowed Money......................................... 23
11.3 Security Interest and Other Encumbrances............... 23
11.4 Storing the Collateral................................. 23
11.5 Use of Collateral...................................... 24
11.6 Mergers, Consolidations, or Sales...................... 24
11.7 Capital Stock.......................................... 24
11.8 Dividends or Distributions............................. 24
11.9 Investments and Advances............................... 24
11.10 Guaranties............................................. 24
11.11 Leases................................................. 24
11.12 Capital Expenditures................................... 24
11.13 Compensation........................................... 24
11.14 Name Change............................................ 24
11.15 Disposition of Collateral.............................. 24
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12. EVENTS OF DEFAULT...................................... 25
12.1 Events of Default...................................... 25
12.2 Effects of an Event of Default......................... 26
13. SECURED PARTY'S RIGHTS AND REMEDIES.................... 26
13.1 Generally.............................................. 26
13.2 Notification of Account Debtors........................ 27
13.3 Possession of Collateral............................... 27
13.4 Collection of Receivables.............................. 27
13.5 Indorsement of Checks, Debtor's Mail................... 27
13.6 Registered Holder of Collateral........................ 27
13.7 Income from and Interest on Instruments................ 27
13.8 Increases, Profits, Payments or Distributions.......... 27
14. MISCELLANEOUS........................................... 28
14.1 Perfecting the Security Interest; Protecting
the Collateral....................................... 28
14.2 Performance of the Debtor's Duties..................... 28
14.3 Notice of Sale......................................... 28
14.4 Waiver by Secured Party................................ 28
14.5 Waiver by Debtor....................................... 28
14.6 Setoff................................................. 28
14.7 Assignment............................................. 29
14.8 Successors and Assigns................................. 29
14.9 Modification........................................... 29
14.10 Counterparts........................................... 29
14.11 Generally Accepted Accounting Principles............... 29
14.12 Indemnification........................................ 29
14.13 Termination; Prepayment Premium........................ 30
14.14 Further Assurances..................................... 30
14.15 Headings............................................... 30
14.16 Cumulative Security Interest, Etc...................... 30
14.17 Secured Party's Duties................................. 30
14.18 Notices Generally...................................... 30
14.19 Severability........................................... 30
14.20 Inconsistent Provisions................................ 31
14.21 Entire Agreement....................................... 31
14.22 Applicable Law......................................... 31
14.23 Consent to Jurisdiction................................ 31
14.24 Jury Trial Waiver...................................... 31
14.25 Arbitration............................................ 31
Signoff of Document .................................. 32
SCHEDULE SCHEDULE TO THE LOAN AND SECURITY AGREEMENT............ 33-38
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Debtor and Secured Party agree as follows:
1. DEFINITIONS.
1.1 CERTAIN SPECIFIC TERMS. For purposes of this Agreement, the
following terms shall have the following meaning:
(a) ACCOUNT DEBTOR means the person, firm or entity obligated to pay
a Receivable.
(b) ADVANCE means a loan made to Debtor by Secured Party pursuant to
Agreement.
(c) BORROWING CAPACITY means, at the time of computation, the amount
specified in Item 1 of the Schedule.
(d) BUSINESS DAY means a day other than a Saturday, Sunday or other
day on which banks are authorized or required to close under the laws of
the State.
(e) COLLATERAL means collectively all of the property of Debtor
subject to the Security Interest and described in Sections 3.1 and 3.2.
(f) CONSOLIDATED SUBSIDIARY means any corporation of which at least
50% of the voting stock is owned by Debtor directly, or indirectly through
one or more Consolidated Subsidiaries. If Debtor has no Consolidated
Subsidiaries, the provisions of this Agreement relating to Consolidated
Subsidiaries shall be inapplicable without affecting the applicability of
such provisions to Debtor alone.
(g) CREDIT means any discount, allowance, credit, rebate, or
adjustment granted by Debtor with respect to a Receivable, other than a
cash discount described in Item 3 of the Schedule.
(h) DEBTOR means the person or entity so defined on the cover page
of this Agreement.
(i) ELIGIBLE INVENTORY means all Inventory of Debtor in which
Secured Party has a first priority perfected security interest reduced by
(i) the amount of any Inventory reserves required by Secured Party in its
sole discretion, (ii) any Inventory as to which a representation or
warranty contained in Section 5.4 or 5.5 is not, or does not continue to
be, true and accurate, and (iii) any Inventory which is otherwise
unacceptable to Secured Party it its sole discretion.
(j) ERISA means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
(k) EXTENSION means the granting to an Account Debtor of additional
time within which such Account Debtor is required to pay a Receivable.
(l) FEDERAL BANKRUPTCY CODE means Title ll of the United States
Code, entitled "Bankruptcy", as amended, or any successor federal
bankruptcy law.
(m) GENERAL INTANGIBLES means general intangibles as defined in the
Uniform Commercial Code as in effect in the State as of the date of
this Agreement, and in any event shall include, without limitation,
patents, trademarks, trade names, servicemarks, copyrights, trade
secrets, customer lists, computer programs, and computer records,
and all applications for, rights and business goodwill associated
with, license and royalty agreements with respect to, and causes of
action for infringement of, any of the foregoing.
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(n) INDEBTEDNESS means the indebtedness secured by the Security
Interest and described in Section 3.3.
(o) INELIGIBLE RECEIVABLES means the following described Receivables
and any other Receivables which, in the sole discretion of Secured Party,
are not satisfactory for credit or any other reason. Debtor acknowledges
that the following description of specific types of Ineligible Receivables
does not limit Secured Party's absolute discretion to deem other
Receivables to be Ineligible Receivables.
(i) Any Receivable which has remained unpaid for more than the
number of days specified in Item 4 of the Schedule.
(ii) Any Receivable which respect to which a representation or
warranty contained in Section 5.3, 5.5 or 5.6 is not, or does not
continue to be, true and accurate, including without limitation, any
Receivable subject to a setoff.
(iii) Any Receivable with respect to all or part of which a
check, promissory note, draft, trade acceptance, or other instrument
for the payment of money has been received, presented for payment,
and returned uncollected for any reason.
(iv) Any Receivable with respect to which Debtor has extended
the time for payment without the consent of Secured Party, except as
provided in Section 9.2 (a).
(v) Any Receivable as to which any one or more of the
following events occurs: a Responsible Party shall die or be
judicially declared incompetent; a request or petition for
liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, or other relief under the bankruptcy,
insolvency, or similar laws of the United States, any state or
territory thereof, or any foreign jurisdiction, now or hereafter in
effect shall be filed by or against a Responsible Party; a
Responsible Party shall make any general assignment for the benefit
of creditors; a receiver or trustee, including, without limitation,
a "custodian" as defined in the Federal Bankruptcy Code, shall be
appointed for a Responsible Party or for any of the assets of a
Responsible Party; any other type of insolvency proceeding with
respect to a Responsible Party (under the bankruptcy laws of the
United States or otherwise) or any formal or informal proceeding for
the dissolution or liquidation of, settlement of claims against, or
winding up of affairs of, a Responsible Party shall be instituted;
all or any material part of the assets of a Responsible Party shall
be sold, assigned, or transferred; a Responsible Party shall fail to
pay its debts as they become due; or a Responsible Party shall cease
doing business as a going concern.
(vi) All Receivables owed by an Account Debtor owing
Receivables classified as ineligible under any criterion set forth
in any of Sections 1.1(o)(i) through 1.1(o)(v) or in Section
1.1(o)(ix), if outstanding dollar amount of such Ineligible
Receivables constitutes a percentage of the aggregate outstanding
dollar amount of all Receivables owed by such Account Debtor equal
to or greater than the percentage specified in Item 5 of the
Schedule.
(vii) All Receivables owed by an Account Debtor which does not
maintain its chief executive office in the United States or which is
not organized under the laws of the United States or any state,
unless otherwise specified in Item 6 of the Schedule.
(viii) All receivables owed by an Account Debtor if Debtor or any
person who, or entity which, directly or indirectly controls Debtor,
either owns in whole or material part, or directly or indirectly
controls, such Account Debtor.
(ix) Any Receivable as to which the perfection, enforceability,
or validity of Secured Party's Security Interest in such receivable,
or Secured Party's right or ability to obtain direct payment to
Secured Party of the Proceeds of such Receivable, is governed by any
federal or state statutory requirements other than those of the
Uniform Commercial Code, including, without limitation, any
Receivable subject to the Federal Assignment of Claims Act of 1940,
as amended.
(x) Any Receivable arising from a consignment or other
arrangement pursuant to which the subject Inventory is returnable if
not sold or otherwise disposed of by the Account Debtor; any
Receivable constituting a partial billing under terms providing for
payment only after full shipment or performance; any Receivable
arising from a bill and hold sale or in connection with any
prebilling where the Inventory or services have not been delivered,
performed, or accepted by the Account Debtor; and any Receivable as
to which the Account Debtor contends the balance reported by Debtor
is incorrect or not owing.
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(xi) Any Receivable which is unenforceable against the Account
Debtor for any reason, including, without limitation, a failure to
file with the State of New Jersey a Notice of Business Activities
Report.
(xii) Any Receivable which is an Instrument, Document or Chattel
Paper or which is evidenced by a note, draft, trade acceptance, or
other instrument for the payment of money where such Instrument,
Document, Chattel Paper, note, draft, trade acceptance, or other
instrument has not been endorsed and delivered by Debtor to Secured
Party.
(xiii) Any Receivable or Receivables owed by an Account Debtor
which exceeds any credit limit established by Secured Party for such
Account Debtor; provided, that such Receivable or Receivables shall
be ineligible only to the extent of such excess.
(p) INTERNAL REVENUE CODE means the Internal Revenue Code of 1986,
as amended from time to time.
(q) INVENTORY means inventory as defined in the Uniform Commercial
Code as in effect in the State as of the date of this Agreement,
and in any event shall include returned or repossessed Goods.
(r) INVENTORY BORROWING BASE means, at the time of computation, an
amount not exceeding the percentages specified in Item 2 of the Schedule
of the dollar value of Eligible Inventory, such dollar value to be
calculated at the lower of actual cost or market value and accounted for
in the manner specified in Item 7 of the Schedule, less the amount of any
reserves established by Secured Party in accordance with Section 2.3.
(s) INVOICE means any document or documents used or to be used to
evidence a Receivable.
(t) PAYMENT ACCOUNT means the special bank account owned by Secured
Party to which proceeds of Collateral, including, without limitation,
payments on Receivables and other payments from sales or leases of
Inventory, are credited. There is a Payment Account if so indicated in
Item 8 of the Schedule.
(u) PENSION EVENT means, with respect to any Pension Plan, the
occurrence of (i) any prohibited transaction described in Section 406 of
ERISA or in Section 4975 of the Internal Revenue Code, (ii) any Reportable
Event, (iii) any complete or partial withdrawal or proposed complete or
partial withdrawal of Debtor or any Consolidated Subsidiary from such
Pension Plan, (iv) any complete or partial termination or proposed
complete or partial termination of such Pension Plan, or (v) any
accumulated funding deficiency (whether or not waived) as defined in
Section 302 of ERISA or in Section 412 of the Internal Revenue Code.
(v) PENSION PLAN means any pension plan as defined in Section 3(2)
of ERISA which is a multi-employer plan or a single employer plan as
defined in Section 4001 of ERISA and subject to Title IV of ERISA and
which is (i) a plan maintained by Debtor or any Consolidated Subsidiary
for employees or former employees of Debtor or of any Consolidated
Subsidiary, (ii) a plan to which Debtor or any Consolidated Subsidiary
contributes or is required to contribute, (iii) a plan to which Debtor or
any Consolidated Subsidiary was required to make contributions at any time
during the five (5) calendar years preceding the date of this Agreement,
or (iv) any other plan with respect to which Debtor or any Consolidated
Subsidiary has incurred or may incur liability, including, without
limitation, contingent liability, under Title IV of ERISA either to such
plan or to the Pension Benefit Guaranty Corporation. For purposes of this
definition and for purposes of Sections 1.1(u), 5.12, and 12.1(h), Debtor
shall include any trade or business (whether or not incorporated) which,
together with Debtor or any Consolidated Subsidiary, is deemed to be a
"single employer" within the meaning of Section 4001(b)(1) of ERISA.
(w) PRIME RATE means the rate of interest publicly announced by the
bank or financial institution specified in Item 39 of the Schedule from
time to time as its prime rate and is a base rate for calculating interest
on certain loans. The rate announced by the bank or financial institution
specified in Item 39 of the Schedule as its prime rate may or may not be
the most favorable rate charged by the referenced bank or financial
institution to its customers.
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(x) RECEIVABLE means the right to payment for Goods sold or leased
or services rendered by Debtor, whether or not earned by performance, and
may, without limitation, in whole or in part be in the form of an Account,
Chattel Paper, Document, or Instrument.
(y) RECEIVABLE BORROWING BASE means, at the time of its
computation, the aggregate amount of the outstanding Receivables in which
Secured Party has a first priority perfected security interest (adjusted
with respect to Credits and returned merchandise as provided in Article 9
hereof) less the amount of Ineligible Receivables and any reserves
established by Secured Party in accordance with Section 2.3.
(z) REPORTABLE EVENT means any event with regard to a Pension Plan
described in Section 4043(b) of ERISA or in regulations issued thereunder.
(aa) RESPONSIBLE PARTY means an Account Debtor, a general partner of
an Account Debtor, or any party otherwise in any way directly or
indirectly liable for the payment of a Receivable.
(bb) SCHEDULE means the schedule executed in connection with, and
which is a part of, this Agreement.
(cc) SECURED PARTY means the person or entity so defined on the
cover page of this Agreement and any successors or assigns of Secured
Party.
(dd) SECURITY INTEREST means the security interest granted to
Secured Party by Debtor as described in Section 3.1 of this Agreement.
(ee) SOLVENT means, with respect to any person or entity on a
particular determination date, that on such date (i) the fair value of the
property of such person or entity is greater than the total amount of
debts and other liabilities, including, without limitation, contingent and
unliquidated liabilities, of such person or entity, (ii) the present fair
salable value of the assets of such person or entity is greater than the
amount that will be required to pay the probable liability of such person
or entity on its existing debts and other liabilities as they become
absolute and matured, (iii) such person or entity is able to realize upon
its assets and pay its debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business,
(iv) such person or entity does not intend to, and does not believe that
it will, incur debts or other liabilities beyond such person's or entity's
ability to pay as such debts and other liabilities mature or become due,
and (v) such person or entity is not engaged in a business or a
transaction, for which such person's or entity's property would constitute
unreasonably small capital.
(ff) STATE means the State of the United States specified in Item 34
of the Schedule.
(gg) THIRD PARTY means any person or entity who has executed and
delivered, or who in the future may execute and deliver, to Secured Party
any agreement, instrument, or document pursuant to which such person or
entity has guarantied to Secured Party the payment of the Indebtedness or
has granted Secured Party a security interest in or lien on some or all of
such person's or entity's real or personal property to secure the payment
of the Indebtedness.
(hh) TRANSACTION DOCUMENTS means this Agreement and all documents
including, without limitation, collateral documents, letter of credit
agreements, security agreements, pledges, guaranties, mortgages, title
insurance, assignments and subordination agreements required to be
executed by Debtor, any Third Party or any Responsible Party pursuant
hereto or in connection herewith.
1.2 SINGULAR AND PLURALS. Unless the context otherwise requires, words
in the singular number include the plural,
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and in the plural include the singular.
1.3 U.C.C. DEFINITIONS. Unless otherwise defined in Section 1.1 or
elsewhere in this Agreement, capitalized words shall have the meaning set
forth in the Uniform Commercial Code as in effect in the State as of the
date of this Agreement.
1.4 SECTION REFERENCES. Unless otherwise specified, article, section,
subsection and schedule references are to this Agreement.
2. ADVANCES
2.1 REQUESTS FOR AN ADVANCE.
(a) Written Requests. From time to time, Debtor may make a written
request for an Advance, so long as the sum of the aggregate principal
balance of outstanding Advances and the requested Advance does not exceed
the Borrowing Capacity as then computed; and Secured Party shall make such
requested Advance, provided that (i) the Borrowing Capacity would not be
so exceeded, (ii) there has not occurred an Event of Default or an event
which, with notice or lapse of time or both, would constitute an Event of
Default, (iii) all representations and warranties contained in this
Agreement and in the other Transaction Documents are true and correct on
the date such requested Advance is made as though made on and as of such
date, and (iv) all of the conditions in Article 4 have been satisfied.
Notwithstanding any other provision of this Agreement, Secured Party may
from time to time reduce the percentages applicable to the Receivables
Borrowing Base and the Inventory Borrowing Base as they relate to amounts
of the Borrowing Capacity if Secured Party determines in its sole
discretion that there has been a material change in circumstances related
to any or all Receivables or Inventory from those circumstances in
existence on or prior to the date of this Agreement.
(b) Oral Requests. Secured Party may make an Advance to Debtor
upon Debtor's oral request, subject to the same conditions applicable to a
written request set forth in subparagraph (a) above. Each oral request for
an Advance shall be conclusively presumed to be made by a person
authorized by Debtor to do so; and the making of the Advance to Debtor as
hereinafter provided shall conclusively establish Debtor's obligation to
repay the Advance.
2.2 PROCEEDS OF AN ADVANCE. Advances shall be made in the manner agreed
by Debtor and Secured Party in writing or, absent any such agreement, as
determined by Secured Party.
2.3 ESTABLISHMENT OF RESERVES. Secured Party may at any time and from
time to time in its sole discretion establish reserves against the
Receivables or the Inventory of Debtor. The amount of such reserves shall
be subtracted from the Receivables Borrowing Base or Inventory Borrowing
Base, as applicable, when calculating the amount of the Borrowing
Capacity.
3. COLLATERAL AND INDEBTEDNESS
3.1 SECURITY INTEREST. Debtor hereby grants to Secured Party a security
interest in and a lien on the following property of Debtor wherever
located and whether now owned or hereafter acquired:
(a) All Accounts, Inventory, General Intangibles, Chattel Paper,
Documents, and Instruments, whether or not specifically assigned to
Secured Party, including, without limitation, all Receivables and all
Equipment, whether or not affixed to realty, and fixtures.
(b) All guaranties, collateral, liens on or security interests in
real or personal property, leases, letters of credit, and other rights,
agreements, and property securing or relating to payment of Receivables.
(c) All books, records, ledger cards, data processing records,
computer software, and other property at any time evidencing or relating
to Collateral.
(d) All monies, securities, and other property now or hereafter
held or received by, or in transit to, Secured Party from or for Debtor,
and all of Debtor's deposit accounts, credits, and balances with Secured
Party existing at any time.
(e) All proceeds and products of all of the foregoing in any form
including, without limitation, amounts payable under any policies of
insurance insuring the foregoing against loss or damage, all parts,
accessories, attachments, special tools,
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additions, replacements, substitutions and accessions to or for all of the
foregoing and all increases and profits received from all of the
foregoing.
3.2 OTHER COLLATERAL. Nothing contained in this Agreement shall limit
the rights of Secured Party in and to any other Collateral securing the
Indebtedness which may have been or may hereafter be granted to Secured
Party by Debtor or any Third Party pursuant to any other agreement.
3.3 INDEBTEDNESS SECURED. The Security Interest secures payment of any
and all indebtedness, and performance of all obligations and agreements,
of Debtor to Secured Party, whether now existing or hereafter incurred or
arising, of every kind and character, primary or secondary, direct or
indirect, absolute or contingent, sole, joint or several, similar or
dissimilar or related or unrelated and whether such indebtedness is from
time to time reduced and thereafter increased, or entirely extinguished
and thereafter reincurred, including, without limitation: (a) all
Advances; (b) all interest which accrues on any such indebtedness, until
payment of such indebtedness in full, including, without limitation, all
interest provided for under this Agreement; (c) all other monies payable
by Debtor, and all obligations and agreements of Debtor to Secured Party,
pursuant to the Transaction Documents; (d) all debts owed or to be owed by
Debtor to others which Secured Party has obtained, or may obtain, by
assignment or otherwise; (e) all monies payable by any Third Party, and
all obligations and agreements of any Third Party to Secured Party,
pursuant to any of the Transaction Documents, and (f) all monies due and
to become due pursuant to Section 8.3.
4. CONDITIONS TO ADVANCES. Notwithstanding any other provision of this
Agreement or any of the other Transaction Documents, and without affecting in
any manner the rights of Secured Party under any other provision of this
Agreement, Secured Party shall not be obligated to make advances unless and
until the following conditions have been and continue to be satisfied.
4.1 CORPORATE ACTION. Debtor shall have taken all necessary and
appropriate corporate action and the Board of Directors of Debtor shall
have adopted resolutions authorizing, and the shareholders of Debtor (to
the extent required under Debtor's organizational documents or applicable
law) shall have consented to, this Agreement, and the borrowing hereunder,
the execution and delivery of the Transaction Documents and the taking of
all action required of Debtor by the Transaction Documents; and Debtor
shall have furnished to Secured Party certified copies of such corporate
resolutions and such other corporate documents as Secured Party shall
reasonable request.
4.2 CORPORATE DOCUMENTS. There shall have been furnished to Secured
Party (a) copies of the articles or certificate of incorporation and by-
laws of Debtor and each Consolidated Subsidiary, certified by its
Secretary as of the date of this Agreement; (b) a certificate of Debtor's
and each Consolidated Subsidiary's good standing or equivalent certificate
duly issued of recent date by the Secretary of State of the state
specified in Item 9 of the Schedule, and certificates of authority to do
business in each state in which Debtor is licensed or qualified to do
business; (c) a certificate of incumbency specifying the officers of
Debtor, together with their specimen signatures; and (d) such other and
further documents as Secured Party may reasonably request including,
without limitation, tax status reports covering payment of franchise taxes
and other taxes.
4.3 OPINIONS. Independent counsel for Debtor shall have furnished to
Secured Party their favorable opinion, in form and content satisfactory to
Secured Party and its counsel, dated the date of this Agreement, as to the
matters referred to in Sections 5.1, 5.2, 5.11, 5.12, 5.14, 5.15, 5.16,
5.20, 5.21 and 5.27, and such other matters as are requested by Secured
Party. If this Agreement is being executed and delivered in connection
with the acquisition of stock or assets by Debtor, Debtor shall also have
caused the seller of such stock or assets to furnish to Secured Party an
opinion of counsel for such seller or a letter authorizing Secured Party
to rely on such an opinion, in form and content satisfactory to Secured
Party and its counsel, dated the date of this Agreement.
4.4 TRANSACTION DOCUMENTS. Debtor shall have delivered to Secured Party
all the Transaction Documents, in form and content satisfactory to Secured
Party and its counsel.
4.5 THIRD PARTY ACTION. Each Third Party shall have (i) taken all
necessary and appropriate corporation and
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shareholder action and the Board of Directors of the Third Party shall
have adopted resolutions authorizing the execution and delivery of the
guaranty of such Third Party and the taking of all action called for
thereby, and (ii) furnished to Secured Party certified copies of evidence
of such corporate and shareholder action and such other corporate
documents as Secured Party shall reasonably request.
4.6 ASSIGNMENT OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES. If this
Agreement is being executed in conjunction with the acquisition of stock
or assets by Debtor pursuant to an acquisition agreement, Debtor shall
execute and deliver to Secured Party as continuing collateral security for
the payment of the Indebtedness an assignment, in form and content
satisfactory to Secured Party, of any and all representations, warranties
and indemnities made by the seller of such stock or assets to Debtor, and
such assignment shall be duly consented to by such seller.
4.7 OTHER MATTERS. All matters incidental to the execution and delivery
of the Transaction Documents and all action required by the Transaction
Documents, shall be satisfactory to Secured Party and to its counsel.
5. REPRESENTATIONS AND WARRANTIES. To induce Secured Party to enter into
this Agreement and make Advances to Debtor from time to time as herein provided,
Debtor represents and warrants and, so long as any Indebtedness remains unpaid
or this Agreement remains in effect, shall be deemed continuously to represent
and warrant as follows:
5.1 CORPORATE EXISTENCE. Debtor and each Consolidated Subsidiary is duly
organized and existing and in good standing under the laws of the state
specified in Item 9 of the Schedule and is duly licensed or qualified to
do business and in good standing in every state in which the nature of its
business or ownership of its property requires such licensing or
qualification.
5.2 CORPORATE CAPACITY. The execution, delivery, and performance of the
Transaction Documents are within Debtor's corporate powers, have been duly
authorized by all necessary and appropriate corporate and shareholder
action, and are not in contravention of any law or the terms of Debtor's
articles or certificate of incorporation or by-laws or any amendment
thereto, or of any indenture, agreement, undertaking, or other document to
which Debtor is a party or by which Debtor or any of Debtor's property is
bound or affected.
5.3 VALIDITY OF RECEIVABLES. (a) Each Receivable is genuine and
enforceable in accordance with its terms and represents an undisputed and
bona fide indebtedness owing to Debtor by the Account Debtor obligated
thereon; (b) there are no defenses, setoffs, or counterclaims against any
Receivable; (c) no payment has been received on any Receivable and no
Receivable is subject to any Credit or Extension or agreements therefor
unless written notice specifying such payment, Credit, Extension, or
agreement has been delivered to Secured Party; (d) each copy of each
Invoice is a true and genuine copy of the original Invoice sent to the
Account Debtor named therein and accurately evidences the transaction from
which the underlying Receivable arose; and the date payment is due as
stated on each such Invoice or computed based on the information set forth
on each such Invoice is correct; (e) all Chattel Paper and all promissory
notes, drafts, trade acceptances, and other instruments for the payment of
money relating to or evidencing each Receivable, and each indorsement
thereon, are true and genuine and in all respects what they purport to be,
and are the valid and binding obligation of all parties thereto; and the
date or dates stated on all such items as the date on which payment in
whole or in part is due is correct; (f) all Inventory described in each
Invoice has been delivered to the Account Debtor named in such Invoice or
placed for such delivery in the possession of a carrier not owned or
controlled directly or indirectly by Debtor; (g) all evidence of the
delivery or shipment of Inventory is true and genuine; (h) all services to
be performed by Debtor in connection with each Receivable has been
performed by Debtor; and (i) all evidence of the performance of such
services by Debtor is true and genuine.
5.4 INVENTORY. (a) All representations made by Debtor to Secured Party,
and all documents and schedules given by Debtor to Secured Party, relating
to the description, quantity, quality, condition, and valuation of the
Inventory are true and correct; (b) Debtor has not received any Inventory
on consignment or approval unless Debtor (i) has delivered written notice
to Secured Party describing any Inventory which Debtor has received on
consignment or approval, (ii) has marked such Inventory on consignment or
approval or has segregated it from all other Inventory, and (iii) has
appropriately marked its records to reflect the existence of such
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Inventory on consignment or approval; (c) Inventory is located only at the
address or addresses of Debtor set forth at the beginning of this
Agreement, the locations specified in Item 10 of the Schedule, or such
other place or places as approved by Secured Party in writing; and (d) all
Inventory is insured as required by Section 10.11 pursuant to policies in
full compliance with the requirements of such Section.
5.5 TITLE TO COLLATERAL. (a) Debtor is the owner of the Collateral free
of all security interests, liens, and other encumbrances except the
Security Interest and except as described in Item 11 of the Schedule; (b)
Debtor has the unconditional authority to grant the Security Interest to
Secured Party; and (c) assuming that all necessary Uniform Commercial Code
filings have been made, Secured Party has an enforceable first lien on all
Collateral, subordinate only to those security interests, liens, or
encumbrances described as having priority over the Security Interest in
Item 11 of the Schedule.
5.6 NOTES RECEIVABLE. No Receivable is an Instrument, Document or
Chattel Paper or is evidenced by any note, draft, trade acceptance, or
other instrument for the payment of money, except such Instrument,
Document, Chattel Paper, note draft, trade acceptance, or other instrument
as has been indorsed and delivered by Debtor to Secured Party.
5.7 EQUIPMENT. Equipment is located, and Equipment which is a Fixture is
affixed to real property, only at the address or addresses of Debtor set
forth at the beginning of this Agreement, the locations specified in Item
10 of the Schedule, or such other place or places as approved by Secured
Party in writing. Such real property is owned by Debtor or by the person
or persons named in Item 10 of the Schedule and is encumbered only by the
mortgage or mortgages listed in Item 10 of the Schedule.
5.8 PLACE OF BUSINESS. (a) Unless otherwise disclosed to Secured Party
in Item 10 or Item 12 of the Schedule, Debtor is engaged in business
operations which are in whole or in part carried on at the address or
addresses specified at the beginning of this Agreement and at no other
address or addresses; (b) if Debtor has more than one place of business,
its chief executive office is at the address specified as such at the
beginning of this Agreement; and (c) Debtor's records concerning the
Collateral are kept at the address or addresses specified at the beginning
of this Agreement or in Item 12 of the Schedule.
5.9 FINANCIAL CONDITION. Debtor has furnished to Secured Party Debtor's
most recent current financial statements, which statements represent
correctly and fairly the results of the operations and transactions or
Debtor and the Consolidated Subsidiaries as of the dates and for the
period referred to, and have been prepared in accordance with generally
accepted accounting principles consistently applied during each interval
involved and from interval to interval. Since the date of such financial
statements, there have not been any materially adverse changes in the
financial condition reflected in such financial statements, except as
disclosed in writing by Debtor to Secured Party.
5.10 TAXES. Except as disclosed in writing by Debtor to Secured Party:
(a) all federal and other tax returns required to be filed by Debtor and
each Consolidated subsidiary have been filed and all taxes required by
such returns have been paid; and (b) neither Debtor nor any Consolidated
Subsidiary has received any notice from the Internal Revenue Service or
any other taxing authority proposing additional taxes.
5.11 LITIGATION. Except as disclosed in writing by Debtor to Secured
Party, there are no actions, suits, proceedings, or investigations pending
or, to the knowledge of Debtor, threatened against Debtor or any
Consolidated Subsidiary or any basis therefor which, if adversely
determined, would, in any case or in the aggregate, materially adversely
affect the property, assets, financial condition, or business of Debtor or
any Consolidated Subsidiary or materially impair the right or ability of
Debtor or any Consolidated Subsidiary to carry on its operations
substantially as conducted on the date of this Agreement.
5.12 ERISA MATTERS. (a) No Pension Plan has been terminated or partially
terminated or is insolvent or in reorganization, nor have any proceedings
been instituted to terminate or reorganize any Pension Plan; (b) neither
Debtor nor any Consolidated Subsidiary has withdrawn, nor has a condition
occurred which if continued would result in a complete or partial
withdrawal; (c) neither Debtor nor any Consolidated Subsidiary has
incurred any withdrawal liability, including, without limitation,
contingent
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withdrawal liability, to any Pension Plan pursuant to Title IV of ERISA;
(d) neither Debtor nor any Consolidated Subsidiary has incurred any
liability to the Pension Benefit Guaranty Corporation other than for
required insurance premiums which have been paid when due; (e) no
Reportable Event has occurred; (f) no Pension Plan or other "employee
pension benefit plan" as defined in Section 3(2) of ERISA to which debtor
or any Consolidated subsidiary is a party has an "accumulated funding
deficiency" (whether or not waived) as defined in Section 302 of ERISA or
in Section 412 of the Internal Revenue Code; (g) the present value of all
benefits vested under any Pension Plan does not exceed the value of the
assets of such Pension Plan allocable to such vested benefits; (h) each
Pension Plan and each other "employee benefit plan" as defined in Section
3(3) of ERISA to which Debtor or any Consolidated Subsidiary is a party is
in substantial compliance with ERISA, and no such plan or any
administrator, trustee, or fiduciary thereof has engaged in a prohibited
transaction described in Section 406 of ERISA or in Section 4975 of the
Internal Revenue Code; (i) each Pension Plan and each other "employee
benefit plan" as defined in Section 3(2) of ERISA to which Debtor or any
Consolidated Subsidiary is a party has received a favorable determination
by the Internal Revenue Service with respect to qualification under
Section 401(a) of the Internal Revenue Code; and (j) neither Debtor nor
any Consolidated Subsidiary has incurred any liability to a trustee or
trust established pursuant to Section 4049 of ERISA or to a trustee
appointed pursuant to Section 4042(b) or (c) of ERISA.
5.13 ENVIRONMENTAL MATTERS. (a) Debtor and each Consolidated Subsidiary
have performed all of their respective obligations under, have obtained
all necessary approvals, permits, authorizations, and other consents
required by, and to the best of their knowledge, are not in material
violation of, any applicable state or federal health or environmental law,
ordinance, rule, regulation, or order; and (b) neither Debtor nor any
Consolidated Subsidiary has received any notice or request from any
governmental agency, other entity, or person for information, nor has
Debtor or any Consolidated Subsidiary provided any notice or information
to any such agency, entity, or person, concerning the presence or release
of hazardous substances, wastes, or other materials (as such terms are
defined by any applicable federal, state, or local law) within, on, from,
related to, or affecting any real property owned or occupied by Debtor or
any Consolidated Subsidiary.
5.14 VALIDITY OF TRANSACTION DOCUMENTS. The Transaction Documents
constitute the legal, valid and binding obligations of Debtor and each
Consolidated Subsidiary and any Third Parties thereto, enforceable in
accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy and insolvency laws and laws affecting
creditors' rights generally.
5.15 NO CONSENT OR FILING. No consent, license, approval or
authorization of, or registration, declaration or filing with, any court,
governmental body or authority or other person or entity is required in
connection with valid execution, delivery or performance of the
Transaction Documents or for the conduct of Debtor's business as now
conducted, other than filings and recordings in connection with the
Transaction Documents.
5.16 NO VIOLATIONS. Neither Debtor nor any Consolidated Subsidiary is in
violation of any term of its articles or certificate of incorporation or
by-laws, or of any mortgage, borrowing agreement or other instrument of
agreement pertaining to indebtedness for borrowed money. Neither Debtor
nor any Consolidated Subsidiary is in violation of any term of any other
indenture, instrument, or agreement to which it is a party or by which it
or its property may be bound, resulting, or which might reasonably be
expected to result, in a material and adverse effect upon its business or
assets. Neither Debtor nor any Consolidated Subsidiary is in violation of
any order, writ, judgement, injunction or decree of any court of competent
jurisdiction or of any statute, rule or regulation of any governmental
authority. The execution and delivery of the Transaction Documents and the
performance of all of the same is and will be in compliance with the
foregoing and will not result in any violation thereof or result in the
creation of any mortgage, lien, security interest, charge or encumbrance
upon any properties or assets except in favor of Secured Party. There
exists no fact or circumstance (whether or not disclosed in the
Transaction Documents) which materially adversely affects or in the future
(so far as Debtor can now foresee) may materially adversely affect the
condition, business or operations of Debtor or any Consolidated
Subsidiary.
5.17 TRADEMARKS AND PATENTS. Debtor and each Consolidated Subsidiary
possesses all trademarks, trademark rights, patents, patents rights,
licenses, permits, tradenames, tradename rights, copyrights, and approvals
that are required to conduct its business as now conducted without
conflict with the rights of others. A list of the foregoing is set forth
in Item 13 of the Schedule.
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5.18 CONTINGENT LIABILITIES. There are no suretyship agreements,
guaranties, or other contingent liabilities of Debtor or any Consolidated
Subsidiary which are not disclosed by the financial statements described
in Section 5.9 or Item 29 of the Schedule.
5.19 SOLVENCY. Debtor individually is, and Debtor and the Consolidated
Subsidiaries taken as a whole are, and during the term of this Agreement,
Debtor individually, and Debtor and the Consolidated Subsidiaries taken as
a whole, will be at all times, Solvent, both before and after giving
effect to the transactions contemplated by the Transaction Documents and
any acquisition of stock or assets occurring in conjunction with or
related to the Transaction Documents.
5.20 COMPLIANCE WITH LAWS. Debtor is in compliance with all applicable
material laws, rules, regulations, and other legal requirements with
respect to its business and the use, maintenance, and operations of the
real and personal property owned or leased by it in the conduct of its
business.
5.21 LICENSES, PERMITS, ETC. Each franchise, grant, authorization,
license, permit, easement, consent, certificate and order of Debtor and
each Consolidated Subsidiary is in full force and effect.
5.22 MARGIN STOCK. Neither Debtor's execution and delivery of any of the
Transaction Documents not the borrowing by Debtor of any sums pursuant
thereto violates Section 7 of the Securities Exchange Act of 1934, as
amended, or any rule or regulation thereunder, and Debtor neither owns nor
intends to purchase or carry any "margin stock" except as set forth in
Item 14 of the Schedule.
5.23 COMMISSIONS. No brokerage commission, finders fee, or investment
banking fees are payable by Debtor to any person or entity in connection
with the Transaction Documents or the transaction contemplated thereby.
5.24 LABOR CONTRACTS. Neither Debtor nor any Consolidated Subsidiary is
a party to any collective bargaining agreement or to any existing or
threatened labor dispute or controversies except as set forth in Item 15
of the Schedule.
5.25 CONSOLIDATED SUBSIDIARIES. Debtor has no Consolidated Subsidiaries
other than those listed in Item 36 of the Schedule and the percentage
ownership of Debtor in each such Consolidated Subsidiary is specified in
such Item 36.
5.26 ACCURACY OF REPRESENTATIONS. No representation, warranty or
statement by Debtor or any Third Party contained herein or in any
certificate, financial statement or other document furnished by Debtor or
any Third Party pursuant hereto or in connection herewith fails to contain
any statement of material fact necessary to make such representation or
warranty not misleading in light of the circumstances under which it is
made. There is no fact which Debtor knows or should know and has not
disclosed to Secured Party which does or may materially or adversely
affect Borrower, any Consolidated Subsidiary, or any Third Party, or any
of their respective operations.
5.27 AUTHORIZED SHARES. Debtor's total authorized common shares, the par
value of such shares, and the number of such shares issued and
outstanding, are set forth in Item 16 of the Schedule. All of such shares
are of one class and have been validly issued in full compliance with all
applicable federal and state laws, and are fully paid and non-assessable.
No other shares of the Debtor of any class or type are authorized or
outstanding.
6. CERTAIN DOCUMENTS TO BE DELIVERED TO SECURED PARTY.
6.1 RECEIVABLE SCHEDULE. Debtor shall deliver to Secured Party, daily or
at such other intervals as may be specified in Item 17 of the Schedule, a
schedule in form and content satisfactory to Secured Party describing the
Invoices issued by Debtor since the last schedule submitted to Secured
Party. The schedules to be provided under this Section 6.1 are solely for
the convenience of Secured Party in administering this Agreement and
maintaining records of the Collateral. Debtor's failure to provide Secured
Party
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with any such schedule shall not affect the Security Interest.
6.2 INVOICES. Debtor shall cause all of its Invoices, including the
copies thereof, to be printed and to bear consecutive numbers and shall
prepare and issue its Invoices in such consecutive numerical order. If
requested by Secured Party, all copies of Invoices not previously
delivered to Secured Party shall be delivered to Secured Party with each
schedule of receivables. Copies of all Invoices which are voided or
canceled or which for any reason do not evidence a Receivable shall be
included in such delivery. If any Invoice or copy thereof is lost,
destroyed, or otherwise unavailable, Debtor shall account in writing, in
form satisfactory to Secured Party, for each missing Invoice.
6.3 AGING REPORTS. Within ten (10) calendar days after the end of each
month or on such other more frequent basis as may be required by Secured
Party from time to time, Debtor shall submit to Secured Party an aging
report in form satisfactory to Secured Party showing the amounts due and
owing on all Receivables according to Debtor's records as of the close of
such month or shorter period as may be required by Secured Party from time
to time, together with such other information as Secured Party may
require. If Debtor's aging reports are prepared by an accounting service
or other agent, Debtor hereby authorizes such service or agent to deliver
such aging reports and any other related documents to Secured Party.
6.4 INVENTORY REPORTS. Debtor shall furnish to Secured Party at the
intervals specified in Item 17 of the Schedule, the following reports in
form satisfactory to Secured Party, if such reports are required by
Secured Party as specified in Item 17 of the Schedule:
(a) An inventory value report describing all Inventory by value
based on the lower of cost or market value;
(b) A periodic summary report listing all Inventory by nature,
quantity and location, together with such other information as Secured
Party may require; and
(c) A dispute report describing any dispute with any processor of
Inventory or other person or entity in possession of any Inventory.
6.5 NOTES OR OTHER INSTRUMENTS. Each note, draft, trade acceptance, or
other instrument for the payment of money evidencing a Receivable shall be
delivered to Secured Party with the schedule listing the Receivable which
it evidences and shall be indorsed by Debtor to the order of Secured
Party.
6.6 CHATTEL PAPER. The original of each item of Chattel Paper evidencing
a Receivable shall be delivered to Secured Party with the schedule listing
the Receivable which it evidences, together with an assignment in form and
content satisfactory to Secured Party of such Chattel Paper by Debtor to
the Secured Party.
6.7 OTHER DOCUMENTS. Debtor shall deliver to Secured Party all documents
specified in Item 17 of the Schedule, as frequently as indicated therein
or at such other times as Secured Party may request, and all other
documents and information requested by Secured Party.
7. COLLECTIONS.
7.1 DELIVERY OF PROCEEDS TO SECURED PARTY. Unless Secured Party notifies
Debtor that it specifically dispenses with one or more of the following
requirements, any Proceeds of Collateral received by Debtor, including,
without limitation, payments on Receivables and other payments from sales
or leases of Inventory, shall be held by Debtor in trust for Secured Party
in the same medium in which received, shall not be commingled with assets
of Debtor, and shall be delivered immediately to Secured Party. So long as
Secured Party elects to keep the Payment Account in existence, Debtor
shall deposit Proceeds of Collateral into the Payment Account and shall,
on the day of each such deposit, forward to Secured Party a copy of the
deposit receipt of the depository bank indicating that such deposit has
been made.
7.2 APPLICATION OF PROCEEDS. Upon receipt of Proceeds of Collateral,
Secured Party, in its sole discretion, may apply
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such Proceeds directly to the Indebtedness in the manner provided in
Section 8.5. Checks drawn on the Payment Account and all or any part of
the balance of the Payment Account may be applied from time to time to the
Indebtedness in the manner provided in Section 8.5.
7.3 DEBTOR TO FORWARD SCHEDULES TO SECURED PARTY. Whenever Debtor
delivers payments on Receivables and other payments from sales or leases
of Inventory to Secured Party, whether directly or indirectly by deposit
to the Payment Account, such payments shall be accompanied by a schedule
in form satisfactory to Secured Party consisting of a copy of Debtor's
cash receipt journal covering such payments, certified to be correct by an
authorized officer of Debtor. Individual cash receipt journals shall be
segregated by the months in which payments reflected thereon are received
by Debtor.
8. PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND EXPENSES.
8.1 PROMISE TO PAY PRINCIPAL. Debtor promises to pay to Secured Party
the principal of Advances as follows:
(a) Borrowing Capacity Exceeded. Whenever the outstanding
principal balance of Advances exceeds the Borrowing Capacity, Debtor shall
immediately pay to Secured Party the excess of the outstanding principal
balance of Advances over the Borrowing Capacity.
(b) Payment in Full on Termination or Acceleration. Forthwith upon
termination of this Agreement pursuant to Section 14.13 or acceleration of
the time for payment of the Indebtedness pursuant to Section 12.2, Debtor
shall pay to Secured Party the entire outstanding principal balance of
Advances.
8.2 PROMISE TO PAY INTEREST. Debtor promises to pay to Secured Party, on
the first day of each month in arrears, on termination of this Agreement
pursuant to Section 14.13, on acceleration of the time for payment of the
Indebtedness pursuant to Section 12.2 and on the date the Indebtedness is
paid in full, interest on the principal of Advances from time to time
unpaid at the fluctuating per annum rate specified in Item 18 of the
Schedule. Any change in the interest rate resulting from a change in the
Prime Rate shall take effect simultaneously with such change in the Prime
Rate. Interest shall be computed on the daily unpaid principal balance of
Advances. Interest shall be calculated for each calendar day at 1/360th of
the applicable per annum rate which will result in any effective per annum
rate higher than that specified in Item 18 of the Schedule. From and after
the occurrence of an Event of Default and for so long as such Event of
Default shall continue, Debtor, as additional compensation to Secured
Party for its increased credit risk, and not as penalty, shall pay
interest at a per annum rate of 3% greater than the rate of interest
specified in the Schedule. In no event shall the rate of interest exceed
the maximum rate permitted by applicable law. If Debtor pays to Secured
Party interest in excess of the amount permitted by applicable law, such
excess shall be applied in reduction of the principal of Advances made
pursuant to this Agreement, and any remaining excess interest, after
application thereof to the principal of Advances, shall be refunded to
Debtor.
8.3 PROMISE TO PAY FEES. Debtor promises to pay to Secured Party any
fees specified in Item 19 of the Schedule on the applicable due dates also
specified in Item 19 of the Schedule.
8.4 PROMISE TO PAY COSTS AND EXPENSES.
(a) Debtor agrees to pay to Secured Party on demand, all costs and
expenses as provided in this Agreement, and all costs and expenses
incurred by Secured Party from time to time in connection with this
Agreement, including, without limitation those incurred in: (i) preparing,
negotiating, amending, waiving or granting consent with respect to the
terms of any and all of the Transaction Documents; (ii) enforcing the
Transaction Documents; (iii) performing, pursuant to Section 14.2,
Debtor's duties under the Transaction Documents upon Debtor's failure to
perform them; (iv) filing financing statements, assignments, or other
documents relating to the Collateral, (e.g., filing fees, recording taxes,
and documentary stamp taxes); (v) maintaining the Payment Account; (vi)
administering the Transaction Documents, but not ordinary general
administrative expenses; (vii) compromising, pursuing, or defending any
controversy, action, or proceeding resulting, directly or indirectly, from
Secured Party's relationship with Debtor, regardless of whether Debtor is
a party to such controversy, action, or proceeding occurs before or after
the Indebtedness has been paid in full; (viii) realizing upon or
protecting any Collateral; (ix) enforcing or collecting any Indebtedness
or guaranty thereof;
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(x) employing collection agencies or other agents to collect any or all of
the Receivables; (xi) examining Debtor's books and records or inspecting
the Collateral where such examinations or inspections must be conducted,
in Secured Party's sole discretion, more frequently than is customary,
including, without limitation, the reasonable costs of examinations and
inspections conducted by third parties, provided that nothing herein shall
limit Secured Party's right to audit, examination, inspection, or other
fees otherwise payable under Section 8.3 and (xii) obtaining independent
appraisals from time to time as deemed necessary or appropriate by Secured
Party.
(b) Without limiting Section 8.4(a), Debtor also agrees to pay
Secured Party, on demand, the actual fees and disbursements incurred by
Secured Party for attorneys retained by Secured Party for advice, suit,
appeal, or insolvency or other proceedings under the Federal Bankruptcy
Code or otherwise, or in connection with any purpose specified in Section
8.4(a).
(c) If after the date hereof, Secured Party determines that (i) the
adoption of any applicable law, rule, or regulation regarding capital
requirements for banks or bank holding companies or the subsidiaries
thereof, (ii) any change in the interpretation or administration of any
such law, rule, or regulation by any governmental authority, central bank,
or comparable agency charged with the interpretation or administration
thereof, or (iii) compliance by Secured Party or its holding company with
request or directive of any such governmental authority, central bank, or
comparable agency regarding capital adequacy (whether or not having the
force of law), has the effect of reducing the return on Secured Party's
capital to a level below that which Secured Party could have achieved
(taking into consideration Secured Party's and its holding company's
policies with respect to capital adequacy immediately before such
adoption, change, or compliance and assuming that Secured Party's capital
was fully utilized prior to such adoption, change, or compliance as a
consequence of Secured Party's commitment to make Advances pursuant hereto
by any amount deemed by Secured Party to be material:
(x) Secured Party shall promptly, after Secured Party's
determination of such occurrence, give notice thereof to Debtor; and
(y) Debtor shall pay Secured Party as an additional fee from
time to time, on demand, such amount as Secured Party certifies to
be the amount that will compensate Secured Party for such reduction.
A certificate of Secured Party claiming entitlement to compensation
as set forth above will be conclusive in the absence of manifest
error. Such certificate will set forth the nature of the occurrence
giving rise to such compensation, the additional amount or amounts
to be paid to Secured Party, and the method by which such amounts
were determined. In determining such amount, Secured Party may use
any reasonable averaging and attribution method.
8.5 METHOD OF PAYMENT OF PRINCIPAL, INTEREST, FEES, AND COSTS AND
EXPENSES. Without limiting Debtor's obligation pursuant to Sections 8.1,
8.2, 8.3, and 8.4 to pay the principal of Advances, interest, fees, and
costs and expenses, the following provisions shall apply to the payment
thereof:
(a) Payment of Principal. Debtor authorizes Secured Party to apply
any Proceeds of Collateral, including, without limitation, payments on
Receivables, other payments from sales or leases of Inventory, and any
funds in the Payment Account, to the unpaid principal of Advances.
(b) Payment of Interest, Fees and Costs and Expenses. If any
accrued interest, fees, or costs and expenses have not been paid when due,
Debtor authorizes Secured Party in its sole discretion to (provided,
however, Secured Party shall have no obligation to): (i) make an Advance
to pay for such items; or (ii) apply Proceeds of Collateral, including,
without limitation, payments on Receivable other payments from sales or
leases of Inventory, and any funds in the Payment Account, to the payment
of such items.
(c) Notwithstanding any other provisions of this Agreement, Secured
Party, in its sole discretion, shall determine the manner and amount of
application of payments and credits, if any, to be made on all or any part
of any component or components of the Indebtedness, whether principal,
interest, fees, costs and expenses, or otherwise.
8.6 COMPUTATION OF DAILY OUTSTANDING BALANCE. For the purpose of
calculating the aggregate principal balance of outstanding Advances under
Section 2.1(a) and (b), Advances shall be deemed to be paid on the date
that checks drawn on or other funds received from the Payment Account are
applied by Secured Party to Advances, or within one Business Day after any
other payments on Receivables or other payments from sales of leases of
Inventory to be so applied have been processed for collection by Secured
Party; provided, however, for the purpose of calculating interest payable
by Debtor, funds from the Payment Account, payments on Receivables, other
payments from sales or leases of Inventory and any other payments, shall
be deemed to be
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applied to Advances the number of days specified in Item 20 of the
Schedule after the application of such funds from the Payment Account or
receipt of such payments by Secured Party, and the amount of interest
payable will be adjusted by Secured Party from time to time accordingly.
Notwithstanding any other provision of this Agreement, if any Item
presented for collection by Secured Party is not honored, Secured Party
may reverse any provisional credit which has been given for the Item and
make appropriate adjustments to the amount of interest and principal due.
8.7 ACCOUNT STATED. Debtor agrees that each monthly or other statement
of account mailed or delivered by Secured Party to Debtor pertaining to
the outstanding balance of Advances, the amount of interest due thereon,
fees, and costs and expenses shall be final, conclusive, and binding on
Debtor and shall constitute an "account stated" with respect to the
matters contained therein unless, within ten (10) calendar days from when
such statement was mailed or, if not mailed, delivered to Debtor, Debtor
shall deliver to Secured Party written notice of any objections which it
may have as to such statement of account, and in such event, only the
items to which objection is expressly made in such notice shall be
considered to be disputed by Debtor.
9. PROCEDURES AFTER SCHEDULING RECEIVABLES.
9.1 RETURNED MERCHANDISE. Debtor shall notify Secured Party immediately
of the return, rejection, repossession, stoppage in transit, loss, damage,
or destruction of any Inventory. In addition to making appropriate
adjustments to the Receivables Borrowing Base and the Inventory Borrowing
Base to reflect the return of such Inventory, Secured Party may, in its
sole discretion, request Debtor to pay Secured Party an amount equal to
the consideration to have been paid for such Inventory by the Account
Debtor, such payment to be applied directly to unpaid Advances.
9.2 CREDITS AND EXTENSIONS.
(a) Granting of Credits and Extensions. Debtor may grant such
Credits and such Extensions as are ordinary in the usual course of
Debtor's business without the prior consent of Secured Party; provided,
however, that any such Extension shall not extend the time for payment
beyond thirty (30) days after the original due date as shown on the
Invoice evidencing the related Receivable, or as computed based on the
information set forth on such Invoice.
(b) Accounting for Credits and Extensions. Debtor shall make a
full accounting of each grant of Credit or an Extension including a brief
description of the reasons therefor and a copy of all credit memoranda.
Such accounting shall be in form satisfactory to Secured Party daily or at
such other intervals as may be specified in Item 17 of the Schedule. All
credit memoranda issued by Debtor shall be numbered consecutively and
copies of the same, when delivered to Secured Party, shall be in numerical
order and accounted for in the same manner as provided in Section 6.2 with
respect to Invoices.
(c) Adjustment to Receivables Borrowing Base. The Receivables
Borrowing Base will be reduced by the amount of all credits reflected in
an accounting required by Section 9.2(b) and may, in the sole discretion
of Secured Party, be reduced by the full amount of any Receivable for
which Extensions were granted. Debtor shall pay to Secured Party with each
such accounting an amount equal to the aggregate of such reductions of the
Receivables Borrowing Base resulting therefrom, such payment to be applied
directly to Advances unless Secured Party, in its sole discretion, waives
its right to such payment where, after such reductions of the Receivables
Borrowing Base, the total outstanding Advances to Debtor under this
Agreement do not exceed the Borrowing Capacity as then computed.
9.3 RETURNED INSTRUMENTS. In the event that any check or other
instrument received in payment of a Receivable shall be returned
uncollected for any reason, Secured Party may, in its sole discretion,
again forward the same for collection or return the same to Debtor. Upon
receipt of a returned check or instrument by Debtor, Debtor shall
immediately make the necessary entries on its books and records to
reinstate the Receivable as outstanding and unpaid and immediately notify
Secured Party of such entries, Pursuant to Section 1.1(o)(iii), the
Receivable with respect to which such check or instrument was received
shall thereupon become an Ineligible Receivable.
9.4 DEBIT MEMORANDA.
(a) Debtor shall deliver to Secured Party copies of all debit
memoranda by Debtor.
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(b) Unless Secured Party otherwise notifies Debtor in writing,
Debtor shall deliver at least weekly to Secured Party together with the
schedule of Receivables provided for in Section 6.1, copies of all debit
memoranda issued by Debtor since the last such debit memoranda delivered
to Secured Party.
(c) All debit memoranda issued by Debtor shall be numbered
consecutively and copies of the same, when delivered to Secured Party,
shall be in numerical order and accounted for in the same manner as
provided in Section 6.2 with respect to Invoices.
9.5 NOTES RECEIVABLE. Debtor shall not accept any note or other
instrument (except a check or other instrument for the immediate payment
of money) with respect to any Receivable without the prior written consent
of Secured Party. If Secured Party in its sole discretion consents to the
acceptance of any such note or instrument, the same shall be considered as
evidence of the Receivable giving rise to such note or instrument, shall
be subject to the Security Interest, and shall not constitute payment of
such Receivable, and Debtor shall forthwith indorse such note or
instrument to the order of Secured Party and deliver the same to Secured
Party. Upon collection, the proceeds of such note or instrument may be
applied directly to unpaid Advances, interest, and costs and expenses as
provided in Section 8.5.
10. AFFIRMATIVE COVENANTS. So long as any part of the Indebtedness remains
unpaid or this Agreement remains in effect, Debtor shall comply with the
covenants contained in Item 21 of the Schedule or elsewhere in this Agreement,
and with the covenants listed below:
10.1 FINANCIAL STATEMENTS. Debtor shall furnish to Secured Party:
(a) Unless otherwise specified in Item 22 of the Schedule, within
ninety (90) days after the end of each fiscal year, consolidated and
consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of such year, fairly presenting Debtor's and each
Consolidated Subsidiary's financial position, which statements shall
consist of a balance sheet, an income statement, a statement of cash flow,
and a statement of changes in financial position covering the period of
Debtor's immediately preceding fiscal year, and which shall be in the form
specified in Item 23 of the Schedule.
(b) Unless otherwise specified in Item 24 of the Schedule, within
twenty (20) days after the end of each month, consolidated and
consolidating financial statements of Debtor and each Consolidated
Subsidiary as of the end of the month fairly presenting Debtor's and such
Consolidated Subsidiary's financial position, which statements shall
consist of a balance sheet, an income statement, a statement of cash flow,
and a statement of changes in financial position covering the period from
the end of the immediately preceding fiscal year to the end of such month,
all in such detail as Secured Party may request and certified to be
correct by the president or chief financial officer of Debtor or other
financial officer satisfactory to Secured Party.
(c) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which Debtor sends to its
shareholders, and copies of any and all periodic and special reports and
registration statements which Debtor files with the Securities and
Exchange Commission.
(d) Such additional information as Secured Party may from time to
time reasonably request regarding the financial and business affairs of
Debtor or any Consolidated Subsidiary.
10.2 GOVERNMENT AND OTHER SPECIAL RECEIVABLES. Debtor shall promptly
notify Secured Party in writing of the existence of any Receivable as to
which the perfection enforceability, validity of Secured Party's Security
Interest in such Receivable, or Secured Party's right or ability to obtain
direct payment to Secured Party of the Proceeds of such Receivable, is
governed by any federal or state statutory requirements other than those
of the Uniform Commercial Code, including, without limitation, any
Receivable subject to the Federal Assignment of Claims Act of 1940, as
amended.
10.3 TERMS OF SALE. The terms on which sales or leases giving rise to
Receivables are made shall be as specified in Items 3 and 25 of the
Schedule.
10.4 BOOK AND RECORDS. Debtor shall maintain, at its own cost and
expense, accurate and complete books and records with respect to the
Collateral, in form satisfactory to Secured Party, and including, but not
limited to, records of all payments received
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and all Credits and Extensions granted with respect to the Receivables, of
the return, rejection, repossession, stoppage in transit, loss, damage, or
destruction of any Inventory, and of all other dealings affecting the
Collateral. Debtor shall deliver such books and records to Secured Party
or its representative on request. At Secured Party's request, Debtor shall
mark all or any records to indicate the Security Interest. Debtor shall
further indicate the Security Interest on all financial statements issued
by it or shall cause the Security Interest to be so indicated by its
accountants. The Payment Account, if any, is not an asset of Debtor and
shall not be shown as an asset of Debtor in such books and records or in
such financial statements.
10.5 INVENTORY IN POSSESSION OF THIRD PARTIES. If any Inventory remains
in the hands or control of any of Debtor's agents, finishers, contractors,
or processors, or any other third party, Debtor, if requested by Secured
Party, shall notify such party of Secured Party's Security Interest in the
Inventory and shall instruct such party to hold such Inventory for the
account of Secured Party and subject to the instructions of Secured Party.
10.6 EXAMINATIONS. Debtor shall at all reasonable times and from time to
time permit Secured Party or its agents to inspect the Collateral and to
examine and make extracts from or copies of any of Debtor's books,
ledgers, reports, correspondence, and other records.
10.7 VERIFICATION OF COLLATERAL. Secured Party shall have the right to
verify all or any Collateral in any manner and through any medium Secured
Party may consider appropriate and Debtor agrees to furnish all assistance
and information and perform any acts which Secured Party may require in
connection therewith.
10.8 RESPONSIBLE PARTIES. Debtor shall notify Secured Party of the
occurrence of any event specified in Section 1.1(o)(v) with respect to any
Responsible Party promptly after receiving notice thereof.
10.9 TAXES. Debtor shall promptly pay and discharge all of its taxes,
assessments, and other governmental charges prior to the date on which
penalties are attached thereto, established adequate reserves for the
payment of such taxes, assessments, and other governmental charges, make
all required withholdings and other tax deposits, and, upon request,
provide Secured Party with receipts or other proof that such taxes,
assessments, and other governmental charges have been paid in a timely
fashion; provided, however that nothing contained herein shall require the
payment of any tax assessment, or other governmental charge so long as its
validity is being contested in good faith and appropriate proceedings
diligently conducted and adequate reserves for the payment thereof have
been established.
10.10 LITIGATION.
(a) Debtor shall promptly notify Secured Party in writing of any
litigation, proceeding, or counterclaim against, or of any investigation
of, Debtor or any Consolidated Subsidiary if: (i) the outcome of such
litigation, proceeding, counterclaim, or investigation may materially and
adversely affect the finances or operations of Debtor or any Consolidated
Subsidiary or title to, or the value of, any Collateral; or (ii) such
litigation, proceeding, counterclaim, or investigation questions the
validity of any Transaction Document or any action taken or to be taken
pursuant to any Transaction Document.
(b) Debtor shall furnish to Secured Party such information regarding
any such litigation, proceeding, counterclaim, or investigation as Secured
Party shall request.
10.11 INSURANCE.
(a) Debtor shall at all times carry and maintain in full force and
effect such insurance as Secured Party may from time to time require, in
coverage, form, and amount, and issued by insurers, satisfactory to
Secured Party, including, without limitation; (i) all workers'
compensation or similar insurance as may be required under the laws of any
applicable jurisdiction; (ii) public liability insurance against claims of
personal injury, death, or property damage suffered upon, in, or about any
premises occupied by Debtor or occurring as a result of the ownership,
maintenance, or operation by it of any automobile, truck, or other vehicle
or as a result of the use of products manufactured, constructed, or sold
by it, or services rendered by it, (iii) business interruption insurance
covering risk of loss as a result of the cessation for all or any part of
the business conducted by Debtor; and (iv) insurance against such other
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risks as are usually insured against by business entities of established
reputation engaged in the same or similar businesses as Debtor and
similarly situated.
(b) Debtor shall deliver to Secured Party the policies of insurance
required by Secured Party, with appropriate endorsement designating
Secured Party as an additional insured and loss payee as requested by
Secured Party. Each policy of insurance shall provide that if such policy
is canceled for any reason whatsoever, if any substantial change is made
in the coverage which affects Secured Party, or if such policy is allowed
to lapse for nonpayment of premium, such cancellation, change, or lapse
shall not be effective as to Secured Party until thirty (30) days after
receipt by Secured Party of written notice thereof from the insurer
issuing such policy.
(c) Debtor hereby appoints Secured Party as its attorney-in-fact,
with full authority in the place and stead of Debtor and in the name of
Debtor, Secured Party, or otherwise, from time to time in Secured Party's
discretion, to take any actions and execute any instruments which Secured
Party may deem necessary or desirable to obtain, adjust, make claims
under, and otherwise deal with insurance required pursuant hereto and to
receive, indorse, and collect any drafts or other instruments delivered in
connection therewith.
10.12 GOOD STANDING; BUSINESS.
(a) Debtor shall take all necessary steps to preserve its corporate
existence and its right to conduct business in all states in which the
nature of its business or ownership of its property requires such
qualification.
(b) Debtor shall engage only in the business conducted by it on the
date of this Agreement.
10.13 NET WORKING CAPITAL; CONSOLIDATED TANGIBLE NET WORTH. Debtor shall
maintain net working capital and a consolidated tangible net worth as
specified in Item 26 of the Schedule.
10.14 PENSION REPORTS. Upon the occurrence of any Pension Event, Debtor
shall furnish to Secured Party, as soon as possible and in any event
within thirty (30) days after Debtor knows or has reason to know of such
occurrence, the statement of the president or chief financial officer of
Debtor setting forth the details of such Pension Event and the action
which Debtor proposes to take with respect thereto.
10.15 NOTICE OF NON-COMPLIANCE. Debtor shall notify Secured Party in
writing of any failure by Debtor or any Third Party to comply with any
provision of any Transaction Document immediately upon learning of such
non-compliance, or if any representation or warranty contained in any
Transaction Document is no longer true.
10.16 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Debtor shall conduct its operation in compliance with the
provisions of all federal, state and local laws, ordinances, rules,
regulations, and orders applicable to any natural or environmental
resource or media located on, above, within, or in the vicinity of, or
affected by, any real property.
(b) Debtor shall promptly notify Secured Party in writing of Debtor
or any Consolidated Subsidiary receives any notice or request from any
governmental agency, other agency, or person for information, or if Debtor
or any Consolidated Subsidiary provides any notice or information to any
such agency, entity, or person, concerning the presence or release of
hazardous substances, wastes, or other materials (as such terms are
defined by any applicable federal, state, or local law) within, on, from,
related to, or affecting any real property.
10.17 DEFEND COLLATERAL. Debtor shall defend the Collateral against the
claims and demands of all other parties (other than Secured Party)
including, without limitation, defenses, setoffs, and counterclaims
asserted by any Account Debtor against Debtor or Secured Party.
10.18 USE OF PROCEEDS. Debtor shall use the proceeds of Advances solely
for Debtor's working capital and for such other legal and proper and
corporate purposes as are consistent with all applicable laws, Debtor's
articles or certificate of incorporation and by-laws, resolutions of
Debtor's Board of Directors, and the terms of this Agreement.
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10.19 COMPLIANCE WITH LAWS. Debtor shall comply with all applicable laws,
rules, regulations, and other legal requirements with respect to its
business and the use, maintenance, and operations of the real and
personal property owned and leased by it in the conduct of its business.
10.20 MAINTENANCE OF PROPERTY. Debtor shall maintain its property
including, without limitation, the Collateral, in good condition and
repair and shall prevent the Collateral or any part thereof from being or
becoming an accession to other goods not constituting Collateral.
10.21 LICENSES, PERMITS, ETC. Debtor shall maintain all of its
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates, and orders, if any, in full force and effect
until their respective expiration dates.
10.22 TRADEMARKS AND PATENTS. Debtor shall maintain all of its
trademarks, trademark rights, patents, patent rights, licenses, permits,
tradenames, tradenames rights, and approvals, if any, in full force and
effect until their respective expiration dates.
10.23 ERISA. Debtor shall comply with the provisions of ERISA and the
Internal Revenue Code with respect to each Pension Plan.
10.24 MAINTENANCE OF OWNERSHIP. Debtor shall at all times maintain
ownership of the percentages of issued and outstanding capital stock of
each Consolidated Subsidiary set forth in Item 36 of the Schedule and
notify Secured Party in writing prior to the incorporation of any new
Consolidated Subsidiary.
10.25 ACTIVITIES OF CONSOLIDATED SUBSIDIARIES. Unless the provisions of
this Section 10.25 are expressly waived by Secured Party in writing,
Debtor shall cause each Consolidated Subsidiary to comply with Sections
10.1(b), 10.9, 10.11(a), 10.12, 10.16 and 10.19 through 10.23, inclusive,
and any of the provisions contained in Item 21 of the Schedule, and shall
cause each Consolidated Subsidiary to refrain from doing any of the acts
proscribed by Sections 11.2, 11.3, 11.6 through 11.15, inclusive, or
proscribed by any of the provisions contained in Item 21 of the Schedule.
11. NEGATIVE COVENANTS. So long as any part of the Indebtedness remains for
this Agreement remains in effect, Debtor, without the written consent of
Secured Party, shall not violate any covenant contained in Item 21 of the
Schedule and shall not:
11.1 LOCATION OF INVENTORY, EQUIPMENT AND BUSINESS RECORDS. Move the
Inventory, Equipment or the records concerning the Collateral from the
location where they are kept as specified in Items 10 and 12 of the
Schedule.
11.2 BORROWED MONEY. Create, incur, assume, or suffer to exist any
liability for borrowed money, except to Secured Party and except as may be
specified in Item 27 of the Schedule.
11.3 SECURITY INTEREST AND OTHER ENCUMBRANCES. Create, incur, assume, or
suffer to exist any mortgage, security interest, lien, or other
encumbrance upon any of its properties or assets, whether now owned or
hereafter acquired, except mortgages, security interests, liens, and
encumbrances (a) in favor of Secured Party and (b) as may be specified in
Item 11 of the Schedule.
11.4 STORING THE COLLATERAL. Place the Collateral in any warehouse which
may issue a negotiable Document with respect thereto.
11.5 USE OF COLLATERAL. Use the Collateral in violation of any provision
of the Transaction Documents, of any applicable statute, regulation, or
ordinance, or of any policy insuring the Collateral.
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11.6 MERGERS, CONSOLIDATIONS, OR SALES. (a) Merge or consolidate with or
into any corporation; (b) enter into any joint venture or partnership with
any person, firm, or corporation; (c) convey, lease, or sell all or any
material portion of its property or assets or business to any other
person, firm, or corporation except for the sale of Inventory in the
ordinary course of business and in accordance with the terms of this
Agreement; or (d) convey, lease, or sell any of its assets to any person,
firm, or corporation for less than the fair market value thereof.
11.7 CAPITAL STOCK. Purchase or retire any of its capital stock or issue
any capital stock, except pro rata to its present stockholders, or
otherwise change the capital structure of Debtor or change the relative
rights, preferences or limitations relating to any of its capital stock.
11.8 DIVIDENDS OR DISTRIBUTIONS. Pay or declare any cash or other dividend
or distributions on any of its corporate stock, except that stock
dividends may be paid, and except that a Consolidated Subsidiary may pay
dividends of any kind to Debtor.
11.9 INVESTMENTS AND ADVANCES. Make any investment in or advances to any
other person, firm, or corporation, except (a) advance payments or
deposits against purchases made in the ordinary course of Debtor's regular
business; (b) direct obligations of the United States of America; (c) any
existing investments in, or existing advances to, the Consolidated
Subsidiaries; or (d) any investments or advances that may be specified in
Item 28 of the Schedule.
11.10 GUARANTIES. Become a guarantor, a surety, or otherwise liable for
the debts or other obligations of any other person, firm, or corporation,
whether by guaranty or suretyship agreement, agreement to purchase
indebtedness, agreement for furnishing funds through the purchase of
goods, supplies, or services (or by way of stock purchase, capital
contribution, advance, or loan) for the purpose of paying or discharging
indebtedness, or otherwise, except as an indorser or instruments for the
payment of money deposited to its bank account for collection in the
ordinary course of business and except as may be specified in Item 29 of
the Schedule.
11.11 LEASES. Enter, as lessee, into any lease of real or personal
property (whether such lease is classified on Debtor's financial
statements as a capital lease or operating lease) if the aggregate of the
rentals of such lease and of Debtor's other than existing leases would
exceed in any one of Debtor's fiscal years the amount specified in Item 30
of the Schedule.
11.12 CAPITAL EXPENDITURES. Make or incur any capital expenditures in any
one fiscal year in an aggregate amount in excess of the amount, if any,
specified in Item 31 of the Schedule.
11.13 COMPENSATION.
(a) Pay or obligate itself to pay, directly or
indirectly, any salaries, bonuses, dividends, or other compensation to its
officers or directors, or members of their immediate families, in the
aggregate exceeding the amount, if any, specified in Item 32 of the
Schedule.
(b) Pay or obligate itself to pay, directly or indirectly, any
salaries, bonuses, dividends, or other compensation to individuals, if
any, specified in Item 33 of the Schedule in excess of the amount therein
specified for such individuals.
11.14 NAME CHANGE. Change its name without giving at least thirty (30)
days prior written notice of its proposed new name to Secured Party,
together with delivery to Secured Party of UCC-1 Financing Statements
reflecting Debtor's new name, all in form and substance satisfactory to
Secured Party.
11.15 DISPOSITION OF COLLATERAL. Sell, assign, or otherwise transfer,
dispose of or encumber the Collateral or any interest therein, or grant a
security interest therein or license thereof, except to Secured Party and
except the sale or lease of Inventory in the ordinary course of business
of Debtor and in accordance with the terms of this Agreement.
12. EVENTS OF DEFAULT.
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12.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an event of default (individually, an Event of
Default and, collectively, Events of Default):
(a) Nonpayment. Nonpayment when due of any principal, interest,
premium, fee, cost, or expense due under the Transaction Documents.
(b) Negative Covenants. Default in the observance of any of the
covenants or agreements of Debtor contained in Article 11.
(c) Other Covenants. Default in the observance of any of the
covenants or agreements or Debtor contained in the Transaction Documents,
other than in Article 11 or Sections 8.1, 8.2, 8.3 or 8.4 or any other
agreement with Secured Party which is not remedied within the earlier of
ten (10) days after (i) notice thereof by Secured Party to Debtor, or (ii)
the date Debtor was required to give notice to Secured Party under Section
10.15.
(d) Cessation of Business or Voluntary Insolvency Proceedings. The
(i) cessation of operations of Debtor's business as conducted on the date
of this Agreement; (ii) filing by Debtor of a petition or request for
liquidation reorganization, arrangement, adjudication as a bankrupt,
relief as a debtor, or other relief under the bankruptcy, insolvency, or
other similar laws of the United States of America or any state or
territory thereof or any foreign jurisdiction now or hereafter in effect;
(iii) making by Debtor of a general assignment for the benefit of
creditors; (iv) consent by the Debtor to the appointment of a receiver or
trustee, including without limitation, a "custodian" as defined in the
Federal Bankruptcy Code for Debtor or any of Debtor's assets; (v) making
of any, or sending of any notice of any intended, bulk sale by Debtor; or
of insolvency proceeding (under the Federal Bankruptcy Code or otherwise)
or any formal or informal proceeding for the dissolution or liquidation
of, or settlement of claims against or winding up of affairs of, Debtor.
(e) Involuntary Insolvency Proceedings. (i) The appointment of a
receiver, trustee, custodian, or officer performing similar functions,
including, without limitation, a "custodian" as defined in the Federal
Bankruptcy Code, for Debtor or any of Debtor's assets; or the filing
against Debtor of a request or petition for liquidation, reorganization,
arrangement, adjudication as a bankrupt, or other relief under the
bankruptcy, insolvency, or similar laws of the United States of America,
any state or territory thereof, or of any other foreign jurisdiction now
or hereafter in effect; or of any other type of insolvency proceedings
(under the Federal Bankruptcy Code or otherwise) or any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims
against or winding up of affairs of Debtor and (ii) such appointment shall
not be vacated or such petition or proceeding shall not be dismissed
within sixty days after such appointment, filing or institution.
(f) Other Indebtedness and Agreements. Failure by Debtor to pay when
due (or, if permitted by the terms of any applicable documentation, within
any applicable grace period) any indebtedness owing by Debtor to Secured
Party or any other or entity (other than the Indebtedness incurred
pursuant to this Agreement and including, without limitation indebtedness
evidencing a deferred purchase price), whether such indebtedness shall
become due by scheduled maturity, by required prepayment, by acceleration,
by demand or otherwise, or failure by the Debtor to perform any term,
covenant, or agreement on its part to be performed under any agreement or
instrument (other than a Transaction Document) evidencing or securing or
relating to any indebtedness owing by Debtor when required to be performed
if the effect of such failure is to permit the holder to accelerate the
maturity of such indebtedness.
(g) Judgements. Any judgement or judgements against Debtor (other
than any judgement for which Debtor is fully insured) shall remain unpaid,
unstayed on appeal, undischarged, unbonded, or undismissed for a period of
thirty (30) days.
(h) Pension Default. Any Reportable Event which Secured Party shall
determine in good faith constitutes grounds for the termination of any
Pension Plan by the Pension Benefit Guaranty Corporation or for the
appointment by an appropriate United States district court of a trustee to
administer any Pension Plan shall occur and shall continue thirty (30)
days after written notice thereof to Debtor by Secured Party; or the
Pension Plan Guaranty Corporation shall institute proceedings to terminate
any Pension Plan or to appoint a trustee to administer any Pension Plan;
or a Trustee shall be appointed by an appropriate United States district
court to administer any Pension Plan; or any Pension Plan shall be
terminated; or Debtor or any Consolidated Subsidiary shall withdraw from a
Pension Plan in a complete withdrawal; or there shall arise vested
unfunded liabilities under any Pension Plan that, in good faith opinion of
Secured Party, have or will or might have a material adverse effect on the
finances or operations of Debtor; or Debtor of any Consolidated Subsidiary
shall fail to pay to any Pension Plan any contribution which it is
obligated to pay under the terms of such plan or any agreement or which is
required to meet statutory minimum funding standards.
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(i) Collateral; Impairment. There shall occur with respect to the
Collateral any (i) misappropriation, conversion, diversion, or fraud, (ii)
levy, seizure, or attachment, or (iii) material loss, theft, or damage.
(j) Insecurity; Change. Secured Party shall believe in good faith
that the prospect of payment of all or any part of the Indebtedness or
performances of Debtor's obligations under the Transaction Documents or
any other agreement between Secured Party and Debtor is impaired; or there
shall occur any materially adverse change in the business or financial
condition of Debtor.
(k) Third Party Default. There shall occur with respect to any Third
Party or any Consolidated Subsidiary, including, without limitation, any
guarantor or Consolidated Subsidiary (i) any event described in Section
12.1(d), 12.1(e), 12.1(f) or 12.1(g), (ii) any pension default event such
as described in Section 12.1(h) with respect to any pension plan
maintained by Third Party or such Consolidated Subsidiary, or (iii) any
failure by Third Party or such Consolidated to perform in accordance with
the terms of any agreement between such Third Party and Secured Party.
(l) Representations. Any certificate, statement, representation,
warranty, or financial statement furnished by or on behalf of Debtor or
any Third Party pursuant to or in connection with this Agreement
(including, without limitation, representations and warranties contained
herein) or as an inducement to Secured Party to enter into this Agreement
or any other lending agreement with Debtor shall prove to have been false
in any material respect at the time as of which the facts therein set
forth were certified or to have omitted any substantial contingent or
unliquidated liability or claim against Debtor or any such Third Party, or
if on the date of the execution of this Agreement there shall have been
any materially adverse change in any of the facts disclosed by any such
statement or certificate which shall not have been disclosed in writing to
Secured Party at or prior to the time of execution.
(m) Challenge to Validity. Debtor or any Third Party commences any
action or proceeding to contest the validity or enforceability of any
Transaction Document or any lien or security interest granted or
obligations evidenced by any Transaction Document.
(n) Death or Incapacity; Termination. Any Third Party dies or
becomes incapacitated, or terminates or attempts to terminate, in
accordance with its terms or otherwise, any guaranty or other Transaction
Document executed by such Third Party.
(o) Change of Ownership. If all or a controlling interest of the
capital stock of Debtor shall be sold, assigned, or otherwise transferred
or if a security interest or other encumbrance shall be granted or
otherwise acquired therein or with respect thereto.
12.2 EFFECTS OF ANY EVENT OF DEFAULT.
(a) Upon the happening of one or more Events of Default (except an
Event of Default under either Section 12.1(d) or 12.1(e), Secured Party
may declare any obligations it may have hereunder to be canceled and the
principal of the Indebtedness then outstanding to be immediately due and
payable, together with all interest thereon and costs and expenses
accruing under the Transaction Documents. Upon such declaration, any
obligations Secured Party may have hereunder shall be immediately canceled
and the Indebtedness then outstanding shall become immediately due and
payable without presentation, demand or further notice of any kind to
Debtor.
(b) Upon the happening of one or more Events of Default under
Section 12.1(d) or 12.1(e), Secured Party's obligations hereunder shall be
canceled immediately, automatically, and without notice, and the
Indebtedness then outstanding shall become immediately due and payable
without presentation, demand, or notice of any kind to the Debtor.
13. SECURED PARTY'S RIGHTS AND REMEDIES.
13.1. GENERALLY. Secured Party's rights and remedies with respect to the
Collateral, in addition to those rights granted herein and in any other
agreement between Debtor and Secured Party now or hereafter in effect,
shall be those of a secured party under the Uniform Commercial Code as in
effect in the State and under any other applicable law.
13.2. NOTIFICATION OF ACCOUNT DEBTORS. Secured Party may, at any time and
from time to time, notify any or all Account Debtors of the Security
Interest and may direct such Account Debtors to make all payments on
Receivables directly to Secured Party.
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13.3. POSSESSION OF COLLATERAL. Whenever Secured Party may take possession
of the Collateral pursuant to Section 13.1, Secured Party may take
possession of the Collateral on Debtor's premises or may remove the
Collateral or any part thereof to such other places as the Secured Party
may in its sole discretion determine. If requested by Secured Party,
Debtor shall assemble the Collateral and deliver it to Secured Party at
such place as may be designated by Secured Party.
13.4. COLLECTION OF RECEIVABLES. Secured Party may demand, collect, and
sue for all monies and Proceeds due or to become due on the Receivables
(in either Debtor's or Secured Party's name at the latter's option) with
the right to enforce, compromise, settle, or discharge any or all
Receivables. If Secured Party takes any action contemplated by this
Section with respect to any Receivable, Debtor shall not exercise any
right that Debtor would otherwise have had to take such action with
respect to such Receivable.
13.5. INDORSEMENT OF CHECKS; DEBTOR'S MAIL. Debtor hereby irrevocably
appoints Secured Party the Debtor's agent with full power, in the same
manner, to the same extent, and with the same effect as if Debtor were to
do the same: to indorse Debtor's name on any Instruments or Documents
pertaining to any Collateral; to receive and collect all mail addressed to
Debtor; to direct the place of delivery of such mail to any location
designated by Secured Party; to open such mail; to remove all contents
therefrom; and to retain all contents thereof constituting or relating to
the Collateral. This agency is unconditional and shall not terminate until
all of the Indebtedness is paid in full and this Agreement has been
terminated. Secured Party agrees to give Debtor notice in the event it
exercises this agency, except with respect to the indorsement of Debtor's
name on any instruments or documents pertaining to any Collateral.
13.6. REGISTERED HOLDER OF COLLATERAL. If any Collateral consists of
investment securities, Debtor authorizes Secured Party to transfer the
same or any part thereof into its own name or that of its nominee so that
Secured Party its nominee may appear of record as the sole owner thereof
and if such securities are so transferred prior to an Event of Default,
the Secured Party gives to Debtor a revocable proxy to vote and take all
action with respect to such securities, such proxy to be effective so long
as there has not occurred an Event of Default and Secured Party has not
delivered to Debtor a written notice of revocation of such proxy. After
receipt of such revocation, Debtor waives all rights to be advised of or
to receive any notices, statements or communications received by Secured
Party or its nominee as such record owner, and agrees that no proxy or
proxies given by Secured Party to Debtor as aforesaid shall thereafter be
effective.
13.7. INCOME FROM AND INTEREST ON INSTRUMENTS.
(a) Until the occurrence of an Event of Default, Debtor reserves the
right to receive all income from or interest on the Collateral consisting
of Instruments, and if Secured Party shall receive any such income or
interest prior to such Event of Default, Secured Party shall pay the same
promptly to Debtor.
(b) Upon the occurrence of an Event of Default, Debtor will not
demand or receive any income from or interest on such Collateral, and if
Debtor receives any such income or interest without any demand by it, same
shall be held by Debtor in trust for Secured Party in the same medium in
which received, shall not be commingled with any assets of Debtor and
shall be delivered to Secured Party in the form received, properly
indorsed to permit collection, not later than the next business day
following the day of its receipt. Secured Party may apply the net cash
receipts from such income or interest to payment of any of the
Indebtedness, provided that Secured Party shall account for and pay over
to Debtor any such income or interest remaining after payment in full of
the Indebtedness.
13.8. INCREASES, PROFITS, PAYMENTS OR DISTRIBUTIONS.
(a) Whether or not any Event of Default has occurred, Debtor
authorizes Secured Party: (i) to receive any increases in or profits on
the Collateral (including, without limitation, any stock issued as a
result of any stock split or dividend, any capital distributions and the
like), and to hold the same as part of the Collateral; and (ii) to receive
any payment or distribution on the Collateral upon exchange or redemption
by, or dissolution and liquidation of, the issuer; to surrender such
Collateral or any part thereof in exchange therefor; and to hold the net
cash receipts or other property from any such payment or distribution as
part of the Collateral.
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(b) If Debtor receives any such increase, profits, payments or
distributions, Debtor will receive and deliver same promptly to Secured
Party on the same terms and conditions set forth in Section 13.7(b)
respecting income or interest, to be held by Secured Party as part of the
Collateral.
14. MISCELLANEOUS.
14.1. PERFECTING THE SECURITY INTEREST; PROTECTING THE COLLATERAL. Debtor
will execute and deliver to Secured Party such financing statements,
assignments, and other documents and will do such other things in
connection with the Transaction Documents as Secured Party may request.
Debtor hereby authorizes Secured Party to file such financing statements
relating to the Collateral without Debtor's signature thereon as Secured
Party may deem appropriate, and appoints Secured Party as Debtor's
attorney-in-fact (without requiring Secured Party) to execute any such
financing statement of statements in Debtor's name and to perform all
other acts which Secured Party deems appropriate to perfect and continue
the Security Interest and to protect, preserve, and realize upon the
Collateral.
14.2. PERFORMANCE OF DEBTOR'S DUTIES. Upon Debtor's failure to perform any
of its duties under the Transaction Documents, including, without
limitation, the duty to obtain insurance as specified in Section 10.11,
Secured Party may, but shall not be obligated to, perform any or all such
duties.
14.3. NOTICE OF SALE. Without in any way requiring notice to be given in
the following manner, Debtor agrees that any notice by Secured Party of
sale, disposition, or other intended action hereunder or in connection
herewith, whether required by the Uniform Commercial Code as in effect in
the State or otherwise, shall constitute reasonable notice to Debtor if
such notice is mailed by regular or certified mail, postage prepaid, at
least five (5) days prior to such action, to Debtor's address or addresses
specified above or to any other address which Debtor has specified in
writing to Secured Party as the address to which notices hereunder shall
be given to Debtor.
14.4. WAIVER BY SECURED PARTY. No course of dealing between Debtor and
Secured Party and no delay or omission by Secured Party in exercising any
right or remedy under the Transaction Documents or with respect to any
Indebtedness shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any other
or further exercise thereof or the exercise of any other right or remedy.
All rights and remedies of Secured Party are cumulative.
14.5. WAIVER BY DEBTOR. Secured Party shall have no obligation to take,
and Debtor shall have the sole responsibility for taking, any and all
steps to preserve rights against any and all Account Debtors and against
any and all prior parties to any note, Chattel Paper, draft, trade
acceptance, or other instrument for the payment of money covered by the
Security Interest whether or not in Secured Party's possession. Secured
Party shall not be responsible to Debtor for loss or damage resulting from
Secured Party's failure to enforce any Receivables or to collect any
moneys due or to become due thereunder or other Proceeds constituting
Collateral thereunder. Debtor waives protest of any note, check, draft,
trade acceptance, or other instrument for the payment of money
constituting Collateral at any time held by Secured Party on which Debtor
is in any way liable and waives notice of any other action taken by
Secured Party.
14.6. SETOFF. Without limiting any other right of Secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately
due and payable (whether of not it has so declared) Secured Party at its
sole election may setoff against the Indebtedness any and all monies then
or thereafter owed to Debtor by Secured Party in any capacity, whether or
not the Indebtedness or the obligation to pay such monies owed by Secured
Party is then due, and Secured Party shall be deemed to have exercised
such right to setoff immediately at the time of such election even though
any charge therefor is made or entered on Secured Party's records
subsequent thereto.
14.7. ASSIGNMENT. The rights and benefits of Secured Party hereunder
shall, if Secured Party so agrees, inure to any party
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acquiring any interest in the Indebtedness or any part thereof.
14.8. SUCCESSORS AND ASSIGNS. Secured Party and Debtor as used herein
shall include the successors or assigns of those parties, except that
Debtor shall not have the right to assign its rights hereunder or any
interest herein.
14.9. MODIFICATION. No modification, rescission, waiver, release, or
amendment of any provision of this Agreement shall be made, except as may
be provided in Item 38 of the Schedule or by written agreement signed by
Debtor and a duly authorized officer of Secured Party.
14.10. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by Secured Party and Debtor or separate counterparts,
each of which when so executed and delivered shall be an original, but all
of which shall together constitute one in the same Agreement.
14.11. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Any financial calculation
to be made, all financial statements and other financial information to be
provided, and all books and records to be kept in connection with the
provisions of this Agreement, shall be in accordance with generally
accepted accounting principles consistently applied during each interval
and from interval to interval; provided, however, that in the event
changes in generally accepted accounting principles shall be mandated by
the Financial Accounting Standards Board or similar accounting body of
comparable standing, or should be recommended by Debtor's certified public
accountants, to the extent such changes would affect any financial
calculations to be made in making such calculations only from and after
such date as Debtor and Secured Party shall have amended this Agreement to
the extent necessary to reflect such changes in the financial and other
covenants to which such calculations relate.
14.12. INDEMNIFICATION.
(a) If after receipt of any payment of all or any part of the
Indebtedness, Secured Party is for any reason compelled to surrender such
payment to any person or entity because such payment is determined to be
void or voidable as a preference, an impermissible setoff, or a diversion
of trust funds, or for any other reason, the Transaction Documents shall
continue in full force and Debtor shall be liable, and shall indemnify and
hold Secured Party harmless for, the amount of such payment surrendered.
The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by Secured
Party in reliance upon such payment, and any such contrary action so taken
shall be without prejudice to Secured Party's rights under the Transaction
Documents and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. The provisions of this Section
14.12(a) shall survive the termination of this Agreement and the
Transaction Documents.
(b) Debtor shall indemnify and hold Secured Party harmless against
any and all claims, expenses, demands, losses, costs, fines, or
liabilities of whatever kind or nature (including, without limitation, any
of the foregoing arising from personal injury or property damage) in any
way related to any environmental condition on, above, within, in the
vicinity of, related to, or affected by any real property which is subject
to any mortgage securing all or any portion of the Indebtedness. The
provisions of this Section 14.12(b) shall survive termination of this
Agreement and the Transaction Documents and shall apply to any and all
such claims, expenses, demands, losses, costs, fines, and liabilities of
whatever kind or nature, notwithstanding the payment of the Indebtedness
secured by, or any discharge of, any such mortgage.
(c) Debtor agrees to pay, indemnify, and hold Secured Party
harmless, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgements, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including, without
limitation, counsel and special counsel fees and disbursements in
connection with any litigation, investigation, hearing or other
proceeding) with respect or in any way related to the existence,
execution, delivery, enforcement, performance and administration of this
Agreement and any other Transaction Document (all of the foregoing,
collectively, the "Indemnified Liabilities"). The agreements in this
Section 14.12(c) shall survive repayment of the Indebtedness.
14.13. TERMINATION; PREPAYMENT PREMIUM.
(a) Termination. This Agreement is and is intended to be a
continuing Agreement and shall remain in full force and effect for an
initial term equal to the term set forth in Item 35 of the Schedule and
for any renewal term also specified in
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Item 35 of the Schedule; provided, however, that either party may
terminate this Agreement as of the end of the initial term or any
subsequent renewal term by giving the other party notice to terminate in
writing at least sixty (60) days prior to the end of any such period
whereupon at the end of such period all Indebtedness shall be due and
payable in full without presentation, demand, or further notice of any
kind. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the Security Interest, Secured Party's rights
and remedies under the Transaction Documents and Debtor's obligations and
liabilities under the Transaction Documents, shall survive any termination
of this Agreement and shall remain in full force and effect until all of
the Indebtedness outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Secured Party, and
any extensions or renewals thereof (whether made before or after receipt
of such notice), together with interest accruing thereon after such
notice, shall be finally and irrevocably paid in full. No collateral shall
be released or financing statement terminated until such final and
irrevocable payment in full of the Indebtedness as described in the
preceding sentence.
(b) Prepayment Premium. If Debtor pays in full all or substantially
all of the principal balance of Advances prior to the end of the initial
term or any renewal term of this Agreement as set forth in Item 37 of the
Schedule, other than temporarily from funds internally generated in the
ordinary course of business, at the time of any such payment Debtor shall
also pay to Secured Party the prepayment premium set forth in Item 37 of
the Schedule. Any tender of payment in full of principal balance following
an acceleration by Secured Party of the Indebtedness pursuant to Section
12.2 shall be for purposes of this Section 14.13(b), deemed to be
considered a prepayment requiring Debtor to pay the prepayment premium set
forth in Item 37 of the Schedule.
14.14. FURTHER ASSURANCES. From time to time, Debtor shall take such
action and execute and deliver to Secured Party such additional documents,
instruments, certificates, and agreements as Secured Party may reasonably
request to effectuate the purposes of the Transaction Documents.
14.15. HEADINGS. Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this
Agreement.
14.16. CUMULATIVE SECURITY INTEREST, ETC. The execution and delivery of
this Agreement shall in no manner impair or affect any other security (by
endorsement or otherwise) for payment or performance of the Indebtedness
and no security taken hereafter as security for payment or performance of
the Indebtedness shall impact in any manner or affect this Agreement or
the security interest granted hereby, all such present and future
additional security to be considered as cumulative security.
14.17. SECURED PARTY'S DUTIES. Without limiting any other provision of
this Agreement: (a) the powers conferred on Secured Party hereunder are
solely to protect its interest and shall not impose any duty to exercise
any such powers and (b) except as may be required by applicable law,
Secured Party shall not have any duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against any parties or
any other rights pertaining to any Collateral.
14.18. NOTICES GENERALLY. All notices and other communications hereunder
shall be made by telegram, telex, electronic transmitter, overnight air
courier, or certified or registered mail, return receipt requested, and
shall be deemed to be received by the party to whom sent one Business Day
after sending, if sent by telegram, telex, electronic transmitter, or
overnight air courier, and three Business Days after mailing, if sent by
certified or registered mail. All such notices and other communications to
a party hereto shall be addressed to such party at the address set forth
on the cover page hereof or to such other address as such party may
designate for itself in a notice to the other party given in accordance
with this Section 14.18.
14.19. SEVERABILITY. The provisions of this Agreement are independent of
and separable from each other, and no such provision shall be affected or
rendered invalid or unenforceable by virtue of the fact that for any
reason any other such provision may be invalid or unenforceable in whole
or in part. If any provision of this Agreement is prohibited or
unenforceable in any jurisdiction, such provision shall be ineffective in
such jurisdiction only to the extent of such prohibition or
unenforceability, and such prohibition or unenforceability shall not
invalidate the balance of such provision to the extent it is not
prohibited or unenforceable nor render prohibited or unenforceable such
provision in any other jurisdiction.
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14.20. INCONSISTENT PROVISIONS. The terms of this Agreement and other
Transaction Documents shall be cumulative except to the extent they are
specifically inconsistent with each other, in which case the terms of this
Agreement shall prevail.
14.21. ENTIRE AGREEMENT. This Agreement and the other Transaction
Documents constitute the entire agreement and understanding between the
parties hereto with respect to the transactions contemplated hereby and
supersede all prior negotiations, understandings, and agreements between
such parties with respect to such transactions, including, without
limitation, those expressed in any commitment letter delivered by Secured
Party to Debtor.
14.22. APPLICABLE LAW. THIS AGREEMENT AND THE TRANSACTIONS EVIDENCED
HEREBY SHALL BE GOVERNED BY AND CONSTRUED UNDER THE INTERNAL LAWS OF THE
STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW, AS THE SAME MAY
FROM TIME TO TIME BE IN EFFECT, INCLUDING, WITHOUT LIMITATION, THE UNIFORM
COMMERCIAL CODE AS IN EFFECT IN THE STATE.
14.23. CONSENT TO JURISDICTION. DEBTOR AND SECURED PARTY AGREE THAT ANY
ACTION OR PROCEEDING TO ENFORCE OR ARISING OUT OF THE TRANSACTION
DOCUMENTS MAY BE COMMENCED IN ANY COURT OF THE STATE IN ANY COUNTY, OR IN
THE DISTRICT COURT OF THE UNITED STATES IN ANY DISTRICT, IN THE STATE IN
WHICH SECURED PARTY HAS AN OFFICE, AND DEBTOR WAIVES PERSONAL SERVICE OF
PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR
PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED AND SHALL CONFER
PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL TO DEBTOR,
OR AS OTHERWISE PROVIDED BY THE LAWS OF THE STATE OR THE UNITED STATES.
14.24. JURY TRIAL WAIVER. DEBTOR AND SECURED PARTY HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY DEBTOR OR
SECURED PARTY MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY,
IN CONNECTION WITH THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO. DEBTOR REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF
SECURED PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SECURED PARTY
WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS RIGHT TO JURY
TRIAL WAIVER. DEBTOR ACKNOWLEDGES THAT SECURED PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS
SECTION 14.24.
14.25 ARBITRATION. Disputes regarding the nonpayment of any amount due
under this Agreement to Secured Party or any of its affiliates which arise
from, result from or relate to a counterclaim, offset, recoupment, claim
or defense of the Debtor which is founded upon, arises out of or is
related to, any theory of lender liability or other similar theory, and
all disputes and claims relating to any provision hereof or relating to or
arising out of the parties relationship or creation or termination hereof
(including, without limitation, any claim that any provision of this
Agreement is illegal, unenforceable or voidable under any law, ordinance
or ruling) shall be settled by arbitration at the office of the American
Arbitration Association in Atlanta, Georgia, in accordance with the United
States Arbitration Act (9 U.S.C. Section , et seq.) and the Rules of the
-- ---- ------------
American Arbitration Association. Suits to compel arbitration or to
--------------------------------
determine arbitrability shall be brought in the United States District
Court for the Northern District of Georgia. All awards of the arbitration
shall be binding and non-appealable except as otherwise provided in the
United States Arbitration Act. Judgement upon the award of the arbitrator
may be entered in any court having jurisdiction thereof. PROVIDED,
HOWEVER, that nothing contained in this Paragraph shall be interpreted or
construed so as to make claims by the Secured Party to enforce its rights
in the Collateral or for the payment of sums due to the Secured Party or
the others by the Debtor (whether prior or subsequent to any Event of
Default), subject to arbitration, even though counterclaims, offsets,
recoupments, and other defenses and claims by Debtor are subject to
arbitration.
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Accepted by:
Emergent Business Capital Borrower: Computone Corporation
Asset Based Lending, Inc.
By: /s/ Ron Warnock By: /s/ Perry Pickerign
------------------------------- --------------------
Ron Warnock, Sr. Vice President PERRY PICKERIGN, PRESIDENT
Attest: /s/ Connie J. Warne Attest: /s/ Greg Roseberry
------------------- -------------------
Greg Roseberry,
Asst. Corporate Secretary
(Corporate Seal) (Corporate Seal)
32
