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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K-A
Amendment No. 1
Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange
Act of 1934 for the fiscal year ended December 31, 1998
STORAGE COMPUTER CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 02-0450593
(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
11 RIVERSIDE STREET, NASHUA, NEW HAMPSHIRE 03062-1373
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(603) 880-3005
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $0.001 PAR VALUE AMERICAN STOCK EXCHANGE
- ----------------------------- --------------------------------------
(Title or Class) (Name of Exchange on which registered)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in a definitive proxy or information
statement incorporated in Part III of this Form 10-K or any amendments to this
Form 10-K. [X]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates was approximately $11,699,500 at April 9, 1999.
At December 31, 1998 there were issued and outstanding 11,347,823 shares of the
Registrant's Common Stock, with a par value of $.001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement relating to the Company's Annual
Meeting of Stockholders to be held on May 17, 1999 are incorporated by reference
into Part III hereof.
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are included as part of the report:
(1) Financial Statements
The following financial statements of the Company and the reports of
the independent auditors are filed as part of this report:
Index to Financial Statements
Reports of Independent Auditors
Statement of Consolidated Financial Position
Statement of Consolidated Operations
Statement of Consolidated Stockholders' Equity
Statement of Consolidated Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
None
(3) Exhibits
Certain of the exhibits listed hereunder have been previously filed
with the Commission as exhibits to certain prior registration statements
and periodic reports as indicated in the footnotes below. The location of
each document so incorporated is indicated by footnote.
*3.1 Restated Articles of Organization (Incorporated by reference as
Exhibit 3.1 to the Company's Form S-4, Registration No. 33-87028,
as filed on December 2, 1994).
*3.2 Amended and Restated By-Laws (Incorporated by reference as
Exhibit 3.2 to the Company's Form S-4, Registration No. 33-87028,
as filed on December 2, 1994).
*4.1 Specimen Common Stock Certificate (Incorporated by reference as
Exhibit 4.1 to the Company's Form S-4, Registration No. 33-87028,
as filed on December 2, 1994).
*10.1 Restated and Amended Stock Incentive Plan. (Incorporated by
reference as Exhibit 4.1 to the Company's Form S-8, Registration
No. 333-31297, as filed on July 14, 1998).
*10.2 Form of Restated and Amended Stock Incentive Plan, Stock Award
(Incorporated by reference as Exhibit 4.2 to the Company's Form
S-8, Registration No. 333-31297, as filed on July 14, 1998)
*10.3 Promissory Note in the principal amount of $710,000 dated
December 6, 1997 made payable to Theodore J. Goodlander.
*10.4 Letter Agreement dated July 14, 1994 between the Registrant and
Eddie Lu Hwang (Incorporated by reference as Exhibit 10.8 to the
Company's Form S-4, Registration No. 33-87028, as filed on
December 2, 1994).
2
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*10.5 Joint Venture Agreement between the Registrant, Micro Research
Computer Limited and Eddie Lu Hwang (Incorporated by reference as
Exhibit 10.6 to the Company's Form S-4, Registration No.
33-87028, as filed on December 2, 1994).
*10.5b Amended and Restated 1992 Stock Incentive Plan (Incorporated by
reference as Exhibit 10.5 to Amendment No. 4 to the Company's
Form S-3, Registration No. 333-04145, as filed on September 13,
1997).
*10.6 Amendment dated August 20, 1997, to the Revolving Credit
Agreement dated August 6, 1996 between the Company and State
Street Bank and Trust Company.
*10.7 $10,000,000 Line of Credit Note from Registrant to State Street
Bank and Trust Company dated August 20, 1997.
*10.8 Loan Agreement dated August 6, 1996 between the Company and State
Street Bank and Trust Company (Incorporated by reference to
Exhibit 10.2 to Amendment No. 4 to the Company's Form S-3,
Registration No. 333-04145, as filed on September 13, 1997.
10.9 Second Amended and Restated Loan Agreement dated November 16,
1998 between the Company and State Street Bank and Trust Company.
10.10 $10,500,000 Amended Line of Credit Note from Registrant to State
Street Bank and Trust Company dated November 16, 1998.
10.11 Amended Security Agreement dated November 16, 1998 between the
Company and State Street Bank and Trust Company.
*21 Subsidiaries of the Company.
*23.1 Consent of BDO Seidman, LLP.
*23.2 Consent of Richard A. Eisner & Company, LLP. * 27 Financial Data
Schedule.
*99 "Safe Harbor" Statement under Private Securities Litigation
Reform Act of 1996.
---------------
* previously filed
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Nashua, New
Hampshire, on the 15th day of April, 1999.
STORAGE COMPUTER CORPORATION
BY: /s/ Theodore J. Goodlander
---------------------------------------
Theodore J. Goodlander
Chairman of the Board of Directors, CEO
(Principal Executive Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in their capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Theodore J. Goodlander Chairman of the Board of Directors, CEO April 15, 1999
- ------------------------------------- (Principal Executive Officer)
Theodore J. Goodlander
/s/ Shigeho Inaoka Director April 15, 1999
- -------------------------------------
Shigeho Inaoka
/s/ Steven S. Chen Director April 15, 1999
- -------------------------------------
Steven S. Chen
</TABLE>
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Exhibit 10.9
SECOND AMENDED AND RESTATED LOAN AGREEMENT
BETWEEN
STATE STREET BANK AND TRUST COMPANY
AND
STORAGE COMPUTER CORPORATION
DATED AS OF NOVEMBER ___, 1998
=====================================
$10,500,000 Revolving Credit Facility
=====================================
TABLE OF CONTENTS
(v)
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Page
----
I. DEFINITIONS...............................................................1
1.01. Terms..............................................................1
1.02. Other Definitional Provisions......................................7
II. THE LOANS.................................................................8
2.01. Line of Credit; Advances; The Note.................................8
(a) Line of Credit................................................8
(b) Advances under the Line of Credit.............................8
(c) The Note......................................................8
(d) Principal Repayment...........................................8
(e) Voluntary Prepayments or Permanent Reduction of Maximum
Line Availability.............................................8
(f) Application of Prepayments....................................9
2.02. Rate of Interest; Payment of Interest..............................9
(a) Rates of Interest.............................................9
(b) Payment of Interest...........................................9
(c) Default Rate of Interest......................................9
(d) Change in Prime Rate..........................................9
(e) Calculation of Interest.......................................9
2.03. Line Availability Fee..............................................9
2.04. Payments Under the Note...........................................10
2.05. Late Payment Fee..................................................10
2.06. Day of Payment....................................................10
2.07. Use of Proceeds...................................................10
2.08. Negative Pledge Covenant..........................................10
2.09. Subordination of Indebtedness to Third Parties....................10
III. REPRESENTATIONS AND WARRANTIES...........................................11
3.01. Financial Statements..............................................11
3.02. Organization of the Borrower......................................11
3.03. Authorization and Binding Effect..................................11
3.04. Litigation........................................................12
3.05. No Encumbrances or Defaults.......................................12
3.06. Indebtedness and Liens............................................12
3.07. Taxes.............................................................12
3.08. Investments.......................................................13
3.09. Borrower not an Investment Company................................13
3.10. Federal Reserve System Regulations................................13
3.11. ERISA Compliance..................................................13
3.12. No Misstatements or Omissions.....................................13
3.13. Solvency of Borrower..............................................14
3.14. Year 2000 Compliance..............................................14
3.15. Principal Place of Business; Location of Records..................14
3.16. Subsidiaries......................................................14
3.17. Stock.............................................................14
3.18. Environmental Matters.............................................14
(vi)
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3.19. Material Contracts...............................................16
3.20. Qualified Customer Orders. ......................................16
IV. CONDITIONS OF MAKING THE LOANS AND ADVANCES.............................16
4.01. Initial Advance..................................................16
4.02. Subsequent Advances..............................................17
V. AFFIRMATIVE COVENANTS...................................................18
5.01. Maintenance of Properties; Compliance with Laws..................18
5.02. Payment of Taxes; Debts..........................................18
5.03. Reports to Bank..................................................19
5.04. Inspection by Bank...............................................20
5.05. Accounting.......................................................20
5.06. Bank Accounts....................................................20
5.07. Insurance........................................................20
5.08. Notice of Proceedings, Defaults and Adverse Changes..............21
5.09. Additional Assurances............................................21
5.10. Year 2000 Compliance.............................................22
5.11. Tax Refund.......................................................22
5.12. Maintenance of Properties and Leases.............................22
5.13. Records, Accounts and Places of Business.........................22
5.14. Financial Advisor................................................22
VI. NEGATIVE COVENANTS......................................................23
6.01. Indebtedness.....................................................23
6.02. Liens............................................................23
6.03. Guarantees.......................................................24
6.04. Sale of Assets and Accounts Receivable...........................24
6.05. Sale and Leaseback...............................................24
6.06. Investments......................................................25
6.07. Reorganization...................................................25
6.08. Payments to Stockholders or Affiliates...........................25
6.09. Transactions with Affiliates.....................................25
6.10. ERISA............................................................25
VII. FINANCIAL COVENANTS.....................................................26
7.01. Quick Ratio......................................................26
7.02. Tangible Net Worth...............................................26
7.03. EBIT to Interest Ratio...........................................26
7.04. Minimum Qualified Customer Orders................................26
VIII. DEFAULTS................................................................26
IX. MISCELLANEOUS...........................................................29
9.01. Survival of Warranties...........................................29
9.02. Reimbursement of Bank's Expenses.................................29
9.03. Governing Law....................................................30
(vii)
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9.04. Waivers and Amendments............................................30
9.05. No Implied Waivers................................................30
9.06. Notices...........................................................30
9.07. Set-Off...........................................................31
9.08. Successors and Assigns............................................32
9.09. Counterparts......................................................32
9.10. Jurisdiction and Venue; Waiver of Jury Trial......................32
9.11. Savings Clause....................................................32
9.12. Headings..........................................................33
9.13. Indemnification by Borrower.......................................33
9.14. Third Party Beneficiaries.........................................33
(viii)
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SECOND AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT is made and entered
into as of the ___th day of November, 1998 by and between STORAGE COMPUTER
CORPORATION, a corporation formed under the laws of the State of Delaware, with
its principal place of business at 11 Riverside Street, Nashua, New Hampshire
03062-1373 (the "Borrower") and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company, with its principal place of business at 225
Franklin Street, Boston, Massachusetts 02110-2804 (the "Bank").
W I T N E S S E T H:
WHEREAS, the Bank and the Borrower are parties to a Loan Agreement
dated as of August 4, 1995, as amended as of August 20, 1996 and August 15, 1997
and amended and restated on August 28, 1998 (as so amended and restated, the
"Original Loan Agreement"), pursuant to which the Bank has extended to the
Borrower a line of credit in the maximum principal amount of $13,500,000; and
WHEREAS, the Borrower has requested that the Bank waive certain events
of default and make certain other amendments to the line of credit; and
WHEREAS, the Bank is willing to waive certain defaults and make such
amendments on the terms and conditions hereinafter set forth; and
WHEREAS, the parties hereto have agreed to amend and restate the
Original Loan Agreement in its entirety to reflect the changes requested by the
Borrower.
NOW, THEREFORE, in consideration of the premises and agreements
hereinafter set forth, and intending to be legally bound hereby, the Bank and
the Borrower hereby agree as follows:
I. DEFINITIONS
1.01. TERMS. As used in this Agreement, the following terms shall have
the meanings set out respectively after each such term (such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"ADVANCE" shall have the meaning set forth at Section 2.01 (b) hereof.
"AFFILIATE" shall mean, as applied to any Person, the spouse of such
Person, any relative of such Person within the third degree, any member,
director, officer, stockholder, warrant holder, general partner, limited
partner, manager or employee of such Person, any corporation, association,
partnership, firm or other entity of which such Person is a member, director,
officer, stockholder, general partner, limited partner, manager or employee and
any other Person directly or indirectly controlling, controlled by or under
direct or indirect common control with such Person.
"AFFILIATE SUBORDINATION AGREEMENT" shall have the meaning set forth in
Section 2.09 hereof.
"AGREEMENT" shall mean this Second Amended and Restated Loan Agreement,
as the same may be amended, restated or otherwise modified from time to time by
the parties hereto.
"BANK" shall mean State Street Bank and Trust Company, a Massachusetts
trust company, and its successors and assigns.
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"BORROWER" shall mean Storage Computer Corporation, a Delaware
corporation, and its successors and assigns.
"BUDGET" shall have the meaning set forth at Section 5.03(d) hereof.
"BUSINESS DAY" means a day (other than Saturday or Sunday) on which
banks are open for business in the City of Boston, Massachusetts.
"CAPITAL EXPENDITURE" shall mean any Capital Lease of a Person and any
plant or equipment expenditure or other expenditure by such Person which, in
accordance with generally accepted accounting principles, would be classified as
a capital expenditure and shown as a liability on the balance sheet of such
Person.
"CAPITAL LEASE" shall mean a lease of property that is required to be
recorded as a liability on the lessee's balance sheet under generally accepted
accounting principles, with the amount of a Capital Lease to be deemed to be the
amount of the liability so recorded.
"CLOSING" shall mean the closing of the loan transaction contemplated
by this Agreement.
"CLOSING DATE" shall mean the date set forth at the beginning of this
Agreement.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and all Treasury rules and regulations promulgated pursuant
thereto.
"COLLATERAL ASSIGNMENT OF MATERIAL CONTRACTS" shall mean that certain
Collateral Assignment of Material Contracts dated as of November ____, 1998 by
and between the Borrower and the Bank as the same may be amended, restated or
otherwise modified from time to time.
"CURRENT LIABILITIES" shall mean, at any date, the current liabilities
of the Borrower as determined in accordance with generally accepted accounting
principles.
"DEFAULT RATE" shall have the meaning set forth in Section 2.02(d)
hereof.
"DOLLARS" AND THE SIGN "$" shall mean lawful money of the United States
of America.
"EBIT" shall mean, with respect to a fiscal period, net income or loss
of the Borrower for such period, PLUS the following: (i) interest expenses
charged to income for such period, and (ii) state and federal income taxes
charged to income for such period, and (iii) extraordinary losses for such
period, MINUS extraordinary gains for such period.
"EBIT TO INTEREST RATIO" shall mean, with respect to a fiscal period, a
fraction, the numerator of which is equal to EBIT for such period, and the
denominator of which is equal to the Borrower's interest expense on all
Indebtedness for such period.
"ENVIRONMENTAL LAW" means any judgment, decree, order, law, license,
rule or regulation pertaining to environmental matters, or any federal, state,
county or local statute, regulation, ordinance, order or decree relating to
public health, welfare, the environment, or to the storage, handling, use or
generation of hazardous substances in or at the workplace, worker health or
safety, whether now existing or hereafter enacted.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EVENT OF DEFAULT" shall have the meaning set forth at Article VIII
hereof.
"FISCAL QUARTER" shall mean each quarterly period ending on March 31,
June 30, September 30 and December 31 in each year.
"GUARANTORS" shall mean all of the Borrower's now existing or
after-acquired Subsidiaries.
"GUARANTY AGREEMENTS" shall mean those certain Guaranty Agreements
dated November ____, 1998, from the Guarantors in favor of the Bank in the form
of EXHIBIT E hereto as the same may be amended, restated or otherwise modified
from time to time.
"INDEBTEDNESS" shall mean as to any Person: (a) any indebtedness or
liability for borrowed money, or for the deferred purchase price of property or
services (including trade obligations); (b) obligations as lessee under Capital
Leases; (c) current liabilities in respect of unfunded vested benefits under any
pension plan or similar plan of such Person or maintained by such Person; (d)
obligations of such Person under letters of credit issued for the account of
such Person; (e) obligations secured by any Lien on property owned by such
Person, whether or not the obligations have been assumed; and (f) guarantees by
such Person of Indebtedness of another Person.
"INVESTMENTS" shall mean any payment of money or property to a Person
in exchange for an equity interest or evidence of indebtedness of such Person or
in exchange for any right to acquire an interest in such person.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT" shall mean that certain
Intellectual Property Security Agreement dated November ____, 1998, by and
between the Bank and the Borrower as the same may be amended, restated or
otherwise modified from time to time.
"LANDLORD CONSENT AND ESTOPPEL CERTIFICATE" shall mean that certain
Landlord Consent and Estoppel Certificate dated November ____, 1998, in
connection with the Borrower's property located at 11 Riverside Street, Nashua,
New Hampshire.
"LATE PAYMENT FEE" shall have the meaning set forth in Section 2.05
hereof.
"LIEN" shall mean any mortgage, deed of trust, pledge, security
interest, hypothecation, assignment, deposit arrangement, encumbrance, lien
(statutory or other), preference, priority, or other security agreement or
preferential arrangement, charge, or encumbrance of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement), any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing statement under
the Uniform Commercial Code or comparable law of any jurisdiction to evidence
any of the foregoing.
"LINE OF CREDIT" shall mean the line of credit made available to the
Borrower under this Agreement in the maximum principal amount of Ten Million
Five Hundred Thousand Dollars ($10,500,000).
"LOAN DOCUMENTS" shall mean collectively, the Original Loan Agreement
as amended and restated in its entirety by this Agreement, the Original Note as
amended and restated in its entirety by the Note, the Subordination Agreements,
the Security Agreement, Intellectual Property Security Agreement, Collateral
Assignment of Material Contracts, Guaranty Agreements, Pledge Agreement, all
related financing statements, the Landlord Consent and Estoppel Certificate, as
amended, and any other document, agreement, instrument, schedule or exhibit
entered into or delivered in connection herewith or therewith or contemplated
3
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hereby or thereby or related hereto or thereto or otherwise referred to herein
or therein, all as may be amended, restated or otherwise modified from time to
time, and any other note or notes issued in replacement of the Note and all
extensions, renewals, modifications, substitutions, replacements, amendments and
restatements thereof or of the Note.
"LOANS" shall mean collectively loans made by the Bank to the Borrower
pursuant to this Agreement.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to the Borrower, a
material adverse effect on the properties, business, operations, assets or
condition (financial or otherwise) of the Borrower, or a material adverse effect
on the Borrower's ability to perform any of its obligations under any of the
Loan Documents.
"MATURITY DATE" shall mean March 1, 1999, the date upon which the Line
of Credit shall be due and payable in full, unless the payment thereof is
earlier made, whether upon demand, prepayment, or otherwise, or unless such date
is extended in writing by the Bank in its sole discretion.
"MAXIMUM LINE AVAILABILITY" shall mean Ten Million Five Hundred
Thousand Dollars ($10,500,000).
"NOTE" shall mean the secured Amended and Restated Line of Credit Note
in the maximum principal amount of Ten Million Five Hundred Thousand Dollars
($10,500,000) dated November ___, 1998 (as amended and restated as of the
Closing Date) issued by the Borrower to the Bank on the Closing Date) in the
form of EXHIBIT A annexed hereto, and all extensions, renewals, modifications,
substitutions, replacements, amendments and restatements thereof.
"OBLIGATIONS" shall mean collectively in each case whether now existing
or hereafter arising, direct or indirect, absolute or contingent, due or to
become due, liquidated or unliquidated, and whether or not evidenced by any
note: (i) all indebtedness, liabilities and obligations of the Borrower to the
Bank under this Agreement, the Note and the other Loan Documents, including,
without limitation, the interest accruing on the Note after the filing of any
bankruptcy or similar petition, reasonable attorneys' fees and collection costs
incurred in the enforcement or collection thereof, and any and all extensions,
renewals, modifications, substitutions, replacements, amendments and
restatements of any of the foregoing, and (ii) any and all other indebtedness,
liabilities and obligations of the Borrower to the Bank.
"ORIGINAL LOAN AGREEMENT" shall mean the Loan Agreement dated as of
August 4, 1995, as amended as of August 20, 1996 and August 15, 1997 and as
amended and restated on August 28, 1998 between the Bank and the Borrower.
"ORIGINAL NOTE" shall mean the secured Amended and Restated Line of
Credit Note in the maximum principal amount of Ten Million Dollars ($10,000,000)
issued by the Borrower on August 4, 1995 (as amended and restated as of August
20, 1996 and August 28, 1998).
"PERSON" shall mean a corporation, a limited liability company, an
association, a general or limited partnership, a limited liability partnership,
a joint venture, a trust, an organization, any business entity, a natural person
or any government or agency or political subdivision thereof.
PLANS" shall have the meaning set forth in Section 6.10 hereto.
"PLEDGE AGREEMENTS" shall mean that certain Pledge Agreement dated
November ____, 1998, by and between the Bank and Borrower in the Form of EXHIBIT
F hereto, as the same may be amended, restated or otherwise modified from time
to time.
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"PRIME RATE" shall mean the rate of interest announced by the Bank in
Boston, Massachusetts from time to time as its "prime rate", as adjusted to
conform to changes as of the opening of business on the date of any such change
in the Prime Rate. Each change in the interest rate hereunder and under the Note
shall take effect simultaneously with the corresponding change in such Prime
Rate.
"PROJECTIONS" shall have the meaning set forth in Section 3.01(b)
hereof.
"QUALIFIED CUSTOMER ORDERS" shall mean orders from unaffiliated
customers of the Borrower evidenced by valid, enforceable, written purchase
orders or contracts.
"QUICK RATIO" shall mean, as measured on the last day of a Fiscal
Quarter, a fraction, the numerator of which is equal to the aggregate sum of the
Borrower's cash, accounts receivable and marketable securities, and the
denominator of which is equal to the Borrower's Current Liabilities. For the
purpose of financial covenant compliance, Current Liabilities shall include the
outstanding balance under the Line of Credit as of the compliance date.
"RESTRICTED PAYMENT" shall mean any payment, dividend or other
distribution, direct or indirect by the Borrower in cash, property, securities
or other assets to any of its partners, or stockholders, as applicable, or to
any Affiliate of any of its partners or stockholders, as applicable, including,
without limitation, distributions, reimbursements, dividends, salaries, payments
of interest or principal, and payments for the purpose of purchasing, retiring
or redeeming any ownership or other equity interests in the Borrower or making
any distribution or return of capital in respect of such interests, excluding,
however, reasonable compensation paid to any stockholder or partner who is an
existing employee of the Borrower.
"SECURITY AGREEMENT" shall mean that certain Security Agreement dated
November ____, 1998 by and between the Bank and the Borrower, as the same may be
amended, restated or otherwise modified from time to time.
"SHAREHOLDER NOTE" shall mean the demand promissory note issued by the
Borrower in favor of Theodore J. Goodlander during the Borrower's 1996 fiscal
year in the original principal amount of $910,000, of which $710,000 is
currently outstanding as of November, 1998, and any extension, renewal,
modification, substitution or amendment thereof, and any other promissory notes,
now or in the future, issued by the Borrower in favor of Theodore J. Goodlander,
and subject to a Subordination Agreement as set forth in Section 2.09 hereof.
"SUBORDINATION AGREEMENT" shall have the meaning set forth in Section
2.09 hereof.
"SUBSIDIARIES" shall mean any Person of which the Borrower or other
specified parent shall now or hereafter at the time own, directly or indirectly
through one or more Subsidiaries or otherwise, sufficient voting stock (or other
beneficial interest) to entitle it to elect at least a majority of the board of
directors or trustees or similar managing body.
"TANGIBLE NET WORTH" shall mean the total of all assets of the Borrower
appearing on a balance sheet prepared in accordance with generally accepted
accounting principles, after deducting therefrom (without duplication of
deductions): (i) any write-up in the book carrying value of any asset resulting
from a re-evaluation thereof subsequent to December 31, 1989; (ii) all reserves,
including but not limited to reserves for liabilities, fixed or contingent,
deferred income taxes, obsolescence, depletion, insurance, and inventory
valuation, which are not deducted from assets; and (iii) all Indebtedness (after
eliminating inter-company items), MINUS, all of the Borrower's intangible
assets, including, without limitation, goodwill, intellectual property,
organizational costs, non-compete agreements, and deferred financing costs.
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"YEAR 2000 COMPLIANCE" OR "YEAR 2000 COMPLIANT" shall mean the
operation of computer systems material to the business and operations of the
Borrower such that dates after 12/31/99 will be properly recognized by the
computer systems.
1.02. OTHER DEFINITIONAL PROVISIONS.
(a) Except as otherwise specifically provided for herein, all
accounting terms used in this Agreement shall be construed in accordance with
generally accepted accounting principles consistently applied and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
such principles.
(b) All terms defined in this Agreement shall have the
above-defined meanings when used in the Note or any other Loan Document,
schedule, exhibit, certificate, report or other document made or delivered
pursuant to this Agreement or any other Loan Document, unless the context
therein shall otherwise require.
(c) The words "hereof", "herein", "hereunder" and similar
terms when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
(d) References, if any, to any obligations or liabilities of
the "Borrower" shall refer to the joint and several obligations of such Persons,
if more than one Borrower.
(e) Wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, feminine and neuter.
II. THE LOANS
2.01. LINE OF CREDIT; ADVANCES; THE NOTE.
(a) LINE OF CREDIT. Subject to the terms and conditions
contained in this Agreement, and so long as there shall have been no material
adverse change in the Borrower's financial condition since the time of the
Borrower's most recent request for a disbursement hereunder, the Bank agrees to
make loans to the Borrower from time to time from the date hereof to, but not
including, the Maturity Date (collectively, the "Loans") in the aggregate
principal amount not to exceed at any time outstanding the amount of the Maximum
Line Availability (the "Line of Credit"). Prior to the Maturity Date, and except
as otherwise provided in this Agreement, the Borrower may borrow, repay and
re-borrow within the limits of the Maximum Line Availability. Each Loan shall be
made and maintained at the Bank's principal place of business.
(b) ADVANCES UNDER THE LINE OF CREDIT. Requests for loans
under the Line of Credit (each an "Advance" and collectively, the "Advances")
may be made by the Borrower by written notice to the Bank in the form of Exhibit
B annexed hereto (each a "Request for Advance") (effective upon receipt by the
Bank) by 2:00 p.m. Eastern time on the day each such Loan is requested,
specifying: (1) the requested date of such Loan, and (2) the amount of such
Loan. Subject to the terms and conditions of this Agreement, loans requested as
set forth herein will be funded by crediting the Borrower's demand deposit
account at the Bank by the close of business on the day such Advance or date of
borrowing, as applicable, is requested. Advances shall be in an amount of at
least Ten Thousand Dollars ($10,000), or if less, the unused portion of the
Maximum Line Availability. Any Loans for which no Request for Advance is
received shall be governed
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by the Borrower's LMCS Agreement, if any, with the Bank. Each Request for
Advance shall be irrevocable and binding on the Borrower.
(c) THE NOTE. The Loans shall be evidenced by the Note and
shall bear interest and mature as set forth in the Note and in this Agreement.
(d) PRINCIPAL REPAYMENT. The outstanding principal balance of
the Note shall be due and payable in full on the Maturity Date.
(e) VOLUNTARY PREPAYMENTS OR PERMANENT REDUCTION OF MAXIMUM
LINE AVAILABILITY. The Borrower may prepay the Note in whole or in part at any
time and from time to time, or permanently reduce or terminate the Maximum Line
Availability, PROVIDED THAT (i) any prepayment of the full amount of the Note or
permanent reduction or termination of the Maximum Line Availability shall be
accompanied by the full payment of all accrued interest and fees due thereon,
(ii) any partial prepayment of the Note shall be accompanied by the payment of
interest and fees due through the date of any such prepayment on that portion of
the Note being prepaid, and (iii) any prepayment of the Note or permanent
reduction or termination of the Maximum Line Availability shall be made upon not
less than one (1) Business Day prior written notice to the Bank. Any funds
applied to prepay the outstanding principal balance of the Note may be
readvanced, subject at all times to the terms and conditions of this Agreement.
(f) APPLICATION OF PREPAYMENTS. All prepayments (whether
voluntary, mandatory or permanent) shall, unless otherwise determined by the
Bank, be applied first to overdue interest and fees, second to accrued but
unpaid interest and fees, and finally, to prepayment of the outstanding
principal balance of the Note.
2.02. RATE OF INTEREST; PAYMENT OF INTEREST.
(a) RATES OF INTEREST. The Note shall bear interest on the
unpaid principal amount thereof at a rate per annum equal to the Prime Rate plus
one-quarter percent (1/4%).
(b) PAYMENT OF INTEREST. Interest under the Note shall be
payable monthly in arrears on the first day of each month, commencing on the
first day of the month next succeeding the Closing Date, and at maturity,
whether by reason of demand, acceleration, payment, prepayment or otherwise.
(c) DEFAULT RATE OF INTEREST. Notwithstanding subsection (a)
of this Section 2.02, at the Bank's option, if an Event of Default shall have
occurred and shall be continuing after the expiration of any applicable cure
period, then, in such event, the interest rate applicable to the Note (the
"Default Rate") shall be four percent (4%) in excess of the Prime Rate, which
Default Rate shall become effective on the date such Event of Default occurs and
shall continue in effect until such Event of Default is either cured by the
Borrower, waived by the Bank or in the case of incurable financial covenant
defaults under Article VII hereof, which are not waived by the Bank, the
Borrower shall have returned to being in compliance therewith.
(d) CHANGE IN PRIME RATE. Each change in the interest rate
payable under the Note shall take effect simultaneously with the corresponding
change in such Prime Rate.
(e) CALCULATION OF INTEREST. Interest shall be calculated on
the basis of a three hundred sixty (360) day year, counting the actual number of
days elapsed.
2.03. LINE AVAILABILITY FEE. In consideration of the Bank's entering
into this Agreement, while any portion of the Line of Credit is outstanding, the
Borrower shall pay to the Bank an annual fee (the "Line
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Availability Fee") in the amount of one-quarter of one-percent (1/4%) per annum
of the average daily balance of the unused portion of the Maximum Line
Availability, payable quarterly in arrears on the last day of each March, June,
September and December, commencing September 30, 1998. The Line Availability Fee
shall be calculated on the basis of a three hundred sixty (360) day year,
counting the actual number of days elapsed.
2.04. PAYMENTS UNDER THE NOTE. All payments made by the Borrower of
principal of, and interest on, the Note, and other sums and charges payable
hereunder shall be made to the Bank by debiting by the Bank of the demand
deposit account(s) in the name of the Borrower at the Bank, or in such other
reasonable manner as may be designated by the Bank in writing to the Borrower,
and in any event shall be made in immediately available funds. The Borrower
hereby authorizes the Bank to so debit any one or more of its demand deposit
account(s) for such payments.
2.05. LATE PAYMENT FEE. If any payment due hereunder or under the
Note is not paid within five (5) days after the date such payment is due, then
the Borrower shall pay to the Bank, to the extent permitted by law, a fee (the
"Late Payment Fee") equal to two percent (2%) of the amount of the late payment.
2.06. DAY OF PAYMENT. Whenever any payment to be made hereunder or
under the Note shall become due and payable on a day which is not a Business
Day, such payment may be made on the next succeeding Business Day and, in the
case of any payment of principal, such extension of time shall in such case be
included in computing interest on such payment.
2.07. USE OF PROCEEDS. The proceeds of the Loans shall be used by
the Borrower for working capital purposes (and for no other purposes without the
prior written consent of the Bank).
2.08. NEGATIVE PLEDGE COVENANT. The Borrower covenants and agrees
not to encumber, pledge, mortgage, hypothecate, or grant security interests in
or other liens on any of its assets (whether tangible or intangible or now owned
or hereafter acquired), other than pursuant to the Loan Documents, without the
prior written consent of the Bank.
2.09. SUBORDINATION OF INDEBTEDNESS TO THIRD PARTIES. The Borrower
shall deliver to the Bank, or cause to be delivered to the Bank by the
appropriate parties thereto, one or more intercreditor and subordination
agreements providing for the subordination to the Obligations of all
Indebtedness of the Borrower to Theodore J. Goodlander and if requested by the
Bank, its other Affiliates, pursuant to one or more subordination agreements
(each an "Affiliate Subordination Agreement") in form and substance satisfactory
to the Bank and its counsel.
The agreement(s) described in this Section 2.09 are sometimes
hereinafter collectively referred to as the "Subordination Agreements" and each
individually as a "Subordination Agreement". The Borrower and each such
subordinated creditor shall take such further action and execute such documents
as may be necessary from time to time to enable the Bank to obtain and maintain
the subordination referred to herein.
III. REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and to make
the Loans, the Borrower represents and warrants to the Bank (which
representations and warranties shall survive the delivery of the Note and the
making of the Loans) that:
3.01. FINANCIAL STATEMENTS. The Borrower has heretofore delivered to
the Bank:
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(a) Copies of audited balance sheets and statements of income
and loss and cash flows of the Borrower for the fiscal years ending December 31,
1995, 1996 and 1997 and unaudited interim financial statements for the
nine-month period ending September 30, 1998. Said financial statements (i) are
complete and correct in all material respects and fairly present the financial
condition and the results of operations of the Borrower at the dates thereof,
and (ii) except as otherwise disclosed in writing to the Bank, have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with that of preceding periods. Since the dates of such
financial statements, there have been no material adverse changes in the
condition of the Borrower, financial or otherwise. Except as disclosed in said
financial statements, the Borrower has no contingent obligations, liabilities
for taxes, long-term debt or other forward or long-term commitments.
(b) Statements of projected revenues, expenses and operating
income of the Borrower through fiscal year ending December 31, 1998 (the
"Projections"), a copy of which is attached hereto as Schedule 3.01. The
Borrower has prepared the Projections in good faith on the basis of reasonable
and prudent assumptions and believes the financial projections set forth therein
to be reasonable in light of currently available information. To the best of
Borrower's knowledge, based on available information, the Projections do not
omit to state any material fact known to the Borrower to be necessary in order
to make the Projections not misleading. The Bank agrees to use its best efforts
to retain the confidentiality of the Projections but shall incur no liability
for its failure to do so except as a result of its own wilful or gross
negligence.
3.02. ORGANIZATION OF THE BORROWER. The Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
State of Delaware, (ii) has the power and authority to own its properties and to
carry on its business as now being conducted and as presently contemplated,
(iii) is duly qualified to transact business in all states where the nature of
its activities requires such qualification or where the failure to qualify would
not have a Material Adverse Effect on the Borrower, and (iv) has the power and
authority to execute, deliver and perform its obligations under the Loan
Documents.
3.03. AUTHORIZATION AND BINDING EFFECT. The execution, delivery of,
and performance by the Borrower of its obligations under the Loan Documents have
been duly authorized by all requisite corporate action of the Borrower and
neither the execution and performance of, nor the execution and delivery of any
of the Loan Documents will (A) violate any provision of (i) law, any order,
judgment or decree of any court or other agency of government, (ii) the
Certificate of Incorporation or Bylaws of the Borrower, (iii) any indenture,
agreement or other instrument to which the Borrower is a party, or by which the
Borrower is bound, or (B) be in conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or instrument, or (C) (except as may be permitted by this
Agreement) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of the
Borrower pursuant to any such indenture, agreement or instrument. The Loan
Documents constitute the legal, valid and binding obligations of the Borrower,
and are enforceable in accordance with their respective terms.
3.04. LITIGATION. There is no action, suit or proceeding at law or
in equity or by or before any governmental instrumentality or other agency
(including any arbitration board or tribunal) now pending or, to the knowledge
of the Borrower, threatened against or affecting the Borrower (nor to Borrower's
knowledge does any basis exist for such an action, suit or proceeding) (a)
which, if adversely determined, would be likely to have a Material Adverse
Effect on the Borrower, or (b) which questions the validity of any of the Loan
Documents, or any action taken or to be taken pursuant thereto.
3.05. NO ENCUMBRANCES OR DEFAULTS. The Borrower is not a party to
any agreement or instrument or subject to any corporate, contractual or other
restriction materially adversely affecting its business, properties, assets,
operations or condition, financial or otherwise, taken as a whole. The Borrower
is not in violation of any provision of its Certificate of Incorporation. The
Borrower is not in violation of any material indenture, agreement or instrument
to which it is a party, or by which it is bound, or, to the best of
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the Borrower's knowledge and belief, of any provision of law, the violation of
which could have a Material Adverse Effect upon the Borrower, or any order,
judgment or decree of any court or other agency of government. Without limiting
the scope of the foregoing, the Borrower is in compliance in all material
respects with all federal, state and local laws and regulations, including all
federal and state securities laws and regulations, the violation of which could
have a Material Adverse Effect on the Borrower. There is no fact known to the
Borrower which materially adversely affects the business, operations, affairs or
condition of either of the Borrower or any of its respective properties, which
has not been set forth in this Agreement or in the exhibits and schedules to
this Agreement.
3.06. INDEBTEDNESS AND LIENS. The Borrower has no Indebtedness
except for Indebtedness permitted by Section 6.01 hereof, and there are no Liens
on any assets of the Borrower except Liens permitted by Section 6.02 hereof.
3.07. TAXES. The Borrower has filed all tax returns required by law
to be filed and has paid all taxes, assessments and other governmental charges
levied upon its properties, assets, and income, other than those not yet
delinquent. There are no unpaid assessments for additional taxes and no basis
therefor. The Borrower has paid all assessments and other charges levied upon
its properties.
3.08. INVESTMENTS. Other than Investments permitted by Section 6.06,
the Borrower has no Investments and does not hold or own any equity or similar
ownership interests or any rights to acquire the same in any Person.
3.09. BORROWER NOT AN INVESTMENT COMPANY. The Borrower is not an
"investment company", or a company "controlled" by an "investment company", as
such terms are defined in the Investment Borrower Act of 1940, as amended.
3.10. FEDERAL RESERVE SYSTEM REGULATIONS. The Borrower does not own
and has no present intention of acquiring, any "margin security" within the
meaning of Regulation G (12 CFR Part 207), or any "margin stock" within the
meaning of Regulation U (12 CFR Part 221), of the Board of Governors of the
Federal Reserve System (herein called "margin security" and "margin stock").
None of the proceeds of the Loans will be used, directly or indirectly, by the
Borrower for the purpose of purchasing or carrying, or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry, any margin security or margin stock or for any other purpose which
might constitute the transactions contemplated hereby a "purpose credit" within
the meaning of said Regulation G or Regulation U, or cause this Agreement to
violate any other regulation of the Board of Governors of the Federal Reserve
System or the Securities Exchange Act of 1934, as amended, or any rules or
regulations promulgated under any of such statutes. Neither the consummation of
the Loans hereunder, nor the use, directly or indirectly, of all or any portion
of the proceeds thereof, will violate or result in a violation of any provision
of any applicable statute, regulation or order of, or any restriction imposed
by, the United States of America or by any authorized official, board,
department, instrumentality or agency thereof relating to the control of foreign
or overseas lending or investment.
3.11. ERISA COMPLIANCE. The Borrower has not incurred (a) any
accumulated funding deficiency within the meaning of ERISA, or (b) any material
liability to the Pension Benefit Guaranty Corporation established under ERISA
(or any successor thereto under such Act) in connection with any employee
benefit plan established or maintained by the Borrower; nor has the Borrower had
any tax assessed against it by the Internal Revenue Service for any alleged
violation under Section 4975 of the Code.
3.12. NO MISSTATEMENTS OR OMISSIONS. No statement of fact made by or
on behalf of the Borrower in this Agreement or in any certificate or schedule
furnished to the Bank pursuant hereto, or otherwise delivered by the Borrower to
the Bank, contains any untrue statement of a material fact or omits to state any
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material fact necessary to make statements contained therein or herein not
misleading. There is no fact presently known to the Borrower which has not been
disclosed to the Bank which materially affects adversely, nor as far as the
Borrower can foresee, will materially affect adversely the property, business,
operations or condition (financial or otherwise) of the Borrower taken as a
whole.
3.13. SOLVENCY OF BORROWER. Entering into this Agreement, making and
delivering the Note and the borrowings under this Agreement, do not and will not
render the Borrower insolvent or unable to pay its debts as they become due. The
Borrower is not contemplating either the filing of a petition under any state or
federal bankruptcy or insolvency law or the liquidating of all or a major
portion of its property, and the Borrower has no knowledge of any person
contemplating the filing of any such petition against it or any of its assets.
After giving effect to the transactions contemplated by this Agreement
(including all borrowings to be made hereunder), the Borrower is and will be
able to pay its debts as such debts become due and will have and continue to
have capital sufficient to carry on its business as presently conducted and as
presently contemplated to be conducted.
3.14. YEAR 2000 COMPLIANCE. The Borrower has taken all necessary
action to assess and evaluate all of the hardware, software embedded microchips
and other processing capabilities that it uses, directly or indirectly, and made
inquiry of the Borrower's material suppliers and vendors, to ensure that it will
be able to function accurately and without interruption using date information
before, during and after January 1, 2000.
3.15. PRINCIPAL PLACE OF BUSINESS; LOCATION OF RECORDS. The
Borrower's and each of its Subsidiaries' principal place of business is as set
forth on SCHEDULE 3.15 hereto and the Borrower and each of its Subsidiaries has
had no other principal place of business during the last six months. All of the
books and records or true and complete copies thereof relating to the accounts
and contracts of the Borrower and each of its Subsidiaries are and will be kept
at such locations.
3.16. SUBSIDIARIES. The Borrower has no Subsidiaries except for
those listed in SCHEDULE 3.16 hereto. All of the issued and outstanding capital
stock of each Subsidiary listed on SCHEDULE 3.16 hereto is owned of record and
beneficially by the Borrower.
3.17. STOCK. There are presently issued by the Borrower and its
Subsidiaries and outstanding the shares of capital stock indicated on SCHEDULE
3.17 hereto. The Borrower and its Subsidiaries have received the consideration
for which such stock was authorized to be issued and have otherwise complied
with all legal requirements relating to the authorization and issuance of shares
of stock and all such shares are validly issued, fully paid and non-assessable.
The Borrower and its Subsidiaries have no other capital stock of any class
outstanding.
3.18. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.18
hereto.
(a) None of the Borrower, any of its Subsidiaries, nor any
operator of any of their respective properties is in violation, or to the
Borrower's knowledge is in alleged violation, of any Environmental Law, which
violation would have a material adverse effect on the business, assets or
financial condition of the Borrower or any of its Subsidiaries.
(b) None of the Borrower any of its Subsidiaries or any
operator of any of their respective properties has received notice from any
third party, including without limitation any federal, state, county, or local
governmental authority, (i) that it has been identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 as amended ("CERCLA") or any equivalent state law,
with respect to any site or location; (ii) that any hazardous waste, as defined
in 42 U.S.C. ss. 6903(5), any hazardous substances, as defined in 42 U.S.C. ss.
9601(14), any pollutant or contaminant, as defined in 42 U.S.C. ss. 9601(33), or
any toxic substance, oil or hazardous materials or other
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chemicals or substances regulated by any Environmental Laws ("Hazardous
Substances") which it has generated, transported or disposed of, has been found
at any site at which a federal, state, county, or local agency or other third
party has conducted or has ordered the Borrower, any of its Subsidiaries or
another third party or parties (E.G. a committee of potentially responsible
parties) to conduct a remedial investigation, removal or other response action
pursuant to any Environmental Law; or (iii) that it is or shall be a named party
to any claim, action, cause of action, complaint (contingent or otherwise) or
legal or administrative proceeding arising out of any actual or alleged release
or threatened release of Hazardous Substances. For purposes of this Agreement,
"release" means any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, disposing or
dumping of Hazardous Substances into the environment.
(c) (i) The Borrower, each of its Subsidiaries and each
operator of any real property owned or operated by the Borrower is in
compliance, in all material respects, with all provisions of the Environmental
Laws relating to the handling, manufacturing, processing, generation, storage or
disposal of any Hazardous Substances; (ii) to the best of the Borrower's
knowledge, no portion of property owned, operated or controlled by the Borrower
or any of its Subsidiaries has been used for the handling, manufacturing,
processing, generation, storage or disposal of Hazardous Substances except in
accordance with applicable Environmental Laws; (iii) to the best of the
Borrower's knowledge, there have been no releases or threatened releases of
Hazardous Substances on, upon, into or from any property owned, operated or
controlled by the Borrower or any of its Subsidiaries, which releases could have
a material adverse effect on the value of such properties or adjacent properties
or the environment; (iv) to the best of the Borrower's knowledge, there have
been no releases of Hazardous Substances on, upon, from or into any real
property in the vicinity of the real properties owned, operated or controlled by
the Borrower or any of its Subsidiaries which, through soil or groundwater
contamination, may have come to be located on the properties of the Borrower or
any of its Subsidiaries; (v) there have been no releases of Hazardous Substances
on, upon, from or into any real property formerly but no longer owned, operated
or controlled by the Borrower or any of its Subsidiaries.
(d) None of the properties of the Borrower nor any of its
Subsidiaries is subject to any applicable environmental cleanup responsibility
law or environmental restrictive transfer law or regulation by virtue of the
transactions set forth herein and contemplated hereby.
3.19. MATERIAL CONTRACTS. Except as described in SCHEDULE 3.20
hereto, there are no contracts, agreements or documents of a similar nature
which if breached or terminated could result in any material adverse change in
the business or assets or in the condition, financial or otherwise, of the
Borrower or any of its Subsidiaries.
3.20. QUALIFIED CUSTOMER ORDERS. The Borrower's Qualified Customer
Orders for the period of October 1, 1998 through November 9, 1998 were
$2,400,000.
IV. CONDITIONS OF MAKING THE LOANS AND ADVANCES.
4.01. INITIAL ADVANCE. The Bank shall have no obligation to make the
initial Advance of Loans unless:
(a) The representations and warranties set forth in Article
III hereof and in the Loan Documents and each and every Exhibit, Schedule,
instrument, document or agreement delivered in connection therewith shall be
true and correct in all material respects on and as of the date hereof and shall
be true and correct in all material respects as of the date the first Advance is
made, and the Borrower shall have performed all obligations which were to have
been performed by it hereunder prior to the date the first Advance is made.
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(b) No Event of Default shall have occurred and be
continuing beyond any applicable grace or cure period set forth in Article VIII
hereof, and no event which upon notice or lapse of time, or both, would
constitute such an Event of Default, shall have occurred and be continuing
beyond any applicable grace or cure period set forth in Article VIII hereof, nor
would result from the making of such Advance.
(c) The Borrower shall have executed and delivered, or
caused to be executed and delivered, to the Bank, the following:
(i) This Agreement, the Note, the Security
Agreement (and related UCC-1 financing
statements), Intellectual Property Security
Agreement, Collateral Assignment of Material
Contracts, Guaranty Agreements, Pledge
Agreements (and related stock certificates
and stock powers), all related financing
statements, the Landlord Consent and
Estoppel Certificate, and the Amended and
Restated Affiliate Subordination Agreement
consistent with the transactions
contemplated by this Agreement; together
with any other documents required by the
terms thereof;
(ii) A certificate of the Secretary or Assistant
Secretary of the Borrower and Guarantors
certifying to the accuracy, conformity to
prevailing law and completeness of
resolutions adopted by its directors (and,
if necessary, its stockholders) authorizing
the execution and delivery by the Borrower
of each Loan Documents to which it is a
party, and certifying the names of the
officers authorized to sign such Loan
Documents, with the true signatures of such
Persons. The Bank may conclusively rely on
such certificates until it shall receive a
further certificate of the Secretary or
Assistant Secretary of the Borrower,
canceling or amending the prior certificate
and submitting the signatures of the
officers named in such further certificate;
(iii) A copy of the Articles of Incorporation of
the Borrower, and all amendments thereto
through the Closing Date, certified as of a
recent date as true and correct by the
Secretary of the State of its incorporation,
and a copy of the by-laws of the Borrower,
and all amendments thereto through the
Closing Date, certified as true and correct
by its Secretary or Assistant Secretary, or
if no amendments thereto since previously
delivered to the Bank, a certificate of the
Secretary of the Borrower certifying as to
the accuracy and completeness of such
Certificate of Incorporation and by-laws as
previously delivered to the Bank;
(iv) The certificates of insurance required by
Section 5.07 hereof;
(v) The favorable written opinion of counsel for
the Borrower and Guarantors dated the date
of this Agreement, satisfactory to the Bank
in scope and substance, in substantially the
form of Exhibit B attached hereto;
(vi) The Shareholder Note; and
(vii) Such further supporting documents as the
Bank may reasonably request.
(d) All legal matters incident to the transactions
contemplated hereby shall be satisfactory to counsel to the Bank.
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4.02. SUBSEQUENT ADVANCES. The Bank shall have no obligation to make
further Advances of Loans unless:
(a) The representations and warranties set forth in Article
III hereof and in the Loan Documents and each and every Exhibit, Schedule,
instrument, document or agreement delivered in connection therewith shall be
true and correct as of the date of the Advance (except to the extent affected by
transactions occurring after the date hereof and permitted hereunder);
(b) No Event of Default shall have occurred and be continuing
beyond any applicable grace or cure period set forth in Article VIII hereof, and
no event which upon notice or lapse of time, or both, would
constitute such an Event of Default, shall have occurred and be continuing
beyond any applicable grace or cure period set forth in Article VIII hereof, nor
would result from the making of such Advance;
(c) All legal matters incident to the transactions
contemplated hereby shall be satisfactory to counsel for the Bank.
V. AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that for so long as the Bank
has any obligation to extend credit to the Borrower hereunder, and so long as
there remains outstanding any of the principal of, and interest on, the Note and
any other indebtedness of the Borrower to the Bank, whether now existing or
arising hereafter, the Borrower will:
5.01. MAINTENANCE OF PROPERTIES; COMPLIANCE WITH LAWS. (a) Do or
cause to be done all things necessary to preserve, renew and keep in full force
and effect its legal existence, and all material rights, licenses, and permits;
(b) comply in every material respect with all laws and regulations applicable
and to all material agreements to which it is a party, including all agreements
with its stockholders, the violation of which could have a material adverse
effect upon the business or financial condition of the Borrower taken as a
whole; (c) at all times maintain, preserve and protect its trade names,
trademarks, copyrights, and similar or other intellectual or intangible property
and preserve all the remainder of its material properties (whether tangible or
intangible) used or useful in the conduct of its business and keep the same in
good repair, working order and condition; and (d) from time to time, make, or
cause to be made, all needful and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
5.02. PAYMENT OF TAXES; DEBTS. Pay and perform all of its
Obligations hereunder and under the other Loan Documents, and pay and discharge
as they become due or before late charges accrue all of its Indebtedness and all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income and profits or upon any of its property, real, personal or mixed, or
upon any part thereof, before the same shall become in default, as well as all
lawful claims for labor, materials and supplies or otherwise, which, if unpaid,
might become a lien or charge upon such properties or any part thereof, unless
the Borrower is contesting such Indebtedness, levies, claims or charges in good
faith and has set aside adequate reserves on its books in respect thereof;
provided, however, that in any event all such Indebtedness, claims, levies and
charges shall be paid before any property of the Borrower is seized or attached
in respect thereof.
5.03. REPORTS TO BANK. Furnish to the Bank:
(a) Within ninety (90) days of the end of each fiscal year,
audited balance sheets and statement of income (operation) on a consolidated
basis and management prepared on a consolidating basis, and a statement of cash
flow, together with (i) supporting schedules, setting forth in each case in
comparative form the corresponding figures for the preceding fiscal year, and
(ii) copies of auditor's management letters,
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in each case with an unqualified certification by a certified public accountant
selected by the Borrower and acceptable to the Bank, the form of certification
to be also satisfactory to the Bank, showing the Borrower's financial condition
at the close of such fiscal year, and the results of operations during such year
and containing a statement to the effect that such accountants have examined the
provisions of this Agreement and that, to the best of their knowledge, no Event
of Default, nor any event which upon notice or lapse of time or both would
constitute an Event of Default, has occurred (or, if such event has occurred, a
statement explaining its nature and extent); provided however, that in issuing
such statement, the accountants shall not be required to exceed the scope of
normal auditing procedures conducted in connection with their opinion referred
to above.
(b) Within thirty (30) days after the end of each month,
balance sheets and statement of income (operation) on a consolidated and
consolidating basis, and a statement of cash flow for such month and for the
year-to-date, together with supporting schedules setting forth in each case in
comparative form the corresponding figures for the preceding fiscal period of
the same duration in the prior fiscal year and the corresponding figures from
the Budget, in each case prepared by management of the Borrower and certified by
the Borrower's chief executive officer or chief financial officer, such balance
sheet to be as of the close of such month, and such statements of income
(operation) and cash flow to be for the month then ended and the period from the
beginning of the then current fiscal year to the end of such month (in each case
subject to normal audit and year-end adjustments).
(c) Within forty-five (45) days of the end of each Fiscal
Quarter, a certificate of covenant compliance in the form of Exhibit C attached
hereto, prepared and signed by the chief executive officer or chief financial
officer of the Borrower setting forth the amount required to be calculated by
the financial covenants of this Agreement and certifying to the fact that such
officer has examined the provisions of this Agreement and that no Event of
Default nor any event which upon notice or lapse of time, or both, would
constitute such an Event of Default, has occurred (or, if such an event has
occurred, a statement explaining its nature and extent).
(d) Prior to the commencement of each fiscal year (but no
later than December 15th of the prior year), a budget of projected income and
cash flow statement for the Borrower for the coming year detailed for each
calendar month and showing the expected results of operation of the Borrower
(the "Budget"). Such budget shall have been approved by the Borrower's Board of
Directors. The Bank agrees to use its best efforts to retain the confidentiality
of the Budget but shall incur no liability for its failure to do so except as a
result of its own wilful or gross negligence.
(e) Promptly upon receipt thereof, copies of all financial
reports (including, without limitation, management letters), if any, submitted
to the Borrower by its auditors in connection with each annual, interim or
special audit of its books by such auditors.
(f) Within fifteen (15) days of the end of each month, (i)
monthly sales reports setting forth in each case in comparative form the
corresponding figures for the preceding month, (ii) monthly backlog reports and
(iii) monthly detailed aging of accounts receivable and inventory reports, each
in detail satisfactory to the Bank.
(g) On or before November __, 1998, the information set forth
on SCHEDULE 5.03 hereto.
(h) Other information as the Bank may request from time to
time.
5.04. INSPECTION BY BANK. Permit agents or representatives of the
Bank to inspect, at reasonable hours and upon reasonable notice, its books and
records and to make abstracts or reproductions thereof. Absent the existence of
any default under the Loan Documents, field audit exams shall be conducted no
more frequently than quarterly, at the expense of the Borrower ($1,500 per
exam).
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5.05. ACCOUNTING. Maintain a standard system of accounting
consistent with reports and financial statements previously delivered to the
Bank.
5.06. BANK ACCOUNTS. Maintain its principal operating and
disbursement accounts at the Bank and maintain sufficient balances on the date
payments are due to permit payment in full by the Borrower of all obligations
when due under the Note as authorized by the provisions of Section 2.07 hereof.
As soon as practical, the Borrower will establish and maintain a lock box or
similar cash management system at the Bank or another institution elected by the
Bank for cash collections satisfactory to the Bank. The Borrower shall direct
all of its customers and account debtors to make payments on all of its account
receivables to such lock box or similar account as the Bank requests. The
Borrower shall immediately transfer all cash collections it receives into such
account.
5.07. INSURANCE. Maintain (i) casualty insurance with such carriers
and in such amounts and on such other terms as shall be customarily carried by
comparable companies and satisfactory to the Bank, but in any event in the
amount of at least $1,000,000; (ii) public general comprehensive liability
insurance in a manner and with companies satisfactory to the Bank and
customarily carried by comparable companies, but in any event such general
comprehensive liability policies shall have a single limit of liability in an
amount not less than $1,000,000 for each occurrence of bodily injury or death
and $1,000,000 for each occurrence of property damage; (iii) extra expense
insurance and (iv) insurance required under the Security Agreement. The Bank
shall be named as a loss payee and additional insured under all such policies,
and all such policies shall include a clause prohibiting cancellation or
alteration of the policy without thirty (30) days' prior written notice to the
Bank. Certificates evidencing such insurance coverage shall be delivered to the
Bank prior to the making of the Loan hereunder. All insurance proceeds shall be
paid to the Bank to be applied to the Note as a prepayment, unless the proceeds
are less than $50,000, in which case they shall be paid to the Borrower.
5.08. NOTICE OF PROCEEDINGS, DEFAULTS AND ADVERSE CHANGES. Promptly
(and in any event within ten (10) Business Days after the Borrower's discovery
thereof) the Borrower shall give written notice to the Bank of (a) any
proceedings instituted or threatened against the Borrower by or in any federal,
state or local court or before any commission or other regulatory body, whether
federal, state or local, which, if adversely determined, could have a material
adverse effect upon the Borrower's business, operations, properties, assets, or
condition, financial or otherwise, taken as a whole, (b) any notices of default
received by the Borrower (together with copies thereof, if requested by the
Bank) with respect to (i) any alleged defaults under or violations of any of the
Borrower's material licenses, permits, approvals or franchises or any other
material agreements to which the Borrower is a party, or (ii) any alleged
default with respect to, or acceleration or other action under, any evidence of
material Indebtedness of the Borrower or any mortgage, indenture or other
agreement relating thereto; (c) any material adverse change in the condition,
financial or otherwise, taken as a whole, of the Borrower that is not disclosed
in the monthly or annual statements required to be furnished to the Bank
pursuant to Section 5.03 hereof, provided, however, that nothing herein shall be
construed to waive or extend the time periods set forth in such Section 5.03 for
the delivery of such financial statements; or (d) the occurrence of any Event of
Default or the occurrence of any event which, upon notice or lapse of time or
both, would constitute such an Event of Default.
5.09. ADDITIONAL ASSURANCES. The Borrower will, from time to time
hereafter, execute and deliver, or cause to be executed and delivered, such
additional instruments, certificates and documents, and take all such actions,
as the Bank shall reasonably request for the purpose of implementing or
effectuating the provisions of this Agreement, the Note, the negative pledge
agreement (as provided for in Section 2.08 hereof) or the Subordination
Agreements, and upon the exercise by the Bank of any power, right, privilege or
remedy pursuant to this Agreement, the negative pledge agreement (as provided
for in Section 2.08 hereof) or the Subordination Agreements which requires any
consent, approval, registration, qualification or authorization of any
governmental authority or instrumentality, exercise and deliver all
applications, certifications, instruments and other documents and papers that
the Bank may be so required to obtain.
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5.10. YEAR 2000 COMPLIANCE. The Borrower acknowledges that adverse
consequences may result to its business and financial standing as a direct
result of its failure or the failure of any of its vendors, suppliers, lessors,
service providers or any other business affiliates that are material to the
business of the Borrower ("Business Affiliates"), to be Year 2000 Compliant, but
the Borrower reasonably expects that none of such consequences, either
individually or in the aggregate, would result in a Material Adverse Effect. The
Borrower further understands and agrees that the absence of a Material Adverse
Effect as a result of such adverse consequences is an integral factor in the
Bank's continuing evaluation of its credit relationship with the Borrower.
Therefore, the Borrower hereby covenants and agrees that it will assist the Bank
in assessing the status of Year 2000 Compliance and the impact of non-compliance
on its business, and to the extent the Borrower is not Year 2000 Compliant, the
Borrower will take all necessary actions to ensure compliance by 12/31/99.
5.11. TAX REFUND. The Borrower shall file for a tax refund for
fiscal year 1998 as soon as possible, but in no event later than March 15, 1999.
The Borrower shall file with its tax return all the necessary written requests
to have the appropriate taxing authority send all tax refunds that the Borrower
is due for fiscal year 1998 directly to the Bank. The proceeds of the tax refund
will be applied to the Loans and at the Bank's request shall permanently reduce
the Maximum Line Availability by the amount of such refund.
5.12. MAINTENANCE OF PROPERTIES AND LEASES. The Borrower and each of
its Subsidiaries shall maintain, keep and preserve all of its properties
(tangible and intangible) in good repair and working order, ordinary wear and
tear excepted. The Borrower and each of its Subsidiaries shall replace and
improve its properties as necessary for the conduct of its business. The
Borrower and each of its Subsidiaries shall comply in all material respects with
all leases naming it as lessee.
5.13. RECORDS, ACCOUNTS AND PLACES OF BUSINESS. The Borrower and
each of its Subsidiaries shall maintain comprehensive and accurate records and
accounts in accordance with generally accepted accounting principles
consistently applied. The Borrower and each of its Subsidiaries shall maintain
adequate and proper reserves. The Borrower and each of its Subsidiaries will
promptly notify the Bank of (a) any changes in the places of business of the
Borrower and its Subsidiaries and (b) any additional places of business which
may arise hereafter.
5.14. FINANCIAL ADVISOR. The Borrower shall complete interviews with
three (3) financial advisors prior to December 15, 1998. In the event of a
default under any of the Loan Documents, the Borrower shall engage a financial
advisor acceptable to the Bank to review its operations and formulate a business
plan to raise additional or replacement capital or financing.
VI. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, so long as the Bank has
any obligation to extend credit to the Borrower hereunder, and so long as there
remains outstanding any portion of the principal of, and interest on, the Note
and any other indebtedness of the Borrower to the Bank, whether now existing or
arising hereafter, unless the Bank shall otherwise consent in writing, it will
not, directly or indirectly:
6.01. INDEBTEDNESS. Incur, create, assume, become or be liable in
any manner with respect to, or permit to exist, any Indebtedness or liability
(including Capital Lease obligations), except:
(a) Indebtedness to the Bank hereunder;
(b) Indebtedness with respect to trade obligations and other
normal accruals in the ordinary course of business not yet due and payable, or
with respect to which it is contesting in good faith the amount or validity
thereof by appropriate proceedings, and then only to the extent it has set aside
on its books
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adequate reserves therefor and only so long as no property of the Borrower is
seized or attached in satisfaction of or as security for the indebtedness;
(c) Indebtedness with respect to Capital Leases or purchase
money security interests in an amount not exceeding $50,000 in aggregate
principal amount outstanding at any one time; or
(d) Indebtedness in respect of endorsements of negotiable
instruments for collection in the ordinary course of business; or
(e) Unsecured Indebtedness under the Shareholder Note, subject
at all times to the Affiliate Subordination Agreement.
6.02. LIENS. Create, incur, assume or suffer to exist any mortgage,
pledge, Lien, charge or other encumbrance of any nature whatsoever on any of its
assets, now or hereafter owned, other than:
(a) Liens securing the payment of taxes, and other government
charges, either not yet due or the validity of which is being contested in good
faith by appropriate proceedings, and as to which it shall have set aside on its
books adequate reserves to the extent required by generally accepted accounting
principles, provided, however, that all such Liens shall be paid and discharged
before any property of the Borrower is seized, sold or attached in satisfaction
thereof or as security for the payment thereof);
(b) Deposits under worker's compensation, unemployment
insurance and social security laws, or to secure the performance of bids,
tenders, contracts (other than for borrowed money) or leases, or to secure
statutory obligations, or to secure surety or other similar bonds that the
Borrower is required to obtain in the ordinary course of business and that do
not exceed in the aggregate $50,000 outstanding at any time;
(c) Purchase money security interests and leasehold interests
under Capital Leases as permitted by and as limited in amount by Section 6.01
(c) hereof;
(d) Any statutory landlord's lien of a lessor under real
estate leases and the lessor's title under real estate leased by the Borrower;
(e) Easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering in any material respect with the
Borrower's business; and
(f) Liens imposed by law, such as carriers, warehousemen's or
mechanics' liens, incurred by the Borrower in good faith in the ordinary course
of business and liens arising out of a judgment or award against it with respect
to which it shall currently be prosecuting an appeal, a stay of execution
pending such appeal having been secured.
6.03. GUARANTEES. Guarantee, endorse or otherwise in any way become
or be responsible for obligations of any other Person, whether by agreement to
purchase the indebtedness of any other Person, or agreement for the furnishing
of funds to any other Person, through purchase of goods, supplies or services,
or by way of stock purchase, capital contribution, advance or loan, for the
purpose of paying or discharging any indebtedness or obligation of such other
Person, or otherwise, except endorsements on negotiable instruments for
collection in the ordinary course of business.
6.04. SALE OF ASSETS AND ACCOUNTS RECEIVABLE. Sell, lease, transfer
or otherwise dispose of any of its properties or assets, except in the ordinary
course of its business, including the replacement of equipment
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with other equipment of at least equal utility and value and the dispositions
without replacement of assets not material, individually or in the aggregate, to
the operations of its business, or sell, assign, discount or dispose in any way
of any accounts receivable, promissory note or trade acceptances held by the
Borrower, with or without recourse, except for collection (including
endorsements) in the ordinary course of business.
6.05. SALE AND LEASEBACK. Enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower shall sell or transfer any
property, real, personal or mixed, used or useful in its business, whether now
owned or hereafter acquired, and thereafter rent or lease such property.
6.06. INVESTMENTS. Except the permitted Investments set forth on
SCHEDULE 6.06, purchase, invest in or otherwise acquire or hold securities,
including, without limitation, capital stock and evidences of indebtedness of,
or make loans or advances to, or enter into any arrangement for the purpose of
providing funds or credit to, any other Person, except Investments in short-term
obligations of the United States or certificates of deposit of the Bank or
another bank that has capital and unrestricted surplus of at least $450,000,000
or investment grade commercial paper rated A-1 or better by Moody's or P-1 or
better by Standard & Poor's.
6.07. REORGANIZATION. (a) Form any Subsidiary, (b) amend its
Articles of Incorporation in any way that could have a material adverse effect
upon its business or financial condition taken as a whole, or upon the Bank's
rights hereunder or under any other Loan Documents, (c) dissolve, liquidate,
consolidate with or merge with, or otherwise acquire all or substantially all of
the assets, properties of, or ownership interests in, any corporation,
partnership, business, firm, or other Person, or (d) make any change in its
legal name or the name under which it conducts business.
6.08. PAYMENTS TO STOCKHOLDERS OR AFFILIATES. Make any Restricted
Payment, declare a dividend or make any distribution or payment of cash or
property, or both, or repay any Indebtedness, to any of its Affiliates or
stockholders, or to any Affiliates of its stockholders, or directly or
indirectly redeem, purchase or otherwise acquire for consideration any of its
ownership interests, PROVIDED HOWEVER, that so long as No Event of Default
exists or would result therefrom, the Borrower may (i) make the regularly
scheduled payments of principal of and interest on the Shareholder Note, subject
at all times to the Affiliate Subordination Agreement, and (ii) repay the
Shareholder Note in full from funds other than funds generated from the
operations of the Borrower.
6.09. TRANSACTIONS WITH AFFILIATES. Other than as permitted by
Section 6.08 hereof, enter into any transaction, including, without limitation,
the purchase, sale or exchange of property or assets or the rendering of any
service, with or to any Affiliate of the Borrower, except in the ordinary course
of business and pursuant to the reasonable requirements of the Borrower's
business and upon fair and reasonable terms not less favorable to the Borrower
than would be obtained in a comparable arm's-length transaction with a third
party other than such Affiliate.
6.10. ERISA. At any time while the Borrower or any of its
Subsidiaries has a Pension Plan, permit any accumulated funding deficiency to
occur with respect to any Pension Plan or other employee benefit plans
established or maintained by the Borrower or any of its Subsidiaries or to which
contributions are made by the Borrower or any of its Subsidiaries (the "Plans"),
and which are subject to the "Pension Reform Act" and the rules and regulations
thereunder or to Section 412 of the Code, and at all times comply in all
material respects with the provisions of the Act and Code which are applicable
to the Plans. The Borrower will not permit the Pension Benefit Guaranty
Corporation to cause the termination of any Pension Plan under circumstances
which would cause the lien provided for in Section 4068 of the Pension Reform
Act to attach to the assets of the Borrower or any of its Subsidiaries.
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VII. FINANCIAL COVENANTS
The Borrower hereby covenants and agrees that, so long as the Bank has
any obligation to extend credit to the Borrower hereunder, and so long as there
remains outstanding any portion of the principal of, or interest on, the Note
and any other indebtedness of the Borrower to the Bank, whether now existing or
arising hereafter, the Borrower will, for each Fiscal Quarter ending during the
term of this Agreement, maintain the following financial covenants:
7.01. QUICK RATIO. A Quick Ratio greater than or equal to 1.0:1.0.
7.02. TANGIBLE NET WORTH. Tangible Net Worth shall be greater than
or equal to $15,000,000 for the Fiscal Quarter ending 12/31/98.
7.03. EBIT TO INTEREST RATIO. An EBIT to Interest Ratio (i) on a
year-to-date basis as of the end of each Fiscal Quarter ending from 3/31/99
through 12/31/99 of at least 3.5:1.0, and (ii) as of the end of each Fiscal
Quarter ending thereafter for the most recently completed four Fiscal Quarters
as of such date, of at least 3.5:1.0.
7.04. MINIMUM QUALIFIED CUSTOMER ORDERS. The Borrower's Qualified
Customer Orders shall not fall below the following level for the periods
indicated:
Period Amount
------ ------
October 1, 1998 through November 20, 1998 $4,240,000
October 1, 1998 through November 30, 1998 $5,600,000
October 1, 1998 through December 15, 1998 $7,000,000
VIII. DEFAULTS
In each case of happening of any of the following events (each of which
is herein and in the Loan Documents sometimes called an "Event of Default"):
(a) if any representation or warranty made herein, or in any
Loan Documents, or in any report, certificate, financial statement or other
instrument furnished in connection with this Agreement, or the borrowing
hereunder, shall prove to have been false or misleading when made in any
material respect;
(b) if a default occurs in the payment of any premium or
charge hereunder, or any installment of the principal of, or interest on, or
penalty with respect to, the Note or any other Obligation of the Borrower to the
Bank, whether at the due date thereof or at a date fixed for prepayment or by
acceleration or otherwise;
(c) if a default occurs in the due observance or performance
of any covenant, condition or agreement contained in any of Article VI (Negative
Covenants) or Article VII (Financial Covenants) hereof;
(d) if a default occurs in the due observance or performance
of any covenant, condition or agreement on the part of the Borrower to be
observed or performed pursuant to the terms of this Agreement (excluding those
specified in subparagraph (c) above) or pursuant to the terms of any of the Loan
Documents and such default shall continue unremedied for twenty (20) days
following the earlier of (i) written notice by the Bank to the Borrower, or (ii)
the date as of which the Borrower acquires actual knowledge thereof or
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through reasonable diligence should have acquired actual knowledge thereof,
provided however, that if such default cannot be remedied, then such default
shall be deemed an Event of Default as of the date of the occurrence thereof;
(e) if a default occurs with respect to any indebtedness of
the Borrower for borrowed money exceeding $100,000 in aggregate principal amount
(other than the Note) if the effect of such default is to accelerate the
maturity of such indebtedness or to permit the holder thereof to cause such
indebtedness to become due prior to the stated maturity thereof;
(f) if the Borrower or any other Person liable in whole or in
part for payment of the Note shall (i) apply for or consent to the appointment
of a receiver, trustee, custodian or liquidator of it or any of its property,
(ii) admit in writing its inability to pay its debts as they mature, (iii) make
a general assignment for the benefit of creditors, (iv) be adjudicated bankrupt
or insolvent or be the subject of an order for relief under Title 11 of the
United States Code or (v) file a voluntary petition in bankruptcy, or a petition
or an answer seeking reorganization or an arrangement with creditors or to take
advantage of any bankruptcy, reorganization, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any such law
or if corporate action shall be taken for the purpose of effecting any of the
foregoing;
(g) if an order, judgment or decree shall be entered, without
the application, approval or consent of the Borrower by any court of competent
jurisdiction, approving a petition seeking reorganization of the Borrower or
appointing a receiver, trustee, custodian or liquidator of the Borrower or of
all or a substantial part of the assets of the Borrower (any of the foregoing
petitions being hereinafter referred to as an "Involuntary Petition"); or
(h) if a final judgment is rendered for the payment of money
in excess of One Hundred Thousand Dollars ($100,000) against the Borrower, and
the same shall remain undischarged, unbonded or uninsured for a period of twenty
(20) consecutive days, during which period execution shall not be effectively
stayed;
(i) if there occurs any attachment of any deposits or other
property of the Borrower in the hands or possession of the Bank, or if there
occurs any attachment of any other property of the Borrower in an amount
exceeding Fifty Thousand Dollars ($50,000) which shall not be discharged within
thirty (30) days of the date of such attachment; or
(j) the occurrence of any event or condition described in
paragraphs (f) or (g) with respect any surety of the Borrower with respect to
the Borrower's Obligations; or
(k) if for any reason Theodore J. Goodlander shall cease to be
the beneficial and legal owner in the aggregate of at least twenty-five percent
(25%) of each class of issued and outstanding capital stock of the Borrower; or
(l) if for any reason Theodore J. Goodlander shall cease to be
actively involved in the management and operation of the Borrower unless a
successor or successors with comparable qualifications, experience and
reputation within the computer industry is appointed and commences management of
the Borrower within ninety (90) days after such cessation; or
(m) if for any reason any Loan Document shall not be in full
force and effect in all material respects or shall not be enforceable in all
material respects in accordance with its terms, or any party thereto other than
the Bank shall institute judicial proceedings to contest the validity of, or
shall disaffirm its obligations under, any Loan Document;
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<PAGE> 26
then and in every such Event of Default and at any time thereafter during the
continuance of such event, the Note and any and all other Obligations of the
Borrower to the Bank, shall, at the option of the Bank, become immediately due
and payable (except that upon the occurrence of an Event of Default described in
paragraph (f) or (g) of this Article VIII, the Obligations shall become
immediately due and payable without notice and without any action on the part of
the Bank), both as to principal and interest, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Note, or other evidence of such indebtedness
to the contrary notwithstanding. In the event of an acceleration of the
Borrower's Obligations hereunder as a result of the filing of an Involuntary
Petition as specified in paragraph (g) of this Article VIII, such acceleration
shall be rescinded, and the Borrower's rights hereunder reinstated, if, within
sixty (60) days following the filing of such Involuntary Petition, such
Involuntary Petition shall have been dismissed, and there shall exist no other
Event of Default under this Agreement.
In addition to the foregoing, the Bank shall have the following rights
and remedies in every Event of Default:
(i) At the option of the Bank, the Note shall
become immediately due and payable, and the Bank is hereby
authorized and empowered to exercise any rights granted to the
Bank hereunder or under any or all of the Loan Documents or
otherwise available at law or in equity; but the Bank may make
any Advances or portions of Advances, after the occurrence of
any such Event of Default, without thereby waiving any rights
whatsoever either as to payment of the Borrower's Obligations
or as to acceleration or enforcement thereof, and without
becoming liable to make any other or further Advances.
(ii) Upon the occurrence of any of said Events of
Default, the rights, powers and privileges provided in this
Article VIII and all other remedies available to the Bank
under this Agreement or at law or in equity may be exercised
by the Bank at any time and from time to time, whether or not
the Obligations shall be due and payable, and whether or not
the Bank shall have instituted any proceedings or other action
for the enforcement of its rights under the Note or any of the
Loan Documents. No right conferred upon the Bank hereby or by
any other Loan Document shall be exclusive of any other right
referred to herein or therein or now or hereafter available at
law, in equity, by statute or otherwise.
IX. MISCELLANEOUS
9.01. SURVIVAL OF WARRANTIES. This Agreement and all covenants,
agreements, representations and warranties made herein and in the certificates
delivered pursuant hereto, shall survive the making by the Bank of the Loans
hereunder and the execution and delivery to the Bank of the Note, and shall
continue in full force and effect so long as the Obligations or any other
indebtedness of the Borrower, to the Bank is outstanding and unpaid.
9.02. REIMBURSEMENT OF BANK'S EXPENSES. Whether or not the
transactions contemplated by this Agreement shall be consummated, the Borrower
will reimburse the Bank upon demand for all out-of-pocket costs, fees and
expenses, such as (without limitation) filing fees, recording fees, lien
searches, title searches, patent and trademark searches, documentary stamp
taxes, mortgage recording taxes, registration taxes, intangible taxes due under
any applicable state law and any other expenses of the Bank (including, without
limitation, reasonable fees and disbursements of counsel to the Bank) in
connection with (i) the preparation, negotiation, interpretation, execution and
delivery of the Loan Documents, (ii) the making of the Loans hereunder, (iii)
any amendments, modifications, refinancing, consents or waivers in respect
thereof, (iv) any administration or enforcement or protection of the Bank's
rights under any of the Loan Documents, (v) any proceedings with respect to the
collection of the Obligations, bankruptcy, reorganization, insolvency,
readjustment of Indebtedness, dissolution or liquidation of the Borrower or any
party to any Loan Document, and (vi) any claims by third parties relating to the
foregoing. All obligations provided for in this Section 9.02 shall survive any
termination of this Agreement.
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9.03. GOVERNING LAW. This Agreement and the Note shall be construed
in accordance with and governed by the substantive laws of The Commonwealth of
Massachusetts (but not the conflict of laws rules thereof).
9.04. WAIVERS AND AMENDMENTS. No modification or waiver of any
provisions of this Agreement, the other Loan Documents, nor consent to any
departure by the Borrower therefrom, shall in any event be effective unless the
same shall be in writing, and then such waiver or consent shall be effective
only in the specific instance, and for the purpose, for which given. No notice
to or demand of the Borrower, in any case, shall entitle the Borrower to any
other or future notice or demand in the same, similar or other circumstances
except to the extent provided herein.
9.05. NO IMPLIED WAIVERS. Neither any failure nor any delay on the
part of the Bank in exercising any right, power or privilege hereunder, or under
the Note, or under any other instrument given as security therefor, shall
operate as a waiver thereof, nor shall a single or partial exercise thereof
preclude any other or future exercise, or the exercise of any other right, power
or privilege. An Event of Default hereunder shall be deemed continuing unless
and until waived in writing by the Bank.
9.06. NOTICES. All notices, requests, demands and other
communications provided for hereunder shall be in writing (including telegraphic
communication) and shall be either hand delivered, mailed by certified or
registered mail, return receipt requested, or telegraphed or telefaxed with
instructions for confirmation of written delivery, or delivered by overnight
courier service, to the applicable party at the following addresses:
If to the Borrower, to:
Storage Computer Corporation
11 Riverside Street
Nashua, NH 03062-1373
Attn: James C. Louney, Chief Financial Officer
Fax Number: 1-603-889-7232
with a copy to:
Thomas A. Wooters, Esq.
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110-3342
Fax Number: 1-617-951-2125
If to the Bank, to:
State Street Bank and Trust Company
225 Franklin Street - M2
Boston, Massachusetts 02110
Attention: Paul B. Forester, Vice President
Fax Number: 1-617-654-4176
with a copy to:
23
<PAGE> 28
Steven M. Ellis, P.C.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Fax Number: 1-617-523-1231
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other communication
shall be effective when actually received if hand delivered, or, in the case of
registered or certified mail, return receipt requested or in the case of a
telegram accompanied by instructions for confirmation of written delivery, two
days after deposited in the mails or delivered to the telegraph company, or in
the case of a telefax, upon written confirmation of transmission, addressed as
aforesaid.
9.07. SET-OFF. In addition to any rights now or hereafter existing
under law, and without limiting such rights, upon and after the occurrence of an
Event of Default, the Bank is hereby authorized by the Borrower, at any time and
from time to time, without prior notice (any such notice being hereby expressly
waived), to set off and to appropriate and to apply any and all deposits,
general or special, including, without limitation, indebtedness evidenced by
matured and unmatured certificates of deposit, and any other indebtedness held
or owing by the Bank to or for the credit or account of the Borrower, to the
payment of the Borrower's Obligations, irrespective of whether the Bank has
accelerated the Borrower's Obligations.
9.08. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Bank, which may be withheld for any reason or no reason. Whenever
in this Agreement any of the parties hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party.
9.09. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all the
counterparts shall together constitute one and the same instrument. This
Agreement shall become effective when the parties hereto have signed a copy
hereof (whether or not the same or different copies) and shall have delivered
the same to the Bank.
9.10. JURISDICTION AND VENUE; WAIVER OF JURY TRIAL.
(a) The Borrower, to the extent it may lawfully do so, hereby
consents (i) to the jurisdiction of the courts of The Commonwealth of
Massachusetts and the United States District Court for the District of
Massachusetts, as well as to the jurisdiction of all courts from which an appeal
may be taken from such courts, for the purpose of any suit, action or other
proceeding arising out of any of its obligations arising hereunder or with
respect to the transactions contemplated hereby, and expressly waives any and
all objections it may have as to venue in any of such courts, and (ii) to the
service of process by U.S. certified or registered mail, return receipt
requested, addressed to the Borrower at the address set forth in Section 9.06
hereof.
(b) THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION
BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT, THE NOTE OR ANY TRANSACTION
DOCUMENT OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION THEREWITH OR HEREWITH.
9.11. SAVINGS CLAUSE. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability
24
<PAGE> 29
without invalidating the remaining provisions hereof or affecting the validity
or enforceability of such provision in any other jurisdiction.
9.12. HEADINGS. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
9.13. INDEMNIFICATION BY BORROWER. The Borrower shall release,
indemnify, save and hold harmless the Bank and its directors, officers, agents,
attorneys, and employees (herein each called an "indemnitee" and collectively,
the "indemnitees") from and against any and all losses, claims, damages, costs,
reasonable expenses (including, without limitation, reasonable attorneys' fees)
and liabilities (all of the foregoing being herein called the "Indemnified
Liabilities") incurred by an indemnitee in connection with or arising out of the
execution or delivery of this Agreement or any other Loan Document, the exercise
by the Bank of any right or remedy granted to it hereunder or under any other
Loan Document, the performance by the parties hereto of their respective
obligations hereunder or under any other Loan Document or the use of the
proceeds of the Loans, the collection and enforcement of the Obligations or any
of them, except for any portion of such losses, claims, damages, costs, expenses
or liabilities incurred solely as a result of the gross negligence or willful
misconduct of the applicable indemnitee. If and to the extent that the foregoing
indemnity may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. All
obligations provided for in this Section 9.13 shall survive any termination of
this Agreement.
9.14. THIRD PARTY BENEFICIARIES. The parties hereto do not intend
the benefits of this Agreement or any other Loan Document to inure to any third
party, nor shall this Agreement be construed to make or render the Bank liable
to any third party on account of the Borrower's Indebtedness or obligations to
such third parties. Notwithstanding anything herein, or in the Note or the other
Loan Documents, or any conduct or course of conduct by any or all of the parties
hereto or to any other Loan Document, before or after signing this Agreement or
any other Loan Document, shall be construed as creating any right, claim or
cause of action against the Bank, or any of their officers, directors, agents or
employees, in favor of any third party other than the Borrower.
[intentionally left blank]
25
<PAGE> 30
IN WITNESS WHEREOF, the Bank and the Borrower have caused this
Agreement to be duly executed by their duly authorized representatives as an
instrument under seal all as of the day and year first above written.
BANK:
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------
Paul B. Forester
Vice President
BORROWER:
ATTEST: STORAGE COMPUTER CORPORATION
By:
- -------------------------------- ----------------------------------
Chief Executive Officer James C. Louney
Chief Financial Officer
26
<PAGE> 31
EXHIBIT A
SECOND AMENDED AND RESTATED LINE OF CREDIT NOTE
$10,500,000 August 4, 1995
(As amended and restated
as of November _, 1998)
Nashua, New Hampshire
FOR VALUE RECEIVED, the undersigned, STORAGE COMPUTER CORPORATION, a
Delaware corporation, having a principal place of business at 11 Riverside
Street, Nashua, New Hampshire 03062-1373 (the "Maker"), does hereby
unconditionally promise to pay to the order of STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, with its principal place of business at
225 Franklin Street, Boston, Massachusetts 02110-2804 (the "Bank"), on the
Maturity Date (as defined in the Loan Agreement hereinafter defined), the
principal sum of TEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($10,500,000), or, if
less, the aggregate unpaid principal amount of loans made by the Bank to the
Maker pursuant to that certain Amended and Restated Loan Agreement of even date
herewith between the Bank and the Maker (as the same may be amended, restated or
otherwise modified from time to time, the "Loan Agreement"), together with
interest to the extent permitted by law on any and all principal amounts
remaining unpaid hereunder from the date hereof until payment in full, at the
rate of interest set forth in Section 2.02 of the Loan Agreement. Interest on
the outstanding principal balances shall be calculated on the basis of a three
hundred sixty (360) day year counting the actual number of days elapsed. Each
change in the floating interest rate applicable to this Note shall take effect
simultaneously with the corresponding change in the Prime Rate (as defined in
the Loan Agreement). To the full extent permitted by applicable law, interest
shall continue to accrue on this Note after the filing by or against the Maker
of any petition seeking any relief in bankruptcy or under any act or law
pertaining to insolvency or debtor relief, whether state, federal or foreign.
PRINCIPAL REPAYMENT. The outstanding principal balance of this Note
shall be repaid as set forth in the Loan Agreement. If not sooner paid, this
Note shall be due and payable in full, together with all accrued and unpaid
interest thereon, whether due or overdue, on the Maturity Date.
VOLUNTARY PREPAYMENTS. The Maker may prepay this Note as set forth in
the Loan Agreement.
APPLICATION OF PREPAYMENTS. All prepayments (whether voluntary,
mandatory or permanent) shall, unless otherwise determined by the Bank, be
applied first to overdue interest and fees, second to accrued but unpaid
interest and fees, and finally, to prepayments of the outstanding principal of
this Note.
PAYMENT OF INTEREST. Interest shall be payable as set forth in the Loan
Agreement.
CALCULATION OF INTEREST. Interest shall be calculated on the basis of a
360-day year, counting the actual number of days elapsed.
PAYMENTS. All principal and interest hereunder shall be payable in
lawful money of the United States of America at the office of the Bank at the
address shown above in immediately available funds, and shall be made as set
forth in Section 2.04 of the Loan Agreement.
LATE PAYMENT FEE. If any payment due hereunder is not paid within five
(5) days after the date such payment is due, then the Maker shall pay to the
Bank, to the extent permitted by law, a fee (the "Late Payment Fee") equal to
two percent (2%) of the amount of the late payment.
DEFAULT RATE OF INTEREST. If an Event of Default shall have occurred
and shall be continuing after the expiration of any applicable cure period,
then, in such event, the interest rate applicable to this Note (the "Default
Rate") shall be four percent (4%) in excess of the highest rate of interest then
applicable to this
<PAGE> 32
Note, which Default Rate shall become effective on the date such Event of
Default occurs and shall continue in effect until such Event of Default is
either cured by the Maker, waived by the Bank or in the case of incurable
financial covenant defaults under Article VII hereof, which are not waived by
the Bank, until the Maker shall have returned to being in compliance therewith.
WAIVERS. The Maker of this Note for itself and successors and assigns,
hereby expressly waives presentment, demand, protest, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and all other demands and notices in connection with delivery, acceptance,
performance, default or enforcement of or under this Note, and expressly waives
the benefit of any exemption under the homestead exemption laws, if any, or any
other exemption or insolvency laws, and consents that the Bank may without
notice and without affecting the Maker's obligations under this Note, (i)
release or surrender, exchange or substitute any personal property or other
collateral security now held or which may hereafter be held as security for the
payment of this Note, (ii) release, add or substitute any other person or party
primarily or secondarily liable for the payment of this Note, and (iii) extend
the time for payment (regardless of the length or number thereof) or otherwise
modify the terms of payment of any part or the whole of the debt evidenced
hereby.
BENEFITS OF OTHER AGREEMENTS. This Note is the Second Amended and
Restated Line of Credit Note referred to in and is entitled to the benefits of
the Loan Agreement and is also entitled to the benefits of all other instruments
evidencing and/or securing the indebtedness hereunder. The occurrence or
existence of an "Event of Default" as defined in the Loan Agreement or in any
other instruments securing and/or evidencing this indebtedness shall constitute
a default under this Note and shall entitle the Bank to accelerate the entire
indebtedness hereunder and take such other action as may be provided for in such
agreements.
AMENDMENT AND RESTATEMENT. This Note is issued by the Maker pursuant to
the Loan Agreement in replacement and substitution of the Original Note defined
and described in the Loan Agreement. This Note is neither a satisfaction nor a
novation thereof.
MAXIMUM RATE. All agreements between the Maker and the Bank are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness or otherwise, shall the
amount paid or agreed to be paid to the Bank for the use, forbearance or
detention of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. If, for any circumstances whatsoever, fulfillment of any
provision hereof or of the Loan Agreement, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then, IPSO FACTO, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any circumstance the Bank
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. As used herein, the term "applicable law" shall mean the law in effect
as of the date hereof, provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. This provision shall
control every other provision of all agreements among the Maker and the Bank.
GOVERNING LAW. This Note and all transactions hereunder and/or
evidenced herein shall be governed by, construed, and enforced in accordance
with the substantive laws of The Commonwealth of Massachusetts.
ATTORNEYS' FEES, COSTS OF COLLECTION; APPOINTMENT OF RECEIVER. If this
Note shall not be paid when due and shall be placed by the holder hereof in the
hands of any attorney for collection, through legal proceedings or otherwise,
the Maker will pay attorneys' fees to the holder hereof together with reasonable
costs and expenses of collection.
2
<PAGE> 33
IN WITNESS WHEREOF, the Maker has caused this Note to be executed as an
instrument under seal by its duly authorized officer all as of the day and year
first above written.
ATTEST: STORAGE COMPUTER CORPORATION
By:
- ------------------------------ -------------------------------------
Chief Executive Officer James C. Louney
Chief Financial Officer
3
<PAGE> 34
EXHIBIT B
November ___, 1998
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2804
Attn: Paul B. Forester, Vice President, Corporate Banking
Re: Request for Advance under Second Amended and Restated Revolving Loan
Agreement with STORAGE COMPUTER CORPORATION (the "Borrower") dated as
of November __, 1998 (the "Loan Agreement", to which reference is made
therein for the meaning of capitalized terms not otherwise defined
herein)
Ladies and Gentlemen:
This letter shall serve as a request described in the Loan Agreement for an
Advance from the Bank in the principal amount of $USD ______________ (Advance).
- --------------------------------------------------------------------------------
1. Advance $
- --------------------------------------------------------------------------------
2. Requested date of borrowing
- --------------------------------------------------------------------------------
The undersigned hereby certifies that:
(i) the undersigned is the duly elected, qualified and acting
chief financial officer of the Borrower and as such officer is authorized to
make and deliver this Request for Advance.
(ii) the representations and warranties set forth in Article III of
the Loan Agreement and in each of the other Loan Documents are true and correct
in all material respects on and as of the date hereof with the same force and
effect as though made on and as of the date hereof.
(iii) no Event of Default and no event which upon notice or lapse of
time, or both, would constitute an Event of Default, has occurred and is
continuing, or would result from the borrowing requested hereby.
(iv) the requested Advance will not cause the outstanding principal
balance of the Note to exceed the amount of the Commitment in effect as of the
date hereof.
<PAGE> 35
(v) the above information is true and correct as of the date
hereof.
Very truly yours,
STORAGE COMPUTER CORPORATION
By:
-------------------------------------------
Its Duly Authorized Chief Financial Officer
2
<PAGE> 36
EXHIBIT C
[FORM OF OPINION OF COUNSEL]
November __, 1998
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Paul B. Forester
Vice President-Corporate Banking
RE: STORAGE COMPUTER CORPORATION
Ladies and Gentlemen:
We have acted as counsel to STORAGE COMPUTER CORPORATION, a Delaware
corporation (the "Borrower") and the Guarantors [listed separately or schedule]
in connection with an Amended and Restated Loan Agreement of even date herewith
(the "Loan Agreement") between the Borrower and you (the "Bank"), the Amended
and Restated Line of Credit Note issued pursuant thereto on the date hereof (the
"Note"), the Loan Documents (as defined in the Loan Agreement) and the
transactions to be effected in connection with the Loan Agreement. This opinion
is furnished to you pursuant to Section 4.01 (c) of the Loan Agreement.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Loan Agreement.
In connection with rendering this opinion, we have reviewed the Loan
Agreement, the Note and the Loan Documents referred to therein. We have also
examined the Borrower's and Guarantors' corporate charter and by-laws or
operating agreements (as the case may be), and such records, documents,
certificates and other instruments and have made such investigations of fact and
of law as we have deemed necessary to render this opinion.
In rendering this opinion, we have assumed the genuineness of all
signatures by parties thereto on original documents, the conformity to original
documents of all documents submitted to us as certified or photostatic copies,
the accuracy and completeness of all records of the Borrower and Guarantors made
available to us, and that the Bank has all necessary power and authority to
enter in the Loan Documents to which it is a party and to perform its
obligations thereunder, and that such execution and performance has been duly
authorized by all required action on the part of the Bank, and that the Loan
Documents are the binding obligations of the Bank.
The opinions hereinafter expressed are qualified to the extent that the
validity or enforceability of any provisions in the Loan Agreement, the Note, or
other Loan Documents or of any rights granted to you pursuant to any of those
instruments, may be subject to and affected by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Furthermore no opinion is expressed as to whether any
provisions thereof are specifically enforceable in equity.
Based on the foregoing, we are of the opinion that:
1. The Borrower (a) is a Delaware corporation duly organized, validly
existing and in good standing under the laws of the States of Delaware and New
Hampshire, (b) has the power and authority to own its properties and to carry on
its business as now being conducted and as presently contemplated, (c) has
<PAGE> 37
the power and authority to execute and deliver, and to perform its obligations
under such of the Loan Documents to which it is a party, and (d) is duly
qualified to transact business in each state where the nature of its activities
would require such qualification.
2. The Guarantors (a) are duly organized, validly existing and in good
standing under the laws of the jurisdiction of their organization or creation,
(b) have the power and authority to own their properties and to carry on their
business as now being conducted and as presently contemplated, (c) have the
power and authority to execute and deliver, and to perform their obligations
under such of the Loan Documents to which each is a party, and (d) is duly
qualified to transact business in each jurisdiction where the nature of its
activities would require such qualification.
3. The execution and delivery of, and performance by the Borrower and
the Guarantors of their obligations under the Loan Documents, have been duly
authorized by all requisite corporate or partnership action and will not violate
any provision of law, order, judgment or decree of any court or other agency of
government, its Articles of Incorporation, by-laws or operating agreement, or,
to the best of counsel's knowledge after due inquiry, any indenture, agreement
or other instrument to which the Borrower or the Guarantors are a party, or by
which the Borrower or the Guarantors are bound, or be in conflict with, result
in a breach of, or constitute (with due notice or lapse of time or both) a
default under, or except as may be permitted by the Loan Documents, result in
the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon the properties or assets of any of the Borrower or Guarantors
pursuant to any such indenture, agreement or instrument.
4. Each of the Loan Documents (to which the Borrowers and Guarantors
are a party) has been duly authorized, executed and delivered by the Borrower
and Guarantors and constitute the legal, valid and binding obligation of the
Borrower and Guarantors, enforceable in accordance with its terms.
5. To the best of our knowledge after due inquiry and our own
familiarity with the affairs of the Borrower and Guarantors as their counsel,
there is no action, suit, proceeding at law or in equity or by or before any
governmental agency pending or threatened against the Borrower or Guarantors,
which if adversely determined would, either in any single case or in the
aggregate, materially and adversely affect their properties, existence,
financial condition or business, or materially impair their rights to carry on
their businesses substantially as now conducted or as contemplated to be
conducted during the term of the Loan Agreement and the Note, or which questions
the validity of any of the Loan Documents.
6. To the best of our knowledge after due inquiry, except as disclosed
to you in writing, each of the Borrower and Guarantors (a) are not a party to
any agreement or instrument or subject to any corporate or other restriction
materially and adversely affecting their businesses, operations, properties,
assets or financial condition; and (b) are not in violation of any provision of
their Articles of Organization or By-laws or operating agreements, or of any
material indenture, agreement or instrument to which they are a party or by
which they are bound, or of any provision of law, the violation of which could
have a material adverse effect upon them, or any order, judgment or decree of
any court or other agency of government.
7. The execution and delivery of the Loan Documents do not, and the
performance and observance of the terms of Loan Documents will not, contravene
any provision of existing law or regulations, and will not conflict with, or
result in any breach of the terms, conditions or provisions of, or constitute a
default under or result in or permit the creation or imposition of any lien,
charge or encumbrance upon any of the properties of the Borrower or Guarantors
pursuant to any indenture, mortgage or other agreement or instrument of which
the Borrower or Guarantors have knowledge, to which the Borrower or Guarantors
are a party or by which said properties are bound.
8. The execution and delivery by the Borrower and Guarantors of each of
the Loan Documents to which they are a party constitute transactions not
requiring registration under the Securities Act of 1933, as
2
<PAGE> 38
amended (the "Securities Act"), and registration or qualification by the
Borrower or Guarantors of the Loan Documents to which they are a party is not
required under the Securities Exchange Act of 1934, as amended, or the
securities laws of the State of New Hampshire or the State of Delaware.
Qualification of an indenture under the Trust Indenture Act of 1939, as amended,
is not required with respect to the transactions contemplated by the Loan
Documents.
9. Assuming the accuracy of the representations and warranties made in
the Loan Agreement with respect to the intended use of the proceeds of the
Loans, the transactions and arrangements contemplated by the Loan Documents do
not violate Regulations G, T, U or X of the Board of Governors of the Federal
Reserve Board.
10. The Borrower is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company", as such terms are defined in the Investment Company Act of 1940, as
amended.
11. We are not aware of any basis supported by applicable statutory or
decisional law on which courts of the State of New Hampshire or the State of
Delaware would refuse to honor the choice of law clause set forth in the Loan
Agreement or would apply the usury laws of the State of New Hampshire or the
State of Delaware to the Obligations.
12. The provisions of the Security Agreement are effective under the
New Hampshire UCC to create a valid security interest in favor of the Bank, in
so much of the Collateral as constitutes personal property or fixtures to which
Article 9 of the New Hampshire UCC is applicable, securing the Obligations
purported to be secured by such Security Agreement. The Security Agreement
contains provisions which are sufficient under the laws of the State of New
Hampshire to make available to the Bank all remedies available under the New
Hampshire UCC to holders of security interests in such Collateral, and the
provisions of such Security Agreement relating to remedies are in accordance
with all requirements of law of the State of New Hampshire relating to such
remedies. Enforcement of the remedies provided in the such Security Agreement
will not deprive the Bank of its rights to seek a deficiency judgment in respect
of the Obligations, nor will it limit the right of the Bank to foreclose on
other collateral securing the Obligations.
13. We have reviewed the contents of the Borrower's Collateral
Certificate (the "Collateral Certificate") identifying the jurisdictions in
which the Borrower and the Collateral are located. We have assumed that (i) the
Collateral Certificate is accurate and complete and that the representations of
the Borrower relating to its chief executive office and principal place of
business in such Collateral Certificate and the Loan Documents are accurate and
complete and (ii) none of the Collateral consists or will consist of consumer
goods, equipment used in farming operations, farm products, crops, timber,
minerals and the like (including oil and gas) or accounts or general intangibles
resulting from the sale thereof, or beneficial interests in a trust or a
decedents estate. We have also reviewed financing statements (the "Financing
Statements") to be filed in the offices set forth on EXHIBIT A hereto, each
listing the Borrower as debtor and the Bank as secured party and covering
certain personal property and fixtures. Based upon the foregoing, the Bank will
have, upon the filing of the Financing Statements in such filing offices, a
perfected security interest in such portion of the Collateral in which the
perfection of a security interest can be effected by the filing of financing
statements under the Uniform Commercial Code as enacted in New Hampshire,
Massachusetts and Delaware.
14. The authorized capital stock of the Borrower consists of ___ shares
of Common Stock, $___ par value[, and ___ shares of _______________, $____ par
value], of which ____ shares of Common Stock [and ___ shares of ____________]
are issued and outstanding of record. All such outstanding shares are validly
issued and non-assessable and subject to no preemptive rights. To our knowledge,
the Borrower does not have outstanding any rights, options to subscribe for or
purchase from the Borrower, or any warrants or other agreements providing for or
requiring the issuance by the Borrower of, any capital stock or any securities
convertible into or exchangeable for its capital stock.
3
<PAGE> 39
15. The Borrower owns the Intellectual Property Collateral (as
defined in the Intellectual Property Security Agreement defined hereafter)
listed on SCHEDULES I, II, III AND IV ("Schedules") to the Intellectual Property
Security Agreement. Furthermore, the Schedules sets forth the true and complete
listing of the Borrower's Intellectual Property Collateral. The Borrower is the
sole and exclusive legal and beneficial owner of the entire right, title and
interest in and to the Intellectual Property Collateral listed in the Schedules.
16. The security interests stated to be granted pursuant to the
Intellectual Property Security Agreement are valid and enforceable security
interests in the Intellectual Property Collateral securing the obligations
pursuant to the Intellectual Property Security Agreement. Upon the filing of the
Uniform Commercial Code financing statements referred to in paragraph 13 hereof
and the filing of the Intellectual Property Security Agreement with the United
States Patent and Trademark Office (the "PTO"), such security interests, to the
extent perfectible by the filing of such Uniform Commercial Code financing
statements and such Intellectual Property Security Agreement, will constitute
valid, binding and duly perfected security interests in the Intellectual
Property Collateral, including all proceeds thereof, granted to the Bank.
17. There are no facts which would preclude the Borrower from
exploiting the Intellectual Property Collateral.
18. Neither the Borrower nor any of its officers or directors have
received any notice of infringement or conflict with the rights or claims of
others with respect to the Intellectual Property Collateral, and have no reason
to believe that its use of the Intellectual Property Collateral would infringe
the rights of third parties.
19. The shares of the capital stock of the Guarantors pledged to
the Bank pursuant to the Pledge Agreement are held of record as set forth on
ANNEX A to the Pledge Agreement. [Such capital stock constitutes, of record,
66-2/3% of the outstanding capital stock of each of the Guarantors and, to our
knowledge, on a fully-diluted basis, 66-2/3% of such outstanding capital stock
of the Guarantors.] Upon delivery to the Bank of the stock certificates
evidencing such capital stock with stock powers executed in blank in respect of
the such capital stock in the Commonwealth of Massachusetts, and assuming
continued possession of such certificates by the Bank, the Bank will have, a
perfected security interest in such capital stock. Assuming that the Bank
acquired its security interest in such pledged capital stock in good faith and
without notice of any, adverse claims (as such term is used. in Article 8 of the
Massachusetts UCC) and that such pledged stock is either in bearer form or in
registered form, issued or endorsed in the name of the Bank or in blank, the
Bank will acquire its security interest in such pledged capital stock free of
adverse claims.
Our opinions contained herein are subject to the following
qualifications:
(i) The enforceability of obligations under any agreement
or document subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights and remedies of
creditors generally or the application of principles of equity whether
in an action in law or proceeding in equity. In addition, we express no
opinion regarding the availability of the remedy of specific
performance or of any other equitable remedy or relief, to enforce any
right under any agreement or document.
(ii) The opinions expressed in this letter are based upon
the applicable laws, regulations and ordinances in effect as of the
date of this letter. In delivering this letter to you, we are not
undertaking to apprize you either of any transactions, events or
occurrences taking place after the date of this letter of which we may
acquire any knowledge or of any change in any applicable laws taking
place after the date of this letter which may affect our opinions set
forth herein.
4
<PAGE> 40
(iii) Our opinion is limited to the specific opinions
expressed above, and no other opinions are intended nor should they be
inferred.
This opinion is rendered as of the date hereof, and is for your benefit
and not for the benefit of any other party.
Very truly yours,
5
<PAGE> 41
EXHIBIT D
November __, 1998
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Attn: Paul B. Forester
Vice President-Commercial Banking
Ladies and Gentlemen:
As required by Section 5.03 of the Second Amended and Restated Loan
Agreement dated as of November __, 1998 (the "Loan Agreement"), by and between
STORAGE COMPUTER CORPORATION (the "Borrower") and STATE STREET BANK AND TRUST
COMPANY (the "Bank"), a review of the activities of the Borrower for fiscal year
and/or fiscal period ending 19[__ ] (the "Fiscal Period") has been made under my
supervision with a view to determining whether the Borrower has kept, observed,
performed and fulfilled all of its obligations under the Loan Agreement and all
other agreements or undertakings contemplated thereby. To the best of my
knowledge, no event has occurred and is continuing which constitutes, or which
with the passage of time or service of notice, or both, would constitute an
Event of Default as defined in Article VIII of the Loan Agreement.
I further certify that the amounts set forth below, with abbreviated
descriptions, to the best of my knowledge, accurately present amounts required
to be calculated by various covenants of the Loan Agreement as of the last day
of the Fiscal Period. Unless expressly specified herein, all terms used herein
have the identical meaning as in the Loan Agreement.
1. Section 7.01 - Quick Ratio (Quick Assets/Current Liabilities)
For the Fiscal Quarter Ended
================================================================================
Quick Assets:
- --------------------------------------------------------------------------------
+ Cash and Cash Equivalents $
- --------------------------------------------------------------------------------
+ Accounts Receivable $
- --------------------------------------------------------------------------------
+ Marketable Securities $
- --------------------------------------------------------------------------------
Total Quick Assets: $
- --------------------------------------------------------------------------------
Current Liabilities $
- --------------------------------------------------------------------------------
RATIO OF QUICK ASSETS/CURRENT
LIABILITIES (Must equal or exceed 1.0:1.0)
================================================================================
<PAGE> 42
2. SECTION 7.02 - TANGIBLE NET WORTH
For the Fiscal Quarter Ended __/__/__:
================================================================================
TANGIBLE NET WORTH:
- --------------------------------------------------------------------------------
Balance Sheet Assets (list): $
- --------------------------------------------------------------------------------
MINUS: Intangible Assets (list): $
- --------------------------------------------------------------------------------
TOTAL = TANGIBLE NET WORTH $
(Must equal or exceed $15,000,000).
- --------------------------------------------------------------------------------
Earnings After Taxes $
- --------------------------------------------------------------------------------
Current Liabilities
- --------------------------------------------------------------------------------
RATIO OF QUICK ASSETS/CURRENT LIABILITIES (Must equal or exceed
1.0:1.0)
================================================================================
3. SECTION 7.03 - EBIT TO INTEREST RATIO
For the Fiscal Quarter Ended __/__/__:
================================================================================
NUMERATOR:
- --------------------------------------------------------------------------------
Net Income $
- --------------------------------------------------------------------------------
PLUS: Interest Expense on all Indebtedness $
- --------------------------------------------------------------------------------
PLUS: Taxes $
- --------------------------------------------------------------------------------
PLUS: Extraordinary Losses $
- --------------------------------------------------------------------------------
MINUS: Extraordinary Gains $
- --------------------------------------------------------------------------------
EBIT: $
- --------------------------------------------------------------------------------
DENOMINATOR:
- --------------------------------------------------------------------------------
Interest Expense on all Indebtedness $
- --------------------------------------------------------------------------------
RATIO: (Maximum permitted is 3.5:1.0)
================================================================================
4. SECTION 7.04 - MINIMUM QUALIFIED CUSTOMER ORDERS
For the Fiscal Period Commencing October 1, 1998 and Ending __/__/__:
2
<PAGE> 43
- --------------------------------------------------------------------------------
Qualified Customer Orders $
- --------------------------------------------------------------------------------
STORAGE COMPUTER CORPORATION
By:
------------------------------------
Chief Financial Officer
3
<PAGE> 44
EXHIBIT E
(Form of Guaranty)
<PAGE> 45
EXHIBIT F
(Form of Pledge Agreement)
<PAGE> 1
SECOND AMENDED AND RESTATED LINE OF CREDIT NOTE Exhibit 10.10
$10,500,000 August 4, 1995
(As amended and restated
as of November _, 1998)
Nashua, New Hampshire
FOR VALUE RECEIVED, the undersigned, STORAGE COMPUTER CORPORATION, a
Delaware corporation, having a principal place of business at 11 Riverside
Street, Nashua, New Hampshire 03062-1373 (the "Maker"), does hereby
unconditionally promise to pay to the order of STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company, with its principal place of business at
225 Franklin Street, Boston, Massachusetts 02110-2804 (the "Bank"), on the
Maturity Date (as defined in the Loan Agreement hereinafter defined), the
principal sum of TEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($10,500,000), or, if
less, the aggregate unpaid principal amount of loans made by the Bank to the
Maker pursuant to that certain Amended and Restated Loan Agreement of even date
herewith between the Bank and the Maker (as the same may be amended, restated or
otherwise modified from time to time, the "Loan Agreement"), together with
interest to the extent permitted by law on any and all principal amounts
remaining unpaid hereunder from the date hereof until payment in full, at the
rate of interest set forth in Section 2.02 of the Loan Agreement. Interest on
the outstanding principal balances shall be calculated on the basis of a three
hundred sixty (360) day year counting the actual number of days elapsed. Each
change in the floating interest rate applicable to this Note shall take effect
simultaneously with the corresponding change in the Prime Rate (as defined in
the Loan Agreement). To the full extent permitted by applicable law, interest
shall continue to accrue on this Note after the filing by or against the Maker
of any petition seeking any relief in bankruptcy or under any act or law
pertaining to insolvency or debtor relief, whether state, federal or foreign.
PRINCIPAL REPAYMENT. The outstanding principal balance of this Note
shall be repaid as set forth in the Loan Agreement. If not sooner paid, this
Note shall be due and payable in full, together with all accrued and unpaid
interest thereon, whether due or overdue, on the Maturity Date.
VOLUNTARY PREPAYMENTS. The Maker may prepay this Note as set forth in
the Loan Agreement.
APPLICATION OF PREPAYMENTS. All prepayments (whether voluntary,
mandatory or permanent) shall, unless otherwise determined by the Bank, be
applied first to overdue interest and fees, second to accrued but unpaid
interest and fees, and finally, to prepayments of the outstanding principal of
this Note.
PAYMENT OF INTEREST. Interest shall be payable as set forth in the Loan
Agreement.
CALCULATION OF Interest. Interest shall be calculated on the basis of a
360-day year, counting the actual number of days elapsed.
PAYMENTS. All principal and interest hereunder shall be payable in
lawful money of the United States of America at the office of the Bank at the
address shown above in immediately available funds, and shall be made as set
forth in Section 2.04 of the Loan Agreement.
LATE PAYMENT FEE. If any payment due hereunder is not paid within five
(5) days after the date such payment is due, then the Maker shall pay to the
Bank, to the extent permitted by law, a fee (the "Late Payment Fee") equal to
two percent (2%) of the amount of the late payment.
DEFAULT RATE OF INTEREST. If an Event of Default shall have occurred
and shall be continuing after the expiration of any applicable cure period,
then, in such event, the interest rate applicable to this Note (the "Default
Rate") shall be four percent (4%) in excess of the highest rate of interest then
applicable to this Note, which Default Rate shall become effective on the date
such Event of Default occurs and shall continue in effect until such Event of
Default is either cured by the Maker, waived by the Bank or in the case of
incurable financial covenant defaults under Article VII hereof, which are not
waived by the Bank, until the Maker shall have returned to being in compliance
therewith.
<PAGE> 2
WAIVERS. The Maker of this Note for itself and successors and assigns,
hereby expressly waives presentment, demand, protest, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and all other demands and notices in connection with delivery, acceptance,
performance, default or enforcement of or under this Note, and expressly waives
the benefit of any exemption under the homestead exemption laws, if any, or any
other exemption or insolvency laws, and consents that the Bank may without
notice and without affecting the Maker's obligations under this Note, (i)
release or surrender, exchange or substitute any personal property or other
collateral security now held or which may hereafter be held as security for the
payment of this Note, (ii) release, add or substitute any other person or party
primarily or secondarily liable for the payment of this Note, and (iii) extend
the time for payment (regardless of the length or number thereof) or otherwise
modify the terms of payment of any part or the whole of the debt evidenced
hereby.
BENEFITS OF OTHER AGREEMENTS. This Note is the Second Amended and
Restated Line of Credit Note referred to in and is entitled to the benefits of
the Loan Agreement and is also entitled to the benefits of all other instruments
evidencing and/or securing the indebtedness hereunder. The occurrence or
existence of an "Event of Default" as defined in the Loan Agreement or in any
other instruments securing and/or evidencing this indebtedness shall constitute
a default under this Note and shall entitle the Bank to accelerate the entire
indebtedness hereunder and take such other action as may be provided for in such
agreements.
AMENDMENT AND RESTATEMENT. This Note is issued by the Maker pursuant to
the Loan Agreement in replacement and substitution of the Original Note defined
and described in the Loan Agreement. This Note is neither a satisfaction nor a
novation thereof.
MAXIMUM RATE. All agreements between the Maker and the Bank are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the indebtedness or otherwise, shall the
amount paid or agreed to be paid to the Bank for the use, forbearance or
detention of the indebtedness evidenced hereby exceed the maximum permissible
under applicable law. If, for any circumstances whatsoever, fulfillment of any
provision hereof or of the Loan Agreement, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then, IPSO FACTO, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any circumstance the Bank
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby and not to the payment of
interest. As used herein, the term "applicable law" shall mean the law in effect
as of the date hereof, provided, however, that in the event there is a change in
the law which results in a higher permissible rate of interest, then this Note
shall be governed by such new law as of its effective date. This provision shall
control every other provision of all agreements among the Maker and the Bank.
GOVERNING LAW. This Note and all transactions hereunder and/or
evidenced herein shall be governed by, construed, and enforced in accordance
with the substantive laws of The Commonwealth of Massachusetts.
ATTORNEYS' FEES, COSTS OF COLLECTION; APPOINTMENT OF RECEIVER. If this
Note shall not be paid when due and shall be placed by the holder hereof in the
hands of any attorney for collection, through legal proceedings or otherwise,
the Maker will pay attorneys' fees to the holder hereof together with reasonable
costs and expenses of collection.
2
<PAGE> 3
IN WITNESS WHEREOF, the Maker has caused this Note to be executed as an
instrument under seal by its duly authorized officer all as of the day and year
first above written.
ATTEST: STORAGE COMPUTER CORPORATION
By:
- ------------------------------- ---------------------------------
Chief Executive Officer James C. Louney
Chief Financial Officer
3
<PAGE> 1
Exhibit 10.11
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of November __, 1998 between STORAGE COMPUTER
CORPORATION, a Delaware corporation (the "Debtor"), and STATE STREET BANK AND
TRUST COMPANY, a Massachusetts trust company (the "Lender").
RECITALS
The Debtor has entered into an Amended and Restated Credit Agreement dated as of
August 28, 1998 with the Lender, pursuant to which Lender has from time to time
made certain loans, advances and other extensions of credit to the Debtor. The
Debtor desires to enter into a second Amended and Restated Credit Agreement
dated November __, 1998 with the Lender (the "Credit Agreement"). The Lender is
willing to enter into the Credit Agreement on the condition that the Debtor
grant it a security interest in all of its assets to secure all obligations of
the Debtor to the Lender, all as hereinafter set forth.
NOW THEREFORE, in consideration of the premises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1. DEFINITIONS
All capitalized terms used herein and not otherwise defined shall have the
respective meanings provided therefor in the Credit Agreement. All terms used
herein and not defined in the Credit Agreement or herein that are defined in the
Uniform Commercial Code of the Commonwealth of Massachusetts, as amended from
time to time (the "UCC") shall have the definitions herein as provided therein,
unless the context otherwise indicates or requires.
ARTICLE 2. GRANT OF SECURITY
Section 2.1 GRANT OF SECURITY INTEREST. To secure the payment and performance of
the Obligations, Debtor hereby grants to the Lender a continuing security
interest (the "Security Interest") in and to all personal property and fixtures
of the Debtor of every kind and nature, whether now or hereafter existing or now
or hereafter acquired and wherever located and all proceeds and products
thereof, including but not limited to the following (the "Collateral"):
(a) All money, cash, bank accounts, goods, inventory, equipment, computer
hardware and software, instruments, securities, investment property, documents,
documents of title, chattel paper, accounts, accounts receivable, lease
receivables and leases including but not limited to, rights to rentals
thereunder and the Debtor's reversionary interest in property leased thereunder
and any equity rights in leases sold to third parties, contract rights,
licenses, general intangibles, copyrights, patents and patents pending,
trademarks and goodwill, trade secrets, credits, claims, demands and all other
property of the Debtor (including but not limited to leasehold improvements),
and including further but not limited to the property described in clauses (b),
(c), (d), (e) and (f) following;
(b) All equipment, including without limitation all fixtures, machinery,
equipment molds, dies, motor vehicles, and other goods whether now owned or
hereafter acquired by the Debtor, wherever located, all replacements,
substitutions and all parts thereof and all accessions thereto (any and all such
equipment, parts and accessions being the "Equipment");
<PAGE> 2
(c) All inventory in all of its forms, wherever located, now or hereafter
existing including, but not limited to (i) raw materials and work in process
therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, and (ii) goods which are returned to or
repossessed by the Debtor and all accessions thereto and products thereof (any
and all such inventory, accessions and products being the "Inventory");
(d) All accounts receivable, including without limitation accounts, contracts,
contract rights, chattel paper, instruments, and other obligations of any kind
whether now existing or hereafter arising out of or in connection with the sale
or lease of goods or the rendering of services, and all rights now or hereafter
existing in and to all security agreements, leases, and other contracts securing
or otherwise relating to any such accounts, contract rights, chattel paper,
instruments, general intangibles or obligations (any and all such accounts,
contract rights, chattel paper, instruments, general intangibles and obligations
being the "Receivables," and any and all such leases, security agreements and
other contracts being the "Related Contracts");
(e) All general intangibles including without limitation, tax refunds, the
corporate name and all product names;
(f) All investment property of the Debtor; and
(g) To the extent not otherwise included, all payments under insurance policies
(whether or not the Lender is the loss payee thereof), or any indemnity,
warranty or guaranty, payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral.
Section 2.2 FINANCING STATEMENTS, DELIVERY OF INSTRUMENTS AND OTHER ACTION.
(a) Debtor agrees to do all acts which the Lender deems necessary or desirable
to protect the Security Interest or to otherwise carry out the provisions of
this Agreement, including, but not limited to, the execution of financing,
continuation, amendment and termination statements and similar instruments and
the procurement of waivers and disclaimers of interest in the Collateral by the
owners of and holders of liens against any real estate on which the Collateral
is located. Debtor appoints the Lender as Debtor's attorney irrevocable to do
all acts which Debtor may be required to do under this Agreement. All charges,
expenses and fees which the Lender may incur in obtaining or filing any of the
foregoing shall be charged to the Debtor's account, added to the Obligations and
payable on demand.
(b) The Debtor shall endorse, assign and deliver to the Lender all negotiable or
non-negotiable instruments (including certificated securities) or chattel paper,
accompanied by such instruments of transfer or assignment duly executed in blank
as the Lender may from time to time specify. To the extent that any securities
now or hereafter acquired by the Debtor are uncertificated and are issued to the
Debtor or its nominee directly by the issuer thereof, the Debtor shall cause the
issuer to note on its books the security interest of the Lender in such
securities and shall cause the issuer, pursuant to an agreement in form and
substance satisfactory to the Lender, to agree to comply with instructions from
the Lender as to such securities, without further consent of the Debtor or such
nominee. To the extent that any securities, whether certificated or
uncertificated, or other financial assets now or hereafter acquired by the
Debtor are held by the Debtor or its nominee through a financial or securities
intermediary, the Debtor shall (i) cause such intermediary to note on its books
the security interest of the Lender in such securities or other financial assets
and to confirm such notation promptly to the Lender and (ii) at the request of
the Lender, cause such intermediary, pursuant to an agreement in form and
substance satisfactory to the Lender, to agree to comply with entitlement orders
or other instructions from the Lender as to such securities or other financial
assets, without further consent of the Debtor or such nominee. The Lender agrees
with the Debtor that the Lender shall not give any such entitlement orders or
instructions to any such issuer or intermediary unless an Event of Default has
occurred.
2
<PAGE> 3
(c) Concurrently herewith the Debtor is also executing and delivering to the
Lender separate notice and assignments of patents and trademarks pursuant to
which the Debtor is assigning to the Lender certain Collateral consisting of
patents and patent rights and trademarks, service marks and trademark and
service mark rights, together with the goodwill appurtenant thereto. The
provisions of such separate assignments are supplemental to the provisions of
this Agreement, and nothing contained in such separate assignments shall
derogate from any of the rights or remedies of the Lender hereunder, nor shall
anything contained in such separate assignments be deemed to prevent or extend
the time of attachment or perfection of any security interest in such Collateral
created hereby.
ARTICLE 3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Debtor hereby makes the following representations, warranties and covenants
which shall survive the execution and delivery of this Agreement and shall be
continuing representations, warranties and covenants as long as any of the
Obligations remain outstanding.
Section 3.1 DEBTOR'S PLACE OF BUSINESS. The Debtor hereby represents warrants
that: (a) Debtor's chief place of business is located at __________________; and
(b) Debtor has no other place of business except those listed on EXHIBIT A
hereto. Debtor covenants to notify Lender in writing within 15 days of the
addition or discontinuance of any place of business or any change in the
information contained in this Section 3.1.
Section 3.2 LOCATION OF COLLATERAL; INSTRUMENTS. Debtor represents and warrants
that all of the Inventory and Equipment is located at the places specified in
EXHIBIT A, and the record owners of and record holders of liens against the real
estate on which any of the Collateral is located and their addresses are set
forth in EXHIBIT A. Debtor further represents and warrants that the records
concerning Debtor's Receivables and Related Contracts are located at Debtor's
chief place of business. None of the Collateral shall be removed from the
locations specified in this Section 3.2 other than in the ordinary course of
business without giving thirty (30) days prior written notice to the Lender. All
negotiable and nonnegotiable instruments (including certificated securities) and
chattel paper owned by the Debtor are described in EXHIBIT A and have been
pledged to the Lender. Debtor represents and warrants that all of the
information contained in the previously delivered certificate as to collateral
of the Debtor (the "Collateral Certificate") attached hereto as EXHIBIT C is
true and correct as of the date hereof. Debtor further represents and warrants
that all information contained in such Collateral Certificate may be relied upon
by the Lender until an updated Collateral Certificate is delivered to the
Lender.
Section 3.3 OWNERSHIP AND LIENS. Debtor represents and warrants that Debtor has
good and marketable title to the Collateral and that there are no sums owed or
claims, liens, security interests or other encumbrances against the Collateral
other than those listed on EXHIBIT B hereto. Except as set forth on EXHIBIT B,
no effective financing statements or other similar instrument in effect covering
all or any part of the Collateral is on file in any recording office, except as
may have been filed in favor of the Lender relating to this Agreement. Debtor
covenants to notify the Lender of any claim, lien, security interest or other
encumbrance made against the Collateral and shall defend the Collateral against
any claim, lien, security interest or other encumbrance adverse to the Lender.
Debtor shall not create or incur, or suffer to be created or incurred, or permit
to exist any encumbrance, mortgage, pledge, lien, charge or other security
interest of any kind upon any of the Collateral in favor of any person other
than the Lender except for liens permitted by the Credit Agreement. Debtor
covenants that regardless of the manner of affixation, the Equipment shall
remain personal property and shall not become part of the real estate on which
it is located.
Section 3.4 MAINTENANCE OF COLLATERAL. Debtor covenants to preserve the
Collateral for the benefit of the Lender. Without limiting the generality of the
foregoing, Debtor shall:
3
<PAGE> 4
(a) cause the Equipment to be maintained and preserved in the same condition,
repair and working order as when new and make all repairs, replacements,
additions and other improvements necessary to maintain such Equipment in such
good condition;
(b) maintain Inventory sufficient to meet the needs of its business;
(c) preserve all beneficial Related Contracts;
(d) assure that (i) no Receivable is or shall be subject to any defense, offset,
counterclaim, discount or allowance except as may be stated in a copy of the
invoice delivered by Debtor to the Lender and that each Receivable shall be paid
in full when due; (ii) no agreement under which any deduction, discount, credit
or allowance of any kind may be granted or allowed shall have been or shall
thereafter be made by Debtor with any account party except as indicated in
writing to the Lender at or before the time such agreement is made; (iii) all
statements made and all unpaid balances appearing in the invoices, documents and
agreements relating to each Receivable shall be true and correct in all
respects; and (iv) all signatures and endorsements that appear therein shall be
genuine and all signatories shall have full capacity to contract;
(e) take all commercially reasonable steps necessary to collect all Receivables;
and
(f) pay promptly when due all taxes, assessments, or other charges or liens on
the Collateral or any claims (including claims for labor, materials and
supplies) against the Equipment and Inventory; provided that such taxes,
assessments, charges and liens need not be paid if the validity or amount
thereof shall be contested in good faith by appropriate proceedings and if the
Debtor has set aside on its books adequate reserves with respect thereto.
Debtor shall not sell, lease or otherwise dispose of any item of the Collateral
except for the sale of Inventory in the ordinary course of business and other
sales, leases and dispositions permitted under the Credit Agreement and shall
not use the Collateral in violation of any law.
Section 3.5 MAINTENANCE OF RECORDS. Debtor covenants to keep accurate and
complete records listing and describing the Collateral. When requested by the
Lender, Debtor shall give the Lender a certificate listing and describing the
Collateral and setting forth the total value of the Inventory, the total value
of the Equipment, the amount of the Receivables designating how many days the
Receivables are from the date of invoice, the face value of any instruments and
any other information the Lender may request. The Lender shall have the right at
any time to inspect the Collateral and to audit and make copies of any records
or other writings which relate to the Collateral or the general financial
condition of Debtor, and may remove such records and writings for the purpose of
having copies made thereof.
Section 3.6 INSURANCE. Debtor shall at its own expense maintain insurance
covering the Collateral against such risks, with such insurers, in such form,
and in such amounts as shall from time to time be required by the Lender but in
any event, in such amounts and with such coverage as is customary in Debtor's
type of business and in such amounts as to avoid co-insurance liability. All
insurance policies shall be written so as to be payable in the event of loss to
the Lender, for the benefit of the Banks, shall provide for thirty (30) days'
written notice to the Lender of cancellation or modification and shall specify
the Lender as an additional insured. Without limiting the foregoing, the Debtor
will (a) keep all of its physical property insured with casualty or physical
hazard insurance on an "all risks" basis, with broad form flood and earthquake
coverages and electronic data processing coverage, with a full replacement cost
endorsement and an "agreed amount" clause in an amount equal to 100% of the full
replacement cost of such property, (b) maintain all such workers' compensation
or similar insurance as may be required by law and (c) maintain, in amounts and
with deductibles equal to those generally maintained by businesses engaged in
similar activities in similar geographic areas, general public liability
insurance against claims of bodily injury, death or
4
<PAGE> 5
property damage occurring, on, in or about the properties of the Debtor,
business interruption insurance, and product liability insurance. At the request
of the Lender, all insurance policies shall be furnished to and held by the
Lender. Debtor hereby assigns to the Lender return premiums, dividends and other
amounts which may be or become due upon cancellation of any such policies for
any reason whatsoever and directs the insurers to pay the Lender any sums so
due. The Lender is hereby appointed as attorney irrevocable with the power at
any time after occurrence of an Event of Default to collect return premiums,
dividends and other amounts due on any insurance policy and the proceeds of such
insurance, to settle any claims with insurers in the event of loss or damage, to
endorse settlement drafts and, at any time after the occurrence of an Event of
Default, to cancel, assign or surrender any insurance policies. If, while any
Obligations are outstanding, any return premiums, dividends, other amounts or
proceeds are paid to the Lender under such policies, the Lender may at its
option take either or both of the following actions: (i) apply such return
premiums, dividends, other amounts and proceeds in whole or in part to the
payment or satisfaction of any of the Obligations in whatever order the Lender
determines or hold such amounts as cash collateral for the obligations; or (ii)
pay over such return premiums, dividends, other amounts and proceeds in whole or
in part to Debtor for the purpose of repairing or replacing the Collateral
destroyed or damaged.
ARTICLE 4. RECEIVABLES
Section 4.1 COLLECTION OF RECEIVABLES. The Lender may communicate with account
debtors in order to verify the existence, amount and terms of any Receivables.
At any time after the occurrence of an Event of Default, the Lender may at any
time notify account debtors of the Security Interest and require that payments
on Receivables and returns of goods be made directly to the Lender. When
requested by the Lender, at any time after the occurrence of an Event of
Default, Debtor shall notify account debtors and indicate on all billings that
payments and returns are to be made directly to the Lender. At any time after
the occurrence of an Event of Default, the Lender shall have full power to
collect, compromise, endorse, sell or otherwise deal with the Receivables or
proceeds thereof and to perform the terms of any contract in order to create
Receivables in the Lender's name or in the name of Debtor.
Section 4.2 FEDERAL GOVERNMENT RECEIVABLES. If any of Debtor's Receivables or
contract rights arise out of contracts with a governmental body and are subject
to the Federal Assignment of Claims Act or a similar statute, Debtor shall
promptly notify the Lender thereof in writing and execute any instruments and
take any action required by the Lender to assure that all monies due and to
become due under such contract shall be assigned to the Lender.
Section 4.3 SEPARATE ASSIGNMENT. This Agreement may but need not be supplemented
by separate assignments of Receivables and contract rights. If such assignments
are given, the rights and security interests given thereby shall be in addition
to and not in limitation of the rights and Security Interest given by this
Agreement.
ARTICLE 5. DEFAULT AND REMEDIES
Section 5.1 EVENTS OF DEFAULT. An Event of Default under the Credit Agreement
shall be deemed to be an Event of Default hereunder.
Section 5.2 RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of an Event of
Default, the Lender shall have, by way of example and not of limitation, the
rights and remedies enumerated in paragraphs 5.2(a) through (g):
(a) The Lender may declare the Obligations, or any of them, to be immediately
due and payable without presentment, demand, protest or notice of any kind, all
of which are hereby expressly waived;
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(b) In addition to all other rights and remedies contained in this Agreement,
and any other Lender Agreement, the Lender may exercise the rights and remedies
accorded a secured party by the Uniform Commercial Code or by any document
securing the Obligations, all of which rights and remedies shall be cumulative
and non-exclusive to the extent permitted by law;
(c) The Lender shall have the right to set-off, without notice to the Debtor,
any and all deposits or other sums at any time or times credited or due from the
Lender to Debtor, whether in a special account or other account or represented
by a certificate of deposit (whether or not matured); which deposit and other
sums shall at all times constitute additional security for the Obligations;
(d) The Lender shall have the right to enter and/or remain upon the premises of
Debtor, or any other place or places where any of the Collateral is located and
kept so far as the Debtor can give authority therefor, without any obligation to
pay rent to Debtor or others, and: (i) remove Collateral therefrom to the
premises of the Lender or any agent of the Lender for such time as the Lender
may desire in order to maintain, collect, sell and/or liquidate the Collateral
or (ii) use such premises together with materials, supplies, books and records
of Debtor, to maintain possession and/or the condition of the Collateral, and to
prepare the Collateral for sale, liquidation or collection;
(e) The Lender may require the Debtor at Debtor's cost to assemble the
Collateral and make it available to Lender at a place designated by the Lender;
(f) The Lender may perform any warranty, covenant or agreement which Debtor has
failed to perform under this Agreement; and
(g) The Lender may take any other action which the Lender deems necessary or
desirable to protect the Collateral or the Security Interest.
Unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Lender shall give to
the Debtor at least five Business Days prior written notice of the time and
place of any public sale of Collateral or of the time after which any private
sale or any other intended disposition is to be made. The Debtor hereby
acknowledges that five Business Days prior written notice of such sale or sales
or other dispositions shall be reasonable notice. In addition, the Debtor waives
any and all rights that it may have to a judicial hearing in advance of the
enforcement of any of the Lender's rights hereunder, including, without
limitation, the Lender's right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights with respect thereto.
Section 5.3 MARSHALING. The Lender shall not be required to marshal any present
or future collateral security (including but not limited to this Agreement and
the Collateral) for, or other assurances of payment of, the Obligations or any
of them or to resort to such collateral security or other assurances of payment
in any particular order, and all of its rights hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights, however existing or arising. To the extent that it
lawfully may, the Debtor hereby agrees that it will not invoke any law relating
to the marshaling of collateral which might cause delay in or impede the
enforcement of the Lender's rights under this Agreement or under any other
instrument creating or evidencing any of the Obligations or under which any of
the Obligations is outstanding or by which any of the Obligations is secured or
payment thereof is otherwise assured, and, to the extent that it lawfully may,
the Debtor hereby irrevocably waives the benefits of all such laws.
Section 5.4 APPLICATION OF PROCEEDS. After deducting all expenses of the Lender
and costs of collection, the residue of any proceeds of collection or sale of
the Obligations or Collateral shall, to the extent actually received in cash, be
applied to the payment of the Obligations in such order or preference as is
provided in the Credit Agreement (or if not provided for in the Credit
Agreement, as the Lender may determine, proper
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allowance and provision being made for any Obligations not then due). Upon the
final payment and satisfaction in full of all of the Obligations and after
making any payments required by Section 9-504(l)(c) of the UCC, any excess shall
be returned to the Debtor, and the Debtor shall remain liable for any deficiency
in the payment of the Obligations.
Section 5.5 REMEDIES CUMULATIVE. The Lender may exercise any or all of its
rights and remedies after the occurrence of an Event of Default concurrently
with or independently of and without regard to the provisions of any other
document which secures any of the Obligations.
ARTICLE 6. MISCELLANEOUS
Section 6.1. WAIVERS, AMENDMENTS AND REMEDIES. No delay or omission on the part
of the Lender in exercising its rights and remedies against the Debtor or any
other interested party shall constitute a waiver of any rights or remedies of
the Lender. A breach by the Debtor of its obligations under this Agreement may
be waived only by a written waiver executed by the Lender. The Lender's waiver
of a breach by the Debtor in one or more instances shall not constitute or
otherwise be an implicit waiver of subsequent breaches. To the extent permitted
by applicable law, the Debtor hereby agrees to waive, and does hereby absolutely
and irrevocably waive (a) all presentments, demands for performance, notices of
nonperformance, protests, notices of protest and notices of dishonor in
connection with this Agreement or any of the Obligations, (b) any requirement of
diligence or promptness on the Lender's part in the enforcement of its rights
under the provisions of this Agreement, and (c) any and all notices of every
kind and description which may be required to be given by any statute or rule of
law with respect to the Debtor's liability under this Agreement or in respect of
any of the Obligations. No course of dealing between the Debtor and the Lender
shall operate as a waiver of any of Lender's rights under this Agreement or with
respect to any of the Obligations. This Agreement shall be amended only by a
written instrument executed by the parties hereto making explicit reference to
this Agreement. Lender's rights and remedies under this Agreement and under all
subsequent agreements between the Lender and the Debtor shall be cumulative and
any rights and remedies expressly set forth herein shall be in addition to, and
not in limitation of, any other rights and remedies which may be available to
the Lender in law or at equity.
Section 6.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and shall be
enforceable by the respective successors and assigns of the parties hereto. The
representations and warranties made by the Debtor in this Agreement shall bind
the Debtor's successors and assigns.
Section 6.3 NOTICES. All notices and other communications made or required to be
given pursuant to this Agreement shall be in writing and shall be mailed by
United States mail, postage prepaid, or sent by nationally-recognized overnight
carrier service, addressed to the parties at their addresses set forth in the
Credit Agreement. Any notice so addressed and mailed by registered or certified
mail shall be deemed to have been given when mailed.
Section 6.4 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced under the laws of The Commonwealth of Massachusetts.
Section 6.5 COUNTERPARTS. This Agreement and all amendments to this Agreement
may be executed in several counterparts, each of which shall be an original. The
several counterparts shall constitute a single Agreement.
Section 6.6 EXPENSES. The Debtor agrees to pay on demand all of the Lender's
reasonable expenses in preparing, executing, delivering and administering this
Agreement, all amendments hereto, and related instruments and documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
the Lender's special counsel, Goodwin, Procter & Hoar LLP. The Debtor also
agrees to pay on demand all reasonable out-of-pocket expenses incurred by the
Lender, including, without limitation, legal and accounting
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fees, in connection with the collection of amounts upon the occurrence of an
Event of Default hereunder, the revision, protection, preservation or
enforcement of any of the Lender's rights against the Debtor under this
Agreement and with respect to the Collateral and the administration of special
problems that may arise under this Agreement. The Debtor also agrees to pay all
stamp and other taxes in connection with the execution and delivery of this
Agreement and related instruments and documents.
Section 6.7 WAIVER OF JURY TRIAL. THE LENDER AND THE DEBTOR AGREE THAT NEITHER
OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON OR ARISING OUT
OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE DEALINGS OR
THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE
LENDER AND THE DEBTOR, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NEITHER THE LENDER NOR THE DEBTOR HAS AGREED WITH OR REPRESENTED TO THE OTHER
THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.
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IN WITNESS WHEREOF, the Debtor and the Lender have caused this Security
Agreement to be executed as an instrument under seal by their duly authorized
officers as of the date set forth above.
STORAGE COMPUTER CORPORATION
By:
---------------------------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
By:
---------------------------------------
Name:
Title:
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EXHIBIT A
OTHER BUSINESS LOCATIONS
LOCATIONS OF INVENTORY AND EQUIPMENT
Record Owner of
Real Estate Where
Type of Collateral: Location: Collateral Located:
- ------------------- --------- -------------------
DESCRIPTION OF INSTRUMENTS
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EXHIBIT B
ENCUMBRANCES AGAINST THE COLLATERAL
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EXHIBIT C
COLLATERAL CERTIFICATE
12
