SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File No. 0-26912
Vodavi Technology, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0789350
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8300 E. Raintree Drive, Scottsdale, Arizona 85260
------------------------------------------- -----
(Address of principal executive offices ) (Zip Code)
(602) 443-6000
--------------
(Registrant's telephone number, including area code)
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 12 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
---
The number of shares outstanding of registrant's Common Stock, $.001 par value
per share, as of July 31, 1997 was 4,342,238.
<PAGE>
VODAVI TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
Page #
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996. 3
Consolidated Statements of Operations - Three and Six
Month Periods Ended June 30, 1997 and 1996. 4
Consolidated Statements of Cash Flows - Six Month Periods
Ended June 30, 1997 and 1996. 5
Notes to Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 11
SIGNATURES 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VODAVI TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
In thousands
June 30, December 31,
1997 1996
-------- --------
(Unaudited)
CURRENT ASSETS:
Cash $ 1,800 $ 1,152
Accounts Receivable, net 7,927 7,790
Inventory, net 7,188 7,229
Prepaids 569 420
-------- --------
17,484 16,591
PROPERTY AND EQUIPMENT, net 2,653 2,465
GOODWILL, net 2,471 2,547
OTHER LONG-TERM ASSETS, net 1,068 815
-------- --------
$ 23,676 $ 22,418
======== ========
CURRENT LIABILITIES:
Current Portion of Long-Term Debt $ 386 $ 258
Accounts Payable 3,558 4,464
Accrued Liabilities 2,490 2,518
-------- --------
6,434 7,240
-------- --------
LONG-TERM DEBT 7,230 5,777
-------- --------
STOCKHOLDERS' EQUITY:
Common Stock 4 4
Additional Paid-In Capital 12,308 12,308
Accumulated Deficit (2,300) (2,911)
-------- --------
10,012 9,401
-------- --------
$ 23,676 $ 22,418
======== ========
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
In thousands, except share amounts
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------- -------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE, net $ 11,917 $ 11,900 $ 23,445 $ 22,256
COST OF GOODS SOLD 7,944 7,913 15,572 14,836
---------- ---------- ---------- ----------
GROSS MARGIN 3,973 3,987 7,873 7,420
OPERATING EXPENSES
Engineering and product development 499 535 982 1,035
Selling, general and administrative 2,739 2,891 5,542 5,667
---------- ---------- ---------- ----------
OPERATING INCOME 735 561 1,349 718
INTEREST EXPENSE 161 207 338 442
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 574 354 1,011 276
PROVISION FOR INCOME TAXES 227 185 400 206
---------- ---------- ---------- ----------
NET INCOME $ 347 $ 169 $ 611 $ 70
========== ========== ========== ----------
NET INCOME PER SHARE $ 0.08 $ 0.04 $ 0.14 $ 0.02
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,342,238 4,532,523 4,342,238 4,532,523
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
VODAVI TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands
(Unaudited)
Six months ended
June 30,
--------
1997 1996
-------- --------
OPERATING ACTIVITIES:
Net Income $ 611 $ 70
Adjustments:
Depreciation and amortization 326 504
Rent levelization 25 35
Changes in working capital:
Accounts receivable (189) (3,115)
Inventory 41 3,015
Prepaid expenses (148) 101
Other long term assets (258) (55)
Accounts payable (905) (475)
Accrued liabilities (29) (50)
-------- --------
NET CASH FLOWS - OPERATING ACTIVITIES (526) 30
-------- --------
INVESTING ACTIVITIES:
Purchase of Fixed Assets (107) (331)
-------- --------
NET CASH FLOWS - INVESTING ACTIVITIES (107) (331)
-------- --------
FINANCING ACTIVITIES:
Payments on capital leases (66) (15)
Debt financing costs paid (23) --
Borrowings from GE Capital 23,517 18,223
Payments to GE Capital (22,147) (19,264)
-------- --------
NET CASH FLOWS - FINANCING ACTIVITIES 1,281 (1,056)
-------- --------
INCREASE (DECREASE) IN CASH 648 (1,357)
CASH, beginning of period 1,152 1,944
-------- --------
CASH, end of period $ 1,800 $ 587
======== ========
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
VODAVI TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED
JUNE 30, 1997
a) Vodavi Technology, Inc. (the Company), a Delaware corporation, designs,
develops, markets, and supports a broad range of telecommunications systems,
commercial grade telephones, computer-telephony products, and voice processing
products, including voice mail, fax mail, Internet messaging, and interactive
voice response systems, for a wide variety of commercial applications.
(b) The accompanying unaudited consolidated financial statements have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These financial statements reflect all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly state the financial position
as of June 30, 1997 and the operating results and cash flows for the periods
presented. Operating results for the interim periods presented are not
necessarily indicative of the operating results that may be expected for the
entire year. These financial statements should be read in conjunction with the
Company's December 31, 1996 financial statements and accompanying notes thereto.
(c) In the fourth quarter of 1996, certain events occurred which resulted in the
Company recording an impairment loss related to the goodwill associated with
Enhanced Systems, Inc. (Enhanced). See footnotes 1 and 4 to the Company's
financial statements for the year ended December 31, 1996.
(d) Net income per share for the periods ended June 30, 1997 and 1996 were
determined by dividing net income by the weighted average number of common and
common equivalent shares outstanding.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings Per Share."
The new standard requires dual presentation of both basic and diluted earnings
per share ("EPS") on the face of the earnings statement and requires a
reconciliation of both basic and diluted EPS calculations. This statement is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. This statement will be effective for the Company's 1997
fiscal year. EPS as reported in this Form 10-Q would not be materially different
under the provisions of SFAS No. 128.
6
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Three Months Ended June 30, 1997 and 1996:
The following table summarizes the operating results of the Company as a
percentage of revenue for the periods indicated.
Three Months Ended
June 30,
--------
1997 1996
------ ------
Revenue 100.0% 100.0%
Cost of goods sold 66.7% 66.5%
------ ------
Gross margin 33.3% 33.5%
Operating expenses:
Engineering and product development 4.1% 4.5%
Selling, general and administrative 23.0% 24.3%
------ ------
Operating income 6.2% 4.7%
Interest expense 1.4% 1.7%
------ ------
Pre-tax income 4.8% 3.0%
Income taxes 1.9% 1.6%
------ ------
Net income 2.9% 1.4%
====== ======
Revenue
Revenue remained relatively constant at approximately $11.9 million in both the
second quarters of 1997 and 1996.
Gross Margin
Gross margin remained relatively constant at approximately 33.3% of revenue in
the second quarter of 1997 as compared with 33.5% in the second quarter of 1996.
Engineering and Product Development
Expenditures related to engineering and product development declined $36,000 in
the second quarter of 1997 as compared with the second quarter of 1996.
Selling, General and Administrative
Selling, general and administrative expenses declined $152,000 in the second
quarter of 1997 as compared with the second quarter of 1996. As a percentage of
revenue, selling, general and administrative expenses declined to 23.0% of
revenue in the second quarter of 1997 as compared with 24.3% in the second
quarter of 1996. The recognition of the impairment loss related to Enhanced in
the fourth quarter of 1996 has eliminated ongoing goodwill amortization of
approximately $115,000 per quarter.
Interest Expense
Interest expense was approximately $161,000 in the second quarter of 1996, a
decrease of $46,000, or 22.2%, over the second quarter of 1996. The decrease is
attributable to a decrease in average borrowings and the effect of the reduced
interest rate in the Company's new credit facility (see Liquidity and Capital
Resources).
7
<PAGE>
Income Taxes
The Company has provided for income taxes using an effective rate of 39.6% in
the second quarter of 1997. The provision for income taxes for the second
quarter of 1996 reflects the impact of the non-tax deductible goodwill
amortization related to Enhanced.
Six Months Ended June 30, 1997 and 1996:
The following table summarizes the operating results of the Company as a
percentage of sales for the periods indicated.
Six Months Ended
June 30,
--------
1997 1996
------ ------
Revenue 100.0% 100.0%
Cost of goods sold 66.4% 66.7%
------ ------
Gross margin 33.6% 33.3%
Operating Expenses:
Engineering and product development 4.2% 4.6%
Selling, general and administrative 23.6% 25.5%
------ ------
Operating income 5.8% 3.2%
Interest expense 1.5% 2.0%
------ ------
Pre-tax income 4.3% 1.2%
Income taxes 1.7% 0.9%
------ ------
Net income 2.6% 0.3%
====== ======
Revenue
Revenue was approximately $23.4 million for the first six months of 1997, an
increase of $1.2 million, or 5.3%, over the first six months of 1996.
Gross Margin
Gross margin remained relatively constant at 33.6% of revenue for the first six
months of 1997 as compared with 33.3% in the first six months of 1996.
Engineering and Product Development
Expenditures related to engineering and product development declined $53,000 in
the first six months of 1997 as compared with the first six months of 1996.
Selling, General and Administrative
Selling, general and administrative expenses declined $125,000 in the first six
months of 1997 as compared with the first six months of 1996. As a percentage of
revenue, selling, general and administrative expenses declined to 23.6% of
revenue in the first six months of 1997 as compared with 25.5% in the first six
months of 1996. The recognition of the impairment loss related to Enhanced in
the fourth quarter of 1996 has eliminated ongoing goodwill amortization of
approximately $115,000 per quarter.
Interest Expenses
Interest expense was approximately $338,000 in the first six months of 1997, a
decrease of $104,000 or 23.5% over the first six months of 1996. The decrease is
attributable to a decrease in average borrowings and the effect of the reduced
interest rate in the Company's new credit facility (See Liquidity and Capital
Resources).
8
<PAGE>
Income Taxes
The Company has provided for income taxes using an effective rate of 39.6% in
the first six months of 1997. The provision for income taxes for the first six
months of 1996 reflects the impact of the non-tax deductible goodwill
amortization related to Enhanced.
Liquidity and Capital Resources
The Company's cash and cash equivalents were approximately 1.8 million at June
30, 1997 as compared with $1.2 million at December 31, 1996. The Company's cash
accounts are swept regularly and applied against the Company's line of credit.
The Company's borrowings against its available operating line of credit (as
described below) at June 30, 1997 were approximately $6.7 million, which
represents a $1.3 million increase from its borrowings of $5.4 million at
December 31, 1996. The increased borrowings are attributed to the timing of the
regular cash account sweeps by the Company's lender as evidenced in the
increased cash and cash equivalents at June 30, 1997 as well as increases in
overall working capital. At June 30, 1997, the Company had approximately $2.9
million available to it under its operating line of credit.
The Company maintains a $12.0 million line of credit with General Electric
Capital Corporation (GE Capital). During the second quarter of 1997, the Company
signed an agreement to extend the facility through April 2000. The terms of the
extension lowered the interest rate to 2.5% over the 30-day commercial paper
rate, or a total of 8.1% at June 30, 1997.
Advances under the line of credit are based upon the accounts receivable and
inventories of Vodavi Communications Systems (VCS), a wholly owned subsidiary of
the Company, and are secured by substantially all of the assets of the Company.
The revolving line of credit contains covenants that are customary for similar
credit facilities and also prohibits the Company's operating subsidiaries from
paying dividends to the Company without the consent of GE Capital. The Company
was in compliance with the covenants at June 30, 1997.
As of June 30, 1997, the Company has financed approximately $800,000 in capital
expenditures with vendors and third-party leasing companies. The terms of these
financings generally provided for interest rates ranging from 9% to 13% with 24-
month repayment periods.
As of June 30, 1997, the Company had commitments in connection with its new
product developments. Such commitments aggregate approximately $100,000 and are
payable through December 31, 1997. The commitments include payments in
connection with the development of the Company's wireless product.
The Company believes that its working capital and credit facilities will be
sufficient to finance its internal growth for the foreseeable future. Although
the Company currently has no acquisition targets, it intends to continue to
explore acquisition opportunities as they arise and may be required to seek
additional financing in the future to meet such opportunities.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On September 20, 1996, the Company and Enhanced filed a lawsuit in the United
States District Court for the District of Arizona (No. CIV 96-2184 PHX SMM)
against Michael Mittel and Fereydoun Taslimi, former officers and directors of
Enhanced. The lawsuit alleges, among other things, that Messrs. Mittel and
Taslimi violated federal and Arizona securities laws and engaged in fraudulent
activities in connection with the Company's acquisition of Enhanced in 1995;
breached certain terms of their respective employment contracts with Enhanced;
and converted certain corporate assets of Enhanced, breached their fiduciary
duties to Enhanced, and misappropriated certain corporate opportunities for
their own benefit. The Company and Enhanced are seeking compensatory and
punitive damages against Messrs. Mittel and Taslimi. On September 24, 1996,
Messrs. Mittel and Taslimi filed a lawsuit in the United States District Court
for the Northern District of Georgia, Atlanta Division (No. 196-CV-2463),
against the Company and Enhanced. The lawsuit alleges that Enhanced breached
Messrs. Mittel's and Taslimi's respective employment agreements by terminating
their employment.
A hearing to determine appropriate venue for these cases was held in the United
States District Court for the District of Arizona in April 1997. The Court has
not yet reached a decision on this matter. In May 1997, the parties
unsuccessfully attempted to settle these matters through mediation. The Company
intends to proceed with its lawsuit against Messrs. Mittel and Taslimi and to
vigorously defend the lawsuit filed by them against the Company and Enhanced.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1997 Annual Meeting of Stockholders was held on
May 19, 1997. The following nominees were elected to the
Company's Board of Directors, to serve until their successors
are elected or have been qualified, or until their earlier
resignation or removal:
Nominee Votes in Favor Withheld
------- -------------- --------
Steven A. Sherman 3,513,200 658,709
Glenn R. Fitchet 4,165,517 6,352
K.S. Cho 4,165,257 6,652
Gilbert H. Engels 4,165,517 6,352
Stephen A McConnell 4,165,517 6,352
William J. Hinz 4,165,257 6,652
The following item was voted upon by the Company's
stockholders:
a) Proposal to ratify the appointment of Arthur Andersen LLP
as the independent auditors of the Company for the fiscal year
ending December 31, 1997.
Votes in Favor Opposed Abstained Broker Non-Vote
-------------- ------- --------- ---------------
3,842,416 1,400 328,093 0
10
<PAGE>
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.13A Vodavi Single Line Telephone Agreement Extension dated
April 4, 1997 between Vodavi Communications Systems, Inc. and
L.G. Srithai Electronics Co., Ltd.
10.23 Amended and Restated Credit Agreement dated as of April
11, 1994 between Vodavi Communications Systems, Inc. and
General Electric Capital Corporation, as Amended and Restated
as of June 11, 1997.
10.24 First Amendment to Stock Pledge and Security Agreement
dated as of June 11, 1997, between Vodavi Technology, Inc. and
General Electric Capital Corporation.
10.25 Security Agreement dated as of June 11, 1997 between
Enhanced Systems, Inc. and General Electric Capital
Corporation.
10.26 Security Agreement dated as of June 11, 1997 between
Arizona Repair Services, Inc. and General Electric Capital
Corporation.
10.27 Guaranty Agreement dated as of June 11, 1997, by and
among Arizona Repair Services, Inc., Enhanced Systems, Inc.,
and General Electric Capital Corporation.
10.28 Trademark Security Agreement, dated as of June 11, 1997,
by and between Vodavi Communications Systems, Inc. and General
Electric Capital Corporation.
10.29 Trademark Security Agreement dated as of June 11, 1997,
by and between Enhanced Systems, Inc. and General Electric
Capital Corporation.
10.30 Strategic Alliance Agreement dated May 22, 1997 between
Vodavi Communications Systems, Inc. and Paradygm
Communications, Inc.
27.1 Financial Data Schedule
b) Reports on Form 8-K
Not applicable.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Vodavi Technology, Inc.
Dated: August 8, 1997 /s/Glenn R. Fitchet
-------------------
Glenn R. Fitchet
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 8, 1997 /s/Gregory K. Roeper
--------------------
Gregory K. Roeper
Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
12
VODAVI SINGLE LINE TELEPHONE AGREEMENT
Extension
This Agreement is made and entered into on this 4th day of April, 1997 by and
between LG Srithai Electronics Co., Ltd ( Formerly Srithai Goldstar Co. Ltd.), a
corporation of Thailand with its principle place of business at 71/12 Moo 5
Bangna-Trad Rd. Km. 52 Thakarm Bangpakong Chachoengeao 24130 Thailand ( Here
after referred to as LGEST or SGS) and, Vodavi Communications Systems, Inc., an
Arizona corporation, having its principle place of business at 8300 East
Raintree Dr., Scottsdale, Arizona 85260, USA. (Here after referred to as Vodavi
or VCS).
RECITAL
WHEREAS, VCS AND LGEST entered into an agreement on the 4th day of April, 1994
for the purpose of supply for sale, Single Line and Analog Key System product
manufactured by LGEST, and the purchase and distribution of said product by VCS:
WHERAS, the agreement has reached its timed termination;
NOW THEREFORE, in consideration of the premises and the mutual covenants
contained in the Agreement, the parties desire to and here by do enter into an
extension of the Vodavi Single Line Agreement dated 4 April 1994 and Exhibits A
& B attached there to as part of that Agreement.
This Agreement shall commence on the date hereof and, unless sooner terminated
in accordance with the provisions of the 4 April Agreement, shall remain in full
force and effect for an initial period of twelve (12) months.
Upon expiration of the initial twelve (12) months term, this agreement shall be
automatically renewed for an additional twelve (12) month period, and shall
remain in full force and effect until amended or terminated by either party for
any reason by giving written notice not less than three (3) months prior to the
end of each twelve (12) month period.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives as of the date first above written.
ON BEHALF OF ON BEHALF OF
LG SRITHAI ELECTRONICS CO.,LTD. VODAVI COMMUNICATIONS
SYSTEMS, INC.
BY: /s/ S.T. Hong BY: /s/ Larry Steinmetz
---------------------------- ----------------------------
NAME: SOON TAE HONG NAME: LARRY STEINMETZ
-------------------------- --------------------------
TITLE: EXECUTIVE VICE PRESIDENT TITLE: PRESIDENT
------------------------- -------------------------
DATE: MAY 19, 1997 DATE: MAY 6, 1997
-------------------------- --------------------------
EXECUTION COPY
================================================================================
U.S. $12,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of April 11, 1994
between
VODAVI COMMUNICATIONS SYSTEMS, INC.
as Borrower
and
GENERAL ELECTRIC CAPITAL CORPORATION
as Lender
As Amended and Restated as of June 11, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
1. DEFINITIONS; INTERPRETATIONS................................................1
1.1 Definitions......................................................1
1.2 Other Definitional Provisions...................................21
1.3 Accounting Matters..............................................22
2. AMOUNT AND TERMS OF CREDIT.................................................22
2.1 Revolving Credit Facility.......................................22
2.2 Interest on Revolving Credit Loan...............................24
2.3 Fees............................................................25
2.4 Calculation of Interest and Fees................................25
2.5 Early Termination...............................................25
2.6 Manner of Payment; Time.........................................26
2.7 Application and Allocation of Payments..........................26
2.8 Accounting......................................................26
2.9 Taxes...........................................................27
2.10 Increased Commitment or Funding Costs...........................27
2.11 Failure to Charge Not Subsequent Waiver.........................28
2.12 Survivability...................................................28
3. CONDITIONS PRECEDENT.......................................................28
3.1 Conditions to Each Extension of Credit..........................28
4. REPRESENTATIONS AND WARRANTIES.............................................29
4.1 Corporate Existence; Compliance with Law........................29
4.2 Executive Offices; Corporate or Other Names.....................29
4.3 Corporate Power; Authorization; Enforceable Obligations.........30
4.4 Financial Statements and Projections............................30
4.5 Material Adverse Chang..........................................31
4.6 Ownership of Property; Liens....................................31
4.7 Restrictions; No Default........................................32
4.8 Labor Matters...................................................32
4.9 Ventures, Subsidiaries and Affiliates, and Indebtedness.........32
4.10 Government Regulation...........................................32
4.11 Margin Regulations..............................................33
4.12 Taxes...........................................................33
4.13 ERISA...........................................................34
4.14 No Litigation...................................................35
4.15 Brokers.........................................................35
<PAGE>
4.16 Employment Matters..............................................35
4.17 Patents, Trademarks, Copyrights, Licenses and Accreditation....35
4.18 Full Disclosure.................................................36
4.19 Hazardous Materials.............................................36
4.20 Insurance Policies..............................................36
4.21 Deposit Accounts................................................36
4.22 Solvent Financial Condition.....................................37
4.23 Credit Party Questionnaires.....................................37
5. FINANCIAL STATEMENTS AND INFORMATION.......................................37
5.1 Reports and Notices.............................................37
5.2 Communication with Accountants..................................39
6. AFFIRMATIVE COVENANTS......................................................39
6.1 Maintenance of Existence and Conduct of Business................39
6.2 Payment of Obligations..........................................40
6.3 Books and Records...............................................40
6.4 Litigation......................................................40
6.5 Insurance.......................................................41
6.6 Compliance with Laws............................................41
6.7 Agreement.......................................................41
6.8 Employee Plans..................................................42
6.9 Environmental Matters...........................................42
6.10 Access..........................................................42
6.11 Cash Management.................................................43
6.12 Goldstar Agreements.............................................43
7. NEGATIVE COVENANTS.........................................................43
7.1 Mergers, Etc....................................................43
7.2 Investments.....................................................43
7.3 Indebtedness....................................................44
7.4 Affiliate and Employee Loans;
Transactions and Employment Agreements.........................44
7.5 Capital Structure and Business..................................44
7.6 Liens...........................................................44
7.7 Sale of Assets..................................................45
7.8 Events of Default...............................................45
7.9 ERISA...........................................................45
7.10 Financial Covenants.............................................45
- -ii-
<PAGE>
7.11 Hazardous Materials.............................................46
7.12 Restricted Payments.............................................46
7.13 Change in Control...............................................46
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES.....................................46
8.1 Events of Default...............................................46
8.2 Remedies........................................................48
8.3 Cumulative Remedies.............................................48
8.4 Waivers by Borrower.............................................48
9. MISCELLANEOUS..............................................................49
9.1 Complete Agreement; Modification of Agreement...................49
9.2 Fees and Expenses...............................................49
9.3 Indemnity.......................................................50
9.4 No Waiver.......................................................51
9.5 Successors and Assigns..........................................52
9.6 Severability....................................................52
9.7 Conflict of Terms...............................................52
9.8 Authorized Signature; Oral Instructions.........................52
9.9 Governing Law...................................................52
9.10 Notices.........................................................53
9.11 Subordination...................................................55
9.12 Survival of Obligations Upon Termination of
Financing Arrangement..........................................55
9.13 Section Titles..................................................56
9.14 Counterparts....................................................56
9.15 Time of Essence.................................................56
9.16 Waiver of Jury Trial............................................56
9.17 Syndication.....................................................56
9.18 Special Provision Relating to this Amendment and Restatement....57
................................................................................
- -iii-
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
----------------
VODAVI COMMUNICATIONS SYSTEMS, INC., formerly known as V.
Technology Acquisition Corp. ("Borrower"), and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender"), are parties to that certain
Credit Agreement, dated as of April 11, 1994, as amended to the date hereof (the
"Original Agreement"), and hereby amend and restate the Original Agreement as
follows:
RECITALS
--------
Borrower desires to make certain amendments to the Original
Agreement which relates to a loan facility (the "Revolving Credit Facility")
under which the Lender has made available to the Borrower up to Twelve Million
Dollars ($12,000,000) in revolving loans outstanding at any time, and the Lender
has agreed to such amendments to such facility, all upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS; INTERPRETATIONS
1.1 Definitions. Any and all capitalized terms used herein shall
have the following respective meanings when used in this Agreement unless
otherwise specified where used:
"Account Debtor" shall mean any Person who may become
obligated to any Credit Party under, with respect to, or on account of, an
Account.
"Account Agreement" shall mean any agreement among the
Borrower, the Lender and the bank in which such account or lockbox is held
pledging any Collection Account to the Lender as security for the Obligations,
in the form attached hereto as Exhibit E or in such other form as the Lender
shall approve.
"Accounts" shall mean, with respect to any Credit Party, all
"accounts," as such term is defined in the Code, now owned or hereafter acquired
by such Credit Party and, in any event, including, without limitation, (a) all
accounts receivable, other receivables, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to such Credit Party, whether arising out of goods sold or
leased or for services rendered by it or from any other transaction (including,
without limitation, any such obligations which may be characterized as an
account or contract right under the Code), (b) all of such Credit Party's rights
in, to and under all purchase orders or receipts now owned or hereafter acquired
by it for goods or services, (c) all of such Credit Party's rights to
<PAGE>
any goods represented by any of the foregoing (including, without limitation,
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods), (d) all monies
due or to become due to such Credit Party under all purchase orders and
contracts for the sale of goods or the performance of services or both by such
Credit Party or in connection with any other transaction (whether or not yet
earned by performance on the part of such Credit Party) now or hereafter in
existence, including, without limitation, the right to receive the proceeds of
said purchase orders and contracts, and (e) all collateral security, instruments
and guarantees of any kind, now or hereafter in existence, given by any Person
with respect by any of the foregoing.
"Affiliate" shall mean, with respect to any Person, (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, five percent (5%) or more of the
Stock having ordinary voting power in the election of directors of such Person,
(ii) each Person that controls, is controlled by or is under common control with
such Person or any Affiliate of such Person or (iii) each of such Person's
officers, directors, joint venturers and partners. For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement" shall mean this Amended and Restated Credit
Agreement, including any appendices, exhibits or schedules hereto.
"Applicable Law" shall mean, anything in Section 9.9 to the
contrary notwithstanding, (i) all applicable common law and principles of equity
and (ii) all applicable provisions of all (A) constitutions, statutes, rules,
regulations and orders of governmental bodies, (B) Governmental Approvals and
(C) orders, decisions, judgments and decrees of all courts and arbitrators.
"ARS" shall mean Arizona Repair Services, Inc., an Arizona
corporation which is an Affiliate of the Borrower.
"Authorized Borrower Representative" shall have the meaning
assigned to it in Section 9.8.
"Base Rate" shall mean for each month, the per annum rate
equal to the GE Capital Index Rate, plus 2.5%. Changes in the GE Capital Index
Rate shall take effect as of the beginning of the first day of each month.
"Borrower" shall mean Vodavi Communications Systems, Inc., an
Arizona corporation formerly known as V Technology Acquisition Corp.
"Borrowing Base" shall mean at any time an amount not to
exceed the sum of: (i) 85% of Eligible Accounts, and (ii) up to the lesser of:
(A) $6,000,000 and (B) not more than 60% of Eligible Inventory in each case
(Eligible Accounts and Eligible Inventory) as
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<PAGE>
shown on the most recently delivered Borrowing Base Certificate delivered by the
Borrower, less such additional reserves as Lender shall deem reasonably
necessary.
"Borrowing Base Certificate" shall mean a certificate in the
form attached hereto as Exhibit B.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Capital Expenditures" shall mean all payments for any fixed
assets or improvements or for replacements, substitutions or additions thereto,
that have a useful life of more than one year and that are required to be
capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified and
accounted for as a capital lease on a balance sheet of such Person or otherwise
be disclosed as such in a note to such balance sheet.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Charges" shall mean, with respect to any Credit Party, all
federal, state, county, city, municipal, local, foreign or other governmental
taxes (including, without limitation, taxes owed to PBGC at the time due and
payable), levies, assessments, charges, liens, claims or encumbrances upon or
relating to (i) the Collateral, (ii) the Obligations, (iii) the employees,
payroll, income or gross receipts of such Credit Party, (iv) such Credit Party's
ownership or use of any of its assets, or (v) any other aspect of such Credit
Party's business.
"Chattel Paper" shall mean, with respect to any Credit Party,
any "chattel paper," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party, wherever located, including, without limitation,
any writing or writings which evidence both a monetary obligation and a security
interest in or a lease of specified goods.
"Closing Date" shall mean April 11, 1994.
"Closing Fee" shall have the meaning assigned to it in Section
2.3(a).
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of New York; provided, however, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Lender's security interest in any
Collateral is governed by the Uniform Commercial Code as
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<PAGE>
in effect in a jurisdiction other than the State of New York, the term "Code"
shall mean the Uniform Commercial Code as in effect in such other jurisdiction
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
"Collateral" shall mean the property covered by the Collateral
Documents and any other property, real or personal, tangible or intangible, now
existing or hereafter acquired, that may at any time be or become subject to a
Lien in favor of Lender to secure the Obligations.
"Collateral Documents" shall mean the Security Agreements, the
Account Agreements, the Pledge Agreement, the Trademark Security Agreement(s) in
substantially the form of Exhibit N hereto and the Patent Collateral Assignment
Agreement(s) in substantially the form of Exhibit M hereto.
"Collection Account" shall mean any account, lock box or other
depository into which Borrower deposits or receives the proceeds of its
Accounts.
"Commitment" shall have the meaning assigned to it in Section
2.1(a).
"Commitment Fee" shall mean the fee in the amount of $50,000
paid to Lender by Borrower on or before the Closing Date as compensation for
Lender committing to make funds available to Borrower.
"Commitment Termination Date" shall mean the earliest of (i)
the Maturity Date, (ii) the date of termination of the Commitment pursuant to
Section 8.2, and (iii) the date of prepayment in full by Borrower of the
Revolving Credit Loan and termination of the Commitment in accordance with the
provisions of Section 2.5.
"Consolidated Subsidiary" of any Person shall mean, at any
time, any Subsidiary or other entity the accounts of which would be consolidated
with those of such Person in its consolidated financial statements as of such
time in accordance with GAAP.
"Contracts" shall mean, with respect to any Credit Party, all
the contracts, undertakings, or agreements (other than rights evidenced by
Chattel Paper, Documents or Instruments but including, in the case of the
Borrower, rights under the Goldstar Agreements) in or under which such Credit
Party may now or hereafter have any right, title or interest, including, any
agreement relating to the terms of payment or the terms of performance of any
Account.
"Credit Parties" shall mean the Borrower, ARS and ESI, and
"Credit Party" shall mean any of the foregoing.
"Credit Party Questionnaire" shall mean any questionnaire
delivered by a Credit Party in substantially the form of Exhibit J.
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<PAGE>
"Default" shall mean any Event of Default, and any event that,
with the passage of time or the giving of notice or both, would, unless cured or
waived, become an Event of Default.
"Default Rate" shall mean the Base Rate plus 2%.
"Disbursement Account" shall mean the zero balance
disbursement account from which the Borrower makes all payments in the ordinary
course of its business.
"DOL" shall mean the United States Department of Labor or any
successor thereto.
"Documents" shall mean, with respect to any Credit Party, any
"documents," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party, wherever located, and in any event including
bills of lading, dock warrants, dock receipts, warehouse receipts or other
documents of title.
"EBITDA" shall mean, for any period of twelve months ending on
the last day of any Fiscal Period, (i) net income before interest and taxes
plus, (ii) to the extent deducted in determining such income, depreciation,
amortization and other similar non-cash charges, minus (iii) to the extent
recognized in determining such income, extraordinary gains, plus (iv) to the
extent recognized in determining such income, the absolute value of
extraordinary losses, of Borrower for such period.
"Eligible Accounts" shall mean the aggregate amount of
Accounts of Borrower from goods sold or services rendered in the ordinary course
of Borrower's business and that Lender, in its reasonable discretion, deems to
be Eligible Accounts. In determining what constitutes Eligible Accounts, Lender
may exclude, without duplication or limitation, any of the following:
(a) that portion of any Account upon which (i) Borrower's
right to receive payment is not absolute or is contingent upon the
fulfillment of any condition whatever or (ii) Borrower is not able
to bring suit or otherwise enforce its remedies against the Account
Debtor through judicial process;
(b) that portion of any Account against which is asserted or
available any defense, counterclaim or setoff, whether well-founded
or otherwise;
(c) that portion of any Account that is not a true and correct
statement of a bona fide indebtedness incurred in the amount of the
Account for goods or services provided to, and accepted by, the
Account Debtor obligated upon such Account;
(d) any Account with respect to which an invoice, acceptable
to Lender in form and substance, has not been sent;
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<PAGE>
(e) any Account that is not owned by Borrower that is subject
to any right, claim, or interest of another other than the Lien in
favor of Lender;
(f) any Account that arises from a sale of goods to an
employee or Affiliate;
(g) any Account that is the obligation of an Account Debtor
that is the federal government or a political subdivision thereof
unless Lender has agreed to the contrary in writing and Borrower
has complied with the Federal Assignment of Claims Act of 1940, and
any amendments thereto, with respect to such obligation;
(h) any Account that is the obligation of an Account Debtor
domiciled in a foreign country; provided, however, that accounts of
Canadian Account Debtors shall not be excluded pursuant to this
clause (h) so long as the Lien of the Lender thereon, in the
reasonable judgment of the Lender, constitutes a first-priority,
perfected Lien that is enforceable against the Account Debtor and
all third parties, and Borrower shall have provided the Lender with
all such documents, opinions and evidences as the Lender shall
reasonably request to establish the same;
(i) any Account that is the obligation of an Account Debtor to
whom Borrower is or may become liable for goods sold or services
rendered or money loaned by the Account Debtor to Borrower;
(j) any Account that arises with respect to goods that are
delivered on a cash- on-delivery basis or placed on consignment,
guaranteed sale, sale-or-return, sale-on- approval, or other terms
by reason of which the payment by the Account Debtor may be
conditional;
(k) any Account that is in default; provided, however, that an
Account shall be deemed in default upon the occurrence of any of
the following:
(i) the Account remaining unpaid beyond sixty (60) days
from its due date;
(ii) if any Account Debtor obligated upon such Account
suspends business, makes a general assignment for the benefit
of creditors, or fails to pay its debts generally as they come
due; or
(iii) if any petition is filed by or against any Account
Debtor obligated upon such Account under any bankruptcy law or
any other national, state or provincial receivership,
insolvency relief or other law or laws for the relief of
debtors;
(l) any Account that is the obligation of an Account Debtor
that is in default (as defined in subparagraph (k)(i) above) on 50%
or more of the Accounts
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<PAGE>
upon which such Account Debtor is obligated to Borrower;
(m) any Account that remains unpaid beyond ninety (90) days
from its date of invoice;
(n) any Account that arises from any bill-and-hold or other
sale of goods that remain in Borrower's possession or under
Borrower's control;
(o) any Account in which Lender does not have a first-priority
perfected security interest;
(p) any portion of an Account that exceeds any credit or
concentration limit established by Lender in its sole discretion
for the Account Debtor thereon;
(q) any Account as to which any of Borrower's representations
or warranties pertaining to such Account in any Loan Document are
untrue;
(r) any Account that is the obligation of an Account Debtor
that is located in the State of New Jersey, Minnesota or Indiana
unless the Borrower has filed any requisite notice of business
activity (or similar report) for the then-current year with the
appropriate public office of such state; and
(s) any Account that is not otherwise acceptable to Lender in
its reasonable discretion.
Up to 60% (or such lesser percentage as Lender may determine from time to time
in its reasonable discretion) of Eligible Accounts outstanding at any one time
may be accounts on which Graybar is directly or indirectly an Account Debtor and
up to 15% of Eligible Accounts outstanding at any one time may be accounts on
which any single Person (other than Graybar) is directly or indirectly obligated
as an Account Debtor.
"Eligible Inventory" shall mean the aggregate amount of Gross
Inventory of Borrower that Lender, in its reasonable discretion, deems to be
Eligible Inventory. In determining what constitutes Eligible Inventory, the
Lender may exclude, without duplication or limitation, any of the following:
(a) Inventory that the Borrower does not own free and clear of
all Liens and rights of others, except the first-priority Lien in
favor of Lender;
(b) Inventory that is not located on premises owned and
operated by Borrower; provided, however, that if the Inventory is
located on premises leased by Borrower, the lessor thereof shall
have executed a Waiver and Consent in favor of Lender substantially
in the form of Exhibit I to the Credit Agreement (or in such other
form as is acceptable to Lender);
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<PAGE>
(c) Inventory that is in transit unless covered by a
negotiable document of title and unless such document and evidence
of acceptable insurance covering such Inventory have been delivered
to Lender or its agent, and the seller of such Inventory has waived
any right to reclaim such goods or to stop the delivery of such
goods in possession of a carrier or other bailee and any similar
right to interfere with the Lender's prior rights to the Inventory,
whether arising pursuant to Section 2-702 or Section 2-705 of the
Code, or otherwise;
(d) Inventory that, in Lender's opinion, is obsolete,
unsalable, shopworn, damaged, or unfit for further processing;
(e) Inventory that does not constitute finished goods, such as
supplies, repair parts, work-in-process, sales literature, display
items, packing and shipping materials or goods that have been
returned by a buyer;
(f) Inventory that consists of discontinued or slow-moving
items or substandard quality goods;
(g) Inventory that is placed by Borrower on consignment;
(h) Inventory as to which Lender's Lien thereon is not a
first-priority and perfected security interest;
(i) Inventory that is not of a type held for sale in the
ordinary course of Borrower's business;
(j) Any reserves that Borrower has established on its books
against Inventory, including but not limited to those reserves for
loss of Inventory due to shrinkage; and
(k) Inventory that is not otherwise acceptable to Lender in
its reasonable discretion.
"Environmental Laws" shall mean all federal, state and local
laws, statutes, ordinances and regulations, now or hereafter in effect, and in
each case as amended or supplemented from time to time, and any applicable
judicial or administrative interpretation thereof, including, without
limitation, any applicable judicial or administrative order, consent decree or
judgment relating to the regulation and protection of human health, safety, the
environment and natural resources (including, without limitation, ambient air,
surface water, groundwater, wetlands, land surface or subsurface strata,
wildlife, aquatic species and vegetation). Environmental Laws include, but are
not limited to, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss.ss. 9601 et seq.) ("CERCLA"),
the Hazardous Material Transportation Act, as amended (49 U.S.C. ss.ss. 1801 et
seq.), the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7
U.S.C. ss.ss. 136 et seq.), the Resource Conservation and Recovery Act, as
amended (42
- -8-
<PAGE>
U.S.C. ss.ss. 6901 et seq.) ("RCRA"), the Toxic Substance Control Act, as
amended (15 U.S.C. ss.ss. 2601 et seq.), the Clean Air Act, as amended (42
U.S.C. ss.ss. 740 et seq.), the Federal Water Pollution Control Act, as amended
(33 U.S.C. ss.ss. 1251 et seq.), the Occupational Safety and Health Act, as
amended (29 U.S.C. ss.ss. 651 et seq.) ("OSHA"), and the Safe Drinking Water
Act, as amended (42 U.S.C. ss.ss. 300(f) et seq.), and any and all regulations
promulgated thereunder, and all analogous state and local counterparts or
equivalents and any transfer of ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all
liabilities, obligations, responsibilities, remedial actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all reasonable fees, disbursements and expenses
of counsel, experts and consultants and costs of investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
claim, suit, action or demand by any Person, whether based in contract, tort,
implied or express warranty, strict liability, criminal or civil statute or
common law (including, without limitation, any thereof arising under any
Environmental Law, permit, order or agreement with any Governmental Authority)
and that relate to any health or safety condition regulated under any
Environmental Law or in connection with any other environmental matter or
Release or the presence of a Hazardous Material or threatened Release of a
Hazardous Material.
"Equipment" shall mean, with respect to any Credit Party, all
equipment, as such term is defined in the Code, now owned or hereafter acquired
by such Credit Party, wherever located.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 (or any successor legislation thereto), as amended from time to time,
and any regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Credit
Party, any trade or business (whether or not incorporated) under common control
with such Credit Party and that, together with such Credit Party, are treated as
a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the
IRC.
"ERISA Event" shall mean, with respect to any Credit Party or
any other ERISA Affiliate, (i) a Reportable Event with respect to a Title IV
Plan or a Multiemployer Plan, (ii) the withdrawal of any Credit Party or any
ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer, as defined in Section 4001(a)
(2) of ERISA, (iii) the complete or partial withdrawal of any Credit Party, or
any ERISA Affiliate from any Multiemployer Plan, (iv) the filing of a notice of
intent to terminate a Title IV Plan or the treatment of a plan amendment as a
termination under Section 4041 of ERISA, (v) the institution of proceeding to
terminate a Title IV Plan or Multiemployer Plan by the PBGC, (vi) the failure to
make required contributions to a Qualified Plan, or (vii) any other event or
condition that might reasonably be expected to constitute grounds under Section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Title IV Plan or Multiemployer Plan or the imposition of any
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<PAGE>
liability under Title IV of ERISA other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"ESI" shall mean Enhanced Systems, Inc., an Arizona
corporation which is an Affiliate of the Borrower.
"Event of Default" shall have the meaning assigned to it in
Section 8.1.
"Extension of Credit" shall mean the making of a Revolving
Credit Advance or the incurrence of a Letter of Credit Obligation.
"Federal Reserve Board" shall have the meaning assigned to it
in Section 4.11.
"Fees" shall mean the Closing Fee, the Non-use Fee, the
Commitment Fee, the Prepayment Fee, the Letter of Credit Fees and any other fees
due to Lender pursuant to the Loan Documents.
"FIFO Cost" shall mean the cost of Inventory of the Borrower,
determined on a First In - First Out basis in accordance with GAAP.
"Financials" shall mean the financial statements referred to
in paragraphs I(i) and I(ii) of Schedule 4.4.
"Fiscal Month" shall mean any of the monthly accounting
periods of Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting
periods of Borrower.
"Fiscal Year" shall mean the 12-month period of Borrower
ending December 31 of each year. Subsequent changes of the fiscal year of
Borrower shall not change the term "Fiscal Year," unless Lender shall consent in
writing to such change.
"Fixed Charge Coverage Ratio" shall have the meaning assigned
to it in Section 7.10(b).
"Fixed Charges" shall mean (without duplication), for any
fiscal period of Borrower, the sum of (i) Interest Expense (ii) required
payments of principal on Funded Debt, and (iii) income taxes paid in cash.
"Funded Debt" shall mean, without duplication, with respect to
Borrower, all of Borrower's Indebtedness that, by the terms of the agreement
governing or instrument evidencing such Indebtedness, matures more than one year
from, or is directly or indirectly renewable or extendible at the option of the
debtor under a revolving credit or similar
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<PAGE>
agreement obligating the lender or lenders to extend credit over a period of
more than one year from, the date of creation thereof, including current
maturities of long-term debt, revolving credit, and short-term debt extendible
beyond one year at the option of the debtor, and shall also include, without
limitation, the Obligations.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time, consistently
applied.
"GE Capital" shall mean General Electric Capital Corporation,
a New York corporation having an office at 350 South Beverly Drive, Suite 200,
Beverly Hills, California 90212.
"GE Capital Index Rate" shall mean for each month, the
annualized yield on 30- day commercial paper, as quoted for high grade unsecured
notes sold through dealers by major corporations in multiples of $1,000 in the
"Money Rates" section of The Wall Street Journal for the last day of the
preceding month on which The Wall Street Journal is published containing such
rates or, in the event that The Wall Street Journal ceases publication of such
rate, in such other publication of general circulation as Lender may, from time
to time, designate in writing.
"General Intangibles" shall mean, with respect to any Credit
Party, any "general intangibles," as such term is defined in the Code, now owned
or hereafter acquired by such Credit Party and, in any event, including, without
limitation, all right, title and interest that such Credit Party may now or
hereafter have in or under any Contract, all customer lists, Trademarks,
Patents, services marks, trade names, business names, corporate names, trade
styles, logos and other source or business identifiers, and all applications
therefor and reissues, extensions or renewals thereof, rights in intellectual
property, interests in partnerships, joint ventures and other business
associations, licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including, without limitation, the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark license), all rights and claims in or under insurance
policies, (including, without limitation, insurance for fire, damage, loss, and
casualty, whether covering personal property, real property, tangible rights or
intangible rights, all liability, life, key man, and business interruption
insurance, and all unearned premiums), uncertificated securities, choses in
action, deposit and other bank accounts, rights to receive tax refunds and other
payments and rights of indemnification.
"Goldstar" shall mean LG Electronics, Inc., successor by
merger to Goldstar Telecommunications Co., Ltd. (Korea).
"Goldstar Agreements" shall mean all of the existing and
hereafter acquired supplier, license and distribution agreements between the
Borrower and Goldstar, all of which are described on Schedule 1.1 hereto.
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<PAGE>
"Goods" shall mean, with respect to any Credit Party, all
"goods" as such term is defined in the Code, now owned or hereafter acquired by
such Credit Party, wherever located, and in any event including all things that
are movable or that are fixtures, including further without limitation any
equipment, inventory or other tangible personal property or fixtures.
"Governmental Approval" shall mean an authorization, consent,
approval, license or exemption of, registration or filing with, or report or
notice to, any governmental body, including, without limitation, any such
approval required under ERISA or by the PBGC.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Gross Inventory" shall mean Borrower's Inventory per the
perpetual ledger, valued at the lower of FIFO Cost or market, plus deferred
freight, import duties (net of dumping duties) and in-transit Inventory.
"Graybar" shall mean Graybar Electric Company, Inc., a New
York corporation.
"Guaranteed Indebtedness" shall mean, as to any Person without
duplication, any obligation of such Person guaranteeing any Indebtedness, lease,
dividend, or other obligation ("primary obligations") of any other Person (the
"primary obligor") in any manner including, without limitation, any obligation
or arrangement of such Person (i) to purchase or repurchase any such primary
obligation, (ii) to advance or supply funds (a) for the purchase or payment of
any such primary obligation or (b) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) to indemnify the owner of such primary
obligation against loss in respect thereof.
"Guaranty Agreement" shall mean the Guaranty Agreement from
ARS and ESI to Lender in substantially the form of Exhibit O hereto, pursuant to
which ARS and ESI shall jointly and severally guarantee payment and performance
of the Obligations.
"Hazardous Material" shall mean any substance, material or
waste, the generation, handling, storage, treatment or disposal of which is
regulated by, or form the basis of liability now or hereafter under, any
government authority, including, without limitation, any material or substance
that is (i) defined as a "solid waste," "hazardous waste," "hazardous material,"
"hazardous substance," "extremely hazardous waste" or "restricted hazardous
waste" or other similar term or phrase under any Environmental Laws, (ii)
petroleum or any fraction
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<PAGE>
or by-product thereof, asbestos, polychlorinated biphenyls, a radioactive
substance, methane, volatile hydrocarbons or an industrial solvent, (iii)
designated as a "hazardous substance" pursuant to Section 311 of the Clean Water
Act, 33 U.S.C. ss.ss. 1251 et seq. (33 U.S.C. ss.ss. 1321) or listed pursuant to
Section 307 of the Clean Water Act (33 U.S.C. ss. 1317), (iv) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901, et seq. (42 U.S.C. ss. 6903), or (v) defined
as a "hazardous substance" pursuant to Section 1012 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601 et
seq. (42 U.S.C. ss. 9601).
"Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters of
credit and bankers' acceptances, whether or not matured, but not including
obligations to trade creditors incurred (either for goods or services) in the
ordinary course of business that have a term of less than one year), (ii) all
obligations evidenced by notes, bonds, debentures or similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of a default are limited to repossession or sale of such property),
(iv) all Capital Lease Obligations, (v) all Guaranteed Indebtedness, (vi) all
obligations arising with respect to Mandatorily Redeemable Stock, (vii) all
Indebtedness referred to in clause (i), (ii), (iii), (iv) or (v) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness, (viii) the Obligations, and (ix) all liabilities under
Title IV or ERISA with respect to unfunded plans.
"Instruments" shall mean, with respect to any Credit Party,
any "instrument," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party, wherever located, including, without limitation,
all certificated securities and all notes and other evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intercompany Debt" shall mean any and all present or future
indebtedness, obligations and other liabilities of any Credit Party to any other
Credit Party or any other member of the Parent Group.
"Interest Expense" shall mean, for any fiscal period of
Borrower, cash interest expense of Borrower for such period in respect of its
Funded Debt.
"Inventory" shall mean, with respect to any Credit Party, all
inventory, as such term is defined in the Code, now owned or hereafter acquired
by such Credit Party, wherever located, and, in any event, including, without
limitation, all inventory, merchandise, goods and other personal property which
are held by or on behalf of such Credit Party for sale or lease
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<PAGE>
or are furnished or are to be furnished under a contract of service or which
constitute raw materials, work in process, finished goods or materials used or
consumed or to be used or consumed in such Credit Party's business or in the
processing, production, packaging, promotion, delivery or shipping of the same,
including further any return inventory and all inventory in transit.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
"IRS" shall mean the United States Internal Revenue Service,
or any successor thereto.
"Leases" shall mean, with respect to any Credit Party, all of
those leasehold estates in real property now owned or hereafter acquired by such
Credit Party, as lessee.
"Lender" shall mean GE Capital and, if at any time GE Capital
shall decide to assign or syndicate all or any portion of the Obligations, such
term shall include such assignee or such other members of the syndicate.
"Lending Office" shall have the meaning assigned to it in
Section 2.1(b).
"Letter of Credit Fees" shall have the meaning assigned to it
on Schedule 2.1(g).
"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Lender, whether direct or indirect, contingent or
otherwise, due or not due, in connection with the issuance or guaranty by Lender
or another Person, at the request of Borrower, of any Letters of Credit. The
amount of each Letter of Credit Obligation at any time shall equal the maximum
amount which may be payable by Lender thereupon or pursuant thereto at such
time.
"Letters of Credit" shall mean any and all commercial or
standby letters of credit issued at the request or for the account of Borrower
for which Lender has incurred a Letter of Credit Obligation.
"License" shall mean, with respect to any Credit Party, any
Patent License, Trademark License or other license of rights or interests now
held or hereafter acquired by such Credit Party.
"Lien" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the Code or
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<PAGE>
comparable law of any jurisdiction).
"Loan Documents" shall mean the Agreement, the Note, the
Guaranty Agreement, the Collateral Documents and all other agreements,
instruments, documents and certificates identified herein or in the Schedule of
Documents in favor of Lender and including, without limitation, all other
pledges, powers of attorney, consents, assignments and contracts, whether
heretofore, now or hereafter executed by or on behalf of any Credit Party or any
of its Affiliates, or any employee of any Credit Party or any of its Affiliates,
and delivered to Lender in connection with the Agreement or the transactions
contemplated hereby.
"Mandatorily Redeemable Stock" means, as applied to a Person,
any share of such Person's capital stock to the extent that it is redeemable,
payable or required to be purchased or otherwise retired or extinguished (i) at
a fixed or determinable date, whether by operation of a sinking fund or
otherwise, (ii) at the option of any Person other than such Person or (iii) upon
the occurrence of a condition not solely within the control of such Person, such
as a redemption required to be made out of future earnings.
"Material Adverse Effect" shall mean a material adverse effect
on (i) the business, assets, operations, prospects or financial or other
condition of Borrower or the Parent Group taken as a whole, (ii) Borrower's and
the other Credit Parties' ability, taken as a whole, to pay the Obligations in
accordance with the terms hereof and the other Loan Documents, (iii) the
Collateral or Lender's Liens on the Collateral or the priority of any such Lien
or (iv) Lender's rights and remedies under the Agreement or the other Loan
Documents.
"Maturity Date" shall mean the date that is the later of: (i)
April 11, 2000, and (ii) the date to which, upon prior mutual written agreement
the Borrower and Lender, the expiration of the Revolving Credit Facility has
been extended.
"Maximum Inventory Turnover Days" shall mean, as of the last
day of any Fiscal Month, the number of days determined by the following formula:
The Borrower's Inventory on such day x 360
- --------------------------------------------------------------------------------
The Borrower's costs of goods sold for the twelve month period
ending on such day
"Maximum Letter of Credit Obligations" shall mean $1,000,000.
"Maximum Permissible Rate" shall mean with respect to interest
(or amounts deemed interest) payable hereunder, the rate of interest that, if
exceeded, could, under Applicable Law, result in (i) civil or criminal penalties
being imposed on the Lender or (ii) the Lender being unable to enforce payment
of (or if collected, to retain) all or part of any Obligation or the interest
payable thereon.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in
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<PAGE>
Section 4001(a) (3) of ERISA, and to which any Credit Party or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
"Non-use Fee" shall have the meaning assigned to it in Section
2.3(b).
"Note" shall have the meaning assigned to it in Section
2.1(d).
"Obligations" shall mean all loans, advances, debts,
liabilities, and obligations for the performance of covenants, tasks or duties
or for payment of monetary amounts (whether or not such performance is then
required or contingent, or amounts are liquidated or determinable) owing by
Borrower or any other Credit Party to Lender, and all covenants and duties
regarding such amounts, of any kind or nature, present or future, whether or not
evidenced by any note, agreement or other instrument, arising under any of the
Loan Documents. This term includes, without limitation, all principal, interest,
Fees, Charges, expenses, attorneys' fees and any other sum chargeable to
Borrower or any other Credit Party under any of the Loan
Documents, and also includes, without limitation, all
Obligations relating to Letter of Credit Obligations.
"Original Agreement" shall have the meaning assigned to it in
the preamble hereof.
"Parent" shall mean Vodavi Technology, Inc., a Delaware
corporation formerly known as V Technology Holdings Corp., having no assets
other than the common stock of each of the Credit Parties and intercompany loans
to the Credit Parties.
"Parent Group" shall mean the Parent and its Consolidated
Subsidiaries.
"Patent License" shall mean, with respect to any Credit Party,
any right under any written agreement now owned or hereafter acquired by such
Credit Party granting any right with respect to any invention on which a Patent
is in existence.
"Patents" shall mean, with respect to any Credit Party, all of
the following in which such Credit Party now holds or hereafter acquires any
interest: (i) all letters patent of the United States or any other country, all
registrations and recordings thereof, and all applications for letters patent of
the United States or any other country, including registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any state or territory thereof, or any
other country, and (ii) all reissues, continuations, continuations-in-part or
extensions thereof.
"Payment Account" shall mean an account of the Lender, number
50-199-839, maintained at Bankers Trust Company, 17 Wall Street, New York, New
York 10006, ABA #021-001-033, Account Title: Vodavi, Attention: Collateral
Analyst, Reference: Vodavi, into which payments shall be made by or on behalf of
the Borrower.
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<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor thereto.
"Pension Plan" shall mean an employee pension benefit plan, as
defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), that is not
an individual account plan, as defined in Section 3 (34) of ERISA, and that any
Credit Party or, if a Title IV Plan, any ERISA Affiliate maintains, contributes
to or has an obligation to contribute to on behalf of participants who are or
were employed by any of them.
"Permitted Encumbrances" shall mean, with respect to any
Credit Party, the following encumbrances: (i) Liens for taxes or assessments or
other governmental Charges or levies, either not yet due and payable or to the
extent that nonpayment thereof is permitted by the terms of Section 6.2(b); (ii)
pledges or deposits securing obligations under worker's compensation,
unemployment insurance, social security or public liability laws or similar
legislation; (iii) pledges or deposits securing bids, tenders, contracts (other
than contracts for the payment of money) or leases to which such Credit Party is
a party as lessee, made in the ordinary course of business in an aggregate
amount at any time not to exceed $200,000 in the aggregate for all of the Credit
Parties; (iv) deposits securing public or statutory obligations of such Credit
Party; (v) inchoate and unperfected workers', mechanics', suppliers' or similar
liens arising in the ordinary course of business; (vi) carriers', warehousemen's
or other similar possessory liens arising in the ordinary course of business and
securing indebtedness not yet due and payable in an outstanding aggregate amount
for all of the Credit Parties not in excess of $50,000 at any time; (vii)
deposits securing, or in lieu of, surety, appeal or customs bonds in proceedings
to which such Credit Party is a party; (viii) any attachment or judgment lien,
unless the judgment it secures shall not, within 30 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall not have been discharged within 30 days after the expiration of any such
stay; (ix) Purchase Money Security Interests securing Indebtedness existing as
of the Restatement Date and described on Schedule 4.9 and other Purchase Money
Security Interests securing Indebtedness incurred after the Restatement Date in
an aggregate outstanding principal amount for all of the Credit Parties not to
exceed $200,000 at any time; and (x) zoning restrictions, easements, licenses,
or other restrictions on the use of real property or other minor irregularities
in title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such real property, leases
or leasehold estates.
"Permitted Exceptions" shall mean Liens described in items
(i), (v), (vi), (viii) and (ix) of the definition of Permitted Encumbrances.
"Permitted Indebtedness" shall mean Indebtedness of the Credit
Parties that is permitted pursuant to Section 7.3.
"Permitted Prior Exceptions" shall mean Liens described in
items (i) and (ix) of the definition of Permitted Encumbrances.
"Person" shall mean any individual, sole proprietorship,
partnership, joint
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<PAGE>
venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Plan" shall mean, with respect to any Credit Party or any
other ERISA Affiliate, at any time, an employee benefit plan, as defined in
Section 3(3) of ERISA, that such Person maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Pledge Agreement" shall mean the Pledge and Security
Agreement from the Parent to the Lender in substantially the form of Exhibit F
hereto, as amended or restated from time to time, pursuant to which the Parent
shall pledge 100% of the outstanding stock of each of the Credit Parties to
Lender as security for the Obligations.
"Prepayment Fee" shall have the meaning assigned to it in
Section 2.5.
"Proceeds" shall mean "proceeds," as such term is defined in
the Code, whether now owned or hereafter acquired, and in whatever form, and, in
any event, shall include (i) any and all proceeds of any insurance, indemnity,
warranty or guaranty payable to any Credit Party from time to time with respect
to any of the Collateral, (ii) any and all payments (in any form whatsoever)
made or due and payable to any Credit Party from time to time in connection with
any requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority, bureau or agency (or
any person acting under color of governmental authority), (iii) any claim of any
Credit Party against third parties (A) for past, present or future infringement
of any Patent or Patent License or (B) for past, present or future infringement
or dilution of any Trademark or Trademark License or for injury to the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark License, (iv) any recoveries by any Credit Parties against
third parties with respect to any litigation or dispute concerning any of the
Collateral, and (v) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral, upon disposition or
otherwise.
"Projections" shall mean at any time the latest consolidating
operating plan of the Parent Group submitted to Lender pursuant to Section
5.1(e).
"Purchase Money Security Interest" shall mean a Lien granted
on an asset not more than 10 days after the acquisition thereof by a Credit
Party that secures only the Indebtedness incurred for the purpose of purchasing
such asset and no other, that extends only to the asset purchased and accessions
thereto, and that does not exceed in principal amount the lesser of the purchase
price paid for such asset and the fair market value thereof.
"Qualified Plan" shall mean an employee pension benefit plan,
as defined in Section 3(2) of ERISA, that is intended to be tax-qualified under
Section 401(a) of the IRC, and that any Credit Party, or any ERISA Affiliate
maintains, contributes to or has an
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<PAGE>
obligation to contribute to on behalf of participants who are or were employed
by any of them.
"Release" shall mean any release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, dumping, leaching
or migration of Hazardous Materials in the indoor or outdoor environment
including the movement of Hazardous Materials through or in the air, soil,
surface water, ground water or property.
"Reportable Event" shall mean any of the events described in
Section 4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Responsible Lending Officer" shall have the meaning assigned
to it in Section 2.1(b).
"Restatement Date" means June 11, 1997.
"Restricted Payment" shall mean, for any Credit Party (i) the
declaration or payment of any dividend (other than dividends payable solely in
shares of any class of common stock of such Credit Party) or the occurrence of
any liability to make any other payment or distribution of cash or other
property or assets in respect of such Credit Party's Stock, (ii) any payment on
account of the purchase, redemption, defeasance or other retirement of such
Credit Party's Stock or any other payment or distribution made in respect
thereof, either directly or indirectly, or (iii) any payment, loan,
contribution, or other transfer of funds or other property with respect to, or
on account of, such Credit Party's Stock.
"Retiree Welfare Plan" shall refer to any Welfare Plan
providing for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant's termination of employment,
other than continuation coverage provided pursuant to Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant.
"Revolving Credit Advance" shall have the meaning assigned to
it in Section 2.1(a).
"Revolving Credit Advance Availability" shall have the meaning
assigned to it in Section 2.1(a).
"Revolving Credit Commitment Availability" shall mean for any
day, the difference between (i) the amount of the Commitment and (ii) the sum
of: (A) the aggregate outstanding principal amount of the Revolving Credit Loan,
and (B) the aggregate outstanding principal amount of Letter of Credit
Obligations.
"Revolving Credit Facility" shall have the meaning ascribed to
it in the recital paragraph hereof.
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<PAGE>
"Revolving Credit Loan" shall mean the loan made pursuant to
Section 2.1.
"Schedule of Documents" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the initial closing of the Loan
Documents and the transactions contemplated thereunder, substantially in the
form attached hereto as Schedule A.
"Security Agreements" shall mean, collectively, the Security
Agreements entered into between Lender and each of Borrower, ARS and ESI,
respectively, in substantially the form of Exhibit D hereto.
"Security Interest" shall mean the rights and interest of
Lender in and to the Collateral intended to be conveyed under the Collateral
Documents.
"Solvent" shall mean, with respect to any Person, such Person
(i) owns property whose fair saleable value is greater than the amount required
to pay all of such Person's indebtedness (including contingent debts), (ii) is
able to pay all of its indebtedness as such indebtedness matures, and (iii) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage.
"Stock" shall mean all shares, options, warrants, general or
limited partnership interests, participation or other equivalents (regardless of
how designated) of or in a corporation, partnership or equivalent entity whether
voting or nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended).
"Subject Property" shall mean all real property owned, leased
or operated by Borrower.
"Taxes" shall mean taxes, levies, imposts, charges,
deductions, or withholdings, and all liabilities with respect thereto, excluding
taxes imposed on or measured by the net income of Lender by the government of
the United States of America or the jurisdiction under the laws of which Lender
is organized or any political subdivision thereof.
"Termination Date" shall mean the date on which the Revolving
Credit Facility and any other Obligations hereunder have been completely
discharged, no Letter of Credit Obligations are outstanding, and Borrower shall
have no further right to borrow any monies or obtain other credit extensions or
financial accommodations hereunder.
"Title IV Plan" shall mean a Pension Plan, other than a
Multiemployer Plan, that is covered by Title IV of ERISA.
"Trademarks" shall mean, with respect to any Credit Party, all
of the following now owned or hereafter acquired by such Credit Party: (i) all
trademarks, trade
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<PAGE>
names, corporate names, business names, trade styles, service marks, logos,
other source or business identifiers, prints and labels on which any of the
foregoing have appeared or appear, designs and general intangibles of like
nature, now owned or existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state or territory thereof, or any other country or any
political subdivision thereof, and (ii) all reissues, extensions or renewals
thereof.
"Transaction Expenses" shall have the meaning assigned to it
in Section 9.2.
"Trademark License" shall mean, with respect to any Credit
Party, rights under any written agreement now owned or hereafter acquired by
such Credit Party granting any right to use any Trademark or Trademark
registration.
"Unfunded Pension Liability" shall mean, at any time, the
aggregate amount, if any, of the sum of (i) the amount by which the present
value of all accrued benefits under each Title IV Plan exceeds the fair market
value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent
valuation date for each such Title IV Plan using the actuarial assumptions in
effect under such Title IV
Plan, and (ii) for a period of five (5) years following a
transaction reasonably likely to be covered by Section 4069 of ERISA, the
liabilities (whether or not accrued) that could be avoided by Borrower, or any
ERISA Affiliate as a result of such transaction.
"Welfare Plans" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, that is maintained or contributed to by Borrower or any
ERISA Affiliate.
"Withdrawal Liability" shall mean, at any time, the aggregate
amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any
increase in contributions pursuant to Section 4243 of ERISA with respect to all
Multiemployer Plans.
1.2 Other Definitional Provisions.
(a) Except as otherwise specified herein, all references
herein (A) to any Person, other than a Credit Party, shall be deemed to include
such Person's successors, transferees and assignees, (B) to any Credit Party
shall be deemed to include such Person's successors, (C) to any applicable law
specifically defined or referred to herein shall be deemed references to such
applicable law as the same may be amended or supplemented from time to time, (D)
to any contract defined or referred to herein shall be deemed references to such
contract (and, in the case of any instrument, any other instrument issued in
substitution therefor) as the terms thereof may have been amended, supplemented,
waived or otherwise modified from time to time, (E) to any Loan Document, as the
terms thereof may have been amended, supplemented, waived or otherwise modified
from time to time in accordance with Section 9.1 or any corresponding provision
of such Loan Document, (F) the words "consent", "approve" and "agree", and
derivations thereof or words of similar import, mean the prior
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<PAGE>
written consent, approval or agreement of the Person in question; (G) the words
"include" and "including", and words of similar import, shall be deemed to be
followed by the words "without limitation"; (H) the Exhibits and Schedules to
this Credit Agreement are incorporated herein by reference; (I) the titles and
headings of Articles, Sections, Exhibits, Schedules, subsections, paragraphs and
clauses are inserted as a matter of convenience and shall not affect the
construction of this Credit Agreement; and (J) no inference in favor of or
against any Person shall be drawn from the fact that such Person or its
attorneys drafted any portion hereof.
(b) When used in this Agreement, the words "hereto", "herein",
"hereof" and "hereunder" and words of similar import shall refer to this
Agreement as a whole and not to any provision of this Agreement, and "Section,"
"Subsection," "Schedule" and "Exhibit" shall refer to Sections and Subsections
of, and Schedules and Exhibits to, this Agreement unless otherwise specified.
(c) Whenever the context so requires, the neuter gender
includes the masculine or feminine, and the singular number includes the plural,
and vice versa.
(d) All terms defined in this Agreement shall have the same
defined meanings when used in the Note or, except as otherwise expressly stated
therein, any certificate, opinion or other Loan Document or other document
delivered pursuant hereto.
1.3 Accounting Matters. Unless otherwise specified herein, all
accounting determinations hereunder and all computations utilized by the Parent
or any Credit Party in complying with the covenants contained herein shall be
made, all accounting terms used herein shall be interpreted, and all financial
statements requested to be delivered hereunder shall be prepared, in accordance
with GAAP, except, in the case of such financial statements, for departures from
GAAP that may from time to time be approved in writing by the Lender and the
independent certified public accountants who are at the time, in accordance with
Section 5.1, reporting on the consolidated financial statements of the Parent
and the Credit Parties. If any change in GAAP after December 31, 1996 in itself
materially affects the calculation of any financial covenant in Section 7.10 or
other financial test contained herein, Borrower may by notice to Lender, or
Lender may by notice to Borrower, require that such covenant thereafter be
calculated in accordance with GAAP as in effect, and applied by Borrower,
immediately before such change in GAAP occurs. If such notice is given, the
compliance certificates delivered pursuant to Section 5.1 after such change
occurs shall be accompanied by reconciliations of the difference between the
calculation set forth therein and a calculation made in accordance with GAAP as
in effect from time to time after such change occurs.
ARTICLE 2.
AMOUNT AND TERMS OF CREDIT
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<PAGE>
2.1 Revolving Credit Facility.
(a) Credit. Upon and subject to the terms and conditions
hereof, Lender agrees from time to time to make available by deposit to the
Disbursement Account on any Business Day until the Commitment Termination Date,
upon the request of Borrower therefor, advances (each, a "Revolving Credit
Advance") in an aggregate amount outstanding that, when added to the aggregate
balance of Letter of Credit Obligations then outstanding, shall not at any given
time exceed the lesser of (the "Revolving Credit Advance Availability"): (i)
$12,000,000, as such amount may be terminated pursuant to the terms of Section
2.5 or 8.2 (the "Commitment"), and (ii) the Borrowing Base.
(b) Method of Borrowing. Until the Commitment Termination
Date, Borrower may from time to time borrow, repay and reborrow under this
Section 2.1(b). Each Revolving Credit Advance shall be made on notice by
Borrower to the officer of Lender identified on Schedule 2.1(b) (the
"Responsible Lending Officer") given at the office of the Lender specified on
Schedule 2.1(b) (the "Lending Office") no later than 11:00 a.m. on the Business
Day of the proposed Revolving Credit Advance. Each such notice (a "Notice of
Borrowing/Collection Report") shall be substantially in the form of Exhibit A
hereto, and shall specify therein the requested date (which shall be a Business
Day) of the proposed Revolving Credit Advance, the amount of such Revolving
Credit Advance, and such other information as may be required by Lender and
shall be given in writing (by telecopy, telex or cable) or by courier, telephone
confirmed immediately in writing.
(c) Mandatory Repayment. The entire unpaid balance of the
Revolving Credit Loan, together with all other Obligations, shall be immediately
due and payable on the Commitment Termination Date. In the event that the
outstanding principal balance of the Revolving Credit Loan shall, at any time,
exceed the applicable limit set forth in Section 2.1(a), Borrower shall
immediately repay the Revolving Credit Loan in the amount of such excess. If the
unpaid principal balance of the Revolving Credit Loan should at any time exceed
the above-referenced limit, the excess balance shall nevertheless constitute
Obligations that are secured by the Collateral and entitled to all of the
benefits thereof and of the Loan Documents and shall be evidenced by the Note.
(d) Evidence of Obligation. The Revolving Credit Loan shall be
evidenced by a note dated the Closing Date and substantially in the form of
Exhibit C (the "Note"). The Note shall represent the obligation of Borrower to
pay the amount of the Revolving Credit Commitment or, if less, the aggregate
unpaid principal amount of all Revolving Credit Advances made by Lender to the
Borrower, with interest thereon as prescribed in Section 2.2. The date and
amount of each Revolving Credit Advance and each payment of principal with
respect thereto shall be recorded on the books and records of Lender. Such books
and records shall constitute prima facie evidence of the accuracy of the
information therein recorded.
(e) Use of Proceeds. Borrower shall utilize the proceeds of
the Revolving Credit Advances to provide working capital for Borrower and the
other Credit Parties. Borrower may request that Lender incur Letter of Credit
Obligations to support any
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<PAGE>
transaction for which Borrower could obtain a Revolving Credit Loan hereunder.
(f) Single Revolving Credit Loan. All Revolving Credit
Advances shall constitute a single Revolving Credit Loan hereunder. The
Revolving Credit Loan, any Letter of Credit Obligations, and all Obligations of
Borrower arising under this Agreement and under the other Loan Documents shall
constitute one general obligation of Borrower to Lender secured by all of the
Collateral.
(g) Letters of Credit. Subject to the terms and conditions of
Schedule 2.1(g) which is hereby incorporated herein by reference, Borrower shall
have the right to request, and Lender agrees to incur, Letter of Credit
Obligations for Borrower in accordance with Schedule 2.1(g).
2.2 Interest on Revolving Credit Loan.
(a) Rates. The Revolving Credit Loan shall bear interest on
the outstanding principal amount thereof from and including the date of the
making thereof until repaid in full, whether before or after default judgment,
or the institution of proceedings under any bankruptcy, insolvency or other
similar law, as provided in this Section 2.2(a). In the absence of an Event of
Default, each Revolving Credit Loan shall bear interest at the Base Rate. So
long as an Event of Default shall have occurred and be continuing, the Revolving
Credit Loan and, to the extent permitted by Applicable Law, all due and unpaid
Obligations other than the Revolving Credit Loan, shall bear interest at the
Default Rate.
(b) Payment. Interest shall be payable in arrears on the first
Business Day of each month with respect to interest accrued through the last day
of the preceding month and on the Commitment Termination Date. Interest at the
Default Rate shall be payable on demand.
(c) Maximum Permissible Rate. Notwithstanding anything to the
contrary set forth in this Section 2.2, if, at any time until payment in full of
all of the Obligations, the amount deemed interest payable hereunder exceeds the
Maximum Permissible Rate, then in such event and so long as the Maximum
Permissible Rate would be so exceeded, the rate of interest payable hereunder
shall be equal to the Maximum Permissible Rate; provided, however, that if at
any time thereafter the rate of interest payable hereunder is less than the
Maximum Permissible Rate, Borrower shall continue to pay interest hereunder at
the Maximum Permissible Rate until such time as the total interest received by
Lender from the making of Revolving Credit Advances hereunder is equal to the
total interest which Lender would have received had the interest rate payable
hereunder been (but for the operation of this paragraph) the interest rate
payable since the Closing Date as otherwise provided in this Agreement.
Thereafter, the interest rate payable hereunder shall be the rate of interest
provided in Section 2.2(a) of this Agreement, unless and until the rate of
interest again exceeds the Maximum Permissible Rate, in which event this
paragraph shall again apply. In no event shall the total interest received by
Lender pursuant to the terms hereof exceed the amount which Lender could
lawfully have received had the interest due hereunder been
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calculated for the full term hereof at the Maximum Permissible Rate. In the
event the Maximum Permissible Rate is calculated pursuant to this paragraph,
such interest shall be calculated at a daily rate equal to the Maximum
Permissible Rate divided by the number of days in the year in which such
calculation is made. In the event that a court of competent jurisdiction,
notwithstanding the provisions of this Section 2.2(c), shall make a final
determination that Lender has received interest hereunder or under any of the
Revolving Credit Loan Documents in excess of the Maximum Permissible Rate,
Lender shall, to the extent permitted by Applicable Law, promptly apply such
excess first to any interest due and not yet paid hereunder, then to the
outstanding principal of the Obligations, then to Fees and any other unpaid
Obligations and thereafter shall refund any excess to Borrower or as a court of
competent jurisdiction may otherwise order.
2.3 Fees.
(a) Closing Fee. As additional compensation for Lender's costs
and risks in making this Revolving Credit Facility available to Borrower during
its initial term, Borrower has paid to Lender, a non-refundable fee (the
"Closing Fee") in an amount equal to $180,000, less the Commitment Fee and any
remaining portion of the $100,000 initial underwriting deposit made to Lender by
Borrower on September 13, 1993 after deducting therefrom (i) all cost and
expenses incurred by Lender and its Affiliates (including, but not limited to,
legal and professional fees and costs of indemnification) and (ii) Commitment
Fee. The Closing Fee was deemed fully earned upon the execution of the Original
Agreement.
(b) Non-use Fee. As additional compensation for Lender's costs
and risks in making the Commitment available to Borrower, Borrower agrees to pay
to Lender, in arrears for the preceding month, on the first Business Day of each
month prior to the Commitment Termination Date and on the Commitment Termination
Date, a fee for Borrower's non-use of the Commitment (the "Non-use Fee") in an
amount equal to one quarter of one percent (0.25%) per annum on the average
daily Revolving Credit Commitment Availability.
(c) Letter of Credit Fees. In connection with the Letter of
Credit Obligations, Borrower agrees to pay to Lender the Letter of Credit Fees
set forth on Schedule 2.1(g).
2.4 Calculation of Interest and Fees. All computations of
interest and periodic fees shall be made by Lender on the basis of a 360-day
year for the actual number of days occurring in the period for which such
interest or fee is payable. If the date for any payment of principal is extended
(whether by operation of this Agreement, any provision of law or otherwise),
fees payable pursuant to this Agreement as well as interest, shall be payable
for such extended time. Each determination by Lender of an interest rate or fee
hereunder shall be presumed correct, subject to the Borrower's ability to rebut
such presumption by a preponderance of evidence to the contrary.
2.5 Early Termination. Borrower shall have the right at any
time, on 90
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<PAGE>
days' prior written notice to Lender, to voluntarily terminate the Commitment,
prepay the entire Revolving Credit Loan and all accrued and unpaid Obligations,
cause all outstanding Letter of Credit Obligations to be cancelled, and
terminate this Agreement. Upon such prepayment, cancellation and termination,
Borrower's right to receive Revolving Credit Advances and to cause Lender to
incur Letter of Credit Obligations shall simultaneously terminate. Any
termination of the Commitment for any reason other than (i) Lender's assessment
of a material change pursuant to Section 2.10 or (ii) Lender's acceleration of
the Obligations due to an Event of Default pursuant to clause (i) of Section
8.1(K), shall require prepayment of the outstanding Revolving Credit Loan and
all accrued and unpaid Obligations and cancellation of all outstanding Letter of
Credit Obligations, and shall also require payment to Lender of a prepayment fee
(the "Prepayment Fee") as follows: one percent (1%) of the amount of the
Commitment if the Commitment is terminated prior to April 11, 1998. No partial
termination of the Revolving Credit Facility by the Borrower shall be permitted
without the consent of Lender.
2.6 Manner of Payment; Time.
(a) Manner of Payment. Borrower shall make each payment under
this Agreement not later than 11:00 a.m. on the day when due in lawful money of
the United States of America in immediately available funds to the Payment
Account without any deduction whatsoever, including, but not limited to, any
deduction for any set-off, recoupment, counterclaim or Tax. Amounts received to
the Payment Account shall be deemed received (i) on the second Business Day
following the irrevocable deposit therein of collected funds, for the purposes
of calculating accrual of interest, and (ii) on the date of the irrevocable
deposit therein of collected funds, for the purposes of calculating
availability. Amounts received to the Payment Account shall be applied against
the outstanding Obligations pursuant to Section 2.7.
(b) Time. All references to time contained in this Agreement,
unless otherwise specified, shall be to local time in effect in Los Angeles,
California.
2.7 Application and Allocation of Payments. Borrower
irrevocably waives the right to direct the application of any and all payments
at any time or times hereafter received from or on behalf of Borrower, and
Borrower irrevocably agrees that Lender shall have the continuing exclusive
right to apply any and all such payments against the then due and payable
Obligations of Borrower as Lender may deem advisable. In the absence of a
specific determination by Lender with respect thereto, the same shall be applied
in the following order: (i) then due and payable Fees and expenses; (ii) then
due and payable interest payments; (iii) Obligations other than Fees, expenses
and interest and principal payments; and (iv) then due and payable principal
payments on the Revolving Credit Loan and the Letter of Credit Obligations.
Lender is authorized to, and at its option may, make or cause to be made
Revolving Credit Advances on behalf of Borrower under this Agreement for payment
of all Fees, expenses, Charges, costs, interest, reimbursement obligations or
other Obligations owing by Borrower under this Agreement or any of the Loan
Documents if and to the extent Borrower fails to promptly pay any such amounts
as and when due.
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<PAGE>
2.8 Accounting. Lender will provide a monthly accounting of
transactions under the Revolving Credit Facility to Borrower. Each and every
such accounting shall be deemed final, binding and conclusive upon Borrower in
all respects as to all matters reflected therein, unless Borrower, within 30
days after the date any such accounting is rendered, shall notify Lender in
writing of any objection which Borrower may have to any such accounting,
describing the basis for such objection with specificity. In that event, only
those items expressly objected to in such notice shall be deemed to be disputed
by Borrower. Lender's determination, based upon the facts available, of any item
objected to by Borrower in such notice shall be presumed correct, subject to the
Borrower's ability to rebut such presumption by a preponderance of evidence to
the contrary.
2.9 Taxes.
(a) Any and all payments by or on behalf of Borrower hereunder
or under any Note or any other Loan Document shall be made, in accordance with
this Section 2.9, free and clear of and without deduction for any and all
present or future Taxes. If Borrower or any other Person shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder or under
the Note or any other Loan Document to Lender, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.9) Lender receives an amount equal to the sum it would have received had no
such deductions been made by Borrower or such other Person, (ii) Borrower or
such other Person shall make such deductions, and (iii) Borrower or such other
Person shall pay the full amount deducted to the relevant taxing or other
authority in accordance with Applicable Law.
(b) Borrower shall indemnify and pay, within 10 days of demand
therefor, Lender for the full amount of Taxes (including without limitation, any
Taxes imposed by any jurisdiction on amounts payable under this Section 2.9)
paid by Lender and any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes were
correctly or legally asserted; provided, however, that Borrower shall be
entitled to a credit against the Obligations to the extent that any such Taxes
paid by Borrower pursuant to this Section 2.9 are subsequently refunded to the
Lender or to the extent that the Lender receives a credit against the Taxes
imposed on it by its jurisdiction of incorporation by virtue of the Taxes paid
or reimbursed by Borrower under this Section 2.9 having been paid by it or on
its behalf.
(c) Within 30 days after the date of any payment of Taxes
pursuant to this Section 2.9, Borrower shall furnish or cause to be furnished to
Lender, at its address referred to in Section 9.10, the original or a certified
copy of a receipt evidencing payment thereof.
2.10 Increased Commitment or Funding Costs. If the Lender
reasonably determines that either (a) the introduction of or any change in any
Laws or in the interpretation or administration of any Law by any Governmental
Authority charged with the interpretation or administration thereof after the
date of this Agreement relating to the regulation of banks or commercial lenders
or (b) compliance with any guideline or request
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<PAGE>
issued or made after the date hereof from any such Governmental Authority
relating to the regulation of banks or commercial lenders (whether or not having
the force of law) has or would have the effect of reducing the rate of return on
the capital of Lender or any corporation controlling Lender as a consequence of
or with reference to Lender's funding, incurring or maintaining the Commitment,
any Revolving Credit Advance, any Letter of Credit Obligation, the Revolving
Credit Loan or any other extension of credit or transaction hereunder below the
rate that Lender or such other corporation could have achieved but for such
introduction, change or compliance (taking into account the policies of Lender
or corporation with regard to capital), then Borrower shall from time to time,
upon demand by Lender, pay to Lender additional amounts sufficient to compensate
Lender or other corporation for such reduction. Any notice under this Section
2.10 shall be given to Borrower as promptly as practicable after Lender obtains
knowledge of such change, guideline or request and shall be accompanied by a
certificate from Lender setting forth in reasonable detail the nature and
calculation of the relevant amounts.
2.11 Failure to Charge Not Subsequent Waiver. Any failure by
Lender to require payment of any interest (including interest at the Default
Rate), fee, cost or other amount payable under any Loan Document, or to
calculate any amount payable by a particular method, on any occasion shall in no
way limit to be deemed a waiver of Lender's right to require full payment of any
such interest, fee, cost or other amount payable by another method, on any other
or subsequent occasion.
2.12 Survivability. All of Borrower's obligations under
Sections 2.9 and 2.10 shall survive the payment in full of all obligations
hereunder.
ARTICLE 3.
CONDITIONS PRECEDENT
3.1 Conditions to Each Extension of Credit . It shall be a
condition to the funding of the initial and each subsequent Revolving Credit
Advance and to the incurrence by Lender of each Letter of Credit Obligation,
that each and every one of the following statements shall be true on and as of
the Restatement Date and as of the date of each such funding:
(a) Each of the representations and warranties contained
herein or in any of the other Loan Documents is true and correct, except to the
extent that any such representation or warranty expressly relates to an earlier
date and except for changes therein expressly permitted or expressly
contemplated by this Agreement, both before and after giving effect to such
Revolving Credit Advance or Letter of Credit Obligation;
(b) No Default has occurred and is continuing either before or
after giving effect to the requested Revolving Credit Advance or Letter of
Credit Obligation; and
(c) After giving effect to such Revolving Credit Advance or to
such Letter
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<PAGE>
of Credit Obligation, (i) the aggregate principal amount of the Revolving Credit
Loan plus the aggregate principal amount of the outstanding Letter of Credit
Obligations does not exceed the lesser of (x) the Commitment and (y) the
Borrowing Base, without requiring that a payment be made to Lender, and (ii) the
aggregate outstanding amount at such time of all Letter of Credit Obligations
incurred by Lender does not exceed $1,000,000.
The request or acceptance by Borrower of the proceeds of any Revolving Credit
Advance or the incurrence of any Letter of Credit Obligations shall be deemed to
constitute, as of the date of such request or acceptance, (i) a representation
and warranty by Borrower that the conditions in this Section 3.1 have been
satisfied and (ii) a confirmation by Borrower of the granting and continuance of
Lender's Liens pursuant to the Collateral Documents, unless in each case (i) or
(ii), a notice to the contrary specifically captioned "Disclosure Statement" is
received by the Lender from the Borrower prior to 2:00 p.m. on the Business Day
preceding the date of the Revolving Credit Advance. To the extent that the
Lender agrees to make any Extension of Credit after receipt of a Disclosure
Statement in accordance with the preceding sentence, the representations and
warranties and confirmation pursuant to the preceding sentence will be deemed
made as modified by the contents of such statement and repeated at the time of
the making of such Extension of Credit as so modified. Any such modification
shall be effective only for the occasion on which the Lender elects to make such
Extension of Credit, and unless expressly agreed by the Lender in writing to the
contrary as provided in Section 9.1, shall not be deemed a waiver or
modification of any condition to any future Extension of Credit.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
To induce the Lender to make this Revolving Credit Facility
available to the Borrower, and to make Extensions of Credit, as herein provided
for, Borrower, for itself and on behalf of the other Credit Parties, makes the
following representations and warranties to the Lender, each and all of which
shall be true and correct as of the date of execution and delivery of this
Agreement and shall survive the execution and delivery of this Agreement:
4.1 Corporate Existence; Compliance with Law. Each Credit
Party (i) is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and is duly qualified to
do business and is in good standing in each other jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification, except where the failure to so qualify or be in good standing
could not reasonably be expected to have a Materially Adverse Effect; (ii) has
the requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its properties, to lease the property
it operates under lease, and to conduct its business as now, heretofore and
proposed to be conducted, except where the failure to have such legal right
could not reasonably be expected to have a Materially Adverse Effect; (iii) has
all licenses, permits, consents or approvals from or by, and has made all
filings with, and has given all notices to, all Governmental Authorities having
jurisdiction, to
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<PAGE>
the extent required for such ownership, lease operation and conduct, except such
of the foregoing, that the failure to have, to have made or to have given which
could not reasonably be expected to have a Materially Adverse Effect; (iv) is in
compliance with its certificate or articles of incorporation and by-laws; and
(v) is in compliance with all provisions of Applicable Law where the failure to
comply could reasonably be expected to have a Materially Adverse Effect.
4.2 Executive Offices; Corporate or Other Names.
(a) The current locations of Borrower's chief executive office
and principal place of business are as set forth in response to question 6.a. of
the Credit Party Questionnaire completed by the Borrower. During the preceding
five (5) years, neither the Borrower nor Vodavi have been known as or used any
corporate, fictitious or trade names except as disclosed in response to question
2 of the Credit Party Questionnaire completed by the Borrower. The Borrower has
no professional office locations except as disclosed in the Credit Party
Questionnaire completed by the Borrower.
(b) The current locations of the chief executive office and
principal place of business of each of ARS and ESI are as set forth in response
to question 6.a. of the Credit Party Questionnaire completed by such Credit
Party. During the preceding five (5) years, neither ARS nor ESI have been known
as or used any corporate, fictitious or trade names except as disclosed in
response to question 2 of the Credit Party Questionnaire completed by such
Credit Party. Neither ARS nor ESI have any professional office locations except
as disclosed on the Credit Party Questionnaire completed by such Credit Party.
4.3 Corporate Power; Authorization; Enforceable Obligations.
The execution, delivery and performance by each Credit Party of the Loan
Documents executed by such Credit Party and of all instruments and documents to
be delivered by such Credit Party hereunder and thereunder and the creation of
all Liens provided for herein and therein: (i) are within such Credit Party's
corporate power; (ii) have been duly authorized by all necessary corporate and
shareholder action; (iii) are not in contravention of any provision of such
Credit Party's certificate or articles of incorporation or by-laws; (iv) do not
violate any law or regulation, or any order or decree of any court or
governmental instrumentality applicable to such Credit Party; (v) do not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any material indenture,
mortgage, deed of trust, lease, note, loan agreement or other agreement or
instrument to which such Credit Party is a party or by which such Credit Party
or any of its property is bound; (vi) do not result in the creation or
imposition of any Lien upon any of the property of such Credit Party other than
those in favor of Lender created pursuant to the Loan Documents; and (vii) do
not require the consent or approval of any Governmental Authority or any other
Person, except those delivered to Lender pursuant to Section 9.18(a) and except
those not yet required to have been obtained, all of which will have been duly
obtained, made or complied with. Each of the Loan Documents has been duly
executed and delivered by each Credit Party which is a party thereto and each
constitutes the legal, valid and binding obligation of such Credit Party,
enforceable against it in accordance with its terms except to the extent that
such
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enforceability may be effected by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights and remedies of creditors
generally, and general principles of equity.
4.4 Financial Statements and Projections. Schedule 4.4 sets
forth the latest financial statements and Projections that Borrower has
delivered to Lender prior to the Restatement Date. All of the balance sheets and
statements of income, retained earnings and cash flows of the Parent and the
Credit Parties listed on Schedule 4.4 have been, except as noted therein,
prepared in conformity with GAAP and present fairly the financial position of
the Parent or such Credit Party, as the case may be, in each case as of the
dates thereof, and the results of operations and cash flows for the periods then
ended (as to the unaudited interim financial statements, subject to normal
year-end audit adjustments and the absence of footnotes). The Projections
disclose all material assumptions made with respect to general economic,
financial and market conditions in formulating such Projections. No facts exist
as of the date of any making of this representation that would result in any
material change in any of such Projections. The Projections are based upon
reasonable estimates and assumptions, all of which are reasonable in light of
conditions existing at the Restatement Date, have been prepared on the basis of
the assumptions stated therein, and reflect the reasonable estimate of Borrower
of the results of operations and other information projected therein.
4.5 Material Adverse Change. Except as disclosed in audited
consolidated financial statements of the Parent Group for the fiscal year ended
December 31, 1996, that were delivered to the Lender, Borrower and the other
Credit Parties have no obligations, contingent liabilities, or liabilities for
Charges, long-term leases or unusual forward or long-term commitments that
could, alone or in the aggregate, have or result in a Material Adverse Effect.
Since December 31, 1996, (i) there has been no material adverse change in the
business, assets, operations, prospects or financial or other condition of
Borrower or the Parent Group, taken as a whole, and (ii) no Credit Party has
paid, made or declared any dividend, advance or other distribution to any
stockholder of such Credit Party, except as permitted pursuant to this
Agreement. No shares of stock of any Credit Party have been, or are now required
to be, redeemed, retired, purchased or otherwise acquired for value by Borrower
and there exists no present agreement, understanding or requirements (contingent
or otherwise) to redeem, retire, purchase or otherwise acquire for value any
such shares in the future except as disclosed on Schedule 4.5.
4.6 Ownership of Property; Liens.
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(a) The real estate listed on Schedule 4.6 constitutes all of
the real property owned, leased, or used in its business by Borrower or any
other Credit Party. Except as disclosed on Schedule 4.6, each Credit Party owns:
(i) good and marketable fee simple title to all of the real estate owned or used
by it other than such as its holds as lessee, and (ii) valid and marketable
leasehold interests in all of its Leases (both as lessor and lessee, sublessee
or assignee). Except as disclosed on Schedule 4.6, each Credit Party holds title
to, or valid leasehold interests in, all of its other properties and assets.
None of the properties or assets of any Credit Party is subject to any Liens,
except (x) Permitted Encumbrances and (y) the Liens in favor of Lender pursuant
to the Collateral Documents. Each Credit Party has received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and duly effected all recordings,
filings and other actions necessary to establish, protect and perfect its right,
title and interest in and to all such real estate and other assets or property.
Except as described on Schedule 4.6, (i) none of the Credit Parties nor any
other party to any such Lease described on Schedule 4.6 is in default of its
obligations thereunder or has delivered or received any notice of default under
any such Lease, and no event has occurred which, with the giving of notice, the
passage of time or both, would constitute a default under any such Lease, (ii)
none of the Credit Parties owns or holds, or is obligated under or a party to,
any option, right of first refusal or any other contractual right to purchase,
acquire, sell, assign or dispose of any real property owned or leased by such
Person, and (iii) no portion of any real property owned or leased by any Credit
Party has suffered any material damage by fire or other casualty loss or a
Release which has not heretofore been completely repaired and restored to its
original condition or is being remedied. All permits required to have been
issued or appropriate to enable the real property owned or leased by any Credit
Party to be lawfully occupied and used for all of the purposes for which they
are currently occupied and used, have been lawfully issued and are, as of the
date hereof, in full force and effect.
4.7 Restrictions; No Default. No contract, lease, agreement,
judgment, decree or other instrument or order to which any Credit Party is a
party or by which it or any of its properties or assets is bound or affected and
no provision of existing Applicable Law has or results in a Material Adverse
Effect, or insofar as any Credit Party can reasonably foresee could have or
result in a Material Adverse Effect. None of the Credit Parties is in default,
and to each Credit Party's knowledge no third party is in default, under or with
respect to any material contract, agreement, lease or other instrument to which
any Credit Party is a party. No Default has occurred and is continuing.
4.8 Labor Matters. There are no strikes or other labor
disputes against any Credit Party that are pending or, to any Credit Party's
knowledge, threatened which could have or result in a Material Adverse Effect or
could cause or result in the incurrence by any Credit Party of a material
liability, contingent or liquidated. Hours worked by and payment made to
employees of each Credit Party have not been in violation of the Fair Labor
Standards Act or any other applicable law dealing with such matters which could
have or result in a Material Adverse Effect or could cause or result in the
incurrence by any Credit Party of a material liability, contingent or
liquidated. All payments due from any Credit Party
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on account of employee health and welfare insurance which could have or result
in a Material Adverse Effect or could cause or result in the incurrence by any
Credit Party of a material liability, contingent or liquidated, if not paid have
been paid or accrued as a liability on the books of such Credit Party. None of
the Credit Parties has any obligation under any collective bargaining agreement
or any employment agreement, except as disclosed on Schedule 4.16 or permitted
pursuant to Section 7.4. There is no organizing activity involving any Credit
Party pending or threatened by any labor union or group of employees. Except as
set forth on Schedule 4.14, there are no representation proceedings involving
employees of any Credit Party pending or threatened with the National Labor
Relations Board, and no labor organization or group of employees of any Credit
Party have made a pending demand for recognition. Except as set forth on
Schedule 4.14, there are no complaints or charges against any Credit Party
pending or threatened to be filed with any federal, state, local or foreign
court, governmental agency or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
any Credit Party of any individual, except such complaints and charges that,
singularly or in the aggregate, would not require notice to the Lender pursuant
to Section 6.4.
4.9 Ventures, Subsidiaries and Affiliates, and Indebtedness.
Except as set forth on Schedule 4.9, neither the Parent nor any of the Credit
Parties has any Subsidiaries, is engaged in any joint venture or partnership
with any other Person, or is an Affiliate of any other Person. All outstanding
Stock and Indebtedness in excess of $25,000 of each of the Credit Parties is
described on Schedule 4.9.
4.10 Government Regulation. None of the Credit Parties is 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. None of the Credit Parties is subject
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act or any other federal or state statute
that restricts or limits its ability to incur Indebtedness, pledge its assets or
to perform its obligations hereunder or under any other Loan Document and the
making of the Revolving Credit Advances by Lender, the application of the
proceeds and repayment thereof by Borrower or any other Credit Party and the
consummation of the transactions contemplated by this Agreement and the other
Loan Documents will not violate any provision of any such statute or any rule,
regulation or order issued by the Securities and Exchange Commission (except
that no representation is made concerning whether any syndication or assignment
by Lender might or would violate any Federal securities laws, regulations or
orders).
4.11 Margin Regulations. None of the Credit Parties owns any
"margin security", as that term is defined in Regulations G and U of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"), and
none of the proceeds of the Revolving Credit Advances will be used, directly or
indirectly, for the purpose of purchasing or carrying any margin security, for
the purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry any margin security or for any other purpose which
might cause any of the loans or other extensions of credit under this
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Agreement to be considered a "purpose credit" within the meaning of Regulation
G, T, U or X of the Federal Reserve Board. None of the Credit Parties will take
or permit to be taken any action which might cause this Agreement or any
document or instrument delivered pursuant hereto to violate any regulation of
the Federal Reserve Board.
4.12 Taxes. All federal, state, local and foreign tax returns,
reports and statements required to be filed by any Credit Party (except for
sales and use tax returns involving, in the aggregate, immaterial amounts), have
been filed with the appropriate Governmental Authority and all Charges and other
impositions shown thereon to be due and payable that are or could reasonably be
expected to become a liability or charge against any Credit Party or its assets
have been paid prior to the date on which any fine, penalty, interest or late
charge may be added thereto for nonpayment thereof, or any such fine, penalty,
interest, late charge or loss has been paid, except for non-compliances that
could not reasonably be expected to have a Material Adverse Effect or to cause
or result in the incurrence by any Credit Party of a material liability,
contingent or liquidated. Each of the Credit Parties has paid prior to
delinquency all Charges which such Credit Party reasonably expects it will be
required to be paid by them, except for non-compliances that could not
reasonably be expected to have a Material Adverse Effect or to cause or result
in the incurrence by any Credit Party of a material liability, contingent or
liquidated. Proper and accurate amounts have been withheld by each of the Credit
Parties from its respective employees for all periods in full and complete
compliance with the tax, social security and unemployment withholding provisions
of applicable federal, state, local and foreign law and such withholdings have
been timely paid to the respective Governmental Authorities, except for
non-compliances that could not reasonably be expected to have a Material Adverse
Effect or to cause or result in the incurrence by any Credit Party of a material
liability, contingent or liquidated. Schedule 4.12 sets forth those taxable
years for which any Credit Party's tax returns are currently being audited by
the IRS or any other applicable Governmental Authority and any assessments or
threatened assessments in connection with such audit or which are otherwise
currently outstanding. Except as described on Schedule 4.12, none of the Credit
Parties has executed or filed with the IRS or any other Governmental Authority
any agreement or other document extending, or having the effect of extending,
the period for assessment or collection of any Charges. None of the Credit
Parties has any obligation under any written tax sharing agreement except as set
forth on Schedule 4.12.
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4.13 ERISA.
(a) Schedule 4.13 lists all Plans maintained or contributed to
by any Credit Party and all Qualified Plans maintained or contributed to by any
other ERISA Affiliate, and separately identifies the Title IV Plans,
Multiemployer Plans, any multiple employer plans subject to Section 4064 of
ERISA, unfunded Pension Plans, Welfare Plans and Retiree Welfare Plans. Each
Qualified Plan has been determined by the IRS to qualify under IRC Section 401,
and the trusts created thereunder have been determined to be exempt from tax
under the provisions of IRC Section 501, and to the best knowledge of each
Credit Party nothing has occurred that would cause the loss of such
qualification or tax-exempt status. Each Plan is in compliance with the
applicable provisions of ERISA and the IRC, including the filing of reports
required under the IRC or ERISA which are true and correct as of the date filed,
and with respect to each Plan, other than a Qualified Plan, all required
contributions and benefits have been paid in accordance with the provisions of
each such Plan. None of the Credit Parties or any other ERISA Affiliate, with
respect to any Qualified Plan, has failed to make any contribution or pay any
amount due as required by IRC Section 412 or Section 302 of ERISA or the terms
of any such Plan. With respect to all Retiree Welfare Plans, the present value
of future anticipated expenses pursuant to the latest actuarial projections of
liabilities does not exceed $50,000, and copies of such latest projections have
been provided to Lender; with respect to Pension Plans, other than Qualified
Plans, the present value of the liabilities for current participants thereunder
using PBGC interest assumptions does not exceed $50,000. None of the Credit
Parties has engaged in a prohibited transaction, as defined in Section 4975 of
the IRC or Section 406 of ERISA, in connection with any Plan, which would
subject any Credit Party (after giving effect to any exemption) to a material
tax on prohibited transactions imposed by IRC Section 4975 or any other material
liability.
(b) Except as set forth on Schedule 4.13: (i) no Title IV Plan
has any Unfunded Pension Liability; (ii) No ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Credit Party, threatened claims, actions or lawsuits (other than claims for
benefits in the normal course), asserted or instituted against (x) any Plan or
its assets, (y) any fiduciary with respect to any Plan or (z) any Credit Party
or any other ERISA Affiliate with respect to any Plan; (iv) none of the Credit
Parties or any other ERISA Affiliate has incurred or reasonably expects to incur
any Withdrawal Liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 of ERISA as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years none of the Credit Parties or
any other ERISA Affiliate has engaged in a transaction which resulted in a Title
IV Plan with Unfunded Liabilities being transferred outside of the "controlled
group" (within the meaning of Section 4001(a)(14) of ERISA) of any such entity;
(vi) no plan which is a Retiree Welfare Plan provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after such
participant's termination of employment (except as may be required by IRC
Section 4980B and at the sole expense of the participant or the beneficiary of
the participant); the Credit Parties and other ERISA Affiliates have complied
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with the notice and continuation coverage requirements of IRC Section 4980B and
the regulations thereunder except where the failure to comply could not have or
result in any Material Adverse Effect; and (vii) no liability under any Plan has
been funded, nor has such obligation been satisfied, with the purchase of a
contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation and the equivalent by each other nationally recognized rating
agency.
4.14 No Litigation. Except as set forth on Schedule 4.14, no
action, claim or proceeding is now pending or, to the knowledge of an officer of
any Credit Party, threatened against any Credit Party at law, in equity or
otherwise, before any court, board, commission, agency or instrumentality of any
federal, state or local government, or of any agency or subdivision thereof, or
before any arbitrator or panel of arbitrators, (i) that challenges any Credit
Party's right, power or competence to enter into or perform any of its
obligations under the Loan Documents, or the validity or enforceability of the
Security Interest or of any Loan Document or any action hereunder or thereunder
or (ii) that if determined adversely, could have or result in a Material Adverse
Effect or could cause or result in the incurrence by any Credit Party of a
material liability, contingent or liquidated, nor to the knowledge of an officer
of any Credit Party does a state of facts exist that is reasonably likely to
give rise to any such action, claim or proceeding.
4.15 Brokers. Except as set forth on Schedule 4.15, no broker
or finder acting on behalf of Borrower or any other Credit Party brought about
the obtaining, making or closing of the loans made pursuant to this Agreement or
the transactions contemplated by the Loan Documents and neither Borrower nor any
other Credit Party has any obligations to any Person in respect of any finder's
or brokerage fees in connection therewith.
4.16 Employment Matters. Except as set forth on Schedule 4.16
or permitted pursuant to Section 7.4, there are no employment, consulting or
management agreements covering management of any Credit Party. A true and
complete copy of each such agreement has been furnished to Lender by Borrower.
4.17 Patents, Trademarks, Copyrights, Licenses and
Accreditation. Except as otherwise set forth on Schedule 4.17, each Credit Party
owns or has undisputed possession of all licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, trade names,
certificates of need and accreditation and other rights, the failure to own or
possess which could have a Material Adverse Effect or could cause or result in
the incurrence by any Credit Party of a material liability, contingent or
liquidated, each of which is listed, together with Patent and Trademark Office
application or registration numbers, where applicable, on Schedule 4.17. Each
Credit Party is in full compliance with the provisions of each of the foregoing,
except for non-compliances that could not reasonably be expected to have a
Material Adverse Effect or to cause or result in the incurrence by such Credit
Party of a material liability, contingent or liquidated. Schedule 4.17 lists all
trade names or other names under which any of the Credit Parties conducts
business. Each Credit Party conducts its business without infringement or claim
of infringement of any license, patent, copyright, service mark, trademark,
trade name, trade secret or other intellectual
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<PAGE>
property right of others, except where such infringement or claim of
infringement could not have or result in a Material Adverse Effect or could not
cause or result in the incurrence by such Credit Party of a material liability,
contingent or liquidated. There is no infringement or claim of infringement by
others of any material license, patent, copyright, service mark, trademark,
trade name, trade secret or other intellectual property right of any Credit
Party.
4.18 Full Disclosure. No information contained in this
Agreement, the other Loan Documents, the Projections, the Financials or any
written statement furnished to the Lender by or on behalf of any Credit Party
pursuant to the terms of this Agreement or any other Loan Document, contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained herein or therein not misleading in light of
the circumstances under which they were made. The Security Interests granted to
Lender pursuant to the Collateral Documents will at all times be fully perfected
first priority Liens in and to the Collateral described therein, subject only to
such exceptions as are permitted under the applicable Collateral Document. No
event has occurred since December 31, 1996 and is continuing that has had or
could have or result in a Material Adverse Effect.
4.19 Hazardous Materials. Except as set forth on Schedule
4.19, the Subject Property is free of contamination from any Hazardous Material
that would constitute a violation of any Environmental Law. In addition,
Schedule 4.19 discloses potential material environmental liabilities of any
Credit Party of which an officer of such Credit Party has knowledge (i) related
to noncompliance with the Environmental Laws or (ii) associated with the Subject
Property. None of the Credit Parties has caused or suffered to occur any Release
with respect to any Hazardous Material that would constitute a violation of any
Environmental Law at, under, above or within any real property that it owns or
leases. None of the Credit Parties is involved in operations that could
reasonably be expected to lead to the imposition of any liability or Lien on it,
its property, or any premises that it occupies or any owner thereof, under the
Environmental Laws, and none of the Credit Parties has permitted any tenant or
occupant of such premises to engage in any such activity.
4.20 Insurance Policies. Schedule 4.20 Part II lists all
insurance of any nature maintained by the Credit Parties, as well as a summary
of the terms of such insurance. Such insurance complies with the standards set
forth on Schedule 4.20 Part I, and all policies listed on such schedule are in
full force and effect.
4.21 Deposit Accounts. Schedule 4.21 lists all banks and other
financial institutions at which any of the Credit Parties maintains deposits
and/or other accounts, and identifies as such each Collection Account, the
Disbursement Account, and such Schedule correctly identifies the name, address
and telephone number of each depository, the name in which the account is held,
a description of the purpose of the account, and the complete account number.
4.22 Solvent Financial Condition. Each of the Borrower and the
Parent Group, taken as a whole, is now, and after giving effect to the
incurrence of the obligations and the granting of the Security Interests
contemplated hereunder and under the other Loan
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Documents, will be Solvent.
4.23 Credit Party Questionnaires. The Credit Party
Questionnaires completed by each Credit Party are true and accurate in all
material respects.
ARTICLE 5.
FINANCIAL STATEMENTS AND INFORMATION
5.1 Reports and Notices. Borrower, for itself and on behalf of
the Parent and the other Credit Parties, covenants and agrees that from and
after the Restatement Date and until the Termination Date, it shall deliver or
cause to be delivered to Lender each of the following at the Lender's address
specified pursuant to Section 9.10.
(a) On each Business Day, a Notice of Borrowing/Collection
Report from Borrower in the form of Exhibit A hereto;
(b) On the first Business Day of each week, (i) an accounts
receivable summary from Borrower in the form of Exhibit K hereto with respect to
Borrower's Accounts for the preceding week and Lender, at its reasonable
discretion, may verify such Accounts owing by selected Account Debtors, and (ii)
an inventory summary from Borrower in the form of Exhibit L hereto with respect
to Eligible Inventory for the preceding week;
(c) Not later than the tenth Business Day of each month a
Borrowing Base Certificate from Borrower as of the last day of the preceding
month accompanied by such supporting detail and documentation as is satisfactory
to Lender, including but not limited to (i) a monthly trial balance sheet
showing accounts receivable outstanding by Account Debtor, aged from invoice
date as follows: 1 to 30 days, 31 to 60 days, 61 to 90 days, 91 to 120 days and
121 days or more; and (ii) reconciliation of the accounts receivable trial
balance to Borrower's general ledger and monthly financial statements;
(d) Within 30 days after the end of each Fiscal Month,
financial and other information for such Fiscal Month for Borrower, certified by
an officer of Borrower, including, without limitation, an internally-prepared
(i) statement of income and cash flow and balance sheet, (ii) sales analysis
report; (iii) inventory/product mix analysis, as well as a summary aged
receivable trial balance (by payor category), each of which shall be in form and
in substance reasonably satisfactory to Lender and each of which shall provide
comparisons to the internally prepared statement for the prior year's equivalent
period and to budget, (iv) at the end of each Fiscal Quarter only, a schedule in
reasonable detail showing the calculations used in determining Borrower's
compliance with the financial covenants set forth in Section 7.10, (v) a
consolidating balance sheet and statement of income for the Parent Group and
(vi) the certification of the president or chief financial officer of Borrower
that all such financial statements delivered pursuant to clauses (i) and (v)
above present fairly in accordance with GAAP (subject to normal year-end audit
adjustments and the absence of footnotes) the financial position, the results of
operations and the statements of cash flow of
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Borrower as at the end of such month and for the period then ended, that such
information is complete and correct in all material respects as of its date and
that no Default exists;
(e) Not more than 30 days prior to the beginning of each
Fiscal Year, a consolidating operating plan for the Parent Group, approved by
the Parent's board of directors, for such Fiscal Year that includes a monthly
budget for the following year and includes for such year, operating profit
estimates and plans for capital expenditures and facilities and that is
accompanied by a certificate of the chief executive officer or chief financial
officer of the Parent that such operating plan is based upon reasonable
estimates and assumptions, all of which are reasonable in light of conditions
then existing, have been prepared on the basis of the assumptions stated
therein, and reflect the reasonable estimate of the Parent of the expected
results of operations and other information projected therein;
(f) Within 90 days after the end of each Fiscal Year, annual
consolidated financial statements of the Parent and its Consolidated
Subsidiaries, consisting of a consolidated balance sheet and consolidated
statements of income, cash flows and stockholders' equity, which financial
statements shall be prepared in accordance with GAAP, reported on (only with
respect to the financial statements) without qualification by a firm of
independent certified public accountants of recognized national standing
selected by the Parent and reasonably acceptable to Lender, and accompanied by
(i) a report from such accountants to the effect that in connection with their
audit examination, nothing has come to their attention to cause them to believe
that a Default has occurred, (ii) the annual letter from the chief financial
officer of the Parent and each Credit Party to such accountants in connection
with their audit examination detailing such Credit Party's contingent
liabilities and material litigation matters involving such Credit Party, and
(iii) a certification of the chief executive officer or chief financial officer
of the Parent and each Credit Party that all such financial statements present
fairly in accordance with GAAP the financial position, the results of operations
and the cash flows of the Parent and each Credit Party as at the end of such
year and for the period then ended and that no Default exists;
(g) As soon as practicable, but in any event within two (2)
Business Days after any officer of any Credit Party becomes aware of the
existence of any Default, or any development or other information that could
reasonably be expected to have or result in a Material Adverse Effect,
telephonic or telegraphic notice specifying the nature of such Default or
development or information, including the anticipated effect thereof, which
notice shall be promptly confirmed in writing within five (5) Business Days;
(h) Promptly upon filing thereof, copies of such financial
statements and reports as the Parent or any Credit Party shall send to its
stockholders and all registration statements, and all regular or periodic
reports that the Parent or any Credit Party shall file, or may be required to
file, with the Securities and Exchange Commission or any successor commission;
(i) Promptly upon receipt thereof, copies of all reports, if
any, submitted to the Parent or any Credit Party or its board of directors by
its independent certified public
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accountants, including without limitation any management report;
(j) As often as Lender may request, such statements and
schedules further identifying and describing the Collateral and such other
reports in connection therewith as Lender may reasonably request, all in
reasonable detail;
(k) Promptly upon learning thereof, each Credit Party shall
advise Lender in reasonable detail of (i) any material Lien (other than as
permitted under Section 7.6) attaching to or asserted against any of the
Collateral, (ii) any material change in the composition of the Collateral or
(iii) the occurrence of any other event that could reasonably be expected to
have or result in a material adverse effect upon the Collateral and/or Lender's
Liens thereon; and
(l) Such other reports and information respecting the Parent's
or any Credit Party's business, financial condition or prospects as Lender may,
from time to time, reasonably request.
5.2 Communication with Accountants. Borrower, for itself and
on behalf of the Parent and each of the other Credit Parties, authorizes Lender
to communicate directly with its independent certified public accountants and
tax advisors and authorizes those accountants to disclose to Lender any and all
financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of the Parent and the Credit Parties.
ARTICLE 6.
AFFIRMATIVE COVENANTS
Borrower, for itself and on behalf of each of the other Credit
Parties, covenants and agrees that, unless Lender shall otherwise consent in
writing, from and after the date hereof and until the Termination Date:
6.1 Maintenance of Existence and Conduct of Business. Each
Credit Party shall: (a) do or cause to be done all things necessary to preserve
and keep in full force and effect its corporate existence and its rights and
franchises, (b) continue to conduct its business substantially as now conducted
or as otherwise permitted hereunder, (c) at all times maintain, preserve and
protect all of its licenses, patents, patent applications, copyrights, service
marks, trademarks, trademark applications, trade names, certificates of need,
accreditation and other rights, the failure to preserve which could have a
Material Adverse Effect, and (d) preserve all the remainder of its property, in
use or useful in the conduct of its business, and keep the same in good repair,
working order and condition (taking into consideration ordinary wear and tear)
and from time to time make, or cause to be made, all necessary or appropriate
repairs, replacements and improvements thereto consistent with industry
practices, and (e) transact business only in its corporate name or such
fictitious or trade names as are expressly disclosed in the Security Agreement.
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6.2 Payment of Obligations.
(a) Each Credit Party shall: (i) prior to an Event of Default,
pay and discharge, or cause to be paid and discharged, its Indebtedness (other
than the Obligations) when due (giving effect to any applicable grace period),
and (ii) subject to Section 6.2(b), pay and discharge promptly all (A) Charges
imposed upon it, its income and profits, or any of its property (real, personal
or mixed) before such charges become delinquent, and (B) lawful claims for
labor, materials, supplies and services or otherwise, before any thereof shall
become in default.
(b) Each Credit Party may in good faith contest, by proper
legal actions or proceedings, the validity or amount of any Charges or claims
described in Section 6.2(a)(ii); provided, that at the time of commencement of
any such action or proceeding, and during the pendency thereof (i) no Event of
Default shall exist, (ii) adequate reserves with respect thereto are maintained
on the books of such Credit Party in accordance with GAAP, (iii) such contest
together with any bond that is a Permitted Encumbrance operates to suspend
collection of the contested Charges or claims and such contest is maintained and
prosecuted continuously and with diligence, (iv) none of the Collateral would be
subject to forfeiture or loss or any Lien, except for a Permitted Encumbrance,
by reason of the institution or prosecution of such contest, (v) no Lien shall
exist, be imposed or be attempted to be imposed for such Charges or claims
during such action or proceeding, and (vi) such Credit Party shall promptly pay
or discharge such contested Charges and all additional charges, interest,
penalties and expenses, if any, and shall deliver to Lender evidence reasonably
acceptable to Lender of such compliance, payment or discharge, if such contest
is terminated or discontinued adversely to such Credit Party.
6.3 Books and Records. Each Credit Party shall keep adequate
records and books of account with respect to its business activities, in which
proper entries, reflecting its financial transactions in accordance with sound
accounting practices, are made in accordance with GAAP and on a basis consistent
with preparation of the Financials referred to in paragraph I(b) of Schedule
4.4.
6.4 Litigation. Each Credit Party shall notify Lender in
writing, promptly upon learning thereof, of any litigation commenced or
threatened against such Credit Party, and of the institution against such Credit
Party of any suit or administrative proceeding, that (a) may involve an amount
in excess of $100,000 or (b) could reasonably be expected to have or result in a
Material Adverse Effect if adversely determined.
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6.5 Insurance.
(a) Each Credit Party, at its sole cost and expense, shall
maintain or cause to be maintained the policies of insurance described on
Schedule 4.20 in form, with such endorsements and with insurers recognized as
adequate by Lender. Such polices shall be in such amounts as are set forth on
Schedule 4.20 or such lesser amounts as the Lender shall reasonably agree in
writing. Each Credit Party shall notify Lender promptly of any casualty
occurrence causing a material loss or decline in value of any real or personal
property and the estimated (or actual, if available) amount of such loss or
decline. In the event any Credit Party at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required above that
insure the Collateral or to pay any premium in whole or in part relating
thereto, Lender, without waiving or releasing any Obligation or Default
hereunder, may at any time or times thereafter (but shall not be obligated to)
obtain and maintain such policies of insurance and pay such premium and take any
other action with respect thereto which Lender deems advisable. All sums so
disbursed, including reasonable attorneys' fees, court costs and other charges
related thereto, shall be payable, on demand, by Borrower to Lender and shall be
additional Obligations hereunder secured by the Collateral, provided, that if
and to the extent Borrower fails to promptly pay any of such sums upon Lender's
demand therefor, Lender is authorized to, and at its option may, make or cause
to be made Revolving Credit Advances on behalf of Borrower for payment thereof.
(b) Lender reserves the right at any time, upon review of any
Credit Party's risk profile, to require additional forms and limits of insurance
to, in Lender's reasonable opinion, adequately protect Lender's interest. Each
Credit Party shall, if so requested by Lender, deliver to Lender, as often as
Lender may request, a report of a reputable insurance broker, satisfactory to
Lender with respect to its insurance policies.
(c) Each Credit Party shall deliver to Lender endorsements to
all of its general liability and other liability policies naming Lender an
additional insured.
6.6 Compliance with Laws. Each Credit Party shall comply in
all material respects with all Applicable Laws, including, without limitation,
those relating to licensing, environmental, consumer credit, ERISA and labor
matters.
6.7 Agreements. Each Credit Party shall perform, within all
required time periods (after giving effect to any applicable grace periods), all
of its obligations and enforce all of its rights under each agreement to which
such Credit Party is a party, including, without limitation, any lease and
customer contracts to which such Person is a party where the failure to so
perform and enforce could reasonably be expected to have a Material Adverse
Effect or to cause or result in the incurrence of a material liability,
contingent or liquidated. None of the Credit Parties shall terminate or modify
any provision of any agreement to which it is a party which termination or
modification could reasonably be expected to have or result in a Material
Adverse Effect or to cause or result in the incurrence by such Credit Party of a
material liability, contingent or liquidated.
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6.8 Employee Plans. Each Credit Party shall notify Lender of
(i) any and all claims, actions, or lawsuits asserted or instituted, and of any
threatened litigation or claims, against such Credit Party or any ERISA
Affiliate in connection with any Plan maintained, at any time, by any such
Person or to which any such Person has or had at any time any obligation to
contribute, or/and against any such Plan itself, or against any fiduciary of or
service provided to any such Plan, and (ii) the occurrence of any "Reportable
Event" with respect to any Pension Plan of any Credit Party or any ERISA
Affiliate.
6.9 Environmental Matters. Each Credit Party shall, (i) comply
in all respects with the Environmental Laws applicable to such Person except for
such non- compliances as singly or in the aggregate, could not reasonably be
expected to have a Materially Adverse Effect, (ii) notify Lender promptly after
any Credit Party becomes aware of any Release upon any premises owned or
occupied by such Credit Party that could reasonably be expected to have a
Materially Adverse Effect or result in the incurrence by such Credit Party of a
material liability, actual or contingent, and (iii) promptly forward to Lender a
copy of any order, notice, permit, application, or any communication or report
received by any Credit Party in connection with any such Release or in
connection with any other matter relating to the Environmental Laws that, singly
or in the aggregate, may adversely affect the use or value of such premises in
any material respect. The provisions of this Section 6.9 shall apply whether or
not the Environmental Protection Agency, any other federal agency or any state
or local environmental agency has taken or threatened any action in connection
with any Release or the presence of any Hazardous Materials.
6.10 Access. Each Credit Party shall: (i) provide access
during normal business hours to Lender and any of its officers, employees and
agents, upon reasonable prior notice (unless a Default shall have occurred and
be continuing, in which event no notice shall be required and Lender shall have
access at any and all times), to the properties and facilities of such Credit
Party; (ii) permit Lender and any of its officers, employees and agents to
inspect, audit and make extracts from all of its records, files and books of
account, and (iii) permit Lender to inspect, review and evaluate its accounts
and other records (excluding attorney-client privileged documents), at each
Credit Party's locations and at premises not owned by or leased to such Credit
Party. Each Credit Party shall make available to Lender and its counsel, as
quickly as practicable under the circumstances, copies of all books, records,
board minutes, contracts, insurance policies, environmental audits, business
plans, files, financial statements (actual and pro forma), filings with federal,
state and local regulatory agencies, and other instruments and documents
(excluding attorney-client privileged documents) that Lender may request. Each
Credit Party shall deliver any document or instrument reasonably necessary for
Lender, as it may from time to time request, to obtain records from any service
bureau or other Person which maintains records for such Credit Party, and shall
maintain duplicate records or supporting documentation on media, including,
without limitation, computer tapes and discs owned by such Credit Party. Upon
the request of the Lender, each Credit Party shall instruct its certified public
accountants and its banking and other financial institutions to make available
to Lender such information and records as Lender may reasonably request.
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6.11 Cash Management.
(a) Until the Termination Date, the Borrower shall deposit or
cause to be deposited directly, in either case on the date of receipt thereof
and in the form received, all cash, checks, notes, drafts or other similar items
of payment received only into the Collection Accounts and disburse or permit the
disbursement of amounts in the Collection Accounts only to the Payment Account.
(b) So long as no Default has occurred, Borrower may add or
replace a Collection Account; provided, however, that (i) Lender shall have
consented to the opening of such account with the relevant bank, and (ii) at the
time of the opening of such account, such bank shall have executed and delivered
to Lender a triparty account agreement, in form and substance satisfactory to
Lender.
(c) The Lender shall daily sweep amounts from the Collection
Accounts to the Payment Account for application against the Obligations as
described in Section 2.6. Borrower shall take all such steps as the Lender shall
reasonably request to facilitate the arrangements described in this Section 6.11
and to preserve the Lender's security interest granted in the amount deposited
to the Collection Accounts pursuant to the Loan Documents.
6.12 Goldstar Agreements. Borrower shall, on or before
December 31, 1997, enter into an extended or replacement Key System Agreement
with Goldstar, on terms that are at least as favorable to Borrower as if
Goldstar were not an equity holder of the Parent, which agreement shall have a
term of not less than 36 months, unless otherwise consented to by Lender in
writing, and shall otherwise contain terms that are in all respects acceptable
to Lender in its reasonable discretion.
ARTICLE 7.
NEGATIVE COVENANTS
Borrower covenants and agrees for itself and on behalf of the
other Credit Parties that, without Lender's prior written consent, from and
after the date hereof until the Termination Date:
7.1 Mergers, Etc. None of the Credit Parties shall directly or
indirectly, by operation of law or otherwise, merge with, consolidate with,
acquire all or substantially all of the assets or capital stock of, or otherwise
combine with, any Person or form any Subsidiary.
7.2 Investments. Except as set forth on Schedule 4.9 or in the
proviso at the end of this sentence, none of the Credit Parties shall make or
maintain any investment in, or make or accrue loans or advances of money to any
Person, through the direct or indirect holding of securities or otherwise (all
of the foregoing "Investments"); provided, however,
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that Borrower may make loans to ARS and ESI in an aggregate principal amount not
to exceed $1,250,000 outstanding at any time so long as (i) such indebtedness is
evidenced by a promissory note duly executed by such borrower payable to
Borrower and pledged by Borrower to Lender as security for the Obligations, and
(ii) Borrower has not less than $1,250,000 of unused Revolving Credit Advance
Availability hereunder at all times any such loan is outstanding.
7.3 Indebtedness. None of the Credit Parties shall create,
incur, assume or permit to exist any Indebtedness, except (i) Indebtedness of
the Borrower in an aggregate principal amount not to exceed $200,000 at any time
outstanding, (ii) the Obligations, (iii) reimbursement obligations of the
Borrower in respect of Letters of Credit, (iv) unfunded pension fund and other
employee benefit plan obligations and liabilities not to exceed $150,000 in the
aggregate for all Credit Parties and then only to the extent they are permitted
to remain unfunded under Applicable Law, (v) Intercompany Debt, so long as such
Indebtedness is subordinated to the Obligations in all respects on terms
reasonably acceptable to Lender, and (vi) other Indebtedness set forth on
Schedule 4.9.
7.4 Affiliate and Employee Loans; Transactions and Employment
Agreements. Except as expressly permitted hereunder or under Section 7.2, none
of the Credit Parties shall enter into any lending, borrowing or other
commercial transaction with any of its employees, directors or Affiliates, under
terms that are any less favorable to any Credit Party than similar transactions
negotiated in arms length transactions between such Credit Party and unrelated
third parties, including, without limitation, payment of any management
consulting, advisory or similar fee based on or related to any Credit Party's
operating revenue, performance or income or any percentage thereof other than
(a) pursuant to the transactions described on Schedule 7.4 and (b) full-time
employment agreements and incentive compensation programs with employees on
commercially reasonable terms that are substantially similar to the agreements
and programs described on Schedule 7.4 and that have been consented to by
Lender. Notwithstanding the foregoing provisions of this Section 7.4, the Credit
Parties shall not make any Loans to any employee, director or Affiliate, except
as expressly permitted under Section 7.2, without the consent of Lender.
7.5 Capital Structure and Business. None of the Credit Parties
shall make any changes in any of its business objectives, purposes, or
operations which could in any way be reasonably expected to adversely affect the
repayment of the Obligations, the security interests granted under the
Collateral Documents or to have or result in a Material Adverse Effect. None of
the Credit Parties shall engage in any business other than the business
currently engaged in by it.
7.6 Liens. None of the Credit Parties shall create or permit
any Lien on any of its properties or assets except presently existing or
hereafter created Liens in favor of Lender, Liens set forth on Schedule 7.6 and
Permitted Encumbrances. Each Credit Party also shall defend the right, title and
interest of Lender and any of such Credit Party's rights, titles and interest
in, to and under the Collateral against the claims and demands of all Persons
whomsoever and shall not enter into any agreement that prohibits such Credit
Party from
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granting any additional Liens to the Lender.
7.7 Sale of Assets. The Credit Parties shall not sell,
transfer, convey, assign or otherwise dispose of any of their respective assets
or properties (including, without limitation, sales of Accounts and Inventory
not made in the ordinary course of business) having an aggregate value, over the
term of this Agreement, of $50,000 or more.
7.8 Events of Default. None of the Credit Parties shall take
any action or omit to take any action, which act or omission would constitute
(a) a Default pursuant to, or noncompliance with any of, the terms of any of the
Loan Documents or (b) a material default or an event of default pursuant to, or
noncompliance with, any other Contract, lease, mortgage, deed of trust or
instrument to which it is a party or by which it or any of its property is
bound, or any document creating a Lien, except, in the case of the clause (b)
only, for such actions or omissions that, in the reasonable judgment of the
Lender, could not be expected to have a Materially Adverse Effect.
7.9 ERISA. None of the Credit Parties nor any ERISA Affiliate
thereof shall without Lender's prior written consent acquire any new ERISA
Affiliate that maintains or has an obligation to contribute to a Pension Plan
that has either an "accumulated funding deficiency," as defined in Section 302
of ERISA, or any "unfunded vested benefits," as defined in Section
4006(a)(3)(e)(iii) of ERISA, in the case of any plan other than a Multiemployer
Plan, and in Section 4211 of ERISA in the case of a Multiemployer Plan.
Additionally, none of the Credit Parties nor any ERISA Affiliate thereof shall,
without Lender's prior written consent, permit or suffer any condition set forth
on Schedule 4.13 to cease to be met and satisfied at any time; terminate any
Pension Plan that is subject to Title IV of ERISA where such termination could
reasonably be anticipated to result in liability to any such Person; permit any
accumulated funding deficiency, as defined in Section 302(a)(2) of ERISA, to be
incurred with respect to any Pension Plan; fail to make any contributions or
fail to pay any amounts due and owing as required by the terms of any Plan
before such contributions or amounts become delinquent; make a complete or
partial withdrawal (within the meaning of Section 4201 of ERISA) from any
Multiemployer Plan; or at any time fail to provide Lender with copies of any
Plan documents or governmental reports or filings, if reasonably requested by
Lender.
7.10 Financial Covenants. Borrower shall not at any time fail
to be in compliance with any of the following financial covenants:
(a) Maximum Capital Expenditures. Borrower shall not make
Capital Expenditures that exceed in the aggregate during any Fiscal Year,
$1,000,000.
(b) Minimum Fixed Charge Coverage Ratio. Borrower shall have a
ratio of (i) EBITDA minus Capital Expenditures (other than Capital Expenditures
financed with Capital Leases) to (ii) Fixed Charges, in each case measured as at
the end of each Fiscal Quarter for the twelve month period ending on such date
(the "Fixed Charge Coverage Ratio"), of not less than 1.25:1.
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(c) Maximum Inventory Turnover Days. Borrower shall have
Maximum Inventory Turnover Days of not more than 105 days as measured at the end
of each Fiscal Quarter for the twelve month period ending on such date.
7.11 Hazardous Materials. Except as set forth on Schedule
4.19, the Credit Parties shall not and shall not permit any other Person within
the control of any Credit Party to cause or permit a Release or the presence,
use, generation, manufacture, installation, Release, discharge, storage or
disposal of any Hazardous Materials on, under, in, above, or about any of its
real estate or the transportation of any Hazardous Materials to or from any real
estate where such Release or presence, use, generation, manufacture,
installation, Release, discharge, storage or disposal would violate any
Environmental Laws.
7.12 Restricted Payments. The Credit Parties shall not make
any Restricted Payment.
7.13 Change in Control. Parent shall not cease to own, free of
any Lien, the legal and beneficial interest in 100% of the outstanding stock of
each of the Credit Parties (on a fully diluted basis).
ARTICLE 8.
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of
the following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder:
(a) Borrower or any other Credit Party shall fail to make any
payment in respect of any Obligation hereunder or under any of the other Loan
Documents when and as due and payable or declared due and payable; provided
that, so long as no Event of Default shall have occurred and be continuing, any
amount payable on demand of the Lender shall be payable upon the earlier of: (i)
the fifteenth day following such demand, and (ii) the occurrence of an Event of
Default.
(b) Borrower or any other Credit Party shall fail or neglect
to perform, keep or observe any of the provisions of Section 6.11 or Section 7.
(c) Borrower or any other Credit Party shall fail or neglect
to perform, keep or observe any term or provision of this Agreement (other than
any such term or provision referred to in paragraphs (a) or (b) above) or of any
of the other Loan Documents, and the same shall remain unremedied for a period
ending on the first to occur of 30 days after Borrower or such other Credit
Party shall receive written notice of any such failure from Lender or 60 days
after Borrower or such other Credit Party shall become aware thereof.
(d) A default shall occur under any other agreement, document
or
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instrument to which any Credit Party is a party or by which any Credit Party or
its property is bound and such default (i) involves the failure to make any
payment (whether of principal, interest or otherwise) when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise, and
after giving effect to any applicable grace period) in respect of any
Indebtedness of such Credit Party in an aggregate amount exceeding $200,000 or
(ii) causes or permits any holder of such Indebtedness or a trustee to cause
such Indebtedness, or a portion thereof in an aggregate amount exceeding
$200,000 to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment.
(e) Any representation or warranty herein or in any Loan
Document or in any written statement pursuant thereto or hereto, any report,
financial statement or certificate made or delivered to Lender by any Credit
Party shall be untrue or incorrect in any material respect, as of the date when
made or deemed made (including those made or deemed made pursuant to Section
3.2).
(f) Any of the assets having a book or market value in excess
of $50,000 of any Credit Party shall be attached, seized, levied upon or
subjected to a writ or distress warrant, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors of such
Person and such matter shall remain unstayed or undismissed for thirty (30)
consecutive days; or any Person other than such Credit Party shall apply for the
appointment of a receiver, trustee or custodian for any of its assets and such
matter shall remain unstayed or undismissed for thirty (30) consecutive days; or
any Credit Party shall have concealed, removed or permitted to be concealed or
removed, any part of such Person's property, with intent to hinder delay or
defraud its creditors or any of them or made or suffered a transfer of any of
its property or the incurring of an obligation which may be fraudulent under any
bankruptcy, fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced against any
Credit Party in a court having competent jurisdiction seeking a decree or order
(i) under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy,
insolvency, moratorium or other similar law, (ii) appointing a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) of
such Credit Party or of any substantial part of its properties, or (iii)
ordering the winding up or liquidation of the affairs of such Credit Party and
such case or proceeding shall remain undismissed or unstayed for sixty (60)
consecutive days or such court shall enter a decree or order granting the relief
sought in such case or proceeding.
(h) Any Credit Party shall (i) file a petition seeking relief
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other applicable federal, state or foreign bankruptcy,
insolvency, moratorium or other similar law, (ii) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of such Credit Party or
of any substantial part of its properties, (iii) fail generally pay its debts as
such debts become due, or (iv) take any corporate action in furtherance of any
such action.
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(i) Final judgment or judgments (after the expiration of all
times to appeal therefrom) for the payment or money in excess of $100,000 in the
aggregate shall be rendered against any Credit Party unless the same shall be
(i) fully covered by insurance in accordance with Section 6.5 or (ii) vacated,
stayed, bonded, paid or discharged within a period or thirty (30) days from the
date of such final judgment.
(j) Any other event shall have occurred or condition shall
exist which could reasonably be expected to have or result in a material adverse
change in the business, assets, operations, prospects or financial or other
condition of Borrower or the Parent Group, taken as a whole, and such event or
condition shall continue after the Lender shall have given Borrower at least
twenty (20) days notice thereof.
(k) (i) Any provision that is deemed material by the Lender of
any Loan Document shall for any reason cease to be valid, binding and
enforceable in accordance with its terms, or (ii) any security interest created
under any Collateral Document shall cease to be a valid and perfected security
interest or Lien having the first priority (or other priority, if and as
provided for by the Collateral Document establishing such Lien) in any of the
Collateral purported to be covered thereby and that is deemed material by the
Lender; provided, however, that no event described in clause (i) of this
paragraph (k) shall constitute an Event of Default, if, within 30 days of the
Lender's notification to the Borrower of such event, the Borrower and the Lender
shall agree on an enforceable substitute provision or arrangement that has the
same practical effect as the invalidated provision or interest and that is
reasonably satisfactory to the Lender.
8.2 Remedies. If any Event of Default shall have occurred and
be continuing, Lender may, by notice to the Borrower, (a) terminate the
Commitment, (b) declare all or any portion of the Obligations to be forthwith
due and payable, whereupon such Obligations shall become and be due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are expressly waived by Borrower, and (c) exercise any rights and remedies
provided to Lender under the Loan Documents and/or at law or equity, including
all remedies provided under the Code; provided, however, that upon the
occurrence of an Event of Default specified in Sections 8.1(f), (g) or (h), the
Obligations shall become immediately due and payable and any obligation on
Lender's part to make any further Revolving Credit Advances or to incur any
further Letter of Credit Obligations shall immediately terminate, all without
declaration, notice or demand by Lender.
8.3 Cumulative Remedies. Lender's rights and remedies under
this Agreement shall be cumulative and nonexclusive of any other rights and
remedies which Lender may have under any other agreement, including without
limitation, the Loan Documents, by operation of law or otherwise. Recourse to
the Collateral shall not be required.
8.4 Waivers by Borrower. Except as otherwise provided for in
this Agreement and to the fullest extent permitted by Applicable Law, Borrower,
for itself and on behalf of each other Credit Party, waives (i) presentment,
demand and protest and notice of
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presentment, dishonor, notice of intent to accelerate, notice of acceleration,
protest, default, nonpayment, maturity, release, compromise, settlement,
extension or renewal of any or all commercial paper, accounts, contract rights,
documents, instruments, chattel paper and guaranties at any time held by Lender
on which Borrower or any other Credit Party may in any way be liable, (ii) all
rights to notice and a hearing prior to Lender's taking possession or control
of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond
or security which might be required by any court prior to allowing Lender to
exercise any of its remedies, and (iii) the benefit of all valuation, appraisal
and exemption laws. Borrower acknowledges that it has been advised by counsel of
its choice with respect to this Agreement, the other Loan Documents and the
transactions evidenced by this Agreement and the other Loan Documents.
ARTICLE 9.
MISCELLANEOUS
9.1 Complete Agreement; Modification of Agreement. The Loan
Documents constitute the complete agreement between the parties with respect to
the subject matter thereof, supersede all prior agreements, understandings or
inducements (whether express or implied, or oral or written), and may not be
modified, altered or amended except by an agreement in writing signed by
Borrower and Lender. Without limiting the generality of the immediately
preceding sentence, any letter of interest or commitment letter between Borrower
and Lender or any of its affiliates, predating this Agreement and relating to a
financing of substantially similar form, purpose or effect shall be merged with
and into and superseded by this Agreement.
9.2 Fees and Expenses. Borrower shall reimburse Lender for all
reasonable out-of-pocket expenses incurred in connection with (i) the
preparation, negotiation or consummation of the Loan Documents (including the
reasonable fees and expenses of all of its counsel, advisors, consultants and
auditors retained in connection with the Loan Documents and the transactions
contemplated thereby and advice in connection therewith) and (ii) wire transfers
to the account of Borrower. Borrower shall reimburse Lender for all reasonable
fees, costs and expenses, including, without limitation, the reasonable fees,
costs and expenses of counsel or other advisors (including environmental and
management consultants) for advice, assistance, or other representation in
connection with:
(i) the forwarding to Borrower or any other Person on behalf
of Borrower by Lender of the proceeds of the Revolving Credit
Advances;
(ii) any amendment, modification or waiver of, or consent with
respect to, any of the Loan Documents or advice in connection with
the administration of the loans made pursuant hereto or its rights
hereunder or thereunder;
(iii) any litigation, contest, dispute, suit, proceeding or
action
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(whether instituted by Lender, Borrower or any other Person) in any
way relating to the Collateral, any of the Loan Documents, any of
the Letters of Credit or Letter of Credit Obligations, or any other
agreement to be executed or delivered in connection therewith or
herewith, whether as party, witness, or otherwise, including any
litigation, contest, dispute, suit, case, proceeding or action, and
any appeal or review thereof, in connection with a case commenced
by or against Borrower or any other Person that may be obligated to
Lender by virtue of the Loan Documents;
(iv) any attempt to enforce any rights of Lender against
Borrower, any other Credit Party or any other Person that may be
obligated to Lender by virtue of any of the Loan Documents;
(v) any attempt to (A) monitor the Obligations, (B) evaluate,
observe, assess Borrower or its affairs, and (C) verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise
dispose of the Collateral;
including, without limitation, the reasonable attorneys' and other professional
and service providers' fees arising from such services, including those in
connection with any appellate proceedings; and all expenses, costs, charges and
other fees incurred by such counsel and others in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section 9.2 shall be payable, on demand, by Borrower to Lender; provided that,
so long as no Event of Default shall have occurred and be continuing, the
Borrower's obligation to reimburse Lender for fees and expenses incurred
pursuant to clause (v) above shall not exceed $15,000 per year. Without limiting
the generality of the foregoing, such expenses, costs, charges and fees may
include: reasonable fees, costs and expenses of accountants, environmental
advisors, appraisers, investment bankers, management and other consultants and
paralegals; court costs and expenses; photocopying and duplication expenses;
court report fees, costs and expenses; long distance telephone charges; air
express charges; telegram charges, secretarial overtime charges; and expenses
for travel, lodging and food paid or incurred in connection with the performance
of such legal or other advisory services (collectively, the "Transaction
Expenses").
9.3 Indemnity.
(a) Borrower shall indemnify and hold Lender and each of their
respective Affiliates, officers, directors, employees, attorneys and agents
(each, an "Indemnified Person"), harmless from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other reasonable
costs of investigation or defense, including those incurred upon any appeal)
that may be instituted or asserted against or incurred by such Indemnified
Person as the result of credit having been extended under this Agreement and the
other Loan Documents or in connection with or arising out of the transactions
contemplated hereunder and thereunder, including any claim, action, suit,
proceeding, loss, cost, damage, liability, deficiency, fine, penalty, punitive,
exemplary or consequential damage or expense (including reasonable
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attorneys' and consultants' fees, investigation and laboratory fees, court costs
and litigation expenses), directly or indirectly resulting from, arising out of,
or based upon (i) the presence, Release, use, manufacture, installation,
generation, discharge, storage or disposal, at any time, of any Hazardous
Materials on, under, in or about, or the transportation of any such materials to
or from, any of the Subject Property, or (ii) the violation or alleged violation
by any Credit Party of any law, statute, ordinance, order, rule, regulation,
permit, judgment or license relating to the use, generation, manufacture,
installation, Release, discharge, storage or disposal of Hazardous Materials to
or from any of the Subject Property; which indemnity shall include, without
limitation, (A) any damage, liability, fine, penalty, punitive, exemplary or
consequential damage, cost or expense arising from or out of any claim, action,
suit or proceeding for personal injury (including sickness, disease, death, pain
or suffering), tangible or intangible property damage, compensation for lost
wages, business income, profits or other economic loss, damage to the natural
resources or the environment, nuisance, pollution, contamination, leak, Release
or other adverse effect on the environment, and (B) the cost of any required or
necessary repair, cleanup, treatment, remediation or detoxification of any of
the Subject Property and the preparation and implementation of any closure,
disposal, remedial or other required actions in connection with any of the
Subject Property; provided, that Borrower shall not be liable for any
indemnification to such Indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or expense results solely
from such Indemnified Person's gross negligence or willful misconduct. NEITHER
LENDER NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY HERETO, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH
PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR
INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A
RESULT OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
(b) Borrower hereby acknowledges and agrees that Lender (i) is
not now, and has not ever been, in control of any of the Subject Property or the
affairs of Borrower, and (ii) does not have the capacity through the provisions
of the Loan Documents to influence Borrower's conduct with respect to the
ownership, operation or management of any of the Subject Property.
9.4 No Waiver. Lender's failure, at any time or times, to
require strict performance by Borrower or any other Credit Party of any
provision of this Agreement or any of the other Loan Documents shall not waive,
affect or diminish any right of Lender thereafter to demand strict compliance
and performance therewith. Any suspension or waiver of any Default under the
Loan Documents shall not suspend, waive or affect any other Default under this
Agreement or any of the other Loan Documents whether the same is prior or
subsequent thereto and whether of the same or of a different type. None of the
undertakings, agreements, warranties, covenants and representations of any
Credit Party contained in this Agreement or any of the other Loan Documents and
no Default by Borrower under this Agreement and no defaults by any Credit Party
under any of the other Loan Documents shall be deemed to have been suspended or
waived by Lender, unless such waiver or suspension is by an instrument in
writing signed by an officer of or other authorized
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employee of Lender and directed to Borrower specifying such suspension or
waiver.
9.5 Successors and Assigns. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of Borrower,
Lender, and their respective successors and assigns, except as otherwise
provided herein or therein. Borrower may not assign, transfer, hypothecate or
otherwise convey its rights, benefits, obligations or duties hereunder or under
any of the other Loan Documents without the prior express written consent of
Lender. Any such purported assignment, transfer, hypothecation or other
conveyance by Borrower without the prior express written consent of Lender shall
be void. The Lender may assign its rights and obligations hereunder to one or
more financial institutions with the consent of the Borrower, such consent not
to be unreasonably withheld or delayed. The terms and provisions of this
Agreement and the other Loan Documents are for the purpose of defining the
relative rights and obligations of Borrower and Lender with respect to the
transactions contemplated hereby and there shall be no third party beneficiaries
of any of the terms and provisions of this Agreement or any of the other Loan
Documents.
9.6 Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
9.7 Conflict of Terms. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of the
other Loan Documents, the provision contained in this Agreement shall govern and
control.
9.8 Authorized Signature; Oral Instructions. Until Lender
shall be notified by Borrower to the contrary, each of the Persons listed on
Schedule 9.8 (an "Authorized Borrower Representative") is authorized to act on
behalf of the Borrower in all respects hereunder and the Lender shall be
protected in all respect when acting in accordance with instructions given by
such Person. The signature upon any document or instrument delivered pursuant
hereto of any such Person shall bind Borrower and be deemed to be the act of
Borrower affixed pursuant to and in accordance with resolutions duly adopted by
Borrower's Board of Directors. The Lender has permitted telephonic instructions
hereunder as an accommodation to the Borrower. In exchange for such
accommodation, the Borrower agrees that the Lender's understanding of any oral
instruction shall be binding and conclusive upon the Borrower, notwithstanding
any divergence between such understanding and any later written confirmation
thereof, and the Lender shall in all respects be protected and held harmless
when acting in accordance with such understanding, it being the intention of the
parties that the Borrower assume all risks of the use of oral communication.
9.9 Governing Law. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN
ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING
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ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN THE CITY AND STATE OF NEW YORK, BOROUGH OF MANHATTAN, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND BORROWER ACKNOWLEDGE THAT
ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
THE CITY AND STATE OF NEW YORK, BOROUGH OF MANHATTAN AND, PROVIDED, FURTHER,
THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
COLLECT THE OBLIGATIONS, REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER
AND, PROVIDED, FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO
PRECLUDE THE BORROWER FROM PURSUING ANY COMPULSORY COUNTERCLAIM IN ANY
PROCEEDING BROUGHT BY THE LENDER IN ANY SUCH OTHER JURISDICTION. BORROWER
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION THAT
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH ON IN SECTION 9.10 OF THIS AGREEMENT AND THAT SERVICE SO MADE
SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF
OR FIVE (5) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
9.10 Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
either of the parties by the other party, or whenever either of the parties
desires to give or serve upon the other party any communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have
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been validly served, given or delivered (i) upon the earlier of actual receipt
and three days after deposit in the United States Mail, registered or certified
mail, return receipt requested, with proper postage prepaid, (ii) upon
transmission, when sent by telecopy or other similar facsimile transmission
(with such telecopy or facsimile promptly confirmed by delivery of a copy by
personal delivery or United States Mail as otherwise provided in this Section
9.10, (iii) one Business Day after deposit with a reputable overnight courier
with all charges prepaid or (iv) when delivered, if hand-delivered by messenger,
all of which shall be addressed to the party to be notified and sent to the
address or facsimile number indicated below:
(a) If to Lender:
General Electric Capital Corporation
350 South Beverly Drive
Suite 200
Beverly Hills, California 90212
Attention: Timothy J. Rafanello
Telecopy No.: (310) 785-0644
With copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Legal Counsel
Telecopy No.: (203) 316-7822
(b) If to Borrower, at:
Vodavi Communications Systems, Inc.
8300 East Raintree Drive
Scottsdale, Arizona 85260
Attention: Greg Roeper
Telecopy No.: (602) 483-0144
With copies to:
O'Connor, Cavanagh, Anderson, Killingsworth
& Beshears
One East Camelback Road
Suite 1100
Phoenix, AZ 85012-1656
Attention: Jeffrey H. Verbin, Esq.
Telecopy No.: (602) 263-2900
or to such other address (or facsimile number) as may be substituted by notice
given as herein
- -55-
<PAGE>
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to any Person (other than Borrower or Lender) designated above to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
9.11 Subordination. As an independent covenant, Borrower
hereby expressly covenants and agrees for the benefit of Lender that all present
or future indebtedness, obligations and liabilities of any other Credit Party to
Borrower of whatsoever description (collectively, the "Junior Claims") shall be
subordinate and junior in right of payment to all Obligations, effective upon
the occurrence and during the continuance of an Event of Default. If an Event of
Default shall occur, then, unless and until such Event of Default shall have
been cured or shall have ceased to exist, no direct or indirect payment (in
cash, property, securities, by set-off or otherwise) shall be made by any other
Credit Party to Borrower on account of or in any manner in respect of any Junior
Claim except such payments and distributions the proceeds of which shall be
applied to the Obligations. In the event of a Proceeding (as hereinafter
defined), all Obligations shall first be paid in full before any direct or
indirect payment or distribution (in cash, property, securities, by set-off or
otherwise) shall be made to Borrower on account of or in any manner in respect
of any Junior Claim except such payments and distributions the proceeds of which
shall be applied to the Obligations. For the purposes of the previous sentence,
a "Proceeding" shall occur if any Credit Party shall make an assignment for the
benefit of creditors, file a petition in bankruptcy, have entered against or in
favor of it an order for relief under the Bankruptcy Code or similar law of any
other jurisdiction, generally fail to pay its debts as they come due (either as
to number or amount), admit in writing its inability to pay its debts generally
as they mature, make a voluntary assignment for the benefit of creditors,
commence any proceeding relating to it under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or by any act, indicate its
consent to, approval of or acquiescence in any such proceeding or in the
appointment of any receiver of, or trustee or custodian (as defined in the
Bankruptcy Code) for itself, or any substantial part of its property, or a
trustee or a receiver shall be appointed for any Credit Party or for a
substantial part of the property of any Credit Party, or a petition under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute or any jurisdiction (whether now or hereafter in
effect) shall be filed against any Credit Party. In the event any direct or
indirect payment or distribution is made to Borrower in contravention of this
Section, such payment or distribution shall be deemed received in trust for the
benefit of Lender and shall be immediately paid over to Lender for application
against the Obligations. Borrower agrees to execute such additional documents as
Lender may reasonably request to evidence the subordination provided for in this
Section.
9.12 Survival of Obligations Upon Termination of Financing
Arrangement. Except as otherwise expressly provided for in the Loan Documents,
no termination or cancellation (regardless or cause or procedure) of any
financing arrangement under this Agreement shall in any way affect or impair the
obligations, duties and liabilities of
- -56-
<PAGE>
Borrower or the rights of Lender relating to any unpaid Obligation, due or not
due, liquidated, contingent or unliquidated or any transaction or event
occurring prior to such termination, or any transaction or event, the
performance of which is not required until after the Termination Date. Except as
otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations of or
binding upon Borrower, and all rights of Lender, all as contained in the Loan
Documents shall not terminate or expire, but rather shall survive such
termination or cancellation and shall continue in full force and effect until
such time as all of the Obligations have been indefeasibly paid in full in
accordance with the terms of the agreements creating such Obligations, provided,
however, that the Lender agrees to take such action as the Borrower shall
reasonably request, at the Borrower's cost and expense, to file such instruments
as shall be necessary to release its Liens under the Loan Documents upon
termination of the Commitment and receipt by the Lender of collected funds in
the amount of the outstanding Obligations.
9.13 Section Titles. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.
9.14 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which shall collectively and separately
constitute one agreement.
9.15 Time of Essence. Time is of the essence of this Agreement
and each of the other Loan Documents.
9.16 Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LENDER AND BORROWER ARISING
OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
9.17 Syndication. The Borrower agrees to take such steps as
the Lender shall reasonably request to assist Lender in the sale and/or
syndication of the credit provided herein to one or more other financial
institutions. Such steps may include, at the discretion,
- -57-
<PAGE>
of the Lender, the preparation and dissemination of financial and other
disclosure documents to prospective purchasers, discussions by management with
such Persons and such amendments to the Loan Documents as shall be required to
cause them to conform with customary syndicated bank documents.
9.18 Special Provision Relating to this Amendment and
Restatement.
(a) This Amended and Restated Credit Agreement shall be
effective upon receipt by the Lender of the following items which shall be in
form and substance satisfactory to the Lender in all respects:
(i) counterparts of this Agreement duly executed by the
Borrower and consented to by the Parent;
(ii) counterparts of the Guaranty Agreement duly executed by
each of ARS and ESI;
(iii) counterparts of the Security Agreements, duly executed
by each of ARS and ESI;
(iv) counterparts of an amendment to the Pledge Agreement,
duly executed by the Parent and pledging all of the outstanding
capital stock of ARS and ESI, together with irrevocable stock
powers executed in blank;
(v) an opinion of counsel to the Borrower, the Parent and the
other Credit Parties as to the due execution and enforceability of
this Agreement, the Guaranty Agreement, the Security Agreement, and
the Pledge Agreement, and covering such other matters as the Lender
may request;
(vi) a certificate of Borrower, the Parent and each other
Credit Party, as to the due authorization, execution and delivery
of this Agreement, the Guaranty Agreement, the Security Agreements
and the Pledge Agreement and the truth of the representations and
warranties hereunder and thereunder;
(vii) evidence that no Indebtedness (other than Permitted
Indebtedness) is outstanding, and that no Liens exist upon any of
the property of any Credit Party other than Permitted Encumbrances;
(viii) evidence that each Credit Party has obtained consents
and acknowledgments of all Persons whose consents and
acknowledgments may be required, including, but not limited to, all
requisite Governmental Authorities, to the terms, and to the
execution and delivery, of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated
hereby and thereby;
- -58-
<PAGE>
(ix) evidence that such action (including, without limitation,
the filing of appropriately completed and duly executed Uniform
Commercial Code financing statements) as may be necessary or
desirable, in the opinion of the Lender and its counsel, to perfect
the Security Interest shall have been taken;
(x) UCC, Lien, judgment and tax search reports for each
jurisdiction in which each Credit Party is located or has
Collateral, showing no Liens or financing statements of record
against any Credit Party, except Permitted Encumbrances, all in
form and substance satisfactory to the Lender;
(xi) evidence that the insurance policies provided for in
Section 6.5 and Schedule 4.20 are in full force and effect,
together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements, as appropriate, in
favor of the Lender and in form and substance satisfactory to the
Lender;
(xii) evidence that, as of the Restatement Date, and after
giving effect to the transactions contemplated hereby, each of
Borrower and the Parent Group, taken as a whole, is Solvent;
(xiii) evidence that, as of the Restatement Date, each Credit
Party is in compliance in all material respects with all Applicable
Law, including those relating to labor, environmental and ERISA
matters, which evidence may include environmental studies and
compliance audits of the Credit Parties, and their respective
assets;
(xiv) payment of all fees, expenses and amounts (including
Lender's attorney's fees) due to the Lender pursuant to the terms
hereof;
(xv) such other agreements, certificates, opinions of counsel
and other documents as the Lender shall request.
(b) This Amended and Restated Credit Agreement may be executed
in any number of counterparts, all of which shall be deemed to constitute but
one original and shall be binding upon all parties, their successors and
permitted assigns.
(c) References to the Original Agreement contained in any Loan
Document shall be deemed to be a reference to such agreement as amended and
restated hereby.
(d) Borrower hereby acknowledges that the Note and the
Collateral Documents previously executed and delivered by Borrower to Lender are
and shall remain in full force and effect, and hereby ratifies, confirms and
approves the Note and such Collateral Documents and all of the terms and
provisions thereof, and agrees that the Note and each of such Collateral
Documents constitutes the valid and binding obligation of Borrower, enforceable
by the Lender in accordance with its terms.
- -59-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
VODAVI COMMUNICATIONS
SYSTEMS, INC. (formerly V. Technology
Acquisition Corp.)
By: /s/ Greg Roeper
------------------------------------
Title: CFO, V.P.
---------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy Morris
------------------------------------
Title: Duly Authorized Signatory
---------------------------------
SECTION 9.11 OF THE FOREGOING
AGREEMENT ACKNOWLEDGED AND
AGREED TO:
ARIZONA REPAIR SERVICES, INC.
By: /s/ Greg Roeper
------------------------------------
Title: CFO, V.P.
---------------------------------
ENHANCED SYSTEMS, INC.
By: /s/ Greg Roeper
------------------------------------
Title: Secretary and Treasurer
---------------------------------
- -60-
<PAGE>
CONSENT OF PARENT
The undersigned does hereby consent to the execution, delivery
and performance of the within and foregoing Amended and Restated Credit
Agreement and to the consummation of all of the transactions contemplated
thereby and does hereby ratify and reaffirm all of its obligations to and
agreements with the Lender arising under the Pledge Agreement executed by the
undersigned in favor of the Lender in connection with the foregoing Amended and
Restated Credit Agreement, which Pledge Agreement remains in full force and
effect on and as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Consent
as of the day and year first above set forth.
VODAVI TECHNOLOGY, INC.
(formerly V. Technology Holdings Corp.)
By: /s/ Greg Roeper
------------------------------------
Title: CFO, V.P.
---------------------------------
- -61-
<PAGE>
SCHEDULE 2.1(g)
to
CREDIT AGREEMENT
Dated as of April 11, 1994
As Amended and Restated as of June 11, 1997
(a) Lender agrees, subject to the terms and conditions of the
Agreement, to incur from time to time prior to the Commitment Termination Date,
upon written request of Borrower, Letter of Credit Obligations in respect of
Letters of Credit; provided, however, that (i) Lender shall have no obligation
to incur any further Letter of Credit Obligations on or after the Commitment
Termination Date, (ii) each Letter of Credit shall be in form and substance
satisfactory to Lender and, without limiting the generality of the foregoing,
unless the Lender shall otherwise consent in writing, no Letter of Credit shall
have an expiry date which is more than one year following the date of issuance
thereof and Lender shall be under no obligation to incur Letter of Credit
Obligations in respect of any Letter of Credit having an expiry date which is
later than the Commitment Termination Date, which shall be presumed to be the
Maturity Date unless the Lender shall have given or received notice to the
contrary as permitted pursuant to the Credit Agreement, and (iii) the
determination of the bank or other legally authorized Person (including Lender)
which shall issue any Letter of Credit contemplated by this paragraph (a) shall
be made by Lender, in its sole discretion. Each request by Borrower for Lender
to incur a Letter of Credit Obligation shall be substantially in the form of
Exhibit A hereto, shall specify the amount of such Letter of Credit Obligation
and provide such other information with respect thereto as may be required by
Lender, shall be given in writing (by telecopy, telex or cable) or by telephone
confirmed immediately in writing, and shall be given not less than ten (10)
Business Days prior to the requested date for Lender's incurring such Letter of
Credit Obligation. Each Letter of Credit Obligation incurred by Lender shall be
substantially in the form of Exhibit B attached hereto or in such other form as
may be acceptable to Lender.
(b) Borrower hereby irrevocably, absolutely and unconditionally agrees
to reimburse Lender on demand for the amount of any and all payments now or
hereafter made by Lender on or pursuant to any Letter of Credit Obligations
incurred by Lender. In the event the Lender shall make any payment on or
pursuant to any Letter of Credit Obligation incurred by Lender, such payment
shall then be deemed to constitute a Revolving Credit Advance by Lender to
Borrower under Section 2.1(a) of the Credit Agreement.
(c) (i) In the event that any Letter of Credit Obligation incurred by
Lender, whether or not then due and payable, shall for any reason be outstanding
on the Commitment Termination Date, Borrower will pay to Lender cash or cash
equivalents acceptable to Lender ("Cash Equivalents") in an amount equal to 105%
of the maximum amount then available to be drawn under the applicable Letters of
Credit. Such funds or Cash Equivalents shall be held by Lender in a cash
collateral account (the "Cash Collateral Account") maintained in Bankers Trust
Company, New York, New York (or at such other depository institution as may be
selected by Lender). The Cash Collateral Account shall be in the name of Lender
(as a cash collateral account), and shall be under the sole dominion and control
of Lender and
<PAGE>
subject to the terms of this Schedule 2.1(g). Borrower hereby pledges, and
grants to Lender a security interest in, all such funds and Cash Equivalents
held in the Cash Collateral Account from time to time and all proceeds thereof,
as security for the payment of all amounts due in respect of the Letter of
Credit Obligations and all other Obligations, whether or not then due. The
Agreement shall constitute a security agreement under applicable law.
(ii) From time to time after funds are deposited in the Cash
Collateral Account, Lender may apply such funds or Cash Equivalents then held in
the Cash Collateral Account to the payment of any amounts, in such order as
Lender may elect, as shall be or shall become due and payable by Borrower to
Lender with respect to such Letter of Credit Obligations or any other
Obligations which may be then outstanding.
(iii) Neither Borrower nor any Person claiming on behalf of or through
Borrower shall have any right to withdraw any of the funds or Cash Equivalents
held in the Cash Collateral Account, except that upon the termination of all
Letter of Credit Obligations and the payment of all amounts payable by Borrower
to Lender in respect thereof and in respect of all other Obligations, any funds
remaining in the Cash Collateral Account in excess of the then remaining Letter
of Credit Obligations shall be returned to Borrower.
(iv) Lender shall not have any obligation to invest the funds in the
Cash Collateral Account or deposit such funds in any interest bearing account,
and interest and earnings thereon, if any, shall be the property of Lender.
(d) In the event that Lender shall incur any Letter of Credit Obligation
pursuant hereto at the request or on behalf of Borrower, Borrower agrees to pay
to Lender, as compensation to Lender for such Letter of Obligation, (i) all
costs and expenses incurred by Lender on account of such Letter of Credit
Obligation and (ii) commencing with the month in which such Letter of Credit
Obligation is incurred by Lender and monthly thereafter for each month during
which such Letter of Credit Obligation shall remain outstanding, a fee in an
amount equal to two percent (2%) per annum of the maximum amount available from
time to time to be drawn under the applicable Letter of Credit, calculated on
the basis of a 360-day year and the actual number of days elapsed; provided,
however, that so long as any Default or Event of Default has occurred and is
continuing, such letter of credit fee rate may be increased by Lender, in its
discretion, by up to an additional two percentage points (2.0%) above the rate
otherwise applicable. Fees payable by Borrower to Lender hereunder in respect of
Letter of Credit Obligations (collectively, the "Letter of Credit Fees") shall
be paid to Lender in arrears, on the first day of each month and on the
Commitment Termination Date and thereafter on demand. The fees, costs and
expenses provided for in this paragraph (d) are in addition to any fees, costs
and expenses payable to the issuers of the Letters of Credit, all of which shall
be solely for the account of Borrower and shall be paid or reimbursed by
Borrower.
(e) Borrower's Obligations to Lender with respect to any Letter of Credit
or Letter of Credit Obligation shall be evidenced by Lender's records and, in
the absence of manifest error, shall be absolute, unconditional and irrevocable
and shall not be affected, modified or
-2-
<PAGE>
impaired by: (i) any lack of validity or enforceability of the transactions
contemplated by or related to such Letter of Credit or Letter of Credit
Obligation; (ii) any amendment or waiver of or consent to depart from all or any
of the terms of the transactions contemplated by or related to such Letter of
Credit or Letter of Credit Obligation; (iii) the existence of any claim,
set-off, defense or other right which Borrower or any other Credit Party may
have against Lender, the issuer or beneficiary of such Letter of Credit, or any
other Person, whether in connection with the Agreement or the transactions
contemplated therein or such Letter of Credit or the transactions contemplated
thereby or any unrelated transactions, provided however that this provision
shall not be deemed to prevent Borrower from pursuing any claim it may have
against Lender or the issuer of any Letter of Credit by separate proceeding
following the payment of any such Obligation or from pursuing any compulsory
counterclaim in any civil action filed in respect thereof; or (iv) the fact that
any draft, affidavit, letter, certificate, invoice, bill of lading or other
document presented under or delivered in connection with such Letter of Credit
or any other Letter of Credit proves to have been forged, fraudulent, invalid or
insufficient in any respect or any statement therein proves to have been untrue
or incorrect in any respect. Nothing in this paragraph (e) shall be deemed to
create any right in any Person other than the Lender.
(f) In addition to any other indemnity obligations which Borrower may have
to Lender under the Agreement and without limiting such other indemnification
provisions, Borrower hereby agrees to indemnify Lender from and to hold Lender
harmless against any and all claims, liabilities, losses, costs and expenses
(including, without limitation, attorney's fees and expenses) which Lender may
(other than as a result of its own gross negligence or willful misconduct) incur
or be subject to as a consequence, directly or indirectly, of (i) the issuance
of or payment of or failure to pay under any Letter of Credit or Letter of
Credit Obligation or (ii) any suit, investigation or proceeding as to which
Lender is or may become a party as a consequence, directly or indirectly, of the
issuance of any Letter of Credit, the incurring of any Letter of Credit
Obligation or any payment of or failure to pay under any Letter of Credit or
Letter of Credit Obligation. The obligations of Borrower under this paragraph
shall survive any termination of the Agreement.
(g) Borrower hereby assumes all risks of the acts, omissions or misuse of
each Letter of Credit by the beneficiary or issuer thereof and, in connection
therewith, Lender shall not be responsible (i) for the validity, sufficiency,
genuineness or legal effect of any document submitted in connection with any
drawing under any Letter of Credit even if it should in fact prove in any
respect to be invalid, insufficient, inaccurate, untrue, fraudulent or forged;
(ii) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or any rights or
benefits thereunder or any proceeds thereof, in whole or in part, even if it
should prove to be invalid or ineffective for any reason; (iii) for the failure
of any issuer or beneficiary of any Letter of Credit to comply fully with the
terms thereof including without limitation the conditions required in order to
effect or pay a drawing thereunder; (iv) for any errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
telecopy, telex or otherwise; (v) for any loss or delay in the transmission or
otherwise of any document or draft required in order to make a drawing under any
Letter of Credit; or (vi) for any consequences arising from causes beyond the
-3-
<PAGE>
control of Lender.
-4-
<PAGE>
EXHIBIT A
to
SCHEDULE 2.1(g)
Letter of Credit Request
TO: General Electric Capital Corporation
Stamford, Connecticut
Attn: Deanna Garisto
Fax: (203) 316-7817
Gentlemen:
The undersigned is an officer of VODAVI COMMUNICATIONS SYSTEMS, INC., an
Arizona corporation ("Borrower"), and is authorized to make and deliver this
Letter of Credit Request on behalf of Borrower pursuant to that certain Amended
and Restated Credit Agreement, dated as of April 11, 1994, and amended and
restated as of June 11, 1997, between Borrower and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation ("Lender") (as amended, supplemented,
extended, renewed, restated or replaced from time to time, the "Credit
Agreement"; all terms defined in the Credit Agreement shall have the same
meaning herein).
A. LETTER OF CREDIT REQUEST
------------------------
Borrower hereby requests that Lender incur a Letter of Credit Obligation
(the "Requested Letter of Credit Obligation") pursuant to and this request has
been prepared in accordance with Schedule 2.1(g) to Credit Agreement.
Stated Amount $_____________________
Request Date _____________________
Issuing Date _____________________
Expiration Date _____________________
Beneficiary _____________________
B. CREDIT BALANCE/COLLATERAL AVAILABILITY INFORMATION.
---------------------------------------------------
Revolver and Letter of Credit Balance
Before Requested Letter of Credit Obligation $________
PLUS: Requested Letter of Credit Obligation ________
LESS: Today's Deposit Sweep, if any ________
PLUS/MINUS: Miscellaneous Adjustments ________ (explain below)
Outstanding Loan Balance ________
A-1
<PAGE>
Miscellaneous Reconciling Items:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
C. BORROWER CERTIFICATIONS.
-----------------------
In connection with the foregoing and pursuant to the terms and
provisions of the Credit Agreement, the undersigned hereby certifies that the
following statements are true and correct:
(i) The statements contained in Section 3.1 of the Credit Agreement
are true and correct on and as of the date hereof and will be true and
correct on the date of the incurrence of the requested Letter of Credit
Obligation, both before and after giving effect to the incurrence
thereof with the same force and effect as if made on and as of such
date; and
(ii) All information supplied above is true, correct, and complete
as of the date hereof.
Borrower shall provide Lender with such other information or documents
regarding the above requested Letter of Credit Obligation as Lender may request.
Date: ________________, 19__.
VODAVI COMMUNICATIONS
SYSTEMS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
A-2
<PAGE>
EXHIBIT B
to
SCHEDULE 2.1(g)
FORM OF LETTER OF CREDIT INDEMNITY AGREEMENT
--------------------------------------------
________________, 19___
[Insert Name and Address of
Letter of Credit Issuing Bank]
Re: Vodavi Communications Systems Inc. (the "Company")
--------------------------------------------------
Gentlemen:
We understand that, pursuant to a ______________ Agreement, dated
___________________, 19___, between you and the Company (the "Letter of Credit
Agreement"), you issued for the account of the Company and for the benefit of
______________ (the "Beneficiary") your irrevocable letter of credit number
______________, dated ____________, 19__, in the original stated amount of
$______________ (the "Letter of Credit"). We further understand that the maximum
amount available to be drawn by the Beneficiary under the Letter of Credit from
and after this date is $_______________. The Letter of Credit, the Letter of
Credit Agreement and any drafts presently thereunder are hereinafter
collectively referred to as the "Credit".
The Company has entered into a Credit Agreement with us. Pursuant
to the Company's request, we hereby agree to indemnify you for any liabilities
or expenses you may incur in connection with the Credit and we hereby agree to
reimburse you on demand for all amounts paid by or charged to you with respect
to the Credit including without limitation the amount of any and all drafts
which you may hereafter pay under the Credit.
You are authorized and empowered, and you hereby agree, without
requirement of inquiry or investigation and with complete release and discharge
to you, to surrender to us, at our direction, the Credit, upon payment to you of
the amount of any and all drafts paid by or charged to you in connection with
the Credit. It is further understood and agreed that you shall not accept,
permit or effect any amendments, restatements or extensions of the Credit
without our prior written consent.
If the foregoing is acceptable to you and is in accordance with
your understanding, please sign and return to us the enclosed copy of this
letter to so indicate. The Company has signed below to indicate its agreement
with the foregoing and its intention to be bound by the conditions hereof. The
Company and us further acknowledge and agree that
B-1
<PAGE>
this Letter shall constitute a Letter of Credit Obligation for purposes of (and
as such term is defined in) the Credit Agreement between the Company and us.
Very truly yours,
GENERAL ELECTRIC CAPITAL
CORPORATION
By:_____________________________________
Title:_______________________________
ACCEPTED:
[Insert name of Issuing Bank]
By:_______________________________
Title:________________________
CONFIRMED AND AGREED TO:
VODAVI COMMUNICATIONS SYSTEMS,
INC.
By:_______________________________
Title:________________________
B-2
FIRST AMENDMENT TO
STOCK PLEDGE AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO STOCK PLEDGE AND SECURITY AGREEMENT (this
"Amendment") is made as of the 11th day of June, 1997, by and between VODAVI
TECHNOLOGY, INC., a Delaware corporation formerly known as V Technology Holdings
Corp. (the "Pledgor"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation (the "Lender").
Statement of Facts
------------------
WHEREAS, Vodavi Communications Systems, Inc., an Arizona
corporation formerly known as V Technology Acquisition Corp. (the "Borrower"),
and the Lender are parties to that certain Amended and Restated Credit
Agreement, dated as of April 11, 1994, as amended and restated effective as of
June 11, 1997 (as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "Credit Agreement"; capitalized terms used
herein and not otherwise defined herein are used as therein defined), pursuant
to which the Lender has committed to make a certain Revolving Credit Loan
available to the Borrower; and
WHEREAS, it is condition under the Credit Agreement that the
Pledgor pledge and grant a security interest in and to all of the outstanding
shares of capital stock of Arizona Repair Services, Inc., an Arizona
corporation, and Enhanced Systems, Inc., an Arizona corporation (collectively,
the "Additional Pledged Subsidiaries"); and
WHEREAS, in order to satisfy the above referenced condition, the
Pledgor and the Lender desire to modify in certain respects that certain Stock
Pledge and Security Agreement, dated as of April 11, 1994, between the Pledgor
and the Lender (the "Pledge Agreement"), all in accordance with and subject to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Pledgor and the
Lender do hereby agree as follows:
Statement of Terms
------------------
1. Amendment to Pledge Agreement. Subject to the terms and
conditions of this Amendment, the Pledge Agreement is hereby amended to provide
for the pledge by the Pledgor to the Lender of all of the outstanding stock of
the Additional Pledged Subsidiaries, as follows:
<PAGE>
(a) As used herein, the term "Additional Pledged Stock" shall mean
100% of the shares of the outstanding stock of each of the Additional Pledged
Subsidiaries, which stock is described on Schedule 1 attached hereto and which
includes all stock of each of the Additional Pledged Subsidiaries of any class
that the Pledgor may now or hereafter own, control or hold.
(b) The Pledgor represents and warrants that on the date hereof (a)
the Additional Pledged Stock consists of the stock of the each of the Additional
Pledged Subsidiaries as described in Schedule 1 attached hereto, (b) the Pledgor
is the holder of record and sole beneficial owner of such Additional Pledged
Stock, (c) the Additional Pledged Stock constitutes 100% of the issued and
outstanding stock of each of the Additional Pledged Subsidiaries, and (d) each
of the Additional Pledged Subsidiaries has (i) only one class of authorized,
issued or outstanding common stock and (ii) only one class of authorized
preferred stock, none of which has been issued or is outstanding.
(c) To further secure the Secured Obligations and for the purposes
set forth in Section 1 of the Pledge Agreement, the Pledgor hereby pledges to
the Lender the Additional Pledged Stock, together with (i) subject to the rights
of the Pledgor set forth in Section 5 of the Pledge Agreement, all dividends
(whether in cash, stock, warrants, options, or other securities), cash,
instruments or other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Additional Pledged Stock, and (ii) all cash and non-cash proceeds of the
foregoing; and hereby assigns, transfers, hypothecates and sets over to the
Lender all of the Pledgor's right, title and interest in and to the Additional
Pledged Stock (and in and to the certificates or instruments evidencing the
items described in clauses (i), and (ii) above) to be held by the Lender, upon
the terms and conditions set forth in the Pledge Agreement. The Pledgor agrees
to deliver to the Lender on the date hereof the certificates representing the
Additional Pledged Stock accompanied by undated stock powers duly executed in
blank by the Pledgor and all certificates and instruments evidencing the items
described in clauses (i) and (ii) above promptly upon the Pledgor's receipt
thereof.
(d) The Pledged Stock and all items described in subsection (c)
above are hereinafter called the "Additional Pledged Securities," and the
Additional Pledged Securities, together with all other securities and moneys
received and at the time held by the Lender hereunder and any cash or non-cash
proceeds of any of the foregoing, are hereinafter called the "Additional
Collateral." For all purposes of the Pledge Agreement, the term "Pledged
Securities" shall mean and include the Pledged Securities of the Borrower
initially pledged thereunder and the Additional Pledged Securities, and the term
"Collateral" shall mean and include the Collateral initially pledged thereunder
and the Additional Collateral.
2. Subordination. As an independent covenant, the Pledgor hereby
expressly covenants and agrees for the benefit of the Lender that all present or
future indebtedness, obligations and liabilities of any other Credit Party to
the Pledgor of whatsoever description (collectively, the "Junior Claims") shall
be subordinate and junior in right of payment to all Obligations, effective upon
the occurrence and during the continuance of an Event of Default. If an Event of
Default shall occur, then, unless and until such Event of Default shall have
been cured or shall have ceased to exist, no direct or indirect payment (in
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<PAGE>
cash, property, securities, by set-off or otherwise) shall be made by any other
Credit Party to the Pledgor on account of or in any manner in respect of any
Junior Claim except such payments and distributions the proceeds of which shall
be applied to the Obligations. In the event of a Proceeding (as hereinafter
defined), all Obligations shall first be paid in full before any direct or
indirect payment or distribution (in cash, property, securities, by set-off or
otherwise) shall be made to the Pledgor on account of or in any manner in
respect of any Junior Claim except such payments and distributions the proceeds
of which shall be applied to the Obligations. For the purposes of the previous
sentence, a "Proceeding" shall occur if any Credit Party shall make an
assignment for the benefit of creditors, file a petition in bankruptcy, have
entered against or in favor of it an order for relief under the Bankruptcy Code
or similar law of any other jurisdiction, generally fail to pay its debts as
they come due (either as to number or amount), admit in writing its inability to
pay its debts generally as they mature, make a voluntary assignment for the
benefit of creditors, commence any proceeding relating to it under any
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect, or by
any act, indicate its consent to, approval of or acquiescence in any such
proceeding or in the appointment of any receiver of, or trustee or custodian (as
defined in the Bankruptcy Code) for itself, or any substantial part of its
property, or a trustee or a receiver shall be appointed for any Credit Party or
for a substantial part of the property of any Credit Party, or a petition under
any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution
or liquidation law or statute or any jurisdiction (whether now or hereafter in
effect) shall be filed against any Credit Party. In the event any direct or
indirect payment or distribution is made to the Pledgor in contravention of this
Section, such payment or distribution shall be deemed received in trust for the
benefit of the Lender and shall be immediately paid over to the Lender for
application against the Obligations. The Pledgor agrees to execute such
additional documents as the Lender may reasonably request to evidence the
subordination provided for in this Section.
3. No Other Amendments. Except for the amendments expressly set
forth and referred to above, the Pledge Agreement shall remain unchanged and in
full force and effect. Nothing in this Amendment is intended, or shall be
construed, to constitute a novation or an accord and satisfaction of any of the
Pledgor's obligations under or in connection with the Pledge Agreement or any
other Loan Document or to modify, affect or impair the perfection or continuity
of the Lender's security interests in, security titles to or other liens on any
Collateral for the Obligations.
4. Representations and Warranties. To induce Lender to enter into
this Amendment, the Pledgor does hereby warrant, represent and covenant to
Lender that: (a) each representation or warranty of the Pledgor set forth in the
Pledge Agreement, as amended by this Amendment, is hereby restated and
reaffirmed as true and correct in all material respects on and as of the date
hereof (except to the extent that any such representation or warranty expressly
relates to a prior specific date or period), and no Default or Event of Default
has occurred and is continuing as of this date as defined under the Credit
Agreement; and (b) the Pledgor has the power and is duly authorized to enter
into, deliver and perform this Amendment, and this Amendment is the legal, valid
and binding obligation of the Pledgor enforceable against it in accordance with
its terms except to the extent that such enforceability may be effected by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
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<PAGE>
affecting the rights and remedies of creditors generally, and general principles
of equity.
5. Covenants. The Pledgor shall deliver to the Lender upon
execution of this Amendment, the share certificates representing the shares of
issued and outstanding capital stock of each of the Additional Pledged
Subsidiaries pledged hereunder, together with an irrevocable stock transfer
power covering such shares.
6. Counterparts. This Amendment may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
when taken together shall constitute one and the same instrument.
7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE.
8. Binding Effect. This Amendment shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered as of the day and year specified at the
beginning hereof.
VODAVI TECHNOLOGY, INC.
By: /s/ Greg Roeper
------------------------------------
Title: CFO & V.P.
---------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy Morris
------------------------------------
Title: Duly Authorized Signatory
---------------------------------
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SCHEDULE 1
Pledged Stock
-------------
Number and Percentage
Name of Corporation Class of Shares Shares of Such Class
- ------------------- --------------- --------------------
Arizona Repair Services, Inc. 5000 Common 100%
Enhanced Systems, Inc. 5000 Common 100%
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of June 11, 1997, made by ENHANCED
SYSTEMS, INC., an Arizona corporation, having its chief executive office at 8300
East Raintree Drive, Scottsdale, Arizona 85260 ("Debtor"), in favor of GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation having an office at 1999
Avenue of the Stars, 30th Floor, Los Angeles, California 90067 ("Lender").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement dated as of April 11, 1994, by and among Vodavi Communications
Systems, Inc., an Arizona corporation formerly known as V Technology Acquisition
Corp. ("Borrower") and Lender, as amended and restated as of June 11, 1997 (as
the same from time to time may be amended, restated, supplemented or otherwise
modified, the "Credit Agreement"), Lender has agreed, among other things, to
make a certain Revolving Credit Loan (as defined in the Credit Agreement)
available to Borrower; and
WHEREAS, pursuant to that certain Guaranty Agreement, dated as of
June 11, 1997, executed by Debtor and Arizona Repair Services, Inc. in favor of
Lender (the "Guaranty Agreement"), Debtor has guaranteed the payment and
performance by Borrower of all obligations of Borrower arising under the Credit
Agreement (including without limitation payment of the Revolving Credit Loan);
and
WHEREAS, Lender is willing to make the Revolving Credit Loan and
any other extension of credit provided for in the Credit Agreement available to
Borrower, but only upon the condition, among others, that Debtor shall have
executed and delivered this Security Agreement in favor of Lender; and
NOW, THEREFORE, in consideration of the premises and the Lender's
commitment to make the Revolving Credit Loan available to Borrower, the parties
hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized
terms defined in the Credit Agreement are used herein as therein defined.
2. GRANT OF SECURITY INTEREST.
a. To secure the prompt and complete payment, performance and
observance of all of the obligations, indebtedness and liabilities of Debtor
under the Guaranty Agreement (collectively, the "Secured Obligations"), and to
induce Lender to enter into the Credit Agreement, to issue the Commitment and to
make the Revolving Credit Loan and any other extensions of credit provided for
therein available to Borrower in accordance with the respective terms thereof,
Debtor hereby grants to Lender a security interest in all of Debtor's right,
title and interest in, to and under the following whether now owned by or owing
to, or hereafter acquired by or arising in favor of Debtor (including, without
limitation, under any trade names, styles or
<PAGE>
divisions thereof), and regardless of where located (all of which being
hereinafter collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Inventory;
(ix) all other money, cash or cash equivalents of Debtor;
(x) all books and records (including without limitation
credit files, customer lists, computer files, computer programs,
computer printouts, or other computer material) of Debtor
identifying, evidencing or otherwise pertaining to any of the
Collateral described above; and
(xi) all Proceeds of any of the Collateral described above.
b. In addition, to secure the prompt and complete payment,
performance and observance of the Secured Obligations and in order to induce
Lender as aforesaid, Debtor hereby grants to Lender, a security interest in all
property of Debtor held by Lender, including, without limitation, all property
of every description, now or hereafter in the possession or custody of or in
transit to Lender for any purpose, including safekeeping, collection or pledge,
for the account of Debtor, or as to which Debtor may have any right or power.
3. LENDER'S RIGHTS; LIMITATIONS ON LENDER'S SECURED
OBLIGATIONS.
a. It is expressly agreed by Debtor that, anything herein to the
contrary notwithstanding, Debtor shall remain liable under each of its Contracts
and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Lender shall have
no obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting herein of a security interest
therein or the receipt by Lender of any payment relating to any Contract or
License pursuant hereto, nor shall Lender be required or obligated in any manner
to perform or fulfill any of the obligations of Debtor under or pursuant to any
Contract or License, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the
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<PAGE>
sufficiency of any performance by any party under any Contract or License, or to
present or file any claims, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
b. Lender may at any time after the occurrence and during the
continuation of an Event of Default and upon 24 hours prior notice to Debtor,
notify Account Debtors, parties to the Contracts, and obligors in respect of
Instruments, that the Accounts and the right, title and interest of Debtor in
and under such Contracts and Instruments have been assigned to Lender and that
payments shall be made directly to Lender, and upon the request of Lender,
Debtor shall so notify Account Debtors, parties to Contracts, and obligors in
respect of Instruments. Lender may at any time after the occurrence and during
the continuation of an Event of Default and upon notice to the Debtor (which may
be simultaneous with notice to Obligors on chattel paper) notify obligors in
respect of Chattel Paper that the right, title and interest of Debtor in and
under such Chattel Paper have been assigned to Lender and that payments shall be
made directly to Lender.
c. Lender at any time after the occurrence and during the
continuation of an Event of Default shall have the right to make test
verifications of the Accounts and verifications and appraisals of the other
Collateral in any manner and through any medium that it reasonably considers
advisable, and Debtor agrees to furnish all such assistance and information as
Lender may reasonably require in connection therewith. Lender may at any time
after the occurrence and during the continuation of an Event of Default, in
Lender's own name or in the name of Debtor, communicate with Account Debtors,
parties to Contracts, obligors in respect of Instruments and obligors in respect
of Chattel Paper to verify with such Persons, to Lender's satisfaction, the
existence, amount and terms of any such Accounts, Contracts, Instruments or
Chattel Paper. Upon the occurrence and continuation of an Event of Default,
Debtor, at its own expense, shall cause the certified public accountant then
engaged by Debtor, to prepare and deliver to Lender at any time and from time to
time promptly upon Lender's request the following reports: (i) a reconciliation
of all Accounts, (ii) an aging of all Accounts, (iii) trial balances, and (iv) a
test verification of such Accounts as Lender reasonably may request.
4. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants that:
a. Except for the security interest granted to Lender under this
Security Agreement, and the Liens set forth on Schedule 7.6 to the Credit
Agreement and Permitted Exceptions, Debtor is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto free and clear of any and all liens, security
interests or other encumbrances.
b. No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except as may be
set forth on Schedule 7.6 to the Credit Agreement or such as may have been filed
by Debtor in favor of Lender pursuant to this Security Agreement.
c. As a result of the filing of appropriate financing statements in
the filing offices listed on Schedule I hereto, this Security Agreement is
effective to create a valid and
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<PAGE>
continuing lien on and perfected security interest in favor of Lender in the
Collateral with respect to which a security interest may be perfected by filing
pursuant to the UCC, which lien and security interest is prior to all other
Liens, except only for Liens specifically designated on Schedule 7.6 as being
prior to Lender's Liens and Permitted Prior Exceptions, and is enforceable as
such as against creditors of and purchasers from Debtor (other than purchasers
of Inventory in the ordinary course of business). All action necessary or
desirable to protect and perfect such security interest in each item of the
Collateral has been duly taken.
d. Schedule II hereto lists all Instruments of Debtor. All action
necessary or desirable to protect and perfect the security interest of Lender in
each item set forth on Schedule II, including the delivery of all originals
thereof to Lender, has been duly taken. The security interest of Lender in the
Collateral listed on Schedule II hereto is prior to all other Liens except those
Liens specifically designated on Schedule 7.6 as being prior to Lender's Liens
and Permitted Prior Exceptions and is enforceable as such against creditors of
and purchasers from Debtor.
e. Debtor's chief executive office, principal place of business,
corporate offices, all warehouses and premises within which Collateral is stored
and located and the locations of all of its records concerning the Collateral
are set forth on the Credit Party Questionnaire completed by Debtor and
delivered to Lender, and Debtor shall not change its chief executive office,
principal place of business, corporate offices or Collateral locations, or
remove such records unless it shall have notified the Lender in writing at least
30 days prior to such change and shall have taken such action as the Lender
deems reasonably necessary to cause the Lien of Lender in the Collateral to
continue to be perfected.
f. During the five (5) year period preceding the date of this
Agreement, Debtor has not been known as or used and Debtor presently does not
use any corporate name other than its name as set forth in its signature below
and those other corporate, fictitious or trade names (if any) of Debtor as
disclosed on the Credit Party Questionnaire completed by Debtor and delivered to
Lender. If such schedule sets forth any fictitious or trade names for Debtor
(collectively, the "Trade Names"), Debtor represents and warrants to and agrees
with Lender that: (i) any Collateral arising out of any sales under any of the
Trade Names is the property of and belongs to Debtor, (ii) each of the Trade
Names is a trade name or trade style (and not an independent or separate
corporation or other legal entity) by which Debtor may identify or market itself
or under which Debtor may sell certain products, render certain services or
otherwise conduct some or all of its business, (iii) any Collateral which arises
from any sales made, services rendered or other business conducted under any of
the Trade Names shall be owned solely by Debtor, and (iv) Debtor hereby appoints
Lender to be its attorney-in-fact to file such certificates disclosing Debtor's
use of the Trade Names and to take such other actions on Debtor's behalf as
Lender reasonably considers appropriate to comply with any statutes or
regulations relating to the use of fictitious or assumed business names.
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<PAGE>
g. (i) The Accounts represent bona fide sales of Inventory or
services rendered by Debtor in the ordinary course of Debtor's business
completed in accordance with the terms and provisions contained in the documents
available to Lender with respect thereto and are not evidenced by a judgment,
Instrument or Chattel Paper, (ii) the amounts shown on any Borrowing Base
Certificate, summary or schedules of Account or any aged receivables trial
balance delivered by Debtor to Lender pursuant to the terms of this Security
Agreement or the Credit Agreement and on Debtor's books and records and all
invoices and statements which may be delivered to the Lender with respect
thereto are actually and absolutely owing to Debtor and are not in any way
contingent, (iii) to the best of Debtor's knowledge, there are no set-offs,
claims or disputes existing or asserted with respect thereto and Debtor has not
made any agreement with any Account Debtor for any deduction therefrom except a
discount or allowance allowed by Debtor in the ordinary course of its business
for prompt payment, (iv) to the best of Debtor's knowledge, there are no facts,
events or occurrences that in any way impair the validity or enforcement thereof
or tend to reduce the amount payable thereunder as shown on the respective aged
receivable trial balances, Debtor's books and records and all invoices and
statements delivered to Lender with respect thereto, (v) to the best of Debtor's
knowledge, all Account Debtors have the capacity to contract, (vi) Debtor has
received no notice of proceedings or actions which are threatened or pending
against any Account Debtor which might result in any material adverse change in
such Account Debtor's financial condition and (vii) Debtor has no knowledge that
any Account Debtor is unable generally to pay its debts as they become due.
h. With respect to all Inventory and Equipment, (i) such property
is located at one of the locations set forth on the Credit Party Questionnaire
completed by Debtor and delivered to Lender, (ii) Debtor has good and
merchantable title to such property and such property is not subject to any lien
or security interest or document whatsoever except for the security interest
granted to Lender hereunder and any set forth on Schedule 7.6 to the Credit
Agreement and Permitted Exceptions, (iii) such property is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with
any third parties except as described on Schedule III, which agreements will not
materially interfere with the sale or use of the Collateral by the Lender, (iv)
with respect to Inventory, such property is of good and merchantable quality,
(v) with respect to Inventory, such property is free from material defects, and
(vi) with respect to the Inventory, the completion of manufacture, sale or other
disposition of such property by Lender following an Event of Default shall not
require the consent of any Person and shall not constitute a breach or default
under any contract or agreement to which Debtor is a party or to which such
property is subject.
5. COVENANTS. Debtor covenants and agrees with Lender that from and
after the date of this Security Agreement and until the Termination Date:
a. Further Assurances; Pledge of Instruments. At any time and from
time to time, upon the written request of Lender and at the sole expense of
Debtor, Debtor shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Lender may
reasonably deem desirable to obtain the full benefits of this Security Agreement
and of the rights and powers herein granted, including (i) using its best
efforts to secure all consents and approvals necessary or appropriate for the
assignment to or for the benefit of Lender of any License or Contract held by
Debtor or in which Debtor has any
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<PAGE>
rights not heretofore assigned, (ii) filing any financing or continuation
statements under the UCC with respect to the liens and security interests
granted hereunder or under any other Loan Document, (iii) transferring
Collateral to Lender's possession (if such Collateral consists of Chattel Paper
or if a security interest in such Collateral can be perfected only by
possession, or, if requested by Lender), and (iv) using its best efforts to
obtain waivers of liens from landlords and mortgagees. Debtor also hereby
authorizes Lender to file any such financing or continuation statement without
the signature of Debtor to the extent permitted by applicable law. If any amount
payable under or in connection with any of the Collateral is or shall become
evidenced by any Instrument, such Instrument, other than checks received in the
ordinary course of business (which shall be deposited to a Collection Account),
shall be duly endorsed in a manner satisfactory to Lender immediately upon
Debtor's receipt thereof and delivered to Lender.
b. Maintenance of Records. Debtor shall keep and maintain, at its
own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Debtor shall mark its books and records pertaining to the Collateral
to evidence this Security Agreement and the security interests granted hereby.
All Chattel Paper shall be marked with the following legend: "This writing and
the obligations evidenced or secured hereby are subject to the security interest
of General Electric Capital Corporation". For Lender's further security, Debtor
agrees that Lender shall have a special property right and security interest in
all of Debtor's books and records pertaining to the Collateral and, upon the
occurrence and during the continuation of any Event of Default, Debtor shall
deliver and turn over any such books and records to Lender or to its
representatives at any time on demand of Lender; provided, that the Lender will
provide the Debtor with copies of such books and records at Debtor's request and
expense. Prior to the occurrence of an Event of Default and upon reasonable
notice from Lender, Debtor shall permit any representative of Lender to inspect
such books and records and shall provide photocopies thereof to Lender as more
specifically set forth in Section 5(g) below.
c. Indemnification. In any suit, proceeding or action brought by
Lender relating to any Account, Chattel Paper, Contract, General Intangible,
Instrument or Document for any sum owing thereunder, or to enforce any provision
of any Account, Chattel Paper, Contract, General Intangible, Instrument, or
Document, Debtor shall save, indemnify and keep Lender harmless from and against
all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder arising out of a breach by Debtor of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to, or in favor of, such obligor or its successors from Debtor, and all such
obligations of Debtor shall be and remain enforceable against, and only against,
Debtor and shall not be enforceable against Lender; provided, however, that
Debtor shall not be required to indemnify Lender with respect to any such
expense, loss or damage suffered by Lender as a result of its gross negligence
or willful misconduct in collecting any sum owing under any Account, Chattel
Paper, Contract, General Intangible, Instrument or Document.
d. Compliance with Terms of Accounts, etc. In all material
respects, Debtor shall perform and comply with all obligations in respect of
Accounts, Chattel Paper, Contracts, Licenses, Instruments and Documents, and all
other agreements to which it is a party or by which it or any of its property is
bound.
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<PAGE>
e. Limitation on Liens on Collateral. Debtor shall not create,
permit or suffer to exist, and shall defend the Collateral against and take such
other action as is necessary to remove, any Lien on the Collateral except as
otherwise permitted pursuant to Section 7.6 of the Credit Agreement and except
for Permitted Exceptions. Debtor shall further defend the right, title and
interest of Lender in and to any of Debtor's rights under the Accounts, Chattel
Paper, Contracts, Documents, General Intangibles and Instruments and to the
Inventory, and in and to the Proceeds thereof, against the Liens, claims and
demands of all Persons whomsoever.
f. Limitations on Modifications of Accounts. Subject to the terms
of the Credit Agreement, upon the occurrence and during the continuation of any
Event of Default, Debtor shall not, without Lender's prior written consent, (i)
grant any extension of the time of payment of any of the Accounts, Chattel
Paper, Instruments or amounts due under any Contract, (ii) compromise or settle
the same for less than the full amount thereof, (iii) release, in whole or in
part, any Person liable for the payment thereof, or (iv) allow any credit or
discount whatsoever thereon other than trade discounts granted in the ordinary
course of business of Debtor.
g. Right of Inspection. Upon reasonable notice to Debtor (unless an
Event of Default has occurred and is continuing, in which case no notice is
necessary), Lender shall at all times have full and free access during normal
business hours to all the books and records and correspondence of Debtor, and
Lender or its representatives may examine the same, take extracts therefrom and
make photocopies thereof, and Debtor agrees to render to Lender, at Debtor's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Upon reasonable notice to Debtor (unless an Event
of Default has occurred and is continuing, in which case no notice is
necessary), Lender and its representatives shall also have the right to enter
into and upon any premises where any of the Collateral is located for the
purpose of inspecting the same, observing its use or otherwise protecting
Lender's interests in the Collateral.
h. Continuous Perfection. Debtor shall not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9-402(7) of the UCC or any other then applicable
provision of the UCC unless Debtor shall have given Lender at least thirty (30)
days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Lender to amend such financing statement or continuation statement
so that it is not seriously misleading.
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<PAGE>
6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
a. Debtor hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's reasonable discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may reasonably
be necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby grants to Lender
the power and right, on behalf of Debtor, upon notice to or assent by Debtor
(which notice may be simultaneous with such action), at any time after the
occurrence and during the continuation of an Event of Default, to do the
following:
(i) in the name of Debtor, in its own name or otherwise,
take possession of, endorse and receive payment of any checks,
drafts, notes, acceptances, or other Instruments for the payment of
monies due under any Collateral;
(ii) continue any insurance existing pursuant to the terms
of the Loan Documents, and pay all or any part of the premiums
therefor and the costs thereof; and
(iii) receive payment of any and all monies, claims, and
other amounts due or to become due at any time arising out of or in
respect of any Collateral.
b. Debtor hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's reasonable discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may reasonably
be necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby grants to Lender
the power and right, on behalf of Debtor, upon notice to (which notice may be
simultaneous with such action) but without the assent of Debtor, upon the
occurrence and during the continuation of an Event of Default, to do the
following:
(i) ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any
Collateral;
(ii) pay or discharge taxes, liens, security interest, or
other encumbrances levied or placed on or threatened against the
Collateral;
(iii) obtain any insurance called for by the terms of the
Loan Documents and pay all or any part of the premiums therefor and
costs thereof;
(iv) direct any party liable for any payment under or in
respect of any of the Collateral to make payment of any and all
monies due or to become due thereunder,
-8-
<PAGE>
directly to Lender or as Lender shall direct;
(v) sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with
accounts and other documents constituting or related to the
Collateral;
(vi) settle, compromise or adjust any suit, action, or
proceeding described above and, in connection therewith, give such
discharges or releases as Lender may deem appropriate;
(vii) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise reasonably
deemed appropriate by Lender for the purpose of collecting any and
all such monies due under any Collateral whenever payable;
(viii) commence and prosecute any suits, actions or
proceedings of law or equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral;
(ix) defend any suit, action or proceeding brought against
Debtor with respect to any Collateral if Debtor does not defend
such suit, action or proceeding or if Lender reasonably believes
that Debtor is not pursuing such defense in a manner that will
maximize the recovery with respect to such Collateral;
(x) license or, to the extent permitted by an applicable
license, sublicense whether general, specific or otherwise, and
whether on an exclusive or non-exclusive basis, any Patent or
Trademark throughout the world for such or terms on such conditions
and in such manner as Lender shall, in its reasonable discretion,
determine; and
(xi) sell, transfer, pledge, make any agreement with respect
to, or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option and Debtor's expense, at
any time, or from time to time, all acts and things which Lender
reasonably deems necessary to perfect, preserve, or realize upon
the Collateral and Lender's Lien thereon in order to effect the
intent of this Security Agreement, all as fully and effectively as
Debtor might do.
c. Debtor hereby ratifies, to the extent permitted by law, all that
said attorneys shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted pursuant to this Section 6 is a power coupled with an
interest and shall be irrevocable until the Termination Date.
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<PAGE>
d. The powers conferred on Lender hereunder are solely to protect
Lender's interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers. None of Lender's
officers, directors, employees, agents or representatives shall be responsible
to Debtor for any failure to act, and in taking affirmative action, shall be
liable only to the extent that such Persons are finally determined by a court of
competent jurisdiction to be guilty of gross negligence or willful misconduct.
e. Following the occurrence and during the continuation of an Event
of Default, Debtor also authorizes Lender, at any time and from time to time, to
(i) communicate in its own name with any party to any Contract with regard to
the assignment of the right, title and interest of Debtor in and under the
Contracts and other matters relating thereto and (ii) execute, in connection
with the sale provided for in Section 8 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
7. PERFORMANCE BY LENDER OF DEBTOR'S SECURED OBLIGATIONS. If Debtor
fails to perform or comply with any of its agreements contained herein or in any
of the other Loan Documents, and Lender, as provided for by the terms of this
Security Agreement or any of the other Loan Documents, shall itself perform or
comply, or otherwise cause performance of or compliance, with such agreement,
the reasonable expenses, including attorneys' fees, of Lender incurred in
connection with such performance or compliance, together with interest thereon
at the rate then in effect in respect of the Revolving Credit Loan, shall be
payable by Debtor to Lender on demand and shall constitute Secured Obligations
secured hereby.
8. REMEDIES; RIGHTS UPON DEFAULT.
a. If any Event of Default shall occur and be continuing, Lender
may exercise in addition to all other rights and remedies granted to it under
this Security Agreement, the Credit Agreement, the other Loan Documents and
under any other instrument or agreement securing, evidencing, guaranteeing or
otherwise relating to the Secured Obligations, all rights and remedies that it
has as a secured party under the UCC. Without limiting the generality of the
foregoing, Debtor expressly agrees that in any such event Lender, without demand
of performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale and any
notice expressly required by the Guaranty Agreement) to or upon Debtor or any
other Person (all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the UCC and other
applicable law), may forthwith enter upon the premises of Debtor where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Debtor notice and opportunity for a hearing
on Lender's claim or action, and without paying rent to Debtor, and collect,
receive, assemble, process, appropriate and realize upon the Collateral, or any
part thereof, and may forthwith sell, lease, assign, give an option or options
to purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lender shall have the right upon any such public sale or sales,
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<PAGE>
and, to the extent permitted by law, upon any such private sale or sales, to
purchase for the benefit of Lender the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption
Debtor hereby releases. Such sales may be adjourned and continued from time to
time with or without notice. Lender shall have the right to conduct such sales
on Debtor's premises or elsewhere and shall have the right to use Debtor's
premises without charge for such time or times as Lender reasonably deems
necessary or advisable.
Debtor further agrees, at Lender's request, to assemble the
Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at Debtor's premises or elsewhere. Until Lender is
able to effect a sale, lease, or other disposition of Collateral, Lender shall
have the right to use, operate or administer Collateral on behalf of Lender, or
any part thereof, to the extent that it reasonably deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose
reasonably deemed appropriate by Lender. Lender shall have no obligation to
Debtor to maintain or preserve the rights of Debtor as against third parties
with respect to Collateral while Collateral is in the possession of Lender.
Lender may, if it so elects and, to the extent not prohibited by applicable law,
seek the appointment of a receiver or keeper to take possession of Collateral
and to enforce any of Lender's remedies with respect to such appointment without
prior notice or hearing. Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale as provided in
Section 8(d) hereof, Debtor remaining liable for any deficiency remaining unpaid
after such application, and only after so paying over such net proceeds and
after the payment by Lender of any other amount required by any provision of
law, including section 9-504(1)(c) of the UCC (but only after Lender has
received what Lender considers reasonable proof of a subordinate party's
security interest), need Lender account for the surplus, if any, to Debtor. To
the maximum extent permitted by applicable law, Debtor waives all claims,
damages, and demands against Lender arising out of the repossession, retention
or sale of the Collateral except to the extent that a court of competent
jurisdiction issues a final determination that such claims or damages arise
solely out of the gross negligence or willful misconduct of such party. Debtor
agrees that ten (10) days' prior notice by Lender of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled, Debtor also being
liable for any reasonable attorneys' fees incurred by Lender to collect such
deficiency.
b. Debtor agrees to pay any and all reasonable costs of Lender,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
c. Except as otherwise specifically provided herein or in the Loan
Documents, Debtor hereby waives presentment, demand, protest or any notice (to
the maximum extent permitted by applicable law) of any kind in connection with
the Loan Documents, the Security Agreement or any Collateral.
d. The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Lender upon receipt,
in the following order of priorities:
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<PAGE>
first, to Lender in an amount sufficient to pay in full the
reasonable expenses of Lender in connection with such sale,
disposition or other realization, including all expenses,
liabilities and advances incurred or made by Lender in connection
therewith, including reasonable attorney's fees;
second, to Lender in an amount equal to the then due and
unpaid accrued interest, fees and prepayment premiums, if any, on
the Secured Obligations;
third, to Lender in an amount equal to any other unpaid
Secured Obligations or amounts owed, if any, in connection with the
Secured Obligations; and
finally, upon payment in full of all of the Secured
Obligations, to Debtor or its representatives or to whomsoever may
be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct.
9. GRANT OF LICENSE TO USE PATENT AND TRADEMARK COLLATERAL. For the
purpose of enabling Lender to exercise rights and remedies under Section 8
hereof (including, without limiting the terms of Section 8 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time as Lender shall
be lawfully entitled to exercise such rights and remedies, Debtor hereby grants
to Lender an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to Debtor) to use, transfer, license or sublicense
any Patent, Trademark, trade secret, or copyright now owned or hereafter
acquired by Debtor, and wherever the same may be located, and including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof; provided that such
license shall be exercisable only at such time as the Lender shall have the
right to exercise its rights and remedies under Section 8 hereof.
10. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender
shall use reasonable care with respect to the Collateral in its possession or
under its control. Lender shall not have any other duty as to any Collateral in
its possession or control or in the possession or control of any agent or
nominee of Lender, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. Lender shall
account for any monies received by Lender in respect of any foreclosure on or
disposition of the Collateral.
11. REINSTATEMENT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Debtor for liquidation or reorganization, should Debtor become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Debtor's assets, and shall continue
to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In
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<PAGE>
the event that any payment, or any part thereof, is rescinded, reduced, restored
or returned, the Secured Obligations shall be reinstated and deemed reduced only
by such amount paid and not so rescinded, reduced, restored or returned.
12. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon either of the
parties by the other party, or whenever either of the parties desires to give or
serve upon the other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in Section 11 of the Guaranty Agreement.
13. SEVERABILITY; COMPLETE AGREEMENT. Any provision of this
Security Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
This Security Agreement is to be read, construed and applied together with the
Credit Agreement and the other Loan Documents, which, taken together, set forth
the complete understanding and agreement of Lender and Debtor with respect to
the matters referred to herein and therein and supersede all prior agreements,
understandings or inducements whether express or implied, or oral or written.
14. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Lender and then only to the extent therein set forth. A waiver by Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Lender would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Lender and
Debtor.
15. LIMITATION BY LAW; TIME OF ESSENCE. All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered, or filed under the provisions of any applicable law. Time is of the
essence of this Security Agreement.
16. TERMINATION OF THIS SECURITY AGREEMENT. Subject to
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Section 11 hereof, this Security Agreement shall terminate upon the Termination
Date and all of Lender's rights, titles and interests in and to the Collateral
hereunder shall be automatically terminated and released on such date.
17. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of Debtor hereunder shall be binding upon the successors and assigns
of Debtor, and shall, together with the rights and remedies of Lender hereunder,
inure to the benefit of Lender, all future holders of any instrument evidencing
any of the Secured Obligations and their respective successors and assigns. No
sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing the Secured
Obligations or any portion thereof or interest therein shall in any manner
affect the security interest granted to Lender hereunder. Debtor may not assign,
sell or otherwise transfer an interest in this Security Agreement.
18. EXECUTION IN COUNTERPARTS. This Security Agreement may be
executed in any number of counterparts, each of which shall collectively and
separately constitute one agreement.
19. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY
AGREEMENT AND THE SECURED OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. DEBTOR HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, NEW YORK, SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
DEBTOR AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND DEBTOR ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
BOROUGH OF MANHATTAN, NEW YORK AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF LENDER AND, PROVIDED, FURTHER, THAT NOTHING IN
THIS AGREEMENT SHALL BE DEEMED TO PRECLUDE THE DEBTOR FROM PURSUING ANY
COMPULSORY COUNTERCLAIM IN ANY PROCEEDING BROUGHT BY THE LENDER IN ANY SUCH
OTHER JURISDICTION. DEBTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND DEBTOR
HEREBY WAIVES ANY OBJECTION WHICH DEBTOR MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
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<PAGE>
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. DEBTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO DEBTOR IN ACCORDANCE WITH SECTION 12 OF THIS
SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF DEBTOR'S ACTUAL RECEIPT THEREOF OR FIVE DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
21. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH, THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT,
OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
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<PAGE>
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.
ENHANCED SYSTEMS, INC.
By: /s/ Greg Roeper
------------------------------------
Title: Secretary and Treasurer
----------------------------------
ACCEPTED AS OF JUNE 11, 1997:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy Morris
------------------------------------
Title: Duly Authorized Signatory
---------------------------------
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SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of June 11, 1997, made by ARIZONA
REPAIR SERVICES, INC., an Arizona corporation, having its chief executive office
at 8300 East Raintree Drive, Scottsdale, Arizona 85260 ("Debtor"), in favor of
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation having an office at
1999 Avenue of the Stars, 30th Floor, Los Angeles, California 90067 ("Lender").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement dated as of April 11, 1994, by and among Vodavi Communications
Systems, Inc., an Arizona corporation formerly known as V Technology Acquisition
Corp. ("Borrower") and Lender, as amended and restated as of June 11, 1997 (as
the same from time to time may be amended, restated, supplemented or otherwise
modified, the "Credit Agreement"), Lender has agreed, among other things, to
make a certain Revolving Credit Loan (as defined in the Credit Agreement)
available to Borrower; and
WHEREAS, pursuant to that certain Guaranty Agreement, dated as of
June 11, 1997, executed by Debtor and Enhanced Systems, Inc. in favor of Lender
(the "Guaranty Agreement"), Debtor has guaranteed the payment and performance by
Borrower of all obligations of Borrower arising under the Credit Agreement
(including without limitation payment of the Revolving Credit Loan); and
WHEREAS, Lender is willing to make the Revolving Credit Loan and
any other extension of credit provided for in the Credit Agreement available to
Borrower, but only upon the condition, among others, that Debtor shall have
executed and delivered this Security Agreement in favor of Lender; and
NOW, THEREFORE, in consideration of the premises and the Lender's
commitment to make the Revolving Credit Loan available to Borrower, the parties
hereto agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized
terms defined in the Credit Agreement are used herein as therein defined.
2. GRANT OF SECURITY INTEREST.
a. To secure the prompt and complete payment, performance and
observance of all of the obligations, indebtedness and liabilities of Debtor
under the Guaranty Agreement (collectively, the "Secured Obligations"), and to
induce Lender to enter into the Credit Agreement, to issue the Commitment and to
make the Revolving Credit Loan and any other extensions of credit provided for
therein available to Borrower in accordance with the respective terms thereof,
Debtor hereby grants to Lender a security interest in all of Debtor's right,
title and interest in, to and under the following whether now owned by or owing
to, or hereafter acquired by or arising in favor of Debtor (including, without
limitation, under any trade names, styles or
<PAGE>
divisions thereof), and regardless of where located (all of which being
hereinafter collectively referred to as the "Collateral"):
(i) all Accounts;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Equipment;
(vi) all General Intangibles;
(vii) all Instruments;
(viii) all Inventory;
(ix) all other money, cash or cash equivalents of Debtor;
(x) all books and records (including without limitation
credit files, customer lists, computer files, computer programs,
computer printouts, or other computer material) of Debtor
identifying, evidencing or otherwise pertaining to any of the
Collateral described above; and
(xi) all Proceeds of any of the Collateral described above.
b. In addition, to secure the prompt and complete payment,
performance and observance of the Secured Obligations and in order to induce
Lender as aforesaid, Debtor hereby grants to Lender, a security interest in all
property of Debtor held by Lender, including, without limitation, all property
of every description, now or hereafter in the possession or custody of or in
transit to Lender for any purpose, including safekeeping, collection or pledge,
for the account of Debtor, or as to which Debtor may have any right or power.
3. LENDER'S RIGHTS; LIMITATIONS ON LENDER'S SECURED
OBLIGATIONS.
a. It is expressly agreed by Debtor that, anything herein to the
contrary notwithstanding, Debtor shall remain liable under each of its Contracts
and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Lender shall have
no obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting herein of a security interest
therein or the receipt by Lender of any payment relating to any Contract or
License pursuant hereto, nor shall Lender be required or obligated in any manner
to perform or fulfill any of the obligations of Debtor under or pursuant to any
Contract or License, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the
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<PAGE>
sufficiency of any performance by any party under any Contract or License, or to
present or file any claims, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
b. Lender may at any time after the occurrence and during the
continuation of an Event of Default and upon 24 hours prior notice to Debtor,
notify Account Debtors, parties to the Contracts, and obligors in respect of
Instruments, that the Accounts and the right, title and interest of Debtor in
and under such Contracts and Instruments have been assigned to Lender and that
payments shall be made directly to Lender, and upon the request of Lender,
Debtor shall so notify Account Debtors, parties to Contracts, and obligors in
respect of Instruments. Lender may at any time after the occurrence and during
the continuation of an Event of Default and upon notice to the Debtor (which may
be simultaneous with notice to Obligors on chattel paper) notify obligors in
respect of Chattel Paper that the right, title and interest of Debtor in and
under such Chattel Paper have been assigned to Lender and that payments shall be
made directly to Lender.
c. Lender at any time after the occurrence and during the
continuation of an Event of Default shall have the right to make test
verifications of the Accounts and verifications and appraisals of the other
Collateral in any manner and through any medium that it reasonably considers
advisable, and Debtor agrees to furnish all such assistance and information as
Lender may reasonably require in connection therewith. Lender may at any time
after the occurrence and during the continuation of an Event of Default, in
Lender's own name or in the name of Debtor, communicate with Account Debtors,
parties to Contracts, obligors in respect of Instruments and obligors in respect
of Chattel Paper to verify with such Persons, to Lender's satisfaction, the
existence, amount and terms of any such Accounts, Contracts, Instruments or
Chattel Paper. Upon the occurrence and continuation of an Event of Default,
Debtor, at its own expense, shall cause the certified public accountant then
engaged by Debtor, to prepare and deliver to Lender at any time and from time to
time promptly upon Lender's request the following reports: (i) a reconciliation
of all Accounts, (ii) an aging of all Accounts, (iii) trial balances, and (iv) a
test verification of such Accounts as Lender reasonably may request.
4. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants that:
a. Except for the security interest granted to Lender under this
Security Agreement, and the Liens set forth on Schedule 7.6 to the Credit
Agreement and Permitted Exceptions, Debtor is the sole owner of each item of the
Collateral in which it purports to grant a security interest hereunder, having
good and marketable title thereto free and clear of any and all liens, security
interests or other encumbrances.
b. No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except as may be
set forth on Schedule 7.6 to the Credit Agreement or such as may have been filed
by Debtor in favor of Lender pursuant to this Security Agreement.
c. As a result of the filing of appropriate financing statements in
the filing offices listed on Schedule I hereto, this Security Agreement is
effective to create a valid and
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<PAGE>
continuing lien on and perfected security interest in favor of Lender in the
Collateral with respect to which a security interest may be perfected by filing
pursuant to the UCC, which lien and security interest is prior to all other
Liens, except only for Liens specifically designated on Schedule 7.6 as being
prior to Lender's Liens and Permitted Prior Exceptions, and is enforceable as
such as against creditors of and purchasers from Debtor (other than purchasers
of Inventory in the ordinary course of business). All action necessary or
desirable to protect and perfect such security interest in each item of the
Collateral has been duly taken.
d. Schedule II hereto lists all Instruments of Debtor. All action
necessary or desirable to protect and perfect the security interest of Lender in
each item set forth on Schedule II, including the delivery of all originals
thereof to Lender, has been duly taken. The security interest of Lender in the
Collateral listed on Schedule II hereto is prior to all other Liens except those
Liens specifically designated on Schedule 7.6 as being prior to Lender's Liens
and Permitted Prior Exceptions and is enforceable as such against creditors of
and purchasers from Debtor.
e. Debtor's chief executive office, principal place of business,
corporate offices, all warehouses and premises within which Collateral is stored
and located and the locations of all of its records concerning the Collateral
are set forth on the Credit Party Questionnaire completed by Debtor and
delivered to Lender, and Debtor shall not change its chief executive office,
principal place of business, corporate offices or Collateral locations, or
remove such records unless it shall have notified the Lender in writing at least
30 days prior to such change and shall have taken such action as the Lender
deems reasonably necessary to cause the Lien of Lender in the Collateral to
continue to be perfected.
f. During the five (5) year period preceding the date of this
Agreement, Debtor has not been known as or used and Debtor presently does not
use any corporate name other than its name as set forth in its signature below
and those other corporate, fictitious or trade names (if any) of Debtor as
disclosed on the Credit Party Questionnaire completed by Debtor and delivered to
Lender. If such schedule sets forth any fictitious or trade names for Debtor
(collectively, the "Trade Names"), Debtor represents and warrants to and agrees
with Lender that: (i) any Collateral arising out of any sales under any of the
Trade Names is the property of and belongs to Debtor, (ii) each of the Trade
Names is a trade name or trade style (and not an independent or separate
corporation or other legal entity) by which Debtor may identify or market itself
or under which Debtor may sell certain products, render certain services or
otherwise conduct some or all of its business, (iii) any Collateral which arises
from any sales made, services rendered or other business conducted under any of
the Trade Names shall be owned solely by Debtor, and (iv) Debtor hereby appoints
Lender to be its attorney-in-fact to file such certificates disclosing Debtor's
use of the Trade Names and to take such other actions on Debtor's behalf as
Lender reasonably considers appropriate to comply with any statutes or
regulations relating to the use of fictitious or assumed business names.
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g. (i) The Accounts represent bona fide sales of Inventory or
services rendered by Debtor in the ordinary course of Debtor's business
completed in accordance with the terms and provisions contained in the documents
available to Lender with respect thereto and are not evidenced by a judgment,
Instrument or Chattel Paper, (ii) the amounts shown on any Borrowing Base
Certificate, summary or schedules of Account or any aged receivables trial
balance delivered by Debtor to Lender pursuant to the terms of this Security
Agreement or the Credit Agreement and on Debtor's books and records and all
invoices and statements which may be delivered to the Lender with respect
thereto are actually and absolutely owing to Debtor and are not in any way
contingent, (iii) to the best of Debtor's knowledge, there are no set-offs,
claims or disputes existing or asserted with respect thereto and Debtor has not
made any agreement with any Account Debtor for any deduction therefrom except a
discount or allowance allowed by Debtor in the ordinary course of its business
for prompt payment, (iv) to the best of Debtor's knowledge, there are no facts,
events or occurrences that in any way impair the validity or enforcement thereof
or tend to reduce the amount payable thereunder as shown on the respective aged
receivable trial balances, Debtor's books and records and all invoices and
statements delivered to Lender with respect thereto, (v) to the best of Debtor's
knowledge, all Account Debtors have the capacity to contract, (vi) Debtor has
received no notice of proceedings or actions which are threatened or pending
against any Account Debtor which might result in any material adverse change in
such Account Debtor's financial condition and (vii) Debtor has no knowledge that
any Account Debtor is unable generally to pay its debts as they become due.
h. With respect to all Inventory and Equipment, (i) such property
is located at one of the locations set forth on the Credit Party Questionnaire
completed by Debtor and delivered to Lender, (ii) Debtor has good and
merchantable title to such property and such property is not subject to any lien
or security interest or document whatsoever except for the security interest
granted to Lender hereunder and any set forth on Schedule 7.6 to the Credit
Agreement and Permitted Exceptions, (iii) such property is not subject to any
licensing, patent, royalty, trademark, trade name or copyright agreements with
any third parties except as described on Schedule III, which agreements will not
materially interfere with the sale or use of the Collateral by the Lender, (iv)
with respect to Inventory, such property is of good and merchantable quality,
(v) with respect to Inventory, such property is free from material defects, and
(vi) with respect to the Inventory, the completion of manufacture, sale or other
disposition of such property by Lender following an Event of Default shall not
require the consent of any Person and shall not constitute a breach or default
under any contract or agreement to which Debtor is a party or to which such
property is subject.
5. COVENANTS. Debtor covenants and agrees with Lender that from and
after the date of this Security Agreement and until the Termination Date:
a. Further Assurances; Pledge of Instruments. At any time and from
time to time, upon the written request of Lender and at the sole expense of
Debtor, Debtor shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Lender may
reasonably deem desirable to obtain the full benefits of this Security Agreement
and of the rights and powers herein granted, including (i) using its best
efforts to secure all consents and approvals necessary or appropriate for the
assignment to or for the benefit of Lender of any License or Contract held by
Debtor or in which Debtor has any
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rights not heretofore assigned, (ii) filing any financing or continuation
statements under the UCC with respect to the liens and security interests
granted hereunder or under any other Loan Document, (iii) transferring
Collateral to Lender's possession (if such Collateral consists of Chattel Paper
or if a security interest in such Collateral can be perfected only by
possession, or, if requested by Lender), and (iv) using its best efforts to
obtain waivers of liens from landlords and mortgagees. Debtor also hereby
authorizes Lender to file any such financing or continuation statement without
the signature of Debtor to the extent permitted by applicable law. If any amount
payable under or in connection with any of the Collateral is or shall become
evidenced by any Instrument, such Instrument, other than checks received in the
ordinary course of business (which shall be deposited to a Collection Account),
shall be duly endorsed in a manner satisfactory to Lender immediately upon
Debtor's receipt thereof and delivered to Lender.
b. Maintenance of Records. Debtor shall keep and maintain, at its
own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Debtor shall mark its books and records pertaining to the Collateral
to evidence this Security Agreement and the security interests granted hereby.
All Chattel Paper shall be marked with the following legend: "This writing and
the obligations evidenced or secured hereby are subject to the security interest
of General Electric Capital Corporation". For Lender's further security, Debtor
agrees that Lender shall have a special property right and security interest in
all of Debtor's books and records pertaining to the Collateral and, upon the
occurrence and during the continuation of any Event of Default, Debtor shall
deliver and turn over any such books and records to Lender or to its
representatives at any time on demand of Lender; provided, that the Lender will
provide the Debtor with copies of such books and records at Debtor's request and
expense. Prior to the occurrence of an Event of Default and upon reasonable
notice from Lender, Debtor shall permit any representative of Lender to inspect
such books and records and shall provide photocopies thereof to Lender as more
specifically set forth in Section 5(g) below.
c. Indemnification. In any suit, proceeding or action brought by
Lender relating to any Account, Chattel Paper, Contract, General Intangible,
Instrument or Document for any sum owing thereunder, or to enforce any provision
of any Account, Chattel Paper, Contract, General Intangible, Instrument, or
Document, Debtor shall save, indemnify and keep Lender harmless from and against
all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder arising out of a breach by Debtor of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to, or in favor of, such obligor or its successors from Debtor, and all such
obligations of Debtor shall be and remain enforceable against, and only against,
Debtor and shall not be enforceable against Lender; provided, however, that
Debtor shall not be required to indemnify Lender with respect to any such
expense, loss or damage suffered by Lender as a result of its gross negligence
or willful misconduct in collecting any sum owing under any Account, Chattel
Paper, Contract, General Intangible, Instrument or Document.
d. Compliance with Terms of Accounts, etc. In all material
respects, Debtor shall perform and comply with all obligations in respect of
Accounts, Chattel Paper, Contracts, Licenses, Instruments and Documents, and all
other agreements to which it is a party or by which it or any of its property is
bound.
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e. Limitation on Liens on Collateral. Debtor shall not create,
permit or suffer to exist, and shall defend the Collateral against and take such
other action as is necessary to remove, any Lien on the Collateral except as
otherwise permitted pursuant to Section 7.6 of the Credit Agreement and except
for Permitted Exceptions. Debtor shall further defend the right, title and
interest of Lender in and to any of Debtor's rights under the Accounts, Chattel
Paper, Contracts, Documents, General Intangibles and Instruments and to the
Inventory, and in and to the Proceeds thereof, against the Liens, claims and
demands of all Persons whomsoever.
f. Limitations on Modifications of Accounts. Subject to the terms
of the Credit Agreement, upon the occurrence and during the continuation of any
Event of Default, Debtor shall not, without Lender's prior written consent, (i)
grant any extension of the time of payment of any of the Accounts, Chattel
Paper, Instruments or amounts due under any Contract, (ii) compromise or settle
the same for less than the full amount thereof, (iii) release, in whole or in
part, any Person liable for the payment thereof, or (iv) allow any credit or
discount whatsoever thereon other than trade discounts granted in the ordinary
course of business of Debtor.
g. Right of Inspection. Upon reasonable notice to Debtor (unless an
Event of Default has occurred and is continuing, in which case no notice is
necessary), Lender shall at all times have full and free access during normal
business hours to all the books and records and correspondence of Debtor, and
Lender or its representatives may examine the same, take extracts therefrom and
make photocopies thereof, and Debtor agrees to render to Lender, at Debtor's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Upon reasonable notice to Debtor (unless an Event
of Default has occurred and is continuing, in which case no notice is
necessary), Lender and its representatives shall also have the right to enter
into and upon any premises where any of the Collateral is located for the
purpose of inspecting the same, observing its use or otherwise protecting
Lender's interests in the Collateral.
h. Continuous Perfection. Debtor shall not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9-402(7) of the UCC or any other then applicable
provision of the UCC unless Debtor shall have given Lender at least thirty (30)
days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Lender to amend such financing statement or continuation statement
so that it is not seriously misleading.
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6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
a. Debtor hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's reasonable discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may reasonably
be necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby grants to Lender
the power and right, on behalf of Debtor, upon notice to or assent by Debtor
(which notice may be simultaneous with such action), at any time after the
occurrence and during the continuation of an Event of Default, to do the
following:
(i) in the name of Debtor, in its own name or otherwise,
take possession of, endorse and receive payment of any checks,
drafts, notes, acceptances, or other Instruments for the payment of
monies due under any Collateral;
(ii) continue any insurance existing pursuant to the terms
of the Loan Documents, and pay all or any part of the premiums
therefor and the costs thereof; and
(iii) receive payment of any and all monies, claims, and
other amounts due or to become due at any time arising out of or in
respect of any Collateral.
b. Debtor hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Debtor and in the name of Debtor or in its own name, from time to
time in Lender's reasonable discretion, for the purpose of carrying out the
terms of this Security Agreement, to take any and all appropriate action and to
execute and deliver any and all documents and instruments which may reasonably
be necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby grants to Lender
the power and right, on behalf of Debtor, upon notice to (which notice may be
simultaneous with such action) but without the assent of Debtor, upon the
occurrence and during the continuation of an Event of Default, to do the
following:
(i) ask, demand, collect, receive and give acquittances and
receipts for any and all money due or to become due under any
Collateral;
(ii) pay or discharge taxes, liens, security interest, or
other encumbrances levied or placed on or threatened against the
Collateral;
(iii) obtain any insurance called for by the terms of the
Loan Documents and pay all or any part of the premiums therefor and
costs thereof;
(iv) direct any party liable for any payment under or in
respect of any of the Collateral to make payment of any and all
monies due or to become due thereunder,
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directly to Lender or as Lender shall direct;
(v) sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with
accounts and other documents constituting or related to the
Collateral;
(vi) settle, compromise or adjust any suit, action, or
proceeding described above and, in connection therewith, give such
discharges or releases as Lender may deem appropriate;
(vii) file any claim or take or commence any other action or
proceeding in any court of law or equity or otherwise reasonably
deemed appropriate by Lender for the purpose of collecting any and
all such monies due under any Collateral whenever payable;
(viii) commence and prosecute any suits, actions or
proceedings of law or equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any
other right in respect of any Collateral;
(ix) defend any suit, action or proceeding brought against
Debtor with respect to any Collateral if Debtor does not defend
such suit, action or proceeding or if Lender reasonably believes
that Debtor is not pursuing such defense in a manner that will
maximize the recovery with respect to such Collateral;
(x) license or, to the extent permitted by an applicable
license, sublicense whether general, specific or otherwise, and
whether on an exclusive or non-exclusive basis, any Patent or
Trademark throughout the world for such or terms on such conditions
and in such manner as Lender shall, in its reasonable discretion,
determine; and
(xi) sell, transfer, pledge, make any agreement with respect
to, or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option and Debtor's expense, at
any time, or from time to time, all acts and things which Lender
reasonably deems necessary to perfect, preserve, or realize upon
the Collateral and Lender's Lien thereon in order to effect the
intent of this Security Agreement, all as fully and effectively as
Debtor might do.
c. Debtor hereby ratifies, to the extent permitted by law, all that
said attorneys shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted pursuant to this Section 6 is a power coupled with an
interest and shall be irrevocable until the Termination Date.
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d. The powers conferred on Lender hereunder are solely to protect
Lender's interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers. None of Lender's
officers, directors, employees, agents or representatives shall be responsible
to Debtor for any failure to act, and in taking affirmative action, shall be
liable only to the extent that such Persons are finally determined by a court of
competent jurisdiction to be guilty of gross negligence or willful misconduct.
e. Following the occurrence and during the continuation of an Event
of Default, Debtor also authorizes Lender, at any time and from time to time, to
(i) communicate in its own name with any party to any Contract with regard to
the assignment of the right, title and interest of Debtor in and under the
Contracts and other matters relating thereto and (ii) execute, in connection
with the sale provided for in Section 8 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the Collateral.
7. PERFORMANCE BY LENDER OF DEBTOR'S SECURED OBLIGATIONS. If Debtor
fails to perform or comply with any of its agreements contained herein or in any
of the other Loan Documents, and Lender, as provided for by the terms of this
Security Agreement or any of the other Loan Documents, shall itself perform or
comply, or otherwise cause performance of or compliance, with such agreement,
the reasonable expenses, including attorneys' fees, of Lender incurred in
connection with such performance or compliance, together with interest thereon
at the rate then in effect in respect of the Revolving Credit Loan, shall be
payable by Debtor to Lender on demand and shall constitute Secured Obligations
secured hereby.
8. REMEDIES; RIGHTS UPON DEFAULT.
a. If any Event of Default shall occur and be continuing, Lender
may exercise in addition to all other rights and remedies granted to it under
this Security Agreement, the Credit Agreement, the other Loan Documents and
under any other instrument or agreement securing, evidencing, guaranteeing or
otherwise relating to the Secured Obligations, all rights and remedies that it
has as a secured party under the UCC. Without limiting the generality of the
foregoing, Debtor expressly agrees that in any such event Lender, without demand
of performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale and any
notice expressly required by the Guaranty Agreement) to or upon Debtor or any
other Person (all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the UCC and other
applicable law), may forthwith enter upon the premises of Debtor where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Debtor notice and opportunity for a hearing
on Lender's claim or action, and without paying rent to Debtor, and collect,
receive, assemble, process, appropriate and realize upon the Collateral, or any
part thereof, and may forthwith sell, lease, assign, give an option or options
to purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Lender shall have the right upon any such public sale or sales,
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and, to the extent permitted by law, upon any such private sale or sales, to
purchase for the benefit of Lender the whole or any part of said Collateral so
sold, free of any right or equity of redemption, which equity of redemption
Debtor hereby releases. Such sales may be adjourned and continued from time to
time with or without notice. Lender shall have the right to conduct such sales
on Debtor's premises or elsewhere and shall have the right to use Debtor's
premises without charge for such time or times as Lender reasonably deems
necessary or advisable.
Debtor further agrees, at Lender's request, to assemble the
Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at Debtor's premises or elsewhere. Until Lender is
able to effect a sale, lease, or other disposition of Collateral, Lender shall
have the right to use, operate or administer Collateral on behalf of Lender, or
any part thereof, to the extent that it reasonably deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose
reasonably deemed appropriate by Lender. Lender shall have no obligation to
Debtor to maintain or preserve the rights of Debtor as against third parties
with respect to Collateral while Collateral is in the possession of Lender.
Lender may, if it so elects and, to the extent not prohibited by applicable law,
seek the appointment of a receiver or keeper to take possession of Collateral
and to enforce any of Lender's remedies with respect to such appointment without
prior notice or hearing. Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale as provided in
Section 8(d) hereof, Debtor remaining liable for any deficiency remaining unpaid
after such application, and only after so paying over such net proceeds and
after the payment by Lender of any other amount required by any provision of
law, including section 9-504(1)(c) of the UCC (but only after Lender has
received what Lender considers reasonable proof of a subordinate party's
security interest), need Lender account for the surplus, if any, to Debtor. To
the maximum extent permitted by applicable law, Debtor waives all claims,
damages, and demands against Lender arising out of the repossession, retention
or sale of the Collateral except to the extent that a court of competent
jurisdiction issues a final determination that such claims or damages arise
solely out of the gross negligence or willful misconduct of such party. Debtor
agrees that ten (10) days' prior notice by Lender of the time and place of any
public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Debtor shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled, Debtor also being
liable for any reasonable attorneys' fees incurred by Lender to collect such
deficiency.
b. Debtor agrees to pay any and all reasonable costs of Lender,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
c. Except as otherwise specifically provided herein or in the Loan
Documents, Debtor hereby waives presentment, demand, protest or any notice (to
the maximum extent permitted by applicable law) of any kind in connection with
the Loan Documents, the Security Agreement or any Collateral.
d. The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Lender upon receipt,
in the following order of priorities:
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first, to Lender in an amount sufficient to pay in full the
reasonable expenses of Lender in connection with such sale,
disposition or other realization, including all expenses,
liabilities and advances incurred or made by Lender in connection
therewith, including reasonable attorney's fees;
second, to Lender in an amount equal to the then due and
unpaid accrued interest, fees and prepayment premiums, if any, on
the Secured Obligations;
third, to Lender in an amount equal to any other unpaid
Secured Obligations or amounts owed, if any, in connection with the
Secured Obligations; and
finally, upon payment in full of all of the Secured
Obligations, to Debtor or its representatives or to whomsoever may
be lawfully entitled to receive the same, or as a court of
competent jurisdiction may direct.
9. GRANT OF LICENSE TO USE PATENT AND TRADEMARK COLLATERAL. For the
purpose of enabling Lender to exercise rights and remedies under Section 8
hereof (including, without limiting the terms of Section 8 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell or otherwise dispose of Collateral) at such time as Lender shall
be lawfully entitled to exercise such rights and remedies, Debtor hereby grants
to Lender an irrevocable, non-exclusive license (exercisable without payment of
royalty or other compensation to Debtor) to use, transfer, license or sublicense
any Patent, Trademark, trade secret, or copyright now owned or hereafter
acquired by Debtor, and wherever the same may be located, and including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof; provided that such
license shall be exercisable only at such time as the Lender shall have the
right to exercise its rights and remedies under Section 8 hereof.
10. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender
shall use reasonable care with respect to the Collateral in its possession or
under its control. Lender shall not have any other duty as to any Collateral in
its possession or control or in the possession or control of any agent or
nominee of Lender, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. Lender shall
account for any monies received by Lender in respect of any foreclosure on or
disposition of the Collateral.
11. REINSTATEMENT. This Agreement shall remain in full force and
effect and continue to be effective should any petition be filed by or against
Debtor for liquidation or reorganization, should Debtor become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Debtor's assets, and shall continue
to be effective or be reinstated, as the case may be, if at any time payment and
performance of the Secured Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Secured Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In
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the event that any payment, or any part thereof, is rescinded, reduced, restored
or returned, the Secured Obligations shall be reinstated and deemed reduced only
by such amount paid and not so rescinded, reduced, restored or returned.
12. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon either of the
parties by the other party, or whenever either of the parties desires to give or
serve upon the other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in Section 11 of the Guaranty Agreement.
13. SEVERABILITY; COMPLETE AGREEMENT. Any provision of this
Security Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
This Security Agreement is to be read, construed and applied together with the
Credit Agreement and the other Loan Documents, which, taken together, set forth
the complete understanding and agreement of Lender and Debtor with respect to
the matters referred to herein and therein and supersede all prior agreements,
understandings or inducements whether express or implied, or oral or written.
14. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Lender and then only to the extent therein set forth. A waiver by Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Lender would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Lender and
Debtor.
15. LIMITATION BY LAW; TIME OF ESSENCE. All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered, or filed under the provisions of any applicable law. Time is of the
essence of this Security Agreement.
16. TERMINATION OF THIS SECURITY AGREEMENT. Subject to
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Section 11 hereof, this Security Agreement shall terminate upon the
Termination Date and all of Lender's rights, titles and interests in and to the
Collateral hereunder shall be automatically terminated and released on such
date.
17. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of Debtor hereunder shall be binding upon the successors and assigns
of Debtor, and shall, together with the rights and remedies of Lender hereunder,
inure to the benefit of Lender, all future holders of any instrument evidencing
any of the Secured Obligations and their respective successors and assigns. No
sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing the Secured
Obligations or any portion thereof or interest therein shall in any manner
affect the security interest granted to Lender hereunder. Debtor may not assign,
sell or otherwise transfer an interest in this Security Agreement.
18. EXECUTION IN COUNTERPARTS. This Security Agreement may be
executed in any number of counterparts, each of which shall collectively and
separately constitute one agreement.
19. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY
AGREEMENT AND THE SECURED OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. DEBTOR HEREBY CONSENTS AND AGREES THAT THE
STATE OR FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN, NEW YORK, SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
DEBTOR AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR TO ANY MATTER ARISING
OUT OF OR RELATING TO THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND DEBTOR ACKNOWLEDGE THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE
BOROUGH OF MANHATTAN, NEW YORK AND, PROVIDED, FURTHER, THAT NOTHING IN THIS
AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR
TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL
OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR
OTHER COURT ORDER IN FAVOR OF LENDER AND, PROVIDED, FURTHER, THAT NOTHING IN
THIS AGREEMENT SHALL BE DEEMED TO PRECLUDE THE DEBTOR FROM PURSUING ANY
COMPULSORY COUNTERCLAIM IN ANY PROCEEDING BROUGHT BY THE LENDER IN ANY SUCH
OTHER JURISDICTION. DEBTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND DEBTOR
HEREBY WAIVES ANY OBJECTION WHICH DEBTOR MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
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<PAGE>
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. DEBTOR HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS,
COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT
SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED
OR CERTIFIED MAIL ADDRESSED TO DEBTOR IN ACCORDANCE WITH SECTION 12 OF THIS
SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF DEBTOR'S ACTUAL RECEIPT THEREOF OR FIVE DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
21. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH, THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT,
OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
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<PAGE>
IN WITNESS WHEREOF, Debtor has caused this Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.
ARIZONA REPAIR SERVICES, INC.
By: /s/ Greg Roeper
------------------------------------
Title: CFO and V.P.
---------------------------------
ACCEPTED AS OF JUNE 11, 1997:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy Morris
------------------------------------
Title: Duly Authorized Signatory
---------------------------------
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GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Guaranty"), dated as of June 11,
1997, made by ARIZONA REPAIR SERVICES, INC., an Arizona corporation ("ARS"), and
ENHANCED SYSTEMS, INC., an Arizona corporation ("ESI", ARS and ESI are referred
to herein individually as a "Guarantor" and collectively as the "Guarantors"),
in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (the
"Guaranteed Party").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Vodavi Communications Systems, Inc., an Arizona
corporation formerly known as V Technology Acquisition Corp. (the "Borrower"),
and the Guaranteed Party are parties to an Amended and Restated Credit
Agreement, dated as of April 11, 1994, as amended and restated effective as of
June 11, 1997 (as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"; the terms defined
therein and not otherwise defined herein being used herein as therein defined),
pursuant to which the Guaranteed Party has committed to make a Revolving Credit
Loan available to the Borrower; and
WHEREAS, the Borrower and the Guarantors share an identity of
interests as members of a consolidated group of companies engaged in similar
businesses, and the making of the Revolving Credit Loan available to the
Borrower will facilitate expansion and enhance the overall financial strength
and stability of the Borrower's corporate group, including the Guarantors; and
WHEREAS, it is a condition precedent to the Guaranteed Party's
obligations to make the Revolving Credit Loan available under the Credit
Agreement that the Guarantors execute and deliver this Guaranty, and the
Guarantors desire to execute and deliver this Guaranty to satisfy such condition
precedent.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Guaranteed Party to make the Revolving Credit Loan available under
the Credit Agreement, each Guarantor hereby agrees as follows:
1. Guaranty of Obligations. (a) Each Guarantor hereby
absolutely, unconditionally and irrevocably guarantees to the Guaranteed Party
the prompt payment when due, whether at stated maturity, by acceleration or
otherwise, of the Revolving Credit Loan and all other Obligations (as defined in
the Credit Agreement, and including all renewals, extensions, modifications, and
refinancings thereof) now or hereafter existing, whether for principal,
interest, fees, expenses or otherwise, and all expenses (including reasonable
attorney's fees and expenses) incurred by the Guaranteed Party in enforcing any
of its rights under the Credit Agreement and the other Loan Documents (all of
the foregoing, collectively, the "Guaranteed Obligations"). Any and all payments
made by any Guarantor hereunder shall be made free and clear of and without
deduction for any set-off, counterclaim, or
<PAGE>
withholdings so that, in each case, the Guaranteed Party shall receive the full
amount that it would otherwise be entitled to receive with respect to the
Guaranteed Obligations.
(b) Each Guarantor acknowledges and agrees that this Guaranty is
a guaranty of payment and not of collection and that the liability of such
Guarantor under this Guaranty shall be immediate and primary and shall not be
contingent upon the exercise or enforcement by the Guaranteed Party of any
remedies the Guaranteed Party may have against the Borrower or any other
Guarantor any other person or the enforcement of any lien or realization upon
any collateral the Guaranteed Party may at any time possess for any of the
Guaranteed Obligations.
2. Maximum Liability; Contribution. (a) It is the intention of
each of the Guarantors and the Guaranteed Party that each Guarantor's
obligations hereunder shall be in, but not in excess of, the maximum amount (the
"Maximum Guaranty Liability") permitted by applicable federal bankruptcy, state
insolvency, fraudulent conveyance or transfer or similar laws ("Applicable
Law"). To that end, but only to the extent such obligations would otherwise be
subject to avoidance under Applicable Law if any Guarantor is not deemed to have
received valuable consideration, fair value or reasonably equivalent value for
its obligations hereunder, each Guarantor's respective obligations hereunder
shall be reduced to that amount which, after giving effect thereto, would not
render such Guarantor insolvent, or leave such Guarantor with unreasonably small
capital to conduct its business, or cause such Guarantor to have incurred debts
(or intended to have incurred debts) beyond its ability to pay such debts as
they mature, at the time such obligations are deemed to have been incurred under
Applicable Law. As used herein, the terms "insolvent" and "unreasonably small
capital" shall likewise be determined in accordance with Applicable Law. This
Section is intended solely to preserve the rights of the Guaranteed Party
hereunder to the maximum extent permitted by Applicable Law, and neither the
Guarantors nor any other Persons shall have any right or claim under this
Section that would not otherwise be available under Applicable Law. Each
Guarantor agrees that the Guaranteed Obligations may at any time and from time
to time exceed the Maximum Guaranty Liability of such Guarantor without
impairing this Guaranty or affecting the rights and remedies of the Guaranteed
Party hereunder.
(b) If and to the extent that any Guarantor shall, under this
Guaranty make a payment (a "Guarantor Payment") of all or any portion of the
Guaranteed Obligations, then such Guarantor shall be entitled to contribution
and indemnification from, and shall be reimbursed by, each of the other
Guarantors (collectively the "Contributing Guarantors") in an amount, for each
such Contributing Guarantor, equal to a fraction of such Guarantor Payment, the
numerator of which fraction is such Contributing Guarantor's Allocable Amount of
such Guarantor Payment and the denominator of which is the sum of all of the
Allocable Amounts of such Guarantor Payment of all of the Contributing
Guarantors. As of any date of determination thereof and with respect to any
Guarantor Payment, the "Allocable Amount" of each Contributing Guarantor shall
be equal to the maximum amount of liability which could be asserted against such
Contributing Guarantor under this Guaranty with respect to such Guarantor
Payment without (i) rendering such Contributing Guarantor insolvent, (ii)
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<PAGE>
leaving such Contributing Guarantor with unreasonably small capital to conduct
its business, or (iii) causing such Contributing Guarantor to have incurred
debts beyond its ability to pay such debts as they mature. As used in this
Section 2(b), the terms "insolvent" and "unreasonably small capital" shall be
determined in accordance with Applicable Laws. This Section 2(b) is intended
only to define the relative rights and obligations of the Guarantors with
respect to any and all Guarantor Payments, and nothing set forth in this Section
2(b) is intended to or shall otherwise modify, affect or impair the obligations
of the Guarantors, jointly and severally, to pay any or all of the Guaranteed
Obligations as and when the same shall become due and payable in accordance with
the terms of this Guaranty. Each of the Guarantors hereby acknowledges that the
rights of contribution and indemnification hereunder shall constitute assets in
favor of each Guarantor to which such contribution and indemnification is owing
hereunder. The agreements contained in this Section 2(b) shall continue in full
force and effect and may not be terminated or otherwise revoked by any Guarantor
until all of the Guaranteed Obligations have been indefeasibly paid in full, all
Commitments under the Credit Agreement have terminated or expired, and the
Credit Agreement and the other Loan Documents shall have been terminated in
accordance with the terms thereof.
3. Guaranty Absolute. This Guaranty shall in all respects be an
absolute, unconditional and irrevocable guaranty of payment of the Guaranteed
Obligations and each Guarantor guarantees that the Guaranteed Obligations will
be paid strictly in accordance with the terms of the Loan Documents under which
they arise, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Guaranteed Party with respect thereto. The liability of each Guarantor under
this Guaranty shall remain in full force and effect without regard to, and shall
not be released, suspended, discharged, terminated, modified or otherwise
affected by any circumstance or occurrence whatsoever, including without
limitation any of the following (whether or not any Guarantor consents thereto
or has notice thereof): (i) any change in or waiver of the time, place or manner
of payment, or any other term, of any of the Guaranteed Obligations or Loan
Documents, any waiver of or any renewal, extension, increase, amendment or
modification of or addition, consent or supplement to or deletion from, or any
other action or inaction under or in respect of, any of the Guaranteed
Obligations or Loan Documents or any other document, instrument or agreement
referred to therein or any assignment or transfer of any of the Guaranteed
Obligations or Loan Documents; (ii) any lack of validity, legality or
enforceability of any of the Guaranteed Obligations or Loan Documents or any
other document, instrument, or agreement referred to therein or of any
assignment or transfer of any of the foregoing; (iii) any furnishing to the
Guaranteed Party of any additional collateral for any of the Guaranteed
Obligations or any sale, exchange, release or surrender of, or realization on,
any collateral for any of the Guaranteed Obligations; (iv) any settlement,
release or compromise of any of the Guaranteed Obligations or Loan Documents,
any collateral therefor, or any liability of any other party (including without
limitation any other guarantor) with respect to any of the Guaranteed
Obligations or Loan Documents, or any subordination of payment of any of the
Guaranteed Obligations to the payment of any other indebtedness, liability or
obligation of the Borrower; (v) any bankruptcy, insolvency, reorganization,
composition, adjustment, merger, consolidation, dissolution, liquidation or
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<PAGE>
other like proceeding or occurrence relating to the Borrower or any other change
in the ownership, composition or nature of the Borrower; (vi) any
non-perfection, subordination, release, avoidability or voidability of any
security interest, security title, pledge, collateral assignment or other lien
of the Guaranteed Party on any collateral for any of the Guaranteed Obligations
or this Guaranty; (vii) any application of sums paid by the Borrower or any
other person with respect to any of the Guaranteed Obligations, except to the
extent actually applied against the Guaranteed Obligations, regardless of what
other liabilities of the Borrower remain unpaid; (viii) the failure of the
Guaranteed Party to assert any claim or demand or to enforce any right or remedy
against the Borrower or any other person (including any other guarantor of any
of the Guaranteed Obligations) under the provisions of any of the Loan Documents
or otherwise, or any failure of the Guaranteed Party to exercise any right or
remedy against any other guarantor of or any collateral for any of the
Guaranteed Obligations; (ix) any other act or failure to act by the Guaranteed
Party which may adversely affect any Guarantor; or (x) any other circumstance
which might otherwise constitute a defense against, or a legal or equitable
discharge of, any Guarantor's liability under this Guaranty.
4. Guaranty Continuing; Reinstatement. This Guaranty shall in
all respects be a continuing and irrevocable guaranty of payment and shall
remain in full force and effect until the Termination Date. If claim is ever
made upon the Guaranteed Party for repayment or recovery of any amount received
by the Guaranteed Party in payment or on account of any of the Guaranteed
Obligations, and if the Guaranteed Party repays all or part of said amount by
reason of (i) any judgment, decree or order of any court or administrative body
having jurisdiction over the Guaranteed Party or any of its property or (ii) any
settlement or compromise of any such claim effected by the Guaranteed Party with
any such claimant (including without limitation the Borrower or a trustee,
conservator or receiver for the Borrower), then and in such event each Guarantor
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon such Guarantor, notwithstanding any revocation or cancellation of
this Guaranty or of any of the Loan Documents, and each Guarantor shall be and
remain liable to the Guaranteed Party hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been paid to
the Guaranteed Party and each Guarantor's obligations and liabilities to the
Guaranteed Party under this Guaranty shall be reinstated to such extent and this
Guaranty and any collateral for this Guaranty shall remain in full force and
effect (or shall be reinstated) to such extent. Each Guarantor hereby expressly
waives the benefit of any applicable statute of limitations and agrees that it
shall be liable under this Guaranty whenever the Guaranteed Party seeks to
enforce such liability against such Guarantor or its property.
5. Waivers and Consents. Each Guarantor hereby waives: (i)
notice of acceptance of this Guaranty by the Guaranteed Party; (ii) notice of
the creation, existence, acquisition, extension, or renewal of any of the
Guaranteed Obligations; (iii) notice of the amount of the Guaranteed Obligations
outstanding from time to time, subject, however, to each Guarantor's right to
make inquiry of the Guaranteed Party at reasonable intervals to ascertain the
amount of Guaranteed Obligations then outstanding; (iv) except as otherwise
expressly required under the Loan Documents, notice of any default or event of
default under any of the Loan Documents or with respect to any of the Guaranteed
Obligations or notice of
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<PAGE>
any other adverse change in the Borrower's financial condition or means or
ability to pay any of the Guaranteed Obligations or perform its obligations
under any of the Loan Documents or notice of any other fact which might increase
any Guarantor's risk hereunder; (v) notice of presentment, demand, protest, and
notice of dishonor or nonpayment as to any instrument; (vi) notice of any
acceleration or other demand for payment of any of the Guaranteed Obligations;
and (vii) all other notices and demands to which any Guarantor might otherwise
be entitled with respect to any of the Guaranteed Obligations or the Loan
Documents or with respect to the Guaranteed Party's enforcement of its rights
and remedies thereunder. Each Guarantor further waives any right such Guarantor
may have, by statute or otherwise, to require the Guaranteed Party to seek
recourse first against the Borrower or any other person, or to realize upon any
collateral for any of the Guaranteed Obligations, as a condition precedent to
enforcing such Guarantor's liability and obligations under this Guaranty, and
each Guarantor further waives any defense arising by reason of any incapacity or
other disability of the Borrower or by reason of any other defense which the
Borrower may have on any of the Guaranteed Obligations or under any of the Loan
Documents. Each Guarantor consents and agrees that, without notice to or consent
by any Guarantor and without affecting or impairing the liability of any
Guarantor under this Guaranty, the Guaranteed Party may compromise or settle,
extend the period of duration or the time for the payment, discharge or
performance of any of the Guaranteed Obligations or Loan Documents, or may
refuse to enforce or may release all or any parties to any or all of the
Guaranteed Obligations (including without limitation any other guarantor
thereof) or any collateral therefor, or may grant other indulgences to the
Borrower or such other parties in respect thereof, or may waive, amend or
supplement in any manner the provisions of any of the Loan Documents or any
other document, instrument or agreement relating to or securing any of the
Guaranteed Obligations (other than this Guaranty), or may release, surrender,
exchange, modify, or compromise any and all collateral securing any of the
Guaranteed Obligations or in which the Guaranteed Party may at any time have a
lien, or may refuse to enforce its rights or may make any compromise or
settlement or agreement therefor, in respect of any and all of such collateral,
or with any party to any of the Guaranteed Obligations or Loan Documents, or
with any other person, or may release or substitute any one or more of the other
endorsers or guarantors of the Guaranteed Obligations whether parties to this
Guaranty or not, or may exchange, enforce, waive or release any collateral for
any guaranty of any of the Guaranteed Obligations. Each Guarantor further
consents and agrees that the Guaranteed Party shall not be under any obligation
to marshal any assets in favor of such Guarantor or against or in payment of any
of the Guaranteed Obligations.
6. Subrogation and Other Rights. Each Guarantor agrees that no
payment, performance or enforcement of such Guarantor's liabilities and
obligations under this Guaranty shall cause such Guarantor, by subrogation or
otherwise, to acquire any of the Guaranteed Party's rights against the Borrower
or any property of the Borrower (or any interest in such rights) unless and
until the Guaranteed Party has received full and indefeasible payment of all of
the Guaranteed Obligations.
7. Cross-Collateralization. Each Guarantor's obligations and
liabilities to the Guaranteed Party under this Guaranty shall be secured by (i)
any and all property pledged by
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<PAGE>
such Guarantor to the Guaranteed Party or in which the Guaranteed Party is
granted a Lien pursuant to the Security Agreement or any other Collateral
Document from such Guarantor to the Guaranteed Party and any and all other
security interests, security titles, pledges, collateral assignments or other
Liens which the Guaranteed Party may now or hereafter have or acquire in, to or
on any real or personal property assets of such Guarantor, whether such assets
now exist or are hereafter acquired, except to the extent that such Guarantor's
obligations and liabilities hereunder are expressly excluded from the coverage
of any such Lien under the express terms of the mortgage, security deed,
security agreement, pledge agreement, collateral assignment or other document
which granted or grants such Lien.
8. Guarantor Due Diligence and Benefit. Each Guarantor is fully
aware of the financial condition, assets and prospects of the Borrower, and each
Guarantor is executing and delivering this Guaranty based solely upon such
Guarantor's own independent investigation thereof and in no part upon any
representation, warranty or statement of the Guaranteed Party with respect to
the Borrower's financial condition, assets or prospects. Each Guarantor is in a
position to and hereby assumes full responsibility for obtaining any and all
information concerning the Borrower's financial condition, assets and prospects
as such Guarantor may now or hereafter deem material to such its decision to
enter into and become liable under this Guaranty and such Guarantor is not
relying upon, nor does such Guarantor expect the Guaranteed Party to furnish it
with any information which may be now or hereafter in the Guaranteed Party's
possession concerning the Borrower's financial condition, assets or prospects.
Each Guarantor hereby knowingly accepts the full range of risks encompassed
within a contract of guaranty, which risks such Guarantor understands may
include, without limitation, the possibility that the Borrower may incur
additional indebtedness to the Guaranteed Party for which such Guarantor may be
liable hereunder after the Borrower's financial condition or means or ability to
pay its lawful debts when they fall due has deteriorated. Each Guarantor further
acknowledges and agrees that any credit or other financial accommodations now or
hereafter extended by the Guaranteed Party to the Borrower and any and all
forbearances with respect to the Borrower or its assets which the Guaranteed
Party may now or hereafter grant are and will be of direct interest, benefit and
advantage to such Guarantor.
9. Guaranteed Party's Accounts and Records; Application of
Payments. Each Guarantor agrees that, in the absence of manifest error, any and
all books and records relating to the Guaranteed Obligations which are prepared
and maintained by the Guaranteed Party shall constitute prima facie evidence of
the existence and amount of the Guaranteed Obligations. In the event that the
Guaranteed Party sends to the Borrower any periodic or other statements of
account with respect to any or all of the Guaranteed Obligations, each such
statement rendered by the Guaranteed Party shall, in the absence of manifest
error, be deemed final, binding and conclusive upon each Guarantor unless the
Guaranteed Party is notified by the Borrower in writing to the contrary within
thirty (30) days after the date such statement was sent by the Guaranteed Party
to the Borrower (and each such notice shall only be deemed an objection to those
items specifically objected to therein). Each Guarantor irrevocably waives the
right to direct the application of any and all payments and collections at any
time hereafter received by the Guaranteed Party from or on behalf of the
Borrower,
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<PAGE>
any Guarantor or otherwise with respect to any of the Guaranteed Obligations and
each Guarantor does hereby irrevocably agree that the Guaranteed Party shall
have the continuing exclusive right to apply and re-apply any and all such
payments and collections received at any time hereafter by the Guaranteed Party
against the Guaranteed Obligations in such manner and order as the Guaranteed
Party may deem advisable, notwithstanding any contrary entry by the Guaranteed
Party upon any of its books and records.
10. Automatic Acceleration of Guaranty. Upon the occurrence of
any Event of Default described in Section 8.1(f), (g) or (h) of the Credit
Agreement, all of the Guaranteed Obligations shall be deemed immediately due and
payable, without notice or demand of any kind by the Guaranteed Party, and each
Guarantor agrees immediately to pay the Guaranteed Obligations in full,
irrespective of whether any or all of the Guaranteed Obligations can then be
accelerated against the Borrower and irrespective of any right which the
Borrower then may have under any bankruptcy, receivership, insolvency or
moratorium law to cure defaults and reinstate the maturities of the Obligations.
11. Notices to Guarantors. All notices, demands and other
communications hereunder or under any of the other Loan Documents by the
Guaranteed Party to any Guarantor shall be effective (i) if given by telecopy,
when such communication is transmitted to the telecopy number set forth beneath
such Guarantor's signature below (with such telecopy promptly confirmed by
delivery of a copy by personal delivery or U.S. mail as otherwise provided in
this Section), (ii) if given by mail within the United States of America, three
(3) days after such communication is deposited in the United States mail with
first class postage prepaid, return receipt requested addressed to such
Guarantor at its address set forth beneath such Guarantor's signature below,
(iii) if sent for overnight delivery within the United States of America by
Federal Express or other reputable national overnight delivery service, one (1)
Business Day after such communication is entrusted to such service for overnight
delivery and with recipient signature required, addressed as aforesaid or (iv)
if given by any other means, when delivered at the address of the party to whom
such notice is being delivered. Any Guarantor may designate a different address
or telecopy number for such Guarantor's receipt of such notices or other
communications but no such change shall be effective unless and until the
Guaranteed Party actually receives written notice thereof from such Guarantor.
12. Collection Costs. Each Guarantor shall be liable to the
Guaranteed Party for, and shall pay to the Guaranteed Party on demand, all
reasonable costs (including without limitation reasonable attorney's fees and
expenses) incurred by the Guaranteed Party in enforcing performance of or
collecting any payments due under this Guaranty.
13. Assignment and Transfer. This Guaranty shall be binding upon
each Guarantor and its successors and permitted assigns and shall inure to the
benefit of and be enforceable by the Guaranteed Party and its successors and
permitted assigns. Without limiting the generality of the preceding sentence,
the Guaranteed Party may assign or grant participations in all or any part of
the Guaranteed Obligations, whereupon such assignee or participant shall become
entitled to all of the rights in respect thereof granted to the Guaranteed Party
herein.
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<PAGE>
14. Governing Law. This Guaranty shall be governed by the
internal laws of the State of New York (without giving effect to its conflicts
of law rules).
15. Subordination of Borrower's and other Credit Party's
Obligations to the Guarantors. As an independent covenant, each Guarantor hereby
expressly covenants and agrees for the benefit of the Guaranteed Party that all
present or future indebtedness, obligations and liabilities of the Borrower or
any other Credit Party (including without limitation any other Guarantor) to any
Guarantor of whatsoever description (collectively, the "Junior Claims") shall be
subordinate and junior in right of payment to all Obligations of the Borrower or
any such other Credit Party to the Guaranteed Party (collectively, the "Senior
Claims"), effective upon the occurrence and during the continuance of an Event
of Default under the Credit Agreement. If an Event of Default under the Credit
Agreement shall occur, then, unless and until such Event of Default shall have
been cured or shall have ceased to exist, no direct or indirect payment (in
cash, property, securities, by set-off or otherwise) shall be made by the
Borrower or any other Credit Party to any Guarantor on account of or in any
manner in respect of any Junior Claim except such payments and distributions the
proceeds of which shall be applied to the Senior Claims. In the event of a
Proceeding (as hereinafter defined), all Senior Claims shall first be paid in
full before any direct or indirect payment or distribution (in cash, property,
securities, by set-off or otherwise) shall be made to any Guarantor on account
of or in any manner in respect of any Junior Claim except such payments and
distributions the proceeds of which shall be applied to the Senior Claims. For
the purposes of the previous sentence, a "Proceeding" shall occur if the
Borrower or any other Credit Party shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, have entered against or in favor of it
an order for relief under the Bankruptcy Code or similar law of any other
jurisdiction, generally fail to pay its debts as they come due (either as to
number or amount), admit in writing its inability to pay its debts generally as
they mature, make a voluntary assignment for the benefit of creditors, commence
any proceeding relating to it under any reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or by any act, indicate its
consent to, approval of or acquiescence in any such proceeding or in the
appointment of any receiver of, or trustee or custodian (as defined in the
Bankruptcy Code) for itself, or any substantial part of its property, or a
trustee or a receiver shall be appointed for the Borrower or any other Credit
Party or for a substantial part of the property of the Borrower or any other
Credit Party, or a petition under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute or any
jurisdiction (whether now or hereafter in effect) shall be filed against the
Borrower or any other Credit Party. In the event any direct or indirect payment
or distribution is made to any Guarantor in contravention of this Section, such
payment or distribution shall be deemed received in trust for the benefit of the
Guaranteed Party and shall be immediately paid over to the Guaranteed Party for
application against the Senior Claims. Each Guarantor agrees to execute such
additional documents as the Guaranteed Party may reasonably request to evidence
the subordination provided for in this Section.
16. Miscellaneous. (a) This Guaranty (together with any
collateral documents executed by any Guarantor to secure its obligations and
liabilities hereunder) constitutes the
-8-
<PAGE>
sole and entire agreement between the Guarantors and the Guaranteed Party with
respect to the subject matter hereof and supersedes and replaces any and all
prior agreements, understandings, negotiations or correspondence between them
with respect thereto, including without limitation any and all prior guaranty
agreements executed by any Guarantor in favor of the Guaranteed Party with
respect to any or all of the Guaranteed Obligations.
(b) Time is of the essence of this Guaranty.
(c) Words importing the singular number hereunder shall include
the plural number and vice versa and any pronouns used herein shall be deemed to
cover all genders. The term "person" as used herein means any individual,
corporation, partnership, joint venture, association, joint-stock company,
trust, unincorporated association, or government (or any agency or political
subdivision thereof).
(d) Wherever possible, any provision in this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any one jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(e) No amendment or waiver of any provision of this Guaranty,
nor consent to any departure by any Guarantor therefrom, shall be effective or
binding upon the Guaranteed Party unless the Guaranteed Party shall first have
given written consent thereto. Any such amendment, waiver or consent which is so
granted by the Guaranteed Party shall apply only to the specific occasion which
is the subject of such amendment, waiver or consent and shall not apply to the
occurrence of the same or any similar event on any future occasion. No failure
on the part of the Guaranteed Party to exercise, and no delay by the Guaranteed
Party in exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right by the Guaranteed
Party. No notice to or demand on any Guarantor in any case by the Guaranteed
Party hereunder shall entitle such Guarantor to any further notice or demand in
any similar or other circumstances or constitute a waiver of the rights of the
Guaranteed Party to take any other or future action in any circumstances without
notice or demand. The remedies provided to the Guaranteed Party in this Guaranty
are cumulative and not exclusive of any other remedies provided by law.
(f) This Guaranty may be executed in one or more counterparts
and each such counterpart shall constitute an original and all such counterparts
together shall constitute one and the same instrument.
(g) All Section headings herein are for convenience of reference
only and shall not limit or otherwise affect the meaning or interpretation of
the provisions of this Guaranty.
17. Jury Trial Waiver; Consent to Jurisdiction and Venue. EACH
GUARANTOR HEREBY WAIVES ANY RIGHT SUCH GUARANTOR MAY HAVE
-9-
<PAGE>
UNDER ANY APPLICABLE LAW TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT OR LEGAL
ACTION WHICH MAY BE COMMENCED BY OR AGAINST ANY GUARANTOR, THE GUARANTEED PARTY
OR THE BORROWER CONCERNING THE INTERPRETATION, CONSTRUCTION, VALIDITY,
ENFORCEMENT OR PERFORMANCE OF THIS GUARANTY OR ANY OF THE LOAN DOCUMENTS. IN THE
EVENT ANY SUCH SUIT OR LEGAL ACTION IS COMMENCED BY THE GUARANTEED PARTY, EACH
GUARANTOR HEREBY EXPRESSLY AGREES, CONSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE CITY AND STATE OF NEW
YORK, BOROUGH OF MANHATTAN, WITH RESPECT TO SUCH SUIT OR LEGAL ACTION, AND EACH
GUARANTOR ALSO EXPRESSLY CONSENTS AND SUBMITS TO AND AGREES THAT VENUE IN ANY
SUCH SUIT OR LEGAL ACTION IS PROPER IN SAID COURTS AND COUNTY AND EACH GUARANTOR
HEREBY EXPRESSLY WAIVES ANY AND ALL PERSONAL RIGHTS UNDER APPLICABLE LAW OR IN
EQUITY TO OBJECT TO THE JURISDICTION AND VENUE OF SAID COURTS. THE JURISDICTION
AND VENUE OF THE COURTS CONSENTED AND SUBMITTED TO AND AGREED UPON IN THIS
SECTION ARE NOT EXCLUSIVE BUT ARE CUMULATIVE AND IN ADDITION TO THE JURISDICTION
AND VENUE OF ANY OTHER COURT UNDER ANY APPLICABLE LAW OR IN EQUITY.
[Remainder of page intentionally left blank]
-10-
<PAGE>
IN WITNESS WHEREOF, the Guarantors have executed and delivered
this Guaranty by its duly authorized officer as of the date first above written.
ARIZONA REPAIR SERVICES, INC.
By: /s/ Greg Roeper
------------------------------------
Title: CFO and V.P.
---------------------------------
Address for Notices:
--------------------
8300 East Raintree Drive
Scottsdale, Arizona 85260
Attn: Greg Roeper
Telecopy: (602) 483-0144
ENHANCED SYSTEMS, INC.
By: /s/ Greg Roeper
------------------------------------
Title: Secretary and Treasurer
---------------------------------
Address for Notices:
-------------------
8300 East Raintree Drive
Scottsdale, Arizona 85260
Attn: Greg Roeper
Telecopy: (602) 483-0144
SECTION 15 OF THE FOREGOING
GUARANTY ACKNOWLEDGED AND
AGREED TO:
VODAVI COMMUNICATIONS
SYSTEMS, INC.
By: /s/ Greg Roeper
------------------------------------
Title: CFO and V.P.
---------------------------------
-11-
TRADEMARK SECURITY AGREEMENT
THIS AGREEMENT is made as of June 11, 1997, by and between
VODAVI COMMUNICATIONS SYSTEMS, INC., an Arizona corporation formerly known as V
Technology Acquisition Corp., having a mailing address at 8300 East Raintree
Drive, Scottsdale, Arizona 85260 ("Debtor"), and GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation having a mailing address at 350 South
Beverly Drive, Suite 200, Beverly Hills, California 90212 (the "Secured Party").
Statement of Facts
------------------
In connection with the financial accommodations to be extended
by the Secured Party to Debtor under the Amended and Restated Credit Agreement,
dated as of April 11, 1994 as amended and restated effective as of June 11,
1997, between Debtor and Secured Party (as the same may hereafter be amended,
restated, supplemented or otherwise modified from time to time, the "Credit
Agreement"), Debtor has agreed to collaterally assign to the Secured Party
certain trademark rights in accordance with the terms of this Agreement.
In consideration of the foregoing premises and other good and
valuable consideration, Debtor hereby agrees with the Secured Party as follows:
Statement of Terms
------------------
Grant of Security Interest. To secure the complete and timely
satisfaction of all of Debtor's obligations hereunder, as well as to secure all
of the rights of the Secured Party hereunder, and to secure the payment and
performance of any and all Obligations (as such term is defined in the Credit
Agreement) (all such Obligations being herein collectively called the "Secured
Obligations"), Debtor hereby grants to the Secured Party a present and
continuing security interest in the entire right, title and interest of Debtor
in and to the trademark application(s) and trademark(s) listed on Schedule 1
attached hereto together with all goodwill of Debtor's business relating thereto
and all other assets of Debtor necessary to produce the products for which such
applications will be or such trademarks are used, including without limitation
all proceeds thereof (such as, by way of example, license royalties and proceeds
of infringement suits), the right to sue for past, present and future
infringements, all rights corresponding thereto throughout the world and all
renewals, extensions and other proceeds thereof (collectively called the
"Trademarks").
Representations and Warranties. Debtor represents and warrants
that:
The Trademarks are subsisting and have not been adjudged invalid
or unenforceable, in whole or in part;
To the best of Debtor's knowledge, each of the Trademarks is
valid and enforceable;
<PAGE>
Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Trademarks, free
and clear of any liens, charges and encumbrances, including without limitation
licenses and covenants by Debtor not to sue third persons, except for any
Permitted Exceptions (as such term is defined in the Credit Agreement); and
Debtor has the unqualified right to enter into this Agreement
and perform its terms.
No Inconsistent Licenses. Debtor agrees that, so long as this
Agreement is in effect, it will not enter into any agreement (for example, a
license or assignment agreement) which is inconsistent with Debtor's obligations
under this Agreement, without the Secured Party's prior written consent.
Event of Default. The failure of the Debtor to perform any of
its obligations hereunder, any breach in any material respect of any
representation or warranty of the Debtor herein, or the occurrence of any Event
of Default under (and as such term is defined in) the Credit Agreement will also
constitute a default by Debtor under this Agreement (herein referred to as an
"Event of Default").
Remedies on Default. If any Event of Default shall have occurred
and be continuing, the Secured Party shall have, in addition to all other rights
and remedies given it by this Agreement, those allowed by law and the rights and
remedies of a secured party under the Code (as such term is defined in the
Credit Agreement) and, without limiting the generality of the foregoing, the
Secured Party may immediately, without demand of performance and without other
notice or demand whatsoever to Debtor, sell at public or private sale or
otherwise realize upon, the whole or from time to time any part of the
Trademarks, or any interest which the Debtor may have therein and, after
deducting from the proceeds of sale or other disposition of the Trademarks all
expenses (including all reasonable expenses for legal services actually incurred
without giving effect to any statutory presumption), shall apply the residue of
such proceeds toward the payment of the Secured Obligations (which application
shall be made, first, to the Secured Party's costs and expenses of such
collection, sale or other disposition, including reasonable attorney's fees
actually incurred without giving effect to any statutory presumption, and then
to the payment of the other Secured Obligations then due). Debtor shall be
liable for any deficiency remaining after the application of such proceeds. Any
remainder of the proceeds after payment in full of the Secured Obligations shall
be paid over to the Debtor. If required by applicable law, notice of any sale or
other disposition of the Trademarks shall be given to Debtor at least ten (10)
days before the time of any intended public or private sale or other disposition
of the Trademarks is to be made, which Debtor hereby agrees shall be reasonable
notice of such sale or other disposition. At any such sale or other disposition
the Secured Party may, to the extent permissible under applicable law, purchase
the whole or any part of the Trademarks sold, free from any right of redemption
on the part of Debtor, which right is hereby waived and released.
-2-
<PAGE>
No Waiver. No course of dealing between Debtor and the Secured
Party, nor any failure to exercise, nor any delay in exercising, on the part of
the Secured Party, any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
Severability. The provisions of this Agreement are several, and
if any clause or provision shall be held invalid and unenforceable in whole or
in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
Modification. This Agreement is subject to modification only by
a writing signed by the Debtor and the Secured Party.
Benefit of Agreement. The benefits and burdens of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties.
Governing Law. The validity and interpretation of this Agreement
and the rights and obligations of the parties shall be governed by the laws of
the State of New York (without giving effect to its conflict of law rules) and
the United States of America.
Terminology; Headings. All singular terms used herein shall
include the plural and vice versa, and all pronouns used herein shall be deemed
to cover all genders. All section headings used herein are for convenience of
reference only and do not constitute a substantive part of this Agreement.
Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which counterparts when so executed and
delivered, shall be deemed to be an original, and all of which counterparts,
taken together, shall constitute one and the same Agreement.
Expenses; Indemnity. Debtor will upon demand pay to the Secured
Party the amount of any and all expenses, including reasonable attorney's fees
and fees of other experts, which the Secured Party may from time to time
actually incur (and calculated without giving effect to any statutory
presumption) in connection with (i) the administration of this Agreement, (ii)
the preservation of or the sale or other disposition of or other realization
upon any of the Trademarks, (iii) the exercise or enforcement of any of the
rights of the Secured Party hereunder or (iv) the failure by the Debtor to
perform or observe any of the provisions hereof. Debtor also hereby agrees to
indemnify the Secured Party and hold the Secured Party harmless from and against
any liability, loss, damage, suit, action or proceeding ever suffered or
incurred by the Secured Party as a result of (i) Debtor's failure to observe,
-3-
<PAGE>
perform or discharge Debtor's duties hereunder or (ii) the Secured Party's
holding or administering this Agreement or its rights,titles or interests in the
Trademarks, unless with respect to any of the above, the Secured Party is
determined to have acted with gross negligence or to have engaged in wilful
misconduct. The obligations of the Debtor under this paragraph 14 shall survive
the termination of this Agreement.
Security Agreement; Intercreditor Agreement, Entire Agreement;
Termination. (a) The Secured Party also has a Lien in the Trademarks under the
terms of the Security Agreement, dated April 11, 1994, executed by the Debtor in
favor of the Secured Party (the "Security Agreement"), and this Agreement is
intended to supplement such Security Agreement, but in the event of any
inconsistency between the terms of this Agreement and those of such Security
Agreement, the terms of such Security Agreement shall control, and the Secured
Party may elect to pursue its rights and remedies with respect to the Trademarks
under either or both of this Agreement or such Security Agreement.
(b) This Agreement, together with all other instruments,
agreements and certificates executed by the parties in connection herewith or
with reference hereto, embodies the entire understanding and agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings and inducements, whether express or implied,
oral or written.
(c) This Agreement shall terminate with, and in accordance with
the terms of, the Security Agreement, and all of the Secured Party's security
interests hereunder shall be automatically terminated and released on such date
(subject to reinstatement as provided in Section 11 of the Security Agreement).
-4-
<PAGE>
WITNESS the execution hereof as of the day and year first above
written.
DEBTOR:
VODAVI COMMUNICATIONS
SYSTEMS, INC.
By: /s/ Greg Roeper
------------------------------------
Title: CFO, V.P.
-----------------------------
SECURED PARTY:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy Morris
------------------------------------
Title: Duly Authorized Signatory
-----------------------------
-5-
TRADEMARK SECURITY AGREEMENT
THIS AGREEMENT is made as of June 11, 1997, by and between
ENHANCED SYSTEMS, INC., an Arizona corporation having a mailing address at 8300
East Raintree Drive, Scottsdale, Arizona 85260 ("Debtor"), and GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation having a mailing address at 350
South Beverly Drive, Suite 200, Beverly Hills, California 90212 (the "Secured
Party").
Statement of Facts
------------------
In connection with the financial accommodations to be extended
by the Secured Party to Vodavi Communications Systems, Inc. (the "Borrower")
under the Amended and Restated Credit Agreement, dated as of April 11, 1994 as
amended and restated effective as of June 11, 1997, between the Borrower and
Secured Party (as the same may hereafter be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), Debtor has agreed
to collaterally assign to the Secured Party certain trademark rights in
accordance with the terms of this Agreement.
In consideration of the foregoing premises and other good and
valuable consideration, Debtor hereby agrees with the Secured Party as follows:
Statement of Terms
------------------
Grant of Security Interest. To secure the complete and timely
satisfaction of all of Debtor's obligations hereunder, as well as to secure all
of the rights of the Secured Party hereunder, and to secure the payment and
performance of any and all Obligations (as such term is defined in the Credit
Agreement) including Debtor's guarantee thereof (all such Obligations being
herein collectively called the "Secured Obligations"), Debtor hereby grants to
the Secured Party a present and continuing security interest in the entire
right, title and interest of Debtor in and to the trademark application(s) and
trademark(s) listed on Schedule 1 attached hereto together with all goodwill of
Debtor's business relating thereto and all other assets of Debtor necessary to
produce the products for which such applications will be or such trademarks are
used, including without limitation all proceeds thereof (such as, by way of
example, license royalties and proceeds of infringement suits), the right to sue
for past, present and future infringements, all rights corresponding thereto
throughout the world and all renewals, extensions and other proceeds thereof
(collectively called the "Trademarks").
Representations and Warranties. Debtor represents and warrants
that:
The Trademarks are subsisting and have not been adjudged invalid
or unenforceable, in whole or in part;
To the best of Debtor's knowledge, each of the Trademarks is
valid and
<PAGE>
enforceable;
Debtor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the Trademarks, free
and clear of any liens, charges and encumbrances, including without limitation
licenses and covenants by Debtor not to sue third persons, except for any
Permitted Exceptions (as such term is defined in the Credit Agreement); and
Debtor has the unqualified right to enter into this Agreement
and perform its terms.
No Inconsistent Licenses. Debtor agrees that, so long as this
Agreement is in effect, it will not enter into any agreement (for example, a
license or assignment agreement) which is inconsistent with Debtor's obligations
under this Agreement, without the Secured Party's prior written consent.
Event of Default. The failure of the Debtor to perform any of
its obligations hereunder, any breach in any material respect of any
representation or warranty of the Debtor herein, or the occurrence of any Event
of Default under (and as such term is defined in) the Credit Agreement will also
constitute a default by Debtor under this Agreement (herein referred to as an
"Event of Default").
Remedies on Default. If any Event of Default shall have occurred
and be continuing, the Secured Party shall have, in addition to all other rights
and remedies given it by this Agreement, those allowed by law and the rights and
remedies of a secured party under the Code (as such term is defined in the
Credit Agreement) and, without limiting the generality of the foregoing, the
Secured Party may immediately, without demand of performance and without other
notice or demand whatsoever to Debtor, sell at public or private sale or
otherwise realize upon, the whole or from time to time any part of the
Trademarks, or any interest which the Debtor may have therein and, after
deducting from the proceeds of sale or other disposition of the Trademarks all
expenses (including all reasonable expenses for legal services actually incurred
without giving effect to any statutory presumption), shall apply the residue of
such proceeds toward the payment of the Secured Obligations (which application
shall be made, first, to the Secured Party's costs and expenses of such
collection, sale or other disposition, including reasonable attorney's fees
actually incurred without giving effect to any statutory presumption, and then
to the payment of the other Secured Obligations then due). Debtor shall be
liable for any deficiency remaining after the application of such proceeds. Any
remainder of the proceeds after payment in full of the Secured Obligations shall
be paid over to the Debtor. If required by applicable law, notice of any sale or
other disposition of the Trademarks shall be given to Debtor at least ten (10)
days before the time of any intended public or private sale or other disposition
of the Trademarks is to be made, which Debtor hereby agrees shall be reasonable
notice of such sale or other disposition. At any such sale or other disposition
the Secured Party may, to the extent permissible under applicable law, purchase
the whole or any part of the Trademarks sold, free
-2-
<PAGE>
from any right of redemption on the part of Debtor, which right is hereby waived
and released.
No Waiver. No course of dealing between Debtor and the Secured
Party, nor any failure to exercise, nor any delay in exercising, on the part of
the Secured Party, any right, power or privilege hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
Severability. The provisions of this Agreement are several, and
if any clause or provision shall be held invalid and unenforceable in whole or
in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
Modification. This Agreement is subject to modification only by
a writing signed by the Debtor and the Secured Party.
Benefit of Agreement. The benefits and burdens of this Agreement
shall inure to the benefit of and be binding upon the respective heirs, legal
representatives, successors and assigns of the parties.
Governing Law. The validity and interpretation of this Agreement
and the rights and obligations of the parties shall be governed by the laws of
the State of New York (without giving effect to its conflict of law rules) and
the United States of America.
Terminology; Headings. All singular terms used herein shall
include the plural and vice versa, and all pronouns used herein shall be deemed
to cover all genders. All section headings used herein are for convenience of
reference only and do not constitute a substantive part of this Agreement.
Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which counterparts when so executed and
delivered, shall be deemed to be an original, and all of which counterparts,
taken together, shall constitute one and the same Agreement.
Expenses; Indemnity. Debtor will upon demand pay to the Secured
Party the amount of any and all expenses, including reasonable attorney's fees
and fees of other experts, which the Secured Party may from time to time
actually incur (and calculated without giving effect to any statutory
presumption) in connection with (i) the administration of this Agreement, (ii)
the preservation of or the sale or other disposition of or other realization
upon any of the Trademarks, (iii) the exercise or enforcement of any of the
rights of the Secured Party hereunder or (iv) the failure by the Debtor to
perform or observe any of
-3-
<PAGE>
the provisions hereof. Debtor also hereby agrees to indemnify the Secured Party
and hold the Secured Party harmless from and against any liability, loss,
damage, suit, action or proceeding ever suffered or incurred by the Secured
Party as a result of (i) Debtor's failure to observe, perform or discharge
Debtor's duties hereunder or (ii) the Secured Party's holding or administering
this Agreement or its rights, titles or interests in the Trademarks, unless with
respect to any of the above, the Secured Party is determined to have acted with
gross negligence or to have engaged in wilful misconduct. The obligations of the
Debtor under this paragraph 14 shall survive the termination of this Agreement.
Security Agreement; Intercreditor Agreement, Entire Agreement;
Termination. (a) The Secured Party also has a Lien in the Trademarks under the
terms of the Security Agreement, dated as of June 11, 1997, executed by the
Debtor in favor of the Secured Party (the "Security Agreement"), and this
Agreement is intended to supplement such Security Agreement, but in the event of
any inconsistency between the terms of this Agreement and those of such Security
Agreement, the terms of such Security Agreement shall control, and the Secured
Party may elect to pursue its rights and remedies with respect to the Trademarks
under either or both of this Agreement or such Security Agreement.
(b) This Agreement, together with all other instruments,
agreements and certificates executed by the parties in connection herewith or
with reference hereto, embodies the entire understanding and agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, understandings and inducements, whether express or implied,
oral or written.
(c) This Agreement shall terminate with, and in accordance with
the terms of, the Security Agreement, and all of the Secured Party's security
interests hereunder shall be automatically terminated and released on such date
(subject to reinstatement as provided in Section 11 of the Security Agreement).
-4-
<PAGE>
WITNESS the execution hereof as of the day and year first above
written.
DEBTOR:
ENHANCED SYSTEMS, INC.
By: /s/ Greg Roeper
------------------------------------
Title: Secretary and Treasurer
---------------------------------
SECURED PARTY:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Timothy Morris
------------------------------------
Title: Duly Authorized Signatory
---------------------------------
-5-
STRATEGIC ALLIANCE AGREEMENT
----------------------------
THIS STRATEGIC ALLIANCE AGREEMENT (this "Agreement") is made
and entered into as of the 22nd day of May, 1997, effective as of May 1, 1997
(the "Effective Date") by and between VODAVI COMMUNICATIONS SYSTEMS, INC., an
Arizona corporation located at 8300 East Raintree Drive, Scottsdale, Arizona
85260 ("Vodavi"), and PARADYGM COMMUNICATIONS INC., a Delaware corporation
located at 2100 Parklake Drive NE, Atlanta, Georgia 30345 ("Paradigm").
RECITALS:
A. Vodavi is engaged in the business of designing,
manufacturing and supplying telecommunications products, including, among other
things, (i) a Vodavi Digital PBX telephone system containing, among other
things, keysets, D.S.S. and specialized software developed by Vodavi (the
"Software") enabling its specialized use primarily in the hotel/motel
(hospitality) service industry, extended health care facilities and other
similar businesses (the "Industries") (the PBX system containing the Software
may hereinafter be referred to as the "PBX Systems"), (ii) feature telephones
("2600 Series Telephones"), (iii) single-line telephones ("2500 Series
Telephones"), and (iv) voice-mail/auto attendant systems ("Voice Systems") all
as are described in Exhibit A as the same may be amended from time to time
(collectively, the "Products").
B. Upon the terms and conditions set forth in this Agreement:
(i) Paradigm desires to purchase and become a distributor of the Products in
North America, (ii) Paradigm desires to exclusively engage Vodavi to manufacture
and supply Paradigm with its requirements of the Products; and (iii) Vodavi
desires to sell the Products to Paradigm.
AGREEMENT:
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Vodavi and Paradigm agree as
follows:
1. Appointment of Vodavi. Subject to and in accordance with
the terms and conditions of this Agreement, Paradigm appoints Vodavi as the
exclusive manufacturer of all of Paradigm's requirements of the Products. Vodavi
hereby accepts such appointment. Paradigm agrees to purchase the Products and
all similar telecommunication products for the Industries in the Territory (as
hereinafter defined) only from Vodavi during the Term of Exclusivity (as
hereinafter defined).
2. Appointment of Paradigm. Subject to and in accordance with
the terms and conditions of this Agreement, Vodavi appoints Paradigm as the
exclusive distributor of the PBX Systems and the software contained in the Voice
Systems, and a non-exclusive distributor
<PAGE>
of the other Products, in the Territory until December 31, 1998 (the "Term of
Exclusivity"). Paradigm hereby accepts such appointment. Paradigm shall remain
the exclusive distributor of the PBX Systems and the software contained in the
Voice Systems in the Territory, and the Term of Exclusivity shall be extended,
from year to year thereafter during the term of this Agreement, provided that
Paradigm satisfies its Minimum Purchase Obligations (as defined in Section 14)
for the previous year. If Paradigm does not satisfy its Minimum Purchase
Obligation during any year of the term of this Agreement, then, at the end of
that year, and at the option of Vodavi, (i) the Term of Exclusivity shall end,
(ii) Paradigm shall become a non-exclusive distributor of the PBX Systems and
the software contained in the Voice Systems in the Territory, and a
non-exclusive licensee of the Software, and (iii) Vodavi shall have the right to
appoint other distributors of the PBX Systems and the software contained in the
Voice Systems in the Territory.
3. Territory. The "Territory" for purposes of this Agreement
shall mean North America, including Canada and the United States of America,
Puerto Rico, Guam, the U.S. Virgin Islands and to the extent permitted by
Vodavi's manufacturing partner, Mexico. The parties hereto may revise and update
the Territory at any time or from time to time by an amendment in writing
attached to this Agreement.
4. Term. The term of this Agreement shall commence on the
Effective Date and continue in effect until December 31, 2001 (the "Initial
Term"). Following the expiration of the Initial Term, this Agreement shall be
automatically renewed for successive three-year terms each individually referred
to as a "Renewal Term," unless either party notifies the other party in writing
of its desire not to renew no later than one hundred eighty (180) days prior to
the expiration of the Initial Term or any Renewal Term, as applicable, whereupon
this Agreement shall terminate at the end of the term within which such notice
is given.
5. Pricing by Vodavi; Payments. The purchase price for the
Products shall be set forth on Exhibit B as may be amended from time to time by
written notice from Vodavi to Paradigm of a price change at least ninety (90)
days prior to the effective date of the price change. Vodavi shall not increase
any prices prior to December 31, 1998, unless necessitated by a force majeure
described in Section 23 hereof; provided, however, that Vodavi provides Paradigm
with proof of the applicable cost increases to Vodavi caused by the force
majeure and provided further that the price increase does not exceed ten percent
(10%) of the applicable purchase price prior to the increase. Except as
otherwise expressly agreed in writing by the parties hereto, payment for the
Products shall be made in United States dollars in an amount adequate to cover
the full purchase price plus all other charges, if any, incurred by Vodavi for
the account of Paradigm. All payments for Products shall be due and payable in
full within thirty (30) days from the date of invoice. In no event shall the
invoice date precede (a) the shipping date of the Products for which payment is
due for Products Vodavi is not warehousing; or (b) the date of delivery of the
Products to Vodavi's warehouse for Products Vodavi is warehousing.
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All payments due shall at all times be secured by an
irrevocable standby letter of credit (the "Letter of Credit") obtained by
Paradigm and submitted to Vodavi, in a form and from a banking institution
acceptable to Vodavi. The Letter of Credit shall be in an amount equal to or in
excess of all outstanding invoices due from Paradigm to Vodavi plus payment
amounts for Products ordered by Paradigm. Upon execution of this Agreement,
Paradigm shall provide the Letter of Credit to Vodavi, which will have a one (1)
year term and shall be renewable annually or from time to time as required by
this Agreement. If full payment of any invoice is not received by Vodavi when
due, then Paradigm's account will be deemed delinquent and Vodavi shall be
entitled to draw down from the Letter of Credit the amount delinquent together
with a late payment fee of one percent (1%) of the balance due for each month,
or any part thereof, that any amount remains (or remained) delinquent. The late
payment fee permits Vodavi to be compensated for receiving a late payment and is
not intended to create a credit arrangement. Vodavi reserves the right to
suspend performance, to decline to deliver except for cash in advance and/or to
stop delivery of Products in transit whenever Paradigm's account is delinquent.
6. Private-Label Products. The PBX System keysets and, at
Paradigm's request, 2600 Series Telephones (collectively, the "Private Label
Products") shall be manufactured using Paradigm's, or another mutually
agreeable, name and logo. Prior to tooling Vodavi's equipment for the production
of the Private Label Products, Paradigm shall furnish to Vodavi all molds,
stamps, artwork, and other specialized materials and instructions required to
accurately place the name and logo on the Private Label Products. All molds,
stamps, artwork and other specialized materials not provided by Paradigm but
required to label the Private Label Products as instructed by Paradigm shall be
acquired and/or commissioned by Vodavi at the sole cost and expense of Paradigm,
and Paradigm agrees to promptly pay all such costs and expenses. The Private
Label Products may also bear the name and logo of Vodavi on the outside metal
base and anywhere on the interior components of the Private Label Products. The
PBX Systems and other Products may bear the trade marks, name and logo of Vodavi
and Paradigm.
7. Warehousing; Inventory Fulfillment; Technical Support.
Commencing on the Effective Date and continuing until ninety (90) days after
Vodavi receives written notice to cease warehousing Products, Vodavi shall
perform, for and on behalf of Paradigm, the warehousing and inventory
fulfillment functions described and at the costs set forth, on Exhibit C.
Exhibit C also sets forth the costs any payment terms for the performance of
warehousing and inventory fulfillment. Paradigm shall pay all such costs to
Vodavi as and when due.
Commencing on the Effective Date and continuing until ninety
(90) days after Vodavi receives written notice to cease providing technical
support, Vodavi shall perform, for and on behalf of Paradigm, technical support
for the Products as described on Exhibit D. Exhibit D also sets forth the costs
of any payment terms for the performance of technical support. Paradigm shall
pay all such costs to Vodavi as and when due.
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8. Ordering Procedures. All orders of the Products pursuant to
this Agreement shall be subject to the terms and conditions set forth in this
Agreement, notwithstanding the terms specified in any purchase order, and the
terms and conditions of this Agreement shall supersede all pre-printed terms and
conditions of any such purchase order, unless otherwise agreed to in writing by
Vodavi. Whenever Paradigm desires to purchase any of the Products from Vodavi,
Paradigm shall deliver to Vodavi a numbered and signed written purchase order
specifying the quantities and model numbers of the Products desired to be
purchased and the desired destination and shipping date for the ordered
Products, which shipping date must take into account an appropriate lead time to
manufacture such Products. All purchase orders shall be made for Products in at
least the minimum quantities set forth in Exhibit E attached hereto as may be
amended from time to time. All orders made in compliance with this Agreement
shall be deemed accepted by Vodavi on the tenth (10th) day after receipt unless
prior to such time Vodavi delivers to Paradigm a notice of rejection.
All orders for 2500 and 2600 Series Telephones (other than
Private Label Products) shall be shipped within forty-eight (48) hours after
receipt by Vodavi to the extent such Products are available in Vodavi's
warehouse. Vodavi shall use its best reasonable efforts to stock in its
warehouse sufficient quantities of such telephones to meet Paradigm's Forecasts,
as set forth in Section 14; in all events however, orders for such will be
shipped within one hundred twenty (120) days. All orders for Voicemail shall be
shipped within ten (10) days after receipt by Vodavi. The appropriate lead time
for any quantity of PBX Systems shall be one hundred fifty (150) days, and the
appropriate lead time for any quantity of any other Private Label Products shall
be one hundred twenty (120) days. Vodavi shall use reasonable best efforts to
ship Products when and as required by Paradigm based on the shipping and lead
times set forth in this Section.
9. Shipment of the Products. All deliveries of Products by
Vodavi to Paradigm shall be shipped F.O.B. Vodavi's facility in Scottsdale,
Arizona, F.O.B. Vodavi's facility in Norcross, Georgia, or F.O.B. Vodavi's other
domestic facility. Vodavi shall ship all Products to the address specified for
shipment on the applicable purchase order. All Products shall be packaged by
Vodavi as Vodavi deems proper for protection against normal handling. All
charges incurred subsequent to the delivery of Products for shipment, including
without limitation, freight, insurance, customs, duties, demurrage charges and
turnover, sales, excise and other foreign, federal, state or local taxes, shall
be borne by Paradigm or, if paid or incurred by Vodavi, shall be reimbursed by
Paradigm. Paradigm will contract directly with the applicable freight carrier to
pay all shipping costs. The payment of delivery freight shall be the sole
responsibility of Paradigm, and Paradigm shall promptly pay all such charges.
Vodavi shall use a freight carrier of its own choice, unless Paradigm designates
an alternative freight carrier for delivery of Products, whereupon Vodavi shall
use Paradigm's designated freight carrier for shipments of Products whenever
possible.
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10. Risk of Loss. Paradigm shall bear the entire risk of loss
of or damage to Products occurring at any time after delivery of the Products to
the freight carrier to the extent Vodavi is not warehousing the Products, and at
any time after delivery to Vodavi's warehouse to the extent Vodavi is
warehousing the Products. If Vodavi delays delivery of Products to the freight
carrier due to any action or request of Paradigm, then Paradigm shall pay all
reasonable storage and insurance charges incurred by Vodavi for such Products.
If any of the Products are returned by Paradigm, risk of loss shall remain upon
Paradigm until the Products are received by Vodavi. Paradigm agrees to indemnify
and hold Vodavi harmless for, from and against any and all loss of or damage to
the Products sustained while risk of loss remains upon Paradigm. Vodavi agrees
to indemnify and hold Paradigm harmless for, from and against any and all loss
of or damage to the Products sustained while risk of loss remains upon Vodavi.
11. PBX Software License Grant. Paradigm acknowledges that
Vodavi has developed certain software for use only in the PBX Systems that
enables the PBX Systems to be used primarily in the hotel/motel (hospitality)
service industry and may be adapted to the other Industries (the "Software").
Subject to Paradigm's adherence to the terms of this Agreement, Vodavi grants to
Paradigm for the Term of Exclusivity a non-exclusive license to use the Software
and to sublicense use of the Software by Paradigm's customers, but only as
incorporated into a PBX System manufactured by Vodavi and used in connection
with the Industries in the Territory. This Agreement transfers no rights to
Paradigm or any of Paradigm's customers with respect to all or any portion of
the Software except as specifically provided herein. Paradigm is hereby
prohibited from reverse engineering (by disassembly, decompilation or otherwise)
the Software and may not copy or reproduce all or any portion of the Software
for any purpose whatsoever. Notwithstanding anything in this Agreement, Vodavi
retains all title to, and, except as expressly and unambiguously licensed
herein, all rights to the Software, all copies and derivative works thereof (by
whomever produced) and all related documentation and materials. Paradigm will
cooperate with Vodavi in preventing infringement of the Software and assist
Vodavi in all reasonable respects to protect its rights in and to the Software.
12. Representations and Warranties by Vodavi. Vodavi
represents and warrants to Paradigm that: (a) Vodavi is a corporation duly
formed, validly existing and in good standing under the laws of Arizona, with
the full right, power and authority, corporate and otherwise, to manufacture and
to sell the Products to Paradigm according to the terms of this Agreement and to
carry out the transactions contemplated hereunder in all jurisdictions where
such authority is required; (b) the execution and delivery of this Agreement,
the timely consummation of the transactions contemplated hereby and the complete
and timely fulfillment of the terms hereof have been duly and validly authorized
by all necessary action on the part of Vodavi; (c) this Agreement constitutes
the legal, valid and binding obligation of Vodavi, enforceable against Vodavi in
the United States; and (d) neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will conflict
with, violate or result in a breach of or
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default under (with or without the giving of notice or the passage of time, or
both): (i) the articles of incorporation or bylaws of Vodavi; (ii) any license,
instrument, contract or agreement to which Vodavi is a party or by which Vodavi
is bound; or (iii) any law, order, rule, regulation, writ, injunction or decree
that is applicable to Vodavi.
13. Representations and Warranties by Paradigm. Paradigm
represents and warrants to Vodavi that: (a) Paradigm is a corporation duly
formed, validly existing and in good standing under the laws of the State of
Delaware, with the full right, power and authority, corporate and otherwise, to
purchase, market and sell the Products and perform all other duties arising
under the terms of this Agreement and to carry out the transactions contemplated
hereunder in all jurisdictions where such authority is required; (b) the
execution and delivery of this Agreement, the timely consummation of the
transactions contemplated hereby, and the complete and timely fulfillment of the
terms hereof have been duly and validly authorized by all necessary action on
the part of Paradigm; (c) this Agreement constitutes the legal, valid and
binding obligation of Paradigm, fully enforceable against Paradigm in accordance
with its terms; and (d) neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will conflict
with, violate or result in a breach of or default under (with or without the
giving of notice or the passage of time, or both): (i) the incorporation
documents or corporate bylaws of Paradigm; (ii) any license, instrument,
contract or agreement to which Paradigm is a party or by which Paradigm is
bound; or (iii) any law, order, rule, regulation, writ, injunction or decree
that is applicable to Paradigm.
14. Forecasts; Minimum Purchase Obligation. On or before the
tenth (10th) business day of each calendar month, Paradigm will provide to
Vodavi a written report containing sales and customer data for the previous
month and a forecast of its Product delivery requirements for the next
consecutive eleven (11) calendar month period (a "Forecast"). The initial
Forecast will indicate scheduled shipment for the first four (4) months of the
Initial Term for Private Label telephones and for the first five (5) months of
the Initial Term for all other Products, and forecasted deliveries of all
Products for the six (6) months subsequent to the first five (5) months of the
Initial Term. The first (5) five months (four (4) months for Private Label
telephones) of each rolling Forecast will represent a firm purchase commitment
from Paradigm to Vodavi, and Paradigm shall submit purchase orders to Vodavi for
such purchase commitments. The rolling Forecast submitted each month shall take
into account the firm purchase commitments from the preceding month's rolling
Forecast. On an annual basis, the total of the purchases of Products by Paradigm
from Vodavi, shall be at least in those minimum annual dollar amounts as set
forth on Exhibit F attached hereto ("Minimum Purchase Obligations"). During the
course of the Initial Term, Paradigm shall order at least the minimum quantities
of certain of the Products as is set forth in Exhibit F attached hereto
("Minimum Unit Obligation"). The parties hereto shall update and amend Exhibit F
from time to time as new Products are added to Exhibit A attached hereto, new
areas of Territory are added and within one hundred eighty (180) days prior to
any Renewal Term. To the extent Vodavi
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does not timely deliver Products, recalls Products, delivers defective Products
or in the event of a force majeure, as discussed in Section 24, the Minimum
Purchase Obligations and Minimum Unit Obligations shall be reasonably adjusted
accordingly.
15. Other Obligations of Paradigm. Paradigm agrees to use its
best efforts throughout the term of this Agreement to encourage and develop the
full sales potential for the Products in the Industries in the Territory, and to
promptly meet all demands and needs for marketing and after-sale support of the
Products sold by Paradigm. Paradigm shall endeavor to maintain adequate
inventories of the Products at all times, and shall encourage purchase of the
Products by Paradigm's existing customer base. Except as set forth in Section 7
hereof, Paradigm shall be responsible for all costs and expenses associated with
the installation of the Products, after-sale service, customer support and
training of the end-users of the Products.
16. Other Obligations of Vodavi. Vodavi agrees to use its
reasonable best efforts throughout the term of this Agreement to support
Paradigm in its efforts to promote the sale of the Products by providing
reasonable technical and sales training assistance for Paradigm's employees and
sales representatives in the Paradigm sales organization, as set forth in
Attachments D and E to Exhibit G attached hereto.
17. Acceptance and Inspection. To the extent that Vodavi does
not warehouse the Products, Paradigm shall have a period of thirty (30) days
following the delivery of a shipment of Products from Vodavi to inspect that
shipment for defects and nonconformities. Failure to notify Vodavi, in writing,
of a rejection of any Products received within the thirty (30) day period, for
reason of defect and/or nonconformity, shall be deemed an acceptance of the
entire shipment by Paradigm. Paradigm's acceptance of Products shall not be
deemed to cover defects that could not have been discovered by a reasonable and
customary inspection, in which case Paradigm shall have sixty (60) days from the
date of delivery to notify Vodavi, in writing, of a rejection of such Products.
All written rejections of any Products by Paradigm made in accordance with this
Section, shall specify in detail the defects and/or nonconformities in the
Products for which the rejection is made.
18. Nondisclosure and Limited Use of Confidential and
Proprietary Information. Each party hereto shall refrain from disclosing to any
third parties, or using for any purpose unrelated to this Agreement, the
existence of, or any of the terms of, this Agreement, all information concerning
the pricing of the Products, any customer lists, operating, financial,
marketing, sales or technical information or other confidential or proprietary
information of the other, including, without limitation, information as to their
respective customers or the relationship established hereunder; and each party
hereto shall cause its employees and agents to refrain from disclosing to any
third parties, or using, for any purpose unrelated to the performance of this
Agreement, any such confidential or proprietary information of the other. Each
party hereto shall limit its use of any confidential or proprietary information
received from the other to the purposes of this
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Agreement. In addition, Paradigm and Vodavi agree to keep confidential and not
disclose to any other person or entity, any writings between Paradigm and Vodavi
that are conspicuously marked or designated as "Confidential."
19. Advertising and Promotion; Use of Vodavi Name. Paradigm
shall have the right, privilege and license during the term of this Agreement to
advertise and to promote the Products by telephone, mail, newspaper, magazine,
radio, television and any other lawful means using the name "Vodavi" and any
other tradename, symbol, trademark or corporate name used by Vodavi with respect
to the Products, provided such use conforms to standards and guidelines relating
thereto that Vodavi may furnish from time to time. Use of tradenames, symbols,
trademarks, corporate names and other intellectual property of Vodavi by
Paradigm will be subject to prepublication or prior review and approval by
Vodavi. The use of any tradenames, symbols, trademarks, corporate names or other
intellectual property rights of Vodavi by Paradigm shall not give Paradigm any
proprietary rights therein.
20. Warranty of Products. Vodavi expressly warrants that the
Products sold to Paradigm will be free of defects in materials and workmanship
under normal use and service for the warranty period in accordance with the
terms and conditions set forth in Exhibit G attached hereto. Repair and/or
replacement of Products by Vodavi shall be as provided in Exhibit G attached
hereto. VODAVI MAKES NO WARRANTY OTHER THAN THE ONE SET FORTH IN EXHIBIT G
ATTACHED HERETO. THE WARRANTY SET FORTH THEREIN IS IN LIEU OF ALL OTHER
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY EXPRESSED OR
IMPLIED WARRANTY OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE, OR
AGAINST INFRINGEMENT, AND IT CONSTITUTES THE ONLY WARRANTY MADE WITH RESPECT TO
THE PRODUCTS COVERED BY THESE TERMS AND CONDITIONS. IN NO EVENT SHALL VODAVI BE
LIABLE FOR LOSS OF ANTICIPATED PROFITS, INCIDENTAL OR CONSEQUENTIAL DAMAGE, LOSS
OF TIME, OR OTHER LOSSES INCURRED BY PARADIGM IN CONNECTION WITH THE PURCHASE,
POSSESSION, OPERATION, OR USE OF THE PRODUCTS, SUCH CLAIMS BEING HEREBY
EXPRESSLY WAIVED BY PARADIGM.
21. No Exclusive Rights in Vodavi Products Generally. This
Agreement is not to be construed as granting any exclusive rights to Paradigm
with respect to the sale and marketing of (a) any telephones manufactured by
Vodavi not bearing Paradigm's name or logo, or (b) PBX systems or switches
manufactured by Vodavi for industries other than the Industries. Vodavi shall
have the right to sell its own products to any and all potential purchasers,
including, without limitation, competitors of Paradigm.
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22. Termination.
(a) Generally. Except as otherwise provided for in
this Agreement, if either party materially defaults in the performance of any of
its obligations under this Agreement, the other party may defer its performance
hereunder until the default is cured. If the material default is not cured
within forty-five (45) days after the giving of written notice thereof to the
defaulting party, at the option of the non-defaulting party exercised in writing
to the defaulting party, this Agreement shall terminate at the end of the
forty-five (45) day period. The nondefaulting party may also pursue all other
available legal and equitable remedies. A material default within the meaning of
this Section shall include, without limitation, a failure of Paradigm to timely
pay any amounts owing to Vodavi, as provided in this Agreement.
(b) Exclusion of Certain Liability. EXCEPT TO THE
EXTENT OF ANY LIABILITY ARISING PURSUANT TO SECTION 23 HEREOF, UNDER NO
CIRCUMSTANCES SHALL VODAVI OR PARADIGM BE LIABLE TO THE OTHER FOR ANY SPECIAL,
INCIDENTAL, CONSEQUENTIAL, INDIRECT OR EXEMPLARY LOSSES OR DAMAGES PERTAINING IN
ANY WAY TO THE PRODUCTS UNDER THIS AGREEMENT.
(c) Balance Due at Termination or Expiration. Upon
the termination or the expiration of this Agreement, Paradigm shall pay to
Vodavi a sum equal to the total then outstanding balance of all of Paradigm's
accounts with Vodavi, including, without limitation, all sums due for Products
ordered prior to the effective date of termination or expiration.
(d) Survival of Certain Obligations. Notwithstanding
any termination or expiration of this Agreement, Paradigm shall not be relieved
of its obligation to pay for all Products ordered prior to termination or
expiration, and neither party shall be relieved of its warranty and
indemnification obligations set forth herein.
(e) Events of Default. Notwithstanding anything set
forth in this Agreement to the contrary, the occurrence of any of the following
events shall be considered an event of default hereunder for which the
nondefaulting party may terminate this Agreement upon five (5) days prior
written notice to the defaulting party: (a) the filing of any voluntary or
involuntary petition for bankruptcy or upon any agreement (oral or written) in
respect of any arrangement for the benefit of creditors; (b) the sale, transfer,
conveyance or other disposition of either the capital stock or beneficial
interest in the party resulting in a "change of control" of such party, or of
substantially all of the assets of such party in any case without the prior
written consent of the other party, which shall not be unreasonably withheld; or
(c) with respect to Vodavi, Vodavi's decision to discontinue the manufacture,
sale or distribution of the Products or a component necessary for the assembly
of the Products.
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23. Indemnification.
(a) Indemnification by Paradigm; Product Liability;
Distribution Activities. Paradigm shall indemnify, defend and hold Vodavi, its
officers, directors, shareholders, employees, agents and representatives
harmless for, from and against any claims, losses, costs, damages, expenses or
liabilities to third parties, including, without limitation, any governmental
agencies (including, without limitation, reasonable attorneys' fees) arising out
of or resulting from (i) the performance or nonperformance by Paradigm of any
obligation of, or agreement made by, Paradigm relating to its distribution of
the Products, or in connection with the performance of its duties as a
distributor; and/or (ii) any products liability resulting from an action or
omission of Paradigm, its employees, agents, representatives or customers.
(b) Indemnification by Vodavi; Product Liability;
Intellectual Property. Vodavi shall indemnify, defend and hold Paradigm, its
officers, directors, shareholders, employees, agents and representatives
harmless for, from and against any claims, losses, costs, damages, expenses or
liabilities to third parties, including, without limitation, any governmental
agencies (including, without limitation, reasonable attorneys' fees) arising out
of or resulting from (i) any products liability resulting from an action or
omission of Vodavi, its employees, agents or representatives; and/or (ii) any
suit or proceedings brought against Paradigm to the extent it is based on a
claim that any of the Products manufactured and supplied by Vodavi to Paradigm
constitute a direct infringement of a patent, copyright or other intellectual
property of a third person, except where the alleged infringement is based on
(a) Vodavi compliance with any Product specification of Paradigm; (b) Paradigm's
use of a Product in combination with any other product (whether direct or
contributory infringement); or (c) modification of a Product by Paradigm, its
employees, agents or representatives after the Product has been delivered to
Paradigm. If a suit or proceeding is brought against Vodavi based on a claim
that the applicable Product manufactured and supplied by Vodavi to Paradigm
constitutes a direct infringement of a patent, copyright or other intellectual
property of a third person, based on any of events recited in (a), (b) or (c)
above in this Section 23(b), Paradigm shall defend such claim and indemnify
Vodavi for, from and against any and all damages and costs awarded against
Vodavi on the same basis as applicable to Paradigm above. Paradigm acknowledges
and agrees that Vodavi is the owner of all confidential and proprietary
information, software, firmware and protocols embodied in the Products (with the
exception of the Paradigm name and logo) and Paradigm shall not take any action
or make any claims contrary thereto.
24. Force Majeure. Neither Paradigm nor Vodavi shall be
responsible for any loss or damage resulting from any delay or failure in
performing any provision of this Agreement, other than a delay or failure to
make payments hereunder when due, if the delay or failure results from: (a)
transportation shortages, inadequate supply of labor, materials or energy; (b)
compliance with any law, ruling, order, regulation, requirement or instruction
of any government or any department or agency thereof, including, without
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limitation, required payment of duties, taxes or the like; (c) acts of God; (d)
acts or omissions of the other party; or (e) fires, strikes, labor slowdowns,
embargoes, war or riot. Any delay or failure to perform resulting from any of
such causes shall extend performance accordingly or excuse performance in whole
or in part, as may be necessary.
25. Independent Contractor. Paradigm and Vodavi acknowledge
and agree that Vodavi is an independent contractor and that under this Agreement
neither Paradigm nor Vodavi shall be considered for any purpose to be the agent,
partner, franchisor, franchisee or joint venturer of the other. Nor shall Vodavi
or Paradigm have any obligation or responsibility to act on behalf of or in the
name of the other, or the power or authority to bind the other in any manner
whatsoever. Any representation to the contrary by Paradigm or by Vodavi, or the
employees or agents of either, shall be a material breach of this Agreement.
26. General Provisions.
(a) Further Assurances. Each of the parties hereto
shall execute and deliver all such other instruments and take all such actions
as either party may reasonably request from time to time of the other in order
to effectuate the purposes of this Agreement and the transactions provided for
herein.
(b) Notices. All notices, requests, demands and
other communications required or permitted under this Agreement shall be in
writing and shall be deemed to have been duly given, made and received when
delivered against receipt, twelve (12) hours after being sent by facsimile, or
three (3) days after being sent by registered or certified mail, postage
prepaid, return receipt requested, addressed to the recipient's address as set
forth below:
Vodavi Communications Systems, Inc.
8300 East Raintree Drive
Scottsdale, Arizona 85260
Phone: (602) 443-6056
Fax: (602) 483-0144
Attn: Vice President - New Business Development
Paradygm Communications Inc.
2100 Parklake Drive NE
Atlanta, Georgia 30345
Phone: (770) 938-2060
Fax: (770) 938-0444
Attn: President
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Either party may alter the address to which communications are to be sent by
giving notice of the change of address in conformity with the provisions of this
paragraph for the giving of notice.
(c) Binding Nature of Agreement; Assignment. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that neither party hereto
may assign or transfer its rights or obligations under this Agreement without
prior written consent of the other, and any such assignment or transfer without
such approval shall constitute a breach hereof and shall be null and void and of
no force or effect, and shall not convey any rights to or interest in this
Agreement.
(d) Entire Agreement. This Agreement contains the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof, and supersedes and is in lieu of all prior and
contemporaneous agreements, understandings, inducements and conditions, express
or implied, oral or written, of any nature whatsoever with respect to the
subject matter hereof. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
(e) Governing Law. THIS AGREEMENT AND ALL QUESTIONS
RELATING TO ITS VALIDITY, INTERPRETATION, PERFORMANCE AND ENFORCEMENT, SHALL BE
GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF ARIZONA WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS OF
SUCH STATE.
(f) Remedies Cumulative. Except as specifically set
forth herein to the contrary, the remedies of the parties hereto under this
Agreement are cumulative and will not preclude the recovery, award or grant of
any other remedies to which any party may be lawfully entitled.
(g) Indulgences Not Waivers. Neither the failure nor
any delay on the part of a party to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, remedy, power or privilege preclude any
other or further exercise of the same or of any other right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
(h) Provisions Severable. The provisions of this
Agreement are independent of and severable from each other, and no provision
shall be affected or
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rendered invalid or unenforceable by virtue of the fact that for any reason any
other or others of them may be invalid or unenforceable in whole or in part.
(i) Numbers of Days. In computing the number of days
for purposes of this Agreement, all days shall be counted (unless otherwise
specified herein), including Saturdays, Sundays and holidays in the State of
Arizona; provided, however, that if the final day of any time period falls on a
Saturday, Sunday or holiday in the State of Arizona, then the final day shall be
deemed to be the next day that is not a Saturday, Sunday or holiday in the State
of Arizona.
(j) Attorneys' Fees. If any action is brought to
enforce the provisions of this Agreement, the prevailing party in the action
shall be entitled, in addition to any other relief, to recover reasonable
attorneys' fees and other costs and expenses incurred in the action in an amount
to be fixed and determined by the arbitrator(s) agreed upon by the parties or by
the court.
(k) Construction. The parties hereto acknowledge and
agree that each party has participated in the drafting of this Agreement and
that this document has been reviewed by the respective legal counsel for the
parties hereto and that the rule of construction to the effect that any
ambiguities are to be resolved against the drafting party will not be applied to
the interpretation of this Agreement. No inference in favor of, or against, any
party shall be drawn from the fact that one party has drafted any portion
hereof. The headings in this Agreement are inserted for convenience only, and do
not define, limit, or expand the intent, scope or meaning of this Agreement.
(l) Amendment. This Agreement may only be amended or
modified by written agreement signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their proper and duly authorized representatives as
of the date first above written.
VODAVI COMMUNICATIONS SYSTEMS, INC.
By: /s/ Larry Steinmetz
Name: Larry Steinmetz
Its: President
PARADYGM COMMUNICATIONS INC.
By: /s/ R.C. Patel
Name: R.C. Patel
Its: Chairman
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<ARTICLE> 5
<LEGEND>
This Exhibit contains summary financial
information extracted from the Registrant's
unaudited consolidated financial statements for
the period ended June 30, 1997 and is qualified in
its entirety by reference to such financial
statements. This Exhibit shall not be deemed filed
for purpose of Section 11 of the Securities Act of
1933 and Section 18 of the Securities Exchange Act
of 1934, or otherwise subject to the liability of
such sections, nor shall it be deemed a part of
any other filing which incorporates this report by
reference, unless such other filing expressly
incorporates this Exhibit by reference.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,800
<SECURITIES> 0
<RECEIVABLES> 9,147
<ALLOWANCES> 222
<INVENTORY> 7,288
<CURRENT-ASSETS> 17,484
<PP&E> 3,425
<DEPRECIATION> 786
<TOTAL-ASSETS> 23,676
<CURRENT-LIABILITIES> 6,434
<BONDS> 7,230
0
0
<COMMON> 4
<OTHER-SE> 10,008
<TOTAL-LIABILITY-AND-EQUITY> 23,676
<SALES> 23,445
<TOTAL-REVENUES> 23,445
<CGS> 15,572
<TOTAL-COSTS> 15,572
<OTHER-EXPENSES> 6,524
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338
<INCOME-PRETAX> 1,011
<INCOME-TAX> 400
<INCOME-CONTINUING> 611
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 611
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
