Exhibit 10
LOAN AND SECURITY AGREEMENT
This Agreement is between the undersigned Borrower and the undersigned
Lender concerning loans and other credit accommodations to be made by Lender to
Borrower.
SECTION 1. PARTIES
1.1 The "Affiliated Borrower" is ENVIRONMENTAL SUPPORT SOLUTIONS, INC.,
and its successors and assigns.
1.2 The "Borrower" is the person, firm, corporation or other entity,
identified as the Borrower in Section 10.6(c) and its successors and assigns. If
more than one Borrower is specified in Section 10.6(c), all references to
Borrower shall mean each of them, jointly and severally, individually and
collectively, and the successors and assigns of each.
1.3 The "Lender" is The CIT Group/Credit Finance, Inc. and its
successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("Revolving Loans") in
amounts requested by Borrower from time to time, but not in excess of the Net
Availability existing immediately prior to the making of the requested loan and
provided the requested loan would not cause the outstanding Obligations
hereunder plus the then outstanding "Obligations" under and as said quoted term
is defined in the Affiliate Loan Agreements (as defined in Section 10.8 below),
to exceed, in the aggregate, the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section 10.1(a)
hereof.
(b) The "Gross Availability" shall be calculated at any time
as (i) the product obtained by multiplying the outstanding amount of Eligible
Accounts by the Eligible Accounts Percentage set forth in Section 10.1(b),
("Accounts Availability"),
plus: (ii) the product(s) obtained by multiplying the
applicable Eligible Inventory Percentage(s), if any,
set forth in Section 10.1(b) by the values (as
determined by Lender based on the lower of cost or
market and, in the case of Eligible L/C Inventory (as
defined below), net of all duty, freight, taxes,
costs, insurance and other charges and expenses which
may pertain to such Eligible L/C Inventory)) of
Eligible Inventory, but the amount so added shall not
exceed any sublimits set forth in Section 10.1(c)
("Inventory Availability"),
minus (iii) Reserves, if any.
(c) The "Net Availability" shall be calculated at any time as
an amount equal to the Gross Availability minus the aggregate amount of all
then-outstanding Obligations to Lender other than the then outstanding principal
balance of the Term Loan and the Cap/Ex Loans, if any.
14
(d) "Eligible Accounts" are accounts created by Borrower in
the ordinary course of its business which are and remain acceptable to Lender
for lending purposes. General criteria for Eligible Accounts are set forth below
but may be revised from time to time by Lender, in its sole judgment, on fifteen
(15) days' prior written notice to Borrower. Lender shall, in general, deem
accounts to be Eligible Accounts if: (1) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the earlier of
(A) the number of days after the invoice date set forth in Section 10.1(d)(i);
and (B) the number of days after the due date of such invoice set forth in
Section 10.1(d)(ii); (2) the amounts of the accounts reported to Lender are
absolutely owing to Borrower and do not arise from sales on consignment,
guaranteed sale or other terms under which payment by the account debtors may be
conditional or contingent; (3) (A) the account debtor's chief executive office
or principal place of business is located in the United States or Canada (other
than the Province of Quebec) or (B) the account debtor's chief executive office
or principal place of business is located in the Province of Quebec or is
otherwise not located in the United States or Canada ("Foreign Accounts") and
such Foreign Accounts are (x) insured by a credit insurance policy in form,
substance and amount satisfactory to Lender, which policy, together with the
proceeds thereof, shall be duly assigned to Lender, or (y) Borrower and/or such
account debtor has delivered an irrevocable letter of credit issued or confirmed
by a bank satisfactory to Lender, sufficient to cover such Account, in form and
substance satisfactory to Lender, and the original of such letter of credit has
been delivered to Lender or Lender's agent and the issuer thereof notified of
the assignment of the proceeds of such letter of credit to Lender; (4) such
accounts do not arise from progress ▇▇▇▇▇▇▇▇ retainages or ▇▇▇▇ and hold sales;
(5) there are no contra relationships, setoffs, counterclaims or disputes
existing with respect thereto and there are no other facts existing or
threatened which would impair or delay the collectibility of all or any portion
thereof; (6) the goods giving rise thereto were not at the time of the sale
subject to any liens except those permitted in this Agreement; (7) such accounts
are not accounts with respect to which the account debtor or any officer or
employee thereof is an officer, employee or agent of or is affiliated with
Borrower, directly or indirectly, whether by virtue of family membership,
ownership, control, management or otherwise; (8) such accounts are not accounts
with respect to which the account debtor is the United States or any State or
political subdivision thereof or any department, agency or instrumentality of
the United States, any State or political subdivision, unless there has been
compliance with the Assignment of Claims Act or any similar State or local law,
if applicable; (9) Borrower has delivered to Lender or Lender's representative
such documents as Lender may have reasonably requested pursuant to Section 5.8
hereof in connection with such accounts and Lender shall have received a
verification of such account, satisfactory to it, if sent to the account debtor
or any other obligor or any bailee pursuant to Section 5.4 hereof; (10) there
are no facts existing or threatened which might result in any adverse change in
the account debtor's financial condition; (11) such accounts owed by a single
account debtor or its affiliates do not represent more than twenty percent (20%)
of all otherwise Eligible Accounts except that notwithstanding anything to the
contrary contained herein, in the case of ▇.▇. ▇▇▇▇▇▇ De Nemours and Company
such accounts do not represent more than the greater of (A) the lesser of (x)
sixty percent (60%) of all otherwise Eligible Accounts and (y) $1,000,000 and
(B) thirty percent (30%) of all otherwise Eligible Accounts (accounts excluded
from Eligible Accounts solely by reason of this subsection (11) shall
nevertheless be considered Eligible Accounts to the extent of the amount of such
accounts which does not exceed the applicable percentage stated above, as
applicable, of all otherwise Eligible Accounts); (12) such accounts are not owed
by an account debtor who is or whose affiliates are past due upon other accounts
owed to Borrower comprising more than fifty percent (50%) of the accounts of
such account debtor or its affiliates owed to Borrower; (13) such accounts are
owed by account debtors whose total indebtedness to Borrower does not exceed the
amount of any customer credit limits as may be established, and changed, from
time to time by Lender on notice to Borrower (accounts excluded from Eligible
Accounts solely by reason of this subsection (13) shall nevertheless be
considered Eligible Accounts to the extent the amount of such accounts does not
exceed such customer credit limit); and (14) such accounts are owed by account
debtors deemed creditworthy at all times by Lender.
15
(e) "Eligible Inventory" is (i) inventory consisting of
finished goods owned by Borrower which is and remains acceptable to Lender for
lending purposes and is located at one of the addresses set forth in Section
10.6(e), or at such other addresses as Borrower may from time to time notify
Lender in accordance with Section 6.4 below; and (ii) Eligible L/C Inventory (as
defined below). For the purposes hereof:
(1) "Eligible L/C Inventory" shall mean all finished
goods inventory owned, or which are being manufactured for and will be owned, by
Borrower and covered by an Accommodation (as defined below), which is in the
form of a documentary letter of credit and which finished goods are in transit
to one of the Borrower's addresses set forth in Section 10.6(e) and which
finished goods (A) as of the date such inventory are owned by Borrower (x) are
fully insured, (y) are subject to a first priority security interest in and lien
upon such goods in favor of Lender (except for any possessory lien upon such
goods in the possession of a freight carrier or shipping company securing only
the freight charges for the transportation of such goods to Borrower) and (z)
all documents, notices, instruments, statements and bills of lading relating
thereto, if any, which Lender may reasonably deem necessary or desirable to
evidence ownership by Borrower and/or to give effect to and protect the liens,
security interests and other rights of Lender in connection therewith, are
delivered to Lender; and (B) is and remains acceptable to Lender for lending
purposes; and
(f) (i) Lender shall have a continuing right to deduct
reserves in determining the Gross Availability ("Reserves"), and to increase and
decrease such Reserves from time to time, if and to the extent that, in Lender's
sole judgment, such Reserves are necessary to protect Lender against any state
of facts which does, or would, with notice or passage of time or both,
constitute an Event of Default or have an adverse effect on any Collateral.
Lender may, at its option, implement Reserves by designating as ineligible a
sufficient amount of accounts or inventory which would otherwise be Eligible
Accounts or Eligible Inventory so as to reduce Gross Availability by the amount
of the intended Reserve. The amount of any reduction in the lending formulas by
Lender shall have a reasonable relationship to the matter which is the basis for
such a reduction.
(ii) Without in any way limiting the foregoing,
Borrower hereby acknowledges and consents to the establishment, as of the date
hereof, of a reserve against Borrower's Gross Availability in the amount of
$500,000 (the "Contingent Liability Reserve"). The Contingent Liability Reserve
shall be released, if and only if, the Borrower's cumulative net income for 1998
(exclusive of any gains from extraordinary items, discontinued operations and
changes in accounting principles) as reflected in ▇▇▇▇▇▇ Technologies, Inc.'s
Form 10-Q Report or Form 10-K Report, as applicable, for any period indicated
below exceeds the respective amount indicated below for such period:
Period Required Cumulative Net Income
------ ------------------------------
Six (6) months ending June 30, 1998 $562,000
Nine (9) months ending September 30, 1998 $864,000
Twelve (12) months ending December 31, 1998 $628,000
provided that, there are then no outstanding factored accounts receivable
("Outstanding Factored Accounts") under that certain Letter of Indemnity dated
as of the date hereof by and between Lender and MTB Bank (the "MTB Indemnity
Letter"). If there are then any remaining Outstanding Factored Accounts, then
notwithstanding the foregoing, the Contingent Liability Reserve shall remain in
an amount equal to the lesser of: (A) the amount of such remaining Outstanding
Factored Accounts and (B) $500,000. The determination of any reduction in the
Outstanding Factored Accounts under the MTB Indemnity Letter shall be made
monthly by Lender based upon the written statements of MTB Bank delivered to
Lender.
16
(g) Subject to the terms and conditions hereof, including but
not limited to the existence of sufficient Gross Availability and Net
Availability, Borrower and Affiliated Borrower, jointly and severally, agree to
borrow sufficient amounts from time to time so that the outstanding Revolving
Loans hereunder plus the outstanding "Revolving Loans" under, and as said quoted
term defined in, the Affiliate Loan Agreements, shall at all times equal or
exceed the principal amount set forth in Section 10.1(e) as the Minimum
Borrowing; provided, that if Borrower and Affiliated Borrower fail to do so,
interest shall nevertheless accrue on the Obligations as if Borrower and
Affiliated Borrower had borrowed such amounts as would have been sufficient to
maintain the outstanding Revolving Loans hereunder and under the Affiliate Loan
Agreements at an amount equal to the Minimum Borrowing (and, on a monthly basis,
Lender shall have the right to charge Borrower's loan account for such
additional interest), and provided further that such accrual shall not impose
upon Lender any obligation to make loans to Borrower or Affiliated Borrower to
increase the outstanding Revolving Loans hereunder or the Affiliate Loan
Agreements to such Minimum Borrowing in the event that sufficient Net
Availability does not then exist.
2.2 Term Loan and Cap/Ex Loans.
(a) Any term loan and the terms of such loan, made by Lender
to Borrower are set forth in Section 10.2 ("Term Loan").
(b) (i) In addition to all other loans, advances and other
financial accommodations to be made by Lender pursuant to this Agreement and
subject to the terms and conditions set forth herein, Lender agrees to make
additional loans to Borrower, upon Borrower's written request, for the purpose
of purchasing or acquiring Eligible Equipment (as defined below) or financing
capital expenditures (collectively, the "Cap/Ex Loans"). Each Cap/Ex Loan shall
be in an amount not to exceed eighty (80%) percent of the Equipment Purchase
Price (as defined below) in respect of the Eligible Equipment to be financed
thereby, provided, however, that after giving effect to a Cap/Ex Loan requested
by Borrower, the sum of (1) such requested Cap/Ex Loan and (2) the aggregate
original principal amount of all prior Cap/Ex Loans is not greater than
$1,000,000. Borrower shall provide Lender with not less than ten (10) days prior
written notice of each requested Cap/Ex Loan. Each Cap/Ex Loan shall bear
interest from the date such Cap/Ex Loan is made at the applicable rate set forth
in Section 10.4(a) and such interest shall be payable in accordance with Section
3.1.
(ii) The aggregate principal amount of each Cap/Ex
Loan shall be repaid in seventy-two (72) consecutive monthly principal
installments (or earlier as herein provided) commencing on the first day of the
first calendar month next following the date of each such Cap/Ex Loan and
monthly thereafter on the first day of each successive month until paid, of
which the first seventy-one (71) principal installments shall each be in a
minimum amount equal to the quotient of the principal amount of such Cap/Ex Loan
divided by seventy-two (72); and the last and seventy-second (72nd) principal
installment shall be in the amount of the entire unpaid balance of such Cap/Ex
Loan.
(iii) In addition to all other rights and remedies
under this Agreement, the Cap/Ex Loans, together with all accrued and unpaid
interest thereon and the early termination fee in respect thereof, shall, at
Lender's option, be immediately due and payable if this Agreement shall be
terminated or not renewed for any reason whatsoever, or upon the occurrence of
any Event of Default hereunder.
17
(iv) Each Cap/Ex Loan shall be in an amount of not
less than $100,000.
(v) The making of any Cap/Ex Loans is further subject
to the satisfaction of each of the following conditions precedent in a manner
satisfactory to Lender:
(1) no Event of Default shall have occurred
and be continuing and no event shall have occurred or condition be existing and
continuing which, with notice or passage of time, or both, would constitute an
Event of Default; and
(2) no notice of termination or non-renewal
of this Agreement has been given or made pursuant to Section 9 hereof.
(vi) As used herein, the following terms shall have
the meaning ascribed to such terms below:
(1) "Eligible Equipment" shall mean new
Equipment that meets all of the following criteria:
(A) the Equipment shall be described
(by model, make, manufacturer, serial no. and/or such other identifying
information as may be appropriate, as determined by Lender) in a schedule to be
submitted by Borrower to Lender;
(B) Lender shall have a perfected
first-and-only priority lien on and security interest in such Equipment;
(C) such Equipment shall be located
at a premises owned or leased by Borrower and set forth in Section 10.6(e) and
which is the subject of a Landlord's Waiver in favor of, and satisfactory to,
CIT;
(D) such Equipment is acceptable to
Lender as Collateral; and
(E) Borrower shall have delivered to
Lender a copy of a ▇▇▇▇ of sale, invoice or other instrument evidencing that the
vendor of such Equipment has transferred good and absolute title thereto to
Borrower for the purchase price set forth therein, and if applicable, any
deferred payment terms given to Borrower in connection with such sale. The
criteria for Eligible Equipment may be revised by Lender from time to time in
its sole judgment. Any Equipment that is not Eligible Equipment shall
nevertheless be and remain at all times part of the Collateral.
(2) "Equipment" shall mean all of Borrower's
now owned and hereafter acquired equipment, machinery, computers and computer
hardware and software (whether owned or licensed), vehicles, tools, furniture,
fixtures, all additions, attachments, accessions and property now or hereafter
affixed thereto or used in connection therewith, and substitutions and
replacements (including spare parts) thereof, wherever located.
(3) "Equipment Purchase Price" shall be the
purchase price of any Eligible Equipment as set forth in the ▇▇▇▇ of sale,
invoice or other instrument evidencing the purchase of such Equipment by
Borrower, net of all taxes, transportation, installation, delivery and other
soft costs of such purchase.
18
2.3 Accommodations.
(a) Lender may, in its sole discretion, issue or cause to be
issued, from time to time at Borrower's request and on terms and conditions and
for purposes satisfactory to Lender, credit accommodations consisting of letters
of credit, bankers' acceptances, merchandise purchase guaranties or other
guaranties or indemnities for Borrower's account ("Accommodations"). Borrower
shall execute and perform additional agreements relating to the Accommodations
in form and substance acceptable to Lender and the issuer of any Accommodations,
all of which shall supplement the rights and remedies granted herein. Any
payments made by Lender or any affiliate of Lender in connection with the
Accommodations shall constitute additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations, Borrower shall pay
monthly to Lender, on the first day of each month, a charge on open
Accommodations at the rate per annum set forth in Section 10.3(a) (the
"Accommodation Charges").
(c) No Accommodation will be issued unless the full amount of
the Accommodation requested, plus fees and costs for issuance, is less than the
Net Availability existing immediately prior to the issuance of the requested
Accommodation, or if the requested Accommodation would cause the outstanding
Obligations to exceed the Maximum Credit, or cause the open amount of
Accommodations hereunder, together with the open amount of "Accommodations"
under, and as said quoted term is defined in, the Affiliate Loan Agreements to
exceed, at any time, the Accommodation sublimit set forth in Section 10.3(b).
(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or contingent,
secured or unsecured, due or to become due, paid or incurred, arising or
incurred in connection with any Accommodation shall be included in the term
"Obligations", as defined herein, and shall include, without limitation, (i) all
amounts due or which may become due under any Accommodation; (ii) all amounts
charged or chargeable to Borrower or to Lender on account of Borrower, the
Collateral, the Obligations or the Accommodations by any bank, other financial
institution or correspondent bank which opens, issues or is involved with such
Accommodations; (iii) Lender's Accommodation Charges and all fees, costs and
other charges of any issuer of any Accommodation; and (iv) all duties, freight,
taxes, costs, insurance and all such other charges and expenses which may
pertain directly or indirectly to any Obligations or Accommodations or to the
goods or documents relating thereto, unless and to the extent paid directly by
Borrower.
(e) Borrower unconditionally agrees to indemnify and hold
Lender harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences relating to any
Accommodation established or opened for Borrower's account, the Collateral
relating thereto and any drafts or acceptances thereunder, including any such
loss or claim due to any action taken by an issuer of any Accommodation.
Borrower further agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the Accommodations, whether caused by Lender, by
the issuer of any Accommodation or otherwise. Borrower's unconditional
obligation to indemnify and hold Lender harmless under this provision shall not
be modified or diminished for any reason or in any manner whatsoever, except for
Lender's willful misconduct or gross negligence. Borrower agrees that any
charges made to Lender by any issuer of any Accommodation shall be conclusive on
Borrower and may be charged to Borrower's account.
(f) Lender shall not be responsible for: the conformity of any
goods to the documents presented; the validity or genuineness of any documents;
delay, default, or fraud by the Borrower or shipper and/or anyone else in
connection with the Accommodations or any underlying transaction.
19
(g) Borrower agrees that any action taken by Lender, if taken
in good faith, or any action taken by an issuer of any Accommodation, under or
in connection with any Accommodation, shall be binding on Borrower and shall not
create any resulting liability to Lender. In furtherance thereof, Lender shall
have the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute for Borrower's account any and
all applications for steamship or airway guarantees, indemnities or delivery
orders; to grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications or Accommodations. All of
the foregoing actions may be taken in Lender's sole name, and the issuer thereof
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from Lender, all without any notice
to or any consent from Borrower. None of the foregoing actions described in this
subsection (g) may be taken by Borrower without Lender's express written
consent.
SECTION 3. INTEREST AND FEES
3.1 Interest. (a) Interest on the Revolving Loans, Term Loan and Cap/Ex
Loans shall be payable by Borrower on the first day of each month, calculated
upon the closing daily balances in the loan account of Borrower for each day
during the immediately preceding month, at the per annum rate set forth as the
Interest Rate in Section 10.4(a). The Interest Rate shall increase or decrease
by an amount equal to each increase or decrease, respectively, in the Prime Rate
(as defined below), effective as of the date of each such change. On and after
any Event of Default or termination or non-renewal hereof, interest on all
unpaid Obligations shall accrue at a rate equal to two percent (2%) per annum in
excess of the Interest Rate otherwise payable until such time as all Obligations
are indefeasibly paid in full (notwithstanding entry of any judgment against
Borrower or the exercise of any other right or remedy by Lender), and all such
interest shall be payable on demand. Interest shall in no month be less than the
Interest Rate multiplied by the Minimum Borrowing. In no event shall charges
constituting interest exceed the rate permitted under any applicable law or
regulation, and if any provision of this Agreement is in contravention of any
such law or regulation, such provision shall be deemed amended to conform
thereto.
(b) The "Prime Rate" is the rate of interest publicly
announced by The Chase Manhattan Bank in New York, New York, or its successors
and assigns from time to time as its prime rate (the Prime Rate is not intended
to be the lowest rate of interest charged by The Chase Manhattan Bank to its
borrowers).
3.2 Closing Fee. Borrower, jointly and severally with Affiliated
Borrower, shall pay Lender at closing a Closing Fee in the amount set forth in
Section 10.4 (c).
3.3 Facility Fee. Borrower, jointly and severally with Affiliated
Borrower, shall pay Lender a Facility Fee for the initial Term in the amount set
forth in Section 10.4(d)(i) and for each renewal Term hereof in the amount set
forth in Section 10.4(d)(ii), which Facility Fee for the initial Term of this
Agreement shall be fully earned at closing and payable in the amounts and on the
dates indicated in Section 10.4(d)(i)(1) and (2), respectively, and which
Facility Fee for each renewal Term of this Agreement shall be fully earned on
the first day of each such renewal Term and payable as set forth in Section
10.4(d)(ii)(1) and (2), respectively.
3.4 Account Servicing Fee. Borrower, jointly and severally with
Affiliated Borrower, shall pay Lender monthly, on the first day of each month
during the initial and each renewal Term an Account Servicing Fee for the
immediately preceding month (or part thereof) in the amount set forth in Section
10.4(e).
20
3.5 Unused Line Fee. Borrower, jointly and severally with Affiliated
Borrower, shall pay Lender monthly, on the first day of each month, in arrears,
an Unused Line Fee for each month during the initial and each renewal Term at
the rate per annum set forth in Section 10.4(f), calculated upon the amount, if
any, by which the Maximum Credit exceeds the average aggregate outstanding daily
principal balance during the preceding month of all Revolving Loans,
Accommodations, Cap/Ex Loans and any Term Loan hereunder and all Revolving Loans
under the Affiliate Loan Agreements.
3.6 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due, as principal to any
loan account of Borrower maintained by Lender. Interest, fees for
Accommodations, the Unused Line Fee and any other amounts payable by Borrower to
Lender based on a per annum rate shall be calculated on the basis of actual days
elapsed over a 360-day year.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and performance
in full of all Obligations, Borrower hereby grants to Lender a continuing
security interest in and lien upon, and a right of setoff against, and Borrower
hereby assigns and pledges to Lender, all of the Collateral, including any
Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving Loans, Term Loans,
Accommodations, Cap/Ex Loans and all other indebtedness, liabilities and
obligations of every kind, nature and description owing by Borrower to Lender
and/or its affiliates, including principal, interest, charges, fees and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal Term or after the commencement of any case with respect
to Borrower under the United States Bankruptcy Code or any similar statute,
whether direct or indirect, absolute or contingent, joint or several, due or not
due, primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended and whether arising directly or howsoever acquired
by Lender including from any other entity outright, conditionally or as
collateral security, by assignment, merger with any other entity, participations
or interests of Lender in the obligations of Borrower to others, assumption,
operation of law, subrogation or otherwise and shall also include all amounts
chargeable to Borrower under this Agreement or in connection with any of the
foregoing.
4.3 "Collateral" shall mean all of the following property of
Borrower:
(a) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of all: accounts, interests in goods
represented by accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; contract rights; chattel paper;
investment property; general intangibles (including, but not limited to, tax and
duty refunds, registered and unregistered patents, trademarks, service marks,
copyrights, trade names, applications for the foregoing, trade secrets,
goodwill, processes, drawings, blueprints, customer lists, licenses, whether as
licensor or licensee, choses in action and other claims, and existing and future
leasehold interests in equipment and fixtures); documents; instruments; letters
of credit, bankers' acceptances or guaranties; cash monies, deposits,
securities, bank accounts, deposit accounts, credits and other property now or
hereafter held in any capacity by Lender, its affiliates or any entity which, at
any time, participates in Lender's financing of Borrower or at any other
depository or other institution; agreements or property securing or relating to
any of the items referred to above;
21
(b) All now owned and hereafter acquired right, title and
interest of Borrower in, to and in respect of goods, including, but not limited
to:
(i) All inventory, wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or description, including
all raw materials, work-in-process, finished goods, and materials to be used or
consumed in Borrower's business; and all names or marks affixed to or to be
affixed thereto for purposes of selling same by the seller, manufacturer, lessor
or licensor thereof;
(ii) All Equipment, wherever located, whether now
owned or hereafter acquired, and any and all additions, substitutions,
replacements (including spare parts), and accessions thereof and thereto;
(c) All now owned and hereafter acquired right, title and
interests of Borrower in, to and in respect of any real or personal property in
or upon which Borrower has or may hereafter have a security interest, lien or
right of setoff;
(d) All present and future books and records relating to any
of the above including, without limitation, all computer programs, printed
output and computer readable data in the possession or control of the Borrower,
any computer service bureau or other third party; and
(e) All products and proceeds of the foregoing in whatever
form and wherever located, including, without limitation, all insurance proceeds
and all claims against third parties for loss or destruction of or damage to any
of the foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower shall, at Borrower's expense and in the
manner requested by Lender from time to time, direct that remittances and all
other proceeds of accounts and other Collateral be sent to a lock box designated
by and/or maintained in the name of Lender, and deposited into a bank account
now or hereafter selected by Lender and maintained in the name of Lender under
arrangements with the depository bank under which all funds deposited to such
bank account are required to be transferred solely to Lender. Borrower shall
bear all risk of loss of any funds deposited into such account. In connection
therewith, Borrower shall execute such lock box and bank account agreements as
Lender shall specify. Any collections or other proceeds received by Borrower
shall be held in trust for Lender and immediately remitted to Lender in kind.
5.2 Payments. All Obligations shall be payable at Lender's office set
forth below or at Lender's bank designated in Section 10.6(a) or at such other
bank or place as Lender may expressly designate from time to time for purposes
of this Section. Lender shall apply all proceeds of accounts or other Collateral
received by Lender and all other payments in respect of the Obligations to the
Revolving Loans or to any other Obligations then due, in whatever order or
manner Lender shall determine. For purposes of determining Gross Availability
and Net Availability and for the calculation of the Minimum Borrowing,
remittances and other payments with respect to the Collateral and Obligations
will be treated as credited to the loan account of Borrower maintained by Lender
and Collateral balances to which they relate, upon the date of Lender's receipt
of advice from Lender's bank that such remittances or other payments have been
credited to Lender's account or in the case of remittances or other payments
received directly in kind by Lender, upon the date of Lender's deposit thereof
at Lender's bank, subject to final payment and collection. In computing interest
charges, the loan account of Borrower maintained by Lender will be credited with
remittances and other payments the number of days set forth in Section 10.4(b)
after the day Lender has received advice of receipt of remittances in Lender's
account at Lender's Bank. For purposes of this Agreement, "Business Day" shall
mean any day other than a Saturday, Sunday or any other day on which banks
located in states where Lender has its offices, are authorized to close.
22
5.3 Loan Account Statements. Lender shall render to Borrower monthly a
loan account statement. Each statement shall be considered correct and binding
upon Borrower as an account stated, except to the extent that Lender receives,
within sixty (60) days after the mailing of such statement, written notice from
Borrower of any specific exceptions by Borrower to that statement.
5.4 Direct Collections. Lender may, at any time, whether or not an
Event of Default has occurred, without notice to or assent of Borrower, (a)
notify any account debtor that the accounts and other Collateral which includes
a monetary obligation have been assigned to Lender by Borrower and that payment
thereof is to be made to the order of and directly to Lender, (b) send, or cause
to be sent by its designee, requests (which may identify the sender by a
pseudonym) for verification of accounts and other Collateral directly to any
account debtor or any other obligor or any bailee with respect thereto, and (c)
demand, collect or enforce payment of any accounts or such other Collateral, but
without any duty to do so, and Lender shall not be liable for any failure to
collect or enforce payment thereof; provided that, so long as no Event of
Default has occurred, Lender agrees to use its best efforts to provide Borrower
with notice of any demand, collection or enforcement of payment by Lender
pursuant to this Section 5.4(c). At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall state that
the accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.5 Attorney-in-Fact. Borrower hereby appoints Lender and any designee
of Lender as Borrower's attorney-in-fact and authorizes Lender or such designee,
at Borrower's sole expense, to exercise at any times in Lender's or such
designee's discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable until all
Obligations have been paid in full: (a) receive, take, endorse, assign, deliver,
accept and deposit, in the name of Lender or Borrower, any and all cash, checks,
commercial paper, drafts, remittances and other instruments and documents
relating to the Collateral or the proceeds thereof, (b) transmit to account
debtors, other obligors or any bailees notice of the interest of Lender in the
Collateral or request from account debtors or such other obligors or bailees at
any time, in the name of Borrower or Lender or any designee of Lender,
information concerning the Collateral and any amounts owing with respect
thereto, (c) notify account debtors or other obligors to make payment directly
to Lender, or notify bailees as to the disposition of Collateral, (d) take or
bring, in the name of Lender or Borrower, all steps, actions, suits or
proceedings deemed by Lender necessary or desirable to effect collection of or
other realization upon the accounts and other Collateral, (e) after an Event of
Default, change the address for delivery of mail to Borrower and to receive and
open mail addressed to Borrower (Lender agrees to use its best efforts to
forward to Borrower any mail addressed to Borrower actually received by Lender
pursuant to this Section 5.5(e) which does not relate to the Obligations, the
Collateral, any transactions arising hereunder or related hereto), (f) after an
Event of Default, extend the time of payment of, compromise or settle for cash,
credit, return of merchandise, and upon any terms or conditions, any and all
accounts or other Collateral which includes a monetary obligation and discharge
or release the account debtor or other obligor, without affecting any of the
Obligations, and (g) execute in the name of Borrower and file against Borrower
in favor of Lender financing statements or amendments with respect to the
Collateral.
5.6 Liability. Borrower hereby releases and exculpates Lender, its
officers, employees and designees, from any liability arising from any acts
under this Agreement or in furtherance thereof, whether as attorney-in-fact or
otherwise, whether of omission or commission, and whether based upon any error
of judgment or mistake of law or fact, except for willful misconduct or gross
negligence. In no event will Lender have any liability to Borrower for lost
profits or other special or consequential damages.
23
5.7 Administration of Accounts. After written notice by Lender to
Borrower and automatically, without notice, after an Event of Default, Borrower
shall not, without the prior written consent of Lender in each instance, (a)
grant any extension of time of payment of any of the accounts or any other
Collateral which includes a monetary obligation, (b) compromise or settle any of
the accounts or any such other Collateral for less than the full amount thereof,
(c) release in whole or in part any account debtor or other person liable for
the payment of any of the accounts or any such other Collateral, or (d) grant
any credits, discounts, allowances, deductions, return authorizations or the
like with respect to any of the accounts or any such other Collateral.
5.8 Documents. At such times as Lender may request and in the manner
specified by Lender, Borrower shall deliver to Lender or Lender's
representative, as Lender shall designate, copies or original invoices,
agreements, proofs of rendition of services and delivery of goods and other
documents evidencing or relating to the transactions which gave rise to accounts
or other Collateral, together with customer statements, schedules describing the
accounts or other Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral, in form and substance
satisfactory to Lender and duly executed by Borrower. Without limiting the
provisions of Section 5.7, Borrower's granting of credits, discounts,
allowances, deductions, return authorizations or the like will be promptly
reported to Lender in writing. In no event shall any such schedule or
confirmatory assignment (or the absence thereof or omission of any of the
accounts or other Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or rights of Lender
or the warranties, representations and covenants of Borrower under this
Agreement. Any documents, schedules, invoices or other paper delivered to Lender
by Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return at Borrower's expense.
5.9 Access. From time to time as requested by Lender, at the sole
expense of Borrower, Lender or its designee shall have access, prior to an Event
of Default during reasonable business hours and on or after an Event of Default
at any time, to all of the premises where Collateral is located for the purposes
of inspecting the Collateral, and all Borrower's books and records, and Borrower
shall permit Lender or its designee to make such copies of such books and
records or extracts therefrom as Lender may request. Without expense to Lender,
Lender may use such of Borrower's personnel, equipment, including computer
equipment, programs, printed output and computer readable media, supplies and
premises for the collection of accounts and realization on other Collateral as
Lender, in its sole discretion, deems appropriate. Borrower hereby irrevocably
authorizes all accountants and third parties to disclose and deliver to Lender
at Borrower's expense all financial information, books and records, work papers,
management reports and other information in their possession regarding Borrower.
5.10 Environmental Audits. From time to time, as reasonably requested
by Lender, at the sole expense of Borrower, Borrower shall provide Lender, or
its designee, complete access to all of Borrower's facilities for the purpose of
conducting an environmental audit of such facilities as Lender or its designees
may deem necessary. Borrower agrees to cooperate with Lender with respect to any
environmental audit conducted by Lender or its designee pursuant to this Section
5.10.
5.11 Credit Balance. Borrower agrees that Lender shall hold as security
for the Obligations the amount of not less than $495,000 delivered by MTB Bank
to Lender (the "Indemnification Balance") pursuant to the MTB Indemnity Letter.
The Indemnification Balance shall constitute a part of the Collateral. So long
as no Event of Default then exists and is continuing, Lender shall on a monthly
basis release to Borrower a portion of the beginning Indemnification Balance
with such portion calculated as the beginning Indemnification Balance multiplied
by a fraction with the numerator of such fraction being the dollar amount of
factored accounts of Borrower which MTB Bank has reported to Lender in MTB
Bank's written monthly statements delivered to Lender as collected during the
immediately preceding month and the denominator being the amount of $1,726,000.
24
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall keep and maintain its
books and records in accordance with generally accepted accounting principles,
consistently applied. Borrower shall, at its expense, deliver to Lender (a) on
or before Wednesday of each week, weekly inventory reports; (b) on or before the
fifteenth (15th) day of each month, true and complete monthly agings of its
accounts receivable, accounts payable and notes payable, and (c) on or before
the twenty-fifth (25th) day of each month, monthly internally prepared interim
financial statements. Annually, Borrower shall deliver audited financial
statements of Borrower accompanied by the report and opinion thereon of
independent certified public accountants acceptable to Lender, as soon as
available, but in no event later than ninety (90) days after the end of
Borrower's fiscal year. All of the foregoing shall be in such form and together
with such information with respect to the business of Borrower or any guarantor,
as Lender may in each case request.
6.2 Trade Names. Borrower may from time to time render invoices to
account debtors under its trade names set forth in Section 10.6(g) after Lender
has received prior written notice from Borrower of the use of such trade names
and as to which, Borrower agrees that: (a) each trade name does not refer to
another corporation or other legal entity, (b) all accounts and proceeds thereof
(including any returned merchandise) invoiced under any such trade names are
owned exclusively by Borrower and are subject to the security interest of Lender
and the other terms of this Agreement, and (c) all schedules of accounts and
confirmatory assignments including any sales made or services rendered using the
trade name shall show Borrower's name as assignor and Lender is authorized to
receive, endorse and deposit to any loan account of Borrower maintained by
Lender all checks or other remittances made payable to any trade name of
Borrower representing payment with respect to such sales or services.
6.3 Losses. Borrower shall promptly notify Lender in writing of any
loss, damage, investigation, action, suit, proceeding or claim relating to a
material portion of the Collateral or which may result in any material adverse
change in Borrower's business, assets, liabilities or condition, financial or
otherwise.
6.4 Books and Records. Borrower's books and records concerning accounts
and its chief executive office are and shall be maintained only at the address
set forth in Section 10.6(d). Borrower's only other places of business and the
only other locations of Collateral, if any, are and shall be the addresses set
forth in Section 10.6(e) and Section 10.6(f) hereof, except Borrower may change
such locations or open a new place of business after thirty (30) days prior
written notice to Lender. Prior to any change in location or opening of any new
place of business, Borrower shall execute and deliver or cause to be executed
and delivered to Lender such financing statements, financing documents and
security and other agreements as Lender may reasonably require, including,
without limitation, those described in Section 6.14.
25
6.5 Title. Borrower has and at all times will continue to have good and
marketable title to all of the Collateral, free and clear of all liens, security
interests, claims or encumbrances of any kind except in favor of Lender and
except, if any, those set forth on Schedule A hereto.
6.6 Disposition of Assets. Borrower shall not directly or indirectly
without Lender's prior written consent: (a) sell, lease, transfer, assign,
abandon or otherwise dispose of any part of the Collateral or any material
portion of its other assets (other than sales of inventory to buyers in the
ordinary course of business) or (b) consolidate with or merge with or into any
other entity, or permit any other entity to consolidate with or merge with or
into Borrower or (c) form or acquire any interest in any firm, corporation or
other entity.
6.7 Insurance. Borrower shall at all times maintain, with financially
sound and reputable insurers, insurance (including, without limitation, at the
option of Lender, earthquake and flood insurance) with respect to the Collateral
and other assets. All such insurance policies shall be in such form, substance,
amounts and coverage as may be satisfactory to Lender and shall provide for
thirty (30) days' prior written notice to Lender of cancellation or reduction of
coverage. Borrower hereby irrevocably appoints Lender and any designee of Lender
as attorney-in-fact for Borrower to obtain at Borrower's expense, any such
insurance should Borrower fail to do so and, after an Event of Default, to
adjust or settle any claim or other matter under or arising pursuant to such
insurance or to amend or cancel such insurance. Borrower shall deliver to Lender
evidence of such insurance and a lender's loss payable endorsement satisfactory
to Lender as to all existing and future insurance policies with respect to the
Collateral. Borrower shall deliver to Lender, in kind, all instruments
representing proceeds of insurance received by Borrower. Lender may apply any
insurance proceeds received at any time to the cost of repairs to or replacement
of any portion of the Collateral and/or, at Lender's option, to payment of or as
security for any of the Obligations in any order or manner as Lender determines.
6.8 Compliance With Laws. Borrower is and at all times will continue to
be in compliance with the requirements of all material laws, rules, regulations
and orders of any governmental authority relating to its business (including
laws, rules, regulations and orders relating to taxes, payment and withholding
of payroll taxes, employer and employee contributions and similar items,
securities, employee retirement and welfare benefits, employee health and
safety, or environmental matters) and all material agreements or other
instruments binding on Borrower or its property. All of Borrower's inventory
shall be produced in accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto. Borrower shall pay and discharge all taxes, assessments and
governmental charges against Borrower or any Collateral prior to the date on
which penalties are imposed or liens attach with respect thereto, unless the
same are being contested in good faith and, at Lender's option, Reserves are
established for the amount contested and penalties which may accrue thereon.
6.9 Accounts. With respect to each account deemed an Eligible Account,
except as reported in writing to Lender, Borrower has no knowledge that any of
the criteria for eligibility are not or are no longer satisfied. As to each
account, except as disclosed in writing to Lender at the time such account
arises (a) each is valid and legally enforceable and represents an undisputed
bona fide indebtedness incurred by the account debtor for the sum reported to
Lender, (b) each arises from an absolute and unconditional sale of goods,
without any right of return or consignment, or from a completed rendition of
services, (c) each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim, or any given or
claimed credit, allowance or discount, and (d) all statements made and all
unpaid balances and other information appearing in the invoices, agreements,
proofs of rendition of services and delivery of goods and other documentation
relating to the accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect thereto, are true and
correct and in all respects what they purport to be.
26
6.10 Equipment. With respect to Borrower's equipment, Borrower shall
keep the equipment in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
6.11 [Intentionally Omitted].
6.12 Affiliated Transactions. Borrower will not, without Lender's prior
written consent, directly or indirectly: (a) lend or advance money or property
to, guarantee (other than the guarantee of the obligations of Affiliated
Borrower, ▇▇▇▇▇▇ Holdings, Inc. or ▇▇▇▇▇▇ Technologies, Inc.) or assume
indebtedness of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; or (b) declare, pay or make any dividend,
redemption or other distribution on account of any shares of any class of stock
of Borrower now or hereafter outstanding; or (c) make any payment of the
principal amount of or interest on any indebtedness owing to any officer,
director, shareholder, or affiliate of Borrower; or (d) make any loans or
advances to any officer, director, employee, shareholder or affiliate of
Borrower, except for loans and advances made to Affiliated Borrower in the
ordinary course of Borrower's business as presently conducted; or (e) enter into
any sale, lease or other transaction with any officer, director, employee,
shareholder or affiliate of Borrower on terms that are less favorable to
Borrower than those which might be obtained at the time from persons who are not
an officer, director, employee, shareholder or affiliate of Borrower.
6.13 Fees and Expenses. Borrower shall pay, on Lender's demand, all
costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defense asserted by Lender or
claims or defense against Lender asserted by Borrower, any guarantor or any
third party directly or indirectly arising out of or related to the relationship
between Borrower and Lender or any guarantor and Lender, including, but not
limited to the following, whether incurred before, during or after the initial
or any renewal Term or after the commencement of any case with respect to
Borrower or any guarantor under the United States Bankruptcy Code or any similar
statute: (a) all costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all
title insurance and other insurance premiums, appraisal fees, fees incurred in
connection with any environmental report, audit or survey and search fees; (c)
all fees as then in effect relating to the wire transfer of loan proceeds and
other funds and fees then in effect for returned checks and credit reports; (d)
all expenses and costs heretofore and from time to time hereafter incurred by
Lender during the course of periodic field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the rate set forth in Section
10.4(g) for Lender's examiners in the field and office, provided, however, that
notwithstanding anything to the contrary contained herein and so long as no
Event of Default has occurred, Borrower and Affiliated Borrower shall not be
liable for per diem charges for Lender's examiners (exclusive of out-of-pocket
expenses) pursuant to this Section 6.13(d) in any contract year (as measured
from the date hereof) in excess of $13,000 per annum; and (e) the costs, fees
and disbursements of in-house and outside counsel to Lender, including but not
limited to such fees and disbursements incurred as a result of litigation
between the parties hereto, any third party and in any appeals arising
therefrom.
27
6.14 Further Assurances. At the request of Lender, at any time and from
time to time, at Borrower's sole expense, Borrower shall execute and deliver or
cause to be executed and delivered to Lender, such agreements, documents and
instruments, including waivers, consents and subordination agreements from
mortgagees or other holders of security interests or liens, landlords or
bailees, and do or cause to be done such further acts as Lender, in its
discretion, deems necessary or desirable to create, preserve, perfect or
validate any security interest of Lender or the priority thereof in the
Collateral and otherwise to effectuate the provisions and purposes of this
Agreement. Borrower hereby authorizes Lender to file financing statements or
amendments against Borrower in favor of Lender with respect to the Collateral,
without Borrower's signature and to file as financing statements any carbon,
photographic or other reproductions of this Agreement or any financing
statements signed by Borrower.
6.15 Revolving Loans. The Revolving Loans plus Accommodations will not
at any time exceed the Gross Availability unless Lender has consented.
6.16 Environmental Condition. None of Borrower's properties or assets
has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute. No lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower. Borrower has not received a summons, citation, notice, or directive
from the Environmental Protection Agency or any other federal or state
governmental agency any action or omission by Borrower resulting in the
releasing, or otherwise exposing of hazardous waste or hazardous substances into
the environment. Borrower is, and at all times will be, in compliance (in all
material respects) with all statutes, regulations, ordinances and other legal
requirements pertaining to the production, storage, handling, treatment,
release, transportation or disposal of any hazardous waste or hazardous
substance.
6.17 Investment Property. Borrower will take any and all actions
reasonably required or requested by Lender, from time to time, to (a) cause
Lender to obtain exclusive control of any investment property in a manner
acceptable to Lender and (b) obtain from any issuers of investment property and
such other persons as Lender shall specify, for the benefit of Lender, written
confirmation of Lender's exclusive control over such investment property and
take such other actions as Lender may request to perfect Lender's security
interest in such investment property.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination or non-renewal of this Agreement or, at Lender's option,
upon or at any time after the occurrence or existence of any one or more of the
following "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or
fails to perform any of the terms of this Agreement or any other existing or
future financing, security or other agreement between Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement or any other agreement, schedule,
confirmatory assignment or otherwise, or to any affiliate of Lender, shall, when
made or deemed made, prove inaccurate or materially misleading;
(c) Any guarantor revokes, terminates or fails to perform any
of the terms of any guaranty, endorsement or other agreement of such party in
favor of Lender or any affiliate of Lender;
28
(d) Any judgment or judgments aggregating in excess of $75,000
or any injunction or attachment is obtained against Borrower or any guarantor
which remains unstayed for a period of twenty (20) days or is enforced;
(e) Borrower or any guarantor or a general partner of a
guarantor or Borrower (which is a partnership), being a natural person, dies, or
Borrower or any guarantor which is a partnership or corporation, is dissolved,
or Borrower or any guarantor which is a corporation fails to maintain its
corporate existence in good standing, or the usual business of Borrower or any
guarantor ceases or is suspended;
(f) Any change in the president and chief executive officer or
any change in the controlling ownership of Borrower;
(g) Borrower or any guarantor becomes insolvent, makes an
assignment for the benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by Borrower or any guarantor, or is filed
against Borrower or any guarantor and is not dismissed within thirty (30) days
of filing;
(i) The indictment of Borrower or any guarantor under any
criminal statute, or commencement of criminal or civil proceedings against
Borrower or any guarantor, pursuant to which statute or proceedings the
penalties or remedies sought or available include forfeiture of any of the
property of Borrower or such guarantor;
(j) Any default or event of default occurs on the part of
Borrower under any agreement, document or instrument to which Borrower is a
party or by which Borrower or any of its property is bound, creating or relating
to any indebtedness of Borrower to any person or entity other than Lender in an
amount exceeding $75,000, if the effect of such default is to accelerate, or to
permit the acceleration of, the maturity of all or any part of such
indebtedness, or all or any part of any such indebtedness shall be declared to
be due and payable or required to be prepaid or any other reason, in either
event prior to the stated maturity thereof;
(k) Lender in good faith believes that either (i) the prospect
of payment or performance of the Obligations is impaired or (ii) the Collateral
is not sufficient to secure fully the Obligations;
(l) Any default or event of default under the Affiliate Loan
Agreements; or
(m) any material change occurs in the nature or conduct of
Borrower's business and such material change remains unremedied for ten (10)
days.
29
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all rights and remedies provided in this
Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code and other applicable law, all of which rights and remedies may
be exercised without notice to Borrower, all such notices being hereby waived,
except such notice as is expressly provided for hereunder or is not waivable
under applicable law. All rights and remedies of Lender are cumulative and not
exclusive and are enforceable, in Lender's discretion, alternatively,
successively, or concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender may (a) accelerate
the payment of all Obligations and demand immediate payment thereof to Lender,
(b) with or without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (c) require Borrower, at Borrower's
expense, to assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender, (d) collect, foreclose,
receive, appropriate, setoff and realize upon any and all Collateral, (e) extend
the time of payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all accounts or other
Collateral which includes a monetary obligation and discharge or release the
account debtor or other obligor, without affecting any of the Obligations, (f)
sell, lease, transfer, assign, deliver or otherwise dispose of any and all
Collateral (including, without limitation, entering into contracts with respect
thereto, by public or private sales at any exchange, broker's board, any office
of Lender or elsewhere) at such prices or terms as Lender may deem reasonable,
for cash, upon credit or for future delivery, with the Lender having the right
to purchase the whole or any part of the Collateral at any such public sale, all
of the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit terms
or for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Lender. If notice of disposition
of Collateral is required by law, seven (7) days prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral actually received by Lender from any sale, lease, foreclosure or
other disposition of the Collateral to payment of any of the Obligations, in
whole or in part (including reasonable attorneys' fees and legal expenses
incurred by Lender with respect thereto or otherwise chargeable to Borrower) and
in such order as Lender may elect. Borrower shall remain liable to Lender for
the payment of any deficiency together with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including reasonable attorneys' fees and legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its
option, cure any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on or
existing with respect to the Collateral and pay any amount, incur any expense or
perform any act which, in Lender's sole judgment, is necessary or appropriate to
preserve, protect, insure, maintain, or realize upon the Collateral. Lender may
charge Borrower's loan account for any amounts so expended, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment, bonding or discharge, and shall not, by doing so, be deemed
to have assumed any obligation or liability of Borrower.
30
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE
OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER,
OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto,
except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents to
the nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.6(a) is located and
any other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set forth herein or other
address thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under the
rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.6(a) is located and Borrower waives any
objection based on forum non conveniens and any objection to venue in connection
therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission
or otherwise be deemed to have expressly or impliedly waived any of its rights
or remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such right or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect for
a term set forth in Section 10.7 from the date hereof and shall be deemed
automatically renewed for successive terms of two (2) years thereafter unless
terminated as of the end of the initial or any renewal term (each a "Term") by
either party giving the other written notice at least sixty (60) days' prior to
the end of the then current Term.
9.2 Early Termination. Borrower may also terminate this Agreement by
giving Lender at least thirty (30) days prior written notice (the "Early
Termination Notice") and payment in full of all of the Obligations as provided
herein, including the Early Termination Fee (as hereinafter defined), unpaid
Facility Fee and any other fees, provided that, the Affiliated Borrower
simultaneously terminates the Affiliate Loan Agreements contemporaneously
therewith. Borrower shall have no right to terminate this Agreement as aforesaid
if the Affiliate Loan Agreements are not being simultaneously terminated by the
Affiliated Borrower. Lender shall also have the right to terminate this
Agreement at any time upon or after the occurrence of an Event of Default. If
Lender terminates this Agreement upon or after the occurrence of an Event of
Default, Borrower shall pay Lender forthwith, in full, payment of all
Obligations, including Early Termination Fee, Facility Fee and any other fees.
In view of the impracticality and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation of
Lender's lost profits, the early termination fee (the "Early Termination Fee"),
which shall be the joint and several obligation of Borrower and Affiliated
Borrower, shall be equal to:
31
(a) If such termination occurs on or prior to the first
anniversary of this Agreement, three (3%) percent of
the Maximum Credit;
(b) If such termination occurs after the first
anniversary of this Agreement, but on or prior to the
second anniversary of this Agreement, two (2%)
percent of the Maximum Credit; and
(c) If such termination occurs after the second
anniversary of this Agreement, one (1%) percent of
the Maximum Credit.
Notwithstanding anything to the contrary contained herein, Borrower
acknowledges, confirms and agrees that from and after the date which is thirty
(30) days after receipt by Lender of the Early Termination Notice, Lender shall
have no obligation to make any loans, advances or other financial accommodations
to or for the benefit of Borrower hereunder.
9.3 Termination Indemnity Deposit. Upon termination of this Agreement
by Borrower, as permitted herein, in addition to payment of all Obligations
which are not contingent, Borrower shall deposit such amount of cash collateral
as Lender reasonably determines is necessary to secure Lender from loss, cost,
damage or expense, including reasonable attorneys' fees, in connection with any
open Accommodations or remittance items or other payments provisionally credited
to the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.6(a) and to Borrower at its chief executive office set forth in
Section 10.6(d), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or telecopy (fax), immediately upon receipt; if by overnight delivery
service, one day after dispatch; and if by first class or certified mail, three
(3) days after mailing.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole, but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This Agreement contains
the entire agreement of the parties as to the subject matter hereof, all prior
commitments, proposals and negotiations concerning the subject matter hereof
being merged herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon and inure to the benefit of each of the parties hereto and
their respective successors and assigns, except that any obligation of Lender
under this Agreement shall not be assignable nor inure to the successors and
assigns of Borrower.
32
9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full, including, without
limitation, the continuation and survival in full force and effect of all
security interests and liens of Lender in and upon all then existing and
thereafter-arising or acquired Collateral and all warranties and waivers of
Borrower.
9.8 Usage. All terms used herein which are defined in the Uniform
Commercial Code shall have the meanings given therein unless otherwise defined
in this Agreement and all references to the singular or plural herein shall also
mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set forth in
Section 10.6(a) below is located.
[Remainder of Page Intentionally Left Blank]
33
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Aggregate Maximum Credit for Borrower and Affiliated
Borrower: $5,000,000; except that, from and after
the first (1st) anniversary of the date hereof, the
Maximum Credit shall be $6,500,000.
(b) Gross Availability Formulas:
(i) Eligible Accounts Percentage: Subject to the
succeeding terms of this Section 10.1(b)(i),
80%. If the aggregate amount of Borrower's
credits, allowances, discounts, write-offs,
contra-accounts, and other offsets which
reduce the value of accounts, as determined
by Lender, in its sole discretion, divided
by gross sales ("Dilution Percentage") is
equal to or greater than 5%; then the
Eligible Accounts Percentage shall be
reduced by the percentage point or points,
or fraction thereof, by which the Dilution
Percentage exceeds 5%; the Eligible Accounts
Percentage will be subsequently increased by
one percentage point for every percentage
point that the Dilution Percentage
decreases, but in no event shall the
Eligible Accounts Percentage exceed 80%. The
Dilution Percentage shall be calculated on a
rolling 90 day average.
(ii) Eligible Inventory Percentages:
(A) 50% for Eligible Inventory which is
finished goods inventory; and
(B) 50% for Eligible L/C Inventory which
is finished goods inventory; and
(c) Inventory Sublimit(s): The maximum aggregate
outstanding amount of Revolving Loans made by Lender
to Borrower hereunder against Eligible Inventory
shall not exceed at any one time outstanding the
lesser of: (i) $3,250,000 less the aggregate
outstanding "Revolving Loans" made against "Eligible
Inventory" under, and as each quoted term is defined
in, the Affiliate Loan Agreements; and (ii) 200% of
the sum of (A) Borrower's Accounts Availability, as
determined by Lender at any given time and from time
to time, and (B) the Affiliated Borrower's "Accounts
Availability" under, and as said quoted term is
defined in, the Affiliate Loan Agreements, as
determined by Lender at any given time and from time
to time. In addition to, and not in limitation of,
the foregoing, the maximum amount of Revolving Loans
made against Eligible L/C Inventory hereunder shall
not exceed, at any one time outstanding, $250,000
less the aggregate outstanding Revolving Loans made
against "Eligible L/C Inventory" under, and as said
quoted term is defined in, the Affiliate Loan
Agreements.
(d) (i) Maximum days after Invoice
Date for Eligible Accounts: 90
(ii) Maximum days after due date for
Eligible Accounts: 60
34
(e) Minimum Borrowing: $1,250,000
10.2 Term Loan:
(a) Amount: $950,000.00
(b) Monthly Amortization: $ 13,194.44
(c) Maturity Date: 72 months after the date hereof, or
earlier as provided in this Agreement
10.3 Accommodations:
(a) Lender's Charge for
Accommodations: 1.75% per annum
(b) Sublimit for Accommodations: $500,000 less the aggregate outstanding
"Accommodations" under, and as said
quoted term is defined in, the
Affiliate Loan Agreements
10.4 Interest, Fees & Charges:
(a) Interest Rate: Prime Rate plus 1.5% per annum
(b) Clearance: 2 Business Days
(c) Closing Fee: $12,500
(d) Facility Fee:
(i) Initial Term: $65,000
(1) First Anniversary: $32,500
(2) Second Anniversary: $32,500
(ii) Renewal Term: 1% of Maximum Credit
(1) First day of each
Renewal Term: 50% of the amount set
forth in 10.4(d)(ii) above
(2) First Anniversary of
each Renewal Term: 50% of the amount set
forth in 10.4(d)(ii) above
(e) Account Servicing Fee: N/A
(f) Unused Line Fee: .2% per annum
(g) Field Examination-per diem
charge, per examiner: $650
10.5 [Intentionally Omitted]
10.6 (a) Lender's Office: ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(b) Lender's Bank: THE CHASE MANHATTAN BANK
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
35
(c) Borrower: ▇▇▇▇▇▇ TECHNOLOGIES COMPANY
(d) Borrower's Chief
Executive Office: ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
(e) Locations of Eligible
Inventory Collateral: ▇▇▇▇ ▇.▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(f) Borrower's Other Offices and
Locations of Collateral: N/A
(g) Borrower's Trade Names
for Invoicing: None
10.7 Term: 3 Years
10.8 Affiliate Loan Agreements: The term "Affiliate Loan
Agreements" shall mean and include, without limitation, the
Loan and Security Agreement dated of even date herewith
between Affiliated Borrower and Lender, together with any
other agreement, document, instrument, mortgage, note and
guaranty executed and delivered in connection therewith as the
same may now exist or may hereafter be amended, modified,
supplemented, renewed, extended or replaced.
36
IN WITNESS WHEREOF, Borrower and Lender have duly executed this
Agreement this ____ day of April, 1998.
LENDER: BORROWER:
THE CIT GROUP/CREDIT FINANCE, INC. ▇▇▇▇▇▇ TECHNOLOGIES COMPANY
By: By:
------------------------------ ----------------------------
Title: Title:
------------------------------ ----------------------------
37
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned, being the "Affiliated Borrower" referred to and as
defined in the within and foregoing Loan and Security Agreement ("Loan
Agreement"), hereby acknowledge each of the terms and provisions of the
foregoing Loan Agreement and agrees to be bound by the terms and provisions of
Sections 2.1(g), 3.2, 3.3, 3,4, 3.5, 6.12 and 9.2 of the Loan Agreement.
The undersigned acknowledges and agrees that although it may
acknowledge this Loan Agreement, it is not a party thereto and does not and will
not receive any right, benefit, priority or interest under or because of the
existence of the Loan Agreement.
ENVIRONMENTAL SUPPORT SOLUTIONS, INC.
By:
----------------------------------------
Title:
----------------------------------------
38
SCHEDULE A
Permitted Liens
None
39