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Exhibit 10.10
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as
of September 29, 1999, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ and AMERICAN BANK NOTE
HOLOGRAPHICS, INC., a Delaware corporation ("Borrower"), with its chief
executive office located at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods or the rendition of services
by Borrower, irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other
Person who directly or indirectly controls, is controlled by, is under common
control with or is a director or officer of such Person . For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to vote 5% or more of the securities having ordinary voting power for the
election of directors or the direct or indirect power to direct the management
and policies of a Person.
"Agreement" has the meaning set forth in the preamble
hereto.
"Authorized Person" means any officer or other employee of
Borrower.
"Average Unused Portion of Maximum Revolving Amount" means,
as of any date of determination, (a) the Maximum Revolving Amount, less (b) the
sum of (i) the average Daily Balance of Advances that were outstanding during
the immediately preceding month, plus (ii) the average Daily Balance of the Term
Loan that was outstanding during the immediately preceding month, plus (iii) the
average Daily Balance of the Capital Expenditure Loan that was outstanding
during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code
(11 U.S.C. Section 101 et seq.), as amended, and any successor statute.
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"Benefit Plan" means a "defined benefit plan" (as defined
in Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or
any ERISA Affiliate has been an "employer" (as defined in Section 3(5) of
ERISA).
"Borrower" has the meaning set forth in the preamble to
this Agreement.
"Borrower's Books" means all of Borrower's books and
records including: ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets (including the Collateral) or liabilities; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs, or other
computer prepared information.
"Borrowing Base" has the meaning set forth in
Section 2.1(a).
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which national banks are authorized or required to
close.
"Capital Expenditure Line" has the meaning set forth in
Section 2.3.
"Capital Expenditure Loan" has the meaning set forth in
Section 2.3.
"Cash Interest Expense" shall mean, for any fiscal period
the sum of total cash interest expense (including that attributable to capital
lease obligations) paid by Borrower for such period with respect to all
outstanding Indebtedness of Borrower (including, without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers acceptance financing and net costs under interest rate
protection agreements) to the extent such net costs are allocable to such period
in accordance with GAAP.
"Change of Control" shall be deemed to have occurred at
such time as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than 40% of the total voting power of all classes of
stock then outstanding of Borrower entitled to vote in the election of
directors, if such "person" or "group" was not, on the Closing Date, a
"beneficial owner", directly or indirectly, of more than 40% of the total voting
power of all classes of stock of Borrower entitled to vote in the election of
directors.
"Closing Date" means the date of the first to occur of the
making of the initial Advance, the funding of the Term Loan, or the making of
the initial Capital Expenditure Loan.
"Code" means the New York Uniform Commercial Code.
"Collateral" means each of the following:
(a) the Accounts,
(b) Borrower's Books,
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(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Investment Property and its components,
(h) the Real Property Collateral,
(i) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
(j) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance covering
any or all of the Collateral, and any and all Accounts, Borrower's Books,
Equipment, General Intangibles, Inventory, Investment Property, Negotiable
Collateral, Real Property, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange, collection, or other
disposition of any of the foregoing, or any portion thereof or interest therein,
and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver,
mortgagee waiver, bailee letter, or acknowledgement agreement of any
warehouseman, processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the Equipment or Inventory,
in each case, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments,
and other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds).
"Consolidated Current Assets" means, as of any date of
determination, the aggregate amount of all current assets of Borrower that
would, in accordance with GAAP, be classified on a balance sheet as current
assets.
"Consolidated Current Liabilities" means, as of any date of
determination, the aggregate amount of all current liabilities of Borrower that
would, in accordance with GAAP, be classified on a balance sheet as current
liabilities. For purposes of this definition, all Obligations outstanding under
this Agreement shall be deemed to be current liabilities without regard to
whether they would be deemed to be so under GAAP.
"Consolidated Interest Expense" means for any period, the
Cash Interest Expense (net of cash interest income) of Borrower during such
period determined in accordance with GAAP consistently applied, and shall in any
event include, without limitation, interest on capitalized lease obligations and
shall exclude original issue discount amortization to the extent it is required
to be included in accordance with GAAP.
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"Daily Balance" means the amount of an Obligation owed at
the end of a given day.
"deems itself insecure" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with
the giving of notice, the passage of time, or both, would be an Event of
Default.
"D&T" means Deloitte & Touche LLP.
"Designated Account" means account number 801201454 of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) at Borrower's
Designated Account Bank which has been designated, in writing and from time to
time, by Borrower to Foothill.
"Designated Account Bank" means The Chase Manhattan Bank,
whose office is located at ▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, and whose ABA number
is ▇▇▇▇▇▇▇▇▇, or such other financial institution (located within the United
States) which has been designated, in writing and from time to time, by Borrower
to Foothill.
"Dilution" means, in each case based upon the experience of
the immediately prior three months, the result of dividing the Dollar amount of
(a) bad debt write-downs, discounts, advertising, returns, promotions, credits,
or other dilution with respect to the Accounts, by (b) Borrower's Collections
(excluding extraordinary items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination,
an amount sufficient to reduce Foothill's advance rate against Eligible Accounts
as set forth in Section 2.1(a) by one percentage point for each percentage point
by which Dilution is in excess of 5.00%.
"Diners Club" means Diners Club International, Ltd., a
Delaware corporation.
"Disbursement Letter" means an instructional letter
executed and delivered by Borrower to Foothill regarding the extensions of
credit to be made on the Closing Date, the form and substance of which shall be
satisfactory to Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"EBITDA" means, for any period, the net income (or net
loss) of Borrower, for such period as determined in accordance with GAAP, (a)
plus, to the extent reflected in the changes in the statement of net income for
such period, the sum of, without duplication, the following for Borrower (i)
interest expense, (ii) taxes actually paid, (iii) depreciation and amortization
expense, (iv) extraordinary losses, and (v) Extraordinary IPO
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Related Expenses, and (b) minus, to the extent reflected in the changes in the
statement of net income for such period, extraordinary gains of Borrower.
"Eligible Accounts" shall mean, collectively, Eligible
Domestic Accounts and Eligible Foreign Accounts.
"Eligible ▇▇▇▇ and Hold Inventory" means Inventory that has
been purchased by Master Card under a Qualified Production Contract and the
Account for which sale would satisfy all requirements for an Eligible Domestic
Account hereunder, except that such Inventory may not have been deemed to be
delivered to Master Card for all purposes and therefore clause (d) of the
definition of Eligible Domestic Accounts is not satisfied.
"Eligible Domestic Accounts" means those Accounts created
by Borrower in the ordinary course of business, that arise out of Borrower's
sale of goods or rendition of services, that strictly comply with each and all
of the representations and warranties respecting Accounts made by Borrower to
Foothill in the Loan Documents; provided, however, that standards of eligibility
may be fixed and revised from time to time by Foothill in Foothill's reasonable
credit judgment. Eligible Domestic Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay
within 90 days of invoice date or Accounts with selling terms of more than 45
days;
(b) Accounts owed by an Account Debtor where 50% or more
of all Accounts owed by that Account Debtor are deemed ineligible under clause
(a) above;
(c) Accounts with respect to which the Account Debtor is
an employee, Affiliate, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional; provided, however, that the foregoing exclusion of Accounts with
respect to goods that are placed on "▇▇▇▇ and hold" terms shall not apply if
Borrower shall have delivered to Foothill with respect to such Accounts (x) a
▇▇▇▇ and hold letter from the subject Account Debtor in favor of, and in form
and substance satisfactory to, Foothill or (y) such other evidence as Foothill
shall require in its reasonable discretion regarding the delivery of the subject
Inventory to such Account Debtor;
(e) Accounts that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its chief executive
office in the United States, or (ii) is not organized under the laws of the
United States or any State thereof, or (iii) is the government of any foreign
country or sovereign state, or of any state, province, municipality, or other
political subdivision thereof, or of any department, agency, public corporation,
or other instrumentality thereof;
(f) Accounts with respect to which the Account Debtor is
either (i) the United States or any department, agency, or instrumentality of
the United States (exclusive, however, of Accounts with respect to which
Borrower has complied, to the satisfaction of Foothill, with the Assignment of
Claims Act, 31 U.S.C. Section 3727), or (ii) any State of the United
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States (exclusive, however, of Accounts owed by any State that does not have a
statutory counterpart to the Assignment of Claims Act);
(g) Accounts with respect to which the Account Debtor is
a creditor of Borrower, has or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the Account;
(h) Accounts with respect to an Account Debtor whose
total obligations owing to Borrower exceed 15% (or, (x) with respect to Master
Card, 30% or (y) with respect to 3M Corporation, 20%) of all Eligible Accounts,
to the extent of the obligations owing by such Account Debtor in excess of such
percentage;
(i) Accounts with respect to which the Account Debtor is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business;
(j) Accounts the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the Account
Debtor's financial condition;
(k) Accounts with respect to which the goods giving rise
to such Account have not been shipped and billed to the Account Debtor, the
services giving rise to such Account have not been performed and accepted by the
Account Debtor, or the Account otherwise does not represent a final sale;
provided, however, that the foregoing requirement of "shipping" shall be deemed
to be satisfied if Borrower shall have delivered to Foothill with respect to
such Accounts (x) a ▇▇▇▇ and hold letter from the subject Account Debtor in
favor of and in form and substance satisfactory to, Foothill or (y) such other
evidence as Foothill shall require in its discretion regarding the delivery of
the subject Inventory to such Account Debtor;
(l) Accounts with respect to which the Account Debtor is
located in the states of New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a Business Activity Report or
similar document in order to bring suit or otherwise enforce its remedies
against such Account Debtor in the courts or through any judicial process of
such state), unless Borrower has qualified to do business in New Jersey,
Minnesota, Indiana, West Virginia, or such other states, or has filed a Notice
of Business Activities Report with the applicable division of taxation, the
department of revenue, or with such other state offices, as appropriate, for the
then-current year, or is exempt from such filing requirement; provided, however,
that the requirements of this clause (l) shall be effective on and after the
date that is fifteen (15) days after the Closing Date; and
(m) Accounts that represent progress payments or other
advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by Borrower
of the subject contract for goods or services.
"Eligible Foreign Accounts" means those Accounts that do
not qualify as Eligible Domestic Accounts solely because the Account Debtor with
respect to such Accounts (i) does not maintain its chief executive office in the
United States or (ii) is not organized under the laws of the United States or
any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, province, municipality, or
other political subdivision thereof, or of
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any department, agency, public corporation, or other instrumentality thereof,
but either (a) such Accounts are supported by an irrevocable letter of credit
satisfactory to Foothill (as to form, substance, and issuer or domestic
confirming bank) that has been delivered to Foothill and is directly drawable by
Foothill, or (b) such Accounts are covered by credit insurance in form and
amount, and by an insurer, satisfactory to Foothill.
"Eligible Inventory" means Inventory consisting of finished
goods held for sale in the ordinary course of Borrower's business and raw
materials for such finished goods, that are located at or in-transit between
Borrower's premises identified on Schedule E-1, that strictly comply with each
and all of the representations and warranties respecting Inventory made by
Borrower to Foothill in the Loan Documents, and that are and at all times
continue to be acceptable to Foothill in all respects; provided, however, that
standards of eligibility may be fixed and revised from time to time by Foothill
in Foothill's reasonable credit judgment. In determining the amount to be so
included, Inventory shall be valued at the lower of cost or market on a basis
consistent with Borrower's current and historical accounting practices. An item
of Inventory shall not be included in Eligible Inventory if:
(a) it is not owned solely by Borrower or Borrower does
not have good, valid, and marketable title thereto;
(b) it is not either (x) located at one of the locations
set forth on Schedule E-1 or (y) in transit between one of the locations set
forth on Exhibit E-1;
(c) it is not located on property owned or leased by
Borrower or in a contract warehouse, in each case, subject to a Collateral
Access Agreement executed by the mortgagee, lessor, the warehouseman, or other
third party, as the case may be, and segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first
priority security interest in favor of Foothill;
(e) it consists of goods returned or rejected by
Borrower's customers or goods in transit;
(f) it is obsolete or slow moving, a restrictive or
custom item, work-in-process, a component that is not part of finished goods, or
constitutes spare parts, packaging and shipping materials, supplies used or
consumed in Borrower's business, Inventory subject to a Lien in favor of any
third Person, ▇▇▇▇ and hold goods, defective goods, "seconds," or Inventory
acquired on consignment;
(g) it consists of finished goods Inventory and it is
(x) not subject to a Qualified Purchase Order; or (y) not produced under a
Qualified Production Contract pursuant to the order of the customer thereunder;
and
(h) it is subject to any license, agreement or other
arrangement which could adversely affect the right or ability of Foothill to
foreclose upon, sell and/or dispose of such Inventory, or which would be
reasonably expected to have an adverse effect on the value of such Inventory as
Collateral, unless Foothill shall have received such Collateral Access
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Agreements or other agreements with respect to such Inventory as Foothill shall
require in its discretion.
"Equipment" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods
(other than consumer goods, farm products, or Inventory), wherever located,
including, (a) any assets acquired by Borrower with the proceeds of a Capital
Expenditure Loan, (b) any interest of Borrower in any of the foregoing, and (c)
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act
of 1974, 29 U.S.C. Sections 1000 et seq., amendments thereto, successor
statutes, and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation whose employees
are treated as employed by the same employer as the employees of Borrower under
IRC Section 414(b), (b) any trade or business whose employees are treated as
employed by the same employer as the employees of Borrower under IRC Section
414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the
IRC, any organization that is a member of an affiliated service group of which
Borrower is a member under IRC Section 414(m), or (d) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any party that is a party to an
arrangement with Borrower and whose employees are aggregated with the employees
of Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to
any Benefit Plan or Multiemployer Plan , (b) the withdrawal of Borrower, any of
its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in
which it was a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a
distress termination (as described in Section 4041(c) of ERISA), (d) the
institution by the PBGC of proceedings to terminate a Benefit Plan or
Multiemployer Plan, (e) any event or condition (i) which constitutes grounds
under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the
appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan,
or (ii) that may result in termination of a Multiemployer Plan pursuant to
Section 4041A of ERISA, (f) the partial or complete withdrawal within the
meaning of Sections 4203 and 4205 of ERISA, of Borrower, any of its Subsidiaries
or ERISA Affiliates from a Multiemployer Plan, or (g) providing any security to
any Plan under Section 401(a)(29) of the IRC by Borrower or its Subsidiaries or
any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Existing Lender" means The Chase Manhattan Bank and the
other lenders under the Existing Loan Facility.
"Existing Loan Facility" means the loan facility relating
to the Credit Agreement, dated as of July 20, 1998, among the Borrower, the
guarantors named therein, the lenders named therein, Societe Generale, as
documentation agent, and The Chase Manhattan
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Bank, as administrative and collateral agent, as amended and waived by a certain
Amendment and Waiver Agreement, dated as of July 20, 1999, among the parties.
"Extraordinary IPO Related Expenses" means all reasonable
costs incurred by Borrower related to, without duplication: (i) the
investigation commenced on January, 1999 conducted by the Borrower's Audit
Committee, (ii) defense and settlement of the litigation set forth in paragraphs
1 and 2 on Schedule 5.10 hereto, (iii) the investigation of Borrower by the
Securities and Exchange Commission and the United States Attorney for the
Southern District of New York, and (iv) the Company's audit conducted in 1999 to
the extent such costs exceed $200,000, in each case, regardless of whether such
costs would be characterized under GAAP as extraordinary or non-recurring items;
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to
this Agreement.
"Foothill Account" has the meaning set forth in
Section 2.6.
"Foothill Expenses" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrower under any of the
Loan Documents that are paid or incurred by Foothill; fees or charges paid or
incurred by Foothill in connection with Foothill's transactions with Borrower,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic Personal Property
Collateral or Real Property Collateral appraisals), real estate surveys, real
estate title policies and endorsements, and environmental audits; costs and
expenses incurred by Foothill in the disbursement of funds to Borrower (by wire
transfer or otherwise); charges paid or incurred by Foothill resulting from the
dishonor of checks; costs and expenses paid or incurred by Foothill to correct
any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Personal Property Collateral or
the Real Property Collateral, or any portion thereof, irrespective of whether a
sale is consummated; costs and expenses paid or incurred by Foothill in
examining Borrower's Books; costs and expenses of third party claims or any
other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents or in connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with Borrower or any guarantor; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or
any guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
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"General Intangibles" means all of Borrower's present and
future general intangibles and other personal property (including contract
rights, rights arising under common law, statutes, or regulations, choses or
things in action, goodwill, patents, trade names, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax
refund claims), other than goods, Accounts, Negotiable Collateral and Investment
Property.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"Hazardous Materials" means (a) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other
wastes associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of Borrower for
borrowed money, (b) all obligations of Borrower evidenced by bonds, debentures,
notes, or other similar instruments and all reimbursement or other obligations
of Borrower in respect of letters of credit, bankers acceptances, interest rate
swaps, or other financial products, (c) all obligations of Borrower under
capital leases, (d) all obligations or liabilities of others secured by a Lien
on any property or asset of Borrower, irrespective of whether such obligation or
liability is assumed, and (e) any obligation of Borrower guaranteeing or
intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person. The term "Indebtedness" shall
exclude trade payables owed by Borrower and arising in Borrower's ordinary
course of business.
"Insolvency Proceeding" means any proceeding commenced by
or against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, extensions generally with creditors,
or proceedings seeking reorganization, arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be treated
as intangibles under GAAP.
"Interest Coverage Ratio" means for any period, the ratio
of (a) EBITDA to (b) Consolidated Interest Expense.
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"Interest Margin" shall mean one and one-half percent
(1.50%) per annum; provided, however, that if Borrower shall have complied with
each of (i) clause (w) of the definition of Statement/Systems Date by November
15, 1999; (ii) clause (x) of the definition of Statement/System Date by November
30, 1999 and (iii) clause (y) of the definition of Statement/System Date by
November 15, 1999, each as determined in good faith by Foothill, the term
"Interest Margin" shall mean one and one-quarter percent (1.25%) per annum. In
the event that (a) the Borrower has met the conditions set forth in the
foregoing clauses (i), (ii) and (iii) within the time periods set forth therein
or (b) Borrower has delivered to Foothill on a timely basis an audited financial
statement of the Borrower pursuant to Section 6.3(b) of this Agreement for the
fiscal year ending December 31, 2000, then Borrower shall qualify for additional
performance pricing ("Additional Performance Pricing") and effective with the
date that either clause (a) or clause (b) above, as the case may be, is
satisfied, Interest Margin shall be determined as follows:
EBITDA for Twelve Month Interest Margin
Period ending on Fiscal ---------------
Quarter Immediately Preceding
Date of Determination
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less than $5,500,000 1.25%(1) 1.50%(2)
$5,500,000 to $7,000,000 1.00%
$7,000,001 or greater 0.50%
The foregoing calculation shall be determined by Foothill
based upon the financial statements delivered by Borrower pursuant to Section
6.3 of this Agreement for the twelve months ending on the fiscal quarter
immediately preceding the date of determination, with any change in Interest
Margin being effective as of the date of receipt of the foregoing financial
statements by Foothill. The financial statements delivered under Section 6.3(a)
shall comply with the requirements of such Section 6.3(a) and shall be reviewed
by D&T or other nationally recognized certified public accountants and the
financial statements delivered under Section 6.3(b) shall comply with the
requirements of such Section 6.3(b). In the event that any financial statements
shall not be delivered on a timely basis as required under Section 6.3, then
(subject to Section 2.5(b)),until such Section 6.3 is complied with, the
Interest Margin shall be determined without giving effect to the foregoing
Additional Performance Pricing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service and all of Borrower's present and future
raw materials, work in process, finished goods, and packing and shipping
materials, wherever located.
"Inventory Reserves" means reserves (reasonably determined
from time to time by Foothill) for (a) the estimated costs relating to unpaid
freight charges, warehousing or
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(1) Applicable if clause (a) of the definition of "Interest Margin" has been
satisfied.
(2) Applicable in the event that clause (a) of the definition of "Interest
Margin" has not been satisfied, but clause (b) of the definition of
"Interest Margin" has been satisfied.
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storage charges, taxes, duties, and other similar unpaid costs, plus (b) the
estimated reclamation claims of unpaid sellers of Inventory sold to Borrower.
"Inventory Sublimit" shall mean $1,000,000; provided,
however, that on and after the Statement/Systems Date, the term Inventory
Sublimit shall mean $1,250,000.
"Investment Property" means "investment property" as that
term is defined in Section 9-115 of the Code.
"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations promulgated thereunder.
"IRS" means the Internal Revenue Service.
"Lien" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of the
property, whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected, and whether such
interest shall be contingent upon the occurrence of some future event or events
or the existence of some future circumstance or circumstances, including the
lien or security interest arising from a mortgage, deed of trust, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, security agreement,
adverse claim or charge, conditional sale or trust receipt, or from a lease,
consignment, or bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants, conditions,
restrictions, leases, and other title exceptions and encumbrances affecting Real
Property.
"Loan Account" has the meaning set forth in Section 2.9.
"Loan Documents" means this Agreement, the Disbursement
Letter the Lockbox Agreements, any note or notes executed by Borrower and
payable to Foothill, and any other agreement entered into, now or in the future,
in connection with this Agreement.
"Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in form
and substance satisfactory to Foothill, each of which is among Borrower,
Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means The Chase Manhattan Bank, or such
other banks as may be agreed to by Borrower and Foothill from time to time.
"Lockboxes" has the meaning set forth in Section 2.6.
"Master Card" means Master Card International Incorporated,
a Delaware corporation.
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"MC Contract" means the Qualified Production Contract
referenced in clause (i) of the definition of Qualified Production Contract.
"Material Adverse Change" means (a) a material adverse
change in the business, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of Borrower, (b) the material impairment
of Borrower's ability to perform its obligations under the Loan Documents to
which it is a party or of Foothill to enforce the Obligations or realize upon
the Collateral, (c) a material adverse effect on the value of the Collateral or
the amount that Foothill would be likely to receive (after giving consideration
to delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority of Foothill's Liens
with respect to the Collateral.
"Maximum Revolving Amount" means $10,000,000; provided,
however, that on and after the Maximum Revolving Amount Increase Date, Maximum
Revolving Amount shall mean up to $15,000,000.
"Maximum Revolving Amount Increase Date" shall mean the
date on which Foothill shall agree in its sole discretion in writing (pursuant
to Borrower's request) to increase the Maximum Revolving Amount to up to
$15,000,000; provided, however, that without limiting Borrower's discretion as
aforesaid, it is contemplated that such increase will be used by Borrower in
connection with acquisitions proposed to be made by Borrower, that Foothill may
insist upon evidence of compliance by the Borrower with this Agreement both
before and after giving effect to such increase in Maximum Revolving Amount and
related transactions and that Foothill may require the payment of certain fees
in connection with such increase in Maximum Revolving Amount.
"Multiemployer Plan" means a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) to which Borrower, any of its
Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to
contribute, within the past six years.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit, notes, drafts, instruments, documents, personal
property leases (wherein Borrower is the lessor), chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrower's Loan Account pursuant
hereto), obligations, fees, charges, costs, or Foothill Expenses (including any
fees or expenses that, but for the provisions of the Bankruptcy Code, would have
accrued), lease payments, guaranties, covenants, and duties owing by Borrower to
Foothill of any kind and description (whether pursuant to or evidenced by the
Loan Documents or pursuant to any other agreement between Foothill and Borrower,
and irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing from
Borrower to others that Foothill may have obtained by assignment or otherwise,
and further including all interest not paid when due and all Foothill Expenses
that Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise.
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"Overadvance" has the meaning set forth in Section 2.4.
"Participant" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"Pay-Off Letter" means a letter, in form and substance
reasonably satisfactory to Foothill, from Existing Lender respecting the amount
necessary to repay in full all of the obligations of Borrower owing to Existing
Lender and obtain a termination or release of all of the Liens existing in favor
of Existing Lender in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as
defined in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by Foothill, (b)
Liens for unpaid taxes that either (i) are not yet due and payable or (ii) are
the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the
interests of lessors under operating leases and purchase money Liens of lessors
under capital leases to the extent that the acquisition or lease of the
underlying asset is permitted under Section 7.21 and so long as the Lien only
attaches to the asset purchased or acquired and only secures the purchase price
of the asset, (e) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business of Borrower and not in connection with the
borrowing of money, and which Liens either (i) are for sums not yet due and
payable, or (ii) are the subject of Permitted Protests, (f) Liens arising from
deposits made in connection with obtaining worker's compensation or other
unemployment insurance, (g) Liens or deposits to secure performance of bids,
tenders, or leases (to the extent permitted under this Agreement), incurred in
the ordinary course of business of Borrower and not in connection with the
borrowing of money, (h) Liens arising by reason of security for surety or appeal
bonds in the ordinary course of business of Borrower, (i) Liens of or resulting
from any judgment or award that could not reasonably be expected to cause a
Material Adverse Change and as to which the time for the appeal or petition for
rehearing of which has not yet expired, or in respect of which Borrower is in
good faith prosecuting an appeal or proceeding for a review, and in respect of
which a stay of execution pending such appeal or proceeding for review has been
secured, (j) Liens with respect to the Real Property Collateral that are
exceptions to the commitments for title insurance issued in connection with the
Mortgages, as accepted by Foothill, (k) with respect to any Real Property that
is not part of the Real Property Collateral, easements, rights of way, zoning
and similar covenants and restrictions, and similar encumbrances that
customarily exist on properties of Persons engaged in similar activities and
similarly situated and that in any event do not materially interfere with or
impair the use or operation of the Collateral by Borrower or the value of
Foothill's Lien thereon or therein, or materially interfere with the ordinary
conduct of the business of Borrower and (l) Liens in favor of the Existing
Lender that will be released immediately upon funding of the initial Advances.
"Permitted Protest" means the right of Borrower to protest
any Lien other than any such Lien that secures the Obligations, tax (other than
payroll taxes or taxes that are the subject of a United States federal tax
lien), ERISA-related obligations or rental payments, provided that (a) a
reserve with respect to such obligation is established on the books of Borrower
in
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an amount that is reasonably satisfactory to Foothill, (b) any such protest
is instituted and diligently prosecuted by Borrower in good faith, and (c)
Foothill is satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Liens of
Foothill in and to the Collateral.
"Permitted Subordinated Debt" means Indebtedness for
borrowed money of the Borrower that is (x) unsecured and (y) pursuant to terms
(including, without limitation, subordination terms) acceptable in all respects
to Foothill in writing.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other
than the Real Property Collateral.
"Plan" means any employee benefit plan within the meaning
of Section 3(3) of ERISA, maintained for employees of Borrower or any ERISA
Affiliate or any such Plan to which Borrower or any ERISA Affiliate is required
to contribute on behalf of any of its employees.
"Qualified Production Contract" means, collectively, (x)
the Production Agreement dated as of February 1, 1996 between Master Card and
Borrower and (y) the Agreement dated January 1, 1997 between Diners Club and
Borrower, each as amended, restated, modified and supplemented from time to time
in accordance with Section 7.3 hereof.
"Qualified Purchase Order" means a written purchase order
by an Account Debtor of Borrower evidencing such Account Debtor's obligation to
pay the purchase price for finished goods Inventory. In no event shall a
purchase order be a Qualified Purchase Order: unless it was issued in connection
with a transaction in the ordinary course of Borrower's business;
(a) if the Account Debtor with respect to such purchase
order is an employee, Affiliate, or agent of
Borrower;
(b) if the purchase price under such purchase order is
not payable in Dollars or the Account Debtor : (i)
does not maintain its chief executive office in the
United States, or (ii) is not organized under the
laws of the United States or any State thereof, or
(iii) is the government of any foreign country or
sovereign state, or of any state, province,
municipality, or other political subdivision
thereof, or of any department, agency, public
corporation, or other instrumentality thereof;
(c) if the Account Debtor with respect to such purchase
order is either (i) the United States or any
department, agency, or instrumentality
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of the United States (exclusive, however, of
purchase orders with respect to which Borrower has
complied, to the satisfaction of Foothill, with the
Assignment of Claims Act, 31 U.S.C. Section 3727),
or (ii) any State of the United States (exclusive,
however, of purchase orders issued by any State that
does not have a statutory counterpart to the
Assignment of Claims Act);
(d) if the Account Debtor is a creditor of Borrower, has
or has asserted a right of setoff, has disputed its
liability, or has made any claim with respect to the
purchase order;
(e) if the Account Debtor is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of
business;
(f) if Foothill, in its reasonable credit judgment,
believes that the creditworthiness of the Account
Debtor is unacceptable by reason of the Account
Debtor's financial condition;
(g) if the Account Debtor is located in the states of
New Jersey, Minnesota, Indiana, or West Virginia (or
any other state that requires a creditor to file a
Business Activity Report or similar document in
order to bring suit or otherwise enforce its
remedies against such Account Debtor in the courts
or through any judicial process of such state),
unless Borrower has qualified to do business in New
Jersey, Minnesota, Indiana, West Virginia, or such
other states, or has filed a Notice of Business
Activities Report with the applicable division of
taxation, the department of revenue, or with such
other state offices, as appropriate, for the
then-current year, or is exempt from such filing
requirement; provided, however, that the
requirements of this clause (g) shall be effective
on and after the date that is fifteen (15) days
after the Closing Date; and
(h) if the finished goods Inventory that is subject to
the purchase order has not been produced in
accordance with the requirements of the purchase
order, or the purchase order is for any other reason
not the enforceable and binding obligation of the
Account Debtor issuing such purchase order.
"Real Property" means any estates or interests in real
property now owned or hereafter acquired by Borrower.
"Real Property Collateral" means the parcel or parcels of
real property and the related improvements thereto identified on Schedule R-1,
and any Real Property hereafter acquired by Borrower.
"Reference Rate" means the variable rate of interest, per
annum, most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto,
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as its "base rate," irrespective of whether such announced rate is the best rate
available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a Reportable
Event as to which the provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit
plan" within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required by
Section 601 of ERISA.
"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and assets
of such Person are greater than the sum of the debts, including contingent
liabilities, of such Person, (b) the present fair salable value of the
properties and assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize upon its
properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts beyond such Person's ability to pay as such debts mature, and (e)
such Person is not engaged in business or a transaction, and is not about to
engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount that, in light of
all the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Statement/Systems Date" shall mean the date that Foothill
has (w) received audited financial statements (including, without limitation,
balance sheet and income statement) of the Borrower for the fiscal years of the
Borrower ended 1996, 1997 and 1998, each certified by Deloitte and Touche or
other nationally recognized certified public accountants and not, in Foothill's
reasonable judgment, varying substantially from the restated financial
statements for the fiscal years 1996, 1997 and 1998 as delivered to Foothill on
or before the Closing Date (other than certain additional Inventory writedowns
that may be proposed by the Borrower and have been approved by D&T), (x)
received financial statements (including, without limitation, balance sheet and
income statement) of the Borrower for the fiscal quarters of the Borrower ended
March 31, 1999 and June 30, 1999, each reviewed by Deloitte & Touche or other
nationally recognized certified public accountants and not, in Foothill's
reasonable judgment, varying substantially from the restated financial
statements for the fiscal quarters ended March 31, 1999 and June 30, 1999 as
delivered to Foothill on or before the Closing Date and (y) Foothill shall have
determined, in its reasonable judgment, that Borrower has completed the upgrade
of its inventory management system in accordance with the specifications set
forth on Schedule 1.1-S hereto.
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"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors (or
appoint other comparable managers) of such corporation, partnership, limited
liability company, or other entity.
"Term Loan" has the meaning set forth in Section 2.2.
"3M Corporation" means Minnesota Mining and Manufacturing
Company, a Delaware corporation.
"Undrawn Availability" shall mean the difference (if
greater than zero) between (a) the lesser of (i) the Maximum Revolving Amount
less the sum of (x) the outstanding principal balance of the Term Loan and (y)
the outstanding principal balance of the Capital Expenditure Loans and (ii) the
Borrowing Base, and (b) the sum of (x) the outstanding principal balance of the
Advances, (y) all fees and expenses incurred or to be incurred by Borrower in
connection with the transactions contemplated under this Agreement that are due
as of the date of determination; and (z) all accounts payable of Borrower that
are more than 60 days past due.
"Voidable Transfer" has the meaning set forth in Section
15.8.
"Year 2000 Problem" shall have the meaning set forth in
Section 5.15.
1.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. When used herein, the
term "financial statements" shall include the notes and schedules thereto.
Whenever the term "Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower and its Subsidiaries
(if any) on a consolidated basis unless the context clearly requires otherwise.
1.3. CODE. Any terms used in this Agreement that are defined in
the Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4. CONSTRUCTION. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting, and the
term "or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein," "hereby,"
"hereunder," and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.5. SCHEDULES AND EXHIBITS. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
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2. LOAN AND TERMS OF PAYMENT.
2.1. REVOLVING ADVANCES.
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to Borrower in an
amount outstanding not to exceed at any one time the lesser of (i) the Maximum
Revolving Amount less the sum of (x) the outstanding principal balance of the
Term Loan and (y) the outstanding principal balance of the Capital Expenditure
Loan, or (ii) the Borrowing Base, less the aggregate amount of the Inventory
Reserves. For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the result of:
(x) the lesser of (i) the sum of (a) 85% of
Eligible Domestic Accounts and (b) the lesser of (x) $750,000 and
(y) 75% of Eligible Foreign Accounts, less, in each of the
foregoing instances, the amount, if any, of the Dilution Reserve,
and (ii) an amount equal to Borrower's Collections with respect to
Accounts for the immediately preceding 60 day period, plus
(y) the lowest of (i) the Inventory Sublimit,
(ii) 55% of the value of Eligible Inventory and Eligible ▇▇▇▇ and
Hold Inventory, and (iii) 100% of the amount of credit
availability created by clause (x) above, minus the Inventory
Reserves, minus
(z) the aggregate amount of reserves, if any,
established by Foothill under Section 2.1(b).
(b) Anything to the contrary in Section 2.1(a) or
elsewhere in this Agreement notwithstanding, Foothill shall have the right to
establish reserves against the Borrowing Base on account of, without
duplication, (i) sums that Borrower is required to pay (such as taxes,
assessments, insurance premiums, or, in the case of leased assets or leased real
property, rents or other amounts payable under such leases) and has failed to
pay under this Agreement or any other Loan Document, (ii) amounts owing by
Borrower to any Person to the extent secured by a Lien on, or trust over, any of
the Collateral, which Lien or trust, in the reasonable determination of Foothill
(from the perspective of an asset-based lender), would be likely to have a
priority superior to the Liens of Foothill (such as landlord liens, ad valorem
taxes, or sales taxes where given priority under applicable law) in and to such
item of Collateral, (iii) events or amounts that may have a material adverse
effect on the perfection, priority or enforceability of Foothill's Lien in the
Collateral, (iv) any other events or amounts that may have a material adverse
effect on the value of the Collateral to Foothill, (v) commission charges
payable to Persons other than the Borrower in connection with Eligible Accounts;
and (vi) for penalty charges payable to customers under Qualified Production
Contracts.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations (other than
under the Term Loan or the Capital Expenditure Loans) to exceed the Maximum
Revolving Amount.
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(d) Amounts borrowed pursuant to this Section 2.1 may be
repaid and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2. TERM LOAN. Foothill has agreed to make a term loan (the
"Term Loan") to Borrower in the original principal amount of $1,000,000. The
Term Loan shall be repaid in 60 equal installments of principal in the amount of
$16,666.67 each.
Each such installment shall be due and payable on the first day of each month
commencing on the first day of the fourth month following the Closing Date and
continuing on the first day of each succeeding month until and including the
date on which the unpaid balance of the Term Loan is paid in full. The
outstanding principal balance and all accrued and unpaid interest under the Term
Loan shall be due and payable upon the termination of this Agreement, whether by
its terms, by prepayment, by acceleration, or otherwise. The unpaid principal
balance of the Term Loan may be prepaid in whole or in part without penalty or
premium at any time during the term of this Agreement upon 30 days prior written
notice by Borrower to Foothill, all such prepaid amounts to be applied to the
installments due on the Term Loan in the inverse order of their maturity. All
amounts outstanding under the Term Loan shall constitute Obligations.
2.3. CAPITAL EXPENDITURE LINE. Subject to the terms and
conditions of this Agreement, Foothill may, in its sole discretion, make a
series of term loans to Borrower (each, a "Capital Expenditure Loan") in an
aggregate amount at any one time outstanding not to exceed $2,000,000 (the
"Capital Expenditure Line"). Each Capital Expenditure Loan shall be repayable in
60 equal monthly installments of principal, such installments to be payable on
the first day of each month commencing with the first day of the first month
following the date on which the Capital Expenditure Loan is made and continuing
on the first day of each succeeding month until and including the date on which
the unpaid balance of the Capital Expenditure Loan is paid in full. The
outstanding principal balance and all accrued and unpaid interest under each
Capital Expenditure Loan shall be due and payable upon the termination of this
Agreement, whether by its terms, by prepayment, by acceleration, or otherwise.
Each Capital Expenditure Loan shall be made by
Foothill at such times and in such amounts as Borrower may request in writing,
shall be advanced directly to the applicable vendor or Borrower, as the case may
be, and once borrowed may be prepaid in whole or in part without penalty or
premium at any time during the term of this Agreement upon 30 days prior written
notice by Borrower to Foothill, all such prepaid amounts to be applied to the
installments due on all of the Capital Expenditure Loans in the inverse order of
their maturity. The foregoing to the contrary notwithstanding, (a) each
requested Capital Expenditure Loan shall be in a principal amount of not less
than (i) $200,000, or (ii) such lesser amount as is the then unfunded balance of
the Capital Expenditure Line, (b) each Capital Expenditure Loan shall be in an
amount, as determined by Foothill, not to exceed 80% of Borrower's invoice cost
(net of shipping, freight, installation, and other so-called "soft costs") of
(i) new Equipment that is to be purchased by Borrower with the proceeds of such
Capital Expenditure Loan, or (ii) new Equipment that has been purchased by
Borrower within 30 days prior to the date of the making of such Capital
Expenditure Loan, (c) the new Equipment that is to be acquired or that has been
purchased by Borrower must be acceptable to Foothill in all respects, not be a
fixture, and not be intended to be affixed to real property or to become
installed in or affixed to other goods, (d)
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Foothill shall in no event have any obligation to make any Capital Expenditure
Loan hereunder to the extent that the making thereof would cause the then
outstanding amount of Capital Expenditure Loans to exceed the Maximum Capital
Expenditure Line as set forth in this Section 2.3 and (e) the aggregate amount
of all Capital Expenditure Loans outstanding at any time (including giving
effect to any requested Capital Expenditure Loan) shall not exceed the lesser of
cost or fair market value, of all of the Equipment acquired or financed with the
proceeds of such Capital Expenditure Loans. All amounts outstanding under the
Capital Expenditure Loans shall constitute Obligations.
2.4. OVERADVANCES. If, at any time or for any reason, the amount
of Obligations owed by Borrower to Foothill pursuant to Sections 2.1, and 2.3 is
greater than either the Dollar or percentage limitations set forth in Sections
2.1, or 2.3 (an "Overadvance"), Borrower immediately shall pay to Foothill, in
cash, the amount of such excess to be used by Foothill first, to repay Advances
outstanding under Section 2.1 and, thereafter, to be used by Foothill to repay
Capital Expenditure Loans outstanding under Section 2.3.
2.5. INTEREST: RATES, PAYMENTS, AND CALCULATIONS.
(a) Interest Rate. All Obligations (including, without
limitation, all Advances, Capital Expenditure Loans and the Term Loan) shall
bear interest on the Daily Balance thereof at a per annum rate equal to the
Reference Rate plus the applicable Interest Margin, each as in effect from time
to time.
(b) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, all Obligations (including, without
limitation, all Advances, Capital Expenditure Loans and the Term Loan) shall
bear interest at a per annum rate equal to three percentage points (3.00%) above
the Reference Rate.
(c) Minimum Funding. In no event shall the rate of
interest chargeable hereunder for any day be less than the amount of interest
that would be charged on Obligations of $3,500,000 outstanding on such day. To
the extent that interest accrued hereunder at the rate set forth herein would be
less than the foregoing minimum, the interest chargeable hereunder for such day
automatically shall be deemed increased to the foregoing minimum. To the extent
that interest accrued hereunder at the rate set forth herein would yield less
than the foregoing minimum amount, the interest rate chargeable hereunder for
the period in question automatically shall be deemed increased to that rate that
would result in the minimum amount of interest being accrued and payable
hereunder.
(d) Payments. Interest payable hereunder shall be due
and payable, in arrears, on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest, all Foothill Expenses (as and when incurred),
the fees and charges provided for in Section 2.10 (as and when accrued or
incurred), and all installments or other payments due under the Term Loan, the
Capital Expenditure Loans, or any Loan Document to Borrower's Loan Account,
which amounts thereafter shall accrue interest at the rate then applicable to
Advances hereunder. Any interest
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not paid when due shall be compounded and shall thereafter accrue interest at
the rate then applicable to Advances hereunder.
(e) Computation. The Reference Rate as of the date of
this Agreement is 8.25% per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount equal
to such change in the Reference Rate. All interest and fees chargeable under the
Loan Documents shall be computed on the basis of a 360 day year for the actual
number of days elapsed.
(f) Intent to Limit Charges to Maximum Lawful Rate. In
no event shall the interest rate or rates payable under this Agreement, plus any
other amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. Borrower and Foothill, in executing and
delivering this Agreement, intend legally to agree upon the rate or rates of
interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or rates
of interest or manner of payment exceeds the maximum allowable under applicable
law, then, ipso facto as of the date of this Agreement, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received, shall
be applied to reduce the principal balance of the Obligations to the extent of
such excess.
2.6. COLLECTION OF ACCOUNTS. Borrower shall at all times
maintain lockboxes (the "Lockboxes") and, immediately after the Closing Date,
shall instruct all Account Debtors with respect to the Accounts, General
Intangibles, Negotiable Collateral and Investment Property of Borrower to remit
all Collections in respect thereof to such Lockboxes. Borrower, Foothill, and
the Lockbox Banks shall enter into the Lockbox Agreements, which among other
things shall provide for the opening of a Lockbox Account for the deposit of
Collections at a Lockbox Bank. Borrower agrees that all Collections and other
amounts received by Borrower from any Account Debtor or any other source
immediately upon receipt shall be deposited into a Lockbox Account. No Lockbox
Agreement or arrangement contemplated thereby shall be modified by Borrower
without the prior written consent of Foothill. Upon the terms and subject to the
conditions set forth in the Lockbox Agreements, all amounts received in each
Lockbox Account shall be wired each Business Day into an account (the "Foothill
Account") maintained by Foothill at a depositary selected by Foothill.
2.7. CREDITING PAYMENTS; APPLICATION OF COLLECTIONS. The receipt
of any Collections by Foothill (whether from transfers to Foothill by the
Lockbox Banks pursuant to the Lockbox Agreements or otherwise) immediately shall
be applied provisionally to reduce the Obligations outstanding under Section
2.1, but shall not be considered a payment on account unless such Collection
item is a wire transfer of immediately available federal funds and is made to
the Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for two (2) Business Days of `clearance' or `float'
at the rate set forth in Section 2.5(a) or Section 2.5(b), as applicable, on all
Collections that are received by Foothill (regardless of whether forwarded by
the Lockbox Banks to Foothill, whether provisionally applied to reduce the
Obligations under
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Section 2.1, or otherwise). This across-the-board two (2) Business Day clearance
or float charge on all Collections is acknowledged by the parties to constitute
an integral aspect of the pricing of Foothill's financing of Borrower, and shall
apply irrespective of the characterization of whether receipts are owned by
Borrower or Foothill, and whether or not there are any outstanding Advances, the
effect of such clearance or float charge being the equivalent of charging two
(2) Business Days of interest on such Collections. Should any Collection item
not be honored when presented for payment, then Borrower shall be deemed not to
have made such payment, and interest shall be recalculated accordingly. Anything
to the contrary contained herein notwithstanding, any Collection item shall be
deemed received by Foothill only if it is received into the Foothill Account on
a Business Day on or before 11:00 a.m. California time. If any Collection item
is received into the Foothill Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have been received by
Foothill as of the opening of business on the immediately following Business
Day.
2.8. DESIGNATED ACCOUNT. Foothill is authorized to make the
Advances, the Term Loan, and the Capital Expenditure Loans under this Agreement
based upon telephonic or other instructions received from anyone purporting to
be an Authorized Person, or without instructions if pursuant to Section 2.5(d).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances and the Capital Expenditure Loans requested by Borrower and made by
Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any
Advance and the Capital Expenditure Loans requested by Borrower and made by
Foothill hereunder shall be made to the Designated Account.
2.9. MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS.
Foothill shall maintain an account on its books in the name of Borrower (the
"Loan Account") on which Borrower will be charged with all Advances, the Term
Loan, and all Capital Expenditure Loans made by Foothill to Borrower or for
Borrower's account, including, accrued interest, Foothill Expenses, and any
other payment Obligations of Borrower. In accordance with Section 2.7, the Loan
Account will be credited with all payments received by Foothill from Borrower or
for Borrower's account, including all amounts received in the Foothill Account
from any Lockbox Bank. Foothill shall render statements regarding the Loan
Account to Borrower, including principal, interest, fees, and including an
itemization of all charges and expenses constituting Foothill Expenses owing,
and such statements shall be conclusively presumed to be correct and accurate
and constitute an account stated between Borrower and Foothill unless, within 30
days after receipt thereof by Borrower, Borrower shall deliver to Foothill
written objection thereto describing the error or errors contained in any such
statements.
2.10. FEES. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of
$100,000;
(b) Unused Line Fee. On the first day of each month
during the term of this Agreement, an unused line fee in an amount equal to
0.50% per annum times the Average Unused Portion of the Maximum Revolving Amount
payable in arrears.
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(c) Annual Facility Fee. On each anniversary of the
Closing Date, an annual facility fee in an amount equal to 0.25% of the Maximum
Revolving Amount;
(d) Financial Examination, Documentation, and Appraisal
Fees. Foothill's customary fee of $750 per day per examiner, plus Foothill's
one-time electronic reporting set-up fee in the amount of $3,000 and Foothill's
out-of-pocket expenses for such electronic reporting setup and each financial
analysis and examination (i.e., audits) of Borrower performed by personnel
employed by Foothill; Foothill's customary appraisal fee of $1,500 per day per
appraiser, plus out-of-pocket expenses for each appraisal of the Collateral
performed by personnel employed by Foothill; and, the actual charges paid or
incurred by Foothill if it elects to employ the services of one or more third
Persons to perform such financial analyses and examinations (i.e., audits) of
Borrower or to appraise the Collateral; and, on each anniversary of the Closing
Date, Foothill's customary fee of $1,000 per year for its loan documentation
review; provided, however, that unless a Default or an Event of Default shall
have occurred and be in existence, Borrower shall be obligated to pay Foothill
for not more than four (4) audits per calendar year and one (1) appraisal per
calendar year; and
(e) Servicing Fee. On the first day of each month during
the term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $2,000.
3. CONDITIONS; TERM OF AGREEMENT.
3.1. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE, THE TERM LOAN,
AND THE INITIAL CAPITAL EXPENDITURE LOAN. The obligation of Foothill to make the
initial Advance, to make the Term Loan, or to make the initial Capital
Expenditure Loan is subject to the fulfillment, to the satisfaction of Foothill
and its counsel, of each of the following conditions on or before the Closing
Date:
(a) the Closing Date shall occur on or before September
30, 1999;
(b) Foothill shall have received searches reflecting the
filing of its financing statements and fixture filings;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
a. the Lockbox Agreements;
b. the Disbursement Letter;
c. the Pay-Off Letter, together with UCC
termination statements and other documentation
evidencing the termination by Existing Lender of its
Liens in and to the properties and assets of
Borrower;
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d. evidence acceptable to Foothill indicating
that Undrawn Availability will be at least $500,000
after giving effect to the Term Loan, all Capital
Expenditure Loans to be made on the Closing Date and
all Advances to be made on the Closing Date;
e. the agreements, instruments and other
documents referred to in Schedule 3.1 hereof;
(d) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(f) Foothill shall have received a certificate of status
with respect to Borrower, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of Borrower, which certificate shall indicate that Borrower is in
good standing in such jurisdiction;
(g) Foothill shall have received certificates of status
with respect to Borrower, each dated within 15 days of the Closing Date, such
certificates to be issued by the appropriate officer of the jurisdictions in
which its failure to be duly qualified or licensed would constitute a Material
Adverse Change, which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(h) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
6.10, the form and substance of which shall be satisfactory to Foothill and its
counsel;
(i) Foothill shall have received duly executed
certificates of title with respect to that portion of the Collateral that is
subject to certificates of title;
(j) Foothill shall have received such Collateral Access
Agreements from lessors, warehousemen, bailees, and other third persons as
Foothill may require;
(k) Foothill shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Foothill in its sole
discretion;
(l) Foothill shall have received appraisals of the
Equipment, satisfactory to Foothill;
(m) Foothill shall have received satisfactory evidence
that all tax returns required to be filed by Borrower have been timely filed and
all taxes upon Borrower or
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its properties, assets, income, and franchises (including real property taxes
and payroll taxes) have been paid prior to delinquency, except such taxes that
are the subject of a Permitted Protest;
(n) all other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel; and
(o) Foothill shall have received satisfactory background
checks with respect to the officers, employees and shareholders of Borrower
issued by such organization or organizations as may be acceptable to Foothill.
3.2. CONDITIONS PRECEDENT TO ALL ADVANCES, THE TERM LOAN, AND
ALL CAPITAL EXPENDITURE LOANS. The following shall be conditions precedent to
all Advances, the Term Loan, and all Capital Expenditure Loans hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all respects
on and as of the date of such extension of credit, as though made on and as of
such date (except to the extent that such representations and warranties
relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred
and be continuing on the date of such extension of credit, nor shall either
result from the making thereof;
(c) no Material Adverse Change shall have occurred
subsequent to August 31, 1999; and
(d) no injunction, writ, restraining order, or other
order of any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental authority
against Borrower, Foothill, or any of their Affiliates.
3.3. CONDITION SUBSEQUENT As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
(a) within 30 days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
which shall be satisfactory to Foothill and its counsel;
(b) by November 15, 1999, deliver to Foothill the
financial statements of the Borrower with respect to fiscal years 1996, 1997 and
1998, audited by D&T and certified, without qualification, by such accountants
to have been prepared in accordance with GAAP and otherwise complying with the
requirements of Section 6.3(b) and not, in Foothill's reasonable judgment,
varying substantially from the restated financial statements for the fiscal
years 1996, 1997 and 1998 as delivered to Foothill on or before the Closing Date
(other than certain
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additional Inventory writedowns that may be proposed by the Borrower and have
been approved by D&T);
(c) (x) by December 15, 1999, deliver to Foothill the
financial statements (including, without limitation, balance sheet and income
statement) of the Borrower for the fiscal quarters of the Borrower ended March
31, 1999 and June 30, 1999, each reviewed by Deloitte & Touche or other
nationally recognized certified public accountants and not, in Foothill's
reasonable judgment, varying substantially from the restated financial
statements for the fiscal quarters ended March 31, 1999 and June 30, 1999 as
delivered to Foothill on or before the Closing Date, and (y) by December 31,
1999, deliver to Foothill the financial statements of the Borrower with respect
to the fiscal quarter ended September, 1999, in each of the foregoing cases
reviewed by D&T and prepared in accordance with GAAP and otherwise complying
with the requirements of Section 6.3(a);
(d) Maintain a standard and modern system of accounting
that enables Borrower to produce financial statements in accordance with GAAP,
and maintain records pertaining to the Collateral that contain information as
from time to time may be reasonably requested by Foothill. Borrower also shall
keep a modern inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory and shall, by no
later than November 15, 1999, upgrade its existing inventory reporting system
pursuant to the specifications set forth on Schedule 1.1-S; and
(e) In the event that one or more Collateral Access
Agreements from lessors of real property have not been received by Foothill as
required under Section 3.1(k) on or before Closing Date, Foothill may, in its
sole discretion (and without in any manner affecting any other rights it may
have under this Agreement), institute a reserve against the Borrowing Base in an
amount equal to up to one month's rent (and, on and after the date that is
thirty (30) days after the Closing Date, up to three (3) month's rent) plus past
due rent with respect to the subject leased real properties. The foregoing
reserve would be released upon receipt by Foothill of Collateral Access
Agreements satisfactory to Foothill with respect to such leased real properties.
3.4. TERM; AUTOMATIC RENEWAL. This Agreement shall become
effective upon the execution and delivery hereof by Borrower and Foothill and
shall continue in full force and effect for a term ending on the date (the
"Renewal Date") that is five (5) years from the Closing Date and automatically
shall be renewed for successive one (1) year periods thereafter, unless sooner
terminated pursuant to the terms hereof. Either party may terminate this
Agreement effective on the Renewal Date or on any one (1) year anniversary of
the Renewal Date by giving the other party at least 90 days prior written
notice. The foregoing notwithstanding, Foothill shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3.5. EFFECT OF TERMINATION. On the date of termination of this
Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's
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duties, Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations have
been fully and finally discharged and Foothill's obligation to provide
additional credit hereunder is terminated. If Borrower has sent a notice of
termination pursuant to the provisions of Section 3.4, but fails to pay the
Obligations in full on the date set forth in said notice, then Foothill may, but
shall not be required to, renew this Agreement for an additional term of one (1)
year.
3.6. EARLY TERMINATION BY BORROWER. The provisions of Section
3.4 that allow termination of this Agreement by Borrower only on the Renewal
Date and certain anniversaries thereof notwithstanding, Borrower has the option,
at any time upon 90 days prior written notice to Foothill, to terminate this
Agreement by paying to Foothill, in cash, with a premium (the "Early Termination
Premium") equal to one percent (1.00%) of the Maximum Revolving Amount if such
termination occurs at any time other than on the Renewal Date or any one year
anniversary of the Renewal Date. The Early Termination Premium shall be (x)
waived in full in the event that the termination of this Agreement and the
repayment in full in cash of all Obligations is funded through a refinancing
provided by ▇▇▇▇▇ Fargo Bank or any Subsidiary thereof and (y) reduced by fifty
percent (50%) in the event that the termination of this Agreement and the
repayment in full in cash of all Obligations is funded through the arm's length
sale of the Borrower to a Person who is not an Affiliate of the Borrower.
3.7. TERMINATION UPON EVENT OF DEFAULT . If Foothill terminates
this Agreement upon the occurrence of an Event of Default, in view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Foothill's
lost profits as a result thereof, Borrower shall pay to Foothill upon the
effective date of such termination, a premium in an amount equal to the Early
Termination Premium. The Early Termination Premium shall be presumed to be the
amount of damages sustained by Foothill as the result of the early termination
and Borrower agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this Section 3.7 shall
be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1. GRANT OF SECURITY INTEREST Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Personal Property Collateral in order to secure prompt
repayment of any and all Obligations and in order to secure prompt performance
by Borrower of each of its covenants and duties under the Loan Documents.
Foothill's security interests in the Personal Property Collateral shall attach
to all Personal Property Collateral without further act on the part of Foothill
or Borrower.
4.2. NEGOTIABLE COLLATERAL; INVESTMENT PROPERTY. In the event
that any Collateral, including proceeds, is evidenced by or consists of
Negotiable Collateral or Investment Property, Borrower, immediately upon the
request of Foothill, shall endorse and deliver physical possession of such
Negotiable Collateral or Investment Property, as the case may be, to Foothill.
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4.3. COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE
COLLATERAL AND INVESTMENT PROPERTY. At any time following and during the
continuance of an Event of Default, Foothill or Foothill's designee may (a)
notify customers or Account Debtors of Borrower that the Accounts, General
Intangibles, Negotiable Collateral or Investment Property have been assigned to
Foothill or that Foothill has a security interest therein, and (b) collect the
Accounts, General Intangibles, Negotiable Collateral and Investment Property
directly and charge the collection costs and expenses to the Loan Account.
Borrower agrees that it will hold in trust for Foothill, as Foothill's trustee,
any Collections that it receives and immediately will deliver said Collections
to Foothill in their original form as received by Borrower.
4.4. DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, in form reasonably satisfactory to Foothill, to perfect and
continue perfected Foothill's security interests in the Collateral, and in order
to fully consummate all of the transactions contemplated hereby and under the
other Loan Documents.
4.5. POWER OF ATTORNEY. Borrower hereby irrevocably makes,
constitutes, and appoints Foothill (and any of Foothill's officers, employees,
or agents designated by Foothill) as Borrower's true and lawful attorney, with
power to (a) if Borrower refuses to, or fails timely to execute and deliver any
of the documents described in Section 4.4, sign the name of Borrower on any of
the documents described in Section 4.4, (b) at any time that an Event of Default
has occurred and is continuing, sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Account, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to Account
Debtors, (c) send requests for verification of Accounts, (d) endorse Borrower's
name on any Collection item that may come into Foothill's possession, (e) at any
time that an Event of Default has occurred and is continuing, notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Foothill, to receive and open all mail addressed to
Borrower, and to retain all mail relating to the Collateral and forward all
other mail to Borrower, (f) at any time that an Event of Default has occurred
and is continuing, make, settle, and adjust all claims under Borrower's policies
of insurance and make all determinations and decisions with respect to such
policies of insurance, and (g) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms that Foothill
determines to be reasonable, and Foothill may cause to be executed and delivered
any documents and releases that Foothill determines to be necessary. The
appointment of Foothill as Borrower's attorney, and each and every one of
Foothill's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully and finally repaid and performed
and Foothill's obligation to extend credit hereunder is terminated.
4.6. RIGHT TO INSPECT. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter to
inspect Borrower's Books and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance, Term Loan, or Capital Expenditure Loan made
thereafter, as though made on and as of the date of such Advance, Term Loan, or
Capital Expenditure Loan (except to the extent that such representations and
warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:
5.1. NO ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens except for Permitted Liens.
5.2. ELIGIBLE ACCOUNTS The Eligible Accounts are bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. The property giving rise to
such Eligible Accounts has been delivered to the Account Debtor, or to the
Account Debtor's agent for immediate shipment to and unconditional acceptance by
the Account Debtor. Borrower has not received notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial condition of any
Account Debtor regarding any Eligible Account.
5.3. ELIGIBLE INVENTORY [INTENTIONALLY OMITTED.]
5.4. EQUIPMENT. All of the Equip-ment is used or held for use in
Borrower's busi-ness and is fit for such purposes.
5.5. LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and
Equipment are not stored with a bailee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.12 or otherwise permitted by Section 6.12.
5.6. INVENTORY RECORDS. Borrower keeps correct and accurate
records itemizing and describing the kind, type, quality, and quantity of the
Inventory, and Borrower's cost therefor.
5.7. LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief
executive office of Borrower is located at the address indicated in the preamble
to this Agreement and Borrower's FEIN is ▇▇-▇▇▇▇▇▇▇.
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5.8. DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and qualified
and licensed to do business in, and in good standing in, any state where the
failure to be so licensed or qualified reasonably could be expected to have a
Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and
accurate list of Borrower's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each class of
common and preferred stock authorized for each of such Subsidiaries; and (iii)
the number and the percentage of the outstanding shares of each such class owned
directly or indirectly by Borrower. All of the outstanding capital stock of each
such Subsidiary has been validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no capital
stock (or any securities, instruments, warrants, options, purchase rights,
conversion or exchange rights, calls, commitments or claims of any character
convertible into or exercisable for capital stock) of any direct or indirect
Subsidiary of Borrower is subject to the issuance of any security, instrument,
warrant, option, purchase right, conversion or exchange right, call, commitment
or claim of any right, title, or interest therein or thereto.
5.9. DUE AUTHORIZATION; NO CONFLICT.
(a) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by Borrower
of this Agreement and the Loan Documents to which it is a party do not and will
not (i) violate any provision of federal, state, or local law or regulation
(including Regulations G, T, U, and X of the Federal Reserve Board) applicable
to Borrower, the Governing Documents of Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on Borrower, (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material contractual obligation or material
lease of Borrower, (iii) result in or require the creation or imposition of any
Lien of any nature whatsoever upon any properties or assets of Borrower, other
than Permitted Liens, or (iv) require any approval of stockholders or any
approval or consent of any Person under any material contractual obligation of
Borrower.
(c) Other than the filing of appropriate financing
statements, fixture filings, filings with the U.S. Patent & Trademark Office,
and mortgages, the execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which Borrower is a party do not and will
not require any registration with, consent, or approval of, or notice to, or
other action with or by, any federal, state, foreign, or other Governmental
Authority or other Person.
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(d) This Agreement and the Loan Documents to which
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by Borrower will be the legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally.
(e) The Liens granted by Borrower to Foothill in and to
its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and first priority Liens, subject only
to Permitted Liens.
5.10. LITIGATION. There are no actions or proceedings pending by
or against Borrower before any court or administrative agency and Borrower does
not have knowledge or belief of any pending, threatened, or imminent litigation,
governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for: (a) ongoing
collection matters in which Borrower is the plaintiff; (b) matters disclosed on
Schedule 5.10; and (c) matters arising after the date hereof that would not
reasonably be expected to cause a Material Adverse Change.
5.11. NO MATERIAL ADVERSE CHANGE. All financial statements
relating to Borrower or any guarantor of the Obligations that have been
delivered by Borrower to Foothill have been prepared in accordance with GAAP
(except, in the case of unaudited financial statements, for the lack of
footnotes and being subject to year-end audit adjustments) and fairly present
Borrower's (or such guarantor's, as applicable) financial condition as of the
date thereof and Borrower's results of operations for the period then ended.
There has not been a Material Adverse Change with respect to Borrower (or such
guarantor, as applicable) since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.12. SOLVENCY. Borrower is Solvent. No transfer of property is
being made by Borrower and no obligation is being incurred by Borrower in
connection with the transactions contemplated by this Agreement or the other
Loan Documents with the intent to hinder, delay, or defraud either present or
future creditors of Borrower.
5.13. EMPLOYEE BENEFITS. None of Borrower, any of its
Subsidiaries, or any ERISA Affiliates maintain or contribute to any Plan, other
than those listed on Schedule 5.13, that could reasonably be expected to result
in a Material Adverse Change. Borrower, each of its Subsidiaries and each ERISA
Affiliate have satisfied the minimum funding standards of ERISA and the IRC with
respect to each Benefit Plan to which it is obligated to contribute. No ERISA
Event has occurred that reasonably could be expected to result in a Material
Adverse Change nor has any other event occurred that may result in an ERISA
Event that reasonably could be expected to result in a Material Adverse Change.
None of Borrower or its Subsidiaries, any ERISA Affiliate, or any fiduciary of
any Plan is subject to any direct or indirect liability with respect to any Plan
under any applicable law, treaty, rule, regulation, or agreement that reasonably
could be expected to result in a Material Adverse Change. None of Borrower or
its Subsidiaries or any ERISA Affiliate is required to provide security to any
Plan under Section 401(a)(29) of the IRC. Borrower shall furnish Foothill with
written notice within thirty days of
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the event of any increase in the benefits of any Benefit Plan or Multiemployer
Plan that could reasonably be expected to result in a Material Adverse Change,
or the establishment of any new Benefit Plan or the commencement of
contributions to any Benefit Plan or Multiemployer Plan to which either Borrower
or any of its Subsidiaries or an ERISA Affiliate was not previously
contributing.
5.14. ENVIRONMENTAL CONDITION. None of Borrower's properties or
assets has ever been used by Borrower or, to the best of Borrower's knowledge,
by previous owners or operators in the disposal of, or to produce, store,
handle, treat, release, or transport, any Hazardous Materials in violation of
applicable law or regulation. 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 Materials 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 or operated 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 concerning any action or
omission by Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15. YEAR 2000. Borrower and its Subsidiaries have reviewed the
areas within their business and operations which could be adversely affected by,
and have developed or are developing a program to address fully on a timely
basis (but in any event by no later than October 31, 1999), the risk that
certain computer applications used by Borrower or its Subsidiaries (or any of
their respective material suppliers, customers or vendors) may be unable to
recognize and perform properly date sensitive functions involving dates prior to
and after December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem
will not result in a Material Adverse Change. At the request of Foothill from
time to time, the Borrower shall provide Foothill with interim status reports
with respect to its response to the Year 2000 Problem, and such status reports
shall be in form and substance satisfactory to Foothill.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower shall do all of the following:
6.1. AMENDMENTS TO QUALIFIED PRODUCTION CONTRACTS. Promptly
provide Foothill with copies of all amendments, modifications or supplements to
all Qualified Production Contracts.
6.2. COLLATERAL REPORTING. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on each
Business Day, a sales journal, collection journal, and credit register since the
last such schedule and a calculation of the Borrowing Base (with respect to
Accounts) as of such date, (b) on a monthly basis and, in any event, by no later
than the 15th day of each month during the term of this Agreement, (i) a
detailed calculation of the Borrowing Base, and (ii) a detailed aging, by total,
of the Accounts,
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together with a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill, (c) on a monthly basis and, in any event, by no
later than the 15th day of each month during the term of this Agreement, a
summary aging, by vendor, of Borrower's accounts payable and any book overdraft,
(d) with respect to the months of September and October on a monthly basis (with
a roll-forward on a weekly basis), and thereafter, on a weekly basis, Inventory
reports specifying Borrower's cost and the wholesale market value of its
Inventory by category, with additional detail showing additions to and deletions
from the Inventory, (e) on each Business Day, notice of all returns, disputes,
or claims, (f) upon request, copies of invoices in connection with the Accounts,
customer statements, credit memos, remittance advices and reports, deposit
slips, shipping and delivery documents in connection with the Accounts and for
Inventory and Equipment acquired by Borrower, purchase orders and invoices, (g)
on a quarterly basis, a detailed list of Borrower's customers, (h) on a monthly
basis, a calculation of the Dilution for the prior month; and (i) such other
reports as to the Collateral or the financial condition of Borrower as Foothill
may reasonably request from time to time. Original sales invoices evidencing
daily sales shall be mailed by Borrower to each Account Debtor and, at
Foothill's direction following and during the continuance of an Event of
Default, the invoices shall indicate on their face that the Account has been
assigned to Foothill and that all payments are to be made directly to Foothill.
At Foothill's request, Borrower shall grant Foothill full and unlimited access
to all of Borrower's Books (including, without limitation, computer programs,
desk or tape files, printouts, runs or other computer prepared information)
relating to any of the foregoing.
6.3. FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to
Foothill: (a) as soon as available, but in any event within 45 days after the
end of each month during each of Borrower's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow covering Borrower's
operations during such period (and during the period commencing on the start of
the current fiscal year and ending with such period); and (b) as soon as
available, but in any event within 90 days after the end of each of Borrower's
fiscal years, financial statements of Borrower for each such fiscal year,
audited by independent certified public accountants reasonably acceptable to
Foothill and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do not have
knowledge of the existence of any Default or Event of Default. Such audited
financial statements shall include a balance sheet, profit and loss statement,
and statement of cash flow and, if prepared, such accountants' letter to
management. If Borrower is a parent company of one or more Subsidiaries, or
Affiliates, or is a Subsidiary or Affiliate of another company, then, in
addition to the financial statements referred to above, Borrower agrees to
deliver financial statements prepared on a consolidating basis so as to present
Borrower and each such related entity separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to
Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and
Form 8-K Current Reports, and any other filings made by Borrower with the
Securities and Exchange Commission, if any, as soon as the same are filed, or
any other information that is provided by Borrower to its shareholders, and any
other report reasonably requested by Foothill relating to the financial
condition of Borrower.
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Each month, together with the financial statements provided
pursuant to Section 6.3(a), Borrower shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (i) all financial
statements delivered or caused to be delivered to Foothill hereunder have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present the financial condition of Borrower, (ii) the
representations and warranties of Borrower contained in this Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date of such certificate, as though made on and as of such date (except to
the extent that such representations and warranties relate solely to an
earlier date), (iii) for each month that also is the date on which a financial
covenant in Section 7.20 is to be tested, a compliance certificate demonstrating
in reasonable detail compliance at the end of such period with the applicable
financial covenant(s) contained in Section 7.20, and (iv) on the date of
delivery of such certificate to Foothill there does not exist any condition or
event that constitutes a Default or Event of Default (or, in the case of clauses
(i), (ii), or (iii), to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto).
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request. Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, at Borrower's expense, copies of Borrower's financial statements,
papers related thereto, and other accounting records of any nature in their
possession, and to disclose to Foothill any information they may have regarding
Borrower's business affairs and financial conditions.
6.4. TAX RETURNS. Deliver to Foothill copies of each of
Borrower's future federal income tax returns, and any amendments thereto, within
30 days of the filing thereof with the Internal Revenue Service.
6.5. GUARANTOR REPORTS. Cause any guarantor of any of the
Obligations to deliver its annual financial statements at the time when Borrower
provides its audited financial statements to Foothill and copies of all federal
income tax returns as soon as the same are available and in any event no later
than 30 days after the same are required to be filed by law.
6.6. RETURNS. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of Default
has occurred and is continuing, any Account Debtor returns any Inventory to
Borrower, Borrower promptly shall determine the reason for such return and, if
Borrower accepts such return, issue a credit memorandum (with a copy to be sent
to Foothill) in the appropriate amount to such Account Debtor. If, at a time
when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
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6.7. TITLE TO EQUIPMENT. Upon Foothill's request, Borrower
immediately shall deliver to Foothill as collateral security for the Obligations
hereunder, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of Equipment.
6.8. MAINTENANCE OF EQUIPMENT. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date, Borrower shall not
permit any item of Equipment to become a fixture to real estate or an accession
to other property, and such Equipment shall at all times remain personal
property.
6.9. TAXES. Cause all assessments and taxes, whether real,
personal, or otherwise, due or payable by, or imposed, levied, or assessed
against Borrower or any of its property to be paid in full, before delinquency
or before the expiration of any extension period, except to the extent that the
validity of such assessment or tax shall be the subject of a Permitted Protest.
Borrower shall make due and timely payment or deposit of all such federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Foothill, on demand, appropriate certificates
attesting to the payment thereof or deposit with respect thereto. Borrower will
make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Foothill with proof satisfactory to Foothill
indicating that Borrower has made such payments or deposits.
6.10. INSURANCE
(a) At its expense, keep the Personal Property
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as are ordinarily insured
against by other owners in similar businesses. Borrower also shall maintain
business interruption, public liability, product liability, and property damage
insurance relating to Borrower's ownership and use of the Personal Property
Collateral, as well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) At its expense, obtain and maintain (i) insurance of
the type necessary to insure the Personal Property Collateral, for the full
replacement cost thereof, against any loss by fire, lightning, windstorm, hail,
explosion, aircraft, smoke damage, vehicle damage, earthquakes, elevator
collision, and other risks from time to time included under "extended coverage"
policies, in such amounts as Foothill may require, but in any event in amounts
sufficient to prevent Borrower from becoming a co-insurer under such policies,
(ii) combined single limit bodily injury and property damages insurance against
any loss, liability, or damages on, about, or relating to each business location
of Borrower, in an amount of not less than the coverage set forth on Schedule
6.10(b); and (iii) insurance for such other risks as Foothill may reasonably
require. Replacement costs, at Foothill's option, may be redetermined by an
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insurance appraiser, satisfactory to Foothill, not more frequently than once
every 12 months at Borrower's cost.
(c) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably satisfactory
to Foothill. All insurance required herein shall be written by companies which
are authorized to do insurance business in the State of New York. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
mortgagee endorsement satisfactory to Foothill, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
such policy except after 30 days prior written notice to Foothill and that any
loss payable thereunder shall be payable notwithstanding any act or negligence
of Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property Collateral for purposes more hazardous
than permitted by the terms of such policy, (ii) any foreclosure or other action
or proceeding taken by Foothill upon the happening of an Event of Default, or
(iii) any change in title or ownership of the Real Property. Borrower shall
deliver to Foothill certified copies of such policies of insurance and evidence
of the payment of all premiums therefor.
(d) Original policies or certificates thereof
satisfactory to Foothill evidencing such insurance shall be delivered to
Foothill at least 30 days prior to the expiration of the existing or preceding
policies. Borrower shall give Foothill prompt notice of any loss covered by such
insurance and, after and during the continuation of a Default or an Event of
Default, Foothill shall have the right to adjust any loss. Foothill shall have
the exclusive right to adjust all losses payable under any such insurance
policies without any liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over to
Foothill to be applied at the option of Foothill either to the prepayment of the
Obligations without premium, in such order or manner as Foothill may elect, or
shall be disbursed to Borrower under stage payment terms satisfactory to
Foothill for application to the cost of repairs, replacements, or restorations.
All repairs, replacements, or restorations shall be effected with reasonable
promptness and shall be of a value at least equal to the value of the items or
property destroyed prior to such damage or destruction. Upon the occurrence of
an Event of Default, Foothill shall have the right to apply all prepaid premiums
to the payment of the Obligations in such order or form as Foothill shall
determine.
(e) Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that required to be
maintained under this Section 6.10, unless Foothill is included thereon as named
insured with the loss payable to Foothill pursuant to an endorsement
satisfactory to Foothill. Borrower immediately shall notify Foothill whenever
such separate insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and originals of such
policies immediately shall be provided to Foothill.
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6.11. NO SETOFFS OR COUNTERCLAIMS. Make payments hereunder and
under the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12. LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
written notice to Foothill not less than 30 days prior to the date on which the
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time of
such written notification, Borrower provides any financing statements or fixture
filings necessary to perfect and continue perfected Foothill's security
interests in such assets and also provides to Foothill a Collateral Access
Agreement.
6.13. COMPLIANCE WITH LAWS Comply with the requirements of all
applicable laws, rules, regulations, and orders of any governmental authority,
including the Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and would not reasonably be
expected to have a Material Adverse Change.
6.14. EMPLOYEE BENEFITS.
(a) Promptly, and in any event within 20 Business Days
after Borrower or any of its Subsidiaries knows or has reason to know that an
ERISA Event has occurred that reasonably could be expected to result in a
Material Adverse Change, a written statement of the chief financial officer of
Borrower describing such ERISA Event and any action that is being taking with
respect thereto by Borrower, any such Subsidiary or ERISA Affiliate, and any
action taken or threatened by the IRS, Department of Labor, or PBGC. Promptly,
and in any event within 5 Business Days after the filing thereof with the IRS, a
copy (or if a copy is not available to Borrower, then a description thereof), of
which Borrower has or could reasonably be expected to have knowledge of each
funding waiver request filed with respect to any Benefit Plan and all
communications received by Borrower, any of its Subsidiaries or, to the
knowledge of Borrower, any ERISA Affiliate with respect to such request.
Promptly, and in any event within 5 Business Days after receipt by Borrower, any
of its Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate, of
the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed
to administer a Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's
request, each of the following to the extent available to Borrower: (i) a copy
of each Plan (or, where any such Plan is not in writing, a summary description
thereof) (and if applicable, related trust agreements or other funding
instruments) and all amendments thereto, all written interpretations thereof and
written descriptions thereof that have been distributed to employees or former
employees of Borrower or its Subsidiaries or an ERISA Affiliate thereof; (ii)
the most recent determination letter issued by the IRS with respect to each
Plan; (iii) for the three most recent plan years, annual reports on Form 5500
Series required to be filed with any governmental agency for each Plan; (iv) all
actuarial reports prepared for the last three plan years for each Benefit Plan;
(v) a
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listing of all Multiemployer Plans, with the aggregate amount of the most
recent annual contributions required to be made by Borrower or any ERISA
Affiliate to each such plan and copies of the collective bargaining agreements
requiring such contributions; (vi) any information that has been provided to
Borrower or any ERISA Affiliate regarding withdrawal liability under any
Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries or an ERISA
Affiliate thereof under any Retiree Health Plan.
6.15. LEASES. Pay when due all rents and other amounts payable
under any leases to which Borrower is a party or by which Borrower's properties
and assets are bound, unless such payments are the subject of a Permitted
Protest. To the extent that Borrower fails timely to make payment of such rents
and other amounts payable when due under its leases, Foothill shall be entitled,
in its discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base.
6.16. YEAR 2000. Borrower and its Subsidiaries will continue to
review the areas within their business and operations which could be adversely
affected by, and have developed or will develop a program to address fully on a
timely basis (but in any event by no later than October 31, 1999), the Year 2000
Problem. At the request of Foothill from time to time (but no less than weekly),
the Borrower shall provide Foothill with interim status reports with respect to
its response to the Year 2000 Problem, and such status reports shall be in form
and substance satisfactory to Foothill.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following:
7.1. INDEBTEDNESS. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth in the latest financial
statements of Borrower submitted to Foothill on or prior to the Closing Date
(provided, however, that all Indebtedness under the Existing Loan Facility shall
be paid in full in cash on the Closing Date);
(c) Indebtedness secured by Permitted Liens;
(d) Permitted Subordinated Debt; and
(e) refinancings, renewals, or extensions of
Indebtedness permitted under clauses (b) through and including (d) of this
Section 7.1 (and continuance or renewal of any Permitted Liens associated
therewith) so long as: (i) the terms and conditions of such refinancings,
renewals, or extensions do not materially impair the prospects of repayment of
the
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Obligations by Borrower, (ii) the net cash proceeds of such refinancings,
renewals, or extensions do not result in an increase in the aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a shortening
of the average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, and (iv) to the extent that Indebtedness that is refinanced was
subordinated in right of payment to the Obligations, then the subordination
terms and conditions of the refinancing Indebtedness must be at least as
favorable to Foothill as those applicable to the refinanced Indebtedness.
7.2. LIENS. Create, incur, assume, or permit to exist, directly
or indirectly, any Lien on or with respect to any of its property or assets, of
any kind, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced under
Section 7.1(d) and so long as the replacement Liens only encumber those assets
or property that secured the original Indebtedness).
7.3. RESTRICTIONS ON FUNDAMENTAL CHANGES AND AMENDMENTS TO
QUALIFIED PRODUCTION CONTRACTS. Enter into any (x) merger, consolidation,
reorganization, or recapitalization, or reclassify its capital stock, or
liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
its property or assets; or (y) amendment or modification of any Qualified
Production Contract that would have a material adverse effect on the perfection,
priority or enforceability of Foothill's Lien on the Collateral or would have a
material adverse effect on the value of the Collateral to Foothill.
7.4. DISPOSAL OF ASSETS. Sell, lease, assign, transfer, or
otherwise dispose of any of Borrower's properties or assets other than sales of
Inventory to buyers in the ordinary course of Borrower's business as currently
conducted, other than (x) assets in a maximum aggregate amount of $25,000 per
calendar year that are obsolete or no longer employed in the Borrower's business
and (y) Equipment sold by Borrower for a cash amount in excess of 120% of the
appraised orderly liquidation value of such Equipment (as determined by Foothill
based upon the March 1999 appraisal by ▇▇▇▇▇-▇▇▇▇▇▇ Appraisal Corporation or
another more recent appraisal acceptable to Foothill); provided, however, that
the cash proceeds of the dispositions permitted under the foregoing clause (x)
and/or clause (y) shall be applied by the Borrower as a prepayment on the
Capital Expenditure Loans (if the subject Equipment was purchased with proceeds
of a Capital Expenditure Loan) or as a prepayment on the Term Loan (if the
subject Equipment or other asset was not purchased with proceeds of a Capital
Expenditure Loan), in inverse order of maturity of principal installments; and
provided, further, that all non-cash proceeds of the foregoing shall be pledged
as Collateral to Foothill pursuant to arrangements satisfactory to Foothill
7.5. CHANGE NAME. Change Borrower's name, FEIN, or add any new
fictitious name, without thirty (30) days prior written notice to Foothill, or
change Borrower's corporate structure (within the meaning of Section 9402(7) of
the Code), or identity.
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7.6. GUARANTEE. Guarantee or otherwise become in any way liable
with respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.7. NATURE OF BUSINESS. Make any change in the principal nature
of Borrower's business.
7.8. PREPAYMENTS AND AMENDMENTS.
(a) Except in connection with a refinancing permitted by
Section 7.1(d), prepay, redeem, retire, defease, purchase, or otherwise acquire
any Indebtedness owing to any third Person, other than the Obligations in
accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter,
increase, or change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning Indebtedness
permitted under Sections 7.1(b), (c), or (d).
7.9. CHANGE OF CONTROL. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.10. [INTENTIONALLY OMITTED.]
7.11. DISTRIBUTIONS. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock or rights to
purchase capital stock) on, or purchase, acquire, redeem, or retire any of
Borrower's capital stock, of any class, whether now or hereafter outstanding.
7.12. ACCOUNTING METHODS. Except as provided on Schedule 7.12,
modify or change its method of accounting (other than changes required under
GAAP and concurred in by D&T or the Borrower's other nationally recognized
independent public accountants) or enter into, modify, or terminate any
agreement currently existing, or at any time hereafter entered into with any
third party accounting firm or service bureau for the preparation or storage of
Borrower's accounting records without said accounting firm or service bureau
agreeing to provide Foothill information regarding the Collateral or Borrower's
financial condition. Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Foothill pursuant to or in
accordance with this Agreement, and agrees that Foothill may contact directly
any such accounting firm or service bureau in order to obtain such information.
7.13. INVESTMENTS. Directly or indirectly make, acquire, or incur
any liabilities (including contingent obligations) for or in connection with (a)
the acquisition of the securities (whether debt or equity) of, or other
interests in, a Person, (b) loans, advances, capital contributions, or transfers
of property to a Person, other than loans and/or advances in the ordinary course
of business not exceeding an aggregate amount of $50,000 in any fiscal year of
Borrower or (c) the acquisition of all or substantially all of the properties or
assets of a Person.
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7.14. TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate.
7.15. SUSPENSION. Suspend or go out of a substantial portion of
its business.
7.16. COMPENSATION. Increase the aggregate fees paid to directors
during any year by more than 15% over the prior year.
7.17. USE OF PROCEEDS. Use (a) the proceeds of the Advances and
the Term Loan made hereunder for any purpose other than (i) on the Closing Date,
(y) to repay in full the outstanding principal, accrued interest, and accrued
fees and expenses owing to Existing Lender, and (z) to pay transactional costs
and expenses incurred in connection with this Agreement, and (ii) on the Closing
Date and thereafter, consistent with the terms and conditions hereof, for its
lawful and permitted corporate purposes, and (b) the proceeds of the Capital
Expenditure Loans made hereunder for any purpose other than to finance new
Equipment in accordance with Section 2.3.
7.18. CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY AND
EQUIPMENT WITH BAILEES. Relocate its chief executive office to a new location
without providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The Inventory and
Equipment shall not at any time now or hereafter be stored with a bailee,
warehouseman, or similar party without Foothill's prior written consent.
7.19. NO PROHIBITED TRANSACTIONS UNDER ERISA. Directly or
indirectly:
(a) engage, or permit any Subsidiary or ERISA Affiliate
of Borrower to engage, in any prohibited transaction which is reasonably likely
to result in a civil penalty or excise tax described in Sections 406 of ERISA or
4975 of the IRC for which a statutory or class exemption is not available or a
private exemption has not been obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary or ERISA Affiliate of
Borrower to fail, to pay timely required contributions or annual installments
due with respect to any waived funding deficiency to any Benefit Plan;
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(d) terminate, or permit any Subsidiary or ERISA
Affiliate of Borrower to terminate, any Benefit Plan where such event would
result in any liability of Borrower, any of its Subsidiaries or any ERISA
Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary or ERISA Affiliate of
Borrower to fail, to make any required contribution or payment to any
Multiemployer Plan;
(f) fail, or permit any Subsidiary or ERISA Affiliate of
Borrower to fail, to pay any required installment or any other payment required
under Section 412 of the IRC on or before the due date for such installment or
other payment;
(g) amend, or permit any Subsidiary or ERISA Affiliate
of Borrower to amend, a Plan resulting in an increase in current liability for
the plan year such that either of Borrower, any Subsidiary of Borrower or any
ERISA Affiliate is required to provide security to such Plan under Section
401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary or ERISA
Affiliate of Borrower to withdraw, from any Multiemployer Plan where such
withdrawal is reasonably likely to result in any liability of any such entity
under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $200,000.
7.20. FINANCIAL COVENANTS. Fail to maintain:
(a) Interest Coverage Ratio. An Interest Coverage Ratio
of at least 1.75 to 1.00, measured on a fiscal quarter end basis for the fiscal
quarter then ended.
7.21. CAPITAL EXPENDITURES. Make capital expenditures in any
fiscal year in excess of $2,500,000.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event
of default (each, an "Event of Default") under this Agreement:
8.1. If Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of principal,
interest (including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
8.2. (a) If Borrower fails or neglects to perform, keep or
observe any term, provision, condition, covenant or agreement contained in
Sections 6.4 (Tax Returns), 6.7 (Title to Equipment), 6.8 (Maintenance of
Equipment), 6.13 (Compliance with Laws), 6.14 (Employee
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Benefits) or 6.15 (Leases) of this Agreement and such failure continues for a
period of 15 Business Days: (b) if Borrower fails or neglects to perform, keep
or observe any term, provision, condition, covenant or agreement contained in
Section 6.1 (Amendments to Qualified Production Contracts), Section 6.2
(Collateral Reporting) or Section 6.3 (Financial Statements, Reports,
Certificates) of this Agreement and such failure continues for a period of 5
Business Days; or (c) Borrower fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant or agreement contained in this
Agreement, or in any of the other Loan Documents; in each case, other than any
such term, provision, condition, covenant, or agreement that is the subject of
another provision of this Section 8, in which event such other provision of this
Section 8 shall govern;
8.3. If any material portion of Borrower's properties or assets
is attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any third Person;
8.4. If an Insolvency Proceeding is commenced by Borrower;
8.5. If an Insolvency Proceeding is commenced against Borrower
and any of the following events occur: (a) Borrower consents to the institution
of the Insolvency Proceeding against it; (b) the petition commencing the
Insolvency Proceeding is not timely controverted; (c) the petition commencing
the Insolvency Proceeding is not dismissed within 45 calendar days of the date
of the filing thereof; provided, however, that, during the pendency of such
period, Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, Borrower; or (e) an order for relief
shall have been issued or entered therein;
8.6. If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs;
8.7. If a notice of Lien, levy, or assessment is filed of record
with respect to any of Borrower's properties or assets (valued individually or
in the aggregate at any time in excess of $200,000) by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether ▇▇▇▇▇▇ or otherwise, upon any of Borrower's properties or assets (valued
individually or in the aggregate at any time in excess of $200,000) and the same
is not paid on the payment date thereof;
8.8. If a judgment or other claim becomes a Lien or encumbrance
upon any of Borrower's properties or assets (valued individually or in the
aggregate at any time in excess of $200,000);
8.9. If there is a default in any agreement for Indebtedness for
borrowed money to which Borrower is a party with one or more third Persons and
such default (a) occurs at the final maturity of the obligations thereunder, or
(b) results in a right by such third Person(s),
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irrespective of whether exercised, to accelerate the maturity of Borrower's
obligations thereunder;
8.10. If Borrower makes any payment on account of Indebtedness
that has been contractually subordinated in right of payment to the payment of
the Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness;
8.11. If any misstatement or misrepresentation in any material
respect exists now or hereafter in any warranty, representation, statement, or
report made to Foothill by Borrower or any officer, employee, agent, or director
of Borrower, or if any such warranty or representation is withdrawn; or
8.12. If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by operation
of law or by the guarantor or other third Person thereunder, or any such
guarantor or other third Person becomes the subject of an Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1. RIGHTS AND REMEDIES. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for
the benefit of Borrower under this Agreement, under any of the Loan Documents,
or under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but without
affecting Foothill's rights and security interests in the Personal Property
Collateral or the Real Property Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Foothill considers advisable,
and in such cases, Foothill will credit Borrower's Loan Account with only the
net amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in
trust for Foothill, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Foothill;
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(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Foothill considers necessary
or reasonable to protect its security interests in the Collateral. Borrower
agrees to assemble the Personal Property Collateral if Foothill so requires, and
to make the Personal Property Collateral available to Foothill as Foothill may
designate. Borrower authorizes Foothill to enter the premises where the Personal
Property Collateral is located, to take and maintain possession of the Personal
Property Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or Lien that in Foothill's determination
appears to conflict with its security interests and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's owned or leased
premises, Borrower hereby grants Foothill a license to enter into possession of
such premises and to occupy the same, without charge, for up to 120 days in
order to exercise any of Foothill's rights or remedies provided herein, at law,
in equity, or otherwise;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the Code),
set off and apply to the Obligations any and all (i) balances and deposits of
Borrower held by Foothill (including any amounts received in the Lockbox
Accounts), or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Foothill;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Personal Property Collateral. Foothill is hereby granted a
license or other right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Personal Property Collateral, in completing production of,
advertising for sale, and selling any Personal Property Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
Foothill's benefit;
(j) Sell the Personal Property Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places (including
Borrower's premises) as is commercially reasonable. It is not necessary that the
Personal Property Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Personal Property Collateral as follows:
(1) Foothill shall give Borrower and each holder
of a security interest in the Personal Property Collateral who has filed with
Foothill a written request for notice, a notice in writing of the time and place
of public sale, or, if the sale is a private sale or
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some other disposition other than a public sale is to be made of the Personal
Property Collateral, then the time on or after which the private sale or other
disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least 5 days
before the date fixed for the sale, or at least 5 days before the date on or
after which the private sale or other disposition is to be made; no notice needs
to be given prior to the disposition of any portion of the Personal Property
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons other
than Borrower claiming an interest in the Personal Property Collateral shall be
sent to such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale, Foothill
also shall give notice of the time and place by publishing a notice one time at
least 5 days before the date of the sale in a newspaper of general circulation
in the county in which the sale is to be held;
(l) Foothill may credit bid and purchase at any public
sale; and
(m) Any deficiency that exists after disposition of the
Personal Property Collateral as provided above will be paid immediately by
Borrower. Any excess will be returned, without interest and subject to the
rights of third Persons, by Foothill to Borrower.
9.2. REMEDIES CUMULATIVE. Foothill's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Foothill shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by
Foothill of one right or remedy shall be deemed an election, and no waiver by
Foothill of any Event of Default shall be deemed a continuing waiver. No delay
by Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, to the extent that Foothill
determines that such failure by Borrower would reasonably be expected to result
in a Material Adverse Change, in its discretion and without prior notice to
Borrower, Foothill may do any or all of the following: (a) make payment of the
same or any part thereof; (b) set up such reserves in Borrower's Loan Account as
Foothill deems necessary to protect Foothill from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type described in
Section 6.10, and take any action with respect to such policies as Foothill
deems prudent. Any such amounts paid by Foothill shall constitute Foothill
Expenses. Any such payments made by Foothill shall not constitute an agreement
by Foothill to make similar payments in the future or a waiver by Foothill of
any Event of Default under this Agreement. Foothill need not inquire as to, or
contest the validity of, any such expense, tax, or Lien and the
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receipt of the usual official notice for the payment thereof shall be conclusive
evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement, extension,
or renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Foothill on which Borrower may in any way be liable.
11.2 FOOTHILL'S LIABILITY FOR COLLATERAL. So long as Foothill
complies with its obligations, if any, under Section 9207 of the Code, Foothill
shall not in any way or manner be liable or responsible for: (a) the safekeeping
of the Collateral; (b) any loss or damage thereto occurring or arising in any
manner or fashion from any cause; (c) any diminution in the value thereof; or
(d) any act or default of any carrier, warehouseman, bailee, forwarding agency,
or other Person. All risk of loss, damage, or destruction of the Collateral
shall be borne by Borrower.
11.3 INDEMNIFICATION. Borrower shall pay, indemnify, defend, and
hold Foothill, each Participant, and each of their respective officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them in connection with or
as a result of or related to the execution, delivery, enforcement, performance,
and administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
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IF TO BORROWER: AMERICAN BANK NOTE
HOLOGRAPHICS, INC.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Fax No. 914. 592. 4469
WITH COPIES TO: FULBRIGHT & ▇▇▇▇▇▇▇▇ L.L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax No. 212. 752. 5958
IF TO FOOTHILL: FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Business Finance Division Manager
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
WITH COPIES TO: ▇▇▇▇ & HESSEN LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇ Podair, Esq.
Fax No. ▇▇▇.▇▇▇.▇▇▇▇
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS
OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER
OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE
PARTIES AGREE THAT
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ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT THE SOLE
OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED
UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM
NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH OF BORROWER AND FOOTHILL REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by Foothill 4
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 EFFECTIVENESS. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder and no consent or approval by Borrower is
required in connection with any such assignment. Foothill reserves the right to
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all documents
and information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations
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hereunder to a third Person, Foothill thereafter shall be released from such
assigned obligations to Borrower and such assignment shall effect a novation
between Borrower and such third Person.
15.3 SECTION HEADINGS. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each section applies equally to this entire Agreement.
15.4 INTERPRETATION. Neither this Agreement nor any uncertainty
or ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
15.5 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
15.6 AMENDMENTS IN WRITING. This Agreement can only be amended
by a writing signed by both Foothill and Borrower.
15.7 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may
be executed in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to be
an original, and all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement.
15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence
or payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
15.9 INTEGRATION. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated
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hereby and shall not be contradicted or qualified by any other agreement, oral
or written, before the date hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in Los Angeles, California.
AMERICAN BANK NOTE HOLOGRAPHICS, INC.,
A DELAWARE CORPORATION
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
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Title: ▇▇▇▇▇▇▇ ▇▇▇▇▇, President
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FOOTHILL CAPITAL CORPORATION,
A CALIFORNIA CORPORATION
By /s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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Title: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Sr. V.P.
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