EXHIBIT 10.3
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LOAN AGREEMENT
among
ALPHANET HOSPITALITY SYSTEMS, INC.,
VARIOUS LENDERS,
AND
▇▇▇▇▇ INVESTMENTS INC.,
AS AGENT
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Dated as of October 21, 1999
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$2,525,000
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LOAN AGREEMENT, dated as of October 21, 1999, among ALPHANET
HOSPITALITY SYSTEMS, INC., a Delaware corporation (the "Borrower"), the lenders
from time to time party hereto (each, a "Lender" and, collectively, the
"Lenders"), as set forth in Annex I hereto, and ▇▇▇▇▇ INVESTMENTS INC., as Agent
(the "Agent"). Unless otherwise defined herein, all capitalized terms used
herein are defined in Section 1.01 hereof.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to make loans to the Borrower upon the terms provided for
herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Definitions.
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1.01 Defined Terms. As used herein, the following terms shall have the
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meanings herein specified unless the context otherwise requires.
"Agent" shall have the meaning provided in the first paragraph
of this Agreement and shall include any successor to the Agent appointed
pursuant to Section 10.09 hereof.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors, officers, general partners and/or managing members of such Person),
controlled by, or under direct or indirect common control with such Person. A
Person shall be deemed to control a corporation, partnership, limited liability
company or trust if such Person possesses, directly or indirectly, the power (i)
to vote 10% or more of the equity interests having ordinary voting power for the
election of directors or managers of such corporation, partnership, limited
liability company or trust or (ii) to direct or cause the direction of the
management and policies of such corporation, partnership, limited liability
company or trust, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" shall mean this Loan Agreement, as the same may be
from time to time further modified, amended and/or supplemented.
"Authorized Officer" shall mean any senior officer, general
partner, nonmember manager and/or managing member of the Borrower designated as
such in writing to the Lender by the Borrower, in each case to the extent
acceptable to the Lender.
"Bankruptcy Code" shall mean ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ Codes in
effect from time to time.
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"▇▇▇▇ of Sale" shall mean the ▇▇▇▇ of Sale, dated October 21,
1999, whereby AlphaNet Telecom, Inc., a ________________ corporation, and/or its
trustee, Price Waterhousecoopers, conveys title to certain intangible property
assets to Guarantor.
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Business Day" shall mean, for all purposes, any day excluding
Saturday, Sunday and any day which shall be in the City of New York, New York, a
legal holiday or a day in which banking institutions are authorized by law or
other governmental actions to close.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and the rulings
issued thereunder. Section references to the Code are to the Code, as in effect
on the date hereof and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" is defined in the Security Agreement and the
Guarantor Security Agreement.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intending to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security, therefor; (ii) to advance or
supply funds (A) for the purchase or payment of any such primary obligation or
(B) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor; (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof,
provided however, that the term Contingent Obligations shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligations shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligations are made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Credit Parties" means, collectively, the Borrower and the
Guarantor.
"Dollars" and the sign "$" shall each mean freely transferable
lawful money of the United States.
"Eligible Transfer" shall mean and include a commercial bank,
financial institution or other institutional "accredited investor" as defined in
SEC Regulation D.
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"Events of Default" are defined in Section 8.
"▇▇▇▇▇ Proceeding" shall mean that certain pending proceeding
initiated by ▇▇▇▇▇▇ ▇▇▇▇▇ against Guarantor before the American Arbitration
Association in Dallas, Texas.
"Funding Date" shall mean the date upon which the funding of
the Loan occurs.
"GAAP" means generally accepted accounting principles
consistently applied.
"Governmental Authority" shall mean any federal, state or
local entity having jurisdiction over the affairs or property of the applicable
Credit Party.
"Guarantor" shall mean Tech Electro Industries, Inc., a Texas
corporation.
"Guarantor Security Agreement" shall mean the Guarantor
Security Agreement in the form of Exhibit D attached hereto.
"Guaranty" shall mean the Continuing Guaranty in the form of
Exhibit C attached hereto.
"Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services which in accordance with GAAP would be
shown on the liability side of the balance sheet of such Person, (iii) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such indebtedness has been assumed, (v) all capitalized lease
obligations of such Person, (vi) all obligations of such Person to pay a
specified purchase price for goods or services whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vii) all Contingent
Obligations of such Person, provided that Indebtedness shall not include trade
payables and accrued expenses, in each case arising in the ordinary course of
business.
"Insolvency Proceeding" means and includes any proceeding
commenced by or against Borrower, or any other person or entity, under any
provision of the federal Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency law, including, but not limited to, assignments for the
benefit of creditors, formal or informal moratoriums, compositions or extensions
with some or all creditors.
"Lead Lender" means ▇▇▇▇▇ Investments Inc., a British Virgin
Islands corporation.
"Lender Expenses" means and includes all of the following
costs or expenses required to be paid by Borrower under this Agreement which are
paid, advanced, or incurred by the Lenders in connection with this Agreement,
the other Loan Documents, the Collateral, and the Secured Obligations: all taxes
and insurance premiums of every nature and kind of Borrower paid by the Lenders,
filing, recording, publication and search fees paid or incurred by the Lenders
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in connection with the Lenders' transactions with Borrower; all costs and
expenses to correct or cure any default or enforce any provision of this
Agreement, or in gaining possession of, redeeming, withdrawing, receiving,
collecting, demanding, safekeeping, maintaining, appraising, selling, preparing
for sale and/or advertising to sell or otherwise dispose of the Collateral,
whether or not a sale or other disposition is consummated; all costs and
expenses of arbitration or suit incurred by the Lenders in enforcing or
defending the Loan Agreements or any portion thereof; and all attorneys' fees
and expenses incurred by the Lenders in advising the Lenders and in structuring,
drafting, reviewing, amending, terminating, enforcing, defending or concerning
the Loan Documents or any portion hereof or any agreement related thereto,
whether or not arbitration proceedings are commenced or suit is brought.
"Lenders" shall have the meaning provided in the first
paragraph of this Agreement.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
"Loan" means the term loan made pursuant to Section 2.01.
"Loan Documents" means this Agreement, the Note, the Security
Agreement, the Guaranty, the Guarantor Security Agreement and any other document
or agreement executed in connection herewith or therewith.
"Loan Fee" is defined in Section 2.12.
"Material Adverse Effect" shall mean a material adverse effect
on the business, property, assets, liabilities, operations or financial
condition of the Credit Party and its Subsidiaries, taken as a whole.
"Maturity Date" shall mean the second anniversary of the date
hereof.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA which (i) is contributed to or required
to be contributed to by the Credit Party or an ERISA Affiliate or (ii) was so
contributed to by the Credit Party or an ERISA Affiliate in respect of which the
Credit Party or an ERISA Affiliate could have liability.
"Note" means the Promissory Note in the form of Exhibit A
attached hereto.
"Patent and Trademark Office" means either the United States
Patent and Trademark Office or its Canadian equivalent, as applicable.
"Payment Offices" shall means, as to the Lead Lender, ▇/▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ #▇▇-▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, and as to
AHS Funding LLC, ▇.▇. ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other office
as such Lender may designate to the Borrower in writing from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
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"Permitted Liens" shall mean Liens described in Section 6.03.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.
"Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA, which (i) is maintained or contributed to by (or to which there is an
obligation to contribute of a Credit Party, a Subsidiary or an ERISA Affiliate
or (ii) was so maintained or contributed to by a Credit Party, a Subsidiary or
an ERISA Affiliate in respect of which the Subsidiary or an ERISA Affiliate
could have liability under Section 4069 or Section 4212 of ERISA.
"Prime" shall mean Prime Leasing, Inc.an Illinois corporation.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived under
PBGC regulations.
"SEC" shall mean the Securities and Exchange Commission.
"Secured Obligations" means any and all loans (including,
without limitation, the Loans evidenced by the Note), debts, liabilities,
obligations, covenants and duties owing by Borrower to Lender under the Loan
Documents, of any kind and description, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including, without limitation, all interest not paid when due and all fees and
expenses (including without limitation all Lender Expenses) which Borrower is
required to pay or reimburse by this Agreement, the other Loan Documents, by
law, or otherwise, and including prompt performance by Borrower of each and all
of its covenants and obligations under this Agreement and the other Loan
Documents.
"Security Agreement" means the Security Agreement in the form
of Exhibit B attached hereto.
"Security Interests" means the security interests in the
Collateral granted under the Security Agreement and the Guarantor Security
Agreement.
"Solvent" shall mean, as to any Person, that such Person has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage, is able to pay its debts as
they mature, and owns property having a value, both at fair valuation and at
then current fair saleable value, greater than the amount required to pay its
debts (including contingencies).
"Subsidiary" of any Person shall mean and include (i) any
entity 50% or more of whose ownership interest of any class or classes having by
the terms thereof ordinary voting power to elect or appoint a manager, managing
member, general partner or a majority of the directors of such Subsidiary
(irrespective of whether or not at the time ownership interest of any class or
classes of such Subsidiary shall have or might have voting power by reason of
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the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries and (ii) any limited liability company,
partnership, association, joint venture or other entity in which such Person
directly or indirectly through Subsidiaries, has 50% or more equity interest at
the time.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof, or which may hereafter be in effect, in the State of New York;
provided that if by reason of mandatory provisions of law, the perfection or the
effect of perfection or non-perfection of the Security Interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than New York, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year exceeds the
fair market value of the assets allocable thereto, each determined in accordance
with Statement of Financial Accounting Standards No. 87, based upon the
actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan.
"United States Person" is defined in Section 7701(a)(30) of
the Code.
"USA Technologies Litigation" means that certain pending
action initiated by USA Technologies, Inc. against Borrower in the United States
Court for the Eastern District of Pennsylvania.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.
1.02 Other Definitional Provisions
(a) All terms defined in this Agreement in the singular shall
have comparable meanings when used in the plural, and vice versa.
(b) The words "hereof," "hereby," "herein," and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provisions of this Agreement as a
whole and not to any particular provisions of this Agreement; the term
"hereafter" shall mean after, and the term "heretofore" shall mean before, the
date of this Agreement; and Section, schedule, exhibit and like references are
to this Agreement unless otherwise specified.
(c) Any defined term that relates to a document shall include
within its definition any amendments, modifications, renewals, restatements,
extensions, supplements, or substitutions that heretofore may have been or
hereafter may be executed in accordance with the terms thereof and, if
applicable, hereof.
(d) References in this Agreement to particular sections of the
Code, ERISA, Bankruptcy Code, UCC or any other legislation shall be deemed to
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refer also to any successor sections thereto or other redesignations for
codification purposes.
(e) All terms defined in the UCC and not otherwise defined or
modified herein shall have the respective meanings ascribed to such terms in the
UCC.
(f) All references to the masculine gender shall be deemed to
refer to the feminine and neuter gender, and vice-versa, and all terms in the
singular shall include the plural, and vice versa.
SECTION 2. Amount and Terms of Loans.
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2.01 Term Loan and Note. Subject to and upon the terms and conditions
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herein set forth, the Lenders agree, on the terms and conditions hereinafter set
forth and in reliance upon the representations and warranties of Borrower
hereinafter set forth, to make a Loan to Borrower in the amount of Two Million
Five Hundred Twenty-Five Thousand Dollars ($2,525,000). The Borrower's
obligation to pay the principal of, and interest on, the Loan shall be evidenced
by the Note, with blanks appropriately completed in conformity herewith. The
Note shall be dated the date hereof and be payable in accordance with the terms
set forth in Section 2.05 hereof and the Note.
2.02 Interest. The Loan shall bear interest on the unpaid principal
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balance commencing on the Funding Date at a rate per annum which shall at all
times be equal to the rate or rates of interest as set forth in the Note.
2.03 Increased Costs, Illegality, etc., In the event that at any
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time, any Lender determines that it shall incur increased costs or reductions in
the amounts received or receivable hereunder (other than taxes on any increased
cost or reduction in the amount received or receivable resulting from the
imposition of or a change in the rate of taxes or similar charges) because of
(i) any change from the Funding Date in any applicable law, governmental rule,
regulation, guideline or order (or in the interpretation or administration
thereof and including the introduction of any new law or governmental rule,
regulation, guideline or order) (such as, for example, but not limited to, a
change in official reserve requirements) and/or (ii) other circumstances
affecting such Lender, then, and in any such event, such Lender shall (x) on
such date and (y) within ten Business Days of the date on which such event no
longer exists give notice (by telephone confirmed in writing) to the Borrower
and to such Lender of such determination. Thereafter, the Borrower shall pay to
such Lender, upon written demand therefor, such additional amounts (in the form
of an increased rate of, or a different method of calculating, interest or
otherwise as such Lender in its reasonable discretion determines after
consultation with the Borrower) as shall be required to compensate such Lender
for such increased costs or reductions in amounts receivable hereunder (a
written notice as to the additional amounts owed to such Lender, describing the
basis for such increased costs and showing the calculation thereof, submitted to
the Borrower by such Lender shall, absent manifest error, be final and
conclusive and binding upon all parties hereto).
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2.04 Notice of Borrowing; Disbursements.
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(a) Whenever Borrower desires to borrow under this Section 2,
it shall deliver to Agent a notice of borrowing no later than 1:00 P.M. (Eastern
time) at least two Business Days in advance of the proposed Funding Date. The
notice of borrowing shall specify (i) the proposed Funding Date (which shall be
a Business Day) and (ii) the amount of the proposed borrowing.
(b) Disbursement of Funds. Within three (3) business days
after receipt of a notice of borrowing, but subject to the conditions set forth
in Section 3, the Lenders shall make the proceeds of the Loan available to
Borrower on the Funding Date by causing an amount of same day funds equal to the
proceeds of such Loan as directed by Borrower.
2.05 Payments of Principal and Interest. All accrued interest and
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unpaid principal shall be paid in accordance with the terms of the Note. All
payments received by the Agent shall be applied first to Lender Expenses, then
to late charges, then to interest, and finally to reduce the principal amount of
the Loan.
2.06 Voluntary Prepayments. The Borrower shall have the right, at
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any time and from time to time, to prepay the Loans in whole or in part;provided
that any partial prepayment of the Loan shall be in an aggregate principal
amount of at least $100,000.
2.07 Method and Place of Payment. All payments made by the Borrower
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in accordance with the terms of the Note and otherwise in accordance with this
Agreement shall be made to the Agent not later than 1:00 P.M. (Eastern time) on
the date when due and shall be made in immediately available funds and in lawful
money of the United States of America, at the Payment Offices of each Lender
with respect to each Lender's proportionate interest in the Loan. Any payments
under this Agreement which are made later than 1:00 P.M. (Eastern time) shall be
deemed to have been made on the next succeeding Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable during such extension at the applicable rate in effect immediately prior
to such extension.
2.08 Net Payments. All payments made by the Borrower hereunder or
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under the Note will be made without set off, counterclaim or other defense. All
such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments.
2.09 Repayment of Loan. Borrower shall repay the Loan in
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accordance with the Note.
2.10 Note Records. Each Lender is hereby authorized to record in
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its books and records the date and portion of the Loan made by such Lender, and
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the date and amount of each payment or prepayment of principal thereof or
interest accrued thereon, and any such recordation shall constitute presumptive
evidence of the accuracy of the information so recorded; provided that failure
by such Lender to effect such recordation shall not affect Borrower's
obligations hereunder.
2.11 Loan Fee. On the date hereof, Borrower shall be obligated to
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pay Agent a loan fee (the "Loan Fee") of $249,565. The Loan Fee has been fully
earned and is non-refundable, and is payable as follows: $130,000 payable on the
Funding Date, and the balance shall be due in two equal installments of
$59,782.50 each thirty (30) and sixty (60) days following the Funding Date. The
balance shall bear interest at twenty and one-half percent (20.5%) per annum
from the Funding Date until paid; accrued interest shall be paid concurrently
with each installment. Notwithstanding the foregoing, the entire Loan Fee and
all accrued interest due thereon shall be payable no later than the earliest to
occur of: (i) the Maturity Date; (ii) the occurrence of an Event of Default; and
(iii) any prepayment of the Note.
2.12 Monthly Statements. At Agent's election, Agent may render
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monthly statements of the Secured Obligations owing by Borrower to Lenders,
including statements of all principal, interest, late charges and Lender
Expenses owing. If Agent renders such statements, such statements shall be
rebuttably presumed to be correct and accurate and to constitute an account
stated between Borrower and Lenders.
SECTION 3. Conditions Precedent.
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3.01 Conditions Precedent to Making Loan. The obligation of the Lenders
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to make the Loan on the Funding Date is subject to the satisfaction of each of
the following conditions at such time:
(a) Note. There shall have been delivered to the Agent the
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Note executed by the Borrower in the amount and as otherwise provided herein.
(b) Certain Other Loan Documents. There shall have been
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delivered to the Agent the following:
(i) The Security Agreement, executed by Borrower;
(ii) The Guaranty, executed by the Guarantor;
(iii) The Guarantor Security Agreement, executed by
Guarantor;
(iv) All documents requested by Agent to perfect the
Security Interests, all in form and substance satisfactory to Agent.
(c) Opinion of Counsel. An opinion of counsel to each of the
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Credit Parties and Guarantor addressed to Agent in the form satisfactory to
Agent.
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(d) Other Documents. There shall have been delivered to the
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Lender the following:
(i) A Warrant Certificate issued to Lender
representing One Hundred Ninety-Three Thousand Two Hundred Seventeen (193,217)
shares of Guarantor's common stock exercisable warrants to purchase at the price
of seventy-five cents ($0.75), exercisable over five (5) years, in form
satisfactory to Agent.
(ii) A copy of the executed ▇▇▇▇ of Sale and such
other evidence, satisfactory to Agent, that the transaction contemplated thereby
has been consummated.
(iii) A list of all tangible and intangible personal
property that is currently owned by Borrower.
(iv) Confirmation that all Indebtedness of Borrower
to HLC has been paid in full, and that HLC has terminated all security interests
in the Collateral.
(v) Copies of each employment agreement between
▇▇▇▇ ▇▇▇▇▇▇▇▇ and Borrower.
(vi) A proforma financial statement of Borrower, and
a copy of Guarantor's Form 10-Q for the period ended June 30, 1999, as filed
with the SEC.
(vii) Evidence, satisfactory to Agent, of
compliance by Credit Parties with the representation set forth in Section 4.18
hereof and Section 10(q) of the Guaranty.
(e) Credit Party Proceedings.
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(i) The Agent shall have received a certificate,
dated the Funding Date, signed by an Authorized Officer of each of the Credit
Parties, substantially in the form of Exhibit E. with appropriate insertions and
deletions, together with (x) copies of the articles of incorporation and by-laws
of each of the Credit Parties and (y) the resolutions of each of the Credit
Parties and all of the foregoing (including the organizational documents) shall
be reasonably satisfactory to the Agent.
(ii) On the Funding Date, all instruments and
agreements in connection with the transactions contemplated by this Agreement
and the other Loan Documents shall be reasonably satisfactory in form and
substance to the Agent, and the Agent shall have received all information and
copies of all certificates, documents and papers, including good standing
certificates and any other records of corporate, partnership and limited
liability company proceedings and governmental approvals, if any, which the
Agent may have reasonably requested in connection therewith, such documents and
papers, where appropriate, to be certified by proper corporate or governmental
authorities.
(f) Plans. On or prior to date hereof, there shall have
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been made available to the Agent true and correct copies of any Plans, and for
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each such Plan (x) that is a "single-employer plan" (as defined in Section
4001(a)(15) of ERISA) the most recently completed actuarial valuation prepared
therefore by such Plan's regular enrolled actuary and the Schedule B (Actuarial
Information) to the most recent annual report (Form 5500 Series) for each Plan
most recently filed with the Internal Revenue Service; and (y) that is a
Multiemployer Plan, each of the documents referred to in clause (x) to the
extent in possession of the Credit Parties and/or any ERISA Affiliate or
reasonably available to the Credit Parties from the sponsor or trustees of such
Plan and an estimate of withdrawal liability prepared by the plan administrator
of such Multiemployer Plan with all of the foregoing to be reasonably
satisfactory to the Agent.
(g) Adverse Change, etc. From December 31,1998 to the date
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hereof as to each Credit Party, nothing shall have occurred (and the Lenders
shall have not become aware of any facts or conditions not previously known)
which the Agent shall determine (i) has, or is reasonably likely to have, a
material adverse effect on the rights or remedies of the Lenders hereunder or
under any other Loan Document, or on the ability of each Credit Party to perform
its respective obligations under the Loan Documents, or (ii) has, or is
reasonably likely to have, a Material Adverse Effect.
(h) Litigation. Except for the USA Technologies Litigation
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and the ▇▇▇▇▇ Proceeding, there shall be no actions,suits or proceedings pending
or threatened (a) with respect to this Agreement or any other Loan Document or
(b) which the Agent shall determine could reasonably be expected to (i) have a
Material Adverse Effect or (ii) have a material adverse effect on the rights or
remedies of the Lenders hereunder or under any other Loan Document or on the
ability of any Credit Party to perform its obligations under the Loan Documents.
(i) Approvals. All material necessary governmental and
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third party approvals in connection with the Loan Documents shall have been
obtained and remain in effect.
(j) Solvency. Each of the Credit Parties shall have
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delivered to the Agent a solvency certificate substantially in the form of
Exhibit F hereto from an Authorized Officer of such Credit Party expressing
opinions of value and offer appropriate facts or information regarding the
solvency of such Credit Party.
(k) Outstanding Indebtedness. On the Closing Date, the
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Borrower shall have no outstanding Indebtedness other than the Loans and as set
forth on Exhibit G attached hereto.
(l) Insurance Policies. The Agent shall have received
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evidence of insurance complying with the requirements of Section 5.03 for the
business and properties of the Credit Parties.
(m) Lender Expenses. The Borrower shall have paid to the
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Lenders all of the Lender Expenses incurred by the Lenders in connection with
the Loan Documents.
(n) Additional Documents. Each of the Credit Parties shall
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have delivered, or caused to be delivered, to the Agent all other additional
documents, instruments and certificates as the Agent may reasonably require.
(o) Representations and Warranties. No Event of Default.
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The representations and warranties of each Credit Party under the Loan Documents
are true and correct, and no Event of Default shall have occurred.
(p) Conversion of Debt. All outstanding debt of the
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Borrower to AiphaNet Telecom, Inc. and each of its affiliates and subsidiaries
shall have been converted into additional paid-in capital of the Borrower.
SECTION 4. Representations, Warranties and Agreements. In order to
--------------------------------------------
induce the Lenders to enter into this Agreement and for the Lenders to make the
Loan, the Borrower makes the following representations and warranties to, and
agreements with the Lenders, all of which shall survive the execution and
delivery of this Agreement and the making of the Loan, and which shall continue
for as long as this Agreement is in effect and until the Loan, together with
interest, Lender Expenses and other Secured Obligations incurred hereunder, is
fully and indefeasibly paid and performed:
4.01 Status. The Borrower (i) is a duly organized and validly
------
existing corporation, in good standing under the laws of the State of Delaware,
and has the power and authority to own its property and assets and to transact
the business in which it is engaged and presently proposes to engage and (ii)
has duly qualified and is authorized to do business and is in good standing in
all jurisdictions where it is required to be so qualified and where the failure
to be so qualified would have a Material Adverse Effect.
4.02 Power and Authority. Borrower has the power and authority to
-------------------
execute, deliver and carry out the terms and provisions of the Loan Documents to
which it is a party and has taken all necessary corporate action to authorize
the execution, delivery and performance of the Loan Documents to which it is a
party. Borrower has duly executed and delivered each Loan Document to which it
is a party and each such Loan Document constitutes the legal, valid and binding
obligation of Borrower enforceable in accordance with its terms, subject to the
effects of bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (regardless of whether enforcement is sought in equity or at law) and
an implied covenant of good faith and fair dealing.
4.03 No Violation. Neither the execution, delivery and performance
------------
by Borrower of the Loan Documents to which it is a party nor compliance with the
terms and provisions thereof, nor the consummation of the transactions
63
contemplated therein (i) will contravene any applicable provision of any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, or (other than pursuant to the Loan
Documents) result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of Borrower pursuant to
the terms of any indenture, mortgage, deed of trust, agreement or other
instrument to which Borrower is a party or by which it or any of its property or
assets are bound or to which it may be subject or (iii) will violate any
provision of the organizational documents of the Borrower. The performance by
Borrower under the documents listed in clause (ii) above is not reasonably
expected to have a Material Adverse Effect.
4.04 Litigation. Except for the USA Technologies Litigation, there
----------
are no actions, suits or proceedings pending or, to the best of its knowledge,
threatened with respect to the Borrower or Borrower's Affiliates (i) that could
reasonably be expected to have a Material Adverse Effect or (ii) that could
reasonably be expected to have a material adverse effect on the rights or
remedies of the Lenders or on the ability of Borrower taken as a whole to
perform its obligations under the Loan Documents.
4.05 Use of Proceeds. The proceeds of the Loan shall be utilized on
---------------
the Funding Date only for the following purposes: (a) full payment of
Indebtedness of Borrower due HLC Financial, Inc.; (b) payment of loan fees
under this Agreement; (c) working capital purposes; and (d) payments obligated
to be made to the Guarantor.
4.06 Governmental Approvals. Except for filings and recordings in
----------------------
connection with the Security Interest, no order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required in
connection with (i) the execution, delivery and performance of any Loan Document
or (ii) the legality, validity, binding effect or enforceability of any Loan
Document.
4.07 Investment Company Act. Borrower is not an "investment company"
----------------------
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
4.08 Public Utility Holding Company Act. Borrower is not a "holding
----------------------------------
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
4.09 True and Complete Disclosure.Except with respect to projections
----------------------------
and pro forma financial information, all factual information (taken as a whole)
heretofore or contemporaneously furnished by or on behalf of Borrower in writing
64
to the Lenders for purposes of or in connection with this Agreement or any
transaction contemplated herein is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of Borrower in writing to
the Lenders hereunder will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information (taken as
a whole) not misleading at such time in light of the circumstances under which
such information was provided. There is no fact known to Borrower which would
have a Material Adverse Effect, which has not been disclosed herein or in such
other documents, certificates and statements furnished to the Lenders for use in
connection with the transactions contemplated hereby.
4.10 Financial Condition and Financial Statements.
--------------------------------------------
(a) On and as of the Funding Date, (i) the sum of the assets,
at a fair valuation, of Borrower, taken separately will exceed its debts, (ii)
Borrower will not have incurred or intended to, or believe that it will, incur
debts beyond its ability to pay such debts as such debts mature and (iii)
Borrower will not have unreasonably small capital with which to conduct its
business. For purposes of this Section 4.11, "debt" means any liability on a
claim, and "claim" means (x) right to payment whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured; or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(b) The consolidated unaudited balance sheets of Borrower at
July 31, 1999, and the related consolidated unaudited statements of operations
and cash flows of the Borrower for the fiscal year ended as of July 31, 1999,
copies of all of which have heretofore been furnished to the Lenders, present
fairly the consolidated financial position of Borrower at the dates of said
statements and the results for the periods covered thereby in accordance with
GAAP, except to the extent provided in the notes to said financial statements
and subject to normal and recurring year-end adjustment. All such financial
statements have been prepared in accordance with GAAP and practices consistently
applied except to the extent provided in the notes to said financial statements.
Nothing has occurred since July 31, 1999 that has had or could reasonably be
expected to have a Material Adverse Effect.
(c) Except as reflected in the financial statements and the
notes thereto described in Section 4. 10(b), there were as of the Funding Date
no liabilities or obligations with respect to the Borrower or any of Borrower's
Subsidiaries of a nature (whether absolute, accrued, contingent or otherwise and
whether or not due) which, either individually or in aggregate, would be
material to the Borrower and its Subsidiaries taken as a whole, except as
incurred in the ordinary course of business consistent with past practices.
4.11 Security Interests.The Security Agreement creates, as security
------------------
for the Secured Obligations secured hereby, a valid and enforceable perfected
security interest in and Lien on all of the Collateral subject thereto, superior
to and prior to the rights of all third Persons and subject to no other Liens
(other than Permitted Liens relating thereto), in favor of the Agent as agent
65
for the benefit of the Lenders. Except as provided in Section 5.11 hereof, no
filings or recordings are required in order to perfect the security interests
created under the Security Agreement except for filings or recordings: (A)
required in connection with the Security Agreement which shall have been made
upon or prior to (or are the subject of arrangements, reasonably satisfactory to
the Lenders, for filing on or promptly after the date of) the execution and
delivery thereof and (B) that are required by the Security Agreement to be made
thereafter.
4.12 Tax Returns and Payments. Except for tax returns for the year
------------------------
ended December 31, 1998, Borrower has filed all federal income tax returns and
all other material tax returns, domestic and foreign, required to be filed by it
and has paid all material taxes and assessments payable by it which have become
due, except for those contested in good faith and adequately disclosed and fully
provided for on the financial statements of Borrower in accordance with GAAP.
Borrower has at all times paid, or has provided adequate reserves (in the good
faith judgment of the management of Borrower) for the payment of, all federal,
state and foreign income taxes applicable for all prior fiscal years and for the
current fiscal year to date. There is no action, suit, proceeding,
investigation, audit, or claim now pending or, to the knowledge of the Borrower,
threatened by any authority regarding any taxes relating to Borrower which could
reasonably be expected to have a Material Adverse Effect. As of the Funding
Date, Borrower has not entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations relating
to the payment or collection of taxes of Borrower, or is aware of any
circumstances that would cause the taxable years or other taxable periods of
Borrower not to be subject to the normally applicable statute of limitations.
4.13 Compliance with ERISA. As of the Funding Date Borrower, or any
---------------------
ERISA Affiliate, does not maintain, contribute to or is required to contribute
to any Multiemployer Plan. Except to the extent that all events and obligations
described in the following sentence of this Section 4.13 would not in the
aggregate have a Material Adverse Effect, each Plan (and each related trust,
insurance contract or fund) is in substantial compliance with its terms and with
all applicable laws, including, without limitation, ERISA and the Code; Borrower
or any ERISA Affiliate has not incurred and does not reasonably expect to incur,
and to the Borrower's knowledge, no condition exists which presents a material
risk to Borrower or any ERISA Affiliate of incurring, any liability, nor has a
lien been imposed against the assets of Borrower or any ERISA Affiliate, on
account of a Plan or Multiemployer Plan under the Code or ERISA; each Plan (and
each related trust, if any) which is intended to be qualified under Section 40
1(a) of the Code has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Sections 40 1(a) and 50
1(a) of the Code; no Reportable Event has occurred; to the knowledge of the
Borrower no Multiemployer Plan is insolvent or in reorganization; no Plan has an
Unfunded Current Liability; no Plan which is subject to Section 412 of the Code
or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; no action, suit,
proceeding, hearing or audit or, to the knowledge of the Borrower, no
investigation with respect to the administration, operation or the investment of
66
assets of any Plan (other than routine claims for benefits) is pending, or to
the knowledge of the Borrower is, expected or threatened. In addition, using
actuarial assumptions and computation methods consistent with Part I of subtitle
E of Title IV of ERISA, to the knowledge of the Borrower, the aggregate
liabilities which would be payable in any fiscal year of the Borrower or any
ERISA Affiliates to all Plans which are Multiemployer Plans in the event of a
complete withdrawal therefrom, as of the close of the most recent fiscal year of
each such Plan ended prior to the date of the Funding Date, would not result in
any liability to Borrower or any ERISA Affiliate; and Borrower does not maintain
or contribute to any (i) employee welfare benefit plan (as defined in Section
3(1) of ERISA) which provides benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) the obligations with
respect to which as a consequence of any termination or other extraordinary
event (other than benefits in the ordinary course) could reasonably be expected
to have a Material Adverse Effect or (ii) Plan, the obligations with respect to
which could reasonably be expected to have a Material Adverse Effect.
4.14 Subsidiaries. On and as of the Funding Date, the Borrower has
------------
no Subsidiaries other than those Subsidiaries listed on Exhibit H, which
correctly sets forth, as of the Funding Date, the percentage ownership (direct
and indirect) of the Borrower in each class of equity or other ownership
interest of its Subsidiaries and also identifies the direct owner thereof.
4.15 Intellectual Property. Borrower has obtained all material
----------------------
patents, trademarks, service marks, trade names, copyrights, licenses and other
rights, free from burdensome restrictions, that are necessary for the operation
of its business taken as a whole as presently conducted and as proposed to be
conducted.
4.16 Labor Relations. Borrower is not engaged in any unfair labor
---------------
practice that could reasonably be expected to have a Material Adverse Effect.
There is (i) no unfair labor practice complaint pending against Borrower or, to
the best of its knowledge, threatened against Borrower, before the National
Labor Relations Board, and no grievance or arbitration proceeding arising out of
or under any collective bargaining agreement is so pending against Borrower or,
to the best of its knowledge, threatened against Borrower, (ii) no strike, labor
dispute, slowdown or stoppage pending against Borrower or, to the best of its
knowledge, threatened against Borrower and (iii) no union representation
question existing with respect to the employees of Borrower and no union
organizing activities are taking place, except with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate, such as is not reasonably likely to have a Material Adverse Effect.
4.17 Compliance with Statutes. etc. To the best of Borrower's
------------------------
knowledge, Borrower is in compliance with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property, except such noncompliance as is not reasonably likely
to, individually or in the aggregate, have a Material Adverse Effect.
67
4.18 Year 2000 Compliance. To the best of Borrower's knowledge, all
--------------------
computer software and hardware used, sold or acquired by Borrower will function
without error or interruption related to Date Data, specifically including
errors or interruptions from functions which may involve Date Data from more
than one century. When used in this Section 4.18, the term "Date Data" shall
mean any data or input which includes an indication of or reference to date.
4.19 Margin Regulations. Borrower is not engaged in the business of
------------------
extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or carry
any equity security of a class which is registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended.
4.20 Brokers. There are no brokers, investment bankers or other
-------
persons or entities that are entitled to claim a fee of any kind as a result
of the Loan.
SECTION 5. Affirmative Covenants. The Borrower hereby covenants and
----------------------
agrees that for so long as this Agreement is in effect and until the Loan,
together with interest, Lender Expenses and all other Secured Obligations
incurred hereunder, is fully and indefeasibly paid and performed in full:
5.01 Information Covenants. The Borrower will furnish to the Agent:
---------------------
(a) Annual Financial Statements. Within ninety (90) days after
---------------------------
the close of each fiscal year of the Borrower, consolidated balance sheet of the
Borrower, as at the end of such fiscal year and the related consolidated
statements of income and retained earnings and of cash flows for such fiscal
year, in each case setting forth comparative consolidated figures for the
preceding fiscal year, each of which shall be certified by an Authorized Officer
of the Borrower, subject to changes resulting from normal year-end adjustments.
(b) Monthly Financial Statements. As soon as available and in
----------------------------
any event within twenty-five (25) days after the close of each monthly
accounting period in each fiscal year, the unaudited consolidated balance sheet
of the Borrower, as at the end of such monthly period and the related unaudited
statements of income and retained earnings and of cash flows for such monthly
period and for the elapsed portion of the fiscal year ended with the last day of
such monthly period, and in each case setting forth comparative consolidated
figures for the related periods in the prior fiscal year, each of which shall be
certified by an Authorized Officer of the Borrower subject to changes resulting
from normal year-end adjustments.
(c) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Sections 5.01(a) and (b), a certificate of
an Authorized Officer of the Borrower to the effect that no Event of Default
exists or, if any Event of Default does exist, specifying the nature and extent
thereof.
68
(d) Tax Returns. Within 10 days after the filing thereof,
------------
copies of any and all foreign, federal, state and local tax returns and reports
of or relating to Borrower.
(e) Notice of Default or Litigation. Promptly, and in any
---------------------------------
event within three Business Days after any officer of the Borrower obtains
knowledge thereof, notice of (i) the occurrence of any event which constitutes
an Event of Default which notice shall specify the nature thereof, the period of
existence thereof and what action the Borrower proposes to take with respect
thereto, (ii) the commencement of, or any significant development in, any
litigation or governmental proceeding pending against Borrower which is
reasonably likely to have a Material Adverse Effect or is reasonably likely to
have a material adverse effect on the ability of Borrower to perform its
obligations hereunder or under any other Loan Document, and (iii) a material
breach by Borrower in any indebtedness or other obligation owed by Borrower to
third parties.
(f) Other Information. (a) Promptly upon transmission thereof,
-----------------
(i) copies of any filings and registrations with, and reports to, the Securities
and Exchange Commission or any successor thereto by the Borrower, and (ii)
copies of all financial statements, proxy statements, notices and reports as the
Borrower shall send generally to analysts; and (b) with reasonable promptness,
such other information or documents (financial or otherwise) as the Lenders may
reasonably request from time to time
5.02 Books. Records and Inspections. The Borrower will permit, upon
------------------------------
reasonable notice to the chief financial officer, controller or any other
Authorized Officer of the Borrower, officers, managers and designated
representatives of the Lenders to visit and inspect any of the properties or
assets of the Borrower, and to examine the books of account of the Borrower and
discuss the affairs, finances and accounts of the Borrower with, and be advised
as to the same by, its and their officers, managers and independent accountants,
all at such reasonable times and intervals and to such reasonable extent as the
Lenders may desire.
5.03 Insurance. The Borrower will at all times maintain in full
---------
force and effect insurance in such amounts, covering such risks and liabilities
and with such deductibles or self-insured retentions as are in accordance with
normal industry practice. The Borrower will furnish to the Agent on the Funding
Date and thereafter, upon request of the Agent, a summary of the insurance
carried together with certificates of insurance and other evidence of such
insurance.
5.04 Payment of Taxes. The Borrower will pay and discharge all
----------------
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims which, if unpaid, might
69
become a Lien or charge upon any properties of the Borrower, provided that
Borrower shall not be required to pay any such assessment, charge, levy or claim
which is being contested in good faith and by proper proceedings if it has
maintained adequate reserves (in the good faith judgment of the management of
the Borrower) with respect thereto in accordance with GAAP.
5.05 Franchise. The Borrower will do or cause to be done,all things
---------
reasonably necessary to preserve and keep in full force and effect its existence
and to preserve its material rights and franchises and organizational existence
and status, other than those the failure to preserve which could not reasonably
be expected to have a Material Adverse Effect.
5.06 Compliance with Statutes. etc. The Borrower will comply with
------------------------
all applicable statutes, regulations and orders of, and all applicable
restrictions imposed by, any Governmental Authority, in respect of the conduct
of its respective business and the ownership of its respective property other
than those the non-compliance with which would not have a Material Adverse
Effect.
5.07 ERISA. As soon as possible and, in any event, within fifteen
-----
days after the chief financial officer or chief executive officer of the
Borrower or any ERISA Affiliate, knows or has reason to know of the occurrence
of any of the following events (but in each case, only to the extent that it is
reasonably likely that the liability of the Borrower, individually or in the
aggregate, attributable to such event will be at least $50,000), the Borrower
will deliver to the Agent a certificate of the Borrower setting forth in
reasonable detail as to such occurrence and the action, if any, that the
Borrower or such ERISA Affiliate is required or proposes to take, together with
any notices required or proposed to be given to or filed with or by the
Borrower, the ERISA Affiliate, the PBGC, a Plan or Multiemployer Plan
participant, the Plan or the Multiemployer Plan administrator with respect
thereto: that a Reportable Event has occurred; that an accumulated funding
deficiency, within the meaning of Section 412 of the Code or Section 302 of
ERISA, has been incurred or an application may reasonably be expected to be or
has been made for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of ERISA
with respect to a Plan or Multiemployer Plan; that any contribution required to
be made by the Borrower, or any ERISA Affiliate with respect to a Plan or
Multiemployer Plan that is subject to the funding requirements of Section 412 of
the Code or Section 302 of ERISA has not been timely made; that a Plan or
Multiemployer Plan has been or may reasonably be expected to, be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA; or that
some action has been taken or proceedings have been instituted which would be
reasonably likely to cause any such termination, reorganization, partition or
declaration or result in the filing of any such application; that a Plan has an
Unfunded Current Liability; that proceedings may reasonably be expected to be or
have been instituted to appoint a trustee to administer a Plan which is subject
to Title IV of ERISA; that a proceeding has been instituted pursuant to Section
515 of ERISA to collect a delinquent contribution to a Multiemployer Plan; that
the Borrower, or any ERISA Affiliate will or may reasonably be expected to incur
any liability to or on account of the termination of or
70
withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212
of ERISA or with respect to a Plan or Multiemployer Plan under Section
401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(i) of
ERISA or with respect to a group health plan (as defined in Section 607(1) of
ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or
that the Borrower has incurred or is reasonably likely to incur any liability as
a consequence of any termination or other extraordinary event (other than
benefits in the ordinary course) in connection with any employee welfare benefit
plan (as defined in Section 3(1) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or any Plan or Multiemployer Plan. Upon the request of the Agent, the
Borrower will deliver to the Agent a complete copy of the annual report (on
Internal Revenue Service Form 5500-series) of each Plan (including, to the
extent required, the related financial and actuarial statements and opinions and
other supporting statements, certifications, schedules and information) most
recently required to be filed with the Internal Revenue Service. In addition to
any certificates or notices delivered to the Agent pursuant to the first
sentence hereof, copies of any material notices received by the Borrower or any
ERISA Affiliate (i) from any government agency with respect to any Plan or (ii)
received from any government agency or Plan administrator or sponsor or trustee
with respect to any Multiemployer Plan shall be delivered to the Agent as soon
as practicable, but in no event later than 20 days, after such request is
received.
5.08 Good Repair. The Borrower will ensure that its material
------------
properties and equipment necessary in the operation of its respective business
are kept in good repair, working order and condition, normal wear and tear
excepted, and that from time to time there are made in such properties and
equipment all needful and proper repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto, to the extent and in the manner
useful or customary for companies in similar businesses.
5.09 End of Fiscal Years; Fiscal Quarters. The Borrower will
-----------------------------------------
maintain for financial reporting purposes a fiscal year and fiscal quarters on
the same basis as are maintained on the Funding Date.
5.10 Use of Proceeds.The Borrower agrees to use the proceeds of the
---------------
Loans in accordance with Section 4.05 hereof.
5.11 Post-Closing Special Covenant. No later than December 8, 1999,
-----------------------------
Borrower shall deliver to Agent evidence that (i) all patents and trademarks
included in the Collateral pursuant to the Security Agreement and Guarantor
Security Agreement shall have been registered in the applicable Patent and
Trademark Office, in the name of Borrower or Guarantor, as applicable; and (ii)
the records of each of the Patent and Trademark Offices reflect the first
priority Security Interest in, and do not reflect any adverse claims or other
liens against any of, such patents and trademarks.
5.12 Broker Fee. The Borrower shall pay, on or before the date due,
----------
any broker's or finder's fee due in connection with the Loan and the Loan
Documents.
71
SECTION 6. Negative Covenants. The Borrower hereby covenants and agrees
------------------
that for so long as this Agreement is in effect and until the Loan, together
with interest, Lender Expenses and all other Obligations incurred hereunder, is
fully and indefeasibly paid and performed:
6.01 Changes in Business. The Borrower will not materially alter
-------------------
the character of the business of t he Borrower from that conducted by the
Borrower on the date hereof.
6.02 Business Structure and Operations. Borrower shall not, without
---------------------------------
Lenders' prior written consent:
(a) enter into any leases, agreements, contracts or other
commitments, whether written or oral, other than commitments made in the
ordinary and regular course of Borrower's business and not of unusual size or
duration;
(b) authorize or create any new class of securities of
Borrower or make any change in Borrower's corporate charter or its bylaws;
(c) sell, assign, lease or otherwise transfer or dispose of or
encumber any property (real or personal), except for the sale of inventory and
the replacement of equipment, all in the ordinary and usual course of business;
(d) take any action that results in any merger or
consolidation of Borrower with or into any Person, any acquisition of all or
substantially all of the assets of Borrower or any reorganization of Borrower's
capital structure;
(e) wind up, liquidate or dissolve its affairs;
(f) purchase, lease or otherwise acquire all or any part of
the property or assets of any Person (other than purchases or other acquisitions
of inventory, leases, materials and equipment in the ordinary course of
business);
(g) grant any options, warrants or other rights to purchase or
obtain any of its capital stock or issue, sell or otherwise dispose of any of
its capital stock (except to Lenders);
(h) declare, set aside, or pay any dividend or distribution
with respect to any class of its capital stock or issue (whether in cash or in
kind), or redeem, repurchase or otherwise acquire any of its capital stock;
(i) issue any note, bond or other debt security or create,
incur, assume or guarantee any Indebtedness for borrowed money or capitalized
lease obligations other than Indebtedness incurred in the ordinary and usual
course of business;
(j) make any capital investment in, make any loan to, or
acquire the securities or assets of any other person or entity;
72
(k) except as permitted pursuant to the employment agreements
described in Section 3.01(d), or employment agreements entered into to replace
terminated employees, hire any employee (i) for a term of more than one year,
(ii) for compensation in excess of $100,000 per annum, or (iii) other than in
the ordinary and usual course of Borrower's business;
(l) make any material change in the business of Borrower or
conduct Borrower's business or take any other action otherwise than in the
ordinary and usual course of business;
(m) amend or change the period of exercisability or accelerate
the exercisability of any outstanding options or warrants to acquire shares of
capital stock;
(n) commence or settle any lawsuit or arbitration to which
Borrower is a party which involves an aggregate amount (including attorneys'
fees and costs) in excess of $50,000;
(o) make or commit to any capital expenditures involving
$500,000 in any individual transaction or an aggregate of greater than
$2,000,000 in any year, or $2,000,000 annually for leases of capital equipment;
(p) increase or decrease the number of authorized directors of
Borrower;
(q) continue or enter into any transaction with any officer,
director or shareholder of Borrower or any direct or indirect Affiliate of any
such Person;
(r) make any change in the Borrower's financial structure or
in any of its business objectives, purposes or operations which could adversely
affect the ability of Borrower to repay the Secured Obligations; or
(s) agree or commit to any of the foregoing.
6.03 Liens. The Borrower will not create, incur,assume or suffer to
-----
exist any Lien upon or with respect to any property or assets of any kind (real
or personal, tangible or intangible) of the Borrower whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Borrower) or assign any right to receive income, except the following
(collectively, "Permitted Liens"):
(a) Liens for taxes not yet due or Liens for taxes being
contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Borrower) have
been established;
(b) Liens in respect of property or assets of the Borrower
imposed by law which were incurred in the ordinary course of business, such as
carriers', warehousemen's and mechanics' Liens, statutory landlords' Liens, and
other similar Liens arising in the ordinary course of business, and (i) which do
not in the aggregate materially detract from the value of such property or
73
assets or materially impair the use thereof in the operation of the business of
the Borrower or (ii) which are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture or
sale of the property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement or the
other Loan Documents;
(d) Liens arising from judgments, decrees or attachments and
Liens securing appeal bonds arising from judgments, in each case in
circumstances not constituting an Event of Default;
(e) Liens (other than any lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money bonds
and other similar obligations incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed money),
provided that the aggregate amount of deposits at any time pursuant to this
clause (e) shall not exceed $50,000;
(f) Leases or subleases granted to others not interfering in
any material respect with the business of the Borrower;
(g) Easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the business of
the Borrower;
(h) Purchase money Liens securing payables arising from the
purchase by the Borrower of any equipment or goods in the normal course of
business;
(i) Any interest or title of a lessor under any lease
permitted by this Agreement; and
(j) Liens described on Exhibit I attached hereto.
6.04 Modifications. The Borrower will not amend, modify or change
-------------
in any manner adverse to the interests of the Lenders, any of its organizational
documents (which shall include the certificate of incorporation and bylaws).
6.05 Relocate Its Chief Executive Office. Borrower will not,
----------------------------------------
without thirty (30) days prior written notification to Agent, relocate its chief
executive office.
6.06 Agreements with Account Debtors. After an Event of Default
-------------------------------
hereunder, no discount, credit or allowance shall be granted by Borrower to any
account debtor and no return of merchandise shall be accepted by Borrower
without Lenders' consent. Lenders may, after an Event of Default, settle or
adjust disputes and claims directly with account debtors for amounts and upon
terms which Lenders consider advisable, and in such cases, Lenders will credit
74
the Secured Obligations with only the net amounts received by Lenders in payment
of such disputed accounts, after deducting all Lender Expenses incurred or
expended in connection therewith.
SECTION 7. Security Interest. Borrower shall grant to Agent, for the
------------------
benefit of the Lenders, pursuant to the provisions of the Security Agreement, a
continuing security interest in all presently existing and hereafter arising
Collateral in order to secure prompt payment of any and all Secured Obligations
and in order to secure prompt performance by Borrower of each and all of its
covenants and obligations under the Loan Documents, all upon and in accordance
with the provisions of this Agreement, the Security Agreement and the other Loan
Documents. Agent's security interest in the Collateral shall attach to all
Collateral without further act on the part of Lenders or Borrower.
SECTION 8. Events of Default. Any one or more of the following shall
-----------------
constitute an Event of Default by Borrower under this Agreement:
8.01 If Borrower fails to pay within ten (10) days of the date due and
payable or when declared due and payable, all or any portion of the Secured
Obligations owing to Lenders (whether of principal, interest, taxes,
reimbursement of Lender Expenses, or otherwise);
8.02 If any Credit Party fails or neglects to perform, keep or observe
any material term, provision, condition, covenant, agreement, warranty or
representation contained in this Agreement, any of the other Loan Documents, or
any other present or future agreement between any Credit Party and any Lender,
which breach is not cured within ten (10) days after delivery of notice;
8.03 If any warranty or representation made to any Lender by any Credit
Party or any officer, director, partner, member, manager, or agent of any Credit
Party is now or hereafter shall become materially false or misleading to any
extent, or if any such warranty or representation is withdrawn which breach is
not cured within ten (10) days after delivery of notice;
8.04 If there is a material impairment of the prospect of repayment of
all or any portion of the Secured Obligations owing to any Lender or a material
impairment of the value of any Lender's security interests in any Collateral
which breach is not cured within ten (10) days after delivery of notice;
8.05 If any or all of any Credit Party assets are attached, seized,
subjected to a writ or distress warrant, or are levied upon, or come into the
possession of any judicial officer or assignee, including any trustee, receiver,
controller, custodian, assignee for the benefit of creditors or any other Person
having powers or duties like or similar to the powers and duties of a trustee,
receiver, controller, custodian or assignee for the benefit of creditors which
breach is not cured within ten (10) days after delivery of notice;
8.06 If an Insolvency Proceeding is commenced by or against any Credit
Party which breach is not cured within ten (10) days after delivery of notice;
8.07 If any Credit Party is enjoined, restrained or in any way
prevented by court order from continuing to conduct all or any material part of
its business affairs which breach is not cured within ten (10) days after
delivery of notice;
75
8.08 If a notice of lien, levy or assessment if filed of record with
respect to all or any portion of any Credit Party's assets by the United States
Government, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other 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 or all of any Credit Party's assets and
the same is not paid on the payment date thereof which breach is not cured
within ten (10) days after delivery of notice;
8.09 If a judgment or other claim becomes a lien or encumbrance upon
any or all of any Credit Party's assets which breach is not cured within ten
(10) days after delivery of notice;
8.10 If there is a default in any material agreement to which any
Credit Party is a party with third parties resulting in a right by such third
parties to accelerate the maturity of such Credit Party's indebtedness which
breach is not cured within ten (10) days after delivery of notice;
8.11 If Guarantor revokes the Guaranty or gives any Lender notice of
Guarantor's intention to so revoke, or is in breach of any covenant under the
Guaranty which breach is not cured within ten (10) days after delivery of
notice;
8.12 If there is a change in control from Guarantor of the issued and
outstanding stock of the Borrower which breach is not cured within ten (10) days
after delivery of notice;
8.13 If Borrower fails to pay salaries and wages when due which breach
is not cured within ten (10) days after delivery of notice; or
8.14 ▇▇▇▇▇▇▇ ▇▇▇ Wah Tan shall no longer be an officer or director of
Guarantor, other than as a result of the death or disability of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇.
SECTION 9. Lenders' Rights and Remedies.
----------------------------
9.01 Rights and Remedies. Upon the occurrence of an Event of Default,
-------------------
Lenders may, at their election, by and through the Agent, without notice of
their election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Secured Obligations, whether evidenced by this
Agreement, by notes, or otherwise, immediately due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, or any other agreement between
Borrower and any Lender;
(c) Terminate this Agreement as to any future liability or
obligation of Lenders, but without affecting Lenders' rights and security
interest in the Collateral and without affecting the Secured Obligations owing
by Borrower to Lender; and
(d) Otherwise enforce any and all rights and exercise any and all
remedies Lenders may have under the Loan Documents or as otherwise provided by
law or equity.
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9.02 Lender Expenses; Deficiency; Surplus. Borrower shall pay all
---------------------------------------
Lender Expenses incurred in connection with Lenders' enforcement and exercise of
any of their rights and remedies as herein provided, whether or not suit is
commenced by Lenders; and any deficiency which exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third parties,
to Borrower by Lenders.
9.03 Cumulative Rights and Remedies. Lenders' rights and remedies under
------------------------------
this Agreement and all other agreements shall be cumulative. Lenders shall have
all other rights and remedies not inconsistent herewith as provided under the
UCC, by law, or in equity.
SECTION 10. The Agent.
---------
10.01 Appointment. Each Lender hereby designates and appoints, subject
-----------
to its right to revoke such designation and appointment, Lead Lender as the
Agent of such Lender under the Loan Documents, and each Lender hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions hereof and thereof and to exercise such powers and perform such
duties as are expressly delegated to the Agent by the terms hereof and thereof
together with such other powers as are reasonably incidental thereto. The Agent
shall hold the security pledged under the Loan Documents. The Agent may perform
any of its duties hereunder by or through its respective officers, directors,
agents, employees or affiliates.
10.02 Nature of Duties. The Agent shall not have any duties or
------------------
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents. Neither the Agent nor or any of its respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by them hereunder or under any other Loan Document or in connection
herewith or therewith, unless caused by their gross negligence or willful
misconduct. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not have by reason of this Agreement or any other Loan
Document a fiduciary relationship in respect of any Lender or any holder of the
Note; and nothing in this Agreement or any other Loan Document, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement or any other Loan Document except as
expressly set forth herein or therein.
10.03 Specific Duties and Limitations on Authority of the Agent. In
------------------------------------------------------------
addition to the other duties and obligations of the Agent set forth herein, the
Agent shall provide to each Lender copies of any and all notices sent to the
Borrower by the Agent or received by the Agent from the Borrowers, together with
copies of all documents which are provided by the Borrower pursuant to the
requirements of this Agreement and the exhibits hereto. The Agent shall not,
without the prior written consent of each Lender, take or elect not to take any
action to enforce or waive any rights of any Lender hereunder. Any document
evidencing the existence of the Loan and of any security held by the Lenders
shall specifically indicate the name of each Lender, unless a Lender
specifically requests in writing that its identity not be named.
77
10.04 Proportionate Interests. Each of the parties to this Agreement
------------------------
recognizes that the proportionate interests in the Loan are set forth in Annex I
to this Agreement, and that each Lender shall be entitled to direct payment by
the Borrower of its proportionate interest of each payment of principal,
interest, fees and other disbursements hereunder, and that the security
interests and other benefits granted pursuant to this Agreement and the Exhibits
hereto shall inure to the benefit of each Lender in proportion to their interest
in the Loan, in each case as set forth in Annex I to this Agreement. Each Lender
further agrees to bear its proportionate share of all expenses incurred in
connection with this Agreement.
10.05 Lack of Reliance on the Agent. Independently and without reliance
-----------------------------
upon the Agent, each Lender and each of the holders of the Note, to the extent
it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Credit
Parties in connection with the making and the continuance of the Loan and the
taking or not taking of any action in connection herewith and (ii) its own
appraisal of the creditworthiness of the Credit Parties and, except as expressly
provided in this Agreement; notwithstanding the foregoing, the Agent shall
initially and on a continuing basis, provide each Lender or any holder of the
Note with any credit or other information with respect thereto, whether coming
into its possession before the making of the Loan or at any time or times
thereafter. The Agent shall not be responsible to any Lender or any holder of
the Note for any recitals, statements, information, representations or
warranties herein or in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of this
Agreement or any other Loan Document or the financial condition of the Credit
Parties or be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any other Loan Document, or the financial condition of the Credit Parties or the
existence or possible existence of any Event of Default.
10.06 Certain Rights of the Agent. If the Agent shall request
-------------------------------
instructions from the Lenders with respect to any act or action (including
failure to act) in connection with this Agreement or any other Loan Document,
the Agent shall be entitled to refrain from such act or taking such action
unless and until the Agent shall have received instructions from the Lenders;
and the Agent shall not incur liability to any Person by reason of so
refraining. Without limiting the foregoing, neither any Lender nor any holder of
the Note shall have any right of action whatsoever against the Agent as a result
of the Agent acting or refraining from acting hereunder or under any other Loan
Document in accordance with the instructions of the Lenders.
10.07 Reliance. The Agent shall be entitled to rely, and shall be fully
--------
protected in relying, upon any notes, writing, resolution, notice, statement,
certificate, telex, teletype, facsimile or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that the Agent believed to be the proper Person, 'and, with respect
to all legal matters pertaining to this Agreement and any other Loan Document
and its duties hereunder and thereunder upon advice of counsel selected by the
Agent.
78
10.08 Indemnification. To the extent the Agent is not reimbursed and
---------------
indemnified by the Borrower, each Lender will reimburse and indemnify the Agent,
in proportion to their respective percentage interests in the Loan, for and
against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, costs, expenses or disbursements of whatsoever kind
or nature which may be imposed on, asserted against or incurred by the Agent in
performing its respective duties hereunder or under any other Loan Document, or
in any way relating to or arising out of this Agreement or any other Loan
Document; provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the gross negligence or willful
misconduct of the Agent.
10.09 The Agent in Its Individual Capacity. With respect to its
----------------------------------------
obligation to make Loan under this Agreement, the Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as "Lenders," "holders of the Note" or any similar term, and such terms
shall, unless the context clearly otherwise indicates, include the Agent in its
individual capacity. Without limiting the foregoing, and in addition thereto,
any Agent which is not a Lender shall be entitled to all rights, powers and
protections granted to the Lenders under the Loan Documents, to the extent that
the context reasonably requires. The Agent may accept deposits from, lend money
to, and generally engage in any kind of banking, trust or other business with
any Credit Party or any Affiliate of any Credit Party as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Borrower or any other Credit Party for services in
connection with this Agreement and otherwise without having to account for the
same to the Lenders.
10.10 Holders. The Agent may deem and treat the payees of the Note as
-------
the owners thereof for all purposes hereof unless and until a written notice of
the assignment, transfer or endorsement thereof, as the case may be, shall have
been filed with the Agent. Any request, authority or consent of any Person who,
at the time of making such request or giving such authority or consent, is the
holder of any of the Note shall be conclusive and binding on any subsequent
holder, transferee, assignee or indorsee, as the case may be, of such Note or of
any Note issued in exchange therefor.
10.11 Resignation by the Agent.
------------------------
(a) The Agent may resign from the performance of all its
functions and duties hereunder and/or under the other Loan Documents at any time
by giving 15 Business Days' prior written notice to the Borrower and the
Lenders. Such resignation shall take effect upon the appointment of a successor
Agent pursuant to clauses (b) and (c) below or as otherwise provided below.
(b) Upon any such notice of resignation, the Lenders shall
appoint a successor Agent hereunder.
(c) If a successor Agent shall not have been so appointed
within such 15 Business Day period, the Agent shall then appoint a successor
Agent who shall serve as Agent hereunder or thereunder until such time, if any,
as the Lenders appoint a successor Agent as provided above.
79
(d) If no successor Agent has been appointed pursuant to
clause (b) or (c) above by the 20th Business Day after the date such notice of
resignation was given by the Agent, the Agent's resignation shall become
effective and the Lenders shall thereafter perform all the duties of the Agent
hereunder and/or under any other Loan Document until such time, if any, as the
Lenders appoint a successor Agent as provided above.
10.12 Foreign Lenders' Obligations to Deliver Documents. Each
------------------------------------------------------
Lender, if any, that is not a United States Person for Federal income tax
purposes, agrees (i) prior to the first payment to such Lender of any amounts
due to such Lender under the Loan Documents, upon request by the Agent, to
execute and deliver IRS Form W-8, 1001, or 4224 (or any successor thereto or
substitute therefor), as applicable, and (ii) thereafter, to maintain the
effectiveness and accuracy of such tax forms and otherwise to comply with United
States tax laws, to execute and deliver additional or supplemental tax forms
with respect to amounts due to such Lender under the Loan Documents.
SECTION 11. Miscellaneous.
-------------
11.01 Payment of Expenses. etc.
------------------------
(a) Legal Expenses: Indemnity. The Borrower agrees to (i) pay
to Lenders all Legal Expenses in connection with the negotiation, preparation,
execution and delivery of the Loan Documents and the documents and instruments
referred to therein, (ii) pay to Lenders all Legal Expenses incurred by Lender
in connection with the enforcement of the Loan Documents and the documents and
instruments referred to therein, and (iii) pay and hold the Lenders harmless
from and against any and all present and future stamp and other similar taxes
with respect to the foregoing matters and from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to the Lenders) to pay such taxes, and (iv) indemnify
the Lenders and its officers, directors, employees, representatives and agents
from and hold each of them harmless against any and all losses, liabilities,
claims, damages or expenses incurred by any of them: (x) as a result of, or
arising out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not the Lender is a party thereto and
whether or not any such investigation, litigation or other proceeding is between
or among the Lenders, or any third Person or otherwise) related to the entering
into and/or performance of any Loan Document or the consummation of any
transactions contemplated in any Loan Document, including, without limitation,
any such investigation, litigation or other proceeding relating to the violation
of, noncompliance with or liability under, any environmental law applicable to
the operations of the Borrower, any of its Subsidiaries or any real property
owned or operated by any of them, and in each case including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent it is determined by non-appealable order of a court of competent
jurisdiction that such losses, liabilities, claims, damages or expenses were
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified); or (y) in order to enforce or seek to enforce any rights,
commence, intervene in, respond to, or defend any action or proceeding, file,
prosecute or defend any claim or cause of action in any action or proceeding
(including without limitation any bankruptcy claim, third-party claim, secured
creditor claim, reclamation complaint, and complaint for relief from any stay
under the Bankruptcy Code or otherwise), protect, obtain possession of, sell,
80
lease, dispose of or otherwise enforce any security interest in or lien on any
property of any kind securing any or all of the Secured Obligations, or
represent the Lenders in any litigation with respect to the Borrower's or any
other Creditor Party's affairs; or (z) arising out of any claim to a broker's or
finder's fee relating to the Loan. All of the Secured Obligations of the
Borrower in this Section 11.01(a) are payable on demand and shall bear interest
until paid at the highest rate permitted under the Note.
(b) If the Lenders or Borrower files any arbitration or other
legal proceeding against the other predicated on a breach of this Agreement, the
prevailing party in such action shall be entitled to recover its attorneys' fees
and costs of such proceeding from the non-prevailing party.
11.02 Right of Set off. In addition to any rights now or hereafter
----------------
granted under applicable law or otherwise, and not by way of limitation of any
such rights, if an Event of Default then exists, the Lenders are hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to Borrower or to any other Person, any such
notice being hereby expressly waived, to set off and to appropriate and apply
any and all deposits (general or special) and any other Indebtedness at any time
held or owing by such Lender (including, without limitation, by branches and
agencies of the Lenders wherever located) to or for the credit or the account of
Borrower against and on account of the Secured Obligations and liabilities of
Borrower to the Lenders under this Agreement or under any of the other Loan
Documents, and all other claims of any nature or description arising out of or
connected with this Agreement or any other Loan Document, irrespective of
whether or not the Lenders shall have made any demand hereunder.
11.03 Notices. Unless applicable law requires a different method of
-------
giving notice, any and all notices, demands or other communications required or
desired to be given hereunder by any party shall be in writing. Assuming that
the contents of a notice meet the requirements of the specific Section of this
Agreement which mandates the giving of that notice, a notice shall be validly
given or made to another party if served either personally or if deposited in
the United States mail, certified or registered, postage prepaid, or if
transmitted by telecopy or other electronic written transmission device or if
sent by overnight courier service, and if addressed to the applicable party as
set next to their signature below. If such notice, demand or other communication
is served personally, service shall be conclusively deemed made at the time of
such personal service. If such notice, demand or other communication is given by
mail, service shall be conclusively deemed given seventy-two (72) hours after
the deposit thereof in the United States mail. If such notice, demand or other
communication is given by overnight courier, telecopy or other electronic
transmission, service shall be conclusively made at the time of confirmation of
delivery. Any party hereto may change its address for the purpose of receiving
notices, demands and other communications as herein provided, by a written
notice given in the aforesaid manner to the other party hereto.
11.04 Benefit of Agreement.
--------------------
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto, provided that the Borrower may not assign or transfer any of its
81
rights or obligations hereunder without the prior written consent of the
Lenders. Each Lender may at any time grant participations in any of its rights
hereunder or under the Note to another financial institution, provided that in
the case of any such participation, the participant shall not have any rights
under this Agreement or any of the other Loan Documents (the participant's
rights against such Lender in respect of such participation to be those set
forth in the agreement executed by such Lender in favor of the participant
relating thereto) and all amounts payable by the Borrower hereunder shall be
determined as if such Lender had not sold such participation, and, provided
further that no Lender shall transfer, grant or assign any participation under
which the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Loan Document except as agreed to by all of the
Lenders.
(b) Notwithstanding the foregoing, (x) any Lender may assign
all or a portion of its percentage interest in the Loan and its rights and
obligations hereunder to one or more Lenders, and (y) with the consent of the
Agent (which shall not be unreasonably withheld), any Lender may assign all or a
portion of its percentage interest in the Loan and its rights and obligations
hereunder to one or more Eligible Transferees. No assignment pursuant to the
immediately preceding sentence shall to the extent such assignment represents an
assignment to an institution other than one or more Lenders hereunder, be in an
aggregate amount less than $500,000 unless the entire percentage interest of the
assigning Lender is so assigned. If any Lender so sells or assigns all or a part
of its rights hereunder or under the Note, any reference in this Agreement or
the Note to such assigning Lender shall thereafter refer to such Lender and to
the respective assignee to the extent of its respective interests and the
respective assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights and benefits as it would if it were
such assigning Lender. Each assignment pursuant to this Section 11.04(b) shall
be effected by the assigning Lender and the assignee Lender executing an
assignment agreement in a form approved by the Agent and giving the Agent
written notice thereof. At the time of any such assignment, (i) either the
assigning or the assignee Lender shall pay to the Agent a nonrefundable
assignment fee of $1,000, (ii) Annex I shall be deemed to be amended to reflect
the percentage interest in the Loan of the respective assignee (which shall
result in a direct reduction to the percentage interest in the Loan of the
assigning Lender). To the extent of any assignment pursuant to this Section
11.04(b) to a Person which is not already a Lender hereunder and which is not a
United States Person for Federal income tax purposes, the respective assignee
Lender shall provide to the Borrower and the Agent the appropriate Internal
Revenue Service Forms. Each Lender and the Borrower agree to execute such
documents (including without limitation amendments to this Agreement and the
other Loan Documents) as shall be necessary to effect the foregoing. Nothing in
this clause (b) shall prevent or prohibit any Lender from pledging its
percentage interest in the Note to a Federal Reserve Bank in support of
borrowings made by such Lender from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section
11.04, no transfer or assignment of the interests or obligations of any Lender
hereunder or any grant of participation therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loan under the "Blue "laws of any
state.
82
(d) Each Lender initially party to this Agreement hereby
represents, and each Person that became a Lender pursuant to an assignment
permitted by this Section 11 will, upon its becoming party to this Agreement,
represent that it is an Eligible Transferee which makes Loan in the ordinary
course of its business and that it will make or acquire Loan for its own account
in the ordinary course of such business, provided that subject to the preceding
clauses (a) and (b), the disposition of any promissory notes or other evidences
of or interests in Indebtedness held by such Lender shall at all times be within
its exclusive control.
11.05 No Waiver. No failure or delay on the part of the Lender in
----------
exercising any right, power or privilege hereunder or under any other Loan
Document and no course of dealing between any Credit Party and any Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Loan Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. No notice to or demand on Borrower in any
case shall entitle Borrower to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the Lender to any
other or further action in any circumstances without notice or demand.
11.06 Payments Pro Rata.
-----------------
(a) The Agent agrees that promptly after its receipt of each
payment from or on behalf of the Borrower in respect of any Secured Obligations
hereunder, it shall distribute such payment to the Lenders pro rata based upon
their respective interests, if any, of the Secured Obligations with respect to
which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of set off or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise)
which is applicable to the payment of the principal of, or interest on, the Loan
or to the payment of any of the other Secured Obligations, of a sum which with
respect to the related sum or sums received by other Lenders is in a greater
proportion than the total of such Secured Obligation then owed and due to such
Lender bears to the total of such Secured Obligation then owed and due to all of
the Lenders immediately prior to such receipt, then such Lender receiving such
excess payment shall purchase for cash without recourse or warranty from the
other Lenders an interest in the Secured Obligations of the respective Credit
Party to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount, provided that if all or, any
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
11.07 Calculations: Computations.
--------------------------
(a) The financial statements to be furnished to the Lender
pursuant hereto shall be made and prepared in accordance with GAAP consistently
applied throughout the periods involved (except as set forth in the notes
thereto or as otherwise disclosed in writing by the Borrower to the Lenders);
provided that if at any time such computations utilize accounting principles
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different from those utilized in the financial statements furnished to the
Lenders, such financial statements shall be accompanied by reconciliation
work-sheets.
(b) All computations of interest hereunder shall be made on
the actual number of days elapsed over a year of 360 days.
11.08 Governing Law: Arbitration: Waiver of Jury Trial.
------------------------------------------------
(a) This Agreement and the other Loan Documents and the rights
and obligations of the parties hereunder and thereunder shall be construed in
accordance with and be governed by the laws of the State of New York. Subject to
the remaining provisions of this Section 11.08, any legal action or proceeding
with respect to this Agreement or any other Loan Document may be brought in the
courts of the State of New York sitting in the City of New York or of the United
States for the Southern District of New York, and, by execution and delivery of
this Agreement, Borrower hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Nothing herein shall affect the right of any Lender to serve process in
any manner permitted by law or to commence legal proceedings or otherwise
proceed against Borrower in any other jurisdiction.
(b) Except as otherwise specifically agreed to in writing by
the parties, any action, dispute, claim or controversy between or among the
parties, whether sounding in contract, tort, or otherwise ("Dispute" or
"Disputes"), shall be resolved by arbitration as set forth below and shall
include all Disputes arising out of or in connection with (i) this Agreement or
any related agreements or instruments, (ii) all past, present, and future
agreements involving the parties, (iii) any transaction contemplated hereby, and
all past and future transactions involving the parties and (iv) any aspect of
the past, present or future relationship of the parties. Such disputes shall be
resolved by binding arbitration in accordance with the Federal Arbitration Act
and the Commercial Arbitration Rules ("Rules") of the American Arbitration
Association ("AAA"). In the event of any inconsistency between the Rules and
these arbitration provisions, these provisions shall supersede the Rules. All
statutes of limitations which would otherwise be applicable shall apply to any
arbitration proceeding under this subsection (b). In any arbitration proceeding
subject to these provisions, the arbitrator is specifically empowered to decide
(by documents only, or with a hearing, at the arbitrator's sole discretion)
pre-hearing motions which are substantially similar to pre-hearing motions to
dismiss and motions for summary adjudications. Judgment upon the award rendered
may be entered in any court having jurisdiction. Whenever an arbitration is
required, the parties shall select an arbitrator in the manner provided in
subsection (d). The arbitration proceeding shall be held in the State of New
York, City of New York.
(c) No provision of, nor the exercise of any rights under,
subsection (a) hereof, shall limit the right of the Lenders (i) to foreclose
against any real or personal property collateral by the exercise of a power of
sale under a deed of trust, mortgage or other security agreement or instrument,
or applicable law, (ii) to exercise self help remedies such as set-off, or (iii)
to obtain provisional or ancillary remedies such as injunctive relief or the
appointment of a receiver from a court having jurisdiction before, during or
after the pendency of any arbitration or referral. The institution and
maintenance of an action for judicial relief or pursuit of provisional or
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ancillary remedies or exercise of self help remedies shall not constitute a
waiver of the right of any party, including the plaintiff, to submit the Dispute
to arbitration or judicial references.
(d) Whenever an arbitration is required under subsection (b),
the arbitrator shall be selected in accordance with this subsection. Except as
otherwise provided, the arbitrator shall be selected in accordance with the
Rules. Any arbitrator selected under this subsection shall be knowledgeable in
the subject matter of the Dispute. Qualified retired judges shall be selected
through panels maintained by the AAA, or the New York Supreme Court. A single
arbitrator who is an attorney but is not a retired judge shall have the power to
render a maximum award of $100,000. Where any party makes timely written request
prior to appointment of the arbitrator, or where the claim of any party exceeds
$100,000, the arbitrator shall be a retired judge formerly sitting on the bench
of the New York Supreme Court or any higher State court, or a retired Federal
Court judge formerly sitting on the bench in the Southern District of New York.
A single arbitrator who is a retired judge shall have the power to render a
maximum award of $1,000,000. Where any party seeks an award in excess of
$1,000,000 the Dispute shall be decided by a majority vote of three arbitrators,
at least one of whom shall meet the requirements for retired judges set forth
herein. For purposes of this subsection (d), the computation of the maximum
award an arbitrator may make includes amounts awarded for arbitration fees,
attorneys' fees, and all other related costs provided by subsection (e).
(e) Any arbitration questions arising under this section on
dispute resolution shall be governed in accordance with the Federal Arbitration
Act. This section constitutes the entire agreement of the parties with respect
to its subject matter and supersedes all prior discussions, arrangements,
negotiations and other communications on dispute resolution. The provisions of
this section shall survive any termination, amendment or expiration of the
agreement in which this section is contained, unless the parties otherwise
expressly agree in writing. In the event of any Dispute governed by this
section, each of the parties shall pay all of its own expenses, and, subject to
the award of the arbitrator, shall pay an equal share of the arbitrators' fees.
The arbitrator shall have the power to award recovery of all costs and fees
(including attorneys' fees, administrative fees, arbitrators' fees, and court
costs) to the prevailing party. No provision of, nor the exercise of any rights
under, this Section 11.08 shall limit the right of either party to conduct
reasonable discovery in accordance with applicable rules and procedures of the
AAA.
(f) THE PARTIES HERETO HEREBY WAIVE THE RIGHT TO TRIAL BY JURY
IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY.RELATING TO: (i) THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
SUPPLEMENT OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN ANY OF THE LENDERS, ON THE ONE HAND, AND ANY OF THE CREDIT
PARTIES, ON THE OTHER HAND, OR (iii) ANY BREACH, CONDUCT, ACTS OR OMISSIONS OF
ANY OF THE CREDIT PARTIES OR THE LENDERS, OR ANY OF THEIR RESPECTIVE DIRECTORS,
MANAGERS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED
WITH OR REPRESENTING ANY OF THE CREDIT PARTIES OR THE LENDERS, IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
11.09 Counterparts. This Agreement may be executed in any number of
------------
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counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Agent.
11.10 Effectiveness. This Agreement shall become effective on the date
-------------
on which the Borrower and the Lenders shall have signed a copy hereof (whether
the same or different copies) and shall have delivered the same to the Lenders
at Agent's address specified herein for purposes of delivering notices to
Lenders, and shall have given to the Agent telephonic (confirmed in writing),
written telex or facsimile transmission notice (actually received) at such
office that the same has been signed and mailed to it.
11.11 Headings Descriptive. The headings of the several sections and
---------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.12 Amendment or Waiver. Neither this Agreement nor any other Loan
-------------------
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by Borrower and Lenders; provided, that any provision set forth in
Section 10 or otherwise relating to the rights and responsibilities of the
Lenders and the Agent to each other may be amended without the consent of or
notice to the Borrower.
11.13 Survival. All indemnities set forth herein shall survive the
--------
execution and delivery of this Agreement and the making and repayment of the
Loan.
11.14 Domicile of Loan. Each Lender may transfer and carry its Loan at,
----------------
to or for the account of any branch office, subsidiary or affiliate of such
Lender, provided that the Borrower shall not be responsible for costs resulting
from any such transfer.
11.15 Lender Register. The Borrower hereby designates the Agent to
----------------
serve as its agent, solely for purposes of this Section 11.15, to maintain a
register (the "Lender Register") on which it will record the percentage interest
of each Lender in the Loan and each repayment in respect of the principal amount
of the Loan. Failure to make any such recordation, or any error in such
recordation, shall not affect the Borrower's obligations in respect of the Loan.
With respect to any Lender, the transfer of the rights to the principal of, and
interest on, the Loan shall not be effective until such transfer is recorded on
the Lender Register maintained by the Agent with respect to ownership of the
Loan and prior to such recordation all amounts owing to the transferor with
respect to the Loan shall remain owing to the transferor. The registration of
assignment or transfer of all or part of the Loan shall be recorded by the Agent
on the Lender Register only upon the acceptance by the Agent of a properly
executed and delivered assignment agreement pursuant to Section 11.04(b). The
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Borrower agrees to indemnify the Agent from and against any and all losses,
claims, damages and liabilities of whatsoever nature which may be imposed on,
asserted against or incurred by the Agent in performing its duties under this
Section 11.15 other than those resulting from the Agent's willful misconduct or
gross negligence.
11.16 Time of the Essence. Time is of the essence with respect to all
--------------------
performance required under this Agreement.
11.17 Construction: Severability: Savings Clause. The Loan Documents
--------------------------------------------
have been reviewed by independent counsel for Borrower and Lenders, and shall
not be construed against the party or parties who drafted the Loan Documents. If
any provision of this Agreement or the application thereof to any party or
circumstance is held invalid, void, inoperative or unenforceable, the remainder
of this Agreement and the application of such provision to other parties or
circumstances shall not be affected thereby, the provisions of this Agreement
being severable in any such instance. Notwithstanding any provision to the
contrary in this Agreement, in the event that any rate of interest provided for
in this Agreement is found by a court to exceed the maximum rate allowed by
applicable law, this Agreement shall be modified to provide for a reduction in
the rate of interest previously charged, with any excess interest being applied
to principal, and any payments in excess of principal being returned to the
Borrower.
11.18 Integration. This Agreement, together with the Exhibits hereto,
-----------
is the entire and only agreement between the parties hereto with respect to the
Loan, and all representations, warranties, agreements, or undertakings
heretofore or contemporaneously made, which are not set forth herein, are
superseded hereby. No course of dealings between the parties, no usage of the
trade, and no parole or extrinsic evidence of any nature shall be used or be
relevant to supplement or explain or modify any term or provision of this
Agreement.
11.19 Claims. The Borrower agrees that any claim or cause of action by
------
the Borrower against the Lenders, or any of them, or any of their respective
directors, officers, employees, agents, accountants or attorneys, based upon,
arising from, or relating to this Agreement or any of the other Loan Documents,
or any other present or future agreement between any Lender and the Borrower, or
any other transaction contemplated hereby or thereby or relating hereto or
thereto, or any other matter, cause or thing whatsoever, whether or not relating
hereto or thereto, occurred, done, omitted or suffered to be done by any Lender,
or by any of their respective directors, officers, employees, agents,
accountants or attorneys, whether sounding in contract or in tort or otherwise,
shall be barred unless asserted by the Borrower by the commencement of
arbitration proceedings in accordance with Section 11.08 within the shorter of
the following periods of time: (i) any applicable statute of limitations, and
(ii) one year after Borrower discovers, or should reasonably have discovered
based on facts then known to Borrower, the act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based and service
of a notice (in accordance with the Rules) on an officer of such Lender or any
87
other person authorized to accept service of process on behalf of such Lender,
within 30 days thereafter. The Borrower agrees that such one year period is a
reasonable and sufficient time for the Borrower to investigate and act upon any
such claim or cause of action. The one year period provided herein shall not be
waived, tolled, or extended except by a specific written agreement of the
Lenders. This provision shall survive any termination of any of the Loan
Documents. Under no circumstances shall Lenders, their Affiliates or its
Subsidiaries, or any of their respective directors, officers, attorneys, agents
or employees, or any of them, be liable for any compensatory, punitive,
exemplary, consequential or indirect damages which are or may be alleged to
result from the Loan Documents or the transactions contemplated thereby.
11.20 No Liability. The Lenders shall not be liable to Borrower (i) for
------------
any loss or damage sustained by Borrower or (ii) for any loss, damage,
depreciation or other diminution in the value of any of the Collateral that may
occur as a result of, in connection with or that is in any way related to (x)
any exercise by any Lender of any right or remedy under the Loan Documents or
(y) any other act or failure to act of any Lender, except to the extent that the
same shall be determined by a judgment of a court of competent jurisdiction,
that is final and not subject to review on appeal, to be the result of acts or
omissions on the part of the Lender constituting gross negligence or willful
misconduct.
11.21 Waivers.
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(a) Waiver of Demand, Protest, Notice, Default, Etc. Borrower
------------------------------------------------
waives demand, protect, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension or renewal of any or all Collateral
or guarantees at any time held by Lenders on which Borrower may in any way be
liable.
(b) Waiver of Confidentiality. Borrower waives the right to
--------------------------
assert a confidential relationship, if any, it may have with any accounting firm
and/or service bureau in connection with any information requested by Lenders
pursuant to or in accordance with this Agreement, and agrees that any Lender may
contact directly any such accounting firm and/or service bureau in order to
obtain such information.
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Loan Agreement to be duty executed and delivered as of the date first
above written.
BORROWER: ALPHANET HOSPITALITY SYSTEMS, INC.
Alpha Hospitality Systems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
Ramsey, New Jersey 07446 ------------------------------
Its: President
Attention: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇▇
President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇ By: /s/ ▇▇▇ ▇▇▇ Tan
------------------------------
Its: Secretary
AGENT: ▇▇▇▇▇ INVESTMENTS INC.
_______________________
_______________________
_______________________ By: /s/ ▇▇▇ ▇▇▇▇ Tan
------------------------------
Telecopier No.: _____________ Its: _________________________
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with a copy to:
Jeffer, Mangels, ▇▇▇▇▇▇ & Marmaro LLP
2121 Avenue of the Stars
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
AHS FUNDING LLC
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Its: Manager
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