LOAN AND SECURITY AGREEMENT
CENTURY BUSINESS CREDIT CORPORATION
with
CREATIVE TECHNOLOGIES CORP.
Dated: December 20, 1996
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement is made as of December 20, 1996 by and
between CENTURY BUSINESS CREDIT CORPORATION ("Lender"), having executive
offices at ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ and CREATIVE
TECHNOLOGIES CORP. ("Borrower"), having its
principal place of business at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
WHEREAS, the Borrower has requested that Lender make loans and advances
available to Borrower; and
WHEREAS, Lender has agreed to make such loans and advances to Borrower on the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
and the terms and conditions contained herein, the parties hereto agree as
follows:
1. (a) General Definitions. When used in this Agreement, the following terms
shall have the following meanings:
"Ace" means Ace Surgical Supply Co., Inc., a New York corporation.
"Ace Agreement" means the Loan and Security Agreement dated the date hereof
between Ace and Lender, as amended, modified, supplemented and restated from
time to time.
"Ace Loans" means loans, advances and extensions of credit made by Lender
to Ace under the Ace Agreement.
"Affiliate" of any Person means (a) any Person (other than a Subsidiary)
which, directly or indirectly, is in control of, is controlled by, or is
under common control with such Person, or (b) any Person who is a director or
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (i) to vote ten
percent (10.0%) or more of the securities having ordinary voting power for
the election of directors of such Person, or (ii) to direct or cause the
direction of the management and policies of such Person whether by contract
or otherwise.
"Ancillary Agreements" means all agreements, instruments, and documents
including, without limitation, mortgages, pledges, powers of attorney,
consents, assignments, contracts, notices, security agreements, trust
agreements whether heretofore, concurrently, or hereafter executed by or on
behalf of Borrower or delivered to Lender, relating to this Agreement or to
the transactions contemplated by this Agreement.
"Authority" shall have the meaning set forth in paragraph 12(e)(iii).
"Closing Date" means December 20, 1996 or such other date as may be agreed
upon by the parties hereto.
"Collateral" means and includes:
(A) all Inventory;
(B) all Equipment;
(C) all General Intangibles;
(D) all Receivables;
(E) all books, records, ledgercards, files, correspondence, computer
programs, tapes, disks and related data processing software (owned by
Borrower or in which it has an interest) which at any time evidence or
contain information relating to (A), (B), (C) and (D) above or are otherwise
necessary or helpful in the collection thereof or realization thereupon;
(F) documents of title, policies and certificates of insurance, securities,
chattel paper, other documents or instruments evidencing or pertaining to
(A), (B), (C), (D) and (E) above;
(G) all guaranties, liens on real or personal property, leases, and other
agreements and property which in any way secure or relate to (A), (B), (C),
(D), (E) and (F) above, or are
acquired for the purpose of securing and enforcing any item thereof;
(H) (i) all cash held as cash collateral to the extent not otherwise
constituting Collateral, all other cash or property at any time on deposit
with or held by Lender for the account of Borrower (whether for safekeeping,
custody, pledge, transmission or otherwise), (ii) all present or future
deposit accounts (whether time or demand or interest or non-interest bearing) of
Borrower with Lender or any other Person including those to which any such
cash may at any time and from time to time be credited, (iii) all investments
and reinvestments (however evidenced) of amounts from time to time credited
to such accounts, and (iv) all interest, dividends, distributions and other
proceeds payable on or with respect to (x) such investments and reinvestments
and (y) such accounts; and
(I) all products and proceeds of (A), (B), (C), (D), (E), (F), (G) and (H)
above (including, but not limited to, all claims to items referred to in (A),
(B), (C), (D), (E), (F), (G) and (H) above) and all claims of Borrower
against third parties (x) for (i) loss of, damage to, or destruction of, and
(ii) payments due or to become due under leases, rentals and hires of any or
all of (A), (B), (C), (D), (E), (F), (G) and (H) above and (y) proceeds
payable under, or unearned premiums with respect to policies of insurance in
whatever form.
"Consolidated" means Consolidated Disposables, Inc., a New York corporation.
"Consolidated Agreement" means the Loan and Security Agreement dated the
date hereof between Consolidated and Lender, as amended, modified,
supplemented and restated from time to time.
"Consolidated Loans" means loans, advances and extensions of credit made by
Lender to Consolidated under the Consolidated Agreement.
"Contract Rate" means an interest rate per annum equal to the greater of
(A) nine percent (9%) or (B) the (i) Prime Rate plus (ii) two and three-
quarters percent (2.75%).
"Customer" means and includes the account debtor with respect to any of the
Receivables and/or prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into
or proposes to enter into any contract or other arrangement with the Borrower,
pursuant to which the Borrower is to deliver any personal property or perform
any services.
"Default Rate" means a rate equal to three percent (3.0%) per annum in
excess of the Contract Rate.
"Eligible Inventory" means Inventory which the Lender, in its sole and
absolute discretion, determines: (a) is subject to the security interest of
Lender and is subject to no other liens or encumbrances whatsoever (other
than Permitted Liens); (b) is in good condition and meets all standards
imposed by any governmental agency, or department or division thereof having
regulatory authority over such Inventory, its use or sale including but not
limited to the Federal Fair Labor Standards Act of 1938 as amended, and all
rules, regulations and orders thereunder; (c) is currently either usable or
salable in the normal course of Borrower's business; (d) does not consist of
pasta machines and grills; (e) is not subject to any licensing, patent,
royalty, trademark, trade name or copyright agreement with any third parties;
and (f) not to be ineligible for any other reason.
"Eligible Receivables" means and includes each Receivable which conforms to
the following criteria: (a) shipment of the merchandise or the rendition of
services has been completed; (b) no return, rejection or repossession of the
merchandise has occurred; (c) merchandise or services shall not have been
rejected or disputed by the Customer and there shall not have been asserted
any offset, defense or counterclaim; (d) continues to be in full conformity
with the representations and warranties made by the Borrower to the Lender
with respect thereto; (e) Lender is, and continues to be, satisfied with the
credit standing of the Customer in relation to the amount of credit extended;
(f) there are no facts existing or threatened which are likely to result in
any adverse change in a Customer's financial condition; (g) is documented by
an invoice in a form approved by Lender and shall not be unpaid more than
ninety (90) days from invoice date; (h) less than twenty-five percent (25%)
of the unpaid amount of invoices due from such Customer remain unpaid more
than ninety (90) days from invoice date; (i) is not evidenced by chattel paper
or an instrument of any kind with respect to or in payment of the Receivable
unless such instrument is duly endorsed to and in possession of the Lender or
represents a check in payment of a Receivable; (j) if the Customer is
located outside of the United States, Canada or Puerto Rico, the goods which
gave rise to such Receivable were shipped after receipt by the Borrower from
or on behalf of the Customer of an irrevocable letter of credit, assigned and
delivered to the Lender and confirmed by a financial institution acceptable to
the Lender and is in form and substance acceptable to the Lender, payable in
the full amount of the Receivable in United States dollars at a place of
payment located within the United States; (k) such Receivable is not subject
to any lien, other than Permitted Liens; (l) does not arise out of
transactions with any employee, officer, agent, director, stockholder or
Affiliate of the Borrower; (m) is payable to the Borrower; (n) does not arise
out of a ▇▇▇▇ and hold sale prior to shipment and, if the Receivable arises
out of a sale to any Person to which the Borrower is indebted, the amount of
such indebtedness, and any anticipated indebtedness, is deducted in
determining the face amount of such Receivable; (o) is net of any returns,
discounts, claims, credits and allowances; (p) if the Receivable arises out of
contracts between the Borrower and the United States, any state, or any
department, agency or instrumentality of any of them, Borrower has so
notified Lender, in writing, prior to the creation of such Receivable, and, if
Lender so requests, there has been compliance with any governmental notice or
approval requirements, including without limitation, compliance with the
Federal Assignment of Claims Act; (q) is a good and valid account
representing an undisputed bona fide indebtedness incurred by the Customer
therein named, for a fixed sum as set forth in the invoice relating thereto
with respect to an unconditional sale and delivery upon the stated terms of
goods sold by the Borrower, or work, labor and/or services rendered by the
Borrower; (r) the total unpaid Receivables from such Customer does not exceed
twenty percent (20%) of all Eligible Receivables with amounts of twenty
percent (20%) or less being deemed Eligible Receivables; (s) does not arise out
of progress ▇▇▇▇▇▇▇▇ prior to completion of the order; (t) is covered by
credit insurance acceptable to Lender and only to the extent of such credit
insurance; and (u) is otherwise satisfactory to the Lender as determined in
good faith by the Lender in the reasonable exercise of its discretion.
"Environmental Complaint" shall have the meaning set forth in paragraph 12(e)
(iii).
"Equipment" means and includes all of Borrower's now owned or hereafter
acquired equipment, machinery and goods (excluding Inventory), whether or not
constituting fixtures, including, without limitation: plant and office
equipment, tools, dies, parts, data processing equipment, furniture and trade
fixtures, trucks, trailers, loaders and other vehicles and all replacements
and substitutions therefore and all accessions thereto.
"ERISA" shall have the meaning set forth in paragraph 12(f).
"Event of Default" shall mean the occurrence of any of the events set forth in
paragraph 18.
"Formula Amount" shall have the meaning set forth in paragraph 2(a).
"GAAP" means generally accepted accounting principles, practices and
procedures in effect from time to time.
"General Intangibles" means and includes all of Borrower's now owned or
hereafter acquired general intangibles including, without limitation,
trademarks, tradenames, tradestyles, trade secrets, equipment formulation,
manufacturing procedures, quality control procedures, product specifications,
patents, patent applications, copyrights, registrations, contract rights,
choses in action, causes of action, corporate or other business records,
inventions, designs, goodwill, claims under guarantees, licenses, franchises,
tax refunds, tax refund claims, computer programs, computer data bases,
computer program flow diagrams, source codes, object codes and all other
intangible property of every kind and nature.
"Guarantor" means individually, Ace, Consolidated, Universal, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
and any other Person who may hereafter guarantee payment or performance of
the whole or any part of the Obligations and "Guarantors" means collectively
all such Persons.
"Guaranty Agreements" means the Guaranty Agreements dated the Closing Date
which are executed by each Guarantor in favor of Lender.
"Hazardous Discharge" shall have the meaning set forth in paragraph 12(e)
(iii).
"Incipient Event of Default" means any act or event which, with the giving of
notice or passage of time or both, would constitute an Event of Default.
"Inventory" means and includes all of Borrower's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located, to
be furnished under any contract of service or held for sale or lease, all
raw materials, work in process, finished goods and materials and supplies of
any kind, nature or description which are or might be used or consumed in
Borrower's business or used in selling or furnishing such goods, merchandise
and other personal property, and all documents of title or other documents
representing them.
"Inventory Availability" means the amount of Revolving Credit Advances
against Eligible Inventory Lender may from time to time during the Term make
available to Borrower up to the lesser of (a) $200,000, or (b) up to forty
percent (40%) of the value of Borrower's Eligible Inventory (calculated on the
basis of the lower of cost or market, on a first-in first-out basis) or (c)
fifty percent (50%) of the amount of Receivables Availability.
"Loans" means the Revolving Credit Advances and all extensions of credit
hereunder.
"Maximum Revolving Amount" means $3,000,000.
"Minimum Average Monthly Loan Amount" means $1,500,000.
"Minimum Default Average Monthly Loan Amount" means $1,250,000.
"Obligations" means and includes all Loans, all advances, debts, liabilities,
obligations, covenants and duties owing by Borrower to Lender (or any
corporation that directly or indirectly controls or is controlled by or is
under common control with Lender) of every kind and description (whether or not
evidenced by any note or other instrument and whether or not for the payment of
money or the performance or non-performance of any act), direct or indirect,
absolute or contingent, due or to become due, contractual or tortious,
liquidated or unliquidated, whether existing by operation of law or otherwise
now existing or hereafter arising including, without limitation, any debt,
liability or obligation owing from Borrower to others which Lender may have
obtained by assignment or otherwise and further including, without
limitation, all interest, charges or any other payments Borrower is required
to make by law or otherwise arising under or as a result of this Agreement
and the Ancillary Agreements, together with all reasonable expenses and
reasonable attorneys' fees chargeable to Borrower's account or incurred by
Lender in connection with Borrower's account whether provided for herein or
in any Ancillary Agreement.
"Permitted Liens" means (i) liens of carriers, warehousemen, mechanics and
materialmen incurred in the ordinary course of business securing sums not
overdue; (ii) liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits, relating to employees, securing sums (a)
not overdue or (b) being diligently contested in good faith provided that
adequate reserves with respect thereto are maintained on the books of
Borrower in conformity with GAAP, (iii) liens in favor of Lender, (iv) liens for
taxes (a) not yet due or (b) being diligently contested in good faith,
provided that adequate reserves with respect thereto are maintained on the
books of Borrower in conformity with GAAP provided, that, the lien shall have
no effect on the priority of liens in favor of Lender or the value of the
assets in which Lender has a lien (v) liens placed upon fixed assets
hereafter acquired to secure a portion of the purchase price thereof,
provided that (x) any such lien shall not encumber any other property of
Borrower any (y) the aggregate amount of indebtedness secured by such liens
incurred as a result of such purchases during any fiscal year shall not
exceed the amount provided in paragraph 12(o) and (vi) liens specified on
Exhibit 1(A) hereto.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
"Prime Rate" means the prime commercial lending rate of Chase Manhattan
Bank, N.A. as publicly announced in New York, New York to be in effect from
time to time as its "prime" or "base" rate of interest and is neither tied to
any external rate of interest or index nor does it necessarily reflect the
lowest rate of interest actually charged to any particular class or category
of customers. Such rate shall be increased or decreased as the case may be
for each increase or decrease in said rate in an amount equal to such
increase or decrease in said rate; each change to be effective as of the day
of the change in such rate.
"Receivables" means and includes all of Borrower's now owned or hereafter
acquired accounts and contract rights, instruments, insurance proceeds,
documents, chattel paper, letters of credit and Borrower's rights to receive
payment thereunder, any and all rights to the payment or receipt of money or
other forms of consideration of any kind at any time now or hereafter owing
or to be owing to Borrower, all proceeds thereof and all files in which
Borrower has any interest whatsoever containing information identifying or
pertaining to any of Borrower's Receivables, together with all of Borrower's
rights to any merchandise which is represented thereby, and all Borrower's
right, title, security and guaranties with respect to each Receivable,
including, without limitation, all rights of stoppage in transit, replevin and
▇▇▇▇▇-mation and all rights as an unpaid vendor.
"Receivables Availability" means the amount of Revolving Credit Advances
against Eligible Receivables Lender may from time to time during the Term of
this Agreement make available to Borrower up to the lesser of (a) $100,000,
or (b) up to forty percent (40%) of the net face amount of Borrower's
Eligible Receivables.
"Revolving Credit Advances" shall have the meaning set forth in paragraph
2(a).
"Subsidiary" of any Person means a corporation or other entity whose shares
of stock or other ownership interests having ordinary voting power (other
than stock or other ownership interests having such power only by reason of
the happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity,
are owned, directly or indirectly, by such Person.
"Term" means the Closing Date through the Termination Date subject to
acceleration upon the occurrence of an Event of Default hereunder or other
termination hereunder.
"Termination Date" means December 31, 1998.
"UCC" means the Uniform Commercial Code as adopted in the State of New York
as in effect from time to time.
"Universal" means Universal Medical Products, Inc., a New York corporation.
(b) Accounting Terms. Any accounting terms used in this Agreement which are
not specifically defined shall have the meanings customarily given them in
accordance with GAAP.
(c) Other Terms. All other terms used in this Agreement and defined in the
UCC, shall have the meaning given therein unless otherwise defined herein.
2. Revolving Credit Advances.
(a) Subject to the terms and conditions set forth herein and in the Ancillary
Agreements, Lender may, in its sole discretion, make
revolving credit advances (the "Revolving Credit
Advances") to Borrower from time to time during the term
of this Agreement which, in the aggregate at any time
outstanding, will not exceed the lesser of (x) the Maximum
Revolving Amount minus the aggregate amount of Ace
Loans and Consolidated Loans or (y) an amount equal to
the sum of:
(i) Receivables Availability, plus
(ii) Inventory Availability, minus
(iii) such reserves as Lender may reasonably deem proper and necessary
from time to time.
The sum of 2(a)(i), plus (ii), minus (iii) shall be referred to as the
"Formula Amount".
(b) Notwithstanding anything to the contrary which may be contained herein, in
no event shall the aggregate amount of outstanding Revolving Credit Advances
plus the aggregate amount of Ace Loans and Consolidated Loans at any time
exceed the Maximum Revolving Amount.
(c) Notwithstanding the limitations set forth above, Lender retains the
right to lend Borrower from time to time such amounts in excess of such
limitations as Lender may determine in its sole discretion.
(d) Borrower acknowledges that the exercise of Lender's discretionary
rights hereunder may result during the term of this Agreement in one or more
increases or decreases in the advance percentages used in determining
Receivables Availability and Inventory Availability and Borrower hereby
consents to any such increases or decreases which may limit or restrict
advances requested by Borrower.
(e) If Borrower does not pay any interest, fees, costs or charges to Lender
when due, Borrower shall thereby be deemed to have requested, and Lender is
hereby authorized at its discretion to make and charge to Borrower's account,
a Revolving Credit Advance to Borrower as of such date in an amount equal to
such unpaid interest, fees, costs or charges.
(f) Any sums expended by Lender due to Borrower's failure to perform or
comply with its obligations under this Agreement, including but not limited
to the payment of taxes, insurance premiums or leasehold obligations, shall
be charged to Borrower's account as a Revolving Credit Advance and added
to the Obligations.
(g) Lender will account to Borrower monthly with a statement of all
Revolving Credit Advances and other advances, charges and payments made
pursuant to this Agreement, and such account rendered by Lender shall be
deemed final, binding and conclusive unless Lender is notified by Borrower in
writing to the contrary within thirty (30) days of the date each account was
rendered specifying the item or items to which objection is made.
(h) During the Term hereof, Borrower may borrow, prepay and reborrow
Revolving Credit Advances, all in accordance with the terms and conditions
hereof.
3. Repayment of the Revolving Credit Advances. Borrower shall be required
to (a) make a mandatory prepayment hereunder at any time that the aggregate
outstanding principal balance of the Revolving Credit Advances made by Lender
to Borrower hereunder is in excess of the Formula Amount in an amount equal
to such excess, and (b) repay on the expiration of the Term (i) the then
aggregate outstanding principal balance of Revolving Credit Advances made by
Lender to Borrower hereunder together with accrued and unpaid interest, fees
and charges and (ii) all other amounts owed Lender under this Agreement and
the Ancillary Agreements. Any payments of principal, interest, fees or any
other amounts payable hereunder or under any Ancillary Agreement shall be
made prior to 12:00 noon New York time on the due date thereof in immediately
available funds.
4. Procedure for Revolving Credit Advances. Borrower may by written or
telephonic notice request a borrowing of Revolving Credit Advances prior to
11:00 A.M. New York time on the business day of its request to incur, on that
day, a Revolving Credit Advance. All Revolving Credit Advances shall be
disbursed from whichever office or other place Lender may designate from time
to time and, together with any and all other Obligations of Borrower to
Lender, shall be charged to the Borrower's account on Lender's books. The
proceeds of each Revolving Credit Advance made by the Lender shall be made
available to the Borrower on the day so requested by way of credit to the
Borrower's operating account maintained with such bank as Borrower designated
to Lender. Any and all Obligations due and owing hereunder may be charged to
Borrower's account and shall constitute Revolving Credit Advances.
5. Interest and Fees.
(a) Interest.
(i) Except as modified by paragraphs 5(a)(iii) and 5(b)(iv) below, Borrower
shall pay interest on the unpaid principal balance of the Loans for each day
they are outstanding at the Contract Rate.
(ii) Interest shall be (a) computed on the basis of actual days elapsed
over a 360-day year, (b) calculated by Lender on a daily basis and billed to
Borrower monthly and (c) payable in arrears on the last day of each month,
or, at Lender's option, Lender may charge Borrower's account for said interest.
(iii) Upon the occurrence and during the continuance of an Event of Default,
interest shall be payable at the Default Rate.
(iv) Notwithstanding the foregoing, in no event shall interest exceed the
maximum rate permitted under any applicable law or regulation, and if any
provision of this Agreement or an Ancillary Agreement is in contravention of
any such law or regulation, such provision shall be deemed amended to provide
for interest at said maximum rate and any excess amount shall either be
applied, at Lender's option, to the outstanding Loans in such order as Lender
shall determine or refunded by Lender to Borrower.
(v) Borrower shall pay principal, interest and all other amounts payable
hereunder, or under any Ancillary Agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any set-off or
counterclaim.
(b) Fees.
(i) Minimum Loan Fee. In the event the average closing daily unpaid
balances of all Loans hereunder and all Ace Loans and Consolidated Loans
during any calendar month is less than the Minimum Average Monthly Loan
Amount, Borrower shall pay to Lender a minimum loan fee at a rate per annum
equal to the Contract Rate on the amount by which the Minimum Average Monthly
Loan Amount exceeds such average closing daily unpaid balances. Such fee
shall be calculated on the basis of a year of 360 days and actual days
elapsed and such fee shall be charged to Borrower's account on the
first day of each month with respect to the prior month. Notwithstanding the
foregoing, in the event that a fee shall be due to Lender under the
foregoing provision in the Ace Agreement or the Consolidated Agreement, then
the total of such fee and the fee due hereunder shall not exceed the amount
of the fee due hereunder.
(ii) Facility Fee. Borrower shall pay to Lender a facility fee in an amount
equal to $30,000, all of which shall be deemed fully earned on the Closing
Date and shall be payable as follows: $15,000 on the Closing Date and
$15,000 on the first anniversary of the Closing Date. Notwithstanding the
foregoing, in the event that a fee shall be due to Lender under the foregoing
provision in the Ace Agreement or the Consolidated Agreement, then the total
of such fees and the fee due hereunder shall not exceed the amount of the fee
due hereunder.
(iii) Collateral Monitoring Fee. Upon Lender's performance of any
collateral monitoring and/or verification including, without limitation, any
field examination, collateral analysis or other business analysis, the need
for which is to be determined by Lender and which monitoring is undertaken by
Lender or for Lender's benefit, an amount equal to $650 per day, per person,
for each person employed to perform such monitoring together with all costs,
disbursements and expenses incurred by the Lender and the person performing
such collateral monitoring and/or verification shall be charged to Borrower's
account.
(iv) Minimum Default Loan Fee. In the event that following the occurrence
of an Event of Default the average closing daily unpaid balance of all Loans
hereunder, the Ace Loans and the Consolidated Loans during any calendar month
is less than the Minimum Default Average Monthly Loan Amount, Borrower shall
pay to Lender in lieu of interest charges provided for in Section 5(a) and the
fees provided for in Section 5(b)(i), a fee equal to two percent (2.0%) per
month on the unpaid principal balance of the Loans. Such fee shall be
computed on the basis of a year of 360 days and actual days elapsed and such
fee shall be charged to Borrower's account on the first day of each month
with respect to the prior month.
(v) Overadvance Fee. Without affecting Borrower's obligation to
immediately repay any Loans which exceed the amounts permitted by paragraph 2
of this Agreement ("Overadvances"), in the event an Overadvance occurs or is
made by Lender, Borrower shall pay interest on the unpaid balance of the
Loans at the Default Rate for as long as such Overadvance remains outstanding
and shall pay Lender a fee in the amount of $250.00 for each month or part
thereof that an Overadvance exists. Such fee shall be charged to Borrower's
account upon the occurrence of each Overadvance.
(vi) Financial Information Default. Without affecting Lender's other rights
and remedies, in the event Borrower fails to deliver the financial
information required by paragraphs 9 and 11 on the date required by this
Agreement, Borrower shall pay Lender a fee in the amount of $100.00 for each
such failure. Such fee shall be charged to Borrower's account upon the
occurrence of each such failure.
6. Security Interest.
(a) To secure the prompt payment to Lender of the Obligations, Borrower
hereby assigns, pledges and grants to Lender a continuing security interest
in and to the Collateral, whether now owned or existing or hereafter acquired
or arising and wheresoever located, whether or not the same is subject to
Article 9 of the UCC. All of the Borrower's ledger sheets, files, records,
books of account, business papers and documents relating to the Collateral
shall, until delivered to or removed by Lender, be kept by Borrower in trust
for Lender until all Obligations have been paid in full. Each confirmatory
assignment schedule or other form of assignment hereafter executed by
Borrower shall be deemed to include the foregoing grant, whether or not the
same appears therein.
(b) Lender may file one or more financing statements disclosing Lender's
security interest in the Collateral without Borrower's signature appearing
thereon or Lender may sign on Borrower's behalf as provided in paragraph 13
hereof. The parties agree that a carbon, photographic or other reproduction
of this Agreement shall be sufficient as a financing statement. If any
Receivable becomes evidenced by a promissory note or any other instrument for
the payment of money, Borrower will immediately deliver such instrument to
Lender appropriately endorsed.
7. Representations Concerning the Collateral. Borrower represents and
warrants (each of which such representations and warranties shall be deemed
repeated upon the making of each request for a Revolving Credit Advance and
made as of the time of each and every Revolving Credit Advance hereunder):
(a) all the Collateral (i) is owned by Borrower free and clear of all
claims, liens, security interests and encumbrances (including without
limitation any claims of infringement) except (A) those in Lender's favor and
(B) Permitted Liens and (ii) is not subject to any agreement prohibiting the
granting of a security interest or requiring notice of or consent to the
granting of a security interest; and
(b) all Receivables (i) represent complete bona fide transactions which
require no further act under any circumstances on Borrower's part to make
such Receivables payable by the Customers, (ii) to the best of Borrower's
knowledge, are not subject to any present, future or contingent offsets or
counterclaims, and (iii) do not represent ▇▇▇▇ and hold sales, consignment
sales, guaranteed sales, sale or return or other similar understandings or
obligations of any Affiliate or Subsidiary of Borrower.
8. Covenants Concerning the Collateral. During the Term, Borrower
covenants that it shall:
(a) not dispose of any of the Collateral whether by sale, lease or otherwise
except for (i) the sale of Inventory in the ordinary course of business, (ii)
the disposition or transfer in the ordinary course of business during any
fiscal year of obsolete and worn-out Equipment having an aggregate fair market
value of not more than $25,000 and only to the extent that (x) the proceeds
of any such disposition are used to acquire replacement Equipment which is
subject to Lender's first priority security interest or (y) the proceeds of
which are remitted to Lender in reduction of the Obligations and (iii) the
disposition of Equipment located in China provided that at the time of such
disposition no Incipient Event of Default or Event of Default shall have
occurred and the proceeds of such disposition are remitted to Lender in
reduction of the Obligations.
(b) not encumber, mortgage, pledge, assign or grant any security interest
in any Collateral or any of Borrower's other assets to anyone other than
Lender and except for Permitted Liens;
(c) place notations upon Borrower's books of account and any financial
statement prepared by Borrower to disclose Lender's security interest in the
Collateral;
(d) keep and maintain the Equipment in good operating condition, except for
ordinary wear and tear, and shall make all necessary repairs and replacements
thereof so that the value and operating efficiency shall at all times be
maintained and preserved. Borrower shall not permit any such items to become
a fixture to real estate or accessions to other personal property;
(e) not extend the payment terms of any Receivable without prompt notice
thereof to Lender;
(f) perform all other steps requested by Lender to create and maintain in
Lender's favor a valid perfected first security interest in all Collateral
(except for Permitted Liens); and
(g) defend the Collateral against the claims and demands of all parties.
9. Collection and Maintenance of Collateral and Records.
Lender may at any time verify Borrower's Receivables utilizing an audit
control company or any other agent of Lender. Lender or Lender's designee
may notify customers or account debtors, at any time at Lender's sole
discretion, of Lender's security interest in Receivables, collect them
directly and charge the collection costs and expenses to Borrower's account,
but, unless and until Lender does so or gives Borrower other instructions,
Borrower shall collect all Receivables for Lender, receive all payments thereon
for Lender's benefit in trust as Lender's trustee and immediately deliver
them to Lender in their original form with all necessary endorsements or, as
directed by Lender, deposit such payments as directed by Lender pursuant to
paragraphs 22 or 23 hereof. Lender will credit (conditional upon final
collection) all such payments to Borrower's account, in the case of a payment
in the form of federal funds or other immediately available funds three (3)
business days after receipt by Lender of such funds in dollars of the United
States of America in Lender's account and in the case of payments in any
other form five (5) business days after receipt by Lender of good funds in
dollars of the United States of America in Lender's account. Any amount
received by Lender after 12:00 noon New York time on any business day shall be
deemed received on the next business day. Promptly after the creation of any
Receivables, Borrower shall provide Lender with schedules describing all
Receivables created or acquired by Borrower and shall execute and deliver
confirmatory written assignments of such Receivables to Lender, but
Borrower's failure to execute and deliver such schedules or written
confirmatory assignments of such Receivables shall not affect
or limit Lender's security interest or other rights in and to the
Receivables. Borrower shall furnish, at Lender's request, copies of
contracts, invoices or the equivalent, and any original shipping and delivery
receipts for all merchandise sold or services rendered and such other
documents and information as Lender may require. Borrower shall also provide
Lender on a monthly (within ten (10) days after the end of each month) or
more frequent basis, as requested by Lender, a detailed or aged trial balance
of all of Borrower's existing Receivables specifying the names and balances
due for each account debtor and such other information pertaining to the
Receivables as Lender may request. Borrower shall provide Lender on a
monthly (within ten (10) days after the end of each month), or more frequent
basis, as requested by Lender, a summary report of Borrower's current
Inventory, certified as true and accurate by Borrower's President or
Chief Financial Officer, as well as an aged trial balance of Borrower's
existing accounts payable. Borrower shall provide Lender, as requested by
Lender, such other schedules, documents and/or information regarding the
Collateral as Lender may require.
10. Inspections. At all times during normal business hours, Lender shall
have the right to (a) visit and inspect Borrower's properties and the
Collateral, (b) inspect, audit and make extracts from Borrower's relevant
books and records, including, but not limited to, management letters prepared
by independent accountants, and (c) discuss with Borrower's principal
officers, and independent accountants, Borrower's business, assets,
liabilities, financial condition, results of operations and business
prospects. Borrower will deliver to Lender any instrument necessary for
Lender to obtain records from any service bureau maintaining records for
Borrower.
11. Financial Information. Borrower shall provide Lender (a) as soon as
available, but in any event within one hundred five (105) days after the end
of each of Borrower's fiscal years, Borrower's balance sheet as at the end of
such fiscal year and the related statements of income, retained earnings and
changes in cash flow for such fiscal year, setting forth in comparative form
the figures as at the end of and for the previous fiscal year, which shall
have been reported on by independent certified public accountants who shall
be satisfactory to Lender and shall be accompanied by an unqualified audit
report issued by such independent certified public accountants; (b) as soon
as available, but in any event within thirty (30) days after the close of
each month other than the last month of each fiscal quarter and within forty-
five (45) days after the end of each month which is the end of a fiscal
quarter, the balance sheet as at the end of such month and the related
statements of income, retained earnings and changes in cash flow for such
month, which have been internally prepared by Borrower. All financial
statements required under (a) and (b) above shall be prepared in accordance
with GAAP, subject to year-end adjustments in the case of monthly statements.
Together with the financial statements furnished pursuant to (a) above,
Borrower shall deliver a certificate of Borrower's certified public
accountants addressed to Lender stating that (i) they have caused this
Agreement and the Ancillary Agreements to be reviewed and (ii) in making the
examination necessary for the issuance of such financial statements, nothing
has come to their attention to lead them to believe that any Event of Default
or Incipient Event of Default exists and, in particular, they have no
knowledge of any Event of Default or Incipient Event of Default or, if such
is not the case, specifying such Event of Default or Incipient Event of
Default and its nature, when it occurred and whether it is continuing. At
the times the financial statements are furnished pursuant to (a), (b) and (c)
above, a certificate of Borrower's President or Chief Financial Officer
shall be delivered to Lender stating that, based on an examination sufficient
to enable him to make an informed statement, no Event of Default or
Incipient Event of Default exists, or, if such is not the case, specifying
such Event of Default or Incipient Event of Default and its nature, when it
occurred, whether it is continuing and the steps being taken by Borrower with
respect to such event. If any internally prepared financial information,
including that required under this paragraph is unsatisfactory in
any manner to Lender, Lender may request that Borrower's independent
certified public accountants review same.
Borrower shall also provide Lender as soon as available, but in any event
within ten (10) days after the issuance thereof, copies of any regular,
periodic and special report or registration statements which Borrower files
with the Securities and Exchange Commission or any governmental authority which
may be substituted therefor or any national securities exchange.
12. Additional Representations, Warranties and Covenants. Borrower
represents and warrants (each of which such representations and warranties
shall be deemed repeated upon the making of a request for a Revolving Credit
Advance and made as of the time of each Revolving Credit Advance made
hereunder), and covenants that:
(a) Borrower is a corporation duly organized and validly existing under the
laws of the State of New York and duly qualified and in good standing in
every other state or jurisdiction in which the nature of Borrower's business
requires such qualification;
(b) the execution, delivery and performance of this Agreement and the
Ancillary Agreements (i) have been duly authorized, (ii) are not in
contravention of Borrower's certificate of incor-poration, by-laws or of any
indenture, agreement or undertaking to which Borrower is a party or by which
Borrower is bound and (iii) are within Borrower's corporate powers;
(c) this Agreement and the Ancillary Agreements executed and delivered by
Borrower are Borrower's legal, valid and binding obligations, enforceable in
accordance with their terms;
(d) it keeps and will continue to keep all of its books and records
concerning the Collateral at Borrower's executive offices located at the
address set forth in the introductory paragraph of this Agreement and will
not move such books and records without giving Lender at least thirty (30) days
prior written notice;
(e) (i) the operation of Borrower's business is and will continue to be in
compliance in all material respects with all applicable federal, state and
local laws, including but not limited to all applicable environmental laws
and regulations;
(ii) Borrower will establish and maintain a system to assure and monitor
continued compliance with all applicable environmental laws, which system
shall include periodic reviews of such compliance;
(iii) In the event the Borrower obtains, gives or receives notice of any
release or threat of release of a reportable quantity of any hazardous
substances on its property (any such event being hereinafter referred to as a
"Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions on its property, demand
letter or complaint, order, citation, or other written notice with regard to
any Hazardous Discharge or violation of any environmental laws affecting its
property or Borrower's interest therein (any of the foregoing is referred to
herein as an "Environmental Complaint") from any Person or entity, including
any state agency responsible in whole or in part for environmental matters
in the state in which such property is located or the United States
Environmental Protection Agency (any such person or entity hereinafter the
"Authority"), then the Borrower shall, within seven (7) days, give written
notice of same to the Lender detailing facts and circumstances of which the
Borrower is aware giving rise to the Hazardous Discharge or Environmental
Complaint and periodically inform Lender of the status of the matter. Such
information is to be provided to allow the Lender to protect its security
interest in the Collateral and is not intended to create nor shall it create
any obligation upon the Lender with respect thereto;
(iv) Borrower shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard
the health of any Person and to avoid subjecting the Collateral to any lien.
If Borrower shall fail to respond promptly to any Hazardous Discharge or
Environmental Complaint or Borrower shall fail to comply with any of the
requirements of any environmental laws, the Lender may, but without the
obligation to do so, for the sole purpose of protecting the Lender's interest
in Collateral: (A) give such notices or (B) enter onto Borrower's property
(or authorize third parties to enter onto such property) and take such
actions as the Lender (or such third parties as directed by the Lender) deems
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by the Lender (or such third parties)
in the exercise of any such rights, including any sums paid in connection
with any judicial or administrative investigation or proceedings, fines and
penalties, together with interest thereon from the date expended at the
Default Rate for Revolving Credit Advances shall be paid upon demand by the
Borrower, and until paid shall be added to and become a part of the Obligations
secured by the liens created by the terms of this Agreement or any other
agreement between Lender and Borrower;
(v) Borrower shall defend and indemnify the Lender and hold the Lender
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including attorney's fees, suffered or incurred
by the Lender under or on account of any environmental laws, including,
without limitation, the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any hazardous substances affecting
Borrower's property, whether or not the same originates or emerges from
Borrower's property or any contiguous real estate, including any loss of
value of the Collateral as a result of the foregoing except to the extent
such loss, liability, damage and expense is attributable to any Hazardous
Discharge resulting from actions on the part of the Lender. The Borrower's
obligations under this paragraph 12(e) shall arise upon the discovery of the
presence of any hazardous substances on the Borrower's property, whether or
not any federal, state, or local environmental agency has taken or threatened
any action in connection with the presence of any hazardous substances. The
Borrower's obligation and the indemnifications hereunder shall survive the
termination of this Agreement;
(vi) For purposes of paragraph 12(e) all references to Borrower's property
shall be deemed to include all of Borrower's right, title and interest in and
to all owned and/or leased premises.
(f) based upon the Employee Retirement Income Security Act of 1974
("ERISA"), and the regulations and published interpretations thereunder: (i)
Borrower has not engaged in any Prohibited Transactions as defined in
paragraph 406 of ERISA and paragraph 4975 of the Internal Revenue Code, as
amended; (ii) Borrower has met all applicable minimum funding requirements
under paragraph 302 of ERISA in respect of its plans; (iii) Borrower has no
knowledge of any event or occurrence which would cause the Pension Benefit
Guaranty Corporation to institute proceedings under Title IV of ERISA to
terminate any employee benefit plan(s); (iv) Borrower has no fiduciary
responsibility for investments with respect to any plan existing for the
benefit of persons other than Borrower's employees; and (v) Borrower has not
withdrawn, completely or partially, from any multi-employer pension plan so
as to incur liability under the Multiemployer Pension Plan Amendments Act of
1980;
(g) it is solvent, able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which it is about
to engage and the fair saleable value of its assets (calculated on a going
concern basis) is in excess of the amount of its liabilities;
(h) there is no pending or threatened litigation, actions or proceeding
which involve the possibility of materially and adversely affecting the
Borrower's business, assets, operations, prospects or condition (financial or
otherwise), or the Collateral or the ability of Borrower to perform this
Agreement;
(i) all balance sheets and income statements which have been delivered to
Lender fairly, accurately and properly state Borrower's financial condition
on a basis consistent with that of previous financial statements and there
has been no material adverse change in Borrower's financial condition as
reflected in such statements since the date thereof and such statements do
not fail to disclose any fact or facts which might materially and adversely
affect Borrower's financial condition;
(j) (x) it possesses all of the licenses, patents, copyrights, trademarks
and tradenames necessary to conduct its business, (y) there has been no
assertion or claim of violation or infringement with respect thereof and (z)
all such licenses, patents, copyrights, trademarks and tradenames are listed on
Exhibit 12(j);
(k) it will pay or discharge when due all taxes, assessments and
governmental charges or levies imposed upon it;
(l) it will promptly inform Lender in writing of: (i) the commencement of all
proceedings and investigations by or before and/or the receipt of any notices
from, any governmental or nongovernmental body and all actions and
proceedings in any court or before any arbitrator against or in any way
concerning any of Borrower's properties, assets or business, which might
singly or in the aggregate, have a materially adverse effect on Borrower;
(ii) any amendment of Borrower's certificate of incorporation or by-laws;
(iii) any change in Borrower's business, assets, liabilities, condition
(financial or otherwise), results of operations or business prospects which
has had or might have a materially adverse effect on Borrower; (iv) any Event
of Default or Incipient Event of Default; (v) any default or any event which
with the passage of time or giving of notice or both would constitute a
default under any agreement for the payment of money to which Borrower is a
party or by which Borrower or any of Borrower's properties may be bound which
would have a material adverse effect on Borrower's business, assets,
operations, prospects or condition (financial or otherwise) or the
Collateral; (vi) any change in the location of Borrower's executive offices;
(vii) any change in the location of Borrower's Inventory or Equipment from
the locations listed on Exhibit 12(l) attached hereto, (viii) any change in
Borrower's corporate name; (ix) any material delay in Borrower's performance
of any of its obligations to any account debtor and of any assertion of any
material claims, offsets or counterclaims by any account debtor and of any
allowances, credits and/or other monies granted by it to any account debtor;
(x) and furnish to Lender all material adverse information
relating to the financial condition of any account debtor; and (xi) any
material return of goods;
(m) it will not (i) create, incur, assume or suffer to exist any
indebtedness (exclusive of trade debt) whether secured or unsecured other
than (x) Borrower's indebtedness to Lender, (y) as set forth
on Exhibit 12(m) attached hereto and made a part hereof and (z) indebtedness
for borrowed money provided that such indebtedness is not secured; (ii)
declare, pay or make any dividend or distribution on any shares of
the common stock of Borrower or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any common or preferred
stock of Borrower; (iii) directly or indirectly, make any payment or
distribution or prepay any indebtedness (other than to Lender), or
repurchase, redeem, retire or otherwise acquire any indebtedness of Borrower
except that provided no Incipient Event of Default or Event of Default shall
have occurred Borrower (x) may make payments with respect to indebtedness for
borrowed money not to exceed $50,000 in the aggregate in any calendar month
and (y) may refinance the indebtedness shown on Exhibit 12(m) provided that
such indebtedness (A) remains unsecured and (B) Borrower notifies
Lender of such refinancing; (iv) make advances, loans or extensions of credit
to any Person; (v) become either directly or contingently liable upon the
obligations of any Person by assumption, endorsement or guaranty thereof or
otherwise; (vi) enter into any merger, consolidation or other reorganization
with or into any other Person or acquire all or a portion of the assets or
stock of any Person or permit any other Person to consolidate with or merge
with it; (vii) form any Subsidiary or enter into any partnership, joint
venture or similar arrangement; (viii) materially change the nature of the
business in which it is presently engaged; (ix) change its fiscal year or
make any changes in accounting treatment and reporting practices without prior
written notice to Lender except as required by GAAP or in the tax reporting
treatment or except as required by law; (x) enter into any transaction with
any Affiliate, except in ordinary course on arms-length terms; or
(xi) ▇▇▇▇ Receivables under any name except the present name of the Borrower;
(n) all financial projections of Borrower's performance prepared by
Borrower or at Borrower's direction and delivered to Lender will represent,
at the time of delivery to Lender, Borrower's best estimate of Borrower's
future financial performance and will be based upon assumptions which are
reasonable in light of Borrower's past performance and then current business
conditions;
(o) it will not make capital expenditures in any fiscal year in an amount
in excess of $100,000;
(p) none of the proceeds of the Loans hereunder will be used directly or
indirectly to "purchase" or "carry" "margin stock" or to repay indebtedness
incurred to "purchase" or "carry" "margin stock" within the respective
meanings of each of the quoted terms under Regulation G of the Board of
Governors of the Federal Reserve System as now and from time to time
hereafter in effect; and
(q) it will bear the full risk of loss from any loss of any nature
whatsoever with respect to the Collateral. At it's own cost and expense in
amounts and with carriers acceptable to Lender, it shall (i) keep all its
insurable properties and properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered
by extended coverage insurance and such other hazards, and for such amounts,
as is customary in the case of companies engaged in businesses similar to
Borrower's including, without limitation, business interruption insurance;
(ii) maintain a bond in such amounts as is customary in the case of companies
engaged in businesses similar to Borrower's insuring against larceny,
embezzlement or other criminal misappropriation of insured's officers and
employees who may either singly or jointly with others at any time have
access to the assets or funds of Borrower either directly or through
authority to draw upon such funds or to direct generally the disposition of
such assets; (iii) maintain public and product liability insurance against
claims for personal injury, death or property damage suffered by
others; (iv) maintain all such worker's compensation or similar insurance as
may be required under the laws of any state or jurisdiction in which Borrower
is engaged in business; (v) maintain together with Ace and assign to Lender
a life insurance policy covering the life of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the face
amount of at least $1,000,000; (vi) maintain a credit insurance policy
satisfactory to Lender insuring the Receivables of Borrower which policy
shall name Lender as the beneficiary thereof; and (vii) furnish Lender with (x)
copies of all policies and evidence of the maintenance of such policies at
least thirty (30) days before any expiration date, (y) endorsements to such
policies naming Lender as "co-insured" or "additional insured"
and appropriate loss payable endorsements in form and substance satisfactory
to Lender, naming Lender as loss payee, and (z) evidence that as to Lender
the insurance coverage shall not be impaired or invalidated by
any act or neglect of Borrower and the insurer will provide Lender with at
least thirty (30) days notice prior to cancellation. Borrower shall instruct
the insurance carriers that in the event of any loss thereunder, the
carriers shall make payment for such loss to lender and not to Borrower and
Lender jointly. If any insurance losses are paid by check, draft or other
instrument payable to Borrower and Lender jointly, Lender may
endorse Borrower's name thereon and do such other things as Lender may deem
advisable to reduce the same to cash. Lender is hereby authorized to adjust
and compromise claims. All loss recoveries received by Lender upon any such
insurance may be applied to the Obligations, in such order as Lender in its
sole discretion shall determine. Any surplus shall be paid by Lender to
Borrower or applied as may be otherwise required by law. Any deficiency
thereon shall be paid by Borrower to Lender, on demand.
13. Power of Attorney. Borrower hereby appoints Lender or any other Person
whom Lender may designate as Borrower's attorney, with power to: (i) endorse
Borrower's name on any checks, notes, acceptances, money orders, drafts or
other forms of payment or security that may come into Lender's possession;
(ii) sign Borrower's name on any invoice or ▇▇▇▇ of lading relating to any
Receivables, drafts against customers, schedules and assignments of
Receivables, notices of assignment, financing statements and other public
records, verifications of account and notices to or from customers; (iii)
verify the validity, amount or any other matter relating to any Receivable by
mail, telephone, telegraph or otherwise with account debtors; (iv) execute
customs declarations and such other documents as may be required to clear
Inventory through Customs; (v) do all things necessary to carry out this
Agreement, any Ancillary Agreement and all related documents; and (vi) on or
after the occurrence and continuation of an Event of Default, notify the post
office authorities to change the address for delivery of Borrower's mail to
an address designated by Lender, and to receive, open and dispose of all mail
addressed to Borrower. Borrower hereby ratifies and approves all acts of
the attorney. Neither Lender nor the attorney will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law. This
power, being coupled with an interest, is irrevocable so long as any
Receivable which is assigned to Lender or in which Lender has a security
interest remains unpaid and until the Obligations have been fully satisfied.
14. Expenses. Borrower shall pay all of Lender's out-of-pocket costs and
expenses, including, without limitation, reasonable fees and disbursements of
counsel and appraisers, in connection with the preparation, execution and
delivery of this Agreement and the Ancillary Agreements, and in
connection with the prosecution or defense of any action, contest, dispute,
suit or proceeding concerning any matter in any way arising out of, related
to or connected with this Agreement or any Ancillary Agreement. Borrower
shall also pay all of Lender's fees, charges, out-of-pocket costs and
expenses, including without limitation reasonable fees and disbursements of
counsel and appraisers, in connection with (a) the preparation, execution and
delivery of any waiver, any amendment thereto or consent proposed or executed
in connection with the transactions contemplated by this Agreement or the
Ancillary Agreements, (b) Lender's obtaining performance of the Obligations
under this Agreement and any Ancillary Agreements, including, but not limited
to, the enforcement or defense of Lender's security interests, assignments
of rights and liens hereunder as valid perfected security interests, (c) any
attempt to inspect, verify, protect, collect, sell, liquidate or otherwise
dispose of any Collateral, (d) any appraisals or re-appraisals of any
property (real or personal) pledged to Lender by Borrower as Collateral for,
or any other Person as security for, Borrower's Obligations hereunder and (e)
any consultations in connection with any of the foregoing. Borrower shall
also pay Lender's customary bank charges for all bank services performed or
caused to be performed by Lender for Borrower at Borrower's request or in
connection with Borrower's loan account with Lender. All such costs and
expenses together with all filing, recording and search fees, taxes and
interest payable by Borrower to Lender shall be payable on demand and shall
be secured by the Collateral. If any tax by any governmental authority is or
may be imposed on or as a result of any transaction between Borrower and
Lender which Lender is or may be required to withhold or pay, Borrower agrees
to indemnify and hold Lender harmless in respect of such taxes, and Borrower
will repay to Lender the amount of any such taxes which shall be charged to
Borrower's account; and until Borrower shall furnish Lender with indemnity
therefor (or supply Lender with evidence satisfactory to it that due
provision for the payment thereof has been made), Lender may hold without
interest any balance standing to Borrower's credit and Lender shall
retain its security interests in any and all Collateral.
15. Assignment By Lender. Lender may assign any or all of the Obligations
together with any or all of the security therefor and any transferee shall
succeed to all of Lender's rights with respect thereto. Upon such transfer,
Lender shall be released from all responsibility for the Collateral to the
extent same is assigned to any transferee. Lender may from time to time sell
or otherwise grant participations in any of the Obligations and the holder
of any such participation shall, subject to the terms of any agreement
between Lender and such holder, be entitled to the same benefits as Lender
with respect to any security for the Obligations in which such holder is a
participant. Borrower agrees that each such holder may exercise
any and all rights of banker's lien, set-off and counterclaim with respect to
its participation in the Obligations as fully as though Borrower were
directly indebted to such holder in the amount of such participation.
16. Waivers. Borrower waives presentment and protest of any instrument and
notice thereof, notice of default and all other notices to which Borrower
might otherwise be entitled.
17. Term of Agreement. This Agreement shall continue in full force and
effect until the expiration of the Term; provided, however, Lender may
terminate at any time upon sixty (60) days notice. The Termination Date
shall be automatically extended for successive periods of two (2) years each
unless Borrower shall have provided Lender with a written notice of
termination, at least sixty (60) days prior to the expiration of the
Termination Date or any renewal of the Termination Date. Upon any extension
of the Termination Date or any renewal of the Termination Date, Borrower
shall pay Lender an extension fee in an amount equal to the product of (x)
the Maximum Revolving Amount times (y) one percent (1.0%).
Notwithstanding the foregoing, Lender shall release its security interests at
any time after thirty (30) days notice upon payment to it of all Obligations
if Borrower shall have (i) provided Lender with an executed release of any
and all claims which Borrower may have or thereafter shall have under this
Agreement and (ii) paid to Lender an early payment fee in an amount equal to
the product of (x) fifty percent (50%) of the average monthly interest
(including any minimum loan fees payable hereunder) payable by Borrower to
Lender from the Closing Date until the date of payment of the fee hereunder
multiplied by (y) the difference between (i) the number of full months from
the Closing Date until the Termination Date and (ii) the number
of full months which have elapsed from the Closing Date until the date of
payment of the fee hereunder; such fee being intended to compensate Lender
for its costs and expenses incurred in initially approving this
Agreement or extending same. Such early payment fee shall also be due and
payable by Borrower to Lender upon termination of this Agreement by Lender
after the occurrence of an Event of Default.
18. Events of Default. The occurrence of any of the following shall
constitute an Event of Default:
(a) failure to make payment of any of the Obligations when required hereunder;
(b) failure to pay any taxes when due unless such taxes are being contested
in good faith by appropriate proceedings and with respect to which adequate
reserves have been provided on Borrower's books;
(c) failure to perform under and/or committing any breach of this Agreement
or any Ancillary Agreement or any other agreement between Borrower and Lender;
(d) occurrence of a default under any agreement to which Borrower is a
party with third parties which has a material adverse affect upon Borrower's
business, assets, operations, prospects or condition (financial or otherwise)
including all leases for any premises where Inventory or Equipment is located;
(e) any representation, warranty or statement made by Borrower hereunder,
in any Ancillary Agreement, any certificate, statement or document delivered
pursuant to the terms hereof, or in connection with the transactions
contemplated by this Agreement should at any time be false or misleading
in any material respect;
(f) if any Guarantor attempts to terminate, challenges the validity of, or
its liability under any Guaranty Agreement or if any Guarantor shall die and
Borrower shall fail to provide Lender with a replacement Guarantor acceptable
to Lender within thirty (30) days of such occurrence;
(g) should any Guarantor default in its obligations under any Guaranty
Agreement or if any proceeding shall be brought to challenge the validity,
binding effect of any Guaranty Agreement, or should any Guarantor breach any
representation, warranty or covenant contained in any Guaranty
Agreement or should any Guaranty Agreement cease to be a valid, binding and
enforceable obligation;
(h) an attachment or levy is made upon any of Borrower's assets having an
aggregate value in excess of $10,000,or a judgment is rendered against
Borrower or any of Borrower's property involving a liability of more than
$10,000, which shall not have been vacated, discharged, stayed or bonded
pending appeal within thirty (30) days from the entry thereof;
(i) any change in Borrower's condition or affairs (financial or otherwise)
which in Lender's opinion impairs the Collateral or the ability of Borrower
to perform its Obligations;
(j) any lien created hereunder or under any Ancillary Agreement for any
reason ceases to be or is not a valid and perfected lien having a first
priority interest;
(k) if Borrower shall (i) apply for, consent to or suffer to exist the
appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of creditors, (iii)
commence a voluntary case under the federal bankruptcy laws (as now or
hereafter in effect), (iv) be adjudicated a bankrupt or insolvent,
(v) file a petition seeking to take advantage of any other law providing for
the relief of debtors, (vi) acquiesce to, or fail to have dismissed, within
thirty (30) days, any petition filed against it in any involuntary
case under such bankruptcy laws, or (vii) take any action for the purpose of
effecting any of the foregoing;
(l) Borrower shall admit in writing its inability, or be generally unable to
pay its debts as they become due or cease operations of its present business;
(m) any Affiliate or any Subsidiary or any Guarantor shall (i) apply for,
consent to or suffer to exist the appointment of, or the taking possession
by, a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of
its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under the federal bankruptcy laws
(as now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent,
(vi) file a petition seeking to take advantage of any other law providing for
the relief of debtors, (vii) acquiesce to, or fail to have dismissed, within
thirty (30) days, any petition filed against it in any involuntary case
under such bankruptcy laws or (viii) take any action for the purpose of
effecting any of the foregoing;
(n) Borrower directly or indirectly sells, assigns, transfers, conveys, or
suffers or permits to occur any sale, assignment, transfer or conveyance of
any assets of Borrower or any interest therein, except as permitted herein;
(o) Borrower fails to operate in the ordinary course of business;
(p) Lender shall in good ▇▇▇▇▇ ▇▇▇▇ itself insecure or unsafe or shall fear
diminution in value, removal or waste of the Collateral;
(q) a default by Borrower in the payment, when due, of any principal of or
interest on any indebtedness for money borrowed;
(r) (i) ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall fail to own or control the percentage of
common stock of Borrower held by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ on the Closing Date; (ii) 50%
or more of the common stock of Borrower is owned or controlled by any Person
other than ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or (iii) any one or more of ▇▇▇▇▇
▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ shall no longer be a part of senior management of
Borrower;
(s) the indictment or threatened indictment of Borrower, any officer of
Borrower or any Guarantor under any criminal statute, or commencement of
criminal or civil proceeding against Borrower, any officer of Borrower or any
Guarantor pursuant to which statute or proceeding penalties or remedies
sought or available include forfeiture of any of the property of Borrower or
any Guarantor; or
(t) the occurrence of a default or event of default under the Ace Agreement
or the Consolidated Agreement.
19. Remedies. Upon the occurrence of an Event of Default pursuant to
paragraph 18(k) herein, all Obligations shall be immediately due and payable
and this Agreement shall be deemed terminated; upon the occurrence and
continuation of any other of the Events of Default, Lender shall have
the right to demand repayment in full of all Obligations, whether or not
otherwise due. Until all Obligations have been fully satisfied, Lender shall
retain its security interest in all Collateral. Lender shall have, in
addition to all other rights provided herein, the rights and remedies of a
secured party under the UCC, and under other applicable law, all other legal
and equitable rights to which Lender may be entitled, including
without limitation, the right to take immediate possession of the Collateral,
to require Borrower to assemble the Collateral, at Borrower's expense, and
to make it available to Lender at a place designated by Lender
which is reasonably convenient to both parties and to enter any of the
premises of Borrower or wherever the Collateral shall be located, with or
without force or process of law, and to keep and store the same on said
premises until sold (and if said premises be the property of Borrower,
Borrower agrees not to charge Lender for storage thereof), and the right to
apply for the appointment of a receiver for Borrower's property.
Further, Lender may, at any time or times after default by Borrower, sell and
deliver all Collateral held by or for Lender at public or private sale for
cash, upon credit or otherwise, at such prices and upon such terms as
Lender, in Lender's sole discretion, deems advisable or Lender may otherwise
recover upon the Collateral in any commercially reasonable manner as Lender,
in its sole discretion, deems advisable. The requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to
Borrower at Borrower's address as shown in Lender's records, at least ten
(10) days before the time of the event of which notice is being given.
Lender may be the purchaser at any sale, if it is public. In connection with
the exercise of the foregoing remedies, Lender is granted permission to use
all of Borrower's trademarks, tradenames, tradestyles, patents,
patent applications, licenses, franchises and other proprietary rights which
are used in connection with (a) Inventory for the purpose of disposing of
such Inventory and (b) Equipment for the purpose of completing
the manufacture of unfinished goods. The proceeds of sale shall be applied
first to all costs and expenses of sale, including attorneys' fees, and
second to the payment (in whatever order Lender elects) of all
Obligations. Lender will return any excess to Borrower and Borrower shall
remain liable to Lender for any deficiency. In addition to all other sums
due to Lender, Borrower shall pay Lender, for costs and expenses
incurred by Lender for internal collection efforts to obtain or enforce
payment of Receivables, an amount equal to fifteen percent (15%) of the net
face amount of any Receivables collected.
20. Waiver; Cumulative Remedies. Failure by Lender to exercise any right,
remedy or option under this Agreement or any supplement hereto or any other
agreement between Borrower and Lender or delay by Lender in exercising the
same, will not operate as a waiver; no waiver by Lender will be
effective unless it is in writing and then only to the extent specifically
stated. Lender's rights and remedies under this Agreement will be cumulative
and not exclusive of any other right or remedy which Lender may have.
21. Application of Payments. Borrower irrevocably waives the right to
direct the application of any and all payments at any time or times hereafter
received by Lender from or on Borrower's behalf and Borrower hereby
irrevocably agrees that Lender shall have the continuing exclusive right to
apply and reapply any and all payments received at any time or times
hereafter against Borrower's Obligations hereunder in such manner as Lender
may deem advisable notwithstanding any entry by Lender upon any of Lender's
books and records.
22. Depository Accounts. Any payment received by Borrower on account of any
Collateral shall be held by Borrower in trust for Lender and Borrower shall
promptly deliver same in kind to Lender or deposit all such payments into a
cash collateral account at such bank as Lender may designate for
application to payment of the Obligations. Borrower shall also execute such
further documents as Lender may deem necessary to establish such an account
and all funds deposited in such account shall immediately be deemed Lender's
property.
23. Lock Box Accounts. Borrower shall, at Lender's request, instruct all
of its customers and account debtors to make such payments on account of
Receivables to an account under Lender's dominion and control at such bank as
Lender may designate. Borrower shall also execute such further documents as
Lender may deem necessary to establish such an account and all funds
deposited in such account shall immediately be deemed Lender's property.
24. Revival. Borrower further agrees that to the extent Borrower makes a
payment or payments to Lender, which payment or payments or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy act, state or federal law, common law or equitable
cause, then, to the extent of such payment or repayment, the obligation or
part thereof intended to be satisfied shall be revived and continued in full
force and effect as if said payment had not been made.
25. Notices. Any notice or request hereunder may be given to Borrower or
Lender at the respective addresses set forth below or as may hereafter be
specified in a notice designated as a change of address under this paragraph.
Any notice or request hereunder shall be given by registered or certified
mail, return receipt requested, or by hand delivery, overnight mail or by
telecopy (confirmed by mail). Notices and requests shall be, in the case of
those by hand delivery, deemed to have been given when delivered to any
officer of the party to whom it is addressed, in the case of those by mail or
overnight mail, deemed to have been given when deposited in the mail or with
the overnight mail carrier, and, in the case of a telecopy, when confirmed.
Notices shall be provided as follows:
If to the Lender: Century Business Credit Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇ & Hessen LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Borrower: Creative Technologies Corp.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Singer ▇▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
26. Governing Law and Waiver of Jury Trial. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK. LENDER SHALL HAVE THE RIGHTS AND REMEDIES OF A
SECURED PARTY UNDER APPLICABLE LAW INCLUDING, BUT NOT LIMITED TO, THE
UNIFORM COMMERCIAL CODE OF NEW YORK. BORROWER AGREES THAT ALL ACTIONS
AND PROCEEDINGS RELATING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR ANY
ANCILLARY AGREEMENT OR ANY OTHER OBLIGATIONS SHALL BE LITIGATED IN THE
FEDERAL DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK OR, AT LENDER'S
OPTION, IN ANY OTHER COURTS LOCATED IN NEW YORK STATE OR ELSEWHERE AS
LENDER MAY SELECT AND THAT SUCH COURTS ARE CONVENIENT FORUMS AND
BORROWER SUBMITS TO THE PERSONAL JURISDICTION OF SUCH COURTS. BORROWER
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS THAT SERVICE OF PROCESS
UPON BORROWER MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, DIRECTED TO BORROWER AT BORROWER'S ADDRESS APPEARING ON
LENDER'S RECORDS, AND SERVICE SO MADE SHALL BE DEEMED COMPLETED TWO (2)
DAYS AFTER THE SAME SHALL HAVE BEEN SO MAILED. BOTH PARTIES HERETO WAIVE
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BETWEEN BORROWER
AND LENDER AND BORROWER WAIVES THE RIGHT TO ASSERT IN ANY ACTION OR
PROCEEDING INSTITUTED BY LENDER WITH REGARD TO THIS AGREEMENT OR ANY OF THE
OBLIGATIONS ANY OFFSETS OR COUNTERCLAIMS WHICH IT MAY HAVE.
27. Limitation of Liability. Borrower acknowledges and understands that in
order to assure repayment of the Obligations hereunder Lender may be
required to exercise any and all of Lender's rights and remedies hereunder
and agrees that neither Lender nor any of Lender's agents shall be liable for
acts taken or omissions made in connection herewith or therewith except for
actual bad faith.
28. Entire Understanding. This Agreement and the Ancillary Agreements
contain the entire understanding between Borrower and Lender and any
promises, representations, warranties or guarantees not herein contained
shall have no force and effect unless in writing, signed by the Borrower's
and Lender's respective officers. Neither this Agreement, the Ancillary
Agreements, nor any portion or provisions thereof may be changed, modified,
amended, waived, supplemented, discharged, cancelled or terminated orally or
by any course of dealing, or in any manner other than by an agreement in
writing, signed by the party to be charged.
29. Severability. Wherever possible each provision of this Agreement or
the Ancillary Agreements shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement or the Ancillary Agreements shall be prohibited by or invalid under
applicable law such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions thereof.
30. Captions. All captions are and shall be without substantive meaning or
content of any kind whatsoever.
31. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which
taken together shall constitute one and the same
instrument.
32. Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to the
effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any
amendments, schedules or exhibits thereto.
33. Publicity. Borrower hereby authorizes Lender to make appropriate
announcements of the financial arrangement entered into by and between
Borrower and Lender, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected
parties as Lender shall in its sole and absolute discretion deem appropriate.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
ATTEST: CREATIVE TECHNOLOGIES CORP.
By:_________________________
Secretary By:_________________________
Title:______________________
[CORPORATE SEAL]
CENTURY BUSINESS CREDIT
CORPORATION
By:_________________________
Title:______________________
Table of Contents
1. (a) General Definitions 1
(b) Accounting Terms 8
(c) Other Terms 8
2. Revolving Credit Advances 8
3. Repayment of the Revolving Credit Advances 9
4. Procedure for Revolving Credit Advances 9
5. Interest and Fees 10
(a) Interest 10
(b) Fees 10
(i) Minimum Loan Fee 10
(ii) Facility Fee 11
(iii) Collateral Monitoring Fee 11
(iv) Minimum Default Loan Fee 11
(vi) Financial Information Default 12
6. Security Interest 12
7. Representations Concerning the Collateral 12
8. Covenants Concerning the Collateral 13
10. Inspections 14
11. Financial Information 15
12. Additional Representations, Warranties and Covenants 16
13. Power of Attorney 21
14. Expenses 21
15. Assignment By Lender 22
16. Waivers 23
17. Term of Agreement 23
18. Events of Default 23
19. Remedies 25
20. Waiver; Cumulative Remedies 26
21. Application of Payments 27
22. Depository Accounts 27
23. Lock Box Accounts 27
24. Revival 27
25. Notices 27
26. Governing Law and Waiver of Jury Trial 28
27. Limitation of Liability 28
28. Entire Understanding 29
29. Severability 29
30. Captions 29
31. Counterparts 29
32. Construction 29
33. Publicity 29
EXHIBITS
Exhibit 1(A) - Permitted Liens
Exhibit 12(j) - Licenses, Patents, Trademarks and Copyrights
Exhibit 12(l) - Inventory Locations
Exhibit 12(m) - Permitted Indebtedness