EXHIBIT 10.40
FINOVA LOAN AND SECURITY AGREEMENT
Borrower: UTILX Corporation
Address: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Borrower Fed ID Tax No. ▇▇-▇▇▇▇▇▇▇
Credit Limit: $10,000,000
Date: April 20, 1999
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BUSINESS CREDIT
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THIS LOAN AND SECURITY AGREEMENT (collectively with the Schedule to Loan
Agreement (the "Schedule") attached hereto, the "Agreement") dated the date set
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forth on the cover page, is entered into by and between the borrower named on
the cover page (jointly and severally, the "Borrower"), whose address is set
forth on the cover page and FINOVA Capital Corporation ("FINOVA"), whose address
is ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
1. DEFINITIONS.
1.1 Defined Terms. As used in this Agreement, the following terms have
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the definitions set forth below:
1.2 "ADA" the meaning set forth in Section 4.1(aa) hereof.
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"Additional Sums" has the meaning set forth in Section 2.9(a) hereof.
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"Affiliate" means any Person controlling, controlled by or under common
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control with Borrower. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause direction of
the management and policies of any Person, whether through ownership of common
or preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, employee or other agent of Borrower, any
shareholder, member or subsidiary of Borrower, and any other Person with whom or
which Borrower has common shareholders, officers or directors.
"Agreement" has the meaning set forth in the preamble.
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"Annual Renewal Fee" has the meaning set forth in the Schedule.
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"Applicable Usury Law" has the meaning set forth in Section 2.9(b) hereof.
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"Blocked Account" has the meaning set forth in Section 2.10(c) hereof.
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"Business Day" means any day on which commercial banks in both Los Angeles,
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California and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities incurred
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for the acquisition of any fixed asset or improvement, replacement, substitution
or addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in accordance
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with GAAP, should be capitalized for financial reporting purposes and reflected
as a liability on the balance sheet of Borrower.
"Closing Fee" has the meaning set forth in the Schedule.
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"Closing Date" means the date of the initial advance made by FINOVA
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pursuant to this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the
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State of Arizona from time to time.
"Collateral" has the meaning set forth in Section 3.1 hereof.
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"Collateral Monitoring Fee" has the meaning set forth in the Schedule.
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"Deposit Accounts" has the meaning set forth in Section 9105 of the Code.
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"Dominion Accounts" has the meaning set forth in Section 2.10(c) hereof.
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"Eligible Inventory" means Inventory which FINOVA, in its Permitted
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Discretion, deems Eligible Inventory, based on such reasonable considerations as
FINOVA may from time to time deem appropriate. Without limiting the generality
of the foregoing, no Inventory shall be Eligible Inventory unless, in FINOVA's
Permitted Discretion, such Inventory (i) consists of raw materials and finished
goods, in good, new and salable condition which are not obsolete or
unmerchantable, and are not comprised of work in process, packaging materials or
supplies; (iii) meets all standards imposed by any governmental agency or
authority; (iv) conforms in all respects to the warranties and representations
set forth herein; (v) is at all times subject to FINOVA's duly perfected, first
priority security interest; and (vi) is situated at a location in compliance
with Section 5.16 hereof.
"Eligible Receivables" means Receivables arising in the ordinary course of
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Borrower's business from the sale of goods or rendition of services, which
FINOVA, in its Permitted Discretion, shall deem eligible based on such good
faith considerations as FINOVA may from time to time deem appropriate. Without
limiting the foregoing, a Receivable shall not be deemed to be an Eligible
Receivable if (i) the account
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debtor has failed to pay the Receivable within a period of ninety (90) days
after invoice date, to the extent of any amount remaining unpaid after such
period; (ii) the account debtor has failed to pay more than 25% of all
outstanding Receivables owed by it to Borrower within ninety (90) days after
invoice date; (iii) the account debtor is an Affiliate of Borrower; (iv) the
goods relating thereto are placed on consignment, guaranteed sale, "▇▇▇▇ and
hold", "COD" or other terms pursuant to which payment by the account debtor may
be conditional; (v) the account debtor is not located in the United States,
unless the Receivable is supported by a letter of credit or other form of
guaranty or security, in each case in form and substance satisfactory to FINOVA;
(vi) the account debtor is the United States or any department, agency or
instrumentality thereof; (vii) Borrower is or may become liable to the account
debtor for goods sold or services rendered by the account debtor to Borrower;
(viii) the account debtor's total obligations to Borrower exceed 15% of all
Eligible Receivables, to the extent of such excess (except for Florida Power &
Light which shall not exceed 35% of all Eligible Receivables and for U.S. West
which shall not exceed 20% for all Eligible Receivables); (ix) the account
debtor disputes liability or makes any claim with respect thereto (up to the
amount of such liability or claim), or is subject to any insolvency or
bankruptcy proceeding, or becomes insolvent, fails or goes out of a material
portion of its business; (x) the amount thereof consists of late charges or
finance charges; (xi) the amount thereof consists of a credit balance more than
ninety (90) days past due; (xii) the face amount thereof exceeds $100,000,
unless accompanied by evidence of shipment of the goods relating thereto
satisfactory to FINOVA in its Permitted Discretion; (xiii) the invoice
constitutes a progress billing on a project not yet completed, except that the
final billing at such time as the matter has been completed and delivered to the
customer may be deemed an Eligible Receivable; or (xiv) the amount thereof is
not yet represented by an invoice or ▇▇▇▇ issued in the name of the applicable
account debtor.
"Equipment" means all of Borrower's present and hereafter acquired
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machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
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amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated
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and whether or not foreign) which is or may hereafter become a member of a group
of which Borrower is a member and which is treated as a single employer under
ERISA Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 7.1 of this
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Agreement.
"Examination Fees" has the meaning set forth in the Schedule.
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"Facility Fees" the meaning set forth in the Schedule.
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"FINOVA Affiliates" has the meaning set forth in Section 9.22 hereof.
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"GAAP" means generally accepted accounting principles in the United States
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of America as in effect from time to time as set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Boards which are applicable to the circumstances
as of the date of determination consistently applied, except that, for the
financial covenants set forth in this Agreement, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
"General Intangibles" means all general intangibles of Borrower, whether
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now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints,
Trademarks, Licenses and Patents, names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against FINOVA, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation
credit, liability, property and other insurance) tax refunds and claims,
computer programs, discs, tapes and tape files, claims
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under guaranties, security interests or other security held by or granted to
Borrower to secure payment of any of the Receivables by an account debtor, all
rights to indemnification and all other intangible property of every kind and
nature (other than Receivables).
"Indebtedness" means all of Borrower's present and future obligations,
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liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases but excluding leasing of real property,
vehicles, and office equipment) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred taxes.
"Initial Term" has the meaning set forth on the Schedule.
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"Inventory" means all of Borrower's now owned and hereafter acquired goods,
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merchandise or 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 connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"Inventory Loans" has the meaning set forth in the Schedule.
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"IRC" means the Internal Revenue Code of 1986, as amended, and the
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regulations thereunder.
"LC Fees" has the meaning set forth in Section 2.4 hereof.
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"Letters of Credit" has the meaning set forth in Section 2.4. hereof.
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"Loans" has the meaning set forth in Section 2.2 hereof.
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"Loan Documents" means, collectively, this Agreement, any note or notes
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executed by Borrower and payable to FINOVA, and any other present or future
agreement entered into in connection with this Agreement, together with all
alterations, amendments, changes, extensions, modifications, refinancings,
refundings, renewals, replacements, restatements, or supplements, of or to any
of the foregoing.
"Loan Party" means Borrower, each Guarantor, each Subordinating Creditor
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and each other party (other than FINOVA) to any Loan Document.
"Loan Reserves" means, as of any date of determination, such amounts as
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FINOVA may from time to time establish and revise in good faith reducing the
amount of Revolving Credit Loans and Letters of Credit which would otherwise be
available to Borrower under the lending formula(s) provided in the Schedule:
(a) to reflect events, conditions, contingencies or risks which, as determined
by FINOVA in good faith, do or may affect either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the assets,
business or prospects of Borrower or any Guarantor or (iii) the security
interests and other rights of FINOVA in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect FINOVA's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Guarantor to FINOVA is or may have been incomplete,
inaccurate or misleading in any material respect or (c) in respect of any state
of facts which FINOVA determines in good faith constitutes an Event of Default
or may, with notice or passage of time or both, constitute an Event of Default."
"Loan Year" means each twelve month period commencing on the Closing Date.
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"Management Fees" has the meaning set forth in the Schedule.
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"Maximum Interest Rate" has the meaning set forth in Section 2.9(c) hereof.
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"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA
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Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of
Borrower or any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as determined in
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accordance with GAAP.
"Obligations" means all present and future loans, advances, debts,
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liabilities, obligations, covenants, duties and indebtedness at any time owing
by Borrower to FINOVA, whether evidenced by this Agreement, any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
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otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by FINOVA in Borrower's debts owing
to others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney's fees, expert
witness fees, Examination Fee, letter of credit fees, Collateral Monitoring Fee,
Closing Fee, Facility Fee, Termination Fee, Minimum Interest Charge and any
other sums chargeable to Borrower hereunder or under any other agreement with
FINOVA.
"Operating Cash Flow/Actual" means, for any period, Borrower's net income
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or loss (excluding the effect of any extraordinary gains or losses), determined
in accordance with GAAP, plus or minus each of the following items, to the
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extent deducted from or added to the revenues of Borrower in the calculation of
net income or loss: (i) depreciation; (ii) amortization and other non-cash
charges; (iii) interest expense paid or accrued; (iv) total federal and state
income tax expense determined as the accrued liability of Borrower in respect of
such period, regardless of what portion of such expense has actually been paid
by Borrower during such period; and (v) Management Fees paid, to the extent
permitted hereunder, and after deduction for each of (a) federal and state
income taxes, to the extent actually paid during such period; (b) any non-cash
income; and (c) all actual Capital Expenditures made during such period and not
financed.
"Operating Cash Flow/Permitted" means, for any period, Borrower's net
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income or loss (excluding the effect of any extraordinary gains or losses),
determined in accordance with GAAP, plus or minus each of the following items,
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to the extent deducted from or added to the revenues of Borrower in the
calculation of net income or loss: (i) depreciation; (ii) amortization and
other non-cash charges; (iii) interest expense paid or accrued; (iv) total
federal and state income tax expense determined as the accrued liability of
Borrower in respect of such period, regardless of what portion of such expense
has actually been paid by Borrower during such period; and (v) Management Fees
and other fees paid to Subordinating Creditors, to the extent permitted
hereunder, and after deduction for each of (a) federal and state income taxes,
to the extent actually paid during such period; (b) any non-cash income; and (c)
all permitted Capital Expenditures (without regard to any waiver given by FINOVA
with respect to any limitation on such Capital Expenditures) actually made
during such period and not financed.
"Overadvance" has the meaning set forth in Section 2.3.
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"Overline" has the meaning set forth in Section 2.3.
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"PBGC" means the Pension Benefit Guarantee Corporation.
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"Permitted Discretions" means FINOVA's judgment exercised in good faith
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based upon its consideration of any factor which FINOVA believes in good faith:
(i) will or could adversely affect the value of any Collateral, the
enforceability or priority of FINOVA's liens thereon or the amount which FINOVA
would be likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral; (ii) suggests that
any collateral report or financial information delivered to FINOVA by any Person
on behalf of the Borrower is incomplete, inaccurate or misleading in any
material respect; (iii) materially increases the likelihood of a bankruptcy,
reorganization or other insolvency proceeding involving the Borrower, any Loan
Party or any of the Collateral, or (iv) creates or reasonably could be expected
to create an Event of Default. In exercising such judgment, FINOVA may consider
such factors already included in or tested by the definition of Eligible
Receivables or Eligible Inventory, as well as any of the following: (i) the
financial and business climate of the Borrower's industry and general
macroeconomic conditions, (ii) changes in collection history and dilution with
respect to the Receivables, (iii) changes in demand for, and pricing of,
Inventory, (iv) changes in any concentration of risk with respect to Receivables
and/or Inventory, and (v) any other factors that change the credit risk of
lending to the Borrower on the security of the Receivables and Inventory. The
burden of establishing lack of good faith hereunder shall be on the Borrower.
"Permitted Encumbrance" means each of the liens, mortgages and other
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security interests set forth on the Schedule.
"Person" means any individual, sole proprietorship, partnership, joint
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venture, trust, unincorporated organization, association, corporation, limited
liability company, government, or any agency or political division thereof, or
any other entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for
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employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Prepared Financials" means the balance sheets of Borrower as of the date
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set forth in the Schedule in the section entitled 'Reporting Requirements' , and
as of each subsequent date on which audited balance sheets are delivered to
FINOVA from time to time hereunder, and
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the related statements of operations, changes in stockholder's equity and
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changes in cash flow for the periods ended on such dates.
"Prime Rate" has the meaning set forth in the Schedule.
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"Prohibited Transaction" means any transaction described in Section 406 of
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ERISA which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"Receivable Loans" has the meaning set forth on the Schedule."Receivables"
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means all of Borrower's now owned and hereafter acquired accounts (whether or
not earned by performance), proceeds of any letters of credit naming Borrower as
beneficiary, contract rights, chattel paper, instruments, documents and all
other forms of obligations at any time owing to Borrower, all guaranties and
other security therefor, whether secured or unsecured, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.
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"Renewal Term" has the meaning set forth on the Schedule.
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"Reportable Event" means a reportable event described in Section 4043 of
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ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section 4068(f)
of ERISA.
"Revolving Credit Loans" has the meaning set forth in the Schedule.
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"Revolving Credit Limit" has the meaning set forth in the Schedule.
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"Revolving Interest Rate" has the meaning set forth in the Schedule.
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"Schedule" has the meaning set forth in the preamble.
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"Senior Contractual Debt Service" means, for any period, the sum of
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payments made or required to be made by Borrower during such period for (i)
interest and scheduled principal payments due on the Term Loans (excluding
voluntary prepayment and payments made from Borrower's Excess Cash Flow, as
required pursuant to the Schedule), and (ii) interest only payments due on the
Revolving Credit Loans facility plus the Collateral Monitoring Fee, and (iii)
principal and interest payments due on the Permitted Senior Indebtedness.
"Start Date" has the meaning set forth in the Schedule.
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"Stock Pledge Agreement" has the meaning set forth in Section 4.1(cc)
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hereof.
"Subordinated Debt" means liabilities of Borrower the repayment of which is
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subordinated, to the payment and performance of the Obligations, pursuant to a
subordination agreement acceptable to FINOVA in its sole discretion.
"Term Loans" has the meaning set forth in the Schedule.
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"Termination Fee" has the meaning set forth in Section 9.2(d) hereof.
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"Total Contractual Debt Service" means, for any period, the sum of payments
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made (or, as to clause (i) of this sentence, required to be made) by Borrower
during such period for (i) Senior Contractual Debt Service, (ii) pursuant to the
Seller Note and/or Noncompete Agreement, and (iii) interest and scheduled
principal payments due on any and all other Indebtedness (excluding accrued
liabilities, trade payables and other contractual obligations to suppliers and
customers incurred in the ordinary course of business) of Borrower, including
without limitation the Subordinated Indebtedness.
"Total Facility" has the meaning set forth in Section 2.1 hereof.
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"Trademarks, Copyrights, Licenses and Patents" means all of Borrower's
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right, title and interest in and to, whether now owned or hereafter acquired:
(i) trademarks, trademark registrations, trade names, trade name registrations,
and trademark or trade name applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to ▇▇▇ for past, present and future
infringements thereof, (d) all rights corresponding thereto throughout the
world, and (e) the goodwill of the business operated by Borrower connected with
and symbolized by any trademarks or trade names; (ii) copyrights, copyright
registrations and copyright applications, including without limitation such as
are listed on the Schedule attached hereto and made a part hereof, as the same
may be amended from time to time, and (a) renewals thereof, (b) all income,
royalties, damages and payments now and hereafter due and/or payable with
respect thereto, including without limitation, damages and payments for past or
future infringements thereof, (c) the right to ▇▇▇ for past, present and future
infringements thereof, and (d) all rights corresponding thereto throughout the
world; (iii) license agreements, including without limitation such as are listed
on the Schedule attached hereto and made a part hereof, and the right to prepare
for sale, sell and advertise for sale any Inventory now or hereafter owned by
Borrower and now or hereafter covered by such licenses; and (iv) patents and
patent applications, registered or pending, including without limitation such as
are listed on the Schedule attached hereto, together with all income, royalties,
shop rights, damages and payments thereto, the right to ▇▇▇ for infringements
thereof, and all rights thereto throughout the world and all reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof.
"Unused Line Fee" has the meaning set forth in the Schedule.
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1.2 Other Terms. All accounting terms used in this Agreement, unless
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otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. LOANS; INTEREST RATE AND OTHER CHARGES.
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2.1 Total Facility. Upon the terms and conditions set forth herein and
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provided that no Event of Default or event which, with the giving of notice or
the passage of time, or both, would constitute an Event of Default, shall
have occurred and be continuing, FINOVA shall, upon Borrower's request, make
advances to Borrower from time to time in an aggregate outstanding principal
amount not to exceed the Total Facility amount (the "Total Facility") set forth
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on the Schedule hereto, subject to deduction of reserves for accrued interest
and such other reserves as FINOVA deems proper and reasonable from time to time
and as permitted by this Agreement, and less amounts FINOVA may be obligated to
pay in the future on behalf of Borrower. The Schedule is an integral part of
this Agreement and all references to "herein" "herewith" and words of similar
import shall for all purposes be deemed to include the Schedule.
2.2 Loans. Advances under the Total Facility ("Loans" and individually, a
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"Loan") shall be comprised of the amounts shown on the Schedule.
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2.3 Overlines; Overadvances. If at any time or for any reason the
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outstanding amount of advances (including all Letters of Credit) extended or
issued pursuant hereto exceeds any of the dollar limitations ("Overline") or
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percentage limitations ("Overadvance") in the Schedule, then Borrower shall,
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upon FINOVA's demand, immediately pay to FINOVA, in cash, the full amount of
such Overline or Overadvance which, at FINOVA's option, may be applied to reduce
the outstanding principal balance of the Loans and/or cash collateralize all or
any part of any outstanding Letters of Credit. Without limiting Borrower's
obligation to repay to FINOVA on demand the amount of any Overline or
Overadvance, Borrower agrees to pay FINOVA interest on the outstanding principal
amount of any Overline or Overadvance, on demand, at the rate set forth on the
Schedule and applicable to the Revolving Credit Loans.
2.4 Letters of Credit. At the request of Borrower, FINOVA may, in its
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Permitted Discretion, arrange for the issuance of letters of credit for the
account of Borrower and guarantees of payment of such letters of credit, in each
case in form and substance satisfactory to FINOVA in its sole discretion
(collectively, "Letters of Credit"). The aggregate face amount of all
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outstanding Letters of Credit from time to time shall not exceed the amount
shown on the Schedule, and shall be reserved against the availability of
Revolving Credit Loans. Borrower shall pay all bank charges for the issuance of
Letters of Credit, together with an additional fee to FINOVA equal to the
percentage set forth on the Schedule of the aggregate face amount of each Letter
of Credit outstanding from time to time during the term of this Agreement (the
"L/C Fee"). The L/C Fee shall be deemed to be fully earned upon the issuance of
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each Letter of Credit and the passage of time, or both, would constitute an
Event of Default, shall be due and payable on the first Business Day of
each month following a month during which any Letter of Credit is outstanding.
Any advance by FINOVA under or in connection with a Letter of Credit shall
constitute an Obligation hereunder. Each Letter of Credit shall have an expiry
date no later than thirty (30) days prior to the last day of the Initial Term
or, if issued during any Renewal Term no later than thirty (30) days prior to
the last day of such Renewal Term. Immediately upon any termination of this
Agreement, Borrower shall either: (i) provide cash collateral to FINOVA in an
amount equal to 105% of the maximum amount of FINOVA's obligations under or in
connection with all then outstanding Letters of Credit, or (ii) cause to be
delivered to FINOVA releases of all FINOVA's obligations under outstanding
Letters of Credit. At FINOVA's discretion, any proceeds of Collateral received
by FINOVA may be held as the cash collateral required by this Section 2.4.
Borrower hereby agrees to indemnify, save, and hold FINOVA harmless from any
loss, cost, expense, or liability, including payments made by FINOVA, expenses,
and reasonable attorneys' fees incurred by FINOVA arising out of or in
connection with any Letters of Credit. Borrower agrees to be bound by the
issuing bank's regulations and interpretations of any Letters of Credit
guarantied by FINOVA and opened for Borrower's account or by FINOVA's
interpretations of any Letter of Credit issued by FINOVA for Borrower's account,
and Borrower understands and agrees that FINOVA shall not be liable for any
error, negligence, or mistake, whether of omission or commission, in following
Borrower's instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto. Borrower understands that
FINOVA may indemnify the bank issuing a Letter of Credit for certain costs or
liabilities arising out of claims by Borrower against such issuing bank.
Borrower hereby agrees to indemnify and hold FINOVA harmless with respect to any
loss, cost, expense, or liability incurred by FINOVA under any such
indemnification by FINOVA to any issuing bank.
2.5 Loan Account. All advances made hereunder (including without
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limitation all advances made by FINOVA under or in connection with any Letter of
Credit) shall be added to and deemed part of the Obligations when made. FINOVA
may from time to time charge all Obligations of Borrower to Borrower's loan
account with FINOVA.
2.6 Interest; Fees. Borrower shall pay FINOVA interest on the daily
--------------
outstanding balance of the Obligations at the per annum rate set forth on the
Schedule. Borrower shall also pay FINOVA the fees set forth on the Schedule.
7
2.7 Default Interest Rate. Upon the occurrence and during the continuation
---------------------
of an Event of Default, Borrower shall pay FINOVA interest on the daily
outstanding balance of the Obligations and any L/C Fee at a rate per annum which
is two percent (2%) in excess of the rate which would otherwise be applicable
thereto pursuant to the Schedule.
2.8 Examination Fee. Borrower agrees to pay to FINOVA the Examination Fee
---------------
in the amount set forth on the Schedule in connection with each audit or
examination of Borrower performed by FINOVA prior to or after the date hereof.
Without limiting the generality of the foregoing, Borrower shall pay to FINOVA
an initial Examination Fee in an amount equal to the amount set forth on the
Schedule. Such initial Examination Fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction, and shall
be deducted from any good faith deposit paid by Borrower to FINOVA prior to the
date of this Agreement.
2.9 Excess Interest.
---------------
(a) The contracted for rate of interest of the loan contemplated hereby,
without limitation, shall consist of the following: (i) the interest rate set
forth on the Schedule, calculated and applied to the principal balance of the
Obligations in accordance with the provisions of this Agreement; (ii) interest
after an Event of Default, calculated and applied to the amount of the
Obligations in accordance with the provisions hereof; and (iii) all Additional
Sums (as herein defined), if any. Borrower agrees to pay an effective contracted
for rate of interest which is the sum of the above-referenced elements. The
Examination Fee, attorneys fees, expert witness fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, Termination Fees,
Minimum Interest Charges, other charges, goods, things in action or any other
sums or things of value paid or payable by Borrower (collectively, the
"Additional Sums"), whether pursuant to this Agreement or any other documents or
---------------
instruments in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that under any applicable law may be deemed
to be interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
(b) It is the intent of the parties to comply with the usury laws of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
--------------------
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (a) any such
---------------------
excess of interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced hereby, or (b) the
maturity of the Obligations is accelerated in whole or in part, or (c) all or
part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Borrower nor any other Person now or hereafter liable
for the payment of the Obligations shall be obligated to pay the amount of such
interest to the extent that it is in excess of the Maximum Interest Rate, (3)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount of the Obligations or refunded
to Borrower, at FINOVA's option, and (4) the effective rate of interest shall be
automatically reduced to the Maximum Interest Rate. It is further agreed,
without limiting the generality of the foregoing, that to the extent permitted
by the Applicable Usury Law; (x) all calculations of interest which are made for
the purpose of determining whether such rate would exceed the Maximum Interest
Rate shall be made by amortizing, prorating, allocating and spreading during the
period of the full stated term of the loan evidenced hereby, all interest at any
time contracted for, charged or received from Borrower or otherwise in
connection with such loan; and (y) in the event that the effective rate of
interest on the loan should at any time exceed the Maximum Interest Rate, such
excess interest that would otherwise have been collected had there been no
ceiling imposed by the Applicable Usury Law shall be paid to FINOVA from time to
time, if and when the effective interest rate on the loan otherwise falls below
the Maximum Interest Rate, to the extent that interest paid to the date of
calculation does not exceed the Maximum Interest Rate, until the entire amount
of interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury
8
Law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the indebtedness
evidenced hereby regardless of when incurred.
2.10 Principal Payments; Proceeds of Collateral.
--------------------------------------------
(a) Principal Payments. Except where evidenced by notes or other
------------------
instruments issued or made by Borrower to FINOVA specifically containing payment
provisions which are in conflict with this Section 2.10 (in which event the
conflicting provisions of said notes or other instruments shall govern and
control), that portion of the Obligations consisting of principal payable on
account of Loans shall be payable by Borrower to FINOVA immediately upon the
earliest of (i) the receipt by FINOVA or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which FINOVA elects to accelerate the maturity and
payment of such loans, or (iii) any termination of this Agreement pursuant to
Section 9.2 hereof; provided, however, that any Overadvance or Overline shall be
-------- -------
payable on demand pursuant to the provisions of Section 2.3 hereof.
(b) Collections. Until FINOVA notifies Borrower to the contrary, Borrower
-----------
may make collection of all Receivables for FINOVA and shall receive all such
payments or sums as trustee of FINOVA and immediately deliver all such payments
or sums to FINOVA in their original form, duly endorsed in blank or cause the
same to be deposited into a Blocked Account or Dominion Account. FINOVA or its
designee may, at any time after an Event of Default under Section 7.1, notify
account debtors that the Receivables have been assigned to FINOVA and of
FINOVA's security interest therein, and may collect the Receivables directly and
charge the collection costs and expenses to Borrower's loan account. Borrower
agrees that, in computing the charges under this Agreement, all items of payment
shall be deemed applied by FINOVA on account of the Obligations three (3)
Business Days after receipt by FINOVA of good funds which have been finally
credited to FINOVA's account, whether such funds are received directly from
Borrower or from the Blocked Account bank or the Dominion Account bank, pursuant
to Section 2.10(c) hereof, and this provision shall apply regardless of the
amount of the Obligations outstanding or whether any Obligations are
outstanding; provided, that if any such good funds are received after 12:00 p.m.
--------
noon (Los Angeles time) on any Business Day or at any time on any day not
constituting a Business Day, such funds shall be deemed received on the
immediately following Business Day. FINOVA is not, however, required to credit
Borrower's account for the amount of any item of payment which is unsatisfactory
to FINOVA in its Permitted Discretion and FINOVA may charge Borrower's loan
account for the amount of any item of payment which is returned to FINOVA
unpaid.
(c) Establishment of a Dominion Account. Unless Borrower shall be
-----------------------------------
otherwise directed by FINOVA in writing, Borrower shall cause all proceeds of
Collateral to be deposited into a lockbox account, or such other "blocked
account" as FINOVA may require (each, a "Blocked Account") pursuant to an
---------------
arrangement with such bank as may be selected by Borrower and be acceptable to
FINOVA which proceeds, unless otherwise provided herein, shall be applied in
payment of the Obligations in such order in accordance with this Agreement.
Borrower shall issue to any such bank an irrevocable letter of instruction
directing said bank to transfer such funds so deposited to FINOVA, either to any
account maintained by FINOVA at said bank or by wire transfer to appropriate
account(s) of FINOVA. All funds deposited in a Blocked Account shall immediately
become the sole property of FINOVA and Borrower shall obtain the agreement by
such bank to waive any offset rights against the funds so deposited. FINOVA
assumes no responsibility for any Blocked Account arrangement, including without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder. Alternatively, FINOVA may establish
depository accounts in the name of FINOVA at a bank or banks for the deposit of
such funds (each, a "Dominion Account") and Borrower shall deposit all proceeds
----------------
of Receivables and all cash proceeds of any sale of Inventory or, to the extent
permitted herein, Equipment or cause same to be deposited, in kind, in such
Dominion Accounts of FINOVA in lieu of depositing same to Blocked Accounts, and,
unless otherwise provided herein, all such funds shall be applied by FINOVA to
the Obligations in such order as FINOVA determines in its sole discretion.
(d) Payments Without Deductions. Borrower shall pay principal, interest,
---------------------------
and all other amounts payable hereunder, or under any other Loan Document,
without any deduction whatsoever, including, but not limited to, any deduction
for any setoff or counterclaim.
(e) Collection Days Upon Repayment. In the event Borrower repays the
------------------------------
Obligations in full at any
9
time hereafter, such payment in full shall be credited (conditioned upon final
collection) to Borrower's loan account three (3) Business Days after FINOVA's
receipt thereof.
(f) Monthly Accountings. FINOVA shall provide Borrower monthly with an
-------------------
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by FINOVA), unless Borrower
notifies FINOVA in writing to the contrary within thirty (30) days after each
account is rendered, describing the nature of any alleged errors or admissions.
2.11 Application of Collateral. Except as otherwise provided herein,
-------------------------
FINOVA shall have the continuing and exclusive right to apply or reverse and re-
apply any and all payments to any portion of the Obligations in such order and
manner described in Section 2.12 below. To the extent that Borrower makes a
payment or FINOVA receives any payment or proceeds of the Collateral for
Borrower's benefit which is subsequently invalidated, declared to be fraudulent
or preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or any other party under any bankruptcy law, common law or
equitable cause, or otherwise, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by FINOVA.
2.12 Application of Payments. The amount of all payments or amounts
-----------------------
received by FINOVA with respect to the Loan shall be applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the date
of such payment, including any Default Interest; (ii) then, to any late fees,
overdue risk assessments, Examination Fee and expenses, collection fees and
expenses and any other fees and expenses due to FINOVA hereunder; and (iii)
last, the remaining balance, if any, to the unpaid principal balance of the
Loan; provided however, while an Event of Default exists under this Agreement,
or under any other Loan Document, each payment hereunder shall be (x) held as
cash collateral to secure Obligations relating to any Letters of Credit or other
contingent obligations arising under the Loan Documents and/or (y) applied to
amounts owed to FINOVA by Borrower as FINOVA in its sole discretion may
determine. In calculating interest and applying payments as set forth above:
(a) interest shall be calculated and collected through the date a payment is
actually applied by FINOVA under the terms of this Agreement; (b) interest on
the outstanding balance shall be charged during any grace period permitted
hereunder; (c) at the end of each month, all accrued and unpaid interest and
other charges provided for hereunder shall be added to the principal balance of
the Loan; and (d) to the extent that Borrower makes a payment or FINOVA receives
any payment or proceeds of the Collateral for Borrower?s benefit that is
subsequently invalidated, set aside or required to be repaid to any other
Person, then, to such extent, the Obligations intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
FINOVA and FINOVA may adjust the Loan balances as FINOVA, in its sole
discretion, deems appropriate under the circumstances.
2.13 Notification of Closing. Borrower shall provide FINOVA with at least
-----------------------
forty-eight (48) hours prior written notice of the Closing Date, to enable
FINOVA to arrange for the availability of funds. In the event the closing does
not take place through no fault of Borrower's on the date specified in
Borrower's notice to FINOVA and other than through the fault of FINOVA, Borrower
agrees to reimburse FINOVA for FINOVA's costs to maintain the necessary funds
available for the closing, at the Term Interest Rate with respect to the amount
specified in the Schedule, and at the Revolving Interest Rate with respect to an
amount equal to the initial advance under the Revolving Credit Loans facility
which is to be made on the Closing Date, for the number of days which elapse
between the date specified in Borrower's notice and the date upon which the
closing actually occurs (which number of days shall not include the date
specified in Borrower's notice, but shall include the Closing Date).
3. SECURITY.
3.1 Security Interest in the Collateral. To secure the payment and
-----------------------------------
performance of the Obligations when due, Borrower hereby grants to FINOVA a
first priority security interest (subject only to Permitted Encumbrances) in all
of Borrower's now owned or hereafter acquired or arising Inventory, Equipment,
Receivables, life insurance policies and the proceeds thereof, Trademarks,
Copyrights, Licenses and Patents, , Investment Property (as defined in Section
9-115 of the Code) and General Intangibles, including, without limitation, all
of Borrower's Deposit Accounts, money, any and all property now or at any time
hereafter in FINOVA's possession (including claims and credit balances), and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products and all books and records and
computer data related to any of the
10
foregoing (all of the foregoing, together with all other property in which
FINOVA may be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral").
----------
3.2 Perfection and Protection of Security Interest. Borrower shall, at
----------------------------------------------
its expense, take all actions requested by FINOVA at any time to perfect,
maintain, protect and enforce FINOVA's first priority security interest and
other rights in the Collateral and the priority thereof from time to time,
including, without limitation, (i) executing and filing financing or
continuation statements and amendments thereof and executing and delivering such
documents and titles in connection with motor vehicles as FINOVA shall require,
all in form and substance satisfactory to FINOVA, (ii) maintaining a perpetual
inventory and complete and accurate stock records, (iii) delivering to FINOVA
warehouse receipts covering any portion of the Collateral located in warehouses
and for which warehouse receipts are issued, and transferring Inventory to
warehouses designated by FINOVA, (iv) placing notations on Borrower's books of
account to disclose FINOVA's security interest therein and (v) delivering to
FINOVA all letters of credit on which Borrower is named beneficiary. FINOVA may
file, without Borrower's signature, one or more financing statements disclosing
FINOVA's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral is
at any time in the possession or control of any warehouseman, bailee or any of
Borrower's agents or processors, Borrower shall notify such Person of FINOVA's
security interest in such Collateral and, upon FINOVA's request, instruct them
to hold all such Collateral for FINOVA's account subject to FINOVA's
instructions. From time to time, Borrower shall, upon FINOVA's request, execute
and deliver confirmatory written instruments pledging the Collateral to FINOVA,
but Borrower's failure to do so shall not affect or limit FINOVA's security
interest or other rights in and to the Collateral. Until the Obligations have
been fully satisfied and FINOVA's obligation to make further advances hereunder
has terminated, FINOVA's security interest in the Collateral shall continue in
full force and effect.
3.3 Preservation of Collateral. FINOVA may, in its Permitted Discretion,
--------------------------
at any time discharge any lien or encumbrance on the Collateral or bond the
same, pay any insurance, maintain guards, pay any service bureau, obtain any
record or take any other action to preserve the Collateral and charge the cost
thereof to Borrower's loan account as an Obligation.
3.4 Insurance. Borrower will maintain and deliver evidence to FINOVA of
---------
such insurance as is required by FINOVA, written by insurers, in amounts, and
with lender's loss payee, additional insured, and other endorsements,
satisfactory to FINOVA. All premiums with respect to such insurance shall be
paid by Borrower as and when due. Accurate and certified copies of the policies
shall be delivered by Borrower to FINOVA. If Borrower fails to comply with this
Section, FINOVA may (but shall not be required to) procure such insurance and
endorsements at Borrower's expense and charge the cost thereof to Borrower's
loan account as an Obligation.
3.5 Collateral Reporting; Inventory.
-------------------------------
(a) Invoices. Borrower shall not re-date any invoice or sale from the
--------
original date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Receivable.
If Borrower becomes aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon, Borrower shall
promptly notify FINOVA in writing.
(b) Instruments. In the event any Receivable is or becomes evidenced by a
-----------
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any presentment,
demand, notice of dishonor, protest and notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
(c) Physical Inventory. Borrower shall conduct a physical count of the
------------------
Inventory at such reasonable intervals as FINOVA may request and promptly supply
FINOVA with a copy of such accounts accompanied by a report of the value
(calculated at the lower of cost or market value on a first in, first out basis)
of the Inventory and such additional information with respect to the Inventory
as FINOVA may request from time to time.
(d) Returns. For so long as no Event of Default has occurred and is
-------
continuing and subject to the provisions of Section 3.6(b), if any account
debtor returns any Inventory to Borrower in the ordinary course of its business,
Borrower shall promptly determine the reason for such return and promptly issue
a credit memorandum to the account debtor (sending a copy to FINOVA) in the
appropriate amount. In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (i) hold the returned
11
Inventory in trust for FINOVA, (ii) segregate all returned Inventory from all of
Borrower's other property, (iii) conspicuously label the returned Inventory as
FINOVA's property, and (iv) immediately notify FINOVA of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on FINOVA's request deliver such returned Inventory
to FINOVA.
(e) Borrower shall not consign any Inventory.
3.6 Receivables.
-----------
(a) Eligibility. (i) Borrower represents and warrants that each
-----------
Receivable covers and shall cover a bona fide sale or lease and delivery by it
of goods or the rendition by it of services in the ordinary course of its
business, and shall be for a liquidated amount and FINOVA's security interest
shall not be subject to any known offset, deduction, counterclaim, rights of
return or cancellation, lien or other condition in an amount greater than
$10,000. If any representation or warranty herein is breached as to any
Receivable or any Receivable ceases to be an Eligible Receivable for any reason
other than payment thereof, then FINOVA may, in addition to its other rights
hereunder, designate any and all Receivables owing by that account debtor as not
Eligible Receivables; provided, that FINOVA shall in any such event retain its
--------
security interest in all Receivables, whether or not Eligible Receivables, until
the Obligations have been fully satisfied and FINOVA's obligation to provide
loans hereunder has terminated.
(ii) FINOVA at any time shall be entitled to (i) establish and increase or
decrease reserves against Eligible Receivables and Eligible Inventory, (ii)
reduce the advance rates in the Schedule or restore such advance rates to any
level equal to or below the advance rates set forth in the Schedule or (iii)
impose additional restrictions (or eliminate the same) to the standards of
eligibility set forth in the definitions of "Eligible Receivables" and "Eligible
Inventory," in the exercise of its Permitted Discretion. FINOVA may but shall
not be required to rely on the schedules an/or reports delivered to FINOVA in
connection herewith in determining the then eligibility of Receivables and
Inventory. Reliance thereon by FINOVA from time to time shall not be deemed to
limit the right of FINOVA to revise advance rates or standards of eligibility as
provided above.
(b) Disputes. Borrower shall notify FINOVA promptly of all material
--------
disputes or claims and settle or adjust such disputes or claims at no expense to
FINOVA, but no discount, credit or allowance shall be granted to any account
debtor and no material returns of merchandise shall be accepted by Borrower
without FINOVA's consent, except for discounts, credits and allowances made or
given in the ordinary course of Borrower's business. FINOVA may, at any time
after the occurrence of an Event of Default, settle or adjust disputes or claims
directly with account debtors for amounts and upon terms which FINOVA considers
advisable in its reasonable credit judgment and, in all cases, FINOVA shall
credit Borrower's loan account with only the net amounts received by FINOVA in
payment of any Receivables.
3.7 Equipment. Borrower shall keep and maintain the Equipment in good
---------
operating condition and repair and make all necessary replacements thereto to
maintain and preserve the value and operating efficiency thereof at all times
consistent with Borrower's past practice, ordinary wear and tear excepted.
Borrower shall not permit any item of Equipment to become a fixture (other than
a trade fixture) to real estate or an accession to other property.
3.8 Other Liens; No Disposition of Collateral. Borrower represents,
------------------------------------------
warrants and covenants that except for FINOVA's security interest, Permitted
Encumbrances, and such other liens, claims and encumbrances as may be permitted
by FINOVA in its sole discretion from time to time in writing, except as
disclosed in Schedule 3.8; all Collateral is and shall continue to be owned by
it free and clear of all liens, claims and encumbrances whatsoever and (b)
Borrower shall not, without FINOVA's prior written approval, sell, encumber or
dispose of or permit the sale, encumbrance or disposal of any Collateral or all
or any substantial part of any of its other assets (or any interest of Borrower
therein), except for the sale of Inventory or Equipment in the ordinary course
of Borrower's business. In the event FINOVA gives any such prior written
approval with respect to any such sale of Collateral, the same may be
conditioned on the sale price being equal to, or greater than, an amount
acceptable to FINOVA. The proceeds of any such sales of Collateral shall be
remitted to FINOVA pursuant to this Agreement for application to the
Obligations.
3.9 Collateral Security. The Obligations shall constitute one loan
-------------------
secured by the Collateral. FINOVA may, in its sole discretion, (i) exchange,
enforce, waive or release any of the Collateral, (ii) apply Collateral and
direct the order or manner of sale thereof as it may determine, and (iii)
settle, compromise, collect or otherwise liquidate any Collateral in any manner
without affecting its right to take any other action with respect to any other
Collateral.
4. CONDITIONS OF CLOSING.
12
4.1 Initial Advance. The obligation of FINOVA to make the initial advance
---------------
hereunder or to issue or arrange for the issuance of the initial Letter of
Credit hereunder is subject to the fulfillment, to the satisfaction of FINOVA
and its counsel, of each of the following conditions on or prior to the date set
forth on the Schedule:
(a) Loan Documents. FINOVA shall have received each of the following Loan
--------------
Documents: (i) the Agreement fully and properly executed by Borrower; (ii)
promissory notes in such amounts and on such terms and conditions as FINOVA
shall specify, executed by Borrower; (iii) Guaranties executed by each of the
Guarantors and/or Validity and Support Agreements executed by the applicable
parties; (iv) such security agreements, intellectual property assignments,
pledge agreements, mortgages and deeds of trust as FINOVA may require with
respect to this Agreement and any Guaranties, executed by each of the parties
thereto and, if applicable, duly acknowledged for recording or filing in the
appropriate governmental offices; (v) Subordination Agreements in form and
substance acceptable to FINOVA, executed by each of the Subordinating Creditors,
together with copies of all instruments subject thereto showing a legend
indicating such subordination; (vi) such Blocked Account or Dominion Account
agreements as it shall determine; and (vii) such other documents, instruments
and agreements in connection herewith as FINOVA shall require, executed,
certified and/or acknowledged by such parties as FINOVA shall designate;
(b) Minimum Excess Availability. Borrower shall have Excess Availability
---------------------------
under the Revolving Credit Loans facility of not less than the amount specified
in the Schedule, after giving effect to the initial advance hereunder and after
giving effect to any applicable Loan Reserves against borrowing availability
under the Revolving Credit Loans.
(c) Terminations by Existing Lender. Borrower's existing lender(s) shall
-------------------------------
have executed and delivered UCC termination statements and other documentation
evidencing the termination of its liens and security interests in the assets of
Borrower or a subordination agreement in form and substance satisfactory to
FINOVA in its sole discretion;
(d) Charter Documents. FINOVA shall have received copies of Borrower's
-----------------
By-laws and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
(e) Good Standing. FINOVA shall have received a certificate of corporate
--------------
status with respect to Borrower, dated within ten (10) days of the Closing Date,
by the Secretary of State of the state of incorporation of Borrower, which
certificate shall indicate that Borrower is in good standing in such state;
(f) Foreign Qualification. FINOVA shall have received certificates of
---------------------
corporate status with respect to Borrower and each other Loan Party, each dated
within ten (10) days of the Closing Date, issued by the Secretary of State of
each state in which such party's failure to be duly qualified or licensed would
have a material adverse effect on its financial condition or assets, indicating
that such party is in good standing;
(g) Authorizing Resolutions and Incumbency. FINOVA shall have received a
--------------------------------------
certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors, and shareholders or members if
necessary, authorizing the borrowing of money from FINOVA and execution and
delivery of this Agreement and the other Loan Documents to which Borrower is a
party, and authorizing specific officers of Borrower to execute same, and (ii)
the authenticity of original specimen signatures of such officers;
(h) Insurance. FINOVA shall have received the insurance certificates and
---------
certified copies of policies required by Section 3.4 hereof, in form and
substance satisfactory to FINOVA and its counsel, together with an additional
insured endorsement in favor of FINOVA with respect to all liability policies
and a lender's loss payable endorsement in favor of FINOVA with respect to all
casualty and business interruption policies, each in form and substance
acceptable to FINOVA and its counsel;
(i) Title Insurance. [Intentionally deleted.]
---------------
(j) Searches; Certificates of Title. FINOVA shall have received searches
-------------------------------
reflecting the filing of its financing statements and fixture filings in such
jurisdictions as it shall determine, and shall have received certificates of
title with respect to the Collateral which shall have been duly executed in a
manner sufficient to perfect all of the security interests granted to FINOVA;
(k) Landlord, Bailee and Mortgagee Waivers. FINOVA shall have received
---------------------------------------
landlord, bailee and/or mortgagee waivers from the lessors, bailees and/or
mortgagees of all locations where any Collateral is located;
(l) Fees. Borrower shall have paid all fees payable by it on the Closing
----
Date pursuant to this Agreement;
13
(m) Opinion of Counsel. FINOVA shall have received an opinion of
-------------------
Borrower's counsel covering such matters as FINOVA shall determine in its sole
discretion;
(n) Officer Certificate. FINOVA shall have received a certificate of the
-------------------
President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder;
(o) Solvency Certificate. If requested, FINOVA shall have received a
--------------------
signed certificate of the Borrower's duly elected Chief Financial Officer
concerning the solvency and financial condition of Borrower, on FINOVA's
standard form;
(p) Blocked Account. The Blocked Account referred to in Section 2.10(c)
---------------
hereof shall have been established to the satisfaction of FINOVA in its sole
discretion;
(q) Environmental Assessment. If required by FINOVA, Borrower shall have
------------------------
caused a Phase I Environmental Assessment to be conducted on the property or
properties owned or occupied by Borrower, all at Borrower's own expense and the
results of such assessment(s) shall have been in form and substance satisfactory
to FINOVA in its sole discretion. Such assessment(s) shall have included, in
FINOVA's discretion, core samplings, and shall have been conducted by an
environmental engineer acceptable to FINOVA;
(r) Environmental Certificate. FINOVA shall have received an Environmental
-------------------------
Certificate from Borrower, in form and substance satisfactory to FINOVA in its
discretion, with respect to all locations of Collateral;
(s) Search and References. FINOVA shall have received and approved the
---------------------
results of UCC, tax lien, litigation, judgment, and bankruptcy searches
regarding Buyer, Borrower, Seller, Investors and such members of the senior
management of Seller as shall remain with Borrower, and shall have received
satisfactory customer, vendor and credit reference checks on Seller.
(t) Lease and Landlord's Consent.
----------------------------
[Intentionally deleted].
(u) Life Insurance. [Intentionally deleted].
--------------
(v) No Material Adverse Changes. Prior to the Closing Date, there shall
---------------------------
have occurred no material adverse change in the financial condition of Seller or
Borrower, or in the condition of the assets of Seller, from that shown on the
draft financial statements for Seller dated on the date set forth in the
Schedule. At the closing, Borrower shall deliver to FINOVA an officer's
certification confirming that Borrower is unaware of the existence of any such
material adverse change in Seller's financial condition.
(w) Material Agreements. FINOVA shall have received, reviewed and approved
-------------------
all material agreements to which Borrower shall be a party, including any such
agreements of Seller which Borrower shall assume.
(x) Projections. Borrower shall submit cash flow projections and pro forma
-----------
balance sheet with adjusting entries (i) showing that the proposed financing
will provide sufficient funds for the Borrower's projected working capital
needs, and (ii) showing: (1) that the Borrower will have reasonably sufficient
capital for the conduct of its business following the initial funding, and (2)
that the Borrower will not incur debts beyond its ability to pay such debts as
they mature.
(y) Opinions. To the extent any Person other than Borrower shall be
--------
parties to the Loan Documents, FINOVA reserves the right to require satisfactory
opinions of counsel for each such Person concerning the proper organization of
such Person and the due authorization, execution, delivery, enforceability,
validity and binding effect of the Loan Documents to which such Person is a
party. Each such opinion of counsel shall confirm, to the satisfaction of
FINOVA, that the opinion is being delivered to FINOVA at the instruction of the
party represented by such counsel, that FINOVA is entitled to rely on such
opinion and that for purposes of such reliance, FINOVA is deemed to be in
privity with the opining counsel.
(z) ADA Compliance. If necessary, as of the Closing Date, Borrower shall
--------------
be in compliance with the Americans with Disabilities Act of 1990 ("ADA"), or,
-----
if any renovations of Borrower's facilities or modifications of Borrower's
employment practices shall be required to bring them into compliance with the
ADA, review and approval by FINOVA of Borrower's proposed plan to come into such
compliance. Borrower shall deliver representations and warranties to FINOVA
concerning Borrower's compliance with the ADA, and no evidence shall have come
to the attention of FINOVA indicating that Borrower is not in compliance with
the ADA (except to the extent that FINOVA has reviewed and approved Borrower's
plan to come into compliance).
(aa) Subordination and Intercreditor Agreements. FINOVA and each
------------------------------------------
Subordinating Creditor shall have entered into a Subordination Agreement, in
form and substance satisfactory to FINOVA. Without
14
limiting the generality of the foregoing, Seller shall enter into one or more
Subordination Agreements with FINOVA, in form and substance satisfactory to
FINOVA, providing that Seller's right to payments in respect of the Seller
Subordinated Indebtedness shall be subordinated in right of payment to the Loan.
(bb) Stock Pledge. [Intentionally deleted.]
------------
(cc) Acquisition Documents. [Intentionally deleted].
---------------------
(dd) Employment and Non-compete agreements. [Intentionally deleted.]
-------------------------------------
(ee) Asset Appraisal. Borrower shall have provided to FINOVA, at
---------------
Borrower's sole cost and expense, an asset appraisal of all Borrower's fixed
assets upon which FINOVA shall be granted a first priority lien and security
interest, which appraisal must be acceptable to FINOVA in all respects.
(ff) Transaction Costs. [Intentionally deleted.]
-----------------
(gg) Schedule Conditions. Borrower shall have complied with all additional
-------------------
conditions precedent as set forth in the Schedule attached hereto.
(hh) Other Matters. All other documents and legal matters in connection
-------------
with the transactions contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance satisfactory to FINOVA
and its counsel including, without limitation, each of the items listed on the
Closing Checklist attached as Exhibit 4.1 hereto.
-----------
4.2 Subsequent Advances. The obligation of FINOVA to make any advance or
--------------------
issue or cause any Letter of Credit to be issued hereunder (including the
initial advance or Letter of Credit) shall be subject to the further conditions
precedent that, on and as of the date of such advance or Letter of Credit
issuance: (a) the representations and warranties of Borrower set forth in this
Agreement shall be accurate, before and after giving effect to such advance or
issuance and to the application of any proceeds thereof; (b) no Event of
Default and no event which, with notice or passage of time or both, would
constitute an Event of Default has occurred and is continuing, or would result
from such advance or issuance or from the application of any proceeds thereof;
(c) no material adverse change has occurred in the Borrower's business,
operations, financial condition, in the condition of the Collateral or other
assets of Borrower or in the prospect of repayment of the Obligations; and (d)
FINOVA shall have received such other approvals, opinions or documents as FINOVA
shall reasonably request.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
5.1 Due Organization. It is a corporation duly organized, validly existing
----------------
and in good standing under the laws of the State set forth on the Schedule, is
qualified and authorized to do business and is in good standing in all states in
which such qualification and good standing are necessary in order for it to
conduct its business and own its property, and has all requisite power and
authority to conduct its business as presently conducted, to own its property
and to execute and deliver each of the Loan Documents to which it is a party and
perform all of its Obligations thereunder, and has not taken any steps to wind-
up, dissolve or otherwise liquidate its assets;
5.2 Other Names. Borrower has not, during the preceding five (5) years,
-----------
been known by or used any other corporate or fictitious name except as set forth
on the Schedule, nor has Borrower been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person
during such time;
5.3 Due Authorization. The execution, delivery and performance by Borrower
-----------------
of the Loan Documents to which it is a party have been authorized by all
necessary corporate action and do not and shall not constitute a violation of
any applicable law or of Borrower's Articles or Certificate of Incorporation or
By-Laws or any other document, agreement or instrument to which Borrower is a
party or by which Borrower or its assets are bound;
5.4 Binding Obligation. Each of the Loan Documents to which Borrower is a
------------------
party is the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms;
5.5 Intangible Property. Borrower possesses adequate assets, licenses,
-------------------
patents, patent applications, copyrights, trademarks, trademark applications and
trade names for the present and planned future conduct of its business without
any known conflict with the rights of others, and each is valid and has been
duly registered or filed with the appropriate governmental authorities; each of
Borrower's patents, patent applications, copyrights, trademarks and trademark
applications which have been registered or filed with any governmental authority
(including the U.S. Patent and Trademark Office and the Library of Congress) are
listed by name, date and filing number on the Schedule;
5.6 Capital. Borrower has capital sufficient to conduct its business, is
-------
able to pay its debts as they mature, and owns property having a fair salable
value
15
greater than the amount required to pay all of its debts (including
contingent debts);
5.7 Material Litigation. Except as disclosed in Schedule 5.7, Borrower
has no pending or overtly threatened litigation, actions or proceedings which
would materially and adversely affect its business, assets, operations,
prospects or condition, financial or otherwise, or the Collateral or any of
FINOVA's interests therein;
5.8 Title; Security Interests of FINOVA. Borrower has good, indefeasible
-----------------------------------
and merchantable title to the Collateral and, upon the execution and delivery of
the Loan Documents, the filing of UCC-1 Financing Statements, delivery of the
certificate(s) evidencing any pledged securities, the filing of any collateral
assignments or security agreements regarding Borrower, Trademarks, Copyrights,
Licenses and/or Patents, if any, with the appropriate governmental offices and
the recording of any mortgages or deeds of trust with respect to real property,
in each case in the appropriate offices, this Agreement and such documents shall
create valid and perfected first priority liens in the Collateral, subject only
to Permitted Encumbrances;
5.9 Restrictive Agreements; Labor Contracts. Borrower is not a party or
---------------------------------------
subject to any contract or subject to any charge, corporate restriction,
judgment, decree or order materially and adversely affecting its business,
assets, operations, prospects or condition, financial or otherwise, or which
restricts its right or ability to incur Indebtedness, and it is not party to any
labor dispute. In addition, no labor contract is scheduled to expire during the
Initial Term of this Agreement, except as disclosed to FINOVA on Schedule 5.9.
5.10 Laws. Borrower is not in violation of any applicable statute,
----
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or its
business, assets, operations, prospects or condition, financial or otherwise;
5.11 Consents. Borrower has obtained or caused to be obtained or issued
--------
any required consent of a governmental agency or other Person in connection with
the financing contemplated hereby;
5.12 Defaults. Borrower is not in default with respect to any note,
--------
indenture, loan agreement, mortgage, lease, deed or other agreement to which it
is a party or by which it or its assets are bound, nor has any event occurred
which, with the giving of notice or the lapse of time, or both, would cause such
a default;
5.13 Financial Condition. The Prepared Financials fairly present
-------------------
Borrower's financial condition and results of operations and those of such other
Persons described therein as of the date thereof in accordance with GAAP; there
are no material omissions from the Prepared Financials or other facts or
circumstances not reflected in the Prepared Financials; and there has been no
material and adverse change in such financial condition or operations since the
date of the initial Prepared Financials delivered to FINOVA hereunder;
5.14 ERISA. None of Borrower, any ERISA Affiliate, or any Plan is or has
-----
been in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor has Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the assets of Borrower has arisen with respect to a Plan. No
prohibited transaction or Reportable Event has occurred with respect to a Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived;
5.15 Taxes. Borrower has filed all tax returns and such other reports as
-----
it is required by law to file and has paid or made adequate provision for the
payment on or prior to the date when due of all taxes, assessments and similar
charges that are due and payable;
5.16 Locations; Federal Tax ID No. Borrower's chief executive office and
----------------------------
the offices and locations where it keeps the majority of the Collateral (except
for Inventory in transit) are at the locations set forth on the Schedule, except
to the extent that such locations may have been changed after notice to FINOVA
in accordance with Section 6.4 hereof; Borrower's federal tax identification
number is as shown on the Schedule;
5.17 Business Relationships. There exists no actual or threatened
----------------------
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any customer or any group of
customers whose purchases individually or in the aggregate are material to the
business of Borrower, or with any material supplier, and there exists no present
condition or state of facts or circumstances which would materially and
adversely
16
affect Borrower or prevent Borrower from conducting such business
after the consummation of the transactions contemplated by this Agreement in
substantially the same manner in which it has heretofore been conducted; and
5.18 Reaffirmations. Each request for a loan made by Borrower pursuant to
--------------
this Agreement shall constitute (i) an automatic representation and warranty by
Borrower to FINOVA that there does not then exist any Event of Default and (ii)
a reaffirmation as of the date of said request of all of the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents.
5.19 Year 2000 Representations & Warranties. Borrower has taken all action
--------------------------------------
necessary to assure that there will be no material adverse change to Borrower's
business by reason of the advent of the year 2000, including without limitation
that all computer-based systems, embedded microchips and other processing
capabilities effectively recognize and process dates after April 1, 1999.
6. COVENANTS.
6.1 Affirmative Covenants. Borrower covenants that, so long as any
---------------------
Obligation remains outstanding and this Agreement is in effect, it shall:
6.1.1 Taxes. File all tax returns and pay or make adequate provision
-----
for the payment of all taxes, assessments and other charges on or prior to the
date when due;
6.1.2 Notice of Litigation. Promptly notify FINOVA in writing of any
--------------------
litigation, suit or administrative proceeding which may materially and adversely
affect the Collateral or Borrower's business, assets, operations, prospects or
condition, financial or otherwise, whether or not the claim is covered by
insurance;
6.1.3 ERISA. Notify FINOVA in writing (i) promptly upon the occurrence
-----
of any event described in Paragraph 4043 of ERISA, other than a termination,
partial termination or merger of a Plan or a transfer of a Plan's assets and
(ii) prior to any termination, partial termination or merger of a Plan or a
transfer of a Plan's assets;
6.1.4 Change in Location. Notify FINOVA in writing forty-five (45)
------------------
days prior to any change in the location of Borrower's chief executive office or
the location of any Collateral except that which occurs in the normal course of
business; or Borrower's opening or closing of any other place of business;
6.1.5 Corporate Existence. Maintain its corporate existence and its
-------------------
qualification to do business and good standing in all states necessary for the
conduct of its business and the ownership of its property and maintain adequate
assets, licenses, patents, copyrights, trademarks and trade names for the
conduct of its business;
6.1.6 Labor Disputes. Promptly notify FINOVA in writing of any labor
--------------
dispute to which Borrower is or may become subject and the expiration of any
labor contract to which Borrower is a party or bound;
6.1.7 Violations of Law. Promptly notify FINOVA in writing of any
-----------------
violation of any law, statute, regulation or ordinance of any governmental
entity, or of any agency
thereof, applicable to Borrower which may materially and adversely affect the
Collateral or Borrower's business, assets, prospects, operations or condition,
financial or otherwise;
6.1.8 Defaults. Notify FINOVA in writing within five (5) Business Days
--------
of Borrower's default under any note, indenture, loan agreement, mortgage, lease
or other agreement to which Borrower is a party or by which Borrower is bound,
or of any other default under any Indebtedness of Borrower to the extent that
any such default has a material adverse affect on Borrower or the Collateral;
6.1.9 Capital Expenditures. Promptly notify FINOVA in writing of the
--------------------
making of any Capital Expenditure materially affecting Borrower's business,
assets, prospects, operations or condition, financial or otherwise, except to
the extent permitted in the Schedule;
6.1.10 Books and Records. Keep adequate records and books of account
-----------------
with respect to its business activities in which proper entries are made in
accordance with GAAP, reflecting all of its financial transactions;
6.1.11 Leases; Warehouse Agreements. Provide FINOVA with (i) copies of
----------------------------
all agreements between Borrower and any landlord, warehouseman or bailee which
owns any premises at which any Collateral may, from time to time, be located
(whether for processing, storage or otherwise), and (ii) without limiting the
landlord, bailee and/or mortgagee waivers to be provided pursuant to Section
4.1(j) hereof, additional landlord, bailee and/or mortgagee waivers in form
acceptable to FINOVA with respect to all locations where any Collateral is
hereafter located;
6.1.12 Additional Documents. At FINOVA's request, promptly execute or
--------------------
cause to be
17
executed and delivered to FINOVA any and all documents, instruments
or agreements deemed reasonably necessary by FINOVA to facilitate the collection
of the Obligations or the Collateral or otherwise to give effect to or carry out
the terms or intent of this Agreement or any of the other Loan Documents.
Without limiting the generality of the foregoing, if any of the Receivables with
a face value in excess of $1,000 arises out of a contract with the United States
of America or any department, agency, subdivision or instrumentality thereof,
Borrower shall promptly notify FINOVA of such fact in writing and shall execute
any instruments and take any other action required or requested by FINOVA to
comply with the provisions of the Federal Assignment of Claims Act; and
6.1.13 Financial Covenants. Comply with the financial covenants set
-------------------
forth on the Schedule.
6.1.14 Year 2000 Covenants. Borrower shall take all action necessary to
-------------------
assure that there will be no material adverse change to Borrower's business by
reason of the advent of the year 2000, including without limitation that all
computer-based systems, embedded microchips and other processing capabilities
effectively recognize and process dates after April 1, 1999. At FINOVA's
request, Borrower shall provide to FINOVA assurance reasonably acceptable to
FINOVA that Borrower's computer-based systems, embedded microchips and other
processing capabilities are year 2000 compatible.
6.2 Negative Covenants. Without FINOVA's prior written consent, which
-------------------
consent FINOVA may withhold in its sole discretion, so long as any Obligation
remains outstanding and this Agreement is in effect, Borrower shall not:
6.2.1 Mergers. Merge or consolidate with or acquire any other Person, or
-------
make any other material change in its capital structure or in its business or
operations which might adversely affect the repayment of the Obligations;
6.2.2 Loans. Make advances, loans or extensions of credit to, or invest
-----
in, any Person, except for loans or cash advances to employees which are
permitted in the Schedule;
6.2.3 Dividends. Declare or pay cash dividends upon any of its stock or
---------
distribute any of its property or redeem, retire, purchase or acquire directly
or indirectly any of its stock;
6.2.4 Adverse Transactions. Enter into any transaction which materially
--------------------
and adversely affects the Collateral or its ability to repay the Obligations in
full as and when due;
6.2.5 Indebtedness of Others. Guarantee or become directly or
----------------------
contingently liable for the Indebtedness of any Person, except by endorsement of
instruments for deposit and except for the existing guarantees made by Borrower
prior to the date hereof, if any, which are set forth in the Schedule;
6.2.6 Repurchase. Make a sale to any customer on a ▇▇▇▇-and-hold,
----------
guaranteed sale, sale and return, sale on approval, consignment, or any other
repurchase or return basis;
6.2.7 Name. Use any corporate or fictitious name other than its
----
corporate name as set forth in its Articles or Certificate of Incorporation on
the date hereof or as set forth on the Schedule;
6.2.8 Prepayment. Prepay any Indebtedness other than trade payables and
----------
other than the Obligations;
6.2.9 Capital Expenditure. Make or incur any Capital Expenditure if,
-------------------
after giving effect thereto, the aggregate amount of all Capital Expenditures by
Borrower in any fiscal year would exceed the amount set forth on the Schedule;
6.2.10 Compensation. Pay total compensation, including salaries,
------------
withdrawals, fees, bonuses, commissions, drawing accounts and other payments,
whether directly or indirectly, in money or otherwise, during any fiscal year to
all of Borrower's executives, officers and directors (or any relative thereof)
in an amount in excess of the amount set forth on the Schedule;
6.2.11 Indebtedness. Create, incur, assume or permit to exist any
------------
Indebtedness (including Indebtedness in connection with Capital Leases) in
excess of the amount set forth on the Schedule, other than (i) the Obligations,
(ii) trade payables and other contractual obligations to suppliers and customers
incurred in the ordinary course of business, and (iii) other Indebtedness
existing on the date of this Agreement and reflected in the Prepared Financials
(except Indebtedness paid on the date of this Agreement from proceeds of the
initial advances hereunder), and (iv) Subordinated Debt;
6.2.12 Affiliate Transactions. Except as set forth below, sell,
----------------------
transfer, distribute or pay any money or property to any Affiliate, or invest in
(by capital contribution or otherwise) or purchase or repurchase any stock or
Indebtedness, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligations of any Affiliate.
Notwithstanding the foregoing, Borrower may
18
pay compensation permitted by Section 6.23 to employees who are Affiliates and,
if no Event of Default has occurred, Borrower may (i) engage in transactions
with Affiliates in the normal course of business, in amounts and upon terms
which are fully disclosed to FINOVA and which are no less favorable to Borrower
than would be obtainable in a comparable arm's length transaction with a Person
who is not an Affiliate, and (ii) make payments to a Subordinating Creditor that
is an Affiliate, subject to and only to the extent expressly permitted in the
Subordination Agreement between such Subordinating Creditor and FINOVA;
6.2.13 Nature of Business. Enter into any new business or make any
------------------
material change in any of Borrower's business objectives, purposes or
operations;
6.2.14 FINOVA's Name. Use the name of FINOVA in connection with any of
-------------
Borrower's business or activities, except in connection with internal business
matters or as required in dealings with governmental agencies and financial
institutions or with trade creditors of Borrower, solely for credit reference
purposes; or
6.2.15 Margin Security. Borrower will not (and has not in the
----------------
past) engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G or Regulation U issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any Loan or other
advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock, or in any
manner which might cause such Loan or other advance or the application of such
proceeds to violate (or require any regulatory filing under) Regulation G,
Regulation T, Regulation U, Regulation X or any other regulation of the Board of
Governors of the Federal Reserve System, in each case as in effect on the date
or dates of such Loan or other advance and such use of proceeds. Further, no
proceeds of any Loan or other advance will be used to acquire any security of a
class which is registered pursuant to Section 12 of the Securities Exchange Act
of 1934.
6.2.16 Real Property. Purchase or acquire any real property without
-------------
FINOVA's prior written consent, a condition of which consent shall include
delivery of appropriate environmental reports and analysis, in form and
substance satisfactory to FINOVA and its counsel.
7. DEFAULT AND REMEDIES.
7.1 Events of Default. Any one or more of the following events shall
-----------------
constitute an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(b) Borrower or any other Loan Party fails or neglects to perform, keep,
or observe any Obligation including, but not limited to, any term, provision,
condition, covenant or agreement contained in any Loan Document to which
Borrower or such other Loan Party is a party;
(c) Any material adverse change occurs in Borrower's business, assets,
operations, prospects or condition, financial or otherwise;
(d) The prospect of repayment of any portion of the Obligations or the
value or priority of FINOVA's security interest in the Collateral is materially
impaired;
(e) Any portion of Borrower's assets is seized, attached, subjected to a
writ or distress warrant, is levied upon or comes into the possession of any
judicial officer;
(f) Borrower shall generally not pay its debts as they become due or shall
enter into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Borrower;
(g) Any bankruptcy or other insolvency proceeding is commenced by
Borrower, or any such proceeding is commenced against Borrower and remains
undischarged or unstayed for forty-five (45) days;
(h) Any notice of lien, levy or assessment is filed of record with respect
to any of Borrower's assets exceeding $100,000;
(i) Any judgments are entered against Borrower in an aggregate amount
exceeding $100,000 in any fiscal year;
(j) Any default shall occur under (i) any material agreement between
Borrower and any third party including, without limitation, any default which
would result in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party, or (ii) any Subordinated Debt;
19
(k) Any representation or warranty made or deemed to be made by Borrower,
any Affiliate or any other Loan Party in any Loan Document or any other
statement, document or report made or delivered to FINOVA in connection
therewith shall prove to have been misleading in any material respect;
(l) [Intentionally deleted.]
(m) Any Prohibited Transaction or Reportable Event shall occur with
respect to a Plan which could have a material adverse effect on the financial
condition of Borrower; any lien upon the assets of Borrower in connection with
any Plan shall arise; Borrower or any of its ERISA Affiliates shall fail to make
full payment when due of all amounts which Borrower or any of its ERISA
Affiliates may be required to pay to any Plan or any Multiemployer Plan as one
or more contributions thereto; Borrower or any of its ERISA Affiliates creates
or permits the creation of any accumulated funding deficiency, whether or not
waived; or
(n) Any transfer of more than fifteen percent (15%) of the issued and
outstanding shares of common stock or other evidence of ownership of Borrower.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, FINOVA RESERVES THE RIGHT
TO CEASE MAKING ANY LOANS DURING ANY CURE PERIOD STATED ABOVE, AND THEREAFTER IF
AN EVENT OF DEFAULT HAS OCCURRED.
7.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may, at
--------
its option and in its sole discretion and in addition to all of its other rights
under the Loan Documents, cease making Loans, terminate this Agreement and/or
declare all of the Obligations to be immediately payable in full. Borrower
agrees that FINOVA shall also have all of its rights and remedies under
applicable law, including, without limitation, the default rights and remedies
of a secured party under the Code, and upon the occurrence of an Event of
Default Borrower hereby consents to the appointment of a receiver by FINOVA in
any action initiated by FINOVA pursuant to this Agreement and to the
jurisdiction and venue set forth in Section 9.25 hereof, and Borrower waives
notice and posting of a bond in connection therewith. Further, FINOVA may, at
any time, take possession of the Collateral and keep it on Borrower's premises,
at no cost to FINOVA, or remove any part of it to such other place(s) as FINOVA
may desire, or Borrower shall, upon FINOVA's demand, at Borrower's sole cost,
assemble the Collateral and make it available to FINOVA at a place reasonably
convenient to FINOVA. FINOVA may sell and deliver any Collateral at public or
private sales, for cash, upon credit or otherwise, at such prices and upon such
terms as FINOVA deems advisable, at FINOVA's discretion, and may, if FINOVA
deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Borrower agrees that FINOVA has no
obligation to preserve rights to the Collateral or ▇▇▇▇▇▇▇▇ any Collateral for
the benefit of any Person. FINOVA is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks and advertising matter, or any similar
property, in completing production, advertising or selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
FINOVA's benefit. Any requirement of reasonable notice shall be met if such
notice is mailed postage prepaid to Borrower at its address set forth in the
heading to this Agreement at least five (5) days before sale or other
disposition. The proceeds of sale shall be applied, first, to all attorneys
fees and other expenses of sale, and second, to the Obligations in such order as
FINOVA shall elect, in its sole discretion. FINOVA shall return any excess to
Borrower and Borrower shall remain liable for any deficiency to the fullest
extent permitted by law.
7.3 Standards for Determining Commercial Reasonableness. Borrower and
---------------------------------------------------
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially reasonable
(but other conduct by FINOVA, including, but not limited to, FINOVA's use in its
sole discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition: (i) as to which on no later than the fifth
calendar day prior thereto written notice thereof is mailed or personally
delivered to Borrower and, with respect to any public disposition, on no later
than the fifth calendar day prior thereto notice thereof describing in general
non-specific terms, the Collateral to be disposed of is published once in a
newspaper of general circulation in the county where the sale is to be conducted
(provided that no notice of any public or private disposition need be given to
the Borrower or published if the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market); (ii) which is conducted at any place designated by FINOVA, with or
without the Collateral being present; and (iii) which commences at any time
between 8:00 a.m. and 5:00 p.m. Without
20
limiting the generality of the foregoing, Borrower expressly agrees that, with
respect to any disposition of accounts, instruments and general intangibles, it
shall be commercially reasonable for FINOVA to direct any prospective purchaser
thereof to ascertain directly from Borrower any and all information concerning
the same, including, but not limited to, the terms of payment, aging and
delinquency, if any, the financial condition of any obligor or account debtor
thereon or guarantor thereof, and any collateral therefor.
8. EXPENSES AND INDEMNITIES
8.1 Expenses. Borrower covenants that, so long as any Obligation remains
--------
outstanding and this Agreement remains in effect, it shall promptly reimburse
FINOVA for all costs, fees and expenses incurred by FINOVA in connection with
the negotiation, preparation, execution, delivery, administration and
enforcement of each of the Loan Documents, including, but not limited to, the
attorneys' and paralegals' fees of in-house and outside counsel, expert witness
fees, lien, title search and insurance fees, appraisal fees, all charges and
expenses incurred in connection with any and all environmental reports and
environmental remediation activities, and all other costs, expenses, taxes and
filing or recording fees payable in connection with the transactions
contemplated by this Agreement, including without limitation all such costs,
fees and expenses as FINOVA shall incur or for which FINOVA shall become
obligated in connection with (i) any inspection or verification of the
Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and FINOVA's
security interest therein, including, without limitation, the defense or
prosecution of any action involving FINOVA and Borrower or any third party, (iv)
enforcement of any of FINOVA's rights and remedies with respect to the
Obligations or Collateral and (v) consultation with FINOVA's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed or the
issues are peculiar to federal bankruptcy or state insolvency laws. Borrower
shall also pay all FINOVA charges in connection with bank wire transfers,
forwarding of loan proceeds, deposits of checks and other items of payment,
returned checks, establishment and maintenance of lockboxes and other Blocked
Accounts, and all other bank and administrative matters, in accordance with
FINOVA's schedule of bank and administrative fees and charges in effect from
time to time.
8.2 Environmental Matters.
----------------------
The Environmental Certificate dated on or about the date of this Agreement
is incorporated herein for all purposes as if fully stated in this Agreement.
9. MISCELLANEOUS.
9.1 Examination of Records; Financial Reporting.
-------------------------------------------
(a) Examinations. FINOVA shall at all reasonable times have full access
------------
to and the right to examine, audit, make abstracts and copies from and inspect
Borrower's records, files, books of account and all other documents, instruments
and agreements relating to the Collateral and the right to check, test and
appraise the Collateral. Borrower shall deliver to FINOVA any instrument
necessary for FINOVA to obtain records from any service bureau maintaining
records for Borrower. All instruments and certificates prepared by Borrower
showing the value of any of the Collateral shall be accompanied, upon FINOVA's
request, by copies of related purchase orders and invoices. FINOVA may, at any
time after the occurrence of an Event of Default, remove from Borrower's
premises Borrower's books and records (or copies thereof) or require Borrower to
deliver such books and records or copies to FINOVA. FINOVA may, without expense
to FINOVA, use such of Borrower's personnel, supplies and premises as may be
reasonably necessary for maintaining or enforcing FINOVA's security interest.
(b) Reporting Requirements. Borrower shall furnish FINOVA, upon request,
----------------------
such information and statements as FINOVA shall request from time to time
regarding Borrower's business affairs, financial condition and the results of
its operations. Without limiting the generality of the foregoing, Borrower
shall provide FINOVA with: (i) FINOVA's standard form collateral and loan
report, each business day, and upon FINOVA's request, copies of sales journals,
cash receipt journals, and deposit slips; (ii) upon FINOVA's request, copies of
sales invoices, customer statements and credit memoranda issued, remittance
advices and reports; (iii) copies of shipping and delivery documents, upon
request; (iv) on or prior to the date set forth on the Schedule, monthly agings
(aged from invoice date) and reconciliations of Receivables (with listings of
concentrated accounts), payables reports, machinery and equipment reports,
compliance certificates and unaudited financial statements with respect to the
prior month prepared on a basis consistent with such statements prepared in
prior months and otherwise in accordance with GAAP; (v) audited annual
consolidated and consolidating financial statements, prepared in accordance with
GAAP applied on a basis consistent with the most recent Prepared Financials
provided to FINOVA by Borrower, including balance sheets, income
21
and cash flow statements, accompanied by the unqualified report thereon of
independent certified public accountants acceptable to FINOVA, as soon as
available, and in any event, within one hundred twenty (120) days after the end
of each of Borrower's fiscal years; and (vi) such certificates relating to the
foregoing as FINOVA may request, including, without limitation, a monthly
certificate from the president and the chief financial officer of Borrower
showing Borrower's compliance with each of the financial covenants set forth in
this Agreement, and stating whether any Event of Default has occurred or event
which, with giving of notice or the passage of time, or both, would constitute
an Event of Default, and if so, the steps being taken to prevent or cure such
Event of Default. All reports or financial statements submitted by Borrower
shall be in reasonable detail and shall be certified by the principal financial
officer of Borrower as being complete and correct.
(c) Guarantor's Financial Statements and Tax Returns. [Intentionally
------------------------------------------------
deleted.]
9.2 Term; Termination.
-----------------
(a) Term. The Initial Term of the Revolving Credit Loans facility and the
----
obligation of FINOVA to made advances with respect thereto in accordance with
this Agreement shall be as set forth on the Schedule, and the Revolving Credit
Loans facility and this Agreement shall be automatically renewed for one or more
Renewal Term(s) as set forth in the Schedule, unless earlier terminated as
provided herein.
(b) Prior Notice. Each party shall have the right to terminate this
------------
Agreement effective at the end of the Initial Term or at the end of any Renewal
Term by giving the other party written notice not less than sixty (60) days
prior to the effective date of such termination, by registered or certified
mail.
(c) Payment in Full. Upon the effective date of termination, the
---------------
Obligations shall become immediately due and payable in full in cash.
(d) Early Termination; Termination Fee. In addition to the procedure set
----------------------------------
forth in Section 9.2(b), Borrower may terminate this Agreement at any time but
only upon sixty (60) days' prior written notice and prepayment of the
Obligations. Upon any such early termination by Borrower or any termination of
this Agreement by FINOVA upon the occurrence of an Event of Default, then, and
in any such event, Borrower shall pay to FINOVA upon the effective date of such
termination a fee (the "Termination Fee") in an amount equal to the amount shown
---------------
on the Schedule.
9.3 Recourse to Security; Certain Waivers. All Obligations shall be
-------------------------------------
payable by Borrower as provided for herein and, in full, at the termination of
this Agreement; recourse to security shall not be required at any time.
Borrower waives presentment and protest of any instrument and notice thereof,
notice of default and, to the extent permitted by applicable law, all other
notices to which Borrower might otherwise be entitled.
9.4 No Waiver by FINOVA. Neither FINOVA's failure to exercise any right,
-------------------
remedy or option under this Agreement, any supplement, the Loan Documents or
other agreement between FINOVA and Borrower nor any delay by FINOVA in
exercising the same shall operate as a waiver. No waiver by FINOVA shall be
effective unless in writing and then only to the extent stated. No waiver by
FINOVA shall affect its right to require strict performance of this Agreement.
FINOVA's rights and remedies shall be cumulative and not exclusive.
9.5 Binding on Successor and Assigns. All terms, conditions, promises,
--------------------------------
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and Borrower's respective representatives, successors and assigns.
9.6 Severability. If any provision of this Agreement shall be prohibited
------------
or invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
9.7 Amendments; Assignments. This Agreement may not be modified, altered
-----------------------
or amended, except by an agreement in writing signed by Borrower and FINOVA.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to FINOVA's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, FINOVA's rights, title, interests,
remedies, powers and duties hereunder or thereunder. In connection therewith,
FINOVA may disclose all documents and information which FINOVA now or hereafter
may have relating to Borrower or Borrower's business. To the extent that FINOVA
assigns its rights and obligations hereunder to a third party, FINOVA shall
thereafter be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third party.
9.8 Integration. This Agreement, together with the Schedule (which is a
-----------
part hereof) and the other Loan Documents, reflect the entire understanding of
the
22
parties with respect to the transactions contemplated hereby.
9.9 Survival. All of the representations and warranties of Borrower
--------
contained in this Agreement shall survive the execution, delivery and acceptance
of this Agreement by the parties. No termination of this Agreement or of any
guaranty of the Obligations shall affect or impair the powers, obligations,
duties, rights, representations, warranties or liabilities of the parties hereto
and all shall survive such termination.
9.10 Evidence of Obligations. Each Obligation may, in FINOVA's
-----------------------
discretion, be evidenced by notes or other instruments issued or made by
Borrower to FINOVA. If not so evidenced, such Obligation shall be evidenced
solely by entries upon FINOVA's books and records.
9.11 Loan Requests. Each oral or written request for a loan by any Person
-------------
who purports to be any employee, officer or authorized agent of Borrower shall
be made to FINOVA on or prior to 11:00 a.m., Pacific time, on the Business Day
on which the proceeds thereof are requested to be paid to Borrower and shall be
conclusively presumed to be made by a Person authorized by Borrower to do so and
the crediting of a loan to Borrower's operating account shall conclusively
establish Borrower's obligation to repay such loan. Unless and until Borrower
otherwise directs FINOVA in writing, all loans shall be wired to Borrower's
operating account set forth on the Schedule.
9.12 Notices. Any notice required hereunder shall be in writing and
-------
addressed to the Borrower and FINOVA at their addresses set forth at the
beginning of this Agreement. Notices hereunder shall be deemed received on the
earlier of receipt, whether by mail, personal delivery, facsimile, or otherwise,
or upon deposit in the United States mail, postage prepaid.
9.13 Brokerage Fees. Borrower represents and warrants to FINOVA that,
--------------
with respect to the financing transaction herein contemplated, no Person is
entitled to any brokerage fee or other commission and Borrower agrees to
indemnify and hold FINOVA harmless against any and all such claims.
9.14 Disclosure. No representation or warranty made by Borrower in this
----------
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to FINOVA in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
9.15 Publicity. FINOVA is hereby authorized to issue appropriate press
---------
releases and to cause a tombstone to be published announcing the consummation of
this transaction and the aggregate amount thereof.
9.16 Captions. The Section titles contained in this Agreement are without
--------
substantive meaning and are not part of this Agreement.
9.17 Injunctive Relief. Borrower recognizes that, in the event Borrower
-----------------
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
9.18 Counterparts; Facsimile Execution. This Agreement may be executed in
---------------------------------
one or more counterparts, each of which taken together shall constitute one and
the same instrument, admissible into evidence. Delivery of an executed
counterpart of this Agreement by telefacsimile shall be equally as effective as
delivery of a manually executed counterpart of this Agreement. Any party
delivering an executed counterpart of this Agreement by telefacsimile shall also
deliver a manually executed counterpart of this Agreement, but the failure to
deliver a manually executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
9.19 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
or exhibits hereto.
9.20 Time of Essence. Time is of the essence for the performance by
---------------
Borrower of the Obligations set forth in this Agreement.
9.21 Limitation of Actions. Borrower agrees that any claim or cause of
---------------------
action by Borrower against FINOVA, or any of FINOVA's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, 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
23
FINOVA, or by FINOVA's directors, officers, employees, agents, accountants or
attorneys, whether sounding in contract or in tort or otherwise, shall be barred
unless asserted by Borrower by the commencement of an action or proceeding in a
court of competent jurisdiction by the filing of a complaint within one year
after the first act, occurrence or omission upon which such claim or cause of
action, or any part thereof, is based and service of a summons and complaint on
an officer of FINOVA or any other Person authorized to accept service of process
on behalf of FINOVA, within 30 days thereafter. Borrower agrees that such one-
year period of time is a reasonable and sufficient time for 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 FINOVA. This provision shall survive any termination of
this Loan Agreement or any other agreement.
9.22 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable
---------
for any indirect, special, incidental or consequential damages in connection
with any breach of contract, tort or other wrong relating to this Agreement or
the Obligations or the establishment, administration or collection thereof
(including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of FINOVA,
or any FINOVA Affiliate. "FINOVA Affiliate" shall mean FINOVA's directors,
----------------
officers, employees, agents, attorneys or any other Person or entity affiliated
with or representing FINOVA.
9.23 Notice of Breach by FINOVA. Borrower agrees to give FINOVA written
--------------------------
notice of (i) any action or inaction by FINOVA or any attorney of FINOVA in
connection with any Loan Documents that may be actionable against FINOVA or any
attorney of FINOVA or (ii) any defense to the payment of the Obligations for any
reason, including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptly as possible (and in any event within sixty (60) days)
after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
9.24 Application of Insurance Proceeds. The net proceeds of any casualty
---------------------------------
insurance insuring the Collateral, after deducting all costs and expenses
(including attorneys fees) of collection, shall be applied, at FINOVA's option,
either toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to FINOVA, or toward payment of the Obligations. Any proceeds
applied to the payment of Obligations shall be applied in such manner as FINOVA
may elect. In no event shall such application relieve Borrower from payment in
full of all installments of principal and interest which thereafter become due
in the order of maturity thereof.
9.25 Power of Attorney. Borrower appoints FINOVA and its designees as
-----------------
Borrower's attorney, with the power to endorse Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that come
into FINOVA's possession; to sign Borrower's name on any invoice or ▇▇▇▇ of
lading relating to any Receivable, on drafts against customers, on assignments
of Receivables, on notices of assignment, financing statements and other public
records, on verifications of accounts and on notices to customers or account
debtors; to send requests for verification of Receivables to customers or
account debtors; after the occurrence of any Event of Default, to notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by FINOVA and to open and dispose of all mail addressed to
Borrower; and to do all other things FINOVA deems necessary or desirable to
carry out the terms of this Agreement. Borrower hereby ratifies and approves
all acts of such attorney. Neither FINOVA nor any of its designees shall be
liable for any acts or omissions nor for any error of judgment or mistake of
fact or law while acting as Borrower's attorney. This power, being coupled with
an interest, is irrevocable until the Obligations have been fully satisfied and
FINOVA's obligation to provide loans hereunder shall have terminated.
24
9.26 Governing Law; Waivers. THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
----------------------
ENFORCEMENT OF THE OBLIGATIONS, SHALL BE INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF ARIZONA
GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER HEREBY
CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED
WITHIN THE COUNTY OF MARICOPA IN THE STATE OF ARIZONA OR, AT THE SOLE OPTION OF
FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER FURTHER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN
SECTION 9.12 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT
IT MAY OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
9.27 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH
-------------------------------------
HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR (iii)
ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
Borrower:
UTILX Corporation, a Delaware Corporation
Fed. Tax ID # ▇▇-▇▇▇▇▇▇▇
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President
[ADD NOTARY HERE FOR BORROWER]
FINOVA:
FINOVA CAPITAL CORPORATION
By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------------------------
Title Vice President, Western Portfolio Manager
-----------------------------------------
Schedule to
Loan and Security Agreement
Borrower: UTILX Corporation
Address: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇ ▇▇▇▇▇
Date: April 20, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation dated the above date, and all
references herein and therein to "this Agreement" shall be deemed to refer to
said Agreement and to this Schedule.
================================================================================
DEFINITIONS (SECTION 1):
"Guarantor(s)" means None
------------
"Management Fees" means None
----------------
"Permitted Senior Indebtedness" means None
------------------------------
"Subordinating Creditor" means None
----------------------
================================================================================
TOTAL FACILITY (Section 2.1):
$10,000,000
________________________________________________________________________________
LOANS (Section 2.2):
Revolving Credit Loans: A revolving line of credit consisting
----------------------
of loans against Borrower's Eligible Receivables ("Receivable
----------
Loans") and against Borrower's Eligible Inventory ("Inventory
----- ---------
Loans") (the Receivable Loans and the Inventory Loans shall be
-----
collectively referred to as the "Revolving Credit Loans" in an
----------------------
aggregate outstanding principal amount not to exceed the
lesser of (a) or (b) below:
(a) Ten Million Dollars ($10,000,000) (the "Revolving
---------
Credit Limit"), less any Loan Reserves, or
------------
(b) the sum of
(i) an amount equal to (A) 85% of the net amount of
Eligible Receivables, less (B) the aggregate undrawn face
amount of all Letters of Credit issued under Section 2.4 of
this Agreement; plus
----
(ii) an amount not to exceed the lesser of:
(A) 50% of the auction value (as determined by
FINOVA's appaiser) of Borrower's Equipment, or
(B) $4,000,000; less
----
(iii) any Loan Reserves.
LETTERS OF CREDIT (Section 2.4):
The aggregate face amount of all outstanding Letters of Credit
from time to time shall not exceed $800,000, and shall be
reserved against the availability of Revolving Credit Loans
pursuant to Section 2.4 hereof. The L/C fee shall equal one
percent (1%) of the face amount of each Letter of Credit issued
and an additional one quarter percent (0.25%) of the aggregate
face amount of each Letter of Credit outstanding from time to
time during the term of this Agreement for each 30 day period or
fraction thereof. The L/C Fee shall be deemed to be fully earned
upon the issuance of each Letter of Credit and shall be due and
payable on the first Business Day of each month following a month
during which any Letter of Credit is outstanding. The amount of
Letters of Credit (including freight and duty) shall be
subtracted from the Revolving Credit Limit.
================================================================================
INTEREST AND FEES (SECTION 2.6):
Revolving Interest Rate. Borrower shall pay FINOVA interest on the
-----------------------
daily outstanding balance of Borrower's Revolving Credit Loans at a
per annum rate of 1% in excess of the rate of interest announced
publicly by Citibank, N.A., (or any successor thereto), from time to
time as its "prime rate" (the " Prime Rate") which may not be such
----------
institution's lowest rate. The interest rate chargeable hereunder in
respect of the Revolving Credit Loans (herein, the "Revolving Interest
------------------
Rate") shall be increased or decreased, as the case may be, without
----
notice or demand of any kind, upon the announcement of any change in
the Prime Rate. Each change in the Prime Rate shall be effective
hereunder on the first day following the announcement of such change.
Interest charges and all other fees and charges herein shall be
computed on the basis of a year of 360 days and actual days elapsed
and shall be payable to FINOVA in arrears on the first day of each
month.
Monthly Service Fee. Borrower shall also pay FINOVA a monthly
-------------------
service fee of $2,000 per month in advance on the first day of each
month during the term hereof. Such fee shall be prorated on the basis
of a 30 day month.
Facility Fee. Borrower shall pay to FINOVA a facility fee equal to
------------
0.50% per annum of the amount of the Total Facility ("Facility Fee").
------------
The Facility Fee shall be deemed fully earned at the time when due and
is otherwise due and payable annually, commencing upon the first
anniversary of the date of this Agreement and continuing on each
subsequent anniversary thereof.
Examination Fee. Borrower agrees to pay to FINOVA an examination fee
---------------
in the amount of $600 per person per day in connection with each audit
or examination of Borrower performed by FINOVA prior to or after the
date hereof, plus all out-of-pocket costs and expenses incurred in
connection therewith (the "Examination Fee"). Without limiting the
---------------
generality of the foregoing, Borrower shall pay to FINOVA an initial
Examination Fee in an amount equal to $600 per person per day, plus
all out-of-pocket costs and expenses incurred in connection therewith.
Such initial Examination Fee shall be deemed fully earned at the time
of payment and due and payable upon the closing of this transaction,
and shall be deducted from any good faith deposit paid by Borrower to
FINOVA prior to the date of this Agreement.
===============================================================================
NOTIFICATION OF CLOSING (SECTION 2.13):
The amount for purposes of Section 2.13 shall be computed using the
Revolving Interest Rate.
===============================================================================
CONDITIONS OF CLOSING (Section 4.1):
The obligation of FINOVA to make the initial advance hereunder or to
issue or arrange for the issuance of the initial Letter of Credit
hereunder is subject to the fulfillment, to the satisfaction of FINOVA
and its counsel, of each of the following conditions, in addition to
the conditions set forth in Sections 4.1 and 4.2 above:
(a) Lease and Landlord's Consent (Section 4.1(t)). Location(s):
----------------------------------------------
Washington, Florida, Virginia, Colorado, New Jersey, Alabama.
(b) No Material Adverse Change (Section 4.1(v)). Draft financial
-------------------------------------------
statements for Seller dated as of February 28, 1999. Further, no
material adverse change has occurred in
the Borrower's business, operations, financial condition, or assets or
in the prospect of repayment of the Obligations since February 28,
1999.
(c) Support Agreements. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------
shall each have delivered a Support Agreement in favor of FINOVA,
and in form and substance satisfactory to FINOVA.
(d) Minimum Excess Availability (Section 4.1(b)). Not less than
--------------------------------------------
$1,000,000.
Borrower shall cause the conditions precedent set forth in Section 4.1
of this Agreement and set forth above in this Schedule to be
satisfied, and shall provide evidence to FINOVA that all such
conditions precedent have been satisfied, on or before closing.
================================================================================
BORROWER INFORMATION:
Borrower's State of Incorporation (Section 5.1): Delaware
Borrower's copyrights, patents trademarks, and licenses (Section
5.5): See attached Exhibit.
---------------------
Fictitious Names/Prior Corporate Names (Section 5.2):
Prior Corporate Names: Flow, Inc., Flow Jet Corporation,
FlowMole Corporation
Fictitious Names: None
Borrower Locations (Section 5.16): See Exhibit.
Borrower's Federal Tax Identification Number (Section
5.16): ▇▇-▇▇▇▇▇▇▇
Permitted Encumbrances (Section 1.1): See Schedule 3.8
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FINANCIAL COVENANTS (SECTION 6.1.13):
Borrower shall comply with all of the following
covenants. Compliance shall be determined as of the end
of each quarter (as determined by FINOVA in its sole
discretion), except as otherwise specifically provided
below:
Current Ratio. Borrower shall maintain a ratio of Current Assets to
------------- Current Liabilities of not less than 1.0 to 1.0;
Net Worth. Borrower shall maintain Net Worth of not less than the
--------- following:
$17,950,000 from March 31, 1999 up to and through June 29, 1999;
$18,075,000 from June 30, 1999 up to and through September 29,
1999;
$18,550,000 from September 30, 1999 up to and through December
30, 1999;
$19,075,000 from December 31, 1999 up to and through March 30,
2000;
$19,090,000 from March 31, 2000 up to and through June 29, 2000;
$19,200,000 from June 30, 2000 up to and through September 29,
2000;
$19,600,000 from September 30, 2000 up to and through December
30, 2000;
$19,900,000 from December 31, 2000 up to and through March 30,
2001;
$20,000,000 from March 31, 2001 and threafter.
Total Debt Service Coverage Ratio As of the last day of each calendar
---------------------------------
quarter ended March 31, June 30, September 30 or December 31,
Borrower?s Operating Cash Flow/Actual for the consecutive 12-
month period ending as of such last day must be at least 1.0
times the amount necessary to meet Borrower?s Total Contractual
Debt Service for such 12-month period; provided however, that,
----------------
with respect to the calculations set forth herein for the fiscal
year end period March 31, 2000, Borrower?s Operating Cash
Flow/Actual and Senior Contractual Debt Service shall be
determined on a fiscal year-to-date basis; and, provided further,
----------------
that all such determinations shall be made on a consolidated
basis.
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NEGATIVE COVENANTS (SECTION 6.2):
Employee Advances: Borrower shall not make any loans or
------------------
advances to Employees except in the ordinary course of
business and consistent with past practices of Borrower in an
aggregate amount not exceeding at any time $10,000.
Existing Guaranties: None.
--------------------
Capital Expenditures: Borrower shall not make or incur
---------------------
any Capital Expenditure if, after giving effect thereto, the
aggregate amount of all unfinanced Capital Expenditures by
Borrower in any fiscal year (beginning with the March 31, 2000
fiscal year) would cause the Total Debt Service Coverage Ratio to
fall below the
required ratio and the Minimum Excess Availability to be less
than $750,000. For purposes of monitoring the foregoing
performance requirements in 1) and 2) hereof, each such
requirement shall be evaluated monthly on a fiscal year-to-date
basis. For any monthly period where either performance criteria
is not satisfied, no Capital Expenditures may be made until both
performance criteria are again satisfied.
Compensation: Borrower shall not pay total compensation,
------------
including salaries, withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, whether directly or
indirectly, in money or otherwise, during any fiscal year to all
of Borrower's executives, officers and directors (or any relative
thereof) in an amount in excess of 115% of such total
compensation paid in the immediately preceding fiscal year;
provided, however, that Borrower may pay bonuses not to exceed
$100,000 in the aggregate per $500,000 increment of Net Income in
each fiscal year.
Indebtedness: Borrower shall not create, incur, assume or
------------
permit to exist any Indebtedness (including in connection with
Capital Leases) in excess of $1,000,000 other than (i) the
Obligations, (ii) accrued liabilities, trade payables and other
contractual obligations to suppliers and customers incurred in
the ordinary course of business and (iii) other Indebtedness
existing on the date of this Agreement (other than Indebtedness
paid on the date of this Agreement from proceeds of the initial
advances
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REPORTING REQUIREMENTS (SECTION 9.1):
1. Borrower shall provide FINOVA with monthly agings aged by invoice
date and reconciliations of Receivables within ten (10) days
after the end of each month.
2. Borrower shall provide FINOVA with monthly accounts payable
agings aged by invoice date, outstanding or held check registers
and inventory certificates within ten (10) days after the end of
each month.
3. Borrower shall provide FINOVA with monthly reports for Borrower?s
Equipment indicating the gross value thereof (before
depreciation) or such other reports as are reasonably requested
by FINOVA, all within ten (10) days after the end of each month.
4. Borrower shall provide FINOVA with monthly unaudited financial
statements within thirty (30) days after the end of each month.
5. Borrower shall provide FINOVA with audited consolidated and
consolidating fiscal financial statements within one hundred
twenty (120) days after the end of each fiscal year, as more
specifically described in Section 9.1(b) hereof, and with an
opinion issued by a Certified Public Accountant which is
acceptable to FINOVA.
6. Borrower shall provide FINOVA with annual operating budgets
(including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrower
within thirty (30) days prior to the end of each fiscal year of
Borrower.
7. Borrower's balance sheets for purposes of the definition of
Prepared Financials shall be as of the most recent date available
subject to FINOVA approval.
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TERM (Section 9.2):
The initial term of this Agreement shall be two year(s) from
the date hereof (the "Initial Term") and shall be
------------
automatically renewed for successive periods of one (1) year
each (each, a "Renewal Term"), unless earlier terminated as
------------
provided in Section 7 or 9.2 above or elsewhere in this
Agreement.
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TERMINATION FEE (Section 9.2):
(A) Revolving Credit Loans Facility. The Termination Fee
-------------------------------
applicable to the Revolving Credit Loans facility provided
for in Section 9.2(d) shall be an amount equal to the
following percentage of the Revolving Credit Limit:
(i) three percent (3%), if such early termination occurs on
or prior to the first anniversary of the date of this
Agreement;
(ii) two percent (2%), if such early termination occurs
after the first anniversary of the date of this Agreement.
No Termination Fee shall be due, if after the first
anniversary date of this Agreement, Borrower pays all of the
Obligations in full from the proceeds of a conventional loan
from a federally insured U.S. Commercial Bank.
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DISBURSEMENT (Section 9.11):
Unless and until Borrower otherwise directs FINOVA in
writing, all loans shall be wired to Borrower's operating
account: as designated in writing to FINOVA.
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ADDITIONAL PROVISIONS:
Within ninety (90) days of the date of this Agreement,
Borrower shall, at FINOVA?s request execute and deliver to
FINOVA or otherwise provide such additional UCC-1 Financing
Statements, Landlord Waivers, vehicle certificates of title,
and additional documents to be filed with the United States
Patent and Trademark Office, as may be required in FINOVA?s
sole discretion.
Borrower: FINOVA:
UTILX Corporation, a Delaware corporation FINOVA CAPITAL
Corporation
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------- ------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, President Title: Vice President, Western Portfolio Manager
[Add Notary Provision for Borrower]