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Exhibit 10.8
LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION (WESTERN)
as Lender
and
C.Y. INVESTMENT INC.
as Borrower
SECTION 1. DEFINITIONS................................................................................1
1.1 "Accounts".....................................................................................2
1.2 "Adjusted Net Worth"...........................................................................2
1.3 "Availability Reserves"........................................................................2
1.4 "Blocked Accounts".............................................................................3
1.5 "Business Day".................................................................................3
1.6 "Buyer"........................................................................................3
1.7 "Code".........................................................................................3
1.8 "Collateral"...................................................................................3
1.9 "Eligible Accounts"............................................................................3
1.10 "Eligible Inventory"...........................................................................5
1.11 "Environmental Laws"...........................................................................6
1.12 "Equipment"....................................................................................6
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1.13 "ERISA"........................................................................................6
1.14 "ERISA Affiliate"..............................................................................7
1.15 "Event of Default".............................................................................7
1.16 "Excess Availability"..........................................................................7
1.17 "Financing Agreements".........................................................................8
1.18 "GAAP".........................................................................................8
1.19 "Hazardous Materials"..........................................................................8
1.20 "Information Certificate"......................................................................8
1.21 "Inventory"....................................................................................9
1.22 "Inventory Advance Rate".......................................................................9
1.23 "Letter of Credit Accommodations"..............................................................9
1.24 "Loans"........................................................................................9
1.25 "Maximum Credit"...............................................................................9
1.26 "NationsCredit"................................................................................9
1.27 "NationsCredit Flooring Line"..................................................................9
1.28 "NationsCredit Intercreditor Agreement"........................................................9
1.29 "Net Amount of Eligible Accounts"..............................................................9
1.30 "Obligations"..................................................................................9
1.31 "Obligor".....................................................................................10
1.32 "Participant".................................................................................10
1.33 "Payment Account".............................................................................10
1.34 "Person"......................................................................................10
1.35 "Prime Rate"..................................................................................10
1.36 "Purchase Agreements".........................................................................10
1.37 "Purchased Stock".............................................................................10
1.38 "▇▇▇▇▇▇▇▇"....................................................................................10
1.39 "Records".....................................................................................10
1.40 "Renewal Date"................................................................................10
1.41 "Revolving Loans".............................................................................11
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1.42 "Seller"......................................................................................11
1.43 "Value".......................................................................................11
1.44 "Wareforce"...................................................................................11
1.45 "Wareforce Loan Agreement"....................................................................11
SECTION 2. CREDIT FACILITIES.........................................................................11
2.1 Revolving Loans...............................................................................11
2.2 Letter of Credit Accommodations...............................................................13
SECTION 3. INTEREST AND FEES.........................................................................16
3.1 Interest......................................................................................16
3.2 Closing Fee...................................................................................17
3.3 Compensation Adjustment.......................................................................17
SECTION 4. CONDITIONS PRECEDENT......................................................................18
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations.....................18
4.2 Conditions Subsequent to Initial Loans and Letter of Credit Accommodations....................21
4.3 Conditions Precedent to All Loans and Letter of Credit Accommodations.........................22
SECTION 5. GRANT OF SECURITY INTEREST................................................................22
SECTION 6. COLLECTION AND ADMINISTRATION.............................................................23
6.1 Borrower's Loan Account.......................................................................23
6.2 Statements....................................................................................23
6.3 Collection of Accounts........................................................................23
6.4 Payments......................................................................................25
6.5 Authorization to Make Loans...................................................................25
6.6 Payments on NationsCredit Flooring Line.......................................................25
6.7 Use of Proceeds...............................................................................25
SECTION 7. COLLATERAL REPORTING AND COVENANTS........................................................26
7.1 Collateral Reporting..........................................................................26
7.2 Accounts Covenants............................................................................27
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7.3 Inventory Covenants...........................................................................29
7.4 Equipment Covenants...........................................................................30
7.5 Power of Attorney.............................................................................31
7.6 Right to Cure.................................................................................32
7.7 Access to Premises............................................................................32
SECTION 8. REPRESENTATIONS AND WARRANTIES............................................................33
8.1 Corporate Existence, Power and Authority; Subsidiaries........................................33
8.2 Financial Statements; No Material Adverse Change..............................................33
8.3 Chief Executive Office; Collateral Locations..................................................33
8.4 Priority of Liens; Title to Properties........................................................34
8.5 Tax Returns...................................................................................34
8.6 Litigation....................................................................................34
8.7 Employee Benefits.............................................................................34
8.8 Environmental Compliance......................................................................35
8.9 Compliance with Other Agreements and Applicable Laws..........................................36
8.10 Bank Accounts.................................................................................36
8.13 Accuracy and Completeness of Information......................................................37
8.14 Survival of Warranties; Cumulative............................................................37
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS........................................................37
9.1 Maintenance of Existence......................................................................37
9.2 New Collateral Locations......................................................................38
9.3 Compliance with Laws, Regulations, Etc........................................................38
9.4 Payment of Taxes and Claims...................................................................39
9.5 Insurance.....................................................................................39
9.6 Key Man Life Insurance Policy.................................................................40
9.7 Financial Statements and Other Information....................................................40
9.8 Sale of Assets, Consolidation, Merger, Dissolution, Etc.......................................41
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9.9 Encumbrances..................................................................................41
9.10 Indebtedness..................................................................................42
9.11 Loans, Investments, Guarantees, Etc...........................................................43
9.12 Dividends and Redemptions.....................................................................44
9.13 Transactions with Affiliates..................................................................44
9.14 Additional Bank Accounts......................................................................44
9.15 Compliance with ERISA.........................................................................45
9.16 Adjusted Net Worth............................................................................45
9.17 Costs and Expenses............................................................................45
9.18 Further Assurances............................................................................46
SECTION 10. EVENTS OF DEFAULT AND REMEDIES............................................................47
10.1 Events of Default.............................................................................47
10.2 Remedies......................................................................................48
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.............................50
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.........................50
11.2 Waiver of Notices.............................................................................51
11.3 Amendments and Waivers........................................................................52
11.4 Waiver of Counterclaims.......................................................................52
11.5 Indemnification...............................................................................52
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS..........................................................52
12.1 Term..........................................................................................52
12.2 Notices.......................................................................................54
12.3 Partial Invalidity............................................................................54
12.4 Successors....................................................................................54
12.5 Entire Agreement..............................................................................54
12.6 Publicity.....................................................................................54
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August 27, 1998
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated August 27, 1998 is entered into
by and between CONGRESS FINANCIAL CORPORATION (WESTERN), a California
corporation ("Lender") and C.Y. INVESTMENT INC., a California corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Wareforce One, Inc., a Nevada corporation ("Buyer"), has
acquired or will acquire all the issued and outstanding capital stock of
Borrower and Wareforce Incorporated, a California corporation ("Wareforce"); and
WHEREAS, Borrower and Wareforce have requested that Lender enter into
certain financing arrangements with Borrower and Wareforce pursuant to which
Lender may make loans and provide other financial accommodations to Borrower and
Wareforce; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations to Wareforce on the terms and conditions set forth in
that certain Loan and Security Agreement to be entered into between Lender and
Wareforce concurrently with the execution hereof (the "Wareforce Loan
Agreement"); and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations to Borrower on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
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SECTION 1 DEFINITIONS.
All terms used herein which are defined in Article 1 or Article 9 of
the California Uniform Commercial Code shall have the respective meanings given
therein unless otherwise defined in this Agreement. All references to the plural
herein shall also mean the singular and to the singular shall also mean the
plural. All references to Borrower and Lender pursuant to the definitions set
forth in the recitals hereto, or to any other person herein, shall include their
respective successors and assigns. The words "hereof", "herein", "hereunder",
"this Agreement" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not any particular provision of this
Agreement and as this Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced. An Event of
Default shall exist or continue or be continuing until such Event of Default is
waived in accordance with Section 11.3. Any accounting term used herein unless
otherwise defined in this Agreement shall have the meaning customarily given to
such term in accordance with GAAP. For purposes of this Agreement, the following
terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below), on a
consolidated basis for such Person and its subsidiaries (if any), the amount
equal to the sum of:
(a) the difference between:
(i) the aggregate net book value of all assets of such
Person and its subsidiaries, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after
deducting from such book values all appropriate reserves in
accordance with GAAP (including all reserves for doubtful
receivables, obsolescence, depreciation and amortization), less
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(ii) the aggregate amount of the indebtedness and
other liabilities of such Person and its subsidiaries (including
tax and other proper accruals); plus
(b) indebtedness of such Person and its subsidiaries which is
subordinated in right of payment to the full and final payment of all of the
Obligations on terms and conditions acceptable to Lender.
1.3 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans and Letter of Credit
Accommodations which would otherwise be available to Borrower under the lending
formula(s) provided for herein:
(a) to reflect events, conditions, contingencies or risks which, as
determined by Lender 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 Obligor, or
(iii) the security interests and other rights of
Lender in the Collateral (including the enforceability, perfection
and priority thereof);
(b) to reflect Lender's good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any
Obligor to Lender is or may have been incomplete, inaccurate or misleading in
any material respect;
(c) to reflect outstanding Letter of Credit Accommodations as
provided in Section 2.2 hereof;
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(d) to reflect amounts due to NationsCredit by Borrower or Lender
on behalf of Borrower;
(e) to reflect any disclosed offsets or chargebacks by account
debtors against the aggregate amount of Eligible Accounts; or
(f) in respect of any state of facts which Lender determines in
good faith constitutes an Event of Default or may, with notice or passage of
time or both, constitute an Event of Default.
Without limiting the generality of the foregoing, Lender shall establish an
Availability Reserve: (i) in an amount equal to the Accounts resulting from
maintenance services until such time that Borrower has provided Lender the
schedule of Accounts required pursuant to Section 4.2(b) hereof; and (ii) in an
amount equal to three (3) months of Borrower's gross rent and other obligations
as lessee for each leased premises of Borrower at which any Inventory is located
and with respect to which the landlord has not executed a form of waiver and
consent acceptable to Lender.
1.4 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.5 "Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the State of North Carolina, and a day on
which First Union National Bank or such other bank as Lender may from time to
time designate, and Lender are open for the transaction of business.
1.6 "Buyer" shall have the meaning set forth in the Recitals hereto.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
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1.8 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.9 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than sixty (60) days after
the date of the original due date thereof, but in any event, which are unpaid
more than ninety (90) days after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained in
Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent; (e) the chief
executive office of the account debtor with respect to such Accounts is located
in the United States of America or Canada, or, at Lender's option, if either:
(i) the account debtor has delivered to Borrower an
irrevocable letter of credit issued by a bank satisfactory to
Lender or confirmed by a bank satisfactory to Lender located in the
United States and payable only in the United States of America and
in U.S. dollars, sufficient to cover such Account, in form and
substance satisfactory to Lender and, if required by Lender, the
original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of
the proceeds of such letter of credit to Lender,
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(ii) such Account is subject to credit insurance
payable to Lender issued by an insurer and on terms and in an
amount acceptable to Lender, or
(iii) such Account is otherwise acceptable in all
respects to Lender (subject to such lending formula with respect
thereto as Lender may determine);
(f) such Accounts do not consist of progress ▇▇▇▇▇▇▇▇, maintenance
▇▇▇▇▇▇▇▇, ▇▇▇▇ and hold invoices or retainage invoices, except as to ▇▇▇▇ and
hold invoices, if Lender shall have received an agreement in writing from the
account debtor, in form and substance satisfactory to Lender, confirming the
unconditional obligation of the account debtor to take the goods related thereto
and pay such invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
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(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts of a single account debtor or its affiliates do
not constitute more than twenty-five (25%) percent of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than ninety (90) days after the date of the original
invoice for them which constitute more than fifty (50%) percent of the total
Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Borrower and as approved by Lender from time to
time (but the portion of the Accounts not in excess of such credit limit may
still be deemed Eligible Accounts);
(p) such Accounts are not subject to accrued chargebacks listed on
current agings of receivables (but the portion of the Accounts of such account
debtor in excess of the amount of such chargeback shall be deemed Eligible
Accounts);
(q) such Accounts do not arise from an order by an account debtor
of products licensed from Microsoft Corporation
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in excess of Two Hundred Fifty Thousand Dollars ($250,000), unless Borrower has
received from such account debtor an executed customer order for such products;
and
(r) such Accounts are owed by account debtors deemed creditworthy
at all times by Lender, as determined by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.10 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower which
are identified as "Qualified Merchandise" and subject to the "NationsCredit
Repayment Obligation," each as defined in the NationsCredit Intercreditor
Agreement.
In general, Eligible Inventory shall not include: (i) work-in-process;
(ii) components which are not part of finished goods; (iii) spare parts for
equipment; (iv) Inventory stored in open boxes; (v) packaging and shipping
materials; (vi) supplies used or consumed in Borrower's business; (vii)
Inventory in transit; (viii) Inventory at premises other than those owned and
controlled by Borrower, except if Lender shall have received an agreement in
writing from the person in possession of such Inventory and/or the owner or
operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(ix) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (x) ▇▇▇▇ and hold
goods; (xi) unserviceable Inventory; (xii) Inventory purchased prior to two (2)
calendar months before the then current month; (xiii) Inventory which is not
subject to the first priority, valid and perfected security interest of Lender;
(xiv) returned, damaged and/or defective Inventory; (xv) Inventory
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purchased or sold on consignment; and (xvi) Inventory not identified as
"Qualified Merchandise" in the NationsCredit Intercreditor Agreement. General
criteria for Eligible Inventory may be established and revised from time to time
by Lender in its reasonable credit judgment. Any Inventory which is not Eligible
Inventory shall nevertheless be part of the Collateral.
1.11 "Environmental Laws" shall mean all federal, state, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous substances, pollution and environmental
matters, as now or at any time hereafter in effect, applicable to Borrower's
business and facilities (whether or not owned by it), including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes.
1.12 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.13 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.14 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its affiliates under Sections 414(b), 414(c), 414(m) or
414(o) of the Code.
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1.15 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.16 "Excess Availability" shall mean the amount, as determined by
Lender, equal to:
(a) with respect to Borrower:
(i) the lesser of:
(A) the amount of the Revolving Loans available to Borrower as of
such time (based on the applicable advance rates set forth in Sections
2.1(a)(ii) or 2.1(a)(iii) hereof), subject to the sublimits and Availability
Reserves from time to time established by Lender hereunder, and
(B) the Maximum Credit; minus
(ii) the sum of:
(A) the amount of all then outstanding and unpaid Obligations
(other than the Obligations of Borrower under its Guarantee of even date
herewith in favor of Lender),
(B) the aggregate amount of all trade payables of Borrower which
are more than sixty (60) days past due as of such time,
(C) the aggregate amount of Borrower's book overdrafts, and
(D) the aggregate amount of Borrower's past due lease and notes
payable; and
(b) with respect to Wareforce:
(i) the lesser of:
(A) the amount of the "Revolving Loans" available to Wareforce as
of such time (based on the applicable advance rates set forth in Sections
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2.1(a)(i) or 2.1(a)(iii) of the Wareforce Loan Agreement), subject to the
sublimits and "Availability Reserves" from time to time established by Lender
under the Wareforce Loan Agreement, and
(B) the "Maximum Credit" (as defined in the Wareforce Loan
Agreement); minus
(ii) the sum of:
(A) the amount of all then outstanding and unpaid "Obligations" of
Wareforce under the Wareforce Loan Agreement (other than the obligations of
Wareforce under its Guarantee of even date herewith in favor of Lender),
(B) the aggregate amount of all trade payables of Wareforce which
are more than sixty (60) days past due as of such time,
(C) the aggregate amount of Wareforce's book overdrafts, and
(D) the aggregate amount of Wareforce's past due lease and notes
payable.
1.17 "Financing Agreements" shall mean, collectively, this Agreement,
the Wareforce Loan Agreement and all notes, guarantees, security agreements and
other agreements, documents and instruments now or at any time hereafter
executed and/or delivered by Borrower or any Obligor in connection with this
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.18 "GAAP" shall mean generally accepted accounting principles in the
United States 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 Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.16 hereof, GAAP shall be
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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.
1.19 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation, any that are or become classified as hazardous or toxic under any
Environmental Law).
1.20 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.21 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.22 "Inventory Advance Rate" shall mean the advance rate applicable to
Eligible Inventory as determined in accordance with Subsection 2.1(a)(iii)(B).
1.23 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either:
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(a) issued, opened or provided by Lender for the account of
Borrower or any Obligor; or
(b) with respect to which Lender has agreed to indemnify the issuer
or guaranteed to the issuer the performance by Borrower of its obligations to
such issuer.
1.24 "Loans" shall mean the Revolving Loans.
1.25 "Maximum Credit" shall mean, with reference to the Revolving Loans
and the Letter of Credit Accommodations, the amount of Twelve Million Dollars
($12,000,000).
1.26 "NationsCredit" shall mean NationsCredit Distribution Finance,
Inc., a North Carolina corporation.
1.27 "NationsCredit Flooring Line" shall mean the floor plan financing
arrangement among NationsCredit, Borrower and Wareforce, pursuant to which
NationsCredit will from time to time extend certain financing to Borrower and
Wareforce for the acquisition of certain Inventory.
1.28 "NationsCredit Intercreditor Agreement" shall mean that certain
Intercreditor and Subordination Agreement of even date herewith between
NationsCredit and Lender.
1.29 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less:
(a) sales, excise or similar taxes included in the amount thereof;
and
(b) returns, discounts, claims, credits and allowances of any
nature at any time issued, owing, granted, outstanding, available or claimed
with respect thereto.
1.30 "Obligations" shall mean any and all Revolving Loans, Letter of
Credit Accommodations and all other obligations, liabilities and indebtedness of
every kind, nature and description owing by Borrower to Lender and/or its
affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Agreement,
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the Guarantee of even date herewith by Borrower in favor of Lender or otherwise,
whether now existing or hereafter arising, whether arising before, during or
after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute (including, without limitation, the
payment of interest and other amounts which would accrue and become due but for
the commencement of such case, whether or not such amounts are allowed or
allowable in whole or in part in such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by
Lender.
1.31 "Obligor" shall mean ▇▇▇▇▇▇▇▇, Wareforce and any other guarantor,
endorser, acceptor, surety or other person liable on or with respect to the
Obligations or who is the owner of any property which is security for the
Obligations, other than Borrower.
1.32 "Participant" shall mean any person which at any time participates
with Lender in respect of the Loans, the Letter of Credit Accommodations or
other Obligations or any portion thereof.
1.33 "Payment Account" shall have the meaning set forth in Section
ERROR! REFERENCE SOURCE NOT FOUND. hereof.
1.34 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), limited liability company, limited liability partnership,
business trust, unincorporated association, joint stock corporation, trust,
joint venture or other entity or any government or any agency or instrumentality
or political subdivision thereof.
1.35 "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, from time to time as
its prime rate, whether or not such announced rate is the best rate available at
such bank.
20
1.36 "Purchase Agreements" shall mean, individually and collectively,
the Stock Purchase Agreement and Escrow Instructions, dated as of January 1,
1998 between Buyer and Seller and all other agreements of transfer as are
referred to therein and all side letters with respect thereto, and all
agreements, documents and instruments executed and/or delivered in connection
therewith, as all of the foregoing now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.37 "Purchased Stock" shall mean all of the issued and outstanding
shares of common stock of Borrower.
1.38 "▇▇▇▇▇▇▇▇" shall mean ▇▇▇▇ ▇▇▇▇▇▇▇▇, an individual.
1.39 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.40 "Renewal Date" shall have the meaning set forth in Section ERROR!
REFERENCE SOURCE NOT FOUND. hereof.
1.41 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section ERROR! REFERENCE
SOURCE NOT FOUND. hereof.
1.42 "Seller" shall mean collectively, the ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇▇
▇▇▇ Family Trust, ▇▇▇▇▇▇ ▇▇▇, an individual, ▇▇▇▇▇▇▇ ▇▇, an individual, and
▇▇▇▇▇ ▇▇, an individual, and each of their respective successors and assigns.
1.43 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost under the
21
first-in-first-out method, net of vendor discounts or (b) market value.
1.44 "Wareforce" shall have the meaning set forth in the Recitals
hereto.
1.45 "Wareforce Loan Agreement" shall have the meaning set forth in the
Recitals hereto.
SECTION 2. CREDIT FACILITIES.
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained herein,
Lender agrees to make Revolving Loans to Borrower from time to time in amounts
requested by Borrower up to the amount equal to the least of:
(i) the Maximum Credit, less any Availability
Reserves, other reserves and the then undrawn amounts of
outstanding Letter of Credit Accommodations; or
(ii) during the period commencing February 1 and
ending October 31 of each year, Borrower's aggregate collections
for the trailing sixty (60) day period and during the period
commencing November 1 and ending January 31 of each year,
Borrower's aggregate collections for the trailing ninety (90) day
period, less any Availability Reserves and the then undrawn amounts
of outstanding Letter of Credit Accommodations; or
(iii) the sum of:
(A) eighty-five (85%) percent of the Net Amount of Eligible
Accounts, plus
(B) the lesser of:
(1) seventy-five (75%) percent of the
Value of Eligible Inventory; provided, that, if at any
time, the "NationsCredit Repayment Obligation" (as
defined in the NationsCredit Intercreditor Agreement)
is less than seventy-five (75%) of the original
invoice price of "Qualified Merchandise" (as defined
in the
22
NationsCredit Intercreditor Agreement), the Inventory
Advance Rate shall be proportionally reduced such that
the Inventory Advance Rate shall at no time exceed the
applicable percentage in determining the
"NationsCredit Repayment Obligation," or
(2) Seven Million Dollars ($7,000,000);
less
(C) any Availability Reserves and the then undrawn amounts of
outstanding Letter of Credit Accommodations.
(b) Lender may, in its discretion, from time to time, upon not less
than five (5) days prior notice to Borrower:
(i) reduce the lending formula with respect to
Eligible Accounts to the extent that Lender determines in good
faith that:
(A) the dilution with respect to the Accounts for any period (based
on the ratio of (1) the aggregate amount of reductions in Accounts other than as
a result of payments in cash to (2) the aggregate amount of total sales) has
increased in any material respect or may be reasonably anticipated to increase
in any material respect above historical levels; or
(B) the general creditworthiness of account debtors has declined;
or
(ii) reduce the lending formula(s) with respect to
Eligible Inventory to the extent that Lender determines that:
23
(A) the number of days of the turnover or the mix of such Inventory
for any period has changed in any materially adverse respect;
(B) the liquidation value of the Eligible Inventory, or any
category thereof, has decreased in any material respect; or
(C) the nature and quality of the Inventory has deteriorated in any
material respect.
In determining whether to reduce the lending formula(s), Lender may consider
events, conditions, contingencies or risks which are also considered in
determining Eligible Accounts, Eligible Inventory or in establishing
Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the
Loans, Letter of Credit Accommodations and other Obligations outstanding at any
time shall not exceed the Maximum Credit. In the event that the outstanding
amount of any component of the Loans and Letter of Credit Accommodations, or the
aggregate amount of the outstanding Loans, Letter of Credit Accommodations and
other Obligations, exceed the amounts available under the lending formulas set
forth in Section 2.1(a) hereof, the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(e) or the Maximum Credit, as applicable,
such event shall not limit, waive or otherwise affect any rights of Lender in
that circumstance or on any future occasions and Borrower shall, upon demand by
Lender, which may be made at any time or from time to time, immediately repay to
Lender the entire amount of any such excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on Revolving Loans
based on Eligible Inventory pursuant to Section 2.1(a)(iii)(B)(2). Lender may
treat the then undrawn amounts of outstanding Letter of Credit Accommodations
for the purpose of purchasing Eligible Inventory as Revolving Loans to the
extent
24
Lender is in effect basing the issuance of the Letter of Credit Accommodations
on the Value of the Eligible Inventory being purchased with such Letter of
Credit Accommodations. In determining the actual amounts of such Letter of
Credit Accommodations to be so treated for purposes of the sublimit, the
outstanding Revolving Loans and Availability Reserves shall be attributed first
to any components of the lending formulas in Section 2.1(a) that are not subject
to such sublimit, before being attributed to the components of the lending
formulas subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained herein,
at the request of Borrower, Lender agrees to provide or arrange for Letter of
Credit Accommodations with NationsCredit as the beneficiary thereunder for the
purpose of financing the purchase of Inventory on the terms and conditions set
forth in the NationsCredit Intercreditor Agreement and other Letter of Credit
Accommodations for the account of Borrower containing terms and conditions
acceptable to Lender and the issuer thereof. Any payments made by Lender to any
issuer thereof and/or related parties in connection with the Letter of Credit
Accommodations shall constitute additional Revolving Loans to Borrower pursuant
to this Section 2.
(b) In addition to any charges, fees or expenses charged by any
bank or issuer in connection with the Letter of Credit Accommodations, Borrower
shall pay to Lender a letter of credit fee at a rate equal to one (1%) percent
per annum on the daily outstanding balance of the Letter of Credit
Accommodations for the immediately preceding month (or part thereof), payable in
arrears as of the first day of each succeeding month; provided, however, that
such letter of credit fee shall be increased, at Lender's option, without
notice, to three (3%) percent per annum for the period on or after the date of
termination or non-renewal of this Agreement or the date of the occurrence of an
Event of Default. Such letter of credit fee shall be calculated on the basis of
a
25
three hundred sixty (360) day year and actual days elapsed and the obligation of
Borrower to pay such fee shall survive the termination or non-renewal of this
Agreement.
(c) No Letter of Credit Accommodations (other than the Letter of
Credit Accommodations issued pursuant to the terms of the NationsCredit
Intercreditor Agreement) shall be available unless on the date of the proposed
issuance of any Letter of Credit Accommodations, the Revolving Loans available
to Borrower (subject to the Maximum Credit and any Availability Reserves) are
equal to or greater than:
(i) if the proposed Letter of Credit Accommodation is
for the purpose of purchasing Eligible Inventory, the sum of:
(A) the product of the Value of such Eligible Inventory multiplied
by one minus the Inventory Advance Rate under Section 2.1(a)(iii)(A) as
applicable, plus
(B) freight, taxes, duty and other amounts which Lender estimates
must be paid in connection with such Inventory upon arrival and for delivery to
one of Borrower's locations for Eligible Inventory within the United States of
America; and
(ii) if the proposed Letter of Credit Accommodation is
for standby letters of credit guaranteeing the purchase of Eligible
Inventory or for any other purpose, an amount equal to one hundred
(100%) percent of the face amount thereof and all other commitments
and obligations made or incurred by Lender with respect thereto.
(d) An Availability Reserve shall be established in the amount set
forth in Section 2.2(c)(i) upon the following:
(i) in the case of an order for the purchase of
Inventory supported by a Letter of Credit Accommodation costing
less than Five Hundred Thousand
26
Dollars ($500,000), upon the placement of such order by Borrower;
and
(ii) in the case of an order for the purchase of
Inventory supported by a Letter of Credit Accommodation costing
Five Hundred Thousand Dollars ($500,000) or more, upon evidence, in
form and substance satisfactory to Lender, of shipment by a vendor
for such order.
Effective upon the issuance of each Letter of Credit Accommodation
for a purpose other than the purchase of Inventory, an Availability Reserve
shall be established in the amount set forth in Section 2.2(c)(ii).
(e) Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and obligations made
or incurred by Lender in connection therewith shall not at any time exceed Seven
Million Dollars ($7,000,000). At any time an Event of Default exists or has
occurred and is continuing, upon Lender's request, Borrower will either furnish
cash collateral to secure the reimbursement obligations to the issuer in
connection with any Letter of Credit Accommodations or furnish cash collateral
to Lender for the Letter of Credit Accommodations, and in either case, the
Revolving Loans otherwise available to Borrower shall not be reduced as provided
in Section 2.2(d) to the extent of such cash collateral.
(f) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any
27
Letter of Credit Accommodation, including, without limitation, NationsCredit,
and for such purposes the drawer or beneficiary shall be deemed Borrower's
agent. Borrower assumes all risks for, and agrees to pay, all foreign, Federal,
State and local taxes, duties and levies relating to any goods subject to any
Letter of Credit Accommodations or any documents, drafts or acceptances
thereunder. Borrower hereby releases and holds Lender harmless from and against
any acts, waivers, errors, delays or omissions, whether caused by Borrower, by
any issuer or correspondent or otherwise, unless caused by the gross negligence
or willful misconduct of Lender, with respect to or relating to any Letter of
Credit Accommodation. The provisions of this Section 2.2(f) shall survive the
payment of Obligations and the termination or non-renewal of this Agreement.
(g) Nothing contained herein shall be deemed or construed to grant
Borrower any right or authority to pledge the credit of Lender in any manner.
Lender shall have no liability of any kind with respect to any Letter of Credit
Accommodation provided by an issuer other than Lender unless Lender has duly
executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not:
(i) at any time an Event of Default exists or has
occurred and is continuing:
(A) approve or resolve any questions of non-compliance of
documents,
(B) give any instructions as to acceptance or rejection of any
documents or goods, or
28
(C) execute any and all applications for steamship or airway
guaranties, indemnities or delivery orders, and
(ii) at all times:
(A) grant any extensions of the maturity of, time of payment for,
or time of presentation of, any drafts, acceptances, or documents, or
(B) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letter of Credit Accommodations, or documents, drafts or
acceptances thereunder or any letters of credit included in the Collateral.
Lender may take such actions either in its own name or in
Borrower's name.
(h) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
SECTION 3. INTEREST AND FEES.
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at a rate equal to the Prime
Rate, except that Borrower shall pay to Lender interest, at Lender's option,
without notice, at
29
the rate of two percent (2.0%) percent per annum in excess of the Prime Rate:
(i) on the non-contingent Obligations for the period
from and after the date of termination or non-renewal hereof, or
the date of the occurrence of an Event of Default, and for so long
as such Event of Default is continuing as determined by Lender and
until such time as Lender has received full and final payment of
all such Obligations (notwithstanding entry of any judgment against
Borrower); and
(ii) on the Revolving Loans at any time outstanding in
excess of the amounts available to Borrower under Section 2
(whether or not such excess(es), arise or are made with or without
Lender's knowledge or consent and whether made before or after an
Event of Default).
All interest accruing hereunder on and after the occurrence of any
of the events referred to in Sections 3.1(a)(i) or 3.1(a)(ii) above
shall be payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in contravention of any such law
or regulation, such part or provision shall be deemed amended to conform
thereto.
30
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of Twenty Four Thousand Dollars ($24,000) which shall be fully earned as
of the date hereof and payable in two installments as follows: (a) Twelve
Thousand Dollars ($12,000) on the date hereof; and (b) Twelve Thousand Dollars
($12,000) on the first anniversary of the date hereof.
3.3 Compensation Adjustment.
(a) If after the date of this Agreement the introduction of, or any
change in, any law or any governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law), or any interpretation
thereof, or compliance by Lender or any Participant therewith:
(i) subjects Lender to any tax, duty, charge or
withholding on or from payments due from Borrower (excluding
franchise taxes imposed upon, and taxation of the overall net
income of Lender or any Participant), or changes the basis of
taxation of payments, in either case in respect of amounts due it
hereunder, or
(ii) imposes or increases or deems applicable any
reserve requirement or other reserve, assessment, insurance charge,
special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by Lender or any
Participant, or
(iii) imposes any other condition the result of which
is to increase the cost to Lender or any Participant of making,
funding or maintaining the Revolving Loans or Letter of Credit
Accommodations or reduces any amount receivable by Lender or any
Participant in connection with the Loans or Letter of Credit
Accommodations, or requires Lender or any Participant to make
payment calculated by references to the amount of loans held or
interest received by it, by an amount deemed material by Lender or
any Participant, or
(iv) imposes or increases any capital requirement or
affects the amount of capital required or expected to be maintained
by Lender or any Participant or any corporation controlling Lender
or any Participant, and Lender
31
or any Participant determines that such imposition or increase in
capital requirements or increase in the amount of capital expected
to be maintained is based upon the existence of this Agreement or
the Loans or Letter of Credit Accommodations hereunder, all of
which may be determined by Lender's or any Participant's reasonable
allocation of the aggregate of its impositions or increases in
capital required or expected to be maintained, and the result of
any of the foregoing is to increase the cost to Lender or any
Participant of making, renewing or maintaining the Loans or Letter
of Credit Accommodations, or to reduce the rate of return to Lender
or any Participant on the Loans or Letter of Credit Accommodations;
then upon demand by Lender, Borrower shall pay to Lender or any Participant, and
continue to make periodic payments to Lender or any Participant, such additional
amounts as may be necessary to compensate Lender or any Participant for any such
additional cost incurred or reduced rate of return realized.
(b) A certificate of Lender claiming entitlement to compensation as
set forth above will be conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid and the compensation
and the method by which such amounts were determined. In determining any
additional amounts due from Borrower under this Section ERROR! REFERENCE SOURCE
NOT FOUND., Lender shall act reasonably and in good faith and will, to the
extent that the increased costs, reductions, or amounts received or receivable
relate to the Lender's or a Participant's loans or commitments generally and are
not specifically attributable to the Loans and commitments hereunder, use
averaging and attribution methods which are reasonable and equitable and which
cover all loans and commitments under this Agreement by the Lender or such
Participant, as the case may be, whether or not the loan documentation for such
other loans and commitments permits the Lender or such Participant to receive
compensation costs of the type described in this Section 3.3.
32
SECTION 4. CONDITIONS PRECEDENT.
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance satisfactory
to Lender, all releases, terminations and such other documents as Lender may
request to evidence and effectuate the termination by the existing lender or
lenders to Borrower of their respective financing arrangements with Borrower and
the termination and release by it or them, as the case may be, of any interest
in and to any assets and properties of Borrower and each Obligor, duly
authorized, executed and delivered by it or each of them, including, but not
limited to:
(i) UCC termination statements for all UCC financing
statements previously filed by it or any of them or their
predecessors, as secured party and Borrower or any Obligor, as
debtor; and
(ii) satisfactions and discharges of any mortgages,
deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such existing lender or lenders, in form acceptable for
recording in the appropriate government office;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid, perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended as security for the Obligations or the liability of any Obligor in
respect thereto, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
33
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities; (d)
Lender shall have received the Wareforce Loan Agreement duly executed by
Wareforce, in form and substance satisfactory to Lender and all conditions
precedent set forth therein shall have been satisfied in a manner acceptable to
Lender;
(e) Lender shall have received, in form and substance satisfactory
to Lender, evidence that the Purchase Agreements have been fully executed and
delivered by and to the appropriate parties thereto and the transactions
contemplated under the terms of the Purchase Agreements have been consummated;
(f) no material adverse change shall have occurred in the assets,
business or prospects of Borrower since the date of Lender's latest field
examination and no change or event shall have occurred which would impair the
ability of Borrower or any Obligor to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce the Obligations or realize upon the Collateral;
(g) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may require to
determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) Business Days
prior to the date hereof;
(h) Lender shall have received, in form and substance satisfactory
to Lender, all consents, waivers, acknowledgments and other agreements from
third persons which Lender may deem necessary or desirable in order to permit,
protect and perfect its security interests in and liens upon the Collateral or
to
34
effectuate the provisions or purposes of this Agreement and the other Financing
Agreements, including, without limitation, acknowledgements by lessors,
mortgagees and warehousemen of Lender's security interests in the Collateral,
waivers by such persons of any security interests, liens or other claims by such
persons to the Collateral and agreements permitting Lender access to, and the
right to remain on, the premises to exercise its rights and remedies and
otherwise deal with the Collateral;
(i) The NationsCredit Flooring Line shall have been established and
in effect on terms and conditions satisfactory to Lender and Lender and its
counsel shall have received and reviewed all financing agreements entered into
by Borrower in connection therewith;
(j) Lender shall have received, in form and substance satisfactory
to Lender, the NationsCredit Intercreditor Agreement, as acknowledged and agreed
to by Borrower and Wareforce, providing for such parties' relative rights and
priorities with respect to the assets and properties of Borrower and Wareforce
and related matters, duly authorized, executed and delivered by NationsCredit;
(k) Lender shall have been satisfied that an acceptable system of
reporting has been established by NationsCredit through which NationsCredit will
report to Lender on a daily basis, all liabilities incurred by Borrower and
Wareforce in connection with its floor plan financing arrangement with
NationsCredit, Inventory financed by NationsCredit on order with vendors, and
returns by Borrower and Wareforce of Inventory to vendors and credited to
NationsCredit;
(l) Lender shall have received, in form and substance satisfactory
to Lender, a Guarantee by Borrower in favor of Lender, guaranteeing the
obligations of Wareforce under the Wareforce Loan Agreement, together with a
Security Agreement securing the obligations under such Guarantee;
(m) Lender shall have received, in form and substance satisfactory
to Lender, a Guarantee by Wareforce in favor of
35
Lender, guaranteeing the Obligations herein, together with a Security Agreement
securing the obligations under such Guarantee;
(n) Lender shall have received, in form and substance satisfactory
to Lender, a continuing guarantee duly executed and delivered by ▇▇▇▇▇▇▇▇
guaranteeing the Obligations up to One Million Five Hundred Thousand Dollars
($1,500,000), together with his personal financial statements;
(o) Lender shall have received, in form and substance satisfactory
to Lender, a collateral assignment from Wareforce to Lender of that certain
Promissory Note dated February 18, 1998 in the original principal amount of Two
Million Dollars ($2,000,000) by ▇▇▇▇ ▇▇▇▇▇▇▇▇ in favor of Wareforce, as well as
any other notes or instruments evidencing loans from Borrower or Wareforce to
▇▇▇▇▇▇▇▇;
(p) Lender shall have received current agings of receivables,
current perpetual inventory records and/or rollforwards of accounts and
inventory through the date hereof, together with supporting documentation
sufficient for Lender to accurately identify and verify the eligible Collateral
as of or prior to the date hereof in a manner satisfactory to Lender, including
documentation with respect to inventory in-transit and inventory at third-party
locations;
(q) Lender shall have received, in form and substance satisfactory
to Lender, projections of Borrower's profit and loss and balance sheet, all
prepared on a monthly basis through December 31, 1998;
(r) Lender shall have received, in form and substance satisfactory
to Lender, an agreement with respect to the Blocked Accounts, pursuant to
Section 6.3(a) hereof, duly executed by Lender, Borrower and the applicable
depository bank;
(s) Lender shall have received and reviewed to its satisfaction any
and all licensing agreements which Borrower
36
has in place with its vendors, including, without limitation, Microsoft
Corporation;
(t) Lender shall have received evidence of insurance and loss payee
endorsements required hereunder and under the other Financing Agreements, in
form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(u) Lender shall have received from Borrower a plan identifying the
proposed management of Borrower;
(v) Lender shall have received, in form and substance satisfactory
to Lender, such opinion letters of counsel to Borrower with respect to the
Financing Agreements, the Purchase Agreements and such other matters as Lender
may request;
(w) the combined Excess Availability of Borrower and Wareforce as
determined by Lender, as of the date hereof, shall be not less than One Million
Dollars ($1,000,000) after giving effect to the initial Loans made or to be
made, the Letter of Credit Accommodations issued or to be issued hereunder and
under the Wareforce Loan Agreement and the payment of all fees and expenses
payable upon the consummation of the initial transactions contemplated by this
Agreement and the Wareforce Loan Agreement; and
(x) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Subsequent to Initial Loans and Letter of Credit
Accommodations. Borrower shall perform the following conditions within the time
frames set forth below:
(a) within twenty-five (25) days from the date hereof, Lender shall
have received, in form and substance satisfactory to Lender, a pro-forma balance
sheet of Borrower reflecting the initial transactions contemplated hereunder,
including, but not limited to, (i) the transactions contemplated by the
37
Purchase Agreements and (ii) the Loans and Letter of Credit Accommodations
provided by Lender to Borrower on the date hereof and the use of the proceeds of
the initial Loans as provided herein, accompanied by a certificate, dated of
even date herewith, of the chief financial officer of Borrower, stating that
such pro-forma balance sheet represents the reasonable, good faith opinion of
such officer as to the subject matter thereof as of the date of such
certificate;
(b) within sixty (60) days from the date hereof, Lender shall have
received audited financial statements of Borrower, and the accompanying notes
thereto, for the fiscal year ended December 31, 1997, together with the
unqualified opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP that such financial statements have
been prepared in accordance with GAAP, and present fairly the results of
operations and financial condition of Borrower for the fiscal year then ended;
(c) within sixty (60) days from the date hereof, Borrower shall
provide evidence to Lender that Borrower is capable of providing in a manner
satisfactory to Lender a schedule of revenues identifying revenues based upon
maintenance services, product sales and licensing pursuant to Section 7.1(a)
hereof; and
(d) within one hundred twenty (120) days from the date hereof,
Borrower shall provide evidence to Lender in form and substance satisfactory to
Lender that Borrower's system has been converted to the Wareforce COVE system.
4.3 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in the
other Financing Agreements shall be true and correct in all material respects
with the same effect as though such representations and warranties had been made
on
38
and as of the date of the making of each such Loan or providing each such Letter
of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST.
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts and other indebtedness owed to Borrower;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
investment property, letters of credit, proceeds of letters of credit, workmen's
compensation claims, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests,
39
rights, remedies, title and interest in, to and in respect of Accounts and other
Collateral, including, without limitation,
(a) rights and remedies under or relating to guaranties, contracts
of suretyship, letters of credit and credit and other insurance related to the
Collateral,
(b) rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party,
(c) goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing, Accounts
or other Collateral, including, without limitation, returned, repossessed and
reclaimed goods, and
(d) deposits by and property of account debtors or other persons
securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION.
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded:
(a) all Loans, all Letter of Credit Accommodations and all other
Obligations and the Collateral,
(b) all payments made by or on behalf of Borrower, and
(c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs, expenses and
interest.
40
All entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
(a) Borrower shall establish and maintain, at its expense, a
blocked account or lockboxes and related blocked accounts (in either case, each
a "Blocked Account" and collectively the "Blocked Accounts"), as Lender may
specify, with such bank or banks as are acceptable to Lender into which Borrower
shall promptly deposit and direct its account debtors to directly remit all
payments on Accounts and all payments constituting proceeds of Inventory or
other Collateral in the identical form in which such payments are made, whether
by cash, check or other manner. Each bank at which a Blocked Account is
established shall enter into an agreement, in form and substance satisfactory to
Lender, providing (unless otherwise agreed to by Lender) that all items received
or deposited in such Blocked Account are the Collateral of Lender, that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or otherwise
41
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into such Blocked Account to such bank account of Lender as Lender
may from time to time designate for such purpose (the "Payment Account").
Borrower agrees that all amounts deposited in the Blocked Accounts or other
funds received and collected by Lender, whether as proceeds of Inventory, the
collection of Accounts or other Collateral or otherwise shall be the Collateral
of Lender.
(b) For purposes of calculating the amount of the Loans available
to Borrower, such payments will be applied (conditional upon final collection)
to the Obligations on the Business Day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next Business Day. For the purposes
of calculating interest on the Obligations, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
one (1) Business Day following the date of receipt of immediately available
funds by Lender in the Payment Account provided such payments or other funds and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next Business Day.
If no monetary obligations by Borrower are outstanding on any day, Borrower
shall pay interest at the applicable rate set forth in Section 3.1(a) on the
amount of any payments or other funds that are received by Lender (irrespective
of the characterization of whether receipts are owned by Lender or Borrower) for
such day.
(c) Borrower and all of its affiliates, subsidiaries, shareholders,
directors, employees or agents shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, cash, checks, notes, drafts or any other
payment relating to and/or proceeds of Accounts or from sales of Inventory or
other Collateral which come into their possession or under their control and
immediately upon receipt thereof,
42
shall deposit or cause the same to be deposited in the Blocked Accounts, or
remit the same or cause the same to be remitted, in kind, to Lender. In no event
shall any such monies, checks, notes, drafts or other payments be commingled
with Borrower's own funds. Borrower agrees to reimburse Lender on demand for any
amounts owed or paid to any bank at which a Blocked Account is established or
any other bank or person involved in the transfer of funds to or from the
Blocked Accounts arising out of Lender's payments to or indemnification of such
bank or person, unless such payment or indemnification obligation of Lender was
a result of Lender's gross negligence or willful misconduct. The obligation of
Borrower to reimburse Lender for such amounts pursuant to this Section 6.4 shall
survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment
Account as provided in Section 6.3 or such other place as Lender may designate
from time to time. Lender may apply payments received or collected from Borrower
or for the account of Borrower (including, without limitation, the monetary
proceeds of collections or of realization upon any Collateral) to such of the
Obligations, whether or not then due, in such order and manner as Lender
determines. At Lender's option, all principal, interest, fees, costs, expenses
and other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of Borrower. Borrower
shall make all payments to Lender on the Obligations free and clear of, and
without deduction or withholding for or on account of, any setoff, counterclaim,
defense, duties, taxes, levies, imposts, fees, deductions, withholding,
restrictions or conditions of any kind. If after receipt of any payment of, or
proceeds of Collateral applied to the payment of, any of the Obligations, Lender
is required to surrender or return such payment or proceeds to any Person for
any reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Lender. Borrower shall be liable to pay to Lender, and does
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hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a Business Day) and the amount of the requested Loan. Requests received after
10:30 a.m. Pacific time on any day shall be deemed to have been made as of the
opening of business on the immediately following Business Day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Payments on NationsCredit Flooring Line. Any and all payments by
Borrower under the NationsCredit Flooring Line shall be wired from the account
of Borrower by Lender to NationsCredit per Borrower's instructions on the fifth,
fifteenth and twenty-fifth day of each calendar month, or if such day is not a
Business Day then on the next Business Day and in accordance with Section 6.5
hereof.
6.7 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof; and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
44
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS.
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender:
(a) on a regular basis as required by Lender, a schedule of
Accounts identifying Accounts based upon maintenance services, product sales and
licensing, sales made, credits issued, cash received and any pre-billed
Accounts;
(b) on a daily basis:
(i) perpetual inventory reports identifying "Qualified
Merchandise" (as defined in the NationsCredit Intercreditor
Agreement), and
(ii) inventory reports by category;
(c) on or before the fifth Business Day of each month, a
calculation of the value of Inventory that is not Eligible Inventory;
(d) on a monthly basis or more frequently as Lender may request,
agings of accounts payable and accounts receivable;
(e) upon Lender's request:
45
(i) copies of customer statements and credit memos,
remittance advices and reports, and copies of deposit slips and
bank statements,
(ii) copies of shipping and delivery documents, and
(iii) copies of purchase orders, invoices and delivery
documents for Inventory and Equipment acquired by Borrower; and
(f) such other reports as to the Collateral or other property which
is security for the Obligations as Lender shall request from time to time.
If any of Borrower's records or reports of the Collateral or other
property which is security for the Obligations are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of:
(i) any material delay in Borrower's performance of
any of its obligations to any account debtor or the assertion of
any claims, offsets, defenses or counterclaims by any account
debtor, or any disputes with account debtors, or any settlement,
adjustment or compromise thereof,
(ii) all material adverse information relating to the
financial condition of any account debtor, and
(iii) any event or circumstance which, to Borrower's
knowledge would cause Lender to consider
46
any then existing Accounts as no longer constituting Eligible
Accounts.
No credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor, except in the ordinary course
of Borrower's business in accordance with its most recent past practices and
policies. So long as no Event of Default exists or has occurred and is
continuing, Borrower may settle, adjust or compromise any claim, offset,
counterclaim or dispute with any account debtor in the ordinary course of
Borrower's business in accordance with its most recent past practices and
policies. At any time that an Event of Default exists or has occurred and is
continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver any
other information to Lender, Borrower shall promptly report to Lender any return
of Inventory by any one account debtor if the Inventory so returned in such case
has a value in excess of Twenty Five Thousand Dollars ($25,000). At any time
that Inventory is returned, reclaimed or repossessed, the Account (or portion
thereof) which arose from the sale of such returned, reclaimed or repossessed
Inventory shall not be deemed an Eligible Account. In the event any account
debtor returns Inventory when an Event of Default exists or has occurred and is
continuing, Borrower shall, upon Lender's request:
(i) hold the returned Inventory in trust for Lender,
(ii) segregate all returned Inventory from all of its
other property,
(iii) dispose of the returned Inventory solely
according to Lender's instructions, and
(iv) not issue any credits, discounts or allowances
with respect thereto without Lender's prior written consent.
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(c) With respect to each Account:
(i) the amounts shown on any invoice delivered to
Lender or schedule thereof delivered to Lender shall be true and
complete,
(ii) no payments shall be made thereon except payments
delivered to Lender pursuant to the terms of this Agreement or in
accordance with the NationsCredit Intercreditor Agreement,
(iii) no credit, discount, allowance or extension or
agreement for any of the foregoing shall be granted to any account
debtor except as reported to Lender in accordance with this
Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's
business in accordance with practices and policies previously
disclosed to Lender,
(iv) there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with
respect thereto except as reported to Lender in accordance with the
terms of this Agreement,
(v) none of the transactions giving rise thereto will
violate any applicable State or Federal Laws or regulations, all
documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be
legally enforceable in accordance with its terms, and
(vi) Borrower shall not pre-▇▇▇▇ any account debtor.
(d) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
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(e) Borrower shall deliver or cause to be delivered to Lender, with
appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred:
(i) notify any or all account debtors that the
Accounts have been assigned to Lender and that Lender has a
security interest therein and Lender may direct any or all account
debtors to make payments of Accounts directly to Lender,
(ii) extend the time of payment of, compromise, settle
or adjust for cash, credit, return of merchandise or otherwise, and
upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or
release the account debtor or any other party or parties in any way
liable for payment thereof without affecting any of the
Obligations,
(iii) demand, collect or enforce payment of any
Accounts or such other obligations, but without any duty to do so,
and Lender shall not be liable for its failure to collect or
enforce the payment thereof nor for the negligence of its agents or
attorneys with respect thereto, and
(iv) take whatever other action Lender may deem
necessary or desirable for the protection of its interests.
At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices and statements sent to any account
debtor shall state that the Accounts due from such account debtor and such other
obligations have been assigned to Lender and are payable directly and only to
Lender and Borrower shall deliver to Lender such originals of
49
documents evidencing the sale and delivery of goods or the performance of
services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory:
(a) Borrower shall at all times maintain and provide Lender with
inventory records reasonably satisfactory to Lender, keeping correct and
accurate records itemizing and describing the kind, type, quality, age and
quantity of Inventory, the amount of open box Inventory, the amount of Eligible
Inventory and Inventory that is not Eligible Inventory, Borrower's cost therefor
and daily withdrawals therefrom and additions thereto;
(b) Borrower shall cause a third party firm acceptable to Lender to
conduct a complete physical count of the Inventory a minimum of once every
twelve (12) months, but at any time or times as Lender may request upon the
occurrence of an Event of Default, and promptly following such physical count,
such firm shall supply Lender with a report in the form and with such
specificity as may be reasonably satisfactory to Lender concerning such physical
count;
(c) Borrower shall not remove any Inventory from the locations set
forth or permitted herein, without the prior written consent of Lender, except
for sales of Inventory in the ordinary course of Borrower's business and except
to move Inventory directly from one location set forth or permitted herein to
another such location;
(d) upon Lender's request, Borrower shall, at its expense, no more
than once in any twelve (12) month period, but at any time or times as Lender
may request upon the occurrence of an Event of Default, deliver or cause to be
delivered to Lender written reports or appraisals as to the Inventory in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted to rely
(with the understanding that Lender may revise the definition of "Eligible
Inventory" hereunder or establish Availability
50
Reserves as Lender may deem advisable in its sole discretion based upon the
results of such update appraisals);
(e) Borrower shall produce, use, store and maintain the Inventory
with all reasonable care and caution and in accordance with applicable standards
of any insurance and in conformity with applicable laws (including, but not
limited to, the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto);
(f) Borrower assumes all responsibility and liability arising from
or relating to the production, use, sale or other disposition of the Inventory;
(g) Borrower shall not sell Inventory to any customer on approval,
or any other basis which entitles the customer to return or may obligate
Borrower to repurchase such Inventory;
(h) Borrower shall keep the Inventory in good and marketable
condition; and
(i) Borrower shall not, without prior written notice to Lender,
acquire or accept any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment:
(a) upon Lender's request, Borrower shall, at its expense, at any
time or times as Lender may request on or after an Event of Default, deliver or
cause to be delivered to Lender written reports or appraisals as to the
Equipment in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender;
(b) Borrower shall keep the Equipment in good order, repair,
running and marketable condition (ordinary wear and tear excepted);
(c) Borrower shall use the Equipment with all reasonable care and
caution and in accordance with applicable
51
standards of any insurance and in conformity with all applicable laws;
(d) the Equipment is and shall be used in Borrower's business and
not for personal, family, household or farming use;
(e) Borrower shall not remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of the business of Borrower or to
move Equipment directly from one location set forth or permitted herein to
another such location and except for the movement of motor vehicles used by or
for the benefit of Borrower in the ordinary course of business;
(f) the Equipment is now and shall remain personal property and
Borrower shall not permit any of the Equipment to be or become a part of or
affixed to real property; and
(g) Borrower assumes all responsibility and liability arising from
the use of the Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to:
(a) at any time an Event of Default or event which with notice or
passage of time or both would constitute an Event of Default exists or has
occurred and is continuing:
(i) demand payment on Accounts or other proceeds of
Inventory or other Collateral,
(ii) enforce payment of Accounts or other Obligations
included in the Collateral by legal proceedings or otherwise,
(iii) exercise all of Borrower's rights and remedies
to collect any Account or other proceeds of Inventory or other
Collateral,
52
(iv) sell or assign any Account upon such terms, for
such amount and at such time or times as the Lender deems
advisable,
(v) settle, adjust, compromise, extend or renew an
Account,
(vi) discharge and release any Account or other
Obligations included in the Collateral,
(vii) prepare, file and sign Borrower's name on any
proof of claim in bankruptcy or other similar document against an
account debtor,
(viii) notify the post office authorities to change
the address for delivery of Borrower's mail to an address
designated by Lender, and open and dispose of all mail addressed to
Borrower, and
(ix) do all acts and things which are necessary, in
Lender's determination, to fulfill Borrower's obligations under
this Agreement and the other Financing Agreements; and
(b) at any time, subject to the terms of the agreement(s) relating
to the Blocked Account(s) to:
(i) take control in any manner of any item of payment
or proceeds thereof,
(ii) have access to any lockbox or postal box into
which Borrower's mail is deposited,
(iii) endorse Borrower's name upon any items of
payment or proceeds thereof and deposit the same in the Lender's
account for application to the Obligations,
(iv) endorse Borrower's name upon any chattel paper,
document, instrument, invoice, or similar document or agreement
relating to any Account or any goods pertaining thereto or any
other Collateral,
53
(v) sign Borrower's name on any verification of
Accounts and notices thereof to account debtors, and
(vi) execute in Borrower's name and file any UCC
financing statements or amendments thereto.
Borrower hereby releases Lender and its officers, employees and designees from
any liabilities arising from any act or acts under this power of attorney and in
furtherance thereof, whether of omission or commission, except as a result of
Lender's own gross negligence or willful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option: (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower: (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral; and (c) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Lender with respect thereto.
Lender may add any amounts so expended to the Obligations and charge Borrower's
account therefor, such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment or bonding and shall
not, by doing so, be deemed to have assumed any obligation or liability of
Borrower. Any payment made or other action taken by Lender under this Section
ERROR! REFERENCE SOURCE NOT FOUND. shall be without prejudice to any right to
assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrower:
(a) Lender or its designee shall have complete access to all of
Borrower's premises during normal business hours and after notice to Borrower,
or at any time and without notice to Borrower if an Event of Default exists or
has occurred and is continuing, for the purposes of inspecting, verifying and
54
auditing the Collateral and all of Borrower's books and records, including,
without limitation, the Records;
(b) Borrower shall promptly furnish to Lender such copies of such
books and records or extracts therefrom as Lender may request; and
(c) use during normal business hours such of Borrower's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's articles of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their
55
respective terms. Borrower does not have any subsidiaries except as set forth on
the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operations of Borrower as at the
dates and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.9 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
56
Schedule 8.4 hereto or permitted under Section 9.9 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets, business or prospects
of Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
8.7 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection with
which Borrower or any of its ERISA Affiliates could be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, including any accumulated funding deficiency
57
described in Section 8.7(c) hereof and any deficiency with respect to vested
accrued benefits described in Section 8.7(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation has
been or is expected by Borrower to be incurred with respect to any employee
benefit plan of Borrower or any of its ERISA Affiliates. There has been no
reportable event (within the meaning of Section 4043(b) of ERISA) or any other
event or condition with respect to any employee pension benefit plan of Borrower
or any of its ERISA Affiliates which presents a risk of termination of any such
plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower or any
of its ERISA Affiliates is required under Section 302 of ERISA and Section 412
of the Code to have paid under the terms of each employee benefit plan as
contributions to such plan as of the last day of the most recent fiscal year of
such plan ended prior to the date hereof, and no accumulated funding deficiency
(as defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, exists with respect to any employee benefit plan, including any penalty
or tax described in Section 8.7(a) hereof and any deficiency with respect to
vested accrued benefits described in Section 8.7(d) hereof.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.7(a) hereof and any accumulated funding deficiency
described in Section 8.7(c) hereof. The terms
58
"current value" and "accrued benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has ever
been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, Borrower has not
generated, used, stored, treated, transported, manufactured, handled, produced
or disposed of any Hazardous Materials, on or off its premises (whether or not
owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar
authorization thereunder and the operations of Borrower complies in all material
respects with all Environmental Laws and all licenses, permits, certificates,
approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) Borrower has no material liability (contingent or otherwise) in
connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the
59
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates, approvals or
similar authorizations required to be obtained or filed in connection with the
operations of Borrower under any Environmental Law and all of such licenses,
permits, certificates, approvals or similar authorizations are valid and in full
force and effect.
8.9 Compliance with Other Agreements and Applicable Laws. Borrower is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party or by which it or any of its assets are
bound, and Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local governmental authority.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.10 hereto, subject to
the right of Borrower to establish new accounts in accordance with Section 9.14
below.
8.11 Acquisition of Purchased Stock.
(a) The Purchase Agreements and the transactions contemplated
thereunder have been duly executed, delivered and performed in accordance with
their terms by the respective parties thereto in all respects, including the
fulfillment (not merely the waiver, except as may be disclosed to Lender and
consented to in writing by Lender) of all conditions precedent set forth therein
and giving effect to the terms of the Purchase Agreements and the assignments to
be executed and delivered by Seller thereunder, Buyer acquired and has good and
marketable title to the Purchased Stock, free and clear of
60
all claims, liens, pledges and encumbrances of any kind, except as disclosed in
writing to Lender.
(b) All actions and proceedings required by the Purchase
Agreements, applicable law or regulation (including, but not limited to,
compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Anti-Trust Improvements Act of 1976, as
amended) have been taken and the transactions required thereunder have been duly
and validly taken and consummated.
(c) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Purchase Agreements and no governmental or other
action or proceeding has been threatened or commenced, seeking any injunction,
restraining order or other order which seeks to void or otherwise modify the
transactions described in the Purchase Agreements.
(d) Borrower has delivered, or caused to be delivered, to Lender
true, correct and complete copies of the Purchase Agreements.
8.12 Capitalization.
(a) Upon the consummation of the transactions contemplated under
the Purchase Agreement, all of the issued and outstanding shares of capital
stock of Borrower and Wareforce will be directly and beneficially owned and held
by Buyer and all of such shares have been duly authorized and are fully paid and
non-assessable, free and clear of all claims, liens, pledges and encumbrances of
any kind, except as disclosed in writing to Lender.
(b) Borrower is solvent and will continue to be solvent after the
creation of the Obligations, the security interests of Lender and the other
transaction contemplated hereunder, is able to pay its debts as they mature and
has (and has reason to believe it will continue to have) sufficient capital (and
not unreasonably small capital) to carry on its business and all businesses in
which it is about to engage. The assets and properties of Borrower at a fair
valuation and at their
61
present fair salable value are, and will be, greater than the indebtedness of
Borrower, and including subordinated and contingent liabilities computed at the
amount which, to the best of Borrower's knowledge, represents an amount which
can reasonably be expected to become an actual or matured liability.
8.13 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.14 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or
62
proposed to be conducted. Borrower shall give Lender thirty (30) days prior
written notice of any proposed change in its corporate name, which notice shall
set forth the new name and Borrower shall deliver to Lender a copy of the
amendment to the Articles of Incorporation of Borrower providing for the name
change certified by the Secretary of State of the jurisdiction of incorporation
of Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower: (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location; and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements and, if
Borrower leases such new location, provides a favorable landlord waiver or
subordination.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, at all times, comply in all material respects
with all laws, rules, regulations, licenses, permits, approvals and orders
applicable to it and duly observe all requirements of any Federal, State or
local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Borrower shall take prompt and appropriate action to respond
to any non-compliance with any of the Environmental Laws and shall report to
Lender on such response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining knowledge of:
63
(i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any
Hazardous Material; or
(ii) any investigation, proceeding, complaint,
order, directive, claims, citation or notice with respect to:
(A) any non-compliance with or violation of any Environmental Law
by Borrower;
(B) the release, spill or discharge, threatened or actual, of any
Hazardous Material;
(C) the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials; or
(D) any other environmental, health or safety matter, which
affects Borrower or its business, operations or assets or any properties at
which Borrower transported, stored or disposed of any Hazardous Materials.
(d) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial work with respect to
any property of Borrower and the preparation and implementation of any closure,
remedial or other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
64
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance
65
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by Borrower or any of its affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.
9.6 Key Man Life Insurance Policy. Borrower shall use its best efforts
to obtain a Key Man Life Insurance Policy insuring the life of ▇▇▇▇▇▇▇▇, which
policy, shall be in an amount of not less than Two Million Dollars ($2,000,000)
and once obtained, shall be beneficially assigned to Lender.
9.7 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true and
complete entries shall be made of all dealings or transactions of or in relation
to the Collateral and the business of Borrower and its subsidiaries (if any) in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender:
(i) within twenty-five (25) days after the end of each
fiscal month, monthly unaudited consolidated financial statements,
and, if Borrower has any subsidiaries, unaudited consolidating
financial statements (including in each case balance sheets, and
statements of income and loss), all in reasonable detail, fairly
presenting the financial position and the results of the operations
of Borrower and its subsidiaries as of the end of and through such
fiscal month; and
(ii) within ninety (90) days after the end of each
fiscal year, audited consolidated financial statements and, if
Borrower has any subsidiaries, audited consolidating financial
statements of Borrower and its subsidiaries (including in each case
balance
66
sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrower and its
subsidiaries as of the end of and for such fiscal year, together
with the unqualified opinion of independent certified public
accountants, which accountants shall be an independent accounting
firm selected by Borrower and reasonably acceptable to Lender, that
such financial statements have been prepared in accordance with
GAAP, and present fairly the results of operations and financial
condition of Borrower and its subsidiaries as of the end of and for
the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the details
of:
(i) any loss, damage, investigation, action, suit,
proceeding or claim relating to the Collateral or any other
property which is security for the Obligations or which would
result in any material adverse change in Borrower's business,
properties, assets, goodwill or condition, financial or otherwise,
and
(ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would
constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing thereof
furnish or cause to be furnished to Lender copies of all financial reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender such
budgets, forecasts, projections and other information in respect of the
Collateral and the business of
67
Borrower, as Lender may, from time to time, reasonably request. Lender is
hereby authorized to deliver a copy of any financial statement or any other
information relating to the business of Borrower to any court or other
government agency or to any participant or assignee or prospective participant
or assignee. Borrower hereby irrevocably authorizes and directs all accountants
or auditors to deliver to Lender, at Borrower's expense, copies of the financial
statements of Borrower and any reports or management letters prepared by such
accountants or auditors on behalf of Borrower and to disclose to Lender such
information as they may have regarding the business of Borrower. Any documents,
schedules, invoices or other papers delivered to Lender may be destroyed or
otherwise disposed of by Lender one (1) year after the same are delivered to
Lender, except as otherwise designated by Borrower to Lender in writing.
9.8 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly:
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it without the
prior written consent of Lender, which consent shall not be unreasonably
withheld;
(b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets to any other
Person, (except for:
(i) sales of Inventory in the ordinary course of
business; and
(ii) the disposition of worn-out or obsolete Equipment
or Equipment no longer used in the business of Borrower so long as:
(A) if an Event of Default exists or has occurred and is
continuing, any proceeds are paid to Lender, and
(B) such sales do not involve Equipment, together with any
equipment disposed by Wareforce, having an
68
aggregate fair market value in excess of Twenty-Five Thousand Dollars ($25,000)
for all such equipment disposed of by Borrower and Wareforce in any fiscal year
of Borrower);
(c) form or acquire any subsidiaries;
(d) wind up, liquidate or dissolve; or
(e) agree to do any of the foregoing.
9.9 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except:
(a) the liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or
the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
(c) security deposits in the ordinary course of business;
(d) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of Borrower's business to the
extent:
(i) such liens secure indebtedness which is not
overdue, or
(ii) such liens secure indebtedness relating to claims
or liabilities which are fully insured and being defended at the
sole cost and expense and at the sole risk of the insurer (subject
to applicable deductibles) or being contested in good faith by
appropriate proceedings diligently pursued and available to
Borrower, in each case prior to the commencement of foreclosure or
other similar
69
proceedings and with respect to which adequate reserves have been
set aside on its books;
(e) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
business of Borrower as presently conducted thereon or materially impair the
value of the real property which may be subject thereto;
(f) purchase money security interests in Equipment (including
capital leases) and purchase money mortgages on real estate, together with the
then aggregate purchase money security interests in equipment and purchase money
mortgages on real estate outstanding by Wareforce, not to exceed Two Hundred
Thousand Dollars ($200,000) in the aggregate at any time outstanding so long as
such security interests and mortgages do not apply to any property of Borrower
other than the Equipment or real estate so acquired, and the indebtedness
secured thereby does not exceed the cost of the Equipment or real estate so
acquired, as the case may be;
(g) the liens and security interests of NationsCredit on the assets
of Borrower consisting of Inventory to secure the indebtedness of Borrower to
NationsCredit permitted under Section ERROR! REFERENCE SOURCE NOT FOUND. hereof,
which liens and security interests are, in all respects, subject and subordinate
in priority to the liens and security interests of Lender pursuant to the
NationsCredit Intercreditor Agreement; and
(h) the security interests and liens set forth on Schedule 8.4
hereto.
9.10 Indebtedness. Borrower shall not incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary course of
business not yet due and payable, or with
70
respect to which Borrower is contesting in good faith the amount or validity
thereof by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to the
extent not incurred or secured by liens (including capital leases) in violation
of any other provision of this Agreement;
(d) obligations or indebtedness set forth on the Information
Certificate; provided, that:
(i) Borrower may only make regularly scheduled
payments of principal and interest in respect of such indebtedness
in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the
date hereof;
(ii) Borrower shall not, directly or indirectly:
(A) amend, modify, alter or change the terms of such indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, or
(B) except as otherwise permitted under this Agreement, redeem,
retire, defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose; and
(iii) Borrower shall furnish to Lender all notices or
demands in connection with such indebtedness either received by
Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending
thereof, as the case may be;
(e) indebtedness subordinated to the Obligations pursuant to an
agreement, in form and substance satisfactory to Lender and provided, that
Borrower has obtained the prior written consent of Lender to the assumption of
such subordinated debt; and
71
(f) indebtedness of Borrower to NationsCredit evidenced by that
certain Security Agreement dated August 27, 1998, between Borrower and
NationsCredit, which indebtedness is subject and subordinate in right of payment
to the right of Lender to receive the prior final payment and satisfaction in
full of all of the Obligations pursuant to the NationsCredit Intercreditor
Agreement.
9.11 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the stock or indebtedness or all or a substantial part of the assets
or property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except:
(a) the endorsement of instruments for collection or deposit in the
ordinary course of business; (b) investments in:
(i) short-term direct obligations of the United States
Government;
(ii) negotiable certificates of deposit issued by any
bank satisfactory to Lender, payable to the order of the Borrower
or to bearer and delivered to Lender; and
(iii) commercial paper rated A1 or P1;
(c) loans to employees of Borrower which, together with any loans
outstanding to the employees of Wareforce shall not at any time exceed One
Hundred Thousand Dollars ($100,000) in the aggregate;
(d) loans to Wareforce in an amount not to exceed at any one time
Seven Hundred Fifty Thousand Dollars ($750,000); provided, that, as to any of
the foregoing, unless waived in writing by Lender, Borrower shall take such
actions as are
72
deemed necessary by Lender to perfect the security interest of Lender in such
investments, including, without limitation, collaterally assigning to Lender its
rights under any promissory notes evidencing the loans to any employees of
Borrower and Wareforce; and
(e) the guarantees set forth in the Information Certificate.
9.12 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of any class
of capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
9.13 Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person.
9.14 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto,
except:
(a) as to any new or additional Blocked Accounts and other such new
or additional accounts which contain any Collateral or proceeds thereof, with
the prior written consent
73
of Lender and subject to such conditions thereto as Lender may establish; and
(b) as to any accounts used by Borrower to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
9.15 Compliance with ERISA.
(a) Borrower shall not with respect to any "employee pension
benefit plans" maintained by Borrower or any of its ERISA Affiliates:
(i) terminate any of such employee pension benefit
plans so as to incur any liability to the Pension Benefit Guaranty
Corporation established pursuant to ERISA;
(ii) allow or suffer to exist any prohibited
transaction involving any of such employee pension benefit plans or
any trust created thereunder which would subject Borrower or such
ERISA Affiliate to a tax or penalty or other liability on
prohibited transactions imposed under Section 4975 of the Code or
ERISA;
(iii) fail to pay to any such employee pension benefit
plan any contribution which it is obligated to pay under Section
302 of ERISA, Section 412 of the Code or the terms of such plan;
(iv) allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such
employee pension benefit plan;
(v) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a
material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee pension benefit plan that is a
single employer plan, which termination could result in any
74
liability to the Pension Benefit Guaranty Corporation; or
(vi) incur any withdrawal liability with respect to
any multiemployer pension plan.
(b) As used in this Section 9.15, the terms "employee pension
benefit plans", "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
9.16 Adjusted Net Worth. Borrower shall, at all times, maintain
Adjusted Net Worth of not less than the Adjusted Net Worth of Borrower as of
August 31, 1998 reflected on Borrower's financial statements, less One Hundred
Thousand Dollars ($100,000).
9.17 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to:
(a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) all costs and expenses and fees for all title insurance and
other insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees;
75
(c) all costs and expenses of remitting loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Lender's customary charges and fees with respect
thereto;
(d) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations;
(e) costs and expenses of preserving and protecting the Collateral;
(f) costs and expenses paid or incurred in connection with
obtaining payment of the Obligations, enforcing the security interests and liens
of Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including, without limitation,
preparations for and consultations concerning any such matters);
(g) all out-of-pocket expenses and costs heretofore and from time
to time hereafter incurred by Lender's examiners in the conduct of their
periodic field examinations of the Collateral and Borrower's operations, plus a
per diem charge at the rate of Six Hundred Fifty Dollars ($650) per person per
day for Lender's examiners in the field and office, provided, however, so long
as no Event of Default has occurred, such out-of-pocket expenses and costs shall
not exceed One Thousand Dollars ($1,000) in any one calendar year and such per
diem charge shall not exceed Ten Thousand Dollars ($10,000) in any one calendar
year; and
(h) the fees and disbursements of counsel (including legal
assistants) to Lender in connection with any of the foregoing.
9.18 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper
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to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing on behalf of Borrower that all conditions precedent to the
making of Loans and providing Letter of Credit Accommodations contained herein
are satisfied. In the event of such request by Lender, Lender may, at its
option, cease to make any further Loans or provide any further Letter of Credit
Accommodations until Lender has received such certificate and, in addition,
Lender has determined that such conditions are satisfied. Where permitted by
law, Borrower hereby authorizes Lender to execute and file one or more UCC
financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) Borrower fails to pay when due any of the Obligations or fails
to perform any of the terms, covenants, conditions or provisions contained in
this Agreement or any of the other Financing Agreements (including, without
limitation, the NationsCredit Intercreditor Agreement or the Guarantee of even
date herewith by Borrower in favor of Lender);
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
77
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of Twenty-Five Thousand Dollars ($25,000) in
any one case or in excess of Fifty Thousand Dollars ($50,000) in the aggregate
and shall remain undischarged or unvacated for a period in excess of thirty (30)
days or execution shall at any time not be effectively stayed, or any judgment
other than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within thirty (30)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect
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(whether at a law or equity) is filed by Borrower or any Obligor or for all or
any part of its property;
(i) any default by Borrower or any Obligor from and after the
Closing under any agreement, document or instrument relating to any indebtedness
for borrowed money owing to any person other than Lender, or any capitalized
lease obligations, contingent indebtedness in connection with any guarantee,
letter of credit, indemnity or similar type of instrument in favor of any person
other than Lender, in any case in an amount in excess of Fifty Thousand Dollars
($50,000), which default continues for more than the applicable cure period, if
any, with respect thereto, or any default by Borrower or any Obligor under any
material contract, lease, license or other obligation to any person other than
Lender, which default continues for more than the applicable cure period, if
any, with respect thereto;
(j) the NationsCredit Flooring Line is terminated and no longer in
effect;
(k) the Wareforce Loan Agreement is terminated and no longer in
effect;
(l) any change in the controlling ownership of Borrower which would
reduce Buyer's ownership interest in Borrower;
(m) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(n) there shall be a material adverse change in the business,
assets or prospects of Borrower or any Obligor after the date hereof; or
(o) there shall be an event of default under any of the other
Financing Agreements, including without limitation, the Wareforce Loan
Agreement.
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10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of Default
exists or has occurred and is continuing, Lender may, in its discretion and
without limitation:
(i) accelerate the payment of all Obligations and
demand immediate payment thereof to Lender (provided, that, upon
the occurrence of any Event of Default described in Sections
10.1(g) and 10.1(h), all Obligations shall automatically become
immediately due and payable);
(ii) with or without judicial process or the aid or
assistance of others, enter upon any premises on or in which any of
the Collateral may be located and take possession of the Collateral
or complete processing, manufacturing and repair of all or any
portion of the Collateral;
80
(iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the
Collateral at any place and time designated by Lender;
(iv) collect, foreclose, receive, appropriate, setoff
and realize upon any and all Collateral;
(v) remove any or all of the Collateral from any
premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for
any other purpose;
(vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without
limitation, entering into contracts with respect thereto, public or
private sales at any exchange, broker's board, at any office of
Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the
Lender having the right to purchase the whole or any part of the
Collateral at any such public sale, all of the foregoing being free
from any right or equity of redemption of Borrower, which right or
equity of redemption is hereby expressly waived and released by
Borrower; and/or
(vii) terminate this Agreement.
If any of the Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Lender to Borrower
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and Borrower waives any other notice. In
the event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy,
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Borrower waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an Event
of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice:
(i) cease making Loans or arranging for Letter of
Credit Accommodations or reduce the lending formulas or amounts of
Revolving Loans and Letter of Credit Accommodations available to
Borrower; and/or
(ii) terminate any provision of this Agreement
providing for any future Loans or Letter of Credit Accommodations
to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW.
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the state courts of the
▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇ and of the United States District
Court for the Central District of California and waive any objection based on
venue or forum non conveniens with respect to any action instituted therein
arising under this Agreement or any of the other Financing Agreements or in any
way connected with or related or incidental to the dealings of the parties
hereto in respect of this Agreement or any of the other Financing Agreements or
the transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard only in the
courts described above (except that Lender shall have the right to bring any
action or proceeding against Borrower or its property in the courts of any other
jurisdiction which Lender deems necessary or appropriate in order to realize on
the Collateral or to otherwise enforce its rights against Borrower or its
property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Lender's option, by service upon Borrower in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, Borrower
shall appear in answer to such process, failing which Borrower shall be deemed
in default and judgment may be entered by Lender against Borrower for the amount
of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION: (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS; OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT,
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TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT BORROWER OR LENDER MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF
THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to
have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed
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by an authorized officer of Lender. Any such waiver shall be enforceable only to
the extent specifically set forth therein. A waiver by Lender of any right,
power and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Lender would otherwise have
on any future occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other than
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
fees and expenses of counsel. To the extent that the undertaking to indemnify,
pay and hold harmless set forth in this Section 11.5. may be unenforceable
because it violates any law or public policy, Borrower shall pay the maximum
portion which it is permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section 11.5. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
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SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date two (2) years from the
date hereof (the "Renewal Date"), and upon mutual agreement by Lender and
Borrower, for one (1) year thereafter, unless sooner terminated pursuant to the
terms hereof. Lender or Borrower may terminate this Agreement and the other
Financing Agreements effective on the Renewal Date or on the anniversary of the
Renewal Date in any year by giving to the other party at least sixty (60) days
prior written notice; provided, that, this Agreement and all other Financing
Agreements must be terminated simultaneously and this Agreement and all other
Financing Agreements shall immediately terminate upon the termination of the
NationsCredit Flooring Line or the NationsCredit Intercreditor Agreement. Upon
the effective date of termination or non-renewal of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid Obligations
and shall furnish cash collateral to Lender in such amounts as Lender determines
are reasonably necessary to secure Lender from loss, cost, damage or expense,
including attorneys' fees and legal expenses, in connection with any contingent
Obligations, including issued and outstanding Letter of Credit Accommodations
and checks or other payments provisionally credited to the Obligations and/or as
to which Lender has not yet received final and indefeasible payment. Such
payments in respect of the Obligations and cash collateral shall be remitted by
wire transfer in Federal funds to such bank account of Lender, as Lender may, in
its discretion, designate in writing to Borrower for such purpose. Interest
shall be due until and including the next Business Day, if the amounts so paid
by Borrower to the bank account designated by Lender are received in such bank
account later than 10:30 a.m., Pacific time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid,
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and Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
------ ------
(i) 1% of Maximum Credit From the date hereof to and including
the first anniversary of the date
hereof; and
(ii) 0.25% of Maximum Credit After the first anniversary of the date
hereof or at any time during a renewal
term, if any.
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section
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12.1 shall be deemed included in the Obligations.
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and: (a) made to Lender at its address set forth below and to Borrower
at its chief executive office set forth below, or to such other address as
either party may designate by written notice to the other in accordance with
this provision; and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
88
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
12.6 Publicity. Borrower consents to Lender publishing a tombstone or
similar advertising material relating to the financing transaction contemplated
by this Agreement.
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION (WESTERN) C.Y. INVESTMENT INC.
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Title: Vice President Title: General Counsel
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Address: Chief Executive Office:
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