EXHIBIT 10.1.
LOAN AND SECURITY AGREEMENT
by and among
ZANETT, INC.
and
EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO
as the Borrowers,
and
FIFTH THIRD BANK
as the Lender,
Dated as of September 1, 2004
1. DEFINITIONS AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Accounting Terms 1
1.3 Code 1
1.4 Construction 1
1.5 Schedules and Exhibits 2
2. LOANS AND TERMS OF PAYMENT 2
2.1 Revolver Advances 2
2.2 Borrowing Procedures 2
2.3 Payments 3
2.4 Overadvances 4
2.5 Interest Rates: Rates, Payments, and Calculations 4
2.6 Cash Management 5
2.7 Authority 7
2.8 Statements of Obligations 7
2.9 Fees 8
2.10 Intentionally Deleted 8
2.11 Capital Requirements 8
2.12 Joint and Several Liability of the Borrowers 8
3. CONDITIONS; TERM OF AGREEMENT 11
3.1 Conditions Precedent to the Initial Extension of Credit 11
3.2 Conditions Subsequent to the Initial Extension of Credit 13
3.3 Conditions Precedent to all Extensions of Credit 14
3.4 Term 14
3.5 Effect of Termination 14
4. CREATION OF SECURITY INTEREST 14
4.1 Grant of Security Interest 14
4.2 Negotiable Collateral 15
4.3Collection of Accounts, General Intangibles, and Negotiable Collateral15
4.4 Delivery of Additional Documentation Required 15
4.5 Power of Attorney 15
4.6 Right to Inspect 16
4.7 Control Agreements 16
5. REPRESENTATIONS AND WARRANTIES 16
5.1 No Encumbrances 17
5.2 Eligible Accounts 17
5.3 Equipment; Fixtures 17
5.4 Location of Inventory and Equipment 17
5.5 Location of Chief Executive Office; Previous Names and Locations 17
5.6 Due Organization and Qualification; Subsidiaries 18
5.7 Due Authorization; No Conflict 18
5.8 Litigation 19
5.9 No Material Adverse Change 19
5.10 Fraudulent Transfer 19
5.11 Employee Benefits 19
5.12 Environmental Condition 20
5.13 Brokerage Fees 20
5.14 Intellectual Property 20
5.15 Leases 21
5.16 DDAs 21
5.17 Complete Disclosure 21
5.18 Indebtedness 21
5.19 No Employee Disputes; Labor Matters 21
5.20 Planet Zanett 22
6. AFFIRMATIVE COVENANTS 22
6.1 Accounting System 22
6.2 Collateral Reporting 22
6.3 Financial Statements, Reports, Certificates 22
6.4 Additional Public Company Reports 24
6.5 Maintenance of Properties 24
6.6 Taxes 24
6.7 Insurance 25
6.8 Location of Inventory and Equipment 26
6.9 Compliance with Laws 26
6.10 Leases 27
6.11 Brokerage Commissions 27
6.12 Existence 27
6.13 Environmental 27
6.14 ERISA 27
6.15 Proceedings or Adverse Changes 29
6.16 Disclosure Updates 29
7. NEGATIVE COVENANTS 30
7.1 Indebtedness 30
7.2 Liens 30
7.3 Consignments 30
7.4 Restrictions on Fundamental Changes 30
7.5 Disposal of Assets 31
7.6 Change Name 31
7.7 Guarantee 31
7.8 Nature of Business 31
7.9 Prepayments and Amendments 31
7.10 Change of Control 32
7.11 Distributions 32
7.12 Accounting Methods 32
7.13 Investments 32
7.14 Transactions with Affiliates 32
7.15 Suspension 32
7.16 Use of Proceeds 32
7.17 Securities Accounts 33
7.18 Financial Covenants 33
7.19 Bank Accounts 33
8. EVENTS OF DEFAULT 33
9. THE LENDER'S RIGHTS AND REMEDIES 35
9.1 Rights and Remedies 35
9.2 Remedies Cumulative 37
10. TAXES AND EXPENSES 37
11. WAIVERS; INDEMNIFICATION 38
11.1 Demand; Protest; etc. 38
11.2 The Lender's Liability for Collateral 38
11.3 Indemnification 38
12. NOTICES 39
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER 40
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS 41
14.1 Assignments and Participations 41
14.2 Successors 41
15. AMENDMENTS; WAIVERS 41
15.1 Amendments and Waivers 41
15.2 No Waivers; Cumulative Remedies 41
16. GENERAL PROVISIONS 41
16.1 Section Headings 41
16.2 Interpretation 42
16.3 Severability of Provisions 42
16.4 Counterparts; Telecopy Execution 42
16.5 Revival and Reinstatement of Obligations 42
16.6 Integration 42
16.7 Parent as Agent for the Borrowers 16.7 42
16.8 No Lender Brokerage Fees 43
16.9 Existing CFO/CLO Promissory Notes 43
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of
September 1, 2004 between and among, on the one hand, Fifth Third Bank, an
Ohio banking corporation (together with its successors and assigns, the
"Lender"), and, on the other hand, Zanett, Inc., a Delaware corporation
("Parent"), and each of Parent's direct and indirect Subsidiaries identified
on the signature pages hereof (such Subsidiaries, together with Parent, are
referred to hereinafter each individually as a "Borrower", and individually
and collectively, jointly and severally, as the "Borrowers").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the terms set forth at
Exhibit A shall have the definitions set forth therein.
1.2 Accounting Terms. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with GAAP. When used herein,
the term "financial statements" shall include the notes and schedules
thereto. Whenever the term "Borrowers" or the term "Parent" is used in
respect of a financial covenant or a related definition, it shall be
understood to mean Parent and its Subsidiaries on a consolidated basis unless
the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4 Construction. Unless the context of this Agreement or any other
Loan Document clearly requires otherwise, references to the plural include
the singular, references to the singular include the plural, the term
"including" is not limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase "and/or." The
words "hereof," "herein," "hereby," "hereunder," and similar terms in this
Agreement or any other Loan Document refer to this Agreement or such other
Loan Document, as the case may be, as a whole and not to any particular
provision of this Agreement or such other Loan Document, as the case may be.
Section, subsection, clause, schedule, and exhibit references herein are to
this Agreement unless otherwise specified. Any reference in this Agreement
or in the other Loan Documents to any agreement, instrument, or document
shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions
on such alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, joinders, and supplements set forth
herein). Any reference herein to any Person shall be construed to include
such Person's successors and assigns. Any requirement of a writing contained
herein or in the other Loan Documents shall be satisfied by the transmission
of a Record and any Record transmitted shall constitute a representation and
warranty as to the accuracy and completeness of the information contained
therein.
1.5 Schedules and Exhibits. All of the schedules and exhibits
attached to this Agreement shall be deemed incorporated herein by reference.
2. LOANS AND TERMS OF PAYMENT.
2.1 Revolver Advances.
(a) Subject to the terms and conditions of this Agreement, and
until September 1, 2006 (the "Revolving Credit Maturity Date"), the Lender
agrees to make revolving credit Advances (the "Revolving Credit Advances") to
the Borrowers in an amount at any one time outstanding not to exceed an
amount equal to the lesser of (i) the Maximum Revolver Amount, or (ii) the
Borrowing Base. For purposes of this Agreement, "Borrowing Base," as of any
date of determination, shall mean the result of:
(x) 75% of the amount of Eligible Accounts, plus
(y) 90% of the amount of collected cash balances in the
Concentration Account, minus
(z) the aggregate amount of reserves, if any, established by
the Lender under Section 2.1(b).
(b) Anything to the contrary in this Section 2.1 notwithstanding,
the Lender shall have the right, upon thirty (30) days notice to
Administrative Borrower, to establish reserves in such amounts, and with
respect to such matters, as the Lender in its Permitted Discretion shall deem
necessary or appropriate, against the Borrowing Base, including reserves with
respect to (i) sums that any Borrower is required to pay (such as taxes,
assessments, insurance premiums, or, in the case of leased assets, rents or
other amounts payable under such leases) and has failed to pay under any
Section of this Agreement or any other Loan Document, and (ii) amounts owing
by any Borrower to any Person to the extent secured by a Lien on, or trust
over, any of the Collateral (other than any existing Permitted Lien set forth
on Exhibit B which is specifically identified thereon as entitled to have
priority over the Lender's Liens), which Lien or trust, in the Permitted
Discretion of the Lender likely would have a priority superior to the
Lender's Liens (such as Liens or trusts in favor of landlords, warehousemen,
carriers, mechanics, materialmen, laborers, or suppliers, or Liens or trusts
for ad valorem, excise, sales, or other taxes where given priority under
applicable law) in and to such item of the Collateral.
(c) The Lender shall have no obligation to make additional
Revolving Credit Advances hereunder to the extent such additional Revolving
Credit Advances would cause a violation of Section 2.1(a) or when a Default
or Event of Default has occurred and is continuing.
(d) Amounts borrowed pursuant to this Section may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement.
2.2 Borrowing Procedures. Other than when Lender has the right to
direct Advances to pay Obligations due and owing to it, all Advances shall be
effectuated, only as directed by two (2) Authorized Persons, by crediting one
or more disbursement accounts of one or more of the Borrowers at the Lender
(the disbursement accounts established for any or all of the Borrowers at the
Lender are referred to each individually as a "Disbursement Account" and
together collectively as the "Disbursement Accounts"). Requests for Advances
by Borrowers shall be in the form of the irrevocable written request of two
(2) Authorized Persons delivered to the Lender (which request must be
received by the Lender no later than 2:00 p.m. (Cincinnati, Ohio time) on the
Business Day that is the requested Funding Date) specifying (a) the amount of
such Borrowing and (b) the requested Funding Date, which shall be a Business
Day. At the Lender's election, in lieu of delivering the above-described
written request, two (2) Authorized Persons may give the Lender telephonic
notice of such request by the required time, with such telephonic notice to
be confirmed in writing within 24 hours of the giving of such notice.
2.3 Payments.
(a) Payments by the Borrowers. Except as otherwise expressly
provided herein, all payments by the Borrowers shall be made to the Lender
and shall be made in immediately available funds no later than 2:00 p.m.
(Cincinnati, Ohio time) on the date specified herein. Any payment received
by the Lender later than 2:00 p.m. (Cincinnati, Ohio time) shall be deemed to
have been received on the following Business Day and any applicable interest
or fee shall continue to accrue until such following Business Day.
(b) Application.
(i) All payments shall be remitted to the Lender and all such
payments (other than payments received while no Default or Event of Default
has occurred and is continuing and which relate to the payment of principal
or interest of specific Obligations or which relate to the payment of
specific fees), and all proceeds of Accounts or other Collateral received by
the Lender (including payments to any of the Collections Accounts and/or the
Concentration Account in accordance with Section 2.6), shall be applied to
the Obligations as the Lender elects or as follows:
A. first, to pay interest then due in respect of the
Advances until paid in full,
B. second, to pay any Lender Expenses then due under the
Loan Documents until paid in full,
C. third, to pay any fees then due to the Lender under the
Loan Documents until paid in full,
D. fourth, to pay principal then due in respect of all
Advances until paid in full,
E. fifth, to pay any other Obligations until paid in full,
and
F. sixth, to the Borrowers or such other Person entitled
thereto under applicable law.
(ii) In each instance, so long as no Default or Event of
Default has occurred and is continuing, Section 2.3(b)(i) shall not be deemed
to apply to any payment by the Borrowers specified by the Borrowers to be for
the payment of specific Obligations then due and payable (or prepayable)
under any provision of this Agreement.
(iii) For purposes of the foregoing, "paid in full" means
payment of all amounts owing under the Loan Documents according to the terms
thereof, including loan fees, service fees, professional fees, interest (and
specifically including interest accrued after the commencement of any
Insolvency Proceeding), default interest, interest on interest, and expense
reimbursements, whether or not the same would be or is allowed or disallowed
in whole or in part in any Insolvency Proceeding.
(iv) In the event of a direct conflict between the priority
provisions of this Section 2.3 and other provisions contained in any other
Loan Document, it is the intention of the parties hereto that such priority
provisions in such documents shall be read together and construed, to the
fullest extent possible, to be in concert with each other. In the event of
any actual, irreconcilable conflict that cannot be resolved as aforesaid, the
terms and provisions of this Section 2.3 shall control and govern.
(c) Effect of Termination. The outstanding unpaid principal
balance and all accrued and unpaid interest on the Revolving Credit Advances
shall be due and payable on the date of termination of this Agreement,
whether by its terms, by prepayment, or by acceleration. All amounts
outstanding under the Revolving Credit Advances shall constitute Obligations.
2.4 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by the Borrowers to the Lender pursuant to this Article 2 is
greater than either the Dollar or percentage limitations set forth in any
provision of this Article 2 (an "Overadvance"), the Borrowers immediately
shall pay to the Lender, in cash, the amount of such excess, which amount
shall be used by the Lender to reduce the Obligations in accordance with the
priorities set forth in Section 2.3(b)(i); provided, however, that to the
extent the Overadvance occurs because Accounts are excluded as Eligible
Accounts solely under Clause (m) of the definition of Eligible Accounts and
only as a result of actions or failures to act by the Lender, without
limiting the Borrowers' duties to assist the Lender in resolving any
perfection and priority issues and to pay immediately to the Lender any other
portion of the Overadvance, the Borrowers shall have 30 days after notice
from the Lender to reduce the Obligations to eliminate such portion of the
Overadvance attributable to such actions or failures to act by the Lender.
In addition, the Borrowers hereby promise to pay the Obligations (including
principal, interest, fees, costs, and expenses) in Dollars in full to the
Lender as and when due and payable under the terms of this Agreement and the
other Loan Documents.
2.5 Interest Rates: Rates, Payments, and Calculations.
(a) Interest Rates. Except as provided in clause (c) below, all
Advances and related Obligations shall bear interest on the Daily Balance
thereof at a per annum rate equal to the Base Rate plus the Base Rate Margin.
(b) Default Rate. Upon the occurrence and during the continuation
of an Event of Default (and at the election of the Lender), all Obligations
shall bear interest on the Daily Balance thereof at a per annum rate equal to
2 percentage points above the per annum rate otherwise applicable hereunder.
(c) Payment. Except only as specifically provided otherwise in
\this Agreement, all accrued and unpaid interest and all other fees payable
ereunder shall be due and payable, in arrears, on the first day of each month
at any time that Obligations are outstanding or this Agreement remains in
force or effect. If the Borrowers have not timely paid any Obligations owing
to the Lender, the Lender may apply toward such unpaid Obligations the amount
in excess of $50,000.00 in collected funds in the Concentration Account, and
if such funds are insufficient to pay current the Obligations, the Borrowers
hereby authorize the Lender, from time to time, without prior notice to any
of the Borrowers, to charge interest and fees, all Lender Expenses (as and
when incurred), the fees and costs provided for in Section 2.9 (as and when
accrued or incurred), and all other payments as and when due and payable
under any Loan Document to any account of any Borrower with the Lender, which
amounts thereafter constitute Revolving Credit Advances hereunder and shall
accrue interest at the rate then applicable to Revolving Credit Advances
hereunder. Any interest not paid when due and charged against the Borrowers
as provided above shall be compounded by being charged to any account of any
Borrower with the Lender and shall thereafter constitute Revolving Credit
Advances hereunder and shall accrue interest at the rate then applicable to
Advances that are Base Rate Loans hereunder.
(d) Computation. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual
number of days elapsed. In the event the Base Rate is changed from time to
time hereafter, the rates of interest hereunder based upon the Base Rate
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Base Rate.
(e) Intent to Limit Charges to Maximum Lawful Rate. In no event
shall the interest rate or rates payable under this Agreement, plus any other
amounts paid in connection herewith, exceed the highest rate permissible
under any law that a court of competent jurisdiction shall, in a final
determination, deem applicable. The Borrowers and the Lender, in executing
and delivering this Agreement, intend legally to agree upon the rate or rates
of interest and manner of payment stated within it; provided, however, that,
anything contained herein to the contrary notwithstanding, if said rate or
rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, as of the date of this Agreement, the Borrowers are and
shall be liable only for the payment of such maximum as allowed by law, and
payment received from the Borrowers in excess of such legal maximum, whenever
received, shall be applied to reduce the principal balance of the Obligations
to the extent of such excess.
2.6 Cash Management.
(a) The Borrowers have rented and shall continue to rent the post
office boxes at the U.S. Post Office bearing the following addresses: Back
Bay Technologies, Inc., PO Box ________, Cincinnati, Ohio 452__-____, INRANGE
Consulting Corporation, PO Box ________, Cincinnati, Ohio 452__-____, Paragon
Dynamics, Inc., PO Box ________, Cincinnati, Ohio 452__-____, and Delta
Communications Group, Inc., PO Box ________, Cincinnati, Ohio 452__-____,or
such other address(es) as the Lender (at any time after the occurrence of a
Default or Event of Default or upon 15 days notice to the Administrative
Borrower at any other time) may notify the Borrowers from time to time (each
individually a "Locked Box" and together collectively the "Locked Boxes").
Each Borrower shall notify all of its customers and Account Debtors to
forward all Collections to its respective Locked Box (such notices to be in
such form and substance as the Lender may require from time to time). The
Lender shall have access to the Locked Boxes at all times and the Borrowers
shall take all action necessary to grant the Lender such access. At no time
shall any Borrower remove any item from any Locked Box without the Lender's
prior written consent, and no Borrower shall notify any customer or Account
Debtor to pay any Collections to any other place or address without the
Lender's prior written consent. If any Borrower should neglect or refuse to
notify any customer or Account Debtor to pay any Collections to its
respective Locked Box, the Lender (at any time after the occurrence of a
Default or Event of Default or upon 15 days notice to the Administrative
Borrower at any other time) shall be entitled to make such notification.
Each Borrower hereby grants to the Lender an irrevocable power of attorney,
coupled with an interest, to take in such Borrower's name all action
necessary to grant the Lender access to the Locked Boxes and to endorse all
Collections delivered to the Locked Boxes for deposit to the Collection
Accounts and Concentration Account provided below.
(b) Upon receipt of Collections and other proceeds of Accounts and
other Collateral from the Locked Boxes, the Lender shall deposit the same in
non-interest bearing Account No. 702-▇▇▇▇▇▇▇ in the Lender's name at the
Lender for collections from the Locked Box for Back Bay Technologies, Inc.,
in non-interest bearing Account No. 702-▇▇▇▇▇▇▇ in the Lender's name at the
Lender for collections from the Locked Box for INRANGE Consulting
Corporation, in non-interest bearing Account No. 702-▇▇▇▇▇▇▇ in the Lender's
name at the Lender for collections from the Locked Box for Paragon Dynamics,
Inc., and in non-interest bearing Account No. 702-▇▇▇▇▇▇▇ in the Lender's
name at the Lender for collections from the Locked Box for Delta
Communications Group, Inc., or in each of the foregoing cases in such other
account(s) as the Lender may designate from time to time (each individually a
"Collections Account" and together collectively the "Collections Accounts").
All items deposited to the Collections Accounts will be held therein until
such items convert to collected funds from the payor bank, after which they
will promptly be transferred and deposited into Account No. 999-▇▇▇▇▇▇▇ in
the Lender's name at the Lender for collections from the Collections Accounts
(the "Concentration Account"). Funds in the Concentration Account may
remain there or (i) at the election of the Lender or the Administrative
Borrower will be applied to any Obligations then due and payable in the order
specified at Section 2.3(b)(i) or (ii) will be applied to any Obligations as
directed by the Lender after the occurrence of a Default or Event of Default.
If funds remain in any Concentration Account after such application, as long
as no Default or Event of Default has occurred and is continuing, such funds
will be transferred to the Administrative Borrower's Account Number 702
▇▇▇▇▇▇▇ at the Lender (the "Corporate Checking Account").
(c) Notwithstanding anything to the contrary in this Agreement or
in any of the other Loan Documents, until this Agreement is terminated and
the Obligations are repaid in full, the Borrowers shall always maintain a
minimum balance of $50,000.00 in the Concentration Account, which balance is
pledged as security for the Obligations and which the Lender, in its sole
discretion, may apply against the Obligations at any time after the
occurrence of a Default or Event of Default.
(d) Any Collections or other proceeds of Accounts or other
Collateral received by Borrower Zanett, Inc. or by any other Borrower other
than at its designated Locked Box shall be deemed held by such Borrower in
trust and as fiduciary for the Lender, and such Borrower immediately shall
deposit the same into a Collections Account or the Concentration Account or
deliver such Collections or proceeds to the Lender at its address for notices
then applicable under Section 12 for deposit by the Lender into the
Concentration Account. Pending such delivery, each Borrower agrees that it
will not commingle any such Collections or other proceeds of Accounts or
other Collateral with any of such Borrower's other funds or property, but
will hold them separate and apart therefrom in trust for the Lender.
(e) All deposits to the Collections Accounts and the Concentration
Account shall be the Lender's property and shall be subject only to the
signing authority designated from time to time by the Lender, and no Borrower
shall have any interest therein or control thereover. The Lender shall have,
and each Borrower hereby grants to the Lender, a security interest in all
funds held in the Collections Accounts and the Concentration Account as
security for the Obligations. The Collections Accounts and the Concentration
Account shall not be subject to any deduction, set-off, banker's lien, or any
other right in favor of any person or entity other than the Lender. Each
Borrower hereby indemnifies and holds the Lender harmless from and against
any loss or damage with respect to any Collections deposited in any of the
Collections Accounts and/or the Concentration Account which are dishonored or
returned for any reason. If any Collections deposited in any of the
Collections Accounts and/or the Concentration Account are dishonored or
returned unpaid for any reason, the Lender, at its discretion, may charge the
amount of such dishonored or returned Collections directly against any
Borrower and/or any account maintained by any Borrower with the Lender and
such amount shall be deemed part of the Obligations hereunder.
(f) All deposits to the Collections Accounts and the Concentration
Account will be available for use by the Borrowers promptly upon receipt by
the Lender of collected funds from the payor bank.
2.7 Authority. The Lender is authorized to make the Advances under
this Agreement based upon telephonic or other instructions received from any
two (2) Persons purporting to be Authorized Persons, or without instructions
if pursuant to Section 2.6(e) or Section 2.2.
2.8 Statements of Obligations. The Lender shall periodically render
statements regarding the Obligations to the Administrative Borrower,
including principal, interest, fees, and including an itemization of charges
and expenses constituting Lender Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between the Borrowers and the Lender unless, within 30 days after
receipt thereof by the Administrative Borrower, the Administrative Borrower
shall deliver to the Lender written objections thereto describing the error
or errors contained in any such statements.
2.9 Fees. The Borrowers shall pay to the Lender the following fees
and charges, which fees and charges shall be non-refundable when paid
(irrespective of whether this Agreement is terminated thereafter):
(a) Commitment Fee. (i) On the Closing Date a commitment fee
payment in the amount of $25,000.00 and (ii) on the earlier of September 1,
2005 or the termination of this Agreement a commitment fee payment in the
amount of $25,000.00.
(b) Audit Charges. For the account of the Lender, audit fees and
charges as follows, (i) a fee of $750.00 per day, per auditor, plus out-of
pocket expenses for each financial audit of any or all of the Borrowers
performed by personnel employed by the Lender and (ii) the actual charges
paid or incurred by the Lender if it elects to employ the services of one or
more third Persons to perform financial audits of any or all of the
Borrowers. As long as no Default or Event of Default has occurred, the
Lender will not conduct more than 2 financial audits of the Borrowers per
calendar year and, assuming that each Borrower forwards to the executive
offices of the Administrative Borrower all information requested by or on
behalf of the Lender for the conduct of such audits, such audits will be
conducted at the Administrative Borrower's executive offices.
2.10 Intentionally Deleted.
2.11 Capital Requirements. If, after the date hereof, the Lender
determines that (i) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for banks or bank holding companies,
or any change in the interpretation or application thereof by any
Governmental Authority charged with the administration thereof, or (ii)
compliance by the Lender or its the parent bank holding company with any
guideline, request or directive of any such entity regarding capital adequacy
(whether or not having the force of law), the effect of reducing the return
on the Lender's or such holding company's capital as a consequence of the
Lender's commitments hereunder to a level below that which the Lender or such
holding company could have achieved but for such adoption, change, or
compliance (taking into consideration the Lender's or such holding company's
then existing policies with respect to capital adequacy and assuming the full
utilization of such entity's capital) by any amount deemed by the Lender to
be material, then the Lender may notify the Administrative Borrower thereof
on behalf of the Borrowers and charge the same to the Borrowers as long as
the Lender makes similar charges to its other similarly situated borrowers.
Following receipt of such notice of charges, the Borrowers agree to pay the
Lender on demand the amount of such reduction of return of capital as and
when such reduction is determined, payable within 90 days after presentation
by the Lender to the Administrative Borrower of a statement in the amount and
setting forth in reasonable detail the Lender's calculation thereof and the
assumptions upon which such calculation was based (which statement shall be
deemed true and correct absent manifest error). In determining such amount,
the Lender may use any reasonable averaging and attribution methods.
2.12 Joint and Several Liability of the Borrowers.
(a) Each of the Borrowers is accepting joint and several liability
hereunder and under the other Loan Documents in consideration of the
financial accommodations to be provided by the Lender under this Agreement,
for the mutual benefit, directly and indirectly, of each of the Borrowers and
in consideration of the undertakings of the other Borrowers to accept joint
and several liability for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby
irrevocably and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Borrowers, with respect
to the payment and performance of all of the Obligations (including, without
limitation, any Obligations arising under this Section 2.12), it being the
intention of the parties hereto that all of the Obligations shall be the
joint and several obligations of each Person composing any of the Borrowers
without preferences or distinction among them.
(c) If and to the extent that any of the Borrowers shall fail to
make any payment with respect to any of the Obligations as and when due or to
perform any of the Obligations in accordance with the terms thereof, then in
each such event the other Persons composing the Borrowers will make such
payment with respect to, or perform, such Obligations.
(d) The Obligations of each Person composing any of the Borrowers
under the provisions of this Section 2.12 constitute the absolute and
unconditional, full recourse Obligations of each Person composing any of the
Borrowers enforceable against each such Borrower to the full extent of its
properties and assets, irrespective of the validity, regularity, or
enforceability of this Agreement or any other circumstances whatsoever.
(e) Except as otherwise expressly provided in this Agreement, each
Person composing any of the Borrowers hereby waives notice of acceptance of
its joint and several liability, notice of any Advances under or pursuant to
this Agreement, notice of the occurrence of any Default, Event of Default, or
of any demand for any payment under this Agreement, notice of any action at
any time taken or omitted by the Lender under or in respect of any of the
Obligations, any requirement of diligence or to mitigate damages, and,
generally, to the extent permitted by applicable law, all demands, notices,
and other formalities of every kind in connection with this Agreement (except
as otherwise provided in this Agreement). Each Person composing any of the
Borrowers hereby assents to, and waives notice of, any extension or
postponement of the time for the payment of any of the Obligations, the
acceptance of any payment of any of the Obligations, the acceptance of any
partial payment thereon, any waiver, consent, or other action or acquiescence
by the Lender at any time or times in respect of any default by any Person
composing any of the Borrowers in the performance or satisfaction of any
term, covenant, condition, or provision of this Agreement, any and all other
indulgences whatsoever by the Lender in respect of any of the Obligations,
and the taking, addition, substitution, or release, in whole or in part, at
any time or times, of any security for any of the Obligations or the
addition, substitution, or release, in whole or in part, of any Person
composing any of the Borrowers. Without limiting the generality of the
foregoing, each of the Borrowers assents to any other action or delay in
acting or failure to act on the part of the Lender with respect to the
failure by any Person composing any of the Borrowers to comply with any of
its respective Obligations, including, without limitation, any failure
strictly or diligently to assert any right or to pursue any remedy or to
comply fully with applicable laws or regulations thereunder, which might, but
for the provisions of this Section 2.12 afford grounds for terminating,
discharging, or relieving any Person composing any of the Borrowers, in whole
or in part, from any of its Obligations under this Section 2.12, it being the
intention of each Person composing any of the Borrowers that, so long as any
of the Obligations hereunder remain unsatisfied, the Obligations of each such
Person composing any of the Borrowers under this Section 2.12 shall not be
discharged except by performance and then only to the extent of such
performance. The Obligations of each Person composing any of the Borrowers
under this Section 2.12 shall not be diminished or rendered unenforceable by
any winding up, reorganization, arrangement, liquidation, reconstruction, or
similar proceeding with respect to any Person composing any of the Borrowers
or the Lender. The joint and several liability of the Persons composing any
of the Borrowers hereunder shall continue in full force and effect
notwithstanding any absorption, merger, amalgamation, or any other change
whatsoever in the name, constitution, or place of formation of any of the
Persons composing any of the Borrowers or the Lender.
(f) Each Person composing any of the Borrowers represents and
warrants to the Lender that such Borrower is currently informed of the
financial condition of the Borrowers and of all other circumstances which a
diligent inquiry would reveal and which bear upon the risk of nonpayment of
the Obligations. Each Person composing any of the Borrowers further
represents and warrants to the Lenders that such Borrower has read and
understands the terms and conditions of the Loan Documents. Each Person
composing any of the Borrowers hereby covenants that such Borrower will
continue to keep informed of the Borrowers' financial condition, the
financial condition of guarantors, if any, and of all other circumstances
which bear upon the risk of nonpayment or nonperformance of the Obligations.
(g) Each of the Persons composing any of the Borrowers waives all
rights and defenses arising out of an election of remedies by the Lender.
(h) Each of the Persons composing any of the Borrowers waives all
rights and defenses that such Borrower may have because the Obligations are
secured by any Collateral. This means, among other things, that the Lender
may collect from such Borrower without first foreclosing on any Collateral
pledged by any of the Borrowers.
(i) The provisions of this Section 2.12 are made for the benefit
of the Lender and its successors and assigns, and may be enforced by it or
them from time to time against any or all of the Persons composing any of the
Borrowers as often as occasion therefor may arise and without requirement on
the part of any such Lender, successor, or assign first to marshal any of its
or their claims or to exercise any of its or their rights against any of the
other Persons composing any of the Borrowers or to exhaust any remedies
available to it or them against any of the other Persons composing any of the
Borrowers or to resort to any other source or means of obtaining payment of
any of the Obligations hereunder or to elect any other remedy. The
provisions of this Section 2.12 shall remain in effect until all of the
Obligations shall have been indefeasibly paid in full. If at any time, any
payment, or any part thereof, made in respect of any of the Obligations, is
rescinded or must otherwise be restored or returned by the Lender upon the
insolvency, bankruptcy, or reorganization of any of the Persons composing any
of the Borrowers, or otherwise, the provisions of this Section 2.12 will
forthwith be reinstated in effect as though such payment had not been made.
(j) Each of the Persons composing any of the Borrowers hereby
agrees that it will not enforce any of its rights of contribution or
subrogation against the other Persons composing any of the Borrowers with
respect to any liability incurred by it hereunder or under any of the other
Loan Documents, any payments made by it to the Lender with respect to any of
the Obligations or any collateral security therefor until such time as all of
the Obligations have been paid in full in cash. Any claim which any Borrower
may have against any other Borrower with respect to any payments to the
Lender hereunder or under any other Loan Documents are hereby expressly made
subordinate and junior in right of payment, without limitation as to any
increases in the Obligations arising hereunder or thereunder, to the prior
payment in full in cash of the Obligations and, in the event of any
insolvency, bankruptcy, receivership, liquidation, reorganization, or other
similar proceeding under the laws of any jurisdiction relating to any
Borrower, its debts, or its assets, whether voluntary or involuntary, all
such Obligations shall be paid in full in cash before any payment or
distribution of any character, whether in cash, securities, or other
property, shall be made to any other Borrower therefor.
(k) Each of the Persons composing any of the Borrowers hereby
agrees that the payment of any amounts due with respect to the indebtedness
owing by any Borrower to any other Borrower is hereby subordinated to the
prior payment in full in cash of the Obligations. Each Borrower hereby
agrees that after the occurrence and during the continuance of any Default or
Event of Default, such Borrower will not demand, ▇▇▇ for, or otherwise
attempt to collect any indebtedness of any other Borrower owing to such
Borrower until the Obligations shall have been indefeasibly paid in full in
cash. If, notwithstanding the foregoing sentence, such Borrower shall
collect, enforce, or receive any amounts in respect of such indebtedness,
such amounts shall be collected, enforced, and received by such Borrower as
trustee for the Lender for application to the Obligations in accordance with
Section 2.3(b).
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Extension of Credit. The
obligation of the Lender to make the initial Advance (or otherwise to extend
any credit provided for hereunder), is subject to the fulfillment, to the
satisfaction of the Lender, of each of the conditions precedent set forth
below:
(a) the Closing Date shall occur on or before ___________, 2004;
(b) the Lender shall have filed financing statements against the
Borrowers required by the Lender and the Lender shall have received searches
respecting the Borrowers with results satisfactory to the Lender;
(c) the Lender shall have received each of the following
documents, in form and substance satisfactory to the Lender, duly executed,
and each such document shall be in full force and effect:
(i) the Disbursement Letter,
(ii) the Intellectual Property Security Agreement,
(iii) Stock Pledge Agreements pursuant to which 100% of the
equity of each of the Borrowers, with the exception of the equity of Zanett,
Inc., has been pledged to the Lender, along with the originals of the stock
certificates that have been pledged and duly executed blank stock powers
relating thereto,
(iv) the Promissory Notes,
(v) Subordination Agreements from (A) each of the holders of
promissory notes or debt for borrowed money issued by any Borrower and (B)
each such Borrower that issued such debt,
(vi) the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the termination by Existing
Lender of its Liens in and to the properties and assets of Delta
Communications Group, Inc., and
(vii) W-9 forms duly completed for each of the Borrowers;
(d) the Lender shall have received a certificate from the
Secretary of each Borrower attesting to (i) the resolutions of such
Borrower's Board of Directors authorizing its execution, delivery, and
performance of this Agreement and the other Loan Documents to which such
Borrower is a party and authorizing specific officers of such Borrower to
execute the same and (ii) the incumbency and signatures of such officers;
(e) the Lender shall have received copies of each Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing
Date, certified by the Secretary of such Borrower;
(f) the Lender shall have received a certificate of status with
respect to each Borrower, dated within 10 days before the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Borrower, which certificate shall indicate that such
Borrower is in good standing in such jurisdiction;
(g) the Lender shall have received certificates of status with
respect to each Borrower, each dated within 30 days before the Closing Date,
such certificates to be issued by the appropriate officer of the
jurisdictions (other than the jurisdiction of organization of such Borrower)
in which its failure to be duly qualified or licensed would constitute a
Material Adverse Change, which certificates shall indicate that such Borrower
is in good standing in such jurisdictions;
(h) the Lender shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.7, the
form and substance of which shall be satisfactory to the Lender;
(i) the Lender shall have received Collateral Access Agreements
with respect to such leased locations of the Borrowers as the Lender deems
appropriate, which may include those at (i) ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇, (ii) ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (iii)
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, (iv) ▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (v) ▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
and (vi) ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇;
(j) the Lender shall have received an opinion of the Borrowers'
counsel in form and substance satisfactory to the Lender;
(k) the Lender shall have received a duly completed and executed
current Borrowing Base Certificate in form and substance satisfactory to the
Lender;
(l) the Borrowers shall have the Required Availability after
giving effect to the initial extensions of credit hereunder;
(m) the Lender shall have completed its business, legal, and
collateral due diligence with respect to the Borrowers, including a
collateral audit and review of each Borrower's books and records, receipt and
review of each Borrower's audited financial statements for its fiscal year
that ended on December 31, 2003 in form and detail and with results
satisfactory to the Lender, and verification of the Borrowers'
representations and warranties to the Lender, the results of which shall be
satisfactory to the Lender;
(n) the Borrowers shall have paid to the Lender the initial
installment of the commitment fee in the amount of $25,000.00 and all Lender
Expenses incurred in connection with the transactions evidenced by this
Agreement;
(o) the then unpaid principal balance of Indebtedness subordinated
to the Obligations on terms acceptable to the Lender shall not be less than
$6,000,000.00; and
(p) all other documents and legal matters in connection with the
transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to the
Lender.
3.2 Conditions Subsequent to the Initial Extension of Credit. The
obligation of the Lender to continue to make Advances (or otherwise to extend
credit hereunder) shall be subject to the fulfillment, on or before the date
applicable thereto, of each of the conditions subsequent set forth below (the
failure by the Borrowers to so perform, or to cause to be performed, in a
timely manner any of the following shall constitute an Event of Default):
(a) within 30 days of the date of this Agreement, deliver to the
Lender evidence that (i) Parent is qualified to do business, and in good
standing, in the State of New York, (ii) Back Bay Technologies, Inc. is
qualified to do business, and in good standing, in the Commonwealth of
Massachusetts, (iii) INRANGE Consulting Corporation is qualified to do
business, and in good standing, in the States of Indiana and Ohio, (iv)
Paragon Dynamics, Inc. is qualified to do business, and in good standing, in
the State of Colorado, and (v) Delta Communications Group, Inc. is qualified
to do business, and in good standing, in the State of California ; and
(b) within 30 days of the date of this Agreement, close each
Borrower's existing accounts with financial institutions other than the
Lender, except for those accounts that the Borrowers are permitted to
maintain in accordance with Section 7.19.
3.3 Conditions Precedent to all Extensions of Credit. The obligation
of the Lender to make Advances (or otherwise to extend credit hereunder)
shall be subject to the following conditions precedent:
(a) the representations and warranties contained in this Agreement
and the other Loan Documents shall be true and correct in all material
respects on and as of the date of such extension of credit, as though made on
and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result
from the making thereof;
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority
against any Borrower, the Lender, or any of their Affiliates; and
(d) no Material Adverse Change shall have occurred.
3.4 Term. This Agreement shall become effective upon the execution
and delivery hereof by the Borrowers and the Lender and shall continue in
full force and effect for a term ending on the Revolving Credit Maturity
Date. The foregoing notwithstanding, the Lender shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default.
3.5 Effect of Termination. On the date of termination of this
Agreement, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve
or discharge any Borrower of its duties, Obligations, or covenants hereunder
and the Lender's Liens in the Collateral shall remain in effect until all
Obligations have been fully and finally discharged and the Lender's
obligations to provide additional credit hereunder have been terminated.
When this Agreement has been terminated and all of the Obligations have been
fully and finally discharged and the Lender's obligations to provide
additional credit under the Loan Documents have been terminated irrevocably,
the Lender will, at the Borrowers' sole expense, execute and deliver or
authorize any UCC termination statements, lien releases, mortgage releases,
re-assignments of trademarks, discharges of security interests, and other
similar discharge or release documents (and, if applicable, in recordable
form) as are reasonably necessary to release, as of record, the Lender's
Liens and all notices of security interests and liens previously filed by the
Lender with respect to the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Each Borrower hereby grants to the
Lender a continuing security interest in all of such Borrower's right, title,
and interest in all currently existing and hereafter acquired or arising
Personal Property Collateral in order to secure prompt repayment of any and
all of the Obligations in accordance with the terms and conditions of the
Loan Documents and in order to secure prompt performance by each Borrower of
each of its covenants and duties under the Loan Documents. The Lender's
Liens in and against the Personal Property Collateral shall attach to all
Personal Property Collateral without the requirement of any further action on
the part of any Borrower or the Lender. Anything contained in this Agreement
or any other Loan Document to the contrary notwithstanding, except for
Permitted Dispositions, no Borrower has any authority, express or implied, to
dispose of any item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral, and
if and to the extent that perfection or priority of the Lender's security
interest is dependent on or enhanced by possession, each Borrower,
immediately upon the request of the Lender, shall endorse and deliver
physical possession of such Negotiable Collateral to the Lender.
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. At any time after the occurrence and during the continuation of
an Event of Default, the Lender or the Lender's designee may (a) notify
Account Debtors of any Borrower that the Accounts, chattel paper, or General
Intangibles have been assigned to the Lender or that the Lender has a
security interest therein, or (b) collect the Accounts, chattel paper, or
General Intangibles directly and charge the collection costs and expenses to
the Borrowers as part of the Obligations. Each Borrower agrees that it will
hold in trust for the Lender, as the Lender's trustee, any Collections that
it receives and immediately will deliver said Collections to the Lender to a
Locked Box, a Collections Account, or the Concentration Account in their
original form as received by such Borrower.
4.4 Delivery of Additional Documentation Required. At any time upon
the request of the Lender, the Borrowers shall execute and deliver to the
Lender any and all security agreements, pledges, assignments, endorsements of
certificates of title, and all other documents (the "Additional Documents")
that the Lender may request in its Permitted Discretion, in form and
substance satisfactory to the Lender, to perfect and continue perfected or
better perfect the Lender's Liens in the Collateral (whether now owned or
hereafter arising or acquired), to create and perfect Liens in favor of the
Lender in any property acquired after the Closing Date, and in order to fully
consummate all of the transactions contemplated hereby and under the other
Loan Documents. To the maximum extent permitted by applicable law, each
Borrower authorizes the Lender to execute any such Additional Documents in
such Borrower's name and authorizes the Lender to file such executed
Additional Documents in any appropriate filing office. In addition, on such
periodic basis as the Lender shall require, the Borrowers shall (a) provide
the Lender with a report of all new patentable, copyrightable, or
trademarkable materials acquired or generated by any Borrower during the
prior period, (b) cause all patents, copyrights, and trademarks acquired or
generated by any Borrower that are not already the subject of a registration
with the appropriate filing office (or an application therefor diligently
prosecuted) to be registered with such appropriate filing office in a manner
\sufficient to impart constructive notice of such Borrower's ownership
thereof, and (c) cause to be prepared, executed, and delivered to the Lender
supplemental schedules to the applicable Loan Documents to identify such
patents, copyrights, and trademarks as being subject to the security
interests created thereunder.
4.5 Power of Attorney. Each Borrower hereby irrevocably makes,
constitutes, and appoints the Lender (and any of the Lender's officers,
employees, or agents designated by the Lender) as such Borrower's true and
lawful attorney, with power to (a) if such Borrower refuses to, or fails
timely to execute and deliver any of the documents described in Section 4.4,
sign the name of such Borrower on any of the documents described in Section
4.4, (b) at any time that an Event of Default has occurred and is continuing,
sign such Borrower's name on any invoice or ▇▇▇▇ of lading relating to the
Collateral, drafts against Account Debtors, or notices to Account Debtors,
(c) send requests for verification of Accounts at any time after the
occurrence of a Default or Event of Default or upon 15 days notice to the
Administrative Borrower at any other time, (d) endorse such Borrower's name
on any Collection item that may come into the Lender's possession, (e) at any
time that an Event of Default has occurred and is continuing, make, settle,
and adjust all claims under such Borrower's policies of insurance and make
all determinations and decisions with respect to such policies of insurance,
and (f) at any time that an Event of Default has occurred and is continuing,
settle and adjust disputes and claims respecting the Accounts, chattel paper,
or General Intangibles directly with Account Debtors, for amounts and upon
terms that the Lender determines to be reasonable, and the Lender may cause
to be executed and delivered any documents and releases that the Lender
determines to be necessary. The appointment of the Lender as each Borrower's
attorney, and each and every one of its rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and the Lender's obligations to extend credit
hereunder are terminated.
4.6 Right to Inspect. The Lender (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter (upon
reasonable advance notice or after the occurrence and during the continuance
of a Default or Event of Default with no advance notice) to inspect the Books
and to check, test, and appraise the Collateral in order to verify each
Borrower's financial condition or the amount, quality, value, condition of,
or any other matter relating to, the Collateral.
4.7 Control Agreements. Each Borrower agrees that it will not
transfer assets out of any Securities Accounts other than as permitted under
Section 7.17 and, if to another securities intermediary, unless each of such
Borrower, the Lender, and the substitute securities intermediary have entered
into a Control Agreement. No arrangement contemplated hereby or by any
Control Agreement in respect of any Securities Accounts or other Investment
Property shall be modified by any Borrower without the prior written consent
of the Lender. Upon the occurrence and during the continuance of an Event of
Default, the Lender may notify any securities intermediary to liquidate the
applicable Securities Account or any related Investment Property maintained
or held thereby and remit the proceeds thereof to the Lender.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender to enter into this Agreement, the Borrowers
make the following representations and warranties to the Lender, which shall
be true, correct, and complete in all material respects as of the date
hereof, and shall be true, correct, and complete in all material respects as
of the Closing Date, and at and as of the date of the making of each Advance
(or other extension of credit) made thereafter, as though made on and as of
the date of such Advance (or other extension of credit) (except to the extent
that such representations and warranties relate solely to an earlier date and
except to the extent that the representations and warranties made in Section
5.2 below respecting no defenses, disputes, offsets, counterclaims, or
rights of return or cancellation and in Section 5.2(c) and (d) shall be
deemed to be
made as of the date of each Borrowing Base Certificate rather than as of the
date of the making of each Advance (or other extension of credit)) and such
representations and warranties shall survive the execution and delivery of
this Agreement:
5.1 No Encumbrances. The Borrowers have good and indefeasible title
to the Collateral free and clear of Liens except for Permitted Liens.
5.2 Eligible Accounts. The Eligible Accounts are bona fide existing
payment obligations of Account Debtors created by the sale and delivery of
Inventory or the rendition of services to such Account Debtors in the
ordinary course of the respective Borrower's business, owed to such Borrower
without defenses, disputes, offsets, counterclaims, or rights of return or
cancellation. As to each Eligible Account, such Account is not:
(a) owed by an employee, Affiliate, or agent of any Borrower,
(b) payable in a currency other than Dollars,
(c) owed by an Account Debtor that has or has asserted a right of
setoff, has disputed its liability, or has made any claim with respect to its
obligation to pay the Account,
(d) owed by an Account Debtor that is subject to any Insolvency
Proceeding or is not Solvent or as to which any Borrower has received notice
of an imminent Insolvency Proceeding or a material impairment of the
financial condition of such Account Debtor,
(e) on account of a transaction as to which the services giving
rise to such Account have not been performed and accepted by the Account
Debtor,
(f) on account of a transaction as to which the goods giving rise
to such Account have not been shipped to the Account Debtor or the services
giving rise to such Account have not been performed and accepted by the
Account Debtor,
(g) a right to receive progress payments or other advance ▇▇▇▇▇▇▇▇
that are due prior to the completion of performance by the respective
Borrower of the subject contract for goods or services, and
(h) an Account that has not been billed to the customer.
5.3 Equipment; Fixtures. All of the Equipment is used or held for use
in a Borrower's business and is fit for such purposes, subject to ordinary
wear and tear. No Borrower owns or has rights in any fixtures other than
those that in the aggregate have nominal value.
5.4 Location of Inventory and Equipment. The Inventory and Equipment
are not stored with a bailee, warehouseman, or similar party and are located
only at the locations identified on Schedule 5.4.
5.5 Location of Chief Executive Office; Previous Names and Locations.
The chief executive office and a mailing address of each Borrower are located
at the address indicated in Schedule 5.5. Within the past 5 years, other
than as listed on Schedule 5.5, no Borrower has conducted business under, or
been known by, any other name or had any business locations except those
listed on Schedule 5.5.
5.6 Due Organization and Qualification; Subsidiaries.
(a) Each Borrower is duly organized and existing and in good
standing under the laws of the State of Delaware and within 30 days of the
date of this Agreement will be and remain qualified to do business in any
state where the failure to be so qualified reasonably could be expected to
have a Material Adverse Change.
(b) Set forth on Schedule 5.6(b) is a complete and accurate
description of the authorized capital Stock of each Borrower, by class, and,
as of the Closing Date, a description of the number of shares of each such
class that are issued and outstanding and the owners of such shares. Other
than as described on Schedule 5.6(b), there are no subscriptions, options,
warrants, or calls relating to any shares of any Borrower's capital Stock,
including any right of conversion or exchange under any outstanding security
or other instrument. No Borrower is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its
capital Stock or any security convertible into or exchangeable for any of its
capital Stock.
(c) Set forth on Schedule 5.6(c) is a complete and accurate list
of Parent and each other Borrower's direct and indirect Subsidiaries,
showing: (i) the jurisdiction of each such Subsidiary's organization; (ii)
the number of shares of each class of common and preferred Stock authorized
for each of such Subsidiaries; and (iii) the number and the percentage of the
outstanding shares of each such class owned directly or indirectly by the
applicable Borrower. All of the outstanding capital Stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
(d) Except as set forth on Schedule 5.6(c), there are no
subscriptions, options, warrants, or calls relating to any shares of the
capital stock of any Borrower's Subsidiary, including any right of conversion
or exchange under any outstanding security or other instrument. No Borrower
or any of its respective Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of the capital stock of any Borrower's Subsidiary, or any security
convertible into or exchangeable for any such capital Stock.
5.7 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by each Borrower of
this Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary action on the part of such Borrower.
(b) The execution, delivery, and performance by each Borrower of
this Agreement and the Loan Documents to which it is a party do not and will
not (i) violate any provision of federal, state, or local law or regulation
applicable to such Borrower, the Governing Documents of such Borrower, or any
order, judgment, or decree of any court or other Governmental Authority
binding on any Borrower, (ii) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any
material contractual obligation of any Borrower, (iii) result in or require
the creation or imposition of any Lien of any nature whatsoever upon any
properties or assets of any Borrower, other than Permitted Liens, or (iv)
require any approval of any Borrower's shareholders or any approval or
consent of any Person under any material contractual obligation of any
Borrower.
(c) Other than the filing of financing statements and fixture
filings, the execution, delivery, and performance by each Borrower of this
Agreement and the Loan Documents to which such Borrower is a party do not and
will not require any registration with, consent, or approval of, or notice
to, or other action with or by, any Governmental Authority or other Person.
(d) This Agreement and the other Loan Documents to which any
Borrower is a party, and all other documents contemplated hereby and thereby,
when executed and delivered by such Borrower will be the legally valid and
binding obligations of such Borrower, enforceable against such Borrower in
accordance with their respective terms, except as enforcement may be limited
by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or limiting creditors' rights
generally.
(e) The Lender's Liens are validly created, perfected, and first
priority Liens, subject only to Permitted Liens
5.8 Litigation. Other than those matters disclosed on Schedule 5.8,
there are no actions, suits, or proceedings pending or, to the best knowledge
of any Borrower, threatened against any Borrower, except for matters arising
after the Closing Date that, if decided adversely to any Borrower, reasonably
could not be expected to result in a Material Adverse Change.
5.9 No Material Adverse Change. All financial statements relating to
any Borrower that have been delivered by any Borrower to the Lender have been
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-end audit
adjustments) and present fairly in all material respects, such Borrower's
financial condition as of the date thereof and results of operations for the
period then ended. There has not been a Material Adverse Change with respect
to any Borrower since the date of the latest financial statements submitted
to the Lender on or before the Closing Date.
5.10 Fraudulent Transfer.
(a) Each Borrower is Solvent.
(b) No transfer of property is being made by any Borrower and no
obligation is being incurred by any Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents with
the intent to hinder, delay, or defraud either present or future creditors of
any Borrower.
5.11 Employee Benefits. No Borrower or any of its Subsidiaries or any
ERISA Affiliate maintains or contributes to any Benefit Plan, Multiemployer
Plan or Retiree Health Plan other than those listed on Schedule 5.11. Each
such Benefit Plan has been and is being maintained and funded in accordance
with its terms and in compliance in all material respects with all provisions
of ERISA and the IRC applicable thereto. Each Borrower, each of its
Subsidiaries, and each ERISA Affiliate has fulfilled all obligations related
to the minimum funding standards of ERISA and the IRC for each Benefit Plan
and has not incurred any liability (other than routine liability for
premiums) under Title IV of ERISA. No Termination Event has occurred nor has
any other event occurred that may result in a Termination Event which in
either case could reasonably be expected to result in a Material Adverse
Change. No event or events have occurred in connection with any Benefit Plan
which would subject any Borrower, any of its Subsidiaries, any ERISA
Affiliate, any fiduciary of a Benefit Plan or any Benefit Plan, directly or
indirectly, to any liability, individually or in the aggregate, under ERISA,
the IRC or any other law, regulation or governmental order or under any
agreement, instrument, statute, rule of law or regulation pursuant to or
under which any such entity has agreed to indemnify or is required to
indemnify any person against liability incurred under, or for a violation or
failure to satisfy the requirements of, any such statute, regulation or order
which could reasonably be expected to result in a Material Adverse Change.
No event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any liability with
respect to any Benefit Plan under ERISA, the IRC, or any other applicable law
by the Borrowers, any of its Subsidiaries or any ERISA Affiliates, other than
such liabilities as, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Change. No Borrower or any of
its Subsidiaries or any ERISA Affiliate has received any notification that
any Multiemployer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA and no Multiemployer Plan is reasonably expected
to be in reorganization or to be terminated.
5.12 Environmental Condition. Except as set forth on Schedule 5.12,
(a) none of the properties or assets of any Borrower has ever been used by
any Borrower or by previous owners or operators in the disposal of, or to
produce, store, handle, treat, release, or transport, any Hazardous
Materials, where such production, storage, handling, treatment, release or
transport was in violation, in any material respect, of applicable
Environmental Law, (b) none of the properties or assets of any Borrower has
ever been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials disposal site, (c)
no Borrower has received notice that a Lien arising under any Environmental
Law has attached to any revenues or to any Real Property owned or operated by
any Borrower, and (d) no Borrower has received a summons, citation, notice,
or directive from the Environmental Protection Agency or any other federal or
state governmental agency concerning any action or omission by any Borrower
resulting in the releasing or disposing of Hazardous Materials into the
environment.
5.13 Brokerage Fees. No Borrower has utilized the services of any
broker or finder in connection with any Borrower's obtaining financing from
the Lender under this Agreement and no brokerage commission or finder's fee
is payable by any Borrower in connection herewith.
5.14 Intellectual Property. Each Borrower owns, or holds licenses in,
all trademarks, trade names, copyrights, patents, patent rights, and licenses
that are necessary to the conduct of its business as currently conducted.
Attached hereto as Schedule 5.14 is a true, correct, and complete listing of
all patents, patent applications, trademarks, trademark applications,
copyrights, and copyright registrations as to which any Borrower is the owner
or is an exclusive licensee.
5.15 Leases. Each Borrower enjoys peaceful and undisturbed possession
under all leases material to the business of such Borrower and to which such
Borrower is a party or under which such Borrower is operating. All of such
leases are valid and subsisting and no material default by any Borrower or
any other party exists under any of them.
5.16 DDAs. Set forth on Schedule 5.16 are all of the DDAs of each
Borrower, including, with respect to each depository (a) the name and address
of that depository and (b) the account numbers of the accounts maintained
with such depository; provided, however, that as long as no Default or Event
of Default has occurred and is continuing and as long as the Lender does not
have a branch that is geographically convenient to a Borrower, such Borrower
is allowed to maintain local DDAs for ▇▇▇▇▇ cash purposes with a financial
institution other than the Lender as long as the funds in such DDAs never
exceed $25,000.00 in the aggregate at any given time.
5.17 Complete Disclosure. All factual information (taken as a whole)
furnished by or on behalf of any Borrower to the Lender (including all
information contained in the Schedules hereto or in the other Loan Documents)
for purposes of or in connection with this Agreement, the other Loan
Documents, or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or
on behalf of any Borrower to the Lender will be, true and accurate in all
material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any fact necessary to make
such information (taken as a whole) not misleading in any material respect at
such time in light of the circumstances under which such information was
provided.
5.18 Indebtedness. Set forth on Schedule 5.18 is a true and complete
list of all Indebtedness of any Borrower (including, without limitation, any
debt for borrowed money or for any earn-out payments for which any Borrower
is liable) outstanding immediately prior to the Closing Date that is to
remain outstanding after the Closing Date and such Schedule accurately
reflects the aggregate principal amount of such Indebtedness and the
principal terms thereof (including, without limitation, the interest rate and
payment terms thereof and any security therefor).
5.19 No Employee Disputes; Labor Matters. There are no controversies
pending or, to the best of any Borrower's knowledge after diligent inquiry,
threatened between any Borrower and any of its employees, other than those
arising in the ordinary course of business which could not reasonably be
expected to result in a Material Adverse Change. Other than as set forth in
Schedule 5.19, there is (a) no unfair labor practice complaint pending
against any Borrower or, to the best knowledge of any Borrower, threatened
against any Borrower, before the National Labor Relations Board, and no
grievance or arbitration proceeding arising out of or under collective
bargaining agreements that has or could reasonably be expected to result in a
Material Adverse Change is so pending against any Borrower or, to the best
knowledge of any Borrower, threatened against any Borrower, (b) no strike,
labor dispute, slowdown, or stoppage pending against any Borrower or, to the
best knowledge of any Borrower, threatened against any Borrower, and (c) no
union representation question with respect to the employees of any Borrower
and no union organizing activity involving any Borrower or its employees.
5.20 Planet Zanett. Planet Zanett is the only Subsidiary of Parent
that is not a Borrower. Planet Zanett has no material assets or liabilities,
or any current or planned business operations.
6. AFFIRMATIVE COVENANTS.
The Borrowers covenant and agree that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, the
Borrowers shall do all of the following:
6.1 Accounting System. Maintain a system of accounting that enables
each Borrower to produce financial statements in accordance with GAAP and
maintain records pertaining to the Collateral that contain information as
from time to time reasonably may be requested by the Lender. Each Borrower
also shall keep an inventory reporting system that shows all additions,
sales, claims, returns, and allowances with respect to the Inventory.
6.2 Collateral Reporting. Provide the Lender with the following
documents at the following times in form and detail reasonably satisfactory
to the Lender:
Monthly (not later than the 30th day of each month); provided however, that
if, and as long as, the Availability ever falls below $750,000.00, such
monthly reporting shall be provided on a weekly basis (a) a completed
Borrowing Base Certificate including a detailed calculation of the Borrower
Base, and(b) a current aging of Accounts of each Borrower together with a
reconciliation of such aging to the detailed calculation of the current
Borrowing Base, and(c) a detail of those Accounts that are not Eligible
Accounts and of that Inventory of each Borrower that is not Eligible
Inventory, (d) a current aging of each Borrower's accounts payable, and(e)
notice of all disputes or claims.
Upon request by the Lender (f) such other reports as to the Collateral, or
the financial condition of any Borrower, as the Lender may request.
In addition, each Borrower agrees to cooperate fully with the Lender to
facilitate and to implement a system of electronic collateral reporting in
order to provide electronic reporting of each of the items set forth above.
6.3 Financial Statements, Reports, Certificates. Deliver to the
Lender:
(a) as soon as available, but in any event within 30 days after
the end of each month:
(i) a company prepared balance sheet, income statement, and
statement of cash flow (on a consolidated and consolidating basis) covering
the Borrowers' operations during such period (except that the company
prepared statement of cash flow on a consolidating basis shall be delivered
within 30 days after the end of each calendar quarter rather than on a
monthly basis),
(ii) a certificate signed by the chief financial officer of
the Administrative Borrower to the effect that:
A. the financial statements delivered hereunder have
been prepared in accordance with GAAP (except for the lack of footnotes and
being subject to year-end audit adjustments) and fairly present in all
material respects the financial condition of the Borrowers (on a consolidated
and consolidating basis),
B. the representations and warranties of the Borrowers
contained in this Agreement and the other Loan Documents are true and correct
in all material respects on and as of the date of such certificate, as though
made on and as of such date (except to the extent that such representations
and warranties relate solely to an earlier date), and
C. there does not exist any condition or event that
constitutes a Default or Event of Default (or, to the extent of any non-
compliance, describing such non-compliance as to which he or she may have
knowledge and what action each Borrower has taken, is taking, or proposes to
take with respect thereto), and
(iii) for each month that is the date on which a financial
covenant in Section 7.18 is to be tested, a compliance certificate
demonstrating compliance at the end of such period with the applicable
financial covenants contained in Section 7.18, and
(b) as soon as available, but in any event within 120 days after
the end of each of the Administrative Borrower's fiscal years,
(i) financial statements of the Borrowers (on a consolidated
and consolidating basis) for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to the Lender and
certified, without any qualifications, by such accountants to have been
prepared in accordance with GAAP (such audited financial statements to
include a balance sheet, income statement, and statement of cash flow and, if
prepared, such accountants' letter to management), and
(ii) a certificate of such accountants addressed to the
Lender stating that such accountants do not have knowledge of the existence
of any Default or Event of Default with respect to noncompliance with Section
7.18,
(c) as soon as available, but in any event within 30 days prior to
the start of each of the Administrative Borrower's fiscal years, copies of
the Borrowers' Projections (on a consolidated and consolidating basis), in
form and substance (including as to scope and underlying assumptions)
satisfactory to the Lender, in its reasonable discretion, for the forthcoming
fiscal year, month by month, certified by the chief financial officer of the
Administrative Borrower as being such officer's good faith best estimate of
the financial performance of the Borrowers during the period covered thereby,
(d) as soon as any Borrower has knowledge of any event or
condition that constitutes a Default or an Event of Default, notice thereof
and a statement of the curative action that each Borrower proposes to take
with respect thereto,
(e) by not later than 10 days after each December 31 and June 30
(and as often as the Lender requests after the occurrence, and during the
continuance, of a Default or Event of Default) an up-to-date print-out that
lists as of the most recent of such dates all Account Debtors of each
Borrower and the current contact information (including name, address, and
telephone number) for each such Account Debtor,
(f) after the occurrence, and during the continuance, of a Default
or Event of Default, immediately upon the request of the Lender, copies of
all outstanding contracts, agreements, purchase orders, acknowledgments,
invoices, and related documents and instruments evidencing any Borrower's
relationship with each of its Account Debtors, and
(g) upon the request of the Lender, any other report reasonably
requested relating to the financial condition of any Borrower.
Each Borrower agrees that its independent certified public accountants are
authorized to communicate with the Lender and to release to the Lender
whatever financial information concerning the Borrowers that the Lender
reasonably may request. Each Borrower waives the right to assert a
confidential relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by the Lender
pursuant to or in accordance with this Agreement, and agrees that the Lender,
at any time after the occurrence of a Default or Event of Default or upon 15
days notice to the Administrative Borrower at any other time, may contact
directly any such accounting firm or service bureau in order to obtain such
information.
6.4 Additional Public Company Reports. Deliver to the Lender when and
as made a copy of Parent's most recent 10-Q (and in any event within 45 days
of the end of each calendar quarter) and 10-K, and deliver to the Lender when
and as made all 8-Ks and other reports, updates, and filings made by Parent
as a public company.
6.5 Maintenance of Properties. Maintain and preserve all of its
properties which are necessary or useful in the proper conduct to its
business in good working order and condition, ordinary wear and tear
excepted, and comply at all times with the provisions of all leases to which
it is a party as lessee, so as to prevent any loss or forfeiture thereof or
thereunder.
6.6 Taxes. Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against any
Borrower or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Each Borrower will make timely payment or deposit of all
tax payments and withholding taxes required of it by applicable laws, and
will, upon request, furnish the Lender with proof satisfactory to the Lender
indicating that each Borrower has made such payments or deposits.
6.7 Insurance.
(a) At the Borrowers' expense, maintain insurance respecting their
respective properties and assets wherever located, covering loss or damage by
fire, theft, explosion, and all other hazards and risks as ordinarily are
insured against by other Persons engaged in the same or similar businesses.
Each Borrower also shall maintain business interruption and public liability
insurance, as well as insurance against larceny, embezzlement, and criminal
misappropriation. All such policies of insurance shall be in such amounts
and with such insurance companies as are reasonably satisfactory to the
Lender. Each Borrower shall deliver copies of all such policies to the
Lender with a satisfactory lender's loss payable endorsement naming the
Lender as sole loss payee or additional insured, as appropriate. Each policy
of insurance or endorsement shall contain a clause requiring the insurer to
give not less than 30 days prior written notice to the Lender in the event of
cancellation or revision of the policy for any reason whatsoever.
(b) Each Borrower shall give the Lender prompt notice of any loss
covered by such insurance. Except as set forth in Subsection (c) below, the
Lender shall have the exclusive right to adjust any losses payable under any
such insurance policies in excess of $100,000.00, without any liability to
any Borrower whatsoever in respect of such adjustments. Any monies received
as payment for any loss under any insurance policy mentioned above (other
than liability insurance policies) or as payment of any award or compensation
for condemnation or taking by eminent domain, shall be paid over to the
Lender to be applied at the option of the Lender (subject to the limitations
set forth in Section 6.7(c) below) either to the prepayment of the
Obligations or to be disbursed to a Borrower under staged payment terms
reasonably satisfactory to the Lender for application to the cost of repairs,
replacements, or restorations. Any such repairs, replacements, or
restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items or property destroyed prior to
such damage or destruction.
(c) Notwithstanding the foregoing, the Lender will make such
insurance proceeds that Lender actually receives available, from time to
time, upon the Administrative Borrower's request in accordance with
disbursement procedures reasonably acceptable to Lender, to complete the
repair, reconstruction, or restoration of the Collateral, provided that:
(i) no Default or Event of Default exists hereunder and no
condition exists which, with notice or passage of time, or both, would
constitute an Event of Default;
(ii) the relevant Borrower has obtained the proceeds of
business interruption insurance sufficient to offset any abatement of cash
flow during the period of repair, reconstruction, or restoration, or has
deposited with the Lender funds in an amount adequate to offset such
abatement;
(iii) the damage to the Collateral does not exceed 25% of the
value of the Collateral as a whole and such damage can be reasonably expected
to be repaired prior to the Revolving Credit Maturity Date; and
(iv) the Borrowers have furnished the Lender with (x)
satisfactory evidence of the estimated cost of completion of the repairs or
restoration of the Collateral; (y) such architect's certificates, lien
waivers, contractors' sworn statements, and other evidence of cost and of
payments as the Lender may require; and (z) to the extent the repair,
reconstruction, or restoration constitutes structural changes to the
Collateral, the plans and specifications for such repair, reconstruction, or
restoration, all subject to the Lender's approval.
In the event that any of the foregoing proceeds are applied to the repair,
restoration, or replacement of the Collateral, the Borrowers will promptly
commence and complete such repair, restoration, or reconstruction of the
Collateral as nearly as possible to its value, condition, and character
immediately prior to such damage. The Borrowers will comply with the
Lender's customary provisions applicable to disbursement of loan proceeds as
the Lender may reasonably require. Proceeds will be disbursed based upon the
Lender's customary construction disbursement procedures. The undisbursed
balance of insurance proceeds will at all times be sufficient to pay for the
costs of completion of the repair and restoration to the Collateral free and
clear of all liens and if such proceeds are insufficient, the Borrowers will
deposit the amount of the insufficiency with the Lender prior to disbursement
of any proceeds.
(d) No Borrower shall take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
under this Section 6.7, unless the Lender is included thereon as named
insured with the loss payable to the Lender under a lender's loss payable
endorsement or its equivalent. The Borrowers immediately shall notify the
Lender whenever such separate insurance is taken out, specifying the insurer
thereunder and full particulars as to the policies evidencing the same, and
copies of such policies promptly shall be provided to the Lender.
6.8 Location of Inventory and Equipment. Keep the Inventory and
Equipment only at the locations identified on Schedule 5.4; provided,
however, that the Borrowers may amend Schedule 5.4 so long as such amendment
occurs by written notice to the Lender not less than 30 days prior to the
date on which the Inventory or Equipment is moved to such new location, so
long as such new location is within the continental United States, and so
long as, at the time of such written notification, the Borrowers provide the
Lender a Collateral Access Agreement for any such new location.
6.9 Compliance with Laws. Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental
Authority, including the Fair Labor Standards Act and the Americans With
Disabilities Act, other than laws, rules, regulations, and orders the non-
compliance with which, individually or in the aggregate, would not result in
and reasonably could not be expected to result in a Material Adverse Change.
6.10 Leases. Pay when due all rents and other amounts payable under
any leases to which any Borrower is a party or by which any Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest.
6.11 Brokerage Commissions. Pay any and all brokerage commission or
finders fees incurred in connection with or as a result of any Borrower's
obtaining financing from the Lender under this Agreement. Each Borrower
agrees and acknowledges that payment of all such brokerage commissions or
finders fees shall be the sole responsibility of the Borrowers, and the
Borrowers agree to indemnify, defend, and hold the Lender harmless from and
against any claim of any broker or finder arising out of any Borrower's
obtaining financing from the Lender under this Agreement.
6.12 Existence. At all times preserve and keep in full force and
effect each Borrower's valid existence and good standing and any rights and
franchises material to each Borrower's business.
6.13 Environmental. (a) Keep any property either owned or operated by
any Borrower free of any Environmental Liens or post bonds or other financial
assurances sufficient to satisfy the obligations or liability evidenced by
such Environmental Liens, (b) comply, in all material respects, with
Environmental Laws and provide to the Lender documentation of such compliance
which the Lender reasonably requests, (c) promptly notify the Lender of any
release of a Hazardous Material of any reportable quantity from or onto
property owned or operated by any Borrower and take any Remedial Actions
required to ▇▇▇▇▇ said release or otherwise to come into compliance with
applicable Environmental Law, and (d) promptly provide the Lender with
written notice within 10 days of the receipt of any of the following: (i)
notice that an Environmental Lien has been filed against any of the real or
personal property of any Borrower, (ii) commencement of any Environmental
Action or notice that an Environmental Action will be filed against any
Borrower, and (iii) notice of a violation, citation, or other administrative
order which reasonably could be expected to result in a Material Adverse
Change.
6.14 ERISA. The Borrowers will deliver to the Lender, at the
Borrowers' expense, the following information at the times specified below:
(a) within 10 Business Days after any executive officer or any
other employee of the Borrower, any of its Subsidiaries or an ERISA Affiliate
who is responsible for the administration of the relevant portion of this
Agreement (the "Responsible Officer") of any Borrower knows or has reason to
know that a Termination Event has occurred or that the PBGC has taken actions
which could reasonably be expected to result in a Termination Event, a
written statement of the chief financial officer of such Borrower describing
such Termination Event and the action, if any, which such Borrower or other
such entities have taken, are taking or propose to take with respect thereto,
and when known, any action taken or threatened by the Internal Revenue
Service, Department of Labor, or PBGC with respect thereto;
(b) within 10 Business Days after any Responsible Officer knows or
has reason to know that a prohibited transaction (as defined in Section 406
of ERISA and Section 4975 of the IRC) has occurred with respect to a Benefit
Plan or any other employee benefit plan (as defined in Section 3(3) of ERISA)
maintained by the Borrower, any of its Subsidiaries or any ERISA Affiliate
which could reasonably be expected to result in a Material Adverse Change, a
statement of the chief financial officer of such Borrower describing such
transaction and the action which such Borrower or other such entities have
taken, are taking or propose to take with respect thereto;
(c) within 30 Business Days after the filing thereof with the
Department of Labor, Internal Revenue Service, or PBGC, copies of each annual
report (form 5500 series), including all schedules and attachments thereto,
with respect to each Benefit Plan of any Borrower, its Subsidiaries, or any
ERISA Affiliate;
(d) within 30 Business Days after receipt by any Borrower, any of
its Subsidiaries, or any ERISA Affiliate of each actuarial report for any
Benefit Plan of such Borrower, any of its Subsidiaries, or any ERISA
Affiliate, copies of each such report;
(e) within 10 Business Days after any Responsible Officer has
knowledge with respect to any Benefit Plan of any Borrower, its Subsidiaries,
or any ERISA Affiliate that there has been a failure to make any contribution
required under Section 412 of the IRC or that an application has been made to
the Internal Revenue Service for a funding waiver and as soon as possible but
no later than 10 Business Days after receipt thereof, a copy of any
communications received by any Borrower, any of its Subsidiaries, or any
ERISA Affiliate with respect to a funding waiver request;
(f) within 60 Business Days after the occurrence thereof,
notification of any increase in the benefits of any existing Benefit Plan of
any Borrower, any of its Subsidiaries, or any ERISA Affiliate or the
establishment of any new Benefit Plan of any Borrower, any of its
Subsidiaries, or any ERISA Affiliate or the commencement of contributions to
any Benefit Plan to which any Borrower, any of its Subsidiaries, or any ERISA
Affiliate was not previously contributing;
(g) within 10 Business Days after receipt by any Borrower, any of
its Subsidiaries, or any ERISA Affiliate of the PBGC's intention to terminate
a Benefit Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice;
(h) within 10 Business Days after receipt by any Borrower, any of
its Subsidiaries, or any ERISA Affiliate of any unfavorable determination
letter from the Internal Revenue Service regarding the qualification of a
Benefit Plan or other employee pension benefit plan intending to qualify
under section 401(a) of the IRC of any Borrower, any of its Subsidiaries, or
any ERISA Affiliate under Section 401(a) of the IRC, copies of each such
letter;
(i) within 10 Business Days after receipt by any Borrower, any of
its Subsidiaries, or any ERISA Affiliate of a notice regarding the imposition
of withdrawal liability under any Multiemployer Plan, copies of each such
notice;
(j) within 10 Business Days after any Responsible Officer knows
(i) a Multiemployer Plan has been terminated, (ii) the administrator or plan
sponsor of a Multiemployer Plan intends to terminate any such Multiemployer
Plan, or (iii) the PBGC has instituted, will institute, or has taken actions
towards the institution of proceedings under Section 4042 of ERISA to
terminate a Multiemployer Plan, a written statement setting forth any such
event or information;
(k) within 10 Business Days after any Responsible Officer knows of
any event, transaction or condition that could be expected to result in any
liability under ERISA, the IRC, or any other law applicable with respect to
any Benefit Plan, if such liability, taken together with any other such
liabilities then existing, could reasonably be expected to result in a
Material Adverse Change, a statement of the chief financial officer of such
Borrower describing such event, transaction or condition and the action which
such Borrower or other such entities have taken, are taking, or propose to
take with respect thereto; and
(l) within 30 days after receipt by any Borrower or any of its
Subsidiaries of each actuarial report for any Retiree Health Plan of such
Borrower or any of its Subsidiaries, copies of each such report.
Each Borrower will, and will use its best efforts to cause each of its
Subsidiaries and ERISA Affiliates to, establish, maintain and operate all
Benefit Plans of such Borrower, Subsidiary, or ERISA Affiliate in compliance
in all material respects with the provisions of ERISA, the IRC, and all other
applicable laws, and the regulations and interpretations thereunder other
than to the extent that such Borrower, Subsidiary, or ERISA Affiliate is in
good faith contesting by appropriate proceedings the validity or implication
of any such provision, law, rule, regulation or interpretation.
6.15 Proceedings or Adverse Changes. Each Borrower will as soon as
practicable, and in any event within 2 Business Days after such Borrower
learns of the following, give written notice to the Lender of any
proceeding(s) being instituted, or threatened to be instituted, by or against
any Borrower in any federal, state, local, or foreign court or before any
commission or other regulatory body (federal, state, local, or foreign) that
may expose any Borrower to liability in excess of $100,000.00 (without regard
to whether any or all of such amount is covered by insurance). Each Borrower
will as soon as possible, and in any event within 2 Business Days after such
Borrower learns of the following, give written notice to the Lender of any
Material Adverse Change. Provision of any such notice by any Borrower will
not constitute a waiver or excuse of any Default or Event of Default
occurring as a result of such changes or events.
6.16 Disclosure Updates. Promptly and in no event later than 5
Business Days after obtaining knowledge thereof, (a) notify the Lender if any
information, exhibit, or report furnished by or on behalf of any Borrower to
the Lender contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements contained therein
not misleading in light of the circumstances in which made, and (b) correct
any defect or error that may be discovered therein or in any Loan Document or
in the execution, acknowledgement, filing, or recordation thereof.
7. NEGATIVE COVENANTS.
The Borrowers covenant and agree that, so long as any credit hereunder shall
be available and until full and final payment of the Obligations, no Borrower
will do any of the following:
7.1 Indebtedness. Create, incur, assume, permit, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to
any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement and the other Loan
Documents;
(b) Indebtedness set forth on Schedule 5.18;
(c) Permitted Purchase Money Indebtedness; and
(d) Refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance or
renewal of any Permitted Liens associated therewith) so long as: (i) the
terms and conditions of such refinancings, renewals, or extensions do not, in
the Lender's judgment, materially impair the prospects of repayment of the
Obligations by the Borrowers or materially impair any Borrower's
creditworthiness, (ii) such refinancings, renewals, or extensions do not
result in an increase in the principal amount of, or interest rate with
respect to, the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, or extensions do not result in a shortening of the
average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, nor are they on terms or conditions, that, taken as a whole, are
materially more burdensome or restrictive to any Borrower, and (iv) if the
Indebtedness that is refinanced, renewed, or extended was subordinated in
right of payment to the Obligations, then the terms and conditions of the
refinancing, renewal, or extension Indebtedness must include subordination
terms and conditions that are at least as favorable to the Lender as those
that were applicable to the refinanced, renewed, or extended Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is refinanced,
renewed, or extended under Section 7.1(d) and so long as the replacement
Liens only encumber those assets that secured the refinanced, renewed, or
extended Indebtedness).
7.3 Consignments. Consign any Inventory or sell any Inventory on ▇▇▇▇
and hold, sale or return, sale on approval, or other conditional terms of
sale.
7.4 Restrictions on Fundamental Changes.
(a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock.
(b) Liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution).
(c) Convey, sell, lease, license, assign, transfer, or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its assets.
7.5 Disposal of Assets. Other than Permitted Dispositions, convey,
sell, lease, license, assign, transfer, or otherwise dispose of any of its
assets.
7.6 Change Name. Change such Borrower's name, corporate structure or
identity, or add any new fictitious name; provided, however, that a Borrower
may change its name upon at least 30 days prior written notice by such
Borrower to the Lender of such change and so long as, at the time of such
written notification, such Borrower provides the Lender authorization to
prepare and to file any financing statements or fixture filings necessary to
perfect and continue perfected Lender's Liens.
7.7 Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except (a) by endorsement of
instruments or items of payment for deposit to the account of such Borrower
or which are transmitted or turned over to the Lender or (b) guarantees by a
Borrower of another Borrower's Indebtedness that is permitted Indebtedness
under Section 7.1 above.
7.8 Nature of Business. Make any change in the principal nature of
any Borrower's business. Neither Planet Zanett will have any material
assets, liabilities, or business operations nor will any other Subsidiary of
any Borrower have any assets, liabilities, or business operations unless
Planet Zanett or such other Subsidiary becomes a Borrower, which may only
occur with the prior written consent of the Lender, which the Lender may
grant or withhold in its sole discretion.
7.9 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section
7.1(d), prepay, redeem, defease, purchase, or otherwise acquire any
Indebtedness of any Borrower, other than the Obligations in accordance with
this Agreement.
(b) Except in connection with a refinancing permitted by Section
7.1(d), directly or indirectly, amend, modify, alter, increase, or change any
of the terms or conditions of any agreement, instrument, document, indenture,
or other writing evidencing or concerning Indebtedness permitted under
Sections 7.1(b) or (c).
(c) Amend or modify in any manner adverse to any Borrower any of
the terms of such Borrower's notes, debts, or obligations (fixed, contingent,
or otherwise, and including, without limitation, earn-out payment
obligations) (i) referenced at Schedule 5.18 to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or Emral
Holdings Limited, (ii) referenced at Schedule 5.18 to the former owners of
any Subsidiary of Parent that are payable upon completion of performance
requirements, or (iii) to any other holder of any Borrower's notes or with
respect to any debt for borrowed money or earn-out payments for which any
Borrower is obligated.
(d) Make any interest or other payments toward any of such notes,
debts, or obligations referenced at Section 7.9(c) before the regularly
scheduled due date for any such payments, and in any event, (i) no Borrower
will make any payments toward any such notes, debts, or obligations at any
time while a Default or Event of Default has occurred and is continuing or if
a Default or Event of Default would result from any such payment or if
Availability is or will be (including on a pro forma basis after any such
payment) below $1,000,000.00 and (ii) no Borrower will make any payments
(other than in the approximate amount of $575,000.00 on the Closing Date)
toward the unpaid principal balance of any such notes at any time. The
Borrowers shall notify the Lender not less than 10 Business Days in advance
of any such planned payment and shall provide to the Lender such documents
(including, without limitation, a current Borrowing Base Certificate) as the
Lender requests to confirm to the Lender satisfaction of the conditions
outlined herein to any such payment.
7.10 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.11 Distributions. Make any distribution or declare or pay any
dividends (in cash or other property, other than common Stock) on, or
purchase, acquire, redeem, or retire any of, such Borrower's Stock, of any
class, whether now or hereafter outstanding, other than (a) payments of
dividends on the stock of any Borrower other than Parent, which may be made
only to Parent and only as long as Parent owns all of the issued and
outstanding stock of such Borrower and (b) purchases by Parent of up to
150,000 of its shares of common stock pursuant to the terms of Parent's May
1, 2003 Stock Repurchase Plan attached hereto as Schedule 7.11, none of which
purchases may be made at any time while a Default or Event of Default has
occurred and is continuing or if a Default or Event of Default would result
from any such payment(s) or if any breach of the Borrowers' covenants at
Section 7.18 has occurred or would occur (including on a pro forma basis
after any such payment(s)).
7.12 Accounting Methods. Modify or change its method of accounting
(other than as may be required to conform to GAAP).
7.13 Investments. Except for Permitted Investments, directly or
indirectly, make or acquire any Investment, or incur any liabilities
(including contingent obligations) for or in connection with any Investment;
provided, however, that such Borrower shall not have Permitted Investments
(other than in the Concentration Account) in excess of $100,000.00
outstanding at any one time unless such Borrower and the applicable
securities intermediary or bank have entered into Control Agreements or
similar arrangements governing such Permitted Investments, as the Lender
shall determine in its Permitted Discretion, to perfect (and further
establish) the Lender's Liens in such Permitted Investments.
7.14 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any transaction with any Affiliate of such Borrower except
for transactions that are in the ordinary course of such Borrower's business,
upon fair and reasonable terms, that are fully disclosed to the Lender, and
that are no less favorable to such Borrower than would be obtained in an
arm's length transaction with a non-Affiliate.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
7.16 Use of Proceeds. Use the proceeds of the Advances for any
purpose other than (a) on the Closing Date, (i) to repay in full the
outstanding principal, accrued interest, and accrued fees and expenses owing
to Existing Lender and (ii) to pay transactional fees, costs, and expenses
incurred in connection with this Agreement, the other Loan Documents, and the
transactions contemplated hereby and thereby, and (b) thereafter, consistent
with the terms and conditions hereof, for working capital and general
corporate purposes or to finance Permitted Investments by the Borrowers.
7.17 Securities Accounts. Establish or maintain any Securities
Account unless the Lender shall have received a Control Agreement in respect
of such Securities Account.
7.18 Financial Covenants.
(a) Fail to maintain:
(i) Senior Funded Debt to EBITDA Ratio. A Senior Funded Debt
to EBITDA Ratio of 3.25 to 1.00 or less, as measured at September 30, 2004,
and at each succeeding December 31, March 31, June 30, and September 30.
(ii) Fixed Charge Coverage Ratio. A Fixed Charge Coverage
Ratio of at least 1.10 to 1.00, as measured at September 30, 2004, and at
each succeeding December 31, March 31, June 30, and September 30.
(b) Capital Expenditures. Make Capital Expenditures, other than
Permitted Investments, in any calendar year in excess of $____________.
7.19 Bank Accounts. Establish or maintain any deposit, disbursement,
cash management, or other bank account with any bank or other financial
institution other than the Lender and other than existing accounts with
financial institutions other than the Lender that are closed within 30 days
of the date of this Agreement, except that small local deposit and checking
accounts for day to day ordinary course of business collections of deposits
and payments of expenses may continue to be maintained by a Borrower with
banks and financial institutions other than the Lender. Notwithstanding the
foregoing, in no event shall the aggregate balance in such other accounts for
any Borrower at any time exceed $25,000.00, and, in the event a Default or
Event of Default occurs, the Lender, at its discretion, may at any time
thereafter require the Borrowers to close such other accounts and transfer
the funds therein to the Lender.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an event of default
(each, an "Event of Default") under this Agreement:
8.1 If any Borrower fails to pay within 5 days of when due and
payable, or within 5 days of when declared due and payable, all or any
portion of the Obligations; or
8.2 If any Borrower fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in Section 7 (Negative
Covenants), Section 6.6, or Section 6.7; or
8.3 If any Borrower fails to perform, keep, or observe any other term,
provision, condition, covenant, or agreement contained in this Agreement or
in any of the other Loan Documents or if any Guarantor fails to perform,
keep, or observe any term, provision, condition, covenant, or agreement
contained in any of the Loan Documents to which such Guarantor is a party and
any such failure is not cured to the reasonable satisfaction of the Lender
within 30 days after the earliest of the time that (a) the Lender notifies
the Administrative Borrower of such failure, (b) any Borrower or Guarantor
knows of such failure, or (c) any Borrower or Guarantor should have known of
such failure; or
8.4 If any material portion of any Borrower's or any Guarantor's
assets is attached, seized, subjected to a writ or distress warrant, levied
upon, or comes into the possession of any third Person; or
8.5 If an Insolvency Proceeding is commenced by any Borrower or any
Guarantor; or
8.6 If an Insolvency Proceeding is commenced against any Borrower or
any Guarantor, and any of the following events occur: (a) such Borrower or
such Guarantor consents to the institution of the Insolvency Proceeding
against it; (b) the petition commencing the Insolvency Proceeding is not
timely controverted; (c) the petition commencing the Insolvency Proceeding is
not dismissed within 45 calendar days of the date of the filing thereof;
provided, however, that, during the pendency of such period, the Lender shall
be relieved of its obligation to extend credit hereunder; (d) an interim
trustee is appointed to take possession of all or any substantial portion of
the properties or assets of, or to operate all or any substantial portion of
the business of, such Borrower or such Guarantor; or (e) an order for relief
shall have been entered therein; or
8.7 If any Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs; or
8.8 If a notice of Lien, levy, or assessment involving an amount in
any individual instance, or amounts in the aggregate for all such items, in
excess of $25,000.00 is filed of record with respect to any Borrower's assets
by the United States, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, or if any taxes
or debts involving an amount in any individual instance, or amounts in the
aggregate for all such items, in excess of $25,000.00 owing at any time
hereafter to any one or more of such entities becomes a Lien, whether ▇▇▇▇▇▇
or otherwise, upon any Borrower's assets and the same is not paid on the
payment date thereof; or
8.9 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of any Borrower's properties or assets and is not
satisfied, released, or bonded within 30 days; or
8.10 If a default or event of default occurs under any other agreement
or instrument between any Borrower and the Lender or under any other
agreement or instrument running to the benefit of the Lender from any
Borrower and such default or event of default continues uncured beyond any
applicable notice and/or grace period (if any) provided therein; or
8.11 If there is a default in any agreement to which any Borrower is a
party that the Lender deems material and such default (a) occurs at the final
maturity of the obligations thereunder, or (b) results in a right by the
other party thereto, irrespective of whether exercised, to accelerate the
maturity of any Borrower's obligations thereunder, to terminate such
agreement, or to refuse to renew such agreement pursuant to an automatic
renewal right therein; or
8.12 If any Borrower makes any payment on account of Indebtedness that
has been contractually subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by the terms of
the subordination provisions applicable to such Indebtedness, such as, but
not limited to, Section 7.9 hereof; or
8.13 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or Record made to the
Lender by any Borrower or any officer, employee, agent, or director of any
Borrower; or
8.14 If this Agreement or any other Loan Document that purports to
create a Lien in favor of the Lender, shall, for any reason, fail or cease to
create a valid and perfected and, except to the extent permitted by the terms
hereof or thereof, first priority Lien on or security interest in the
Collateral covered hereby or thereby, other than due to actions taken or
omitted to be taken by the Lender, including, without limitation, the
Lender's release of any Lien or the Lender's failure to timely file
continuation statements with respect to any Lien; or
8.15 If any provision of any Loan Document shall at any time for any
reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any Borrower or any Guarantor, or a proceeding
shall be commenced by any Borrower or any Guarantor, or by any Governmental
Authority having jurisdiction over any Borrower or any Guarantor, seeking to
establish the invalidity or unenforceability thereof, or any Borrower or any
Guarantor shall deny that such Borrower or such Guarantor has any liability
or obligation purported to be created under any Loan Document; or
8.16 If any Guarantor, other than subject to the specific dollar limit
set forth in such Guarantor's Guaranty, denies his obligation to guarantee
any then existing Obligations or attempts to limit or to terminate his
guarantee of any future Obligations; or
8.17 If any note, debt, or obligation (in whole or in part) of any
Borrower to ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or Emral Holdings Limited is endorsed, assigned,
or transferred (whether voluntarily, by operation of law, or otherwise) to
any Person that has not duly and validly executed in favor of, and delivered
to, the Lender a subordination agreement in form and substance satisfactory
to the Lender in its sole discretion.
9. THE LENDER'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the
continuation, of an Event of Default, the Lender may do any one or more of
the following, all of which are authorized by the Borrowers:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and
payable;
(b) Cease advancing money or extending credit to or for the
benefit of any Borrower under this Agreement, under any of the Loan
Documents, or under any other agreement between any Borrower and the Lender;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of the Lender, but without affecting
any of the Lender's Liens in the Collateral and without affecting the
Obligations;
(d) Settle or adjust disputes and claims directly with, and obtain
Collections directly from, Account Debtors for amounts and upon terms which
the Lender considers advisable, and in such cases, the Lender will credit
against the Obligations only the net amounts received by the Lender in
payment of such Accounts (whether disputed or otherwise) after deducting all
Lender Expenses incurred or expended in connection therewith;
(e) Without notice to or demand upon any Borrower, make such
payments and do such acts as the Lender considers necessary or reasonable to
protect its security interests in the Collateral. Each Borrower agrees to
assemble the Personal Property Collateral if the Lender so requires, and to
make the Personal Property Collateral available to the Lender at a place that
the Lender may designate which is reasonably convenient to both parties.
Each Borrower authorizes the Lender to enter the premises where the Personal
Property Collateral is located, to take and maintain possession of the
Personal Property Collateral, or any part of it, and to pay, purchase,
contest, or compromise any Lien that in the Lender's determination appears to
conflict with the Lender's Liens and to pay all expenses incurred in
connection therewith and to charge the Borrowers therefor. With respect to
any owned or leased premises of any Borrower, such Borrower hereby grants the
Lender a license to enter into possession of such premises and to occupy the
same, without charge, in order to exercise any of the Lender's rights or
remedies provided herein, at law, in equity, or otherwise;
(f) Without notice to any Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of any
Borrower held by the Lender (including any amounts received in any
Collections Account or the Concentration Account), or (ii) Indebtedness at
any time owing to or for the credit or the account of any Borrower held by
the Lender;
(g) Hold, as cash collateral, any and all balances and deposits of
any Borrower held by the Lender, and any amounts received in any Collections
Account or the Concentration Account, to secure the full and final repayment
of all of the Obligations;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Personal Property Collateral, and in connection therewith, each
Borrower hereby grants to the Lender a license or other right to use, without
charge, such Borrower's labels, patents, copyrights, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of
a similar nature, as it pertains to the Personal Property Collateral, in
completing production of, advertising for sale, and selling any Personal
Property Collateral and each Borrower's rights under all licenses and all
franchise agreements shall inure to the Lender's benefit;
(i) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for
cash or on terms, in such manner and at such places (including any Borrower's
premises) as the Lender determines is commercially reasonable;
(j) The Lender may give notice of the disposition of the Personal
Property Collateral as follows:
(i) the Lender may give the Administrative Borrower (for the
benefit of each applicable Borrower) a notice in writing of the time and
place of public sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the Personal Property
Collateral, the time on or after which the private sale or other disposition
is to be made; and
(ii) The notice may be given to Administrative Borrower, as
provided in Section 12, at least 10 days before the earliest time of
disposition set forth in the notice, and no notice needs to be given prior to
the disposition of any portion of the Personal Property Collateral that is
perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market;
(k) The Lender may credit bid and purchase at any public sale;
(l) The Lender may seek the appointment of a receiver to take
possession of all or any portion of the Collateral or to operate same and, to
the maximum extent permitted by law, may seek the appointment of such a
receiver without the requirement of prior notice or a hearing;
(m) The Lender shall have all other rights and remedies available
to it at law or in equity or pursuant to any other Loan Documents; and
(n) Any deficiency that exists after disposition of the Personal
Property Collateral as provided above will be paid immediately by the
Borrowers to the Lender, and, if applicable, any excess will be returned,
without interest and subject to the rights of third Persons, by the Lender to
the Administrative Borrower (for the benefit of the applicable Borrower(s)).
9.2 Remedies Cumulative. The rights and remedies of the Lender under
this Agreement, the other Loan Documents, and all other agreements shall be
cumulative. The Lender shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender of one right or remedy shall be deemed an election,
and no waiver by the Lender of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender shall constitute a waiver,
election, or acquiescence by it.
10. TAXES AND EXPENSES.
(a) The Borrowers shall promptly, upon the Lender's demand
therefore, reimburse the Lender for all Lender Expenses.
(b) If any Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or
assets, rents or other amounts payable under such leases) due to third
Persons, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement, then,
the Lender, in its sole discretion and without prior notice to any Borrower,
may do any or all of the following: (a) make payment of the same or any part
thereof, (b) set up such reserves as the Lender deems necessary to protect
the Lender from the exposure created by such failure, or (c) in the case of
the failure to comply with Section 6.7 hereof, obtain and maintain insurance
policies of the type described in Section 6.7 and take any action with
respect to such policies as the Lender deems prudent. Any such amounts paid
by the Lender shall constitute Lender Expenses and any such payments shall
not constitute an agreement by the Lender to make similar payments in the
future or a waiver by the Lender of any Event of Default under this
Agreement. The Lender need not inquire as to, or contest the validity of,
any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Each Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of documents, instruments, chattel paper, and
guarantees at any time held by the Lender on which any Borrower may in any
way be liable.
11.2 The Lender's Liability for Collateral. Each Borrower hereby
agrees that: (a) so long as the Lender complies with its obligations, if
any, under the Code, the Lender shall not in any way or manner be liable or
responsible for: (i) the safekeeping of the Collateral, (ii) any loss or
damage thereto occurring or arising in any manner or fashion from any cause,
(iii) any diminution in the value thereof, or (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other Person, and (b)
all risk of loss, damage, or destruction of the Collateral shall be borne by
the Borrowers.
11.3 Indemnification. The Borrowers shall pay, indemnify, defend, and
hold the Lender-Related Persons with respect to each Lender, each
Participant, and each of their respective officers, directors, employees,
agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to
the fullest extent permitted by law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all
reasonable attorneys' fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred and
irrespective of whether suit is brought), at any time asserted against,
imposed upon, or incurred by any of them (a) in connection with or as a
result of or related to the execution, delivery, enforcement, performance, or
administration of this Agreement, any of the other Loan Documents, or the
transactions contemplated hereby or thereby, and (b) with respect to any
investigation, litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided hereunder
(irrespective of whether any Indemnified Person is a party thereto), or any
act, omission, event, or circumstance in any manner related thereto (all the
foregoing, collectively, the "Indemnified Liabilities"). The foregoing
notwithstanding, the Borrowers shall have no obligation to any Indemnified
Person under this Section 11.3 with respect to any Indemnified Liability that
a court of competent jurisdiction finally determines to have resulted from
the gross negligence or willful misconduct of such Indemnified Person. This
provision shall survive the termination of this Agreement and the repayment
of the Obligations. If any Indemnified Person makes any payment to any other
Indemnified Person with respect to an Indemnified Liability as to which any
Borrower was required to indemnify the Indemnified Person receiving such
payment, the Indemnified Person making such payment is entitled to be
indemnified and reimbursed by the Borrowers with respect thereto. WITHOUT
LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON
WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART WERE CAUSED
BY, OR ARISE OUT OF, ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON
OR OF ANY OTHER PERSON.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
Borrower or the Lender to the other relating to this Agreement or any other
Loan Document shall be in writing and (except for financial statements and
other informational documents, which may be sent by first-class mail, postage
prepaid) shall be deemed given to a party: (a) when delivered to the
appropriate address by hand; (b) on the first business day after sent by
nationally recognized overnight courier service (costs prepaid); (c) when
sent by facsimile with telephonic confirmation or electronic mail with
confirmation of transmission by the transmitting equipment; or (d) three (3)
business days after deposit if sent by certified mail, return receipt
requested, when received or rejected by the addressee, in each case to the
following addresses, facsimile numbers or electronic mail addresses and
marked to the attention of the person (by name or title) designated below (or
to such other address, facsimile number, electronic mail address, or person
as a party may designate by notice to the other party in writing given in
accordance with this Section 12):
If to the Administrative
Borrower or any or all
of the Borrowers: Zanett, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: _____________________
Telecopy No. (___) ___-____
Electronic Mail Address: _______________
If to the Lender: Fifth Third Bank
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇
Electronic Mail Address: ▇▇▇▇▇.▇▇▇▇▇▇@▇▇.▇▇▇
with a mandatory copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telecopy No. (▇▇▇) ▇▇▇-▇▇▇▇
Electronic Mail Address: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
Each Borrower acknowledges and agrees that notices sent by the Lender in
connection with the exercise of enforcement rights against Collateral under
the provisions of the Code shall be deemed sent when deposited in the mail or
personally delivered, or, where permitted by law, transmitted by telecopy,
electronic mail, or any other method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN
RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND
THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR
RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN ▇▇▇▇▇▇▇▇
COUNTY, OHIO; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST
ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN
THE COURTS OF ANY JURISDICTION WHERE THE LENDER ELECTS TO BRING SUCH ACTION
OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH BORROWER AND
THE LENDER WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO
VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13(b).
(c) EACH BORROWER AND THE LENDER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND
ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH BORROWER AND THE LENDER
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED
AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
14.1 Assignments and Participations.
(a) The Lender, at any time, may (i) assign and delegate to one or
more assignees (each an "Assignee") all, or any part, of the Obligations and
the other rights and obligations of the Lender hereunder and under the other
Loan Documents, or (ii) sell to one or more commercial banks, financial
institutions, or other Persons (a "Participant") participating interests in
all, or any part, of the Obligations and the other rights and interests of
the Lender hereunder and under the other Loan Documents.
(b) In connection with any such assignment or participation or
proposed assignment or participation, the Lender may disclose all documents
and information that it now or hereafter may have relating to any Borrower or
any Borrower's business.
14.2 Successors. This Agreement shall bind and inure to the benefit
of the respective successors and assigns of each of the parties; provided,
however, that no Borrower may assign this Agreement or any rights or duties
hereunder without the Lender's prior written consent and any prohibited
assignment shall be absolutely void ab initio. No consent to assignment by
the Lender shall release any Borrower from its Obligations. The Lender may
assign this Agreement and the other Loan Documents and its rights and duties
hereunder and thereunder pursuant to Section 14.1 hereof.
15. AMENDMENTS; WAIVERS.
15.1 Amendments and Waivers. No amendment or waiver of any provision
of this Agreement or any other Loan Document, and no consent with respect to
any departure by any Borrower therefrom, shall be effective unless the same
shall be in writing and signed by the Lender and either all of the Borrowers
or the Administrative Borrower (on behalf of all of the Borrowers) and then
any such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
15.2 No Waivers; Cumulative Remedies. No failure by the Lender to
exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by the Lender in exercising the same, will operate as a
waiver thereof. No waiver by the Lender will be effective unless it is in
writing, and then only to the extent specifically stated. No waiver by the
Lender on any occasion shall affect or diminish the Lender's rights
thereafter to require strict performance by each Borrower of any provision of
this Agreement or any of the other Loan Documents. The Lender's rights under
this Agreement and the other Loan Documents will be cumulative and not
exclusive of any other right or remedy that the Lender may have.
16. GENERAL PROVISIONS.
16.1 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the
context, everything contained in each Section applies equally to the entire
Agreement.
16.2 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against the Lender or any
Borrower, whether under any rule of construction or otherwise. On the
contrary, this Agreement has been reviewed and negotiated by both parties
and shall be construed and interpreted according to the ordinary meaning of
the words used so as to accomplish fairly the purposes and intentions of the
parties hereto.
16.3 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific provision.
16.4 Counterparts; Telecopy Execution. This Agreement may be executed
in any number of counterparts and by different parties on separate
counterparts, each of which, when executed and delivered, shall be deemed to
be an original, and all of which, when taken together, shall constitute but
one and the same Agreement. Delivery of an executed counterpart of this
Agreement by telecopy shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telecopy also shall deliver an
original executed counterpart of this Agreement, but the failure to deliver
an original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement. The foregoing shall
also apply to each other Loan Document.
16.5 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by any Borrower or the transfer to the Lender of
any property should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors' rights,
including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences, or other voidable or recoverable payments of money
or transfers of property (collectively, a "Voidable Transfer"), and if the
Lender is required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice of its
counsel, then, as to any such Voidable Transfer, or the amount thereof that
the Lender is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys' fees of the Lender related
thereto, the liability of each Borrower automatically shall be revived,
reinstated, and restored and shall exist as though such Voidable Transfer had
never been made.
16.6 Integration. This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to
the transactions contemplated hereby and shall not be contradicted or
qualified by any other agreement, oral or written, before the date hereof.
16.7 Parent as Agent for the Borrowers. Each Borrower hereby
irrevocably appoints Parent as the borrowing agent and attorney-in-fact for
all of the Borrowers (the "Administrative Borrower") which appointment shall
remain in full force and effect unless and until the Lender shall have
received prior written notice signed by each Borrower that such appointment
has been revoked and that another Borrower has been appointed Administrative
Borrower. Each Borrower hereby irrevocably appoints and authorizes the
Administrative Borrower (i) to provide the Lender with all notices with
respect to Advances obtained for the benefit of any Borrower and all other
notices and instructions under this Agreement and (ii) to take such action as
the Administrative Borrower deems appropriate on its behalf to obtain
Advances and to exercise such other powers as are reasonably incidental
thereto to carry out the purposes of this Agreement. It is understood that
the handling of deposit and disbursement accounts and Collateral of the
Borrowers in a combined fashion, as more fully set forth herein, is done
solely as an accommodation to the Borrowers in order to utilize the
collective borrowing powers of the Borrowers in the most efficient and
economical manner and at their request, and that the Lender shall not incur
liability to any Borrower as a result hereof. Each Borrower expects to
derive benefit, directly or indirectly, from the handling of the deposit and
disbursement accounts and the Collateral in a combined fashion since the
successful operation of each Borrower is dependent on the continued
successful performance of the integrated group. To induce the Lender to do
so, and in consideration thereof, each Borrower hereby jointly and severally
agrees to indemnify the Lender and to hold the Lender harmless against any
and all liability, expense, loss, or claim of damage or injury, made against
the Lender by any Borrower or by any third party whosoever, arising from or
incurred by reason of (a) the handling of the deposit and disbursement
accounts and Collateral of the Borrowers as herein provided, (b) the Lender's
relying on any instructions of the Administrative Borrower, or (c) any other
action taken by the Lender hereunder or under the other Loan Documents,
except that the Borrowers will have no liability to the Lender under this
Section 16.7 with respect to any liability that has been finally determined
by a court of competent jurisdiction to have resulted solely from the gross
negligence or willful misconduct of the Lender.
16.8 No Lender Brokerage Fees. The Lender represent to the
Borrowers that the Lender has not utilized the services of any broker or
finder in connection with the financing to be provided to the Borrowers by
the Lender under this Agreement and that no such brokerage commission or
finder's fee is payable in whole or in part by or on behalf of the Lender.
16.9 Existing CFO/CLO Promissory Notes. Notwithstanding anything to
the contrary in this Agreement or in any of the other Loan Documents, the
Lender hereby agrees that (a) it does not, and shall not, have any security
interest in, or Lien against, the September 7, 2001 Promissory Note in the
principal amount of $519,397.00, the January 27, 2002 Promissory Note in the
principal amount of $60,000.00, or the June 4, 2002 Promissory Note in the
principal amount of $118,287.65 made by ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ to Parent or the
September 7, 2001 Promissory Note in the principal amount of $50,000.00 or
the January 27, 2002 Promissory Note in the principal amount of $900,000.00
made by Pierre-▇▇▇▇▇▇▇ ▇▇▇ to Parent (collectively, the "Existing CFO/CLO
Promissory Notes") and (b) it will not enforce directly or indirectly, or
seek any payment under, any of the Existing CFO/CLO Promissory Notes.
[Signature page to follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
and validly executed and delivered as of the date first above written.
ZANETT, INC., as the Administrative
Borrower and a Borrower
By:
Name:
Title:
By:
Name:
Title:
BACK BAY TECHNOLOGIES, INC., as a Borrower
By:
Name:
Title:
By:
Name:
Title:
INRANGE CONSULTING CORPORATION, as a
Borrower
By:
Name:
Title:
By:
Name:
Title:
PARAGON DYNAMICS, INC., as a Borrower
By:
Name:
Title:
By:
Name:
Title:
DELTA COMMUNICATIONS GROUP, INC., as a
Borrower
By:
Name:
Title:
By:
Name:
Title:
FIFTH THIRD BANK, as the Lender
By:
Name:
Title:
EXHIBIT A
DEFINITIONS
"Account Debtor" means any Person who is or who may become obligated under,
with respect to, or on account of, an Account, chattel paper, or a General
Intangible.
"Accounts" means all of the now owned or hereafter acquired right, title, and
interest of any Borrower with respect to "accounts" (as that term is defined
in the Code), and any and all supporting obligations in respect thereof.
"Additional Documents" has the meaning set forth in Section 4.4.
"Administrative Borrower" has the meaning set forth in Section 16.7.
"Advances" means all loans, advances of credit, and other sums now or
hereafter advanced by or on behalf of the Lender to or for the benefit of any
of the Borrowers.
"Affiliate" means, as applied to any Person, any other Person who, directly
or indirectly, controls, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct the management and
policies of a Person, whether through the ownership of Stock, by contract, or
otherwise; provided, however, that, in any event: (a) any Person which owns
directly or indirectly 10% or more of the securities having ordinary voting
power for the election of directors or other members of the governing body of
a Person or 10% or more of the partnership or other ownership interests of a
Person (other than as a limited partner of such Person) shall be deemed to
control such Person; (b) each director (or comparable manager) and officer of
a Person shall be deemed to be an Affiliate of such Person; and (c) each
partnership or joint venture in which a Person is a partner or joint venturer
shall be deemed to be an Affiliate of such Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Assignee" has the meaning set forth in Section 14.1.
"Authorized Person" means any of the Chief Executive Officer, the President,
the Chief Financial Officer, or the Chief Legal Officer of the Administrative
Borrower.
"Availability" means, as of any date of determination, if such date is a
Business Day, and determined at the close of business on the immediately
preceding Business Day, if such date of determination is not a Business Day,
the amount that the Borrowers are entitled to borrow as Revolving Credit
Advances under Section 2.1 (after giving effect to all then outstanding
Obligations and all sublimits and reserves applicable hereunder).
"Bankruptcy Code" means the United States Bankruptcy Code, as in effect from
time to time.
"Base Rate" means the rate of interest announced by the Lender at its
principal office in Cincinnati, Ohio as its "prime rate," with the
understanding that the "prime rate" is one of the Lender's base rates (not
necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in
such internal publication or publications as the Lender may designate.
"Base Rate Loan" means each portion of an Advance that bears interest at a
rate determined by reference to the Base Rate.
"Base Rate Margin" means two percentage points (2.00%).
"Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of
ERISA), other than a Multiemployer Plan, for which any Borrower or any
Subsidiary or ERISA Affiliate of any Borrower has been an "employer" (as
defined in Section 3(5) of ERISA) within the past six years.
"Board of Directors" means the board of directors (or comparable managers) of
any Borrower or any committee thereof duly authorized to act on behalf
thereof.
"Books" means all of the now owned or hereafter acquired books and records of
each of the Borrowers (including all of each Borrower's Records indicating,
summarizing, or evidencing its assets (including the Collateral) or
liabilities, all of its Records relating to its business operations or
financial condition, and all of its goods or General Intangibles related to
such information).
"Borrower" and "Borrowers" have the meanings set forth in the preamble to
this Agreement.
"Borrowing" means a borrowing hereunder consisting of Advances made by the
Lender to any of the Borrowers.
"Borrowing Base" has the meaning set forth in Section 2.1.
"Borrowing Base Certificate" means a certificate in the form of Exhibit C.
"Business Day" means any day that is not a Saturday, Sunday, or other day on
which Ohio banks are authorized or required to close.
"Capital Expenditures" means expenditures for the acquisition (including the
acquisition by Capital Lease) or improvement of capital assets, as determined
in accordance with GAAP.
"Capital Lease" means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a Capital Lease.
"Cash Equivalents" means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any agency
thereof and backed by the full faith and credit of the United States, in each
case maturing within 1 year from the date of acquisition thereof, (b)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within 1 year from the date of acquisition thereof and, at the time
of acquisition, having the highest rating obtainable from either S&P or
▇▇▇▇▇'▇, (c) commercial paper maturing no more than 1 year from the date of
acquisition thereof and, at the time of acquisition, having a rating of A-1
or P-1, or better, from S&P or ▇▇▇▇▇'▇, and (d) certificates of deposit or
bankers' acceptances maturing within 1 year from the date of acquisition
thereof either (i) issued by any bank organized under the laws of the United
States or any state thereof which bank has a rating of A or A2, or better,
from S&P or ▇▇▇▇▇'▇, or (ii) certificates of deposit less than or equal to
$100,000 in the aggregate issued by any other bank insured by the Federal
Deposit Insurance Corporation.
"Change of Control" means (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d) of the Exchange Act), other than ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, their immediate family members and heirs, and trusts
controlled by ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of 10%, or more, of the Stock of the Parent having the right to
vote for the election of members of the Board of Directors of the Parent, (b)
the Parent ceases to own 100% of the issued and outstanding voting stock of
any other Borrower, (c) any Person, other than ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, controls (directly or indirectly) management, major decisions, and
day to day operations of any Borrower, or (d) a majority of the members of
the Board of Directors do not constitute Continuing Directors.
"Closing Date" means the date of the making of the initial Advance (or other
extension of credit) hereunder.
"Code" means the Ohio Uniform Commercial Code, as in effect from time to
time.
"Collateral" means all of the now owned and hereafter acquired right, title,
and interest of each Borrower in and to each of the following:
(a) Accounts,
(b) Books,
(c) Equipment,
(d) General Intangibles,
(e) Inventory,
(f) Investment Property,
(g) Negotiable Collateral,
(h) money or other assets of any Borrower that now or hereafter come into
the possession, custody, or control of the Lender, and
(i) the proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance covering any or all of the
foregoing, and any and all Accounts, Books, Equipment, General Intangibles,
Inventory, Investment Property, Negotiable Collateral, money, deposit
accounts, or other tangible or intangible property resulting from the sale,
exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, bailee letter, or
acknowledgement agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in the Equipment or Inventory, in each case in form and substance
satisfactory to the Lender.
"Collections" means all cash, checks, notes, and instruments of any Borrower
and all other remittances and items of payment (including insurance proceeds,
proceeds of cash sales, rental proceeds, and tax refunds) to any Borrower.
"Collections Account" and "Collections Accounts" have the meanings set forth
in Section 2.6.
"Concentration Account" has the meaning set forth in Section 2.6.
"Continuing Director" means (a) any member of the Board of Directors who was
a director of the respective Borrower on the Closing Date and (b) any
individual who becomes a member of such Board of Directors after the Closing
Date if such individual was appointed or nominated for election to such Board
of Directors by a majority of the Continuing Directors, but excluding any
such individual originally proposed for election in opposition to such Board
of Directors in office at the Closing Date in an actual or threatened
election contest relating to the election of the directors of such Borrower
(as such terms are used in Rule 14a-11 under the Exchange Act) and whose
initial assumption of office resulted from such contest or the settlement
thereof.
"Control Agreement" means a control agreement, in form and substance
satisfactory to the Lender, executed and delivered by one or more of the
relevant Borrowers, the Lender, and the applicable securities intermediary
with respect to a Securities Account or a bank with respect to a deposit
account.
"Corporate Checking Account" has the meaning set forth in Section 2.6.
"Daily Balance" means, with respect to each day during the term of this
Agreement, the amount of an Obligation owed at the end of such day.
"DDA" means any checking or other demand deposit account maintained by any
Borrower.
"Default" means an event, condition, or default that, with the giving of
notice, the passage of time, or both, would be an Event of Default.
"Disbursement Account" and "Disbursement Accounts" have the meanings set
forth in Section 2.2.
"Disbursement Letter" means an instructional letter executed and delivered by
the Borrowers to the Lender regarding the extensions of credit to be made on
the Closing Date, the form and substance of which is satisfactory to the
Lender.
"Dollars" or "$" means United States dollars.
"EBITDA" means the earnings before interest, taxes, depreciation, and
amortization of the Borrowers determined in accordance with GAAP and on a
consolidated basis.
"Eligible Accounts" means those Accounts created by any Borrower in the
ordinary course of its business, that arise out of its sale of goods or
rendition of services, that comply with each of the representations and
warranties respecting Eligible Accounts made by the Borrowers under the Loan
Documents, and that are not excluded as ineligible by virtue of one or more
of the criteria set forth below; provided, however, that such criteria may be
fixed and revised from time to time by the Lender in the Lender's Permitted
Discretion to address the results of any review of the Books or any
Borrower's operations or prospects performed by the Lender from time to time
after the Closing Date as long as Lender provides thirty (30) days notice to
Administrative Borrower before implementing any such revisions. In
determining the amount to be included, Eligible Accounts shall be calculated
net of customer deposits and unapplied cash remitted to the Borrowers.
Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within 90 days of
the original invoice date or that are more than 60 days past due,
(b) Accounts owed by an Account Debtor (or its Affiliates) where 25% or more
of all Accounts owed by that Account Debtor (or its Affiliates) are deemed
ineligible under clause (a) above,
(c) Accounts with respect to which the Account Debtor is an employee,
Affiliate, or agent of any Borrower,
(d) that portion of any Account, the payment of which portion by the Account
Debtor is conditional, whether arising in a transaction wherein the goods are
placed on consignment or are sold pursuant to a guaranteed sale, a sale or
return, a sale on approval, a ▇▇▇▇ and hold, or otherwise,
(e) Accounts that are not payable in Dollars,
(f) Accounts with respect to which the Account Debtor (i) does not maintain
its chief executive office in the United States, or (ii) is not organized
under the laws of the United States or any state thereof, or (iii) is the
government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof,
unless (y) the Account is supported by an irrevocable letter of credit
satisfactory to the Lender (as to form, substance, and issuer or domestic
confirming bank) that has been delivered to the Lender and is directly
drawable by the Lender, or (z) the Account is covered by credit insurance in
form, substance, and amount, and by an insurer, satisfactory to the Lender,
(g) Accounts with respect to which the Account Debtor is either (i) the
United States or any department, agency, or instrumentality of the United
States (exclusive, however, of Accounts with respect to which the Borrowers
have complied, to the reasonable satisfaction of the Lender, with the
Assignment of Claims Act, 31 USC 3727), or (ii) any state of the United
States (exclusive, however, of (y) Accounts owed by any state that does not
have a statutory counterpart to the Assignment of Claims Act or (z) Accounts
owed by any state that does have a statutory counterpart to the Assignment of
Claims Act as to which the Borrowers have complied to the Lender's
satisfaction),
(h) Accounts with respect to which the Account Debtor is a creditor of any
Borrower, has or has asserted a right of setoff, has disputed its liability,
or has made any claim with respect to its obligation to pay the Account, to
the extent of such claim, right of setoff, or dispute,
(i) Accounts with respect to an Account Debtor whose total obligations owing
to the Borrowers exceed 20% of all Eligible Accounts, to the extent of the
obligations owing by such Account Debtor in excess of such percentage,
(j) Accounts with respect to which the Account Debtor is subject to an
Insolvency Proceeding, is not Solvent, has gone out of business, or as to
which any Borrower has received notice or has knowledge of an imminent
Insolvency Proceeding or a material impairment of the financial condition of
such Account Debtor,
(k) Accounts with respect to which the Account Debtor is located in the
states of New Jersey, Minnesota, or West Virginia (or any other state that
requires a creditor to file a business activity report or similar document in
order to bring suit or otherwise enforce its remedies against such Account
Debtor in the courts or through any judicial process of such state), unless
the relevant Borrower has qualified to do business in New Jersey, Minnesota,
West Virginia, or such other states, or has filed a business activities
report with the applicable division of taxation, the department of revenue,
or with such other state offices, as appropriate, for the then-current year,
or is exempt from such filing requirement,
(l) Accounts, the collection of which, the Lender, in its Permitted
Discretion, believes to be doubtful by reason of the Account Debtor's
financial condition,
(m) Accounts that are not subject to a valid and perfected first priority
Lien in favor of the Lender (including, but not limited to, Accounts of Delta
Communications Group, Inc. that are encumbered by UCC filings existing as of
the date of this Agreement in favor of Persons other than the Lender until
such UCC filings in favor of Persons other than the Lender are terminated),
(n) Accounts with respect to which (i) the goods giving rise to such Account
have not been shipped and (except only as specifically permitted otherwise by
this Agreement) billed to the Account Debtor or (ii) the services giving rise
to such Account have not been performed and (except only as specifically
permitted otherwise by this Agreement) billed to the Account Debtor, or
(o) Accounts that represent the right to receive progress payments or other
advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by the
relevant Borrower of the subject contract for goods or services.
"Environmental Actions" means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of
Environmental Laws or releases of Hazardous Materials from (a) any assets,
properties, or businesses of any Borrower or any predecessor in interest, (b)
from adjoining properties or businesses, or (c) from or onto any facilities
which received Hazardous Materials generated by any Borrower or any
predecessor in interest.
"Environmental Law" means any applicable federal, state, provincial, foreign
or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy or rule of
common law now or hereafter in effect and in each case as amended, or any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, to the extent binding on
any Borrower, relating to the environment, employee health and safety, or
Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution
Control Act, 33 USC 1251 et seq; the Toxic Substances Control Act, 15 USC,
2601 et seq; the Clean Air Act, 42 USC 7401 et seq.; the Safe Drinking
Water Act, 42 USC. 3803 et seq.; the Oil Pollution Act of 1990, 33 USC.
2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of
1986, 42 USC. 11001 et seq.; the Hazardous Material Transportation Act, 49
USC 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. 651
et seq. (to the extent it regulates occupational exposure to Hazardous
Materials); any state and local or foreign counterparts or equivalents, in
each case as amended from time to time.
"Environmental Liabilities and Costs" means all liabilities, monetary
obligations, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts, or
consultants, and costs of investigation and feasibility studies), fines,
penalties, sanctions, and interest incurred as a result of any claim or
demand by any Governmental Authority or any third party which relate to any
Environmental Action.
"Environmental Lien" means any Lien in favor of any Governmental Authority
for Environmental Liabilities and Costs.
"Equipment" means all of the now owned or hereafter acquired right, title,
and interest of any Borrower with respect to equipment, machinery, machine
tools, motors, furniture, furnishings, fixtures, vehicles (including motor
vehicles), tools, parts, and goods (other than consumer goods, farm products,
or Inventory), wherever located, including all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any
of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of any Borrower
under IRC Section 414(b), (b) any trade or business subject to ERISA whose
employees are treated as employed by the same employer as the employees of
any Borrower under IRC Section 414(c), (c) solely for purposes of Section 302
of ERISA and Section 412 of the IRC, any organization subject to ERISA that
is a member of an affiliated service group of which any Borrower is a member
under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA
and Section 412 of the IRC, any Person subject to ERISA that is a party to an
arrangement with any Borrower and whose employees are aggregated with the
employees of any Borrower under IRC Section 414(o).
"Event of Default" has the meaning set forth in Section 8.
"Excess Availability" means the amount, as of the date any determination
thereof is to be made, equal to Availability minus the aggregate amount, if
any, of all trade payables of each Borrower aged in excess of their
historical levels with respect thereto and all book overdrafts in excess of
their historical practices with respect thereto, in each case as determined
by the Lender in its Permitted Discretion.
"Exchange Act" means the Securities Exchange Act of 1934, as in effect from
time to time.
"Existing CFO/CLO Promissory Notes" has the meaning set forth in Section
16.9.
"Existing Lender" means Textron Financial Corporation.
"Fixed Charge Coverage Ratio" means the ratio, as measured on a rolling 4
quarters basis, of (a) EBITDA plus the then unpaid principal balance of
Indebtedness (which has been incurred after the Closing Date and which has
resulted in new cash in like amount being provided to the Borrowers) that is
subordinated to the Obligations on terms acceptable to the Lender to (b) the
sum of the Borrowers' consolidated cash interest expense paid and current
maturities of long-term debt and Capital Lease Obligations, taxes, dividends,
cash paid for acquisitions of businesses (net of cash received in such
acquisitions), cash payments in redemption of shares of and cash dividends
and distributions made to Parent's shareholders, and non-financed Capital
Expenditures.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles, as in effect from time
to time in the United States, consistently applied.
"General Intangibles" means all of the now owned or hereafter acquired right,
title, and interest of any Borrower with respect to general intangibles
(including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, servicemarks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other
rights under any royalty or licensing agreements, infringement claims,
computer programs, information contained on computer disks or tapes,
software, literature, reports, catalogs, money, deposit accounts, insurance
premium rebates, tax refunds, and tax refund claims), and any and all
supporting obligations in respect thereof, and any other personal property
other than goods, Accounts, Investment Property, and Negotiable Collateral.
"Governing Documents" means, with respect to any Person, the certificate or
articles of incorporation, by-laws or code of regulations, or other
organizational documents of such Person.
"Governmental Authority" means any federal, state, local, or other
governmental or administrative body, instrumentality, department, or agency
or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.
"Guarantor" means each Person (if any) who at any time guarantees any of the
Obligations and "Guarantors" means all of such Persons (if any).
"Guaranty" means a guaranty (if any) executed and delivered by any Guarantor
to the Lender, in form and substance satisfactory to the Lender, as the same
may be amended, restated, supplemented, and/or renewed from time to time.
"Hazardous Materials" means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
"hazardous substances," "hazardous materials," "hazardous wastes," "toxic
substances," or any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP
toxicity," (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and
other wastes associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any flammable substances
or explosives or any radioactive materials, and (d) asbestos in any form or
electrical equipment that contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of 50 parts per million.
"Indebtedness" means (a) all obligations of each Borrower for borrowed money,
(b) all obligations of each Borrower evidenced by bonds, debentures, notes,
or other similar instruments and all reimbursement or other obligations of
each Borrower in respect of letters of credit, bankers acceptances, interest
rate swaps, or other financial products, (c) all obligations of each Borrower
under Capital Leases, (d) all obligations or liabilities of others secured by
a Lien on any asset of any Borrower, irrespective of whether such obligation
or liability is assumed, (e) all obligations of each Borrower for the
deferred purchase price of assets (other than trade debt incurred in the
ordinary course of such Borrower's business and repayable in accordance with
customary trade practices), and (f) all obligations of each Borrower
guaranteeing or intended to guarantee (whether directly or indirectly
guaranteed, endorsed, co-made, discounted, or sold with recourse to such
Borrower) any obligation of any other Person.
"Indemnified Liabilities" has the meaning set forth in Section 11.3.
"Indemnified Person" has the meaning set forth in Section 11.3.
"Insolvency Proceeding" means any proceeding commenced by or against any
Person under any provision of the Bankruptcy Code or under any other state or
federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally
with creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Intangible Assets" means, with respect to any Person, that portion of the
book value of all of such Person's assets that would be treated as
intangibles under GAAP.
"Intellectual Property Security Agreement" means that certain intellectual
property security agreement executed and delivered by the Borrowers to the
Lender, in form and substance satisfactory to the Lender, as the same may be
amended, restated, supplemented, and/or renewed from time to time.
"Inventory" means all of the now owned or hereafter acquired right, title,
and interest of each Borrower with respect to inventory, including goods held
for sale or lease or to be furnished under a contract of service, goods that
are leased by such Borrower as lessor, goods that are furnished by such
Borrower under a contract of service, and finished goods, raw materials, work
in process, or materials used or consumed in such Borrower's business.
"Investment" means, with respect to any Person, any investment by such Person
in any other Person (including Affiliates) in the form of loans, guarantees,
advances, or capital contributions (excluding (a) commission, travel, and
similar advances to officers and employees of such Person made in the
ordinary course of business and (b) bona fide Accounts arising from the sale
of goods or rendition of services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness or Stock, and any other items that are or would
be classified as investments on a balance sheet prepared in accordance with
GAAP.
"Investment Property" means all of the now owned or hereafter acquired right,
title, and interest of each Borrower with respect to "investment property" as
that term is defined in the Code, and any and all supporting obligations in
respect thereof.
"IRC" means the Internal Revenue Code of 1986, as in effect from time to
time.
"Lender" has the meaning set forth in the preamble to this Agreement.
"Lender Expenses" means all (a) costs or expenses (including taxes and
insurance premiums) required to be paid by any Borrower under any of the Loan
Documents that are paid or incurred by the Lender, (b) fees or charges paid
or incurred by the Lender in connection with the Lender's transactions with
any Borrower, including fees or charges for photocopying, notarization,
couriers and messengers, telecommunication, public record searches (including
tax lien, litigation, and UCC searches and including searches with the patent
and trademark office, the copyright office, or the department of motor
vehicles), filing, recording, publication, appraisal (including periodic
Collateral appraisals or business valuations), real estate surveys, real
estate title policies and endorsements, and environmental audits, (c) costs
and expenses incurred by the Lender in the disbursement of funds to or for
the account of any Borrower (by wire transfer or otherwise), (d) charges paid
or incurred by the Lender resulting from the dishonor of checks, (e)
reasonable costs and expenses paid or incurred by the Lender to correct any
default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion
thereof, irrespective of whether a sale is consummated, (f) audit fees and
expenses of the Lender (up to the amount of any limitation specified in this
Agreement) related to audit examinations of the Books, (g) reasonable costs
and expenses of third party claims or any other suit paid or incurred by the
Lender in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or the Lender's relationship
with any Borrower, (h) the Lender's reasonable fees and expenses (including
attorneys' fees) incurred in advising, structuring, drafting, reviewing,
administering, or amending the Loan Documents, and (i) the Lender's
reasonable fees and expenses (including attorneys' fees) incurred in
terminating, enforcing (including attorneys' fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning any Borrower or in exercising rights or remedies under the Loan
Documents), or defending the Loan Documents, irrespective of whether suit is
brought, or in taking any Remedial Action concerning any collateral or other
security for any or all of the Obligations.
"Lender-Related Person" means, with respect to any Lender, such Lender,
together with such Lender's Affiliates, and the officers, directors,
employees, and agents of such Lender.
"Lien" means any interest in an asset securing an obligation owed to, or a
claim by, any Person other than the owner of the asset, whether such interest
shall be based on the common law, statute, or contract, whether such interest
shall be recorded or perfected, and whether such interest shall be contingent
upon the occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security interest
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, conditional sale or
trust receipt, or from a lease, consignment, or bailment for security
purposes and also including reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases, and
other title exceptions and encumbrances affecting Real Property.
"Loan Documents" means this Agreement, any Control Agreement, the
Disbursement Letter, the Intellectual Property Security Agreement, the
Promissory Notes, any note or notes executed by any Borrower in connection
with this Agreement and payable to the Lender, and any other agreement,
document, or instrument entered into, now or in the future, by any Borrower
or any Guarantor and delivered to the Lender in connection with this
Agreement or the transactions contemplated hereby, as any or all of the
foregoing may be amended, restated, supplemented, and/or renewed from time to
time.
"Locked Box" and "Locked Boxes" have the meanings set forth in Section 2.6.
"Material Adverse Change" means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities
or condition (financial or otherwise) of the Borrowers taken as a whole, (b)
a material impairment of any Borrower's ability to perform its obligations
under the Loan Documents to which it is a party or of the Lender's ability to
enforce the Obligations or realize upon the Collateral, or (c) a material
impairment of the enforceability or priority of the Lender's Liens with
respect to the Collateral as a result of an action or failure to act on the
part of any Borrower.
"Maximum Revolver Amount" means $5,000,000.00.
"Money Markets" means one or more wholesale funding markets available to and
selected by the Lender, including markets for negotiable certificates of
deposit, commercial paper, eurodollar deposits, bank notes, federal funds,
interest rate swaps, and others.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA and (a) which is, or within the immediately preceding six
(6) years was, contributed to by any Borrower, any Subsidiary of any
Borrower, or any ERISA Affiliate or (b) with respect to which any Borrower or
any Subsidiary of any Borrower may incur any liability.
"Negotiable Collateral" means all of the now owned and hereafter acquired
right, title, and interest of each Borrower with respect to letters of
credit, letter of credit rights, instruments, promissory notes, drafts,
documents, and chattel paper (including electronic chattel paper and tangible
chattel paper), and any and all supporting obligations in respect thereof.
"Net Income" means net income as determined in accordance with GAAP.
"Obligations" means all loans, Advances, debts, principal, interest
(including any interest that, but for the provisions of the Bankruptcy Code,
would have accrued), contingent reimbursement obligations with respect to
outstanding Letters of Credit, premiums, liabilities (including all amounts
charged to any Borrower pursuant hereto), obligations, fees, charges, costs,
Lender Expenses (including any fees or expenses that, but for the provisions
of the Bankruptcy Code, would have accrued), lease payments, guaranties,
covenants, and duties of any kind and description owing by any Borrower to
the Lender pursuant to or evidenced by the Loan Documents and irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including all interest not paid when due and all Lender Expenses that any
Borrower is required to pay or reimburse by the Loan Documents, by law, or
otherwise. Any reference in this Agreement or in the Loan Documents to the
Obligations shall include all amendments, changes, extensions, modifications,
renewals, replacements, substitutions, and supplements, thereto and thereof,
as applicable, both prior and subsequent to any Insolvency Proceeding.
"Overadvance" has the meaning set forth in Section 2.4.
"Parent" has the meaning set forth in the preamble to this Agreement.
"Participant" has the meaning set forth in Section 14.1.
"Pay-Off Letter" means a letter, in form and substance satisfactory to the
Lender, from Existing Lender to the Lender respecting the amount necessary to
repay in full all of the obligations of Delta Communications Group, Inc.
owing to Existing Lender and obtain a release of all of the Liens existing in
favor of Existing Lender in and to the assets of Delta Communications Group,
Inc.
"PBGC" means the Pension Benefit Guaranty Corporation and any Person
succeeding to the functions thereof.
"Permitted Discretion" means a determination made in good faith and in the
exercise of reasonable (from the perspective of a secured asset-based lender)
business judgment.
"Permitted Dispositions" means (a) sales or other dispositions by any
Borrower of its Equipment that is substantially worn, damaged, or obsolete in
the ordinary course of such Borrower's business, (b) sales by any Borrower of
its Inventory to buyers in the ordinary course of its business, (c) the use
or transfer of money or Cash Equivalents by any Borrower in a manner that is
not prohibited by the terms of this Agreement or the other Loan Documents,
and (d) the licensing by any Borrower, on a non-exclusive basis, of patents,
trademarks, copyrights, and other intellectual property rights in the
ordinary course of such Borrower's business.
"Permitted Investments" means (a) investments in Cash Equivalents, (b)
investments in negotiable instruments for collection, (c) advances made in
connection with purchases of goods or services in the ordinary course of
business, and (d) any acquisition by any Borrower or any Subsidiary of a
Borrower (whether through a purchase of stock, other equity interests, or
assets or through a merger, consolidation, or amalgamation) of another Person
or the assets constituting an entire or a portion of any business or
operating business unit of another Person that has been approved in advance
in writing by the Lender in its sole discretion.
"Permitted Liens" means (a) Liens held by the Lender, (b) Liens for unpaid
taxes that either (i) are not yet delinquent, or (ii) do not constitute an
Event of Default hereunder and are the subject of Permitted Protests, (c)
Liens set forth on Exhibit B, (d) the interests of lessors under operating
leases, (e) purchase money Liens or the interests of lessors under Capital
Leases to the extent that such Liens or interests secure Permitted Purchase
Money Indebtedness and so long as such Lien attaches only to the asset
purchased or acquired and the proceeds thereof, (f) Liens arising by
operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of a
Borrower's business and not in connection with the borrowing of money, and
which Liens either (i) are for sums not yet delinquent, or (ii) are the
subject of Permitted Protests, (g) Liens arising from deposits made in
connection with obtaining worker's compensation or other unemployment
insurance, (h) Liens or deposits to secure performance of bids, tenders, or
leases incurred in the ordinary course of a Borrower's business and not in
connection with the borrowing of money, (i) Liens granted as security for
surety or appeal bonds in connection with obtaining such bonds in the
ordinary course of a Borrower's business, and (j) Liens resulting from any
judgment or award that is not an Event of Default hereunder.
"Permitted Protest" means the right of a Borrower to protest any Lien (other
than any such Lien that secures the Obligations), taxes (other than payroll
taxes or taxes that are the subject of a United States federal tax lien), or
rental payment, provided that (a) a reserve with respect to such obligation
is established on the Books in such amount as is required under GAAP, (b) any
such protest is instituted promptly and prosecuted diligently by such
Borrower in good faith, and (c) the Lender is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability,
validity, or priority of any of the Liens in favor of the Lender.
"Permitted Purchase Money Indebtedness" means, as of any date of
determination, Purchase Money Indebtedness incurred after the Closing Date in
an aggregate amount outstanding at any one time not in excess of $25,000.
"Person" means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.
"Personal Property Collateral" means all Collateral other than Real Property.
"Planet Zanett" means Planet Zanett Corporate Incubator, Inc., a Delaware
corporation.
"Projections" means the Borrowers' forecasted (a) balance sheets, (b) profit
and loss statements, and (c) cash flow statements, all on a consolidated and
consolidating basis and prepared on a consistent basis with each such
Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Promissory Note" means each of one or more revolving notes from the
Borrowers to the Lender, in form and substance satisfactory to the Lender and
as any of such notes may be amended, restated, supplemented, and/or renewed
from time to time, and "Promissory Notes" means all of such notes together
collectively.
"Purchase Money Indebtedness" means Indebtedness (other than the Obligations,
but including Capitalized Lease Obligations), incurred at the time of, or
within 20 days after, the acquisition of any fixed assets for the purpose of
financing all or any part of the acquisition cost thereof.
"Real Property" means any estates or interests in real property now owned or
hereafter acquired by any Borrower and the improvements thereto.
"Record" means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable
form.
"Remedial Action" means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the indoor or outdoor environment, (b) prevent or minimize a
release or threatened release of Hazardous Materials so they do not migrate
or endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (d) conduct any other
actions authorized by 42 USC 9601.
"Reportable Event" means any of the events described in Section 4043 of ERISA
and the regulations thereunder other than those events as to which notice is
waived under PBGC regulation Section 4043.
"Required Availability" means Excess Availability in an amount of not less
than $750,000.00.
"Responsible Officer" has the meaning set forth in Section 6.14.
"Retiree Health Plan" means an "employee welfare benefit plan" within the
meaning of Section 3(1) of ERISA that provides benefits to persons after
termination of employment, other than as required by Section 601 of ERISA.
"Revolving Credit Advances" has the meaning set forth in Section 2.1.
"Revolving Credit Maturity Date" has the meaning set forth in Section 2.1.
"SEC" means the United States Securities and Exchange Commission and any
successor thereto.
"Securities Account" means a "securities account" as that term is defined in
the Code.
"Senior Funded Debt" means the unpaid balance of the Obligations.
"Senior Funded Debt to EBITDA Ratio" means the ratio of (a) Senior Funded
Debt at the date of measurement to (b) EBITDA measured on a rolling 4
quarters basis.
"Solvent" means, with respect to any Person on a particular date, that such
Person is not insolvent (as such term is defined in the Uniform Fraudulent
Transfer Act).
"Stock" means all shares, options, warrants, interests, participations, or
other equivalents (regardless of how designated) of or in a Person, whether
voting or nonvoting, including common stock, preferred stock, or any other
"equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the SEC under the Exchange Act).
"Subsidiary" of a Person means a corporation, partnership, limited liability
company, or other entity in which that Person directly or indirectly owns or
controls the shares of Stock having ordinary voting power to elect a majority
of the board of directors (or appoint other comparable managers) of such
corporation, partnership, limited liability company, or other entity.
"Termination Event" means (a) a Reportable Event with respect to any Benefit
Plan or Multiemployer Plan; (b) the withdrawal of any Borrower, any
Subsidiary of any Borrower, or any ERISA Affiliate from a Benefit Plan during
a plan year in which such entity was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (c) the providing of notice of intent by any
Borrower, any Subsidiary of any Borrower, or any of ERISA Affiliate to
terminate a Benefit Plan pursuant to Section 4041 of ERISA; (d) the
institution by the PBGC of, or the receipt of notice of the intent of the
PBGC to institute, proceedings to terminate a Benefit Plan or Multiemployer
Plan; (e) the appointment of, or the receipt of notice of the intent to
appoint, a trustee under Section 4042 of ERISA to administer any Benefit
Plan; or (f) the partial or complete withdrawal, within the meaning of
Sections 4203 and 4205 of ERISA, of any Borrower, any Subsidiary of any
Borrower, or any ERISA Affiliate from a Multiemployer Plan.
"Voidable Transfer" has the meaning set forth in Section 16.5.
EXHIBIT B
PERMITTED LIENS
EXHIBIT C
BORROWING BASE CERTIFICATE
OF
ZANETT, INC.
AND
EACH OF ITS SUBSIDIARIES
Date Prepared: ______________, 20__
A/R Last Report dated: ___________, 20__ $________
Plus: Sales $________
Less: Collections: $________
Others: (Credit Memo, Discounts, etc.) $________
New A/R Balance as of ___________, 20__ $________
Less: Ineligibles:
Past Due (over 90 days) ___________
Aged Credits ___________
Contra ___________
20% Rule ___________
Other ___________
TOTAL INELIGIBLES: $_________
NET RECEIVABLES: $_________
Rate of Advance: 75% $_________
A/R AVAILABILITY (A) $_________
Cash Balance in Collection Account as of $_________
_______________, 20__(B)
Rate of Advance: 90% $_________
TOTAL COLLATERAL AVAILABILITY (A + B) $_________
LESS LOAN BALANCE AS OF __________, 20__ $_________
EXCESS AVAILABILITY: $_________
The terms and conditions of this Borrowing Base Report are governed by the
Loan and Security Agreement dated as of September 1, 2004 among Zanett, Inc.,
Back Bay Technologies, Inc., INRANGE Consulting Corporation, Paragon
Dynamics, Inc., and Delta Communications Group, Inc. (each individually a
"Borrower" and together collectively the "Borrowers") and Fifth Third Bank
("Lender"), as amended, restated, supplemented, and/or renewed from time to
time (the "Agreement"); all definitions, undertakings, obligations, covenants
and warranties applicable to the Borrowers under the Agreement, including,
without limitation, the assignment by each Borrower to Lender of Collateral,
are hereby acknowledged by each Borrower to be in full force and effect.
The Borrowers, by execution hereof, warrant and represent the following:
a) There exists no Default or Event of Default as defined in the Agreement
b) Each Borrower has read and is familiar with the Agreement, understands
each term and condition set forth therein, undertakes to comply therewith,
and will obtain, if necessary, from Lender a copy of the Agreement for review
of such Borrower's obligations thereunder.
c) There exists no lien, encumbrance, legal proceeding, or other similar act
or condition which would impair, restrict, or limit Lender's rights with
respect to Collateral pledged pursuant to the Agreement, including, without
limitation, items of Collateral reported herein; and
d) The Borrowers represent and warrant that the Collateral balances reported
herein are true and correct.
ADMINISTRATIVE BORROWER, for and on behalf of
each and all of the Borrowers:
ZANETT, INC.
By:
Its:
Date: