EXHIBIT 10.5
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT, dated as of April 12, 1999, is made by
Cortelco Systems Puerto Rico, Inc., a Puerto Rico corporation ("CSPRI"), in
favor of FOOTHILL CAPITAL CORPORATION (the "Lender").
W I T N E S S E T H:
WHEREAS, the Lender is party to that certain Loan and Security
Agreement dated as of August 28, 1997 (as amended, restated, supplemented or
otherwise modified from time to time, the "Loan Agreement") by and between
Cortelco Puerto Rico, Inc., a Puerto Rico corporation ("CPR") and the Lender;
and
WHEREAS, CSPRI is a wholly-owned subsidiary of CPR and the extension
of credit to CPR under the Loan Agreement is of direct benefit to CSPRI; and
WHEREAS, as a condition to Lender's continued extension of credit
under the Loan Agreement, Lender has required that CSPRI execute and deliver
this Assumption Agreement;
ACCORDINGLY, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, CSPRI hereby agrees that all capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Loan Agreement), and further agrees as follows:
1. Assumption.
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a. CSPRI hereby unconditionally and expressly assumes the due and
punctual payment of the principal of and interest on all of the Loans and the
due and punctual performance of all Obligations of the "Borrower" under the Loan
Agreement and the other Loan Documents and hereby agrees that, immediately upon
its execution of this Agreement, it will become a joint and several obligor
under the Loan Agreement and the other Loan Documents and will perform and
observe each and every one of the covenants, promises, agreements, terms,
conditions, obligations, duties and liabilities of the "Borrower" under and in
respect of the Loan Agreement and the other Loan Documents.
b. All references to the "Borrower" in the Loan Agreement and each
other Loan Document, or any document, instrument or agreement executed and
delivered or furnished, or to be executed and delivered or furnished, in
connection therewith shall be deemed to include CSPRI unless the context
otherwise clearly requires.
2. Representations and Warranties. CSPRI hereby accepts and restates
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each representation and warranty made by the "Borrower" in the Loan Agreement
and the other Loan Documents (other than those representations and warranties
made by CPR in the Loan Agreement which are intended to relate solely to CPR).
CSPRI further represents and warrants to the Lender that each of the
representations and warranties contained in Loan Agreement (other than those
representations and warranties made by CPR in the Loan Agreement which are
intended to relate solely to Borrower) is true and correct with respect to CSPRI
on and as of the date thereof, except to the extent
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each such representation and warranty (a) relates expressly to an earlier date,
(b) was previously fulfilled in accordance with the terms of the Loan Agreement
or (c) has subsequently become inapplicable. Each such representation and
warranty is incorporated by reference herein in its entirety.
3. Further Assurances. At any time and from time to time, upon the
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request of the Lender, and at the sole expense of CSPRI, CSPRI will promptly
execute and deliver any and all further instruments and documents and will take
such further action as Lender may reasonably deem necessary to effect the
purposes of this Assumption Agreement.
4. Amendment. No amendment or waiver of any provision of this Assumption
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Agreement shall be effective, unless the same shall be in writing and executed
in accordance with the provisions of the Loan Agreement.
5. Binding Effect. This Assumption Agreement shall be binding upon CSPRI
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and shall inure to the benefit of the Lender, and its respective successors and
assigns.
6. Governing Law. This Assumption Agreement shall be governed by and
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construed in accordance with the laws of the Commonwealth of Puerto Rico.
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IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered by its duly authorized officer on
the date first above written.
CORTELCO SYSTEMS PUERTO RICO, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
_______________________________________________
Name: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
____________________________________________
Title: VP/General Manager
____________________________________________
Attest: /s/
___________________________________________
Name:____________________________________________
Title: __________________________________________
(SEAL)
Acknowledged and agreed to:
CORTELCO PUERTO RICO, INC.,
By: /s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
_________________________________
Name: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
______________________________
Title: VP/Treasurer
______________________________
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EXHIBIT 10.5
================================================================================
$1,500,000
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CORTELCO PUERTO RICO, INC.
AND
FOOTHILL CAPITAL CORPORATION
DATED AS OF AUGUST 28, 1997
================================================================================
Table of Contents
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Page(s)
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1. DEFINITIONS AND CONSTRUCTION.................................................. -1-
1.1 Definitions............................................................. -1-
1.2 Accounting Terms........................................................ -17-
1.3 Construction............................................................ -17-
1.4 Schedules and Exhibits.................................................. -18-
2. LOAN AND TERMS OF PAYMENT .................................................... -18-
2.1 Revolving Advances...................................................... -18-
2.2 Letters of Credit....................................................... -19-
2.3 Overadvances............................................................ -19-
2.4 Interest: Rates, Payments, and Calculations; Promise to Pay............ -19-
2.5 Collection of Accounts.................................................. -21-
2.6 Crediting Payments; Application of Collections.......................... -21-
2.7 Designated Account...................................................... -22-
2.8 Maintenance of Loan Account; Statements of Obligations.................. -22-
2.9 Fees.................................................................... -22-
2.10 Tax Indemnity........................................................... -23-
3. CONDITIONS; TERM OF AGREEMENT................................................. -26-
3.1 Conditions Precedent to the Initial Advance............................. -26-
3.2 Conditions Precedent to all Advances.................................... -27-
3.3 Condition Subsequent.................................................... -28-
3.4 Term.................................................................... -28-
3.5 Effect of Termination................................................... -28-
3.6 Early Termination by Borrower........................................... -29-
3.7 Termination Upon Event of Default....................................... -29-
4. CREATION OF SECURITY INTEREST................................................. -29-
4.1 Grant of Security Interest.............................................. -29-
4.2 Negotiable Collateral................................................... -29-
4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral.. -29-
4.4 Delivery of Additional Documentation Required........................... -29-
4.5 Rights of Foothill...................................................... -30-
4.6 Right to Inspect........................................................ -30-
5. REPRESENTATIONS AND WARRANTIES................................................ -31-
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5.1 No Encumbrances......................................................... -31-
5.2 Eligible Accounts....................................................... -31-
5.3 Eligible Inventory...................................................... -31-
5.4 Equipment............................................................... -31-
5.5 Location of Inventory and Equipment..................................... -31-
5.6 Inventory Records....................................................... -31-
5.7 Location of Chief Executive Office; FEIN................................ -32-
5.8 Due Organization and Qualification; Subsidiaries........................ -32-
5.9 Due Authorization; No Conflict.......................................... -32-
5.10 Litigation.............................................................. -33-
5.11 No Material Adverse Change.............................................. -34-
5.12 Solvency................................................................ -34-
5.13 Employee Benefits....................................................... -34-
5.14 Environmental Condition................................................. -34-
6. AFFIRMATIVE COVENANTS......................................................... -35-
6.1 Accounting System....................................................... -35-
6.2 Collateral Reporting.................................................... -35-
6.3 Financial Statements, Reports, Certificates............................. -36-
6.4 Tax Returns............................................................. -37-
6.5 Intentionally Omitted................................................... -37-
6.6 Returns................................................................. -37-
6.7 Title to Equipment...................................................... -38-
6.8 Maintenance of Equipment................................................ -38-
6.9 Taxes................................................................... -38-
6.10 Insurance............................................................... -38-
6.11 No Setoffs or Counterclaims............................................. -40-
6.12 Location of Inventory and Equipment..................................... -40-
6.13 Compliance with Laws.................................................... -40-
6.14 Employee Benefits....................................................... -40-
6.15 Leases.................................................................. -41-
7. NEGATIVE COVENANTS............................................................ -41-
7.1 Indebtedness............................................................ -42-
7.2 Liens................................................................... -43-
7.3 Restrictions on Fundamental Changes..................................... -43-
7.4 Sale or Disposal of Assets.............................................. -43-
7.5 Change Name............................................................. -43-
7.6 Guarantee............................................................... -43-
7.7 Nature of Business...................................................... -43-
7.8 Repayments, Prepayments and Amendments.................................. -44-
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7.9 Change of Control...................................................... -44-
7.10 Consignments........................................................... -44-
7.11 Distributions.......................................................... -44-
7.12 Accounting Methods..................................................... -45-
7.13 Investments............................................................ -45-
7.14 Transactions with Affiliates........................................... -45-
7.15 Suspension............................................................. -46-
7.16 Compensation........................................................... -46-
7.17 Use of Proceeds........................................................ -46-
7.18 Change in Location of Chief Executive Office; Inventory and Equipment
with Bailees........................................................... -46-
7.19 No Prohibited Transactions Under ERISA................................. -46-
8. EVENTS OF DEFAULT............................................................. -47-
9. FOOTHILL'S RIGHTS AND REMEDIES................................................ -49-
9.1 Rights and Remedies.................................................... -49-
9.2 Remedies Cumulative.................................................... -52-
10. TAXES AND EXPENSES............................................................ -53-
11. WAIVERS; INDEMNIFICATION...................................................... -53-
11.1 Demand; Protest; etc................................................... -53-
11.2 Foothill's Liability for Collateral.................................... -53-
11.3 Indemnification........................................................ -53-
12. NOTICES....................................................................... -54-
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.................................... -56-
14. DESTRUCTION OF BORROWER'S DOCUMENTS........................................... -57-
15. GENERAL PROVISIONS............................................................ -57-
15.1 Effectiveness.......................................................... -57-
15.2 Successors and Assigns................................................. -57-
15.3 Section Headings....................................................... -57-
15.4 Interpretation......................................................... -57-
15.5 Severability of Provisions............................................. -58-
15.6 Amendments in Writing.................................................. -58-
15.7 Counterparts; Telefacsimile Execution.................................. -58-
15.8 Revival and Reinstatement of Obligations............................... -58-
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15.9 Integration............................................................. -58-
15.10 Time of the Essence..................................................... -59-
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SCHEDULES AND EXHIBITS
----------------------
Schedule E-1 Eligible Inventory Locations
Schedule P-1 Permitted Liens
Schedule 5.8 Shareholders and Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness as of Closing Date
Schedule 7.13 Investments
Exhibit P-1 Projections
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LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
August 28, 1997, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ and an office located in Atlanta,
Georgia and CORTELCO PUERTO RICO, INC., a corporation organized under the laws
of the Commonwealth of Puerto Rico ("Borrower"), with its chief executive office
located at ▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms
shall have the following definitions:
"Account Debtor" means any Person who is or who may become obligated
under, with respect to, or on account of, an Account.
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods or the rendition of services by
Borrower, irrespective of whether earned by performance, and any and all credit
insurance, guaranties, or security therefor.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person who
directly or indirectly controls, is controlled by, is under common control with
or is a director or officer of such Person. For purposes of this definition,
"control" means the possession, directly or indirectly, of the power to vote ten
percent (10%) or more of the securities having ordinary voting power for the
election of directors or the direct or indirect power to direct the management
and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Alcatel" means Alcatel Network Systems, Inc., a Delaware corporation.
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"Alcatel Debt" means that Indebtedness owing by Cortelco Systems
Holding Corp. to Alcatel pursuant to that certain Promissory Note dated December
16, 1993, in the original principal amount of $8,000,000.
"Applicable Law" means, in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person, including, without limiting the
foregoing, all environmental laws, and all orders, decisions, judgments and
decrees of all courts and arbitrators in proceedings or actions to which the
Person in question is a party or by which it is bound.
"Assignment of Accounts Receivable" shall mean that certain Assignment
of Accounts Receivable Agreement executed by Borrower in favor of Foothill of
even date herewith, as the same may be amended, modified or supplemented from
time to time.
"Authorized Person" means any officer or other employee of Borrower.
"Average Unused Portion of Maximum Amount" means, as of any date of
determination, (a) the Maximum Amount, less (b) the average Daily Balance of
Advances that were outstanding during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11 U.S.C.
(S) 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in Section
3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA
Affiliate has been an "employer" (as defined in Section 3(5) of ERISA) within
the past six years.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records indicating, summarizing, or evidencing Borrower's
properties or assets (including the Collateral) or liabilities; all information
relating to Borrower's business operations or financial condition; and all
computer programs, disk or tape files, printouts, runs, or other computer
prepared information.
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"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" other than Parent (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than ten percent (10%) of the total voting power of all
classes of stock then outstanding of Borrower entitled to vote in the election
of directors.
"Chattel Mortgage" means that certain Personal Property Mortgage
executed by the Borrower in favor of the Lender of even date herewith, as the
same may be amended, supplemented or modified from time to time.
"CII Loan Agreement" means the Loan and Security Agreement entered
into by and between Cortelco International, Inc. and Foothill on July 31, 1997,
as amended or modified from time to time.
"Closing Date" means the date of the making of the initial Advance.
"Code" means the Factor's Lien Act, the Assignment of Accounts
Receivable Act and the Uniform Commercial Code, as in effect from time to time
in the Commonwealth of Puerto Rico.
"Collateral" means all property of Borrower, including each of
the following:
(a) the Accounts;
(b) Borrower's Books;
(c) the Equipment;
(d) the General Intangibles;
(e) the Inventory;
(f) the Investment Property;
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(g) the Negotiable Collateral;
(h) any money, or other assets of Borrower that now or
hereafter come into the possession, custody, or control of Foothill; 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 Collateral, and any and all Accounts, Borrower's 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, mortgagee
waiver, bailee letter, or acknowledgment agreement of any warehouseman,
processor, lessor, 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 Foothill.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash sales,
rental proceeds, and tax refunds).
"Daily Balance" means the amount of an Obligation owed at the end
of a given day.
"deems itself insecure" means that Foothill in good faith
believes that the prospect of payment or performance by the Borrower is
impaired.
"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.
"Designated Account" means account number ▇-▇▇▇▇▇▇-▇▇▇ of
Borrower maintained with Borrower's Designated Account Bank, or such other
deposit account of Borrower (located within the United States) which has been
designated, in writing and from time to time, by Borrower to Foothill.
"Designated Account Bank" means Citibank, N.A., whose office is
located in ______________, and whose ABA number is ▇▇▇▇▇▇▇▇▇.
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"Dilution" means, in each case based upon the experience of the
immediately prior three (3) months, the result of dividing the Dollar amount of
(a) bad debt write-downs, discounts, advertising, returns, promotions, credits,
or other dilution with respect to the Accounts, by (b) Borrower's Collections
(excluding extraordinary items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an amount
sufficient to reduce Foothill's advance rate against Eligible Accounts by one
percentage point for each percentage point by which Dilution is in excess of
five percent (5.00%).
"Disbursement Letter" means an instructional letter executed and
delivered by Borrower to Foothill regarding the extensions of credit to be made
on the Closing Date, the form and substance of which shall be satisfactory to
Foothill.
"Dollars or $" means United States dollars.
"Eligible Accounts" means, collectively, the Eligible Interconnect
Accounts and the Eligible Cellular Accounts.
"Eligible Cellular Accounts" means those Accounts created by Borrower
in the ordinary course of business (net of finance charges), that arise out of
Borrower's sale of cellular phone equipment and pagers and the resale of air
time relating thereto pursuant to a Reseller Agreement, that strictly comply
with each and all of the representations and warranties respecting Accounts made
by Borrower to Foothill in the Loan Documents, that are and at all times
continue to be reasonably acceptable to Foothill in all respects (provided,
however, that standards of eligibility may be fixed and revised from time to
time by Foothill in Foothill's reasonable credit judgment), and that do not
constitute Excluded Accounts.
"Eligible Interconnect Accounts" means those Accounts created by
Borrower in the ordinary course of business (net of finance charges), that arise
out of Borrower's sale and installation of PBX interconnect telephone systems
and the maintenance of such telephone systems pursuant to a maintenance
contract, that strictly comply with each and all of the representations and
warranties respecting Accounts made by Borrower to Foothill in the Loan
Documents, that are and at all times continue to be reasonably acceptable to
Foothill in all respects (provided, however, that standards of eligibility may
be Fixed and revised from time to time by Foothill in Foothill's reasonable
credit judgment), and that do not constitute Excluded Accounts.
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"Eligible Inventory" means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business that
are located at Borrower's premises identified on Schedule E-1, that strictly
comply with each and all of the representations and warranties respecting
Inventory made by Borrower to Foothill in the Loan Documents, and that are and
at all times continue to be acceptable to Foothill in all respects; provided,
however, that standards of eligibility may be fixed and revised from time to
time by Foothill in Foothill's reasonable credit judgment. In determining the
amount to be so included, Inventory shall be valued at the lower of cost or
market on a basis consistent with GAAP and Borrower's current and historical
accounting practices. An item of Inventory shall not be included in Eligible
Inventory if:
(a) it is not owned solely by Borrower or Borrower does not have
good, valid, and marketable title thereto;
(b) it is not located at one of the locations set forth on Schedule
E-1;
(c) it is not located on property owned or leased by Borrower or in a
contract warehouse, in each case, subject to a Collateral Access Agreement
executed by the mortgagee, lessor, the warehouseman, or other third party, as
the case may be, and segregated or otherwise separately identifiable from goods
of others, if any, stored on the premises;
(d) it is not subject to a valid and perfected first priority
security interest in favor of Foothill;
(e) it does not meet all of Borrower's quality standards or any other
standards imposed by any Person having regulatory authority over such goods;
(f) it consists of goods rejected by Borrower's customers; and
(g) it is obsolete, a restrictive or custom item, work-in-process, a
component that is not part of finished goods, or constitutes spare parts,
packaging and shipping materials, supplies used or consumed in Borrower's
business, Inventory subject to a Lien in favor of any third Person, ▇▇▇▇ and
hold goods, defective goods, sample Inventory, "seconds," or Inventory acquired
on consignment.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, machine tools, motors, equipment, furniture, furnishings, tools,
parts, goods (other than consumer goods, farm products, or Inventory), wherever
located, including,
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(a) any interest of Borrower in any of the foregoing, and (b) all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, 29
U.S.C. (S)(S) 1000 et seq., amendments thereto, successor statutes, and
regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA whose
employees are treated as employed by the same employer as the employees of
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
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 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 party subject to ERISA that is a party to an arrangement
with Borrower and whose employees are aggregated with the employees of Borrower
under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any Benefit
Plan or Multiemployer Plan, (b) the withdrawal of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which
it was a "substantial employer" (as defined in Section 4001(a)(2) of ERISA), (c)
the providing of notice of intent to terminate a Benefit Plan in a distress
termination (as described in Section 4041(c) of ERISA), (d) the institution by
the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e)
any event or condition (i) that provides a basis under Section 4042(a)(1), (2),
or (3) of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of Borrower, any of its Subsidiaries or ERISA Affiliates from a
Multiemployer Plan, or (g) providing any security to any Plan under Section
401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Excluded Accounts" means the following:
(a) Accounts (i) that the Account Debtor has failed to pay within
sixty (60) days of the due date; or (ii) with selling terms of more than sixty
(60) days;
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(b) Accounts owed by an Account Debtor or its Affiliates where fifty
percent (50%) 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 Borrower;
(d) Accounts with respect to which goods are samples or are placed on
consignment, guaranteed sale, sale or return, sale on approval, ▇▇▇▇ and hold,
or other terms by reason of which the payment by the Account Debtor may be
conditional;
(e) Accounts that are not payable in Dollars or with respect to which
the Account Debtor: (i) does not maintain its chief executive office in the
United States or Puerto Rico, or (ii) is not organized under the laws of the
United States or any State thereof or Puerto Rico, 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 Foothill (as to
form, substance, and issuer or domestic confirming bank) that has been delivered
to Foothill and is directly drawable by Foothill, or (z) the Account is covered
by credit insurance in form and amount, and by an insurer, satisfactory to
Foothill;
(f) 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 Borrower has
complied, to the satisfaction of Foothill, with the Assignment of Claims Act, 31
U.S.C. (S) 3727), or (ii) any State, territory or commonwealth of the United
States (exclusive, however, of Accounts owed by any State, territory or
commonwealth that does not have a statutory counterpart to the Assignment of
Claims Act), to the extent such accounts described in (i) and (ii) above exceed,
in the aggregate, $250,000;
(g) Accounts with respect to which the Account Debtor is a creditor
of Borrower, has or has asserted a right of setoff, has disputed its liability,
has cancelled its contract with Borrower, or has made any claim with respect to
the Account (to the extent of such claim);
(h) Accounts, to the extent such Accounts, together with all other
Accounts owing by such Account Debtor to Borrower, exceed in the aggregate ten
percent (10%) of all Eligible Accounts of Borrower;
-8-
(i) Accounts with respect to which the Account Debtor is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts the collection of which Foothill, in its reasonable
credit judgment, believes to be doubtful by reason of the Account Debtor's
financial condition;
(k) Accounts with respect to which the goods giving rise to such
Account have not been shipped and billed to the Account Debtor, the services
giving rise to such Account have not been performed and accepted by the Account
Debtor, or the Account otherwise does not represent a final sale;
(l) Accounts with respect to which the Account Debtor is located in
the states of New Jersey, Minnesota, Indiana, 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 Borrower has qualified to do business in New Jersey, Minnesota, Indiana,
West Virginia, or such other states, or has filed a Notice of 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; and
(m) Accounts that represent progress payments, deposits or other
advance ▇▇▇▇▇▇▇▇ that are due prior to the completion of performance by Borrower
of the subject contract for goods or services.
"Existing Lender" means Citibank, N.A.
"Factor's Lien Agreement" shall mean that certain Factor's Lien
Contract and Assignment of Accounts Receivable executed by Borrower in favor of
Foothill of even date herewith, as the same may be amended, modified or
supplemented from time to time.
"FEIN" means Federal Employer Identification Number.
"First Bank" means FirstBank Puerto Rico.
"First Bank Mortgage" means that certain Deed of Mortgage entered into
between Borrower and First Bank on August 29, 1997, as amended, restated or
supplemented from time to time.
-9-
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.5.
"Foothill Expenses" means all: reasonable costs or expenses
(including taxes, and insurance premiums) required to be paid by Borrower under
any of the Loan Documents that are paid or incurred by Foothill; reasonable fees
or charges paid or incurred by Foothill in connection with Foothill's
transactions with 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), costs and expenses incurred by Foothill in the
disbursement of funds to Borrower (by wire transfer or otherwise); reasonable
charges paid or incurred by Foothill resulting from the dishonor of checks;
costs and expenses paid or incurred by Foothill 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; costs and expenses paid or incurred by
Foothill in examining Borrower's Books; costs and expenses of third party claims
or any other suit paid or incurred by Foothill in enforcing or defending the
Loan Documents or in connection with the transactions contemplated by the Loan
Documents or Foothill's relationship with Borrower or any guarantor; and
Foothill's reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending, terminating,
enforcing (including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning Borrower or
any guarantor of the Obligations), defending, or concerning the Loan Documents,
irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including Reseller Agreements
(to the extent such assignment is not prohibited by the terms of such Reseller
Agreement) and other contract rights, 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,
-10-
distribution or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports, catalogs,
deposit accounts, insurance premium rebates, tax refunds, and tax refund
claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of any
Person.
"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 Borrower for borrowed
money, (b) all obligations of Borrower evidenced by bonds, debentures, notes, or
other similar instruments and all reimbursement or other obligations of Borrower
in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations of Borrower under capital leases,
(d) all obligations or liabilities of others secured by a Lien on any property
or asset of Borrower, irrespective of whether such obligation or liability is
assumed, and (e) any obligation of Borrower guaranteeing or intended to
guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with
recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other
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.
"Inventory" means all present and future inventory in which Borrower
has any interest, including goods held for sale or lease or to be furnished
under
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a contract of service and all of Borrower's present and future raw materials,
work in process, finished goods, and packing and shipping materials, wherever
located.
"Inventory Reserves" means reserves (determined from time to time by
Foothill in its reasonable credit judgment) for the estimated reclamation claims
of unpaid sellers of Inventory sold to Borrower.
"Investment Property" means all securities, whether certificated or
uncertificated, all security entitlements, all securities accounts, all
commodity futures contracts, all options on commodity futures contracts, all
commodity options and all commodity accounts, whether now owned or hereafter
acquired by Borrower.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any interest in property securing an obligation owed to,
or a claim by, any Person other than the owner of the property, 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, adverse
claim or charge, 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 Account" has the meaning set forth in Section 2.8.
"Loan Documents" means this Agreement, the Disbursement Letter, the
Chattel Mortgage, the Factor's Lien Agreement, the Assignment of Accounts
Receivable, the Lockbox Agreements, the Collateral Access Agreements, any
assignment of insurance policies, any note or notes executed by Borrower and
payable to Foothill, and any other agreement entered into, now or in the future,
in connection with this Agreement.
"Lockbox Account" means a depositary account established pursuant to
one of the Lockbox Agreements.
-12-
"Lockbox Agreements" means those certain Lockbox Operating Procedural
Agreements and those certain Blocked Depository Account Agreements, in form and
substance satisfactory to Foothill, each of which is among Borrower, Foothill,
and one of the Lockbox Banks.
"Lockbox Banks" means Citibank, N.A., and/or such other Person or
Persons as Foothill and Borrower may designate from time to time.
"Lockboxes" has the meaning set forth in Section 2.5.
"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 Borrower, (b) the material impairment of
Borrower's ability to perform its obligations under the Loan Documents to which
it is a party or of Foothill to enforce the Obligations or realize upon the
Collateral, (c) a material adverse effect on the value of the Collateral or the
amount that Foothill would be likely to receive (after giving consideration to
delays in payment and costs of enforcement) in the liquidation of such
Collateral, or (d) a material impairment of the priority or enforceability of
Foothill's Liens with respect to the Collateral.
"Maturity Date" has the meaning set forth in Section 3.4.
"Maximum Amount" means $1,500,000.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which Borrower, any of its Subsidiaries, or any
ERISA Affiliate has contributed, or was obligated to contribute, within the past
six years.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit, notes, drafts, instruments, investment property, security
entitlements, securities (including the shares of stock of Subsidiaries, if any,
of Borrower), documents, personal property leases (wherein Borrower is the
lessor), chattel paper, and Borrower's Books relating to any of the foregoing.
"Obligations" means all (a) loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the Bankruptcy
Code, would have accrued), premiums, liabilities (including all amounts charged
to Borrower's Loan Account pursuant hereto), obligations, fees, charges, costs,
or Foothill Expenses (including any fees or expenses that, but for the
provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by Borrower to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan
-13-
Documents or pursuant to any other agreement between Foothill and Borrower, 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 any debt, liability, or obligation owing from Borrower to others
that Foothill may have obtained by assignment or otherwise, and further
including all interest not paid when due and all Foothill Expenses that Borrower
is required to pay or reimburse by the Loan Documents, by law, or otherwise; and
(b) all Obligations (as defined in the CII Loan Agreement) under the CII Loan
Agreement.
"Other Taxes" has the meaning set forth in Section 2.10.
"Overadvance" has the meaning set forth in Section 2.3.
"Parent" means Cortelco Systems Holding Corporation, a Delaware
corporation.
"Parent Note" has the meaning set forth in Section 7.1(f)(iii).
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Foothill, from Existing Lender respecting the amount necessary
to repay in full all of the obligations of Borrower owing to Existing Lender and
obtain a termination or release of all of the Liens existing in favor of
Existing Lender in and to the properties or assets of Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined in
Title IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens for
unpaid taxes that either (i) are not yet due and payable or (ii) are the subject
of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of
lessors under operating leases and purchase money Liens of lessors under capital
leases to the extent that the acquisition or lease of the underlying asset is
permitted hereunder and so long as the Lien only attaches to the asset purchased
or acquired and only secures the purchase price of the asset, (e) Liens arising
by operation of law in favor of warehousemen, landlords, carriers, mechanics,
materialmen, laborers, or suppliers, incurred in the ordinary course of business
of Borrower and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet due and payable, or (ii) are the subject of
Permitted Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens or
deposits to secure performance of bids, tenders, or leases (to the extent
permitted under this Agreement),
-14-
incurred in the ordinary course of business of Borrower and not in connection
with the borrowing of money, (h) Liens arising by reason of security for surety
or appeal bonds in the ordinary course of business of Borrower, (i) Liens of or
resulting from any judgment or award that would not have a Material Adverse
Change and as to which the time for the appeal or petition for rehearing of
which has not yet expired, or in respect of which Borrower is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which a stay
of execution pending such appeal or proceeding for review has been secured, (j)
the Lien of First Bank on the Borrower's Real Property located at ▇▇▇▇ ▇▇▇▇▇ ▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ (and on the Borrower's Equipment to the
extent such Equipment is permanently attached to such Real Property), pursuant
to the First Bank Mortgage, to the extent such Lien secures Indebtedness
permitted by Section 7.1(g); (k) Liens of First Bank on rents received by the
Borrower, as lessor, in connection with the Borrower's lease of a portion of the
Real Property located at ▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇; and
(l) with respect to any Real Property, easements, rights of way, zoning and
similar covenants and restrictions, and similar encumbrances that customarily
exist on properties of Persons engaged in similar activities and similarly
situated and that in any event do not materially interfere with or impair the
use or operation of the Collateral by Borrower or the value of Foothill's Lien
thereon or therein, or materially interfere with the ordinary conduct of the
business of Borrower.
"Permitted Protest" means the right of Borrower to protest any Lien
other than any such Lien that secures the Obligations, tax (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 of Borrower in an amount that is reasonably
satisfactory to Foothill, (b) any such protest is instituted and diligently
prosecuted by Borrower in good faith, and (c) Foothill 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 of Foothill in and to the Collateral.
"Person" means and includes 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.
"Plan" means any employee benefit plan, program, or arrangement
maintained or contributed to by Borrower or with respect to which it may incur
liability.
"Projections" means those projections [attached hereto as Exhibit P-1
for the fiscal year ending 7/31/98 and such other subsequent projections] of
Borrower's
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financial statements as Foothill may request from time to time, for such periods
and in such form and substance as may be mutually agreed upon by Borrower and
Foothill.
"Real Property" means any estates or interests in real property now
owned or hereafter acquired by Borrower.
"Reference Rate" means the variable rate of interest, per annum, most
recently announced by Norwest Bank Minnesota, National Association, or any
successor thereto, as its "base rate," irrespective of whether such announced
rate is the best rate available from such financial institution.
"Reportable Event" means any of the events described in Section
4043(c) of ERISA or the regulations thereunder other than a Reportable Event as
to which the provision of thirty (30) days notice to the PBGC is waived under
applicable regulations.
"Reseller Agreements" means those certain Reseller Agreements now or
hereafter entered into by the Borrower, as reseller, and CCPR Services, Inc.,
Puerto Rico Telephone Company, Celulares Telefonica, and any other Person
pursuant to which the Borrower is granted the right to resell cellular or paging
air time on behalf of such Person.
"Retiree Health Plan" means an "employee welfare benefit plan" within
the meaning of Section 3(1) of ERISA that provides benefits to individuals after
termination of their employment, other than as required by Section 601 of ERISA.
"Solvent" means, with respect to any Person on a particular date, that
on such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be
-16-
computed at the amount that, in light of all the facts and circumstances
existing at such time, represents the amount that reasonably can be expected to
become an actual or matured liability.
"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 or other ownership interests 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.
"Taxes" has the meaning set forth in Section 2.10.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP. When used herein, the term
"financial statements" shall include the notes and schedules thereto. Whenever
the term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrower on a consolidated basis
unless the context clearly requires otherwise.
1.3 Construction. Unless the context of this Agreement 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 refer to this Agreement as a whole and not to
any particular provision of this Agreement. An Event of Default shall "exist",
"continue" or be "continuing" until such Event of Default has been waived in
writing by Foothill. Section, subsection, clause, schedule, and exhibit
references are to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any of the Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
1.4 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
-17-
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrower in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum Amount,
or (ii) the Borrowing Base less the aggregate amount of the Inventory Reserves.
----
For purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the result of:
(x) the lesser of (i) (a) eighty percent (80%) of Eligible
Interconnect Accounts plus seventy percent (70%) of Eligible Cellular
----
Accounts, less (b) the amount, if any, of the Dilution Reserve, and
----
(ii) an amount equal to Borrower's Collections with respect to
Accounts for the immediately preceding sixty (60) day period, plus
(y) the lowest of (i) $1,000,000, (ii) twenty percent (20%)
of the value of Eligible Inventory, and (iii) one hundred percent
(100%) of the amount of credit availability created by clause (x)
----------
above, minus
(z) the aggregate amount of reserves, if any, established by
Foothill under Section 2.1(b).
--------------
(b) Anything to the contrary in Section 2.1(a) above notwithstanding,
--------------
Foothill may create reserves against the Borrowing Base or reduce its advance
rates based upon Eligible Accounts or Eligible Inventory without declaring an
Event of Default if it determines, in its reasonable discretion, that any of the
circumstances described in clauses (b), (c) or (d) of the definition of
"Material Adverse Change" have occurred. Additionally, Borrower acknowledges
that the advance rate against Eligible Inventory set forth in clause (y)(ii)
--------------
above is based on the appraisal of Eligible Inventory performed by ▇▇▇▇-DoveTech
Global Valuation prior to the Closing Date and agrees that Foothill may adjust
the advance rate against Eligible Inventory set forth in clause (y)(ii) above
--------------
based on the results of subsequent quarterly appraisals of the Eligible
Inventory.
(c) Foothill shall have no obligation to make Advances hereunder to
the extent they would cause the outstanding Obligations to exceed the Maximum
Amount.
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(d) Amounts borrowed pursuant to this Section 2.1 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 Letters of Credit. Intentionally Omitted.
2.3 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Section 2.1 is greater than
-----------
either the Dollar or percentage limitations set forth in Section 2.1 (an
-----------
"Overadvance"), Borrower immediately shall pay to Foothill, in cash, the amount
of such excess to be used by Foothill to repay Advances outstanding under
Section 2.1.
-----------
2.4 Interest: Rates, Payments, and Calculations; Promise to Pay.
(a) Interest Rate. Except as provided in clause (c) below, all
Obligations shall bear interest at a per annum rate equal to the Reference Rate
plus one and one-quarter percentage points (1.25%).
----
(b) Intentionally Omitted.
(c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default, all Obligations shall bear interest at a per annum rate
equal to the Reference Rate plus three and one-quarter percentage points
----
(3.25%).
(d) Minimum Interest. Notwithstanding anything to the contrary set
forth in clauses (a) or (c) above, in no event shall the rate of interest
chargeable hereunder for any day be less than eight percent (8.00%) per annum,
and in no event shall the aggregate interest chargeable pursuant to this Section
-------
2.4 for any month be less than $4,000. To the extent that interest accrued
---
hereunder at the rate set forth herein would be less than eight percent (8.00%)
per annum, the interest rate chargeable hereunder for such day automatically
shall be deemed increased to such minimum rate. To the extent that interest
accrued hereunder at the rates set forth herein (including the minimum interest
rate) would yield less than $4,000 per month, the rates chargeable hereunder for
the period in question automatically shall be deemed increased to such rates
that would result in the minimum amount of interest being accrued and payable
hereunder. Foothill shall be entitled to such minimum interest even if there
are no Advances outstanding hereunder and, in such event, the amount of such
minimum interest shall be deemed to be an additional fee payable by Borrower
hereunder.
-19-
(e) Payments. Interest payable hereunder shall be due and payable, in
arrears, on the first day of each month during the term hereof. Borrower hereby
authorizes Foothill, at its option, without prior notice to Borrower, to charge
such interest, all Foothill Expenses (as and when incurred), the fees and
charges provided for in Section 2.9 (as and when accrued or incurred), and all
-----------
installments or other payments due under any Loan Document to Borrower's Loan
Account, which amounts thereafter shall accrue interest at the rate then
applicable to Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable to
Advances hereunder.
(f) Computation. The Reference Rate as of the date of this Agreement
is 8.50% per annum. In the event the Reference Rate is changed from time to time
hereafter, the applicable rate of interest hereunder automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Reference Rate. 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.
(g) 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. Borrower and Foothill, 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, ipso facto as
---- -----
of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower 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.
(h) Promise to Pay. Borrower hereby promises to pay to Foothill the
principal amount of all Advances, together with accrued interest, fees and other
amounts due thereon, all in accordance with the terms of this Agreement.
2.5 Collection of Accounts. Borrower shall at all times maintain
lockboxes (the "Lockboxes") and, immediately after the Closing Date, shall
instruct all Account Debtors with respect to the Accounts, General Intangibles,
and Negotiable Collateral of Borrower to remit all Collections (other than the
---
payment of rents subject to a prior lien of First Bank as set forth in clause
(k) of the definition of "Permitted Liens" set forth herein) in respect thereof
to such Lockboxes. Borrower, Foothill, and the
-20-
Lockbox Banks shall enter into the Lockbox Agreements, which among other things
shall provide for the opening of a Lockbox Account for the deposit of
Collections at a Lockbox Bank. Borrower agrees that all Collections and other
amounts received by Borrower from any Account Debtor or any other source
immediately upon receipt shall be deposited into a Lockbox Account. No Lockbox
Agreement or arrangement contemplated thereby shall be modified by Borrower
without the prior written consent of Foothill. Upon the terms and subject to the
conditions set forth in the Lockbox Agreements, all amounts received in each
Lockbox Account shall be wired each Business Day into an account (the "Foothill
Account") maintained by Foothill at a depositary selected by Foothill.
2.6 Crediting Payments; Application of Collections. The receipt of
any Collections by Foothill (whether from transfers to Foothill by the Lockbox
Banks pursuant to the Lockbox Agreements or otherwise) immediately shall be
applied provisionally to reduce the Obligations outstanding under Section 2.1,
-----------
but shall not be considered a payment on account unless such Collection item is
a wire transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrower for one (1) Business Day of `clearance' or `float'
at the rate set forth in Section 2.4(a) or Section 2.4(c)(i), as applicable, on
-------------- -----------------
all Collections that are received by Foothill (regardless of whether forwarded
by the Lockbox Banks to Foothill, whether provisionally applied to reduce the
Obligations under Section 2.1, or otherwise). This across-the-board one (1)
-----------
Business Day clearance or float charge on all Collections is acknowledged by the
parties to constitute an integral aspect of the pricing of Foothill's financing
of Borrower, and shall apply irrespective of the characterization of whether
receipts are owned by Borrower or Foothill, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being the
equivalent of charging one (1) Business Day of interest on such Collections.
Should any Collection item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and interest shall be
recalculated accordingly. Anything to the contrary contained herein
notwithstanding, any Collection item shall be deemed received by Foothill only
if it is received into the Foothill Account on a Business Day on or before 2:00
p.m. Eastern time. If any Collection item is received into the Foothill Account
on a non-Business Day or after 2:00 p.m. Eastern time on a Business Day, it
shall be deemed to have been received by Foothill as of the opening of business
on the immediately following Business Day.
2.7 Designated Account. Foothill is authorized to make the Advances
in immediately available funds under this Agreement based upon telephonic or
other instructions received from anyone purporting to be an Authorized Person,
or without instructions if pursuant to Section 2.4(e). Borrower agrees to
--------------
establish and maintain the
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Designated Account with the Designated Account Bank for the purpose of receiving
the proceeds of the Advances requested by Borrower and made by Foothill
hereunder. Unless otherwise agreed by Foothill and Borrower, any Advance
requested by Borrower and made by Foothill hereunder shall be made to the
Designated Account.
2.8 Maintenance of Loan Account; Statements of Obligations. Foothill
shall maintain an account on its books in the name of Borrower (the "Loan
Account") on which Borrower will be charged with all Advances made by Foothill
to Borrower or for Borrower's account, including, accrued interest, Foothill
Expenses, and any other payment Obligations of Borrower. In accordance with
Section 2.6, the Loan Account will be credited with all payments received by
-----------
Foothill from Borrower or for Borrower's account, including all amounts received
in the Foothill Account from any Lockbox Bank. Foothill shall render statements
regarding the Loan Account to Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Foothill
Expenses owing, and such statements shall be conclusively presumed to be correct
and accurate and constitute an account stated between Borrower and Foothill
unless, within thirty (30) days after receipt thereof by Borrower, Borrower
shall deliver to Foothill written objection thereto describing the error or
errors contained in any such statements.
2.9 Fees. Borrower shall pay to Foothill the following fees:
(a) Closing Fee. On the Closing Date, a closing fee of $7,500;
(b) Unused Line Fee. On the first day of each month during the
term of this Agreement, an unused line fee in an amount equal to three-eighths
of one percent (0.375%) per annum times the Average Unused Portion of the
Maximum Amount;
(c) Annual Facility Fee. On each anniversary of the Closing Date,
an annual facility fee in an amount equal to one-eighth of one percent (0.125%)
of the Maximum Amount;
(d) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of Borrower
performed by personnel employed by Foothill (provided, so long as no Event of
Default has occurred, Borrower shall not be required to pay examiner fees
(specifically excluding out-of-pocket expenses) during any calendar year in an
aggregate amount in excess of $13,000); Foothill's customary appraisal fee of
$1,500 per day per appraiser, plus out-of-pocket expenses for each appraisal of
the Collateral performed by personnel employed by Foothill; and, the actual
charges paid or incurred by Foothill if it elects to employ the services of one
or
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more third Persons to perform such financial analyses and examinations (i.e.,
audits) of Borrower or to appraise the Collateral; and, on each anniversary of
the Closing Date, Foothill's customary fee of $1,000 per year for its loan
documentation review; and Borrower acknowledges that Foothill, ▇▇▇▇-DoveTech
Global Valuation, ▇▇▇▇▇-▇▇▇▇▇▇ Corporation or any other Person selected by
Foothill and reasonably acceptable to Borrower, shall conduct appraisals,
reviews and/or audits of the Collateral not less than once every ninety (90)
days (commencing ninety (90) days from the date of the appraisal obtained by
Foothill prior to the Closing Date); provided, so long as no Event of Default
has occurred, Borrower shall not be required to pay fees for any such quarterly
appraisal in an aggregate amount, together with all such appraisal fees paid by
Cortelco International, Inc. under the CII Loan Agreement during such quarter,
in excess of $4,000, and such appraisals shall not occur more than once each
ninety day period; and
(e) Servicing Fee. On the first day of each month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $1,500.
(f) Miscellaneous. The fees set forth above shall be fully earned
when due, non-refundable when paid and, if applicable, computed on the basis of
a 360 day year for the actual number of days elapsed.
Section 2.10 Tax Indemnity. (a) All payments by Borrower under this
Agreement or under any other Loan Document shall be made free and clear of and
without deduction or withholding for any and all taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto,
excluding taxes paid or payable by Foothill or required to be withheld from a
payment to Foothill as a result of Foothill having a present or former
connection to the jurisdiction imposing such tax (other than such connection
arising solely from Foothill having executed and delivered or performed its
obligations or received a payment under, this Agreement or any other Loan
Document) (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings and other liabilities being referred to herein as "Taxes"), unless
such Taxes are required by law or the administration thereof to be withheld or
deducted. If Borrower shall be required by law or the administration thereof to
deduct or withhold any Taxes from or in respect of any sum payable under this
Agreement or any other Loan Document: (i) the sum payable shall be increased
(and, for greater certainty, in the case of interest, the amount of interest
shall be increased) as may be necessary so that after making all required
deductions or withholdings (including deductions or withholdings applicable to
additional amounts paid under this Section 2.10) Foothill receives an amount
equal to the sum it would have received if no deduction or withholding had been
made; (ii) Borrower shall make such deductions or withholdings; and (iii)
Borrower shall pay the full amount
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deducted or withheld to the relevant taxation or other authority in accordance
with Applicable Law.
(b) Borrower shall pay any present or future stamp or documentary
taxes or any other foreign exchange, foreign investment, property or any other
type of taxes, charges, fees or costs or similar levies or any financial
institutions duty and debits tax which arise from any payment made under this
Agreement or any other Loan Document or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Document (all such taxes, fees or charges, costs, and levies being herein
referred to as "Other Taxes").
(c) Borrower shall indemnify Foothill for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.10) paid by Foothill
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes are correctly
or legally asserted so that, after the receipt of any indemnity payment under
this Section 2.10, Foothill shall be in the same position as it would have been
had it not been required to pay any Taxes or Other Taxes. Borrower shall also
indemnify Foothill on a after-tax basis for any additional taxes on net income
that Foothill may be obliged to pay as the result of the receipt of additional
amounts under this Section 2.10 (computed on the basis that the only receipts
and deductions of Foothill are in respect of the Obligations). Payment under
this indemnification shall be made within thirty (30) days from the date
Foothill makes written demand therefor. A certificate as to the amounts owing by
Borrower under this Section 2.10 submitted to Borrower by Foothill shall be
conclusive evidence, absent manifest error, of the amount due from Borrower to
Foothill. For greater certainty, the parties acknowledge that nothing contained
in this Section 2.10 shall be interpreted as requiring Borrower to pay to any
taxation authority any Taxes or Other Taxes owed by it to such taxation
authority and which are contested in good faith and by proper proceedings and
against which adequate reserves are maintained, provided that any such contest
of Taxes or Other Taxes shall have no effect on any rights of Foothill under
this Section 2.10, including without limitation, the right to receive
indemnification payments within thirty (30) days of written demand therefor.
(d) Borrower shall furnish to Foothill the original or a certified
copy of a receipt evidencing payment of Taxes or Other Taxes, promptly after
receipt by Borrower of any such receipt.
(e) If Foothill is, in its sole opinion, entitled to claim a refund or
able to apply for or otherwise take advantage of any tax credit, tax deduction
or similar benefit by
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reason of any withholding or deduction made by Borrower in respect of a payment
made by it hereunder which payment shall have been increased pursuant to Section
2.10(a), then Foothill will use reasonable efforts to obtain such refund,
credit, deduction or benefit and upon receipt thereof will pay to Borrower such
amount (if any) not exceeding the increased amount paid by Borrower as equals
the net after-tax value to Foothill of such part of such refund, credit,
deduction or benefit as it considers is allocable to such withholding or
deduction having regard to all its dealings giving rise to similar credits,
deductions or benefits in relation to the same tax period and to the cost of
obtaining the same. There is no obligation for Foothill to claim any refund or
to apply for or take advantage of any tax credit, tax deduction or similar
benefit as contemplated by this paragraph. Nothing herein shall (i) interfere
with the right of Foothill to arrange its tax affairs in whatever manner it
deems appropriate; and (ii) Foothill shall not be obligated to disclose to
Borrower any information regarding its tax affairs or tax computations, except
to the extent that such information is necessary to determine Borrower's
liability hereunder. Further, Foothill shall not be under any obligation to
claim relief from its corporate profits or similar tax liability in respect of
any such deduction or withholding in priority to any other relief, claims,
credits or deductions available to it.
(f) Notwithstanding anything in this Section 2.10 to the contrary, at
no time shall Borrower be obligated to pay any corporate level excise tax,
franchise tax, income tax or any privilege tax measured based on income of
Foothill.
(g) Without prejudice to the survival of any other agreement or
obligation of the Borrower hereunder, the obligations of Borrower under this
Section 2.10 shall survive the payment in full of the Obligations.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance. The obligation
of Foothill to make the initial Advance is subject to the fulfillment, to the
satisfaction of Foothill and its counsel, of each of the following conditions on
or before the Closing Date:
(a) the Closing Date shall occur on or before August 29,
1997;
(b) Intentionally Omitted.
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force and
effect:
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(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) the Pay-Off Letter, lien termination statements
and other documentation evidencing the termination by
Existing Lender of its Liens in and to the properties
and assets of Borrower, and lien termination statements
for all other Liens in and to the properties and assets
of Borrower that are not Permitted Liens; and
(iv) the Chattel Mortgage, the Factor's Lien
Agreement, the Assignment of Accounts Receivable, and
the other Loan Documents;
(d) Foothill shall have received a certificate from the
Secretary of Borrower attesting to the resolutions of Borrower's Board of
Directors authorizing its execution, delivery, and performance of this Agreement
and the other Loan Documents to which Borrower is a party and authorizing
specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(f) Foothill shall have received a certificate of status
with respect to Borrower, dated within ten (10) days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of Borrower, which certificate shall indicate that Borrower is in
good standing in such jurisdiction;
(g) Intentionally Omitted.
(h) Foothill shall have received a certificate of
insurance, together with the endorsements thereto, as are required by Section
-------
6.10, the form and substance of which shall be satisfactory to Foothill and its
----
counsel;
(i) Foothill shall have received such Collateral Access
Agreements from such lessors, warehousemen, bailees, and other third persons as
Foothill may require;
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(j) Foothill shall have received an opinion of Borrower's
counsel in form and substance satisfactory to Foothill and its counsel in their
sole discretion;
(k) After giving effect to the making of the requested
initial Advance hereunder, Borrower shall have demonstrated that it has, on the
Closing Date, funds available to be borrowed hereunder in an aggregate amount
equal to or greater than $200,000;
(l) Foothill shall have received satisfactory evidence that
all tax returns required to be filed by Borrower have been timely filed and all
taxes upon Borrower or its properties, assets, income, and franchises (including
real property taxes and payroll taxes) have been paid prior to delinquency,
except such taxes that are the subject of a Permitted Protest; and
(m) 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
Foothill and its counsel.
3.2 Conditions Precedent to all Advances. The following shall be
conditions precedent to all Advances hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all 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; and
(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
Borrower, Foothill, or any of their Affiliates.
3.3 Condition Subsequent. As a condition subsequent to initial
closing hereunder, Borrower shall perform or cause to be performed the following
(the failure by Borrower to so perform or cause to be performed constituting an
Event of Default):
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(a) within thirty (30) days of the Closing Date, deliver to
Foothill the certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and substance of
------------
which shall be satisfactory to Foothill and its counsel.
3.4 Term. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Foothill and shall continue in
full force and effect for a term ending on the date (the "Maturity Date") that
is four (4) years from the Closing Date, unless sooner terminated pursuant to
the terms hereof. The foregoing notwithstanding, Foothill 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 Borrower of Borrower's duties, Obligations, or covenants hereunder,
and Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide additional credit hereunder is terminated.
3.6 Early Termination by Borrower. Borrower has the option, at
any time upon ninety (90) days prior written notice to Foothill, to terminate
this Agreement, without penalty, by paying to Foothill, in cash, the Obligations
in full.
3.7 Termination Upon Event of Default. [Intentionally Omitted.]
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to
Foothill a continuing security interest in all currently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Foothill's security interests
in the Collateral shall attach to all Collateral without further act on the part
of Foothill or Borrower. Anything contained in this Agreement or any other Loan
Document to the contrary notwithstanding, except as permitted by Section 7.4,
-----------
Borrower has no authority, express or implied, to sell or dispose of any item or
portion of the Collateral.
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4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower, immediately upon the request of Foothill, shall endorse and deliver
physical possession of such Negotiable Collateral to Foothill.
4.3 Collection of Accounts, General Intangibles, and Negotiable
Collateral. Upon the occurrence and during the continuation of an Event of
Default or if Foothill deems itself insecure, Foothill or Foothill's designee
may (a) notify customers or Account Debtors of Borrower that the Accounts,
General Intangibles, or Negotiable Collateral have been assigned to Foothill or
that Foothill has a security interest therein, and (b) collect the Accounts,
General Intangibles, and Negotiable Collateral directly and charge the
collection costs and expenses to the Loan Account. Borrower agrees that it will
hold in trust for Foothill, as Foothill's trustee, any Collections that it
receives and immediately will deliver said Collections to Foothill in their
original form as received by Borrower.
4.4 Delivery of Additional Documentation Required. At any time
upon the request of Foothill, Borrower shall execute and deliver to Foothill all
notice of lien filings, financing statements, continuation financing statements,
security agreements, pledges, assignments, endorsements of certificates of
title, applications for title, affidavits, reports, notices, schedules of
accounts, letters of authority, and all other documents that Foothill reasonably
may request, in form reasonably satisfactory to Foothill, to perfect and
continue perfected Foothill's security interests in the Collateral, and in order
to fully consummate all of the transactions contemplated hereby and under the
other the Loan Documents.
4.5 Rights of Foothill. Borrower hereby irrevocably agrees that
Foothill shall have the right to (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents described in Section 4.4, sign the name
-----------
of 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 or Foothill deems itself
insecure, sign Borrower's name on any invoice or ▇▇▇▇ of lading relating to any
Account, drafts against Account Debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account Debtors, (c) send requests for
verification of Accounts, (d) endorse Borrower's name on any Collection item
that may come into Foothill's possession, (e) at any time that an Event of
Default has occurred and is continuing or Foothill deems itself insecure, notify
the post office authorities to change the address for delivery of Borrower's
mail to an address designated by Foothill, to receive and open all mail
addressed to Borrower, and to retain all mail relating to the Collateral and
forward all other mail to Borrower, (f) at any time that an Event of Default has
occurred and is continuing or Foothill deems itself insecure, make, settle, and
adjust all claims under Borrower's policies of insurance and make all
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determinations and decisions with respect to such policies of insurance, and (g)
at any time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure, settle and adjust disputes and claims respecting the
Accounts directly with Account Debtors, for amounts and upon terms that Foothill
determines to be reasonable, and Foothill may cause to be executed and delivered
any documents and releases that Foothill determines to be necessary. Each and
every one of Foothill's rights and powers set forth herein, being coupled with
an interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6 Right to Inspect. Foothill (through any of its officers,
employees, or agents) shall have the right, from time to time hereafter (during
normal business hours if no Event of Default then exists or at any time if an
Event of Default then exists) to inspect Borrower's Books and to check, test,
and appraise the Collateral in order to verify Borrower's financial condition or
the amount, quality, value, condition of, or any other matter relating to, the
Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, Borrower
makes the following representations and warranties which shall be true, correct,
and complete in all respects as of the date hereof, and shall be true, correct,
and complete in all respects as of the Closing Date, and at and as of the date
of the making of each Advance thereafter, as though made on and as of the date
of such Advance (except to the extent that such representations and warranties
relate solely to an earlier date) and such representations and warranties shall
survive the execution and delivery of this Agreement:
5.1 No Encumbrances. Borrower has 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 obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, unconditionally owed to Borrower without defenses, disputes, offsets,
counterclaims, or rights of return or cancellation. The property giving rise to
such Eligible Accounts has been delivered to the Account Debtor, or to the
Account Debtor's agent for immediate shipment to and unconditional acceptance by
the Account Debtor. Borrower has not received notice of actual or imminent
bankruptcy, insolvency, or material impairment of the financial condition of any
Account Debtor regarding any Eligible Account.
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5.3 Eligible Inventory. All Eligible Inventory is of good and
merchantable quality, free from known defects.
5.4 Equipment. All of the Equipment is used or held for use in
Borrower's business and is fit for such purposes.
5.5 Location of Inventory and Equipment. The Inventory and Equipment
are not stored with a bailee, consignee, warehouseman, or similar party (without
Foothill's prior written consent) and are located only at the locations
identified on Schedule 6.12 or otherwise permitted by Section 6.12.
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5.6 Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of the Inventory,
and Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The chief executive
office of Borrower is located at the address indicated in the preamble to this
Agreement and Borrower's FEIN is ▇▇-▇▇▇-▇▇▇▇. Borrower does not have or
maintain any other office or place of business.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and in good standing
under the laws of the jurisdiction of its incorporation and qualified and
licensed to do business in, and in good standing in, any state where the failure
to be so licensed or qualified reasonably could be expected to have a Material
Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate list of
------------
all shareholders of Borrower owning five (5) percent or more of Borrower's
capital stock as of the Closing Date, showing: (i) the number of shares of each
class of common and preferred stock authorized for Borrower; and (ii) the number
and the percentage of the outstanding shares of each such class owned by such
shareholders.
(c) Set forth on Schedule 5.8, is a complete and accurate list of
------------
Borrower's direct and indirect Subsidiaries, showing: (i) the jurisdiction of
their incorporation; (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 Borrower. All of the outstanding capital stock of each such
Subsidiary has been validly issued and is fully paid and non-assessable.
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(d) Except as set forth on Schedule 5.8, no capital stock (or any
------------
securities, instruments, warrants, options, purchase rights, conversion or
exchange rights, calls, commitments or claims of any character convertible into
or exercisable for capital stock) of Borrower or any direct or indirect
Subsidiary of Borrower is subject to the issuance of any security, instrument,
warrant, option, purchase right, conversion or exchange right, call, commitment
or claim of any right, title, or interest therein or thereto.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action.
(b) The execution, delivery, and performance by 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 (including
Regulations G, T, U, and X of the Federal Reserve Board) applicable to Borrower,
the Governing Documents of Borrower, or any order, judgment, or decree of any
court or other Governmental Authority binding on 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 or material lease of
Borrower (including the First Bank Mortgage), (iii) result in or require the
creation or imposition of any Lien of any nature whatsoever upon any properties
or assets of Borrower, other than Permitted Liens, or (iv) require any approval
of stockholders or any approval or consent of any Person under any material
contractual obligation of Borrower, except for Alcatel (which consent has been
obtained).
(c) Other than the filing of appropriate notice of lien
statements, the Factor's Lien Agreement and the Chattel Mortgage, the execution,
delivery, and performance by Borrower of this Agreement and the Loan Documents
to which 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 federal,
state, foreign, or other Governmental Authority or other Person, except for
Alcatel (which consent has been obtained).
(d) This Agreement and the Loan Documents to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency,
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reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally.
(e) The Liens granted by Borrower to Foothill in and to its
properties and assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected, and first priority Liens, subject only to
Permitted Liens.
5.10 Litigation. There are no actions or proceedings pending by or
against Borrower or any of its assets before any court or governmental agency
and Borrower does not have knowledge or belief of any pending, threatened, or
imminent litigation, governmental investigations, or claims, complaints,
actions, or prosecutions involving Borrower, its assets or any guarantor of the
Obligations, except for: (a) ongoing collection matters in which Borrower is
the plaintiff; (b) matters disclosed on Schedule 5.10; and (c) matters arising
-------------
after the date hereof that, if decided adversely to Borrower, would not have a
Material Adverse Change.
5.11 No Material Adverse Change. All financial statements relating to
Borrower or any guarantor of the Obligations that have been delivered by
Borrower to Foothill 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 fairly present Borrower's (or such
guarantor's, as applicable) financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been
a Material Adverse Change with respect to Borrower (or such guarantor, as
applicable) since the date of the latest financial statements submitted to
Foothill on or before the Closing Date.
5.12 Solvency. Borrower is Solvent. No transfer of property is being
made by Borrower and no obligation is being incurred by 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 Borrower.
5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or
any of their ERISA Affiliates maintains or contributes to any Benefit Plan,
other than those listed on Schedule 5.13. Borrower, each of its Subsidiaries
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and each ERISA Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred that
may result in an ERISA Event that reasonably could be expected to result in a
Material Adverse Change. None of Borrower or its Subsidiaries, any ERISA
Affiliate, or any fiduciary of any Plan is subject to any direct or indirect
liability with respect to any Plan under any Applicable Law or agreement. None
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of Borrower or its Subsidiaries or any ERISA Affiliate is required to provide
security to any Plan under Section 401(a)(29) of the IRC.
5.14 Environmental Condition. None of Borrower's properties or assets
has ever been used by Borrower or, to the best of Borrower's knowledge, by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials. To the best of
Borrower's knowledge, none of Borrower's properties or assets has ever been
designated or identified in any manner pursuant to any environmental protection
statute as a Hazardous Materials disposal site, or a candidate for closure
pursuant to any environmental protection statute. To the best of Borrower's
knowledge, no Lien arising under any environmental protection statute has
attached to any revenues or to any real or personal property owned or operated
by Borrower. Borrower has not 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 Borrower resulting in
the releasing or disposing of Hazardous Materials into the environment.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, and
unless Foothill shall otherwise consent in writing, Borrower shall do all of the
following:
6.1 Accounting System. Maintain a standard and modern system of
accounting that enables Borrower to produce financial statements in accordance
with GAAP, and maintain records pertaining to the Collateral that contain
information as from time to time may reasonably be requested by Foothill.
Borrower also shall keep a modern inventory reporting system that shows all
additions, sales, claims, returns, and allowances with respect to the Inventory.
6.2 Collateral Reporting. Provide Foothill with the following
documents at the following times in form satisfactory to Foothill: (a) on each
Business Day, a sales journal, collection journal, and credit register since the
last such schedule and a calculation of the Borrowing Base as of such date, (b)
on a monthly basis and, in any event, by no later than the tenth (10th) day of
each month during the term of this Agreement, (i) a detailed calculation of the
Borrowing Base, and (ii) a detailed aging, by total, of the Accounts, together
with a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill, (c) on a monthly basis and, in any event, by no
later than the tenth (10th) day of each month during the term of this Agreement,
a summary aging, by vendor, of Borrower's accounts payable and any book
overdraft, (d)
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on a weekly basis, Inventory reports specifying Borrower's cost and the
wholesale market value of its Inventory by category, with additional detail
showing additions to and deletions from the Inventory, (e) on each Business Day,
notice of all returns, disputes, or claims, (f) upon request, copies of invoices
in connection with the Accounts, customer statements, credit memos, remittance
advices and reports, deposit slips, shipping and delivery documents in
connection with the Accounts and for Inventory and Equipment acquired by
Borrower, purchase orders and invoices, (g) on a quarterly basis, a detailed
list of Borrower's customers, (h) on a monthly basis, a calculation of the
Dilution for the prior month; and (i) such other reports as to the Collateral or
the financial condition of Borrower as Foothill may request from time to time.
Original sales invoices evidencing daily sales shall be mailed by Borrower to
each Account Debtor and, upon the occurrence of an Event of Default or at
Foothill's request if Foothill deems itself insecure, the invoices shall
indicate on their face that the Account has been assigned to Foothill and that
all payments are to be made directly to Foothill.
6.3 Financial Statements, Reports, Certificates. (a) Deliver to
Foothill: (i) as soon as available, but in any event within forty-five (45)
days after the end of each month during each of Borrower's fiscal years, a
company prepared balance sheet, income statement, and statement of cash flow
covering Borrower's operations during such period; (ii) as soon as available,
but in any event within forty-five (45) days after the end of each fiscal year
of Borrower, a company prepared balance sheet, income statement, and statement
of cash flow covering Borrower's operations during such period; and (iii) as
soon as available, but in any event within ninety (90) days after the end of
each of Borrower's fiscal years, financial statements of Borrower for each such
fiscal year, audited by independent certified public accountants reasonably
acceptable to Foothill and certified, without any qualifications, by such
accountants to have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Foothill stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default. Such audited financial statements shall include a balance sheet,
profit and loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. If Borrower is a parent company of one or
more Subsidiaries, or Affiliates, or is a Subsidiary or Affiliate of another
company, then, in addition to the financial statements referred to above,
Borrower agrees to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity separately, and on
a consolidated basis.
(b) Together with the above, if Borrower becomes a public
corporation, Borrower also shall deliver to Foothill Borrower's Form 10-Q
Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and
any other filings made by Borrower with the Securities and Exchange Commission,
if any, as soon
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as the same are filed, or any other information that is provided by Borrower to
its shareholders, and any other report reasonably requested by Foothill relating
to the financial condition of Borrower, and if Parent becomes a public
corporation, Borrower shall also deliver to Foothill each of the above-
referenced reports of, and filings made by, Parent.
(c) Each month, together with the financial statements provided
pursuant to Section 6.3(a), Borrower shall deliver to Foothill a certificate
--------------
signed by its chief financial officer stating that: (i) all financial statements
delivered or caused to be delivered to Foothill hereunder 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
fairly present the financial condition of Borrower, (ii) the representations and
warranties of Borrower 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 (iii)
on the date of delivery of such certificate to Foothill there does not exist any
condition or event that constitutes a Default or Event of Default (or, in the
case of clauses (i) or (ii), to the extent of any non-compliance, describing
such non-compliance as to which he or she may have knowledge and what action
Borrower has taken, is taking, or proposes to take with respect thereto).
(d) Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate with
Foothill and to release to Foothill whatever financial information concerning
Borrower that Foothill may request and that is in such accountant's possession,
custody or control. Borrower hereby irrevocably authorizes and directs all
auditors, accountants, or other third parties to deliver to Foothill, at
Borrower's expense, copies of Borrower's financial statements, papers related
thereto, and other accounting records of any nature in their possession, and to
disclose to Foothill any information they may have regarding Borrower's business
affairs and financial conditions. In all cases, Foothill shall request that
Borrower obtain and provide such information to Foothill and give Borrower a
reasonable opportunity to so provide same and only if the requested information
is not so provided shall Foothill request such information directly from such
auditors, accountants or other third parties.
6.4 Tax Returns. Deliver to Foothill, within thirty (30) days of the
filing thereof, copies of each of Borrower's future (a) federal income tax
returns, and any amendments and requests for extension relating thereto, filed
with the Internal Revenue Service, (b) commonwealth income tax returns, and any
amendments and requests for extension relating thereto, filed with the
Department of the Treasury, and (c) personal
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property tax returns, and any amendments and requests for extension relating
thereto, filing with any Puerto Rico tax authority.
6.5 Intentionally Omitted.
6.6 Returns. Cause returns and allowances, if any, as between
Borrower and its Account Debtors to be on the same basis and in accordance with
the usual customary practices of Borrower, as they exist at the time of the
execution and delivery of this Agreement. If, at a time when no Event of
Default has occurred and is continuing, any Account Debtor returns any Inventory
to Borrower, Borrower promptly shall determine the reason for such return and,
if Borrower accepts such return, issue a credit memorandum (with a copy to be
sent to Foothill) in the appropriate amount to such Account Debtor. If, at a
time when an Event of Default has occurred and is continuing, any Account Debtor
returns any Inventory to Borrower, Borrower promptly shall determine the reason
for such return and, if Foothill consents (which consent shall not be
unreasonably withheld), issue a credit memorandum (with a copy to be sent to
Foothill) in the appropriate amount to such Account Debtor.
6.7 Title to Equipment. Upon Foothill's reasonable request, Borrower
immediately shall deliver to Foothill, properly endorsed, any and all evidences
of ownership of, certificates of title, or applications for title to any items
of Equipment.
6.8 Maintenance of Equipment. Maintain the Equipment in good
operating condition and repair (ordinary wear and tear excepted), and make all
necessary replacements thereto so that the value and operating efficiency
thereof shall at all times be maintained and preserved. Other than those items
of Equipment that constitute fixtures on the Closing Date (and the required
replacement thereof), Borrower shall not permit any item of Equipment to become
a fixture to real estate or an accession to other property, and such Equipment
shall at all times remain personal property.
6.9 Taxes. Cause all assessments and taxes, whether real, personal,
or otherwise, due or payable by, or imposed, levied, or assessed against
Borrower or any of its property 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.
Borrower shall make due and timely payment or deposit of all such federal,
state, commonwealth and local taxes, assessments, or contributions required of
it by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Borrower will make timely payment or deposit of all tax payments and withholding
taxes required of it by Applicable Laws, including those laws concerning
F.I.C.A., F.U.T.A., state disability,
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and local, commonwealth, state, and federal income taxes, and will upon request
furnish Foothill with proof reasonably satisfactory to Foothill indicating that
Borrower has made such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Collateral insured against loss or
damage by fire, theft, explosion, sprinklers, and all other hazards and risks,
and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain business interruption, public
liability, product liability, and property damage insurance relating to
Borrower's ownership and use of the Collateral, as well as insurance against
larceny, embezzlement, and criminal misappropriation.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies which are
authorized to do insurance business in the State of California. All hazard
insurance and such other insurance as Foothill shall specify, shall contain a
California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement
satisfactory to Foothill, showing Foothill as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance referred to in this
Section 6.10 shall contain an agreement by the insurer that it will not cancel
------------
such policy except after thirty (30) days prior written notice to Foothill and
that any loss payable thereunder shall be payable notwithstanding any act or
negligence of Borrower or Foothill which might, absent such agreement, result in
a forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Collateral for purposes more hazardous than permitted by
the terms of such policy or (ii) any change in title or ownership of the
Collateral. Borrower shall deliver to Foothill certified copies of such policies
of insurance and evidence of the payment of all premiums therefor.
(c) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least
thirty (30) days prior to the expiration of the existing or preceding policies.
Borrower shall give Foothill prompt notice of any loss covered by such
insurance, and Foothill shall have the right to adjust any loss. Foothill shall
have the exclusive right to adjust all losses payable under any such insurance
policies without any liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy including the insurance policies mentioned above, shall be paid over to
Foothill to be applied at the option of Foothill either to the prepayment of the
Obligations without premium, in such order or manner as Foothill may elect, or
shall be disbursed to
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Borrower under stage payment terms satisfactory to Foothill for application to
the cost of repairs, replacements, or restorations. All 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. Upon the occurrence of an Event of Default, Foothill
shall have the right to apply all prepaid premiums to the payment of the
Obligations in such order or form as Foothill shall determine.
(d) Borrower shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
under this Section 6.10, unless Foothill is included thereon as named insured
------------
with the loss payable to Foothill under a standard California 438BFU (NS)
Mortgagee endorsement, or its local equivalent. Borrower immediately shall
notify Foothill whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and originals of such policies immediately shall be provided to Foothill.
6.11 No Setoffs or Counterclaims. Make payments hereunder and under
the other Loan Documents by or on behalf of Borrower without setoff or
counterclaim and free and clear of, and without deduction or withholding for or
on account of, any federal, state, or local taxes.
6.12 Location of Inventory and Equipment. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.12; provided, however,
------------- -------- -------
that Borrower may amend Schedule 6.12 so long as such amendment occurs by
-------------
written notice to Foothill not less than thirty (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 or the Commonwealth of
Puerto Rico, and so long as, at the time of such written notification, Borrower
provides any financing statements or fixture filings necessary to perfect and
continue perfected Foothill's security interests in such assets and also
provides to Foothill a Collateral Access Agreement.
6.13 Compliance with Laws. Comply with the requirements of all
Applicable Laws 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 have and could not reasonably be expected to result in
a Material Adverse Change.
6.14 Employee Benefits.
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(a) Promptly, and in any event within ten (10) Business Days
after Borrower or any of its Subsidiaries knows or has reason to know that an
ERISA Event has occurred that reasonably could be expected to result in a
Material Adverse Change, deliver to Foothill a written statement of the chief
financial officer of Borrower describing such ERISA Event and any action that is
being taking with respect thereto by Borrower, any such Subsidiary or ERISA
Affiliate, and any action taken or threatened by the IRS, Department of Labor,
or PBGC. Borrower or such Subsidiary, as applicable, shall (i) be deemed to know
all facts known by the administrator of any Benefit Plan of which it is the plan
sponsor, (ii) promptly, and in any event within three (3) Business Days after
the filing thereof with the IRS, deliver to Foothill a copy of each funding
waiver request filed with respect to any Benefit Plan and all communications
received by Borrower, any of its Subsidiaries or, to the knowledge of Borrower,
any ERISA Affiliate with respect to such request, and (iii) promptly, and in any
event within three (3) Business Days after receipt by Borrower, any of its
Subsidiaries or, to the knowledge of Borrower, any ERISA Affiliate, of the
PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to
administer a Benefit Plan, deliver to Foothill copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request,
each of the following: (i) a copy of each Plan (or, where any such plan is not
in writing, complete description thereof) (and if applicable, related trust
agreements or other funding instruments) and all amendments thereto, all written
interpretations thereof and written descriptions thereof that have been
distributed to employees or former employees of Borrower or its Subsidiaries;
(ii) the most recent determination letter issued by the IRS with respect to each
Benefit Plan; (iii) for the three most recent plan years, annual reports on Form
5500 Series required to be filed with any governmental agency for each Benefit
Plan; (iv) all actuarial reports prepared for the last three plan years for each
Benefit Plan; (v) a listing of all Multiemployer Plans, with the aggregate
amount of the most recent annual contributions required to be made by Borrower
or any ERISA Affiliate to each such plan and copies of the collective bargaining
agreements requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal liability under
any Multiemployer Plan; and (vii) the aggregate amount of the most recent annual
payments made to former employees of Borrower or its Subsidiaries under any
Retiree Health Plan.
6.15 Leases. Pay when due all rents and other amounts payable under
any leases to which Borrower is a party or by which Borrower's properties and
assets are bound, unless such payments are the subject of a Permitted Protest.
To the extent that Borrower fails timely to make payment of such rents and other
amounts payable when due
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under its leases, Foothill shall be entitled, in its discretion, to reserve an
amount equal to such unpaid amounts against the Borrowing Base.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until full and final payment of the Obligations, Borrower
will not do any of the following without Foothill's prior written consent :
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;
(b) Indebtedness set forth on Schedule 7.1 and in existence on
------------
the Closing Date;
(c) Indebtedness secured by the Liens described in clauses (b)
through (i) of the definition of Permitted Liens;
(d) Intentionally Omitted;
(e) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b), (c) and (g) 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 materially
impair the prospects of repayment of the Obligations by Borrower, (ii) the net
cash proceeds of such refinancings, renewals, or extensions do not result in an
increase in the aggregate principal amount of the Indebtedness so refinanced,
renewed, or extended, (iii) such refinancings, renewals, refundings, or
extensions do not result in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that
Indebtedness that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the refinancing
Indebtedness must be at least as favorable to Foothill as those applicable to
the refinanced Indebtedness;
(f) (i) Indebtedness permitted by Section 7.6 of this Agreement,
-----------
(ii) Indebtedness to Cortelco International, Inc. in an aggregate amount not to
exceed $250,000 outstanding at any time, and (iii) Indebtedness to Parent
pursuant to that certain Promissory Note dated August 19, 1992, in the original
principal amount of $750,000 (the "Parent Note");
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(g) Indebtedness pursuant to the First Bank Mortgage in an
aggregate principal amount not to exceed $4,600,000.
7.2 Liens. Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or 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 under
Section 7.1(e) and so long as the replacement Liens only encumber those assets
--------------
or property that secured the original Indebtedness).
7.3 Restrictions on Fundamental Changes. Enter into any merger,
consolidation, or reorganization, or any recapitalization or reclassification of
its capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its property or assets.
7.4 Sale or Disposal of Assets. Sell, lease, assign, transfer, or
otherwise dispose of any of Borrower's properties or assets other than (a) the
sale of Inventory in the ordinary course of Borrower's business and (b) physical
assets disposed of or replaced in the ordinary course of Borrower's business as
currently conducted and in an aggregate amount not exceeding $100,000 during any
fiscal year.
7.5 Change Name. Change Borrower's name, FEIN, corporate structure,
or identity, or add any new fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any way liable with
respect to the obligations of any third Person except by endorsement of
instruments or items of payment for deposit to the account of Borrower or which
are transmitted or turned over to Foothill.
7.7 Nature of Business. Make any change in the principal nature of
Borrower's business.
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7.8 Repayments, Prepayments and Amendments.
(a) Make any payment on the Parent Note or the Alcatel Debt;
provided, however, if no Default or Event of Default then exists or would be
caused thereby, Borrower may make payments of principal and accrued interest on
the Parent Note and the Alcatel Debt if (i) after giving effect to such payments
and of other Advances to be made hereunder on such date, Borrower shall have
borrowing availability hereunder of not less than $200,000, (ii) the aggregate
amount of all principal payments on the Parent Note made by Borrower during the
term of this Agreement does not exceed $750,000, (iii) the aggregate amount of
all principal payments on the Alcatel Debt (whether made directly to Alcatel or
via a distribution to Parent) during the term of this Agreement does not exceed
$250,000, and (iv) all payments by Borrower to the Parent on account of the
Parent Note are used by Parent to repay the Alcatel Debt;
(b) Except in connection with a refinancing permitted by Section
-------
7.1(e), prepay, redeem, retire, defease, purchase, or otherwise acquire any
------
Indebtedness owing to any third Person, other than the Obligations in accordance
with this Agreement; and
(c) 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), (c), (d), (e) or (f)(iii).
------------------------------------------
7.9 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control, except, with the prior written consent of
Foothill (and if no Event of Default then exists, which consent shall not be
unreasonably withheld), in connection with the conversion of Indebtedness of
Borrower into equity securities of Borrower or other recapitalization of the
stock of Borrower.
7.10 Consignments. At any time, consign any Inventory or sell any
Inventory on ▇▇▇▇ and hold, sale or return, sale on approval, or other
conditional terms of sale.
7.11 Distributions. Make any distribution or declare or pay any
dividends (in cash or other property, other than capital stock) on, or purchase,
acquire, redeem, or retire any of Borrower's capital stock, of any class,
whether now or hereafter outstanding; provided, however, so long as no Default
or Event of Default then exists or would be caused thereby, if Borrower's
financial performance is equal to or better than that set forth in the
Projections, Borrower may, in any fiscal year, make distributions to
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Parent for payment of corporate overhead which, together with all distributions
made to Parent during such fiscal year by Borrower, Cortelco Systems, Inc. and
Cortelco International, Inc., do not exceed in the aggregate $750,000.
Additionally, Borrower may make distributions to Parent for payment of the
Alcatel Debt to the extent such payment is permitted by Section 7.8(a).
7.12 Accounting Methods. Modify or change its method of accounting or
enter into, modify, or terminate any agreement currently existing, or at any
time hereafter entered into with any third party accounting firm or service
bureau for the preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill information
regarding the Collateral or Borrower's financial condition. 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 Foothill pursuant to or in accordance with this Agreement, and agrees that
Foothill may contact directly any such accounting firm or service bureau in
order to obtain such information.
7.13 Investments. Except as permitted by Section 7.14 or as disclosed
on Schedule 7.13 and except for investments of the type described in clauses (a)
-------------
and (b) below which do not exceed $100,000 in an aggregate at any time owned by
Borrower, directly or indirectly (a) make or acquire, or incur any liabilities
(including contingent obligations) for or in connection with, any loan or
advance to, or capital contribution in, any Person, (b) acquire the securities
(whether debt or equity) of, or other interests in, any Person, or (c) acquire
all or substantially all of the properties or assets of a Person.
7.14 Transactions with Affiliates. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms, that are fully disclosed to Foothill, and that
are no less favorable to Borrower than would be obtained in an arm's length
transaction with a non-Affiliate. Additionally, other than as permitted by
Sections 7.8(a) or 7.11 hereof, Borrower shall not make any loan or advance or
------------------------
otherwise transfer any funds (whether pursuant to an accounting entry on
Borrower's or Parent's books or otherwise) to an Affiliate without the prior
written consent of Foothill; provided, Borrower may make loans or advances to
Cortelco International, Inc. in an aggregate amount not to exceed $250,000
outstanding at any time.
7.15 Suspension. Suspend or go out of a substantial portion of its
business.
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7.16 Compensation. Increase the annual fee or per-meeting fees paid to
directors during any year by more than twenty-five percent (25%) over the prior
year; or pay or accrue total cash compensation, during any year, to officers and
senior management employees appointed or employed as of the Closing Date in an
aggregate amount in excess of 120% of that paid or accrued in the prior year.
Borrower shall not pay or accrue total cash compensation, during any year, to
officers and senior management employees that are appointed or initially
employed after the Closing Date in an amount in excess of that which is
customary in Borrower's industry and consistent with Borrower's past business
practices.
7.17 Use of Proceeds. Use the proceeds of the Advances made hereunder
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 costs and expenses incurred in
connection with this Agreement, and (b) thereafter, consistent with the terms
and conditions hereof, for its lawful and permitted corporate purposes.
7.18 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Relocate its chief executive office to a new location
without providing thirty (30) days prior written notification thereof to
Foothill and so long as, at the time of such written notification, Borrower
provides any notice of lien filings, financing statements, mortgages or other
agreements necessary to perfect and continue perfected Foothill's security
interests and also provides to Foothill a Collateral Access Agreement with
respect to such new location. The Inventory and Equipment shall not at any time
now or hereafter be stored with a bailee, warehouseman, or similar party without
Foothill's prior written consent.
7.19 No Prohibited Transactions Under ERISA. Directly or indirectly:
(a) engage, or permit any Subsidiary of Borrower to engage, in
any prohibited transaction which is reasonably likely to result in a civil
penalty or excise tax described in Sections 406 of ERISA or 4975 of the IRC for
which a statutory or class exemption is not available or a private exemption has
not been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of
the IRC), whether or not waived;
-45-
(c) fail, or permit any Subsidiary of Borrower to fail, to pay
timely required contributions or annual installments due with respect to any
waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of Borrower to terminate,
any Benefit Plan where such event would result in any liability of Borrower, any
of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to fail, to make
any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to fail, to pay
any required installment or any other payment required under Section 412 of the
IRC on or before the due date for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower to amend, a Plan
resulting in an increase in current liability for the plan year such that either
of Borrower, any Subsidiary of Borrower or any ERISA Affiliate is required to
provide security to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of Borrower to withdraw,
from any Multiemployer Plan where such withdrawal is reasonably likely to result
in any liability of any such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of Borrower, any of its
Subsidiaries or any ERISA Affiliate in excess of $100,000.
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 Borrower fails to pay when due and payable or when declared
due and payable, any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due Foothill,
reimbursement of Foothill Expenses, or other amounts constituting Obligations);
-46-
8.2 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in Sections 2, 4, 6
----------------
(other than subsections 6.4, 6.8, 6.13, 6.14 or 6.15), or 7 of this Agreement;
-------------------------------- ---- -
8.3 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in subsections 6.4,
----------------
6.8, 6.13, 6.14 or 6.15, or any other section of this Agreement not referenced
--------------- ----
elsewhere in this Section 8, or in any of the Loan Documents, or in any other
---------
present or future agreement between Borrower and Foothill and such failure is
not cured or remedied within five (5) days;
8.4 If there is a Material Adverse Change;
8.5 If any material portion of Borrower's properties or assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person;
8.6 If an Insolvency Proceeding is commenced by Borrower;
8.7 If an Insolvency Proceeding is commenced against Borrower and any
of the following events occur: (a) Borrower 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 forty-five (45) calendar days of
the date of the filing thereof; provided, however, that, during the pendency of
-------- -------
such period, Foothill shall be relieved of its obligation to extend credit
hereunder; (d) an interim trustee is appointed to take possession of all or a
substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, Borrower; or (e) an order for relief
shall have been issued or entered therein;
8.8 If 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;
8.9 If a notice of Lien, levy, or assessment is filed of record with
respect to any of Borrower's properties or assets having an aggregate value in
excess of $200,000 by the United States government or the Puerto Rico
government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes or debts owing
at any time hereafter to any one or more of such entities becomes a Lien,
whether ▇▇▇▇▇▇ or otherwise, upon any of Borrower's properties or assets and the
same is not paid on the payment date thereof (Borrower expressly acknowledges
that Foothill may establish a reserve for the amount
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of any Lien of any governmental authority filed with respect to or affecting any
of the Collateral);
8.10 If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of Borrower's properties or assets;
8.11 If there is a default in any material agreement to which Borrower
is a party with one or more third Persons and such default (a) occurs at the
final maturity of the obligations thereunder, or (b) results in a right by such
third Person(s), irrespective of whether exercised, to accelerate the maturity
of Borrower's obligations thereunder;
8.12 If 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 expressly permitted hereunder
and by the terms of the subordination provisions applicable to such
Indebtedness;
8.13 If any material misstatement or misrepresentation exists now or
hereafter in any warranty, representation, statement, or report made to Foothill
by Borrower or any officer, employee, agent, or director of Borrower, or if any
such warranty or representation is withdrawn;
8.14 If the obligation of any guarantor under its guaranty or other
third Person under any Loan Document is limited or terminated by operation of
law or by the guarantor or other third Person thereunder, or any such guarantor
or other third Person becomes the subject of an Insolvency Proceeding; or
8.15 If any Event of Default (as defined in the CII Loan Agreement)
occurs under the CII Loan Agreement.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and during the
continuation, of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable;
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(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, under any of the Loan Documents, or
under any other agreement between Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan Documents
as to any future liability or obligation of Foothill, but without affecting
Foothill's rights and security interests in the Collateral and without affecting
the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and in
such cases, Foothill will credit Borrower's Loan Account with only the net
amounts received by Foothill in payment of such disputed Accounts after
deducting all Foothill Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust for
Foothill, segregate all returned Inventory from all other property of Borrower
or in Borrower's possession and conspicuously label said returned Inventory as
the property of Foothill;
(f) Without notice to or demand upon Borrower or any guarantor,
make such payments and do such acts as Foothill considers necessary or
reasonable to protect its security interests in the Collateral. Borrower agrees
to assemble the Collateral if Foothill so requires, and to make the Collateral
available to Foothill as Foothill may designate. Borrower authorizes Foothill to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or Lien that in Foothill's determination
appears to conflict with its security interests and to pay all expenses incurred
in connection therewith. With respect to any of Borrower's owned or leased
premises, Borrower hereby grants Foothill a license to enter into possession of
such premises and to occupy the same, without charge, for up to one hundred
twenty (120) days in order to exercise any of Foothill's rights or remedies
provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in satisfaction
of an obligation, set off and apply to the Obligations any and all (i) balances
and deposits of Borrower held by Foothill (including any amounts received in the
Lockbox Accounts), or (ii) indebtedness at any time owing to or for the credit
or the account of Borrower held by Foothill;
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(h) Hold, as cash collateral, any and all balances and deposits
of Borrower held by Foothill, and any amounts received in the Lockbox Accounts,
to secure the full and final repayment of all of the Obligations;
(i) Seek the appointment of a receiver or keeper to take
possession of the Collateral and to enforce any of Foothill's remedies with
respect to such appointment without prior notice or hearing;
(j) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale, and selling any Collateral
and Borrower's rights under all licenses and all franchise agreements shall
inure to Foothill's benefit;
(k) Sell the 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 Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(l) Foothill shall give notice of the disposition of the
Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Collateral who has filed with Foothill a written
request for notice, 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 Collateral, then the time on or after which the
private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least five (5) days
----------
before the date fixed for the sale, or at least five (5) days before the date on
or after which the private sale or other disposition is to be made; no notice
needs to be given prior to the disposition of any portion of the Collateral that
is perishable or threatens to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons other than Borrower
claiming an interest in the Collateral shall be sent to such addresses as they
have furnished to Foothill;
-50-
(3) If the sale is to be a public sale, Foothill also shall
give notice of the time and place by publishing a notice one time at least five
(5) days before the date of the sale in a newspaper of general circulation in
the county in which the sale is to be held;
(m) Foothill may credit bid and purchase at any public sale;
(n) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower. Any excess
will be returned, without interest and subject to the rights of third Persons,
by Foothill to Borrower; and
(o) Borrower hereby acknowledges that the Obligations arose out
of a commercial transaction, and agrees that if an Event of Default shall occur
Foothill shall have the right to an immediate writ of possession without notice
of a hearing. Foothill shall have the right to the appointment of a receiver for
the Collateral, and Borrower hereby consents to such rights and such appointment
and hereby waives any objection Borrower may have thereto or the right to have a
bond or other security posted by Foothill in connection therewith.
9.2 Remedies Cumulative. Foothill's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Foothill shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of any
Event of Default shall be deemed a continuing waiver. No delay by Foothill
shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If 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, to the extent that Foothill
determines that such failure by Borrower could result in a Material Adverse
Change, in its discretion and without prior notice to Borrower,
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Foothill may do any or all of the following: (a) make payment of the same or any
part thereof; (b) set up such reserves in Borrower's Loan Account as Foothill
deems necessary to protect Foothill from the exposure created by such failure;
or (c) obtain and maintain insurance policies of the type described in Section
-------
6.10, and take any action with respect to such policies as Foothill deems
----
prudent. Any such amounts paid by Foothill shall constitute Foothill Expenses.
Any such payments made by Foothill shall not constitute an agreement by Foothill
to make similar payments in the future or a waiver by Foothill of any Event of
Default under this Agreement. Foothill 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. 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 accounts, documents, instruments, chattel paper, and guarantees at any time
held by Foothill on which Borrower may in any way be liable.
11.2 Foothill's Liability for Collateral. So long as Foothill uses
reasonable care in the custody and preservation of Collateral in its possession,
Foothill shall not in any way or manner be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other Person. All risk of loss, damage, or destruction of
the Collateral shall be borne by Borrower.
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
Foothill, and each of its officers, directors, employees, counsel, 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 in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this Agreement and any
other Loan Documents or the transactions contemplated herein, and with respect
to any investigation, litigation, or proceeding related to this Agreement, any
other Loan Document, or the use
-52-
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"). Borrower shall have no obligation to any Indemnified
Person under this Section 11.3 for consequential damages or 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.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by
any party 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 personally
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to Borrower or to
Foothill, as the case may be, at its address set forth below:
If to Borrower: CORTELCO PUERTO RICO, INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
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and, only in connection
------------------
with a notice under
-------------------
Section 8 or 9 hereof,
---------------------
with a copy to: Baker, Donelson, Bearman &
▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
Fax No. ▇▇▇-▇▇▇-▇▇▇▇
and ▇▇▇▇▇▇▇, ▇▇▇▇▇▇-▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇-▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
and Cortelco Systems Holding Corp.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
If to Foothill: FOOTHILL CAPITAL CORPORATION
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Business Finance Division Manager
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, III, Esq.
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other. All
notices or demands
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sent in accordance with this Section 12, shall be deemed received on the earlier
----------
of the date of actual receipt or three (3) days after the deposit thereof in the
mail.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER 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 COMMONWEALTH OF PUERTO
RICO. 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 THE COMMONWEALTH OF PUERTO RICO
OR IN THE COUNTY OF ▇▇▇▇▇▇, STATE OF GEORGIA OR, AT THE SOLE OPTION OF FOOTHILL,
IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE
PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN
CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, 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. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
----------
BORROWER AND FOOTHILL 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 OF BORROWER AND FOOTHILL REPRESENTS THAT IT 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.
-55-
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other papers delivered
to Foothill may be destroyed or otherwise disposed of by Foothill four (4)
months after they are delivered to or received by Foothill, unless Borrower
requests, in writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be binding and deemed
effective when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
-------- -------
duties hereunder without Foothill's prior written consent and any prohibited
assignment shall be absolutely void. No consent to an assignment by Foothill
shall release Borrower from its Obligations. Foothill may assign this Agreement
and its rights and duties hereunder to an Affiliate of Foothill or in connection
with a bulk sale of its portfolio of financial accommodations and no consent or
approval by Borrower is required in connection with any such assignment. No
other assignment (except as set forth in the next sentence) by Foothill shall be
permitted without the consent of Borrower, which consent shall not be
unreasonably withheld or delayed. Foothill reserves the right to sell syndicated
interests in and/or grant participations in all or any part of, or in any
interest in Foothill's rights and benefits hereunder. In connection with any
such assignment, sale of a syndicated interest or participation, Foothill may
disclose all documents and information which Foothill now or hereafter may have
relating to Borrower or Borrower's business. To the extent that Foothill
assigns its rights and obligations hereunder to a third Person, Foothill
thereafter shall be released from such assigned obligations to Borrower and such
assignment shall effect a novation between Borrower and such third Person.
15.3 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 this entire Agreement.
15.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Foothill or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been
-56-
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of all parties hereto.
15.5 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.
15.6 Amendments in Writing. This Agreement can only be amended by a
writing signed by both Foothill and Borrower.
15.7 Counterparts; Telefacsimile 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
telefacsimile 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 telefacsimile 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.
15.8 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Foothill of any property of
either or both of such parties 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, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if Foothill 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 Foothill is required or
elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of Foothill related thereto, the liability of Borrower or such
guarantor automatically shall be revived, reinstated, and restored and shall
exist as though such Voidable Transfer had never been made.
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15.9 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.
15.10 Time of the Essence. Time is of the essence of this Agreement.
[The Remainder of this Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed under seal in San ▇▇▇▇, Puerto Rico.
CORTELCO PUERTO RICO, INC.,
a corporation organized under the laws
of Puerto Rico
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------
Title: Vice President and General Manager
----------------------------------------- (SEAL)
FOOTHILL CAPITAL CORPORATION,
a California corporation, with an office in
Atlanta, Georgia
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Title: Vice President
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NAME
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STATE FOOTHILL OF AMOUNT
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FACILITY AND ZIP LIEN PRIOR OF PRIOR
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NAME ADDRESS CITY COUNTY CODE POSITION LIENOR LIEN
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