LOAN AND SECURITY AGREEMENT
by and between
EVANS & SUTHERLAND COMPUTER CORPORATION
and
FOOTHILL CAPITAL CORPORATION
Dated as of December 14, 2000
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION.............................................1
1.1 Definitions.......................................................1
1.2 Accounting Terms.................................................18
1.3 Code.............................................................18
1.4 Construction.....................................................18
1.5 Schedules and Exhibits...........................................19
2. LOAN AND TERMS OF PAYMENT...............................................19
2.1 Revolving Receivables Advances...................................19
2.2 Revolving Real Estate Advances...................................20
2.3 Letters of Credit................................................21
2.4 Overadvances.....................................................23
2.5 Interest and Letter of Credit Fees:
Rates, Payments, and Calculations................................23
2.6 Collection of Accounts...........................................26
2.7 Crediting Payments; Float Charge; Application of
Collections......................................................26
2.8 Designated Account...............................................27
2.9 Maintenance of Loan Account; Statements of Obligations...........27
2.10 Fees.............................................................27
3. CONDITIONS; TERM OF AGREEMENT...........................................28
3.1 Conditions Precedent to the Initial Advance and
the Initial Letter of Credit.....................................28
3.2 Conditions Precedent to all Advances and all
Letters of Credit................................................30
3.3 Condition Subsequent.............................................31
3.4 Term.............................................................31
3.5 Effect of Termination............................................31
3.6 Early Termination or Paydown by Borrower.........................32
3.7 Termination Upon Event of Default................................32
4. CREATION OF SECURITY INTEREST...........................................32
4.1 Grant of Security Interest.......................................32
4.2 Negotiable Collateral............................................33
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral............................................33
4.4 Delivery of Additional Documentation Required....................33
4.5 Power of Attorney................................................33
4.6 Right to Inspect.................................................34
4.7 Control Agreements...............................................34
5. REPRESENTATIONS AND WARRANTIES..........................................34
5.1 No Encumbrances..................................................35
5.2 Eligible Accounts................................................35
5.3 Location of Chief Executive Office; FEIN.........................35
5.4 Due Organization and Qualification; Subsidiaries.................35
5.5 Due Authorization; No Conflict...................................36
5.6 Litigation.......................................................37
5.7 No Material Adverse Change.......................................37
5.8 Solvency.........................................................37
5.9 Employee Benefits................................................37
5.10 Environmental Condition..........................................38
5.11 Compliance With The ADA..........................................38
5.12 Compliance with Laws.............................................38
5.13 Registration of Copyrights.......................................38
6. AFFIRMATIVE COVENANTS...................................................39
6.1 Accounting System................................................39
6.2 Collateral Reporting.............................................39
6.3 Financial Statements, Reports, Certificates......................39
6.4 Tax Returns......................................................41
6.5 Returns..........................................................41
6.6 Maintenance of Equipment.........................................41
6.7 Taxes............................................................42
6.8 Insurance........................................................42
6.9 No Setoffs or Counterclaims......................................44
6.10 Compliance with Laws.............................................44
6.11 Leases...........................................................44
6.12 Environmental Condition..........................................44
6.13 Compliance With The ADA..........................................46
6.14 Location of Inventory and Equipment..............................46
6.15 Disclosure Updates...............................................46
6.16 Title to Equipment...............................................46
6.17 Registration of Copyrights.......................................47
7. NEGATIVE COVENANTS......................................................47
7.1 Indebtedness.....................................................47
7.2 Liens............................................................48
7.3 Restrictions on Fundamental Changes..............................48
7.4 Disposal of Assets...............................................48
7.5 Change Name......................................................48
7.6 Nature of Business...............................................48
7.7 Prepayments and Amendments.......................................49
7.8 Change of Control................................................49
7.9 Distributions....................................................49
7.10 Accounting Methods...............................................49
7.11 Investments......................................................49
7.12 Transactions with Affiliates.....................................50
7.13 Suspension.......................................................50
7.14 Compensation.....................................................50
7.15 Use of Proceeds..................................................50
7.16 Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees.............................50
7.17 Financial Covenants..............................................50
7.18 Capital Expenditures.............................................51
7.19 Securities Accounts..............................................51
8. EVENTS OF DEFAULT.......................................................51
9. FOOTHILL'S RIGHTS AND REMEDIES..........................................53
9.1 Rights and Remedies.............................................53
9.2 Remedies Cumulative.............................................55
9.3 Foreclosure Not A Discharge.....................................55
10. TAXES AND EXPENSES REGARDING THE COLLATERAL............................ 56
11. WAIVERS; INDEMNIFICATION............................................... 56
11.1 Demand; Protest; etc.............................................56
11.2 Foothill's Liability for Collateral..............................56
11.3 Indemnification..................................................57
12. NOTICES.................................................................57
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER..............................58
14. DESTRUCTION OF BORROWER'S DOCUMENTS.....................................59
15. GENERAL PROVISIONS......................................................59
15.1 Effectiveness....................................................59
15.2 Successors and Assigns...........................................59
15.3 Section Headings.................................................59
15.4 Interpretation...................................................60
15.5 Severability of Provisions.......................................60
15.6 Amendments in Writing............................................60
15.7 Counterparts; Telefacsimile Execution............................60
15.8 Revival and Reinstatement of Obligations.........................60
15.9 Lending Relationship.............................................61
15.10 Integration......................................................61
SCHEDULES
Schedule P-1 Permitted Liens
Schedule R-1 Real Property
Schedule 5.4 Subsidiaries
Schedule 5.6 Litigation
Schedule 5.9 ERISA Plans
Schedule 6.14 Location of Inventory and Equipment
Exhibit C-1 Form of Compliance Certificate
Exhibit C-2 Form of Compliance Certificate
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into as of
December 14, 2000, between FOOTHILL CAPITAL CORPORATION, a California
corporation ("Foothill"), with a place of business located at 2450 Colorado
Avenue, Suite 3000 West, Santa Monica, California 90404 and EVANS & SUTHERLAND
COMPUTER CORPORATION, a Utah corporation ("Borrower"), with its chief executive
office located at 600 Komas Drive, Salt Lake City, Utah 84108.
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.
"Act" means all present and future laws, regulations, statutes,
common law, rules, ordinances, zoning requirements, codes, licenses,
permits, orders, approvals, plans, authorizations, concessions,
franchises, and similar items of any federal, state, or local
government, instrumentality, or body, as the same may be amended,
modified, or supplemented from time to time, or any applicable treaty
entered into with foreign governments, as the same may be amended,
modified, or supplemented from time to time.
"ADA" means the Americans with Disabilities Act, 42
U.S.C.ss.ss.12101, et. seq., and all applicable rules and regulations
promulgated thereunder.
"Advances" means Receivables Advances and Real Estate Advances.
"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 5% 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.
"Amortizing Base Amount" means the sum of Twenty-Two Million
Dollars ($22,000,000) minus: (i) for the first full seventeen calendar
months of this Agreement, the sum of Two hundred Twenty-Nine Thousand,
One Hundred Sixty-Six Dollars and Sixty-Seven Cents ($229,166.67) for
each and every partial or full month; and (ii) for each and every
month thereafter during the term of this Agreement, the previous
month's amount is reduced by the sum of Three Hundred Sixty-Six
Thousand Six Hundred Sixty-Six Dollars and Sixty-Seven Cents
($366,666.67); and (iii) reduced further by each RP Release Price,
upon receipt by Foothill of each such amount.
"Assignment of Claims" means those certain assignment of claims
forms to be filed with various government entities, the quantity, form
and substance of which shall be acceptable to Foothill in the exercise
of its Permitted Discretion.
"Assignment of Sub-Leases" means an Absolute Assignment of
Sub-Leases and Rents executed by Borrower in favor of Foothill, the
form and substance of which shall be satisfactory to Foothill in its
sole and absolute discretion, with respect to the Real Property
Collateral, which assigns the leases and rents derived therefrom, and
the related improvements thereto.
"Authorized Person" means any officer or other employee of
Borrower.
"Average Undrawn Portion of Letters of Credit" means, as of any
date of determination, the average undrawn Daily Balance of all
Letters of Credit that were outstanding during the immediately
preceding month, except that with respect to such definition when used
in the context of the unused line fee set forth in Section 2.10(b),
the computation shall be computed on all Letters of Credit that were
outstanding during the immediately preceding fiscal quarter.
"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.
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"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
relating or pertaining thereto.
"Business Day" means any day that is not a Saturday, Sunday, or a
day on which banks in Los Angeles, California, are required or
permitted to be closed.
"Change of Control" shall be deemed to have occurred at such time
as a "person" or "group" (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
thirty-three percent (33%) of the total voting power of all classes of
stock then outstanding of Borrower entitled to vote in the election of
directors.
"Closing Date" means the date of the first to occur of the making
of the initial Advance or the issuance of the initial Letter of
Credit.
"Code" means the California Uniform Commercial Code.
"Collateral" means 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,
(g) the Negotiable Collateral,
(h) the Real Property Collateral,
(i) any money, or other assets of Borrower that now or hereafter
come into the possession, custody, or control of Foothill, and
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(j) 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, Real Property, 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.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of
cash sales, rental proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in the
form of Exhibits C-1 or C-2, as applicable, delivered by the chief
financial officer or Vice President/Treasurer of Borrower to Foothill.
"Consent to Hypothecation of Lease" means a consent executed by
the lessor of the Real Property Collateral (i) consenting to the
granting and recordation of the Mortgages, and (ii) waiving Lien
rights or interests in, if any, the Equipment or Inventory, in form
and substance satisfactory to Foothill.
"Control Agreements" means one or more control agreements, if
established pursuant to Section 4.7, in form and substance
satisfactory to Lender, executed and delivered by Borrower, Lender,
and the applicable securities intermediary with respect to a
Securities Account or bank with respect to a deposit account.
"Daily Balance" means with respect to each day during the term of
this Agreement the amount of the relevant Obligation owed at the end
of such day.
"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 02-12295-0 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 Zions First National Bank, N.A.,
whose office is located at 1 South Main Street, Salt Lake City, Utah
84111, and whose ABA number is 124000054.
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"Dilution" means, as of any date of determination, a percentage,
based upon the experience of the immediately prior ninety (90) days,
that is the result of dividing the Dollar amount of (a) bad debt
write-downs, discounts, advertising allowances, credits, or other
dilutive items with respect to the Accounts during such period, by (b)
Borrower's Collections with respect to Accounts during such period
(excluding extraordinary items) plus the Dollar amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an
amount sufficient to reduce the advance rate against Eligible Accounts
by one percentage point for each percentage point by which Dilution is
in excess of fifteen percent (15%).
"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 those Accounts created by Borrower in
the ordinary course of its business, that arise out of Borrower's sale
of goods or rendition of services, that comply in all material
respects with each of the representations and warranties respecting
Eligible Accounts made by Borrower in the Loan Documents, and that are
not excluded as ineligible by virtue of one or more of the criteria
set forth below; provided, however, that such criteria may be fixed
and revised from time to time by Foothill in Foothill's Permitted
Discretion to address the results of any audit of Borrower's Accounts
performed by Foothill from time to time after the Closing Date. In
determining the amount to be included, Eligible Accounts shall be
calculated net of customer deposits and unapplied cash remitted to
Borrower. Eligible Accounts shall not include the following:
(a) Accounts that the Account Debtor has failed to pay within
sixty (60) days of due date or Accounts with selling terms of more
than sixty (60) days,
(b) Accounts owed by an Account Debtor (or its Affiliates) where
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 arising in a transaction wherein goods are placed on
consignment or are sold pursuant to a guaranteed sale, a sale or
return, a sale on approval, a bill and hold, or any other terms by
reason of which the payment by the Account Debtor may be conditional,
5
(e) Accounts that are not payable in Dollars,
(f) Accounts, other than Eligible Foreign Accounts, with respect
to which the Account Debtor either (i) does not maintain its chief
executive office in the United States, or (ii) is not organized under
the laws of the United States or any state thereof, or (iii) is the
government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of
any department, agency, public corporation, or other instrumentality
thereof, unless (y) the Account is supported by an irrevocable letter
of credit satisfactory to 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, substance, and amount, and by an insurer,
satisfactory to Foothill,
(g) Accounts in excess of Two Hundred Fifty Thousand Dollars
($250,000) 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 reasonable satisfaction of Foothill,
with the Assignment of Claims Act, 31 USC ss. 3727), or (ii) any state
of the United States (exclusive, however, of (y) Accounts owed by any
state that does not have a statutory counterpart to the Assignment of
Claims Act, or (z) Accounts owed by any state that does have a
statutory counterpart to the Assignment of Claims Act as to which
Borrower has complied to Foothill's satisfaction),
(h) 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, or has made any claim with respect to its
obligation to pay the Account, to the extent of such claim, right of
setoff, or dispute,
(i) Accounts with respect to an Account Debtor whose total
obligations owing to Borrower exceed either the dollar or percentage
limitations of all Eligible Accounts set forth below, to the extent of
the obligations owing by such Account Debtor in excess of such dollar
limitation or percentage:
(q) The Boeing Company, thirty-three percent (33%),
(r) J. F. Taylor, Inc., fifteen percent (15%),
(s) United States Air Force-DOD, twenty-five percent (25%),
(t) United States Navy-DOD, twenty-five percent (25%),
6
(u) Lockheed Martin, twenty-five percent (25%),
(v) CAE Electronics, Ltd., twenty-five percent (25%),
(w) Thomson Training & Simulation, twenty-five percent
(25%),
(x) STN Atlas Elektronik, GMBH, thirty-three percent (33%),
(y) Eligible Foreign Accounts, in the aggregate, in excess
of three million dollars ($3,000,000), and
(z) all other Account Debtors not listed immediately above
in subsections(i)(q-y), ten percent (10%):
provided, however, that at no time can the Eligible Accounts
of the largest three account debtors listed in subsections
(i)(q-y) above in the aggregate exceed forty percent (40%) of all
Eligible Accounts, and
provided, further, that Foothill can lower the percentages
set forth in subsection (i)(q-x) above if in the exercise of its
Permitted Discretion it believes there has been a change in the
creditworthiness of such Account Debtor(s),
(j) Accounts with respect to which the Account Debtor is subject
to an Insolvency Proceeding, is not Solvent, has gone out of business,
or as to which Borrower has received notice of an imminent Insolvency
Proceeding or a material impairment of the financial condition of such
Account Debtor,
(k) Accounts with respect to which the Account Debtor is located
in the states of New Jersey, Minnesota, or West Virginia (or any other
state that requires a creditor to file a business activity report or
similar document in order to bring suit or otherwise enforce its
remedies against such Account Debtor in the courts or through any
judicial process of such state), unless Borrower has qualified to do
business in New Jersey, Minnesota, West Virginia, or such other
states, or has filed a business activities report with the applicable
division of taxation, the department of revenue, or with such other
state offices, as appropriate, for the then-current year, or is exempt
from such filing requirement,
(l) Accounts, the collection of which, Foothill, in its Permitted
Discretion, believes to be doubtful by reason of the Account Debtor's
financial condition,
7
(m) Accounts that are not subject to a valid and perfected first
priority Foothill Lien, or
(n) accounts generated from key software components or other key
copyrightable works for which there is no copyright registration
pending or obtained, or once obtained, in which Foothill has not
perfected its security interest.
"Eligible Foreign Accounts" means those Accounts created by
Borrower in the ordinary course of its business, that: (i) arise out
of Borrower's sale of goods or rendition of services to each and any
of CAE Electronics, Ltd., STN Atlas Elektronik, GMBH, and/or Thomson
Training & Simulation, (ii) that comply in all material respects with
each of the representations and warranties respecting Eligible
Accounts made by Borrower in the Loan Documents, (iii) with respect to
STN Atlas Elektronik, GMBH, the Borrower has qualified to do business
and is in good standing in Germany, (iv) with respect to Thomson
Training & Simulation, the Borrower has qualified to do business and
is in good standing in France, (v) with respect to CAE Electronics,
Ltd. if legally required in order to take legal action against such
Account Debtor, that Borrower remains qualified to do business and
remains in good standing in Canada, and (vi)that are not excluded as
ineligible by virtue of one or more of the criteria set forth in the
definition of Eligible Accounts; provided, however, that such criteria
may be fixed and revised from time to time by Foothill in Foothill's
Permitted Discretion to address the results of any audit of Borrower's
Accounts performed by Foothill from time to time after the Closing
Date, or upon Foothill's review of the credit worthiness of each such
foreign Account Debtor. In determining the amount to be included,
Eligible Accounts shall be calculated net of customer deposits and
unapplied cash remitted to Borrower. At no time can Eligible Foreign
Accounts exceed Three Million Dollars ($3,000,000).
"Equipment" means all of Borrower's present and hereafter
acquired machinery, machine tools, motors, equipment,
furniture, furnishings, fixtures, vehicles (including motor vehicles
and trailers), tools, parts, goods (other than consumer goods, farm
products, or Inventory), wherever located, including, (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, as amended, and any successor statute thereto.
"ERISA Affiliate" means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the
employees of Borrower under IRC Section 414(b), (b) any trade or
business subject to ERISA whose employees are treated as employed by
8
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 Person 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.
"Existing Lenders" mean Wells Fargo and Zions First National
Bank, N.A.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Expenses" means all: 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;
actual 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), actual filing, recording, publication, appraisal (including
9
periodic Personal Property Collateral or Real Property Collateral
appraisals), real estate surveys, real estate title policies and
endorsements, and environmental audits; costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the
dishonor of Borrower's checks; actual 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 Personal Property Collateral or the Real
Property Collateral, or any portion thereof, irrespective of whether a
sale is consummated; actual 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, if any; and Foothill's
reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending,
terminating, enforcing, defending, or concerning the Loan Documents
(including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning
Borrower or any guarantor, if any, of the Obligations), 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 contract
rights, rights arising under common law, statutes, or regulations,
choses or things in action, goodwill, trade names, trademarks,
servicemarks, patents, copyrights, blueprints, drawings, purchase
orders, customer lists, monies due or recoverable from pension funds,
route lists, rights to payment and other rights under any royalty or
licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds,
and tax refund claims), and including all IP Collateral, 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.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any
entity exercising executive, legislative,
judicial, economic, regulatory or administrative functions of or
pertaining to government.
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"Hazardous Materials" means:
(i) those substances as defined as "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" in
the Comprehensive Environmental Response, Compensation and
Liability Act, Resource Conservation and Recovery Act, 42 U.S.C.
ss.ss.6901 et seq. ("RCRA"), or the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.;
(ii) those substances designated as a "hazardous substance"
under or pursuant to the Federal Water Pollution Control Act, 33
U.S.C.ss.ss.1257 et seq., or defined as a "hazardous waste" under
or pursuant to RCRA;
(iii) those substances listed in the United States
Department of Transportation Table (40 CFR 172.101 and amendments
thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 CFR Part 302 and
amendments thereto); and
(iv) such other substances, materials and wastes which are
regulated under any Act, or which are classified as hazardous or
toxic under any applicable Act.
All of the statutes, acts, codes, sections and tables listed
above shall include all amendments, modifications and supplements
thereto, together with all regulations promulgated pursuant to
such statutes, acts, codes, sections and tables.
"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.
"Indemnified Liabilities" has the meaning set forth in Section
11.3.
"Indemnified Persons" means Foothill and its parents,
subsidiaries and affiliates, attorneys, and each of their officers,
directors, agents, employees, trustees, receivers, executors, and
administrators, and the heirs, successors, and assigns of all of the
foregoing.
11
"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.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be
treated as intangibles under GAAP.
"Intellectual Property Security Agreement" means that certain
Intellectual Property Security Agreement of even date herewith.
"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 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.
"Investment Property" has the meaning set forth in Section 9115
of the Code.
"IP Collateral" means the items defined as "Collateral" in
Section 1.1 of the Intellectual Property Security Agreement.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"L/C" has the meaning set forth in Section 2.3(a).
"L/C Guaranty" has the meaning set forth in Section 2.3(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"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 2.9.
"Loan Documents" means this Agreement, the Assignment of Claims,
Assignment of Sub-Leases, the Consent to Hypothecation of Lease, the
Disbursement Letter, the Intellectual Property Security Agreement, the
Lockbox Agreements, the Mortgages, the Stock Pledge Agreement, the
Tenancy Statements, any note or notes executed by Borrower and payable
12
to Foothill, and any other agreement entered into, now or in the
future, in connection with this Agreement.
"Lockbox Account" shall mean a depositary account established
pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain 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 Wells Fargo Bank, N.A., or such other banks
as may be agreed to by Foothill and Borrower from time to time.
"Lockboxes" has the meaning set forth in Section 2.6.
"Losses" shall mean any and all losses, liabilities, contingent
liabilities, damages, obligations, claims, contingent claims, actions,
suits, proceedings, disbursements, penalties, costs, and expenses
(including, without limitation, actual attorneys' fees and costs of
counsel retained by Foothill to monitor the proceedings and actions of
Borrower in satisfying its obligations hereunder, and to advise and
represent Foothill with respect to matters related hereto, including,
without limitation, fees incurred pursuant to 11 U.S.C.) and all other
professional or consultants' fees and expenses), whether or not an
action or proceeding is commenced or threatened.
"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
13
Collateral, or (d) a material impairment of the priority of Foothill's
Liens with respect to the Collateral.
"Maximum Amount" means, as of any date of determination, Thirty
Million Dollars ($30,000,000).
"Maximum Letters of Credit Amount" means Thirty Million Dollars
($30,000,000).
"Maximum Revolving Amount" means Twelve Million Dollars
($12,000,000).
"Mortgages" means three or more Leasehold Deeds of Trust,
Assignments of Rents, Security Agreements and Fixture Filings executed
by Borrower in favor of the trustee named therein for the benefit of
Foothill, the form and substance of which shall be satisfactory to
Foothill, that encumbers the Real Property Collateral and the related
improvements thereto.
"Mortgage Policy" has the meaning set forth in Section 3.1(l).
"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, securities, the UK Stock, documents, personal property
leases (wherein Borrower is the lessor), and chattel paper.
"Obligations" means all loans, Advances, debts, principal,
interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), contingent reimbursement
obligations under any outstanding Letters of Credit, 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
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.
14
"Overadvance" has the meaning set forth in Section 2.4.
"Participant" means any Person to which Foothill has sold a
participation interest in its rights under the Loan Documents.
"Pay-Off Letter" means a letter, in form and substance reasonably
satisfactory to Foothill, from Existing Lenders respecting the amount
necessary to repay in full all of the obligations of Borrower owing to
Existing Lenders and obtain a termination or release of all of the
Liens existing in favor of Existing Lenders 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 Discretion" means a determination made in good faith
and in the exercise of reasonable (from the perspective of a secured
asset-based lender) business judgment.
"Permitted 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 security interests and Liens of lessors under capital leases, 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 from
deposits made in connection with obtaining worker's compensation or
other unemployment insurance, (f) Liens or deposits to secure
performance of bids, tenders, or leases (to the extent permitted under
this Agreement), incurred in the ordinary course of business of
Borrower and not in connection with the borrowing of money, (g) Liens
arising by reason of security for surety or appeal bonds in the
ordinary course of business of Borrower, (h) Liens of or resulting
from any judgment or award that would not cause 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, (i) Liens with
respect to the Real Property Collateral that are exceptions to the
commitments for title insurance issued in connection with the
Mortgages, as accepted by Foothill, and (j) with respect to any Real
Property that is not part of the Real Property Collateral, if any,
easements, rights of way, zoning and similar covenants and
restrictions, items of record, 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
15
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 in the exercise of its
Permitted Discretion 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.
"Personal Property Collateral" means all Collateral other than
the Real Property Collateral.
"Plans" means any employee benefit plan, program, or arrangement
maintained or contributed to by Borrower or with respect to which it
may incur liability.
"Real Estate Advances" has the meaning set forth in Section
2.2(a).
"Real Estate Borrowing Base" has the meaning set forth in Section
2.2(a).
"Real Property" means any estates or interests in real property
now owned or hereafter acquired by Borrower.
"Real Property Collateral" means all of Borrower's right, title
and interest in and to the parcel or parcels of real property and the
related improvements thereto identified on Schedule R-1, and any Real
Property hereafter acquired by Borrower.
"Receivables Advances" has the meaning set forth in Section
2.1(a).
"Receivables Advances Borrowing Base" has the meaning set forth
in Section 2.1(a).
"Reference Rate" means the rate of interest announced within
Wells Fargo at its principal office in San Francisco as its "prime
rate", with the understanding that the "prime rate" is one of Wells
Fargo's base rates (not necessarily the lowest of such rates) and
16
serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto and is evidenced
by the recording thereof after its announcement in such internal
publication or publications as Wells Fargo may designate, and any
successor rate established by Wells Fargo as an equivalent rate.
"Remediate" and "Remediation" shall include, but not be limited
to, the investigation of the environmental condition of the Real
Property, the preparation of any feasibility studies, reports or
remedial plans, and the performance of any cleanup, abatement,
removal, remediation, containment, operation, maintenance, monitoring
or restoration work, whether on or off of the Real Property.
"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 30 days notice to the PBGC is
waived under applicable regulations.
"RP Release Price" has the meaning set forth in Section 7.4.
"Securities Account" means a "securities account" as that term is
defined in the Code.
"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 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, other liabilities,
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 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.
"Stock Pledge Agreement" means that certain Pledge and Security
Agreement dated of even date herewith whereby Borrower pledges
17
Sixty-Six and Two-Thirds percent (66 2/3%) of the issued and
outstanding shares of the UK Stock.
"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.
"Tangible Net Worth" means, as of any date of determination, the
difference of (a) Borrower's total stockholder's equity, minus (b) the
sum of: (i) all Intangible Assets of Borrower, (ii) all of Borrower's
prepaid expenses, and (iii) all amounts due to Borrower from
Affiliates.
"Tenancy Statements" means those certain Tenancy Statements
executed by each of Borrower's sub-lessees of a portion or portions of
the Real Property Collateral, the form and substance of which is
acceptable to Foothill in its sole and absolute discretion.
"UK Stock" means the stock of Evans & Sutherland Computer LTD., a
United Kingdom corporation.
"Voidable Transfer" has the meaning set forth in Section 15.8.
"Wells Fargo" means Wells Fargo Bank, National Association, a
national banking association, and any successor thereto.
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 Code. Any terms used in this Agreement that are defined in the
Code shall be construed and defined as set forth in the Code unless
otherwise defined herein.
1.4 Construction. Unless the context of this Agreement 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
18
Agreement. 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.
1.5 Schedules and Exhibits. All of the schedules and exhibits attached
to this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Receivables Advances.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Receivables Advances") to Borrower
in an amount outstanding not to exceed at any one time the lesser of
(i) the Receivables Borrowing Base; (ii) the Maximum Revolving Amount
minus the Average Undrawn Portion of Letters of Credit not otherwise
subtracted pursuant to Section 2.2 (a)(y), or (iii) the Maximum Amount
minus the sum of the Average Undrawn Portion of Letters of Credit
Amount and the outstanding Real Estate Advances.
(b) For purposes of this Agreement, "Receivables Advances
Borrowing Base", as of any date of determination, shall mean the
result of:
(x) the lesser of (i) seventy-five percent (75%) of the
value of Eligible Accounts, less the amount, if any, of the
Dilution Reserve, and (ii) an amount equal to twenty-five percent
(25%) of Borrower's Collections with respect to Accounts for the
immediately preceding ninety (90) day period, minus
(y) the Average Undrawn Portion of Letters of Credit
(without duplication of such amounts if subtracted pursuant to
Section 2.2(a), minus
(z) the aggregate amount of reserves, if any, established by
Foothill under Sections 2.1(b), 6.11 and 10.
(c) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may create reserves against the Receivables
Advance availability in such amounts as Foothill in its Permitted
Discretion shall deem necessary or appropriate, without declaring an
Event of Default, including reserves on account of (i) sums that
Borrower is required to pay (such as taxes, assessments, insurance
premiums, or, in the case of leased assets, rents or other amounts
19
payable under such leases) and has failed to pay under any section of
this Agreement or any other Loan Document and (ii) without duplication
of the foregoing, amounts owing by Borrower to any Person to the
extent secured by a Lien on, or trust over, any of the Collateral,
which Lien or trust, in the determination of Foothill in the exercise
of its Permitted Discretion would be likely to have a priority
superior to the Liens of Foothill (such as landlord liens, ad valorem
taxes, or sales taxes where given priority under applicable law) in
and to such item of the Collateral, other than a Permitted Lien.
(d) Foothill shall have no obligation to make Advances hereunder
to the extent they would cause the outstanding Obligations to exceed
the Maximum Amount.
(e) 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 Revolving Real Estate Advances.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Real Estate Advances") to Borrower
in an amount outstanding not to exceed at any one time the Real Estate
Borrowing Base. For purposes of this Agreement, "Real Estate Borrowing
Base", as of any date of determination, shall mean the result of:
(x) the Amortizing Base Amount, minus
(y) the Average Undrawn Portion of Letters of Credit
(without duplication of such amounts if subtracted pursuant to
Section 2.1(a), minus
(z) the aggregate amount of reserves, if any, established by
Foothill under Sections 2.2(b), 6.11 and 10.
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may create reserves against the Real Estate
Advance availability (but without duplication of the reserves
established pursuant to Section 2.1(b)) in such amounts as Foothill in
its Permitted Discretion shall deem necessary or appropriate, without
declaring an Event of Default, including reserves on account of (i)
sums that Borrower is required to pay (such as taxes, assessments,
insurance premiums, or, in the case of leased assets, rents or other
amounts payable under such leases) and has failed to pay under any
section of this Agreement or any other Loan Document and (ii) without
duplication of the foregoing, amounts owing by Borrower to any Person
to the extent secured by a Lien on, or trust over, any of the
Collateral, which Lien or trust, in the determination of Foothill in
the exercise of its Permitted Discretion would be likely to have a
20
priority superior to the Liens of Foothill (such as landlord liens, ad
valorem taxes, or sales taxes where given priority under applicable
law) in and to such item of the Collateral.
(c) Foothill shall have no obligation to make Advances hereunder
to the extent they would cause the outstanding Obligations to exceed
the Maximum Amount.
(d) Amounts borrowed pursuant to this Section 2.2 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
2.3 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue letters of credit for the account of Borrower
(each, an "L/C") or to issue guarantees or confirmations of payment
(each such guaranty or confirmation, an "L/C Guaranty") with respect
to letters of credit issued by an issuing bank for the account of
Borrower. Foothill shall have no obligation to issue a Letter of
Credit if the aggregate amount of all undrawn or unreimbursed Letters
of Credit would exceed either the Maximum Amount or the Maximum
Letters of Credit Amount.
Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters
of credit that are to be the subject of L/C Guarantees. Borrower and
Foothill acknowledge and agree that certain of the letters of credit
that are to be the subject of L/C Guarantees may be outstanding on the
Closing Date. All such Letters of Credit shall be in form and
substance acceptable to Foothill in its sole discretion. If Foothill
is obligated to advance funds under a Letter of Credit, Borrower
immediately shall reimburse such amount to Foothill and, in the
absence of such reimbursement, the amount so advanced immediately and
automatically shall be deemed to be an Advance hereunder and,
thereafter, shall bear interest at the rate then applicable to
Advances under Section 2.4.
(b) Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless from any loss, cost, expense, or liability,
including payments made by Foothill, expenses, and reasonable
attorneys fees incurred by Foothill arising out of or in connection
with any Letter of Credit, unless the same shall have been occasioned
by the gross negligence or willful misconduct of Foothill. Borrower
agrees to be bound by the issuing bank's regulations and
interpretations of any letters of credit guarantied or confirmed by
Foothill and opened to or for Borrower's account or by Foothill's
interpretations of any Letter of Credit issued by Foothill to or for
Borrower's account, even though this interpretation may be different
from Borrower's own, and Borrower understands and agrees that Foothill
shall not be liable for any error, negligence, or mistake, whether of
21
omission or commission, in following Borrower's instructions or those
contained in the Letter of Credit or any modifications, amendments, or
supplements thereto, unless the same shall have been occasioned by the
gross negligence or willful misconduct of Foothill. Borrower
understands that the L/C Guarantees may require Foothill to indemnify
the issuing bank for certain costs or liabilities arising out of
claims by Borrower against such issuing bank. Borrower hereby agrees
to indemnify, save, defend, and hold Foothill harmless with respect to
any loss, cost, expense (including reasonable attorneys' fees), or
liability incurred by Foothill under any L/C Guaranty as a result of
Foothill's indemnification of any such issuing bank.
(c) Borrower hereby authorizes and directs any bank that issues a
letter of credit guaranteed by Foothill to deliver to Foothill all
instruments, documents, and other writings and property received by
the issuing bank pursuant to such letter of credit, and to accept and
rely upon Foothill's instructions and agreements with respect to all
matters arising in connection with such letter of credit and the
related application. Borrower may or may not be the "applicant" or
"account party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred by
Foothill relating to the letters of credit guaranteed by Foothill,
including, but not limited to bank issuance charges as the same may be
charged from time to time, currently being charged at the rate of
point seven percent (.7%) of the stated amount of such Letter of
Credit, shall be considered Foothill Expenses for purposes of this
Agreement and immediately shall be reimbursable by Borrower to
Foothill.
(e) Immediately upon the termination of this Agreement, Borrower
agrees to either (i) provide cash collateral to be held by Foothill in
an amount equal to 105% of the undrawn amount of such outstanding
Letters of Credit, (ii) cause to be delivered to Foothill releases of
all of Foothill's obligations under outstanding Letters of Credit, or
(iii) cause to be delivered in favor of Foothill letters of credit, in
form and substance satisfactory to Foothill and issued by financial
institutions, the identity of which is acceptable to Foothill,
sufficient in an amount equal to 105% of the maximum amount of
Foothill's obligations under outstanding Letters of Credit. At
Foothill's discretion, any proceeds of Collateral received by Foothill
after the occurrence and during the continuation of an Event of
Default may be held as the cash collateral required by this Section
2.2(e).
(f) If by reason of (i) any change in any applicable Act or any
change in the interpretation or application by any Governmental
Authority of any such Act, or (ii) compliance by the issuing bank or
Foothill with any direction, request, or requirement (irrespective of
22
whether having the force of law) of any Governmental Authority,
including, without limitation, Regulation D of the Board of Governors
of the Federal Reserve System as from time to time in effect (and any
successor thereto):
(A) any reserve, deposit, or similar requirement is or shall
be imposed or modified in respect of any Letters of Credit issued
hereunder, or
(B) there shall be imposed on the issuing bank or Foothill
any other condition regarding any letter of credit, or Letter of
Credit, as applicable, issued pursuant hereto;
and the result of the foregoing is to increase, directly or
indirectly, the cost to the issuing bank or Foothill of issuing,
making, guaranteeing, or maintaining any letter of credit, or Letter
of Credit, as applicable, or to reduce the amount receivable in
respect thereof by such issuing bank or Foothill, then, and in any
such case, Foothill may, at any time within a reasonable period after
the additional cost is incurred or the amount received is reduced,
notify Borrower, and Borrower shall pay on demand such amounts as the
issuing bank or Foothill may specify to be necessary to compensate the
issuing bank or Foothill for such additional cost or reduced receipt,
together with interest on such amount from the date of such demand
until payment in full thereof at the rate set forth in Section 2.5(a)
or (c), as applicable. The determination by the issuing bank or
Foothill, as the case may be, of any amount due pursuant to this
Section 2.3(f), as set forth in a certificate setting forth the
calculation thereof in reasonable detail, shall, in the absence of
manifest or demonstrable error, be final and conclusive and binding on
all of the parties hereto.
2.4 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Foothill pursuant to Sections 2.1 and 2.2
is greater than either the Dollar or percentage limitations set forth in
Sections 2.1 or 2.2 (an "Overadvance"), Borrower immediately shall pay to
Foothill, in cash, the amount of such excess to be used by Foothill first,
to repay Advances outstanding under Section 2.1 and, thereafter during such
period of Overadvance, to be held by Foothill as cash collateral to secure
Borrower's obligation to repay Foothill for all amounts paid pursuant to
Letters of Credit, and thereafter deposited into the Designated Account
when such period of Overadvance ends.
2.5 Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.
(a) Interest Rate. Except as provided in clause (c) below, all
Obligations as reflected in the Loan Account (except for undrawn
Letters of Credit) shall bear interest at the per annum rate set forth
below:
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(i) if the sum of outstanding Advances, outstanding Letters
of Credit and L/C Guarantees, is less than Fifteen Million
Dollars ($15,000,000), one and one-half (1 1/2) percentage points
above the Reference Rate;
(ii) if the sum of outstanding Advances, outstanding Letters
of Credit, and L/C Guarantees, is greater than or equal to
Fifteen Million Dollars ($15,000,000), and equal to or less than
Twenty-Two Million Dollars ($22,000,000), two (2) percentage
points above the Reference Rate;
(iii) if the sum of outstanding Advances, outstanding
Letters of Credit, and L/C Guarantees, exceeds Twenty-Two Million
Dollars ($22,000,000), three (3) percentage points above the
Reference Rate.
(b) Letter of Credit Fee. Borrower shall pay Foothill a fee,
payable monthly, (in addition to the charges, commissions, fees, and
costs set forth in Section 2.2(d)) equal to the amount set forth
below:
(i) if the sum of outstanding Advances, outstanding Letters
of Credit, and L/C Guarantees, is less than Fifteen Million
Dollars ($15,000,000), two (2) percent per annum times the daily
balance of outstanding Letters of Credit;
(ii) if the sum of outstanding Advances, outstanding Letters
of Credit, and L/C Guarantees, is between Fifteen Million Dollars
($15,000,000) and Twenty-Two Million Dollars ($22,000,000), two
and one-quarter (2 1/4) percent per annum times the daily balance
of outstanding Letters of Credit;
(iii) if the sum of outstanding Advances, outstanding
Letters of Credit, and L/C Guarantees, exceeds Twenty-Two Million
Dollars ($22,000,000), three and one-half (3 1/2) percent per
annum times the daily balance of outstanding Letters of Credit.
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Such Letter of Credit fees shall continue to be owing and paid so long as
any Letters of Credit remain outstanding (even after the termination or
expiration of this Agreement), and even if Borrower cannot request the
issuance of any additional Letters of Credit.
(c) Default Rate. Upon the occurrence and during the continuation
of an Event of Default, (i) all Obligations (except for undrawn
Letters of Credit) shall bear interest on the Daily Balance at a per
annum rate equal to three (3)percentage points above the otherwise
applicable rate, and (ii) the Letter of Credit fee provided in Section
2.4(b) shall be increased by three (3) percentage points above the fee
otherwise payable.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than eight and three-quarters
percent (8 3/4%) per annum. To the extent that interest accrued
hereunder at the rate set forth herein would be less than the
foregoing minimum daily rate, the interest rate chargeable hereunder
for such day automatically shall be deemed increased to the minimum
rate.
(e) Payments. Interest and Letter of Credit fees 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 and Letter of Credit fees, all Foothill Expenses (as and
when incurred), the charges, commissions, fees, and costs provided for
in Section 2.3(d) (as and when accrued or incurred), the fees and
charges provided for in Section 2.10 (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 nine and one half percent (9 1/2%) 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
25
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.
2.6 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
in respect thereof to such Lockboxes. Borrower, Foothill, and the 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. If there are no outstanding Receivables
Advances, and the Collections received in the Lockbox Account were from
sources other than RP Release Price(s), such amounts shall thereafter
forthwith be deposited in the Designated Account.
2.7 Crediting Payments; Float Charge; 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 (c), 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, 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
26
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 11:00 a.m. California time. If any Collection
item is received into the Foothill Account on a non-Business Day or after
11:00 a.m. California 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.
2.8 Designated Account. Foothill is authorized to make the Advances
and the Letters of Credit 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 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.
2.9 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.
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 or any other charges
owing, and such statements shall be conclusively presumed to be correct and
accurate and constitute an account stated between Borrower and Foothill
unless, within 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.
2.10 Fees. Borrower shall pay to Foothill the following fees:
27
(a) Closing Fee. On the Closing Date, a closing fee of Three
Hundred Thousand Dollars ($300,000);
(b) Unused Line Fee. On the first day of each calendar quarter
during the term of this Agreement, an unused line fee, payable in
arrears, in an amount equal to three-eights of one percent (.375%) per
annum times the Maximum Amount minus (i) the Average Undrawn Portion
of the Letters of Credit; and (ii) the average Daily Balance of all
outstanding Advances.
(c) Audit Appraisal and Valuation Charges. Audit appraisal, and
valuation fees and charges as follows (i) a fee of $750 per day, per
auditor, plus actual out-of-pocket expenses for each financial audit
of Borrower performed by personnel employed by Foothill, (ii) an
initial charge of $3,000 plus actual out-of-pocket expenses for
expenses for the establishment of electronic collateral reporting
systems, (iii) a monthly servicing fee of $3,000 (provided, however,
such monthly servicing fee shall be increased to $5,000 per month if
Borrower has not established a electronic reporting system in form and
substance reasonably satisfactory to Foothill within six months of the
Closing Date), and (iv) the actual charges paid or incurred by
Foothill if it elects to employ the services of one or more third
Persons to perform financial audits of Borrower, to appraise the
Collateral, or any portion thereof, or to assess Borrower's business
valuation.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance and the Initial Letter
of Credit. The obligation of Foothill to make the initial Advance or to
issue the initial Letter of Credit 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 December 15, 2000;
(b) Foothill shall have received a conformed copy of its filed
financing statement;
(c) Foothill shall have received each of the following documents,
duly executed, and each such document shall be in full force and
effect:
(i) the Assignment of Claims;
(ii) the Assignment of Sub-Leases;
(iii) the Consent to Hypothecation of Lease;
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(iv) the Disbursement Letter;
(v) the Intellectual Property Security Agreement;
(vi) the Lockbox Agreements;
(vii) the Mortgages;
(viii) the Pay-Off Letter, together with UCC termination
statements and other documentation evidencing the termination by
Existing Lenders of their Liens in and to the properties and
assets of Borrower; and
(ix) the Stock Pledge Agreement.
(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 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) Foothill shall have received certificates of status with
respect to Borrower, each dated within 15 days of the Closing Date,
such certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or licensed
would constitute a Material Adverse Change, which certificates shall
indicate that Borrower is in good standing in such jurisdictions;
(h) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section
6.8, the form and substance of which shall be satisfactory to Foothill
and its counsel;
(i) Foothill shall have received duly executed certificates of
title with respect to that portion of the Collateral that is subject
to certificates of title;
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(j) Foothill shall have received an opinion of Borrower's counsel
in form and substance satisfactory to Foothill in its sole discretion;
(k) Foothill shall have received mortgagee title insurance
policies (or marked commitments to issue the same) for the Real
Property Collateral issued by a title insurance company satisfactory
to Foothill ("Mortgage Policy") in amounts satisfactory to Foothill
assuring Foothill that the Mortgages on the Real Property Collateral
are valid and enforceable first priority mortgage Liens on the Real
Property Collateral free and clear of all defects and encumbrances
except Permitted Liens, and the Mortgage Policy shall otherwise be in
form and substance reasonably satisfactory to Foothill;
(l) Foothill shall have received a Phase I report concerning the
Real Property Collateral reasonably satisfactory to Foothill;
(m) intentionally deleted;
(n) Foothill shall have received satisfactory evidence that the
outstanding convertible debentures of Borrower are subordinate in
payment and priority to the Obligations;
(o) Foothill shall have completed its review of the litigation
between Borrower and Lockheed Martin Corporation, and shall have
approved of the same;
(p) Foothill shall have completed its review of the Sanmina
manufacturing agreement, and shall have approved of the same;
(q) Foothill shall have received Borrower's fiscal 2001
projections, including availability projections, and shall have
approved of the same;
(r) Foothill shall have received and reviewed key provisions of
outstanding letters of credit, and shall have approved of the same;
and
(s) 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 and all Letters of Credit.
The following shall be conditions precedent to all Advances and all Letters
of Credit hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in
all material respects on and as of the date of such extension of
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credit, as though made on and as of such date (except to the extent
that such representations and warranties relate solely to an earlier
date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either
result from the making thereof;
(c) no injunction, writ, restraining order, or other order of any
nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental
authority against Borrower, Foothill, or any of their Affiliates; and
(d) there shall not have occurred a Material Adverse Change.
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):
(a) within 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 6.8, the form and
substance of which shall be satisfactory to Foothill and its counsel;
(b) Intentionally Deleted;
(c) within thirty (30) days of the Closing Date, deliver to
Foothill, in form and substance satisfactory to Foothill, Tenancy
Statements executed by each of the sub-tenants of the Real Property
Collateral; and
(d) within forty-five (45) days of the Closing Date, Foothill
shall have received searches reflecting the filing of its financing
statements.
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 that is two (2) years from the
Closing Date. 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 (including contingent reimbursement obligations
of Borrower with respect to any outstanding Letters of Credit) immediately
shall become due and payable without notice or demand. No termination of
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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 or Paydown by Borrower.
(a) Borrower has the option, at any time upon 90 days prior
written notice to Foothill, to terminate this Agreement by paying to
Foothill, in cash, the Obligations (including an amount equal to 105%
of the undrawn amount of the Letters of Credit), together with a
premium (the "Early Paydown Premium") equal to one percent (1%) of the
Maximum Amount for each full year and portion of a full year remaining
in the original term hereof. The foregoing notwithstanding: (i) should
Borrower elect to terminate this Agreement with replacement financing
from Wells Fargo, and (ii) such replacement financing occurs after the
first annual anniversary of the Closing Date; then no Early Paydown
Premium shall be owing.
(b) The Early Paydown Premium shall be due and owing should
Borrower reduce the Obligations reflected on the Loan Account with any
borrowed money or money generated in whole or in part from additional
capitalization, other than with money borrowed from Wells Fargo, as
noted immediately above.
3.7 Termination Upon Event of Default. If Borrower shall default in
the payment of any sums due pursuant to this Agreement, or in the
performance of any of the terms and conditions contained herein, such
default shall be, and be deemed to be, an attempt by Borrower to avoid the
Early Paydown Premium, and consequently, upon such default Foothill shall
be entitled to collect such Early Paydown Premium from Borrower with the
same effect as if Borrower had voluntarily elected to prepay the
Obligations. Borrower and Foothill agree that in view of the
impracticability and extreme difficulty of ascertaining actual damages, the
Early Paydown Premium is a reasonable calculation of Foothill's lost
profits as a result thereof. The Early Paydown Premium shall be presumed to
be the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the
circumstances currently existing. The Early Paydown Premium provided for in
this Section 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby grants to Foothill a
continuing security interest in all of Borrower's interest in all currently
existing and hereafter acquired or arising Personal Property Collateral in
order to secure prompt repayment of any and all Obligations and in order to
32
secure prompt performance by Borrower of each of its covenants and duties
under the Loan Documents. Foothill's security interests in the Personal
Property Collateral shall attach to all Personal Property 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 for the sale of Inventory to buyers in the ordinary
course of business, Borrower shall not dispose of any item or portion of
the Personal Property Collateral or the Real Property Collateral.
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. At any time after the occurrence of an Event of Default,
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
financing statements, continuation financing statements, fixture filings,
security agreements, pledges, assignments, control agreements, 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 Power of Attorney. Borrower hereby irrevocably makes, constitutes,
and appoints Foothill (and any of Foothill's officers, employees, or agents
designated by Foothill) as Borrower's true and lawful attorney, with power
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, sign Borrower's name on any invoice
or bill of lading relating to any Account, drafts against Account Debtors,
33
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, 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,
make, settle, and adjust all claims under Borrower's policies of insurance
and make all 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, 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. The appointment of Foothill as Borrower's attorney, and each and
every one of Foothill's rights and powers, 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 to inspect Borrower's Books and to check,
test, and appraise the Collateral, in accordance with the requirements of
Governmental Authorities, if any, in order to verify Borrower's financial
condition or the amount, quality, value, condition of, or any other matter
relating to, the Collateral.
4.7 Control Agreements. Upon the request of Foothill, Borrower agrees
that it will enter into one or more Control Agreements. Borrower further
agrees that it will not thereafter transfer assets out of any Securities
Accounts other than as permitted under Section 7.19 and, if to another
securities intermediary, unless each of Borrower, Lender, and the
substitute securities intermediary have entered into a Control Agreement.
No arrangement contemplated hereby or by any Control Agreement in respect
of any Securities Accounts or other Investment Property shall be modified
by Borrower without the prior written consent of Lender. Upon the
occurrence and during the continuance of an Event of Default, Lender may
notify any securities intermediary to liquidate the applicable Securities
Account or any related Investment Property maintained or held thereby and
remit the proceeds thereof to the Lender's Account.
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
34
complete in all material respects as of the date hereof, and shall be true,
correct, and complete in all material respects as of the Closing Date, and at
and as of the date of the making of each Advance and Letter of Credit made
thereafter, as though made on and as of the date of such Advance or Letter of
Credit (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 (excluding the IP Collateral, which is the subject of the
representations set forth in the Intellectual Property Security Agreement),
free and clear of Liens except for Permitted Liens.
5.2 Eligible Accounts. The Eligible Accounts are bona fide existing
payment obligations of Account Debtors created by the sale and delivery of
Inventory or the rendition of services to such Account Debtors in the
ordinary course of Borrower's business, owed to Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation. As
to each Eligible Account, such Account conforms to the requirements set
forth in the definition of Eligible Accounts.
5.3 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 87-0278175.
5.4 Due Organization and Qualification; Subsidiaries.
(a) Except as otherwise set forth on Schedule 5.4, 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 cause a
Material Adverse Change.
(b) Set forth on Schedule 5.4, 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.
(c) Except as set forth on Schedule 5.4, 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 any
35
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.
5.5 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, (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.
(c) Other than the filing of appropriate financing statements,
fixture filings, and the Intellectual Property Security Agreement, the
recording of the Mortgages, obtaining the Consent to Hypothecation of
Lease and the Tenancy Statements, the execution of the control
agreement in the Stock Pledge Agreement, and Borrower's 10-Q and 10-K
filing with the Securities and Exchange Commission, 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, excluding any foreign filings that may be
required to perfect security interests in Collateral outside the
United States.
(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,
reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
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(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, on Collateral located in the United
States.
5.6 Litigation. There are no actions or proceedings pending by or
against Borrower before any court or administrative 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 or any guarantor of the Obligations, except
for: (a) ongoing collection matters in which Borrower is the plaintiff; (b)
matters disclosed on Schedule 5.6; and (c) matters arising after the date
hereof that, if decided adversely to Borrower, would not cause a Material
Adverse Change.
5.7 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.
5.8 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.
5.9 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 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. To the best of Borrower's knowledge, 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. To the best of Borrower's knowledge, 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, treaty, rule, regulation, or agreement. None of
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Borrower or its Subsidiaries or any ERISA Affiliate is required to provide
security to any Plan under Section 401(a)(29) of the IRC.
5.10 Environmental Condition.
(a) Borrower has not used Hazardous Materials at or affecting the
Real Property in any manner which violates any Act governing the use,
storage, treatment, transportation, manufacturing, refinement,
handling, production, or disposal of Hazardous Materials, or that may
make the owner of the Premises liable in tort under a common law
public or private nuisance action.
(b) To the best of Borrower's knowledge, no prior or current
owner, occupant or operator of the Real Property has used Hazardous
Materials at or affecting the Real Property in any manner which
violates any Act governing the use, storage, treatment,
transportation, manufacturing, refinement, handling, production, or
disposal of Hazardous Materials, or that may make the owner of the
Premises liable in tort under a common law public or private nuisance
action, other than as set forth in that certain "De Minimus" Letter
dated August 16, 2000 from the State of Utah Department of Environment
Quality, Division of Air Quality, to Borrower.
5.11 Compliance With The ADA.
(a) All of the Real Property is presently used as an
administrative, office, manufacturing, or distribution facility and
for other commercial purposes, and no portions of the Real Property
are used as or for a "public accommodation," within the meaning of the
ADA.
(b) To the best of Borrower's knowledge, Borrower has made all
modifications or provided all accommodations which may be required to
be made or provided by Borrower to the Real Property pursuant to the
ADA in order to accommodate the needs and requirements of any disabled
persons.
(c) Borrower has received no notice or complaint regarding any
noncompliance with the ADA of any of the Real Property, and, to the
best of Borrower's knowledge, there has been no threatened litigation
alleging any such noncompliance by Borrower or the Real Property.
5.12 Compliance with Laws. Borrower has complied with the requirements
of all Acts including the Fair Labor Standards Act and the ADA.
5.13 Registration of Copyrights. Borrower has registered all
copyrights, or has such copyright applications pending, for all key
software components and other key copyrightable works from which Eligible
Accounts are generated.
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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, 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 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
10th day of each month during the term of this Agreement, (1) a detailed
calculation of the Borrowing Base, and (2) 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 10th day of each month during the
term of this Agreement, (1) a summary aging, by vendor, of Borrower's
accounts payable and any book overdraft, and (2) a report listing the
status of all new or pending copyright registrations, (d) on each Business
Day, notice of all returns, disputes, or claims, (e) 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, (f) on a quarterly
basis, a detailed list of Borrower's customers, (g) on a monthly basis, a
calculation of the Dilution for the prior month; (h) upon request,
Borrower's electronic data, and (i) such other reports as to the Collateral
or the financial condition of Borrower as Foothill may reasonably request
from time to time.
6.3 Financial Statements, Reports, Certificates. Deliver to Foothill:
(a) as soon as available, but in any event within 45 days after the end of
each month during each of Borrower's fiscal years, a company prepared
balance sheet and income statement covering Borrower's operations during
such period; (b) as soon as available, but in any event within 45 days
after the end of each fiscal quarter during each of Borrower's fiscal
years, a company prepared statement of cash flow covering Borrower's
operations during such period; and (c) as soon as available, but in any
event within 90 days after the end of each of Borrower's fiscal years,
39
financial statements of Borrower for each such fiscal year, audited by
nationally recognized independent certified public accountants 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 violation of the financial covenants set
forth in Section 7.17 herein. 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
unaudited financial statements prepared on a consolidating basis so as to
present Borrower and each such related entity separately, and on a
consolidated basis.
Together with the above, 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 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.
Each month, together with the financial statements provided pursuant
to Section 6.3(a), Borrower shall deliver to Foothill a Compliance
Certificate in the form set forth on Exhibit C-1 signed by its chief
financial officer or Vice President/Treasurer to the effect 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), (ii), or (iii), 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).
Each month, together with the financial statements provided pursuant
to Section 6.3(a), that also is the date on which a financial covenant in
Section 7.17 is to be tested, Borrower shall deliver to Foothill a
Compliance Certificate in the form set forth in Exhibit C-2 signed by its
40
chief financial officer or Vice President/Treasurer to the effect 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), (iii)
Borrower is in compliance with the financial covenant in Section 7.17, and
demonstrating in reasonable detail compliance at the end of such period
with such financial covenant, and (iv) 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),
(ii), or (iii), 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).
6.4 Tax Returns. Deliver to Foothill copies of each of Borrower's
future federal income tax returns, and any amendments thereto, within 30
days of the filing thereof with the Internal Revenue Service.
6.5 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. 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
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 and shall not be withheld if such credit memo is
required by written agreement between Borrower and its Account Debtor),
issue a credit memorandum in the appropriate amount to such Account Debtor.
6.6 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, 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.
41
6.7 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, 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, and local, 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.
6.8 Insurance.
(a) At its expense, keep the Personal Property 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 Personal Property Collateral, as well as
insurance against larceny, embezzlement, and criminal
misappropriation.
(b) At its expense, obtain and maintain (i) insurance of the type
necessary to insure the Improvements and Chattels (as such terms is
defined in the Mortgages), for the full replacement cost thereof,
against any loss by fire, lightning, windstorm, hail, explosion,
aircraft, smoke damage, vehicle damage, earthquakes, elevator
collision, and other risks from time to time included under "extended
coverage" policies, in such amounts as Foothill may require, but in
any event in amounts sufficient to prevent Borrower from becoming a
co-insurer under such polices, (ii) combined single limit bodily
injury and property damages insurance against any loss, liability, or
damages on, about, or relating to each parcel of Real Property, in an
amount of not less than Two Million Dollars ($2,000,000); and (iii)
such other risk as Foothill may require. Replacement costs, at
Foothill's option, may be redetermined by an insurance appraiser,
satisfactory to Foothill, not more frequently than once every twelve
(12) months at Borrower's cost.
(c) All insurance required herein shall be written by companies
with a rating of Best's B+, VII, or better, which are authorized to do
insurance business in the State of Utah. Such insurance shall be in
form satisfactory to Foothill, shall with respect to hazard insurance
and such other insurance as Foothill shall specify, name as the loss
42
payee thereunder Borrower and Foothill, as their interests may appear,
and shall contain a California Form 438BFU (NS) mortgagee endorsement,
or its local equivalent. Every policy of insurance referred to in this
Section 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 Real Property for purposes more hazardous than permitted by the
terms of such policy, (ii) any foreclosure or other action or
proceeding taken by Foothill pursuant to the Mortgages upon the
happening of an Event of Default, or (iii) any change in title or
ownership of the Real Property.
(d) 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: (i)
to adjust any loss following an Event of Default, or (ii) to adjust
any loss in excess of One Hundred Thousand Dollars ($100,000). To the
extent set forth in the immediately preceding sentence, Foothill shall
have the exclusive right to adjust such 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, but not limited to, 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 Borrower under stage payment terms
satisfactory to Foothill for application to the cost of repairs,
replacements or restorations. All restorations shall be effected with
reasonable promptness and shall be of a value at least equal to the
value of the items or property to destroyed prior to such damage or
destruction. Upon the occurrence of an Event of Default, all prepaid
premiums shall be the sole and absolute property of Foothill to be
applied by Foothill to the payment of the Obligations in such order or
form as Foothill shall determine.
(e) 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 6.8, 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 shall immediately 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 shall immediately thereafter be provided to Foothill.
43
6.9 No Setoffs or Counterclaims. Make payments hereunder and under the
other Loan Documents 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.
6.10 Compliance with Laws. Comply with the requirements of all
applicable Acts, including the Fair Labor Standards Act and the ADA, 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 cause a Material Adverse Change.
6.11 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 under its leases, Foothill shall
be entitled, in its Permitted Discretion, to reserve an amount equal to
such unpaid amounts against the Borrowing Base.
6.12 Environmental Condition.
(a) Borrower shall keep or cause the Real Property to be kept
free of Hazardous Materials, except those Hazardous Materials used in
compliance with all applicable Acts and not cause or permit the Real
Property to be used to generate, manufacture, refine, transport,
treat, store, handle, dispose, produce, or process Hazardous Materials
except in compliance with all applicable Acts.
(b) Borrower shall exercise all reasonable efforts to ensure
compliance by all operators, and occupants of the Real Property with
all applicable Acts and will ensure that all such operators and
occupants obtain and comply with any and all required approvals,
registrations, or permits.
(c) Upon the reasonable request of Foothill, Borrower shall
conduct and complete all investigations, studies, samplings, and
testings relative to Hazardous Materials at or affecting the Real
Property, unless it is prohibited from doing so by reason of its
written subleases with Borrower's sublessees. Upon the written request
of Foothill from time to time, Borrower shall provide Foothill at
Borrower's sole cost and expense and without any liability to
Foothill, with an environmental site assessment or an environmental
audit report, or an update of such assessment or report, by an
environmental engineering firm reasonably acceptable to Foothill, all
in scope, form, and content reasonably satisfactory to Foothill, to
assess with a reasonable degree of certainty the presence or absence
of Hazardous Materials and the potential cost in connection with the
Remediation of any Hazardous Materials at or related to the Real
44
Property. Upon demand of Foothill, and at Borrower's sole cost and
expense, Borrower shall promptly take all actions to Remediate the
Real Property which are required by any Governmental Authority, or
which are reasonably necessary to mitigate a spill or a violation of
any applicable Act. All such work shall be performed by one or more
contractors selected by Borrower and approved in advance and in
writing by Foothill, which such consent shall not be unreasonably
withheld or delayed. Borrower shall proceed continuously and
diligently with such investigatory and remedial actions, provided that
in all cases, such actions shall be in accordance with all applicable
requirements of all Acts. Any such actions shall be performed in a
good, safe, and workmanlike manner and shall minimize any impact on
the business or occupation at or near the Real Property. Borrower
shall pay all costs in connection with such investigatory and remedial
activities, including but not limited to, all power and utility costs,
any and all taxes or fees that may be applicable to such activities.
Borrower shall promptly provide to Foothill copies of testing results
and reports that are generated in compliance with the above
activities. Promptly upon completion of such investigation and
Remediation, Borrower shall permanently seal or cap all monitoring
wells and test holes to industrial standards and compliance with all
applicable Acts, remove all associated equipment, and restore the Real
Property to the condition existing prior to the commencement of
Remediation, which shall include, without limitation, the repair of
any surface damage, including paving caused by such investigation or
Remediation hereunder. Within ten (10) days of demand therefor,
Borrower shall provide Foothill with a bond, letter of credit, or
similar financial insurance evidencing that the necessary funds are
available for the obligations established by this subparagraph.
(d) The obligations of Borrower and the rights of Foothill with
respect to Hazardous Materials are in addition to and not in
substitution of the obligations of Borrower and the rights of Foothill
under all applicable Acts. The obligations of Borrower and the rights
of Foothill, notwithstanding anything contained herein or in any other
document or agreement which may be construed to the contrary, (i)
shall not be subject to any antideficiency laws or protections, if
any, (ii) shall survive (y) a non-judicial sale, judicial sale or deed
or other transaction in lieu of such sale hereunder, and (z) the
repayment of the Obligations. In the event Borrower does not timely
perform any of its obligations with respect to Hazardous Materials,
Foothill may perform such obligations, but is not obligated to, at the
expense of Borrower and such expense shall be added to the obligations
and shall not cure Borrower's breach under this Agreement.
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6.13 Compliance With The ADA.
(a) Borrower shall promptly provide Foothill with copies of all
notices or claims which may be received by Borrower and involving
claims made by any individual, entity or governmental agency as to any
alleged noncompliance of the Real Property with the requirements of
the ADA.
(b) Borrower shall observe and comply in all material respects
with all obligations and requirements of the ADA as it applies to the
Real Property, which shall include, without limitation, installing or
constructing all improvements or alterations which may be necessary to
cause the Real Property to be accessible to all persons if the use of
any of the Real Property or any part thereof becomes a "public
accommodation," as defined in the ADA, or in the event additional
building improvements are added or incorporated into the existing
improvements, and making any reasonable accommodations which may be
necessary to accommodate the needs or requirements of any existing or
future employee of Borrower.
6.14 Location of Inventory and Equipment. Keep the Inventory and
Equipment only at the locations identified on Schedule 6.14; provided,
however, that Borrower may amend Schedule 6.14 so long as such amendment
occurs by written notice to Foothill not less than 30 days prior to the
date on which the Inventory or Equipment is moved to such new location, so
long as such new location is within the continental United States, and so
long as, at the time of such written notification, 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; the foregoing notwithstanding,
Borrower may move Inventory and Equipment to locations outside the United
States, provided that the fair market value of such Inventory and Equipment
shall, in the aggregate, never exceed Ten Million Dollars ($10,000,000).
6.15 Disclosure Updates. Promptly and in no event later than 5
Business Days after obtaining knowledge thereof, (a) notify Foothill if any
written information, exhibit, or report furnished to Foothill contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements contained therein not misleading in light
of the circumstances in which made, and (b) correct any defect or error
that may be discovered therein or in any Loan Document or in the execution,
acknowledgment, filing, or recordation thereof.
6.16 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.
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6.17 Registration of Copyrights. Borrower will continue processing
copyright registrations for all key software components and other key
copyrightable works from which Eligible Accounts are generated, and will
cooperate with Foothill in obtaining perfected security interests in such
items when the copyright registration is completed.
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:
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, together with
Indebtedness to issuers of letters of credit that are the subject of
L/C Guarantees;
(b) Indebtedness set forth in the latest financial statements of
Borrower submitted to Foothill on or prior to the Closing Date;
(c) Indebtedness secured by Permitted Liens;
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and
continuance or renewal of any Permitted Liens associated therewith) so
long as: (i) the terms and conditions of such refinancings, renewals,
or extensions do not 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;
(e) unsecured indebtedness which, in the aggregate, does not
exceed Ten Million Dollars ($10,000,000); and
(f) capitalized leases as set forth on the financial statements
delivered by Borrower to Foothill which, in the aggregate, do not
exceed Two Million Two Hundred Thousand Dollars ($2,200,000).
47
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(d) and so long as the
replacement Liens only encumber those assets or property that secured the
original Indebtedness).
7.3 Restrictions on Fundamental Changes. Unless expressly permitted
under Section 7.4, enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify 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 Disposal of Assets.
(a) Sell, lease, assign, transfer, or otherwise dispose of any of
Borrower's properties or assets: (i) other than the sale, lease,
disposition, transfer, mortgage, hypothecation, or contribution of
REALimage or Rapid Site; or (ii) other than sales of obsolete
Inventory to buyers in the ordinary course of Borrower's business as
currently conducted in an amount in excess of Five Million Dollars
($5,000,000) in any fiscal year; or (iii) sell Borrower's interest in
that portion of the Real Property Collateral commonly known as 540
Arappen Drive for less than Two Million One Hundred Fifty Thousand
Dollars ($2,150,000: such amount, a "RP Release Price"); or (iv) sell
Borrower's interest in that portion of the Real Property Collateral
commonly known as 580 Arappen Drive for less than Three Million Three
Hundred Sixty-Eight Dollars ($3,368,000: such amount, a "RP Release
Price"). The proceeds of all such sales shall constitute Collections.
(b) The foregoing provisions of Section 7.4(a) notwithstanding,
Borrower may continue to grant non-exclusive licenses of the IP
Collateral to third parties in the ordinary course of Borrower's
business, as historically conducted, and can abandon or otherwise
discontinue registrations on portions of the IP Collateral which
Borrower, acting in good faith and in the exercise of its business
judgment, believes prudent.
7.5 Change Name. Change Borrower's name, FEIN, corporate structure
(within the meaning of Section 9402(7) of the Code), or identity, or add
any new fictitious name.
7.6 Nature of Business. Unless expressly permitted under Section 7.4,
make any material change in the principal nature of Borrower's business.
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7.7 Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by Section
7.1(d), 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
(b) Directly or indirectly, materially 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), or (d).
7.8 Change of Control. Cause, permit, or suffer, directly or
indirectly, any Change of Control.
7.9 Distributions. Make any distribution, except as expressly
permitted in Section 7.11, 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. The foregoing notwithstanding, Borrower may make
distributions or equity investments in Affiliates or joint ventures to
which Borrower is a party, in an aggregate amount not to exceed Seven
Million Dollars ($7,000,000) so long as Borrower has at least Five Million
Dollars ($5,000,000) of availability pursuant to Section 2.2 at the time of
such distribution or equity investment after giving effect to the
distribution or equity investment.
7.10 Accounting Methods. Materially modify or change its method of
accounting or enter into, modify, or terminate any material 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.
7.11 Investments. Directly or indirectly make, acquire, or incur any
liabilities (including contingent obligations) for or in connection with
(a) the acquisition of the securities (whether debt or equity) of, or other
interests in, a Person, (b) loans, advances, capital contributions, or
transfers of property to any Person that is not an Affiliate; provided,
however, that Borrower may loan, or have outstanding at any time, Five
Million Dollars ($5,000,000) to any Person that is not an Affiliate so long
as Borrower has at least Five Million Dollars ($5,000,000) of availability
pursuant to Section 2 at the time of such loan, advance, capital
49
contribution or transfer of property after giving effect to the loan,
advance, contribution or transfer, or (c) the acquisition of all or
substantially all of the properties or assets of a Person.
7.12 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.
7.13 Suspension. Suspend or go out of a substantial portion of its
business.
7.14 Compensation. Intentionally Deleted.
7.15 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 Lenders, 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.
7.16 Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees. Relocate its chief executive office to a new
location without providing 30 days prior written notification thereof to
Foothill 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. 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.
7.17 Financial Covenants. Maintain Tangible Net Worth of at least the
required amount set forth in the following table as of the applicable date
set forth opposite thereto:
------------------------------- ----------------------------------------
Applicable Amount Applicable Date
------------------------------- ----------------------------------------
$80,000,000 12/31/00
------------------------------- ----------------------------------------
$74,000,000 3/31/01
------------------------------- ----------------------------------------
$71,500,000 6/30/01
------------------------------- ----------------------------------------
$74,000,000 9/30/01
------------------------------- ----------------------------------------
$80,000,000 12/31/01, and the last day of each
fiscal quarter thereafter
------------------------------- ----------------------------------------
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7.18 Capital Expenditures. Make capital expenditures in any fiscal
year in excess of Twelve Million Dollars ($12,000,000).
7.19 Securities Accounts. If one or more Control Agreements are
required pursuant to Section 4.7, establish or maintain any Securities
Account unless Lender shall have received a Control Agreement in respect of
such Securities Account. Borrower shall not transfer assets out of any
Securities Account; provided, however, that, so long as no Event of Default
has occurred and is continuing or would result therefrom, Borrower may use
such assets (and the proceeds thereof) to the extent not prohibited by this
Agreement.
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); provided, however, that if the fees, charges, or Foothill
Expenses are not charged to Borrower's Loan Account because the posting of
the same would cause the Obligations to exceed the Maximum Amount, it shall
be an Event of Default if Borrower does not pay the same within five (5)
days;
8.2 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, covenant, or agreement contained in this
Agreement(unless expressly not a default under a Loan Document), in any of
the Loan Documents, or in any other present or future agreement between
Borrower and Foothill; provided, however, (i) that Borrower's failure or
neglect to comply with Section 6.2 (Collateral Reporting) shall not
constitute an Event of Default hereunder unless such failure or neglect
continues for five (5) days or more, (ii) that Borrower's failure or
neglect to comply with Section 6.3 (Financial Statements), Section 6.7
(Taxes), and Section 6.14 (Location of Inventory and Equipment) shall not
constitute an Event of Default hereunder unless such failure or neglect
continues for fifteen (15) days or more, and (iii) that Borrower's failure
or neglect to comply with Section 6.1 (Accounting System), Section 6.4 (Tax
Returns), Section 6.6 (Maintenance of Equipment) Section 6.11 (Leases),
Section 6.12 (Environmental Compliance), and Section 6.13 (ADA) shall not
constitute an Event of Default hereunder unless such failure or neglect
continues for thirty (30) days or more;
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8.3 If Borrower fails or neglects to perform, keep, or observe any
term, provision, condition, or agreement contained in the Mortgages;
8.4 Intentionally Deleted;
8.5 If: (i) any portion of Borrower's properties or assets which
constitutes Real Property Collateral is attached, seized, subjected to a
writ or distress warrant, or is levied upon, or comes into the possession
of any third Person, or (ii) any portion of Borrower's properties or assets
which does not constitute Real Property Collateral is attached, seized,
subjected to a writ or distress warrant, or is levied upon, or comes into
the possession of any third Person the value of which exceeds Five Hundred
Thousand Dollars ($500,000);
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 60 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 material portion of Borrower's properties or assets, or
against any Collateral, by any Governmental Authority, or if any taxes or
debts owing at any time hereafter to any one or more of such entities
becomes a Lien, whether choate or otherwise, upon any of Borrower's
properties or assets, and the same is not paid on the payment date thereof
or bonded around, the form and substance of which is satisfactory to
Foothill;
8.10 If: (i) a judgment or other claim becomes a Lien or encumbrance
upon any of the Real Property Collateral, or (ii) a judgment or other claim
in excess of Five Hundred Thousand Dollars ($500,000) becomes a Lien or
encumbrance upon any material portion of Borrower's properties or assets,
other than Real Property Collateral;
52
8.11 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 permitted by the terms of
the subordination provisions applicable to such Indebtedness; or
8.12 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.
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;
(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 Personal
Property Collateral or the Real Property Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which are commercially reasonable
under the circumstances, 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 actually incurred or expended in connection therewith;
(e) 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 Tangible Personal Property Collateral
if Foothill so requires, and to make the Personal Property Collateral
available to Foothill as Foothill may designate. Borrower authorizes
Foothill to enter the premises where the Personal Property Collateral
is located, to take and maintain possession of the Personal Property
Collateral, or any part of it, and to pay, purchase, contest, or
53
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 (subject to superior rights of sublessees, if any)
to enter into possession of such premises and to occupy the same,
without charge, for up to 120 days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
(f) Without notice to Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of
the Code), set off and apply to the Obligations any and all (i)
balances and deposits of Borrower held by Foothill, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Foothill;
(g) 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;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided
for herein) the Personal Property Collateral. 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 Personal Property
Collateral, in completing production of, advertising for sale, and
selling any Personal Property Collateral and Borrower's rights under
all licenses and all franchise agreements shall inure to Foothill's
benefit;
(i) Sell the Personal Property Collateral at either a public or
private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including Borrower's premises) as Foothill determines is commercially
reasonable. It is not necessary that the Personal Property Collateral
be present at any such sale;
(j) Foothill shall give notice of the disposition of the Personal
Property Collateral as follows:
(1) Foothill shall give Borrower and each holder of a
security interest in the Personal Property 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 Personal Property Collateral, then the time
on or after which the private sale or other disposition is to be
made;
54
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least
5 days before the date fixed for the sale, or at least 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 Personal Property
Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized
market. Provided that it is disposed of in such a market. Notice
to Persons other than Borrower claiming an interest in the
Personal Property Collateral shall be sent to such addresses as
they have furnished to Foothill;
(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 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;
(k) Foothill may credit bid and purchase at any public sale; and
(l) Any deficiency that exists after disposition of the Personal
Property 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.
(m) Exercise any rights and remedies with respect to the Real
Property Collateral set forth in the Mortgages.
In the event that Foothill or its successor, whether by
foreclosure, transfer in lieu of foreclosure, purchase at foreclosure
or otherwise, acquires ownership rights in the IP Collateral, Foothill
or such successor shall affirm, and not seek to repudiate or otherwise
cancel or modify the rights of any licensee of the IP Collateral,
other than as expressly provided in the document, agreement or
instrument evidencing or governing such license.
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.
9.3 Foreclosure Not A Discharge. Foreclosure shall not operate as a
discharge to Borrower's Obligations to Foothill as to Hazardous Materials
and the indemnity provisions in Section 11; and in the event Borrower
55
tenders a deed in lieu of foreclosure for all or part of the Real Property,
Borrower shall deliver such property to Foothill (or its designee) free of
any and all Hazardous Materials which do not comply with applicable Acts.
The indemnity provisions in Section 11 shall not be discharged or affected
in any way by foreclosure or by Foothill's acceptance of a deed in lieu
thereof.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
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, in its discretion and without prior notice to
Borrower, 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 6.8, 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,
notice of any default, 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 complies
with its obligations, if any, under Section 9207 of the Code, 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.
56
11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold
Foothill, each Participant, and each of their respective 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: (a) obligations, demands, claims, and
liabilities claimed or asserted by any other Person arising out of or
relating to the transactions contemplated by this Agreement or any other
Loan Document including, but not limited to, those claimed by any broker or
finder, and (b) Losses, and (c) Losses (including attorneys' fees) suffered
or incurred by any Indemnified Person, regardless of negligence, whether as
a holder of security interests in Real Property, as mortgagee in
possession, or as successor in interest to Borrower as owner of the Real
Property by virtue of foreclosure or acceptance of a deed or other
transaction in lieu of foreclosure, or after partial or total reconveyance
of the mortgage, arising from, in respect of, as a consequence of (whether
foreseeable or unforeseeable) or in connection with the use, storage,
disposal, generation, transportation, spill, or treatment of any Hazardous
Materials at or related to the Real Property whether or not originating or
emanating from the Real Property (all of the foregoing, collectively, the
"Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such
Indemnified Person. This provision shall survive the termination of this
Agreement.
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: EVANS & SUTHERLAND COMPUTER CORPORATION
600 Komas Drive
Salt Lake City, Utah 84108
Attn: Vice President/Treasurer
Fax No. 801.588.4510
with copies to: SNELL & WILMER
15 West South Temple, Suite 1200
Salt Lake City, Utah 84101
Attn: Brian Cunningham, Esq.
Fax No. 801.257.1800
57
If to Foothill: FOOTHILL CAPITAL CORPORATION
2450 Colorado Avenue
Suite 3000 West
Santa Monica, California 90404
Attn: Business Finance Division
Manager
Fax No. 310.453.7413
with copies to: BUCHALTER, NEMER, FIELDS & YOUNGER
601 South Figueroa Street, Ste 2400
Los Angeles, California 90017
Attn: Kevin M. Brandt, Esq.
Re: F6415-0097
Fax No. 213.896.0400
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 sent in accordance with this Section 12, other
than notices by Foothill in connection with Sections 9504 or 9505 of the Code,
shall be deemed received on the earlier of the date of actual receipt or 3 days
after the deposit thereof in the mail. Borrower acknowledges and agrees that
notices sent by Foothill in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally delivered, or,
where permitted by law, transmitted telefacsimile or other similar method set
forth above.
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 STATE OF CALIFORNIA. 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 COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA 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.
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
58
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.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents (excluding certificates of title or original invoices for
which Borrower does not have a copy), schedules, invoices, agings, or other
papers delivered to Foothill may be destroyed or otherwise disposed of by
Foothill four 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
another Person, with the prior consent of Borrower, which such consent
shall not be unreasonably withheld or delayed. The foregoing
notwithstanding, Foothill may assign this Agreement and its rights and
duties hereunder as part of a bulk assignment along with other loans in
Foothill's portfolio, and no consent or approval by Borrower is required in
connection with any such assignment. Foothill reserves the right to sell,
assign, transfer, negotiate, or grant participations in all or any part of,
or any interest in Foothill's rights and benefits hereunder. In connection
with any such assignment or participation, Foothill may disclose all
documents and information which Foothill now or hereafter may have relating
to Borrower or Borrower's business, provided such assignee or participant
signs a non-disclosure agreement substantially in the form signed by
Foothill. 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,
59
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 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 Lending Relationship. Nothing contained in the this Agreement or
any of the other Loan Documents shall be deemed or construed by the parties
hereto or by any third party to create the relationship of principal and
agent, partnership, joint venture, or any association between Borrower and
Foothill, it being expressly understood and agreed that nothing contained
in this Agreement or the other Loan Documents shall be deemed to create any
relationship between Borrower and Foothill other than the relationship of
borrower and lender.
15.10 Integration. This Agreement, together with the other Loan
Documents, reflect 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Rhonda Foreman
----------------------------------------------
Rhonda Foreman,
Senior Vice President
EVANS & SUTHERLAND COMPUTER
CORPORATION, a Utah corporation
By /s/ R. Gaynor
----------------------------------------------
Richard J. Gaynor
Vice President and
Chief Financial Officer
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