EXHIBIT 99.1
EXECUTION COPY
LOAN AND SECURITY AGREEMENT
by and among
COMMERCE ENERGY, INC.
as Borrower
and
COMMERCE ENERGY GROUP, INC.
as Guarantor
and
WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN)
as Agent
and
THE LENDERS FROM TIME TO TIME PARTY HERETO
as Lenders
Dated: June 8, 2006
TABLE OF CONTENTS
PAGE
----
SECTION 1. DEFINITIONS.............................................................. 1
SECTION 2. CREDIT FACILITIES........................................................ 22
2.1 Loans....................................................................... 22
2.2 Letters of Credit........................................................... 22
2.3 Commitments................................................................. 25
SECTION 3. INTEREST AND FEES........................................................ 25
3.1 Interest.................................................................... 25
3.2 Fees........................................................................ 26
3.3 Changes in Laws and Increased Costs of Loans................................ 27
SECTION 4. CONDITIONS PRECEDENT..................................................... 29
4.1 Conditions Precedent to Initial Loans and Letters of Credit................. 29
4.2 Conditions Precedent to All Loans and Letters of Credit..................... 31
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST................................ 31
5.1 Grant of Security Interest.................................................. 31
5.2 Perfection of Security Interests............................................ 34
SECTION 6. COLLECTION AND ADMINISTRATION............................................ 38
6.1 Borrowers' Loan Accounts.................................................... 38
6.2 Statements.................................................................. 38
6.3 Collection of Accounts...................................................... 38
6.4 Payments.................................................................... 39
6.5 Taxes....................................................................... 40
6.6 Authorization to Make Loans................................................. 42
6.7 Use of Proceeds............................................................. 43
6.8 Appointment of Administrative Borrower as Agent for Requesting Loans
and Receipts of Loans and Statements........................................ 43
6.9 Pro Rata Treatment.......................................................... 44
6.10 Sharing of Payments, Etc.................................................... 44
6.11 Settlement Procedures....................................................... 45
6.12 Obligations Several; Independent Nature of Lenders' Rights.................. 47
SECTION 7. COLLATERAL REPORTING AND COVENANTS....................................... 47
7.1 Collateral Reporting........................................................ 47
-i-
TABLE OF CONTENTS
(continued)
PAGE
----
7.2 Accounts Covenants.......................................................... 48
7.3 Inventory Covenants......................................................... 49
7.4 Equipment and Real Property Covenants....................................... 49
7.5 Power of Attorney........................................................... 50
7.6 Right to Cure............................................................... 51
7.7 Access to Premises.......................................................... 51
SECTION 8. REPRESENTATIONS AND WARRANTIES........................................... 51
8.1 Corporate Existence, Power and Authority.................................... 51
8.2 Name; State of Organization; Chief Executive Office; Collateral
Locations................................................................... 52
8.3 Financial Statements; No Material Adverse Change............................ 52
8.4 Priority of Liens; Title to Properties...................................... 53
8.5 Tax Returns................................................................. 53
8.6 Litigation.................................................................. 53
8.7 Compliance with Other Agreements and Applicable Laws........................ 54
8.8 Environmental Compliance.................................................... 54
8.9 Employee Benefits........................................................... 55
8.10 Bank Accounts............................................................... 55
8.11 Intellectual Property....................................................... 56
8.12 Subsidiaries; Affiliates; Capitalization; Solvency.......................... 56
8.13 Labor Disputes.............................................................. 57
8.14 Restrictions on Subsidiaries................................................ 57
8.15 Material Contracts.......................................................... 57
8.16 Payable Practices........................................................... 57
8.17 Accuracy and Completeness of Information.................................... 58
8.18 Survival of Warranties; Cumulative.......................................... 58
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS....................................... 58
9.1 Maintenance of Existence.................................................... 58
9.2 New Collateral Locations.................................................... 59
9.3 Compliance with Laws, Regulations, Etc...................................... 59
9.4 Payment of Taxes and Claims................................................. 60
9.5 Insurance................................................................... 60
-ii-
TABLE OF CONTENTS
(continued)
PAGE
----
9.6 Financial Statements and Other Information.................................. 60
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc..................... 62
9.8 Encumbrances................................................................ 65
9.9 Indebtedness................................................................ 66
9.10 Loans, Investments, Etc..................................................... 67
9.11 Dividends and Redemptions................................................... 69
9.12 Transactions with Affiliates................................................ 70
9.13 Compliance with ERISA....................................................... 71
9.14 End of Fiscal Years; Fiscal Quarters........................................ 71
9.15 Change in Business.......................................................... 71
9.16 Limitation of Restrictions Affecting Subsidiaries........................... 71
9.17 Fixed Charge Coverage Ratio................................................. 72
9.18 Eligible Cash Collateral.................................................... 72
9.19 Capital Expenditures........................................................ 72
9.20 License Agreements.......................................................... 72
9.21 Foreign Assets Control Regulations, Etc..................................... 73
9.22 After Acquired Real Property................................................ 73
9.23 Costs and Expenses.......................................................... 74
9.24 Further Assurances.......................................................... 74
9.25 Inactive Subsidiaries....................................................... 75
9.26 Skipping Stone.............................................................. 75
SECTION 10. EVENTS OF DEFAULT AND REMEDIES........................................... 75
10.1 Events of Default........................................................... 75
10.2 Remedies.................................................................... 77
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW............. 80
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver;
Judicial Reference.......................................................... 80
11.2 Waiver of Notices........................................................... 82
11.3 Amendments and Waivers...................................................... 82
11.4 Waiver of Counterclaims..................................................... 84
-iii-
TABLE OF CONTENTS
(continued)
PAGE
----
11.5 Indemnification............................................................. 84
SECTION 12. THE AGENT................................................................ 85
12.1 Appointment, Powers and Immunities.......................................... 85
12.2 Reliance by Agent........................................................... 86
12.3 Events of Default........................................................... 86
12.4 Wachovia in its Individual Capacity......................................... 86
12.5 Indemnification............................................................. 87
12.6 Non-Reliance on Agent and Other Lenders..................................... 87
12.7 Failure to Act.............................................................. 87
12.8 Additional Loans............................................................ 88
12.9 Concerning the Collateral and the Related Financing Agreements.............. 88
12.10 Field Audit, Examination Reports and other Information; Disclaimer by
Lenders..................................................................... 88
12.11 Collateral Matters.......................................................... 89
12.12 Agency for Perfection....................................................... 91
12.13 Successor Agent............................................................. 91
12.14 Other Agent Designations.................................................... 91
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS......................................... 92
13.1 Term........................................................................ 92
13.2 Interpretative Provisions................................................... 93
13.3 Notices..................................................................... 95
13.4 Partial Invalidity.......................................................... 96
13.5 Confidentiality............................................................. 96
13.6 Successors.................................................................. 97
13.7 Assignments; Participations................................................. 97
13.8 Entire Agreement............................................................ 99
13.9 USA Patriot Act............................................................. 99
13.10 Counterparts, Etc........................................................... 100
-iv-
INDEX
TO
EXHIBITS AND SCHEDULES
Exhibit A Form of Assignment and Acceptance
Exhibit B Information Certificate
Exhibit C Form of Compliance Certificate
Schedule 1.43 Existing Letters of Credit
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated June 8, 2006 is entered into by
and among Commerce Energy, Inc., a California corporation ("Commerce Energy",
and together with any other Person that at any time after the date hereof
becomes a Borrower, each individually a "Borrower" and collectively, "Borrowers"
as hereinafter further defined), Commerce Energy Group, Inc., a Delaware
corporation ("Parent" as hereinafter further defined and together with any other
Person that at any time after the date hereof becomes a Guarantor, each
individually a "Guarantor" and collectively, "Guarantors" as hereinafter further
defined), the parties hereto from time to time as lenders, whether by execution
of this Agreement or an Assignment and Acceptance (each individually, a "Lender"
and collectively, "Lenders" as hereinafter further defined) and Wachovia Capital
Finance Corporation (Western), California corporation, in its capacity as agent
for Lenders (in such capacity, "Agent" as hereinafter further defined).
W I T N E S S E T H:
WHEREAS, Borrowers and Guarantors desire that Agent and Lenders enter
into financing arrangements with Borrowers pursuant to which Lenders may make
loans and provide other financial accommodations to Borrowers; and
WHEREAS, each Lender is willing to agree (severally and not jointly) to
make such loans and provide such financial accommodations to Borrowers on a pro
rata basis according to its Commitment (as defined below) on the terms and
conditions set forth herein and Agent is willing to act as agent for Lenders on
the terms and conditions set forth herein and the other Financing Agreements;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1. "Accounts" shall mean, as to each Borrower and Guarantor, all
present and future rights of such Borrower and Guarantor to payment of a
monetary obligation, whether or not earned by performance, which is not
evidenced by chattel paper or an instrument, (a) for property that has been or
is to be sold, leased, licensed, assigned, or otherwise disposed of, (b) for
services rendered or to be rendered, (c) for a secondary obligation incurred or
to be incurred, or (d) arising out of the use of a credit or charge card or
information contained on or for use with the card.
1.2. "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan comprising part of the same
borrowing (including conversions, extensions and renewals), the rate per annum
determined by dividing (a) the London Interbank Offered Rate for such Interest
Period by (b) a percentage equal to: (i) one (1) minus (ii) the
Reserve Percentage. For purposes hereof, "Reserve Percentage" shall mean for any
day, that percentage, (expressed as a decimal) which is in effect from time to
time under Regulation D of the Board of Governors of the Federal Reserve System
(or any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including, without
limitation, any basic, supplemental, emergency, special, or marginal reserves)
applicable with respect to Eurocurrency liabilities as that term is defined in
Regulation D (or against any other category of liabilities that includes
deposits by reference to which the interest rate of Eurodollar Loans is
determined), whether or not any Lender has any Eurocurrency liabilities subject
to such reserve requirement at that time. Eurodollar Loans shall be deemed to
constitute Eurocurrency liabilities and as such shall be deemed subject to
reserve requirements without benefits of credits for proration, exceptions or
offsets that may be available from time to time to a Lender. The Adjusted
Eurodollar Rate shall be adjusted automatically on and as of the effective date
of any change in the Reserve Percentage.
1.3. "Administrative Borrower" shall mean Commerce Energy, Inc., a
California corporation in its capacity as Administrative Borrower on behalf of
itself and the other Borrowers pursuant to Section 6.8 hereof and its successors
and assigns in such capacity.
1.4. "Affiliate" shall mean, with respect to a specified Person, any
other Person which directly or indirectly, through one or more intermediaries,
controls or is controlled by or is under common control with such Person, and
without limiting the generality of the foregoing, includes (a) any Person which
beneficially owns or holds ten (10%) percent or more of any class of Voting
Stock of such Person or other equity interests in such Person, (b) any Person of
which such Person beneficially owns or holds ten (10%) percent or more of any
class of Voting Stock or in which such Person beneficially owns or holds ten
(10%) percent or more of the equity interests and (c) any director or executive
officer of such Person. For the purposes of this definition, the term "control"
(including with correlative meanings, the terms "controlled by" and "under
common control with"), as used with respect to any Person, means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of Voting
Stock, by agreement or otherwise.
1.5. "Agent" shall mean Wachovia Capital Finance Corporation (Western),
in its capacity as agent on behalf of Lenders pursuant to the terms hereof and
any replacement or successor agent hereunder.
1.6. "Agent Payment Account" shall mean account no. 5000000030321 of
Agent at Wachovia Bank, National Association, or such other account of Agent as
Agent may from time to time designate to Administrative Borrower as the Agent
Payment Account for purposes of this Agreement and the other Financing
Agreements.
1.7. "Assignment and Acceptance" shall mean an Assignment and Acceptance
substantially in the form of Exhibit A attached hereto (with blanks
appropriately completed) delivered to Agent in connection with an assignment of
a Lender's interest hereunder in accordance with the provisions of Section 13.7
hereof.
2
1.8. "Blocked Accounts" shall mean deposit account number 200003260287
at Wachovia Bank, National Association and any other deposit account designated
by Agent and Borrowers as a Blocked Account for purposes of this Agreement,
which shall in each case be subject to a Deposit Account Control Agreement
prohibiting any withdrawals therefrom (other than to the Blocked Securities
Accounts) without the authorization of Agent.
1.9. "Blocked Securities Account" shall mean securities account number
4933-9714 at Wachovia Securities and any other securities account designated by
Agent and Borrowers as a Blocked Securities Account for purposes of this
Agreement, which shall in each case be subject to an Investment Property Control
Agreement prohibiting any withdrawals therefrom (other than to the Blocked
Accounts) without the authorization of Agent.
1.10. "Borrowers" shall mean, collectively, the following (together with
their respective successors and assigns): (a) Commerce Energy, Inc., a
California corporation; and (b) any other Person that at any time after the date
hereof becomes a Borrower; each sometimes being referred to herein individually
as a "Borrower".
1.11. "Borrowing Base" shall mean, at any time, the amount equal to: (i)
eighty-five (85%) percent of the Eligible Billed Accounts, plus (ii) the lesser
of $12,000,000 or sixty-five (65%) percent of the Eligible Unbilled Accounts,
plus (iii) the lesser of the Inventory Loan Limit or seventy (70%) percent
multiplied by the Value of the Eligible Inventory, plus the lesser of
$35,000,000 or ninety-five (95%) percent of Eligible Cash Collateral, and minus
all Reserves.
1.12. "Business Day" shall mean any day other than a Saturday, Sunday,
or other day on which commercial banks are authorized or required to close under
the laws of the State of California or the State of North Carolina, and a day on
which Agent is open for the transaction of business, except that if a
determination of a Business Day shall relate to any Eurodollar Rate Loans, the
term Business Day shall also exclude any day on which banks are closed for
dealings in dollar deposits in the London interbank market or other applicable
Eurodollar Rate market.
1.13. "Capital Expenditures" shall mean, for any period, any expenditure
of money under a Capital Lease or for the lease, purchase or other acquisition
of any capital asset, for the lease of any other asset, whether payable
currently or in the future, or for the purchase or construction of assets, or
for improvements or additions thereto, which in each of the foregoing cases is
capitalized on a Person's balance sheet in accordance with GAAP.
1.14. "Capital Leases" shall mean, as applied to any Person, any lease
of (or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is
required to be reflected as a liability on the balance sheet of such Person.
1.15. "Capital Stock" shall mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's capital stock or partnership, limited liability company or
other equity interests at any time outstanding, and any and all rights, warrants
or options exchangeable for or convertible into such capital stock or other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
3
1.16. "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of ninety (90) days or less issued or directly
and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof; provided, that, the full faith and credit of the United
States of America is pledged in support thereof; (b) certificates of deposit or
bankers' acceptances with a maturity of ninety (90) days or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and surplus and undivided profits of not less than
$1,000,000,000; (c) commercial paper (including variable rate demand notes) with
a maturity of ninety (90) days or less issued by a corporation (except an
Affiliate of any Borrower or Guarantor) organized under the laws of any State of
the United States of America or the District of Columbia and rated at least A-1
by Standard & Poor's Ratings Service, a division of The McGraw-Hill Companies,
Inc. or at least P-1 by Moody's Investors Service, Inc.; (d) repurchase
obligations with a term of not more than ninety (90) days for underlying
securities of the types described in clause (a) above entered into with any
financial institution having combined capital and surplus and undivided profits
of not less than $1,000,000,000; (e) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within ninety (90) days or less
from the date of acquisition; provided, that, the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions with Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985; and (f) investments in money
market funds and mutual funds which invest substantially all of their assets in
securities of the types described in clauses (a) through (e) above.
1.17. "Change of Control" shall mean (a) the transfer (in one
transaction or a series of transactions) of all or substantially all of the
assets of any Borrower or Guarantor to any Person or group (as such term is used
in Section 13(d)(3) of the Exchange Act), other than as permitted in Section 9.7
hereof; (b) the liquidation or dissolution of any Borrower or Guarantor or the
adoption of a plan by the stockholders of any Borrower or Guarantor relating to
the dissolution or liquidation of such Borrower or Guarantor, other than as
permitted in Section 9.7 hereof; (c) the acquisition by any Person or group (as
such term is used in Section 13(d)(3) of the Exchange Act), of beneficial
ownership, directly or indirectly, of a majority of the voting power of the
total outstanding Voting Stock of Parent; or (d) the failure of Parent to own
directly or indirectly one hundred (100%) percent of the voting power of the
total outstanding Voting Stock of any Borrower or other Guarantor.
1.18. "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.19. "Collateral" shall have the meaning set forth in Section 5 hereof.
1.20. "Collateral Access Agreement" shall mean an agreement in writing,
in form and substance satisfactory to Agent, from any lessor of premises to any
Borrower or Guarantor, or any other person to whom any Collateral is consigned
or who has custody, control or possession of any such Collateral or is otherwise
the owner or operator of any premises on which any of
4
such Collateral is located, in favor of Agent with respect to the Collateral at
such premises or otherwise in the custody, control or possession of such lessor,
consignee or other person.
1.21. "Commitment" shall mean, at any time, as to each Lender, the
principal amount set forth below such Lender's signature on the signatures pages
hereto designated as the Commitment or on Schedule 1 to the Assignment and
Acceptance Agreement pursuant to which such Lender became a Lender hereunder in
accordance with the provisions of Section 13.7 hereof, as the same may be
adjusted from time to time in accordance with the terms hereof; sometimes being
collectively referred to herein as "Commitments".
1.22. "Controlled Foreign Corporation" shall mean a "controlled foreign
corporation" as defined in the Code.
1.23. "Credit Facility" shall mean the Loans and Letters of Credit
provided to or for the benefit of any Borrower pursuant to Sections 2.1 and 2.2
hereof.
1.24. "Default" shall mean an act, condition or event which with notice
or passage of time or both would constitute an Event of Default.
1.25. "Defaulting Lender" shall have the meaning set forth in Section
6.11 hereof.
1.26. "Deposit Account Control Agreement" shall mean an agreement in
writing, in form and substance satisfactory to Agent, by and among Agent, the
Borrower or Guarantor with a deposit account at any bank and the bank at which
such deposit account is at any time maintained which provides that such bank
will comply with instructions originated by Agent directing disposition of the
funds in the deposit account without further consent by such Borrower or
Guarantor and has such other terms and conditions as Agent may require.
1.27. "EBITDA" shall mean, as to Parent and its Subsidiaries, with
respect to any period, an amount equal to: (a) the Net Income of Parent and its
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP, plus (b) depreciation, amortization and other non-cash charges
(including, but not limited to, imputed interest and deferred compensation) of
Parent and its Subsidiaries for such period (to the extent deducted in the
computation of Net Income), all in accordance with GAAP, plus (c) Interest
Expense of Parent and its Subsidiaries for such period (to the extent deducted
in the computation of Net Income), plus (d) charges for Federal, State, local
and foreign income taxes for such period (to the extent deducted in the
computation of Net Income).
1.28. "Eligible Accounts" shall mean Accounts created by a Borrower that
in each case satisfy the criteria set forth below as determined by Agent. In
general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by such Borrower or rendition of services by such Borrower in
the ordinary course of its business which transactions are completed in
accordance with the terms and provisions contained in any documents related
thereto;
5
(b) such Accounts are not unpaid more than sixty (60) days after
the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(b) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office or personal residence (as
applicable) of the account debtor with respect to such Accounts is located in
the United States of America or Canada (provided, that, at any time promptly
upon Agent's request, such Borrower shall execute and deliver, or cause to be
executed and delivered, such other agreements, documents and instruments as may
be required by Agent to perfect the security interests of Agent in those
Accounts of an account debtor with its chief executive office or principal place
of business in Canada in accordance with the applicable laws of the Province of
Canada in which such chief executive office or principal place of business is
located and take or cause to be taken such other and further actions as Agent
may request to enable Agent as secured party with respect thereto to collect
such Accounts under the applicable Federal or Provincial laws of Canada) or, at
Agent's option, if the chief executive office and principal place of business of
the account debtor with respect to such Accounts is located other than in the
United States of America or Canada, then if either: (i) the account debtor has
delivered to such Borrower an irrevocable letter of credit issued or confirmed
by a bank satisfactory to Agent and payable only in the United States of America
and in U.S. dollars, sufficient to cover such Account, in form and substance
satisfactory to Agent and if required by Agent, the original of such letter of
credit has been delivered to Agent or Agent's agent and the issuer thereof, and
such Borrower has complied with the terms of Section 5.2(f) hereof with respect
to the assignment of the proceeds of such letter of credit to Agent or naming
Agent as transferee beneficiary thereunder, as Agent may specify, or (ii) such
Account is subject to credit insurance payable to Agent issued by an insurer and
on terms and in an amount acceptable to Agent, or (iii) such Account is
otherwise acceptable in all respects to Agent (subject to such lending formula
with respect thereto as Agent may determine);
(f) such Accounts do not consist of progress billings (such that
the obligation of the account debtors with respect to such Accounts is
conditioned upon such Borrower's satisfactory completion of any further
performance under the agreement giving rise thereto), bill and hold invoices or
retainage invoices, except as to bill and hold invoices, if Agent shall have
received an agreement in writing from the account debtor, in form and substance
satisfactory to Agent, confirming the unconditional obligation of the account
debtor to take the goods related thereto and pay such invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and is not owed or does not claim to
be owed any amounts that may give rise to any right of setoff or recoupment
against such Accounts (but the portion of the Accounts of such account debtor in
excess of the amount at any time and from time to time owed by such Borrower to
such account debtor or claimed owed by such account debtor may be deemed
Eligible Accounts);
6
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or reduce the
amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Agent and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts is an officer, employee, agent
or other Affiliate of any Borrower or Guarantor;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Agent's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Agent, provided, that, the Accounts described in this clause (k)
will be deemed ineligible pursuant to this clause (k) only to the extent such
Accounts exceed One Million Dollars ($1,000,000) in the aggregate outstanding at
any time, and provided, further, that Accounts owing by any State, political
subdivision, department, agency or instrumentality thereof will not be deemed
ineligible pursuant to this clause (k) nor applied to the foregoing One Million
Dollars ($1,000,000) basket unless Agent has notified Borrowers that such
Accounts are subject to a law similar to the Federal Assignment of Claims Act of
1940;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors (other than consumer debtors) with respect
to such Accounts which might result in any material adverse change in any such
account debtor's financial condition (including, without limitation, any
bankruptcy, dissolution, liquidation, reorganization or similar proceeding);
(m) the aggregate amount of such Accounts owing by a single
account debtor do not constitute more than ten (10%) percent of the aggregate
amount of all otherwise Eligible Accounts (but the portion of the Accounts not
in excess of the applicable percentages may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than sixty (60) days after the original invoice date for
them which constitute more than fifty (50%) percent of the total Accounts of
such account debtor;
(o) the account debtor is not located in a state requiring the
filing of a Notice of Business Activities Report or similar report in order to
permit such Borrower to seek judicial enforcement in such State of payment of
such Account, unless such Borrower has qualified to do business in such state or
has filed a Notice of Business Activities Report or equivalent report for the
then current year or such failure to file and inability to seek judicial
enforcement is capable of being remedied without any material delay or material
cost;
7
(p) such Accounts are owed by account debtors whose total
indebtedness to such Borrower does not exceed the credit limit with respect to
such account debtors as determined by such Borrower from time to time, to the
extent such credit limit as to any account debtor is established consistent with
the current practices of such Borrower as of the date hereof and such credit
limit is acceptable to Agent (but the portion of the Accounts not in excess of
such credit limit may be deemed Eligible Accounts); and
(q) such Accounts are owed by account debtors (other than
consumer debtors) deemed creditworthy at all times by Agent in good faith.
The criteria for Eligible Accounts set forth above may only be changed
and any new criteria for Eligible Accounts may only be established by Agent in
good faith based on either: (i) an event, condition or other circumstance
arising after the date hereof, or (ii) an event, condition or other circumstance
existing on the date hereof to the extent Agent has no written notice thereof
from a Borrower prior to the date hereof, in either case under clause (i) or
(ii) which adversely affects or could reasonably be expected to adversely affect
the Accounts in the good faith determination of Agent. Any Accounts that are not
Eligible Accounts shall nevertheless be part of the Collateral.
1.29. "Eligible Billed Accounts" shall mean Eligible Accounts for which
an invoice has been issued.
1.30. "Eligible Cash Collateral" shall mean cash maintained in a Blocked
Account and cash or Cash Equivalents maintained in a Blocked Securities Account.
1.31. "Eligible Inventory" shall mean, as to each Borrower, Inventory of
such Borrower consisting of natural gas held for resale in the ordinary course
of the business of such Borrower, that in each case satisfy the criteria set
forth below as determined by Agent. In general, Eligible Inventory shall not
include: (a) spare parts for equipment; (b) packaging and shipping materials;
(c) supplies used or consumed in such Borrower's business; (d) Inventory at
premises other than those owned or leased and controlled by any Borrower, unless
covered by a Collateral Access Agreement or held by a utility for delivery to
any Borrower's customers; (e) Inventory subject to a security interest or lien
in favor of any Person other than Agent except those permitted in this
Agreement; (f) bill and hold Inventory; (g) Inventory that is not subject to the
first priority, valid and perfected security interest of Agent; (h) returned,
damaged and/or defective Inventory; (i) Inventory purchased or sold on
consignment and (j) Inventory located outside the United States of America. The
criteria for Eligible Inventory set forth above may only be changed and any new
criteria for Eligible Inventory may only be established by Agent in good faith
based on either: (i) an event, condition or other circumstance arising after the
date hereof, or (ii) an event, condition or other circumstance existing on the
date hereof to the extent Agent has no written notice thereof from a Borrower
prior to the date hereof, in either case under clause (i) or (ii) which
adversely affects or could reasonably be expected to adversely affect the
Inventory in the good faith determination of Agent. Any Inventory that is not
Eligible Inventory shall nevertheless be part of the Collateral.
1.32. "Eligible Transferee" shall mean (a) any Lender; (b) the parent
company of any Lender and/or any Affiliate of such Lender which is at least
fifty (50%) percent owned by such
8
Lender or its parent company; (c) any person (whether a corporation,
partnership, trust or otherwise) that is engaged in the business of making,
purchasing, holding or otherwise investing in bank loans and similar extensions
of credit in the ordinary course of its business and is administered or managed
by a Lender or with respect to any Lender that is a fund which invests in bank
loans and similar extensions of credit, any other fund that invests in bank
loans and similar extensions of credit and is managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor, and in
each case is approved by Agent and, so long as no Event of Default has occurred
and is continuing, approved by Borrowers (such approval by Borrowers not to be
unreasonably withheld or delayed); and (d) any other commercial bank, financial
institution or "accredited investor" (as defined in Regulation D under the
Securities Act of 1933) approved by Agent and, so long as no Event of Default
has occurred and is continuing, approved by Borrowers (such approval by
Borrowers not to be unreasonably withheld or delayed), provided, that, (i)
neither any Borrower nor any Guarantor or any Affiliate of any Borrower or
Guarantor shall qualify as an Eligible Transferee and (ii) no Person to whom any
Indebtedness which is in any way subordinated in right of payment to any other
Indebtedness of any Borrower or Guarantor shall qualify as an Eligible
Transferee, except as Agent may otherwise specifically agree.
1.33. "Eligible Unbilled Accounts" shall mean Eligible Accounts for
electricity or natural gas delivered to account debtors but for which an invoice
has not yet been issued, so long as an invoice is issued therefor in the
ordinary course of business on a monthly basis.
1.34. "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between any Borrower or
Guarantor and any Governmental Authority, (a) relating to pollution and the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, ground water, drinking water, drinking water supply,
surface land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, (b) relating to the exposure to, or the
use, storage, recycling, treatment, generation, manufacture, processing,
distribution, transportation, handling, labeling, production, release or
disposal, or threatened release, of Hazardous Materials, or (c) relating to all
laws with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Materials. The term "Environmental Laws"
includes (i) the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Federal Superfund Amendments and Reauthorization Act,
the Federal Water Pollution Control Act of 1972, the Federal Clean Water Act,
the Federal Clean Air Act, the Federal Resource Conservation and Recovery Act of
1976 (including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.35. "Equipment" shall mean, as to each Borrower and Guarantor, all of
such Borrower's and Guarantor's now owned and hereafter acquired equipment,
wherever located, including machinery, data processing and computer equipment
(whether owned or licensed and
9
including embedded software), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.36. "ERISA" shall mean the Employee Retirement Income Security Act of
1974, together with all rules, regulations and interpretations thereunder or
related thereto.
1.37. "ERISA Affiliate" shall mean any person required to be aggregated
with any Borrower, any Guarantor or any of its or their respective Subsidiaries
under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.
1.38. "ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043(c) of ERISA or the regulations issued thereunder, with respect to a
Pension Plan, other than events as to which the requirement of notice has been
waived in regulations by the Pension Benefit Guaranty Corporation; (b) the
adoption of any amendment to a Pension Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c)
a complete or partial withdrawal by any Borrower, Guarantor or any ERISA
Affiliate from a Multiemployer Plan or a cessation of operations which is
treated as such a withdrawal or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Pension Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the Pension Benefit Guaranty
Corporation to terminate a Pension Plan; (e) an event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan; (f) the
imposition of any liability under Title IV of ERISA, other than the Pension
Benefit Guaranty Corporation premiums due but not delinquent under Section 4007
of ERISA, upon any Borrower, Guarantor or any ERISA Affiliate in excess of
$200,000 and (g) any other event or condition with respect to a Plan including
any Pension Plan subject to Title IV of ERISA maintained, or contributed to, by
any ERISA Affiliate that could reasonably be expected to result in liability of
any Borrower in excess of $200,000.
1.39. "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.40. "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.41. "Excess Availability" shall mean the amount, as determined by
Agent, calculated at any date, equal to: (a) the lesser of: (i) the Borrowing
Base and (ii) the Revolving Loan Limit (in each case under (i) or (ii) after
giving effect to any Reserves other than any Reserves in respect of Letter of
Credit Obligations), minus (b) the sum of: (i) the amount of all then
outstanding and unpaid Obligations of Borrowers (but not including for this
purpose any outstanding Letter of Credit Obligations), plus (ii) the amount of
all Reserves then established in respect of Letter of Credit Obligations, plus,
but only for the purposes set forth in Section 4.1(g) hereof, (iii) the
aggregate amount of all then outstanding and unpaid trade payables and other
obligations of Borrowers which are outstanding more than sixty (60) days past
due as of the end of the immediately preceding month or at Agent's option, as of
a more recent date based on such reports as Agent may from time to time specify
(other than trade payables or other obligations
10
being contested or disputed by Borrowers in good faith), plus (iv) without
duplication, the amount of checks issued by Borrowers to pay trade payables and
other obligations which are more than sixty (60) days past due as of the end of
the immediately preceding month or at Agent's option, as of a more recent date
based on such reports as Agent may from time to time specify (other than trade
payables or other obligations being contested or disputed by Borrowers in good
faith), but not yet sent.
1.42. "Exchange Act" shall mean the Securities Exchange Act of 1934,
together with all rules, regulations and interpretations thereunder or related
thereto.
1.43. "Existing Letters of Credit" shall mean, collectively, the letters
of credit issued for the account of a Borrower or Guarantor or for which such
Borrower or Guarantor is otherwise liable listed on Schedule 1.43 hereto, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.44. "Fee Letter" shall mean the letter agreement, dated of even date
herewith, by and among Borrowers, Guarantors and Agent, setting forth certain
fees payable by Borrowers to Agent for the benefit of itself and Lenders, as the
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
1.45. "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements, deposit account control
agreements, investment property control agreements, intercreditor agreements and
all other agreements, documents and instruments now or at any time hereafter
executed and/or delivered by any Borrower or Guarantor in connection with this
Agreement.
1.46. "Fixed Charge Coverage Ratio" shall mean, as to Parent and its
Subsidiaries, with respect to any period, the ratio of (a) EBITDA, less their
cash payments for taxes, less their unfinanced Capital Expenditures, to (b) the
sum of all scheduled principal payments made by them on account of any
Indebtedness, plus their Interest Expense, plus their management and director
fees, plus any cash dividends (all of the foregoing calculated on a consolidated
basis for such period in accordance with GAAP).
1.47. "Foreign Lender" shall mean any Lender that is organized under the
laws of a jurisdiction other than that in which a Borrower is resident for tax
purposes. For purposes of this definition, the United States of America, each
State thereof and the District of Columbia shall be deemed to constitute a
single jurisdiction.
1.48. "Funding Bank" shall have the meaning given to such term in
Section 3.3 hereof.
1.49. "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.17 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the most recent audited financial statements delivered to
Agent prior to the date hereof.
11
1.50. "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
1.51. "Guarantors" shall mean, collectively, the following (together
with their respective successors and assigns): (a) Commerce Energy Group, Inc.,
a Delaware corporation; and (b) any other Person that at any time after the date
hereof becomes party to a guarantee in favor of Agent or any Lender or otherwise
liable on or with respect to the Obligations or who is the owner of any property
which is security for the Obligations (other than Borrowers); each sometimes
being referred to herein individually as a "Guarantor".
1.52. "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.53. "Indebtedness" shall mean, with respect to any Person, any
liability, whether or not contingent, (a) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion thereof) or evidenced by bonds, notes, debentures or
similar instruments; (b) representing the balance deferred and unpaid of the
purchase price of any property or services (other than an account payable to a
trade creditor (whether or not an Affiliate) incurred in the ordinary course of
business of such Person and payable in accordance with customary trade
practices); (c) all obligations as lessee under leases which have been, or
should be, in accordance with GAAP recorded as Capital Leases; (d) any
contractual obligation, contingent or otherwise, of such Person to pay or be
liable for the payment of any indebtedness described in this definition of
another Person, including, without limitation, any such indebtedness, directly
or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise
acquire such indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof, or to maintain solvency,
assets, level of income, or other financial condition; (e) all obligations with
respect to redeemable stock and redemption or repurchase obligations under any
Capital Stock or other equity securities issued by such Person; (f) all
reimbursement obligations and other liabilities of such Person with respect to
surety bonds (whether bid, performance or otherwise), letters of credit,
banker's acceptances, drafts or similar documents or instruments issued for such
Person's account; (g) all indebtedness of such Person in respect of indebtedness
of another Person for borrowed money or indebtedness of another Person otherwise
described in this definition which is secured by any consensual lien, security
interest, collateral assignment, conditional sale, mortgage, deed of trust, or
other encumbrance on any asset of such Person, whether or not such obligations,
liabilities or indebtedness are assumed by or are a personal liability of such
Person, all as of such time; (h) all obligations, liabilities and indebtedness
of such Person (marked to market) arising under swap agreements, cap agreements
and collar agreements and other
12
agreements or arrangements designed to protect such person against fluctuations
in interest rates or currency or commodity values; (i) all obligations owed by
such Person under License Agreements with respect to non-refundable, advance or
minimum guarantee royalty payments; (j) indebtedness of any partnership or joint
venture in which such Person is a general partner or a joint venturer to the
extent such Person is liable therefor as a result of such Person's ownership
interest in such entity, except to the extent that the terms of such
indebtedness expressly provide that such Person is not liable therefor or such
Person has no liability therefor as a matter of law and (k) the principal and
interest portions of all rental obligations of such Person under any synthetic
lease or similar off-balance sheet financing where such transaction is
considered to be borrowed money for tax purposes but is classified as an
operating lease in accordance with GAAP.
1.54. "Information Certificate" shall mean, collectively, the
Information Certificate of Borrowers and Guarantors constituting Exhibit B
hereto containing material information with respect to Borrowers and Guarantors,
their respective businesses and assets provided by or on behalf of Borrowers and
Guarantors to Agent in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.55. "Intellectual Property" shall mean, as to each Borrower and
Guarantor, such Borrower's and Guarantor's now owned and hereafter arising or
acquired: patents, patent rights, patent applications, copyrights, works which
are the subject matter of copyrights, copyright applications, copyright
registrations, trademarks, servicemarks, trade names, trade styles, trademark
and service mark applications, and licenses and rights to use any of the
foregoing and all applications, registrations and recordings relating to any of
the foregoing as may be filed in the United States Copyright Office, the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof, any political subdivision thereof or in any
other country or jurisdiction, together with all rights and privileges arising
under applicable law with respect to any Borrower's or Guarantor's use of any of
the foregoing; all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to sue for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill (including any goodwill
associated with any trademark or servicemark, or the license of any trademark or
servicemark); customer and other lists in whatever form maintained; trade secret
rights, copyright rights, rights in works of authorship, domain names and domain
name registration; software and contract rights relating to computer software
programs, in whatever form created or maintained.
1.56. "Interest Expense" shall mean, for any period, as to any Person
and its Subsidiaries, as determined in accordance with GAAP, total interest
expense, whether paid or accrued (including the interest component of Capital
Leases for such period), including, without limitation, all bank fees,
commissions, discounts and other fees and charges owed with respect to letters
of credit, banker's acceptances or similar instruments, but excluding (a)
amortization of discount and amortization of deferred financing fees and closing
costs paid in cash in connection with the transactions contemplated hereby, (b)
interest paid in property other than cash and (c) any other interest expense not
payable in cash.
13
1.57. "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as any
Borrower (or Administrative Borrower on behalf of such Borrower) may elect, the
exact duration to be determined in accordance with the customary practice in the
applicable Eurodollar Rate market; provided, that, such Borrower (or
Administrative Borrower on behalf of such Borrower) may not elect an Interest
Period which will end after the last day of the then-current term of this
Agreement.
1.58. "Interest Rate" shall mean,
(a) Subject to clause (b) of this definition below:
(i) as to Prime Rate Loans, a rate equal to one quarter
of one (0.25%) percent per annum in excess of the Prime Rate,
(ii) as to Eurodollar Rate Loans, a rate equal to two
and three-quarters (2.75%) percent per annum in excess of the Adjusted
Eurodollar Rate (in each case, based on the London Interbank Offered Rate
applicable for the Interest Period selected by a Borrower, or by Administrative
Borrower on behalf of such Borrower, as in effect two (2) Business Days prior to
the commencement of the Interest Period, whether such rate is higher or lower
than any rate previously quoted to any Borrower or Guarantor).
(b) Notwithstanding anything to the contrary contained in clause
(a) of this definition, the Interest Rate shall mean the rate of two and one
quarter (2.25%) percent per annum in excess of the Prime Rate as to Prime Rate
Loans and the rate of four and three quarters (4.75%) percent per annum in
excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Agent's
option, without notice, (i) either (A) for the period on and after the date of
termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid and satisfied in full in immediately available funds, or (B)
for the period from and after the date of the occurrence of any Event of
Default, and for so long as such Event of Default is continuing as reasonably
determined by Agent or (ii) on the Revolving Loans to any Borrower at any time
outstanding in excess of the Borrowing Base of such Borrower or the Revolving
Loan Limit (whether or not such excess(es) arise or are made with or without
Agent's or any Lender's knowledge or consent and whether made before or after an
Event of Default).
1.59. "Inventory" shall mean, as to each Borrower and Guarantor, all of
such Borrower's and Guarantor's now owned and hereafter existing or acquired
goods, wherever located, which (a) are leased by such Borrower or Guarantor as
lessor; (b) are held by such Borrower or Guarantor for sale or lease or to be
furnished under a contract of service; (c) are furnished by such Borrower or
Guarantor under a contract of service; or (d) consist of raw materials, work in
process, finished goods or materials used or consumed in its business.
1.60. "Inventory Loan Limit" shall mean the amount of $8,000,000.
1.61. "Investment Property Control Agreement" shall mean an agreement in
writing, in form and substance satisfactory to Agent, by and among Agent, any
Borrower or Guarantor (as the case may be) and any securities intermediary,
commodity intermediary or other person who has custody, control or possession of
any investment property of such Borrower or Guarantor acknowledging that such
securities intermediary, commodity intermediary or other person has
14
custody, control or possession of such investment property on behalf of Agent,
that it will comply with entitlement orders originated by Agent with respect to
such investment property, or other instructions of Agent, and has such other
terms and conditions as Agent may require.
1.62. "Lenders" shall mean the financial institutions who are
signatories hereto as Lenders and other persons made a party to this Agreement
as a Lender in accordance with Section 13.7 hereof, and their respective
successors and assigns; each sometimes being referred to herein individually as
a "Lender".
1.63. "Letter of Credit Documents" shall mean, with respect to any
Letter of Credit, such Letter of Credit, any amendments thereto, any documents
delivered in connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in application or
applicable only to such Letter of Credit) governing or providing for (a) the
rights and obligations of the parties concerned or at risk or (b) any collateral
security for such obligations.
1.64. "Letter of Credit Limit" shall mean Fifty Million Dollars
($50,000,000).
1.65. "Letter of Credit Obligations" shall mean, at any time, the sum of
(a) the aggregate undrawn amount of all Letters of Credit outstanding at such
time, plus (b) the aggregate amount of all drawings under Letters of Credit for
which the issuer thereof has not at such time been reimbursed, plus (c) without
duplication, the aggregate amount of all payments made by each Lender to the
issuer with respect to such Lender's participation in Letters of Credit as
provided in Section 2.2 for which Borrowers have not at such time reimbursed the
Lenders, whether by way of a Revolving Loan or otherwise.
1.66. "Letter of Credit Rate" shall mean, for any month, the following
rates based upon the average daily Excess Availability (calculated without
giving effect to the Revolving Loan Limit) during the immediately preceding
month: (a) one and three quarters (1.75%) percent per annum if such average
daily Excess Availability is less than or equal to $25,000,000; and (b) one and
one half (1.50%) percent per annum if such average daily Excess Availability is
greater than $25,000,000; provided, that, the Letter of Credit Rate shall be two
(2.0%) percent per annum higher than the applicable rate set forth above, at
Agent's option, without notice, (i) either (A) for the period on and after the
date of termination or non-renewal hereof until such time as all Obligations are
indefeasibly paid and satisfied in full in immediately available funds, or (B)
for the period from and after the date of the occurrence of any Event of
Default, and for so long as such Event of Default is continuing as reasonably
determined by Agent or (ii) on the Letter of Credit Obligations at any time
outstanding in excess of the Borrowing Base or the Revolving Loan Limit (whether
or not such excess(es) arise or are made with or without Agent's or any Lender's
knowledge or consent and whether made before or after an Event of Default).
1.67. "Letters of Credit" shall mean all letters of credit (whether
documentary or stand-by and whether for the purchase of inventory, equipment or
otherwise) issued by an issuer for the account of any Borrower pursuant to this
Agreement, and all amendments, renewals, extensions or replacements thereof and
including, but not limited to, the Existing Letters of Credit. The issuer of the
Letters of Credit shall be, and all references to such issuer herein shall mean,
15
Wachovia Bank, National Association and its successors and assigns or such other
bank as Lender may from time to time designate.
1.68. "License Agreements" shall have the meaning set forth in Section
8.11 hereof.
1.69. "Loans" shall mean, collectively, the Revolving Loans.
1.70. "Lockbox Accounts" shall have the meaning set forth in Section
6.3(a) hereof.
1.71. "London Interbank Offered Rate" shall mean, with respect to any
Eurodollar Loan for the Interest Period applicable thereto, the rate of interest
per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing
on Telerate Page 3750 (or any successor page) as the London interbank offered
rate for deposits in U.S. Dollars at approximately 11:00 A.M. (London time) two
(2) Business Days prior to the first day of such Interest Period for a term
comparable to such Interest Period; provided, that, if more than one rate is
specified on Telerate Page 3750, the applicable rate shall be the arithmetic
mean of all such rates. If, for any reason, such rate is not available, the term
"London Interbank Offered Rate" shall mean, with respect to any Eurodollar Loan
for the Interest Period applicable thereto, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters
Screen LIBO Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 A.M. (London time) two (2) Business Days prior to the first
day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such rates.
1.72. "Material Adverse Effect" shall mean a material adverse effect on
(a) the financial condition, business, performance or operations of Borrowers;
(b) the legality, validity or enforceability of this Agreement or any of the
other Financing Agreements; (c) the legality, validity, enforceability,
perfection or priority of the security interests and liens of Agent upon the
Collateral; (d) the Collateral or its value; (e) the ability of any Borrower to
repay the Obligations or of any Borrower to perform its obligations under this
Agreement or any of the other Financing Agreements as and when to be performed;
or (f) the ability of Agent or any Lender to enforce the Obligations or realize
upon the Collateral or otherwise with respect to the rights and remedies of
Agent and Lenders under this Agreement or any of the other Financing Agreements.
1.73. "Material Contract" shall mean any contract or other written
agreement of any Borrower or Guarantor as required to be filed with the
Securities and Exchange Commission pursuant to the Parent's obligations as a
publicly reporting company in any fiscal year and any other contract or other
agreement, whether written or oral, to which any Borrower or Guarantor is a
party as to which the breach, nonperformance, cancellation or failure to renew
by any party thereto would have a Material Adverse Effect on the validity or
enforceability of any agreements of such Borrower or Guarantor with Agent or any
Lender or any of the rights and remedies of Agent or any Lender under any of
such agreements.
1.74. "Multiemployer Plan" shall mean a "multi-employer plan" as defined
in Section 4001(a)(3) of ERISA which is or was at any time during the current
year or the immediately preceding six (6) years contributed to by any Borrower,
Guarantor or any ERISA Affiliate or with respect to which any Borrower,
Guarantor or any ERISA Affiliate may incur any liability.
16
1.75. "Net Income" shall mean, with respect to any Person and its
Subsidiaries, for any period, the aggregate of the net income (loss) of such
Person and its Subsidiaries, on a consolidated basis, for such period (excluding
to the extent included therein any extraordinary or one-time gains or losses)
after deducting all charges which should be deducted before arriving at the net
income (loss) for such period and after deducting the Provision for Taxes for
such period, all as determined in accordance with GAAP, provided, that, (a) the
net income of any Person that is not a wholly-owned Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid or payable to such
Person or a wholly-owned Subsidiary of such Person; (b) the effect of any change
in accounting principles adopted by such Person or its Subsidiaries after the
date hereof shall be excluded; and (c) the net income (if positive) of any
wholly-owned Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such wholly-owned Subsidiary to such
Person or to any other wholly-owned Subsidiary of such Person is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule of government regulation applicable to
such wholly-owned Subsidiary shall be excluded. For the purpose of this
definition, net income excludes any gain or loss, together with any related
Provision for Taxes for such gain or loss realized upon the sale or other
disposition of any assets that are not sold in the ordinary course of business
(including, without limitation, dispositions pursuant to sale and leaseback
transactions), or of any Capital Stock of such Person or a Subsidiary of such
Person and any net income realized as a result of changes in accounting
principles or the application thereof to such Person.
1.76. "Obligations" shall mean any and all Loans, Letter of Credit
Obligations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by any or all of Borrowers to Agent or any
Lender and/or any of their Affiliates, including principal, interest, charges,
fees, costs and expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, arising under this Agreement or any of the
other Financing Agreements or on account of any Letter of Credit and all other
Letter of Credit Obligations, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the commencement of any case with respect to such Borrower
under the United States Bankruptcy Code or any similar statute (including the
payment of interest and other amounts which would accrue and become due but for
the commencement of such case, whether or not such amounts are allowed or
allowable in whole or in part in such case), whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, or secured or unsecured.
1.77. "Other Taxes" shall have the meaning given to such term in Section
6.5 hereof.
1.78. "Parent" shall mean Commerce Energy Group, Inc., a Delaware
corporation, and its successors and assigns.
1.79. "Participant" shall mean any financial institution that acquires
and holds a participation in the interest of any Lender in any of the Loans and
Letters of Credit in conformity with the provisions of Section 13.7 of this
Agreement governing participations.
1.80. "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Code), limited
17
liability company, limited liability partnership, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity or
any government or any agency or instrumentality or political subdivision
thereof.
1.81. "Pension Plan" shall mean a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which any Borrower or Guarantor
sponsors, maintains, or to which any Borrower, Guarantor or ERISA Affiliate
makes, is making, or is obligated to make contributions, other than a
Multiemployer Plan.
1.82. "Plan" shall mean an employee benefit plan (as defined in Section
3(3) of ERISA) which any Borrower or Guarantor sponsors, maintains, or to which
it makes, is making, or is obligated to make contributions, or in the case of a
Multiemployer Plan has made contributions at any time during the immediately
preceding six (6) plan years or with respect to which any Borrower or Guarantor
may incur liability.
1.83. "Prime Rate" shall mean the rate from time to time publicly
announced by Wachovia Bank, National Association, or its successors, as its
prime rate, whether or not such announced rate is the best rate available at
such bank.
1.84. "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.85. "Pro Rata Share" shall mean as to any Lender, the fraction
(expressed as a percentage) the numerator of which is such Lender's Commitment
and the denominator of which is the aggregate amount of all of the Commitments
of Lenders, as adjusted from time to time in accordance with the provisions of
Section 13.7 hereof; provided, that, if the Commitments have been terminated,
the numerator shall be the unpaid amount of such Lender's Loans and its interest
in the Letters of Credit and the denominator shall be the aggregate amount of
all unpaid Loans and Letters of Credit.
1.86. "Provision for Taxes" shall mean, with respect to any Person and
its Subsidiaries, for any period, an amount equal to all taxes imposed on or
measured by net income, whether Federal, State or local, and whether foreign or
domestic, that are paid or payable by such Person and its Subsidiaries in
respect of such period on a consolidated basis in accordance with GAAP.
1.87. "Real Property" shall mean all now owned and hereafter acquired
real property of each Borrower and Guarantor, including leasehold interests,
together with all buildings, structures, and other improvements located thereon
and all licenses, easements and appurtenances relating thereto, wherever
located.
1.88. "Receivables" shall mean all of the following now owned or
hereafter arising or acquired property of each Borrower and Guarantor: (a) all
Accounts; (b) all interest, fees, late charges, penalties, collection fees and
other amounts due or to become due or otherwise payable in connection with any
Account; (c) all payment intangibles of such Borrower or Guarantor; (d) letters
of credit, indemnities, guarantees, security or other deposits and proceeds
thereof issued payable to any Borrower or Guarantor or otherwise in favor of or
delivered to any Borrower or Guarantor in connection with any Account; or (e)
all other accounts, contract rights, chattel paper, instruments, notes, general
intangibles and other forms of obligations owing to any
18
Borrower or Guarantor, whether from the sale and lease of goods or other
property, licensing of any property (including Intellectual Property or other
general intangibles), rendition of services or from loans or advances by any
Borrower or Guarantor or to or for the benefit of any third person (including
loans or advances to any Affiliates or Subsidiaries of any Borrower or
Guarantor) or otherwise associated with any Accounts, Inventory or general
intangibles of any Borrower or Guarantor (including, without limitation, choses
in action, causes of action, tax refunds, tax refund claims, any funds which may
become payable to any Borrower or Guarantor in connection with the termination
of any Plan or other employee benefit plan and any other amounts payable to any
Borrower or Guarantor from any Plan or other employee benefit plan, rights and
claims against carriers and shippers, rights to indemnification, business
interruption insurance and proceeds thereof, casualty or any similar types of
insurance and any proceeds thereof and proceeds of insurance covering the lives
of employees on which any Borrower or Guarantor is a beneficiary).
1.89. "Records" shall mean, as to each Borrower and Guarantor, all of
such Borrower's and Guarantor's present and future books of account of every
kind or nature, purchase and sale agreements, invoices, ledger cards, bills of
lading and other shipping evidence, statements, correspondence, memoranda,
credit files and other data relating to the Collateral or any account debtor,
together with the tapes, disks, diskettes and other data and software storage
media and devices, file cabinets or containers in or on which the foregoing are
stored (including any rights of any Borrower or Guarantor with respect to the
foregoing maintained with or by any other person).
1.90. "Reference Bank" shall mean Wachovia Bank, National Association,
or such other bank as Agent may from time to time designate.
1.91. "Renewal Date" shall have the meaning set forth in Section 13.1
hereof.
1.92. "Register" shall have the meaning set forth in Section 13.7
hereof.
1.93. "Required Lenders" shall mean, at any time, those Lenders whose
Pro Rata Shares aggregate sixty-six and two-thirds (66 2/3%) percent or more of
the aggregate of the Commitments of all Lenders, or if the Commitments shall
have been terminated, Lenders to whom at least sixty-six and two-thirds (66
2/3%) percent of the then outstanding Obligations are owing.
1.94. "Reserves" shall mean as of any date of determination, such
amounts as Agent may from time to time establish and revise in good faith
reducing the amount of Revolving Loans and Letters of Credit which would
otherwise be available to any Borrower under the lending formula(s) provided for
herein: (a) to reflect events, conditions, contingencies or risks which, as
determined by Agent in good faith, adversely affect, or would have a reasonable
likelihood of adversely and materially affecting, either (i) the Collateral or
any other property which is security for the Obligations, its value or the
amount that might be received by Agent from the sale or other disposition or
realization upon such Collateral, or (ii) the security interests and other
rights of Agent or any Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Agent's good faith and
commercially reasonable belief that any collateral report (respecting the
Borrowing Base, the Eligible Accounts or the Eligible
19
Inventory) furnished by or on behalf of any Borrower or Guarantor to Agent is or
may have been incomplete, inaccurate or misleading in any material respect or
(c) to reflect outstanding Letters of Credit as provided in Section 2.2 hereof
or (d) in respect of any state of facts which Agent determines in good faith
constitutes a Default or an Event of Default. Without limiting the generality of
the foregoing, Reserves may, at Agent's option, be established to reflect:
dilution with respect to the Accounts (based on the ratio of the aggregate
amount of non-cash reductions in Accounts for any period to the aggregate dollar
amount of the sales of such Borrower for such period) as calculated by Agent for
any period is or is reasonably anticipated to be greater than five (5%) percent;
the amount by which the Value of Eligible Inventory (as reported by Borrowers to
Agent) may be less than its market value; the amounts owing to any utility that
is holding Eligible Inventory, net of any letters of credit or cash deposits
held by such utility for such amounts; if the sum of Excess Availability
(calculated without regard to the Revolving Loan Limit) and the amount of
Eligible Cash Collateral in excess of $35,000,000 is less than $15,000,000 at
any time, the amount of Pennsylvania gross receipts tax accrued but unpaid by
Borrowers; the amount by which the quantity of Eligible Inventory may have
declined since the last report furnished by Borrowers to Agent; the amount of
distribution and transmission charges invoiced by Borrowers; returns, discounts,
claims, credits and allowances of any nature that are not paid pursuant to the
reduction of Accounts; sales, excise or similar taxes included in the amount of
any Accounts reported to Agent; amounts due or to become due to owners and
lessors of premises where any Collateral is located, other than for those
locations where Agent has received a Collateral Access Agreement that Agent has
accepted in writing and that waive or subordinate such amounts as to Agent or
otherwise provide Agent with access to the Collateral without requiring that
Agent pay such amounts, and other than for utilities that are holding Inventory
consisting of natural gas for delivery to any Borrower's customers; and an ERISA
Event. The amount of any Reserve established by Agent shall have a reasonable
relationship to the event, condition or other matter which is the basis for such
reserve as determined by Agent in good faith and to the extent that such Reserve
is in respect of amounts that may be payable to third parties Agent may, at its
option, deduct such Reserve from the Revolving Loan Limit, at any time that such
limit is less than the amount of the Borrowing Base.
1.95. "Revolving Loan Limit" shall mean the amount of $50,000,000.
1.96. "Revolving Loans" shall mean the loans now or hereafter made by or
on behalf of any Lender or by Agent for the account of any Lender on a revolving
basis pursuant to the Credit Facility (involving advances, repayments and
readvances) as set forth in Section 2.1 hereof.
1.97. "Skipping Stone" shall mean Skipping Stone Inc., a Delaware
corporation and wholly owned Subsidiary of Parent.
1.98. "Solvent" shall mean, at any time with respect to any Person, that
at such time such Person (a) is able to pay its debts as they mature and has
(and has a reasonable basis to believe it will continue to have) sufficient
capital (and not unreasonably small capital) to carry on its business consistent
with its practices as of the date hereof, and (b) the assets and properties of
such Person at a fair valuation (and including as assets for this purpose at a
fair valuation all rights of subrogation, contribution or indemnification
arising pursuant to any guarantees given by such Person) are greater than the
Indebtedness of such Person, and including subordinated and contingent
liabilities computed at the amount which, such person has a reasonable basis to
20
believe, represents an amount which can reasonably be expected to become an
actual or matured liability (and including as to contingent liabilities arising
pursuant to any guarantee the face amount of such liability as reduced to
reflect the probability of it becoming a matured liability).
1.99. "Special Agent Advances" shall have the meaning set forth in
Section 12.11 hereof.
1.100. "Subsidiary" or "subsidiary" shall mean, with respect to any
Person, any corporation, limited liability company, limited liability
partnership or other limited or general partnership, trust, association or other
business entity of which an aggregate of at least a majority of the outstanding
Capital Stock or other interests entitled to vote in the election of the board
of directors of such corporation (irrespective of whether, at the time, Capital
Stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency), managers, trustees
or other controlling persons, or an equivalent controlling interest therein, of
such Person is, at the time, directly or indirectly, owned by such Person and/or
one or more subsidiaries of such Person.
1.101. "Supplier Security Agreements" shall mean, collectively, the
Revised Security Agreement dated October 27, 2004 between Commerce Energy and
DTE Energy Trading, Inc. as originally executed, the Security Agreement dated
August 1, 2005 between Commerce Energy and Tenaska Power Services Co. as amended
by the First Amendment to the Security Agreement dated March 7, 2006, and the
Security Agreement dated April 12, 2006 between Commerce Energy and Pacific
Summit Energy LLC as originally executed.
1.102. "Target" shall have the meaning set forth in Section 9.10(i)
hereof.
1.103. "UCC" shall mean the Uniform Commercial Code as in effect in the
State of California, and any successor statute, as in effect from time to time
(except that terms used herein which are defined in the Uniform Commercial Code
as in effect in the State of California on the date hereof shall continue to
have the same meaning notwithstanding any replacement or amendment of such
statute except as Agent may otherwise determine).
1.104. "Value" shall mean, as determined by Agent in good faith, with
respect to Inventory, the lower of (a) cost computed on a weighted average cost
basis in accordance with GAAP or (b) market value, provided, that, for purposes
of the calculation of the Borrowing Base, the Value of the Inventory shall not
include: (i) the portion of the value of Inventory equal to the profit earned by
any Affiliate on the sale thereof to any Borrower or (ii) write-ups or
write-downs in value with respect to currency exchange rates.
1.105. "Voting Stock" shall mean with respect to any Person, (a) one (1)
or more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
21
1.106. "Wachovia" shall mean Wachovia Capital Finance Corporation
(Western), a California corporation, in its individual capacity, and its
successors and assigns.
SECTION 2. CREDIT FACILITIES
2.1 Loans.
(a) Subject to and upon the terms and conditions contained
herein, each Lender severally (and not jointly) agrees to make its Pro Rata
Share of Revolving Loans to Borrowers from time to time in amounts requested by
Borrowers (or Administrative Borrower on behalf of Borrowers) up to the
aggregate amount outstanding for all Lenders at any time equal to the lesser of:
(i) the Borrowing Base at such time or (ii) the Revolving Loan Limit.
(b) Except in Agent's discretion, with the consent of all
Lenders, or as otherwise provided herein, (i) the aggregate principal amount of
the Revolving Loans and Letter of Credit Obligations outstanding at any time
shall not exceed the lesser of the Revolving Loan Limit or the Borrowing Base,
(ii) the aggregate principal amount of the Revolving Loans and Letter of Credit
Obligations outstanding at any time based on the Eligible Inventory shall not
exceed the Inventory Loan Limit and (iii) the aggregate principal amount of the
Revolving Loans and Letter of Credit Obligations outstanding at any time based
on the Eligible Unbilled Accounts or the Eligible Cash Collateral shall not
exceed the applicable sublimit set forth within the definition of "Borrowing
Base" herein.
(c) In the event that (i) the aggregate principal amount of the
Revolving Loans and Letter of Credit Obligations outstanding at any time exceed
the Borrowing Base or the Revolving Loan Limit, or (ii) the aggregate principal
amount of Revolving Loans and Letter of Credit Obligations based on the Eligible
Inventory exceed the Inventory Loan Limit, or (iii) the aggregate principal
amount of Revolving Loans and Letters of Credit based on the Eligible Unbilled
Accounts or the Eligible Cash Collateral exceed the applicable sublimit set
forth within the definition of "Borrowing Base" herein, such event shall not
limit, waive or otherwise affect any rights of Agent or Lenders in such
circumstances or on any future occasions and Borrowers shall, upon demand by
Agent, which may be made at any time or from time to time, immediately repay to
Agent the entire amount of any such excess(es) for which payment is demanded.
2.2 Letters of Credit.
(a) Subject to and upon the terms and conditions contained
herein and in the Letter of Credit Documents, at the request of a Borrower (or
Administrative Borrower on behalf of such Borrower), Agent agrees to provide or
arrange for the account of such Borrower one or more Letters of Credit, for the
ratable risk of each Lender according to its Pro Rata Share, containing terms
and conditions acceptable to Agent and the issuer thereof.
(b) The Borrower requesting such Letter of Credit (or
Administrative Borrower on behalf of such Borrower) shall give Agent three (3)
Business Days' prior written notice of such Borrower's request for the issuance
of a Letter of Credit, or such lesser number of Business Days as is reasonably
practical for Agent. Such notice shall be irrevocable (provided that Agent shall
use its reasonable efforts to stop the issuance of a Letter of Credit if so
requested by Borrower) and shall specify the original face amount of the Letter
of Credit requested, the
22
effective date (which date shall be a Business Day and in no event shall be a
date less than ten (10) days prior to the end of the then current term of this
Agreement) of issuance of such requested Letter of Credit, whether such Letter
of Credit may be drawn in a single or in partial draws, the date on which such
requested Letter of Credit is to expire (which date shall be a Business Day and
shall not be more than one year from the date of issuance), the purpose for
which such Letter of Credit is to be issued, and the beneficiary of the
requested Letter of Credit. The Borrower requesting the Letter of Credit (or
Administrative Borrower on behalf of such Borrower) shall attach to such notice
the proposed terms of the Letter of Credit. The renewal or extension of any
Letter of Credit shall, for purposes hereof, be treated in all respects the same
as the issuance of a new Letter of Credit hereunder.
(c) In addition to being subject to the satisfaction of the
applicable conditions precedent contained in Section 4 hereof and the other
terms and conditions contained herein, no Letter of Credit shall be available
unless each of the following conditions precedent have been satisfied in a
manner satisfactory to Agent: (i) the Borrower requesting such Letter of Credit
(or Administrative Borrower on behalf of such Borrower) shall have delivered to
the proposed issuer of such Letter of Credit at such times and in such manner as
such proposed issuer may require, an application, in form and substance
satisfactory to such proposed issuer and Agent, for the issuance of the Letter
of Credit and such other Letter of Credit Documents as may be required pursuant
to the terms thereof, and the form and terms of the proposed Letter of Credit
shall be satisfactory to Agent and such proposed issuer; (ii) as of the date of
issuance, no order of any court, arbitrator or other Governmental Authority
shall purport by its terms to enjoin or restrain money center banks generally
from issuing letters of credit of the type and in the amount of the proposed
Letter of Credit, and no law, rule or regulation applicable to money center
banks generally and no request or directive (whether or not having the force of
law) from any Governmental Authority with jurisdiction over money center banks
generally shall prohibit, or request that the proposed issuer of such Letter of
Credit refrain from, the issuance of letters of credit generally or the issuance
of such Letters of Credit; (iii) after giving effect to the issuance of such
Letter of Credit, the Letter of Credit Obligations shall not exceed the Letter
of Credit Limit; and (iv) the Excess Availability, prior to giving effect to any
Reserves with respect to such Letter of Credit, on the date of the proposed
issuance of any Letter of Credit, shall be equal to or greater than an amount
equal to one hundred (100%) percent of the Letter of Credit Obligations with
respect thereto. Effective on the issuance of each Letter of Credit, a Reserve
shall be established in the applicable amount set forth in this Section 2.2(c).
(d) Each Borrower shall reimburse immediately the issuer of a
Letter of Credit for any draw under any Letter of Credit issued for the account
of such Borrower by such issuer and pay such issuer the amount of all other
charges and fees payable to issuer in connection with any Letter of Credit
issued for the account of such Borrower immediately when due, irrespective of
any claim, setoff, defense or other right which such Borrower may have at any
time against the issuer or any other Person. Each drawing under any Letter of
Credit or other amount payable in connection therewith when due shall constitute
a request by the Borrower for whose account such Letter of Credit was issued to
Agent for a Prime Rate Loan in the amount of such drawing or other amount then
due and shall be made by Agent on behalf of Lenders as a Revolving Loan (or
Special Agent Advance, as the case may be). The date of such Loan shall be the
date of the drawing or as to other amounts, the due date therefor. Any payments
made by or on behalf of Agent or any Lender to an issuer and/or related parties
in
23
connection with any Letter of Credit shall constitute additional Revolving Loans
pursuant to this Section 2 (or Special Agent Advances as the case may be).
(e) Borrowers and Guarantors shall indemnify and hold Agent and
Lenders harmless from and against any and all losses, claims, damages,
liabilities, and reasonable costs and expenses which Agent or any Lender may
suffer or incur in connection with any Letter of Credit and any documents,
drafts or acceptances relating thereto, including any losses, claims, damages,
liabilities, costs and expenses due to any action taken by any issuer or
correspondent with respect to any Letter of Credit, except for such losses,
claims, damages, liabilities, costs or expenses that are a direct result of the
gross negligence or wilful misconduct of Agent or any Lender as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
Each Borrower and Guarantor assumes all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit and for
such purposes the drawer or beneficiary shall be deemed such Borrower's agent.
Each Borrower and Guarantor assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit or any documents, drafts or acceptances
thereunder. Each Borrower and Guarantor hereby releases and holds Agent and
Lenders harmless from and against any acts, waivers, errors, delays or omissions
with respect to or relating to any Letter of Credit, except for the gross
negligence or wilful misconduct of Agent or any Lender as determined pursuant to
a final, non-appealable order of a court of competent jurisdiction. The
provisions of this Section 2.2(f) shall survive the payment of Obligations and
the termination of this Agreement.
(f) INTENTIONALLY DELETED.
(g) Each Borrower and Guarantor hereby irrevocably authorizes
and directs any issuer of a Letter of Credit to name such Borrower or Guarantor
as the account party therein and to deliver to Agent all instruments, documents
and other writings and property received by issuer pursuant to the Letter of
Credit and to accept and rely upon Agent's instructions and agreements with
respect to all matters arising in connection with the Letter of Credit or the
Letter of Credit Documents with respect thereto. Nothing contained herein shall
be deemed or construed to grant any Borrower or Guarantor any right or authority
to pledge the credit of Agent or any Lender in any manner. Agent and Lenders
shall have no liability of any kind with respect to any Letter of Credit
provided by an issuer unless Agent has duly executed and delivered to such
issuer the application or a guarantee or indemnification in writing with respect
to such Letter of Credit. Borrowers and Guarantors shall be bound by any
reasonable interpretation made in good faith by Agent, or any other issuer or
correspondent under or in connection with any Letter of Credit or any documents,
drafts or acceptances thereunder, notwithstanding that such interpretation may
be inconsistent with any instructions of any Borrower or Guarantor.
(h) Immediately upon the issuance or amendment of any Letter of
Credit, each Lender shall be deemed to have irrevocably and unconditionally
purchased and received, without recourse or warranty, an undivided interest and
participation to the extent of such Lender's Pro Rata Share of the liability
with respect to such Letter of Credit and the obligations of Borrowers with
respect thereto (including all Letter of Credit Obligations with respect
thereto). Each Lender shall absolutely, unconditionally and irrevocably assume,
as primary obligor and not as surety, and be obligated to pay to the issuer of
any such Letter of Credit therefor and discharge
24
when due, its Pro Rata Share of all of such obligations arising under such
Letter of Credit. Without limiting the scope and nature of each Lender's
participation in any Letter of Credit, to the extent that the issuer has not
been reimbursed or otherwise paid as required hereunder or under any such Letter
of Credit, each such Lender shall pay to the issuer its Pro Rata Share of such
unreimbursed drawing or other amounts then due to issuer in connection
therewith.
(i) The obligations of Borrowers to pay each Letter of Credit
Obligations and the obligations of Lenders to make payments to Agent for the
account of any issuer with respect to Letters of Credit shall be absolute,
unconditional and irrevocable and shall be performed strictly in accordance with
the terms of this Agreement under any and all circumstances, whatsoever,
notwithstanding the occurrence or continuance of any Default, Event of Default,
the failure to satisfy any other condition set forth in Section 4 or any other
event or circumstance. If such amount is not made available by a Lender when
due, Agent shall be entitled to recover such amount on demand from such Lender
with interest thereon, for each day from the date such amount was due until the
date such amount is paid to Agent at the interest rate then payable by Borrowers
in respect of Loans that are Prime Rate Loans. Any such reimbursement shall not
relieve or otherwise impair the obligation of Borrowers to reimburse the issuer
under any Letter of Credit or make any other payment in connection therewith.
(j) Any rights, remedies, duties or obligations granted or
undertaken by any Borrower to any issuer or correspondent in any application for
any Letter of Credit, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit, shall be deemed to have been
granted or undertaken by such Borrower to Agent. Any duties or obligations
undertaken by Agent to any issuer or correspondent in any application for any
Letter of Credit, or any other agreement by Agent in favor of any issuer or
correspondent relating to any Letter of Credit, shall be deemed to have been
undertaken by Borrowers to Agent and to apply in all respects to Borrowers.
2.3 Commitments. The aggregate amount of each Lender's Pro Rata Share of
the Loans and Letter of Credit Obligations shall not exceed the amount of such
Lender's Commitment, as the same may from time to time be amended in accordance
with the provisions hereof.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrowers shall pay to Agent, for the benefit of Lenders,
interest on the outstanding principal amount of the Loans at the Interest Rate.
All interest accruing hereunder on and after the date of any Event of Default or
termination hereof shall be payable on demand.
(b) Each Borrower (or Administrative Borrower on behalf of such
Borrower) may from time to time request Eurodollar Rate Loans or may request
that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing
Eurodollar Rate Loans continue for an additional Interest Period. Such request
from a Borrower (or Administrative Borrower on behalf of such Borrower) shall
specify the amount of the Eurodollar Rate Loans or the amount of the Prime Rate
Loans to be converted to Eurodollar Rate Loans or the amount of the Eurodollar
Rate
25
Loans to be continued (subject to the limits set forth below) and the Interest
Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and
conditions contained herein, three (3) Business Days after receipt by Agent of
such a request from a Borrower (or Administrative Borrower on behalf of such
Borrower), such Eurodollar Rate Loans shall be made or Prime Rate Loans shall be
converted to Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue,
as the case may be, provided, that, (i) no Default or Event of Default shall
exist or have occurred and be continuing, (ii) no party hereto shall have sent
any notice of termination of this Agreement, (iii) such Borrower (or
Administrative Borrower on behalf of such Borrower) shall have complied with
such customary procedures as are established by Agent and specified by Agent to
Administrative Borrower from time to time for requests by Borrowers for
Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, and (vi) Agent and each Lender shall have
reasonably determined that the Interest Period or Adjusted Eurodollar Rate is
available to Agent and such Lender and can be readily determined as of the date
of the request for such Eurodollar Rate Loan by such Borrower. Any request by or
on behalf of a Borrower for Eurodollar Rate Loans or to convert Prime Rate Loans
to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall
be irrevocable. Notwithstanding anything to the contrary contained herein, Agent
and Lenders shall not be required to purchase United States Dollar deposits in
the London interbank market or other applicable Eurodollar Rate market to fund
any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as
if Agent and Lenders had purchased such deposits to fund the Eurodollar Rate
Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Agent has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Agent's option, upon notice by
Agent to Parent, be converted at the end of the subject Interest Period to Prime
Rate Loans in the event that this Agreement shall terminate or not be renewed.
(d) Interest shall be payable by Borrowers to Agent, for the
account of Lenders, monthly in arrears not later than the first day of each
calendar month and shall be calculated on the basis of a three hundred sixty
(360) day year and actual days elapsed. The interest rate on non-contingent
Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an
amount equal to each increase or decrease in the Prime Rate effective on the
first day of the month after any change in such Prime Rate is announced based on
the Prime Rate in effect on the last day of the month in which any such change
occurs. In no event shall charges constituting interest payable by Borrowers to
Agent and Lenders exceed the maximum amount or the rate permitted under any
applicable law or regulation, and if any such part or provision of this
Agreement is in contravention of any such law or regulation, such part or
provision shall be deemed amended to conform thereto.
3.2 Fees.
(a) Borrowers shall pay to Agent, for the account of Lenders,
monthly an unused line fee at a rate equal to three eights of one (0.375%)
percent per annum calculated upon the amount by which the Revolving Loan Limit
exceeds the average daily principal balance of
26
the outstanding Revolving Loans and Letters of Credit during the immediately
preceding month (or part thereof) while this Agreement is in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
payable on the first day of each month in arrears.
(b) Borrowers shall pay to Agent, for the account of Lenders, a
fee at a rate equal to the applicable Letter of Credit Rate on the average daily
maximum amount available to be drawn under all Letters of Credit for the
immediately preceding month (or part thereof), payable in arrears as of the
first day of each succeeding month, computed for each day from the date of
issuance to the date of expiration. Such letter of credit fees shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrowers to pay such fee shall survive the
termination or non-renewal of this Agreement. In addition to the letter of
credit fees provided above, Borrowers shall pay to the issuer of any Letter of
Credit for its own account (without sharing with Lenders) the letter of credit
fronting and negotiation fees agreed to by Borrowers and such issuer from time
to time and the customary charges from time to time of such issuer with respect
to the issuance, amendment, transfer, administration, cancellation and
conversion of, and drawings under, such Letters of Credit.
(c) Borrowers shall pay to Agent the other fees and amounts set
forth in the Fee Letter in the amounts and at the times specified therein. To
the extent payment in full of the applicable fee is received by Agent from
Borrowers on or about the date hereof, Agent shall pay to each Lender its share
of such fees in accordance with the terms of the arrangements of Agent with such
Lender.
3.3 Changes in Laws and Increased Costs of Loans.
(a) If after the date hereof, either (i) any change in, or in
the interpretation of, any law or regulation is introduced, including, without
limitation, with respect to reserve requirements, applicable to any Lender or
any banking or financial institution from whom any Lender borrows funds or
obtains credit (a "Funding Bank"), or (ii) a Funding Bank or any Lender complies
with any future guideline or request from any central bank or other Governmental
Authority or (iii) a Funding Bank or any Lender determines that the adoption of
any applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof has or would have the effect described
below, or a Funding Bank or any Lender complies with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, and in the case of any event set
forth in this clause (iii), such adoption, change or compliance has or would
have the direct or indirect effect of reducing the rate of return on any
Lender's capital as a consequence of its obligations hereunder to a level below
that which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the Funding Bank's or Lender's policies
with respect to capital adequacy) by an amount deemed by such Lender to be
material, and the result of any of the foregoing events described in clauses
(i), (ii) or (iii) is or results in an increase in the cost to any Lender of
funding or maintaining the Loans, the Letters of Credit or its Commitment, then
Borrowers and Guarantors shall from time to time upon demand by Agent pay to
Agent additional amounts sufficient to indemnify such Lender against such
increased cost on an after-tax basis (after taking into account applicable
deductions and credits in respect of the
27
amount indemnified). A certificate as to the amount of such increased cost shall
be submitted to Administrative Borrower by Agent or the applicable Lender and
shall be conclusive, absent manifest error.
(b) If prior to the first day of any Interest Period, (i) Agent
shall have determined in good faith (which determination shall be conclusive and
binding upon Borrowers and Guarantors) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Adjusted Eurodollar Rate for such Interest Period, (ii) Agent
has received notice from the Required Lenders that the Adjusted Eurodollar Rate
determined or to be determined for such Interest Period will not adequately and
fairly reflect the cost to Lenders of making or maintaining Eurodollar Rate
Loans during such Interest Period, or (iii) Dollar deposits in the principal
amounts of the Eurodollar Rate Loans to which such Interest Period is to be
applicable are not generally available in the London interbank market, Agent
shall give telecopy or telephonic notice thereof to Administrative Borrower as
soon as practicable thereafter, and will also give prompt written notice to
Administrative Borrower when such conditions no longer exist. If such notice is
given (A) any Eurodollar Rate Loans requested to be made on the first day of
such Interest Period shall be made as Prime Rate Loans, (B) any Loans that were
to have been converted on the first day of such Interest Period to or continued
as Eurodollar Rate Loans shall be converted to or continued as Prime Rate Loans
and (C) each outstanding Eurodollar Rate Loan shall be converted, on the last
day of the then-current Interest Period thereof, to Prime Rate Loans. Until such
notice has been withdrawn by Agent, no further Eurodollar Rate Loans shall be
made or continued as such, nor shall any Borrower (or Administrative Borrower on
behalf of any Borrower) have the right to convert Prime Rate Loans to Eurodollar
Rate Loans.
(c) Notwithstanding any other provision herein, if the adoption
of or any change in any law, treaty, rule or regulation or final, non-appealable
determination of an arbitrator or a court or other Governmental Authority or in
the interpretation or application thereof occurring after the date hereof shall
make it unlawful for Agent or any Lender to make or maintain Eurodollar Rate
Loans as contemplated by this Agreement, (i) Agent or such Lender shall promptly
give written notice of such circumstances to Administrative Borrower (which
notice shall be withdrawn whenever such circumstances no longer exist), (ii) the
commitment of such Lender hereunder to make Eurodollar Rate Loans, continue
Eurodollar Rate Loans as such and convert Prime Rate Loans to Eurodollar Rate
Loans shall forthwith be canceled and, until such time as it shall no longer be
unlawful for such Lender to make or maintain Eurodollar Rate Loans, such Lender
shall then have a commitment only to make a Prime Rate Loan when a Eurodollar
Rate Loan is requested and (iii) such Lender's Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Prime Rate
Loans on the respective last days of the then current Interest Periods with
respect to such Loans or within such earlier period as required by law. If any
such conversion of a Eurodollar Rate Loan occurs on a day which is not the last
day of the then current Interest Period with respect thereto, Borrowers and
Guarantors shall pay to such Lender such amounts, if any, as may be required
pursuant to Section 3.3(d) below.
(d) Borrowers and Guarantors shall indemnify Agent and each
Lender and to hold Agent and each Lender harmless from any loss or expense which
Agent or such Lender may sustain or incur as a consequence of (i) default by
Borrower in making a borrowing of,
28
conversion into or extension of Eurodollar Rate Loans after such Borrower (or
Administrative Borrower on behalf of such Borrower) has given a notice
requesting the same in accordance with the provisions of this Loan Agreement,
(ii) default by any Borrower in making any prepayment of a Eurodollar Rate Loan
after such Borrower has given a notice thereof in accordance with the provisions
of this Agreement, and (iii) the making of a prepayment of Eurodollar Rate Loans
on a day which is not the last day of an Interest Period with respect thereto.
With respect to Eurodollar Rate Loans, such indemnification may include an
amount equal to the excess, if any, of (A) the amount of interest which would
have accrued on the amount so prepaid, or not so borrowed, converted or
extended, for the period from the date of such prepayment or of such failure to
borrow, convert or extend to the last day of the applicable Interest Period (or,
in the case of a failure to borrow, convert or extend, the Interest Period that
would have commenced on the date of such failure) in each case at the applicable
rate of interest for such Eurodollar Rate Loans provided for herein over (B) the
amount of interest (as determined by such Agent or such Lender) which would have
accrued to Agent or such Lender on such amount by placing such amount on deposit
for a comparable period with leading banks in the interbank Eurodollar market.
This covenant shall survive the termination or non-renewal of this Agreement and
the payment of the Obligations.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letters of Credit. The
obligation of Lenders to make the initial Loans or of Agent and Lenders to
provide for the initial Letters of Credit hereunder is subject to the
satisfaction of, or waiver of, immediately prior to or concurrently with the
making of such Loan or the issuance of such Letter of Credit of each of the
following conditions precedent:
(a) Agent shall have received, in form and substance
satisfactory to Agent, a guaranty duly executed by each Guarantor covering all
Obligations of Commerce Energy;
(b) any consent or approval of, or notice to, any Governmental
Authority with respect to the transactions contemplated hereby shall have been
duly obtained or given;
(c) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Agent, and Agent shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Agent may have requested in connection therewith, such
documents where requested by Agent or its counsel to be certified by appropriate
corporate officers or Governmental Authority (and including a copy of the
certificate of incorporation of Commerce Energy and each Guarantor certified by
the Secretary of State (or equivalent Governmental Authority) which shall set
forth the same complete corporate name of Commerce Energy and each Guarantor as
is set forth herein and such document as shall set forth the organizational
identification number of Commerce Energy and each Guarantor, if one is issued in
its jurisdiction of incorporation);
(d) no material adverse change shall have occurred in the
assets, business or prospects of Commerce Energy since the date of Agent's
latest field examination (not including for this purpose the field review
referred to in clause (e) below) and no change or event shall
29
have occurred which would materially impair the ability of Commerce Energy and
each Guarantor to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Agent or any Lender to enforce
the Obligations or realize upon the Collateral;
(e) Agent shall have completed a field review of the Records and
such other information with respect to the Collateral as Agent may reasonably
require to determine the amount of Loans available to Commerce Energy
(including, without limitation, current perpetual inventory records and/or
roll-forwards of Accounts and Inventory through the date of closing and test
counts of the Inventory in a manner satisfactory to Agent, together with such
supporting documentation as may be necessary or appropriate, and other documents
and information that will enable Agent to accurately identify and verify the
Collateral), the results of which in each case shall be satisfactory to Agent,
not more than three (3) Business Days prior to the date hereof or such earlier
date as Agent may agree;
(f) Agent shall have received, in form and substance reasonably
satisfactory to Agent, all consents, waivers, acknowledgments and other
agreements from third persons which Agent may reasonably deem necessary or
desirable in order to permit, protect and perfect its security interests in and
liens upon the Collateral or to effectuate the provisions or purposes of this
Agreement and the other Financing Agreements, including, without limitation,
Collateral Access Agreements;
(g) the Excess Availability as determined by Agent, as of the
date hereof, shall be not less than $15,000,000 after giving effect to the
initial Loans made or to be made and Letters of Credit issued or to be issued in
connection with the initial transactions hereunder;
(h) Agent shall have received, in form and substance reasonably
satisfactory to Agent, Deposit Account Control Agreements and Investment
Property Control Accounts (as applicable) by and among Agent, Commerce Energy
and Guarantors, as the case may be and each bank or securities intermediary
where any of Commerce Energy and Guarantors has a deposit or securities account,
in each case, duly authorized, executed and delivered by such bank or securities
intermediary and Borrower or Guarantors, as the case may be (or Agent shall be
the bank's customer with respect to such deposit account as Agent may specify);
(i) Agent shall have received evidence, in form and substance
reasonably satisfactory to Agent, that Agent has a valid perfected first
priority security interest in all of the Collateral;
(j) Agent shall have received and reviewed lien and judgment
search results for the jurisdiction of organization of each of Commerce Energy
and Guarantors, the jurisdiction of the chief executive office of each of
Commerce Energy and Guarantors and all jurisdictions in which assets of each of
Commerce Energy and Guarantors are located, which search results shall be in
form and substance satisfactory to Agent;
(k) Agent shall have received originals of the shares of the
stock certificates representing all of the issued and outstanding shares of the
Capital Stock held by Commerce
30
Energy or any Guarantor in Commerce Energy and Skipping Stone, in each case
together with stock powers duly executed in blank with respect thereto;
(l) Agent shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance reasonably satisfactory to Agent, and certificates of
insurance policies and/or endorsements naming Agent as loss payee;
(m) Agent shall have received, in form and substance reasonably
satisfactory to Agent, such opinion letters of counsel to Commerce Energy and
Guarantors with respect to the Financing Agreements and such other matters as
Agent may request; and
(n) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Agent, in form and substance satisfactory to Agent.
4.2 Conditions Precedent to All Loans and Letters of Credit. The
obligation of Lenders to make the Loans, including the initial Loans, or of the
Agent and Lenders to provide for any Letter of Credit, including the initial
Letters of Credit, is subject to the further satisfaction of, or waiver of,
immediately prior to or concurrently with the making of each such Loan or the
issuance of such Letter of Credit of each of the following conditions precedent:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit and after giving effect thereto, except to the extent
that such representations and warranties expressly relate solely to an earlier
date (in which case such representations and warranties shall have been true and
accurate on and as of such earlier date);
(b) no law, regulation, order, judgment or decree of any
Governmental Authority shall exist, and no action, suit, investigation,
litigation or proceeding shall be pending or threatened in any court or before
any arbitrator or Governmental Authority, which (i) purports to enjoin,
prohibit, restrain or otherwise affect (A) the making of the Loans or providing
the Letters of Credit, or (B) the consummation of the transactions contemplated
pursuant to the terms hereof or the other Financing Agreements or (ii) has or
has a reasonable likelihood of having a Material Adverse Effect; and
(c) no Default or Event of Default shall exist or have occurred
and be continuing on and as of the date of the making of such Loan or providing
each such Letter of Credit and after giving effect thereto.
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST
5.1 Grant of Security Interest. To secure payment and performance of all
Obligations, each Borrower and Guarantor hereby grants to Agent, for itself and
the benefit of Lenders, a continuing security interest in, a lien upon, and a
right of set off against, and hereby assigns to Agent, for itself and the
benefit of Lenders, as security, all personal property and
31
fixtures, and interests in property and fixtures, of each Borrower and
Guarantor, whether now owned or hereafter acquired or existing, and wherever
located (together with all other collateral security for the Obligations at any
time granted to or held or acquired by Agent or any Lender, collectively, the
"Collateral"), including:
(a) all Accounts;
(b) all general intangibles, including, without limitation, all
Intellectual Property;
(c) all goods, including, without limitation, Inventory and
Equipment;
(d) all fixtures;
(e) all chattel paper, including, without limitation, all
tangible and electronic chattel paper;
(f) all instruments, including, without limitation, all
promissory notes;
(g) all documents;
(h) all deposit accounts;
(i) all letters of credit, banker's acceptances and similar
instruments and including all letter-of-credit rights;
(j) all supporting obligations and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Receivables and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Receivables or other Collateral, including returned, repossessed
and reclaimed goods, and (iv) deposits by and property of account debtors or
other persons securing the obligations of account debtors;
(k) all (i) investment property (including securities, whether
certificated or uncertificated, securities accounts, security entitlements,
commodity contracts or commodity accounts) and (ii) monies, credit balances,
deposits and other property of any Borrower or Guarantor now or hereafter held
or received by or in transit to Agent, any Lender or its Affiliates or at any
other depository or other institution from or for the account of any Borrower or
Guarantor, whether for safekeeping, pledge, custody, transmission, collection or
otherwise;
(l) all commercial tort claims, including, without limitation,
those identified in the Information Certificate;
(m) to the extent not otherwise described above, all
Receivables;
32
(n) all Records; and
(o) all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims against third parties for loss or
damage to or destruction of or other involuntary conversion of any kind or
nature of any or all of the other Collateral.
Notwithstanding anything herein to the contrary, in no event shall the
security interest granted under this Section 5.1 attach to, or shall
"Collateral" include (p) any lease, license, contract, property rights or
agreement to which any Borrower or Guarantor is a party or any of its rights or
interests thereunder if and for so long as the grant of such security interest
shall constitute or result in (i) the abandonment, invalidation, unlawfulness or
unenforceability of any right, title or interest of such Borrower or Guarantor
therein or (ii) a breach or termination pursuant to the terms of, or a default
under, any such lease, license, contract, property rights or agreement (other
than to the extent that any such term would be rendered ineffective pursuant to
Sections 9406, 9407, 9408 or 9409 of the UCC (or any successor provision or
provisions) of any relevant jurisdiction or any other applicable law or
government regulation (including Title 11 of the United States Code or
principles of equity)), provided, however, that, such security interest shall
attach immediately at such time as the condition causing such abandonment,
invalidation or unenforceability shall be remedied and to the extent severable,
shall attach immediately to any portion of such lease, license, contract,
property rights or agreement that does not result in any of the consequences
specified in (i) or (ii) above including, without limitation, any proceeds of
such lease, license, contract, property right or agreement, and provided,
further, that, the foregoing exclusion shall not apply to, and "Collateral"
shall in any event include, all rights of any Borrower to payment under any
present or future agreement or contract with a utility, and (q) any of the
outstanding Capital Stock of a Controlled Foreign Corporation in excess of
sixty-five (65%) percent of the voting power of all classes of Capital Stock of
such Controlled Foreign Corporation entitled to vote, provided, that,
immediately upon the amendment of the Code to allow the pledge of a greater
percentage of voting power of Capital Stock in a Controlled Foreign Corporation
without adverse tax consequences, the Collateral shall include, and the security
interest granted by Borrowers and Guarantors shall attach to, such greater
percentage of Capital Stock of each Controlled Foreign Corporation.
Notwithstanding anything herein to the contrary, in no event shall the
security interest granted under this Section 5.1 attach to, or shall
"Collateral" include, the "Collateral" as defined in any Supplier Security
Agreement (the "Supplier Collateral") if and for so long as such Supplier
Security Agreement is in effect and the supplier thereunder holds a security
interest in the Supplier Collateral, and if and for so long as the grant of
Agent's security interest in the Supplier Collateral shall constitute or result
in a breach or a default under such Supplier Security Agreement, provided,
however, that, (r) with respect to the Supplier Security Agreement with DTE
Energy Trading, Inc., the "RSCs" as defined therein shall not in any event
include any customer that is located outside the State of Michigan and the
foregoing exclusion from Agent's security interest shall not apply to the extent
the "RSCs" as defined therein do include any customer that is located outside
the State of Michigan, and (s) with respect to the Supplier Security Agreement
with Pacific Summit Energy LLC, an "RSC" as defined therein shall not in any
event include any customer that is not a Permitted PSE Customer (as defined
below) and the foregoing exclusion from Agent's security interest shall not
apply to the extent an "RSC" as defined therein does include a customer that is
not a Permitted PSE Customer. For the purposes
33
of this section, "Permitted PSE Customer" shall mean a customer that is
hereafter included as an "RSC" under and as defined in the Supplier Security
Agreement with Pacific Summit Energy LLC, provided, that, written notice of the
inclusion of such customer as such an "RSC" is given by Commerce Energy to Agent
not less than thirty (30) days prior to the effectiveness of such inclusion, and
provided, further, that, no Event of Default has occurred and is continuing as
of the effective date of such inclusion or would result from such inclusion, and
the sum of all Accounts owing by the Permitted PSE Customers shall not exceed
$5,000,000 in the aggregate outstanding at any time.
5.2 Perfection of Security Interests.
(a) Each Borrower and Guarantor irrevocably and unconditionally
authorizes Agent (or its agent) to file at any time and from time to time such
financing statements with respect to the Collateral naming Agent or its designee
as the secured party and such Borrower or Guarantor as debtor, as Agent may
require, and including any other information with respect to such Borrower or
Guarantor or otherwise required by part 5 of Article 9 of the Uniform Commercial
Code of such jurisdiction as Agent may determine, together with any amendment
and continuations with respect thereto, which authorization shall apply to all
financing statements filed on, prior to or after the date hereof. Each Borrower
and Guarantor hereby ratifies and approves all financing statements naming Agent
or its designee as secured party and such Borrower or Guarantor, as the case may
be, as debtor with respect to the Collateral (and any amendments with respect to
such financing statements) filed by or on behalf of Agent prior to the date
hereof and ratifies and confirms the authorization of Agent to file such
financing statements (and amendments, if any). Each Borrower and Guarantor
hereby authorizes Agent to adopt on behalf of such Borrower and Guarantor any
symbol required for authenticating any electronic filing. In the event that the
description of the collateral in any financing statement naming Agent or its
designee as the secured party and any Borrower or Guarantor as debtor includes
assets and properties of such Borrower or Guarantor that do not at any time
constitute Collateral, whether hereunder, under any of the other Financing
Agreements or otherwise, the filing of such financing statement shall
nonetheless be deemed authorized by such Borrower or Guarantor to the extent of
the Collateral included in such description and it shall not render the
financing statement ineffective as to any of the Collateral or otherwise affect
the financing statement as it applies to any of the Collateral. In no event
shall any Borrower or Guarantor, at any time prior to the termination of this
Agreement and payment in full of the Obligations in accordance with the terms
hereof, file, or permit or cause to be filed, any correction statement or
termination statement with respect to any financing statement (or amendment or
continuation with respect thereto) naming Agent or its designee as secured party
and such Borrower or Guarantor as debtor.
(b) Each Borrower and Guarantor does not have any chattel paper
(whether tangible or electronic) or instruments as of the date hereof, except as
set forth in the Information Certificate. In the event that any Borrower or
Guarantor shall be entitled to or shall receive any chattel paper or instrument
for an amount in excess of $100,000 after the date hereof, Borrowers and
Guarantors shall promptly notify Agent thereof in writing. Promptly upon the
receipt thereof by or on behalf of any Borrower or Guarantor (including by any
agent or representative), such Borrower or Guarantor shall deliver, or cause to
be delivered to Agent, all tangible chattel paper and instruments for an amount
in excess of $100,000 that such Borrower or Guarantor has
34
or may at any time acquire, accompanied by such instruments of transfer or
assignment duly executed in blank as Agent may from time to time specify, in
each case except as Agent may otherwise agree. At Agent's option, each Borrower
and Guarantor shall, or Agent may at any time on behalf of any Borrower or
Guarantor, cause the original of any such instrument or chattel paper to be
conspicuously marked in a form and manner acceptable to Agent with the following
legend referring to chattel paper or instruments as applicable: "This [chattel
paper][instrument] is subject to the security interest of Wachovia Financial
Corporation and any sale, transfer, assignment or encumbrance of this [chattel
paper][instrument] violates the rights of such secured party."
(c) In the event that any Borrower or Guarantor shall at any
time hold or acquire an interest in any electronic chattel paper or any
"transferable record" for an amount in excess of $100,000 (as such term is
defined in Section 201 of the Federal Electronic Signatures in Global and
National Commerce Act or in Section 16 of the Uniform Electronic Transactions
Act as in effect in any relevant jurisdiction), such Borrower or Guarantor shall
promptly notify Agent thereof in writing. Promptly upon Agent's request, such
Borrower or Guarantor shall take, or cause to be taken, such actions as Agent
may request to give Agent control of such electronic chattel paper under Section
9-105 of the UCC and control of such transferable record under Section 201 of
the Federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect
in such jurisdiction.
(d) Each Borrower and Guarantor does not have any deposit
accounts as of the date hereof, except as set forth in the Information
Certificate. Borrowers and Guarantors shall not, directly or indirectly, after
the date hereof open, establish or maintain any deposit account unless each of
the following conditions is satisfied: (i) Agent shall have received not less
than five (5) Business Days prior written notice of the intention of any
Borrower or Guarantor to open or establish such account which notice shall
specify in reasonable detail and specificity acceptable to Agent the name of the
account, the owner of the account, the name and address of the bank at which
such account is to be opened or established, the individual at such bank with
whom such Borrower or Guarantor is dealing and the purpose of the account, (ii)
the bank where such account is opened or maintained shall be acceptable to
Agent, and (iii) on or before the opening of such deposit account, such Borrower
or Guarantor shall as Agent may specify either (A) deliver to Agent a Deposit
Account Control Agreement with respect to such deposit account duly authorized,
executed and delivered by such Borrower or Guarantor and the bank at which such
deposit account is opened and maintained or (B) arrange for Agent to become the
customer of the bank with respect to the deposit account on terms and conditions
acceptable to Agent. The terms of this subsection (d) shall not apply to deposit
accounts specifically and exclusively used for payroll, payroll taxes and other
employee wage and benefit payments to or for the benefit of any Borrower's or
Guarantor's salaried employees. Except for any Blocked Account, Lockbox Account
or as otherwise agreed by the applicable Borrower or Guarantor, Agent shall not
exercise control over any deposit account unless an Event of Default has
occurred and is continuing.
(e) No Borrower or Guarantor owns or holds, directly or
indirectly, beneficially or as record owner or both, any investment property, as
of the date hereof, or have any investment account, securities account,
commodity account or other similar account with any
35
bank or other financial institution or other securities intermediary or
commodity intermediary as of the date hereof, in each case except as set forth
in the Information Certificate.
(i) In the event that any Borrower or Guarantor shall be
entitled to or shall at any time after the date hereof hold or acquire any
certificated securities (other than for Utilihost, Inc., ElectricAmerica, Inc.,
Electric.com, Inc., Power Efficiency Corp. and Encorp, Inc.), such Borrower or
Guarantor shall promptly endorse, assign and deliver the same to Agent,
accompanied by such instruments of transfer or assignment duly executed in blank
as Agent may from time to time specify. If any securities, now or hereafter
acquired by any Borrower or Guarantor are uncertificated and are issued to such
Borrower or Guarantor or its nominee directly by the issuer thereof, such
Borrower or Guarantor shall immediately notify Agent thereof and shall as Agent
may specify, either (A) cause the issuer to agree to comply with instructions
from Agent as to such securities, without further consent of any Borrower or
Guarantor or such nominee, or (B) arrange for Agent to become the registered
owner of the securities.
(ii) Borrowers and Guarantors shall not, directly or
indirectly, after the date hereof open, establish or maintain any investment
account, securities account, commodity account or any other similar account
(other than a deposit account) with any securities intermediary or commodity
intermediary unless each of the following conditions is satisfied: (A) Agent
shall have received not less than five (5) Business Days prior written notice of
the intention of such Borrower or Guarantor to open or establish such account
which notice shall specify in reasonable detail and specificity acceptable to
Agent the name of the account, the owner of the account, the name and address of
the securities intermediary or commodity intermediary at which such account is
to be opened or established, the individual at such intermediary with whom such
Borrower or Guarantor is dealing and the purpose of the account, (B) the
securities intermediary or commodity intermediary (as the case may be) where
such account is opened or maintained shall be acceptable to Agent, and (C) on or
before the opening of such investment account, securities account or other
similar account with a securities intermediary or commodity intermediary, such
Borrower or Guarantor shall as Agent may specify either (i) execute and deliver,
and cause to be executed and delivered to Agent, an Investment Property Control
Agreement with respect thereto duly authorized, executed and delivered by such
Borrower or Guarantor and such securities intermediary or commodity intermediary
or (ii) arrange for Agent to become the entitlement holder with respect to such
investment property on terms and conditions acceptable to Agent. Except as
otherwise agreed by the applicable Borrower or Guarantor, Agent shall not
exercise control over any investment account, securities account or similar
account unless an Event of Default has occurred and is continuing.
(f) Borrowers and Guarantors are not the beneficiary or
otherwise entitled to any right to payment under any letter of credit, banker's
acceptance or similar instrument as of the date hereof, except as set forth in
the Information Certificate. In the event that any Borrower or Guarantor shall
be entitled to or shall receive any right to payment under any letter of credit,
banker's acceptance or any similar instrument for an amount in excess of
$100,000, whether as beneficiary thereof or otherwise after the date hereof,
such Borrower or Guarantor shall promptly notify Agent thereof in writing. Such
Borrower or Guarantor shall immediately, as Agent may specify, either (i)
deliver, or cause to be delivered to Agent, with respect to any such letter of
36
credit, banker's acceptance or similar instrument, the written agreement of the
issuer and any other nominated person obligated to make any payment in respect
thereof (including any confirming or negotiating bank), in form and substance
satisfactory to Agent, consenting to the assignment of the proceeds of the
letter of credit to Agent by such Borrower or Guarantor and agreeing to make all
payments thereon directly to Agent or as Agent may otherwise direct or (ii)
cause Agent to become, at Borrowers' expense, the transferee beneficiary of the
letter of credit, banker's acceptance or similar instrument (as the case may
be).
(g) Borrowers and Guarantors do not have any commercial tort
claims as of the date hereof, except as set forth in the Information
Certificate. In the event that any Borrower or Guarantor shall at any time after
the date hereof have any commercial tort claims for an amount in excess of
$100,000, such Borrower or Guarantor shall promptly notify Agent thereof in
writing, which notice shall (i) set forth in reasonable detail the basis for and
nature of such commercial tort claim and (ii) include the express grant by such
Borrower or Guarantor to Agent of a security interest in such commercial tort
claim (and the proceeds thereof). In the event that such notice does not include
such grant of a security interest, the sending thereof by such Borrower or
Guarantor to Agent shall be deemed to constitute such grant to Agent. Upon the
sending of such notice, any commercial tort claim described therein shall
constitute part of the Collateral and shall be deemed included therein. Without
limiting the authorization of Agent provided in Section 5.2(a) hereof or
otherwise arising by the execution by such Borrower or Guarantor of this
Agreement or any of the other Financing Agreements, Agent is hereby irrevocably
authorized from time to time and at any time to file such financing statements
naming Agent or its designee as secured party and such Borrower or Guarantor as
debtor, or any amendments to any financing statements, covering any such
commercial tort claim as Collateral. In addition, each Borrower and Guarantor
shall promptly upon Agent's request, execute and deliver, or cause to be
executed and delivered, to Agent such other agreements, documents and
instruments as Agent may require in connection with such commercial tort claim.
(h) Borrowers and Guarantors do not have any goods, documents of
title or other Collateral in the custody, control or possession of a third party
as of the date hereof, except as set forth in the Information Certificate and
except for goods located in the United States in transit to a location of a
Borrower or Guarantor permitted herein in the ordinary course of business of
such Borrower or Guarantor in the possession of the carrier transporting such
goods. In the event that any goods, documents of title or other Collateral are
at any time after the date hereof in the custody, control or possession of any
other person not referred to in the Information Certificate or such carriers
(other than Inventory consisting of natural gas held by a utility for delivery
to any Borrower's customers), Borrowers and Guarantors shall promptly notify
Agent thereof in writing. Promptly upon Agent's request, Borrowers and
Guarantors shall deliver to Agent a Collateral Access Agreement duly authorized,
executed and delivered by such person and the Borrower or Guarantor that is the
owner of such Collateral.
(i) Borrowers and Guarantors shall take any other actions
reasonably requested by Agent from time to time to cause the attachment,
perfection and first priority of, and the ability of Agent to enforce, the
security interest of Agent in any and all of the Collateral, including, without
limitation, (i) executing, delivering and, where appropriate, filing financing
statements and amendments relating thereto under the UCC or other applicable
law, to the extent, if any, that any Borrower's or Guarantor's signature thereon
is required therefor, (ii) causing
37
Agent's name to be noted as secured party on any certificate of title for a
titled good if such notation is a condition to attachment, perfection or
priority of, or ability of Agent to enforce, the security interest of Agent in
such Collateral, (iii) complying with any provision of any statute, regulation
or treaty of the United States as to any Collateral if compliance with such
provision is a condition to attachment, perfection or priority of, or ability of
Agent to enforce, the security interest of Agent in such Collateral, (iv)
obtaining the consents and approvals of any Governmental Authority or third
party, including, without limitation, any consent of any licensor, lessor or
other person obligated on Collateral, and taking all actions required by any
earlier versions of the UCC or by other law, as applicable in any relevant
jurisdiction.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Accounts. Agent shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letters of
Credit and other Obligations and the Collateral, (b) all payments made by or on
behalf of any Borrower or Guarantor and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Agent's customary practices as in effect from time to time.
6.2 Statements. Agent shall render to Administrative Borrower each month
a statement setting forth the balance in the Borrowers' loan account(s)
maintained by Agent for Borrowers pursuant to the provisions of this Agreement,
including principal, interest, fees, costs and expenses. Each such statement
shall be subject to subsequent adjustment by Agent but shall, absent manifest
errors or omissions, be considered correct and deemed accepted by Borrowers and
Guarantors and conclusively binding upon Borrowers and Guarantors as an account
stated except to the extent that Agent receives a written notice from
Administrative Borrower of any specific exceptions of Administrative Borrower
thereto within sixty (60) days after the date such statement has been received
by Parent. Until such time as Agent shall have rendered to Administrative
Borrower a written statement as provided above, the balance in any Borrower's
loan account(s) shall be presumptive evidence of the amounts due and owing to
Agent and Lenders by Borrowers and Guarantors.
6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense,
the Blocked Accounts, as well as lockboxes and related lockbox accounts (the
"Lockbox Accounts") with such banks as are acceptable to Agent into which
Borrowers shall promptly deposit and direct their respective account debtors to
directly remit all payments on Receivables and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. Borrowers shall
deliver, or cause to be delivered to Agent a Deposit Account Control Agreement
duly authorized, executed and delivered by each bank where a Blocked Account or
Lockbox Account is maintained as provided in Section 5.2 hereof, and promptly
upon Agent's request, Borrowers shall execute and deliver such agreements and
documents as Agent may require in connection therewith. Any available funds in
the Lockbox Accounts will be transferred to the Blocked Accounts, and any
available funds in the Blocked Accounts will be transferred by Agent to the
Agent Payment Account but only to the extent of, and only for application to,
the outstanding Revolving Loans and any other
38
Obligations then due and payable. Agent shall, upon the request of
Administrative Borrower or any Borrower from time to time, authorize the
transfer of any remaining available funds in the Blocked Accounts to such bank
account as Administrative Borrower or such Borrower specifies to Agent, but only
so long as no Event of Default has occurred and is continuing and such transfer
will not result in the aggregate principal amount of the Revolving Loans and
Letter of Credit Obligations exceeding the Borrowing Base. Agent shall also,
upon the request of Administrative Borrower or any Borrower from time to time,
authorize the transfer of any remaining available funds in the Blocked Accounts
to the Blocked Securities Account so long as no Event of Default has occurred
and is continuing.
(b) For purposes of calculating the amount of the Loans and
Letters of Credit available to each Borrower, payments to Agent will be applied
(conditional upon final collection) to the Obligations on the Business Day of
receipt by Agent of immediately available funds in the Agent Payment Account
provided such payments and notice thereof are received in accordance with
Agent's usual and customary practices as in effect from time to time and within
sufficient time to credit such Borrower's loan account on such day, and if not,
then on the next Business Day. For the purposes of calculating interest on the
Obligations, such payments or other funds received will be applied (conditional
upon final collection) to the Obligations one (1) Business Day following the
date of receipt of immediately available funds by Agent in the Agent Payment
Account provided such payments or other funds and notice thereof are received in
accordance with Agent's usual and customary practices as in effect from time to
time and within sufficient time to credit such Borrower's loan account on such
day, and if not, then on the next Business Day.
(c) Each Borrower and Guarantor and their respective employees,
agents and Subsidiaries shall, acting as trustee for Agent, receive, as the
property of Agent, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon receipt thereof,
shall deposit or cause the same to be deposited in the Lockbox Accounts, or
remit the same or cause the same to be remitted, in kind, to Agent. In no event
shall the same be commingled with any Borrower's or Guarantor's own funds.
Borrowers agree to reimburse Agent on demand for any amounts owed or paid to any
bank or other financial institution at which a Blocked Account, Lockbox Account
or any other deposit account or investment account is established or any other
bank, financial institution or other person involved in the transfer of funds to
or from the Blocked Accounts or Lockbox Accounts arising out of Agent's payments
to or indemnification of such bank, financial institution or other person. The
obligations of Borrowers to reimburse Agent for such amounts pursuant to this
Section 6.3 shall survive the termination of this Agreement.
6.4 Payments.
(a) All Obligations shall be payable to the Agent Payment
Account as provided in Section 6.3 or such other place as Agent may designate
from time to time. Subject to the other terms and conditions contained herein,
Agent shall apply payments received or collected from any Borrower or Guarantor
or for the account of any Borrower or Guarantor (including the monetary proceeds
of collections or of realization upon any Collateral) as follows: first, to pay
any fees, indemnities or expense reimbursements then due to Agent and Lenders
39
from any Borrower or Guarantor; second, to pay interest due in respect of any
Loans (and including any Special Agent Advances) or Letter of Credit
Obligations; third, to pay or prepay principal in respect of Special Agent
Advances; fourth, to pay principal due in respect of the Loans; fifth, to pay or
prepay any other Obligations whether or not then due, in such order and manner
as Agent determines and at any time an Event of Default exists or has occurred
and is continuing, to provide cash collateral for any Letter of Credit
Obligations. Notwithstanding anything to the contrary contained in this
Agreement, (i) unless so directed by Administrative Borrower, or unless an Event
of Default shall exist or have occurred and be continuing, Agent shall not apply
any payments which it receives to any Eurodollar Rate Loans, except (A) on the
expiration date of the Interest Period applicable to any such Eurodollar Rate
Loans or (B) in the event that there are no outstanding Prime Rate Loans and
(ii) to the extent any Borrower uses any proceeds of the Loans or Letters of
Credit to acquire rights in or the use of any Collateral or to repay any
Indebtedness used to acquire rights in or the use of any Collateral, payments in
respect of the Obligations shall be deemed applied first to the Obligations
arising from Loans and Letters of Credit that were not used for such purposes
and second to the Obligations arising from Loans and Letters of Credit the
proceeds of which were used to acquire rights in or the use of any Collateral in
the chronological order in which such Borrower acquired such rights in or the
use of such Collateral.
(b) At Agent's option, all principal, interest, fees, costs,
expenses and other charges provided for in this Agreement or the other Financing
Agreements may be charged directly to the loan account(s) of any Borrower
maintained by Agent. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Agent or any
Lender is required to surrender or return such payment or proceeds to any Person
for any reason, then the Obligations intended to be satisfied by such payment or
proceeds shall be reinstated and continue and this Agreement shall continue in
full force and effect as if such payment or proceeds had not been received by
Agent or such Lender. Borrowers and Guarantors shall be liable to pay to Agent,
and do hereby indemnify and hold Agent and Lenders harmless for the amount of
any payments or proceeds surrendered or returned. This Section 6.4(b) shall
remain effective notwithstanding any contrary action which may be taken by Agent
or any Lender in reliance upon such payment or proceeds. This Section 6.4 shall
survive the payment of the Obligations and the termination of this Agreement.
6.5 Taxes.
(a) Any and all payments by or on account of any of the
Obligations shall be made free and clear of and without deduction or withholding
for or on account of, any setoff, counterclaim, defense, duties, taxes, levies,
imposts, fees, deductions, charges, withholdings, liabilities, restrictions or
conditions of any kind, excluding (i) in the case of each Lender and Agent (A)
taxes measured by its net income, and franchise taxes imposed on it, by the
jurisdiction (or any political subdivision thereof) under the laws of which such
Lender or Agent (as the case may be) is organized and (B) any United States
withholding taxes payable with respect to payments under the Financing
Agreements under laws (including any statute, treaty or regulation) in effect on
the date hereof (or, in the case of an Eligible Transferee, the date of the
Assignment and Acceptance) applicable to such Lender or Agent, as the case may
be, but not excluding any United States withholding taxes payable as a result of
any change in such laws occurring after the date hereof (or the date of such
Assignment and Acceptance) and (ii) in the
40
case of each Lender, taxes measured by its net income, and franchise taxes
imposed on it as a result of a present or former connection between such Lender
and the jurisdiction of the Governmental Authority imposing such tax or any
taxing authority thereof or therein (all such non-excluded taxes, levies,
imposts, fees, deductions, charges, withholdings and liabilities being
hereinafter referred to as "Taxes").
(b) If any Taxes shall be required by law to be deducted from or
in respect of any sum payable in respect of the Obligations to any Lender or
Agent (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 6.5), such Lender or Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the relevant Borrower or Guarantor shall make such
deductions, (iii) the relevant Borrower or Guarantor shall pay the full amount
deducted to the relevant taxing authority or other authority in accordance with
applicable law and (iv) the relevant Borrower or Guarantor shall deliver to
Agent evidence of such payment.
(c) In addition, each Borrower and Guarantor agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies of the United States or any political
subdivision thereof or any applicable foreign jurisdiction, and all liabilities
with respect thereto, in each case arising from any payment made hereunder or
under any of the other Financing Agreements or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any of the
other Financing Agreements (collectively, "Other Taxes").
(d) Each Borrower and Guarantor shall indemnify each Lender and
Agent for the full amount of Taxes and Other Taxes (including any Taxes and
Other Taxes imposed by any jurisdiction on amounts payable under this Section
6.5) paid by such Lender or Agent (as the case may be) and any liability
(including for penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within thirty (30) days
from the date such Lender or Agent (as the case may be) makes written demand
therefor. A certificate as to the amount of such payment or liability delivered
to Administrative Borrower by a Lender (with a copy to Agent) or by Agent on its
own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(e) As soon as practicable after any payment of Taxes or Other
Taxes by any Borrower or Guarantor, such Borrower or Guarantor shall furnish to
Agent, at its address referred to herein, the original or a certified copy of a
receipt evidencing payment thereof.
(f) Without prejudice to the survival of any other agreements of
any Borrower or Guarantor hereunder or under any of the other Financing
Agreements, the agreements and obligations of such Borrower or Guarantor
contained in this Section 6.5 shall survive the termination of this Agreement
and the payment in full of the Obligations.
(g) Any Foreign Lender that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
applicable Borrower is resident for tax purposes, or any treaty to which such
jurisdiction is a party, with respect to payments
41
hereunder or under any of the other Financing Agreements shall deliver to
Administrative Borrower (with a copy to Agent), at the time or times prescribed
by applicable law or reasonably requested by Administrative Borrower or Agent
(in such number of copies as is reasonably requested by the recipient),
whichever of the following is applicable (but only if such Foreign Lender is
legally entitled to do so): (i) duly completed copies of Internal Revenue
Service Form W-8BEN claiming exemption from, or a reduction to, withholding tax
under an income tax treaty, or any successor form, (ii) duly completed copies of
Internal Revenue Service Form 8-8ECI claiming exemption from withholding because
the income is effectively connection with a U.S. trade or business or any
successor form, (iii) in the case of a Foreign Lender claiming the benefits of
the exemption for portfolio interest under Sections 871(h) or 881(c) of the
Code, (A) a certificate of the Lender to the effect that such Lender is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code, a "10 percent
shareholder" of a Borrower within the meaning of Section 881(c)(3)(B) of the
Code or a "controlled foreign corporation" described and Section 881(c)(3)(C) of
the Code and (B) duly completed copies of Internal Revenue Service Form W-8BEN
claiming exemption from withholding under the portfolio interest exemption or
any successor form or (iv) any other applicable form, certificate or document
prescribed by applicable law as a basis for claiming exemption from or a
reduction in United States withholding tax duly completed together with such
supplementary documentation as may be prescribed by applicable law to permit a
Borrower to determine the withholding or deduction required to be made. Unless
Administrative Borrower and Agent have received forms or other documents
satisfactory to them indicating that payments hereunder or under any of the
other Financing Agreements to or for a Foreign Lender are not subject to United
States withholding tax or are subject to such tax at a rate reduced by an
applicable tax treaty, Borrowers or Agent shall withhold amounts required to be
withheld by applicable requirements of law from such payments at the applicable
statutory rate.
(h) Any Lender claiming any additional amounts payable pursuant
to this Section 6.5 shall use its reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to change the
jurisdiction of its applicable lending office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that would be payable or may thereafter accrue and would not, in the sole
determination of such Lender, be otherwise disadvantageous to such Lender.
6.6 Authorization to Make Loans. Agent and Lenders are authorized to
make the Loans and transfer funds from the Blocked Accounts based upon
telephonic or other instructions received from anyone purporting to be an
officer of Administrative Borrower or any Borrower or other authorized person
or, at the discretion of Agent, if such Loans or transfers are necessary to
satisfy any Obligations. All requests for Loans, Letters of Credit or such
transfers hereunder shall specify the date on which the requested advance is to
be made (which day shall be a Business Day) and the amount of the requested Loan
or transfer. Requests received after 11:00 a.m. California time on any day shall
be deemed to have been made as of the opening of business on the immediately
following Business Day. All Loans, Letters of Credit and transfers under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, any Borrower or Guarantor when deposited to
the credit of any Borrower or Guarantor or otherwise disbursed or established in
accordance with the instructions of any Borrower or Guarantor or in accordance
with the terms and conditions of this Agreement.
42
6.7 Use of Proceeds. All Loans made or Letters of Credit provided to or
for the benefit of any Borrower pursuant to the provisions hereof shall be used
by such Borrower only for general operating, working capital and other proper
corporate purposes of such Borrower not otherwise prohibited by the terms
hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
6.8 Appointment of Administrative Borrower as Agent for Requesting Loans
and Receipts of Loans and Statements.
(a) Each Borrower hereby irrevocably appoints and constitutes
Administrative Borrower as its agent and attorney-in-fact to request and receive
Loans, Letters of Credit and transfers from the Blocked Accounts pursuant to
this Agreement and the other Financing Agreements from Agent or any Lender in
the name or on behalf of such Borrower. Agent and Lenders may disburse the Loans
and such transfers to such bank account of Administrative Borrower or a Borrower
or otherwise make such Loans and such transfers to a Borrower and provide such
Letters of Credit to a Borrower as Administrative Borrower may designate or
direct, without notice to any other Borrower or Guarantor. Notwithstanding
anything to the contrary contained herein, Agent may at any time and from time
to time require that Loans and such transfers to or for the account of any
Borrower be disbursed directly to an operating account of such Borrower.
(b) Administrative Borrower hereby accepts the appointment by
Borrowers to act as the agent and attorney-in-fact of Borrowers pursuant to this
Section 6.8. Administrative Borrower shall ensure that the disbursement of any
Loans and any transfer from the Blocked Accounts to each Borrower requested by
or paid to or for the account of Parent, or the issuance of any Letter of Credit
for a Borrower hereunder, shall be paid to or for the account of such Borrower.
(c) Each Borrower and other Guarantor hereby irrevocably
appoints and constitutes Administrative Borrower as its agent to receive
statements on account and all other notices from Agent and Lenders with respect
to the Obligations or otherwise under or in connection with this Agreement and
the other Financing Agreements.
(d) Any notice, election, representation, warranty, agreement or
undertaking by or on behalf of any other Borrower or any Guarantor by
Administrative Borrower shall be deemed for all purposes to have been made by
such Borrower or Guarantor, as the case may be, and shall be binding upon and
enforceable against such Borrower or Guarantor to the same extent as if made
directly by such Borrower or Guarantor.
(e) No purported termination of the appointment of
Administrative Borrower as agent as aforesaid shall be effective, except after
ten (10) days' prior written notice to Agent.
43
6.9 Pro Rata Treatment. Except to the extent otherwise provided in this
Agreement or as otherwise agreed by Lenders: (a) the making and conversion of
Loans shall be made among the Lenders based on their respective Pro Rata Shares
as to the Loans and (b) each payment on account of any Obligations to or for the
account of one or more of Lenders in respect of any Obligations due on a
particular day shall be allocated among the Lenders entitled to such payments
based on their respective Pro Rata Shares and shall be distributed accordingly.
6.10 Sharing of Payments, Etc.
(a) Each Borrower and Guarantor agrees that, in addition to (and
without limitation of) any right of setoff, banker's lien or counterclaim Agent
or any Lender may otherwise have, each Lender shall be entitled, at its option
(but subject, as among Agent and Lenders, to the provisions of Section 12.3(b)
hereof), to offset balances held by it for the account of such Borrower or
Guarantor at any of its offices, in dollars or in any other currency, against
any principal of or interest on any Loans owed to such Lender or any other
amount payable to such Lender hereunder, that is not paid when due (regardless
of whether such balances are then due to such Borrower or Guarantor), in which
case it shall promptly notify Administrative Borrower and Agent thereof;
provided, that, such Lender's failure to give such notice shall not affect the
validity thereof.
(b) If any Lender (including Agent) shall obtain from any
Borrower or Guarantor payment of any principal of or interest on any Loan owing
to it or payment of any other amount under this Agreement or any of the other
Financing Agreements through the exercise of any right of setoff, banker's lien
or counterclaim or similar right or otherwise (other than from Agent as provided
herein), and, as a result of such payment, such Lender shall have received more
than its Pro Rata Share of the principal of the Loans or more than its share of
such other amounts then due hereunder or thereunder by any Borrower or Guarantor
to such Lender than the percentage thereof received by any other Lender, it
shall promptly pay to Agent, for the benefit of Lenders, the amount of such
excess and simultaneously purchase from such other Lenders a participation in
the Loans or such other amounts, respectively, owing to such other Lenders (or
such interest due thereon, as the case may be) in such amounts, and make such
other adjustments from time to time as shall be equitable, to the end that all
Lenders shall share the benefit of such excess payment (net of any expenses that
may be incurred by such Lender in obtaining or preserving such excess payment)
in accordance with their respective Pro Rata Shares or as otherwise agreed by
Lenders. To such end all Lenders shall make appropriate adjustments among
themselves (by the resale of participation sold or otherwise) if such payment is
rescinded or must otherwise be restored.
(c) Each Borrower and Guarantor agrees that any Lender
purchasing a participation (or direct interest) as provided in this Section may
exercise, in a manner consistent with this Section, all rights of setoff,
banker's lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender were a direct holder of Loans or other amounts (as
the case may be) owing to such Lender in the amount of such participation.
(d) Nothing contained herein shall require any Lender to
exercise any right of setoff, banker's lien, counterclaims or similar rights or
shall affect the right of any Lender to exercise, and retain the benefits of
exercising, any such right with respect to any other
44
Indebtedness or obligation of any Borrower or Guarantor. If, under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section applies, such Lender
shall, to the extent practicable, assign such rights to Agent for the benefit of
Lenders and, in any event, exercise its rights in respect of such secured claim
in a manner consistent with the rights of Lenders entitled under this Section to
share in the benefits of any recovery on such secured claim.
6.11 Settlement Procedures.
(a) In order to administer the Credit Facility in an efficient
manner and to minimize the transfer of funds between Agent and Lenders, Agent
may, at its option, subject to the terms of this Section, make available, on
behalf of Lenders, the full amount of the Loans requested or charged to any
Borrower's loan account(s) or otherwise to be advanced by Lenders pursuant to
the terms hereof, without requirement of prior notice to Lenders of the proposed
Loans.
(b) With respect to all Loans made by Agent on behalf of Lenders
as provided in this Section, the amount of each Lender's Pro Rata Share of the
outstanding Loans shall be computed weekly, and shall be adjusted upward or
downward on the basis of the amount of the outstanding Loans as of 5:00 p.m.
California time on the Business Day immediately preceding the date of each
settlement computation; provided, that, Agent retains the absolute right at any
time or from time to time to make the above described adjustments at intervals
more frequent than weekly, but in no event more than twice in any week. Agent
shall deliver to each of the Lenders after the end of each week, or at such
lesser period or periods as Agent shall determine, a summary statement of the
amount of outstanding Loans for such period (such week or lesser period or
periods being hereinafter referred to as a "Settlement Period"). If the summary
statement is sent by Agent and received by a Lender prior to 12:00 p.m.
California time, then such Lender shall make the settlement transfer described
in this Section by no later than 3:00 p.m. California time on the same Business
Day and if received by a Lender after 12:00 p.m. California time, then such
Lender shall make the settlement transfer by not later than 3:00 p.m. California
time on the next Business Day following the date of receipt. If, as of the end
of any Settlement Period, the amount of a Lender's Pro Rata Share of the
outstanding Loans is more than such Lender's Pro Rata Share of the outstanding
Loans as of the end of the previous Settlement Period, then such Lender shall
forthwith (but in no event later than the time set forth in the preceding
sentence) transfer to Agent by wire transfer in immediately available funds the
amount of the increase. Alternatively, if the amount of a Lender's Pro Rata
Share of the outstanding Loans in any Settlement Period is less than the amount
of such Lender's Pro Rata Share of the outstanding Loans for the previous
Settlement Period, Agent shall forthwith transfer to such Lender by wire
transfer in immediately available funds the amount of the decrease. The
obligation of each of the Lenders to transfer such funds and effect such
settlement shall be irrevocable and unconditional and without recourse to or
warranty by Agent. Agent and each Lender agrees to mark its books and records at
the end of each Settlement Period to show at all times the dollar amount of its
Pro Rata Share of the outstanding Loans and Letters of Credit. Each Lender shall
only be entitled to receive interest on its Pro Rata Share of the Loans to the
extent such Loans have been funded by such Lender. Because the Agent on behalf
of Lenders may be advancing and/or may be repaid Loans prior to the time when
Lenders will actually advance and/or be repaid such Loans, interest with respect
to Loans shall be allocated by Agent
45
in accordance with the amount of Loans actually advanced by and repaid to each
Lender and the Agent and shall accrue from and including the date such Loans are
so advanced to but excluding the date such Loans are either repaid by Borrowers
or actually settled with the applicable Lender as described in this Section.
(c) To the extent that Agent has made any such amounts available
and the settlement described above shall not yet have occurred, upon repayment
of any Loans by a Borrower, Agent may apply such amounts repaid directly to any
amounts made available by Agent pursuant to this Section. In lieu of weekly or
more frequent settlements, Agent may, at its option, at any time require each
Lender to provide Agent with immediately available funds representing its Pro
Rata Share of each Loan, prior to Agent's disbursement of such Loan to Borrower.
In such event, all Loans under this Agreement shall be made by the Lenders
simultaneously and proportionately to their Pro Rata Shares. No Lender shall be
responsible for any default by any other Lender in the other Lender's obligation
to make a Loan requested hereunder nor shall the Commitment of any Lender be
increased or decreased as a result of the default by any other Lender in the
other Lender's obligation to make a Loan hereunder.
(d) If Agent is not funding a particular Loan to a Borrower (or
Administrative Borrower for the benefit of such Borrower) pursuant to Sections
6.11(a) and 6.11(b) above on any day, but is requiring each Lender to provide
Agent with immediately available funds on the date of such Loan as provided in
Section 6.11(c) above, Agent may assume that each Lender will make available to
Agent such Lender's Pro Rata Share of the Loan requested or otherwise made on
such day and Agent may, in its discretion, but shall not be obligated to, cause
a corresponding amount to be made available to or for the benefit of such
Borrower on such day. If Agent makes such corresponding amount available to a
Borrower and such corresponding amount is not in fact made available to Agent by
such Lender, Agent shall be entitled to recover such corresponding amount on
demand from such Lender together with interest thereon for each day from the
date such payment was due until the date such amount is paid to Agent at the
Federal Funds Rate for each day during such period (as published by the Federal
Reserve Bank of New York or at Agent's option based on the arithmetic mean
determined by Agent of the rates for the last transaction in overnight Federal
funds arranged prior to 9:00 a.m. (New York City time) on that day by each of
the three leading brokers of Federal funds transactions in New York City
selected by Agent) and if such amounts are not paid within three (3) days of
Agent's demand, at the highest Interest Rate provided for in Section 3.1 hereof
applicable to Prime Rate Loans. During the period in which such Lender has not
paid such corresponding amount to Agent, notwithstanding anything to the
contrary contained in this Agreement or any of the other Financing Agreements,
the amount so advanced by Agent to or for the benefit of any Borrower shall, for
all purposes hereof, be a Loan made by Agent for its own account. Upon any such
failure by a Lender to pay Agent, Agent shall promptly thereafter notify
Administrative Borrower of such failure and Borrowers shall pay such
corresponding amount to Agent for its own account within five (5) Business Days
of Administrative Borrower's receipt of such notice. A Lender who fails to pay
Agent its Pro Rata Share of any Loans made available by the Agent on such
Lender's behalf, or any Lender who fails to pay any other amount owing by it to
Agent, is a "Defaulting Lender". Agent shall not be obligated to transfer to a
Defaulting Lender any payments received by Agent for the Defaulting Lender's
benefit, nor shall a Defaulting Lender be entitled to the sharing of any
payments hereunder (including any principal, interest or fees). Amounts payable
to a Defaulting Lender shall instead be paid to or retained by Agent. Agent
46
may hold and, in its discretion, relend to a Borrower the amount of all such
payments received or retained by it for the account of such Defaulting Lender.
For purposes of voting or consenting to matters with respect to this Agreement
and the other Financing Agreements and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a "Lender" and such Lender's
Commitment shall be deemed to be zero (0). This Section shall remain effective
with respect to a Defaulting Lender until such default is cured. The operation
of this Section shall not be construed to increase or otherwise affect the
Commitment of any Lender, or relieve or excuse the performance by any Borrower
or Guarantor of their duties and obligations hereunder.
(e) Nothing in this Section or elsewhere in this Agreement or
the other Financing Agreements shall be deemed to require Agent to advance funds
on behalf of any Lender or to relieve any Lender from its obligation to fulfill
its Commitment hereunder or to prejudice any rights that any Borrower may have
against any Lender as a result of any default by any Lender hereunder in
fulfilling its Commitment.
6.12 Obligations Several; Independent Nature of Lenders' Rights. The
obligation of each Lender hereunder is several, and no Lender shall be
responsible for the obligation or commitment of any other Lender hereunder.
Nothing contained in this Agreement or any of the other Financing Agreements and
no action taken by the Lenders pursuant hereto or thereto shall be deemed to
constitute the Lenders to be a partnership, an association, a joint venture or
any other kind of entity. The amounts payable at any time hereunder to each
Lender shall be a separate and independent debt, and subject to Section 12.3
hereof, each Lender shall be entitled to protect and enforce its rights arising
out of this Agreement and it shall not be necessary for any other Lender to be
joined as an additional party in any proceeding for such purpose.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting.
(a) Borrowers shall provide Agent with the following documents
in a form satisfactory to Agent:
(i) on a regular basis as required by Agent, schedules
of sales made, credits issued and cash received;
(ii) on a monthly basis (no later than the tenth (10th)
Business Day after the end of each month) or, if the sum of the Excess
Availability (calculated without regard to the Revolving Loan Limit) plus the
amount of the Eligible Cash Collateral in excess of $35,000,000 is less than
$15,000,000, then on a weekly basis, a certificate of the Borrowing Base;
(iii) as soon as possible after the end of each month
(but in any event within ten (10) Business Days after the end thereof), on a
monthly basis or more frequently as Agent may request, (A) perpetual inventory
reports, (B) inventory reports by location and category (and including an
analysis of the current market value thereof and the amounts of Inventory and
the Value thereof at any leased premises, storage facilities, warehouses,
processors or other third parties), (C) agings of accounts receivable (together
with a reconciliation to the previous month's aging and general ledger), (D)
agings of accounts payable (and including
47
information indicating the amounts owing to owners and lessors of leased
premises, storage facilities, warehouses, processors and other third parties
from time to time in possession of any Collateral), (E) a report of the
outstanding Pennsylvania gross receipts tax unpaid by Borrowers and (F) a report
of any regulatory matters adversely affecting Borrowers;
(iv) upon Agent's request, (A) copies of customer
statements, purchase orders, sales invoices, credit memos, remittance advices
and reports, and copies of deposit slips and bank statements, in each case,
other than those relating to consumer debtors, (B) copies of shipping and
delivery documents, and (C) copies of purchase orders, invoices and delivery
documents for Inventory and Equipment acquired by any Borrower or Guarantor;
(v) such other reports as to the Collateral as Agent
shall reasonably request from time to time that are in the possession of any
Borrower or Guarantor.
(b) If any Borrower's or Guarantor's records or reports of the
Collateral are prepared or maintained by an accounting service, contractor,
shipper or other agent, such Borrower and Guarantor hereby irrevocably
authorizes such service, contractor, shipper or agent to deliver such records,
reports, and related documents to Agent and to follow Agent's instructions with
respect to further services at any time that an Event of Default exists or has
occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrowers shall notify Agent promptly of: (i) any material
delay in any Borrower's performance of any of its material obligations to any
account debtor or the assertion of any material claims, offsets, defenses or
counterclaims by any account debtor, or any material disputes with account
debtors, or any settlement, adjustment or compromise thereof, (ii) all material
adverse information known to any Borrower or Guarantor relating to the financial
condition of any account debtor on Accounts in excess of $100,000 in the
aggregate outstanding and (iii) any event or circumstance which, to the best of
any Borrower's or Guarantor's knowledge, would cause Agent to consider any then
existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Agent's consent, except in the ordinary
course of a Borrower's or Guarantor's business in accordance with practices and
policies previously disclosed in writing to Agent and except as set forth in the
schedules delivered to Agent pursuant to Section 7.1(a) above. So long as no
Event of Default exists or has occurred and is continuing, Borrowers and
Guarantors shall settle, adjust or compromise any claim, offset, counterclaim or
dispute with any account debtor. At any time that an Event of Default exists or
has occurred and is continuing, Agent shall, at its option, have the exclusive
right to settle, adjust or compromise any claim, offset, counterclaim or dispute
with account debtors or grant any credits, discounts or allowances.
(b) With respect to each Account: (i) the amounts shown on any
invoice delivered to Agent or schedule thereof delivered to Agent shall be true
and complete, (ii) no payments shall be made thereon except payments immediately
delivered to Agent pursuant to the terms of this Agreement, (iii) no credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor except as reported to Agent in accordance
48
with this Agreement and except for credits, discounts, allowances or extensions
made or given in the ordinary course of each Borrower's business in accordance
with practices and policies previously disclosed to Agent, (iv) there shall be
no setoffs, deductions, contras, defenses, counterclaims or disputes existing or
asserted with respect thereto except as reported to Agent in accordance with the
terms of this Agreement, (v) none of the transactions giving rise thereto will
violate any applicable foreign, Federal, State or local laws or regulations, all
documentation relating thereto will be legally sufficient under such laws and
regulations and all such documentation will be legally enforceable in accordance
with its terms.
(c) Agent shall have the right at any time or times, in Agent's
name or in the name of a nominee of Agent, to verify the validity, amount or any
other matter relating to any Receivables or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
7.3 Inventory Covenants. With respect to the Inventory: (a) each
Borrower and Guarantor shall at all times maintain inventory records reasonably
satisfactory to Agent, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, such Borrower's or
Guarantor's cost therefor and daily withdrawals therefrom and additions thereto;
(b) Borrowers and Guarantors shall not remove any Inventory from the locations
set forth or permitted herein, without the prior written consent of Agent,
except for sales of Inventory in the ordinary course of its business and except
to move Inventory directly from one location set forth or permitted herein to
another such location and except for Inventory shipped from the manufacturer
thereof to such Borrower or Guarantor which is in transit to the locations set
forth or permitted herein; (c) Borrowers and Guarantors shall produce, use,
store and maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(d) none of the Inventory or other Collateral constitutes farm products or the
proceeds thereof; (e) each Borrower and Guarantor assumes all responsibility and
liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (f) Borrowers and Guarantors shall not sell
Inventory to any customer on approval, or any other basis which entitles the
customer to return or may obligate any Borrower or Guarantor to repurchase such
Inventory; (g) Borrowers and Guarantors shall keep the Inventory in good and
marketable condition; and (h) Borrowers and Guarantors shall not, without prior
written notice to Agent or the specific identification of such Inventory in a
report with respect thereto provided by Administrative Borrower to Agent
pursuant to Section 7.1(a) hereof, acquire or accept any Inventory on
consignment or approval.
7.4 Equipment and Real Property Covenants. With respect to the Equipment
and Real Property: (a) upon Agent's request, Borrowers and Guarantors shall, at
their expense, at any time or times as Agent may request on or after an Event of
Default, deliver or cause to be delivered to Agent written appraisals as to the
Equipment and/or any Real Property subject to a mortgage, deed of trust or deed
to secure debt in favor of Agent, which appraisal shall be in form, scope and
methodology acceptable to Agent and by an appraiser acceptable to Agent,
addressed to Agent and upon which Agent is expressly permitted to rely; (b)
Borrowers and Guarantors shall keep the Equipment in good order, repair, running
and marketable condition (ordinary wear and tear excepted); (c) Borrowers and
Guarantors shall use the Equipment and Real Property with all reasonable care
and caution and in accordance with applicable standards
49
of any insurance and in conformity with all applicable laws; (d) the Equipment
is and shall be used in the business of Borrowers and Guarantors and not for
personal, family, household or farming use; (e) Borrowers and Guarantors shall
not remove any Equipment from the locations set forth or permitted herein,
except to the extent necessary to have any Equipment repaired or maintained in
the ordinary course of its business or to move Equipment directly from one
location set forth or permitted herein to another such location and except for
the movement of motor vehicles used by or for the benefit of such Borrower or
Guarantor in the ordinary course of business; (f) the Equipment is now and shall
remain personal property and Borrowers and Guarantors shall not permit any of
the Equipment to be or become a part of or affixed to real property; and (g)
each Borrower and Guarantor assumes all responsibility and liability arising
from the use of the Equipment and Real Property.
7.5 Power of Attorney. Each Borrower and Guarantor hereby irrevocably
designates and appoints Agent (and all persons designated by Agent) as such
Borrower's and Guarantor's true and lawful attorney-in-fact, and authorizes
Agent, in such Borrower's, Guarantor's or Agent's name, to: (a) at any time an
Event of Default exists or has occurred and is continuing (i) demand payment on
Receivables or other Collateral, (ii) enforce payment of Receivables by legal
proceedings or otherwise, (iii) exercise all of such Borrower's or Guarantor's
rights and remedies to collect any Receivable or other Collateral, (iv) sell or
assign any Receivable upon such terms, for such amount and at such time or times
as the Agent deems advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Receivable, (vii) prepare, file and sign
such Borrower's or Guarantor's name on any proof of claim in bankruptcy or other
similar document against an account debtor or other obligor in respect of any
Receivables or other Collateral, (viii) notify the post office authorities to
change the address for delivery of remittances from account debtors or other
obligors in respect of Receivables or other proceeds of Collateral to an address
designated by Agent, and open and dispose of all mail addressed to such Borrower
or Guarantor and handle and store all mail relating to the Collateral, (ix)
direct any Person (including any utility) holding possession of any Collateral
to deliver such Collateral as Agent may direct, and (x) do all acts and things
which are necessary, in Agent's determination, to fulfill such Borrower's or
Guarantor's obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of payment in
respect of Receivables or constituting Collateral or otherwise received in or
for deposit in the Blocked Accounts or otherwise received by Agent or any
Lender, (ii) have access to any lockbox or postal box into which remittances
from account debtors or other obligors in respect of Receivables or other
proceeds of Collateral are sent or received, (iii) endorse such Borrower's or
Guarantor's name upon any items of payment in respect of Receivables or
constituting Collateral or otherwise received by Agent and any Lender and
deposit the same in Agent's account for application to the Obligations, (iv)
endorse such Borrower's or Guarantor's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Receivable
or any goods pertaining thereto or any other Collateral, including any warehouse
or other receipts, or bills of lading and other negotiable or non-negotiable
documents, (v) clear Inventory the purchase of which was financed with a Letter
of Credit through U.S. Customs or foreign export control authorities in such
Borrower's or Guarantor's name, Agent's name or the name of Agent's designee,
and to sign and deliver to customs officials powers of attorney in such
Borrower's or Guarantor's name for such purpose, and to complete in such
Borrower's or Guarantor's or Agent's name, any order, sale or transaction,
obtain the necessary documents in connection therewith and collect the proceeds
thereof, and (vi) sign such
50
Borrower's or Guarantor's name on any verification of Receivables and notices
thereof to account debtors or any secondary obligors or other obligors in
respect thereof. Each Borrower and Guarantor hereby releases Agent and Lenders
and their respective officers, employees and designees from any liabilities
arising from any act or acts under this power of attorney and in furtherance
thereof, whether of omission or commission, except as a result of Agent's or any
Lender's own gross negligence or wilful misconduct as determined pursuant to a
final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Agent may, at its option, upon notice to
Administrative Borrower, (a) cure any default by any Borrower or Guarantor under
any material agreement with a third party that affects the Collateral, its value
or the ability of Agent to collect, sell or otherwise dispose of the Collateral
or the rights and remedies of Agent or any Lender therein or the ability of any
Borrower or Guarantor to perform its obligations hereunder or under any of the
other Financing Agreements, (b) pay or bond on appeal any judgment entered
against any Borrower or Guarantor, (c) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (d) pay any amount, incur any expense or perform any act
which, in Agent's judgment, is necessary or appropriate to preserve, protect,
insure or maintain the Collateral and the rights of Agent and Lenders with
respect thereto. Agent may add any amounts so expended to the Obligations and
charge any Borrower's account therefor, such amounts to be repayable by
Borrowers on demand. Agent and Lenders shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of any Borrower or Guarantor. Any payment
made or other action taken by Agent or any Lender under this Section shall be
without prejudice to any right to assert an Event of Default hereunder and to
proceed accordingly.
7.7 Access to Premises. From time to time as requested by Agent, at the
cost and expense of Borrowers, (a) Agent or its designee shall have complete
access to all of each Borrower's and Guarantor's premises during normal business
hours and after notice to Parent, or at any time and without notice to
Administrative Borrower if an Event of Default exists or has occurred and is
continuing, for the purposes of inspecting, verifying and auditing the
Collateral and all of each Borrower's and Guarantor's books and records,
including the Records, and (b) each Borrower and Guarantor shall promptly
furnish to Agent such copies of such books and records or extracts therefrom as
Agent may request, and Agent or any Lender or Agent's designee may use during
normal business hours such of any Borrower's and Guarantor's personnel,
equipment, supplies and premises as may be reasonably necessary for the
foregoing and if an Event of Default exists or has occurred and is continuing
for the collection of Receivables and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Each Borrower and Guarantor hereby represents and warrants to Agent and
Lenders the following (which shall survive the execution and delivery of this
Agreement):
8.1 Corporate Existence, Power and Authority. Each Borrower and
Guarantor is a corporation duly organized and in good standing under the laws of
its jurisdiction of organization and is duly qualified as a foreign corporation
and in good standing in all states or other jurisdictions where the nature and
extent of the business transacted by it or the ownership of
51
assets makes such qualification necessary, except for those jurisdictions in
which the failure to so qualify would not have a material adverse effect on such
Borrower's or Guarantor's financial condition, results of operation or business
or the rights of Agent in or to any of the Collateral. The execution, delivery
and performance of this Agreement, the other Financing Agreements and the
transactions contemplated hereunder and thereunder (a) are all within each
Borrower's and Guarantor's corporate powers, (b) have been duly authorized, (c)
are not in contravention of law or the terms of any Borrower's or Guarantor's
certificate of incorporation, by laws, or other organizational documentation, or
any material indenture, agreement or undertaking to which any Borrower or
Guarantor is a party or by which any Borrower or Guarantor or its property are
bound and (d) will not result in the creation or imposition of, or require or
give rise to any obligation to grant, any lien, security interest, charge or
other encumbrance upon any property of any Borrower or Guarantor (other than
those in favor of Agent and Lenders). This Agreement and the other Financing
Agreements to which any Borrower or Guarantor is a party constitute legal, valid
and binding obligations of such Borrower and Guarantor enforceable in accordance
with their respective terms.
8.2 Name; State of Organization; Chief Executive Office; Collateral
Locations.
(a) The exact legal name of each Borrower and Guarantor is as
set forth on the signature page of this Agreement and in the Information
Certificate. No Borrower or Guarantor has, during the five years prior to the
date of this Agreement, been known by or used any other corporate or fictitious
name or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or acquired any of its property
or assets out of the ordinary course of business, except as set forth in the
Information Certificate.
(b) Each Borrower and Guarantor is an organization of the type
and organized in the jurisdiction set forth in the Information Certificate. The
Information Certificate accurately sets forth the organizational identification
number of each Borrower and Guarantor or accurately states that such Borrower or
Guarantor has none and accurately sets forth the federal employer identification
number of each Borrower and Guarantor.
(c) The chief executive office and mailing address of each
Borrower and Guarantor and each Borrower's and Guarantor's Records concerning
Accounts are located only at the address identified as such in Schedule 8.2 to
the Information Certificate and its only other places of business and the only
other locations of Collateral, if any, are the addresses set forth in Schedule
8.2 to the Information Certificate, subject to the rights of any Borrower or
Guarantor to establish new locations in accordance with Section 9.2 below. The
Information Certificate correctly identifies any of such locations which are not
owned by a Borrower or Guarantor and sets forth the owners and/or operators
thereof.
8.3 Financial Statements; No Material Adverse Change. All financial
statements relating to any Borrower or Guarantor which have been or may
hereafter be delivered by any Borrower or Guarantor to Agent and Lenders have
been prepared in accordance with GAAP (except as to any interim financial
statements, to the extent such statements are subject to normal year-end
adjustments and do not include any notes) and fairly present in all material
respects the financial condition and the results of operation of such Borrower
and Guarantor as at the dates and for the periods set forth therein. Except as
disclosed in any interim financial statements
52
furnished by Borrowers and Guarantors to Agent prior to the date of this
Agreement, there has been no act, condition or event which has had or is
reasonably likely to have a Material Adverse Effect since the date of the most
recent audited financial statements of any Borrower or Guarantor furnished by
any Borrower or Guarantor to Agent prior to the date of this Agreement. The
projections dated April 21, 2006 for the fiscal years ending 2006 through 2007
that have been delivered to Agent or any projections hereafter delivered to
Agent have been prepared in light of the past operations of the businesses of
Borrowers and Guarantors and are based upon estimates and assumptions stated
therein, all of which Borrowers and Guarantors have determined to be reasonable
and fair in light of the then current conditions and current facts and reflect
the good faith and reasonable estimates of Borrowers and Guarantors of the
future financial performance of Parent and its Subsidiaries and of the other
information projected therein for the periods set forth therein.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Agent under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4 to
the Information Certificate and the other liens permitted under Section 9.8
hereof. Each Borrower and Guarantor has good and marketable fee simple title to
or valid leasehold interests in all of its Real Property and good, valid and
merchantable title to all of its other properties and assets subject to no
liens, mortgages, pledges, security interests, encumbrances or charges of any
kind, except those granted to Agent and such others as are specifically listed
on Schedule 8.4 to the Information Certificate or permitted under Section 9.8
hereof.
8.5 Tax Returns. Each Borrower and Guarantor has filed, or caused to be
filed, in a timely manner all tax returns, reports and declarations which are
required to be filed by it, except for any tax return (and accompanying
documents) involving a potential tax liability not exceeding $10,000. All
information in such tax returns, reports and declarations is complete and
accurate in all material respects. Each Borrower and Guarantor has paid or
caused to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower or Guarantor and with respect to which adequate
reserves have been set aside on its books. Adequate provision has been made for
the payment of all accrued and unpaid Federal, State, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth on Schedule 8.6 to the Information
Certificate, (a) there is no investigation by any Governmental Authority
pending, or to the best of any Borrower's or Guarantor's knowledge threatened,
against or affecting any Borrower or Guarantor, its or their assets or business
and (b) there is no action, suit, proceeding or claim by any Person pending, or
to the best of any Borrower's or Guarantor's knowledge threatened, against any
Borrower or Guarantor or its or their assets or goodwill, or against or
affecting any transactions contemplated by this Agreement, in each case, which
if adversely determined against such Borrower or Guarantor has or could
reasonably be expected to have a Material Adverse Effect.
53
8.7 Compliance with Other Agreements and Applicable Laws.
(a) Borrowers and Guarantors are not in default in any respect
under, or in violation in any respect of the terms of, any material agreement,
contract, instrument, lease or other commitment to which it is a party or by
which it or any of its assets are bound. Borrowers and Guarantors are in
compliance with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority relating to their respective businesses,
including, without limitation, those set forth in or promulgated pursuant to the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor Standards
Act of 1938, as amended, ERISA, the Code, as amended, and the rules and
regulations thereunder, and all Environmental Laws, except to the extent such
noncompliance could not reasonably be expected to result in a Material Adverse
Effect.
(b) Borrowers and Guarantors have obtained all material permits,
licenses, approvals, consents, certificates, orders or authorizations of any
Governmental Authority required for the lawful conduct of its business (the
"Permits"). All of the material Permits are valid and subsisting and in full
force and effect. There are no actions, claims or proceedings pending or to the
best of any Borrower's or Guarantor's knowledge, threatened that seek the
revocation, cancellation, suspension or modification of any of the material
Permits.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 to the Information
Certificate, Borrowers, Guarantors and any Subsidiary of any Borrower or
Guarantor have not generated, used, stored, treated, transported, manufactured,
handled, produced or disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time violates in any
material respect any applicable Environmental Law or Permit, and the operations
of Borrowers, Guarantors and any Subsidiary of any Borrower or Guarantor
complies in all material respects with all Environmental Laws and all Permits.
(b) Except as set forth on Schedule 8.8 to the Information
Certificate, there has been no investigation by any Governmental Authority or
any proceeding, complaint, order, directive, claim, citation or notice by any
Governmental Authority or any other person nor is any pending or to the best of
any Borrower's or Guarantor's knowledge threatened, with respect to any non
compliance with or violation of the requirements of any Environmental Law by any
Borrower or Guarantor and any Subsidiary of any Borrower or Guarantor or the
release, spill or discharge, threatened or actual, of any Hazardous Material or
the generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials or any other environmental,
health or safety matter, which adversely affects or could reasonably be expected
to adversely affect in any material respect any Borrower or Guarantor or its or
their business, operations or assets or any properties at which such Borrower or
Guarantor has transported, stored or disposed of any Hazardous Materials.
(c) Except as set forth on Schedule 8.8 to the Information
Certificate, Borrowers, Guarantors and their Subsidiaries have no material
liability (contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials
54
or the generation, use, storage, treatment, transportation, manufacture,
handling, production or disposal of any Hazardous Materials.
(d) Borrowers, Guarantors and their Subsidiaries have all
material Permits required to be obtained or filed in connection with the
operations of Borrowers and Guarantors under any Environmental Law and all of
such material licenses, certificates, approvals or similar authorizations and
other Permits are valid and in full force and effect.
8.9 Employee Benefits.
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other Federal or State law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the Internal Revenue Service and to the
best of any Borrower's or Guarantor's knowledge, nothing has occurred which
would cause the loss of such qualification. Borrowers have given Agent written
notice of the failure by any Borrower or its ERISA Affiliates to make all
required contributions to any Plan subject to Section 412 of the Code, and of
any application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code with respect to any Plan, to the extent such
failure, application or extension constitutes an ERISA Event.
(b) There are no pending, or to the best of any Borrower's or
Guarantor's knowledge, threatened claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan. There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur, except an ERISA Event occurring after the date of this Agreement for
which notice is given pursuant to clause (v) of Section 9.6(b) hereof; (ii)
based on the latest valuation of each Pension Plan and on the actuarial methods
and assumptions employed for such valuation (determined in accordance with the
assumptions used for funding such Pension Plan pursuant to Section 412 of the
Code) the aggregate current value of accumulated benefit liabilities of such
Pension Plan under Section 4001(a)(16) of ERISA does not exceed the aggregate
current value of the assets of such Pension Plan; (iii) each Borrower and
Guarantor, and their ERISA Affiliates, have not incurred and do not reasonably
expect to incur, any liability (and no event has occurred which, with the giving
of notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (iv)
each Borrower and Guarantor, and their ERISA Affiliates, have not engaged in a
transaction that would be subject to Section 4069 or 4212(c) of ERISA.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by any Borrower or Guarantor maintained at
any bank or other financial institution are set forth on Schedule 8.10 to the
Information Certificate, subject to the right of each Borrower and Guarantor to
establish new accounts in accordance with Section 5.2 hereof.
55
8.11 Intellectual Property. Each Borrower and Guarantor owns or licenses
or otherwise has the right to use all Intellectual Property necessary for the
operation of its business as presently conducted or proposed to be conducted. As
of the date hereof, Borrowers and Guarantors do not have any Intellectual
Property registered, or subject to pending applications, in the United States
Patent and Trademark Office or any similar office or agency in the United
States, any State thereof, any political subdivision thereof or in any other
country, other than those described in Schedule 8.11 to the Information
Certificate and has not granted any licenses with respect thereto other than as
set forth in Schedule 8.11 to the Information Certificate. No event has occurred
which permits or would permit after notice or passage of time or both, the
revocation, suspension or termination of such rights. To the best of any
Borrower's and Guarantor's knowledge, no slogan or other advertising device,
product, process, method, substance or other Intellectual Property or goods
bearing or using any Intellectual Property presently contemplated to be sold by
or employed by any Borrower or Guarantor infringes any patent, trademark,
servicemark, tradename, copyright, license or other Intellectual Property owned
by any other Person presently and no claim or litigation is pending or
threatened against or affecting any Borrower or Guarantor contesting its right
to sell or use any such Intellectual Property. Schedule 8.11 to the Information
Certificate sets forth all of the agreements or other arrangements of each
Borrower and Guarantor pursuant to which such Borrower or Guarantor has a
license or other right to use any trademarks, logos, designs, representations or
other Intellectual Property (other than for computer software and similar
Intellectual Property) owned by another person as in effect on the date hereof
and the dates of the expiration of such agreements or other arrangements of such
Borrower or Guarantor as in effect on the date hereof (collectively, together
with such agreements or other arrangements as may be entered into by any
Borrower or Guarantor after the date hereof, collectively, the "License
Agreements" and individually, a "License Agreement"). No trademark, servicemark,
copyright or other Intellectual Property at any time used by any Borrower or
Guarantor which is owned by another person, or owned by such Borrower or
Guarantor subject to any security interest, lien, collateral assignment, pledge
or other encumbrance in favor of any person other than Agent, is affixed to any
Eligible Inventory, except (a) to the extent permitted under the term of the
license agreements listed on Schedule 8.11 to the Information Certificate and
(b) to the extent the sale of Inventory to which such Intellectual Property is
affixed is permitted to be sold by such Borrower or Guarantor under applicable
law (including the United States Copyright Act of 1976).
8.12 Subsidiaries; Affiliates; Capitalization; Solvency.
(a) As of the date of this Agreement, each Borrower and
Guarantor does not have any direct or indirect Subsidiaries or Affiliates and is
not engaged in any joint venture or partnership except as set forth in Schedule
8.12 to the Information Certificate.
(b) As of the date of this Agreement, each Borrower and
Guarantor is the record and beneficial owner of all of the issued and
outstanding shares of Capital Stock of each of the Subsidiaries listed on
Schedule 8.12 to the Information Certificate as being owned by such Borrower or
Guarantor and there are no proxies, irrevocable or otherwise, with respect to
such shares and no equity securities of any of the Subsidiaries are or may
become required to be issued by reason of any options, warrants, rights to
subscribe to, calls or commitments of any kind or nature and there are no
contracts, commitments, understandings or arrangements by
56
which any Subsidiary is or may become bound to issue additional shares of it
Capital Stock or securities convertible into or exchangeable for such shares.
(c) As of the date of this Agreement, the issued and outstanding
shares of Capital Stock of Commerce Energy and Skipping Stone are directly and
beneficially owned and held by Parent, and in each case all of such shares have
been duly authorized and are fully paid and non-assessable, free and clear of
all claims, liens, pledges and encumbrances of any kind.
(d) Each Borrower and Guarantor is Solvent and will continue to
be Solvent after the creation of the Obligations, the security interests of
Agent and the other transaction contemplated hereunder.
8.13 Labor Disputes.
(a) Set forth on Schedule 8.13 to the Information Certificate is
a list (including dates of termination) of all collective bargaining or similar
agreements between or applicable to each Borrower and Guarantor and any union,
labor organization or other bargaining agent in respect of the employees of any
Borrower or Guarantor on the date hereof.
(b) There is (i) no significant unfair labor practice complaint
pending against any Borrower or Guarantor or, to the best of any Borrower's or
Guarantor's knowledge, threatened against it, before the National Labor
Relations Board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is
pending on the date hereof against any Borrower or Guarantor or, to best of any
Borrower's or Guarantor's knowledge, threatened against it, and (ii) no
significant strike, labor dispute, slowdown or stoppage is pending against any
Borrower or Guarantor or, to the best of any Borrower's or Guarantor's
knowledge, threatened against any Borrower or Guarantor.
8.14 Restrictions on Subsidiaries. Except for restrictions contained in
this Agreement or any other agreement with respect to Indebtedness of any
Borrower or Guarantor permitted hereunder as in effect on the date hereof, there
are no contractual or consensual restrictions on any Borrower or Guarantor or
any of its Subsidiaries which prohibit or otherwise restrict (a) the transfer of
cash or other assets (i) between any Borrower or Guarantor and any of its or
their Subsidiaries or (ii) between any Subsidiaries of any Borrower or Guarantor
or (b) the ability of any Borrower or Guarantor or any of its or their
Subsidiaries to incur Indebtedness or grant security interests to Agent or any
Lender in the Collateral, other than as expressly permitted in Section 9.16
hereof.
8.15 Material Contracts. Schedule 8.15 to the Information Certificate
sets forth all Material Contracts to which any Borrower or Guarantor is a party
or is bound as of the date hereof. Borrowers and Guarantors have delivered true,
correct and complete copies of such Material Contracts to Agent on or before the
date hereof. Borrowers and Guarantors are not in breach or in default in any
material respect of or under any Material Contract and have not received any
notice of the intention of any other party thereto to terminate any Material
Contract.
8.16 Payable Practices. Each Borrower and Guarantor have not made any
material change in the historical accounts payable practices from those in
effect immediately prior to the date hereof.
57
8.17 Accuracy and Completeness of Information. All information furnished
by or on behalf of any Borrower or Guarantor in writing to Agent or any Lender
in connection with this Agreement or any of the other Financing Agreements or
any transaction contemplated hereby or thereby, including all information on the
Information Certificate is true and correct in all material respects on the date
as of which such information is dated or certified and does not omit any
material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a Material Adverse Affect, which has not been fully and accurately
disclosed to Agent in writing.
8.18 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Agent and Lenders on the date of each additional
borrowing or other credit accommodation hereunder and shall be conclusively
presumed to have been relied on by Agent and Lenders regardless of any
investigation made or information possessed by Agent or any Lender. The
representations and warranties set forth herein shall be cumulative and in
addition to any other representations or warranties which any Borrower or
Guarantor shall now or hereafter give, or cause to be given, to Agent or any
Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence.
(a) Each Borrower and Guarantor shall at all times preserve,
renew and keep in full force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
material licenses, trademarks, tradenames, approvals, authorizations, leases,
contracts and Permits necessary to carry on the business as presently or
proposed to be conducted, except as to any Guarantor other than Parent as
permitted in Section 9.7 hereto.
(b) No Borrower or Guarantor shall change its name unless each
of the following conditions is satisfied: (i) Agent shall have received not less
than thirty (30) days prior written notice from Administrative Borrower of such
proposed change in its corporate name, which notice shall accurately set forth
the new name; and (ii) Agent shall have received a copy of the amendment to the
Certificate of Incorporation of such Borrower or Guarantor providing for the
name change certified by the Secretary of State of the jurisdiction of
incorporation or organization of such Borrower or Guarantor as soon as it is
available.
(c) No Borrower or Guarantor shall change its chief executive
office or its mailing address or organizational identification number (or if it
does not have one, shall not acquire one) unless Agent shall have received not
less than thirty (30) days' prior written notice from Administrative Borrower of
such proposed change, which notice shall set forth such information with respect
thereto as Agent may require and Agent shall have received such agreements as
Agent may reasonably require in connection therewith. No Borrower or Guarantor
shall change its type of organization, jurisdiction of organization or other
legal structure.
58
9.2 New Collateral Locations. Each Borrower and Guarantor may only open
any new location within the continental United States and enter into any
agreement with an additional utility to hold Inventory consisting of natural gas
for delivery to any Borrower's customers provided such Borrower or Guarantor (a)
gives Agent thirty (30) days prior written notice of the intended opening of any
such new location or agreement with such additional utility (it being understood
that no notice need be given to Agent for a new location at which a utility
maintains such Inventory) and (b) in the case of a new location, executes and
delivers, or causes to be executed and delivered, to Agent such agreements,
documents, and instruments as Agent may deem reasonably necessary or desirable
to protect its interests in the Collateral at such location.
9.3 Compliance with Laws, Regulations, Etc.
(a) Each Borrower and Guarantor shall, and shall cause any
Subsidiary to, at all times, comply in all material respects with all laws,
rules, regulations, licenses, approvals, orders and other Permits applicable to
it and duly observe all requirements of any foreign, Federal, State or local
Governmental Authority, except to the extent the failure to so comply or observe
such requirements could not reasonably be expected to result in a Material
Adverse Effect.
(b) Borrowers and Guarantors shall give written notice to Agent
promptly upon any Borrower's or Guarantor's receipt of any notice of, or any
Borrower's or Guarantor's otherwise obtaining knowledge of, (i) the occurrence
of any event involving the release, spill or discharge, threatened or actual, of
any Hazardous Material or (ii) any investigation, proceeding, complaint, order,
directive, claims, citation or notice with respect to: (A) any non-compliance
with or violation of any Environmental Law by any Borrower or Guarantor or (B)
the release, spill or discharge, threatened or actual, of any Hazardous Material
other than in the ordinary course of business and other than as permitted under
any applicable Environmental Law. Copies of all environmental surveys, audits,
assessments, feasibility studies and results of remedial investigations shall be
promptly furnished, or caused to be furnished, by such Borrower or Guarantor to
Agent. Each Borrower and Guarantor shall take prompt action to respond to any
material non-compliance with any of the Environmental Laws and shall regularly
report to Agent on such response.
(c) Without limiting the generality of the foregoing, whenever
Agent reasonably determines that there is non-compliance, or any condition which
requires any action by or on behalf of any Borrower or Guarantor in order to
avoid any non compliance, with any Environmental Law, Borrowers shall, at
Agent's reasonable request and Borrowers' expense: (i) cause an independent
environmental engineer reasonably acceptable to Agent to conduct such tests of
the site where non-compliance or alleged non compliance with such Environmental
Laws has occurred as to such non-compliance and prepare and deliver to Agent a
report as to such non-compliance setting forth the results of such tests, a
proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof and (ii) provide to Agent a supplemental
report of such engineer whenever the scope of such non-compliance, or such
Borrower's or Guarantor's response thereto or the estimated costs thereof, shall
change in any material respect.
59
(d) Each Borrower and Guarantor shall indemnify and hold
harmless Agent and Lenders and their respective directors, officers, employees,
agents, invitees, representatives, successors and assigns, from and against any
and all losses, claims, damages, liabilities, costs, and expenses (including
reasonable attorneys' fees and expenses) directly or indirectly arising out of
or attributable to the use, generation, manufacture, reproduction, storage,
release, threatened release, spill, discharge, disposal or presence of a
Hazardous Material, including the costs of any required or necessary repair,
cleanup or other remedial work with respect to any property of any Borrower or
Guarantor and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower and Guarantor shall, and
shall cause any Subsidiary to, duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to such Borrower,
Guarantor or Subsidiary, as the case may be, and with respect to which adequate
reserves have been set aside on its books to the extent required by GAAP.
9.5 Insurance. Each Borrower and Guarantor shall, and shall cause any
Subsidiary to, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and all
other insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
reasonably satisfactory to Agent as to form, amount and insurer. Borrowers and
Guarantors shall furnish certificates, policies or endorsements to Agent as
Agent shall reasonably require as proof of such insurance, and, if any Borrower
or Guarantor fails to do so, Agent is authorized, but not required, to obtain
such insurance at the expense of Borrowers. All policies shall provide for at
least thirty (30) days prior written notice to Agent of any cancellation or
reduction of coverage and that Agent may act as attorney for each Borrower and
Guarantor in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Borrowers and Guarantors shall cause Agent to be named as a loss
payee and an additional insured (but without any liability for any premiums)
under such insurance policies and Borrowers and Guarantors shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Agent. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Agent as its interests may appear and further specify that Agent and Lenders
shall be paid regardless of any act or omission by any Borrower, Guarantor or
any of its or their Affiliates. Without limiting any other rights of Agent or
Lenders, any proceeds of the foregoing insurance shall be deposited in the
Lockbox Account pursuant to Section 6.3(a) hereof.
9.6 Financial Statements and Other Information.
(a) Each Borrower and Guarantor shall, and shall cause any
Subsidiary to, keep proper books and records in which true and complete entries
shall be made of all dealings or transactions of or in relation to the
Collateral and the business of such Borrower, Guarantor and its Subsidiaries in
accordance with GAAP. Borrowers and Guarantors shall promptly
60
furnish to Agent and Lenders all such financial and other information as Agent
shall reasonably request relating to the Collateral and the assets, business and
operations of Borrowers and Guarantors, and Borrower shall notify the auditors
and accountants of Borrowers and Guarantors that Agent is authorized to obtain
such information directly from them. Without limiting the foregoing, Borrowers
shall furnish or cause to be furnished to Agent, the following:
(i) within thirty (30) days after the end of each fiscal
month, monthly unaudited consolidated financial statements, and unaudited
consolidating financial statements (including in each case balance sheets and
statements of income and loss, and, in the case of any fiscal month ending on
the last day of a fiscal quarter, statements of cash flow, and, in the case of
any fiscal month ending on the last day of a fiscal year, statements of
shareholders' equity), all in reasonable detail, fairly presenting in all
material respects the financial position and the results of the operations of
Parent and its Subsidiaries as of the end of and through such fiscal month,
certified to be correct by the chief financial officer of Parent, subject to
normal year-end adjustments and accompanied by a compliance certificate
substantially in the form of Exhibit C hereto, along with a schedule in a form
reasonably satisfactory to Agent of the calculations used in determining, as of
the end of such month, whether Borrowers and Guarantors were in compliance with
the covenants set forth in Sections 9.17, 9.18 and 9.19 of this Agreement for
such month, and
(ii) within ninety (90) days after the end of each
fiscal year, audited consolidated financial statements and unaudited
consolidating financial statements of Parent and its Subsidiaries (including in
each case balance sheets, statements of income and loss, statements of cash
flow, and statements of shareholders' equity), and the accompanying notes
thereto, all in reasonable detail, fairly presenting in all material respects
the financial position and the results of the operations of Parent and its
Subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of independent certified public accountants with respect to
the audited consolidated financial statements, which accountants shall be an
independent accounting firm selected by Administrative Borrower and acceptable
to Agent, that such audited consolidated financial statements have been prepared
in accordance with GAAP, and present fairly in all material respects the results
of operations and financial condition of Parent and its Subsidiaries as of the
end of and for the fiscal year then ended, and
(iii) at such time as available, but in no event later
than forty-five (45) days after the end of each fiscal year (commencing with the
fiscal year of Borrowers ending July 31, 2006), projected consolidated financial
statements (including in each case, forecasted balance sheets and statements of
income and loss) of Parent and its Subsidiaries for the next fiscal year, all in
reasonable detail, and in a format consistent with the projections delivered by
Borrowers to Agent prior to the date hereof, together with such supporting
information as Agent may reasonably request. Such projected financial statements
shall be prepared on a monthly basis for the next succeeding year. Such
projections shall represent the reasonable best estimate by Borrowers and
Guarantors of the future financial performance of Parent and its Subsidiaries
for the periods set forth therein and shall have been prepared on the basis of
the assumptions set forth therein which Borrowers and Guarantors believe are
fair and reasonable as of the date of preparation in light of current and
reasonably foreseeable business conditions (it being understood that actual
results may differ from those set forth in such projected financial statements).
Each year Borrowers shall provide to Agent a semi-annual update with respect to
61
such projections or at any time a Default or Event of Default exists or has
occurred and is continuing, more frequently as Agent may require.
(b) Borrowers and Guarantors shall promptly notify Agent in
writing of the details of (i) any loss, damage, investigation, action, suit,
proceeding or claim relating to Collateral having a value of more than $500,000
or which if adversely determined would result in any material adverse change in
any Borrower's or Guarantor's business, properties, assets, goodwill or
condition, financial or otherwise, (ii) any Material Contract being terminated
or amended or any new Material Contract entered into (in which event Borrowers
and Guarantors shall provide Agent with a copy of such Material Contract), (iii)
any order, judgment or decree in excess of $1,000,000 shall have been entered
against any Borrower or Guarantor any of its or their properties or assets, (iv)
any notification of a material violation of laws or regulations received by any
Borrower or Guarantor, (v) any ERISA Event, and (vi) the occurrence of any
Default or Event of Default.
(c) Promptly after the sending or filing thereof, Borrowers
shall send to Agent copies of (i) all reports which Parent or any of its
Subsidiaries sends to its security holders generally, (ii) all reports and
registration statements which Parent or any of its Subsidiaries files with the
Securities Exchange Commission, any national or foreign securities exchange or
the National Association of Securities Dealers, Inc., and such other reports as
Agent may hereafter specifically identify to Administrative Borrower that Agent
will reasonably require be provided to Agent, (iii) all press releases and (iv)
all other statements concerning material changes or developments in the business
of a Borrower or Guarantor made available by any Borrower or Guarantor to the
public.
(d) Borrowers and Guarantors shall furnish or cause to be
furnished to Agent such budgets, forecasts, projections and other information
respecting the Collateral and the business of Borrowers and Guarantors, as Agent
may, from time to time, reasonably request. Agent is hereby authorized to
deliver a copy of any financial statement or any other information relating to
the business of Borrowers and Guarantors to any court or other Governmental
Authority or to any Lender or Participant or prospective Lender or Participant
or any Affiliate of any Lender or Participant. Each Borrower and Guarantor
hereby irrevocably authorizes and directs all accountants or auditors to deliver
to Agent, at Borrowers' expense, copies of the financial statements of any
Borrower and Guarantor and any reports or management letters prepared by such
accountants or auditors on behalf of any Borrower or Guarantor and to disclose
to Agent and Lenders such information as they may have regarding the business of
any Borrower and Guarantor. Any documents, schedules, invoices or other papers
delivered to Agent or any Lender may be destroyed or otherwise disposed of by
Agent or such Lender one (1) year after the same are delivered to Agent or such
Lender, except as otherwise designated by Administrative Borrower to Agent or
such Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Each
Borrower and Guarantor shall not, and shall not permit any Subsidiary to,
directly or indirectly,
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it except that
any wholly-owned Subsidiary of Parent may merge with and into or consolidate
with any other wholly-owned
62
Subsidiary of Parent, provided, that, each of the following conditions is
satisfied as determined by Agent in good faith: (i) Agent shall have received
not less than ten (10) Business Days' prior written notice of the intention of
such Subsidiaries to so merge or consolidate, which notice shall set forth in
reasonable detail satisfactory to Agent, the persons that are merging or
consolidating, which person will be the surviving entity, the locations of the
assets of the persons that are merging or consolidating, and the material
agreements and documents relating to such merger or consolidation, (ii) Agent
shall have received such other information with respect to such merger or
consolidation as Agent may reasonably request, (iii) as of the effective date of
the merger or consolidation and after giving effect thereto, no Default or Event
of Default shall exist or have occurred, (iv) Agent shall have received, true,
correct and complete copies of all agreements, documents and instruments
relating to such merger or consolidation, including, but not limited to, the
certificate or certificates of merger to be filed with each appropriate
Secretary of State (with a copy as filed promptly after such filing), (v) the
surviving corporation shall expressly confirm, ratify and assume the Obligations
and the Financing Agreements to which it is a party in writing, in form and
substance satisfactory to Agent, and Borrowers and Guarantors shall execute and
deliver such other agreements, documents and instruments as Agent may request in
connection therewith and (vi) if a Borrower is a party to such merger, a
Borrower is the surviving entity (it being understood that no Accounts or
Inventory in the business of any Subsidiary of Parent that is not a Borrower
will be deemed Eligible Accounts or Eligible Inventory without the approval of
Agent and all Lenders);
(b) sell, issue, assign, lease, license, transfer, abandon or
otherwise dispose of any Capital Stock or Indebtedness to any other Person or
any of its assets to any other Person, except for
(i) sales of Inventory in the ordinary course of
business,
(ii) the sale or other disposition of Equipment
(including worn-out or obsolete Equipment or Equipment no longer used or useful
in the business of any Borrower or Guarantor) so long as such sales or other
dispositions do not involve Equipment having an aggregate fair market value in
excess of $500,000 for all such Equipment disposed of in any fiscal year of
Borrowers or as Agent may otherwise agree,
(iii) the issuance and sale by any Borrower or Guarantor
of Capital Stock of such Borrower or Guarantor after the date hereof; provided,
that, (A) Agent shall have received not less than ten (10) Business Days' prior
written notice of such issuance and sale by such Borrower or Guarantor, which
notice shall specify the parties to whom such shares are to be sold, the terms
of such sale, the total amount which it is anticipated will be realized from the
issuance and sale of such stock and the net cash proceeds which it is
anticipated will be received by such Borrower or Guarantor from such sale, (B)
such Borrower or Guarantor shall not be required to pay any cash dividends or
repurchase or redeem such Capital Stock or make any other payments in respect
thereof, except as otherwise permitted in Section 9.11 hereof, (C) the terms of
such Capital Stock, and the terms and conditions of the purchase and sale
thereof, shall not include any terms that include any limitation on the right of
any Borrower to request or receive Loans or Letters of Credit or the right of
any Borrower and Guarantor to amend or modify any of the terms and conditions of
this Agreement or any of the other Financing Agreements or otherwise in any way
relate to or affect the arrangements of Borrowers and
63
Guarantors with Agent and Lenders or are more restrictive or burdensome to any
Borrower or Guarantor than the terms of any Capital Stock in effect on the date
hereof, (D) except as Agent may otherwise agree in writing, all of the proceeds
of the sale and issuance of such Capital Stock shall be paid to Agent for
application to the Obligations in such order and manner as Agent may determine
or at Agent's option, to be held as cash collateral for the Obligations and (E)
as of the date of such issuance and sale and after giving effect thereto, no
Default or Event of Default shall exist or have occurred,
(iv) the issuance of Capital Stock of any Borrower or
Guarantor consisting of common stock pursuant to an employee stock option or
grant or similar equity plan or 401(k) plans of such Borrower or Guarantor for
the benefit of its employees, directors and consultants, provided, that, in no
event shall such Borrower or Guarantor be required to issue, or shall such
Borrower or Guarantor issue, Capital Stock pursuant to such stock plans or
401(k) plans which would result in a Change of Control or other Event of
Default,
(v) the issuance of Capital Stock of Parent, and
(vi) other sales not to exceed $1,000,000 in the
aggregate during any fiscal year so long as (A) no Event of Default has occurred
and is continuing or would result therefrom and (B) the net proceeds of such
sale are deposited in the Lockbox Accounts.
(c) wind up, liquidate or dissolve except that any Guarantor
(other than Parent) may wind up, liquidate and dissolve, provided, that, each of
the following conditions is satisfied, (i) the winding up, liquidation and
dissolution of such Guarantor shall not violate any law or any order or decree
of any court or other Governmental Authority in any material respect and shall
not conflict with or result in the breach of, or constitute a default under, any
indenture, mortgage, deed of trust, or any other agreement or instrument to
which any Borrower or Guarantor is a party or may be bound, (ii) such winding
up, liquidation or dissolution shall be done in accordance with the requirements
of all applicable laws and regulations, (iii) effective upon such winding up,
liquidation or dissolution, all of the assets and properties of such Guarantor
shall be duly and validly transferred and assigned to a Borrower, free and clear
of any liens, restrictions or encumbrances other than the security interest and
liens of Agent (and Agent shall have received such evidence thereof as Agent may
require) and Agent shall have received such deeds, assignments or other
agreements as Agent may request to evidence and confirm the transfer of such
assets to of such Guarantor to a Borrower, (iv) Agent shall have received all
documents and agreements that any Borrower or Guarantor has filed with any
Governmental Authority or as are otherwise required to effectuate such winding
up, liquidation or dissolution, (v) no Borrower or Guarantor shall assume any
Indebtedness, obligations or liabilities as a result of such winding up,
liquidation or dissolution, or otherwise become liable in respect of any
obligations or liabilities of the entity that is winding up, liquidating or
dissolving, unless such Indebtedness is otherwise expressly permitted hereunder,
(vi) Agent shall have received not less than ten (10) Business Days prior
written notice of the intention of such Guarantor to wind up, liquidate or
dissolve, and (vii) as of the date of such winding up, liquidation or
dissolution and after giving effect thereto, no Default or Event of Default
shall exist or have occurred; or
(d) agree to do any of the foregoing.
64
9.8 Encumbrances. Each Borrower and Guarantor shall not, and shall not
permit any Subsidiary to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including the Collateral, or file
or permit the filing of, or permit to remain in effect, any financing statement
or other similar notice of any security interest or lien with respect to any
such assets or properties, except:
(a) the security interests and liens of Agent for itself and the
benefit of Lenders;
(b) liens securing the payment of taxes, assessments or other
governmental charges or levies either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to such Borrower, or Guarantor or Subsidiary, as the case may be
and with respect to which adequate reserves have been set aside on its books;
(c) non-consensual statutory liens (other than liens securing
the payment of taxes) arising in the ordinary course of such Borrower's,
Guarantor's or Subsidiary's business to the extent: (i) such liens secure
Indebtedness which is not overdue or (ii) such liens secure Indebtedness
relating to claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or being contested
in good faith by appropriate proceedings diligently pursued and available to
such Borrower, Guarantor or such Subsidiary, in each case prior to the
commencement of foreclosure or other similar proceedings and with respect to
which adequate reserves have been set aside on its books;
(d) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of Real Property which do not interfere in
any material respect with the use of such Real Property or ordinary conduct of
the business of such Borrower, Guarantor or such Subsidiary as presently
conducted thereon or materially impair the value of the Real Property which may
be subject thereto;
(e) purchase money security interests in Equipment (including
Capital Leases) and purchase money mortgages on Real Property to secure
Indebtedness permitted under Section 9.9(b) hereof;
(f) pledges and deposits of cash by any Borrower or Guarantor
after the date hereof in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social security
benefits consistent with the current practices of such Borrower or Guarantor as
of the date hereof;
(g) pledges and deposits of cash by any Borrower or Guarantor
after the date hereof to secure the performance of tenders, bids, leases, trade
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations in each case in the ordinary course of business
consistent with the current practices of such Borrower or Guarantor as of the
date hereof; provided, that, in connection with any performance bonds issued by
a surety or other person, the issuer of such bond shall have waived in writing
any rights in or
65
to, or other interest in, any of the Collateral in an agreement, in form and
substance satisfactory to Agent;
(h) liens arising from (i) operating leases and the
precautionary UCC financing statement filings in respect thereof and (ii)
equipment or other materials which are not owned by any Borrower or Guarantor
located on the premises of such Borrower or Guarantor (but not in connection
with, or as part of, the financing thereof) from time to time in the ordinary
course of business and consistent with current practices of such Borrower or
Guarantor and the precautionary UCC financing statement filings in respect
thereof;
(i) judgments and other similar liens arising in connection with
court proceedings that do not constitute an Event of Default, provided, that,
(i) such liens are being contested in good faith and by appropriate proceedings
diligently pursued, (ii) adequate reserves or other appropriate provision, if
any, as are required by GAAP have been made therefor, (iii) a stay of
enforcement of any such liens is in effect and (iv) Agent may establish a
Reserve with respect thereto; and
(j) the security interests and liens set forth on Schedule 8.4
to the Information Certificate.
9.9 Indebtedness. Each Borrower and Guarantor shall not, and shall not
permit any Subsidiary to, incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any Indebtedness, or guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly),
the Indebtedness, performance, obligations or dividends of any other Person,
except:
(a) the Obligations;
(b) purchase money Indebtedness (including Capital Leases)
arising after the date hereof to the extent secured by purchase money security
interests in Equipment (including Capital Leases) and purchase money mortgages
on Real Property not to exceed $2,500,000 in the aggregate at any time
outstanding so long as such security interests and mortgages do not apply to any
property of such Borrower, Guarantor or Subsidiary other than the Equipment or
Real Property so acquired, and the Indebtedness secured thereby does not exceed
the cost of the Equipment or Real Property so acquired, as the case may be;
(c) guarantees by any Borrower or Guarantor of the Obligations
of the other Borrowers or Guarantors in favor of Agent for the benefit of
Lenders;
(d) the Indebtedness set forth on Schedule 9.9 to the
Information Certificate; provided, that, (i) Borrowers and Guarantors may only
make regularly scheduled payments of principal and interest in respect of such
Indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such Indebtedness as in effect on the date hereof,
(ii) Borrowers and Guarantors shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto as in effect on the date hereof except,
that, Borrowers and Guarantors may, after prior written notice to Agent, amend,
modify, alter or change the terms thereof so as to extend the maturity thereof,
or defer the timing of any payments in respect thereof, or to forgive or cancel
66
any portion of such Indebtedness (other than pursuant to payments thereof), or
to reduce the interest rate or any fees in connection therewith, or (B) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose, and (iii) Borrowers
and Guarantors shall furnish to Agent all notices or demands in connection with
such Indebtedness either received by any Borrower or Guarantor or on its behalf,
promptly after the receipt thereof, or sent by any Borrower or Guarantor or on
its behalf, concurrently with the sending thereof, as the case may be.
(e) Indebtedness of the type described in clause (h) of the
definition of "Indebtedness" herein;
(f) Indebtedness on account of loans permitted under Section
9.10(h) hereof; and
(g) unsecured Indebtedness not to exceed $1,000,000 in the
aggregate outstanding at any time.
9.10 Loans, Investments, Etc. Each Borrower and Guarantor shall not, and
shall not permit any Subsidiary to, directly or indirectly, make any loans or
advance money or property to any person, or invest in (by capital contribution,
dividend or otherwise) or purchase or repurchase the Capital Stock or
Indebtedness or all or a substantial part of the assets or property of any
person, or form or acquire any Subsidiaries, or agree to do any of the
foregoing, except:
(a) the endorsement of instruments for collection or deposit in
the ordinary course of business;
(b) investments in cash or Cash Equivalents, provided, that, (i)
no Loans are then outstanding and (ii) the terms and conditions of Section 5.2
hereof shall have been satisfied with respect to the deposit account, investment
account or other account in which such cash or Cash Equivalents are held;
(c) the existing equity investments of each Borrower and
Guarantor as of the date hereof in its Subsidiaries and in Power Efficiency
Corp. and Encorp, Inc., provided, that, no Borrower or Guarantor shall have any
further obligations or liabilities to make any capital contributions or other
additional investments or other payments to or in or for the benefit of any of
such Subsidiaries or other Persons;
(d) loans and advances by any Borrower or Guarantor to employees
of such Borrower or Guarantor not to exceed the principal amount of $50,000 in
the aggregate at any time outstanding for: (i) reasonably and necessary
work-related travel or other ordinary business expenses to be incurred by such
employee in connection with their work for such Borrower or Guarantor and (ii)
reasonable and necessary relocation expenses of such employees (including home
mortgage financing for relocated employees);
(e) stock or obligations issued to any Borrower or Guarantor by
any Person (or the representative of such Person) in respect of Indebtedness of
such Person owing to such Borrower or Guarantor in connection with the
insolvency, bankruptcy, receivership or reorganization of such Person or a
composition or readjustment of the debts of such Person;
67
provided, that, the original of any such stock or instrument (if in an amount in
excess of $100,000) evidencing such obligations shall be promptly delivered to
Agent, upon Agent's request, together with such stock power, assignment or
endorsement by such Borrower or Guarantor as Agent may request;
(f) obligations of account debtors to any Borrower or Guarantor
arising from Accounts which are past due evidenced by a promissory note made by
such account debtor payable to such Borrower or Guarantor; provided, that,
promptly upon the receipt of the original of any such promissory note (if in an
amount in excess of $100,000) by such Borrower or Guarantor, such promissory
note shall be endorsed to the order of Agent by such Borrower or Guarantor and
promptly delivered to Agent as so endorsed;
(g) the loans and advances set forth on Schedule 9.10 to the
Information Certificate; provided, that, as to such loans and advances,
Borrowers and Guarantors shall not, directly or indirectly, amend, modify, alter
or change the terms of such loans and advances or any agreement, document or
instrument related thereto and Borrowers and Guarantors shall furnish to Agent
all notices or demands in connection with such loans and advances either
received by any Borrower or Guarantor or on its behalf, promptly after the
receipt thereof, or sent by any Borrower or Guarantor or on its behalf,
concurrently with the sending thereof, as the case may be;
(h) loans between Borrowers or between Guarantors or between a
Borrower and a Guarantor, provided, that, the loans made by any Borrower to any
Guarantor during any fiscal year (net of payments made by any Guarantor to any
Borrower during such fiscal year on account of any loan previously made by such
Borrower to such Guarantor) shall not exceed $1,000,000 in the aggregate; and
(i) acquisitions of all of the issued and outstanding capital
stock of another Person, or all or substantially all of the assets of another
Person or of a division of another Person (each, a "Target"), subject to the
satisfaction in full of all of the following conditions precedent:
(i) the subject Target shall be in the same or similar
type of business as Borrowers;
(ii) the aggregate sum of the purchase price for the
subject Target and any related Targets plus any other consideration payable in
connection with the acquisition of the subject Target and any related Targets,
excluding any earn-outs and similar contingent payments, and excluding any
obligations or indebtedness of the Target that are assumed (as permitted by
Section 9.9 hereof) (the "Total Consideration") shall not exceed $5,000,000; and
the Total Consideration payable in connection with all Targets during the term
of this Agreement (as it may be extended or renewed) shall not exceed
$10,000,000 in the aggregate;
(iii) as of the date of the acquisition of the subject
Target and any related Targets and after giving effect thereto, the Excess
Availability shall not be less than $15,000,000 and the Eligible Cash Collateral
shall not be less than $10,000,000;
68
(iv) the subject Target shall be acquired in accordance
with applicable laws free and clear of any security interest, mortgage, pledge,
lien, charge or other encumbrance except as permitted in Section 9.8 hereof, and
free and clear of any Indebtedness except as permitted in Section 9.9 hereof;
(v) the subject Target (as applicable) shall guaranty
the Obligations, and the assets and capital stock of the subject Target (as
applicable) shall be pledged to Agent, all pursuant to documents in form and
substance reasonably satisfactory to Agent;
(vi) no Default or Event of Default shall have occurred
and be continuing or would result from the acquisition of the subject Target;
(vii) Borrowers shall give prior written notice to Agent
of the acquisition of the subject Target as soon as reasonably practicable, but
in no event less than thirty (30) calendar days prior to the closing thereof;
(viii) Agent shall have received true, correct and
complete copies of the acquisition agreement(s) for the subject Target and all
exhibits, schedules, documents and other agreements relating thereto, together
with such financial and other information concerning the subject Target as Agent
may reasonably request; and
(ix) Agent shall have received such further agreements,
documents and instruments, and such further acts shall have been completed, with
respect to the subject Target, as required by Section 9.24 hereof.
At Borrowers' request, the subject Target may be added as a Borrower
hereunder, but only at the sole consent of Agent. Regardless of whether the
subject Target is or becomes a Borrower hereunder, and regardless of whether the
Accounts or Inventory of the subject Target qualify under the definition of
"Eligible Accounts" or "Eligible Inventory", the inclusion of such Accounts or
Inventory in Eligible Accounts or Eligible Inventory shall be subject to:
(x) the completion of a field examination and other
examinations (as Agent may deem necessary) by Agent of the subject Target with
results reasonably satisfactory to Agent;
(xi) such additional eligibility criteria, availability
reserves and percentage advance rates as Agent shall establish in its
commercially reasonable discretion in light of the foregoing examinations;
(xii) Agent shall have approved such inclusion; and
(xiii) The chief executive office and jurisdiction of
organization of the subject Target shall be in the United States, and in any
event, only those Accounts generated and invoiced from the United States may be
deemed Eligible Accounts and only that Inventory located in the United States
may be deemed Eligible Inventory.
9.11 Dividends and Redemptions. Each Borrower and Guarantor shall not,
directly or indirectly, declare or pay any dividends on account of any shares of
class of any Capital Stock of
69
such Borrower or Guarantor now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital Stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration or apply or set apart any sum, or make any other distribution (by
reduction of capital or otherwise) in respect of any such shares or agree to do
any of the foregoing, except that:
(a) any Borrower or Guarantor may declare and pay such dividends
or redeem, retire, defease, purchase or otherwise acquire any shares of any
class of Capital Stock for consideration in the form of shares of common stock
(so long as after giving effect thereto no Change of Control or other Default or
Event of Default shall exist or occur);
(b) Borrowers and Guarantors may pay dividends to the extent
permitted in Section 9.12 below;
(c) any Subsidiary of a Borrower or Guarantor may pay dividends
to a Borrower;
(d) Borrowers and Guarantors may repurchase Capital Stock
consisting of common stock held by employees upon the termination, retirement or
death of any such employee in accordance with the provisions of such plan,
provided, that, as to any such repurchase, each of the following conditions is
satisfied: (i) as of the date of the payment for such repurchase and after
giving effect thereto, no Default or Event of Default shall exist or have
occurred and be continuing, (ii) such repurchase shall be paid with funds
legally available therefor, (iii) such repurchase shall not violate any law or
regulation or the terms of any indenture, agreement or undertaking to which such
Borrower or Guarantor is a party or by which such Borrower or Guarantor or its
or their property are bound, and (iv) the amount of all payments for such
repurchases shall not exceed $250,000 for any one employee and $500,000 for all
employees in the aggregate in any calendar year.
9.12 Transactions with Affiliates. Each Borrower and Guarantor shall
not, directly or indirectly:
(a) purchase, acquire or lease any property from, or sell,
transfer or lease any property to, any officer, director or other Affiliate of
such Borrower or Guarantor, except in the ordinary course of and pursuant to the
reasonable requirements of such Borrower's or Guarantor's business (as the case
may be) and upon fair and reasonable terms no less favorable to such Borrower or
Guarantor than such Borrower or Guarantor would obtain in a comparable arm's
length transaction with an unaffiliated person; or
(b) make any payments (whether by dividend, loan or otherwise)
of management, consulting or other fees for management or similar services, or
of any Indebtedness owing to any officer, employee, shareholder, director or any
other Affiliate of such Borrower or Guarantor, except (i) reasonable
compensation to officers, employees and directors for services rendered to such
Borrower or Guarantor in the ordinary course of business, and (ii) payments by
any such Borrower or Guarantor to Parent for actual and necessary reasonable
out-of-pocket legal and accounting, insurance, marketing, payroll and similar
types of services paid for by
70
Parent on behalf of such Borrower or Guarantor, in the ordinary course of their
respective businesses or as the same may be directly attributable to such
Borrower or Guarantor and for the payment of taxes by or on behalf of Parent,
provided, that, the aggregate amount of all such payments in any fiscal year
shall not exceed $250,000.
9.13 Compliance with ERISA. Each Borrower and Guarantor shall, and shall
cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other Federal and State law; (b) cause each Plan which is qualified under
Section 401(a) of the Code to maintain such qualification; (c) not terminate any
Pension Plan so as to incur any material liability to the Pension Benefit
Guaranty Corporation; (d) not allow or suffer to exist any prohibited
transaction involving any Plan or any trust created thereunder which would
subject such Borrower, Guarantor or such ERISA Affiliate to a material tax or
other liability on prohibited transactions imposed under Section 4975 of the
Code or ERISA; (e) not allow or suffer to exist any accumulated funding
deficiency, whether or not waived, with respect to any such Pension Plan; (f)
not engage in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA; or (g) not allow or suffer to exist any occurrence of a reportable event
or any other event or condition which presents a material risk of termination by
the Pension Benefit Guaranty Corporation of any Plan that is a single employer
plan, which termination could result in any material liability to the Pension
Benefit Guaranty Corporation.
9.14 End of Fiscal Years; Fiscal Quarters. Each Borrower and Guarantor
shall, for financial reporting purposes, cause its, and each of its
Subsidiaries' (a) fiscal years to end on July 31 of each year and (b) fiscal
quarters to end on January 31, April 30, July 31, and October 31 of each year.
9.15 Change in Business. Each Borrower and Guarantor shall not engage in
any business other than the business of such Borrower or Guarantor on the date
hereof and any business reasonably related, ancillary or complimentary to the
business in which such Borrower or Guarantor is engaged on the date hereof.
9.16 Limitation of Restrictions Affecting Subsidiaries. Each Borrower
and Guarantor shall not, directly, or indirectly, create or otherwise cause or
suffer to exist any encumbrance or restriction which prohibits or limits the
ability of any Subsidiary of such Borrower or Guarantor to (a) pay dividends or
make other distributions or pay any Indebtedness owed to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; (b) make loans or
advances to such Borrower or Guarantor or any Subsidiary of such Borrower or
Guarantor, (c) transfer any of its properties or assets to such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor; or (d) create, incur,
assume or suffer to exist any lien upon any of its property, assets or revenues,
whether now owned or hereafter acquired, other than encumbrances and
restrictions arising under (i) applicable law, (ii) this Agreement, (iii)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of such Borrower or Guarantor or any Subsidiary of such
Borrower or Guarantor, (iv) customary restrictions on dispositions of real
property interests found in reciprocal easement agreements of such Borrower or
Guarantor or any Subsidiary of such Borrower or Guarantor, (v) any agreement
relating to permitted Indebtedness incurred by a Subsidiary of such Borrower or
Guarantor prior to the date on which such Subsidiary was acquired by such
Borrower or such Guarantor and outstanding on such acquisition date, (vi) the
restrictions contained in the Supplier Security Agreements against
71
granting other liens against the "Collateral" as defined in the Supplier
Security Agreements, (vii) customary restrictions contained in any agreements
granting purchase money liens permitted in Section 9.8(e) hereof, against
granting other liens against the Equipment or Real Property covered thereby, and
(viii) the extension or continuation of contractual obligations in existence on
the date hereof; provided, that, any such encumbrances or restrictions contained
in such extension or continuation are no less favorable to Agent and Lenders
than those encumbrances and restrictions under or pursuant to the contractual
obligations so extended or continued.
9.17 Fixed Charge Coverage Ratio. If the average daily sum of the Excess
Availability (calculated without regard to the Revolving Loan Limit) plus the
amount of Eligible Cash Collateral in excess of $35,000,000 is less than
$15,000,000 during any month, then Parent and its Subsidiaries shall maintain a
Fixed Charge Coverage Ratio of not less than 1.1 to one for the period of twelve
(12) consecutive months ending with such month, or, in the case of Parent and
any Subsidiary that is not a Target acquired after the date of this Agreement,
such lesser number of months that have elapsed from and including March 2006.
9.18 Eligible Cash Collateral. Borrowers shall maintain Eligible Cash
Collateral of not less than $10,000,000 at all times.
9.19 Capital Expenditures. Borrower and Guarantors shall not make
Capital Expenditures (excluding acquisitions permitted under Section 9.10(h)
hereof in excess of $3,500,000 in the aggregate during any fiscal year.
9.20 License Agreements.
(a) Each Borrower and Guarantor shall (i) promptly and
faithfully observe and perform all of the material terms, covenants, conditions
and provisions of the material License Agreements to which it is a party to be
observed and performed by it, at the times set forth therein, if any, (ii) not
do, permit, suffer or refrain from doing anything that could reasonably be
expected to result in a default under or breach of any of the terms of any
material License Agreement, (iii) except for computer software license
agreements, not cancel, surrender, modify, amend, waive or release any material
License Agreement in any material respect or any term, provision or right of the
licensee thereunder in any material respect, or consent to or permit to occur
any of the foregoing; except, that, subject to Section 9.20(b) below, such
Borrower or Guarantor may cancel, surrender or release any material License
Agreement in the ordinary course of the business of such Borrower or Guarantor;
provided, that, such Borrower or Guarantor (as the case may be) shall give Agent
prior written notice of its intention to so cancel, surrender and release any
such material License Agreement, (iv) except for computer software license
agreements, give Agent prompt written notice of any material License Agreement
entered into by such Borrower or Guarantor after the date hereof, together with
a true, correct and complete copy thereof and such other information with
respect thereto as Agent may request, (v) give Agent prompt written notice of
any material breach of any obligation, or any default, by any party under any
material License Agreement, and deliver to Agent (promptly upon the receipt
thereof by such Borrower or Guarantor in the case of a notice to such Borrower
or Guarantor and concurrently with the sending thereof in the case of a notice
from such Borrower or Guarantor) a copy of each notice of default and every
other notice and other communication received or
72
delivered by such Borrower or Guarantor in connection with any material License
Agreement which relates to the right of such Borrower or Guarantor to continue
to use the property subject to such License Agreement, and (vi) furnish to
Agent, promptly upon the request of Agent, such information and evidence as
Agent may reasonably require from time to time concerning the observance,
performance and compliance by such Borrower or Guarantor or the other party or
parties thereto with the material terms, covenants or provisions of any material
License Agreement.
(b) Except in the case of computer software license agreements,
each Borrower and Guarantor will either exercise any option to renew or extend
the term of each material License Agreement to which it is a party in such
manner as will cause the term of such material License Agreement to be
effectively renewed or extended for the period provided by such option and give
prompt written notice thereof to Agent or give Agent prior written notice that
such Borrower or Guarantor does not intend to renew or extend the term of any
such material License Agreement or that the term thereof shall otherwise be
expiring, not less than sixty (60) days prior to the date of any such
non-renewal or expiration. In the event of the failure of such Borrower or
Guarantor to extend or renew any material License Agreement to which it is a
party, Agent shall have, and is hereby granted, the irrevocable right and
authority, at its option, to renew or extend the term of such material License
Agreement, whether in its own name and behalf, or in the name and behalf of a
designee or nominee of Agent or in the name and behalf of such Borrower or
Guarantor, as Agent shall determine at any time that an Event of Default shall
exist or have occurred and be continuing. Agent may, but shall not be required
to, perform any or all of such obligations of such Borrower or Guarantor under
any of the License Agreements, including, but not limited to, the payment of any
or all sums due from such Borrower or Guarantor thereunder. Any sums so paid by
Agent shall constitute part of the Obligations.
9.21 Foreign Assets Control Regulations, Etc. None of the requesting or
borrowing of the Loans or the requesting or issuance, extension or renewal of
any Letter of Credit or the use of the proceeds of any thereof will violate the
Trading With the Enemy Act (50 USC Section 1 et seq., as amended) (the "Trading
With the Enemy Act") or any of the foreign assets control regulations of the
United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended)
(the "Foreign Assets Control Regulations") or any enabling legislation or
executive order relating thereto (including, but not limited to (a) Executive
order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions
With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg.
49079 (2001)) (the "Executive Order") and (b) the Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001 (Public Law 107-56). None of Borrowers or any of their
Subsidiaries or other Affiliates is or will become a "blocked person" as
described in the Executive Order, the Trading with the Enemy Act or the Foreign
Assets Control Regulations or engages or will engage in any dealings or
transactions, or be otherwise associated, with any such "blocked person".
9.22 After Acquired Real Property. If any Borrower or Guarantor
hereafter acquires fee simple title to any Real Property, then if such Real
Property at any location (or series of adjacent, contiguous or related
locations, and regardless of the number of parcels) has a fair market value in
an amount equal to or greater than $500,000 (or if a Default or Event of Default
exists, then regardless of the fair market value of such assets), without
limiting any other rights
73
of Agent or any Lender, or duties or obligations of any Borrower or Guarantor,
promptly upon Agent's request, such Borrower or Guarantor shall execute and
deliver to Agent a mortgage, deed of trust or deed to secure debt, as Agent may
determine, in form and substance satisfactory to Agent and in form appropriate
for recording in the real estate records of the jurisdiction in which such Real
Property is located granting to Agent a first and only lien and mortgage on and
security interest in such Real Property (except as such Borrower or Guarantor
would otherwise be permitted to incur hereunder or as otherwise consented to in
writing by Agent) and such other agreements, documents and instruments as Agent
may require in connection therewith.
9.23 Costs and Expenses. Borrowers and Guarantors shall pay to Agent on
demand all reasonable costs, expenses, filing fees and taxes paid or payable in
connection with the preparation, negotiation, execution, delivery, recording,
syndication, administration, collection, liquidation, enforcement and defense of
the Obligations, Agent's rights in the Collateral, this Agreement, the other
Financing Agreements and all other documents related hereto or thereto,
including any amendments, supplements or consents which may hereafter be
contemplated (whether or not executed) or entered into in respect hereof and
thereof, including: (a) all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and fees, documentary
taxes, intangibles taxes and mortgage recording taxes and fees, if applicable);
(b) costs and expenses and fees for insurance premiums, environmental audits,
title insurance premiums, surveys, assessments, engineering reports and
inspections, appraisal fees and search fees, background checks, costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts and Lockbox
Accounts, together with Agent's customary charges and fees with respect thereto;
(c) charges, fees or expenses charged by any bank or issuer in connection with
any Letter of Credit; (d) reasonable costs and expenses of preserving and
protecting the Collateral; (e) reasonable costs and expenses paid or incurred in
connection with obtaining payment of the Obligations, enforcing the security
interests and liens of Agent, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Agent or any Lender arising out of the transactions contemplated hereby and
thereby (including preparations for and consultations concerning any such
matters); (f) all reasonable out-of-pocket expenses and costs heretofore and
from time to time hereafter incurred by Agent during the course of periodic
field examinations of the Collateral and such Borrower's or Guarantor's
operations, plus a per diem charge at Agent's then standard rate for Agent's
examiners in the field and office (which rate as of the date hereof is $850 per
person per day); and (g) the reasonable fees and disbursements of counsel
(including legal assistants) to Agent in connection with any of the foregoing.
9.24 Further Assurances. At the reasonable request of Agent at any time
and from time to time, Borrowers and Guarantors shall, at their expense, duly
execute and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further
acts as may be necessary or proper to evidence, perfect, maintain and enforce
the security interests and the priority thereof in the Collateral and to
otherwise effectuate the provisions or purposes of this Agreement or any of the
other Financing Agreements. Agent may at any time and from time to time request
a certificate from an officer of any Borrower or Guarantor representing that all
conditions precedent to the making of Loans and providing Letters of Credit
contained herein are satisfied. In the event of such request by
74
Agent, Agent and Lenders may, at Agent's option, cease to make any further Loans
or provide any further Letters of Credit until Agent has received such
certificate and, in addition, Agent has determined that such conditions are
satisfied.
9.25 Inactive Subsidiaries. Within one hundred eighty (180) days after
the date of this Agreement, Parent shall cause Utilihost, Inc., ElectricAmerica,
Inc. and Electric.com, Inc., each a Delaware corporation and wholly owned
Subsidiary of Parent, to be dissolved or merged with and into Parent (with
Parent as the surviving corporation).
9.26 Skipping Stone. If the gross revenues of Skipping Stone exceed
$15,000,000 during any fiscal year, Skipping Stone shall, upon Agent's request,
guaranty the Obligations (pursuant to a Guaranty in form substantially similar
to the Parent's Guaranty of even date herewith), join this Agreement as a
Guarantor hereunder, and provide such agreements and documents as Agent may
reasonably request with respect to the foregoing.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) any Borrower fails to pay any of the Obligations when
due and, in the case of any Obligations to pay interest or fees charged under
this Agreement or any of the other Financing Agreements, such failure shall
continue for three (3) Business Days or (ii) any Borrower or Guarantor fails to
perform any of the covenants contained in Sections 9.3, 9.4, 9.13, 9.14, 9.15,
and 9.16 of this Agreement and such failure shall continue for ten (10) days;
provided, that, such ten (10) day period shall not apply in the case of: (A) any
failure to observe any such covenant which is not capable of being cured at all
or within such ten (10) day period or which has been the subject of a prior
failure within a six (6) month period or (B) an intentional breach by any
Borrower or Guarantor of any such covenant or (iii) any Borrower or Guarantor
fails to perform any of the terms, covenants, conditions or provisions contained
in this Agreement or any of the other Financing Agreements other than those
described in Sections 10.1(a)(i) and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by
any Borrower or Guarantor to Agent in this Agreement, the other Financing
Agreements or any other written agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;
(c) any Guarantor revokes or terminates or purports to revoke or
terminate or fails to perform any of the terms, covenants, conditions or
provisions of any guarantee, endorsement or other agreement of such party in
favor of Agent or any Lender;
(d) any judgments for the payment of money are rendered against
any Borrower or Guarantor in excess of $2,500,000 in the aggregate (to the
extent not covered by insurance where the insurer has assumed responsibility in
writing for such judgment) and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
75
injunction, attachment, garnishment or execution is rendered against any
Borrower or Guarantor or any of the Collateral having a value in excess of
$2,500,000;
(e) any Guarantor (being a natural person or a general partner
of any Guarantor which is a partnership) dies or any Borrower or Guarantor,
which is a partnership, limited liability company, limited liability partnership
or a corporation, dissolves or suspends or discontinues doing business (except
as expressly permitted in Section 9.7(c) hereof);
(f) any Borrower or Guarantor makes an assignment for the
benefit of creditors, makes or sends notice of a bulk transfer or calls a
meeting of its creditors or principal creditors in connection with a moratorium
or adjustment of the Indebtedness due to them;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against any Borrower or Guarantor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or any Borrower or Guarantor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner or the applicable Borrower or Guarantor fails
to file an appropriate answer contesting such petition or application by the
applicable deadline therefor;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by any Borrower or Guarantor or for all or any part of its
property;
(i) any default in respect of any Indebtedness of any Borrower
or Guarantor (other than Indebtedness owing to Agent and Lenders hereunder), in
any case in an amount in excess of $2,500,000, which default continues for more
than the applicable cure period, if any, with respect thereto or any default by
any Borrower or Guarantor under any Material Contract, which default continues
for more than the applicable cure period, if any, with respect thereto and/or is
not waived in writing by the other parties thereto;
(j) any material provision hereof or of any of the other
Financing Agreements shall for any reason cease to be valid, binding and
enforceable with respect to any party hereto or thereto (other than Agent) in
accordance with its terms, or any such party shall challenge the enforceability
hereof or thereof, or shall assert in writing, or take any action or fail to
take any action based on the assertion that any provision hereof or of any of
the other Financing Agreements has ceased to be or is otherwise not valid,
binding or enforceable in accordance with its terms, or any security interest
provided for herein or in any of the other Financing Agreements shall cease to
be a valid and perfected first priority security interest in any of the
Collateral purported to be subject thereto (except as otherwise permitted herein
or therein);
76
(k) an ERISA Event shall occur which results in or could
reasonably be expected to result in liability of any Borrower in an aggregate
amount in excess of $2,500,000;
(l) any Change of Control;
(m) the indictment by any Governmental Authority, or as Agent
may reasonably and in good faith determine, the threatened indictment by any
Governmental Authority of any Borrower or Guarantor of which any Borrower,
Guarantor or Agent receives notice, in either case, as to which there is a
reasonable possibility of an adverse determination, in the good faith
determination of Agent, under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against such Borrower
or Guarantor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of (i) any of the Collateral having a
value in excess of $1,000,000 or (ii) any other property of any Borrower or
Guarantor which is necessary or material to the conduct of its business; or
(n) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and
is continuing, Agent and Lenders shall have all rights and remedies provided in
this Agreement, the other Financing Agreements, the UCC and other applicable
law, all of which rights and remedies may be exercised without notice to or
consent by any Borrower or Guarantor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Agent and Lenders hereunder, under any of the
other Financing Agreements, the UCC or other applicable law, are cumulative, not
exclusive and enforceable, in Agent's discretion, alternatively, successively,
or concurrently on any one or more occasions, and shall include, without
limitation, the right to apply to a court of equity for an injunction to
restrain a breach or threatened breach by any Borrower or Guarantor of this
Agreement or any of the other Financing Agreements. Subject to Section 12
hereof, Agent may, and at the direction of the Required Lenders shall, at any
time or times, proceed directly against any Borrower or Guarantor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the generality of the foregoing, at any
time an Event of Default exists or has occurred and is continuing, Agent may, at
its option and shall upon the direction of the Required Lenders, (i) upon notice
to Administrative Borrower, accelerate the payment of all Obligations and demand
immediate payment thereof to Agent for itself and the benefit of Lenders
(provided, that, upon the occurrence of any Event of Default described in
Sections 10.1(g) and 10.1(h), all Obligations shall automatically become
immediately due and payable), and (ii) terminate the Commitments whereupon the
obligation of each Lender to make any Loan and an issuer to issue any Letter of
Credit shall immediately terminate (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), the Commitments and
any other obligation of the Agent or a Lender hereunder shall automatically
terminate).
77
(c) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Agent may, in its discretion
(i) with or without judicial process or the aid or assistance of others, enter
upon any premises on or in which any of the Collateral may be located and take
possession of the Collateral or complete processing, manufacturing and repair of
all or any portion of the Collateral, (ii) require any Borrower or Guarantor, at
Borrowers' expense, to assemble and make available to Agent any part or all of
the Collateral at any place and time designated by Agent, (iii) collect,
foreclose, receive, appropriate, setoff and realize upon any and all Collateral,
(iv) remove any or all of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (v) sell, lease, transfer, assign,
deliver or otherwise dispose of any and all Collateral (including entering into
contracts with respect thereto, public or private sales at any exchange,
broker's board, at any office of Agent or elsewhere) at such prices or terms as
Agent may deem reasonable, for cash, upon credit or for future delivery, with
the Agent having the right to purchase the whole or any part of the Collateral
at any such public sale, all of the foregoing being free from any right or
equity of redemption of any Borrower or Guarantor, which right or equity of
redemption is hereby expressly waived and released by Borrowers and Guarantors
and/or (vi) terminate this Agreement. If any of the Collateral is sold or leased
by Agent upon credit terms or for future delivery, the Obligations shall not be
reduced as a result thereof until payment therefor is finally collected by
Agent. If notice of disposition of Collateral is required by law, ten (10) days
prior notice by Agent to Administrative Borrower designating the time and place
of any public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrowers and Guarantors waive any other notice. In the event Agent
institutes an action to recover any Collateral or seeks recovery of any
Collateral by way of prejudgment remedy, each Borrower and Guarantor waives the
posting of any bond which might otherwise be required. At any time an Event of
Default exists or has occurred and is continuing, upon Agent's request,
Borrowers will either, as Agent shall specify, furnish cash collateral to the
issuer to be used to secure and fund the reimbursement obligations to the issuer
in connection with any Letter of Credit Obligations or furnish cash collateral
to Agent for the Letter of Credit Obligations. Such cash collateral shall be in
the amount equal to one hundred five (105%) percent of the amount of the Letter
of Credit Obligations plus the amount of any fees and expenses payable in
connection therewith through the end of the latest expiration date of the
Letters of Credit giving rise to such Letter of Credit Obligations.
(d) At any time or times that an Event of Default exists or has
occurred and is continuing, Agent may, in its discretion, enforce the rights of
any Borrower or Guarantor against any account debtor, secondary obligor or other
obligor in respect of any of the Accounts or other Receivables. Without limiting
the generality of the foregoing, Agent may, in its discretion, at such time or
times (i) notify any or all account debtors, secondary obligors or other
obligors in respect thereof that the Receivables have been assigned to Agent and
that Agent has a security interest therein and Agent may direct any or all
account debtors, secondary obligors and other obligors to make payment of
Receivables directly to Agent, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions, any and all Receivables or other obligations included
in the Collateral and thereby discharge or release the account debtor or any
secondary obligors or other obligors in respect thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Receivables or
such other obligations, but without any duty to do so, and Agent
78
and Lenders shall not be liable for any failure to collect or enforce the
payment thereof nor for the negligence of its agents or attorneys with respect
thereto and (iv) take whatever other action Agent may deem necessary or
desirable for the protection of its interests and the interests of Lenders. At
any time that an Event of Default exists or has occurred and is continuing, at
Agent's request, all invoices and statements sent to any account debtor shall
state that the Accounts and such other obligations have been assigned to Agent
and are payable directly and only to Agent and Borrowers and Guarantors shall
deliver to Agent such originals of documents evidencing the sale and delivery of
goods or the performance of services giving rise to any Accounts as Agent may
require. In the event any account debtor returns Inventory when an Event of
Default exists or has occurred and is continuing, Borrowers shall, upon Agent's
request, hold the returned Inventory in trust for Agent, segregate all returned
Inventory from all of its other property, dispose of the returned Inventory
solely according to Agent's instructions, and not issue any credits, discounts
or allowances with respect thereto without Agent's prior written consent.
(e) To the extent that applicable law imposes duties on Agent or
any Lender to exercise remedies in a commercially reasonable manner (which
duties cannot be waived under such law), each Borrower and Guarantor
acknowledges and agrees that it is not commercially unreasonable for Agent or
any Lender (i) to fail to incur expenses reasonably deemed significant by Agent
or any Lender to prepare Collateral for disposition or otherwise to complete raw
material or work in process into finished goods or other finished products for
disposition, (ii) to fail to obtain third party consents for access to
Collateral to be disposed of, or to obtain or, if not required by other law, to
fail to obtain consents of any Governmental Authority or other third party for
the collection or disposition of Collateral to be collected or disposed of,
(iii) to fail to exercise collection remedies against account debtors, secondary
obligors or other persons obligated on Collateral or to remove liens or
encumbrances on or any adverse claims against Collateral, (iv) to exercise
collection remedies against account debtors and other persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists, (v) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (vi) to contact other persons, whether or not in the
same business as any Borrower or Guarantor, for expressions of interest in
acquiring all or any portion of the Collateral, (vii) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (viii) to dispose of Collateral
by utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so,
or that match buyers and sellers of assets, (ix) to dispose of assets in
wholesale rather than retail markets, (x) to disclaim disposition warranties,
(xi) to purchase insurance or credit enhancements to insure Agent or Lenders
against risks of loss, collection or disposition of Collateral or to provide to
Agent or Lenders a guaranteed return from the collection or disposition of
Collateral, or (xii) to the extent deemed appropriate by Agent, to obtain the
services of other brokers, investment bankers, consultants and other
professionals to assist Agent in the collection or disposition of any of the
Collateral. Each Borrower and Guarantor acknowledges that the purpose of this
Section is to provide non-exhaustive indications of what actions or omissions by
Agent or any Lender would not be commercially unreasonable in the exercise by
Agent or any Lender of remedies against the Collateral and that other actions or
omissions by Agent or any Lender shall not be deemed commercially unreasonable
solely on account of not being indicated in this Section. Without limitation of
the foregoing, nothing contained in this Section shall be construed to grant
79
any rights to any Borrower or Guarantor or to impose any duties on Agent or
Lenders that would not have been granted or imposed by this Agreement or by
applicable law in the absence of this Section.
(f) For the purpose of enabling Agent to exercise the rights and
remedies hereunder, each Borrower and Guarantor hereby grants to Agent, to the
extent assignable, an irrevocable, non-exclusive license (exercisable at any
time an Event of Default shall exist or have occurred and for so long as the
same is continuing) without payment of royalty or other compensation to any
Borrower or Guarantor, to use, assign, license or sublicense any of the
trademarks, service-marks, trade names, business names, trade styles, designs,
logos and other source of business identifiers and other Intellectual Property
and general intangibles now owned or hereafter acquired by any Borrower or
Guarantor, wherever the same maybe located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
(g) At any time an Event of Default exists or has occurred and
is continuing, Agent may apply the cash proceeds of Collateral actually received
by Agent from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in accordance
with the terms hereof, whether or not then due or may hold such proceeds as cash
collateral for the Obligations. Borrowers and Guarantors shall remain liable to
Agent and Lenders for the payment of any deficiency with interest at the highest
rate provided for herein and all costs and expenses of collection or
enforcement, including attorneys' fees and expenses.
(h) Without limiting the foregoing, upon the occurrence of a
Default or an Event of Default, (i) Agent and Lenders may, at Agent's option,
and upon the occurrence of an Event of Default at the direction of the Required
Lenders, Agent and Lenders shall, without notice, (A) cease making Loans or
arranging for Letters of Credit or reduce the lending formulas or amounts of
Loans and Letters of Credit available to Borrowers and/or (B) terminate any
provision of this Agreement providing for any future Loans or Letters of Credit
to be made by Agent and Lenders to Borrowers and (ii) Agent may, at its option,
establish such Reserves as Agent determines, without limitation or restriction,
notwithstanding anything to the contrary contained herein.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver; Judicial Reference.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements (except as otherwise provided
therein) and any dispute arising out of the relationship between the parties
hereto, whether in contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of California but excluding any principles of
conflicts of law or other rule of law that would cause the application of the
law of any jurisdiction other than the laws of the State of California.
80
(b) Borrowers, Guarantors, Agent and Lenders irrevocably consent
and submit to the non-exclusive jurisdiction of the Superior Court of the State
of California and the United States District Court for the Central District of
California, whichever Agent may elect, and waive any objection based on venue or
forum non conveniens with respect to any action instituted therein arising under
this Agreement or any of the other Financing Agreements or in any way connected
with or related or incidental to the dealings of the parties hereto in respect
of this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Agent and Lenders shall have the right to bring any
action or proceeding against any Borrower or Guarantor or its or their property
in the courts of any other jurisdiction which Agent deems necessary or
appropriate in order to realize on the Collateral or to otherwise enforce its
rights against any Borrower or Guarantor or its or their property).
(c) Each Borrower and Guarantor hereby waives personal service
of any and all process upon it and consents that all such service of process may
be made by certified mail (return receipt requested) directed to its address set
forth herein and service so made shall be deemed to be completed five (5) days
after the same shall have been so deposited in the U.S. mails, or, at Agent's
option, by service upon any Borrower or Guarantor (or Administrative Borrower on
behalf of such Borrower or Guarantor) in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, such
Borrower or Guarantor shall appear in answer to such process, failing which such
Borrower or Guarantor shall be deemed in default and judgment may be entered by
Agent against such Borrower or Guarantor for the amount of the claim and other
relief requested.
(d) BORROWERS, GUARANTORS, AGENT AND LENDERS EACH HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY
WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWERS, GUARANTORS, AGENT AND LENDERS EACH HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR, AGENT OR ANY LENDER
MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.
(e) If any action or proceeding is filed in a court of the State
of California by or against any party hereto in connection with any of the
transactions contemplated by this Agreement or any other Financing Agreement,
(a) the court shall, and is hereby directed to, make a general reference
pursuant to California Code of Civil Procedure Section 638 to a referee or
referees to hear and determine all of the issues in such action or proceeding
(whether of fact or of
81
law) and to report a statement of decision, provided that at the option of
Agent, any such issues pertaining to a "provisional remedy" as defined in
California Code of Civil Procedure Section 1281.8 shall be heard and determined
by the court, and (b) Borrowers and Guarantors shall be solely responsible to
pay all fees and expenses of any referee appointed in such action or proceeding.
(f) Agent and Lenders shall not have any liability to any
Borrower or Guarantor (whether in tort, contract, equity or otherwise) for
losses suffered by such Borrower or Guarantor in connection with, arising out
of, or in any way related to the transactions or relationships contemplated by
this Agreement, or any act, omission or event occurring in connection herewith,
unless it is determined by a final and non-appealable judgment or court order
binding on Agent and such Lender, that the losses were the result of acts or
omissions constituting gross negligence or willful misconduct. Each Borrower and
Guarantor: (i) certifies that neither Agent, any Lender nor any representative,
agent or attorney acting for or on behalf of Agent or any Lender has
represented, expressly or otherwise, that Agent and Lenders would not, in the
event of litigation, seek to enforce any of the waivers provided for in this
Agreement or any of the other Financing Agreements and (ii) acknowledges that in
entering into this Agreement and the other Financing Agreements, Agent and
Lenders are relying upon, among other things, the waivers and certifications set
forth in this Section 11.1 and elsewhere herein and therein.
11.2 Waiver of Notices. Each Borrower and Guarantor hereby expressly
waives demand, presentment, protest and notice of protest and notice of dishonor
with respect to any and all instruments and chattel paper, included in or
evidencing any of the Obligations or the Collateral, and any and all other
demands and notices of any kind or nature whatsoever with respect to the
Obligations, the Collateral and this Agreement, except such as are expressly
provided for herein. No notice to or demand on any Borrower or Guarantor which
Agent or any Lender may elect to give shall entitle such Borrower or Guarantor
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers.
(a) Neither this Agreement nor any other Financing Agreement nor
any terms hereof or thereof may be amended, waived, discharged or terminated
unless such amendment, waiver, discharge or termination is in writing signed by
Agent and the Required Lenders or at Agent's option, by Agent with the
authorization or consent of the Required Lenders, and as to amendments to any of
the Financing Agreements (other than with respect to any provision of Section 12
hereof), by any Borrower and such amendment, waiver, discharger or termination
shall be effective and binding as to all Lenders only in the specific instance
and for the specific purpose for which given; except, that, no such amendment,
waiver, discharge or termination shall:
(i) reduce the interest rate or any fees or extend the
time of payment of principal, interest or any fees or reduce the principal
amount of any Loan or Letters of Credit, in each case without the consent of
each Lender directly affected thereby,
82
(ii) increase the Commitment of any Lender over the
amount thereof then in effect or provided hereunder, in each case without the
consent of the Lender directly affected thereby,
(iii) release any Collateral (except as expressly
required hereunder or under any of the other Financing Agreements or applicable
law and except as permitted under Section 12.11(b) hereof), without the consent
of Agent and all of Lenders,
(iv) reduce any percentage specified in the definition
of Required Lenders, without the consent of Agent and all of Lenders,
(v) consent to the assignment or transfer by any
Borrower or Guarantor of any of their rights and obligations under this
Agreement, without the consent of Agent and all of Lenders,
(vi) amend, modify or waive any terms of this Section
11.3 hereof, without the consent of Agent and all of Lenders, or
(vii) increase the advance rates constituting part of
the Borrowing Base or increase the Inventory Loan Limit or any of the other
sublimits set forth in the within definition of "Borrowing Base".
(b) Agent and Lenders shall not, by any act, delay, omission or
otherwise be deemed to have expressly or impliedly waived any of its or their
rights, powers and/or remedies unless such waiver shall be in writing and signed
as provided herein. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Agent or any Lender of any right,
power and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Agent or any Lender would
otherwise have on any future occasion, whether similar in kind or otherwise.
(c) Notwithstanding anything to the contrary contained in
Section 11.3(a) above, in connection with any amendment, waiver, discharge or
termination, in the event that any Lender whose consent thereto is required
shall fail to consent or fail to consent in a timely manner (such Lender being
referred to herein as a "Non-Consenting Lender"), but the consent of any other
Lenders to such amendment, waiver, discharge or termination that is required are
obtained, if any, then Wachovia shall have the right, but not the obligation, at
any time thereafter, and upon the exercise by Wachovia of such right, such
Non-Consenting Lender shall have the obligation, to sell, assign and transfer to
Wachovia or such Eligible Transferee as Wachovia may specify, the Commitment of
such Non-Consenting Lender and all rights and interests of such Non-Consenting
Lender pursuant thereto. Wachovia shall provide the Non-Consenting Lender with
prior written notice of its intent to exercise its right under this Section,
which notice shall specify on date on which such purchase and sale shall occur.
Such purchase and sale shall be pursuant to the terms of an Assignment and
Acceptance (whether or not executed by the Non-Consenting Lender), except that
on the date of such purchase and sale, Wachovia, or such Eligible Transferee
specified by Wachovia, shall pay to the Non-Consenting Lender (except as
Wachovia and such Non-Consenting Lender may otherwise agree) the amount equal
to: (i) the principal balance of the Loans held by the Non-Consenting Lender
outstanding
83
as of the close of business on the business day immediately preceding the
effective date of such purchase and sale, plus (ii) amounts accrued and unpaid
in respect of interest and fees payable to the Non-Consenting Lender to the
effective date of the purchase (but in no event shall the Non-Consenting Lender
be deemed entitled to any early termination fee), minus (iii) the amount of the
closing fee received by the Non-Consenting Lender pursuant to the terms hereof
or of any of the other Financing Agreements multiplied by the fraction, the
numerator of which is the number of months remaining in the then current term of
the Credit Facility and the denominator of which is the number of months in the
then current term thereof. Such purchase and sale shall be effective on the date
of the payment of such amount to the Non-Consenting Lender and the Commitment of
the Non-Consenting Lender shall terminate on such date. If Wachovia fails to
exercise its right to purchase (or have such Eligible Transferee as Wachovia may
specify purchase) the Commitment of a Non-Consenting Lender pursuant to this
Section, then so long as no Event of Default has occurred and is continuing,
Borrowers shall have the right to designate a willing Eligible Transferee to
purchase such Commitment in accordance with the terms of this Section.
(d) The consent of Agent shall be required for any amendment,
waiver or consent affecting the rights or duties of Agent hereunder or under any
of the other Financing Agreements, in addition to the consent of the Lenders
otherwise required by this Section and the exercise by Agent of any of its
rights hereunder with respect to Reserves or Eligible Accounts or Eligible
Inventory shall not be deemed an amendment to the advance rates provided for in
this Section 11.3. Notwithstanding anything to the contrary contained in Section
11.3(a) above, (i) in the event that Agent shall agree that any items otherwise
required to be delivered to Agent as a condition of the initial Loans and
Letters of Credit hereunder may be delivered after the date hereof, Agent may,
in its discretion, agree to extend the date for delivery of such items or take
such other action as Agent may deem appropriate as a result of the failure to
receive such items as Agent may determine or may waive any Event of Default as a
result of the failure to receive such items, in each case without the consent of
any Lender and (ii) Agent may consent to any change in the type of organization,
jurisdiction of organization or other legal structure of any Borrower, Guarantor
or any of their Subsidiaries and amend the terms hereof or of any of the other
Financing Agreements as may be necessary or desirable to reflect any such
change, in each case without the approval of any Lender.
11.4 Waiver of Counterclaims. Each Borrower and Guarantor waives all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other then compulsory counterclaims) in any action or proceeding with
respect to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.
11.5 Indemnification. Each Borrower and Guarantor shall, jointly and
severally, indemnify and hold Agent and each Lender, and their respective
officers, directors, agents, employees, advisors and counsel and their
respective Affiliates (each such person being an "Indemnitee"), harmless from
and against any and all losses, claims, damages, liabilities, and reasonable
costs or expenses (including attorneys' fees and expenses) imposed on, incurred
by or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any
84
act, omission, event or transaction related or attendant thereto, including
amounts paid in settlement, court costs, and the reasonable fees and expenses of
counsel except that Borrowers and Guarantors shall not have any obligation under
this Section 11.5 to indemnify an Indemnitee with respect to a matter covered
hereby resulting from the gross negligence or wilful misconduct of such
Indemnitee as determined pursuant to a final, non-appealable order of a court of
competent jurisdiction (but without limiting the obligations of Borrowers or
Guarantors as to any other Indemnitee). To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrowers and Guarantors shall pay
the maximum portion which it is permitted to pay under applicable law to Agent
and Lenders in satisfaction of indemnified matters under this Section. To the
extent permitted by applicable law, no Borrower or Guarantor shall assert, and
each Borrower and Guarantor hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement, any of the other Financing Agreements
or any undertaking or transaction contemplated hereby. No Indemnitee referred to
above shall be liable for any damages arising from the use by unintended
recipients of any information or other materials distributed by it through
telecommunications, electronic or other information transmission systems in
connection with this Agreement or any of the other Financing Agreements or the
transaction contemplated hereby or thereby. All amounts due under this Section
shall be payable upon demand. The foregoing indemnity shall survive the payment
of the Obligations and the termination or non-renewal of this Agreement.
SECTION 12. THE AGENT
12.1 Appointment, Powers and Immunities. Each Lender irrevocably
designates, appoints and authorizes Wachovia to act as Agent hereunder and under
the other Financing Agreements with such powers as are specifically delegated to
Agent by the terms of this Agreement and of the other Financing Agreements,
together with such other powers as are reasonably incidental thereto. Agent (a)
shall have no duties or responsibilities except those expressly set forth in
this Agreement and in the other Financing Agreements, and shall not by reason of
this Agreement or any other Financing Agreement be a trustee or fiduciary for
any Lender; (b) shall not be responsible to Lenders for any recitals,
statements, representations or warranties contained in this Agreement or in any
of the other Financing Agreements, or in any certificate or other document
referred to or provided for in, or received by any of them under, this Agreement
or any other Financing Agreement, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other
Financing Agreement or any other document referred to or provided for herein or
therein or for any failure by any Borrower or any Guarantor or any other Person
to perform any of its obligations hereunder or thereunder; and (c) shall not be
responsible to Lenders for any action taken or omitted to be taken by it
hereunder or under any other Financing Agreement or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful misconduct
as determined by a final non-appealable judgment of a court of competent
jurisdiction. Agent may employ agents and attorneys in fact and shall not be
responsible for the negligence or misconduct of any such agents or attorneys in
fact selected by it in good faith. Agent may deem and treat the payee of any
note as the holder thereof for all purposes hereof unless and until the
assignment thereof pursuant to
85
an agreement (if and to the extent permitted herein) in form and substance
satisfactory to Agent shall have been delivered to and acknowledged by Agent.
12.2 Reliance by Agent. Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent. As to any matters not expressly
provided for by this Agreement or any other Financing Agreement, Agent shall in
all cases be fully protected in acting, or in refraining from acting, hereunder
or thereunder in accordance with instructions given by the Required Lenders or
all of Lenders as is required in such circumstance, and such instructions of
such Agents and any action taken or failure to act pursuant thereto shall be
binding on all Lenders.
12.3 Events of Default.
(a) Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default or an Event of Default or other failure of a condition
precedent to the Loans and Letters of Credit hereunder, unless and until Agent
has received written notice from a Lender, or Borrower specifying such Event of
Default or any unfulfilled condition precedent, and stating that such notice is
a "Notice of Default or Failure of Condition". In the event that Agent receives
such a Notice of Default or Failure of Condition, Agent shall give prompt notice
thereof to the Lenders. Agent shall (subject to Section 12.7) take such action
with respect to any such Event of Default or failure of condition precedent as
shall be directed by the Required Lenders to the extent provided for herein;
provided, that, unless and until Agent shall have received such directions,
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to or by reason of such Event of Default or
failure of condition precedent, as it shall deem advisable in the best interest
of Lenders. Without limiting the foregoing, and notwithstanding the existence or
occurrence and continuance of an Event of Default or any other failure to
satisfy any of the conditions precedent set forth in Section 4 of this Agreement
to the contrary, unless and until otherwise directed by the Required Lenders,
Agent may, but shall have no obligation to, continue to make Loans and issue or
cause to be issued any Letter of Credit for the ratable account and risk of
Lenders from time to time if Agent believes making such Loans or issuing or
causing to be issued such Letter of Credit is in the best interests of Lenders.
(b) Except with the prior written consent of Agent, no Lender
may assert or exercise any enforcement right or remedy in respect of the Loans,
Letter of Credit Obligations or other Obligations, as against any Borrower or
Guarantor or any of the Collateral or other property of any Borrower or
Guarantor.
12.4 Wachovia in its Individual Capacity. With respect to its Commitment
and the Loans made and Letters of Credit issued or caused to be issued by it
(and any successor acting as Agent), so long as Wachovia shall be a Lender
hereunder, it shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as Agent, and the
term "Lender" or "Lenders" shall, unless the context otherwise indicates,
include Wachovia in its individual capacity as Lender hereunder. Wachovia (and
any successor acting as Agent) and its Affiliates may (without having to account
therefor to any Lender) lend money to,
86
make investments in and generally engage in any kind of business with Borrowers
(and any of its Subsidiaries or Affiliates) as if it were not acting as Agent,
and Wachovia and its Affiliates may accept fees and other consideration from any
Borrower or Guarantor and any of its Subsidiaries and Affiliates for services in
connection with this Agreement or otherwise without having to account for the
same to Lenders.
12.5 Indemnification. Lenders agree to indemnify Agent (to the extent
not reimbursed by Borrowers hereunder and without limiting any obligations of
Borrowers hereunder) ratably, in accordance with their Pro Rata Shares, for any
and all claims of any kind and nature whatsoever that may be imposed on,
incurred by or asserted against Agent (including by any Lender) arising out of
or by reason of any investigation in or in any way relating to or arising out of
this Agreement or any other Financing Agreement or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Agent is
obligated to pay hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided, that, no Lender shall be
liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined by
a final non-appealable judgment of a court of competent jurisdiction. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
12.6 Non-Reliance on Agent and Other Lenders. Each Lender agrees that it
has, independently and without reliance on Agent or other Lender, and based on
such documents and information as it has deemed appropriate, made its own credit
analysis of Borrowers and Guarantors and has made its own decision to enter into
this Agreement and that it will, independently and without reliance upon Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any of the other Financing
Agreements. Agent shall not be required to keep itself informed as to the
performance or observance by any Borrower or Guarantor of any term or provision
of this Agreement or any of the other Financing Agreements or any other document
referred to or provided for herein or therein or to inspect the properties or
books of any Borrower or Guarantor. Agent will use reasonable efforts to provide
Lenders with any information received by Agent from any Borrower or Guarantor
which is required to be provided to Lenders or deemed to be requested by Lenders
hereunder and with a copy of any Notice of Default or Failure of Condition
received by Agent from any Borrower or any Lender; provided, that, Agent shall
not be liable to any Lender for any failure to do so, except to the extent that
such failure is attributable to Agent's own gross negligence or willful
misconduct as determined by a final non-appealable judgment of a court of
competent jurisdiction. Except for notices, reports and other documents
expressly required to be furnished to Lenders by Agent or deemed requested by
Lenders hereunder, Agent shall not have any duty or responsibility to provide
any Lender with any other credit or other information concerning the affairs,
financial condition or business of any Borrower or Guarantor that may come into
the possession of Agent.
12.7 Failure to Act. Except for action expressly required of Agent
hereunder and under the other Financing Agreements, Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless it
shall receive further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 12.5 hereof against
87
any and all liability and expense that may be incurred by it by reason of taking
or continuing to take any such action.
12.8 Additional Loans. Agent shall not make any Revolving Loans or
provide any Letter of Credit to any Borrower on behalf of Lenders intentionally
and with actual knowledge that such Revolving Loans or Letter of Credit would
cause the aggregate amount of the total outstanding Revolving Loans and Letters
of Credit to Borrowers to exceed the Borrowing Base, without the prior consent
of all Lenders, except, that, Agent may make such additional Revolving Loans or
provide such additional Letter of Credit on behalf of Lenders, intentionally and
with actual knowledge that such Revolving Loans or Letter of Credit will cause
the total outstanding Revolving Loans and Letters of Credit to Borrowers to
exceed the Borrowing Base, as Agent may deem necessary or advisable in its
discretion, provided, that: (a) the total principal amount of the additional
Revolving Loans or additional Letters of Credit to any Borrower which Agent may
make or provide after obtaining such actual knowledge that the aggregate
principal amount of the Revolving Loans equal or exceed the Borrowing Base, plus
the amount of Special Agent Advances made pursuant to Section 12.11(a)(ii)
hereof then outstanding, shall not exceed the aggregate amount equal to ten
(10%) of the Revolving Loan Limit and shall not cause the total principal amount
of the Revolving Loans and Letters of Credit to exceed the Revolving Loan Limit
and (b) no such additional Revolving Loan or Letter of Credit shall be
outstanding more than ninety (90) days after the date such additional Revolving
Loan or Letter of Credit is made or issued (as the case may be), except as the
Required Lenders may otherwise agree. Each Lender shall be obligated to pay
Agent the amount of its Pro Rata Share of any such additional Revolving Loans or
Letters of Credit.
12.9 Concerning the Collateral and the Related Financing Agreements.
Each Lender authorizes and directs Agent to enter into this Agreement and the
other Financing Agreements. Each Lender agrees that any action taken by Agent or
Required Lenders in accordance with the terms of this Agreement or the other
Financing Agreements and the exercise by Agent or Required Lenders of their
respective powers set forth therein or herein, together with such other powers
that are reasonably incidental thereto, shall be binding upon all of the
Lenders.
12.10 Field Audit, Examination Reports and other Information; Disclaimer
by Lenders. By signing this Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such Lender,
promptly after it becomes available, a copy of each field audit or examination
report and report with respect to the Borrowing Base prepared or received by
Agent (each field audit or examination report and report with respect to the
Borrowing Base being referred to herein as a "Report" and collectively,
"Reports"), appraisals with respect to the Collateral and financial statements
with respect Parent and its Subsidiaries received by Agent;
(b) expressly agrees and acknowledges that Agent (i) does not
make any representation or warranty as to the accuracy of any Report, appraisal
or financial statement or (ii) shall not be liable for any information contained
in any Report, appraisal or financial statement;
88
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or any other party performing
any audit or examination will inspect only specific information regarding
Borrowers and Guarantors and will rely significantly upon Borrowers' and
Guarantors' books and records, as well as on representations of Borrowers' and
Guarantors' personnel; and
(d) agrees to keep all Reports confidential and strictly for its
internal use in accordance with the terms of Section 13.5 hereof, and not to
distribute or use any Report in any other manner.
12.11 Collateral Matters.
(a) Agent may, at its option, from time to time, at any time on
or after an Event of Default and for so long as the same is continuing or upon
any other failure of a condition precedent to the Loans and Letters of Credit
hereunder, make such disbursements and advances ("Special Agent Advances") which
Agent, in its sole discretion, (i) deems necessary or desirable either to
preserve or protect the Collateral or any portion thereof or (ii) to enhance the
likelihood or maximize the amount of repayment by Borrowers and Guarantors of
the Loans and other Obligations, provided, that, (A) the aggregate principal
amount of the Special Agent Advances pursuant to this clause (ii) outstanding at
any time, plus the then outstanding principal amount of the additional Revolving
Loans and Letters of Credit which Agent may make or provide as set forth in
Section 12.8 hereof, shall not exceed the amount equal to ten (10%) percent of
the Revolving Loan Limit and (B) the aggregate principal amount of the Special
Agent Advances pursuant to this clause (ii) outstanding at any time, plus the
then outstanding principal amount of the Revolving Loans, shall not exceed the
Revolving Loan Limit, except at Agent's option, provided, that, to the extent
that the aggregate principal amount of Special Agent Advances plus the then
outstanding principal amount of the Revolving Loans exceed the Revolving Loan
Limit, the Special Agent Advances that are in excess of the Revolving Loan Limit
shall be for the sole account and risk of Agent and notwithstanding anything to
the contrary set forth below, no Lender shall have any obligation to provide its
share of such Special Agent Advances in excess of the Revolving Loan Limit, or
(iii) to pay any other amount chargeable to any Borrower or Guarantor pursuant
to the terms of this Agreement or any of the other Financing Agreements
consisting of (A) costs, fees and expenses and (B) payments to Issuing Bank in
respect of any Letter of Credit Obligations. The Special Agent Advances shall be
repayable on demand and together with all interest thereon shall constitute
Obligations secured by the Collateral. Special Agent Advances shall not
constitute Loans but shall otherwise constitute Obligations hereunder. Interest
on Special Agent Advances shall be payable at the Interest Rate then applicable
to Prime Rate Loans and shall be payable on demand. Without limitation of its
obligations pursuant to Section 6.11, each Lender agrees that it shall make
available to Agent, upon Agent's demand, in immediately available funds, the
amount equal to such Lender's Pro Rata Share of each such Special Agent Advance.
If such funds are not made available to Agent by such Lender, such Lender shall
be deemed a Defaulting Lender and Agent shall be entitled to recover such funds,
on demand from such Lender together with interest thereon for each day from the
date such payment was due until the date such amount is paid to Agent at the
Federal Funds Rate for each day during such period (as published by the Federal
Reserve Bank of New York or at Agent's option based on the arithmetic mean
determined by Agent of the rates for the last transaction in overnight Federal
funds arranged prior to 9:00 a.m.
89
(New York City time) on that day by each of the three leading brokers of Federal
funds transactions in New York City selected by Agent) and if such amounts are
not paid within three (3) days of Agent's demand, at the highest Interest Rate
provided for in Section 3.1 hereof applicable to Prime Rate Loans.
(b) Lenders hereby irrevocably authorize Agent, at its option
and in its discretion to release any security interest in, mortgage or lien
upon, any of the Collateral (i) upon termination of the Commitments and payment
and satisfaction of all of the Obligations and delivery of cash collateral to
the extent required under Section 13.1 below, or (ii) constituting property
being sold or disposed of if Administrative Borrower or any Borrower or
Guarantor certifies to Agent that the sale or disposition is made in compliance
with Section 9.7 hereof (and Agent may rely conclusively on any such
certificate, without further inquiry), or (iii) constituting property in which
any Borrower or Guarantor did not own an interest at the time the security
interest, mortgage or lien was granted or at any time thereafter, or (iv) having
a value in the aggregate in any twelve (12) month period of less than $500,000,
and to the extent Agent may release its security interest in and lien upon any
such Collateral pursuant to the sale or other disposition thereof, such sale or
other disposition shall be deemed consented to by Lenders, or (v) if required or
permitted under the terms of any of the other Financing Agreements, including
any intercreditor agreement, or (vi) approved, authorized or ratified in writing
by all of Lenders. Except as provided above, Agent will not release any security
interest in, mortgage or lien upon, any of the Collateral without the prior
written authorization of all of Lenders. Upon request by Agent at any time,
Lenders will promptly confirm in writing Agent's authority to release particular
types or items of Collateral pursuant to this Section.
(c) Without any manner limiting Agent's authority to act without
any specific or further authorization or consent by the Required Lenders, each
Lender agrees to confirm in writing, upon request by Agent, the authority to
release Collateral conferred upon Agent under this Section. Agent shall (and is
hereby irrevocably authorized by Lenders to) execute such documents as may be
necessary to evidence the release of the security interest, mortgage or liens
granted to Agent upon any Collateral to the extent set forth above; provided,
that, (i) Agent shall not be required to execute any such document on terms
which, in Agent's opinion, would expose Agent to liability or create any
obligations or entail any consequence other than the release of such security
interest, mortgage or liens without recourse or warranty and (ii) such release
shall not in any manner discharge, affect or impair the Obligations or any
security interest, mortgage or lien upon (or obligations of any Borrower or
Guarantor in respect of) the Collateral retained by such Borrower or Guarantor.
(d) Agent shall have no obligation whatsoever to any Lender or
any other Person to investigate, confirm or assure that the Collateral exists or
is owned by any Borrower or Guarantor or is cared for, protected or insured or
has been encumbered, or that any particular items of Collateral meet the
eligibility criteria applicable in respect of the Loans or Letters of Credit
hereunder, or whether any particular reserves are appropriate, or that the liens
and security interests granted to Agent pursuant hereto or any of the Financing
Agreements or otherwise have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority, or
to exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent in this Agreement or in any
of the other Financing Agreements, it
90
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, subject to the other terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its
discretion, given Agent's own interest in the Collateral as a Lender and that
Agent shall have no duty or liability whatsoever to any other Lender.
12.12 Agency for Perfection. Each Lender hereby appoints Agent and each
other Lender as agent and bailee for the purpose of perfecting the security
interests in and liens upon the Collateral of Agent in assets which, in
accordance with Article 9 of the UCC can be perfected only by possession (or
where the security interest of a secured party with possession has priority over
the security interest of another secured party) and Agent and each Lender hereby
acknowledges that it holds possession of any such Collateral for the benefit of
Agent as secured party. Should any Lender obtain possession of any such
Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's
request therefor shall deliver such Collateral to Agent or in accordance with
Agent's instructions.
12.13 Successor Agent. Agent may resign as Agent upon thirty (30) days'
notice to Lenders and Parent. If Agent resigns under this Agreement, the
Required Lenders shall appoint from among the Lenders a successor agent for
Lenders. If no successor agent is appointed prior to the effective date of the
resignation of Agent, Agent may appoint, after consulting with Lenders and
Parent, a successor agent from among Lenders. Upon the acceptance by the Lender
so selected of its appointment as successor agent hereunder, such successor
agent shall succeed to all of the rights, powers and duties of the retiring
Agent and the term "Agent" as used herein and in the other Financing Agreements
shall mean such successor agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 12 shall inure to its benefit
as to any actions taken or omitted by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is thirty (30) days after the date of a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nonetheless thereupon become
effective and Lenders shall perform all of the duties of Agent hereunder until
such time, if any, as the Required Lenders appoint a successor agent as provided
for above.
12.14 Other Agent Designations. Agent may at any time and from time to
time determine that a Lender may, in addition, be a "Co-Agent", "Syndication
Agent", "Documentation Agent" or similar designation hereunder and enter into an
agreement with such Lender to have it so identified for purposes of this
Agreement. Any such designation shall be effective upon written notice by Agent
to Administrative Borrower of any such designation. Any Lender that is so
designated as a Co-Agent, Syndication Agent, Documentation Agent or such similar
designation by Agent shall have no right, power, obligation, liability,
responsibility or duty under this Agreement or any of the other Financing
Agreements other than those applicable to all Lenders as such. Without limiting
the foregoing, the Lenders so identified shall not have or be deemed to have any
fiduciary relationship with any Lender and no Lender shall be deemed to have
relied, nor shall any Lender rely, on a Lender so identified as a Co-Agent,
Syndication Agent, Documentation Agent or such similar designation in deciding
to enter into this Agreement or in taking or not taking action hereunder.
91
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS
13.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Agent may, at its option
(or shall at the direction of any Lender in writing received by Agent at least
ninety (90) days prior to the Renewal Date or the anniversary of any Renewal
Date, as the case may be), terminate this Agreement and the other Financing
Agreements, or Administrative Borrower or any Borrower may terminate this
Agreement and the other Financing Agreements, each case, effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; provided, that,
this Agreement and all other Financing Agreements must be terminated
simultaneously. In addition, Borrowers may terminate this Agreement at any time
upon ten (10) days prior written notice to Agent (which notice shall be
irrevocable) and Agent may, at its option, and shall at the direction of
Required Lenders, terminate this Agreement at any time on or after an Event of
Default. Upon the Renewal Date or any other effective date of termination of the
Financing Agreements, Borrowers shall pay to Agent all outstanding and unpaid
Obligations and shall furnish cash collateral to Agent (or at Agent's option, a
letter of credit issued for the account of Borrowers and at Borrowers' expense,
in form and substance satisfactory to Agent, by an issuer acceptable to Agent
and payable to Agent as beneficiary) in such amounts as Agent determines are
reasonably necessary to secure Agent and Lenders from loss, cost, damage or
expense, including attorneys' fees and expenses, in connection with any
contingent Obligations, including issued and outstanding Letter of Credit
Obligations and checks or other payments provisionally credited to the
Obligations and/or as to which Agent or any Lender has not yet received final
and indefeasible payment and any continuing obligations of Agent or any Lender
pursuant to any Deposit Account Control Agreement. The amount of such cash
collateral (or letter of credit, as Agent may determine) as to any Letter of
Credit Obligations shall be in the amount equal to one hundred five (105%)
percent of the amount of the Letter of Credit Obligations plus the amount of any
fees and expenses payable in connection therewith through the end of the latest
expiration date of the Letters of Credit giving rise to such Letter of Credit
Obligations. Such payments in respect of the Obligations and cash collateral
shall be remitted by wire transfer in Federal funds to the Agent Payment Account
or such other bank account of Agent, as Agent may, in its discretion, designate
in writing to Administrative Borrower for such purpose. Interest shall be due
until and including the next Business Day, if the amounts so paid by Borrowers
to the Agent Payment Account or other bank account designated by Agent are
received in such bank account later than 12:00 noon, California time.
(b) No termination of the Commitments, this Agreement or any of
the other Financing Agreements shall relieve or discharge any Borrower or
Guarantor of its respective duties, obligations and covenants under this
Agreement or any of the other Financing Agreements until all Obligations have
been fully and finally discharged and paid, and Agent's continuing security
interest in the Collateral and the rights and remedies of Agent and Lenders
hereunder, under the other Financing Agreements and applicable law, shall remain
in effect until all such Obligations have been fully and finally discharged and
paid. Accordingly, each
92
Borrower and Guarantor waives any rights it may have under the UCC to demand the
filing of termination statements with respect to the Collateral and Agent shall
not be required to send such termination statements to Borrowers or Guarantors,
or to file them with any filing office, unless and until this Agreement shall
have been terminated in accordance with its terms and all Obligations paid and
satisfied in full in immediately available funds.
(c) If for any reason this Agreement is terminated prior to the
Renewal Date, in view of the impracticality and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of Agent's and each Lender's lost profits as a result
thereof, Borrowers agree to pay to Agent, for the benefit of Lenders, upon the
effective date of such termination, an early termination fee in the amount equal
to
Amount Period
------ ------
(i) 0.5% of the Revolving Loan From the date hereof to and including the first
Limit anniversary of the date hereof
(ii) 0.25% of the Revolving Loan From and after the first anniversary of the date hereof
Limit to but not including the thirtieth (30th) day preceding
the third anniversary of the date hereof.
Such early termination fee shall be presumed to be the amount of damages
sustained by Agent and Lenders as a result of such early termination and
Borrowers and Guarantors agree that it is reasonable under the circumstances
currently existing (including, but not limited to, the borrowings that are
reasonably expected by Borrowers hereunder and the interest, fees and other
charges that are reasonably expected to be received by Agent and Lenders
pursuant to the Credit Facility). In addition, Agent and Lenders shall be
entitled to such early termination fee upon the occurrence of any Event of
Default described in Sections 10.1(g) and 10.1(h) hereof, even if Agent and
Lenders do not exercise the right to terminate this Agreement, but elect, at
their option, to provide financing to any Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 13.1 shall be deemed included in the Obligations.
13.2 Interpretative Provisions.
(a) All terms used herein which are defined in Article 1,
Article 8 or Article 9 of the UCC shall have the meanings given therein unless
otherwise defined in this Agreement.
(b) All references to the plural herein shall also mean the
singular and to the singular shall also mean the plural unless the context
otherwise requires.
(c) All references to any Borrower, Guarantor, Agent and Lenders
pursuant to the definitions set forth in the recitals hereto, or to any other
person herein, shall include their respective successors and assigns.
(d) The words "hereof", "herein", "hereunder", "this Agreement"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement and as
this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
93
(e) The word "including" when used in this Agreement shall mean
"including, without limitation" and the word "will" when used in this Agreement
shall be construed to have the same meaning and effect as the word "shall".
(f) An Event of Default shall exist or continue or be continuing
until such Event of Default is waived in accordance with Section 11.3 or is
cured in a manner satisfactory to Agent, if such Event of Default is capable of
being cured as determined by Agent.
(g) All references to the term "good faith" used herein when
applicable to Agent or any Lender shall mean, notwithstanding anything to the
contrary contained herein or in the UCC, honesty in fact in the conduct or
transaction concerned. Borrowers and Guarantors shall have the burden of proving
any lack of good faith on the part of Agent or any Lender alleged by any
Borrower or Guarantor at any time.
(h) Any accounting term used in this Agreement shall have,
unless otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be computed
unless otherwise specifically provided herein, in accordance with GAAP as
consistently applied and using the same method for inventory valuation as used
in the preparation of the financial statements of Parent most recently received
by Agent prior to the date hereof. Notwithstanding anything to the contrary
contained in GAAP or any interpretations or other pronouncements by the
Financial Accounting Standards Board or otherwise, the term "unqualified
opinion" as used herein to refer to opinions or reports provided by accountants
shall mean an opinion or report that is unqualified and also does not include
any explanation, supplemental comment or other comment concerning the ability of
the applicable person to continue as a going concern or the scope of the audit.
(i) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including", the words
"to" and "until" each mean "to but excluding" and the word "through" means "to
and including".
(j) Unless otherwise expressly provided herein, (i) references
herein to any agreement, document or instrument shall be deemed to include all
subsequent amendments, modifications, supplements, extensions, renewals,
restatements or replacements with respect thereto, but only to the extent the
same are not prohibited by the terms hereof or of any other Financing Agreement,
and (ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, recodifying, supplementing or interpreting the statute or regulation.
(k) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(l) This Agreement and other Financing Agreements may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms.
94
(m) This Agreement and the other Financing Agreements are the
result of negotiations among and have been reviewed by counsel to Agent and the
other parties, and are the products of all parties. Accordingly, this Agreement
and the other Financing Agreements shall not be construed against Agent or
Lenders merely because of Agent's or any Lender's involvement in their
preparation.
13.3 Notices.
(a) All notices, requests and demands hereunder shall be in
writing and deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing. Notices delivered through
electronic communications shall be effective to the extent set forth in Section
13.3(b) below. All notices, requests and demands upon the parties are to be
given to the following addresses (or to such other address as any party may
designate by notice in accordance with this Section):
If to any Borrower or Guarantor: Commerce Energy, Inc.
600 Anton Boulevard, Suite 2000
Costa Mesa, California 92626
Attention: Lawrence Clayton
Telephone No.: (714) 259-2500
Telecopy No.: (714) 259-2501
with a copy to: Paul, Hastings, Janofsky & Walker LLP
600 Peachtree Street, N.E., Suite 2400
Atlanta, Georgia 30308
Attention: Cindy J.K. Davis, Esq.
Telephone No.: (404) 815-2263
Telecopy No.: (404) 815-2424
Wachovia Capital Finance Corporation
(Western)
251 South Lake Avenue, Suite 900
Pasadena, California 91101
Attention: Portfolio Manager
Telephone No.: (626) 304-4900
Telecopy No.: (626) 304-4969
(b) Notices and other communications to Lenders Bank hereunder
may be delivered or furnished by electronic communication (including e-mail and
Internet or intranet websites) pursuant to procedures approved by Agent or as
otherwise determined by Agent, provided, that, the foregoing shall not apply to
notices to any Lender pursuant to Section 2 hereof if such Lender, as
applicable, has notified Agent that it is incapable of receiving notices under
such Section by electronic communication. Unless Agent otherwise requires, (i)
notices and
95
other communications sent to an e-mail address shall be deemed received upon the
sender's receipt of an acknowledgement from the intended recipient (such as by
the "return receipt requested" function, as available, return e-mail or other
written acknowledgement), provided, that, if such notice or other communication
is not given during the normal business hours of the recipient, such notice
shall be deemed to have been sent at the opening of business on the next
Business Day for the recipient, and (ii) notices or communications posted to an
Internet or intranet website shall be deemed received upon the deemed receipt by
the intended recipient at its e-mail address as described in the foregoing
clause (i) of notification that such notice or communications is available and
identifying the website address therefor.
13.4 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
13.5 Confidentiality.
(a) Agent and each Lender shall use all reasonable efforts to
keep confidential, in accordance with its customary procedures for handling
confidential information and safe and sound lending practices, any non-public
information supplied to it by any Borrower pursuant to this Agreement, provided,
that, nothing contained herein shall limit the disclosure of any such
information: (i) to the extent required by statute, rule, regulation, subpoena
or court order, (ii) to bank examiners and other regulators, auditors and/or
accountants, in connection with any litigation to which Agent or such Lender is
a party, (iii) to any Lender or Participant (or prospective Lender or
Participant) or to any Affiliate of any Lender so long as such Lender or
Participant (or prospective Lender or Participant) or Affiliate shall have
agreed to treat such information as confidential in accordance with this Section
13.5, or (iv) to counsel for Agent or any Lender or Participant (or prospective
Lender or Participant).
(b) In the event that Agent or any Lender receives a request or
demand to disclose any confidential information pursuant to any subpoena or
court order, Agent or such Lender, as the case may be, agrees (i) to the extent
permitted by applicable law or if permitted by applicable law, to the extent
Agent or such Lender determines in good faith that it will not create any risk
of liability to Agent or such Lender, Agent or such Lender will promptly notify
Administrative Borrower of such request so that Administrative Borrower may seek
a protective order or other appropriate relief or remedy and (ii) if disclosure
of such information is required, disclose such information and, subject to
reimbursement by Borrowers of Agent's or such Lender's reasonable expenses,
cooperate with Administrative Borrower in the reasonable efforts to obtain an
order or other reliable assurance that confidential treatment will be accorded
to such portion of the disclosed information which Administrative Borrower so
designates, to the extent permitted by applicable law or if permitted by
applicable law, to the extent Agent or such Lender determines in good faith that
it will not create any risk of liability to Agent or such Lender.
(c) In no event shall this Section 13.5 or any other provision
of this Agreement, any of the other Financing Agreements or applicable law be
deemed: (i) to apply to or restrict disclosure of information that has been or
is made public by any Borrower, Guarantor
96
or any third party or otherwise becomes generally available to the public other
than as a result of a disclosure in violation hereof, (ii) to apply to or
restrict disclosure of information that was or becomes available to Agent or any
Lender (or any Affiliate of any Lender) on a non-confidential basis from a
person other than a Borrower or Guarantor or their agents, accountants,
attorneys or consultants, (iii) to require Agent or any Lender to return any
materials furnished by a Borrower or Guarantor to Agent or a Lender or prevent
Agent or a Lender from responding to routine informational requests in
accordance with the Code of Ethics for the Exchange of Credit Information
promulgated by The Robert Morris Associates or other applicable industry
standards relating to the exchange of credit information. The obligations of
Agent and Lenders under this Section 13.5 shall supersede and replace the
obligations of Agent and Lenders under any confidentiality letter signed prior
to the date hereof or any other arrangements concerning the confidentiality of
information provided by any Borrower or Guarantor to Agent or any Lender. In
addition, Agent and Lenders may disclose information relating to the Credit
Facility to Gold Sheets and other similar bank trade publications, with such
information to consist of deal terms and other information customarily found in
such publications.
13.6 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Agent, Lenders, Borrowers, Guarantors and
their respective successors and assigns, except that Borrower may not assign its
rights under this Agreement, the other Financing Agreements and any other
document referred to herein or therein without the prior written consent of
Agent and Lenders. Any such purported assignment without such express prior
written consent shall be void. No Lender may assign its rights and obligations
under this Agreement without the prior written consent of Agent, except as
provided in Section 13.7 below. The terms and provisions of this Agreement and
the other Financing Agreements are for the purpose of defining the relative
rights and obligations of Borrowers, Guarantors, Agent and Lenders with respect
to the transactions contemplated hereby and there shall be no third party
beneficiaries of any of the terms and provisions of this Agreement or any of the
other Financing Agreements.
13.7 Assignments; Participations.
(a) Each Lender may, with the prior written consent of Agent
and, so long as no Event of Default has occurred and is continuing, the prior
written consent of Borrowers (such consent of Borrowers not to be unreasonably
withheld or delayed), assign all or, if less than all, a portion equal to at
least $5,000,000 in the aggregate for the assigning Lender, of such rights and
obligations under this Agreement to one or more Eligible Transferees (but not
including for this purpose any assignments in the form of a participation), each
of which assignees shall become a party to this Agreement as a Lender by
execution of an Assignment and Acceptance; provided, that, (i) such transfer or
assignment will not be effective until recorded by Agent on the Register and
(ii) Agent shall have received for its sole account payment of a processing fee
from the assigning Lender or the assignee in the amount of $5,000.
(b) Agent shall maintain a register of the names and addresses
of Lenders, their Commitments and the principal amount of their Loans (the
"Register"). Agent shall also maintain a copy of each Assignment and Acceptance
delivered to and accepted by it and shall modify the Register to give effect to
each Assignment and Acceptance. The entries in the
97
Register shall be conclusive and binding for all purposes, absent manifest
error, and any Borrowers, Guarantors, Agent and Lenders may treat each Person
whose name is recorded in the Register as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection by Administrative
Borrower and any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(c) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
the assignee thereunder shall be a party hereto and to the other Financing
Agreements and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations (including, without limitation, the obligation to participate in
Letter of Credit Obligations) of a Lender hereunder and thereunder and the
assigning Lender shall, to the extent that rights and obligations hereunder have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under this Agreement.
(d) By execution and delivery of an Assignment and Acceptance,
the assignor and assignee thereunder confirm to and agree with each other and
the other parties hereto as follows: (i) other than as provided in such
Assignment and Acceptance, the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any of the other Financing Agreements or the execution, legality,
enforceability, genuineness, sufficiency or value of this Agreement or any of
the other Financing Agreements furnished pursuant hereto, (ii) the assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower, Guarantor or any of their
Subsidiaries or the performance or observance by any Borrower or Guarantor of
any of the Obligations; (iii) such assignee confirms that it has received a copy
of this Agreement and the other Financing Agreements, together with such other
documents and information it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance, (iv) such
assignee will, independently and without reliance upon the assigning Lender,
Agent and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement and the other Financing Agreements, (v) such
assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Financing
Agreements as are delegated to Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto, and (vi) such assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement and the other Financing
Agreements are required to be performed by it as a Lender. Agent and Lenders may
furnish any information concerning any Borrower or Guarantor in the possession
of Agent or any Lender from time to time to assignees and Participants.
(e) Each Lender may sell participations to one or more banks or
other entities in or to all or a portion of its rights and obligations under
this Agreement and the other Financing Agreements (including, without
limitation, all or a portion of its Commitments and the Loans owing to it and
its participation in the Letter of Credit Obligations, without the consent of
Agent or the other Lenders); provided, that, (i) such Lender's obligations under
this Agreement
98
(including, without limitation, its Commitment hereunder) and the other
Financing Agreements shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, and Borrowers, Guarantors, the other Lenders and Agent shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and the other Financing
Agreements, and (iii) the Participant shall not have any rights under this
Agreement or any of the other Financing Agreements (the Participant's rights
against such Lender in respect of such participation to be those set forth in
the agreement executed by such Lender in favor of the Participant relating
thereto) and all amounts payable by any Borrower or Guarantor hereunder shall be
determined as if such Lender had not sold such participation.
(f) Nothing in this Agreement shall prevent or prohibit any
Lender from pledging its Loans hereunder to a Federal Reserve Bank in support of
borrowings made by such Lenders from such Federal Reserve Bank; provided, that,
no such pledge shall release such Lender from any of its obligations hereunder
or substitute any such pledgee for such Lender as a party hereto.
(g) Borrowers and Guarantors shall assist Agent or any Lender
permitted to sell assignments or participations under this Section 13.7 in
whatever manner reasonably necessary in order to enable or effect any such
assignment or participation, including (but not limited to) the execution and
delivery of any and all agreements, notes and other documents and instruments as
shall be requested and the delivery of informational materials, appraisals or
other documents for, and the participation of relevant management in meetings
and conference calls with, potential Lenders or Participants. Borrowers shall
certify the correctness, completeness and accuracy, in all material respects, of
all descriptions of Borrowers and Guarantors and their affairs provided,
prepared or reviewed by any Borrower or Guarantor that are contained in any
selling materials and all other information provided by it and included in such
materials.
13.8 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
13.9 USA Patriot Act. Each Lender subject to the USA PATRIOT Act (Title
III of Pub.L. 107-56 (signed into law October 26, 2001) (the "Act") hereby
notifies Borrowers and Guarantors that pursuant to the requirements of the Act,
it is required to obtain, verify and record information that identifies each
person or corporation who opens an account and/or enters into a business
relationship with it, which information includes the name and address of
Borrowers and Guarantors and other information that will allow such Lender to
identify such person in accordance with the Act and any other applicable law.
Borrowers and Guarantors are hereby advised that any Loans or Letters of Credit
hereunder are subject to satisfactory results of such verification.
99
13.10 Counterparts, Etc. This Agreement or any of the other Financing
Agreements may be executed in any number of counterparts, each of which shall be
an original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement or any of the
other Financing Agreements by telefacsimile or other electronic method of
transmission shall have the same force and effect as the delivery of an original
executed counterpart of this Agreement or any of such other Financing
Agreements. Any party delivering an executed counterpart of any such agreement
by telefacsimile or other electronic method of transmission shall also deliver
an original executed counterpart, but the failure to do so shall not affect the
validity, enforceability or binding effect of such agreement.
100
IN WITNESS WHEREOF, Agent, Lenders, Borrower and Guarantors have caused
these presents to be duly executed as of the day and year first above written.
AGENT BORROWER
- ----- --------
WACHOVIA CAPITAL FINANCE COMMERCE ENERGY, INC.
CORPORATION (WESTERN), as Agent
By: /s/ James E. Campbell By: /s/ Lawrence Clayton, Jr.
------------------------------ ------------------------------
Title: Director Title: Chief Financial Officer
--------------------------- ---------------------------
LENDER
- ------
WACHOVIA CAPITAL FINANCE
CORPORATION (WESTERN), as Lender
By: /s/ James E. Campbell
------------------------------
Title: Director
---------------------------
Commitment: $50,000,000
GUARANTOR
- ---------
COMMERCE ENERGY GROUP, INC.
By: /s/ Lawrence Clayton, Jr.
------------------------------
Title: Chief Financial Officer
---------------------------
S-1
EXHIBIT A
to
LOAN AND SECURITY AGREEMENT
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and
Acceptance") dated as of _____________, 200_ is made between
________________________ (the "Assignor") and ____________________ (the
"Assignee").
W I T N E S S E T H:
WHEREAS, Wachovia Capital Finance Corporation (Western), in its capacity
as agent pursuant to the Loan Agreement (as hereinafter defined) acting for and
on behalf of the financial institutions which are parties thereto as lenders (in
such capacity, "Agent"), and the financial institutions which are parties to the
Loan Agreement as lenders (individually, each a "Lender" and collectively,
"Lenders") have entered or are about to enter into financing arrangements
pursuant to which Agent and Lenders may make loans and advances and provide
other financial accommodations to Commerce Energy, Inc. (together with any other
Person that at any time hereafter becomes a Borrower, collectively, "Borrowers")
as set forth in the Loan and Security Agreement, dated June 8, 2006, by and
among Borrowers, certain of their affiliates, Agent and Lenders (as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement"), and the other agreements, documents
and instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto (all of the foregoing, together with the
Loan Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements");
WHEREAS, as provided under the Loan Agreement, Assignor committed to
making Loans (the "Committed Loans") to Borrowers in an aggregate amount not to
exceed $___________ (the "Commitment");
WHEREAS, Assignor wishes to assign to Assignee [part of the] [all]
rights and obligations of Assignor under the Loan Agreement in respect of its
Commitment in an amount equal to $______________ (the "Assigned Commitment
Amount") on the terms and subject to the conditions set forth herein and
Assignee wishes to accept assignment of such rights and to assume such
obligations from Assignor on such terms and subject to such conditions;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. Assignment and Acceptance.
(a) Subject to the terms and conditions of this Assignment and
Acceptance, Assignor hereby sells, transfers and assigns to Assignee, and
Assignee hereby purchases, assumes and undertakes from Assignor, without
recourse and without representation or warranty
A-1
(except as provided in this Assignment and Acceptance) an interest in (i) the
Commitment and each of the Committed Loans of Assignor and (ii) all related
rights, benefits, obligations, liabilities and indemnities of the Assignor under
and in connection with the Loan Agreement and the other Financing Agreements, so
that after giving effect thereto, the Commitment of Assignee shall be as set
forth below and the Pro Rata Share of Assignee shall be _______ (__%) percent.
(b) With effect on and after the Effective Date (as defined in
Section 5 hereof), Assignee shall be a party to the Loan Agreement and succeed
to all of the rights and be obligated to perform all of the obligations of a
Lender under the Loan Agreement, including the requirements concerning
confidentiality and the payment of indemnification, with a Commitment in an
amount equal to the Assigned Commitment Amount. Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Agreement are required to be performed by it as a Lender. It is the
intent of the parties hereto that the Commitment of Assignor shall, as of the
Effective Date, be reduced by an amount equal to the Assigned Commitment Amount
and Assignor shall relinquish its rights and be released from its obligations
under the Loan Agreement to the extent such obligations have been assumed by
Assignee; provided, that, Assignor shall not relinquish its rights under
Sections 2.2, 6.4, 6.9, 11.5 and 12.5 of the Loan Agreement to the extent such
rights relate to the time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set
forth herein, on the Effective Date Assignee's Commitment will be
$_____________.
(d) After giving effect to the assignment and assumption set
forth herein, on the Effective Date Assignor's Commitment will be
$______________ (as such amount may be further reduced by any other assignments
by Assignor on or after the date hereof).
2. Payments.
(a) As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, Assignee shall pay to Assignor on the
Effective Date in immediately available funds an amount equal to $____________,
representing Assignee's Pro Rata Share of the principal amount of all Committed
Loans.
(b) Assignee shall pay to Agent the processing fee in the amount
specified in Section 13.7(a) of the Loan Agreement.
3. Reallocation of Payments. Any interest, fees and other payments
accrued to the Effective Date with respect to the Commitment, Committed Loans
and outstanding Letters of Credit shall be for the account of Assignor. Any
interest, fees and other payments accrued on and after the Effective Date with
respect to the Assigned Commitment Amount shall be for the account of Assignee.
Each of Assignor and Assignee agrees that it will hold in trust for the other
party any interest, fees and other amounts which it may receive to which the
other party is entitled pursuant to the preceding sentence and pay to the other
party any such amounts which it may receive promptly upon receipt.
4. Independent Credit Decision. Assignee acknowledges that it has
received a copy of the Loan Agreement and the Schedules and Exhibits thereto,
together with copies of the most
A-2
recent financial statements of Parent and its Subsidiaries, and such other
documents and information as it has deemed appropriate to make its own credit
and legal analysis and decision to enter into this Assignment and Acceptance and
agrees that it will, independently and without reliance upon Assignor, Agent or
any Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit and legal decisions in
taking or not taking action under the Loan Agreement.
5. Effective Date; Notices.
(a) As between Assignor and Assignee, the effective date for
this Assignment and Acceptance shall be _______________, 200_ (the "Effective
Date"); provided, that, the following conditions precedent have been satisfied
on or before the Effective Date:
(i) this Assignment and Acceptance shall be executed and
delivered by Assignor and Assignee;
(ii) the consent of Agent and (to the extent required
under the Loan Agreement) Borrowers as required for an effective assignment of
the Assigned Commitment Amount by Assignor to Assignee shall have been duly
obtained and shall be in full force and effect as of the Effective Date;
(iii) written notice of such assignment, together with
payment instructions, addresses and related information with respect to
Assignee, shall have been given to Administrative Borrower and Agent;
(iv) Assignee shall pay to Assignor all amounts due to
Assignor under this Assignment and Acceptance; and
(v) the processing fee referred to in Section 2(b)
hereof shall have been paid to Agent.
(b) the execution of this Assignment and Acceptance, Assignor
shall deliver to Administrative Borrower and Agent for acknowledgment by Agent,
a Notice of Assignment in the form attached hereto as Schedule 1.
6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AN AGENT]
(a) Assignee hereby appoints and authorizes Assignor in its
capacity as Agent to take such action as agent on its behalf to exercise such
powers under the Loan Agreement as are delegated to Agent by Lenders pursuant to
the terms of the Loan Agreement.
(b) Assignee shall assume no duties or obligations held by
Assignor in its capacity as Agent under the Loan Agreement.]
7. Withholding Tax. Assignee (a) represents and warrants to Assignor,
Agent and Borrowers that under applicable law and treaties no tax will be
required to be withheld by Assignee, Agent or Borrowers with respect to any
payments to be made to Assignee hereunder or under any of the Financing
Agreements, (b) agrees to furnish (if it is organized under the laws of
A-3
any jurisdiction other than the United States or any State thereof) to Agent and
Borrowers prior to the time that Agent or Borrowers are required to make any
payment of principal, interest or fees hereunder, duplicate executed originals
of either U.S. Internal Revenue Service Form W-8BEN or W-8ECI, as applicable
(wherein Assignee claims entitlement to the benefits of a tax treaty that
provides for a complete exemption from U.S. federal income withholding tax on
all payments hereunder) and agrees to provide new such forms upon the expiration
of any previously delivered form or comparable statements in accordance with
applicable U.S. law and regulations and amendments thereto, duly executed and
completed by Assignee, and (c) agrees to comply with all applicable U.S. laws
and regulations with regard to such withholding tax exemption.
8. Representations and Warranties.
(a) Assignor represents and warrants that (i) it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any security interest, lien, encumbrance or
other adverse claim, (ii) it is duly organized and existing and it has the full
power and authority to take, and has taken, all action necessary to execute and
deliver this Assignment and Acceptance and any other documents required or
permitted to be executed or delivered by it in connection with this Assignment
and Acceptance and to fulfill its obligations hereunder, (iii) no notices to, or
consents, authorizations or approvals of, any Person are required (other than
any already given or obtained) for its due execution, delivery and performance
of this Assignment and Acceptance, and apart from any agreements or undertakings
or filings required by the Loan Agreement, no further action by, or notice to,
or filing with, any Person is required of it for such execution, delivery or
performance, and (iv) this Assignment and Acceptance has been duly executed and
delivered by it and constitutes the legal, valid and binding obligation of
Assignor, enforceable against Assignor in accordance with the terms hereof,
subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors' rights and to general equitable principles.
(b) Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Agreement or any of the other Financing
Agreements or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Agreement or any other instrument or document
furnished pursuant thereto. Assignor makes no representation or warranty in
connection with, and assumes no responsibility with respect to, the solvency,
financial condition or statements of Borrowers, Guarantors or any of their
respective Affiliates, or the performance or observance by Borrowers, Guarantors
or any other Person, of any of its respective obligations under the Loan
Agreement or any other instrument or document furnished in connection therewith.
(c) Assignee represents and warrants that (i) it is duly
organized and existing and it has full power and authority to take, and has
taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance, and to
fulfill its obligations hereunder, (ii) no notices to, or consents,
authorizations or approvals of, any Person are required (other than any already
given or obtained) for its due execution, delivery and
A-4
performance of this Assignment and Acceptance, and apart from any agreements or
undertakings or filings required by the Loan Agreement, no further action by, or
notice to, or filing with, any Person is required of it for such execution,
delivery or performance; and (iii) this Assignment and Acceptance has been duly
executed and delivered by it and constitutes the legal, valid and binding
obligation of Assignee, enforceable against Assignee in accordance with the
terms hereof, subject, as to enforcement, to bankruptcy, insolvency, moratorium,
reorganization and other laws of general application relating to or affecting
creditors' rights to general equitable principles.
9. Further Assurances. Assignor and Assignee each hereby agree to
execute and deliver such other instruments, and take such other action, as
either party may reasonably request in connection with the transactions
contemplated by this Assignment and Acceptance, including the delivery of any
notices or other documents or instruments to Borrowers or Agent, which may be
required in connection with the assignment and assumption contemplated hereby.
10. Miscellaneous.
(a) Any amendment or waiver of any provision of this Assignment
and Acceptance shall be in writing and signed by the parties hereto. No failure
or delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance shall be without prejudice to any
rights with respect to any other for further breach thereof.
(b) All payments made hereunder shall be made without any
set-off or counterclaim.
(c) Assignor and Assignee shall each pay its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Assignment and Acceptance.
(d) This Assignment and Acceptance may be executed in any number
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF CALIFORNIA, Assignor and
Assignee each irrevocably submits to the non-exclusive jurisdiction of any State
or Federal court sitting in Los Angeles County, California over any suit, action
or proceeding arising out of or relating to this Assignment and Acceptance and
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such California State or Federal court. Each party to
this Assignment and Acceptance hereby irrevocably waives, to the fullest extent
it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
(f) ASSIGNOR AND ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS ASSIGNMENT AND ACCEPTANCE,
A-5
THE LOAN AGREEMENT, ANY OF THE OTHER FINANCING AGREEMENTS OR ANY RELATED
DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR
STATEMENTS (WHETHER ORAL OR WRITTEN).
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment
and Acceptance to be executed and delivered by their duly authorized officers as
of the date first above written.
[ASSIGNOR]
By:
-----------------------------
Title:
--------------------------
[ASSIGNEE]
By:
-----------------------------
Title:
--------------------------
A-6
SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
______________, 20__
Wachovia Capital Finance Corporation (Western)
251 South Lake Avenue, Suite 900
Pasadena, California 91101
Attn.:
----------------------------------------
Re: Commerce Energy, Inc.
Ladies and Gentlemen:
Wachovia Capital Finance Corporation (Western), in its capacity as agent
pursuant to the Loan Agreement (as hereinafter defined) acting for and on behalf
of the financial institutions which are parties thereto as lenders (in such
capacity, "Agent"), and the financial institutions which are parties to the Loan
Agreement as lenders (individually, each a "Lender" and collectively, "Lenders")
have entered or are about to enter into financing arrangements pursuant to which
Agent and Lenders may make loans and advances and provide other financial
accommodations to Commerce Energy, Inc. ("Borrower") as set forth in the Loan
and Security Agreement, dated June ___, 2006, by and among Borrower, certain of
its affiliates, Agent and Lenders (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement"), and the other agreements, documents and instruments referred
to therein or at any time executed and/or delivered in connection therewith or
related thereto (all of the foregoing, together with the Loan Agreement, as the
same now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, being collectively referred to herein as the
"Financing Agreements"). Capitalized terms not otherwise defined herein shall
have the respective meanings ascribed thereto in the Loan Agreement.
1. We hereby give you notice of, and request your consent to, the
assignment by __________________________ (the "Assignor") to
___________________________ (the "Assignee") such that after giving effect to
the assignment Assignee shall have an interest equal to ________ (__%) percent
of the total Commitments pursuant to the Assignment and Acceptance Agreement
attached hereto (the "Assignment and Acceptance"). We understand that the
Assignor's Commitment shall be reduced by $_____________, as the same may be
further reduced by other assignments on or after the date hereof.
2. Assignee agrees that, upon receiving the consent of Agent and (to the
extent required under the Loan Agreement) Borrowers to such assignment, Assignee
will be bound by the terms of the Loan Agreement as fully and to the same extent
as if the Assignee were the Lender originally holding such interest under the
Loan Agreement.
A-7
3. The following administrative details apply to Assignee:
(A) Notice address:
Assignee name:
---------------------------------
Address:
---------------------------------
Attention:
---------------------------------
Telephone:
---------------------------------
Telecopier:
---------------------------------
(B) Payment instructions:
Account No.:
---------------------------------
At:
---------------------------------
Reference:
---------------------------------
Attention:
---------------------------------
4. You are entitled to rely upon the representations, warranties and
covenants of each of Assignor and Assignee contained in the Assignment and
Acceptance.
A-8
IN WITNESS WHEREOF, Assignor and Assignee have caused this Notice of
Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
Very truly yours,
[NAME OF ASSIGNOR]
By:
-----------------------------
Title:
--------------------------
[NAME OF ASSIGNEE]
By:
-----------------------------
Title:
--------------------------
ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:
WACHOVIA CAPITAL FINANCE CORPORATION
(WESTERN), as Agent
By:
------------------------------
Title:
---------------------------
COMMERCE ENERGY, INC.
By:
------------------------------
Title:
---------------------------
A-9
EXHIBIT C
TO
LOAN AND SECURITY AGREEMENT
Compliance Certificate
To: Wachovia Capital Finance Corporation (Western), as Agent
251 South Lake Avenue, Suite 900
Pasadena, California 91101
Ladies and Gentlemen:
I hereby certify to you pursuant to Section 9.6 of the Loan Agreement
(as defined below) as follows:
1. I am the duly elected Chief Financial Officer of Commerce Energy,
Inc., a California corporation ("Borrower"). Capitalized terms used herein
without definition shall have the meanings given to such terms in the Loan and
Security Agreement, dated June 8, 2006, by and among Wachovia Capital Finance
Corporation (Western) as agent for the financial institutions party thereto as
lenders (in such capacity, "Agent") and the financial institutions party thereto
as lenders (collectively, "Lenders"), Borrower and certain of its affiliates (as
such Loan and Security Agreement is amended, modified or supplemented, from time
to time, the "Loan Agreement").
2. I have reviewed the terms of the Loan Agreement, and have made, or
have caused to be made under my supervision, a review in reasonable detail of
the transactions and the financial condition of Borrower and Guarantors, during
the immediately preceding fiscal month.
3. The review described in Section 2 above did not disclose the
existence during or at the end of such fiscal month, and I have no knowledge of
the existence and continuance on the date hereof, of any condition or event
which constitutes a Default or an Event of Default, except as set forth on
Schedule I attached hereto. Described on Schedule I attached hereto are the
exceptions, if any, to this Section 3 listing, in detail, the nature of the
condition or event, the period during which it has existed and the action which
Borrower and Guarantors have taken, are taking, or propose to take with respect
to such condition or event.
4. I further certify that, based on the review described in Section 2
above, neither Borrower nor any Guarantor has at any time during or at the end
of such fiscal month, except as specifically described on Schedule II attached
hereto or as permitted by the Loan Agreement, done any of the following:
(a) Changed its respective corporate name, or transacted
business under any trade name, style, or fictitious name, other than those
previously described to you and set forth in the Financing Agreements.
(b) Changed the location of its chief executive office, changed
its jurisdiction of incorporation, changed its type of organization or changed
the location of or disposed of any
C-1
of its properties or assets (other than pursuant to the sale of Inventory in the
ordinary course of its business or as otherwise permitted by Section 9.7 of the
Loan Agreement), or established any new asset locations.
(c) Materially changed the terms upon which it sells goods
(including sales on consignment) or provides services, nor has any vendor or
trade supplier to any Borrower or Guarantor during or at the end of such period
materially adversely changed the terms upon which it supplies goods to Borrower
or any Guarantor.
(d) Permitted or suffered to exist any security interest in or
liens on any of its properties, whether real or personal, other than as
specifically permitted in the Financing Agreements.
(e) Received any notice of, or obtained knowledge of any of the
following not previously disclosed to Agent: (i) the occurrence of any event
involving the release, spill or discharge of any Hazardous Material in violation
of applicable Environmental Law in a material respect or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice with respect
to: (A) any non-compliance with or violation of any applicable Environmental Law
by Borrower or any Guarantor in any material respect or (B) the release, spill
or discharge of any Hazardous Material in violation of applicable Environmental
Law in a material respect or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials in violation of applicable Environmental Laws in a material respect or
(D) any other environmental, health or safety matter, which has a material
adverse effect on any Borrower or Guarantor or its business, operations or
assets or any properties at which such Borrower or Guarantor transported, stored
or disposed of any Hazardous Materials.
(f) Become aware of, obtained knowledge of, or received
notification of, any breach or violation of any material covenant contained in
any instrument or agreement in respect of Indebtedness for money borrowed by
Borrower or any Guarantor.
5. Attached hereto as Schedule III are the calculations used in
determining, as of the end of such fiscal month whether Borrower and Guarantors
are in compliance with the covenants set forth in Sections 9.17, 9.18 and 9.19
of the Loan Agreement for such fiscal month.
The foregoing certifications are made and delivered this day of
___________, 20__.
Very truly yours,
COMMERCE ENERGY, INC.
By:
-----------------------------
Title:
--------------------------
C-2