LOAN AND SECURITY AGREEMENT
by and among
EFFECTIVE MANAGEMENT SYSTEMS, INC.,
EMS-EAST, INC.,
EFFECTIVE MANAGEMENT SYSTEMS OF ILLINOIS, INC.
and
FOOTHILL CAPITAL CORPORATION
DATED AS OF DECEMBER 30, 1997
TABLE OF CONTENTS
Page
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . 1
1.1. Definitions. . . . . . . . . . . . . . . . . . . . . 1
1.2. Accounting Terms. . . . . . . . . . . . . . . . . . . 13
1.3. Code. . . . . . . . . . . . . . . . . . . . . . 13
1.4. Construction. . . . . . . . . . . . . . . . . . . . . 13
1.5. Schedules and Exhibits. . . . . . . . . . . . . . . . 13
2. LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . . 14
2.1. Revolving Advances. . . . . . . . . . . . . . . . . . 14
2.2. Letters of Credit. . . . . . . . . . . . . . . . . . 15
2.3. Term Loan. . . . . . . . . . . . . . . . . . . . . . 17
2.4. Intentionally Omitted. . . . . . . . . . . . . . . . 17
2.5. Overadvances. . . . . . . . . . . . . . . . . . . . . 17
2.6. Interest and Letter of Credit Fees: Rates,
Payments, and Calculations. . . . . . . . . . . . . 17
2.7. Collection of Accounts. . . . . . . . . . . . . . . . 19
2.8. Crediting Payments; Application of Collections. . . . 19
2.9. Designated Account. . . . . . . . . . . . . . . . . . 20
2.10. Maintenance of Loan Account; Statements of
Obligations. . . . . . . . . . . . . . . . . . . . . 20
2.11. Fees . . . . . . . . . . . . . . . . . . . . . . . . 20
3. CONDITIONS; TERM OF AGREEMENT. . . . . . . . . . . . . . . . 21
3.1. Conditions Precedent to the Initial Advance,
Letter of Credit, the Term Loan, and the Initial
Capital Expenditure Loan. . . . . . . . . . . . . . 21
3.2. Conditions Precedent to all Advances, all Letters
of Credit and the Term Loan. . . . . . . . . . . . . 23
3.3. Condition Subsequent. . . . . . . . . . . . . . . . . 23
3.4. Term; Automatic Renewal. . . . . . . . . . . . . . . 24
3.5. Effect of Termination. . . . . . . . . . . . . . . . 24
3.6. Early Termination by Borrower. . . . . . . . . . . . 25
3.7. Termination Upon Event of Default. . . . . . . . . . 25
4. CREATION OF SECURITY INTEREST. . . . . . . . . . . . . . . . 25
4.1. Grant of Security Interest. . . . . . . . . . . . . . 25
4.2. Negotiable Collateral. . . . . . . . . . . . . . . . 26
4.3. Collection of Accounts, General Intangibles, and
Negotiable Collateral. . . . . . . . . . . . . . . . 26
4.4. Delivery of Additional Documentation Required. . . . 26
4.5. Power of Attorney. . . . . . . . . . . . . . . . . . 26
4.6. Right to Inspect. . . . . . . . . . . . . . . . . . . 27
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . 27
5.1. No Encumbrances. . . . . . . . . . . . . . . . . . . 27
5.2. Eligible Accounts. . . . . . . . . . . . . . . . . . 27
5.3. Intentionally Omitted. . . . . . . . . . . . . . . . 27
5.4. Equipment. . . . . . . . . . . . . . . . . . . . . . 28
5.5. Location of Inventory and Equipment. . . . . . . . . 28
5.6. Inventory Records. . . . . . . . . . . . . . . . . . 28
5.7. Location of Chief Executive Office; FEIN. . . . . . . 28
5.8. Due Organization and Qualification; Subsidiaries. . . 28
5.9. Due Authorization; No Conflict. . . . . . . . . . . . 29
5.10. Litigation. . . . . . . . . . . . . . . . . . . . . 29
5.11. No Material Adverse Change. . . . . . . . . . . . . 30
5.12. Solvency. . . . . . . . . . . . . . . . . . . . . . 30
5.13. Employee Benefits. . . . . . . . . . . . . . . . . . 30
5.14. Environmental Condition. . . . . . . . . . . . . . . 30
5.15. Copyrights. . . . . . . . . . . . . . . . . . . . . 31
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . 31
6.1. Accounting System. . . . . . . . . . . . . . . . . . 31
6.2. Collateral Reporting. . . . . . . . . . . . . . . . . 31
6.3. Financial Statements, Reports, Certificates. . . . . 32
6.4. Tax Returns. . . . . . . . . . . . . . . . . . . . . 33
6.5. Guarantor Reports. . . . . . . . . . . . . . . . . . 33
6.6. Returns . . . . . . . . . . . . . . . . . . . . . . . 33
6.7. Title to Equipment. . . . . . . . . . . . . . . . . . 33
6.8. Maintenance of Equipment. . . . . . . . . . . . . . . 34
6.9. Taxes. . . . . . . . . . . . . . . . . . . . . . . . 34
6.10. Insurance. . . . . . . . . . . . . . . . . . . . . . 34
6.11. No Setoffs or Counterclaims. . . . . . . . . . . . . 35
6.12. Location of Inventory and Equipment. . . . . . . . . 35
6.13. Compliance with Laws. . . . . . . . . . . . . . . . 36
6.14. Employee Benefits. . . . . . . . . . . . . . . . . . 36
6.15. Leases. . . . . . . . . . . . . . . . . . . . . . . 37
6.16. Copyrights. . . . . . . . . . . . . . . . . . . . . 37
7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . 37
7.1. Indebtedness. . . . . . . . . . . . . . . . . . . . . 37
7.2. Liens . . . . . . . . . . . . . . . . . . . . . . . . 38
7.3. Restrictions on Fundamental Changes. . . . . . . . . 38
7.4. Disposal of Assets. . . . . . . . . . . . . . . . . . 38
7.5. Change Name. . . . . . . . . . . . . . . . . . . . . 38
7.6. Guarantee. . . . . . . . . . . . . . . . . . . . . . 38
7.7. Nature of Business. . . . . . . . . . . . . . . . . . 38
7.8. Prepayments and Amendments. . . . . . . . . . . . . . 39
7.9. Change of Control. . . . . . . . . . . . . . . . . . 39
7.10. Consignments. . . . . . . . . . . . . . . . . . . . 39
7.11. Distributions. . . . . . . . . . . . . . . . . . . . 39
7.12. Accounting Methods. . . . . . . . . . . . . . . . . 39
7.13. Investments. . . . . . . . . . . . . . . . . . . . . 39
7.14. Transactions with Affiliates. . . . . . . . . . . . 40
7.15. Suspension. . . . . . . . . . . . . . . . . . . . . 40
7.16. Compensation. . . . . . . . . . . . . . . . . . . . 40
7.17. Use of Proceeds. . . . . . . . . . . . . . . . . . . 40
7.18. Change in Location of Chief Executive Office;
Inventory and Equipment with Bailees. . . . . . . . 40
7.19. No Prohibited Transactions Under ERISA. . . . . . . 40
7.20. Financial Covenants. . . . . . . . . . . . . . . . . 41
7.21. Capital Expenditures. . . . . . . . . . . . . . . . 42
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . 42
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . 44
9.1. Rights and Remedies. . . . . . . . . . . . . . . . . 44
9.2. Remedies Cumulative. . . . . . . . . . . . . . . . . 46
10. TAXES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . 46
11. WAIVERS; INDEMNIFICATION. . . . . . . . . . . . . . . . . . 47
11.1. Demand; Protest; etc. . . . . . . . . . . . . . . . 47
11.2. Foothill's Liability for Collateral. . . . . . . . . 47
11.3. Indemnification. . . . . . . . . . . . . . . . . . . 47
12. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 48
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . 49
14. DESTRUCTION OF BORROWERS' DOCUMENTS. . . . . . . . . . . . 49
15. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . 50
15.1. Effectiveness. . . . . . . . . . . . . . . . . . . . 50
15.2. Successors and Assigns. . . . . . . . . . . . . . . 50
15.3. Section Headings. . . . . . . . . . . . . . . . . . 50
15.4. Interpretation. . . . . . . . . . . . . . . . . . . 50
15.5. Severability of Provisions. . . . . . . . . . . . . 50
15.6. Amendments in Writing. . . . . . . . . . . . . . . . 51
15.7. Counterparts; Facsimile Execution. . . . . . . . . . 51
15.8. Revival and Reinstatement of Obligations. . . . . . 51
15.9. Integration. . . . . . . . . . . . . . . . . . . . . 51
15.10. Joint and Several Liability. . . . . . . . . . . . 51
SCHEDULES AND EXHIBITS
Schedule P-1 Permitted Liens
Schedule T-1 Calculation of Tangible Net Worth
Schedule 5.7 Chief Executive Office and FEIN
Schedule 5.8 Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Indebtedness
Schedule 7.14 Affiliate Transactions
Exhibit C-1 Form of Compliance Certificate
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered
into as of December 30, 1997, among FOOTHILL CAPITAL CORPORATION, a
California corporation ("Foothill"), with a place of business located at
11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-
3333 and EFFECTIVE MANAGEMENT SYSTEMS, INC. ("EMS"), a Wisconsin
corporation, EMS-EAST, INC. ("EMS-East"), a Massachusetts corporation, and
EFFECTIVE MANAGEMENT SYSTEMS OF ILLINOIS, INC. ("EMS-Illinois"), an
Illinois corporation, (EMS, EMS-East and EMS-Illinois are each
individually a "Borrower", and collectively "Borrowers").
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1. Definitions.
As used in this Agreement, the following terms shall have the
following definitions:
"Account Debtor" means any Person who is or who may become
obligated under, with respect to, or on account of, an Account.
"Accounts" means, with respect to a Borrower, all currently
existing and hereafter arising accounts, contract rights, and all other
forms of obligations owing to such Borrower arising out of the sale or
lease of goods or the rendition of services by such Borrower, irrespective
of whether earned by performance, and any and all credit insurance,
guaranties, or security therefor.
"AccuVal Appraisal" means that certain appraisal dated on or
about November 19, 1997 prepared by AccuVal Associates, Incorporated with
respect to Borrowers' Equipment.
"Advances" has the meaning set forth in Section 2.1(a).
"Affiliate" means, as applied to any Person, any other Person
who directly or indirectly controls, is controlled by, is under common
control with or is a director or officer of such Person. For purposes of
this definition, "control" means the possession, directly or indirectly,
of the power to vote 5% or more of the securities having ordinary voting
power for the election of directors or the direct or indirect power to
direct the management and policies of a Person.
"Agreement" has the meaning set forth in the preamble hereto.
"Applicable Maintenance Revenue Amount" means, at any time, (i)
during the period commencing on the Closing Date and ending on December
31, 1998, an amount equal to the product of 50% multiplied by the
maintenance and support revenue recognized (in accordance with GAAP) by
Borrowers during the most recently ended 3 month period (excluding the
portion of deferred maintenance revenue in excess of one year) multiplied
by 4, (ii) at any time during the period commencing on January 1, 1999 and
ending on December 31, 1999, an amount equal to the product of 42.5%
multiplied by the maintenance and support revenue recognized (in
accordance with GAAP) by Borrowers during the most recently ended 3 month
period (excluding the portion of deferred maintenance revenue in excess of
one year) multiplied by 4, and (iii) at any time after December 31, 1999,
an amount equal to the product of 35% multiplied by the maintenance and
support revenue recognized (in accordance with GAAP) by Borrowers during
the most recently ended 3 month period (excluding the portion of deferred
maintenance revenue in excess of one year) multiplied by 4.
"Authorized Person" means any officer or other employee of any
Borrower.
"Average Unused Portion of Maximum Revolving Amount" means, as
of any date of determination, (a) the Maximum Revolving Amount, less
(b) the sum of (i) the average Daily Balance of Advances that were
outstanding during the immediately preceding month, plus (ii) the average
Daily Balance of the undrawn Letters of Credit that were outstanding
during the immediately preceding month.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Benefit Plan" means a "defined benefit plan" (as defined in
Section 3(35) of ERISA) for which any Borrower, any Subsidiary of any
Borrower, or any ERISA Affiliate has been an "employer" (as defined in
Section 3(5) of ERISA) within the past six years.
"Borrower" has the meaning set forth in the preamble to this
Agreement.
"Borrower's Books" means, with respect to a Borrower, all of
such Borrower's books and records including: ledgers; records indicating,
summarizing, or evidencing such Borrower's properties or assets (including
the Collateral) or liabilities; all information relating to such
Borrower's business operations or financial condition; and all computer
programs, disk or tape files, printouts, runs, or other computer prepared
information.
"Borrowing Base" has the meaning set forth in Section 2.1(a).
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which national banks are authorized or required to close.
"Change of Control" shall be deemed to have occurred at such
time as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of more than 20% of the total voting power
of all classes of stock then outstanding of any Borrower entitled to vote
in the election of directors.
"Closing Date" means the date of the first to occur of the
making of the initial Advance, the issuance of the initial Letter of
Credit or the funding of the Term Loan.
"Code" means the California Uniform Commercial Code.
"Collateral" means, with respect to a Borrower, each of the
following:
such Borrower's Accounts,
such Borrower's Books,
such Borrower's Equipment,
such Borrower's General Intangibles,
such Borrower's Inventory,
such Borrower's Negotiable Collateral,
any money, or other assets of such Borrower that now or
hereafter come into the possession, custody, or control of Foothill, and
the proceeds and products, whether tangible or intangible, of
any of the foregoing, including proceeds of insurance covering any or all
of the Collateral of such Borrower, and any and all Accounts, Borrower's
Books, Equipment, General Intangibles, Inventory, Negotiable Collateral,
money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any
of the foregoing, or any portion thereof or interest therein, and the
proceeds thereof.
"Collateral Access Agreement" means a landlord waiver, mortgagee
waiver, bailee letter, or acknowledgment agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of, having a
Lien upon, or having rights or interests in the Equipment or Inventory, in
each case, in form and substance satisfactory to Foothill.
"Collections" means all cash, checks, notes, instruments, and
other items of payment (including, insurance proceeds, proceeds of cash
sales, rental proceeds, and tax refunds).
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C-1 and delivered by the chief accounting officer of
EMS to Foothill.
"Copyright Security Agreement" means that certain Copyright
Security Agreement of even date herewith between EMS and Foothill.
"Daily Balance" means the amount of an Obligation owed at the
end of a given day.
"deems itself insecure" means that the Person deems itself
insecure in accordance with the provisions of Section 1208 of the Code.
"Default" means an event, condition, or default that, with the
giving of notice, the passage of time, or both, would be an Event of
Default.
"Designated Account" means account number 20478851 of Borrowers
maintained with Borrowers' Designated Account Bank, or such other deposit
account of Borrowers (located within the United States) which has been
designated, in writing and from time to time, by Borrowers to Foothill.
"Designated Account Bank" means Bank One, Wisconsin, whose
office is located at 111 East Wisconsin Avenue, Milwaukee, Wisconsin
53201, and whose ABA number is 075000019.
"Dilution" means, in each case based upon the experience of the
immediately prior 3 months, the result of dividing the Dollar amount of
(a) bad debt write-downs, discounts, advertising, returns, promotions,
credits, or other dilutive items (as determined by Foothill in its
reasonable credit judgment) with respect to the Accounts of Borrowers by
(b) Borrowers' Collections (excluding extraordinary items) plus the Dollar
amount of clause (a).
"Dilution Reserve" means, as of any date of determination, an
amount sufficient to reduce Foothill's advance rate against Eligible
Accounts by one percentage point for each percentage point by which
Dilution is in excess of 5%.
"Disbursement Letter" means an instructional letter executed and
delivered by Borrowers to Foothill regarding the extensions of credit to
be made on the Closing Date, the form and substance of which shall be
satisfactory to Foothill.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set forth in
Section 3.6.
"EBITDA" means, for any period, the consolidated operating
income of Borrowers for such period, plus depreciation and amortization
deducted in determining operating income for such period, minus
amortization of capitalized software costs for such period.
"Eligible Accounts" means those Accounts created by a Borrower
in the ordinary course of business, that arise out of such Borrower's sale
of goods or rendition of services, that strictly comply with each and all
of the representations and warranties respecting Accounts made by
Borrowers to Foothill in the Loan Documents, and that are and at all times
continue to be acceptable to Foothill in all respects; provided, however,
that standards of eligibility may be fixed and revised from time to time
by Foothill in Foothill's reasonable credit judgment. Eligible Accounts
shall not include the following:
Accounts of a Borrower that the Account Debtor has failed to pay
within 90 days of invoice date or Accounts with selling terms of more than
30 days (provided, that Accounts unpaid more than 90 days of invoice date
and with selling terms of greater than 30 days shall be Eligible Accounts
up to an aggregate amount for all such Accounts of up to $500,000 to the
extent (i) such Accounts are otherwise Eligible Accounts, (ii) such
Accounts are not unpaid more than 180 days past invoice date, and (iii)
such Accounts are not unpaid more than 30 days past due date;
Accounts of a Borrower owed by an Account Debtor or its
Affiliates where 50% or more of all Accounts owed by that Account Debtor
(or its Affiliates) to Borrowers are deemed ineligible under clause (a)
above;
Accounts of a Borrower with respect to which the Account Debtor
is an employee, Affiliate, or agent of a Borrower;
Accounts of a Borrower with respect to which goods are placed on
consignment, guaranteed sale (except for guaranteed sales in the ordinary
course of Borrowers' business consistent with past practices that allow
Account Debtors to return goods within 90 days of the date of contract for
such goods), sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the Account Debtor may be
conditional;
Accounts of a Borrower that are not payable in Dollars or with
respect to which the Account Debtor: (i) does not maintain its chief
executive office in the United States, or (ii) is not organized under the
laws of the United States or any State thereof, or (iii) is the government
of any foreign country or sovereign state, or of any state, province,
municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof,
unless (y) the Account is supported by an irrevocable letter of credit
satisfactory to Foothill (as to form, substance, and issuer or domestic
confirming bank) that has been delivered to Foothill and is directly
drawable by Foothill, or (z) the Account is covered by credit insurance in
form and amount, and by an insurer, satisfactory to Foothill;
Accounts of a Borrower with respect to which the Account Debtor
is either (i) the United States or any department, agency, or
instrumentality of the United States (exclusive, however, of Accounts with
respect to which such Borrower has complied, to the satisfaction of
Foothill, with the Assignment of Claims Act, 31 U.S.C. Section 3727), or
(ii) any State of the United States (exclusive, however, of Accounts owed
by any State that does not have a statutory counterpart to the Assignment
of Claims Act);
Accounts of a Borrower with respect to which the Account Debtor
is a creditor of a Borrower, has or has asserted a right of setoff, has
disputed its liability, or has made any claim with respect to the Account;
Accounts of a Borrower with respect to an Account Debtor whose
total obligations owing to Borrowers exceed 10% of all Eligible Accounts,
to the extent of the obligations owing by such Account Debtor in excess of
such percentage;
Accounts of a Borrower with respect to which the Account Debtor
is subject to any Insolvency Proceeding, or becomes insolvent, or goes out
of business;
Accounts of a Borrower the collection of which Foothill, in its
reasonable credit judgment, believes to be doubtful by reason of the
Account Debtor's financial condition;
Accounts of a Borrower with respect to which the goods giving
rise to such Account have not been shipped and billed to the Account
Debtor, the services giving rise to such Account have not been performed
and accepted by the Account Debtor, or the Account otherwise does not
represent a final sale;
Accounts of a Borrower with respect to which the Account Debtor
is located in the states of New Jersey, Minnesota, Indiana, or West
Virginia (or any other state that requires a creditor to file a Business
Activity Report or similar document in order to bring suit or otherwise
enforce its remedies against such Account Debtor in the courts or through
any judicial process of such state), unless such Borrower has qualified to
do business in New Jersey, Minnesota, Indiana, West Virginia, or such
other states, or has filed a Notice of Business Activities Report with the
applicable division of taxation, the department of revenue, or with such
other state offices, as appropriate, for the then-current year, or is
exempt from such filing requirement;
Accounts of a Borrower that represent progress payments (except
to the extent such progress payments relate to services and materials that
have been provided to Account Debtor thereof) or other advance billings
that are due prior to the completion of performance by such Borrower of
the subject contract for goods or services; and
Accounts of a Borrower arising under a maintenance or support
contract.
"Equipment" means, with respect to a Borrower, all of such
Borrower's present and hereafter acquired machinery, machine tools,
motors, equipment, furniture, furnishings, fixtures, vehicles (including
motor vehicles and trailers), tools, parts, goods (other than consumer
goods, farm products, or Inventory), wherever located, including, (a) any
interest of such Borrower in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of
1974, 29 U.S.C. Section Section 1000 et seq., amendments thereto,
successor statutes, and regulations or guidance promulgated thereunder.
"ERISA Affiliate" means (a) any corporation subject to ERISA
whose employees are treated as employed by the same employer as the
employees of any Borrower under IRC Section 414(b), (b) any trade or
business subject to ERISA whose employees are treated as employed by the
same employer as the employees of any Borrower under IRC Section 414(c),
(c) solely for purposes of Section 302 of ERISA and Section 412 of the
IRC, any organization subject to ERISA that is a member of an affiliated
service group of which any Borrower is a member under IRC Section 414(m),
or (d) solely for purposes of Section 302 of ERISA and Section 412 of the
IRC, any party subject to ERISA that is a party to an arrangement with any
Borrower and whose employees are aggregated with the employees of such
Borrower under IRC Section 414(o).
"ERISA Event" means (a) a Reportable Event with respect to any
Benefit Plan or Multiemployer Plan, (b) the withdrawal of any Borrower,
any of its Subsidiaries or ERISA Affiliates from a Benefit Plan during a
plan year in which it was a "substantial employer" (as defined in
Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to
terminate a Benefit Plan in a distress termination (as described in
Section 4041(c) of ERISA), (d) the institution by the PBGC of proceedings
to terminate a Benefit Plan or Multiemployer Plan, (e) any event or
condition (i) that provides a basis under Section 4042(a)(1), (2), or (3)
of ERISA for the termination of, or the appointment of a trustee to
administer, any Benefit Plan or Multiemployer Plan, or (ii) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA, (f) the partial or complete withdrawal within the meaning of
Sections 4203 and 4205 of ERISA, of any Borrower, any of its Subsidiaries
or ERISA Affiliates from a Multiemployer Plan, or (g) providing any
security to any Plan under Section 401(a)(29) of the IRC by any Borrower
or its Subsidiaries or any of their ERISA Affiliates.
"Event of Default" has the meaning set forth in Section 8.
"Existing Lender" means Bank One, Wisconsin.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to this
Agreement.
"Foothill Account" has the meaning set forth in Section 2.7.
"Foothill Expenses" means all: costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrowers under any
of the Loan Documents that are paid or incurred by Foothill; fees or
charges paid or incurred by Foothill in connection with Foothill's
transactions with any Borrower, including, fees or charges for
photocopying, notarization, couriers and messengers, telecommunication,
public record searches (including tax lien, litigation, and UCC searches
and including searches with the patent and trademark office, the copyright
office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Collateral or appraisals), real
estate surveys, real estate title policies and endorsements, and
environmental audits; costs and expenses incurred by Foothill in the
disbursement of funds to any Borrower (by wire transfer or otherwise);
charges paid or incurred by Foothill resulting from the dishonor of
checks; costs and expenses paid or incurred by Foothill to correct any
default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping,
selling, preparing for sale, or advertising to sell the Collateral, or any
portion thereof, irrespective of whether a sale is consummated; costs and
expenses paid or incurred by Foothill in examining any Borrower's Books;
costs and expenses of third party claims or any other suit paid or
incurred by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's relationship with any Borrower or any guarantor; and Foothill's
reasonable attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing
(including attorneys fees and expenses incurred in connection with a
"workout," a "restructuring," or an Insolvency Proceeding concerning any
Borrower or any guarantor of the Obligations), defending, or concerning
the Loan Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States, consistently applied.
"General Intangibles" means, with respect to a Borrower, all of
such Borrower's present and future general intangibles and other personal
property (including contract rights, rights arising under common law,
statutes, or regulations, choses or things in action, goodwill, patents,
trade names, trademarks, servicemarks, copyrights, blueprints, drawings,
purchase orders, customer lists, monies due or recoverable from pension
funds, route lists, rights to payment and other rights under any royalty
or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax refunds, and
tax refund claims), other than goods, Accounts, and Negotiable Collateral.
"Governing Documents" means the certificate or articles of
incorporation, by-laws, or other organizational or governing documents of
any Person.
"Hazardous Materials" means (a) substances that are defined or
listed in, or otherwise classified pursuant to, any applicable laws or
regulations as "hazardous substances," "hazardous materials," "hazardous
wastes," "toxic substances," or any other formulation intended to define,
list, or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive
toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived
substances, natural gas, natural gas liquids, synthetic gas, drilling
fluids, produced waters, and other wastes associated with the exploration,
development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives or any radioactive
materials, and (d) asbestos in any form or electrical equipment that
contains any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of 50 parts per million.
"Indebtedness" means: (a) all obligations of a Borrower for
borrowed money, (b) all obligations of a Borrower evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or
other obligations of a Borrower in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
obligations of a Borrower under capital leases, (d) all obligations or
liabilities of others secured by a Lien on any property or asset of a
Borrower, irrespective of whether such obligation or liability is assumed,
and (e) any obligation of a Borrower guaranteeing or intended to guarantee
(whether guaranteed, endorsed, co-made, discounted, or sold with recourse
to such Borrower) any indebtedness, lease, dividend, letter of credit, or
other obligation of any other Person.
"Insolvency Proceeding" means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions
generally with creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
"Intangible Assets" means, with respect to any Person, that
portion of the book value of all of such Person's assets that would be
treated as intangibles under GAAP.
"Inventory" means, with respect to a Borrower, all present and
future inventory in which such Borrower has any interest, including goods
held for sale or lease or to be furnished under a contract of service and
all of such Borrower's present and future raw materials, work in process,
finished goods, and packing and shipping materials, wherever located.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"L/C" has the meaning set forth in Section 2.2(a).
"L/C Guaranty" has the meaning set forth in Section 2.2(a).
"Letter of Credit" means an L/C or an L/C Guaranty, as the
context requires.
"Lien" means any interest in property securing an obligation
owed to, or a claim by, any Person other than the owner of the property,
whether such interest shall be based on the common law, statute, or
contract, whether such interest shall be recorded or perfected, and
whether such interest shall be contingent upon the occurrence of some
future event or events or the existence of some future circumstance or
circumstances, including the lien or security interest arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, security agreement, adverse claim or charge,
conditional sale or trust receipt, or from a lease, consignment, or
bailment for security purposes and also including reservations,
exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, and other title exceptions and
encumbrances affecting real property.
"Loan Account" has the meaning set forth in Section 2.10.
"Loan Documents" means this Agreement, the Disbursement Letter,
the Letters of Credit, the Lockbox Agreements, the Copyright Security
Agreement, the Trademark Security Agreement, the Stock Pledge Agreement,
any note or notes executed by any Borrower and payable to Foothill, and
any other agreement entered into, now or in the future, in connection with
this Agreement.
"Lockbox Account" shall mean a depository account established
pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means those certain Lockbox Operating
Procedural Agreements and those certain Depository Account Agreements, in
form and substance satisfactory to Foothill, each of which is among
Borrowers, Foothill, and one of the Lockbox Banks.
"Lockbox Banks" means Bank One, Wisconsin.
"Lockboxes" has the meaning set forth in Section 2.7.
"Material Adverse Change" means (a) a material adverse change in
the business, prospects, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of any Borrower, (b) the
material impairment of any Borrower's ability to perform its obligations
under the Loan Documents to which it is a party or of Foothill to enforce
the Obligations or realize upon the Collateral, (c) a material adverse
effect on the value of the Collateral or the amount that Foothill would be
likely to receive (after giving consideration to delays in payment and
costs of enforcement) in the liquidation of such Collateral, or (d) a
material impairment of the priority of Foothill's Liens with respect to
the Collateral.
"Maximum Amount" means, as of any date of determination, the sum
of (a) the Maximum Revolving Amount and (b) the then outstanding principal
balance of the Term Loan.
"Maximum Revolving Amount" means $9,000,000 less the then
outstanding principal balance of the Term Loan.
"Multiemployer Plan" means a "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) to which any Borrower, any of its
Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to
contribute, within the past six years.
"Negotiable Collateral" means, with respect to a Borrower, all
of such Borrower's present and future letters of credit, notes, drafts,
instruments, investment property, security entitlements, securities
(including the shares of stock of Subsidiaries of such Borrower),
documents, personal property leases (wherein such Borrower is the lessor),
chattel paper, and such Borrower's Books relating to any of the foregoing.
"Obligations" means all loans (including, without limitation,
the Term Loan), Advances, debts, principal, interest (including any
interest that, but for the provisions of the Bankruptcy Code, would have
accrued), contingent reimbursement obligations under any outstanding
Letters of Credit, premiums (including Early Termination Premiums),
liabilities (including all amounts charged to Borrowers' Loan Account
pursuant hereto), obligations, fees, charges, costs, or Foothill Expenses
(including any fees or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), lease payments, guaranties,
covenants, and duties owing by any Borrower to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan Documents or
pursuant to any other agreement between Foothill and any Borrower, and
irrespective of whether for the payment of money), whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or obligation owing
from any Borrower to others that Foothill may have obtained by assignment
or otherwise, and further including all interest not paid when due and all
Foothill Expenses that any Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise.
"Overadvance" has the meaning set forth in Section 2.5.
"Pay-Off Letter" means a letter, in form and substance
reasonably satisfactory to Foothill, from Existing Lender respecting the
amount necessary to repay in full all of the obligations of Borrowers
owing to Existing Lender and obtain a termination or release of all of the
Liens existing in favor of Existing Lender in and to the properties or
assets of each Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation as defined
in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means (a) Liens held by Foothill, (b) Liens
for unpaid taxes that either (i) are not yet due and payable or (ii) are
the subject of Permitted Protests, (c) Liens set forth on Schedule P-1,
(d) the interests of lessors under operating leases and purchase money
Liens of lessors under capital leases to the extent that the acquisition
or lease of the underlying asset occurs after the Closing Date and is
permitted under Section 7.21 and so long as the Lien only attaches to the
asset purchased or acquired and only secures the purchase price of the
asset, (e) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers,
incurred in the ordinary course of business of any Borrower and not in
connection with the borrowing of money, and which Liens either (i) are for
sums not yet due and payable, or (ii) are the subject of Permitted
Protests, (f) Liens arising from deposits made in connection with
obtaining worker's compensation or other unemployment insurance, (g) Liens
or deposits to secure performance of bids, tenders, or leases (to the
extent permitted under this Agreement), incurred in the ordinary course of
business of a Borrower and not in connection with the borrowing of money,
(h) Liens arising by reason of security for surety or appeal bonds in the
ordinary course of business of a Borrower, and (i) Liens of or resulting
from any judgment or award that would not have a Material Adverse Effect
and as to which the time for the appeal or petition for rehearing of which
has not yet expired, or in respect of which a Borrower is in good faith
prosecuting an appeal or proceeding for a review, and in respect of which
a stay of execution pending such appeal or proceeding for review has been
secured.
"Permitted Protest" means the right of a Borrower to protest any
Lien other than any such Lien that secures the Obligations, tax (other
than payroll taxes or taxes that are the subject of a United States
federal tax lien), or rental payment, provided that (a) a reserve with
respect to such obligation is established on the books of such Borrower in
an amount that is reasonably satisfactory to Foothill, (b) any such
protest is instituted and diligently prosecuted by such Borrower in good
faith, and (c) Foothill is satisfied that, while any such protest is
pending, there will be no impairment of the enforceability, validity, or
priority of any of the Liens of Foothill in and to the Collateral.
"Person" means and includes natural persons, corporations,
limited liability companies, limited partnerships, general partnerships,
limited liability partnerships, joint ventures, trusts, land trusts,
business trusts, or other organizations, irrespective of whether they are
legal entities, and governments and agencies and political subdivisions
thereof.
"Plan" means any employee benefit plan, program, or arrangement
maintained or contributed to by any Borrower or with respect to which it
may incur liability.
"Reference Rate" means the variable rate of interest, per annum,
most recently announced by Norwest Bank Minnesota, National Association,
or any successor thereto, as its "base rate," irrespective of whether such
announced rate is the best rate available from such financial institution.
"Renewal Date" has the meaning set forth in Section 3.4.
"Reportable Event" means any of the events described in
Section 4043(c) of ERISA or the regulations thereunder other than a
Reportable Event as to which the provision of 30 days notice to the PBGC
is waived under applicable regulations.
"Retiree Health Plan" means an "employee welfare benefit plan"
within the meaning of Section 3(1) of ERISA that provides benefits to
individuals after termination of their employment, other than as required
by Section 601 of ERISA.
"Solvent" means, with respect to any Person on a particular
date, that on such date (a) at fair valuations, all of the properties and
assets of such Person are greater than the sum of the debts, including
contingent liabilities, of such Person, (b) the present fair salable value
of the properties and assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person is able to
realize upon its properties and assets and pay its debts and other
liabilities, contingent obligations and other commitments as they mature
in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts beyond such Person's ability to
pay as such debts mature, and (e) such Person is not engaged in business
or a transaction, and is not about to engage in business or a transaction,
for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the
prevailing practices in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it is intended
that such liabilities will be computed at the amount that, in light of all
the facts and circumstances existing at such time, represents the amount
that reasonably can be expected to become an actual or matured liability.
"Stock Pledge Agreement" means that certain Stock Pledge
Agreement of even date herewith between EMS and Foothill.
"Subsidiary" of a Person means a corporation, partnership,
limited liability company, or other entity in which that Person directly
or indirectly owns or controls the shares of stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors (or appoint other comparable managers) of such corporation,
partnership, limited liability company, or other entity.
"Tangible Net Worth" means, as of any date of determination, the
difference of (a) total stockholder's equity of Borrowers on a
consolidated basis (exclusive of Total Management Systems, Inc., EMS-Asia
Pacific Ltd., EMS of China Limited, EMS-Virgin Islands and EMS-Polska),
minus (b) the sum of: (i) all Intangible Assets of Borrowers, (ii) all of
Borrowers' prepaid expenses, and (iii) all amounts due to Borrowers from
Affiliates. Schedule T-1 sets forth an example of the calculation of
Tangible Net Worth based on Borrowers' projections for February 28, 1998.
"Term Loan" has the meaning set forth in Section 2.3.
"Trademark Security Agreement" means that certain Trademark
Security Agreement of even date herewith between EMS and Foothill.
"Voidable Transfer" has the meaning set forth in Section 15.8.
1.2. Accounting Terms.
All accounting terms not specifically defined herein shall be
construed in accordance with GAAP. When used herein, the term "financial
statements" shall include the notes and schedules thereto. Whenever the
term "Borrower" is used in respect of a financial covenant or a related
definition, it shall be understood to mean Borrowers on a consolidated
basis unless the context clearly requires otherwise.
1.3. Code.
Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise
defined herein.
1.4. Construction.
Unless the context of this Agreement clearly requires otherwise,
references to the plural include the singular, references to the singular
include the plural, the term "including" is not limiting, and the term
"or" has, except where otherwise indicated, the inclusive meaning
represented by the phrase "and/or." The words "hereof," "herein,"
"hereby," "hereunder," and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this
Agreement. An Event of Default shall "continue" or be "continuing" until
such Event of Default has been waived in writing by Foothill. Section,
subsection, clause, schedule, and exhibit references are to this Agreement
unless otherwise specified. Any reference in this Agreement or in the
Loan Documents to this Agreement or any of the Loan Documents shall
include all alterations, amendments, changes, extensions, modifications,
renewals, replacements, substitutions, and supplements, thereto and
thereof, as applicable.
1.5. Schedules and Exhibits.
All of the schedules and exhibits attached to this Agreement
shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
2.1. Revolving Advances.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to make advances ("Advances") to Borrowers in an amount
outstanding not to exceed at any one time the lesser of (i) the Maximum
Revolving Amount less the outstanding balance of all undrawn or
unreimbursed Letters of Credit, or (ii) the Borrowing Base less (A) the
aggregate amount of all undrawn or unreimbursed Letters of Credit. For
purposes of this Agreement, "Borrowing Base", as of any date of
determination, shall mean the result of:
(x) the lesser of (i) 80% of Eligible Accounts of
Borrowers, less the amount, if any, of the Dilution
Reserve, and (ii) an amount equal to Borrowers' Collections
with respect to Accounts of Borrowers for the immediately
preceding 100 day period (provided, that such period may be
adjusted for seasonality in Foothill's reasonable credit
judgment), minus
(z) the aggregate amount of reserves, if any,
established by Foothill under Section 2.1(b).
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may create reserves against the Borrowing Base
or reduce its advance rates based upon Eligible Accounts without declaring
an Event of Default (i) for any amount subject to a Permitted Protest,
(ii) for amounts owing to landlords or similar Persons that could assert a
statutory lien in respect of any of the Collateral, (iii) if in Foothill's
reasonable determination any of the equipment listed in the Leasetec
Letter or in the Hewlett-Packard Letter is listed in the AccuVal
Appraisal, and/or (iii) if it determines in its reasonable credit judgment
that there has occurred a Material Adverse Change. In addition to the
foregoing reserves, Foothill shall establish an additional reserve of
$1,500,000; provided, that upon satisfaction of the conditions subsequent
set forth in Sections 3.3 (e), (f), (g) and (h), such reserve shall be
reduced to $500,000, and upon satisfaction of the conditions set forth in
Section 3.3(b) and (d), such reserve shall be reduced to zero.
Notwithstanding the additional reserve described in the preceding
sentence, the failure of Borrowers to satisfy any of the conditions
subsequent set forth in Section 3.3 within the time constraints set forth
therein shall constitute an Event of Default as set forth therein, and
Foothill reserves the right to take such action as a result of any such
Event of Default as Foothill is permitted under the terms of the Loan
Documents.
(c) Foothill shall have no obligation to make Advances
hereunder to the extent they would cause the outstanding Obligations
(other than under the Term Loan) to exceed the Maximum Revolving Amount.
(d) Amounts borrowed pursuant to this Section 2.1 may be repaid
and, subject to the terms and conditions of this Agreement, reborrowed at
any time during the term of this Agreement.
2.2. Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Foothill agrees to issue letters of credit for the account of a Borrower
(each, an "L/C") or to issue guarantees of payment (each such guaranty, an
"L/C Guaranty") with respect to letters of credit issued by an issuing
bank for the account of a Borrower. Foothill shall have no obligation to
issue a Letter of Credit if any of the following would result:
(i) the aggregate amount of all undrawn and
unreimbursed Letters of Credit, would exceed the Borrowing
Base less the amount of outstanding Advances; or
(ii) the aggregate amount of all undrawn or
unreimbursed Letters of Credit would exceed the lower of:
(x) the Maximum Revolving Amount less the amount of
outstanding Advances; or (y) $1,000,000; or
(iii) the outstanding Obligations (other than
under the Term Loan) would exceed the Maximum Revolving
Amount.
Each Borrower expressly understands and agrees that Foothill shall have no
obligation to arrange for the issuance by issuing banks of the letters of
credit that are to be the subject of L/C Guarantees. Each Borrower and
Foothill acknowledge and agree that certain of the letters of credit that
are to be the subject of L/C Guarantees may be outstanding on the Closing
Date. Each Letter of Credit shall have an expiration date no later than
60 days prior to the date on which this Agreement is scheduled to
terminate under Section 3.4 (without regard to any potential renewal term)
and all such Letters of Credit shall be in form and substance acceptable
to Foothill in its sole discretion. If Foothill is obligated to advance
funds under a Letter of Credit, Borrowers immediately shall reimburse such
amount to Foothill and, in the absence of such reimbursement, the amount
so advanced immediately and automatically shall be deemed to be an Advance
hereunder and, thereafter, shall bear interest at the rate then applicable
to Advances under Section 2.6.
(b) Each Borrower hereby agrees to indemnify, save, defend, and
hold Foothill harmless from any loss, cost, expense, or liability,
including payments made by Foothill, expenses, and reasonable attorneys
fees incurred by Foothill arising out of or in connection with any Letter
of Credit. Each Borrower agrees to be bound by the issuing bank's
regulations and interpretations of any Letters of Credit guarantied by
Foothill and opened to or for a Borrower's account or by Foothill's
interpretations of any L/C issued by Foothill to or for a Borrower's
account, even though this interpretation may be different from such
Borrower's own, and each Borrower understands and agrees that Foothill
shall not be liable for any error, negligence, or mistake, whether of
omission or commission, in following any Borrower's instructions or those
contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Each Borrower understands that the L/C Guarantees
may require Foothill to indemnify the issuing bank for certain costs or
liabilities arising out of claims by such Borrower against such issuing
bank. Each Borrower hereby agrees to indemnify, save, defend, and hold
Foothill harmless with respect to any loss, cost, expense (including
reasonable attorneys fees), or liability incurred by Foothill under any
L/C Guaranty as a result of Foothill's indemnification of any such issuing
bank.
(c) Each Borrower hereby authorizes and directs any bank that
issues a letter of credit guaranteed by Foothill to deliver to Foothill
all instruments, documents, and other writings and property received by
the issuing bank pursuant to such letter of credit, and to accept and rely
upon Foothill's instructions and agreements with respect to all matters
arising in connection with such letter of credit and the related
application. Such Borrower may or may not be the "applicant" or "account
party" with respect to such letter of credit.
(d) Any and all charges, commissions, fees, and costs incurred
by Foothill relating to the letters of credit guaranteed by Foothill shall
be considered Foothill Expenses for purposes of this Agreement and
immediately shall be reimbursable by Borrowers to Foothill.
(e) Immediately upon the termination of this Agreement,
Borrowers agree to either (i) provide cash collateral to be held by
Foothill in an amount equal to 102% of the maximum amount of Foothill's
obligations under Letters of Credit, or (ii) cause to be delivered to
Foothill releases of all of Foothill's obligations under outstanding
Letters of Credit. At Foothill's discretion, any proceeds of Collateral
of Borrowers received by Foothill after the occurrence and during the
continuation of an Event of Default may be held as the cash collateral
required by this Section 2.2(e).
(f) If by reason of (i) any change in any applicable law,
treaty, rule, or regulation or any change in the interpretation or
application by any governmental authority of any such applicable law,
treaty, rule, or regulation, or (ii) compliance by the issuing bank or
Foothill with any direction, request, or requirement (irrespective of
whether having the force of law) of any governmental authority or monetary
authority including, without limitation, Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect
(and any successor thereto):
(A) any reserve, deposit, or similar requirement
is or shall be imposed or modified in respect of any
Letters of Credit issued hereunder, or
(B) there shall be imposed on the issuing bank
or Foothill any other condition regarding any letter
of credit, or Letter of Credit, as applicable, issued
pursuant hereto;
and the result of the foregoing is to increase, directly or indirectly,
the cost to the issuing bank or Foothill of issuing, making, guaranteeing,
or maintaining any letter of credit, or Letter of Credit, as applicable,
or to reduce the amount receivable in respect thereof by such issuing bank
or Foothill, then, and in any such case, Foothill may, at any time within
a reasonable period after the additional cost is incurred or the amount
received is reduced, notify Borrowers, and Borrowers shall pay on demand
such amounts as the issuing bank or Foothill may specify to be necessary
to compensate the issuing bank or Foothill for such additional cost or
reduced receipt, together with interest on such amount from the date of
such demand until payment in full thereof at the rate set forth in
Section 2.6(a)(i) or (c)(i), as applicable. The determination by the
issuing bank or Foothill, as the case may be, of any amount due pursuant
to this Section 2.2(f), as set forth in a certificate setting forth the
calculation thereof in reasonable detail, shall, in the absence of
manifest or demonstrable error, be final and conclusive and binding on all
of the parties hereto.
2.3. Term Loan.
Foothill has agreed to make a term loan (the "Term Loan") to
Borrowers in the original principal amount of $3,112,500, consisting of an
advance of $3,000,000 and the closing fee of $112,500 described in
Section 2.11(b). The Term Loan shall be repaid in 36 installments of
principal each in the amount of $64,843.75 (except for the last such
installment which shall be in the amount of the unpaid principal balance
of the Term Loan). Each such installment shall be due and payable on the
tenth day of each month commencing on the tenth day of February, 1998 and
continuing on the tenth day of each succeeding month, and the final
payment shall be on the third anniversary of the Closing Date. In
addition to the foregoing, Borrowers shall make prepayments of principal
of the Term Loan such that at all times the outstanding principal balance
of the Term Loan is less than the Applicable Maintenance Revenue Amount.
The outstanding principal balance and all accrued and unpaid interest
under the Term Loan shall be due and payable upon the termination of this
Agreement, whether by its terms, by prepayment, by acceleration, or
otherwise. The unpaid principal balance of the Term Loan may be prepaid
in whole or in part without penalty or premium at any time during the term
of this Agreement upon 30 days prior written notice by Borrowers to
Foothill. All prepayments of principal of the Term Loan shall be applied
to the installments due on the Term Loan in the inverse order of their
maturity. All amounts outstanding under the Term Loan shall constitute
Obligations.
2.4. Intentionally Omitted.
2.5. Overadvances.
If, at any time or for any reason, the amount of Obligations
owed by Borrowers to Foothill pursuant to Sections 2.1 and 2.2 is greater
than either the Dollar or percentage limitations set forth in Sections 2.1
and 2.2 (an "Overadvance"), Borrowers immediately shall pay to Foothill,
in cash, the amount of such excess to be used by Foothill first, to repay
Advances outstanding under Section 2.1 and, thereafter, to be held by
Foothill as cash collateral to secure Borrowers' obligation to repay
Foothill for all amounts paid pursuant to Letters of Credit.
2.6. Interest and Letter of Credit Fees: Rates, Payments, and
Calculations.
(a) Interest Rate. Except as provided in clause (b) below,
(i) all Obligations (except for undrawn Letters of Credit and the Term
Loan) shall bear interest at a per annum rate of 0.75 percentage points
above the Reference Rate and (ii) the Term Loan shall bear interest at a
per annum fixed rate of 13.5%.
(b) Letter of Credit Fee. Borrowers shall pay Foothill a fee
(in addition to the charges, commissions, fees, and costs set forth in
Section 2.2(d)) equal to 1.00% per annum times the aggregate undrawn
amount of all outstanding Letters of Credit.
(c) Default Rate. Upon the occurrence and during the
continuation of an Event of Default, (i) all Obligations (except for
undrawn Letters of Credit and the Term Loan) shall bear interest at a per
annum rate equal to 4.75% above the Reference Rate, (ii) the Term Loan
shall bear interest at a per annum fixed rate equal to 17.5%, and
(iii) the Letter of Credit fee provided in Section 2.6(b) shall be
increased to 5% per annum times the amount of the undrawn Letters of
Credit that were outstanding during the immediately preceding month.
(d) Minimum Interest. In no event shall the rate of interest
chargeable hereunder for any day be less than 7% per annum. To the extent
that interest accrued hereunder at the rate set forth herein would be less
than the foregoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to the
minimum rate. To the extent that interest accrued hereunder at the rate
set forth herein (including the minimum interest rate) would yield less
than the foregoing minimum amount, the interest rate chargeable hereunder
for the period in question automatically shall be deemed increased to that
rate that would result in the minimum amount of interest being accrued and
payable hereunder.
(e) Payments. Interest and Letter of Credit fees payable
hereunder shall be due and payable, in arrears, on the first day of each
month during the term hereof. Each Borrower hereby authorizes Foothill,
at its option, without prior notice to any Borrower, to charge such
interest and Letter of Credit fees, all Foothill Expenses (as and when
incurred), the charges, commissions, fees, and costs provided for in
Section 2.2(d) (as and when accrued or incurred), the fees and charges
provided for in Section 2.11 (as and when accrued or incurred), and all
installments or other payments due under the Term Loan, or any Loan
Document to Borrowers' Loan Account, which amounts thereafter shall accrue
interest at the rate then applicable to Advances hereunder. Any interest
not paid when due shall be compounded and shall thereafter accrue interest
at the rate then applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the date of this
Agreement is 8.5% per annum. In the event the Reference Rate is changed
from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. All interest and fees
chargeable under the Loan Documents shall be computed on the basis of a
360 day year for the actual number of days elapsed.
(g) Intent to Limit Charges to Maximum Lawful Rate. In no
event shall the interest rate or rates payable under this Agreement, plus
any other amounts paid in connection herewith, exceed the highest rate
permissible under any law that a court of competent jurisdiction shall, in
a final determination, deem applicable. Each Borrower and Foothill, in
executing and delivering this Agreement, intend legally to agree upon the
rate or rates of interest and manner of payment stated within it;
provided, however, that, anything contained herein to the contrary
notwithstanding, if said rate or rates of interest or manner of payment
exceeds the maximum allowable under applicable law, then, ipso facto as of
the date of this Agreement, Borrowers are and shall be liable only for the
payment of such maximum as allowed by law, and payment received from any
Borrower in excess of such legal maximum, whenever received, shall be
applied to reduce the principal balance of the Obligations to the extent
of such excess.
2.7. Collection of Accounts.
Borrowers shall at all times maintain lockboxes (the
"Lockboxes") and, immediately after the Closing Date, shall instruct all
Account Debtors with respect to the Accounts, General Intangibles, and
Negotiable Collateral of Borrowers to remit all Collections in respect
thereof to such Lockboxes. Borrowers, Foothill, and the Lockbox Banks
shall enter into the Lockbox Agreements, which among other things shall
provide for the opening of a Lockbox Account for the deposit of
Collections at a Lockbox Bank. Borrowers agree that all Collections and
other amounts received by any Borrower from any Account Debtor or any
other source immediately upon receipt shall be deposited into a Lockbox
Account. No Lockbox Agreement or arrangement contemplated thereby shall
be modified by any Borrower without the prior written consent of
Foothill. Upon the terms and subject to the conditions set forth in the
Lockbox Agreements, all amounts received in each Lockbox Account shall be
wired each Business Day into an account (the "Foothill Account")
maintained by Foothill at a depository selected by Foothill.
2.8. Crediting Payments; Application of Collections.
The receipt of any Collections by Foothill (whether from
transfers to Foothill by the Lockbox Banks pursuant to the Lockbox
Agreements or otherwise) immediately shall be applied provisionally to
reduce the Obligations outstanding under Section 2.1, but shall not be
considered a payment on account unless such Collection item is a wire
transfer of immediately available federal funds and is made to the
Foothill Account or unless and until such Collection item is honored when
presented for payment. From and after the Closing Date, Foothill shall be
entitled to charge Borrowers for 2 Business Days of `clearance' or `float'
at the rate set forth in Section 2.6(a)(i) or Section 2.6(c)(i), as
applicable, on all Collections that are received by Foothill (regardless
of whether forwarded by the Lockbox Banks to Foothill, whether
provisionally applied to reduce the Obligations under Section 2.1, or
otherwise). This across-the-board 2 Business Day clearance or float
charge on all Collections is acknowledged by the parties to constitute an
integral aspect of the pricing of Foothill's financing of Borrowers, and
shall apply irrespective of the characterization of whether receipts are
owned by any Borrower or Foothill, and whether or not there are any
outstanding Advances, the effect of such clearance or float charge being
the equivalent of charging 2 Business Days of interest on such
Collections. Should any Collection item not be honored when presented for
payment, then Borrowers shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the contrary
contained herein notwithstanding, any Collection item shall be deemed
received by Foothill only if it is received into the Foothill Account on a
Business Day on or before 11:00 a.m. California time. If any Collection
item is received into the Foothill Account on a non-Business Day or after
11:00 a.m. California time on a Business Day, it shall be deemed to have
been received by Foothill as of the opening of business on the immediately
following Business Day.
2.9. Designated Account.
Foothill is authorized to make the Advances, the Letters of
Credit and the Term Loan under this Agreement based upon telephonic or
other instructions received from anyone purporting to be an Authorized
Person, or without instructions if pursuant to Section 2.6(e). Borrowers
agree to establish and maintain the Designated Account with the Designated
Account Bank for the purpose of receiving the proceeds of the Advances
requested by any Borrower and made by Foothill hereunder. Unless
otherwise agreed by Foothill and Borrowers, any Advance requested by any
Borrower and made by Foothill hereunder shall be made to the Designated
Account.
2.10. Maintenance of Loan Account; Statements of Obligations.
Foothill shall maintain an account on its books in the name of
Borrowers (the "Loan Account") on which Borrowers will be charged with all
Advances made by Foothill to any Borrower or for Borrowers' account,
including, accrued interest, Foothill Expenses, and any other payment
Obligations of any Borrower. In accordance with Section 2.8, the Loan
Account will be credited with all payments received by Foothill from any
Borrower or for Borrowers' account, including all amounts received in the
Foothill Account from any Lockbox Bank. Foothill shall render statements
regarding the Loan Account to Borrowers, including principal, interest,
fees, and including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements shall be
conclusively presumed to be correct and accurate and constitute an account
stated between Borrowers and Foothill unless, within 30 days after receipt
thereof by Borrowers, Borrowers shall deliver to Foothill written
objection thereto describing the error or errors contained in any such
statements.
2.11. Fees.
Borrowers shall pay to Foothill the following fees:
(a) Closing Fee. A closing fee of $112,500 (which amount has
been added to the Term Loan and will be paid as part of the amortization
of the Term Loan);
(b) Unused Line Fee. On the first day of each month during the
term of this Agreement, an unused line fee in an amount equal to 0.50% per
annum times the Average Unused Portion of the Maximum Revolving Amount.
(c) Financial Examination, Documentation, and Appraisal Fees.
Foothill's customary fee of $650 per day per examiner, plus out-of-pocket
expenses for each financial analysis and examination (i.e., audits) of
Borrowers performed by personnel employed by Foothill; provided, that so
long as no Event of Default exists, Borrowers shall not be liable for more
than 20 days of examination fees in any fiscal year; Foothill's customary
appraisal fee of $1,500 per day per appraiser, plus out-of-pocket expenses
for each appraisal of the Collateral performed by personnel employed by
Foothill (provided, that so long as no Event of Default exists, Borrowers
shall not be liable for any appraisal fees incurred by Foothill after the
date hereof); and, the actual charges paid or incurred by Foothill if it
elects to employ the services of one or more third Persons to perform such
financial analyses and examinations (i.e., audits) of Borrowers or to
appraise the Collateral; and, on each anniversary of the Closing Date,
Foothill's customary fee of $1,000 per year for its loan documentation
review; and
(d) Servicing Fee. On the first day of each month during the
term of this Agreement, and thereafter so long as any Obligations are
outstanding, a servicing fee in an amount equal to $2,000 per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1. Conditions Precedent to the Initial Advance, Letter of Credit,
the Term Loan, and the Initial Capital Expenditure Loan.
The obligation of Foothill to make the initial Advance, to issue
the initial Letter of Credit or to make the Term Loan is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of each of
the following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before December 30,
1997;
(b) Foothill shall have received searches reflecting the filing
of its financing statements and fixture filings and each Borrower;
(c) Foothill shall have received each of the following
documents, duly executed, and each such document shall be in full force
and effect:
(i) the Lockbox Agreements;
(ii) the Disbursement Letter;
(iii) the Pay-Off Letter, together with UCC
termination statements and other documentation evidencing
the termination by Existing Lender of its Liens in and to
the properties and assets of all Borrowers; and
(iv) the Copyright Security Agreement, the Trademark
Security Agreement and the Stock Pledge Agreement.
(d) Foothill shall have received a certificate from the
Secretary of each Borrower attesting to the resolutions of such Borrower's
Board of Directors authorizing its execution, delivery, and performance of
this Agreement and the other Loan Documents to which such Borrower is a
party and authorizing specific officers of Borrower to execute the same;
(e) Foothill shall have received copies of each Borrower's
Governing Documents, as amended, modified, or supplemented to the Closing
Date, certified by the Secretary of such Borrower;
(f) Foothill shall have received a certificate of status with
respect to each Borrower, dated within 10 days of the Closing Date, such
certificate to be issued by the appropriate officer of the jurisdiction of
organization of such Borrower, which certificate shall indicate that such
Borrower is in good standing in such jurisdiction;
(g) Foothill shall have received certificates of status with
respect to each Borrower, each dated within 15 days of the Closing Date,
such certificates to be issued by the appropriate officer of the
jurisdictions in which its failure to be duly qualified or licensed would
constitute a Material Adverse Change, which certificates shall indicate
that such Borrower is in good standing in such jurisdictions;
(h) Foothill shall have received a certificate of insurance,
together with the endorsements thereto, as are required by Section 6.10,
the form and substance of which shall be satisfactory to Foothill and its
counsel;
(i) Foothill shall have received duly executed certificates of
title with respect to that portion of the Collateral that is subject to
certificates of title;
(j) Foothill shall have received such Collateral Access
Agreements from lessors, warehousemen, bailees, and other third persons as
Foothill may require;
(k) Foothill shall have received an opinion of Borrowers'
counsel in form and substance satisfactory to Foothill in its sole
discretion;
(l) Borrowers shall have registered all material copyrights and
other intellectual property with the appropriate federal filing office;
(m) Foothill shall have received background searches of the
officers of Borrowers and be satisfied with the results thereof;
(n) Foothill shall have received satisfactory evidence that all
tax returns required to be filed by each Borrower have been timely filed
and all taxes upon each Borrower or its properties, assets, income, and
franchises (including real property taxes and payroll taxes) have been
paid prior to delinquency, except such taxes that are the subject of a
Permitted Protest; and
(o) all other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed, or recorded and shall be in form and substance satisfactory to
Foothill and its counsel.
3.2. Conditions Precedent to all Advances, all Letters of Credit and
the Term Loan.
The following shall be conditions precedent to all Advances, all
Letters of Credit and the Term Loan hereunder:
(a) the representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct in all
material respects on and as of the date of such extension of credit, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);
(b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either
result from the making thereof; and
(c) no injunction, writ, restraining order, or other order of
any nature prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any governmental
authority against any Borrower, Foothill, or any of their Affiliates.
3.3. Condition Subsequent.
As a condition subsequent to initial closing hereunder,
Borrowers shall perform or cause to be performed the following (the
failure by Borrowers to so perform or cause to be performed constituting
an Event of Default):
(a) within 30 days of the Closing Date, deliver to Foothill the
certified copies of the policies of insurance, together with the
endorsements thereto, as are required by Section 6.10, the form and
substance of which shall be satisfactory to Foothill and its counsel;
(b) within 10 days of the Closing Date, deliver to Foothill a
landlord waiver, in form and substance satisfactory to Foothill, executed
by the landlord of the leased premises commonly known as 12000 West Park
Place, Milwaukee, Wisconsin, and within 30 days of the Closing Date,
deliver to Foothill landlord waivers in form and substance satisfactory to
Foothill, executed by the landlords of the leased premises commonly known
as 100 Foxborough Boulevard, Suite 230, Foxborough, Massachusetts, 1771
West Diehl Road, Suite 120, Naperville, Illinois and 501 East Highway 12,
Burnsville, Minnesota;
(c) within 15 days of the Closing Date, either deliver to
Foothill a lockbox agreement in form and substance satisfactory to
Foothill, executed by Old Second Bank of Aurora or replace the existing
lockbox arrangement with Old Second Bank of Aurora with a lockbox
arrangement satisfactory to Foothill;
(d) within 10 days of the Closing Date, deliver to Foothill all
of the original stock certificates of Total Management Systems, Inc.
evidencing EMS's ownership thereof;
(e) within 20 days of the Closing Date, deliver to Foothill UCC
termination statements executed by each of International Business Machines
Corporation and Digital Equipment Corporation with respect to UCC
financing statement number 1502166 (dated April 19, 1995) filed with the
Secretary of State of Wisconsin and UCC financing statement number 1380462
(dated September 20, 1993) filed with the Secretary of State of Wisconsin,
respectively;
(f) within 20 days of the Closing Date, deliver a letter (the
"Leasetec Letter") executed by Leasetec Corporation, certifying that its
security interest in any of the property of Borrowers is limited to the
equipment specified in such letter;
(g) within 20 days of the Closing Date, deliver a letter (the
"Hewlett-Packard Letter") executed by Hewlett-Packard Company, certifying
that its security interest in any of the property of Borrowers is limited
to the equipment specified in such letter; and
(h) within 30 days of the Closing Date, registration numbers
for the TCM and FactoryNet copyrights filed by EMS with the Copyright
Office.
3.4. Term; Automatic Renewal.
This Agreement shall become effective upon the execution and
delivery hereof by Borrowers and Foothill and shall continue in full force
and effect for a term ending on the date (the "Renewal Date") that is
three years from the Closing Date and automatically shall be renewed for
successive one year periods thereafter, unless sooner terminated pursuant
to the terms hereof. Either Borrowers or Foothill may terminate this
Agreement effective on the Renewal Date or on any one year anniversary of
the Renewal Date by giving the other parties at least 90 days prior
written notice. The foregoing notwithstanding, Foothill shall have the
right to terminate its obligations under this Agreement immediately and
without notice upon the occurrence and during the continuation of an Event
of Default.
3.5. Effect of Termination.
On the date of termination of this Agreement, all Obligations
(including contingent reimbursement obligations of Borrowers with respect
to any outstanding Letters of Credit) immediately shall become due and
payable without notice or demand. No termination of this Agreement,
however, shall relieve or discharge Borrowers of their duties,
Obligations, or covenants hereunder, and Foothill's continuing security
interests in the Collateral shall remain in effect until all Obligations
have been fully and finally discharged and Foothill's obligation to
provide additional credit hereunder is terminated. If any Borrower has
sent a notice of termination pursuant to the provisions of Section 3.4,
but Borrowers fail to pay the Obligations in full on the date set forth in
said notice, then Foothill may, but shall not be required to, renew this
Agreement for an additional term of one year.
3.6. Early Termination by Borrower.
The provisions of Section 3.4 that allow termination of this
Agreement by Borrowers only on the Renewal Date and certain anniversaries
thereof notwithstanding, Borrowers have the option, at any time upon 90
days prior written notice to Foothill, to terminate this Agreement by
paying to Foothill, in cash, the Obligations (including an amount equal to
102% of the undrawn amount of the Letters of Credit), in full, together
with a premium (the "Early Termination Premium") equal to (a) 3% of the
Maximum Amount if such termination occurs on or before the first
anniversary of the date hereof, (b) 2% of the Maximum Amount if such
termination occurs after the first anniversary of the date hereof but on
or before the second anniversary of the date hereof and (c) 1% of the
Maximum Amount if such termination occurs after the second anniversary of
the date hereof but before the third anniversary of the date hereof;
provided, that if Borrowers refinance the facility provided for under this
Agreement after the eighteen month anniversary of the date hereof with
Norwest Bank, N.A. or any of its subsidiaries, the Early Termination
Premium will be waived by Foothill.
3.7. Termination Upon Event of Default.
If Foothill terminates this Agreement upon the occurrence of an
Event of Default, in view of the impracticability and extreme difficulty
of ascertaining actual damages and by mutual agreement of the parties as
to a reasonable calculation of Foothill's lost profits as a result
thereof, Borrowers shall pay to Foothill upon the effective date of such
termination, a premium in an amount equal to the Early Termination
Premium. The Early Termination Premium shall be presumed to be the amount
of damages sustained by Foothill as the result of the early termination
and Borrowers agree that it is reasonable under the circumstances
currently existing. The Early Termination Premium provided for in this
Section 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1. Grant of Security Interest.
Each Borrower hereby grants to Foothill a continuing security
interest in all currently existing and hereafter acquired or arising
Collateral of such Borrower in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by each Borrower
of each of its covenants and duties under the Loan Documents. Foothill's
security interests in the Collateral shall attach to all Collateral
without further act on the part of Foothill or any Borrower. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for the sale of Inventory to buyers in the
ordinary course of business and as permitted under Section 7.4, no
Borrower has any authority, express or implied, to dispose of any item or
portion of the Collateral.
4.2. Negotiable Collateral.
In the event that any Collateral, including proceeds, is
evidenced by or consists of Negotiable Collateral, Borrowers, immediately
upon the request of Foothill, shall endorse and deliver physical
possession of such Negotiable Collateral to Foothill.
4.3. Collection of Accounts, General Intangibles, and Negotiable
Collateral.
At any time, Foothill or Foothill's designee may after the
occurrence of an Event of Default, (a) notify customers or Account Debtors
of a Borrower that the Accounts, General Intangibles, or Negotiable
Collateral have been assigned to Foothill or that Foothill has a security
interest therein, and (b) collect the Accounts, General Intangibles, and
Negotiable Collateral directly and charge the collection costs and
expenses to the Loan Account. Each Borrower agrees that it will hold in
trust for Foothill, as Foothill's trustee, any Collections that it
receives and immediately will deliver said Collections to Foothill in
their original form as received by such Borrower.
4.4. Delivery of Additional Documentation Required.
At any time upon the request of Foothill, each Borrower shall
execute and deliver to Foothill all financing statements, continuation
financing statements, fixture filings, security agreements, pledges,
assignments, endorsements of certificates of title, applications for
title, affidavits, reports, notices, schedules of accounts, letters of
authority, and all other documents that Foothill reasonably may request,
in form satisfactory to Foothill, to perfect and continue perfected
Foothill's security interests in the Collateral, and in order to fully
consummate all of the transactions contemplated hereby and under the other
the Loan Documents.
4.5. Power of Attorney.
Each Borrower hereby irrevocably makes, constitutes, and
appoints Foothill (and any of Foothill's officers, employees, or agents
designated by Foothill) as such Borrower's true and lawful attorney, with
power to (a) if any Borrower refuses to, or fails timely to execute and
deliver any of the documents described in Section 4.4, sign the name of
such Borrower on any of the documents described in Section 4.4, (b) at any
time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure in its reasonable credit judgment, sign such
Borrower's name on any invoice or bill of lading relating to any Account,
drafts against Account Debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account Debtors, (c) send
requests for verification of Accounts, (d) endorse such Borrower's name on
any Collection item that may come into Foothill's possession, (e) at any
time that an Event of Default has occurred and is continuing or Foothill
deems itself insecure in its reasonable credit judgment, notify the post
office authorities to change the address for delivery of such Borrower's
mail to an address designated by Foothill, to receive and open all mail
addressed to such Borrower, and to retain all mail relating to the
Collateral and forward all other mail to such Borrower, (f) at any time
that an Event of Default has occurred and is continuing or Foothill deems
itself insecure in its reasonable credit judgment, make, settle, and
adjust all claims under such Borrower's policies of insurance and make all
determinations and decisions with respect to such policies of insurance,
and (g) at any time that an Event of Default has occurred and is
continuing or Foothill deems itself insecure in its reasonable credit
judgment, settle and adjust disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms that Foothill
determines to be reasonable, and Foothill may cause to be executed and
delivered any documents and releases that Foothill determines to be
necessary. The appointment of Foothill as each Borrower's attorney, and
each and every one of Foothill's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Foothill's obligation to extend credit
hereunder is terminated.
4.6. Right to Inspect.
Foothill (through any of its officers, employees, or agents)
shall have the right, from time to time hereafter to inspect each
Borrower's Books and to check, test, and appraise the Collateral in order
to verify each Borrower's financial condition or the amount, quality,
value, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce Foothill to enter into this Agreement, each
Borrower makes the following representations and warranties which shall be
true, correct, and complete in all respects as of the date hereof, and
shall be true, correct, and complete in all respects as of the Closing
Date, and at and as of the date of the making of each Advance, Letter of
Credit or Term Loan made thereafter, as though made on and as of the date
of such Advance, Letter of Credit or Term Loan (except to the extent that
such representations and warranties relate solely to an earlier date) and
such representations and warranties shall survive the execution and
delivery of this Agreement:
5.1. No Encumbrances.
Each Borrower has good and indefeasible title to its respective
Collateral, free and clear of Liens except for Permitted Liens.
5.2. Eligible Accounts.
The Eligible Accounts of each Borrower are bona fide existing
obligations created by the sale and delivery of Inventory or the rendition
of services to Account Debtors in the ordinary course of such Borrower's
business, unconditionally owed to such Borrower without defenses,
disputes, offsets, counterclaims, or rights of return or cancellation.
The property giving rise to such Eligible Accounts has been delivered to
the Account Debtor, or to the Account Debtor's agent for immediate
shipment to and unconditional acceptance by the Account Debtor. No
Borrower has received notice of actual or imminent bankruptcy, insolvency,
or material impairment of the financial condition of any Account Debtor
regarding any Eligible Account.
5.3. Intentionally Omitted.
5.4. Equipment.
All of the Equipment of each Borrower is used or held for use in
such Borrower's respective business and is fit for such purposes.
5.5. Location of Inventory and Equipment.
The Inventory and Equipment are not stored with a bailee,
warehouseman, or similar party (without Foothill's prior written consent)
and are located only at the locations identified on Schedule 6.12 or
otherwise permitted by Section 6.12.
5.6. Inventory Records.
Each Borrower keeps correct and accurate records itemizing and
describing the kind, type, quality, and quantity of the Inventory, and
such Borrower's cost therefor.
5.7. Location of Chief Executive Office; FEIN.
The address of each Borrower 's chief executive office and FEIN
is as set forth on Schedule 5.7.
5.8. Due Organization and Qualification; Subsidiaries.
(a) Each Borrower is duly organized and existing and in good
standing under the laws of the jurisdiction of its incorporation and
qualified and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified reasonably could be
expected to have a Material Adverse Change.
(b) Set forth on Schedule 5.8, is a complete and accurate list
of each Borrower's direct and indirect Subsidiaries, showing: (i) the
jurisdiction of their incorporation; (ii) the number of shares of each
class of common and preferred stock authorized for each of such
Subsidiaries; and (iii) the number and the percentage of the outstanding
shares of each such class owned directly or indirectly by such Borrower.
All of the outstanding capital stock of each such Subsidiary has been
validly issued and is fully paid and non-assessable.
(c) Except as set forth on Schedule 5.8, no capital stock (or
any securities, instruments, warrants, options, purchase rights,
conversion or exchange rights, calls, commitments or claims of any
character convertible into or exercisable for capital stock) of any direct
or indirect Subsidiary of any Borrower is subject to the issuance of any
security, instrument, warrant, option, purchase right, conversion or
exchange right, call, commitment or claim of any right, title, or interest
therein or thereto.
5.9. Due Authorization; No Conflict.
(a) The execution, delivery, and performance by each Borrower
of this Agreement and the Loan Documents to which it is a party have been
duly authorized by all necessary corporate action.
(b) The execution, delivery, and performance by each Borrower
of this Agreement and the Loan Documents to which it is a party do not and
will not (i) violate any provision of federal, state, or local law or
regulation (including Regulations G, T, U, and X of the Federal Reserve
Board) applicable to such Borrower, the Governing Documents of such
Borrower, or any order, judgment, or decree of any court or other
Governmental Authority binding on such Borrower, (ii) conflict with,
result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation or material
lease of such Borrower, (iii) result in or require the creation or
imposition of any Lien of any nature whatsoever upon any properties or
assets of such Borrower, other than Permitted Liens, or (iv) require any
approval of stockholders or any approval or consent of any Person under
any material contractual obligation of such Borrower.
(c) Other than the filing of appropriate financing statements,
fixture filings, and mortgages, the execution, delivery, and performance
by each Borrower of this Agreement and the Loan Documents to which such
Borrower is a party do not and will not require any registration with,
consent, or approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other Person.
(d) This Agreement and the Loan Documents to which each
Borrower is a party, and all other documents contemplated hereby and
thereby, when executed and delivered by such Borrower will be the legally
valid and binding obligations of such Borrower, enforceable against such
Borrower in accordance with their respective terms, except as enforcement
may be limited by equitable principles or by bankruptcy, insolvency,
reorganization, moratorium, or similar laws relating to or limiting
creditors' rights generally.
(e) The Liens granted by each Borrower to Foothill in and to
its properties and assets pursuant to this Agreement and the other Loan
Documents are validly created, perfected, and first priority Liens,
subject only to Permitted Liens.
5.10. Litigation.
There are no actions or proceedings pending by or against any
Borrower before any court or administrative agency and none of the
Borrowers has knowledge or belief of any pending, threatened, or imminent
litigation, governmental investigations, or claims, complaints, actions,
or prosecutions involving any Borrower or any guarantor of the
Obligations, except for: (a) ongoing collection matters in which any
Borrower is the plaintiff; (b) matters disclosed on Schedule 5.10; and
(c) matters arising after the date hereof that, if decided adversely to
any Borrower, would not have a Material Adverse Change.
5.11. No Material Adverse Change.
All financial statements relating to each Borrower or any
guarantor of the Obligations that have been delivered by such Borrower to
Foothill have been prepared in accordance with GAAP (except, in the case
of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present such Borrower's
(or such guarantor's, as applicable) financial condition as of the date
thereof and such Borrower's results of operations for the period then
ended. There has not been a Material Adverse Change with respect to any
Borrower (or such guarantor, as applicable) since the date of the latest
financial statements submitted to Foothill on or before the Closing Date.
5.12. Solvency.
Each Borrower is Solvent. No transfer of property is being made
by any Borrower and no obligation is being incurred by any Borrower in
connection with the transactions contemplated by this Agreement or the
other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of any Borrower.
5.13. Employee Benefits.
No Borrower, any of its Subsidiaries, or any of their ERISA
Affiliates maintains or contributes to any Benefit Plan, other than those
listed on Schedule 5.13. Each Borrower, each of its Subsidiaries and each
ERISA Affiliate have satisfied the minimum funding standards of ERISA and
the IRC with respect to each Benefit Plan to which it is obligated to
contribute. No ERISA Event has occurred nor has any other event occurred
that may result in an ERISA Event that reasonably could be expected to
result in a Material Adverse Change. No Borrower or its Subsidiaries, any
ERISA Affiliate, or any fiduciary of any Plan is subject to any direct or
indirect liability with respect to any Plan under any applicable law,
treaty, rule, regulation, or agreement. No Borrower or its Subsidiaries
or any ERISA Affiliate is required to provide security to any Plan under
Section 401(a)(29) of the IRC.
5.14. Environmental Condition.
No Borrower's properties or assets has ever been used by such
Borrower or, to the best of Borrowers' knowledge, by previous owners or
operators in the disposal of, or to produce, store, handle, treat,
release, or transport, any Hazardous Materials. No Borrower's properties
or assets has ever been designated or identified in any manner pursuant to
any environmental protection statute as a Hazardous Materials disposal
site, or a candidate for closure pursuant to any environmental protection
statute. No Lien arising under any environmental protection statute has
attached to any revenues or to any real or personal property owned or
operated by any Borrower. No Borrower has received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
any Borrower resulting in the releasing or disposing of Hazardous
Materials into the environment.
5.15. Copyrights.
Each Borrower has registered with the applicable federal filing
office all copyrights and all works protectable by copyrights that account
for more than 2% of its revenues or are otherwise material to its
business.
6. AFFIRMATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, each
Borrower shall do all of the following:
6.1. Accounting System.
Maintain a standard and modern system of accounting that enables
each Borrower to produce financial statements in accordance with GAAP, and
maintain records pertaining to the Collateral that contain information as
from time to time may be requested by Foothill. Each Borrower also shall
keep a modern inventory reporting system that shows all additions, sales,
claims, returns, and allowances with respect to the Inventory.
6.2. Collateral Reporting.
Provide Foothill with the following documents at the following
times in form satisfactory to Foothill: (a) on a weekly basis, a sales
journal, collection journal, and credit register since the last such
schedule and a calculation of the Borrowing Base as of such date, (b) on a
monthly basis and, in any event, by no later than the 10th day of each
month during the term of this Agreement (except for a month following the
end of a fiscal quarter in which case no later than the 15th day of such
month), (i) a detailed calculation of the Borrowing Base, and (ii) a
detailed aging, by total, of the Accounts of each Borrower, together with
a reconciliation to the detailed calculation of the Borrowing Base
previously provided to Foothill, and (iii) a detailed calculation of the
Applicable Maintenance Revenue Amount as of the end of such month, (c) on
a monthly basis and, in any event, by no later than the 10th day of each
month during the term of this Agreement, a summary aging, by vendor, of
each Borrower's accounts payable and any book overdraft, (d) on a weekly
basis, notice of all returns, disputes, or claims, (e) upon request,
copies of invoices in connection with the Accounts, customer statements,
credit memos, remittance advices and reports, deposit slips, shipping and
delivery documents in connection with the Accounts and for Inventory and
Equipment acquired by each Borrower, purchase orders and invoices, (f) on
a quarterly basis, a detailed list of each Borrower's customers, (g) on a
monthly basis, a calculation of the Dilution for the prior month; and
(h) such other reports as to the Collateral or the financial condition of
each Borrower as Foothill may request from time to time. Original sales
invoices evidencing daily sales shall be mailed by each Borrower to each
Account Debtor and, at Foothill's direction after the occurrence of an
Event of Default, the invoices shall indicate on their face that the
Account has been assigned to Foothill and that all payments are to be made
directly to Foothill.
6.3. Financial Statements, Reports, Certificates.
Deliver to Foothill: (a) as soon as available, but in any event
within 30 days after the end of each month during each of each Borrower's
fiscal years, a company an internally prepared balance sheet, income
statement, and statement of cash flow covering each Borrower's operations
during such period; and (b) as soon as available, but in any event within
90 days after the end of each of each Borrower's fiscal years, financial
statements of each Borrower for each such fiscal year, audited by
independent certified public accountants reasonably acceptable to Foothill
and certified, without any qualifications, by such accountants to have
been prepared in accordance with GAAP, together with a certificate of such
accountants addressed to Foothill stating that such accountants do not
have knowledge of the existence of any Default or Event of Default. Such
audited financial statements shall include a balance sheet, profit and
loss statement, and statement of cash flow and, if prepared, such
accountants' letter to management. If a Borrower is a parent company of
one or more Subsidiaries, or Affiliates, or is a Subsidiary or Affiliate
of another company, then, in addition to the financial statements referred
to above, such Borrower agrees to deliver financial statements prepared on
a consolidating basis so as to present such Borrower and each such related
entity separately, and on a consolidated basis.
Together with the above, each Borrower also shall deliver to
Foothill such Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual
Reports, and Form 8-K Current Reports, and any other filings made by such
Borrower with the Securities and Exchange Commission, if any, as soon as
the same are filed, or any other information that is provided by such
Borrower to its shareholders, and any other report reasonably requested by
Foothill relating to the financial condition of such Borrower.
Each month, together with the financial statements provided
pursuant to Section 6.3(a), EMS shall deliver to Foothill a certificate
signed by its chief financial officer to the effect that: (i) all
financial statements delivered or caused to be delivered to Foothill
hereunder have been prepared in accordance with GAAP (except, in the case
of unaudited financial statements, for the lack of footnotes and being
subject to year-end audit adjustments) and fairly present the financial
condition of each Borrower, (ii) the representations and warranties of
each Borrower contained in this Agreement and the other Loan Documents are
true and correct in all material respects on and as of the date of such
certificate, as though made on and as of such date (except to the extent
that such representations and warranties relate solely to an earlier
date), (iii) for each month that also is the date on which a financial
covenant in Sections 7.20 and 7.21 is to be tested, a Compliance
Certificate demonstrating in reasonable detail compliance at the end of
such period with the applicable financial covenants contained in
Sections 7.20 and 7.21, and (iv) on the date of delivery of such
certificate to Foothill there does not exist any condition or event that
constitutes a Default or Event of Default (or, in the case of clauses (i),
(ii), or (iii), to the extent of any non-compliance, describing such non-
compliance as to which he or she may have knowledge and what action
Borrowers have taken, are taking, or propose to take with respect
thereto).
Each Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to communicate
with Foothill and to release to Foothill whatever financial information
concerning such Borrower that Foothill may request. Such Borrower hereby
irrevocably authorizes and directs all auditors, accountants, or other
third parties to deliver to Foothill, at such Borrower's expense, copies
of such Borrower's financial statements, papers related thereto, and other
accounting records of any nature in their possession, and to disclose to
Foothill any information they may have regarding such Borrower's business
affairs and financial conditions.
6.4. Tax Returns.
Deliver to Foothill copies of each of each Borrower's future
federal income tax returns, and any amendments thereto, within 30 days of
the filing thereof with the Internal Revenue Service.
6.5. Guarantor Reports.
Cause any guarantor of any of the Obligations to deliver its
annual financial statements at the time when each Borrower provides its
audited financial statements to Foothill and copies of all federal income
tax returns as soon as the same are available and in any event no later
than 30 days after the same are required to be filed by law.
6.6. Returns.
Cause returns and allowances, if any, as between each Borrower
and its Account Debtors to be on the same basis and in accordance with the
usual customary practices of such Borrower, as they exist at the time of
the execution and delivery of this Agreement. If, at a time when no Event
of Default has occurred and is continuing, any Account Debtor returns any
Inventory to a Borrower, such Borrower promptly shall determine the reason
for such return and, if such Borrower accepts such return, issue a credit
memorandum (with a copy to be sent to Foothill) in the appropriate amount
to such Account Debtor. If, at a time when an Event of Default has
occurred and is continuing, any Account Debtor returns any Inventory to
such Borrower, such Borrower promptly shall determine the reason for such
return and, if Foothill consents (which consent shall not be unreasonably
withheld), issue a credit memorandum (with a copy to be sent to Foothill)
in the appropriate amount to such Account Debtor.
6.7. Title to Equipment.
Upon Foothill's request, each Borrower immediately shall deliver
to Foothill, properly endorsed, any and all evidences of ownership of,
certificates of title, or applications for title to any items of
Equipment.
6.8. Maintenance of Equipment.
Maintain the Equipment in good operating condition and repair
(ordinary wear and tear excepted), and make all necessary replacements
thereto so that the value and operating efficiency thereof shall at all
times be maintained and preserved. Other than those items of Equipment
that constitute fixtures on the Closing Date, no Borrower shall permit any
item of Equipment to become a fixture to real estate or an accession to
other property, and such Equipment shall at all times remain personal
property.
6.9. Taxes.
Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against any
Borrower or any of its property to be paid in full, before delinquency or
before the expiration of any extension period, except to the extent that
the validity of such assessment or tax shall be the subject of a
Permitted Protest. To the extent that a Borrower fails timely to make
payment of such taxes or assessments, Foothill shall be entitled, in its
discretion, to reserve an amount equal to such unpaid amounts against the
Borrowing Base. Each Borrower shall make due and timely payment or
deposit of all such federal, state, and local taxes, assessments, or
contributions required of it by law, and will execute and deliver to
Foothill, on demand, appropriate certificates attesting to the payment
thereof or deposit with respect thereto. Each Borrower will make timely
payment or deposit of all tax payments and withholding taxes required of
it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A.,
state disability, and local, state, and federal income taxes, and will,
upon request, furnish Foothill with proof satisfactory to Foothill
indicating that such Borrower has made such payments or deposits.
6.10. Insurance.
(a) At its expense, keep the Collateral insured against loss or
damage by fire, theft, explosion, sprinklers, and all other hazards and
risks, and in such amounts, as are ordinarily insured against by other
owners in similar businesses. Each Borrower also shall maintain business
interruption, public liability, product liability, and property damage
insurance relating to such Borrower's ownership and use of the Collateral,
as well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as may be reasonably satisfactory to
Foothill. All insurance required herein shall be written by companies
which are authorized to do insurance business in the State of California.
All hazard insurance and such other insurance as Foothill shall specify,
shall contain a California Form 438BFU (NS) mortgagee endorsement, or an
equivalent endorsement satisfactory to Foothill, showing Foothill as sole
loss payee thereof, and shall contain a waiver of warranties. Every
policy of insurance referred to in this Section 6.10 shall contain an
agreement by the insurer that it will not cancel such policy except after
30 days prior written notice to Foothill and that any loss payable
thereunder shall be payable notwithstanding any act or negligence of any
Borrower or Foothill which might, absent such agreement, result in a
forfeiture of all or a part of such insurance payment. Borrowers shall
deliver to Foothill certified copies of such policies of insurance and
evidence of the payment of all premiums therefor.
(c) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least
30 days prior to the expiration of the existing or preceding policies.
Each Borrower shall give Foothill prompt notice of any loss covered by
such insurance, and Foothill shall have the right to adjust any loss.
Foothill shall have the exclusive right to adjust all losses payable under
any such insurance policies without any liability to any Borrower
whatsoever in respect of such adjustments. Any monies received as payment
for any loss under any insurance policy including the insurance policies
mentioned above, shall be paid over to Foothill to be applied at the
option of Foothill either to the prepayment of the Obligations without
premium, in such order or manner as Foothill may elect, or shall be
disbursed to Borrowers under stage payment terms satisfactory to Foothill
for application to the cost of repairs, replacements, or restorations.
All repairs, replacements, or restorations shall be effected with
reasonable promptness and shall be of a value at least equal to the value
of the items or property destroyed prior to such damage or destruction.
Upon the occurrence of an Event of Default, Foothill shall have the right
to apply all prepaid premiums to the payment of the Obligations in such
order or form as Foothill shall determine.
(d) No Borrower shall take out separate insurance concurrent in
form or contributing in the event of loss with that required to be
maintained under this Section 6.10, unless Foothill is included thereon as
named insured with the loss payable to Foothill under a standard
California 438BFU (NS) Mortgagee endorsement, or its local equivalent.
Each Borrower immediately shall notify Foothill whenever such separate
insurance is taken out, specifying the insurer thereunder and full
particulars as to the policies evidencing the same, and originals of such
policies immediately shall be provided to Foothill.
6.11. No Setoffs or Counterclaims.
Make payments hereunder and under the other Loan Documents by or
on behalf of each Borrower without setoff or counterclaim and free and
clear of, and without deduction or withholding for or on account of, any
federal, state, or local taxes.
6.12. Location of Inventory and Equipment.
Keep the Inventory and Equipment only at the locations
identified on Schedule 6.12; provided, however, that Borrowers may amend
Schedule 6.12 to add a new location so long as such amendment occurs by
written notice to Foothill not less than 30 days prior to the date on
which the Inventory or Equipment is moved to such new location, so long as
such new location is within the continental United States, and so long as,
at the time of such written notification, Borrowers provide any financing
statements or fixture filings necessary to perfect and continue perfected
Foothill's security interests in such assets and also provide to Foothill
a Collateral Access Agreement.
6.13. Compliance with Laws.
Comply with the requirements of all applicable laws, rules,
regulations, and orders of any governmental authority, including the Fair
Labor Standards Act and the Americans With Disabilities Act, other than
laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, would not have and could not reasonably
be expected to have a Material Adverse Change.
6.14. Employee Benefits.
(a) Promptly, and in any event within 10 Business Days after
any Borrower or any of its Subsidiaries knows or has reason to know that
an ERISA Event has occurred that reasonably could be expected to result in
a Material Adverse Change, a written statement of the chief financial
officer of such Borrower describing such ERISA Event and any action that
is being taken with respect thereto by such Borrower, any such Subsidiary
or ERISA Affiliate, and any action taken or threatened by the IRS,
Department of Labor, or PBGC. Such Borrower or such Subsidiary, as
applicable, shall be deemed to know all facts known by the administrator
of any Benefit Plan of which it is the plan sponsor, (ii) promptly, and in
any event within 3 Business Days after the filing thereof with the IRS, a
copy of each funding waiver request filed with respect to any Benefit Plan
and all communications received by such Borrower, any of its Subsidiaries
or, to the knowledge of Borrowers, any ERISA Affiliate with respect to
such request, and (iii) promptly, and in any event within 3 Business Days
after receipt by such Borrower, any of its Subsidiaries or, to the
knowledge of Borrowers, any ERISA Affiliate, of the PBGC's intention to
terminate a Benefit Plan or to have a trustee appointed to administer a
Benefit Plan, copies of each such notice.
(b) Cause to be delivered to Foothill, upon Foothill's request,
each of the following: (i) a copy of each Plan (or, where any such plan
is not in writing, complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all written interpretations thereof and written descriptions
thereof that have been distributed to employees or former employees of any
Borrower or its Subsidiaries; (ii) the most recent determination letter
issued by the IRS with respect to each Benefit Plan; (iii) for the three
most recent plan years, annual reports on Form 5500 Series required to be
filed with any governmental agency for each Benefit Plan; (iv) all
actuarial reports prepared for the last three plan years for each Benefit
Plan; (v) a listing of all Multiemployer Plans, with the aggregate amount
of the most recent annual contributions required to be made by any
Borrower or any ERISA Affiliate to each such plan and copies of the
collective bargaining agreements requiring such contributions; (vi) any
information that has been provided to any Borrower or any ERISA Affiliate
regarding withdrawal liability under any Multiemployer Plan; and (vii) the
aggregate amount of the most recent annual payments made to former
employees of any Borrower or its Subsidiaries under any Retiree Health
Plan.
6.15. Leases.
Pay when due all rents and other amounts payable under any
leases to which any Borrower is a party or by which any Borrower's
properties and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that any Borrower fails timely to make
payment of such rents and other amounts payable when due under its leases,
Foothill shall be entitled, in its discretion, to reserve an amount equal
to such unpaid amounts against the Borrowing Base.
6.16. Copyrights.
Each Borrower will promptly register with the applicable federal
filing office (a) all copyrights and all works protectable by copyrights
that account for more than 2% of its revenues or are otherwise material to
its business, (b) any material changes to copyrights that have already
been registered by such Borrower with the applicable federal filing
office, and (c) on an annual basis any changes to copyrights that have
already been registered by such Borrower with the applicable federal
filing office.
7. NEGATIVE COVENANTS.
Each Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until full and final payment of the
Obligations, no Borrower will do any of the following without Foothill's
prior written consent:
7.1. Indebtedness.
Create, incur, assume, permit, guarantee, or otherwise become or
remain, directly or indirectly, liable with respect to any Indebtedness,
except:
(a) Indebtedness evidenced by this Agreement, together with
Indebtedness to issuers of letters of credit that are the subject of L/C
Guarantees;
(b) Indebtedness set forth on Schedule 7.1;
(c) Indebtedness secured by Permitted Liens; and
(d) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (b) and (c) of this Section 7.1 (and continuance
or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such refinancings, renewals, or extensions
do not materially impair the prospects of repayment of the Obligations by
any Borrower, (ii) the net cash proceeds of such refinancings, renewals,
or extensions do not result in an increase in the aggregate principal
amount of the Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, renewals, refundings, or extensions do not result in a
shortening of the average weighted maturity of the Indebtedness so
refinanced, renewed, or extended, and (iv) to the extent that Indebtedness
that is refinanced was subordinated in right of payment to the
Obligations, then the subordination terms and conditions of the
refinancing Indebtedness must be at least as favorable to Foothill as
those applicable to the refinanced Indebtedness.
7.2. Liens.
Create, incur, assume, or permit to exist, directly or
indirectly, any Lien on or with respect to any of its property or assets,
of any kind, whether now owned or hereafter acquired, or any income or
profits therefrom, except for Permitted Liens (including Liens that are
replacements of Permitted Liens to the extent that the original
Indebtedness is refinanced under Section 7.1(d) and so long as the
replacement Liens only encumber those assets or property that secured the
original Indebtedness).
7.3. Restrictions on Fundamental Changes.
Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock, or liquidate, wind up,
or dissolve itself (or suffer any liquidation or dissolution), or convey,
sell, assign, lease, transfer, or otherwise dispose of, in one transaction
or a series of transactions, all or any substantial part of its property
or assets.
7.4. Disposal of Assets.
Sell, lease, assign, transfer, or otherwise dispose of any of
any Borrower's properties or assets other than sales of Inventory to
buyers in the ordinary course of such Borrower's business as currently
conducted; provided, that so long as no Event of Default exists,
Borrowers' may dispose of obsolete or unuseful Equipment with a book value
of up to $25,000 in any fiscal year to the extent the proceeds thereof are
remitted to Foothill and applied to the Obligations in such order and
manner as Foothill shall determine.
7.5. Change Name.
Change any Borrower's name, FEIN, corporate structure (within
the meaning of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6. Guarantee.
Guarantee or otherwise become in any way liable with respect to
the obligations of any third Person except by endorsement of instruments
or items of payment for deposit to the account of a Borrower or which are
transmitted or turned over to Foothill.
7.7. Nature of Business.
Make any change in the principal nature of any Borrower's
business.
7.8. Prepayments and Amendments.
(a) Except in connection with a refinancing permitted by
Section 7.1(d), prepay, redeem, retire, defease, purchase, or otherwise
acquire any Indebtedness owing to any third Person, other than the
Obligations in accordance with this Agreement, and
(b) Directly or indirectly, amend, modify, alter, increase, or
change any of the terms or conditions of any agreement, instrument,
document, indenture, or other writing evidencing or concerning
Indebtedness permitted under Sections 7.1(b), (c) or (d).
7.9. Change of Control.
Cause, permit, or suffer, directly or indirectly, any Change of
Control.
7.10. Consignments.
Consign any Inventory or sell any Inventory on bill and hold,
sale or return, sale on approval, or other conditional terms of sale.
7.11. Distributions.
Make any distribution or declare or pay any dividends (in cash
or other property, other than capital stock) on, or purchase, acquire,
redeem, or retire any of any Borrower's capital stock, of any class,
whether now or hereafter outstanding, except that each of EMS-East and
EMS-Illinois may pay dividends to EMS.
7.12. Accounting Methods.
Modify or change its method of accounting or enter into, modify,
or terminate any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service bureau for
the preparation or storage of any Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Foothill
information regarding the Collateral or such Borrower's financial
condition. Each Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service
bureau in connection with any information requested by Foothill pursuant
to or in accordance with this Agreement, and agrees that Foothill may
contact directly any such accounting firm or service bureau in order to
obtain such information.
7.13. Investments.
Directly or indirectly make, acquire, or incur any liabilities
(including contingent obligations) for or in connection with (a) the
acquisition of the securities (whether debt or equity) of, or other
interests in, a Person, (b) loans, advances, capital contributions, or
transfers of property to a Person, or (c) the acquisition of all or
substantially all of the properties or assets of a Person.
7.14. Transactions with Affiliates.
Except as described on Schedule 7.14, directly or indirectly
enter into or permit to exist any material transaction with any Affiliate
of any Borrower except for transactions that are in the ordinary course of
such Borrower's business, upon fair and reasonable terms, that are fully
disclosed to Foothill, and that are no less favorable to such Borrower
than would be obtained in an arm's length transaction with a non-
Affiliate.
7.15. Suspension.
Suspend or go out of a substantial portion of its business.
7.16. Compensation.
Increase the annual fee or per-meeting fees paid to directors of
Borrowers during any year by more than 15% over the prior year; pay or
accrue total cash compensation, during any year, to officers and senior
management employees of Borrowers in an aggregate amount in excess of 115%
of that paid or accrued in the prior year.
7.17. Use of Proceeds.
Use the proceeds of the Advances and the Term Loan made
hereunder for any purpose other than (i) on the Closing Date, (y) to repay
in full the outstanding principal, accrued interest, and accrued fees and
expenses owing to Existing Lender, and (z) to pay transactional costs and
expenses incurred in connection with this Agreement, and (ii) thereafter,
consistent with the terms and conditions hereof, for its lawful and
permitted corporate purposes.
7.18. Change in Location of Chief Executive Office; Inventory and
Equipment with Bailees.
Relocate its chief executive office to a new location without
providing 30 days prior written notification thereof to Foothill and so
long as, at the time of such written notification, Borrowers provide any
financing statements or fixture filings necessary to perfect and continue
perfected Foothill's security interests and also provides to Foothill a
Collateral Access Agreement with respect to such new location. The
Inventory and Equipment shall not at any time now or hereafter be stored
with a bailee, warehouseman, or similar party without Foothill's prior
written consent.
7.19. No Prohibited Transactions Under ERISA.
Directly or indirectly:
(a) engage, or permit any Subsidiary of any Borrower to engage,
in any prohibited transaction which is reasonably likely to result in a
civil penalty or excise tax described in Sections 406 of ERISA or 4975 of
the IRC for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department of
Labor;
(b) permit to exist with respect to any Benefit Plan any
accumulated funding deficiency (as defined in Sections 302 of ERISA
and 412 of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of any Borrower to fail, to
pay timely required contributions or annual installments due with respect
to any waived funding deficiency to any Benefit Plan;
(d) terminate, or permit any Subsidiary of any Borrower to
terminate, any Benefit Plan where such event would result in any liability
of such Borrower, any of its Subsidiaries or any ERISA Affiliate under
Title IV of ERISA;
(e) fail, or permit any Subsidiary of any Borrower to fail, to
make any required contribution or payment to any Multiemployer Plan;
(f) fail, or permit any Subsidiary of any Borrower to fail, to
pay any required installment or any other payment required under
Section 412 of the IRC on or before the due date for such installment or
other payment;
(g) amend, or permit any Subsidiary of any Borrower to amend, a
Plan resulting in an increase in current liability for the plan year such
that any Borrower, any Subsidiary of any Borrower or any ERISA Affiliate
is required to provide security to such Plan under Section 401(a)(29) of
the IRC; or
(h) withdraw, or permit any Subsidiary of any Borrower to
withdraw, from any Multiemployer Plan where such withdrawal is reasonably
likely to result in any liability of any such entity under Title IV of
ERISA;
which, individually or in the aggregate, results in or reasonably would be
expected to result in a claim against or liability of any Borrower, any of
its Subsidiaries or any ERISA Affiliate in excess of $100,000.
7.20. Financial Covenants.
Fail to maintain:
(a) Tangible Net Worth. Tangible Net Worth as of the last day
of any fiscal quarter set forth below of at least the amount set forth
below opposite such fiscal quarter:
Fiscal Quarter Amount
February 28, 1998, May 31, $250,000
1998 and August 31, 1998
November 30, 1998, $500,000
February 28, 1999 and May
31, 1999
August 31, 1999 and the $750,000
last day of each fiscal
quarter thereafter
(b) EBITDA. EBITDA for any period set forth below of at least
the amount set forth below opposite such period:
Period Amount
3 month period ending ($500,000)
February 28, 1998
6 month period ending May 0
31, 1998
9 month period ending 0
August 31, 1998
12 month period ending $1,000,000
November 30, 1998 and 12
month period ending
February 28, 1999
12 month period ending May $1,500,000
31, 1999 and 12 month
period ending on the last
day of each fiscal quarter
thereafter
7.21. Capital Expenditures.
Make capital expenditures in any fiscal year set forth below in
excess of the amount set forth opposite such fiscal year:
Period Amount
Fiscal year ending November $1,500,000
30, 1998
Fiscal year ending November $1,750,000
30, 1999
Fiscal year ending November $2,000,000
30, 2000 and each fiscal
year thereafter
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1. If any Borrower fails to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions
of the Bankruptcy Code, would have accrued on such amounts), fees and
charges due Foothill, reimbursement of Foothill Expenses, or other amounts
constituting Obligations);
8.2. If any Borrower fails to perform, keep, or observe any term,
provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between such Borrower and Foothill and such failure continues for 5 days;
provided, that such 5 day period shall not apply in the case of (A) any
failure to observe any such term, provision, condition, covenant or
agreement which is not capable of being cured or which has been the
subject of a prior failure within a 6 month period or (B) an intentional
breach by a Borrower of any such term, provision, condition, covenant or
agreement, or (C) the failure to observe or perform any of the covenants
or provisions contained in Section 2.7, 6.10 or Section 7 of this
Agreement or any covenants or agreements covering substantially the same
matter as such sections in any of the other Loan Documents;
8.3. If there is a Material Adverse Change;
8.4. If any material portion of any Borrower's properties or assets
is attached, seized, subjected to a writ or distress warrant, or is levied
upon, or comes into the possession of any third Person;
8.5. If an Insolvency Proceeding is commenced by any Borrower;
8.6. If an Insolvency Proceeding is commenced against any Borrower
and any of the following events occur: (a) any Borrower consents to the
institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within 60
calendar days of the date of the filing thereof; provided, however, that,
during the pendency of such period, Foothill shall be relieved of its
obligation to extend credit hereunder; (d) an interim trustee is appointed
to take possession of all or a substantial portion of the properties or
assets of, or to operate all or any substantial portion of the business
of, any Borrower; or (e) an order for relief shall have been issued or
entered therein;
8.7. If any Borrower is enjoined, restrained, or in any way prevented
by court order from continuing to conduct all or any material part of its
business affairs;
8.8. If a notice of Lien, levy, or assessment is filed of record with
respect to any of any Borrower's properties or assets by the United States
Government, or any department, agency, or instrumentality thereof, or by
any state, county, municipal, or governmental agency, or if any taxes or
debts owing at any time hereafter to any one or more of such entities
becomes a Lien, whether choate or otherwise, upon any of any Borrower's
properties or assets and the same is not paid on the payment date thereof;
provided, however, that such notice of Lien, levy or assessment shall not
constitute an Event of Default under this Section 8.8 if such notice of
Lien, levy or assessment is subject to a Permitted Protest and involves
less than $25,000;
8.9. If a judgment or other claim becomes a Lien or encumbrance upon
any material portion of any Borrower's properties or assets;
8.10. If there is a default in any material agreement to which
any Borrower is a party with one or more third Persons and such default
(a) occurs at the final maturity of the obligations thereunder, or
(b) results in a right by such third Person(s), irrespective of whether
exercised, to accelerate the maturity of any Borrower's obligations
thereunder;
8.11. If any Borrower makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment
to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.12. If any warranty, representation, statement, or report made
to Foothill by any Borrower or any officer, employee, agent, or director
of any Borrower, is untrue or misleading in any material respect when
made, or if any such warranty or representation is withdrawn; or
8.13. If the obligation of any guarantor under its guaranty or
other third Person under any Loan Document is limited or terminated by
operation of law or by the guarantor or other third Person thereunder, or
any such guarantor or other third Person becomes the subject of an
Insolvency Proceeding.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1. Rights and Remedies.
Upon the occurrence, and during the continuation, of an Event of
Default Foothill may, at its election, without notice of its election and
without demand, do any one or more of the following, all of which are
authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable;
(b) Cease advancing money or extending credit to or for the
benefit of Borrowers under this Agreement, under any of the Loan
Documents, or under any other agreement between any Borrower and Foothill;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Foothill, but
without affecting Foothill's rights and security interests in the
Collateral and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly with Account
Debtors for amounts and upon terms which Foothill considers advisable, and
in such cases, Foothill will credit Borrowers' Loan Account with only the
net amounts received by Foothill in payment of such disputed Accounts
after deducting all Foothill Expenses incurred or expended in connection
therewith;
(e) Cause each Borrower to hold all returned Inventory in trust
for Foothill, segregate all returned Inventory from all other property of
such Borrower or in such Borrower's possession and conspicuously label
said returned Inventory as the property of Foothill;
(f) Without notice to or demand upon any Borrower or any
guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the
Collateral. Each Borrower agrees to assemble the Collateral if Foothill
so requires, and to make the Collateral available to Foothill as Foothill
may designate. Each Borrower authorizes Foothill to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or
compromise any encumbrance, charge, or Lien that in Foothill's
determination appears to conflict with its security interests and to pay
all expenses incurred in connection therewith. With respect to any of
each Borrower's owned or leased premises, each Borrower hereby grants
Foothill a license to enter into possession of such premises and to occupy
the same, without charge, in order to exercise any of Foothill's rights or
remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to any Borrower (such notice being expressly
waived), and without constituting a retention of any collateral in
satisfaction of an obligation (within the meaning of Section 9505 of the
Code), set off and apply to the Obligations any and all (i) balances and
deposits of any Borrower held by Foothill (including any amounts received
in the Lockbox Accounts), or (ii) indebtedness at any time owing to or for
the credit or the account of Borrowers held by Foothill;
(h) Hold, as cash collateral, any and all balances and deposits
of any Borrower held by Foothill, and any amounts received in the Lockbox
Accounts, to secure the full and final repayment of all of the
Obligations;
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Foothill is hereby granted a license or other
right to use, without charge, each Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and any Borrower's rights under all
licenses and all franchise agreements shall inure to Foothill's benefit;
(j) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on
terms, in such manner and at such places (including any Borrower's
premises) as Foothill determines is commercially reasonable. It is not
necessary that the Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of the
Collateral as follows:
(i) Foothill shall give Borrowers and each holder of
a security interest in the Collateral who has filed with
Foothill a written request for notice, a notice in writing
of the time and place of public sale, or, if the sale is a
private sale or some other disposition other than a public
sale is to be made of the Collateral, then the time on or
after which the private sale or other disposition is to be
made;
(ii) The notice shall be personally delivered or
mailed, postage prepaid, to Borrowers as provided in
Section 12, at least 10 days before the date fixed for the
sale, or at least 10 days before the date on or after which
the private sale or other disposition is to be made; no
notice needs to be given prior to the disposition of any
portion of the Collateral that is perishable or threatens
to decline speedily in value or that is of a type
customarily sold on a recognized market. Notice to Persons
other than Borrowers claiming an interest in the Collateral
shall be sent to such addresses as they have furnished to
Foothill;
(iii) If the sale is to be a public sale, Foothill
also shall give notice of the time and place by publishing
a notice one time at least 10 days before the date of the
sale in a newspaper of general circulation in the county in
which the sale is to be held;
(l) Foothill may credit bid and purchase at any public sale;
and
(m) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers. Any
excess will be returned, without interest and subject to the rights of
third Persons, by Foothill to Borrowers.
9.2. Remedies Cumulative.
Foothill's rights and remedies under this Agreement, the Loan
Documents, and all other agreements shall be cumulative. Foothill shall
have all other rights and remedies not inconsistent herewith as provided
under the Code, by law, or in equity. No exercise by Foothill of one
right or remedy shall be deemed an election, and no waiver by Foothill of
any Event of Default shall be deemed a continuing waiver. No delay by
Foothill shall constitute a waiver, election, or acquiescence by it.
10. TAXES AND EXPENSES.
If any Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or
assets, rents or other amounts payable under such leases) due to third
Persons, or fails to make any deposits or furnish any required proof of
payment or deposit, all as required under the terms of this Agreement,
then, to the extent that Foothill determines that such failure by such
Borrower could result in a Material Adverse Change, in its discretion and
without prior notice to any Borrower, Foothill may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up
such reserves in Borrowers' Loan Account as Foothill deems necessary to
protect Foothill from the exposure created by such failure; or (c) obtain
and maintain insurance policies of the type described in Section 6.10, and
take any action with respect to such policies as Foothill deems prudent.
Any such amounts paid by Foothill shall constitute Foothill Expenses. Any
such payments made by Foothill shall not constitute an agreement by
Foothill to make similar payments in the future or a waiver by Foothill of
any Event of Default under this Agreement. Foothill need not inquire as
to, or contest the validity of, any such expense, tax, or Lien and the
receipt of the usual official notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1. Demand; Protest; etc.
Each Borrower waives demand, protest, notice of protest, notice
of default or dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and guarantees at any
time held by Foothill on which such Borrower may in any way be liable.
11.2. Foothill's Liability for Collateral.
So long as Foothill complies with its obligations, if any, under
Section 9207 of the Code, Foothill shall not in any way or manner be
liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from
any cause; (c) any diminution in the value thereof; or (d) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other
Person. All risk of loss, damage, or destruction of the Collateral shall
be borne by Borrowers.
11.3. Indemnification.
Each Borrower shall pay, indemnify, defend, and hold Foothill
and each of their respective officers, directors, employees, counsel,
agents, and attorneys-in-fact (each, an "Indemnified Person") harmless (to
the fullest extent permitted by law) from and against any and all claims,
demands, suits, actions, investigations, proceedings, and damages, and all
reasonable attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are incurred
and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as
a result of or related to the execution, delivery, enforcement,
performance, and administration of this Agreement and any other Loan
Documents or the transactions contemplated herein, and with respect to any
investigation, litigation, or proceeding related to this Agreement, any
other Loan Document, or the use of the proceeds of the credit provided
hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner
related thereto (all the foregoing, collectively, the "Indemnified
Liabilities"). No Borrower shall have any obligation to any Indemnified
Person under this Section 11.3 with respect to any Indemnified Liability
that a court of competent jurisdiction finally determines to have resulted
from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement
and the repayment of the Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by registered or certified
mail (postage prepaid, return receipt requested), overnight courier, or
facsimile to Borrowers or to Foothill, as the case may be, at its address
set forth below:
If to Borrowers: c/o Effective Management Systems, Inc.
12000 West Park Place
Milwaukee, Wisconsin 53224
Attn: Jeffrey Fossum
Fax No. (414) 359-9011
with copies to: c/o Effective Management Systems, Inc.
12000 West Park Place
Milwaukee, Wisconsin 53224
Attn: Richard Koenings, Esq.
Fax No. (414) 359-9011
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn: Business Finance Division Manager
Fax No. (310) 478-9788
with copies to: GOLDBERG, KOHN, BELL, BLACK,
ROSENBLOOM & MORITZ, LTD.
55 East Monroe Street
Suite 3700
Chicago, Illinois 60603
Attn: Gary Zussman, Esq.
Fax No. (312) 332-2196
The parties hereto may change the address at which they are to
receive notices hereunder, by notice in writing in the foregoing manner
given to the other. All notices or demands sent in accordance with this
Section 12, other than notices by Foothill in connection with
Sections 9504 or 9505 of the Code, shall be deemed received on the earlier
of the date of actual receipt or 3 days after the deposit thereof in the
mail. Each Borrower acknowledges and agrees that notices sent by Foothill
in connection with Sections 9504 or 9505 of the Code shall be deemed sent
when deposited in the mail or personally delivered, or, where permitted by
law, transmitted facsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN AN ANOTHER LOAN DOCUMENT),
THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND
THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS
ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR
PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT
THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF EACH BORROWER AND
FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT
EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS
SECTION 13. EACH OF EACH BORROWER AND FOOTHILL HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
OF EACH BORROWER AND FOOTHILL REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWERS' DOCUMENTS.
All documents, schedules, invoices, agings, or other papers
delivered to Foothill may be destroyed or otherwise disposed of by
Foothill 4 months after they are delivered to or received by Foothill,
unless a Borrower requests, in writing, the return of said documents,
schedules, or other papers and makes arrangements, at such Borrower's
expense, for their return.
15. GENERAL PROVISIONS.
15.1. Effectiveness.
This Agreement shall be binding and deemed effective when
executed by each Borrower and Foothill.
15.2. Successors and Assigns.
This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided,
however, that no Borrower may assign this Agreement or any rights or
duties hereunder without Foothill's prior written consent and any
prohibited assignment shall be absolutely void. No consent to an
assignment by Foothill shall release any Borrower from its Obligations.
Foothill may assign this Agreement and its rights and duties hereunder and
no consent or approval by any Borrower is required in connection with any
such assignment. Foothill reserves the right to sell, assign, transfer,
negotiate, or grant participations in all or any part of, or any interest
in Foothill's rights and benefits hereunder. In connection with any such
assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to any
Borrower or any Borrower's business. To the extent that Foothill assigns
its rights and obligations hereunder to a third Person, Foothill
thereafter shall be released from such assigned obligations to Borrowers.
15.3. Section Headings.
Headings and numbers have been set forth herein for convenience
only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.
15.4. Interpretation.
Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Foothill or Borrowers, whether
under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purposes and intentions of all parties hereto.
15.5. Severability of Provisions.
Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
15.6. Amendments in Writing.
This Agreement can only be amended by a writing signed by both
Foothill and Borrowers.
15.7. Counterparts; Facsimile Execution.
This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
facsimile shall be equally as effective as delivery of an original
executed counterpart of this Agreement. Any party delivering an executed
counterpart of this Agreement by facsimile also shall deliver an original
executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity,
enforceability, and binding effect of this Agreement.
15.8. Revival and Reinstatement of Obligations.
If the incurrence or payment of the Obligations by Borrowers or
any guarantor of the Obligations or the transfer by either or both of such
parties to Foothill of any property of either or both of such parties
should for any reason subsequently be declared to be void or voidable
under any state or federal law relating to creditors' rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or
transfers of property (collectively, a "Voidable Transfer"), and if
Foothill is required to repay or restore, in whole or in part, any such
Voidable Transfer, or elects to do so upon the reasonable advice of its
counsel, then, as to any such Voidable Transfer, or the amount thereof
that Foothill is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill related
thereto, the liability of Borrowers or such guarantor automatically shall
be revived, reinstated, and restored and shall exist as though such
Voidable Transfer had never been made.
15.9. Integration.
This Agreement, together with the other Loan Documents, reflects
the entire understanding of the parties with respect to the transactions
contemplated hereby and shall not be contradicted or qualified by any
other agreement, oral or written, before the date hereof.
15.10. Joint and Several Liability.
(a) The obligation of the Borrowers hereunder and under the
other Loan Documents are joint and several.
(b) The liability of each Borrower hereunder and under the Loan
Documents shall be absolute, unconditional and irrevocable irrespective
of:
(i) any lack of validity, legality or enforceability
of this Agreement, or any other Loan Document as to any
Borrower;
(ii) the failure of Foothill
(A) to enforce any right or remedy against any
Borrower or any other Person (including any guarantor
or any Borrower) under the provisions of this
Agreement, any other Loan Documents or otherwise, or
(B) to exercise any right or remedy against any
guarantor of, or collateral security any Obligations;
(iii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
Obligations, or other extension, compromise or renewal of
any Obligations;
(iv) any reduction, limitation, impairment or
termination of any Obligations with respect to any Borrower
for any reason including any claim of waiver, release,
surrender, alteration or compromise, and shall not be
subject to (and each Borrower hereby waives any right to or
claim of) any defense or setoff, counterclaim, recoupment
or termination whatsoever by reason of the invalidity,
illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence
affecting, any Obligations with respect to any Borrower;
(v) any addition, exchange, release, surrender or
nonperfection of any Collateral, or any amendment to or
waiver or release or addition of, or consent to departure
from any guaranty, held by any Foothill securing any of the
Obligations; or
(vi) any other circumstance which might otherwise
constitute a defense available to, or a legal or equitable
discharge of, any Borrower, any surety or any guarantor.
Each Borrower agrees if such Borrower's joint and several
liability hereunder, or if any liens securing such joint and several
liability, would, but for the application of this sentence, be
unenforceable under applicable law, such joint and several liability and
each such lien shall be valid and enforceable to the maximum extent that
would not cause such joint and several liability or such lien to be
enforceable under applicable law, and such joint and several liability and
such lien shall be deemed to have been automatically amended accordingly
at all relevant times.
To the maximum extent permitted by law, each Borrower hereby
waives any defense arising by reason of any claim or defense based upon an
election of remedies by Foothill including any defense based upon an
election of remedies by Foothill under the provisions of Sections 580d and
726 of the California Code of Civil Procedure, or any similar law of
California or any other jurisdiction.
WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER
PROVISION SET FORTH IN THIS AGREEMENT, EACH BORROWER HEREBY WAIVES, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ANY AND ALL BENEFITS OR DEFENSES ARISING
DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE
SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2838, 2839,
2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS
580a, 580b, 580c, 580d, AND 726, AND CHAPTER 2 OF TITLE 14 OF THE
CALIFORNIA CIVIL CODE.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
EFFECTIVE MANAGEMENT SYSTEMS, INC.,
a Wisconsin corporation
By
Title
EMS-EAST, INC., a Massachusetts
corporation
By
Title
EFFECTIVE MANAGEMENT SYSTEMS OF
ILLINOIS, INC., an Illinois
corporation
By
Title
FOOTHILL CAPITAL CORPORATION,
a California corporation
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