WAIVER AND FIRST AMENDMENT TO
LOAN AGREEMENT
THIS WAIVER AND FIRST AMENDMENT (this "Amendment") is entered into as
of May 8, 1998, among Effective Management Systems, Inc. ("EMS"), a
Wisconsin corporation, EMS-East, Inc. ("EMS-East"), a Massachusetts
corporation, 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"), and
Foothill Capital Corporation ("Lender").
WHEREAS, Borrowers and Lender are parties to a Loan and Security
Agreement dated as of December 30, 1997 (the "Loan Agreement");
WHEREAS, Borrowers have executed a Secured Promissory Note dated
December 30, 1997 (the "Note");
WHEREAS, Borrowers have requested that Lender consent to the deferral
of the two installment payments of principal due on May 10, 1998 and June
10, 1998 under the Note until the third anniversary of the Closing Date
(as defined in the Loan Agreement); and
WHEREAS, Borrowers have requested that Lender amend the Loan
Agreement, and Lender has agreed to do so subject to the terms and
conditions contained herein;
NOW THEREFORE, in consideration of the premises and mutual agreements
herein contained, the parties hereto agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the
Loan Agreement.
2. Consent. Subject to the satisfaction of the conditions set
forth in Section 5 hereof, Lender hereby consents to the deferral of the
two installment payments of principal due on May 10, 1998 and June 10,
1998 under the Note until the third anniversary of the Closing Date.
3. Amendments to Loan Agreement. Subject to the satisfaction of
the conditions set forth in Section 5 hereof, the Loan Agreement is
amended as follows:
(a) Section 2.1(a) of the Loan Agreement if hereby amended and
restated in its entirety, as follows:
"(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) and 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 judgement), minus
(y) the aggregate amount of reserves, if any, established by
Foothill under Section 2.1(b), plus.
(z) the "Additional Availability Amount" (as defined below).
The "Additional Availability Amount" means (i) during the period
commencing on May 8, 1998 and ending on August 31, 1998 (the
"Additional Availability Termination Date"), an amount up to $750,000
as designated in writing by EMS to Foothill, provided that such
designation shall be in increments of $250,000 and (ii) at all times
on and after the Additional Availability Termination Date, an amount
equal to zero."
(b) Section 2.11 of the Loan Agreement is hereby amended to add the
following sentence at the end of said section, as follows:
"(e) Additional Availability Fees. At the time EMS designates an
Additional Availability Amount, a fee of $2,500 per $250,000 so
designated."
4. Ratification. This Amendment, subject to satisfaction of the
conditions provided below, shall constitute amendments to the Loan
Agreement and all of the Loan Documents as appropriate to express the
agreements contained herein. In all other respects, the Loan Agreement
and the Loan Documents shall remain unchanged and in full force and effect
in accordance with their original terms. Without limiting the foregoing,
Borrower acknowledges that Eligible Accounts do not include Accounts with
respect to which goods are placed on consignment, guaranteed sale, sale or
return, sale on approval, bill and hold (unless the Account Debtor with
respect to such bill and hold goods has unconditionally agreed in writing
to purchase such goods), or other terms by reason of which the payment by
the Account Debtor may be conditional.
5. Conditions to Effectiveness. Subject to Section 6 below, the
amendments to the Loan Agreement set forth in this Amendment shall become
effective as of the date of this Amendment and upon the satisfaction of
the following conditions precedent in form and substance satisfactory to
Lender:
(a) Deferral Fee. Borrower shall pay to Lender a deferral fee equal
to Two Thousand Five Hundred Dollars ($2,500)
(b) No Default. No Event of Default or event which, with the giving
of notice or the passage of time, or both would become an Event of
Default, shall have occurred and be continuing, and, after giving effect
to the amendments contained herein, no Event of Default or event which,
with the giving of notice or the passage of time, or both, would become an
Event of Default, shall have occurred and be continuing.
6. Miscellaneous.
(a) Warranties and Absence of Defaults. In order to induce Lender
to enter into this Amendment, each Borrower hereby warrants to Lender, as
of the date hereof, that:
(i) The warranties of such Borrower contained in the Loan
Agreement, as herein amended, are true and correct as of the date
hereof as if made on the date hereof.
(ii) All information, reports and other papers and data
heretofore furnished to Lender by such Borrower in connection with
this Amendment, the Loan Agreement and the other Loan Documents are
accurate and correct in all material respects and complete insofar as
may be necessary to give Lender true and accurate knowledge of the
subject matter thereof. Such Borrower has disclosed to Lender every
fact of which it is aware which would reasonably be expected to
materially and adversely affect the business, operations or financial
condition of such Borrower or the ability of such Borrower to perform
its obligations under this Amendment, the Loan Agreement or under any
of the other Loan Documents. None of the information furnished to
Lender by or on behalf of such Borrower contained any material
misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained herein or therein not
materially misleading.
(iii) No Event of Default or event which, with giving of
notice or the passage of time, or both would become an Event of
Default, exists as of the date hereof.
(b) Expenses. Borrowers agree to pay on demand all costs and
expenses of Lender (including the reasonable fees and expenses of outside
counsel for Lender) in connection with the preparation, negotiation,
execution, delivery and administration of the Amendment and all other
instruments or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith. In addition, Borrowers
agree to pay, and save Lender harmless from all liability for, any stamp
or other taxes which may be payable in connection with the execution or
delivery of this Amendment or the Loan Agreement, as amended hereby, and
the execution and delivery of any instruments or documents provided for
herein or delivered or to be delivered hereunder or in connection
herewith. All obligations provided in this Section 6 (b) shall survive
any termination of this Amendment and the Loan Agreement as amended
hereby.
(c) Governing Law. This Amendment shall be a contract made under
and governed by the internal laws of the State of California.
(d) Counterparts. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered,
shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same Amendment.
(e) Reference to Loan Agreement. On and after the effectiveness of
the amendment to the Loan Agreement accomplished hereby, each reference in
the Loan Agreement to "this Agreement," "hereunder," "hereof," "herein" or
words of like import, and each reference to the Loan Agreement in any Loan
Documents, or other agreements, documents or other instruments executed
and delivered pursuant to the Loan Agreement, shall mean and be a
reference tot he Loan Agreement, as amended by this Amendment.
(f) Successors. This Amendment shall be binding upon Borrowers,
Lender and their respective successors and assigns, and shall inure to the
benefit of Borrowers, Lender and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized and
delivered as of the date first above written.
EFFECTIVE MANAGEMENT SYSTEMS, INC.,
a Wisconsin corporation
By
Its President
EMS-EAST, Inc., a Massachusetts
corporation
By
Its Secretary
EFFECTIVE MANAGEMENT SYSTEMS OF
ILLINOIS, an Illinois corporation
By
Its Secretary
FOOTHILL CAPITAL CORPORATION,
a California corporation
By
Its Vice President