AMENDED AND RESTATED WORKING CAPITAL
FINANCING AND TERM LOAN AGREEMENT
This AMENDED AND RESTATED WORKING CAPITAL FINANCING AND TERM LOAN AGREEMENT (as
amended, supplemented or otherwise modified from time to time, this "Agreement")
is hereby made this 30th day of August, 1996, by and between IBM CREDIT
CORPORATION with a place of business at 5000 Executive Parkway, Suite 450, San
Ramon, CA 94583 ("IBM Credit"), and RADIUS INC. with a place of business at 215
Moffett Park Drive, Sunnyvale, CA 94089 ("Customer").
RECITALS
WHEREAS, Customer and IBM Credit entered into that certain Inventory and
Working Capital Financing Agreement dated as of February 17, 1995 (as amended,
supplemented or otherwise modified prior to the date hereof, the "Existing
Financing Agreement") pursuant to which Customer requested that IBM Credit
finance Customer's acquisition of inventory and equipment and finance Customer's
working capital requirements;
WHEREAS, Customer has been in default of the terms and conditions of the
Existing Financing Agreement and has been in default of payments to its other
creditors;
WHEREAS, on or about January 29, 1996 certain of the largest unsecured
creditors of Customer formed a committee (the "Unsecured Creditors Committee")
to resolve Customer's payment defaults to its unsecured creditors;
WHEREAS, Customer and IBM Credit have agreed that IBM Credit shall not
finance Customer's purchases of Products (as defined in the Existing Financing
Agreement) from Authorized Suppliers (as defined in the Existing Financing
Agreement);
WHEREAS, IBM Credit is willing to agree to restructure the indebtedness of
Customer under the Existing Financing Agreement by (1) converting Three Million
($3,000,000.00) of such indebtedness to senior convertible preferred stock of
Customer, (2) continuing a portion of such indebtedness under a secured working
capital line of credit and (3) continuing the remaining portion of such
indebtedness as a secured term loan;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that the Existing Financing Agreement is
hereby amended and restated in its entirety to read as follows:
Section 1. DEFINITIONS
1.1 Special Definitions. The following terms shall have the following
respective meanings in this Agreement:
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"A/R Advance": any loan or advance of funds made by IBM Credit to Customer
pursuant to Section 2.2 of this Agreement.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.
"A/R Finance Charges": as defined on Attachment A.
"Abacus": Abacus, Ltd., successor in interest to Gradeup, Ltd. and a wholly-
owned subsidiary of Computers Unlimited (Europe).
"Accounts": as defined in the U.C.C.
"Advance": any loan or other extension of credit by IBM Credit to Customer
pursuant to this Agreement including, without limitation, A/R Advances and the
Term Loan.
"Affiliate": with respect to the Customer, any Person meeting one of the
following: (i) at least 10% of such Person's equity is owned, directly or
indirectly, by Customer; (ii) at least 10% of Customer's equity is owned,
directly or indirectly, by such Person; or (iii) at least 10% of Customer's
equity and at least 10% of such Person's equity is owned, directly or
indirectly, by the same Person or Persons. All of Customer's officers,
directors, joint venturers, and partners shall also be deemed to be Affiliates
of Customer for purposes of this Agreement.
"Approved Officer": the chief executive officer, chief financial officer or
other officer of Radius approved in writing by IBM Credit.
"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customer and satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding A/R Advances at such time.
"Average Daily Balance": the sum of the Outstanding A/R Advances or Outstanding
Term Loan, as the case may be, as of the end of each day during a calendar
month, divided by the number of days in the calendar month.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
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"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by an Approved Officer, in
the form of Attachment F hereto, detailing and certifying, among other items:
Customer's Eligible Accounts, Customer's Eligible Foreign Accounts, the amounts
and aging of all of Customer's Accounts, the amounts and aging of Customer's
accounts payable as of a specified date, all of Customer's IBM Credit borrowing
activity during a specified period and the total amount of Customer's Borrowing
Base as well as Customer's Outstanding A/R Advances, Outstanding Term Loan,
Available Credit and any Shortfall Amount as of a specified date.
"Compliance Certificate": a certificate substantially in the form of Attachment
C.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Account": as defined in Section 3.1.
"Eligible Foreign Account": an account of Customer for which the account debtor
is QMS (Japan) or Abacus that, but for (i) such account being payable in other
than U.S. dollars and (ii) the account debtor for such account not being a
resident of the United States, constitutes an Eligible Account.
"Eligible Inventory": inventory of the Customer that (i) is in the possession or
under the control of Customer, (ii) is located in a jurisdiction in the United
States where IBM Credit has filed effective financing statements, (iii) is
subject to the perfected security interest of IBM Credit that is prior to all
other security interests in or liens on such inventory, (iv) is being held by
Customer for sale to customers in the ordinary course of business and (v) is not
inventory constituting spare parts.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or
any successor statutes.
"Event of Default": as defined in Section 9.1.
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"Financial Statements": the consolidated and consolidating balance sheets,
statements of operations, statements of cash flows and statements of changes in
shareholder's equity of Customer and its Subsidiaries for the period specified,
prepared in accordance with GAAP and consistent with prior practices.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other
political subdivision thereof, and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled (through stock or
capital ownership or otherwise) by any of the foregoing.
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases, (3) all obligations of such Person in respect of letters of
credit, banker's acceptances or similar obligations issued or created for the
account of such Person, (4) liabilities arising under any interest rate
protection, future, option swap, cap or hedge agreement or arrangement under
which such Person is a party or beneficiary, (5) all obligations under
guaranties of such Person and (6) all liabilities secured by any Lien on any
property owned by such Person even though such Person has not assumed or
otherwise become liable for the payment thereof. For purposes of clarification,
Customer and IBM Credit acknowledge that preferred stock of Customer held by IBM
Credit shall not be considered "Indebtedness" as defined herein.
"Investment": with respect to any Person (the "Investor"), (1) any investment
by the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Line of Credit": as defined in Section 2.1.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving
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consideration to reasonably likely delays in payment and reasonable costs of
enforcement) in the liquidation of such Collateral to recover the Obligations in
full, or (3) on the rights and remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Line of Credit and
(2) the Borrowing Base at such time.
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit.
"Other Agreements": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules, contracts and similar agreements executed by
Customer and delivered to IBM Credit, pursuant to this Agreement or otherwise,
and all amendments, supplements and other modifications to the foregoing from
time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of the
Outstanding A/R Advances and the Outstanding Term Loan.
"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all A/R Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customer's account with IBM Credit.
"Outstanding Term Loan": at any time of determination, the sum of (1) the
unpaid principal amount of the Term Loan; and (2) any finance charge, fee,
expense or other amount related to the Term Loan charged to Customer's account
with IBM Credit. "Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B; (3) guaranties in
favor of IBM Credit;
(4) guaranties on behalf of Subsidiaries of Customer in favor of other creditors
in an aggregate amount at any time not exceeding fifty thousand dollars
($50,000.00);
(5) Customer's obligations under its lease relating to 215 Moffett Park Drive,
Sunnyvale, CA. as in existence on the date hereof;
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(6) Purchase Money Indebtedness incurred to purchase equipment to be used in
Customer's business in an amount not to exceed $250,000 per fiscal quarter; and
(7) Other Indebtedness consented to by IBM Credit in writing prior to the
incurrence thereof.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an intercreditor agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Liens described in Section I of Attachment B;
(3) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(4) attachment or judgment Liens individually or in the aggregate not in excess
of fifty thousand dollars ($50,000.00) (exclusive of (A) any amounts that are
duly bonded to the satisfaction of IBM Credit or (B) any amount fully covered by
insurance as to which the insurance company has acknowledged its obligation to
pay such judgment in full);
(5) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;
(6) extensions and renewals of the foregoing permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness which it secures, (B) such Liens
do not extend to any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and conditions no
more restrictive than the terms and conditions of the Liens being extended or
renewed;
(7) Liens for taxes, assessments or governmental charges not delinquent or
being contested, in good faith, by appropriate proceedings promptly instituted
and diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in
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order to be in conformity with GAAP and an adverse determination in such
proceedings could not reasonably be expected to have a Material Adverse Effect;
(8) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
(9) Purchase Money Security Interests securing Purchase Money Indebtedness
constituting Permitted Indebtedness;
(10) Liens in favor of IBM Credit arising pursuant to this Agreement; and
(11) other Liens arising after the date hereof and consented to by IBM Credit
in writing prior to the incurrence thereof.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Agreements.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., The Chase Manhattan Bank, N.A. and Bank of
America National Trust & Savings Association as their prime or base rate, as of
the last Business Day of the calendar month immediately preceding the date of
determination, whether or not such announced rates are the actual rates charged
by such banking institutions to their most creditworthy borrowers.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets to be used in the Customer's
business not to exceed the lesser of (1) the purchase price or acquisition cost
of such asset and (2) the fair market value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.2.
"Requirement of Law": as to any Person, the articles of incorporation and by-
laws of such Person, and any law, treaty, rule or regulation or determination of
an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Transaction Fee": as defined on Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of
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directors or other Persons performing similar functions are at the time directly
or indirectly owned by such Person.
"Term Loan": as defined in Section 2.9.
"Termination Date": shall mean the earlier of (i) the fourth anniversary of the
date of this Agreement or such other date as IBM Credit and Customer may agree
to in writing from time to time and (ii) the date that is ninety (90) days
following the date on which the Term Loan is paid in full.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
Section 2. LINE OF CREDIT/FINANCE CHARGES/OTHER CHARGES
2.1. Line of Credit. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10.1 and (y) the date on which IBM Credit terminates the Line of Credit
pursuant to Section 9.2, IBM Credit agrees to extend to the Customer a line of
credit ("Line of Credit") in the amount set forth in Attachment A pursuant to
which IBM Credit will make to the Customer, from time to time, A/R Advances in
an aggregate amount at any one time outstanding not to exceed the Maximum
Advance Amount. Notwithstanding any other term or provision of this Agreement,
IBM Credit may, at any time and from time to time, in its sole discretion, (i)
temporarily increase the amount of the Line of Credit above the amount set forth
in Attachment A and decrease the amount of the Line of Credit back to the amount
of the Line of Credit set forth in Attachment A, in each case upon notice to
Customer and (y) make Advances pursuant to this Agreement upon the request of
Customer in an aggregate amount at any one time outstanding in excess of the
Line of Credit.
2.2. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide
an A/R Advance, Customer shall deliver to IBM Credit (i) written notice of
Customer's request for such an Advance ("Request for A/R Advance") and (ii) a
Collateral Management Report. For any requested A/R Advance pursuant to which
monies will be disbursed to Customer or any Person other than IBM Credit, a
Request for A/R Advance shall be delivered to IBM Credit on or prior to 1:00
p.m. (New York City, NY time) one Business Day prior to the requested A/R
Advance Date. The Request for A/R Advance shall specify (i) the requested A/R
Advance Date and (ii) the amount of the requested A/R Advance. Customer may
deliver a Request for A/R Advance via facsimile. Any Request for A/R Advance
delivered to IBM Credit shall be irrevocable.
(B) Subject to the terms and conditions of this Agreement, on the A/R
Advance Date specified in a Request for A/R Advance, IBM Credit shall make the
principal amount of each A/R Advance available to the Customer in immediately
available funds to an account maintained
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by Customer. If IBM Credit is making an A/R Advance hereunder on a day on which
Customer is to repay all or any part of an Outstanding Advance (or any other
amount owing hereunder), IBM Credit shall apply the proceeds of the A/R Advance
to such repayment and only an amount equal to the difference, if any, between
the amount of the A/R Advance and the amount being repaid shall be made
available to Customer as provided in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption "A/R
Finance Charge", and (b) the highest rate from time to time permitted by
applicable law. If it is determined that amounts received from the Customer
were in excess of such highest rate, then the amount representing such excess
shall be considered reductions to principal of Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance shall be due and payable on the Termination
Date.
2.3. Finance and Other Charges. (A) Finance charges shall be calculated by
multiplying the applicable Delinquency Fee Rate, Term Loan Finance Charge or
A/R Finance Charge provided for in this Agreement by Customer's applicable
Average Daily Balance. The Delinquency Fee Rate, the Term Loan Finance
Charge and the A/R Finance Charge provided for in this Agreement are each
computed on the basis of an actual day, 360 day year.
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by Customer. The
Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, will be set forth in
IBM Credit's monthly billing statement to Customer and shall be payable on the
15th day of each month, or IBM Credit may, in its sole discretion, add unpaid
finance charges and Other Charges to the Customer's outstanding Advances.
(D) If any amount owed under this Agreement, including, without
limitation, any Advance, the Term Loan or any Shortfall Amount, is not paid when
due (whether at maturity, by acceleration or otherwise), the unpaid amount
thereof will bear a late charge from and including its due date (or in the case
of any Shortfall Amount, from and including the date demand for payment is made)
to but not including the date IBM Credit receives payment thereof, at a per
annum rate equal to the lesser of (a) the amount set forth in Attachment A to
this Agreement as the "Delinquency Fee Rate" and (b) the highest rate from time
to time permitted by applicable law. In addition, if any Shortfall Amount shall
not be paid when due pursuant to Section 2.5 hereof, Customer shall pay IBM
Credit an additional late charge equal to the
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Shortfall Transaction Fee. If it is determined that amounts received from
Customer were in excess of such highest rate, then the amount representing such
excess shall be considered reductions to principal of Advances.
2.4. Statements Regarding Customer's Account. IBM Credit will send statements
of each transaction hereunder as well as monthly billing statements to Customer
with respect to Advances and other charges due on Customer's account with IBM
Credit. Each statement of transaction and monthly billing statement shall be
deemed, absent manifest error, to be correct and shall constitute an account
stated with respect to each transaction or amount described therein unless
within seven (7) calendar days after such statement of transaction or billing
statement is received by Customer, Customer provides IBM Credit written notice
objecting that such amount or transaction is incorrectly described therein and
specifying the error(s), if any, contained therein. IBM Credit may at any time
adjust such statements of transaction or billing statements to comply with
applicable law and this Agreement.
2.5. Shortfall. If, on any date, the Outstanding A/R Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then A/R Advances
in an amount equal to the Shortfall Amount shall be due and payable on such date
and Customer shall on such date repay the Outstanding Advances in an amount
equal to such Shortfall Amount.
2.6. Application of Payments. Customer hereby agrees that all checks and other
instruments delivered to IBM Credit on account of Customer's Obligations shall
constitute conditional payment until such items are actually collected by IBM
Credit. Customer waives the right to direct the application of any and all
payments at any time or times hereafter received by IBM Credit on account of the
Customer's Obligations. Subject to the provision of Section 2.10, Customer
agrees that IBM Credit shall have the continuing exclusive right to apply and
reapply any and all such payments to Customer's Obligations in such manner as
IBM Credit may deem advisable notwithstanding any entry by IBM Credit upon any
of its books and records.
2.7. Prepayment and Reborrowing By Customer. (A) All amounts received by IBM
Credit, including all amounts in respect of Accounts deposited to the Special
Accounts, may be credited by IBM Credit from time to time to the repayment of
the Obligations under this Agreement or, in IBM Credit's sole and absolute
discretion, may be disbursed to Customer. The crediting of amounts received by
IBM Credit in respect of such Obligations shall in all cases be subject to the
final collection thereof.
(B) Customer may at any time prepay, without notice or penalty, in whole or
in part amounts owed under this Agreement. IBM Credit may apply payments made to
it (whether by the Customer or otherwise) to pay finance charges and other
amounts owing under this Agreement first and then to the principal amount owed
by the Customer.
(C) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding A/R Advances may
be reborrowed by Customer in accordance with the provisions of this Agreement.
2.8. Application of Collections by IBM Credit. Subject to the provisions of
Section 2.10,
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Customer agrees that IBM Credit may from time to time apply any and all monies,
reserves and proceeds received or collected by IBM Credit with respect to the
Accounts and other Goods or property of Customer at any time or times hereafter,
including, without limitation, any and all funds collected from the Lockbox and
the Special Account, to pay or prepay, as the case may be, any amounts owing by
Customer to IBM Credit whether or not such amounts are then due and payable, or
IBM Credit may, in its sole discretion, disburse any part of or all such monies,
reserves and proceeds to Customer. Customer agrees that IBM Credit may, but
shall not be obligated to, cause funds collected from the Lockbox to be swept on
a daily basis.
2.9. Term Loan. (A) On the Closing Date, the portion of the Outstanding
Advances pursuant to the Existing Financing Agreement in an amount to be agreed
upon by Customer and IBM Credit (which amount shall include an Advance by IBM
Credit to Customer hereunder on the Closing Date in an amount not to exceed
$500,000 to fund Customer's settlement of claims with certain unsecured
creditors) shall constitute a term loan to Customer (the "Term Loan"). The Term
Loan shall be subject to the Mandatory Pre-Payments set forth in Section 2.10.
Unless otherwise due and payable at an earlier date (whether by acceleration,
Mandatory Pre-Payment or otherwise), the principal balance of the Term Loan
shall be due and payable on August 31, 2000 (or if such date is not a Business
Day, on the Business Day immediately preceding such date).
(B) The Term Loan shall accrue a finance charge on the unpaid principal
amount thereof, at a per annum rate equal to the lesser of (a) the finance
charge set forth in Attachment A to this Agreement under the caption "Term Loan
Finance Charge", and (b) the highest rate from time to time permitted by
applicable law. If it is determined that amounts received from the Customer
were in excess of such highest rate, then the amount representing such excess
shall be considered reductions to principal of Advances.
2.10. Mandatory Pre-Payments. On each Mandatory Pre-Payment Date, the
Obligations of Customer to IBM Credit shall be due and payable in an amount
equal to the Mandatory Pre-Payment Amount. For purposes of this Agreement,
"Mandatory Pre-Payment Date" shall mean each of the following dates: (i) the
date of the consummation of any sale, transfer or other disposition by Customer
of any assets (other than inventory and used or obsolete equipment in the
ordinary course of business) or operations of Customer, including, without
limitation, the sale, transfer or other disposition of Customer's interest in
Splash Technology Holdings, Inc., UMAX Computer Corporation and Portrait Display
Labs, Inc., (ii) the date of the receipt by Customer of any other Non-Operating
Cash Flow, (iii) the date of the consummation of any equity investment, debt
issue or capital infusion in Customer from any source, and (iv) the thirtieth
(30th) day following the end of each fiscal quarter of Customer. For purposes
of this Agreement, "Mandatory Pre-Payment Amount" shall mean each of the
following amounts: (1) an amount equal to the proceeds of any sale, transfer or
other disposition set forth in clause (i) of the definition of Mandatory Pre-
Payment Date, (2) an amount equal to the amount of any Non-Operating Cash Flow
received by Customer, (3) an amount equal to ten percent (10%) of the proceeds
of an equity investment, debt issue or capital infusion set forth in clause
(iii) of the definition of Mandatory Pre-Payment Date, and (4) an amount equal
to fifty percent (50%) of the Operating Cash Flow of Customer for the
immediately preceding fiscal quarter, in the case of each of clauses (1), (2)
and (3) of this sentence, net of all reasonable and customary out-of-pocket
costs and expenses thereof. For purposes of this Agreement, "Non-Operating Cash
Flow" shall
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mean the proceeds or other amounts received by Customer in respect of any event
other than (x) for sales of inventory and used or obsolete equipment in the
ordinary course of business and (y) any event described in clauses (1), (3) or
(4) of the definition of Mandatory Pre-Payment Amount. For purposes of this
Agreement, "Operating Cash Flow" shall mean, with respect to a fiscal quarter of
Customer, the greater of (x) the Operating Cash Flow of Customer for such fiscal
quarter determined on substantially the same basis set forth in Attachment D and
(y) seventy-five percent (75%) of the projected Operating Cash Flow of Customer
for such fiscal quarter, as set forth on Attachment D. Customer shall cause the
Mandatory Pre-Payment Amounts to be transferred directly by the transferor to an
account of IBM Credit specified by IBM Credit. The Mandatory Pre-Payment
Amounts shall be applied to the Obligations of Customer under this Agreement in
the following order: first, to pay any past-due finance charges, second, to pay
any outstanding Shortfall Amount, third, to pay the Term Loan, and fourth, upon
the request of IBM Credit, to redeem shares of convertible preferred stock of
Customer held by IBM Credit. For purposes of clarification, Customer and IBM
Credit acknowledge that Customer shall not be obligated to satisfy the
Customer's obligations pursuant to the Line of Credit (other than for past-due
interest and principal, including any Shortfall Amount) prior to redeeming the
preferred stock held by IBM Credit. Customer shall make such arrangements and
execute such agreements, documents, instruments and papers as IBM Credit may
request to carry out the terms of this paragraph 2.10.
2.11. Sale of Stock Splash. During the first year following the registration
of any of the common stock of Splash Technology Holdings, Inc. ("Splash") in
connection with a sale of any such stock in a public offering (the "Splash
Registration"), upon the request of IBM Credit, Customer shall use its best
efforts to sell, as soon as possible thereafter, fifty percent (50%) of
Customer's interest in Splash (as of the date hereof and excluding any shares
subject to an option issued by Customer in favor of IBM Credit). During the
second year following the Splash Registration, upon the request of IBM Credit,
Customer shall use its best efforts to sell, as soon as possible thereafter, a
percent of Customer's interest in Splash (as of the date hereof and excluding
any shares subject to an option issued by Customer in favor of IBM Credit) equal
to seventy-five percent (75%) minus the percent of shares sold by Customer in
the previous year. During the third year following the Splash Registration,
upon the request of IBM Credit, Customer shall use its best efforts to sell, as
soon as possible thereafter, a percent of Customer's interest in Splash (as of
the date hereof and excluding any shares subject to an option issued by Customer
in favor of IBM Credit) equal to one hundred percent (100%) minus the percent of
shares sold by Customer in the previous two years. In addition to the
foregoing, if at any time following the Splash Registration the amount of the
Outstanding Term Loan shall exceed ninety percent (90%) of the market value of
Customer's interest in Splash (as of the date of determination and excluding any
shares subject to an option issued by Customer in favor of IBM Credit), upon the
request of IBM Credit, Customer shall use its best efforts to sell, as soon as
possible thereafter, a percent of Customer's interest in Splash (as of the date
hereof and excluding any shares subject to an option issued by Customer in favor
of IBM Credit) equal to one hundred percent (100%) minus the percent of shares
previously sold by Customer.
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Section 3. LINE OF CREDIT
ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base:
(A) Accounts created from the sale of goods and/or performance of services
on non-standard terms or that allow for payment to be made more than thirty (30)
days from the date of such sale or performance of services;
(B) Accounts unpaid more than ninety (90) days from date of invoice;
(C) Accounts payable by an account debtor if fifty percent (50%) or more
of the aggregate outstanding balance of all such Accounts remain unpaid for more
than ninety (90) days from the date of invoice;
(D) Accounts payable by an account debtor (other than Abacus to the extent
Abacus is an Affiliate of Customer solely by reason of an officer or director of
Abacus being an officer or director of Customer) that is an Affiliate of
Customer, or an officer, employee, agent, guarantor, stockholder or Affiliate of
Customer or is related to or has common shareholders, officers or directors with
Customer;
(E) Accounts arising from consignment sales;
(F) Accounts with respect to which the payment by the account debtor is or
may be conditional;
(G) Accounts with respect to which:
(i) the account debtor is not a commercial entity, or
(ii) the account debtor is not a resident of the United States;
(H) Accounts payable by any account debtor to which Customer is
or may become liable for goods sold or services rendered by such
account debtor to Customer;
(I) Accounts arising from the sale or lease of goods purchased
for a personal, family or household purpose;
(J) Accounts arising from the sale or other disposition of goods
that has been used for demonstration purposes or loaned or leased by
the Customer to another party;
(K) Accounts which are progress payment accounts or contra
accounts;
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(L) Accounts upon which IBM Credit does not have a valid,
perfected, first priority security interest;
(M) Accounts payable by an account debtor that is or Customer
knows will become, subject to proceedings under United States
Bankruptcy Law or other law for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any account debtor that is a remarketer
of computer hardware or software products and whose purchases of such
products from Customer have been financed by another person who pays
the proceeds of such financing directly to Customer on behalf of such
debtor;
(P) Accounts arising from the sale or lease of goods which are
billed to any account debtor but have not yet been shipped by
Customer;
(Q) Accounts with respect to which Customer has permitted or
agreed to any extension, compromise or settlement, or made any change
or modification of any kind or nature, including, but not limited to,
any change or modification to the terms relating thereto;
(R) Accounts that do not arise from undisputed bona fide
transactions completed in accordance with the terms and conditions
contained in the invoices, purchase orders and contracts relating
thereto;
(S) Accounts that are discounted for the full payment term
specified in Customer's terms and conditions with its account debtors,
or for any longer period of time;
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts that
are billed in advance of full performance of service;
(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates,
discounts, credits, and refunds from a supplier; and
(X) Any and all other Accounts that IBM Credit deems, in its
reasonable discretion, to be ineligible.
The aggregate of all Accounts that are not ineligible Accounts shall
hereinafter be referred to as "Eligible Accounts".
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3.2. Reimbursement for Charges. Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other items
of payment, all fees relating to the use and maintenance of the Lockbox and the
Special Account (each as defined in Section 3.3) and with respect to remittances
of proceeds of the Advances hereunder.
3.3. Lockbox and Special Account. Customer and its Subsidiaries shall
establish and maintain lockbox(es) (each, a "Lockbox") at the address(es) set
forth in Attachment A with the financial institution(s) listed in Attachment A
(each, a "Bank") pursuant to an agreement between the Customer and each Bank in
form and substance satisfactory to IBM Credit. Customer shall also establish
and maintain a deposit account which shall contain only proceeds of Customer's
Collateral ("Special Account") with each Bank. Customer shall enter into and
maintain a contingent blocked account agreement with each Bank for the benefit
of IBM Credit in form and substance satisfactory to IBM Credit pursuant to
which, among other things, such Bank shall agree that, upon notice from IBM
Credit, disbursements from the Special Account shall be made only as IBM Credit
shall direct. Customer acknowledges that IBM Credit has notified or will notify
each Bank that disbursements from the Special Account shall be made only as IBM
Credit shall direct, and consents to such notification.
3.4. Deposit Accounts. Customer shall cause to be maintained with each bank or
other financial institution at which Customer or any of its Subsidiaries has
funds (each, a "Deposit Account Institution"), an agreement between IBM Credit
and such Deposit Account Institution, in form and substance satisfactory to IBM
Credit, to perfect IBM Credit's security interest in such funds ("Deposit
Account Agreement"). Customer shall not deposit funds into, or allow funds to
remain in any account that is not subject to a Deposit Account Agreement.
3.5. Collections. Customer shall instruct all account debtors and all
transferors of amounts described in Section 2.10 hereof to remit payments
directly to a Lockbox or a Special Account. In addition, Customer shall have
such instruction (i) printed in conspicuous type on all invoices sent to Account
debtors and (ii) include as a term of any agreement with any such transferor and
shall use such other reasonable efforts to cause account debtors and transferors
to comply with such instructions as IBM Credit may request. Customer shall
instruct the Bank to deposit all remittances to such Bank's Lockbox into its
Special Account. Without limiting the Customer's foregoing obligations, if, at
any time, Customer receives a remittance directly from an account debtor or
other transferor, then Customer shall make entries on its books and records in a
manner that shall reasonably identify such remittances and shall keep a separate
account on its record books of all remittances so received and deposit the same
into the Special Account. Until so deposited into the Special Account, Customer
shall keep all remittances separate and apart from Customer's other property so
that they are capable of identification as the proceeds of Collateral in which
IBM Credit has a security interest.
3.6. Application of Remittances and Credits. Customer shall apply all
remittances with respect to Accounts against the aggregate of Customer's
outstanding Accounts no later than the end of the Business Day on which such
remittances are deposited into the Special
15
Account. Customer also agrees to apply each remittance with respect to Accounts
against its respective Account no later than three (3) Business Days from the
date such remittance is deposited into the Special Account. In addition,
Customer shall promptly apply any credits owing in respect to any Account when
due.
3.7. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Agreements;
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligations; and upon the occurrence and during the continuance of an Event
of Default as defined in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect
any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at
such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account debtor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;
(K) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;
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(L) sign the name of Customer on any document or instrument that IBM
Credit shall deem necessary or appropriate to enforce any and all remedies it
may have under this Agreement, at law or otherwise;
(M) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral;
and
(N) take control in any manner of any term of payment of proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.
Section 4. SECURITY -- COLLATERAL
4.1 Grant. To secure Customer's full and punctual payment and performance of
the Obligations when due (whether at the stated maturity, by acceleration or
otherwise), Customer hereby grants IBM Credit a security interest in all of
Customer's right, title and interest in and to all property and assets of every
kind, character and description whatsoever, whether now owned or hereafter
acquired or existing and wherever located, including but not limited to the
following:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to Customer, whether or not arising out
of or in connection with the sale or lease of goods or the rendering of services
and all books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing;
(C) general intangibles, including patents, trademarks, trade names and
copyrights;
(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
17
All of the above assets shall be collectively defined herein as the
"Collateral".
Customer covenants and agrees with IBM Credit that: (a) the security provided by
this Agreement is in addition to any other security from time to time held by
IBM Credit and (b) the security hereby created is a continuing security interest
and will cover and secure the payment and performance of all Obligations both
present and future of Customer to IBM Credit pursuant to this Agreement and the
Other Agreements.
4.2. Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request, such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and that IBM Credit may deem necessary to fully consummate all of
the transactions contemplated under this Agreement and the Other Agreements.
Customer shall make appropriate entries on its books and records disclosing IBM
Credit's security interests in the Collateral.
Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the satisfaction of, or waiver in
writing by IBM Credit of compliance with, the following conditions precedent on
or prior to September 13, 1996:
(A) this Agreement executed and delivered by Customer and IBM Credit and
receipt by IBM Credit of all attachments hereto in form and substance
satisfactory to IBM Credit in its sole discretion;
(B) (i) copies of the resolutions of the Board of Directors of Customer in
form and substance satisfactory to IBM Credit in its sole and absolute
discretion certified by the secretary or assistant secretary of Customer
authorizing the execution, delivery and performance of this Agreement and each
Other Agreement executed and delivered in connection herewith, (ii) a
certificate of the secretary or an assistant secretary of Customer, in form and
substance satisfactory to IBM Credit in its sole and absolute discretion,
certifying the names and true signatures of the officers of Customer authorized
to sign this Agreement and the Other Agreements and (iii) copies of the articles
of incorporation and by-laws of Customer in form and substance satisfactory to
IBM Credit in its sole and absolute discretion certified by the secretary or
assistant secretary of Customer;
(C) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business unless the failure to so qualify could not reasonably be
expected to have a Material Adverse Effect;
(D) copies of all approvals and consents from any Person, in each case in
form and substance satisfactory to IBM Credit in its sole and absolute
discretion, which are required to
18
enable Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Agreements, and
(b) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Agreements and (c) the execution delivery or performance
and legality, validity, binding effect or enforceability of the restructuring
contemplated in connection herewith;
(E) a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;
(F) a contingent blocked account agreement executed by Customer and each
Bank in form and substance satisfactory to IBM Credit;
(G) the security interest of the Credit Managers Association shall have
been released, the security agreement between Customer and the Credit Managers
Association shall have been terminated, UCC termination statements relating
thereto shall have been filed, appropriate filings shall have been made
terminating any filings made by the Credit Managers Association with the United
States Patent and Trademark Office and the United States Copyright Office, all
in form and substance satisfactory to IBM Credit in its sole and absolute
discretion;
(H) a favorable opinion of counsel for Customer, satisfactory to IBM
Credit, in form and substance satisfactory to IBM Credit and Customer;
(I) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by Customer and each guarantor whose guaranty to IBM
Credit is intended to be secured by a pledge of its assets and all other
statements, instruments and act (including, possession by IBM Credit) necessary
to perfect IBM Credit's security interest in the Collateral;
(J) Customer shall have delivered to IBM Credit convertible preferred
stock of the Customer and warrants to purchase common stock of Customer, in form
and substance satisfactory to IBM Credit in its sole and absolute discretion;
(K) Customer and IBM Credit shall have executed a registration rights
agreement in form and substance satisfactory to IBM Credit in its sole and
absolute discretion, which agreement shall include terms providing for a fee to
IBM Credit in an amount equal to $3,000,000 in the event the securities obtained
by IBM Credit pursuant to the recapitalization (including those securities set
forth in paragraph J above) are not subject to an effective registration
statement on or prior to a date to be agreed upon by Customer and IBM Credit;
(L) The existing creditors of Customer (other than IBM Credit) shall have
either (i) converted their claims against Customer for common stock of Customer
or (ii) released their claims against Customer for cash in an amount not to
exceed $500,000 in the aggregate, other than current claims payable by customer
in an amount satisfactory to IBM Credit, all in form and substance satisfactory
to IBM Credit in its sole and absolute discretion;
19
(M) All acts necessary or desirable, in the sole and absolute discretion
of IBM Credit, to the recapitalization of Customer outlined in the Private
Placement Memorandum dated August 9, 1996 shall have occurred and be in full
force and effect;
(N) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and
(O) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2 Conditions to each Advance. No Advance will be required to be made or
renewed by IBM Credit under this Agreement unless, on and as of the date of such
Advance, the following statements shall be true to the satisfaction of IBM
Credit:
(A) The representations and warranties contained in this Agreement or in
any document, instrument or agreement executed in connection herewith, are true
and correct in all material respects on and as of the date of such Advance as
though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result which would
constitute a Default;
(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists. Except as Customer has otherwise disclosed to IBM
Credit in writing prior to each request, each request (or deemed request
pursuant to Section 2.2 (D)) for an Advance hereunder and the receipt (or deemed
receipt) by the Customer of the proceeds of any Advance hereunder shall be
deemed to be a representation and warranty by Customer that, as of and on the
date of such Advance, the statements set forth in (A) through (D) above are true
statements. No such disclosures by Customer to IBM Credit shall in any manner
be deemed to satisfy the conditions precedent to each Advance that are set forth
in this Section 5.2.
Section 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:
6.1. Organization and Qualifications. Customer and each of its Subsidiaries
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, (ii) has the power and
authority to own its properties and assets and to transact the businesses in
which it presently is engaged and (iii) except as otherwise disclosed in
Attachment
20
B or to the extent the failure to so qualify could not reasonably be expected to
have a Material Adverse Effect, is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified.
6.2. Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it, respectively, as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Permitted Liens. The Liens granted by the Customer and each of its
Subsidiaries pursuant to this Agreement, the Guaranties and the Other Agreements
in the Collateral constitute the valid and enforceable first, prior and
perfected Liens on the Collateral, except to the extent any Liens that are prior
to IBM Credit's Liens are the subject of an intercreditor agreement between IBM
Credit and the holder of such Lien.
6.3. No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Agreements (i) are within its corporate power;
(ii) have been duly authorized by all necessary corporate action; (iii) are not
in contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not result in the imposition of any Liens upon
any of its properties (other than for Liens in favor of IBM Credit).
6.4. Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM Credit pursuant
to Section 7.14(E)) and records of Accounts, are maintained exclusively at such
location. There is no jurisdiction in which Customer has any assets, equipment
or inventory (except for vehicles and inventory in transit for processing) other
than those jurisdictions identified on Attachment B or on any notice provided by
Customer to IBM Credit pursuant to Section 7.7(C) of this Agreement. Attachment
B, as amended from time to time by any notice provided by Customer to IBM Credit
in accordance with Section 7.7(C) of this Agreement, also contains a complete
list of the legal names and addresses of each warehouse at which the Customer's
inventory is stored. None of the receipts received by Customer from any
warehouseman states that the goods covered thereby are to be delivered to bearer
or to the order of a named person or to a named person and such named person's
assigns.
6.6. Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years preceding the date of this Agreement,
other than those listed on Attachment B.
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6.7. Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.
6.8. No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.
6.9. No Defaults. Except as set forth on Attachment B, the Customer is not in
default under any term of any indenture, contract, lease, agreement, instrument
or other commitment to which it is a party or by which it, or any of its
properties are bound. Customer has no knowledge of any dispute regarding any
such indenture, contract, lease, agreement, instrument or other commitment. No
Default or Event of Default has occurred and is continuing.
6.10. Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(F) of this Agreement, Customer is not a party
to any labor dispute. There are no strikes or walkouts or labor controversies
pending or threatened against the Customer which could reasonably be expected to
have a Material Adverse Effect.
6.11. Compliance with Law. Customer has not violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or "multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan.
Customer has no "multi-employer benefit plan". As used in this Agreement the
terms "employee benefit plan", "employee pension benefit plan", "defined benefit
plan", and "multi-employer benefit plan" have the respective meanings assigned
to them in Section 3 of ERISA and any applicable rules and regulations
thereunder. The Customer has not incurred any "accumulated funding deficiency"
within the meaning of ERISA or incurred any liability to the Pension Benefit
Guaranty Corporation (the "PBGC") in connection with a Plan (other than for
premiums due in the ordinary course).
6.13. Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:
(A) The Customer has obtained all government approvals required with
respect to the operation of its businesses under any Environmental Law.
(B) (i) the Customer has not generated, transported or disposed of any
Hazardous Substance; (ii) the Customer is not currently generating, transporting
or disposing of any Hazardous Substance; (iii) the Customer has no knowledge
that (a) any of its real property (whether owned, leased, or otherwise directly
or indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substance, or (b) any of its business
22
operations have contaminated lands or waters of others with any Hazardous
Substance; (iv) the Customer and its respective assets are not subject to any
Environmental Liability and, to the best of the Customer's knowledge, any
threatened Environmental Liability; (v) the Customer has not received any notice
of or otherwise learned of any governmental investigation evaluating whether any
remedial action is necessary to respond to a release or threatened release of
any Hazardous Substance for which the Customer may be liable; (vi) the Customer
is not in violation of any Environmental Law; (vii) there are no proceedings or
investigations pending against Customer with respect to any violation or alleged
violation of any Environmental Law; provided however, that the parties
acknowledge that any generation, transportation, use, storage and disposal of
certain such Hazardous Substances in Customer's or its Subsidiaries' business
shall be excluded from representations (i) and (ii) above so long as, and only
so long as, Customer is at all times generating, transporting, utilizing,
storing and disposing such Hazardous Substances in accordance with all
applicable Environmental Laws and in a manner designed to minimize the risk of
any spill, contamination, release or discharge of Hazardous Substances other
than as authorized by Environmental Laws.
6.14. Intellectual Property. Customer possesses such assets, licenses,
patents, patent applications, copyrights, service marks, trademarks, trade names
and trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its businesses as presently conducted.
Customer is not in violation of the terms of any such franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval.
6.16. Investment Company. The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Agreements or to perform its
obligations hereunder or thereunder.
6.17. Taxes and Tax Returns. Except as otherwise disclosed on Attachment B,
Customer has timely filed all federal, state, and local tax returns and other
reports which it is required by law to file, and has either duly paid all taxes,
fees and other governmental charges indicated to be due on the basis of such
reports and returns or pursuant to any assessment received by the Customer, or
made provision for the payment thereof in accordance with GAAP. The charges and
reserves on the books of the Customer in respect of taxes or other governmental
charges are in accordance with GAAP. No tax liens have been filed against
Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual and bona fide
sale and delivery of goods or rendition of services to customers, made by
Customer, in the ordinary course of its
23
business; the goods and inventory being sold and the Accounts created are its
exclusive property and are not and shall not be subject to any Lien, consignment
arrangement, encumbrance, security interest or financing statement whatsoever
(other than Permitted Liens). The Customer's customers have accepted goods or
services and owe and are obligated to pay the full amounts stated in the
invoices according to their terms. There are no proceedings or actions known to
Customer which are pending or threatened against any Material Account Obligor
(as defined in Section 7.14(B) of this Agreement) of any of the Accounts which
could reasonably be expected to result in a material adverse effect on the
obligor's ability to pay the full amounts due to Customer.
6.19. Affiliate/Subsidiary Transactions. Except as set forth on Attachment B,
Customer is not a party to or bound by any agreement or arrangement (whether
oral or written) to which any Affiliate or Subsidiary of the Customer is a party
except (i) in the ordinary course of and pursuant to the reasonable requirements
of Customer's business and (ii) upon fair and reasonable terms no less favorable
to Customer than it could obtain in a comparable arm's-length transaction with
an unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any Other Agreement, or any
transaction contemplated hereby or thereby is or will be true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information not misleading at such time.
6.21. Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause to be furnished to
IBM Credit the following information within the following time periods:
(A) as soon as available and in any event within ninety (90) days after
the end of each fiscal year of Customer (i) audited Financial Statements
(provided that, to the extent not otherwise audited by the Auditors, the
consolidating Financial Statements may be unaudited) as of the close of the
fiscal year and for the fiscal year, together with a comparison to the Financial
Statements for the prior year, in each case accompanied by (a) either an opinion
of the Auditors
24
without a "going concern" or like qualification or exception, or qualification
arising out of the scope of the audit or, if so qualified, an opinion which
shall be in scope and substance reasonably satisfactory to IBM Credit, (b) such
Auditors' "Management Letter" to Customer, if any, (c) a written statement
signed by the Auditors stating that in the course of the regular audit of the
business of Customer and its consolidated Subsidiaries, which audit was
conducted by the Auditors in accordance with generally accepted auditing
standards, the Auditors have not obtained any knowledge of the existence of any
Default under any provision of this Agreement, or, if such Auditors shall have
obtained from such examination any such knowledge, they shall disclose in such
written statement the existence of the Default and the nature thereof, it being
understood that such Auditors shall have no liability, directly or indirectly,
to anyone for failing to obtain knowledge of any such Default; (ii) if composed,
a narrative discussion of the consolidated financial condition and results of
operations and the consolidated liquidity and capital resources of Customer and
its Subsidiaries for such fiscal year prepared by an Approved Officer; and (iii)
a Compliance Certificate along with a schedule, in substantially the form of
Attachment C hereto, of the calculations used in determining, as of the end of
such fiscal year, whether Customer is in compliance with the financial covenants
set forth in Attachment A;
(B) as soon as available and in any event within forty-five (45) days
after the end of each fiscal quarter of Customer (i) Financial Statements as of
the end of such period and for the fiscal year to date, together with a
comparison to the Financial Statements for the same periods in the prior year,
all in reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by an Approved Officer of
Customer as having been prepared in accordance with GAAP; (ii) if composed, a
narrative discussion of the consolidated financial condition and results of
operations and the consolidated liquidity and capital resources of Customer and
its Subsidiaries for such period and for the fiscal year to date prepared by an
Approved Officer of Customer; and (iii) a Compliance Certificate along with a
schedule, in substantially the form of Attachment C hereto, of the calculations
used in determining, as of the end of such fiscal quarter, whether Customer is
in compliance with the financial covenants set forth in Attachment A;
(C) promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customer's failure to satisfy the conditions precedent
to Advances set forth in Section 5, a certificate of an Approved Officer of
Customer specifying the nature thereof and the Customer's proposed response
thereto, each in reasonable detail;
(D) promptly after Customer obtains knowledge of (i) any proceeding(s)
being instituted or threatened to be instituted by or against Customer in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign), or (ii) any actual or
prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate of
an Approved Officer of Customer specifying the nature thereof and the Customer's
proposed response thereto, each in reasonable detail;
(E) promptly after Customer obtains knowledge that (i) any order, judgment
or decree in excess of fifty thousand dollars ($50,000.00) shall have been
entered against Customer or any of
25
its properties or assets, or (ii) it has received any notification of a material
violation of any Requirement of Law from any Governmental Authority, a
certificate of an Approved Officer of Customer specifying the nature thereof and
the Customer's proposed response thereto, each in reasonable detail;
(F) promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, or the expiration of any labor contract to which
Customer is a party or by which it is bound, a certificate of an Approved
Officer of Customer specifying the nature thereof and the Customer's proposed
response thereto, each in reasonable detail;
(G) within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or the Customer's
or any of its Subsidiary's business affairs and financial condition;
(H) on the first Business Day of each week, a Collateral Management Report
(with back-up in form and detail satisfactory to IBM Credit) as of the last
Business Day of the immediately preceding week;
(I) along with the Financial Statements set forth in Section 7.1(A) and
(B), and at such other times as IBM Credit may request, the name, address and
phone number of each of its account debtors' primary contacts for each Account
on the Accounts aging report contained in its most recent Collateral Management
Report; and
(J) within three (3) days after the same are sent, copies of all financial
statements and reports which Customer sends to its stockholders, and within
three (3) days after the same are filed, copies of all financial statements,
reports and any other documents which Customer may make to, or file with, the
Securities and Exchange Commission or any successor or analogous governmental
authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an Approved Officer of Customer, which signature shall be deemed a
representation and warranty that the information contained in such certificate,
schedule or report is true and accurate in all material respects on the date as
of which such certificate, schedule or report is made and does not omit to state
a material fact necessary in order to make the statements contained therein not
misleading at such time. Each financial statement delivered pursuant to this
Section 7.1 shall be prepared in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods.
7.2. Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment G.
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7.3. Changes in Customer. Customer shall provide 30 days prior written notice
to IBM Credit of any change in Customer's name, chief executive office and
principal place of business, organization, form of ownership or corporate
structure; provided, however, that Customer's compliance with this covenant
shall not relieve it of any of its other obligations or any other provisions
under this Agreement or any Other Agreement limiting actions of the type
described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts and other rights necessary to
the profitable conduct of its business, (B) continue in, and limit its
operations to, the same general lines of business as presently conducted by it
unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it
learns of the occurrence of any event which would constitute a "reportable
event" under ERISA or any regulations thereunder with respect to any Plan, or
that the PBGC has instituted or will institute proceedings to terminate any
Plan. Notwithstanding the foregoing, the Customer shall have no obligation to
notify IBM Credit as to any "reportable event" as to which the 30-day notice
requirement of Section 4043(b) has been waived by the PBGC, until such time as
such Customer is required to notify the PBGC of such reportable event. Such
notification shall include a certificate of an Approved Officer of Customer
setting forth details as to such "reportable event" and the action which
Customer proposes to take with respect thereto, together with a copy of any
notice of such "reportable event" which may be required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person under Customer's
control (including, without limitation, agents and Affiliates under such
control) shall (i) comply with all Environmental Laws in all material respects,
and (ii) undertake to use commercially reasonable efforts to prevent any
unlawful release of any Hazardous Substance by Customer or such Person into,
upon, over or under any property now or hereinafter owned, leased or otherwise
controlled (directly or indirectly) by Customer.
(B) Customer shall notify IBM Credit, promptly upon its obtaining
knowledge of (i) any non-routine proceeding or investigation by any Governmental
Authority with respect to the presence of any Hazardous Substances on or in any
property now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by any Person or
Governmental Authority against Customer or any of Customer's assets relating to
any loss or injury resulting from any Hazardous Substance, (iii) Customer's
discovery of evidence of unlawful disposal of or environmental contamination by
any Hazardous Substance on any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by Customer, and (iv) any
occurrence or condition which could constitute a violation of any Environmental
Law.
27
7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, which shall reflect IBM
Credit's interest in the Collateral.
(B) Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal business
hours and upon reasonable notice under the circumstances, and at any time at all
on and after the occurrence and during the continuance of an Event of Default
for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or
copying (at Customer's expense) any and all records pertaining thereto, (iii)
discussing the affairs, finances and business of Customer with any officers,
employees and directors of Customer or with the Auditors and (iv) verifying
Eligible Accounts, Eligible Foreign Accounts and other Collateral. Customer
also agrees to provide IBM Credit with such reasonable information and
documentation that IBM Credit deems necessary to conduct the foregoing
activities, including, without limitation, reasonably requested samplings of
purchase orders, invoices and evidences of delivery or other performance. Upon
the occurrence and during the continuance of a Default which has not been waived
by IBM Credit in writing, IBM Credit may conduct any of the foregoing activities
in any manner that IBM Credit deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice
of any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably
sufficient detail, of any substantial change relating to the type, quantity or
quality of the Collateral, or any event which could reasonably be expected to
have a Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
7.8. Insurance; Casualty Loss. (A) Customer will maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
request, the insurance certificates with respect to such insurance. In
addition, all Policies so maintained are to name IBM Credit as an additional
insured as its interest may appear.
(B) Without limiting the generality of the foregoing, Customer shall
keep and maintain, at its sole expense, the Collateral insured for an amount not
less than the amount set forth on Attachment A from time to time opposite the
caption "Collateral Insurance Amount" against all loss or damage under an "all
risk" Policy in companies mutually acceptable to IBM Credit and Customer, with a
lender's loss payable endorsement or mortgagee clause in form and substance
28
reasonably satisfactory to IBM Credit designating that any loss payable
thereunder with respect to such Collateral shall be payable to IBM Credit.
Customer agrees to instruct each insurer to give IBM Credit, by endorsement upon
the Policy issued by it or by independent instruments furnished to IBM Credit,
at least ten (10) days written notice before any Policy shall be altered or
cancelled and that no act or default of Customer or any other person shall
affect the right of IBM Credit to recover under the Policies. Customer hereby
agrees to direct all insurers under the Policies to pay all proceeds with
respect to the Collateral directly to IBM Credit. If Customer fails to pay any
cost, charges or premiums, or if Customer fails to insure the Collateral, IBM
Credit may pay such costs, charges or premiums. Any amounts paid by IBM Credit
hereunder shall be considered an additional debt owed by Customer to IBM Credit
due and payable by Customer immediately upon receipt of an invoice by IBM
Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. Compliance With Laws. Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, and to the operation of
its business.
7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year
ending September 30 unless Customer provides IBM Credit at least thirty (30)
days prior written notice of any change thereof.
7.12. Intellectual Property. Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.
7.14. Collateral. Customer shall:
(A) from time to time upon the request of IBM Credit, provide IBM Credit
with access to copies of all invoices, delivery evidences and other such
documents relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the financial
condition of any Account obligor whose outstanding obligations to Customer
constitute two percent (2%) or more of the Accounts at such time (a "Material
Account Obligor");
29
(C) promptly upon Customer's learning thereof, notify IBM Credit in
writing of any event which would cause any obligation of a Material Account
Obligor to become an Ineligible Account;
(D) keep all goods rejected or returned by any account debtor and all
goods repossessed or stopped in transit by Customer from any account debtor
segregated from other property of Customer, holding the same in trust for IBM
Credit until Customer applies a credit against such account debtor's outstanding
obligations to Customer or sells such goods in the ordinary course of business,
whichever occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the same are subject
to IBM Credit's security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit; until so delivered to IBM Credit or its
designated agent, Customer shall hold such chattel paper and instruments as
agent for IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Customer shall diligently file and prosecute
its claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral. Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM Credit,
free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform
all matters and things necessary or expedient to be observed or performed under
or by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof;
(J) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and the Other Agreements and of the rights and
powers herein and therein granted, including, without limitation, the filing of
any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests granted herein
and the payment of any and all recording taxes and filing fees in connection
therewith;
(K) promptly, but in any event within two (2) days of authorizing such
credits, apply
30
rebate, price protection or other credits to the Accounts;
7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties and grant to IBM Credit perfected
first priority security interests in their assets.
7.16. On Site Collateral Verification. Customer shall from time to time upon
the request of IBM Credit allow employees, agents and representatives of IBM
Credit access, during normal business hours and as often as IBM Credit may
request, to the premises, inventory, books and records of Customer or any of its
Subsidiaries to verify the Collateral and Customer's compliance with the terms
of this Agreement and to discuss the business, operations, properties and
financial and other condition of the Company or any of its Subsidiaries with
such officers and employees and agents, including without limitation, its
independent certified public accounts, as IBM Credit may from time to time
request. Customer shall use reasonable efforts to obtain permission from third
party facilities where Collateral is located for IBM Credit to have access to
such facilities to inspect and verify such Collateral.
7.17. Lockbox Participation and Special Account Deposits. Without limiting
Customer's other Obligations, Customer acknowledges and reaffirms its
obligations pursuant to Section 3.4 of this Agreement and acknowledges and
reaffirms that such obligations apply to all Accounts of Customer including,
without limitation, Accounts payable by account debtors that are not residents
of the United States (including Accounts that are payable by Ingram Micro, Inc.
(Canada), Merisel Canada, Inc., QMS (Japan) and Abacus) and Accounts payable by
an account debtor that is a remarketer of computer hardware and software
products whose purchases of such products from Customer have been financed by
another person who pays proceeds of such financing directly to Customer on
behalf of such account debtor. Customer agrees that if Customer receives a
remittance directly from an account obligor, then Customer shall deposit the
same into the Special Account within one Business Day of such receipt.
7.18. Further Assurances Regarding Patents, Trademarks, Tradenames and
Copyrights. Customer shall do and cause to be done all things necessary to
preserve and keep in full force and effect all registrations of patents,
trademarks, tradenames and copyrights necessary or advisable for the profitable
conduct of its business. With respect to any federal registration of any patent,
trademark, tradename or copyright or the filing of any application therefor,
Customer promptly shall cooperate with IBM Credit to deliver to IBM Credit a
collateral assignment with respect to each such registration and application, in
form and substance satisfactory to IBM Credit. IBM Credit shall prepare the
form of collateral assignment based upon information provided by Customer and,
upon execution by Customer, IBM Credit shall file such collateral assignment
with the appropriate agency. Whenever, Customer, either by itself or through
any agent, employee, licensee or designee, shall file an application for the
registration of any patent, trademark, tradename or copyright with the United
States Patent and Trademark Office or United States Copyright Office, Customer
shall report such filing to IBM Credit within five Business Days after such
filing occurs. Upon request of IBM Credit, Customer shall execute and deliver
any and all agreements, instruments, documents, and papers, which IBM Credit
shall prepare based upon information provided by Customer, as IBM Credit may
request to evidence and/or perfect IBM Credit's security interest in any patent,
trademark, tradename or copyright and the
31
goodwill and general intangibles relating thereto or represented thereby, and
Customer hereby constitutes IBM Credit its attorney-in-fact to execute and file
all such writings for the foregoing purposes, all acts of such attorney being
hereby ratified and confirmed, such power being coupled with an interest and
irrevocable until the Obligations are paid in full and this Agreement is
terminated. For the purposes of enabling IBM Credit to exercise its rights and
remedies under this Agreement, Customer hereby grants to IBM Credit an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to Customer) to use, assign, license or sublicense, following
the occurrence of an Event of Default and the exercise by IBM Credit of its
rights and remedies with respect thereto, any of the Collateral consisting of
patents, trademarks, tradenames or copyrights now owned or hereafter acquired by
Customer, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof. Upon
payment in full of all Obligations and termination of this Agreement, the
license granted by Customer pursuant to the immediately preceding sentence shall
be terminated.
7.19. Collateral Reconciliation Reports. Customer shall provide to IBM Credit
on each Business Day a Collateral Reconciliation Report as of the close of
business on the Business Day immediately preceding the day such report is
provided to IBM Credit. Such Collateral Reconciliation Report shall be in form
and detail satisfactory to IBM Credit and shall include back-up documentation
supporting such reconciliation in form and detail satisfactory to IBM Credit.
Such Collateral Reconciliation Report shall reconcile the most recently
preceding Collateral Reconciliation Report to such Collateral Reconciliation
Report and shall include new sales, collections, credits issued, purchases,
returns and any other item affecting the accounts receivable or inventory
balance since the prior reconciliation. Such Collateral Reconciliation Report
shall also include a summary of domestic gross receivables and Eligible
Receivables, foreign gross receivables and Eligible Foreign Receivables, gross
inventory and Eligible Inventory by location.
7.20. Listings and Reconciliations. Customer shall provide to IBM Credit on or
prior to the twentieth (20th) Business Day following each fiscal month a copy of
all bank statements received by Customer for such month along with a
reconciliation of account balances in such account from the preceding statement
to account balances in such account as of the date of such statement.
7.21. Price Protection Credits. Except as set forth on Attachment B, Customer
shall not, without IBM Credit's prior consent, announce any program for price
protection credits that could have the effect of reducing accounts receivable in
which IBM Credit has a security interest.
7.22. Additional Reporting Requirements. Customer shall deliver to IBM Credit,
on the first Business Day of each week, a listing, in form and detail
satisfactory to IBM Credit in its reasonable discretion, as of the Saturday
immediately preceding such Business Day, of (i) Customer's inventory, (ii) the
location of such inventory and (iii) the lower of the cost (net of any
applicable credits) and the fair market value of such inventory. Customer shall
deliver to IBM Credit, on the last Business Day of each week, a cash flow
projection, in form and detail satisfactory to IBM Credit in its reasonable
discretion, for the immediately following week and
32
each week remaining in such fiscal quarter based upon Customer's best estimate
of minimum levels of activity for such week to support Customer's on going
business activities. Customer shall provide to IBM Credit on the first Business
Day of each week, a projection, in form and detail satisfactory to IBM Credit in
its reasonable discretion, for such week of Customer's Outstanding A/R Advances
and Customer's Borrowing Base.
7.23. Subsidiaries. Customer shall not make any Investment in or loan to, or
transfer any assets to any Subsidiary or Affiliate without the prior written
consent of IBM Credit.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations due hereunder:
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its property, assets, revenues or goods,
whether real, personal or mixed, whether now owned or hereafter acquired, except
for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of any assets other than (i)
sales of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn out property,
other than patents, trademarks, trade names and copyrights, in the ordinary
course of business, provided, that the aggregate book value of all such assets
and property so sold or disposed of under this section 8.2 (ii) in any fiscal
year shall not exceed 5% of the consolidated assets of the Customer as of the
beginning of such fiscal year.
8.3. Corporate Changes. The Customer will not, without the prior written
consent of IBM Credit, directly or indirectly, merge, consolidate, liquidate,
dissolve or enter into or engage in any operation or activity materially
different from that presently being conducted by Customer.
8.4. Guaranties. The Customer will not, directly or indirectly, assume,
guaranty, endorse, or otherwise become liable upon the obligations of any other
Person, except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (ii) by
the giving of indemnities or warranties in connection with the sale of inventory
or other asset dispositions permitted hereunder, (iii) for guaranties in favor
of IBM Credit, or (iv) on behalf of its Subsidiaries not to exceed an aggregate
amount of fifty thousand dollars ($50,000.00) per annum.
8.5. Restricted Payments. The Customer will not, directly or indirectly: (i)
declare or pay any dividend (other than dividends payable solely in common stock
of Customer) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital stock,
whether
33
now or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
Customer, provided, however that Customer may (x) purchase for cash from
directors, officers and employees of Customer shares of capital stock in
connection with the termination of any such director's, officer's or employee's
service to Customer to the extent such purchases are consistent with past
practices (which may not be changed without IBM Credit's prior consent) and are
in an aggregate amount not exceeding fifty thousand dollars ($50,000.00) per
annum and (y) redeem and pay dividends on the convertible preferred stock of
Customer held by IBM Credit; or (ii) make any optional payment or prepayment on
or redemption (including, without limitation, by making payments to a sinking or
analogous fund) or repurchase of any Indebtedness (other than the Obligations).
8.6. Investments. The Customer will not, directly or indirectly, make,
maintain or acquire any Investment in any Person other than:
(A) interest bearing deposit accounts (including certificates of deposit)
which are insured by the Federal Deposit Insurance Corporation ("FDIC") or a
similar federal insurance program;
(B) direct obligations of the government of the United States of America
or any agency or instrumentality thereof or obligations guaranteed as to
principal and interest by the United States of America or any agency thereof;
(C) stock or obligations issued to Customer in settlement of claims
against others by reason of an event of bankruptcy or a composition or the
readjustment of debt or a reorganization of any debtor of Customer;
(D) commercial paper of any corporation organized under the laws of any
State of the United States or any bank organized or licensed to conduct a
banking business under the laws of the United States or any State thereof having
the short-term highest rating then given by Moody's Investor's Services, Inc. or
Standard & Poor's Corporation;
(E) the investments set forth on Attachment E.
8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of Customer except in
the ordinary course of business and pursuant to the reasonable requirements of
Customer's business upon fair and reasonable terms no less favorable to Customer
than could be obtained in a comparable arm's-length transaction with an
unaffiliated Person.
8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC, (B) permit any "prohibited transaction"
involving any Plan (other than a "multi-employer benefit plan") which would
subject the Customer to a material tax or penalty on "prohibited transactions"
under the Code or ERISA, (C) fail to pay to any Plan any contribution which they
are obligated to pay under the terms of such Plan, if such failure would result
in a material "accumulated funding deficiency", whether or not waived, (D) allow
or suffer to exist any occurrence and during the continuance of a "reportable
event" or any other event or
34
condition, which presents a material risk of termination by the PBGC of any Plan
(other than a "multi-employer benefit plan"), or (E) fail to notify IBM Credit
as required in Section 7.5. As used in this Agreement, the terms "accumulated
funding deficiency" and "reportable event" shall have the respective meanings
assigned to them in ERISA, and the term "prohibited transaction" shall have the
meaning assigned to it in the Code and ERISA. For purposes of this Section 8.8,
the terms material liability, tax, penalty, accumulated funding deficiency and
risk of termination shall mean a liability, tax, penalty, accumulated funding
deficiency or risk of termination which could reasonably be expected to have a
Material Adverse Effect.
8.9. Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer, concurrently with the delivery of such
Collateral to such party, causes such party to issue and deliver to IBM Credit,
in form and substance satisfactory to IBM Credit, warehouse receipts in the name
of IBM Credit evidencing the storage of such Collateral.
8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds
of any Advances other than for its general working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would affect IBM Credit's ability to collect payment on any Account in
whole or in part, except for such extensions, compromises or settlements made by
Customer in the ordinary course of its business, provided, however, that the
aggregate amount of such extensions, compromises or settlements does not exceed
five percent (5%) of the Customer's Accounts at any time.
8.13. Indebtedness. The Customer will not create, incur, assume or permit to
exist any Indebtedness, except for Permitted Indebtedness.
8.14. Loans. The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent corporation or
to any officer, director or stockholder of Customer or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement, provided, however, that
Customer may make loans to its officers in an aggregate outstanding amount at
any time not exceeding two hundred fifty thousand dollars ($250,000.00), and to
its Subsidiaries in an aggregate outstanding amount at any time not exceeding
one hundred thousand dollars ($100,000.00).
8.15. Premium Payments. Customer shall not make, directly or indirectly, any
payments to suppliers at a premium above the regular invoice price on account of
past due indebtedness to such supplier without the prior written consent of IBM
Credit.
35
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events shall constitute
an Event of Default by the Customer under this Agreement and the Other
Agreements:
(A) The failure to make timely payment of the Obligations or any part
thereof, within the earlier of (i) one Business Day after receiving written
notice that such payment has not been made when due in accordance with the terms
of any documents evidencing the same and (ii) five days after such payment
becomes due in accordance with the terms of any documents evidencing the same;
(B) (x) the failure to comply with or observe any term, covenant or
agreement (other than pursuant to Sections 7.1 (C) (i), 8.1, 8.2 or 8.3)
contained in this Agreement that is capable of being remedied by Customer if
such failure shall remain unremedied for ten (10) days after written notice from
IBM Credit thereof; provided that during such 10-day period Customer is
diligently taking efforts necessary to remedy such failure or (y) Customer fails
to comply with or observe any term, covenant or agreement contained in Sections
8.1, 8.2 or 8.3 that is capable of being remedied by Customer if such failure
shall remain unremedied for 10 days; provided that during such 10-day period,
Customer is diligently taking efforts necessary to remedy such failure;
(C) Customer fails to comply with or observe any term, covenant or
agreement contained in this Agreement other than as referred to in paragraphs
(A) or (B);
(D) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any Subsidiary or guarantor to IBM Credit was false
in any material respect at the time when made or deemed made;
(E) The occurrence of any event or circumstance which could reasonably be
expected to have a Material Adverse Effect;
(F) Customer or any Subsidiary or guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer or any Subsidiary or any of its respective properties or have any of
its respective properties seized or attached, or take any action to authorize,
or for the purpose of effectuating, the foregoing; provided, however, that
Customer or any Subsidiary shall have a period of forty-five (45) days within
which to discharge any involuntary petition for bankruptcy or similar
proceeding; provided, further, however, that any of the foregoing set forth in
this paragraph (F), with respect to any Subsidiary or guarantor, could
reasonably be expected to have a Material Adverse Effect;
(G) The use by Customer of any funds borrowed from IBM Credit under this
Agreement for any purpose other than as provided in this Agreement;
36
(H) The entry of any judgment against Customer or any guarantor in an
amount in excess of fifty thousand dollars ($50,000.00) and such judgment is not
satisfied, dismissed, stayed or superseded by bond within thirty (30) days after
the day of entry thereof (and in the event of a stay or supersedeas bond, such
judgment is not discharged within thirty (30) days after termination of any such
stay or bond) or such judgment is not fully covered by insurance as to which the
insurance company has acknowledged its obligation to pay such judgment in full;
(I) The dissolution or liquidation of Customer or any guarantor, or
Customer or any guarantor or any of their directors or stockholders shall take
any action to dissolve or liquidate Customer or any guarantor;
(J) Any "going concern" or like qualification or exception, or
qualification arising after the date of this Agreement out of the scope of an
audit by an Auditor of his opinion relative to any Financial Statement delivered
to IBM Credit under this Agreement;
(K) There issues a warrant of distress or distraint or any similar
proscription for any rent or taxes with respect to any of Customer's properties,
assets or premises and such warrant shall continue for a period of two (2)
Business Days from the date such warrant is issued;
(L) Customer suspends business;
(M) The occurrence of any event or condition which enables the holder of
any Indebtedness or trade liabilities arising in one or more related or
unrelated transactions, in aggregate principal amount exceeding fifty thousand
dollars ($50,000.00) to accelerate the maturity thereof or the failure of
Customer to pay when due any such Indebtedness or trade liabilities;
(N) Any guaranty of any or all of the Customer's Obligations executed by
any guarantor in favor of IBM Credit, shall at any time for any reason cease to
be in full force and effect or shall be declared to be null and void by a court
of competent jurisdiction or the validity or enforceability thereof shall be
contested or denied by any such guarantor, or any such guarantor shall deny that
it has any further liability or obligation thereunder or any such guarantor
shall fail to comply with or observe any of the terms, provisions or conditions
contained in any such guaranty;
(O) Customer is in default under the material terms of any of the Other
Agreements after the expiration of any applicable cure periods;
(P) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which in the reasonable opinion
of IBM Credit will have a Material Adverse Effect;
(Q) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of Customer; or
37
(R) Customer is in default of any of the terms or conditions of its
agreements with Mitsubishi Electronics America which default allows Mitsubishi
Electronics America to exercise any of its rights under any security agreement
by and between Customer and Mitsubishi Electronics America.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may,
in its sole discretion, take any or all of the following actions, without
prejudice to any other rights it may have at law or under this Agreement to
enforce its claims against the Customer: (a) declare all Obligations to be
immediately due and payable (except with respect to any Event of Default set
forth in Section 9.1(F) hereof, in which case all Obligations shall
automatically become immediately due and payable without the necessity of any
notice or other demand) without presentment, demand, protest or any other action
or obligation of IBM Credit; and (b) immediately terminate the Line of Credit
hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any
Event of Default which has not been waived in writing by IBM Credit, IBM Credit
may exercise all rights and remedies of a secured party under the U.C.C.
Without limiting the generality of the foregoing, IBM Credit may: (i) remove
from any premises where same may be located any and all documents, instruments,
files and records (including the copying of any computer records), and any
receptacles or cabinets containing same, relating to the Accounts, or IBM Credit
may use (at the expense of the Customer) such of the supplies or space of the
Customer at Customer's place of business or otherwise, as may be necessary to
properly administer and control the Accounts or the handling of collections and
realizations thereon; (ii) bring suit, in the name of the Customer or IBM Credit
and generally shall have all other rights respecting said Accounts, including
without limitation the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Customer or IBM Credit; (iii)
sell, assign and deliver the Accounts and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at IBM Credit's sole option and discretion, and IBM
Credit may bid or become a purchaser at any such sale; and (iv) foreclose the
security interests created pursuant to this Agreement by any available judicial
or non-judicial procedure, or take possession of any or all of the Collateral
without judicial process and enter any premises where any Collateral may be
located for the purpose of taking possession of or removing the same.
(B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase, including for a credit bid, at any such sale. If IBM Credit, in its
sole discretion, determines that any of the Collateral requires rebuilding,
repairing, maintenance or preparation, IBM Credit shall have the right, at its
option, to do such of the aforesaid as it deems necessary for the purpose of
putting such Collateral in such saleable form as
38
IBM Credit shall deem appropriate. The Customer hereby agrees that any
disposition by IBM Credit of any Collateral pursuant to and in accordance with
the terms of a repurchase agreement between IBM Credit and the manufacturer or
any supplier (including any Authorized Supplier) of such Collateral constitutes
a commercially reasonable sale. The Customer agrees, at the request of IBM
Credit, to assemble the Collateral and to make it available to IBM Credit at
places which IBM Credit shall select, whether at the premises of the Customer or
elsewhere, and to make available to IBM Credit the premises and facilities of
the Customer for the purpose of IBM Credit's taking possession of, removing or
putting such Collateral in saleable form. If notice of intended disposition of
any Collateral is required by law, it is agreed that ten (10) Business Days
notice shall constitute reasonable notification.
(C) IBM Credit is hereby granted, upon the occurrence and during the
continuance of any Event of Default which has not been waived in writing by IBM
Credit, an irrevocable, non-exclusive license to use, assign, license or
sublicense all computer software programs, data bases, processes and materials
used by the Customer in its businesses or in connection with any of the
Collateral.
(D) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Customer's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer
or its successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other legal or equitable rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral
by any court process Customer hereby irrevocably waives to the extent permitted
by applicable law any bonds, surety and security relating thereto required by
any statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the
extent permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that it intends to terminate this Agreement which date shall be
no less than 90 days following the receipt by IBM Credit of such written notice,
and (iii) termination by IBM Credit after the occurrence and during the
continuance of an Event of Default. Upon the date that this Agreement is
terminated, all of
39
Customer's Obligations shall be immediately due and payable in their entirety,
even if they are not yet due under their terms.
(B) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Agreements
shall in any way affect or impair the Customer's Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to such
termination, and IBM Credit's security interest in the Collateral.
10.2. Indemnification. The Customer hereby agrees to indemnify and hold
harmless IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or before the date of this Agreement relating to any financing
arrangements IBM Credit may from time to time have with (i) Customer, (ii) any
Person that shall be acquired by Customer or (iii) any Person that Customer may
acquire all or substantially all of the assets of, or (b) directly or
indirectly, relating to the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby or thereby or to any
of the Collateral or to any act or omission of the Customer in connection
therewith. Notwithstanding the foregoing, the Customer shall not be obligated
to indemnify IBM Credit for any Losses incurred by IBM Credit which are a result
of IBM Credit's gross negligence or willful misconduct. The indemnity provided
herein shall survive the termination of this Agreement. IBM Credit shall notify
Customer in writing promptly upon obtaining knowledge of any claim subject to
indemnification pursuant to this paragraph 10.2 and shall use reasonable efforts
to minimize the amount of any indemnified Loss. Customer agrees to pay
promptly, upon demand, all reasonable costs and fees, including reasonable
attorney's fees, incurred by IBM Credit in the administration, renewal,
extension, modification, documentation, restructuring, "workout", enforcement or
collection of any or all of the Obligations, or in any litigation, arbitration,
mediation, bankruptcy or other proceeding of any type, relating thereto.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation so to do, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM
Credit in performing in satisfaction or on account of the foregoing and any
expenses, including reasonable attorney's fees, court costs, and other charges
relating thereto, shall be a part of the Obligations, payable on demand and
secured by the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR SHALL IBM
CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER OR ANY
OTHER
40
PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM HEREUNDER,
EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
10.5. Alteration/Waiver. This Agreement and the Other Agreements may not be
altered or amended except by an agreement in writing signed by the Customer and
by IBM Credit. No delay or omission of IBM Credit to exercise any right or
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Agreements, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Agreement shall not waive, affect
or diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the Customer
under this Agreement or any of the Other Agreements shall not waive or affect
any other Default by the Customer under this Agreement or any of the Other
Agreements, whether such Default is prior or subsequent to such other Default
and whether of the same or a different type. None of the undertakings,
agreements, warranties, covenants, and representations of the Customer contained
in this Agreement or the Other Agreements and no Default by the Customer shall
be deemed waived by IBM Credit unless such waiver is in writing signed by an
authorized representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Agreements
or the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Agreements and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Agreements
being severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Agreements
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.
10.8. Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are hereby
pledged by Customer to IBM Credit as security for the payment of Customer's
Obligations and shall be applied promptly by IBM Credit on account of the
Customer's Obligations in accordance with the provisions of this Agreement;
provided, however, IBM Credit may release to the Customer such portions of such
monies, reserves and proceeds as IBM Credit may from time to time determine, in
its sole discretion.
10.9. No Merger or Novations. Neither the obtaining of any judgment nor the
exercise of any power of seizure or sale shall operate to extinguish the
Obligations of the Customer to IBM
41
Credit secured by this Agreement and shall not operate as a merger of any
covenant in this Agreement, and the acceptance of any payment or alternate
security shall not constitute or create a novation and the obtaining of a
judgment or judgments under a covenant herein contained shall not operate as a
merger of that covenant or affect IBM Credit's rights under this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the
Other Agreements are for convenience only and do not define or limit the
contents of any Section.
10.11. Binding Effect; Assignment. This Agreement and the Other Agreements
shall be binding upon and inure to the benefit of IBM Credit and the Customer
and their respective successors and assigns; provided, that the Customer shall
have no right to assign this Agreement or any of the Other Agreements without
the prior written consent of IBM Credit.
10.12. Notices. Except as otherwise expressly provided in this Agreement, any
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(A) upon receipt if deposited in the United States mails, first class mail, with
proper postage prepaid, (B) upon receipt of confirmation or answerback if sent
by telecopy, or other similar facsimile transmission, (C) one Business Day after
deposit with a reputable overnight courier with all charges prepaid, or (D) when
delivered, if hand-delivered by messenger, all of which shall be properly
addressed to the party to be notified and sent to the address or number
indicated as follows:
(i) If to IBM Credit at:
IBM Credit Corporation
5000 Executive Parkway, Suite #450
San Ramon, CA 94583
Attention: Remarketer Finance Center Manager
Telecopy: (510) 277-5675
(ii) If to Customer at:
Radius Inc.
215 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Chief Executive Officer
Telecopy: 408-541-5271
or to such other address or number as each party designates to the other in the
manner prescribed herein.
42
10.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
10.14. Amendment and Restatement. Notwithstanding anything contained herein or
in any other document to the contrary, it is understood and agreed by Customer
and IBM Credit that the claims of IBM Credit arising hereunder and existing as
of the date hereof constitute continuing claims arising out of the obligations
of Customer under the Existing Financing Agreement. Customer acknowledges and
agrees that the Indebtedness represented by the Advances outstanding as of the
date hereof has not been satisfied or discharged and that this Agreement amends
and restates such Indebtedness and is not intended to effect a novation of the
obligations of Customer which were evidenced by the Existing Financing
Agreement.
10.15. Third Party Beneficiaries. This Agreement is made and entered into for
the sole protection and benefit of the parties hereto and their permitted
successors and assigns, and neither this Agreement nor any of the Other
Agreements is intended to operate as, directly or indirectly, nor shall be
construed as effecting in any way, directly or indirectly, a waiver, estoppel,
discharge, release, or other modification of the parties rights against any
Person, nor shall any other Person have any right of action hereunder.
10.16. General Release. Customer does hereby release, acquit and forever
discharge, for itself and its successors and assigns, IBM Credit, Affiliates of
IBM Credit, and each and every present and former officer, director, employee,
agent, successor and assign of IBM Credit and Affiliate of IBM Credit (the
"Releasees") from any and all manner of actions, causes of action, suits, debts,
costs, claims and demands whatsoever, regardless of whether known or unknown, at
law or in equity or under federal, state, foreign, or other law, which against
the Releasees or any one or more of them Customer, ever had, now has or which
can, shall or may hereafter accrue for, upon or by reason of, arising out of or
in connection with any matter, cause or thing whatsoever from the beginning of
the world to the day of this Agreement, excluding claims arising under ordinary
product and service warranties for product and services purchased by Customer
from Affiliates of IBM Credit in the ordinary course of Customer's business, but
including any claims relating to Mississippi I or Mississippi II product or
services. Customer hereby waives, to the fullest extent permitted by law, the
benefits of any statute, law, rule, regulation or common law, which may limit
the scope of the covenants and releases contained herein. Customer intends by
this Release to forever release, acquit, waive and forever discharge the
Releasees of and from any and all claims and rights described above, it being
understood that all claims or rights which Customer or any person who claims by,
through or under Customer may have against the Releasees shall be forever
released, acquitted, waived and forever discharged, and such persons shall be
forever barred from bringing or asserting the same in their own name or names,
jointly or with or through any other person, natural, corporate or otherwise;
provided, however, that Customer is not waiving any rights or claims under this
Agreement arising on or after the date hereof.
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SECTION 1542 OF THE CIVIL CODE OF THE STATE OF CALIFORNIA PROVIDES AS
FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
CUSTOMER IS AWARE THAT IT MAY HEREAFTER DISCOVER CLAIMS OR FACTS IN
ADDITION TO OR DIFFERENT FROM THOSE IT NOW KNOWS OR BELIEVES TO BE TRUE WITH
RESPECT TO THE MATTERS RELATED HEREIN. NEVERTHELESS, IT IS THE INTENTION OF
CUSTOMER TO FULLY, FINALLY AND FOREVER SETTLE AND RELEASE ALL SUCH MATTERS, AND
ALL CLAIMS RELATIVE THERETO, WHICH DO NOW EXIST, MAY EXIST, OR HERETOFORE HAVE
EXISTED BETWEEN CUSTOMER AND THE RELEASEES. IN FURTHERANCE OF SUCH INTENTION,
THE RELEASES GIVEN HEREIN SHALL BE AND REMAIN IN EFFECT AS FULL AND COMPLETE
RELEASES OF ALL SUCH MATTERS, NOTWITHSTANDING THE DISCOVERY OR EXISTENCE OF ANY
ADDITIONAL CLAIMS OF FACTS RELATIVE THERETO. CUSTOMER WAIVES AND RELINQUISHES
ANY AND ALL RIGHTS IT MAY HAVE UNDER SECTION 1542 OF THE CALIFORNIA CIVIL CODE
AS CURRENTLY WORDED OR HEREAFTER AMENDED.
10.17. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER AGREEMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL),
44
POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS SET FORTH IN SECTION 10.12 OR AT
SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.18. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY
IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER
ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS
AGREEMENT OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
Initials: /s/CB
----------
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has caused
its authorized representatives to execute this Agreement and has caused its
corporate seal to be affixed hereto as of the date first written above.
RADIUS INC.
By: /s/ Charles W. Berger
---------------------------------------------------------
Print Name: Charles W. Berger
------------------------------------------------
Title: Chairman of the Board and Chief Executive Officer
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45
ACCEPTED this 30th day of August, 1996,
IBM CREDIT CORPORATION
By: /s/ Philip N. Morse
---------------------------------------------------------
Print Name: Philip N. Morse
------------------------------------------------
Title: Director, Remarketer Financing Portfolio Controls
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46