EXHIBIT 10.35
REVOLVING CREDIT AND TERM LOAN AGREEMENT
AGREEMENT (this "AGREEMENT") is made and entered into as of the 27th
day of June, 2007, by and between BLUEFIN CAPITAL, LLC, a Delaware limited
liability company (the "LENDER"), and TAG-IT PACIFIC, INC., a Delaware
corporation (the "BORROWER").
W I T N E S S E T H :
WHEREAS, the Borrower is engaged in the business of distributing a full
range of apparel, zipper and trim products to manufacturers of fashion apparel,
specialty retailers and mass merchandisers (collectively, the "BUSINESS
OPERATIONS"); and
WHEREAS, in order to provide funds for (a) the repayment and retirement
of the Convertible Debentures (as such term is hereinafter defined), and (b) the
Borrower's working capital and other general corporate purposes, the Borrower
has requested the Lender to extend to the Borrower a revolving credit facility
and a term loan on the terms and conditions of this Agreement; and
WHEREAS, the Lender is willing and able to provide such revolving
credit facility and make such term loan to the Borrower on the terms and
conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
I. DEFINITIONS
SECTION 1.01. DEFINED TERMS. In addition to the other terms defined
elsewhere in this Agreement, as used herein, the following terms shall have the
following meanings:
"ACCOUNTS" shall mean "accounts" (as defined in the UCC) of
the Borrower and its Subsidiaries from time to time.
"ACCOUNT DEBTOR" shall mean any Person who is obligated on an
Account.
"ACT" shall mean the Securities Act of 1933, as amended, and
the rules and regulations thereunder.
"ADVANCES" shall mean the principal amounts loaned to the
Borrower from time to time pursuant to Section 2.01 below.
"AFFILIATE" shall mean, with respect to any Person, any other
Person in Control of, Controlled by, or under common Control with the first
Person, and any other Person who has a substantial interest, direct or indirect,
in the first Person or any of its Affiliates, including, without limitation, any
officer or director of the first Person or any of its Affiliates; PROVIDED,
HOWEVER, that neither the Lender nor any of its Affiliates shall be deemed an
"Affiliate" of the
Borrower for any purposes of this Agreement. For the purpose of this definition,
a "substantial interest" shall mean the direct or indirect legal or beneficial
ownership of more than ten (10%) percent of any class of stock or similar
interest.
"AGREEMENT" shall mean this Revolving Credit and Term Loan
Agreement as it may from time to time be amended, modified, supplemented and/or
restated.
"APPLICABLE LAW" shall mean all applicable provisions of all
(a) constitutions, statutes, ordinances, rules, regulations and orders of all
governmental and/or quasi-governmental bodies, (b) Government Approvals, and (c)
order, judgments and decrees of all courts and arbitrators.
"AVAILABILITY" shall mean the amount (if any) by which, at the
time of determination, (a) the Revolving Credit Commitment exceeds (b) the
outstanding principal amount of Advances.
"BORROWING BASE" shall mean an amount, determined in
accordance with the most recent borrowing base report theretofore provided to
the Lender under Section 5.04(d) below, equal to (a) 75% of Eligible Accounts,
PLUS (b) 55% of Eligible Inventory, PLUS (c)(i) $1,200,000 at all times from the
Closing Date through and including June 30, 2007, (ii) $750,000 at all times
from July 1, 2007 through and including September 30, 2007, and (iii) $500,000
at all times from October 1, 2007 through and including March 31, 2008, MINUS
(d) the amount (if any) of the Debenture Reserve at the date of determination,
MINUS (e) such other reserves as the Lender may establish from time to time in
its Permitted Discretion (including, without limitation, to account for Account
concentration and other risks of collection, and for obsolete, slow-moving or
otherwise problematic inventory). In the event that the Borrower has not timely
delivered a current Borrowing Base report in accordance with Section 5.04(d)
below, then the applicable Borrowing Base shall be such amount as is established
by the Lender, until such time as the Borrower has delivered a current Borrowing
Base report.
"BORROWING DATE" means the Business Day on which the Lender
makes a Loan hereunder.
"BUSINESS DAY" shall mean a day other than (a) a Saturday, (b)
a Sunday, or (c) a day on which banking institutions in either the State of
Florida or the State of California are authorized or required by law or
executive order to close.
"CAPITAL EXPENDITURES" shall mean with respect to any Person,
all expenditures of such Person for tangible assets which are capitalized, and
the fair value of any tangible assets leased by such Person under any lease
which would be a Capitalized Lease, determined in accordance with GAAP,
including all amounts paid or accrued by such Person in connection with the
purchase (whether on a cash or deferred payment basis) or lease (including
Capitalized Lease Obligations) of any machinery, equipment, real property,
improvements to real property (including leasehold improvements), or any other
tangible asset of such Person which is required, in accordance with GAAP, to be
treated as a fixed asset on the consolidated balance sheet of such Person.
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"CAPITALIZED LEASE" shall mean any lease which is or should be
capitalized on the balance sheet of the lessee thereunder in accordance with
GAAP.
"CAPITALIZED LEASE OBLIGATION" shall mean with respect to any
Person, the amount of the liability which reflects the amount of future payments
under all Capitalized Leases of such Person as at any date, determined in
accordance with GAAP.
"CASH EQUIVALENTS" shall mean (a) marketable securities
issued, or directly and fully guaranteed or insured, by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof) having
maturities of not more than twelve (12) months from the date of acquisition; (b)
time deposits, demand deposits, certificates of deposit, acceptances or prime
commercial paper issued by, or repurchase obligations for underlying securities
of the types described in clause (a) entered into with any commercial bank
having a short-term deposit rating of at least A-2 or the equivalent thereof by
Standard & Poor's Corporation or at least P-2 or the equivalent thereof by
Moody's Investors Service, Inc.; (c) commercial paper with a rating of A-I or
A-2 or the equivalent thereof by Standard & Poor's Corporation or P-1 or P-2 or
the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within twelve (12) months after the date of acquisition; (d) marketable
direct obligations issued by any state in the United States or any agency or
instrumentality thereof maturing within twelve (12) months from the date of
acquisition thereof and, at the time of acquisition, have one of the two highest
ratings generally obtainable from either Standard & Poor's Corporation or
Moody's Investors Services, Inc.; (e) tax-exempt commercial paper of United
States municipal, state or local governments rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Services, Inc. and maturing within
twelve (12) months after the date of acquisition thereof; (f) any other items
selected by the Borrower and approved by the Lender (which approval shall not be
unreasonably withheld or delayed); or (g) any mutual fund or other pooled
investment vehicle which invests principally in the foregoing obligations.
"CLOSING DATE" shall mean the date on which the Term Loan is
funded.
"CLOSING FEE" shall mean the sum of $250,000 with respect to
the Term Loan, which shall be payable in accordance with Section 2.03(a) below.
"CODE" shall mean the Internal Revenue Code of 1986, and the
rules and regulations promulgated thereunder, as in effect from time to time.
"COLLATERAL" shall mean all collateral pledged by the Borrower
and/or any of the Subsidiaries as security for the payment and performance of
the Obligations, whether pursuant to the Collateral Agreement or any other
Security Document.
"COLLATERAL AGREEMENT" shall mean the Collateral Agreement,
dated as of the Closing Date, by and between the Borrower and the Lender, as
same may be amended, modified, supplemented and/or restated from time to time.
"COMMITMENT FEES" shall mean the annual fees payable to the
Lender pursuant to Section 2.03(b)(ii) below.
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"COMMON STOCK" shall mean the authorized common stock of the
Company, $.001 par value per share.
"CONFIDENTIAL INFORMATION" shall mean information that the
Borrower furnishes to the Lender which is not generally available to the public
or available to the Lender from a source other than the Borrower which is not,
to the Lender's knowledge, bound by any confidentiality agreement in respect
thereof.
"CONTRACT" shall mean any indenture, agreement (other than
this Agreement), other contractual restriction, lease in which the Borrower or
any Subsidiary is a lessor or lessee, license or instrument.
"CONTROL" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "CONTROLLING" and "CONTROLLED" shall have meanings
correlative thereto.
"CONTROL AGREEMENT" shall mean, with respect to each bank
account (including, without limitation, the Escrow Account) and/or securities
account maintained by or in the name of the Borrower or any Subsidiary from time
to time, an agreement executed and delivered by the Borrower (or the subject
Subsidiary, as applicable) and the account intermediary, whereby the account
intermediary acknowledges the Lender's Lien on such account and all funds or
property therein, and "control" (within the meaning of the UCC) over such
account is established in favor of the Lender.
"CONVERTIBLE DEBENTURES" shall mean the Convertible Promissory
Notes of the Borrower dated November 9, 2004 in the aggregate principal amount
of $12,500,000, which by their terms mature on November 9, 2007.
"DEBENTURE RESERVE" shall mean, at any time, an amount equal
to the positive difference (if any) of (a) the aggregate outstanding principal
amount and unpaid accrued interest of the Convertible Debentures at such time,
MINUS (b) the amount of funds then on deposit in the Escrow Account.
"DEFAULT" shall mean any of the events specified in Article
VII hereof, whether or not any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied.
"DISCLOSURE SCHEDULE" shall mean the disclosure schedule,
dated as of the Closing Date, executed and delivered by the Borrower to the
Lender, the section numbers of which correspond to the Section numbers of this
Agreement.
"DOLLARS" or "$" shall mean United States Dollars, lawful
currency for the payment of public and private debts.
"DOMESTIC SUBSIDIARY" shall mean any Subsidiary which is
incorporated or formed under the laws of the United States, any State or
Commonwealth in the United States, or the District of Columbia.
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"EBITDA" shall mean, for the subject period, for the Borrower
and its Subsidiaries on a consolidated basis, the sum of (a) Net Income, MINUS
(b) net income attributable to any Subsidiary to the extent, but only to the
extent, that such net income is (A) not available for distribution to the
Borrower for more than six (6) months, or (B) required by the Borrower's
auditors to be reserved in whole or in part as a result of restrictions on
distribution (PROVIDED, HOWEVER, that this clause (B) shall not apply if such
reserve(s) is included in Net Income), PLUS (c) Interest Expense deducted in the
calculation of such Net Income, PLUS (d) taxes on income, whether payable or
accrued, deducted in the calculation of such Net Income (except that taxes
actually paid in cash shall not be added back pursuant to this clause (d)), PLUS
(e) depreciation expense deducted in the calculation of such Net Income, PLUS
(f) amortization expense deducted in the calculation of such Net Income, PLUS
(g) all other non-cash charges and expenses (including equity incentive plan
expenses) deducted in the calculation of such Net Income, excluding accruals for
cash expenses made in the ordinary course of business, MINUS (h) any non-cash
gains included in the calculation of such Net Income, PLUS (i) losses deducted
in the calculation of such Net Income from any sales of assets, other than sales
in the ordinary course of business, MINUS (j) gains added in the calculation of
such Net Income from any sales of assets, other than sales in the ordinary
course of business, PLUS (k) other extraordinary or non-recurring non-cash
losses deducted in the calculation of such Net Income, MINUS (l) other
extraordinary or non-recurring non-cash gains added in the calculation of such
Net Income, all determined in accordance with GAAP.
"ELIGIBLE ACCOUNT" shall mean the face amount of each trade
Account of the Borrower or a Subsidiary (if same has executed a Guaranty
Agreement and become a party to the Collateral Agreement) for services rendered
or goods and products sold in the ordinary course of the Business Operations
which the Lender, in its Permitted Discretion, deems to be an Eligible Account;
PROVIDED, HOWEVER, that an Account shall not be deemed an Eligible Account
unless it meets all of the following conditions:
(a) the subject services or products and goods have been
rendered, shipped or delivered on an absolute sale basis to an Account Debtor
which is not an Affiliate, vendor or supplier of the Borrower or a Subsidiary,
with an invoice date contemporaneous with or within thirty (30) calendar days
after the date of shipment or service, and which does not constitute a
consignment sale, bill-and-hold sale, sale-and-return or other such arrangement
and is not subject to any other repurchase, return or offset agreement binding
upon the Borrower or a Subsidiary; the subject services or products and goods
have been rendered, shipped and delivered (or shipped f.o.b.) to such Account
Debtor on an open account basis (or with payment guaranteed by a letter of
credit, drawn on or by a domestic financial institution, acceptable to the
Lender in all respects), and no part of the subject services, products or goods
has been returned, rejected, lost or damaged; the Account is not evidenced by
chattel paper or an instrument of any kind; and such Account Debtor, unless
pre-approved in writing by the Lender, is not insolvent or the subject of any
bankruptcy or insolvency proceeding of any kind in any jurisdiction;
(b) if the Account Debtor is located outside the continental
United States, either (i) payment for the subject services or goods shall be
secured by an irrevocable letter of credit, which letter of credit shall have
been confirmed by a financial institutional reasonably acceptable to the Lender
payable in the full amount of the face value of the Account in Dollars or
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other currency reasonably acceptable to the Lender, or (ii) such Account and
Account Debtor are reasonably satisfactory to the Lender in its Permitted
Discretion;
(c) it is a valid, legally enforceable obligation of the
Account Debtor thereunder payable in Dollars or other currency reasonably
satisfactory to the Lender, and is not subject to any recoupment, offset or
other defense or any discount or chargeback on the part of such Account Debtor
(provided that prompt payment discounts granted in the ordinary course of
business shall not cause an Account to be disqualified hereunder, so long as
only the discounted amount of such Account, if not otherwise disqualified, is
included in the calculation of the Borrowing Base) or to any claim on the part
of such Account Debtor denying liability thereunder (provided that the
undisputed portion may be considered to be an Eligible Account);
(d) it is subject to no Lien whatsoever, except for the Lien
of the Lender;
(e) it has not remained unpaid in whole or in part for a
period exceeding ninety (90) days after the original invoice date;
(f) it does not arise out of a transaction (whether direct or
indirect) with an employee, officer, agent, director or Affiliate of the
Borrower or any Subsidiary or with any entity controlled by any employee,
officer, agent or director of the Borrower or any Subsidiary (unless, in any
such case, a majority of the disinterested members of the Board of Directors of
the Borrower has approved the subject transaction and such transaction is on an
arms'-length basis);
(g) it is not subject to any contract retainage or other
withholding of any portion of payments on amounts invoiced, whether to secure
the Borrower's or any Subsidiary's performance or otherwise;
(h) it does not represent the unpaid portion of an Account any
portion of which was previously paid or agreed to be paid through the issuance
or delivery of equity securities or other non-cash consideration;
(i) if the Account Debtor is the United States, any State or
Commonwealth therein, or any department, agency or instrumentality thereof, or
any foreign government or agency of a foreign government, the Borrower or the
applicable Domestic Subsidiary has duly assigned its rights to payment of such
Account to the Lender pursuant to the federal Assignment of Claims Act, any
comparable state statutes or any comparable foreign statutes (as applicable);
(j) the Lender has a perfected first priority Lien in such
Account;
(k) such Account is not payable by any person other than the
Account Debtor (such as a beneficiary, recipient or subscriber individually),
provided that the portion thereof which is payable by the Account Debtor may be
considered to be an Eligible Account;
(l) at least sixty (60%) percent in dollar amount of the total
Accounts owed by such Account Debtor and/or its Affiliates constitute Eligible
Accounts;
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(m) the total Accounts owed by the subject Account Debtor
and/or its Affiliates constitute less than ten (10%) percent of the net
collectible dollar value of all Eligible Accounts (provided that only the excess
over ten (10%) percent shall be disqualified under this clause (m), unless the
Lender has otherwise consented in writing to the inclusion of all or any portion
of such excess);
(n) such Account is payable solely to the Borrower or a
Subsidiary, and the Borrower or such Subsidiary is not aware of any dispute by
the Account Debtor with respect to such Account; and
(o) it is not otherwise determined by the Lender, in the
Lender's Permitted Discretion, to be difficult to collect, uncollectible or
otherwise unacceptable for any reason.
"ELIGIBLE INVENTORY" shall mean the lower of the cost (on a
[first in-first out] basis) or fair market value of that inventory consisting of
raw materials or finished goods (but excluding work in process and product
models or samples) of Borrower or any Subsidiary which is party to the
Collateral Agreement which (a) is in good and merchantable condition, (b) was
manufactured in accordance with and meets all standards imposed by any
governmental agency having regulatory authority over such goods and/or their
use, manufacture and/or sale, (c) is in the physical possession of the Borrower
or the subject Subsidiary, or has been shipped to the Borrower or the subject
Subsidiary with title thereto having passed to the Borrower or such Subsidiary
(provided that up to $100,000 in value of inventory held by a vendor/supplier
for drop shipment to a customer for the benefit of the Borrower or the subject
Subsidiary may be considered to be Eligible Inventory if it otherwise meets all
other criteria set forth in this definition), (d) is currently usable or
currently saleable in the normal course of the Business Operations, (e) is not
on consignment to or from any Person, (f) is not subject to any Lien whatsoever,
except for the Lien of the Lender, which shall be perfected with respect to such
inventory, (g) has not been sold to any Person, and (h) is otherwise
satisfactory to the Lender in its Permitted Discretion.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as in effect from time to time.
"ERISA AFFILIATE" shall mean, with respect to any Person, any
other Person which is under common control with the first Person within the
meaning of Section 414(b) or 414(c) of the Code; PROVIDED, HOWEVER, that with
respect to the Borrower, no Person which is an Affiliate of the Lender (other
than the Borrower and its Subsidiaries) shall be deemed an ERISA Affiliate for
purposes of this Agreement
"ESCROW ACCOUNT" shall mean the bank account contemplated by
Section 2.04(b)(i) below.
"EVENT OF DEFAULT" has the meaning set forth in Article VII
below.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"FACTORING AGREEMENT" shall mean the factoring agreement dated
July 19, 2004 by and between the Borrower and East Asia GE Commercial Finance
Limited, as amended.
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"FINANCIAL STATEMENTS" has the meaning set forth in Section
3.01(a) below.
"FISCAL YEAR" shall mean the fiscal year of the Borrower which
ends on December 31 of each year.
"FOREIGN INVESTMENT LIMITATION" has the meaning set forth in
Section 6.01(g) below.
"FOREIGN SUBSIDIARY" shall mean any Subsidiary which is not a
Domestic Subsidiary.
"FREE CASH FLOW" shall mean, for any Fiscal Year in question,
an amount equal to (a) EBITDA for the immediately preceding Fiscal Year, MINUS
(b) taxes paid or payable in cash by or in respect of the Borrower and its
Subsidiaries during or in respect of such immediately preceding Fiscal Year,
MINUS (c) principal and interest payments made or required to be made by the
Borrower and its Subsidiaries during such immediately preceding Fiscal Year,
MINUS (d) Capital Expenditures paid by the Borrower and its Subsidiaries in cash
during such immediately preceding Fiscal Year, MINUS (e) scheduled principal and
interest payments made or required to be made by the Borrower and its
Subsidiaries during the subject Fiscal Year.
"GAAP" shall mean generally accepted accounting principles in
the United States of America, consistently applied, unless the context otherwise
requires, with respect to any financial terms contained herein, as then in
effect with respect to the preparation of financial statements.
"GOVERNMENT APPROVAL" shall mean an authorization, consent,
non-action, approval, license or exemption of, registration or filing with, or
report to, any governmental or quasi-governmental department, agency, body or
other unit.
"GUARANTY", "GUARANTEED" or to "GUARANTEE", as applied to any
Indebtedness, liability or other obligation, shall mean (a) a guaranty, directly
or indirectly, in any manner, including by way of endorsement (other than
endorsements of negotiable instruments for collection in the ordinary course of
business), of any part or all of such obligation, and (b) an agreement,
contingent or otherwise, and whether or not constituting a guaranty, assuring,
or intended to assure, the payment or performance (or payment of damages in the
event of non-performance) of any part or all of such obligation by any means
(including, without limitation, the purchase of securities or obligations, the
purchase or sale of property or services, or the supplying of funds).
"GUARANTY AGREEMENT" shall mean a guaranty agreement, in form
and substance satisfactory to the Lender, to be executed by each Subsidiary in
favor of the Lender, pursuant to which such Subsidiary will guaranty the full
and timely payment and performance of all of the Obligations.
"INDEBTEDNESS" shall mean (without duplication), with respect
to any Person, (a) all obligations or liabilities, contingent or otherwise, for
borrowed money, (b) any and all obligations represented by promissory notes,
bonds, debentures or the like, or on which interest charges are customarily
paid, (c) any liability secured by any mortgage, pledge, lien or security
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interest on property owned or acquired, whether or not such liability shall have
been assumed, (d) obligations of such Person under conditional sale or other
title retention agreements relating to property or assets purchased by such
Person, (e) all obligations of such Person issued or assumed as the deferred
purchase price of property or services (excluding trade payables and accrued
obligations incurred in the ordinary course of business), (f) any obligations
(contingent or otherwise) of such Person as an account party or applicant in
respect of letters of credit and/or bankers' acceptances, or in respect of
interest rate swaps, interest rate caps, hedging agreements or other financial
or hedging obligations, and (g) Guarantees, endorsements (other than for
collection in the ordinary course of business) and other contingent obligations
in respect of the obligations of others.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed
thereto in the Collateral Agreement.
"INTEREST EXPENSE" shall mean, for the relevant period, total
interest expense (including interest attributable to Capitalized Leases in
accordance with GAAP) and fees with respect to outstanding Indebtedness.
"INVESTMENT", as applied to the Borrower or any Subsidiary,
shall mean: (a) any shares of capital stock, evidence of Indebtedness or other
security issued by any other Person to the Borrower or any Subsidiary, (b) any
loan, advance or extension of credit to, or contribution to the capital of, any
other Person, other than credit terms extended to customers in the ordinary
course of business, (c) any other investment by the Borrower or any Subsidiary
in any assets or securities of any other Person, and (d) any commitment to make
any Investment.
"KNOWLEDGE" OR "KNOWN" or words of similar import shall mean,
with respect to the Borrower and/or any Subsidiary, the actual knowledge of
Steve Forte, Lonnie Schnell and/or Wouter van Biene (and/or their respective
successors as officers of the Borrower) after reasonable inquiry of the
appropriate employees of the Borrower and the Subsidiaries.
"LANDLORD WAIVER" shall mean a landlord waiver, subordination
and/or access agreement, in form and substance reasonably satisfactory to the
Lender, executed in favor of the Lender by the landlord of a Leased Real
Property.
"LEASED REAL PROPERTY" shall mean any and all Real Properties
leased or occupied by the Borrower or any Subsidiary from time to time.
"LENDER SHARES" shall mean the shares of Common Stock to be
purchased by and issued to the Lender as contemplated by Section 2.03(d) below.
"LIABILITIES AND CONTINGENCIES" has the meaning set forth in
Section 3.01(c) below.
"LIEN", as applied to the property or assets (or the income or
profits therefrom) of the Borrower or any Subsidiary, shall mean (in each case,
whether the same is consensual or non-consensual or arises by contract,
operation of law, legal process or otherwise): (a) any mortgage, lien, pledge,
hypothecation, attachment, assignment, deposit arrangement, encumbrance, charge,
lease constituting a Capitalized Lease Obligation, conditional sale or other
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title retention agreement, or other security interest or encumbrance of any kind
in respect of any property (including, without limitation, stock of any
Subsidiary) of the Borrower or any Subsidiary, or upon the income or profits
therefrom; (b) any arrangement under which any property of the Borrower or any
Subsidiary is transferred, sequestered or otherwise identified for the purpose
of subjecting or making available the same for the payment of Indebtedness or
the performance of any other liability in priority to the payment of the
general, unsecured creditors of the Borrower or any Subsidiary; (c) any
Indebtedness or liability which remains unpaid after the same shall become due
and payable and which, if unpaid, by law or otherwise is given any priority
whatsoever over the general unsecured creditors of the Borrower or any
Subsidiary; and (d) any agreement (other than this Agreement) or other
arrangement which, directly or indirectly, prohibits the Borrower or any
Subsidiary from creating or incurring any lien on any of its properties or
assets or which conditions the ability to do so on the security, on a PRO RATA
or other basis, of Indebtedness other than Indebtedness outstanding under this
Agreement.
"LOAN DOCUMENTS" shall mean the collective reference to this
Agreement, the Notes, the Security Documents, the Warrants, the Registration
Rights Agreement, and any and all other agreements, instruments, certificates
and other documents as may be executed and delivered by the Borrower and/or any
of the Subsidiaries pursuant hereto or thereto.
"LOANS" shall mean, collectively, the Advances and the Term
Loan.
"MATERIAL ADVERSE EFFECT" shall mean any event, act, omission,
condition or circumstance which has or would reasonably be expected to have a
material adverse effect on (a) the business, operations, properties, assets or
condition, financial or otherwise, of the Borrower and the Subsidiaries, taken
as a whole, (b) the ability of the Borrower or any Subsidiary to perform any of
its obligations under any of the Loan Documents, or (c) the validity or
enforceability of, or the Lender's rights and remedies under, any of the Loan
Documents, other than due to the acts or omissions of the Lender or any of its
Affiliates.
"MATURITY DATE" shall mean June 30, 2010.
"MAXIMUM REVOLVER AMOUNT" shall mean, at any date, (a)
$5,000,000 MINUS (b) the amount of the Debenture Reserve (if any) at the date of
determination, MINUS (c) an amount equal to 50% of all Qualified Proceeds
received by the Borrower from and after the repayment (or required repayment) in
full of the Term Loan.
"MONITORING FEE" shall mean the fees payable to the Lender
pursuant to Section 2.03(b)(i) below.
"NET INCOME" shall mean the consolidated net income (or loss)
of the Borrower and its Subsidiaries for the period in question, after giving
effect to deduction of or provision for all operating expenses, all taxes and
reserves (including reserves for deferred taxes) and all other proper
deductions, all determined in accordance with GAAP and (for so long as the
Borrower is subject thereto) Regulation S-X promulgated under the Act.
"NOTES" shall mean, collectively, the Revolving Credit Note
and the Term Note.
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"OBLIGATIONS" shall mean the collective reference to all
Indebtedness and other liabilities and obligations of every kind and description
owed by the Borrower to the Lender from time to time under or pursuant to this
Agreement, the Notes, the Security Documents and the other Loan Documents
(excluding the Warrant and Registration Rights Agreement, other than amounts
payable from time to time pursuant to Section 2(c) of the Registration Rights
Agreement), and/or otherwise in respect of the Loans, however evidenced, created
or incurred, fixed or contingent, now or hereafter existing, due or to become
due.
"ORGANIC DOCUMENTS" shall mean, with respect to any Person,
the certificate of incorporation, articles of incorporation, certificate of
formation, certificate of limited partnership, by-laws, operating agreement,
limited partnership agreement or other such document of such Person.
"OWNED REAL PROPERTY" shall mean each Real Property in which
the Borrower or any Subsidiary holds an ownership or fee interest from time to
time.
"PERMITTED DISCRETION" shall mean a determination or judgment
made by the Lender in good faith in the exercise of reasonable business judgment
from the perspective of a secured lender.
"PERMITTED INDEBTEDNESS" shall mean any and all Indebtedness
expressly permitted pursuant to Section 6.01 below.
"PERMITTED LIENS" shall mean those Liens expressly permitted
pursuant to Section 6.02 below.
"PERSON" shall mean any individual, partnership, corporation,
limited liability company, banking association, business trust, joint stock
company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"QUALIFIED PROCEEDS" shall mean any and all net proceeds
received by the Borrower from time to time after the date of this Agreement from
the issuance and/or sale of any capital stock of the Borrower or any security
(including any Indebtedness incurred subsequent to the Closing Date) convertible
into or exchangeable for capital stock of the Borrower, except to the extent
that (a) such proceeds are received from the exercise of warrants or options
that are outstanding on the date of this Agreement, or (b) such proceeds are,
within thirty (30) days after the receipt thereof, applied to pay the purchase
price and/or directly associated expenses of the Borrower's acquisition
(directly or through a Wholly-Owned Subsidiary which is a Domestic Subsidiary)
of another business (whether through merger, consolidation, share exchange,
stock purchase, or purchase of all or substantially all of the assets of the
target company or an operating division or unit thereof), in each case effected
subject to and in accordance with the requirements of this Agreement and the
Collateral Agreement (including, without limitation the pledge to the Lender of
the capital stock and/or assets (as applicable) of the acquired business). In
determining the amount of net proceeds for purposes of this definition, there
shall be deducted from gross proceeds only those reasonable expenses incurred by
the Borrower directly related to the subject issuance or sale, exclusive of any
fees or commissions paid to any officer, director or other Affiliate of the
Borrower or any Affiliate of any of the foregoing.
11
"REAL PROPERTIES" shall mean, collectively, any real
properties (land, buildings and/or improvements) now owned or leased or occupied
by the Borrower or any of the Subsidiaries, and, during the period of the
Borrower's and/or Subsidiary's occupancy thereof, any other real properties
heretofore owned or leased by the Borrower or any Subsidiary (provided that,
with respect to leased properties, the "Real Property" shall refer only to the
portion of the subject property (excluding common areas) leased by the Borrower
or a Subsidiary).
"REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement, to be dated as of the Closing Date, made by the Borrower for
the benefit of the Lender and any subsequent Holders (as such term is defined in
the Registration Rights Agreement), as same may be amended, modified,
supplemented and/or restated from time to time.
"REVOLVING CREDIT COMMITMENT" shall mean the Lender's
agreement to make Advances to the Borrower within the limitations set forth in
Section 2.01 below.
"REVOLVING CREDIT NOTE" shall mean the promissory note of the
Borrower issued to the Lender to represent the Advances and interest thereon, as
described in Section 2.01(f) below.
"SALE" shall mean any transaction or series of related
transactions (a) whereby Control of the Borrower is held by a Person (or group
of Persons acting in concert) other than the management of the Borrower on the
date of this Agreement (or Affiliates of such management), provided that a
"Sale" shall not be deemed to have occurred solely by reason of normal market
trading in the Common Stock which does not result in the acquisition by a single
Person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act)
of a majority of the outstanding voting stock of the Borrower, (b) in which the
Borrower is a constituent party to any merger, consolidation or share exchange
and as a result thereof (i) the holders of the outstanding capital stock of the
Borrower which ordinarily has voting power for the election of directors
(including preferred stock counted on an "as converted" basis into common stock)
immediately prior to such merger or consolidation cease to own a majority of the
outstanding capital stock of the Borrower which ordinarily has voting power for
the election of directors (including preferred stock counted on an "as
converted" basis into common stock), or (ii) the Borrower is not the surviving
corporation, or (c) whereby all or any material portion of the assets of the
Borrower or any Subsidiary are sold, assigned or transferred.
"SEC" shall mean the United States Securities and Exchange
Commission, and any successor agency performing the functions thereof.
"SEC REPORTS" shall mean the periodic and current reports,
registration statements, proxy statements and other reports filed or required to
be filed by the Borrower with the SEC pursuant to the Act and/or the Exchange
Act, and any amendments or supplements thereto filed with the SEC.
"SECURITY DOCUMENTS" shall mean the Guaranty Agreement, the
Collateral Agreement, any Collateral Assignments, Landlord Waivers, Control
Agreements, financing
12
statements or other such agreements or documents pursuant thereto, and any other
agreements or instruments securing or creating or evidencing Liens securing the
Obligations.
"SUBORDINATED DEBT" shall mean all Indebtedness for money
borrowed and other liabilities of the Borrower or any Subsidiary, whether or not
evidenced by promissory notes, which is contractually subordinated in right of
payment, in a manner satisfactory to the Lender (as evidenced by the Lender's
prior written approval thereof), to all Obligations of the Borrower and/or the
subject Subsidiary to the Lender.
"SUBSCRIPTION AGREEMENTS" shall mean those Subscription
Agreements dated November 9, 2004, by and between the Borrower and the original
purchasers of the Convertible Debentures.
"SUBSIDIARY" or "SUBSIDIARIES" shall mean the individual or
collective reference to any corporation, limited liability company or other
entity of which 50% or more of the outstanding shares of stock or other equity
interests of each class having ordinary voting power and/or rights to profits
(other than stock having such power only by reason of the happening of a
contingency) is at the time owned by the Borrower, directly or indirectly
through one or more Subsidiaries of the Borrower.
"TERM LOAN" shall mean the term loan in the principal amount
of $9,500,000 to be made pursuant to Section 2.02(a) below.
"TERM NOTE" shall mean the promissory note of the Borrower
issued to the Lender as described in Section 2.02(d) below.
"UCC" means the Uniform Commercial Code as in effect in the
State of New York on the date hereof and hereafter from time to time.
"WARRANTS" shall mean the warrants to purchase shares of
Common Stock (such warrants covering an aggregate of 2,100,000 shares of Common
Stock, subject to adjustment) to be issued by the Borrower to the Lender on the
Closing Date.
"WHOLLY-OWNED SUBSIDIARY" shall mean each Subsidiary of which
all of the outstanding equity securities (other than directors' qualifying
shares) are owned by the Borrower or another such Wholly-Owned Subsidiary.
"WHOLLY-OWNED DOMESTIC SUBSIDIARY" shall mean each
Wholly-Owned Subsidiary which is a Domestic Subsidiary.
SECTION 1.02. USE OF DEFINED TERMS. All terms defined in this Agreement
shall have their defined meanings when used in the Notes, the Security
Documents, the other Loan Documents, and all certificates, reports or other
documents made or delivered pursuant to this Agreement, unless otherwise defined
therein or unless the specific context shall otherwise require.
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
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SECTION 1.04. OTHER DEFINITIONAL PROVISIONS. The words "hereof,"
"herein", "hereto" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Section references are to this Agreement unless
otherwise specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. The word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified.
II. GENERAL TERMS
SECTION 2.01. REVOLVING CREDIT LOANS.
(a) Subject at all times to all of the terms and conditions of
this Agreement, the Lender hereby agrees to extend to the Borrower a secured
revolving credit facility, from the Closing Date to the Maturity Date, in an
aggregate principal amount not to exceed, at any time outstanding, the lesser of
(i) the Borrowing Base at the subject time, or (ii) the Maximum Revolver Amount
(the "REVOLVING CREDIT COMMITMENT"); PROVIDED, HOWEVER, that following the
application of all funds in the Escrow Account to the repayment of Convertible
Debentures, accrued interest thereon and/or accrued interest on the Term Loan,
the amount of the Debenture Reserve shall be disregarded in the calculation of
the Borrowing Base and the Maximum Revolver Amount to the extent that Advances
then being borrowed hereunder shall immediately be applied to repayment of
remaining Convertible Debentures.
(b) Such revolving credit loans are herein sometimes referred
to individually as an "ADVANCE" and collectively as the "ADVANCES." Subject at
all times to all of the terms and conditions of this Agreement, from the Closing
Date to the Maturity Date and within the limits of the Revolving Credit
Commitment, the Lender shall lend, and the Borrower may borrow, prepay (without
premium or penalty) and reborrow under this Section 2.01. Each request for an
Advance (i) shall be irrevocable, (ii) shall be deemed to constitute an express
affirmation that all conditions precedent set forth in part B of Article IV
hereof are satisfied on the date of such request and will be satisfied on the
requested Borrowing Date, and (iii) shall be made to the Lender in writing, not
later than three (3) Business Days prior to the requested Borrowing Date, by an
authorized officer of the Borrower or by telephonic communication by such
authorized officer to the Lender, which shall be confirmed by written notice to
the Lender to be delivered to the Lender by the Business Day next following the
subject request. In no event shall the Borrower request, or shall the Lender be
required to honor, (A) any request for an Advance in an amount greater than the
Availability at such time, (B) any request for an Advance in an amount less than
$100,000, or (C) more than one request for the borrowing of Advances in any
seven (7) calendar day period.
(c) The Borrower shall pay the Lender interest on all Advances
at the rate(s) per annum as in effect from time to time in accordance with the
Revolving Credit Note. Such interest shall be payable monthly in arrears on the
last day of each calendar month commencing June 30, 2007 and on the Maturity
Date, and shall be computed on the daily unpaid balance of all Advances made
under the Borrower's revolving credit loan accounts with the Lender, based on a
three hundred sixty (360) day year, counting the actual number of days elapsed.
The Borrower hereby authorizes the Lender to charge the Borrower's revolving
credit loan accounts for all such
14
interest; PROVIDED, HOWEVER, that the Lender shall be under no obligation to
make any such charge to the Borrower's revolving credit loan accounts
(including, without limitation, if there is insufficient Availability at the
time such interest is due and payable).
(d) In the event and to the extent that, at any time, the
outstanding principal amount of Advances exceeds the Revolving Credit Commitment
then in effect, then the Borrower shall immediately, without notice or demand,
make a payment to the Lender in respect of the Advances in an amount sufficient
to cause the outstanding principal amount of Advances to be equal to or less
than the Revolving Credit Commitment then in effect.
(e) Unless sooner due and payable by reason of an Event of
Default or Sale having occurred, the Borrower shall pay in full all of the
Obligations to the Lender in respect of all Advances on or prior to the Maturity
Date.
(f) All Advances shall be evidenced by a secured Revolving
Credit Note of the Borrower payable to the order of the Lender.
(g) The Borrower may, at its option, terminate the Revolving
Credit Commitment at any time upon ten (10) Business Days' prior written notice,
and paying to the Lender, on the date fixed for termination, an amount equal to
the sum of (i) all outstanding principal and accrued interest of the Advances,
and (ii) prorated accrued Commitment Fees. In the event that, simultaneously
with such termination and payment, the Borrower enters into a replacement
revolving credit facility, the Lender shall, upon request of the Borrower,
subordinate its liens and security interests in the Borrower's and the
Subsidiaries' Accounts and inventory pursuant to a subordination agreement in
form and substance reasonably satisfactory to the Lender.
SECTION 2.02. TERM LOAN.
(a) Subject at all times to all of the terms and conditions of
this Agreement, the Lender hereby agrees to extend to the Borrower a Term Loan
in the principal amount of $9,500,000. The Term Loan shall be borrowed in a
single borrowing on the Closing Date, and any principal amounts repaid in
respect of the Term Loan may not be reborrowed.
(b) The Term Loan shall be repayable in full on the Maturity
Date. The Borrower shall be required to prepay the Term Loan (i) in full
simultaneously with the consummation of any Sale, and (ii) in whole or in part
from time to time (A) in the event and to the extent of 50% of any and all
Qualified Proceeds received by the Borrower from time to time, and (B) as
provided in Section 2.04 below. Any prepayment required under the foregoing
clause (A) shall be due and payable as and when the amount of Qualified Proceeds
is determined (i.e., upon receipt of such Qualified Proceeds in the event that
no acquisition transaction is then pending, or thirty (30) days after receipt of
such Qualified Proceeds to the extent that such Qualified Proceeds have not been
applied to the purchase price and/or related expenses of a consummated business
acquisition).
(c) The Borrower shall pay the Lender interest on the
principal balance of the Term Loan at the rate(s) per annum as in effect from
time to time in accordance with the Term Note. Such interest shall be payable
quarterly in arrears commencing June 30, 2007, on the last
15
day of each calendar quarter thereafter, and on the Maturity Date, and shall be
computed on the daily unpaid balance of the Term Loan, based on a three hundred
sixty (360) day year, counting the actual number of days elapsed. The Borrower
hereby authorizes the Lender to charge the Borrower's revolving credit loan
accounts for all such interest and/or for any or all principal amounts due and
payable in respect of the Term Loans; PROVIDED, HOWEVER, that the Lender shall
be under no obligation to make any such charge to the Borrower's revolving
credit loan accounts (including, without limitation, if there is insufficient
Availability at the time such interest and/or principal is due and payable).
(d) The Term Loan shall be evidenced by a secured Term Note of
the Borrower payable to the order of the Lender.
SECTION 2.03. FEES AND PREMIUMS; LENDER SHARES.
(a) The Borrower shall pay the Closing Fee to the Lender on
the Closing Date. The Closing Fee shall be deemed fully earned on the Closing
Date and shall not be refundable in whole or in part and shall not be subject to
reduction or set-off under any circumstances.
(b) The Borrower shall further pay to the Lender, in respect
of the Revolving Credit Commitment:
(i) in advance on the Closing Date and on the first
(1st) Business Day of each calendar month prior to (A) the Maturity
Date, or (B) the earlier termination of the Revolving Credit Commitment
and payment of the Obligations thereon in accordance with this
Agreement, a collateral monitoring and unused commitment/administrative
fee in the amount of $5,000 per month or portion thereof; and
(ii) on May 31 of each year commencing May 31, 2008,
and upon any early termination of the Revolving Credit Commitment
(appropriately prorated in such latter case), an annual Commitment Fee
in the amount of $50,000.
(c) In the event of any prepayment of all or any portion of
the Term Loan other than pursuant to Sections 2.04(b)(i) or 2.04(b)(iii) below,
in addition to the payment of the subject principal amount and all unpaid
accrued interest thereon, the Borrower shall be required to pay to the Lender a
prepayment premium in an amount equal to one (1%) percent of the principal
amount being prepaid.
(d) On the Closing Date, the Lender shall purchase, and the
Borrower shall sell and issue to the Lender, an aggregate of 1,500,000 fully
paid and nonassessable shares of Common Stock for aggregate purchase price of
$1,500. The Lender hereby acknowledges that such Lender Shares constitute
"restricted securities" under the Act, and represents and warrants that it is
acquiring such Lender Shares for its own account for investment, and not with a
view to the resale or distribution thereof in violation of any applicable
securities laws.
(e) Payments received in respect of the Obligations after
12:00 Noon on any day shall be deemed to be received on the next succeeding
Business Day, and if any payment is received other than by wire transfer of
immediately available funds, such payment shall be
16
subject to three (3) Business Days' clearance prior to being credited to the
Obligations for interest calculation purposes.
(f) In the event that the Lender notifies the Borrower that
the Lender is ready, willing and able to fund the Loans on substantially the
terms of this Agreement and the Closing Date has not occurred within fifteen
(15) days thereafter other than due to the fault of the Lender, then the Lender
may, at any time thereafter until the Closing Date, terminate this Agreement by
written notice to the Borrower, in which event the Borrower shall immediately
pay to the Lender (i) an amount equal to all out-of-pocket costs, charges and
expenses (up to an aggregate maximum of $75,000) incurred by the Lender in
respect of the transactions contemplated by this Agreement, and (ii) an
additional fee in the amount of $250,000. This Section 2.03(f) shall survive any
termination of this Agreement.
SECTION 2.04. USE OF PROCEEDS.
(a) The Borrower shall utilize the proceeds of the Advances
solely for (i) repaying outstanding principal and accrued interest on
Indebtedness currently owed by the Borrower to Mark Dyne in the aggregate amount
of approximately $1,000,000, (ii) repaying up to $3,000,000 in principal amount
of Convertible Debentures, (iii) paying accrued interest on the Convertible
Debentures, and (iv) working capital and other general corporate purposes of the
Borrower.
(b) The Borrower shall utilize the proceeds of the Term Loan
solely for the purpose of repaying the Convertible Debentures, provided that, if
all holders of the Convertible Debentures have not agreed, prior to and
effective on the Closing Date, to waive the prepayment penalties provided in the
Convertible Debentures, then:
(i) On the Closing Date, the proceeds of the Term
Loan shall be placed in a segregated bank account (the "ESCROW
ACCOUNT") at a commercial bank reasonably satisfactory to the Lender,
which shall have entered into a Control Agreement pursuant to which no
transactions in or withdrawals or other dispositions of funds in the
Escrow Account may be made without the written consent of the Lender.
The funds in the Escrow Account (including any interest earned thereon)
may be withdrawn (and the Lender shall give its written authorization
for such withdrawal) and applied to the payment of interest on the Term
Loan from time to time as and when same becomes due and payable and to
the payment of the Convertible Debentures at the earlier of (A) the
maturity date of the Convertible Debentures, or (B) such time as the
holders of the Convertible Debentures will accept prepayment thereof in
full without any prepayment penalty. To the extent that, on the
maturity date of the Convertible Debentures, the funds in the Escrow
Account are not utilized to pay the Convertible Debentures, or sooner
in the event and to the extent that, at any time or from time to time,
the funds in the Escrow Account shall be greater than the outstanding
principal and unpaid accrued interest of the Convertible Debentures,
funds shall be withdrawn from the Escrow Account and applied to the
prepayment of the Term Loan.
(ii) Anything contained in the Term Note to the
contrary notwithstanding, the interest rate applicable to the portion
of the proceeds of the Term
17
Loan held in the Escrow Account from time to time shall be equal to the
interest income earned on the funds on deposit in the Escrow Account
(and, for purposes of this Section 2.04(b)(ii), any withdrawals from
the Escrow Account shall be deemed made from the principal originally
deposited in the Escrow Account, until all such principal has been
withdrawn from the Escrow Account).
(iii) In the event and to the extent that the holders
of the Convertible Debentures hereafter elect to and do convert the
Convertible Debentures (or any portion or portions thereof) into Common
Stock, then (A) an amount equal to the principal amount of Convertible
Debentures that are converted shall, simultaneously with such
conversion, be withdrawn from the Escrow Account and used to prepay a
like portion of the Term Loan, and (B) upon each such prepayment, the
Lender shall return to the Borrower a ratable portion of the Lender
Shares and Warrants based on the principal amount prepaid as a portion
of the aggregate $14,000,000 of maximum lending commitments hereunder.
By way of example, if an aggregate of $4,000,000 in principal amount of
Convertible Debentures were converted, $4,000,000 of the principal of
the Term Loan would thereupon be prepaid out of funds in the Escrow
Account, and simultaneously with such prepayment, four fourteenths
((4)/14th) of the Lender Shares (428,571 Lender Shares) and four
fourteenths ((4)/14th) of each Warrant would be cancelled (and the
Borrower shall promptly (x) if required, issue replacement stock
certificates for the uncancelled portion of any stock certificate
theretofore representing any cancelled Lender Shares, and (y) issue
replacement Warrants for the unexercised and uncancelled portions of
the original Warrants). The Lender hereby agrees that it will not sell,
transfer or dispose of Lender Shares or Warrants, or exercise Warrants,
to such an extent that the Lender ceases to hold a sufficient number of
Lender Shares and Warrants to satisfy any potential future surrender
obligation under this Section 2.04(b)(iii).
(iv) Nothing herein contained shall be deemed to
abrogate or impair the Lender's right to withdraw funds from the Escrow
Account for application to the Obligations upon the occurrence and
during the continuance of any Event of Default.
SECTION 2.05. FURTHER OBLIGATIONS. With respect to all Obligations for
which the interest rate is not otherwise specified herein (whether such
Obligations arise hereunder, pursuant to the Notes or Security Documents, or
otherwise), such Obligations shall bear interest at the rate(s) in effect from
time to time pursuant to the Revolving Credit Note.
SECTION 2.06. APPLICATION OF PAYMENTS. All amounts paid to or received
by the Lender in respect of the Loans from whatever source (whether from the
Borrower, any Subsidiary pursuant to the Guaranty Agreement, any realization
upon any Collateral, or otherwise) shall, unless otherwise directed by the
Borrower with respect to any particular payment (unless an Event of Default
shall then be continuing, in which event the Lender may disregard the Borrower's
direction), be applied (a) first, to reimburse the Lender for all out-of-pocket
costs and expenses incurred by the Lender which are reimbursable to the Lender
in accordance with this Agreement, the Notes and/or any of the other Loan
Documents, (b) next, to any accrued but unpaid fees or prepayment premiums, and
amounts payable under Section 2.2(c) of the Registration Rights Agreement, (c)
next, to unpaid accrued interest on the Term Loan, (d) next, to unpaid accrued
interest on the Advances, (e) next, to the outstanding principal of the Term
Loan, to the extent
18
then due and payable, (f) next, to the outstanding principal of the Advances,
and (g) finally, to the payment of any other outstanding Obligations; and after
payment in full of the Obligations, any further amounts paid to or received by
the Lender in respect of the Loans shall be paid over to the Borrower or such
other Person(s) as may be legally entitled thereto.
SECTION 2.07. SALE. Anything elsewhere contained in this Agreement
and/or the Notes to the contrary notwithstanding, the Revolving Credit
Commitment shall terminate and all Obligations shall become immediately due and
payable, without requirement of any notice or demand, upon the consummation of
any Sale.
SECTION 2.08. OBLIGATIONS UNCONDITIONAL.
(a) The payment and performance of all Obligations shall
constitute the absolute and unconditional obligations of the Borrower, and shall
be independent of any defense or rights of set-off, recoupment or counterclaim
which the Borrower might otherwise have against the Lender. All payments
required by this Agreement and/or the Notes shall be paid free of any deductions
or withholdings for any taxes (but only for the original Lender and any
investment funds under common management with such Lender) or other amounts and
without abatement, diminution or set-off. If the Borrower is required by law to
make such a deduction or withholding from a payment hereunder, the Borrower
shall pay to the Lender such additional amount as is necessary to ensure that,
after the making of such deduction or withholding, the Lender receives (free
from any liability in respect of any such deduction or withholding) a net sum
equal to the sum which it would have received and so retained had no such
deduction or withholding been made or required to be made. The Borrower shall
(i) pay the full amount of any deduction or withholding, which it is required to
make by-law, to the relevant authority within the payment period set by the
relevant law, and (ii) promptly after any such payment, deliver to the Lender an
original (or certified copy) official receipt issued by the relevant authority
in respect of the amount withheld or deducted or, if the relevant authority does
not issue such official receipts, such other evidence of payment of the amount
withheld or deducted as is reasonably acceptable to the Lender.
(b) If, at any time and from time to time after the Closing
Date, (i) any change in any existing law, regulation, treaty or directive or in
the interpretation or application thereof, (ii) any new law, regulation, treaty
or directive enacted or application thereof, or (iii) compliance by the Lender
with any request or directive (whether or not having the force of law) from any
governmental authority (A) subjects the Lender to any tax, levy, impost,
deduction, assessment, charge or withholding of any kind whatsoever with respect
to any Loan Document, or changes the basis of taxation of payments to the Lender
of any amount payable thereunder (except for net income taxes, or franchise
taxes imposed in lieu of net income taxes, imposed generally by federal, state
or local taxing authorities with respect to interest or commitment fees or other
fees payable hereunder or changes in the rate of tax on the overall net income
of the Lender or its members), or (B) imposes on the Lender any other condition
or increased cost in connection with the transactions contemplated thereby or
participations therein, and the result of any of the foregoing is to increase
the cost to the Lender of making or continuing any Loan or to reduce any amount
receivable hereunder, then, in any such case, the Borrower shall promptly pay to
the Lender any additional amounts necessary to compensate the Lender, on an
after-tax basis, for such additional cost or reduced amount as determined by the
Lender. If the Lender becomes
19
entitled to claim any additional amounts pursuant to this Section 2.08(b), the
Lender shall promptly notify the Borrower of the event by reason of which the
Lender has become so entitled, and each such notice of additional amounts
payable pursuant to this Section 2.08(b) submitted by the Lender to the Borrower
shall, absent manifest error, be final, conclusive and binding for all purposes.
SECTION 2.09. REVERSAL OF PAYMENTS. To the extent that any payment or
payments made to or received by the Lender pursuant to this Agreement or any
other Loan Document are subsequently invalidated, declared to be fraudulent or
preferential, set aside, or required to be repaid to any trustee, receiver or
other person under any state or federal bankruptcy or other such law, then, to
the extent thereof, such amounts shall be revived as Obligations and continue in
full force and effect hereunder as if such payment or payments had not been
received by the Lender.
SECTION 2.10. OFFERING TO HOLDERS OF CONVERTIBLE DEBENTURES. Within the
time periods provided in Section 8 of the Subscription Agreements, the Borrower
shall offer to the holders of the Convertible Debentures the opportunity to
purchase participations in the Loans, the Lender Shares and the Warrants,
pursuant to participation agreements in form and substance satisfactory to the
Lender; PROVIDED, however, that in no event shall such participations offered to
the holders of the Convertible Debentures exceed 49% of the Loans, the Lender
Shares or the Warrants. If any of such holders accepts such offer, the Borrower
shall, upon tender of the certificates representing the Lender Shares and the
Warrants, reissue such Lender Shares and Warrants to the Lender and the subject
participants in the amounts designated by the Lender based upon such
participations. Thereafter, in the event that any of the Lender Shares or the
Warrants are required to be surrendered pursuant to Section 2.04(b)(iii) above,
the Borrower shall look solely to the participants for the return of their
proportionate shares of such to-be-surrendered Lender Shares and Warrants.
III. REPRESENTATIONS AND WARRANTIES
As of the Closing Date and on each Borrowing Date (unless the
representation and warranty refers to a specific date), the Borrower hereby
makes the following representations and warranties to the Lender, all of which
representations and warranties shall survive the Closing Date, the delivery of
the Notes and the making of the Loans, shall be continuing in nature so long as
any Obligations are outstanding or the Revolving Credit Commitment remains in
effect, and are as follows:
SECTION 3.01. FINANCIAL MATTERS.
(a) The Borrower has heretofore furnished to the Lender (i)
the audited consolidated financial statements (including balance sheets,
statements of income and statements of cash flows) of the Borrower and its
Subsidiaries as at December 31, 2005 and 2006, and for the Fiscal Years then
ended, and (ii) the unaudited consolidated financial statements of the Borrower
and its Subsidiaries as of March 31, 2007 and for the three (3) months then
ended (collectively, the "FINANCIAL STATEMENTS").
(b) The Financial Statements (i) have been prepared in
accordance with GAAP and Regulation S-X promulgated under the Act on a
consistent basis for all periods
20
(subject, in the case of unaudited statements, to the absence of full footnote
disclosures, and to normal non-material audit adjustments), (ii) are complete
and correct in all material respects, (iii) fairly present the consolidated
financial condition of the Borrower and its Subsidiaries as of said dates, and
the results of their operations for the periods stated, (iv) contain and reflect
all necessary adjustments and accruals for a fair presentation of the Borrower's
and its Subsidiaries' consolidated financial condition and results of operations
as of the dates of and for the periods covered by such Financial Statements, and
(v) make full and adequate provision, subject to and in accordance with GAAP,
for the various assets and liabilities (including, without limitation, deferred
revenues) of the Borrower, fixed or contingent, and the results of their
operations and transactions in their accounts, as of the dates and for the
periods referred to therein.
(c) Except as set forth in SCHEDULE 3.01 of the Disclosure
Schedule, neither the Borrower nor any of its Subsidiaries have any liabilities,
obligations or commitments of any kind or nature whatsoever, whether absolute,
accrued, contingent or otherwise (collectively "LIABILITIES AND CONTINGENCIES"),
including, without limitation, Liabilities and Contingencies under employment
agreements and with respect to any "earn-outs", stock appreciation rights, or
related compensation obligations, except: (i) Liabilities and Contingencies
disclosed in the Financial Statements or footnotes thereto, (ii) Liabilities and
Contingencies incurred in the ordinary course of business and consistent with
past practice since the date of the most recent Financial Statements, or (iii)
those Liabilities and Contingencies which are not required to be disclosed under
GAAP. The reserves, if any, reflected on the balance sheet included in the most
recent Financial Statements are appropriate and reasonable. Neither the Borrower
nor any of its Subsidiaries have any Indebtedness for money borrowed,
outstanding obligations for the purchase price of property, contingent
obligations or liabilities for taxes, or any unusual forward or long-term
commitments, except as specifically set forth in SCHEDULE 3.01 of the Disclosure
Schedule.
(d) Since the date of the most recent Financial Statements,
except as set forth in SCHEDULE 3.01 of the Disclosure Schedule, there has been
no material adverse change in the working capital, condition (financial or
otherwise), assets, liabilities, reserves, business, management, operations or
prospects of the Borrower or any of its Subsidiaries, including, without
limitation, the following:
(i) there has been no material change in any
assumptions underlying, or in any methods of calculating, any bad debt,
contingency or other reserve relating to the Borrower or any
Subsidiary;
(ii) there have been (A) no material write-downs in
the value of any inventory of, and there have been no write-offs as
uncollectible of any notes, accounts receivable or other receivables
of, the Borrower or any Subsidiary other than write-offs of accounts
receivable reserved in full as of the date of the most recent financial
statements delivered to the Lender, and (B) no reserves established for
the uncollectibility of any notes, Accounts or other receivables of the
Borrower or any Subsidiary except to the extent that same have been
disclosed to the Lender in writing and would not, individually or in
the aggregate, cause the outstanding Advances to exceed the Revolving
Credit Commitment;
21
(iii) no debts have been cancelled, no claims or
rights of substantial value have been waived and no properties or
assets (real, personal or mixed, tangible or intangible) have been
sold, transferred, or otherwise disposed of by the Borrower or any
Subsidiary except in the ordinary course of business and consistent
with past practice;
(iv) there has been no change in any method of
accounting or accounting practice utilized by the Borrower or any
Subsidiary;
(v) no material casualty, loss or damage has been
suffered by the Borrower or any Subsidiary, regardless of whether such
casualty, loss or damage is or was covered by insurance;
(vi) Any announced changes in the policies or
practices of any customer, supplier or referral source which would
reasonably be expected to have a Material Adverse Effect;
(vii) Any incurrence of (A) any liability or
obligation outside of the ordinary course of business, or (B) any
Indebtedness other than Permitted Indebtedness;
(viii) Any declaration, setting aside or payment of
any dividend or distribution or any other payment of any kind by the
Borrower to or in respect of any equity securities of the Borrower; and
(ix) No action described in this Section 3.01(d) has
been agreed to be taken by the Borrower or any Subsidiary.
(e) Subsequent to January 1, 2007, neither the Borrower nor
any of the Subsidiaries has effected any borrowing or sale transaction under the
Factoring Agreement.
(f) The Borrower and its Subsidiaries have in place adequate
systems of internal controls and disclosure controls and procedures sufficient
to provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences, and (v) the Borrower and its management are able to
obtain timely and accurate information regarding the Business Operations and all
material transactions relating to the Borrower and the Subsidiaries; and no
material deficiency exists with respect to the Borrower's or any Subsidiary's
systems of internal controls.
(g) All of the SEC Reports, as of the respective dates
thereof, complied in all material respects, as applicable, with the Act and the
Exchange Act.
22
SECTION 3.02. ORGANIZATION; CORPORATE EXISTENCE.
(a) The Borrower (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, (ii) has
all requisite corporate power and authority to own its properties and to carry
on its business as now conducted and as proposed hereafter to be conducted,
(iii) is qualified to do business as a foreign corporation in each jurisdiction
in which the failure of the Borrower to be so qualified would have a Material
Adverse Effect, and (iv) has all requisite corporate power and authority to
execute and deliver, and perform all of its obligations under, the Loan
Documents. True and complete copies of the Organic Documents of the Borrower,
together with all amendments thereto to the date hereof, have been furnished to
the Lender.
(b) On the date of this Agreement, the outstanding capital
stock of the Borrower, the number and amount of all outstanding options,
warrants, convertible securities, subscriptions and other rights to acquire
capital stock of the Borrower, and the number of shares reserved under
outstanding option plans or the like, are as set forth in SCHEDULE 3.02 of the
Disclosure Schedule. All of such outstanding capital stock is validly issued,
fully paid and nonassessable. Except as set forth in such SCHEDULE 3.02, no
holders of any such securities have any registration rights in respect thereof.
(c) SCHEDULE 3.02 of the Disclosure Schedule further sets
forth, with respect to each Subsidiary on the date of this Agreement, (i) its
proper legal name, (ii) its jurisdiction of incorporation or formation, (iii)
the jurisdictions in which it is qualified to do business as a foreign entity,
(iv) the number of shares of capital stock, equity securities or ownership
interests outstanding (all of which are validly issued, fully paid and
nonassessable), and (v) the owner(s) of such outstanding capital stock, equity
securities or other ownership interests. Each of the Subsidiaries (A) is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation, (B) has all requisite power
and authority to own its properties and to carry on its business as now
conducted and as proposed hereafter to be conducted, and to execute and deliver,
and perform all of its obligations under, the Loan Documents to which it is a
party, and (C) is not required to be qualified to do business as a foreign
entity in any jurisdiction in which it is not so qualified and the failure to be
so qualified would reasonably be expected to have a Material Adverse Effect.
True and complete copies of the Organic Documents of each Subsidiary, together
with all amendments thereto to the date hereof, have been furnished to the
Lender.
SECTION 3.03. AUTHORIZATION.
(a) The execution, delivery and performance by the Borrower
and the Subsidiaries of their respective obligations under the Loan Documents
have been duly authorized by all requisite corporate and other action and will
not, either prior to or as a result of the consummation of the transactions
contemplated by this Agreement: (i) violate any provision of Applicable Law, any
order of any court or other agency of government, any provision of the Organic
Documents of the Borrower or any Subsidiary, or any Contract, indenture,
agreement or other instrument to which the Borrower or any of the Subsidiaries
is a party, or by which the Borrower or any of the Subsidiaries or any of its
assets or properties are bound, or (ii) be in conflict with, result in a breach
of, or constitute (after the giving of notice or lapse of time or both) a
default under, or, except as may be provided in the Loan Documents, result in
the creation or imposition of any Lien of any nature whatsoever upon any of the
property or assets of
23
the Borrower or any of the Subsidiaries pursuant to, any such Contract,
indenture, agreement or other instrument.
(b) This Agreement and the other Loan Documents have been duly
executed and delivered by the Borrower and its Subsidiaries party thereto, and
constitute the valid and binding obligations of the Borrower and its
Subsidiaries party thereto, enforceable against the Borrower and such
Subsidiaries in accordance with their respective terms, except to the extent
that enforceability may be limited by bankruptcy, insolvency, reorganization,
moretorium, fraudulent transfer or other similar laws now or hereafter in effect
relating to creditors' rights generally, and by general principles of equity.
(c) Neither the Borrower nor any of the Subsidiaries is
required to obtain any Government Approval, consent or authorization from, or to
file any declaration or statement with, any governmental instrumentality or
agency in connection with or as a condition to the execution, delivery or
performance of any of the Loan Documents.
(d) Without limitation of Sections 3.03(a) through 3.03(c)
above, the issuance of the Warrants has been authorized by all requisite
corporate action of the Borrower, and such issuance does not conflict with any
shareholders' agreement, preemptive rights, limitation under or requirement of
Organic Documents, or other agreement or commitment of the Borrower. Upon
exercise of the Warrants in accordance with the terms thereof, the Warrant
Shares (as such term is defined in the Warrants) will be validly issued, fully
paid and nonassessable.
SECTION 3.04. LITIGATION. Except as disclosed on SCHEDULE 3.04 of the
Disclosure Schedule, there is no action, suit or proceeding at law or in equity
or by or before any governmental instrumentality or other agency now pending or,
to the knowledge of the Borrower, threatened against or affecting the Borrower
or any of the Subsidiaries or any of their respective assets, which, if
adversely determined, would have a Material Adverse Effect. The Borrower has no
Knowledge of any state of facts, events, conditions or circumstances which are
reasonably likely to give rise to, or would properly constitute grounds for or
the basis of, any suit, action, arbitration, proceeding or investigation
(including, without limitation, any unfair labor practice charges, interference
with union organizing activities, or other labor or employment claims) against
or with respect to the Borrower or any Subsidiary.
SECTION 3.05. MATERIAL CONTRACTS. Except as disclosed on SCHEDULE 3.05
of the Disclosure Schedule, neither the Borrower nor any of the Subsidiaries is
(a) a party to any Contract, agreement or instrument or subject to any charter
or other corporate or organizational restriction which has had or could
reasonably be expected to have a Material Adverse Effect, (b) subject to any
liability or obligation under or relating to any collective bargaining
agreement, or (c) in default in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any Contract,
agreement or instrument to which it is a party or by which any of its assets or
properties is bound, which default, individually or in the aggregate, would have
or could reasonably be expected to have a Material Adverse Effect.
SECTION 3.06. TITLE TO PROPERTIES. The Borrower and each of the
Subsidiaries has good title to all of its properties and assets, free and clear
of all mortgages, security interests, restrictions, encumbrances or other Liens
of any kind, except for restrictions on the nature of use
24
thereof imposed by Applicable Law, and except for Permitted Liens, none of which
materially interfere with the use and enjoyment of such properties and assets in
the normal course of the Business Operations as presently conducted, or
materially impair the value of such properties and assets for the purpose of
such business.
SECTION 3.07. REAL PROPERTY. SCHEDULE 3.07 of the Disclosure Schedule
sets forth a correct and complete lists of all (i) Owned Real Properties, and
(ii) Leased Real Properties. The Borrower owns good and marketable title to all
Owned Real Properties. The Borrower has a valid lessee's interest in each Leased
Real Property currently leased or occupied by the Borrower and neither the
Borrower nor, to the Borrower's Knowledge, any other party thereto, is in
material breach or violation of any requirements of any such lease. All Real
Properties currently owned or occupied by the Borrower or any Subsidiary are in
good condition (reasonable wear and tear excepted) and are adequate for the
current and proposed businesses of the Borrower and its Subsidiaries. To the
Borrower's Knowledge, its use of the Real Properties in the normal conduct of
the Business Operations does not violate any applicable building, zoning or
other law, ordinance or regulation affecting such Real Properties, and no
covenants, easements, rights-of-way or other such conditions of record impair
the Borrower's use of the Real Properties in the normal conduct of the Business
Operations.
SECTION 3.08. MACHINERY AND EQUIPMENT. The machinery and equipment
owned and/or used by the Borrower and the Subsidiaries is, as to each individual
material item of machinery and equipment, and in the aggregate as to all such
equipment, in good and usable condition and in a state of good maintenance and
repair (reasonable wear and tear excepted), and adequate for its use in the
Business Operations.
SECTION 3.09. CAPITALIZATION. Except as set forth in SCHEDULE 3.02 of
the Disclosure Schedule and for new Subsidiaries which may hereafter be formed
or acquired in compliance with this Agreement, the Borrower does not, directly
or indirectly, own any capital stock of or any form of equity interest in any
other Person.
SECTION 3.10. SOLVENCY. After giving effect to the Loans and the other
transactions contemplated hereby, the borrowings made and/or to be made by the
Borrower under this Agreement do not and will not render the Borrower insolvent
or with unreasonably small capital for its business; the fair saleable value of
all of the assets and properties of the Borrower does now, and will, upon the
funding of the Loans contemplated hereby, exceed the aggregate liabilities and
Indebtedness of the Borrower (including contingent liabilities); the Borrower is
not contemplating either the filing of a petition under any state or federal
bankruptcy or insolvency law, or the liquidation of all or any substantial
portion of its assets or property; the Borrower has no knowledge of any Person
contemplating the filing of any such petition against the Borrower; and the
Borrower reasonably anticipates that it will be able to pay its debts as they
mature.
SECTION 3.11. NO INVESTMENT COMPANY. The Borrower is not an "investment
company" or a company "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
SECTION 3.12. MARGIN SECURITIES. The Borrower does not own or have any
present intention of acquiring any "margin security" or any "margin stock"
within the meaning of
25
Regulations G, T, U or X of the Board of Governors of the Federal Reserve System
(herein called "margin security" and "margin stock"). None of the proceeds of
the Loans will be used, directly or indirectly, for the purpose of purchasing or
carrying, or for the purpose of reducing or retiring any Indebtedness which was
originally incurred to purchase or carry, any margin security or margin stock or
for any other purpose which might constitute the transactions contemplated
hereby a "purpose credit" within the meaning of said Regulations G, T, U or X,
or cause this Agreement to violate any other regulation of the Board of
Governors of the Federal Reserve System or the Exchange Act, or any rules or
regulations promulgated under such statutes.
SECTION 3.13. TAXES.
(a) All federal, state and local tax returns and tax reports
required to be filed by the Borrower and/or any Subsidiary have been timely
filed with the appropriate governmental agencies in all jurisdictions in which
such returns and reports are required to be filed, and all of such tax returns,
tax reports and other filings are correct and complete in all material respects.
All federal, state and local income, franchise, sales, use, property, excise, ad
valorem, value-added, payroll and other taxes (including interest, penalties and
additions to tax and including estimated tax installments where required to be
filed and paid) due from or with respect to the Borrower and the Subsidiaries
have been fully paid, and appropriate accruals have been made on the Borrower's
books for taxes not yet due and payable. All taxes and other assessments and
levies which the Borrower and/or any Subsidiary is required by law to withhold
or to collect have been duly withheld and collected, and have been paid over to
the proper governmental authorities to the extent due and payable. Except as set
forth in SCHEDULE 3.13 of the Disclosure Schedule, there are no outstanding or
pending claims, deficiencies or assessments for taxes, interest or penalties
with respect to any taxable period of the Borrower or any Subsidiary, and no
outstanding tax Liens.
(b) Except as disclosed in SCHEDULE 3.13 of the Disclosure
Schedule, the Borrower has no Knowledge and has not received notice of any
pending audit with respect to any federal, state or local tax returns of the
Borrower or any Subsidiary, and no waivers of statutes of limitations have been
given or requested with respect to any tax years or tax filings of the Borrower
or any Subsidiary.
SECTION 3.14. ERISA. Except as set forth in SCHEDULE 3.14 of the
Disclosure Schedule, neither the Borrower nor any ERISA Affiliate of the
Borrower maintains or has any obligation to make any contributions to any
pension, profit sharing or other similar plan providing for deferred
compensation to any employee. With respect to any such plan(s) as may now exist
or may hereafter be established by the Borrower or any ERISA Affiliate of the
Borrower, and which constitutes an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA, except as set forth on SCHEDULE 3.14 of the
Disclosure Schedule: (a) the Borrower or the subject ERISA Affiliate has paid
and shall cause to be paid when due all amounts necessary to fund such plan(s)
in accordance with its terms, (b) except for normal premiums payable by the
Borrower to the Pension Benefit Guaranty Corporation ("PBGC"), the Borrower or
the subject ERISA Affiliate has not taken and shall not take any action which
could result in any liability to the PBGC, or any of its successors or assigns,
(c) the present value of all accrued benefits thereunder shall not at any time
exceed the value of the assets of such plan(s) allocable to such accrued
benefits, (d) there have not been and there shall not be any transactions such
as would cause the
26
imposition of any tax or penalty under Section 4975 of the Code or under Section
502 of ERISA, which would adversely affect the funded benefits attributable to
the Borrower or the subject ERISA Affiliate, (e) there has not been and there
shall not be any termination or partial termination thereof (other than a
partial termination resulting solely from a reduction in the number of employees
of the Borrower or an ERISA Affiliate of the Borrower, which reduction is not
anticipated by the Borrower), and there has not been and there shall not be any
"reportable event" (as such term is defined in Section 4043(b) of ERISA) on or
after the effective date of Section 4043(b) of ERISA with respect to any such
plan(s) subject to Title IV of ERISA, (f) no "accumulated funding deficiency"
(as defined in Section 412 of the Code) has been or shall be incurred on or
after the effective date of Section 412 of the Code, (g) such plan(s) have been
and shall be determined to be "qualified" within the meaning of Section 401(a)
of the Code, and have been and shall be duly administered in compliance with
ERISA and the Code, and (h) the Borrower is not aware of any fact, event,
condition or cause which might adversely affect the qualified status thereof. As
respects any "multi-employer plan" (as such term is defined in Section 3(37) of
ERISA) to which the Borrower or any ERISA Affiliate thereof has heretofore been,
is now, or may hereafter be required to make contributions, the Borrower or such
ERISA Affiliate has made and shall make all required contributions thereto, and
there has not been and shall not be any "complete withdrawal" or "partial
withdrawal" (as such terms are respectively defined in Sections 4203 and 4205 of
ERISA) therefrom on the part of the Borrower or such ERISA Affiliate.
SECTION 3.15. INTELLECTUAL PROPERTY.
(a) The Borrower and the Subsidiaries own or have the valid
right to use all material patents, trademarks, copyrights, software, computer
programs, equipment designs, network designs, equipment configurations,
technology and other intellectual property used, marketed and sold in the
Business Operations, and the Borrower and the Subsidiaries are in compliance in
all material respects with all licenses, user agreements and other such
agreements regarding the use of intellectual property used in the Business
Operations; and the Borrower has no Knowledge of or received notice claiming
that any such intellectual property infringes upon or violates the rights of any
other Person.
(b) SCHEDULE 3.15(B) of the Disclosure Schedule sets forth all
material Intellectual Property owned by the Borrower and its Subsidiaries
("OWNED INTELLECTUAL PROPERTY"), including the name, if any, and a brief
description thereof. Except as set forth in such SCHEDULE 3.15(B), to the
Knowledge fo the Borrower, either the Borrower or one of its Subsidiaries holds,
good, valid and indefeasible title to all Owned Intellectual Property, free and
clear of any liens or encumbrances of any kind, except for: (i) any lien for
current taxes not yet due and payable, and (ii) liens that have arisen in the
ordinary course of business and that do not (individually or in the aggregate)
materially detract from the value of the assets subject thereto or materially
impair the operations of the Borrower and its Subsidiaries.
(c) SCHEDULE 3.15(C) of the Disclosure Schedule sets forth:
(i) all material Intellectual Property licensed by the Borrowers or any of its
Subsidiaries from third parties and used in the conduct of the business of the
Borrower and its Subsidiaries ("LICENSED INTELLECTUAL
27
PROPERTY"), including a brief description thereof; (ii) with respect to any
Owned Intellectual Property that is the subject of any registration or pending
application in any jurisdiction, the names of the jurisdictions, any
registration and/or application serial numbers, and the current status thereof;
(iii) a brief description of all material licenses, sublicenses, and other
agreements pursuant to which the Borrower (or any of its Subsidiaries) or any
sublicensee of the Borrower (or any of its Subsidiaries) has granted to any
third party the right to use any of the Owned Intellectual Property; (iv) all
other material consents, indemnifications, forbearances to sue, settlement
agreements and licensing or cross-licensing arrangements to which the Borrower
or any of its Subsidiaries is a party relating to the Owned Intellectual
Property; and (v) any ongoing royalty or payment obligations with respect to the
Licensed Intellectual Property.
(d) To the Knowledge of the Borrower, the Borrower and its
Subsidiaries have a valid right to use, license, and otherwise exploit all
Licensed Intellectual Property, and any rights thereunder will not be affected
by the Borrower and its Subsidiaries entering into this Agreement, the other
Loan Documents and the agreements and transactions contemplated hereby and
thereby. Except as set forth in SCHEDULE 3.15(D) of the Disclosure Schedule,
neither the Borrower nor any of its Subsidiaries is under any obligation to pay
royalties or other payments in connection with any license, sublicense, or other
agreement, nor restricted from assigning its right under any sublicense or
agreement respecting the Licensed Intellectual Property, nor will the Borrower
or any of its Subsidiaries otherwise be, as a result of the execution and
delivery of this Agreement, the other Loan Documents or the performance of their
obligations hereunder and thereunder, in breach of any license, sublicense or
other agreement relating to the Licensed Intellectual Property.
(e) To the Knowledge of the Borrower, each of the Borrower's
and its Subsidiaries' rights in all of the Owned Intellectual Property are
valid, subsisting, and enforceable. None of the Owned Intellectual Property or
any registrations therefor have been cancelled or adjudicated invalid or
unenforceable, or are subject any outstanding order, judgment, or decree
restricting its use or adversely affecting or reflecting the Borrower's or any
of its Subsidiaries' rights thereto. To the knowledge of the Borrower, all Owned
Intellectual Property that is the subject of a registration or pending
application is valid, subsisting, unexpired, and in proper form, and all renewal
fees and other maintenance fees that have fallen due on or prior to the Closing
Date have been paid. Either the Borrower or its applicable Subsidiary has timely
made all filings and payments with the appropriate intellectual property offices
required to maintain in subsistence all Owned Intellectual Property. All
documentation necessary to confirm and effect the Borrower's and its
Subsidiaries' ownership of and rights in any Owned Intellectual Property that is
the subject of a registration or pending application acquired by the Borrower or
any of its Subsidiaries from third parties has been filed in the United States
Patent and Trademark Office and the United States Copyright Office, and any and
all other relevant intellectual property offices and agencies in other
jurisdictions. No Owned Intellectual Property is the subject of any legal or
governmental proceeding before any governmental, registration or other authority
in any jurisdiction, including any office action or other form of preliminary or
final refusal of registration.
28
(f) The consummation of the transactions contemplated hereby
will not materially alter or impair any Owned Intellectual Property. To the
Knowledge of the Borrower, no Owned Intellectual Property has been used,
divulged, disclosed or appropriated to the detriment of the Borrower or any of
its Subsidiaries for the benefit of any third party; and, to the Knowledge of
the Borrower, no employee or agent of the Company or any of its Subsidiaries has
misappropriated any material trade secrets or other material confidential
information of any third party in the course of the performance of his or her
duties as an employee of the Borrower or any of its Subsidiaries. To the
Knowledge of the Borrower, (i) none of the Owned Intellectual Property infringes
on any Intellectual Property owned or used by any other Person; (ii) none of the
products that are or have been designed, created, developed, assembled,
manufactured or sold by the Borrower or any of its Subsidiaries is infringing,
misappropriating, or making any unlawful use of any Intellectual Property owned
by any other Person, and the Borrower and its Subsidiaries have all rights and
licenses reasonably necessary in order to make, have made, use or sell such
products, (iii) no other Person is infringing, misappropriating or making any
unlawful use of, and no Intellectual Property owned or used by any other Person
infringes on any Owned Intellectual Property, and (iv) there is no claim, suit,
action or proceeding pending or threatened or asserted against the Borrower or
any of its Subsidiaries: (A) alleging any conflict or infringement by the
Borrower or any of its Subsidiaries of any other Person's intellectual property
or proprietary rights; or (B) challenging the Borrower's or any of its
Subsidiaries' ownership or use of, or the validity or enforceability of, any of
the Owned Intellectual Property or the Licensed Intellectual Property.
SECTION 3.16. COMPLIANCE WITH LAWS. The Borrower and the Subsidiaries
are in compliance with all occupational safety, health, wage and hour,
employment discrimination, environmental, flammability, labeling and other
Applicable Law which are material to the Business Operations, except where such
non-compliance would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Borrower nor any Subsidiary is aware of any state or
facts, events, conditions or occurrences which may now or hereafter constitute
or result in a violation of any Applicable Law, or which may give rise to the
assertion of any such violation, which could have a Material Adverse Effect.
Neither the Borrower nor any Subsidiary has received written notice of default
or violation, nor is the Borrower or any Subsidiary in default or violation,
with respect to any judgment, order, writ, injunction, decree, demand or
assessment issued by any court or any federal, state, local, municipal or other
governmental agency, board, commission, bureau, instrumentality or department,
domestic or foreign, relating to any aspect of the Borrower's or any
Subsidiaries' business, affairs, properties or assets. Neither the Borrower nor
any Subsidiary has received written notice of or been charged with, or is, to
the Borrower's Knowledge, under investigation with respect to, any violation of
any provision of any Applicable Law, which violation would have a Material
Adverse Effect.
SECTION 3.17. LICENSES AND PERMITS. The Borrower and each Subsidiary
has all federal, state and local licenses and permits required to be maintained
in connection with and material to the Business Operations, and all such
licenses and permits are valid and in full force and effect. The Borrower and
each Subsidiary has complied with the requirements of such licenses and permits
in all material respects, and has received no notice of any pending or
threatened proceedings for the suspension, termination, revocation or limitation
thereof. There is no circumstance or condition Known to the Borrower that would
cause or permit any of such licenses or permits to be voided, revoked or
withdrawn.
29
SECTION 3.18. INSURANCE. SCHEDULE 3.18 of the Disclosure Schedule lists
all insurance coverages maintained by the Borrower on the date of this
Agreement, including the names of insurers, policy limits and deductibles. The
Borrower has not received written notice of cancellation or intent not to renew
any of such policies, and there has not occurred, and there does not exist, any
condition (other than general industry-wide conditions) such as would cause any
of such insurers to cancel any of such insurance coverages, or would be
reasonably likely to materially increase the premiums charged to the Borrower
for coverages consistent with the scope and amounts of coverages as in effect on
the date hereof.
SECTION 3.19. ENVIRONMENTAL LAWS.
(a) The Borrower and each Subsidiary has complied in all
material respects with all Environmental Laws relating to its business and
properties, and to the Knowledge of the Borrower there exist no Hazardous
Substances in amounts in violation of applicable Environmental Laws or
underground storage tanks on any of the Real Properties the existence of which
would have a Material Adverse Effect, except those that are stored and used in
compliance with Applicable Laws.
(b) Neither the Borrower nor any Subsidiary has received
notice of any pending or threatened litigation or administrative proceeding
which in any instance (i) asserts or alleges any violation of applicable
Environmental Laws on the part of the Borrower or any Subsidiary, (ii) asserts
or alleges that the Borrower or any Subsidiary is required to clean up, remove
or otherwise take remedial or other response action due to the disposal,
depositing, discharge, leaking or other release of any Hazardous Substances or
materials, or (iii) asserts or alleges that the Borrower or any Subsidiary is
required to pay all or any portion of the costs of any past, present or future
cleanup, removal or remedial or other response action which arises out of or is
related to the disposal, depositing, discharge, leaking or other release of any
hazardous substances or materials by the Borrower or any Subsidiary. To the
Borrower's Knowledge, neither the Borrower nor any Subsidiary is subject to any
judgment, decree, order or citation related to or arising out of any
Environmental Laws. To the Borrower's Knowledge, neither the Borrower nor any
Subsidiary has been named or listed as a potentially responsible party by any
governmental body or agency in any matter arising under any Environmental Laws.
Neither the Borrower nor any Subsidiary is a participant in, nor does the
Borrower have Knowledge of, any governmental investigation involving any of the
Real Properties.
(c) Neither the Borrower or any Subsidiary nor, to the
Borrower's Knowledge, any other person, firm, corporation or governmental entity
has caused or permitted any Hazardous Substances or other materials to be
stored, deposited, treated, recycled or disposed of on, under or at any of the
Real Properties which materials, if known to be present, would reasonably be
expected to require or authorize cleanup, removal or other remedial action under
any applicable Environmental Laws.
(d) As used in this Section 3.19 and in Section 5.08 below,
the following terms have the following meanings:
"ENVIRONMENTAL LAWS" include all federal, state, and local
laws, rules, regulations, ordinances, permits, orders, and consent decrees
agreed to by the Borrower or any Subsidiary
30
relating to health, safety, and environmental matters applicable to the business
and property of the Borrower or any Subsidiary. Such laws and regulations
include but are not limited to the Resource Conservation and Recovery Act
("RCRA"), 42 U.S.C. ss.6901 et seq., as amended; the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. ss.9601 et seq.,
as amended; the Toxic Substances Control Act ("TSCA"), 15 U.S.C. ss.2601 et
seq., as amended; and the Clean Water Act, 33 U.S.C. ss.1331 et seq., as
amended.
"HAZARDOUS SUBSTANCES", "RELEASE", "RESPOND" and "RESPONSE"
shall have the meanings assigned to them in CERCLA, 42 U.S.C. ss.9601, as
amended.
"NOTICE" means any actual summons, citation, directive,
information request, notice of potential responsibility, notice of violation or
deficiency, order, claim, complaint, investigation, proceeding, judgment,
letter, or other communication, written or oral, from the United States
Environmental Protection Agency or other federal, state, or local agency or
authority, or any other entity or individual, public or private, concerning any
intentional or unintentional act or omission which involves management of
Hazardous Substances in amounts in violation of Environmental Laws on or off any
Real Properties; the imposition of any lien on any Real Properties, including
but not limited to liens asserted by government entities in connection with any
Borrower's or Subsidiary's response to the presence or Release of Hazardous
Substances in amounts in violation of Environmental Laws; and any alleged
violation of or responsibility under any Environmental Laws.
SECTION 3.20. SENSITIVE PAYMENTS. Neither the Borrower nor any
Subsidiary has (a) made any contributions, payments or gifts to or for the
private use of any governmental official, employee or agent where either the
payment or the purpose of such contribution, payment or gift is illegal under
the laws of the United States or the jurisdiction in which made, (b) established
or maintained any unrecorded fund or asset for any purpose or made any false or
artificial entries on its books, (c) made any payments to any person with the
intention that any part of such payment was to be used for any purpose other
than that described in the documents supporting the payment, or (d) engaged in
any "trading with the enemy" or other transactions violating any rules or
regulations of the Office of Foreign Assets Control or any similar laws, rules
or regulations.
SECTION 3.21. FULL DISCLOSURE. No statement of fact made by the
Borrower in this Agreement or any other Loan Document, in any SEC Report, or in
any information memorandum, business summary, agreement, certificate, schedule
or other written statement furnished by the Borrower or any Subsidiary to the
Lender pursuant hereto, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact necessary to
make any statements contained herein or therein not misleading. Except for
matters of a general economic or political nature which do not affect the
Borrower or any Subsidiary uniquely, there is no fact presently known to the
Borrower which has not been disclosed to the Lender, which has had or would
reasonably be expected to have a Material Adverse Effect.
SECTION 3.22. REAFFIRMATION. Each and every request by the Borrower for
an Advance shall constitute a reaffirmation of the truth and accuracy of the
Borrowers' and each Subsidiary's representations and warranties made in this
Agreement and the Security Documents on and as of the date of such request.
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IV. CONDITIONS OF MAKING THE LOANS
A. The obligation of the Lender to make the initial Loan hereunder and
to consummate the other transactions contemplated hereby are subject to the
following conditions precedent:
SECTION 4.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in Article III hereof and in the other Loan Documents shall
be true and correct on and as of the Closing Date.
SECTION 4.02. LOAN DOCUMENTS. The Borrower and its Subsidiaries (as
applicable) shall have duly executed and/or delivered to the Lender all of the
following:
(a) The Notes;
(b) The Guaranty Agreement, the Collateral Agreement and any
and all other Security Documents required by the Lender at the Closing Date
(including, without limitation, a Control Agreement or escrow agreement (in form
satisfactory to the Lender) in respect of the Escrow Account, and any Landlord
Waivers, warehousemen's waivers, bailee letters or consents required by the
Lender);
(c) The Warrants;
(d) The Registration Rights Agreement;
(e) A certificate or certificates of insurance, with loss
payable endorsements, evidencing the insurance required by Section 5.01(d)
below; PROVIDED, HOWEVER, that this condition precedent shall be deemed to be
satisfied with respect to foreign insurance coverages if the Borrower provides
reasonable evidence to the Lender of the existence and amounts of such insurance
on the Closing Date;
(f) A current Borrowing Base report in conformity with Section
5.04(d) below, and a written request for the borrowing of the Term Loan and the
initial Advance;
(g) A certificate of the Secretary or an Assistant Secretary
of the Borrower and each Subsidiary, certifying the vote of the Boards of
Directors or other governing body of the Borrower and each Subsidiary,
authorizing and directing the execution and delivery of the Loan Documents and
all further agreements, instruments, certificates and other documents pursuant
hereto and thereto;
(h) A certificate of the Secretary or an Assistant Secretary
of the Borrower and each Subsidiary, certifying the names of the officers of the
Borrower and each Subsidiary who are authorized to execute and deliver the Loan
Documents and all other agreements, instruments, certificates and other
documents to be delivered pursuant hereto and thereto, together with the true
signatures of such officers. The Lender may conclusively rely on such
certificate until the Lender shall receive any further such certificate
canceling or amending the prior certificate and submitting the signatures of the
officers named in such further certificate;
32
(i) Certified copies of the Organic Documents of the Borrower
and each Subsidiary, and a certificate of the Secretary of State or other
appropriate official of the jurisdiction of incorporation of the Borrower and
each Subsidiary and of each jurisdiction in which the Borrower and each
Subsidiary is qualified to do business as a foreign corporation, dated
reasonably prior to the Closing Date, stating that the Borrower and each
Subsidiary is duly formed or qualified and in good standing in such
jurisdiction; PROVIDED, HOWEVER, that with respect to any Foreign Subsidiary,
(i) the delivery of uncertified copies of its Organic Documents shall be
satisfactory, and (ii) no certificate of good standing need be delivered if the
subject jurisdiction does not issue such certificates or comparable documents;
(j) Such other agreements, instruments, documents and
certificates (including, without limitation, satisfactory lien and judgment
searches respecting the Borrower) as the Lender or its counsel may reasonably
request.
SECTION 4.03. LENDER SHARES. The Borrower shall have delivered to the
Lender one or more stock certificates representing, in the aggregate, the
1,500,000 Lender Shares.
SECTION 4.04. TERMINATION OF FACTORING AGREEMENT; DYNE REPAYMENT.
(a) The Borrower shall have delivered to the Lender a written
agreement, in form and substance reasonably satisfactory to the Lender,
evidencing the termination of the Factoring Agreement and the absence of any
continuing obligations thereunder.
(b) The Borrower shall have delivered to the Lender a written
agreement, executed by Mark Dyne in favor of the Borrower and in form and
substance reasonably satisfactory to the Lender, confirming the amounts payable
to Mark Dyne on the Closing Date in respect of the Borrower's outstanding
Indebtedness owed to Mark Dyne, and confirming that, upon receipt of such amount
(plus any applicable per diem interest) by Mark Dyne on the Closing Date, all
liens and security interests held by Mark Dyne in or upon any assets or
properties of the Borrower and its Subsidiaries shall be released and may be
terminated of record.
SECTION 4.05. LEGAL OPINION. The Lender shall have received a written
opinion of Stubbs Alderton & Markiles, LLP, counsel for the Borrower and the
Subsidiaries, dated the Closing Date, satisfactory to the Lender and its counsel
in scope and substance.
SECTION 4.06. FEES AND REIMBURSEMENTS. The Borrower shall have paid to
the Lender the Closing Fee and the initial Monitoring Fee, and shall have paid
or reimbursed the Lender for its reasonable out-of-pocket costs, charges and
expenses incurred to the Closing Date (up to a maximum of $75,000); and in
connection herewith, the Borrower hereby irrevocably authorizes the Lender to
charge such amounts as Advances to the Borrower's revolving credit loan account.
Failure of the Lender to effect any such charge shall not excuse the Borrower
from its obligation to pay such amounts.
SECTION 4.07. FURTHER MATTERS. All legal matters, and the form and
substance of all documents, incident to the transactions contemplated hereby
shall be satisfactory to the Lender and its counsel.
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SECTION 4.08. NO DEFAULT. No Default or Event of Default shall have
occurred and be continuing.
B. The obligation of the Lender to make any Advances subsequent to the
Closing Date is subject to (a) the representations and warranties set forth in
Article III and in the other Loan Documents being true and correct in all
material respects (except that, to the extent that any representation or
warranty is already qualified by concepts of materiality and/or Material Adverse
Effect, then such representations and warranties shall be true and correct in
all respects) on and as of the subject Borrowing Date, (b) the Lender's receipt
of a current Borrowing Base report in conformity with Section 5.04(d) below, (c)
the execution and delivery of such further Security Documents as the Lender may
have reasonably requested pursuant to the Security Documents theretofore
executed and delivered, and (d) there being no continuing Default or Event of
Default.
V. AFFIRMATIVE COVENANTS
The Borrower hereby covenants and agrees that, from the date hereof and
until all Obligations (whether now existing or hereafter arising) have been paid
in full and the Revolving Credit Commitment has been terminated, unless the
Lender shall otherwise consent in writing, the Borrower shall, and shall cause
each of its Subsidiaries to:
SECTION 5.01. CORPORATE AND INSURANCE. Do or cause to be done all
things necessary to at all times (a) preserve, renew and keep in full force and
effect its corporate or other legal existence, rights, licenses, permits and
franchises, (b) comply with the Loan Documents and any other agreements and
instruments executed and delivered hereunder and thereunder (to the extent a
party thereto), (c) maintain, preserve and protect all of its franchises and
material trade names, and preserve all of its material property used or useful
in the conduct of its business and keep the same in good repair, working order
and condition (reasonable wear and tear excepted), and from time to time make,
or cause to be made, all needed and proper repairs, renewals, replacements,
betterments and improvements thereto, so that the Business Operations carried on
in connection therewith may be properly and advantageously conducted at all
times, (d) maintain insurance in amounts, on such terms and against such risks
(including fire and other hazards insured against by extended coverage, and
public liability insurance covering claims for personal injury, death or
property damage) as are customary for companies of similar size in the same or
similar businesses and operating in the same or similar locations, as well as
all such other insurance as is required by the Collateral Agreement, each of
which policies (other than workers compensation) shall be issued by a
financially sound and reputable insurer reasonably satisfactory to the Lender
and shall name the Lender as loss payee and additional insured as its interest
appears and provide for the Lender to receive written notice thereof at least
thirty (30) days prior to any cancellation of the subject policy, and (e) comply
with all material Contracts and material obligations to which it is a party or
by which it is bound, all benefit plans which it maintains or is required to
contribute to, and all Applicable Law (including, without limitation,
Environmental Laws) material to its Business Operations, and all requirements of
its insurers, whether now in effect or hereafter enacted, promulgated or issued.
The Borrower will provide to the Lender a certificate of the foregoing
insurance, promptly upon request; and, without limitation of the foregoing, to
the extent that certificates of foreign insurance were not delivered to the
Lender on the Closin
34
Date in accordance with Section 4.02(e) above, such certificates shall be
delivered to the Lender within sixty (60) days after the Closing Date.
SECTION 5.02. PAYMENT OF TAXES. File, pay and discharge, or cause to be
paid and discharged, all material taxes, assessments and governmental charges or
levies imposed upon the Borrower and/or any Subsidiary or upon its income and
profits or upon any of its property (real, personal or mixed) or upon any part
thereof, before the same shall become in default, as well as all lawful claims
for labor, materials, supplies and otherwise, which, if unpaid when due, might
become a Lien or charge upon such property or any part thereof; PROVIDED,
HOWEVER, that neither the Borrower nor any Subsidiary shall be required to pay
and discharge or cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as (a) the validity thereof shall be contested in
good faith by appropriate proceedings and the Borrower or such Subsidiary shall
have set aside on its books adequate reserves (to the extent required by GAAP)
with respect to any such tax, assessment, charge, levy or claim so contested,
and (b) payment with respect to any such tax, assessment, charge, levy or claim
shall be made before any of the Borrower's or such Subsidiary's property shall
be seized or sold in satisfaction thereof.
SECTION 5.03. NOTICES. Give prompt written notice to the Lender of (a)
the filing by the Borrower of any SEC Reports, (b) any proceedings instituted
against the Borrower or any Subsidiary in any federal or state court or before
any commission or other regulatory body, whether federal, state or local, which,
if adversely determined, could reasonably be expected to have a Material Adverse
Effect (c) occupancy of any new or additional Real Property, and (d) the
occurrence of any material casualty to any Collateral, any Material Adverse
Effect, or any Default or Event of Default, and the action that the Borrower has
taken, is taking, or proposes to take with respect thereto.
SECTION 5.04. PERIODIC REPORTS. Furnish to the Lender:
(a) Within ninety (90) calendar days after the end of each
Fiscal Year, consolidated balance sheets, and consolidated and consolidating
statements of income, statements of stockholders' equity, and statements of cash
flows of the Borrower and its Subsidiaries, together with footnotes and
supporting schedules thereto, certified (as to the consolidated statements) by
independent certified public accountants selected by the Borrower and reasonably
satisfactory to the Lender, showing the financial condition of the Borrower and
its Subsidiaries at the close of such Fiscal Year and the results of operations
of the Borrower and its Subsidiaries during such Fiscal Year;
(b) Within thirty (30) calendar days after the end of each
calendar month (forty-five (45) calendar days in the case of the end of a fiscal
quarter), consolidated (and, if specifically requested by the Lender reasonably
in advance, consolidating) unaudited balance sheets, statements of income and
statements of cash flows of the Borrower and its Subsidiaries, in each case with
supporting schedules thereto, prepared by the Borrower and certified by the
Borrower's Chairman, President, Chief Executive Officer, Chief Financial Officer
or Chief Accounting Officer, such balance sheets to be as of the close of such
calendar month and such statements of income and statements of cash flows to be
for the period from the beginning of the then-current Fiscal Year to the end of
such calendar month, together with comparative statements
35
of income and cash flows for the corresponding period in the immediately
preceding Fiscal Year, in each case subject to normal audit and year-end
adjustments;
(c) Concurrently with the delivery of each of the financial
statements required by Sections 5.04(a) and 5.04(b) above, a certificate on
behalf of the Borrower (signed by the Chairman, President, Chief Executive
Officer, Chief Financial Officer or Chief Accounting Officer of the Borrower),
certifying that he has examined the provisions of this Agreement and that, to
the best of his knowledge, no Default or Event of Default (including, without
limitation, under Sections 6.16 and 6.17 below, as demonstrated by detailed
calculations included in such certificate) has occurred and/or is continuing;
(d) On or prior to the fifth (5th) calendar day of each
calendar month, a detailed calculation of the Borrowing Base as of the end of
the immediately preceding calendar month, in form and substance, and with
supporting documentation (including, without limitation, receivables and
payables agings as of the close of the immediately preceding calendar month) as
may reasonably be required by the Lender; and, on or prior to the twentieth
(20th) calendar day of each calendar month, a report on accounts receivable
balances of the Borrower and its Subsidiaries as of the fifteenth (15th)
calendar day of such calendar month;
(e) As soon as approved by the Borrower's Board of Directors
(but in any event not later than thirty (30) days after the beginning of each
Fiscal Year), a budget and operating plan (on a quarter-by-quarter basis) for
such Fiscal Year, in such detail as may reasonably be required by the Lender;
(f) As and when distributed to the Borrower's shareholders,
copies of all proxy materials, reports and other information which the Borrower
provides to its shareholders; and as and when distributed to any other holders
of Indebtedness of the Borrower or the Subsidiaries, copies of all reports,
statements and other information provided to such lenders; and
(g) Promptly, from time to time, such other information
(including, without limitation, receivables and payables agings, and sales
reports) regarding the Borrower's or any Subsidiary's operations, assets,
business, affairs and financial condition, as the Lender may reasonably request.
To the extent that the financial statements required by Sections 5.04(a) and
5.04(b) are contained in any SEC Reports filed by the Borrower within the
required time period hereunder for the delivery of such financial statements,
then the Borrower shall be deemed to have complied with the subject financial
statement delivery by notifying the Lender of the filing of the subject SEC
Report.
To the extent that any report or other delivery required under this Section 5.04
or elsewhere in this Agreement will, at the time of anticipated delivery to the
Lender, contain any material non-public information, the Borrower will notify
the Lender thereof as promptly as practicable prior to the delivery of such
report (but without disclosing the specific items of material non-public
information or the nature thereof), and if so requested by the Lender prior to
the required date of the information delivery hereunder, the Borrower shall (x)
if reasonably practicable, redact such
36
material non-public information from the subject report prior to the delivery
thereof to the Lender, or (y) defer delivery of such report until such time as
the Borrower has made public disclosure of the subject material information or
the Lender has affirmatively requested delivery of such report. Absent timely
request by the Lender as aforesaid, the Borrower shall make the required
delivery to the Lender on a timely basis.
SECTION 5.05. BOOKS AND RECORDS; INSPECTION. Maintain centralized books
and records regarding all of the Business Operations at the Borrower's principal
place of business, and permit agents or representatives of the Lender to
inspect, at any time during normal business hours, upon reasonable notice, and
without undue material disruption of the Business Operations, all of the
Borrower's and its Subsidiaries' various books and records, to make copies,
abstracts and/or reproductions thereof, and to discuss the business and affairs
of the Borrower and the Subsidiaries with the management of the Borrower; and
the Lender shall maintain the confidentiality of any Confidential Information so
obtained, as and to the extent required under Section 9.13 below, and shall not
trade in any securities of the Borrower utilizing any of such Confidential
Information.
SECTION 5.06. ACCOUNTING. Maintain a standard system of accounting in
order to permit the preparation of financial statements in accordance with GAAP
and Regulation S-X promulgated under the Act.
SECTION 5.07. REIMBURSEMENTS. Pay or reimburse the Lender or other
appropriate Persons on demand for all reasonable costs, expenses and other
charges incurred or payable from time to time in connection with the
transactions contemplated by this Agreement, any waivers or amendments in
respect of any Loan Documents (whether or not completed or executed), and any
"workout" or enforcement action (whether or not consummated or completed, and
regardless of the outcome thereof), including but not limited to any and all
search fees, recording fees, costs of inspections, reasonable legal and
accounting fees, and costs related to routine Exchange Act filings in respect of
the Lender's and its Affiliates' position in securities of the Borrower.
SECTION 5.08. ENVIRONMENTAL RESPONSE. In the event of any material
discharge, spill, injection, escape, emission, disposal, leak or other Release
of Hazardous Substances in amounts in violation of applicable Environmental Laws
by the Borrower or any Subsidiary on any Real Property owned or leased by the
Borrower or any Subsidiary, which is not authorized by a permit or other
approval issued by the appropriate governmental agencies and which requires
notification to or the filing of any report with any federal or state
governmental agency, the Borrower shall promptly: (a) notify the Lender; and (b)
comply with the notice requirements of the Environmental Protection Agency and
applicable state agencies, and take all steps necessary to promptly clean up
such discharge, spill, injection, escape, emission, disposal, leak or other
Release in accordance with all applicable Environmental Laws and the Federal
National Contingency Plan, and, if required, receive a certification from all
applicable state agencies or the Environmental Protection Agency, that such Real
Property has been cleaned up to the satisfaction of such agency(ies).
SECTION 5.09. MANAGEMENT. Cause Stephen Forte to continue to be
employed or to function as the Chief Executive Officer of the Borrower, unless a
successor is appointed within
37
sixty (60) days after the termination of Mr. Forte's employment and such
successor is reasonably satisfactory to the Lender.
SECTION 5.10. USE OF PROCEEDS. Cause all proceeds of the Loans to be
utilized solely in the manner and for the purposes set forth in Section 2.04
above.
SECTION 5.11. FUTURE SUBSIDIARIES. At any time and from time to time
when the Borrower or any of its Subsidiaries proposes to form or acquire any
Subsidiary subsequent to the Closing Date, the Borrower shall give written
notice thereof to the Lender reasonably in advance of (and in no event less than
fifteen (15) days prior to) the formation or acquisition of such Subsidiary,
accompanied by true and complete copies of the Organic Documents of such
Subsidiary and stating, with respect to such Subsidiary, (a) its proper legal
name, (b) its jurisdiction of incorporation or formation, (c) the jurisdictions
(if any) in which it is qualified or is required to be qualified to do business
as a foreign entity, (d) the number of shares of capital stock, equity
securities or ownership interests outstanding, and (e) the record owners of such
outstanding capital stock, equity securities or other ownership interests; and
contemporaneously with the formation or acquisition of such new Subsidiary, such
new Subsidiary shall be deemed to have made and joined in all of the
representations and warranties made by the Borrower in this Agreement and the
other Loan Documents (all of which shall be applicable to such new Subsidiary as
if named therein), and the Borrower shall cause such new Subsidiary to execute
and deliver to the Lender (i) a Guaranty Agreement in substantially the form of
the Guaranty Agreement as then in effect (or a joinder agreement with respect to
the existing Guaranty Agreement in form and substance reasonably satisfactory to
the Lender), and (ii) a Collateral Agreement (with completed perfection
certificate and other appropriate Security Documents) in substantially the form
of the Collateral Agreement as then in effect (or a joinder agreement with
respect to the existing Collateral Agreement in form and substance reasonably
satisfactory to the Lender) and other Security Documents as reasonably requested
by the Lender.
SECTION 5.12. LANDLORD WAIVERS. To the extent requested by the Lender
from time to time subsequent to the Closing Date, use their commercially
reasonable efforts to obtain, within thirty (30) days after the Lender's request
therefor, in form and substance reasonably satisfactory to the Lender, any and
all bailee waivers, warehousemen's waivers, Landlord Waivers and/or access
agreements requested by the Lender in respect of locations where there is stored
or held Collateral having an aggregate fair market value in excess of $100,000.
This Section 5.12 shall not require the Borrower or any Subsidiary to obtain
waivers or access agreements from vendors or suppliers holding Collateral only
for drop shipment to the Borrower's or any Subsidiary's customers on behalf of
the Borrower or any Subsidiary.
SECTION 5.13. DEPOSIT ACCOUNTS. Notify the Lender upon opening any new
bank account, and cause the subject bank or securities intermediary promptly to
execute and deliver to the Lender a Control Agreement in respect of such bank
account or securities account; and this Section 5.13 shall also be applicable to
any and all bank accounts for which Control Agreements have not been entered
into on the Closing Date if (a) the funds in such bank account exceed $75,000
(or the Dollar equivalent), or (ii) the funds held in the Bank Accounts for
which Control Agreements are not in place exceed $300,000 (or the Dollar
equivalent) in the aggregate; and to the extent that a required Control
Agreement is not entered into within sixty (60) days after the Closing Date,
then the subject bank account(s) shall be promptly closed and the funds held
38
therein shall be transferred to one or more accounts at another banking
institution which has executed and delivered a Control Agreement in respect of
such account(s) in form and substance satisfactory to the Lender.
VI. NEGATIVE COVENANTS
The Borrower hereby covenants and agrees that, until all Obligations
(whether now existing or hereafter arising) have been paid in full and the
Revolving Credit Commitment has been terminated, unless the Lender shall
otherwise consent in writing, the Borrower shall not, and shall not permit any
Subsidiary to, directly or indirectly:
SECTION 6.01. INDEBTEDNESS. Incur, create, assume, become or be liable
in any manner with respect to, or permit to exist, any Indebtedness, OTHER THAN:
(a) Indebtedness to the Lender pursuant to the Loan Documents;
(b) liabilities with respect to trade obligations, accounts
payable, advances, royalty or other similar payments, operating leases and other
normal accruals incurred in the ordinary course of business, or with respect to
which the Borrower or the subject Subsidiary is contesting in good faith the
amount or validity thereof by appropriate proceedings, and then only to the
extent that the Borrower or the subject Subsidiary has set aside on its books
adequate reserves therefor;
(c) Indebtedness existing on the date of this Agreement owed
to those Persons, in those amounts and having those maturities as set forth in
SCHEDULE 3.01 of the Disclosure Schedule;
(d) Capitalized Leases reflected in the Financial Statements,
and Capitalized Leases hereafter entered into by the Borrower or its
Subsidiaries, subject to the limitations of Section 6.16 below;
(e) purchase money Indebtedness incurred in connection with
the Borrower's or its Subsidiaries' acquisition of capital assets, subject to
the limitations of Section 6.16 below;
(f) Subordinated Debt in such amounts and upon such terms and
conditions as shall be acceptable to the Lender in its sole and absolute
discretion;
(g) intercompany Indebtedness between the Borrower and any
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries; PROVIDED, HOWEVER,
that the aggregate intercompany Indebtedness owed by Foreign Subsidiaries to the
Borrower or any Domestic Subsidiary, when aggregated with the amount of all
other Investments in Foreign Subsidiaries (excluding any equipment presently
owned by the Borrower or any Domestic Subsidiary which is hereafter transferred
to any Foreign Subsidiary) and the face amount of all Guarantees made by the
Borrower or its Domestic Subsidiaries in respect of obligations of Foreign
Subsidiaries, shall not at any time exceed the sum of the net such intercompany
Indebtedness on the Closing Date plus $1,800,000 (or the Dollar equivalent) (the
"FOREIGN INVESTMENT LIMITATION"); PROVIDED, HOWEVER, that intercompany
Indebtedness between the Borrower or any Domestic Subsidiary and A.S.G.
Stationary, Inc. and/or Tag-It de Mexico, S.A. C.V. shall be excluded from
intercompany
39
Indebtedness for purposes of this limitation, and no increase in Indebtedness
and no further advances to or Investments in either such entity from and after
May 1, 2007 shall be permitted.
(h) Guarantees to the extent permitted pursuant to Section
6.03 below.
SECTION 6.02. LIENS. Create, incur, assume or suffer to exist any Lien
or other encumbrance of any nature whatsoever on any of its assets, now or
hereafter owned, other than:
(a) subject to Section 5.02 above, Liens securing the payment
of taxes which are either not yet due or the validity of which is being
contested in good faith by appropriate proceedings, and as to which the Borrower
or the subject Subsidiary shall have set aside on its books adequate reserves;
(b) deposits under workers' compensation, unemployment
insurance and social security laws, or to secure the performance of bids,
tenders, contracts (other than for the repayment of money borrowed) or leases,
or to secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(c) statutory Liens of landlords and Liens imposed by law,
such as, carriers', warehousemen's, materialmen's or mechanics' liens, incurred
by the Borrower or any Subsidiary in good faith in the ordinary course of
business and discharged promptly after same are incurred; fully bonded Liens
arising out of a judgment or award against the Borrower or any Subsidiary with
respect to which the Borrower or such Subsidiary shall currently be prosecuting
an appeal, a stay of execution pending such appeal having been secured; and
Liens arising out of a judgment or award against the Borrower or any Subsidiary
which are fully covered by insurance (subject to applicable deductibles) and for
which the relevant insurer has not denied or disclaimed coverage;
(d) other Liens incurred in connection with Indebtedness
expressly permitted pursuant to Section 6.01(d) and/or Section 6.01(e) above,
provided that such Liens do not extend to any assets or property other than the
specific assets or properties acquired pursuant to such permitted Indebtedness;
(e) encumbrances consisting of easements, rights-of-way,
survey exceptions and other similar restrictions on the use of Real Property, or
minor irregularities in title thereto which do not materially impair the use of
such property in the operation of the business of the Borrower and its
Subsidiaries;
(f) Liens in existence on the date of this Agreement, as set
forth on SCHEDULE 6.02 of the Disclosure Schedule;
(g) Liens arising out of judgments or awards (i) which are
fully covered by insurance (subject to applicable deductibles) and for which the
relevant insurer has not denied or disclaimed coverage, or (ii) with respect to
which the Borrower or the subject Subsidiary shall be prosecuting an appeal in
good faith and in respect of which a stay of execution shall have been issued;
(h) Liens in favor of the Lender; and
40
(i) extensions, renewals or replacements of any Lien referred
to in clauses (a) through (f) above, provided that same shall not extend such
Lien to any additional assets or effect any increase in any principal amount
secured thereby.
SECTION 6.03. GUARANTEES. Guarantee, endorse or otherwise in any manner
become or be responsible for obligations of any other Person, except (a)
endorsements of negotiable instruments for collection in the ordinary course of
business, (b) subject to the Foreign Investment Limitation, Guarantees by the
Borrower of obligations of Wholly-Owned Subsidiaries in the ordinary course of
business.
SECTION 6.04. SALES OF ASSETS AND MANAGEMENT. (a) Sell, lease,
transfer, encumber or otherwise dispose of any of the Borrower's or any
Subsidiary's properties, assets, rights, licenses or franchises other than (i)
sales of inventory in the ordinary course of business, (ii) licenses, joint
ventures and related transactions entered into, modified or terminated in the
ordinary course of business, (iii) the disposition of surplus or obsolete
personal properties in the ordinary course of business, including the
disposition of the Owned Real Property located in Kings Mountain, North Carolina
for a gross sales price of not less than $800,000, or (b) permit any Affiliate
of the Borrower (other than a Subsidiary which is a party to the Collateral
Agreement) to own or obtain any patent, patent application, copyright, copyright
application, trademark, trademark application, license, or other intangible
asset relating to the Business Operations except in the normal course of
business on terms and conditions no less favorable to the Borrower or any
Subsidiary than those which could be obtained in an arms' length transaction
with an unaffiliated third party.
SECTION 6.05. SALE-LEASEBACK. Enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower or any Subsidiary shall sell or
transfer any property (real, personal or mixed) used or useful in the Business
Operations, whether now owned or hereafter acquired, and thereafter rent or
lease such property.
SECTION 6.06. INVESTMENTS; ACQUISITIONS. Make any Investment in, or
otherwise acquire or hold securities (including, without limitation, capital
stock and evidences of Indebtedness) of, or make loans or advances to, or enter
into any arrangement for the purpose of providing funds or credit to, any other
Person (including any Affiliate), EXCEPT:
(a) Investments in Wholly-Owned Subsidiaries which have
complied with the requirements of Section 5.11 hereof (subject, in the case of
Foreign Subsidiaries, to the Foreign Investment Limitation);
(b) advances (to the extent permitted by Applicable Law,
including federal securities laws) to employees of the Borrower or any
Wholly-Owned Subsidiaries for normal business expenses not to exceed at any time
$10,000 in the aggregate;
(c) Investments of excess cash generated in the Business
Operations in Cash Equivalents; and
(d) Investments of cash in overnight deposits or other
customary cash management Investments with commercial banks or in commercial
paper satisfying the criteria for such banks or commercial paper as set forth in
the definition of Cash Equivalents.
41
SECTION 6.07. CORPORATE FORM; ACQUISITIONS. Purchase or acquire any
Real Property or any ownership interest in any Real Property; or dissolve or
liquidate, or consolidate or merge with or into, sell all or substantially all
of the assets of the Borrower or any Subsidiary to, or acquire all or
substantially all of the securities, assets or properties of, any other Person,
except for (a) consolidations of a Subsidiary with a Wholly-Owned Subsidiary
(provided that no Domestic Subsidiary shall be consolidated with a Foreign
Subsidiary); (b) mergers of a Wholly-Owned Subsidiary into the Borrower or into
a Wholly-Owned Subsidiary (provided that no Domestic Subsidiary shall be merged
into any Foreign Subsidiary); or (c) sales to the Borrower or another Subsidiary
for fair value.
SECTION 6.08. DIVIDENDS AND REDEMPTIONS. Directly or indirectly declare
or pay any dividends, or make any distribution of cash or property, or both, to
any Person in respect of any of the shares of the capital stock or other equity
securities of the Borrower or any other Person, or directly or indirectly
redeem, purchase or otherwise acquire for consideration any securities or shares
of the capital stock or other equity securities of the Borrower or any other
Person; PROVIDED, that this Section 6.08 shall not be deemed to prohibit the
payment of dividends or distributions by any Subsidiary to the Borrower or to
any direct or indirect Wholly-Owned Domestic Subsidiary.
SECTION 6.09. COMPENSATION. Directly or indirectly pay any cash
compensation to any executive officers of the Borrower except in accordance with
the compensation levels disclosed in SCHEDULE 6.09 of the Disclosure Schedule or
as otherwise approved by the independent members of the Board of Directors of
the Borrower but in no case in any amount or amounts which would cause or
reasonably be expected to cause a Material Adverse Effect.
SECTION 6.10. CHANGE OF BUSINESS. Directly or indirectly: (a) engage in
a business materially different from the general nature of the Business
Operations (i) as now being conducted, or (ii) as the same may hereafter be
reasonably expanded from time to time in like areas of business; (b) wind up the
Business Operations or cease substantially all of its normal Business Operations
for a period in excess of ten (10) consecutive days; or (c) suffer any material
disruption, interruption or discontinuance of a material portion of its normal
Business Operations for a period in excess of ten (10) consecutive days.
SECTION 6.11. RECEIVABLES. Sell or assign in any way any accounts
receivable, promissory notes or trade acceptances held by the Borrower or any
Subsidiary with or without recourse, except for collections (including
endorsements) in the ordinary course of business.
SECTION 6.12. CERTAIN AMENDMENTS. Agree, consent, permit or otherwise
undertake to amend any of the terms or provisions of the Borrower's or any
Subsidiary's Organic Documents in a manner which may impair in any respect any
of the Lender's rights under any of the Loan Documents.
SECTION 6.13. AFFILIATE TRANSACTIONS. Enter into any Contract,
agreement or transaction with any Affiliate of the Borrower except (a) as
disclosed in SCHEDULE 6.13 of the Disclosure Schedule, (b) for intercompany
Indebtedness between the Borrower and any Wholly-Owned Subsidiary or between any
Wholly-Owned Subsidiaries (subject to the limitations provided in Section
6.06(a) above), or (c) in the normal course of business on terms and conditions
no less
42
favorable to the Borrower or any Subsidiary than those which could be obtained
in an arms' length transaction with an unaffiliated third party.
SECTION 6.14. FISCAL YEAR. Amend its Fiscal Year.
SECTION 6.15. SUBORDINATED DEBT; COLIN DYNE INDEBTEDNESS.
(a) Prepay any of the Indebtedness listed in SCHEDULE 3.01 of
the Disclosure Schedule; or prepay, redeem or purchase any Subordinated Debt, or
make any payment on any Subordinated Debt, in each case in violation of the
applicable subordination agreement.
(b) Make any payment on any Indebtedness owed to Colin Dyne
except by means of dollar-for-dollar offset against amounts owed to the Borrower
or any Domestic Subsidiary by Colin Dyne.
SECTION 6.16. CAPITAL EXPENDITURES. Make aggregate Capital Expenditures
(a) in excess of $500,000 during the period from the Closing Date through and
including December 31, 2007, (b) in excess of $750,000 during the Fiscal Year
ending December 31, 2008, and (c) in excess of fifty (50%) percent of Free Cash
Flow in any Fiscal Year thereafter.
SECTION 6.17. COVERAGE TEST. Permit, as of the end of any quarter of
any Fiscal Year, EBITDA for the four (4) consecutive fiscal quarters then ended
to exceed principal and interest payments by the Borrower and its Subsidiaries
for such four (4) fiscal quarter period (excluding principal of the Convertible
Debentures and principal payments made from a matched source where such matched
source makes the payment); PROVIDED, HOWEVER, that the Lender shall not
accelerate the Obligations by reason of any non-compliance with this Section
6.17 unless and until non-compliance herewith occurs as of the end of two (2)
consecutive fiscal quarters.
VII. DEFAULTS
SECTION 7.01. EVENTS OF DEFAULT. Each of the following events is
herein, and in the Notes, sometimes referred to as an Event of Default:
(a) if any representation or warranty made herein or in any
other Loan Document, or in any certificate, financial statement, Borrowing Base
report, instrument or other written statement furnished by the Borrower or any
Subsidiary in connection with this Agreement, any other Loan Document or any of
the borrowings hereunder shall be false, inaccurate or misleading in any
material respect when made or when deemed made hereunder;
(b) any default in the payment of any principal or interest
under any of the Notes or any other Obligations when the same shall be due and
payable, whether at the due date thereof or at a date required for prepayment or
by acceleration or otherwise, and the continuance of any such non-payment (in
whole or in part) for a period of three (3) Business Days;
(c) any default in the due observance or performance of any
covenant, condition or agreement contained in any Section of Article VI hereof,
which, if capable of being cured, is not fully cured within thirty (30) days
after the occurrence thereof;
43
(d) any default in the due observance or performance of any
covenant, condition or agreement to be observed or performed under Article V
hereof, or otherwise pursuant to the terms hereof or any other Loan Document and
not addressed in Sections 7.01(a), (b) or (c), and the continuance of such
default unremedied for a period of thirty (30) days (five (5) Business Days in
the case of Section 5.01(d) hereof) after written notice thereof to the
Borrower, or such other cure period as may be provided in the applicable Loan
Document;
(e) any uncured default or event of default with respect to
any Indebtedness of the Borrower or any of the Subsidiaries (other than to the
Lender) in an amount in excess of $250,000, if the effect of such default or
event of default is to permit the holder, with or without notice or lapse of
time or both, to accelerate the maturity of any such Indebtedness for money
borrowed or to cause such Indebtedness for money borrowed to become due prior to
the stated maturity thereof;
(f) if the Borrower or any Subsidiary shall: (i) apply for or
consent to the appointment of a receiver, trustee, custodian or liquidator of it
or any of its properties, (ii) admit in writing its inability to pay its debts
as they mature, (iii) make a general assignment for the benefit of creditors,
(iv) be adjudicated a bankrupt or insolvent or be the subject of an order for
relief under Title 11 of the United States Code or any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute of any other jurisdiction or foreign country, or (v) file a voluntary
petition in bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage or any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation law
or statute, or an answer admitting the material allegations of a petition filed
against it in any proceeding under any such law, or (vi) take or permit to be
taken any action in furtherance of or for the purpose of effecting any of the
foregoing;
(g) if any order, judgment or decree shall be entered, without
the application, approval or consent of the Borrower or any Subsidiary, by any
court of competent jurisdiction, approving a petition seeking liquidation or
reorganization of the Borrower or any Subsidiary, or appointing a receiver,
trustee, custodian or liquidator of the Borrower or any Subsidiary, or of all or
any substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of sixty (60) days;
(h) if final judgment(s) or administrative order for the
payment of money in an uninsured amount in excess of $50,000 individually or in
the aggregate shall be rendered against the Borrower and/or any Subsidiary, and
the same shall remain undischarged or unbonded for a period of thirty (30)
consecutive days, during which execution shall not be effectively stayed;
(i) the occurrence of any levy upon or seizure or attachment
of, or any uninsured loss of or damage to, any property of the Borrower or any
Subsidiary having an aggregate fair value or repair cost (as the case may be) in
excess of $50,000 individually or in the aggregate, and any such levy, seizure
or attachment shall not be set aside, bonded or discharged within thirty (30)
days after the date thereof;
44
(j) if any Lien purported to be created by any Security
Document shall cease to be a valid perfected first priority Lien (subject only
to any priority accorded by law to Permitted Liens) on the assets or properties
covered thereby, or the Borrower or any Subsidiary shall assert in writing that
any Lien purported to be created by any Security Document is not a valid
perfected first priority lien (subject only to any priority accorded by law to
Permitted Liens, and any priority granted to a replacement revolving credit
lender with respect to Accounts and inventory as contemplated by Section 2.01(g)
above) on the assets or properties purported to be covered thereby; or if any
Subsidiary which is a Wholly-Owned Subsidiary shall cease to be a Wholly-Owned
Subsidiary;
(k) if any of the Loan Documents shall, other than by reason
of the Lender's default, bankruptcy or insolvency, cease to be in full force and
effect (other than as a result of the discharge thereof in accordance with the
terms thereof or by written agreement of all parties thereto);
(l) if the Common Stock shall not be listed or traded on any
national securities exchange or any NASDAQ market, or shall cease to be listed
or quoted on the OTC Bulletin Board, for any period in excess of thirty (30)
consecutive days; or
(m) if the Borrower or any Subsidiary shall be indicted for,
convicted of or plead NOLO CONTENDERE to any criminal offense; or
(n) the occurrence of a Material Adverse Effect.
SECTION 7.02. REMEDIES. Upon the occurrence of any Event of Default,
and at all times thereafter during the continuance thereof: (a) the Notes, and
any and all other Obligations, shall, at the Lender's option (except in the case
of Sections 7.01(f) and 7.01(g) hereof, the occurrence of which shall
automatically effect acceleration, regardless of any action or forbearance in
respect of any prior or ongoing Default or Event of Default which may be
inconsistent with such automatic acceleration), become immediately due and
payable, both as to principal, interest and other charges, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything contained herein or in the Notes or other evidence of such Obligations
to the contrary notwithstanding, (b) all outstanding Obligations under the
Notes, and all other outstanding Obligations, shall bear interest at the default
rates of interest provided in the Notes, (c) the Lender may file suit against
the Borrower on the Notes and against the Borrower and the Subsidiaries under
the other Loan Documents and/or seek specific performance or injunctive relief
thereunder (whether or not a remedy exists at law or is adequate), (d) the
Lender shall have the right, in accordance with the Security Documents, to
exercise any and all remedies in respect of such or all of the Collateral as the
Lender may determine in its discretion (without any requirement of marshalling
of assets or other such requirement, all of which are hereby waived by the
Borrower), and (e) the Revolving Credit Commitment shall, at the Lender's option
(except in the case of Sections 7.01(f) and 7/01(g) hereof, the occurrence of
which shall automatically effect termination, regardless of any action or
forbearance in respect of any prior or ongoing Default or Event of Default which
may be inconsistent with such automatic termination), be immediately terminated
or reduced, and the Lender shall be under no further obligation to consider
making any further Advances.
45
VIII. PARTICIPATING LENDERS; ASSIGNMENT.
SECTION 8.01. PARTICIPATIONS. Anything in this Agreement to the
contrary notwithstanding, the Lender may, at any time and from time to time,
without in any manner affecting or impairing the validity of any Obligations,
transfer, assign or grant participating interests in the Loans as the Lender
shall in its sole discretion determine, to such other Persons (the
"PARTICIPANTS") as the Lender may determine. Notwithstanding the granting of any
such participating interests: (a) the Borrower shall look solely to the Lender
for all purposes of this Agreement and the transactions contemplated hereby, (b)
the Borrower shall at all times have the right to rely upon any waivers or
consents signed by the Lender as being binding upon all of the Participants, and
(c) all communications in respect of this Agreement and such transactions shall
remain solely between the Borrower and the Lender (exclusive of Participants)
hereunder.
SECTION 8.02. TRANSFER AND ASSIGNMENT. Anything in this Agreement to
the contrary notwithstanding, the Lender may, at any time and from time to time,
subject to Section 8.03 below, without in any manner affecting or impairing the
validity of any Obligations, transfer and assign all or any portion of its
interest in this Agreement, the Notes and the other Loan Documents to any Person
(an "ASSIGNEE LENDER") as the Lender may determine. Upon any such transfer or
assignment, the Assignee Lender shall be deemed to succeed (to the extent of the
interest assigned) to the rights and obligations of the Lender for all purposes
of this Agreement. In the event of any transfer and assignment of the Lender's
entire interest in this Agreement, the Notes and the Security Documents, the
Lender shall be replaced by the Assignee Lender as "Secured Party" under the
Collateral Agreement and all other Security Documents.
SECTION 8.03. RECORDATION OF ASSIGNMENT. In respect of any negotiation,
transfer or assignment of all or any portion of any Lender's interest in this
Agreement, any Note and/or any other Loan Documents at any time and from time to
time, the following provisions shall be applicable:
(a) The Borrower, or any agent appointed by the Borrower,
shall maintain a register (the "REGISTER") in which there shall be recorded the
name and address of each Person holding any Note(s) hereunder or any commitment
to lend hereunder, and the principal amount payable to such Person under such
Person's Note(s) or committed by such Person under such Person's lending
commitment. The Borrower hereby irrevocably appoints the Lender (and/or any
subsequent Lender appointed by the Lender then maintaining the Register) as the
Borrower's agent for the purpose of maintaining the Register.
(b) In connection with any negotiation, transfer or assignment
as aforesaid, the transferor/assignor shall deliver to the Lender then
maintaining the Register an assignment and assumption agreement executed by the
transferor/assignor and the transferee/assignee, setting forth the specifics of
the subject transaction, including but not limited to the amount and nature of
Obligations and/or lending commitments being transferred or assigned (and being
assumed, as applicable), and the proposed effective date of such transfer or
assignment and the related assumption (if applicable).
(c) Subject to receipt of completed tax forms (indicating
withholding status, or exemption from withholding, as applicable, of the
transferee/assignee) reasonably required by
46
the Person then maintaining the Register, and (if required by such Person)
surrender of the negotiated, transferred or assigned Note(s) for reissuance by
the Borrower, such Person shall record the subject transfer, assignment and
assumption in the Register. Anything contained in any Note or other Loan
Document to the contrary notwithstanding, no negotiation, transfer or assignment
shall be effective until it is recorded in the Register pursuant to this Section
8.03(c). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error; and the Borrower and each Lender shall treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower and each Lender at any reasonable time and from time to time upon
reasonable prior notice.
IX. MISCELLANEOUS
SECTION 9.01. SURVIVAL. This Agreement and all covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto, shall survive the making by the Lender of the Loans and the
execution and delivery to the Lender of the Notes, and shall continue in full
force and effect for so long as the Notes or any other Obligations are
outstanding and unpaid or the Revolving Credit Commitment remains outstanding.
Whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and permitted assigns of
such party; and all covenants, promises and agreements in this Agreement
contained, by or on behalf of the Borrower shall inure to the benefit of the
successors and assigns of the Lender.
SECTION 9.02. INDEMNIFICATION. The Borrower shall indemnify the Lender
and its directors, officers, employees, attorneys and agents against, and shall
hold the Lender and such Persons harmless from, any and all losses, claims,
damages and liabilities and related expenses, including reasonable counsel fees
and expenses, incurred by the Lender or any such Person arising out of, in any
way connected with, or as a result of: (a) the use of any of the proceeds of the
Loans made by the Lender to the Borrower; (b) this Agreement, the ownership and
operation of the Borrower's and any Subsidiary's assets, including all Real
Properties and improvements or any Contract, the performance by the Borrower or
any other Person of their respective obligations thereunder, and the
consummation of the transactions contemplated by this Agreement; (c) any
finder's fee, brokerage commission of other such obligation payable or alleged
to be payable in respect of the transactions contemplated by this Agreement
which arises or is alleged to arise from any agreement, action or conduct of the
Borrower or any of its Affiliates, and/or (d) any claim, litigation,
investigation or proceeding relating to any of the foregoing, whether or not the
Lender or its directors, officers, managers, employees, attorneys or agents are
a party thereto; PROVIDED that such indemnity shall not apply to any such
losses, claims, damages, liabilities or related expenses arising from (i) any
unexcused breach by the Lender of any of its obligations under this Agreement,
(ii) the willful misconduct or gross negligence of the Lender as determined by a
final, non-appealable judgment of a court of competent jurisdiction, or (iii)
the breach of any commitment or legal obligation of the Lender to any Person
other than the Borrower or its Affiliates, PROVIDED that such breach is
determined pursuant to a final and nonappealable decision of a court of
competent jurisdiction. The foregoing indemnity shall remain operative and in
full force and effect regardless of the expiration or any termination of this
Agreement, the consummation of the transactions contemplated by this Agreement,
the repayment of the Loans, the invalidity or unenforceability
47
of any term or provision of any Loan Document, any investigation made by or on
behalf of the Lender, and the content or accuracy of any representation or
warranty made by the Borrower or any Subsidiary in any Loan Document. All
amounts due under this Section 9.02 shall be payable on written demand therefor.
SECTION 9.03. GOVERNING LAW. This Agreement and the other Loan
Documents shall (irrespective of where same are executed and delivered) be
governed by and construed in accordance with the laws of the State of New York
(without giving effect to principles of conflicts of laws).
SECTION 9.04. WAIVER AND AMENDMENT. Neither any modification or waiver
of any provision of this Agreement, the Notes, or any other Loan Document, nor
any consent to any departure by the Borrower or any Subsidiary therefrom, shall
in any event be effective unless the same shall be set forth in writing duly
signed or acknowledged by the Lender (or, in the event that there are multiple
Lenders at any time, Lenders holding a majority of the outstanding principal
balance of the Term Loan and the maximum Revolving Credit Commitment) and all
parties to such Loan Document, and then such waiver or consent shall be
effective only in the specific instance, and for the specific purpose, for which
given. No notice to or demand on the Borrower in any instance shall entitle the
Borrower to any other or future notice or demand in the same, similar or other
circumstances.
SECTION 9.05. RESERVATION OF REMEDIES. Neither any failure nor any
delay on the part of the Lender in exercising any right, power or privilege
hereunder or under the Notes or any other Loan Document shall operate as a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other or future exercise, or the exercise of any other right, power or
privilege.
SECTION 9.06. NOTICES. All notices, requests, demands and other
communications under or in respect of this Agreement or any transactions
hereunder shall be in writing (which may include telegraphic or telecopied
communication) and shall be personally delivered or mailed (by prepaid
registered or certified mail, return receipt requested), sent by prepaid
recognized overnight courier service, or telegraphed or telecopied by facsimile
transmission to the applicable party at its address or telecopier number
indicated below.
If to the Lender:
Bluefin Capital, LLC
One North Clematis, Suite 300
West Palm Beach, FL 33401
Attention: Chief Financial Officer
Telecopier: (212) 829-5986
with a copy to:
Greenberg Traurig, LLP
200 Park Avenue
New York, New York 10166
Attention: Shahe Sinanian, Esq.
Telecopier: (212) 801-6400
48
If to the Borrower:
Tag-It Pacific, Inc.
21900 Burbank Blvd., Suite 270
Woodland Hills, California 91367
Attention: Lonnie D. Schell, CFO
Telecopier: (818) 844-4110
with a copy to:
Stubbs Alderton & Markiles, LLP
15260 Ventura Boulevard, 20th Floor
Sherman Oaks, California 91403
Attention: Jonathan R. Hodes, Esq.
Telecopier: (818) 474-8608
or, as to each party, at such other address or telecopier number as shall be
designated by such party in a written notice to the other party delivered as
aforesaid. All such notices, requests, demands and other communications shall be
deemed given (a) when personally delivered, (b) three (3) Business Days after
being deposited in the mails with postage prepaid (by registered or certified
mail, return receipt requested), (c) one (1) Business Day after being delivered
to the telegraph company or overnight courier service, if prepaid and sent
overnight delivery, addressed as aforesaid and with all charges prepaid or
billed to the account of the sender, or (d) when sent by facsimile transmission
to a telecopier number designated by such addressee.
SECTION 9.07. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender and their respective
successors and assigns, except that the Borrower shall not assign any of its
rights or obligations hereunder without the prior written consent of the Lender.
SECTION 9.08. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. The
Borrower hereby consents to the jurisdiction of all courts of the State of New
York and the United States District Court for the Southern District of New York,
as well as to the jurisdiction of all courts from which an appeal may be taken
from such courts, for the purpose of any suit, action or other proceeding
arising out of or with respect to this Agreement, any other Loan Document, any
other agreements, instruments, certificates or other documents executed in
connection herewith or therewith, or any of the transactions contemplated hereby
or thereby, or any of the Borrower's or any Subsidiary's obligations hereunder
or thereunder. The Borrower hereby waives the right to interpose any
counterclaims (other than compulsory counterclaims) in any action brought by the
Lender hereunder or in respect of any other Loan Document, provided that this
waiver shall not preclude the Borrower from pursuing any such claims by means of
separate proceedings. THE BORROWER HEREBY EXPRESSLY WAIVES ANY AND ALL
OBJECTIONS WHICH IT MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS, AND ALSO WAIVES
TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. The Lender may file a copy
of this Agreement as evidence of the foregoing waiver of right to jury trial.
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SECTION 9.09. CERTAIN WAIVERS. The Borrower and the Lender each hereby
waives any claims for special, consequential or punitive damages in any way
arising out of or relating to this Agreement, any of the other Loan Documents,
or any breach hereof or thereof.
SECTION 9.10. SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable, either in its entirety or by virtue of its scope or
application to given circumstances, such provision shall thereupon be deemed
modified only to the extent necessary to render same valid, or not applicable to
given circumstances, or excised from this Agreement, as the situation may
require, and this Agreement shall be construed and enforced as if such provision
had been included herein as so modified in scope or application, or had not been
included herein, as the case may be.
SECTION 9.11. CAPTIONS. The Article and Section headings in this
Agreement are included herein for convenience of reference only, and shall not
affect the construction or interpretation of any provision of this Agreement.
SECTION 9.12. SOLE AND ENTIRE AGREEMENT. This Agreement, the Notes, the
other Loan Documents, and the other agreements, instruments, certificates and
documents referred to or described herein and therein constitute the sole and
entire agreement and understanding between the parties hereto as to the subject
matter hereof, and supersede all prior discussions, agreements and
understandings of every kind and nature between the parties as to such subject
matter.
SECTION 9.13. CONFIDENTIALITY. The Lender shall not disclose any
Confidential Information to any Person, or use Confidential Information except
in connection with the administration of this Agreement and the other Loan
Documents, without the prior written consent of the Borrower; PROVIDED, HOWEVER,
that nothing herein contained shall limit any disclosure of the tax structure of
the transactions contemplated hereby, or the disclosure of any information (a)
to the extent required by statute, rule, regulation or judicial process, (b) to
counsel for the Lender, (c) to bank examiners, auditors, accountants or, if
required by law, any regulatory authority, (d) to the officers, partners,
managers, directors, employees, agents and advisors (including independent
auditors and counsel) of the Lender, (e) in connection with any litigation which
relates to this Agreement to which the Lender is a party, (f) to a subsidiary or
Affiliate of the Lender, or (g) to any assignee or participant (or prospective
assignee or participant) which agrees to be bound by this Section 9.13, AND
FURTHER provided, that in no event shall the Lender be obligated or required to
return any materials furnished by the Borrower. The obligations of the Lender
under this Section 9.13 shall supersede and replace the obligations of the
Lender under any confidentiality letter in respect of this financing previously
signed and delivered by the Lender to the Borrower. In no event shall the Lender
trade in any securities of the Borrower using non-public information of the
Borrower.
SECTION 9.14. COUNTERPARTS; FAX SIGNATURES. This Agreement may be
executed in any number of counterparts, all of which shall constitute one and
the same agreement. This Agreement may be executed by fax signatures, each of
which shall be fully binding on the signing party.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officer as of the day and year first
written above.
BLUEFIN CAPITAL, LLC
By: /S/ LARRY E. LENIG, JR.
--------------------------------------------------
Name: Larry E. Lenig, Jr.
Title: Senior Partner/Portfolio Manager
TAG-IT PACIFIC, INC.
By: /S/ LONNIE D. SCHNELL
--------------------------------------------------
Name: Lonnie D. Schnell
Title: Chief Financial Officer
51