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DRAGON SYSTEMS, INC.
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
December 24, 1998
Fleet National Bank
Xxx Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Gentlemen:
This letter agreement will set forth certain understandings between Dragon
Systems, Inc., a Delaware corporation (the "Borrower") and Fleet National Bank
(the "Bank") with respect to Revolving Loans (hereinafter defined) to be made by
the Bank to the Borrower, with respect to letters of credit which may hereafter
be issued by the Bank for the account of the Borrower and with respect to other
facilities to be provided by the Bank for the Borrower. In consideration of the
mutual promises contained herein and in the other documents referred to below,
and for other good and valuable consideration, receipt and sufficiency of which
are hereby acknowledged, the Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1. REFERENCE TO DOCUMENTS. Reference is made to (i) that certain
$6,000,000 principal amount promissory note (the "Revolving Note") of even date
herewith made by the Borrower and payable to the order of the Bank, (ii) that
certain Inventory and Accounts Receivable Security Agreement and that certain
Supplementary Security Agreement - Security Interest in Goods and Chattels, each
of even date herewith, from the Borrower to the Bank (collectively, the
"Security Agreement"), and (iii) a pledge agreement (the "Pledge") from the
Borrower to the Bank with respect to the capital stock of Dragon Systems
Securities, Inc. ("Securities Corp.") and a related letter of representations
from Securities Corp.
1.2. THE BORROWING; REVOLVING NOTE. Subject to the terms and conditions
hereinafter set forth, the Bank will make loans ("Revolving Loans") to the
Borrower, in such amounts as the Borrower may request, on any Business Day prior
to the first to occur of (i) the Expiration Date, or (ii) the earlier
termination of the within-described revolving financing arrangements pursuant to
ss.5.2 or ss.6.7; provided, however, that (1) the aggregate principal amount of
Revolving Loans advanced under this ss.1.2 and outstanding shall at no time
exceed $4,000,000 and (2) the Aggregate Bank Liabilities (hereinafter defined)
shall at no time exceed the Borrowing Base (hereinafter defined). Within such
limits, and subject to the terms and conditions hereof, the Borrower may obtain
Revolving Loans, repay Revolving Loans and obtain Revolving Loans again on one
or more occasions. The Revolving Loans
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shall be evidenced by the Revolving Note and interest thereon shall be payable
at the times and at the rate provided for in the Revolving Note. Overdue
principal of the Revolving Loans and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) four (4%) percent per annum PLUS (ii) the per
annum rate otherwise payable under the Revolving Note (but in no event in excess
of the maximum rate from time to time permitted by then applicable law),
compounded monthly and payable on demand. The Borrower hereby irrevocably
authorizes the Bank to make or cause to be made, on a schedule attached to the
Revolving Note or on the books of the Bank, at or following the time of making
each Revolving Loan and of receiving any payment of principal, an appropriate
notation reflecting such transaction and the then aggregate unpaid principal
balance of the Revolving Loans. The amount so noted shall constitute presumptive
evidence as to the amount owed by the Borrower with respect to principal of the
Revolving Loans. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower or any right of the Bank
hereunder or under the Revolving Note. All payments of interest, principal and
any other sum payable hereunder and/or under the Revolving Note and/or with
respect to any of the other Obligations shall be made to the Bank, in lawful
money of the United States in immediately available funds, at its office at Xxx
Xxxxxxx Xxxxxx, Xxxxxx, XX 00000 or to such other address as the Bank may from
time to time direct. All payments received by the Bank after 2:00 p.m. on any
day shall be deemed received as of the next succeeding Business Day. All monies
received by the Bank shall be applied first to fees, charges, costs and expenses
payable to the Bank under this letter agreement, the Revolving Note and/or any
of the other Loan Documents and/or with respect to any of the other Obligations,
next to interest then accrued on account of any Revolving Loans or letter of
credit reimbursement obligations or on any of the other Obligations and only
thereafter to principal of the Revolving Loans, the letter of credit
reimbursement obligations and the other Obligations. All interest and fees
payable hereunder and/or under the Revolving Note and/or with respect to any of
the other Obligations shall be calculated on the basis of a 360-day year for the
actual number of days elapsed.
1.3. REPAYMENT; RENEWAL. The Borrower shall repay in full all Revolving
Loans and all interest thereon upon the first to occur of: (i) the Expiration
Date or (ii) an acceleration under ss.5.2(a) following an Event of Default. The
Borrower may repay, at any time, without penalty or premium, the whole or any
portion of any Revolving Loan. In addition, if at any time the Borrowing Base is
in an amount which is less than the then outstanding Aggregate Bank Liabilities,
the Borrower will forthwith pay so much of the Revolving Loans as may be
required (or arrange for the termination of such letters of credit as may be
required) so that the Aggregate Bank Liabilities will not exceed the Borrowing
Base. The Bank may, at its sole discretion, renew the financing arrangements
described in this letter agreement by extending the Expiration Date in a writing
signed by the Bank and accepted by the Borrower. Neither the inclusion in this
letter agreement or elsewhere of covenants relating to periods of time after the
Expiration Date, nor any other provision hereof, nor any action (except a
written extension pursuant to the immediately preceding sentence), non-action or
course of dealing on the part of the Bank will be deemed an extension of, or
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agreement on the part of the Bank to extend, the Expiration Date.
1.4. ADVANCES AND PAYMENTS. The proceeds of all Revolving Loans shall be
credited by the Bank to a general deposit account maintained by the Borrower
with the Bank. The proceeds of each Revolving Loan will be used by the Borrower
solely for working capital purposes.
The Bank may charge any general deposit account of the Borrower at the Bank
with the amount of all payments of interest, principal and other sums due, from
time to time, under this letter agreement and/or the Revolving Note and/or with
respect to any letter of credit and/or with respect to any of the other
Obligations; and will thereafter notify the Borrower of the amount so charged.
The failure of the Bank so to charge any account or to give any such notice
shall not affect the obligation of the Borrower to pay interest, principal or
other sums as provided herein or in the Revolving Note or with respect to any
letter of credit or with respect to any of the other Obligations.
Whenever any payment to be made to the Bank hereunder or under the
Revolving Note or with respect to any letter of credit or with respect to any of
the other Obligations shall be stated to be due on a day which is not a Business
Day, such payment may be made on the next succeeding Business Day, and interest
payable on each such date shall include the amount thereof which shall accrue
during the period of such extension of time. All payments by the Borrower
hereunder and/or in respect of the Revolving Note and/or with respect to any
letter of credit or any of the other Obligations shall be made net of any
impositions or taxes and without deduction, set-off or counterclaim,
notwithstanding any claim which the Borrower may now or at any time hereafter
have against the Bank.
1.5. LETTERS OF CREDIT. At the Borrower's request, the Bank may from time
to time, in its sole discretion, issue one or more letters of credit for the
account of the Borrower; provided that at the time of such issuance and after
giving effect thereto (A) the aggregate stated amounts of all letters of credit
issued under this paragraph will not exceed $2,000,000 and (B) the Aggregate
Bank Liabilities will not exceed the then effective Borrowing Base. Any such
letter of credit will be issued for such fee and upon such terms and conditions
as may be agreed to by the Bank and the Borrower at the time of issuance. The
Borrower hereby authorizes the Bank, without further request from the Borrower,
to cause the Borrower's liability to the Bank for reimbursement of funds drawn
under any such letter of credit to be repaid from the proceeds of a Revolving
Loan to be made hereunder. The Borrower hereby irrevocably requests that such
Revolving Loans be made, and same will be deemed advanced at the discretion of
the Bank and applied to repayment of the Borrower's reimbursement obligations
even if the conditions to advance contained in ss.1.8 are not then met and even
if the aggregate Revolving Loans outstanding would thereupon exceed $4,000.000.
1.6. ACH TRANSACTIONS. The Bank may from time to time prior the Expiration
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Date, at the request of the Borrower, initiate automated clearinghouse ("ACH")
transactions for the Borrower; provided that the Bank's total ACH Exposure shall
not (unless otherwise agreed by the Bank in its sole discretion) exceed
$3,000,000 at any one time. ACH transactions will bear such fees and charges and
as may be agreed upon by the Bank and the Borrower and will be governed by the
Bank's then current documentation and practices with respect to such
transactions. As used herein, "ACH Exposure" as determined at any date means the
sum of (i) all amounts then owed by the Borrower to the Bank in connection with
any ACH transaction pursuant to which the Bank has advanced funds on behalf of
the Borrower PLUS (ii) the maximum amount which could be owed by the Borrower
(assuming settlement within two (2) Business Days of each date when funds are
advanced) to the Bank in connection with all ACH transactions then authorized by
the Borrower but as to which the Bank has not yet advanced funds.
1.7. FOREIGN EXCHANGE CONTRACTS. During the term of this letter agreement
and subject to the terms and conditions hereof, the Bank may from time to time
prior to the Expiration Date, at the Borrower's request, provide to the Borrower
one or more forward contracts ("Foreign Exchange Contracts") for the purchase by
the Borrower of foreign currency from the Bank; provided that (i) each such
Foreign Exchange Contract will be at such pricing as the Bank and the Borrower
may agree at the time of execution of such Foreign Exchange Contract, (ii) the
documentation for each such Foreign Exchange Contract will be in such form as is
then customarily used by the Bank for transactions of this type, (iii) the
Foreign Exchange Contracts will be used by the Borrower to minimize its exposure
to the fluctuation of the value of those foreign currencies in which payments
are expected to be made to the Borrower by customers or in which the Borrower is
required to make payments to suppliers, (iv) the United States Dollar equivalent
of all amounts subject to the Foreign Exchange Contracts will not exceed
$2,000,000 in the aggregate and (v) the F/X Exposure will at no time exceed
$300,000. As used herein, "F/X Exposure" as determined at any date means the sum
of (i) all amounts then owed by the Borrower to the Bank in connection with
settlement of any Foreign Exchange Contract, PLUS (ii) the maximum two-day
settlement amount for all then outstanding Foreign Exchange Contracts.
1.8. CONDITIONS TO ADVANCE. Prior to the making of the initial Revolving
Loan or the issuance of any letter of credit hereunder or the initiation of any
ACH transaction or the issuance of any Foreign Exchange Contract hereunder, the
Borrower shall deliver to the Bank duly executed copies of this letter
agreement, the Security Agreement, the Revolving Note and the documents and
other items listed on the Closing Agenda delivered herewith by the Bank to the
Borrower, all of which shall be satisfactory in form and substance to the Bank
and its counsel.
Without limiting the foregoing, any Revolving Loan or letter of credit
issuance or ACH transaction or the issuance of a Foreign Exchange Contract
(including the initial Revolving Loan, letter of credit issuance, ACH
transaction or the issuance of a Foreign Exchange Contract) is subject to the
further conditions precedent (listed in clauses (a) - (d)
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below) that on the date on which such Revolving Loan is made or such letter of
credit is issued or such ACH transaction is initiated or such Foreign Exchange
Contract is issued (and after giving effect thereto):
(a) All statements, representations and warranties of the Borrower made in
this letter agreement and/or in the Security Agreement shall continue to be
correct in all material respects as of the date of such Revolving Loan or the
date of issuance of such letter of credit or the date of such ACH transaction or
the date of issuance of such Foreign Exchange Contract, as the case may be,
except any such statements, representations and warranties which are
specifically stated herein as being made as of a particular date.
(b) All covenants and agreements of the Borrower contained herein and/or in
any of the other Loan Documents shall have been complied with in all material
respects on and as of the date of such Revolving Loan or the date of issuance of
such letter of credit or the date of such ACH transaction or the date of
issuance of such Foreign Exchange Contract, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time or
both could constitute, an Event of Default shall have occurred and be
continuing.
(d) No material adverse change shall have occurred in the financial
condition of the Borrower from that disclosed in the financial statements then
most recently furnished to the Bank.
Each request by the Borrower for any Revolving Loan or for the issuance of
any letter of credit or for any ACH transaction or for the issuance of any
Foreign Exchange Contract, and each acceptance by the Borrower of the proceeds
of any Revolving Loan or delivery of a letter of credit or delivery of a Foreign
Exchange Contract, will be deemed a representation and warranty by the Borrower
that at the date of any such event, and after giving effect thereto, all of the
conditions set forth in the foregoing clauses (a)-(d) of this ss.1.8 will be
satisfied. Each request for a Revolving Loan or letter of credit issuance will
be accompanied by a Borrowing Base certificate on a form satisfactory to the
Bank, executed by the chief financial officer of the Borrower, unless such a
certificate shall have been previously furnished as required by clause (iv) of
ss.3.6 setting forth the Borrowing Base as at the most recent month-end prior to
the date of the requested borrowing or the requested letter of credit issuance,
as the case may be.
II. REPRESENTATIONS AND WARRANTIES
2.1. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this letter agreement and to make Revolving Loans hereunder and/or issue
letters of credit hereunder and/or engage in ACH transactions for the Borrower
and/or issue Foreign Exchange Contracts, the Borrower warrants and represents to
the Bank as follows:
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(a) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of Delaware. The Borrower has full corporate power
to own its property and conduct its business as now conducted, to grant the
security interests contemplated by the Security Agreement and to enter into and
perform this letter agreement and the other Loan Documents. The Borrower is duly
qualified to do business and is in good standing in Massachusetts and is also
duly qualified to do business in and is in good standing in each other
jurisdiction in which the Borrower maintains any facility, sales office,
warehouse or other location, and in each other jurisdiction where the failure so
to qualify could (singly or in the aggregate with all other such failures) have
a material adverse effect on the financial condition, business or prospects of
the Borrower, all such jurisdictions being listed on item 2.1(a) of the attached
Disclosure Schedule. At the date hereof, the Borrower has no Subsidiaries,
except as shown on said item 2.1(a) of the attached Disclosure Schedule. The
Borrower is not a member of any partnership or joint venture.
(b) At the date of this letter agreement, all of the outstanding capital
stock of the Borrower is owned, of record and beneficially, as set forth on item
2.1(b) of the attached Disclosure Schedule.
(c) The execution, delivery and performance by the Borrower of this letter
agreement and each of the other Loan Documents have been duly authorized by all
necessary corporate and other action and do not and will not:
(i) violate any provision of, or require (as a prerequisite to
effectiveness) any filings (other than filings under the Uniform Commercial
Code), registration, consent or approval under, any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award presently
in effect having applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of the Borrower,
or result in a breach of or constitute a default or require any waiver or
consent under any indenture or loan or credit agreement or any other
material agreement, lease or instrument to which the Borrower is a party or
by which the Borrower or any of its properties may be bound or affected or
require any other consent of any Person; or
(iii) result in, or require, the creation or imposition of any lien,
security interest or other encumbrance (other than in favor of the Bank)
upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure Schedule,
there are no actions, suits, proceedings or investigations pending or, to the
knowledge of the
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Borrower, threatened by or against the Borrower or any Subsidiary before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which could hinder or prevent the
consummation of the transactions contemplated hereby or call into question the
validity of this letter agreement or any of the other Loan Documents or any
action taken or to be taken in connection with the transactions contemplated
hereby or thereby or which in any single case or in the aggregate might result
in any material adverse change in the business, prospects, condition, affairs or
operations of the Borrower or any Subsidiary.
(f) The Borrower is not in violation of any term of its charter or by-laws
as now in effect. Neither the Borrower nor any Subsidiary of the Borrower is in
material violation of any term of any mortgage, indenture or judgment, decree or
order, or any other instrument, contract or agreement to which it is a party or
by which any of its property is bound which in any single case or in the
aggregate might result in any material adverse change in the business,
prospects, condition, affairs or operations of the Borrower or any Subsidiary.
(g) The Borrower has filed (and has caused each of its Subsidiaries to
file) all federal, state and local tax returns, reports and estimates required
to be filed by the Borrower and/or by any such Subsidiary. All such filed
returns, reports and estimates are proper and accurate and the Borrower or the
relevant Subsidiary has paid all taxes, assessments, impositions, fees and other
governmental charges required to be paid in respect of the periods covered by
such returns, reports or estimates. No deficiencies for any tax, assessment or
governmental charge have been asserted or assessed, and the Borrower knows of no
material tax liability or basis therefor.
(h) The Borrower is in compliance (and each Subsidiary of the Borrower is
in compliance) with all requirements of law, federal, state and local, and all
requirements of all governmental bodies or agencies having jurisdiction over it,
the conduct of its business, the use of its properties and assets, and all
premises occupied by it, failure to comply with any of which could (singly or in
the aggregate with all other such failures) have a material adverse effect upon
the assets, business, financial condition or prospects of the Borrower or any
such Subsidiary. Without limiting the foregoing, the Borrower has all the
franchises, licenses, leases, permits, certificates and authorizations needed
for the conduct of its business and the use of its properties and all premises
occupied by it, as now conducted, owned and used.
(i) The audited financial statements of the Borrower as at December 31,
1997 and the management-generated statements of the Borrower as at September 30,
1998, each heretofore delivered to the Bank, are complete and accurate and
fairly present the financial condition of the Borrower as at the respective
dates thereof and for the periods covered thereby, except that the
management-generated statements do not have footnotes and thus do not present
the information which would normally be contained in footnotes to financial
statements. Neither the Borrower nor any of the Borrower's Subsidiaries has any
liability, contingent or otherwise, not disclosed in the aforesaid financial
statements or in any notes
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thereto that could materially affect the financial condition of the Borrower.
Since December 31, 1997, there has been no material adverse development in the
business, condition or prospects of the Borrower, and the Borrower has not
entered into any transaction other than in the ordinary course, other than the
sale of its interest in Articulate Systems, Inc.
(j) The principal place of business and chief executive office of the
Borrower are located at 000 Xxxxxx Xxxxxx, Xxxxxx, XX 00000. All of the books
and records of the Borrower are located at said address. Except as described on
item 2.1(j) of the attached Disclosure Schedule, no assets of the Borrower are
located at any other address. Said item 2.1(j) of the attached Disclosure
Schedule sets forth the names and addresses of all record owners of any premises
where any material amount of Collateral is located.
(k) The Borrower owns or has a valid right to use all of the patents,
licenses, copyrights, trademarks, trade names and franchises now being used to
conduct its business. The conduct of the Borrower's business as now operated
does not conflict with valid patents, licenses, copyrights, trademarks, trade
names or franchises of others in any manner that could materially adversely
affect the business, prospects, assets or condition, financial or otherwise, of
the Borrower.
(l) None of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or restricts that person's right to engage in the type of business activity
conducted or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas susceptible
to legal protection developed or conceived by any such officer or key employee.
(m) The Borrower is not a party to any contract or agreement which now has
or, as far as can be foreseen by the Borrower at the date hereof, may have a
material adverse effect on the financial condition, business, prospects or
properties of the Borrower.
(n) The Borrower has reviewed the software which it uses in its business
for "Year 2000" compliance and has determined that such software will continue
to function in the manner intended without material interruption of service or
other difficulty resulting from the "Year 2000 problem". The Borrower will, at
the request of the Bank, provide such reports and other information as the Bank
may reasonably request in order to evidence such Year 2000 compliance.
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III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any other covenants and agreements contained herein
or elsewhere, the Borrower agrees that so long as the financing arrangements
contemplated hereby are in effect or any Revolving Loan or any of the other
Obligations shall be outstanding or any letter of credit issued hereunder shall
be outstanding or any Foreign Exchange Contract shall be outstanding or any
amount shall be owed by the Borrower in respect of any ACH transaction or any
Foreign Exchange Contract:
3.1. LEGAL EXISTENCE; QUALIFICATION; COMPLIANCE. The Borrower will maintain
(and will cause each Subsidiary of the Borrower to maintain) its corporate
existence and good standing in the jurisdiction of its incorporation. The
Borrower will remain qualified to do business and in good standing in
Massachusetts. The Borrower will qualify to do business and will remain
qualified and in good standing (and the Borrower will cause each Subsidiary of
the Borrower to qualify and remain qualified and in good standing) in each
jurisdiction where the Borrower or such Subsidiary, as the case may be,
maintains any plant, sales office, warehouse or other facility and in each other
jurisdiction in which the failure so to qualify could (singly or in the
aggregate with all other such failures) have a material adverse effect on the
financial condition, business or prospects of the Borrower or any such
Subsidiary. The Borrower will comply (and will cause each Subsidiary of the
Borrower to comply) with its charter documents and by-laws, to the extent
applicable. The Borrower will comply with (and will cause each Subsidiary of the
Borrower to comply with) all applicable laws, rules and regulations (including,
without limitation, ERISA and those relating to environmental protection) other
than (i) laws, rules or regulations the validity or applicability of which the
Borrower or such Subsidiary shall be contesting in good faith by proceedings
which serve as a matter of law to stay the enforcement thereof and (ii) those
laws, rules and regulations the failure to comply with any of which could not
(singly or in the aggregate) have a material adverse effect on the financial
condition, business or prospects of the Borrower or any such Subsidiary.
3.2. MAINTENANCE OF PROPERTY; INSURANCE. The Borrower will maintain and
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its fixed assets in good working order and condition, making
all necessary repairs thereto and replacements thereof. The Borrower will
maintain all such insurance as may be required under the Security Agreement and
will also maintain, with financially sound and reputable insurers, insurance
with respect to its property and business against such liabilities, casualties
and contingencies and of such types and in such amounts as shall be reasonably
satisfactory to the Bank from time to time and in any event all such insurance
as may from time to time be customary for companies conducting a business
similar to that of the Borrower in similar locales, with the Bank named as loss
payee with respect to all Collateral.
3.3. PAYMENT OF TAXES AND CHARGES. The Borrower will pay and discharge (and
will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and
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governmental charges or levies imposed upon it or upon its income or property,
including, without limitation, taxes, assessments, charges or levies relating to
real and personal property, franchises, income, unemployment, old age benefits,
withholding, or sales or use, prior to the date on which penalties would attach
thereto, and all lawful claims (whether for any of the foregoing or otherwise)
which, if unpaid, might give rise to a lien upon any property of the Borrower or
any such Subsidiary, except any of the foregoing which is being contested in
good faith and by appropriate proceedings which serve as a matter of law to stay
the enforcement thereof and for which the Borrower (or such Subsidiary, as the
case may be) has established and is maintaining adequate reserves. The Borrower
will pay, and will cause each of its Subsidiaries to pay, in a timely manner,
all lease obligations, all material trade debt, purchase money obligations,
equipment lease obligations and all of its other material Indebtedness. The
Borrower will perform and fulfill all material covenants and agreements under
any leases of real estate, agreements relating to purchase money debt, equipment
leases and other material contracts. The Borrower will maintain in full force
and effect, and comply with the terms and conditions of, all permits,
permissions and licenses necessary or desirable for its business.
3.4. ACCOUNTS. The Borrower will maintain its principal depository and
operating accounts with the Bank; provided that the Borrower may take up to 90
days from the date of this letter agreement to transition its accounts to the
Bank.
3.5. CONDUCT OF BUSINESS. The Borrower will conduct, in the ordinary
course, the business in which it is presently engaged. The Borrower will not,
without the prior written consent of the Bank, directly or indirectly (itself or
through any Subsidiary) enter into any other lines of business, businesses or
ventures which are not substantially related to the Borrower's core business at
the date of the letter agreement.
3.6. REPORTING REQUIREMENTS. The Borrower will furnish to the Bank:
(i) Within 90 days after the end of each fiscal year of Borrower, a
copy of the annual audit report for such fiscal year for the Borrower,
including therein the consolidated balance sheet of the Borrower and
Subsidiaries as at the end of such fiscal year and related consolidated
statements of income, stockholders' equity and cash flow for the fiscal
year then ended. The annual consolidated financial statements shall be
certified by independent public accountants selected by the Borrower and
reasonably acceptable to the Bank, such certification to be in such form as
is generally recognized as "unqualified". The audited consolidated
statements will be accompanied by unaudited consolidating balance sheets,
income statements and cash flow statements for the relevant fiscal periods.
(ii) Within 45 days after the end of each fiscal quarter of the
Borrower, consolidated balance sheets of the Borrower and its Subsidiaries
and related consolidated statements of income and stockholders' equity and
cash flow, unaudited
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but complete and accurate and prepared in accordance with generally
accepted accounting principles consistently applied fairly presenting the
financial condition of the Borrower as at the dates thereof and for the
periods covered thereby (except that such quarterly statements need not
contain footnotes) and certified as accurate (subject to normal year-end
audit adjustments, which shall not be material) by the chief financial
officer of the Borrower, such balance sheets to be as at the end of such
fiscal quarter and such statements of income and stockholders' equity and
cash flow to be for such fiscal quarter and for the fiscal year to date, in
each case together with a comparison to budget.
(iii) At the time of delivery of each annual or quarterly statement of
the Borrower, a certificate executed by the chief financial officer of the
Borrower stating that he or she has reviewed this letter agreement and the
other Loan Documents and has no knowledge of any default by the Borrower in
the performance or observance of any of the provisions of this letter
agreement or of any of the other Loan Documents or, if he or she has such
knowledge, specifying each such default and the nature thereof. Each
financial statement given as at the end of any fiscal quarter of the
Borrower will also set forth the calculations necessary to evidence
compliance with ss.ss.3.7-3.10.
(iv) Monthly, within 15 days after the end of each month, (A) an aging
report in form satisfactory to the Bank covering all Receivables of the
Borrower outstanding as at the end of such month, and (B) a certificate of
the chief financial officer of the Borrower setting forth the Borrowing
Base as at the end of such month, all in form reasonably satisfactory to
the Bank.
(v) Promptly after receipt, a copy of all audits or reports submitted
to the Borrower by independent public accountants in connection with any
annual, special or interim audits of the books of the Borrower and any
"management letter" prepared by such accountants. The management letter for
each fiscal year will be delivered within 90 days after the close of such
fiscal year.
(vi) As soon as possible and in any event within five days of the
occurrence of any Event of Default or any event which, with the giving of
notice or passage of time or both, would constitute an Event of Default,
the statement of the Borrower setting forth details of each such Event of
Default or event and the action which the Borrower proposes to take with
respect thereto.
(vii) Promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
in which the Borrower or any Subsidiary of the Borrower is a defendant;
provided that nothing in this clause (vii) will be deemed to require the
Borrower to give notice of any such action, suit or
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proceeding in which only monetary damages are sought and the damages so
sought are less than $100,000.
(viii) Promptly upon filing any registration statement or listing
application (or any supplement or amendment to any registration statement
or listing application) with the Securities and Exchange Commission ("SEC")
or any successor agency or with any stock exchange or with the National
Association of Securities Dealers quotations system, a copy of same.
(ix) If the Borrower becomes a publicly-traded company, a copy of each
periodic or current report filed with the SEC or any successor agency and
each annual report, proxy statement and other communication sent to
shareholders or other securityholders generally, such copy to be provided
to the Bank promptly upon such filing with the SEC or such communication
with shareholders or securityholders, as the case may be.
(x) Promptly after the Borrower has knowledge thereof, written notice
of any development or circumstance which may reasonably be expected to have
a material adverse effect on the Borrower or its business, properties,
assets, Subsidiaries or condition, financial or otherwise.
(xi) Promptly upon request, such other information respecting the
financial condition, operations, Receivables, inventory, machinery or
equipment of the Borrower or any Subsidiary as the Bank may from time to
time reasonably request.
3.7. DEBT TO WORTH. The Borrower will maintain as at the last day of each
fiscal quarter of the Borrower (each, a "Determination Date") (commencing with
December 31, 1998) on a consolidated basis a Leverage Ratio which is equal to or
less than 1.0 to 1. As used herein, "Leverage Ratio" means, as at any
Determination Date, the ratio of (x) the total consolidated Senior Liabilities
of the Borrower and/or its Subsidiaries then outstanding to (y) the Borrower's
then consolidated Capital Base.
3.8. CAPITAL BASE. The Borrower will maintain as at each Determination Date
(commencing December 31, 1998) a consolidated Capital Base which shall be equal
to or greater than the then-effective Capital Base Requirement. As used herein,
the "Capital Base Requirement" will be deemed to have been $19,000,000 as at
September 30, 1998; and, as at each Determination Date thereafter, the Capital
Base Requirement will be deemed to become an amount equal to the sum of: (i)
that Capital Base Requirement which had been in effect at the last day of the
immediately preceding fiscal quarter, PLUS (ii) 80% of the net proceeds of any
equity securities sold by the Borrower during the fiscal quarter ending at such
Determination Date and 80% of the proceeds of any Subordinated Debt issued by
the Borrower and/or its Subsidiaries during the fiscal quarter ending at such
Determination Date (nothing contained herein being deemed to approve the
issuance of any such Subordinated
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Debt), PLUS (iii) 80% of the consolidated Net Income of the Borrower and
Subsidiaries during the fiscal quarter ending at such Determination Date (but
without giving effect to any Net Income which is less than zero for any fiscal
quarter).
3.9. PROFITABILITY. The Borrower will achieve consolidated quarterly Net
Income of at least $500,000 for its fiscal quarter ending December 31, 1998 and
for each fiscal quarter thereafter.
3.10. LIQUIDITY. The Borrower will maintain as at each Determination Date
(commencing with December 31, 1998) a ratio of Net Quick Assets to Current
Liabilities, which ratio shall be equal to or greater than 1.4 to 1.
3.11. BOOKS AND RECORDS. The Borrower will maintain (and will cause each of
its Subsidiaries to maintain) complete and accurate books, records and accounts
which will at all times accurately and fairly reflect all of its transactions in
accordance with generally accepted accounting principles consistently applied.
The Borrower will, at any reasonable time and from time to time upon reasonable
written notice and during normal business hours (and at any time and without any
necessity for notice following the occurrence of an Event of Default), permit
the Bank, and any agents or representatives thereof, to examine and make copies
of and take abstracts from the records and books of account of, and visit the
properties of the Borrower and any of its Subsidiaries, and to discuss its
affairs, finances and accounts with its officers, directors and/or independent
accountants, all of whom are hereby authorized and directed to cooperate with
the Bank in carrying out the intent of this ss.3.11. Each financial statement of
the Borrower hereafter delivered pursuant to this letter agreement will be
complete and accurate and will fairly present the financial condition of the
Borrower as at the date thereof and for the periods covered thereby.
IV. NEGATIVE COVENANTS
Without limitation of any other covenants and agreements contained herein
or elsewhere, the Borrower agrees that so long as the financing arrangements
contemplated hereby are in effect or any Revolving Loan or any of the other
Obligations shall be outstanding or any letter of credit issued hereunder shall
be outstanding or any Foreign Exchange Contract shall be outstanding or any
amount shall be owed by the Borrower in respect of any ACH transaction or any
Foreign Exchange Contract:
4.1. INDEBTEDNESS. The Borrower will not create, incur, assume or suffer to
exist any Indebtedness (nor allow any of its Subsidiaries to create, incur,
assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without limitation, the
Indebtedness represented by the Revolving Note and any Indebtedness in
respect of letters of credit issued by the Bank or in respect of any ACH
transactions or in respect
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of any Foreign Exchange Contracts;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iii) unsecured current liabilities of the Borrower or any Subsidiary
(other than for money borrowed or for purchase money Indebtedness with
respect to fixed assets) incurred upon customary terms in the ordinary
course of business;
(iv) purchase money Indebtedness (including, without limitation,
Indebtedness in respect of capitalized equipment leases) owed to equipment
vendors and/or lessors for equipment purchased or leased by the Borrower
for use in the Borrower's business, provided that the total of Indebtedness
permitted under this clause (iv) plus presently-existing equipment
financing permitted under clause (v) of this ss.4.1 will not exceed
$500,000 in the aggregate outstanding at any one time;
(v) other Indebtedness existing at the date hereof (including, without
limitation, any existing Subordinated Debt), but only to the extent set
forth on item 4.1 of the attached Disclosure Schedule;
(vi) any guaranties or other contingent liabilities expressly
permitted pursuant to ss.4.3; and
(vii) borrowings by Securities Corp. in an aggregate amount not in
excess of $3,500,000.
4.2. LIENS. The Borrower will not create, incur, assume or suffer to exist
(nor allow any of its Subsidiaries to create, incur, assume or suffer to exist)
any mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance (including the lien or retained security title of a conditional
vendor) of any nature (collectively, "Liens"), upon or with respect to any of
its property or assets, now owned or hereafter acquired, except that the
foregoing restrictions shall not apply to:
(i) Liens for taxes, assessments or governmental charges or levies on
property of the Borrower or any of its Subsidiaries if the same shall not
at the time be delinquent or thereafter can be paid without interest or
penalty;
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar Liens arising in the ordinary course of
business for sums not yet due or which are being contested in good faith
and by appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and as to which adequate reserves have been made;
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(iii) pledges or deposits under workmen's compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors securing
purchase money Indebtedness to the extent permitted by clause (iv) of
ss.4.1; provided that no such Lien will extend to any property of the
Borrower other than the specific items of equipment financed; or
(vi) other Liens existing at the date hereof, but only to the extent
and with the relative priorities set forth on item 4.2 of the attached
Disclosure Schedule.
Without limitation of the foregoing, the Borrower covenants and agrees that
it will not enter into (and will not suffer or permit any of its Subsidiaries to
enter into) any agreement or understanding (each, a "Restrictive Agreement")
with any Person other than the Bank which could prohibit or restrict in any
manner the right of the Borrower or any such Subsidiary to grant to the Bank any
Lien on any of its assets. The Borrower represents and warrants that, at the
date of this letter agreement, neither the Borrower nor any such Subsidiary is
party to any such Restrictive Agreement.
4.3. GUARANTIES. The Borrower will not, without the prior written consent
of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business and (ii) guaranties
existing at the date hereof and described on item 4.3 of the attached Disclosure
Schedule.
4.4. DIVIDENDS. The Borrower will not, without the prior written consent of
the Bank, make any distributions to its shareholders, pay any dividends (other
than dividends payable solely in capital stock of the Borrower) or redeem,
purchase or otherwise acquire, directly or indirectly any of its capital stock.
4.5. LOANS AND ADVANCES. The Borrower will not make (and will not permit
any Subsidiary to make) any loans or advances to any Person, including, without
limitation, the Borrower's directors, officers and employees, except (i)
existing loans described in item 4.5 of the attached Disclosure Schedule, (ii)
loans made to the Borrower by Securities Corp. which give rise to Indebtedness
permitted by clause (vii) of ss.4.1; and (iii) advances to such directors,
officers or employees with respect to expenses incurred by them in the ordinary
course of their duties and advances against salary, all of which advances will
not exceed, in
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the aggregate, $100,000 outstanding at any one time.
4.6. INVESTMENTS. The Borrower will not, without the Bank's prior written
consent, invest in, hold or purchase any stock or securities of any Person (nor
will the Borrower permit any of its Subsidiaries to invest in, purchase or hold
any such stock or securities) except (i) readily marketable direct obligations
of, or obligations guarantied by, the United States of America or any agency
thereof, (ii) other investment grade debt securities, (iii) mutual funds, the
assets of which are primarily invested in items of the kind described in the
foregoing clauses (i) and (ii) of this ss.4.6, (iv) deposits with or
certificates of deposit issued by the Bank and any other obligations of the Bank
or the Bank's parent, (v) deposits in any other bank organized in the United
States having capital in excess of $100,000,000, (vi) deposits with foreign
banks to the extent reasonably necessary to support the foreign operations of
the Borrower and/or any of its Subsidiaries, and (vii) investments in any
Subsidiaries now existing or hereafter created by the Borrower pursuant to
ss.4.7 below; provided that in any event the Tangible Net Worth of the Borrower
alone (exclusive of its investment in Subsidiaries and any debt owed by any
Subsidiary to the Borrower) will not be less than 90% of the consolidated
Tangible Net Worth of the Borrower and Subsidiaries.
4.7. SUBSIDIARIES; ACQUISITIONS. Neither the Borrower nor any of its
Subsidiaries will, without the prior written consent of the Bank (such consent
not to be unreasonably withheld) form or acquire any Subsidiary or make any
other acquisition of the stock of any other Person or of all or substantially
all of the assets of any other Person; except that after the Borrower has closed
an initial public offering and is a publicly traded company, the Borrower may,
without having to obtain such consent, make one or more Permitted Acquisitions.
The Borrower will not become a partner in any partnership.
4.8. MERGER. The Borrower will not, without the prior written consent of
the Bank, merge or consolidate with any Person, or sell, lease, transfer or
otherwise dispose of any material portion of its assets (whether in one or more
transactions), other than sale of inventory in the ordinary course.
4.9. AFFILIATE TRANSACTIONS. The Borrower will not, without the prior
written consent of the Bank, enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property or the rendering of
any service, with any affiliate of the Borrower, except in the ordinary course
of and pursuant to the reasonable requirements of the Borrower's business and
upon fair and reasonable terms no less favorable to the Borrower than would be
obtained in a comparable arms-length transaction with any Person not an
affiliate; provided that nothing in this ss.4.9 shall be deemed to prohibit the
payment of salary or other similar payments to any officer or director of the
Borrower at a level consistent with the salary and other payments being paid at
the date of this letter agreement and heretofore disclosed in writing to the
Bank, nor to prevent the hiring of additional officers at a salary level
consistent with industry practice, nor to prevent reasonable periodic increases
in salary. For the purposes of this letter agreement, "affiliate" means any
Person which, directly or
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indirectly, controls or is controlled by or is under common control with the
Borrower; any officer or director or former officer or director of the Borrower;
any Person owning of record or beneficially, directly or indirectly, 5% or more
of any class of capital stock of the Borrower or 5% or more of any class of
capital stock or other equity interest having voting power (under ordinary
circumstances) of any of the other Persons described above; and any member of
the immediate family of any of the foregoing. "Control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of any Person, whether through ownership of voting
equity, by contract or otherwise.
4.10. CHANGE OF ADDRESS, ETC. The Borrower will not change its name or
legal structure, nor will the Borrower move its chief executive offices or
principal place of business from the address described in the first sentence of
ss.2.1(j) above, nor will the Borrower remove any books or records from such
address, nor will the Borrower keep any Collateral at any location other than
the premises described in ss.2.1(j), without, in each instance, giving the Bank
at least 30 days' prior written notice and providing all such financing
statements, certificates and other documentation as the Bank may request in
order to maintain the perfection and priority of the security interests granted
or intended to be granted pursuant to the Security Agreement. The Borrower will
not change its fiscal year or methods of financial reporting unless, in each
instance, prior written notice of such change is given to the Bank and prior to
such change the Borrower enters into amendments to this letter agreement in form
and substance satisfactory to the Bank in order to preserve unimpaired the
rights of the Bank and the obligations of the Borrower hereunder.
4.11. HAZARDOUS WASTE. Except as provided below, the Borrower will not
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch.
21E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any release or known threat of
release of any hazardous material or oil at or from any site or vessel owned,
occupied or operated by the Borrower or any Subsidiary of the Borrower, and
(iii) any incurrence of any expense or loss by any government or governmental
authority in connection with the assessment, containment or removal of any
hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport and arrange for the
transport or disposal of, and need not notify the Bank of the use, storage,
transport, arrangement for transport or disposal of, (x) oil as fuel for their
respective facilities or for vehicles or machinery used in the ordinary course
of their respective businesses and (y) hazardous materials that are solvents,
cleaning agents or other
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materials used in the ordinary course of the respective
business operations of the Borrower and its Subsidiaries, as long as in each
case the Borrower or the Subsidiary concerned (as the case may be) has obtained
and maintains in effect any necessary governmental permits, licenses and
approvals, complies with all requirements of applicable federal, state and local
law relating to such use, storage, transportation, arrangement for transport or
disposal, follows the protective and safety procedures that a prudent
businessperson conducting a business the same as or similar to that of the
Borrower or such Subsidiary (as the case may be) would follow, and in any event
disposes of such materials (not consumed in the ordinary course) only through
licensed providers of hazardous waste removal services.
4.12. NO MARGIN STOCK. No proceeds of any Revolving Loan shall be used
directly or indirectly to purchase or carry any margin security.
4.13. SUBORDINATED DEBT. The Borrower will not directly or indirectly make
any optional or voluntary prepayment or purchase of Subordinated Debt or modify,
alter or add any provisions with respect to payment of Subordinated Debt. In any
event, the Borrower will not make any payment of any principal of or interest on
any Subordinated Debt at any time when there exists, or if there would result
therefrom, any Event of Default hereunder.
V. DEFAULT AND REMEDIES
5.1. EVENTS OF DEFAULT. The occurrence of any one of the following events
shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or interest
on the Revolving Note on or before the date when due; or the Borrower shall fail
to pay when due any amount owed to the Bank in respect of any letter of credit
now or hereafter issued by the Bank or in respect of any Foreign Exchange
Contract or in respect of any ACH transaction; or
(b) Any representation or warranty of the Borrower contained herein shall
at any time prove to have been incorrect in any material respect when made or
any representation or warranty made by the Borrower in connection with any
Revolving Loan or letter of credit or any ACH transaction or any Foreign
Exchange Contract shall at any time prove to have been incorrect in any material
respect when made; or
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of ss.ss.3.1, 3.3, 3.6, 3.7, 3.8, 3.9 or 3.10
or Article IV; or
(d) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after notice thereof shall have been given to
the Borrower; or
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(e) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
(f) Any default shall exist and remain unwaived or uncured with respect to
any Subordinated Debt of the Borrower or with respect to any instrument
evidencing, guaranteeing or otherwise relating to any such Subordinated Debt, or
any such Subordinated Debt shall not have been paid when due, whether by
acceleration or otherwise, or shall have been declared to be due and payable
prior to its stated maturity, or any event or circumstance shall occur which
permits, or with the lapse of time or the giving of notice or both would permit,
the acceleration of the maturity of any Subordinated Debt by the holder or
holders thereof; or
(g) Any default shall exist and remain unwaived or uncured with respect to
any other Indebtedness of the Borrower or any Subsidiary of the Borrower in
excess of $100,000 in aggregate principal amount or with respect to any
instrument evidencing, guaranteeing, securing or otherwise relating to any such
Indebtedness, or any such Indebtedness in excess of $100,000 in aggregate
principal amount shall not have been paid when due, whether by acceleration or
otherwise, or shall have been declared to be due and payable prior to its stated
maturity, or any event or circumstance shall occur which permits, or with the
lapse of time or the giving of notice or both would permit, the acceleration of
the maturity of any such Indebtedness by the holder or holders thereof; or
(h) The Borrower shall be dissolved, or the Borrower or any Subsidiary of
the Borrower shall become insolvent or bankrupt or shall cease paying its debts
as they mature or shall make an assignment for the benefit of creditors, or a
trustee, receiver or liquidator shall be appointed for the Borrower or any
Subsidiary of the Borrower or for a substantial part of the property of the
Borrower or any such Subsidiary, or bankruptcy, reorganization, arrangement,
insolvency or similar proceedings shall be instituted by or against the Borrower
or any such Subsidiary under the laws of any jurisdiction (except for an
involuntary proceeding filed against the Borrower or any Subsidiary of the
Borrower which is dismissed within 60 days following the institution thereof);
or
(i) Any attachment, execution or similar process shall be issued or levied
against any of the property of the Borrower or any Subsidiary and such
attachment, execution or similar process shall not be paid, stayed, released,
vacated or fully bonded within 10 days after its issue or levy; or
(j) Any final uninsured judgment in excess of $100,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction; provided that any such judgment shall not be deemed to constitute
an Event of Default under this clause (j) so long as enforcement of same is
effectively stayed on appeal with adequate reserves having been established and
maintained; and further provided that no such judgment
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will be deemed to constitute an Event of Default under this clause (j) if such
judgment is paid in full within 30 days after the date it is entered (or, if
appealed pursuant to the preceding PROVISO clause, upheld on appeal) and such
payment would not cause any default under any of ss.ss.3.7, 3.8 and/or 3.10,
with compliance being determined on a PRO FORMA basis as at the date of such
payment, whether or not a fiscal quarter-end; or
(k) The Borrower or any Subsidiary of the Borrower shall fail to meet its
minimum funding requirements under ERISA with respect to any employee benefit
plan (or other class of benefit which the PBGC has elected to insure) or any
such plan shall be the subject of termination proceedings (whether voluntary or
involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in
the reasonable opinion of the Bank may have a material adverse effect upon the
financial condition of the Borrower or any such Subsidiary; or
(l) The Security Agreement or any other Loan Document shall for any reason
(other than due to payment in full of all amounts secured or evidenced thereby
or due to discharge in writing by the Bank) not remain in full force and effect;
or
(m) The security interests and liens of the Bank in and on any of the
Collateral shall for any reason (other than due to payment in full of all
amounts secured thereby or due to written release by the Bank) not be fully
perfected liens and security interests; or
(n) At any time, 50% or more of the outstanding shares of any class of
equity securities of the Borrower shall be owned by any Person or by any "group"
(as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder), other than by one or more of the Persons listed on item
5.1(n) of the attached Disclosure Schedule; or
(o) There shall occur any other material adverse change in the condition
(financial or otherwise), operations, properties, assets, liabilities or
earnings of the Borrower.
5.2. RIGHTS AND REMEDIES ON DEFAULT. Upon the occurrence of any Event of
Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of the Revolving Note then
outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the revolving financing arrangements provided for by this
letter
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agreement; and the Bank may also terminate all facilities provided for herein
for letters of credit, ACH transactions and/or Foreign Exchange Contracts.
(c) Exercise all rights and remedies hereunder, under the Revolving Note,
under the Security Agreement, under the Pledge and under each and any other
agreement with the Bank; and exercise all other rights and remedies which the
Bank may have under applicable law.
5.3. SET-OFF. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, the Bank is hereby authorized at any time or
from time to time, without presentment, demand, protest or other notice of any
kind to the Borrower or to any other Person, all of which are hereby expressly
waived, to set off and to appropriate and apply any and all deposits and any
other Indebtedness at any time held or owing by the Bank or any affiliate
thereof to or for the credit or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower to the Bank under
this letter agreement or otherwise, irrespective of whether or not the Bank
shall have made any demand hereunder and although said obligations, liabilities
or claims, or any of them, may then be contingent or unmatured and without
regard for the availability or adequacy of other collateral. As further security
for the Obligations, the Borrower also grants to the Bank a security interest
with respect to all its deposits and all securities or other property in the
possession of the Bank or any affiliate of the Bank from time to time, and, upon
the occurrence of any Event of Default, the Bank may exercise all rights and
remedies of a secured party under the Uniform Commercial Code. ANY AND ALL
RIGHTS TO REQUIRE THE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE
BY THE BANK OF ITS RIGHT OF SET-OFF UNDER THIS SECTION ARE HEREBY KNOWINGLY,
VOLUNTARILY AND IRREVOCABLY WAIVED.
5.4. LETTERS OF CREDIT. Without limitation of any other right or remedy of
the Bank, (i) if an Event of Default shall have occurred and the Bank shall have
accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrower for any reason,
the Borrower will forthwith deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower. Upon the occurrence of any event
described in clause (i) or clause (ii) of the immediately preceding sentence,
the Bank may also require the Borrower to cash collateralize the outstanding F/X
Exposure and ACH Exposure.
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VI. MISCELLANEOUS
6.1. COSTS AND EXPENSES. The Borrower agrees to pay on demand all costs and
expenses (including, without limitation, reasonable legal fees) of the Bank in
connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Revolving Note and all other instruments
and documents to be delivered in connection with any Revolving Loan or any
letter of credit issued hereunder and/or any of the other Obligations and any
amendments or modifications of any of the foregoing, as well as the reasonable
costs and expenses (including, without limitation, the reasonable fees and
expenses of legal counsel) incurred by the Bank in connection with preserving,
enforcing or exercising, upon default, any rights or remedies under this letter
agreement, the Security Agreement, the Revolving Note and all other instruments
and documents delivered or to be delivered hereunder or in connection herewith
or in connection with any other Obligation, all whether or not legal action is
instituted. In addition, the Borrower shall be obligated to pay any and all
stamp and other taxes payable or determined to be payable in connection with the
execution and delivery of this letter agreement, the Security Agreement, the
Revolving Note and all other instruments and documents to be delivered in
connection with any Obligation. Any fees, expenses or other charges which the
Bank is entitled to receive from the Borrower under this Section shall bear
interest from the date of any demand therefor until the date when paid at a rate
per annum equal to the sum of (i) four (4%) percent PLUS (ii) the per annum rate
otherwise payable under the Revolving Note (but in no event in excess of the
maximum rate permitted by then applicable law).
6.2. CAPITAL ADEQUACY. If the Bank shall have determined that the adoption
or phase-in after the date hereof of any applicable law, rule or regulation
regarding capital requirements for banks or bank holding companies, or any
change therein after the date hereof, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by the Bank with any request or directive of such entity regarding capital
adequacy (whether or not having the force of law) has or would have the effect
of reducing the return on the Bank's capital with respect to the Revolving
Loans, the within-described revolving loan facility and/or letters of credit
issued for the account of the Borrower and/or any of the other Obligations to a
level below that which the Bank could have achieved (taking into consideration
the Bank's policies with respect to capital adequacy immediately before such
adoption, phase-in, change or compliance and assuming that the Bank's capital
was then fully utilized) but for such adoption, phase-in, change or compliance
by any amount deemed by the Bank to be material: (i) the Bank shall promptly
after its determination of such occurrence give notice thereof to the Borrower;
and (ii) the Borrower shall pay forthwith to the Bank as an additional fee such
amount as the Bank certifies to be the amount that will compensate it for such
reduction with respect to the Revolving Loans, the within-described revolving
loan facility and/or such letters of credit and/or any of the other Obligations.
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A certificate of the Bank claiming compensation under this Section shall be
conclusive in the absence of manifest error. Such certificate shall set forth
the nature of the occurrence giving rise to such compensation, the additional
amount or amounts to be paid to it hereunder and the method by which such
amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the Bank
to demand compensation on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of the Bank to deliver any certificate in a timely manner shall in any way
reduce any obligation of the Borrower to the Bank under this Section.
6.3. COMMITMENT FEES. The Borrower agrees to pay to the Bank with respect
to the within arrangements for Revolving Loans and letters of credit, on the
last day of each calendar quarter (commencing on December 31, 1998) as long as
the within Revolving Loan and/or letter of credit arrangements are in effect and
on the Expiration Date or date of earlier termination of such Revolving Loan
and/or letter of credit arrangements, a non-refundable commitment fee computed
quarterly in arrears on the daily average unused portion of the Bank's total
revolving commitment during the calendar quarter (or partial calendar quarter)
then ended. Such commitment fee will be payable at a rate of 0.375% per annum
based on such unused portion of the Bank's total revolving commitment and will
be appropriately prorated for any partial calendar quarter. As used herein, the
Bank's "total revolving commitment" will be deemed to be $6,000,000 and the
"unused portion" on any day means that amount by which (x) said $6,000,000
exceeds (y) the total of (1) the aggregate principal amounts of the Revolving
Loans outstanding at that day and (2) the then total undrawn amounts of all
letters of credit issued hereunder and then outstanding, whether such excess
results from the Bank not making Revolving Loans or issuing letters of credit up
to said $6,000,000 amount, from the repayment of Revolving Loans or the
termination of letters of credit or from any other circumstance. In addition, if
the within-described arrangements for Revolving Loans and/or letters of credit
are canceled or terminated prior to the first anniversary of the date of this
letter agreement, by the Borrower for any reason or by the Bank due to the
Borrower's default, the Borrower shall forthwith upon such cancellation or
termination pay to the Bank a sum equal to all of the commitment fees which
would have become due, absent such cancellation or termination, pursuant to the
immediately preceding three sentences with respect to the period beginning on
the date of such cancellation or termination and continuing through such first
anniversary, assuming, for the purposes of this calculation, that no Revolving
Loans or letters of credit would be outstanding during such period. Fees
described in this Section are in addition to any balances and fees required by
the Bank or any of its affiliates in connection with any other services now or
hereafter made available to the Borrower.
6.4. OTHER AGREEMENTS. The provisions of this letter agreement are not in
derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan
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Documents or any such other agreement will be deemed to create any additional
grace period or otherwise derogate from the express terms of each such default
provision. No covenant, agreement or obligation of the Borrower contained
herein, nor any right or remedy of the Bank contained herein, shall in any
respect be limited by or be deemed in limitation of any inconsistent or
additional provisions contained in any of the other Loan Documents or in any
such other agreement.
6.5. GOVERNING LAW. This letter agreement and the Revolving Note shall be
governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.6. ADDRESSES FOR NOTICES, ETC. All notices, requests, demands and other
communications provided for hereunder shall be in writing and shall be mailed or
delivered to the applicable party at the address indicated below:
If to the Borrower:
Dragon Systems, Inc.
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Chief Financial Officer
with a copy to:
Xxxxx X. Xxxxx, Chief Executive Officer
Dragon Systems, Inc.
000 Xxxxxx Xxxxxx
Xxxxxx, XX 00000
If to the Bank:
Fleet National Bank
High Technology Group
Mail Code: MA OF D07A
Xxx Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx Xxxxx, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery, refusal or non-delivery indicated on the return
receipt if deposited in the United States mails, sent postage prepaid, certified
or
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registered mail, return receipt requested, addressed as aforesaid.
6.7. BINDING EFFECT; ASSIGNMENT; TERMINATION. This letter agreement shall
be binding upon the Borrower, its successors and assigns and shall inure to the
benefit of the Borrower and the Bank and their respective permitted successors
and assigns. The Borrower may not assign this letter agreement or any rights
hereunder without the express written consent of the Bank. The Bank may, in
accordance with applicable law, from time to time assign or grant participations
in this letter agreement, the Revolving Loans, the Revolving Note and/or the
letters of credit issued hereunder and/or any of the other Obligations. Without
limitation of the foregoing generality:
(i) The Bank may at any time pledge all or any portion of its rights
under the Loan Documents (including any portion of the Revolving
Note) to any of the 12 Federal Reserve Banks organized under
Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No
such pledge or the enforcement thereof shall release the Bank
from its obligations under any of the Loan Documents.
(ii) The Bank shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to the
Borrower, to grant to one or more banks or other financial
institutions (each, a "Participant") participating interests in
the Bank's obligation to lend hereunder and/or any or all of the
Revolving Loans held by the Bank hereunder. In the event of any
such grant by the Bank of a participating interest to a
Participant, whether or not upon notice to the Borrower, the Bank
shall remain responsible for the performance of its obligations
hereunder and the Borrower shall continue to deal solely and
directly with the Bank in connection with the Bank's rights and
obligations hereunder. The Bank may furnish any information
concerning the Borrower in its possession from time to time to
prospective assignees and Participants; provided that the Bank
shall require any such prospective assignee or Participant to
agree in writing to maintain the confidentiality of such
information to the same extent as the Bank would be required to
maintain such confidentiality.
The Borrower may terminate this letter agreement and the financing
arrangements made herein by giving written notice of such termination to the
Bank together with payment of the sum described in the penultimate sentence of
ss.6.3; provided that no such termination will release or waive any of the
Bank's rights or remedies or any of the Borrower's obligations under this letter
agreement or any of the other Loan Documents unless and until the Borrower has
paid in full the Revolving Loans and all interest thereon and all fees and
charges payable in connection therewith and all letters of credit issued
hereunder have been terminated.
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6.8. CONSENT TO JURISDICTION. Each of the Bank and the Borrower irrevocably
submits to the exclusive jurisdiction of any Massachusetts court or any federal
court sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or the
Revolving Note and/or any of the other Obligations. Each of the Bank and the
Borrower irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any such
suit, action or proceeding brought in such a court and any claim that any such
suit, action or proceeding has been brought in an inconvenient forum. Each of
the Bank and the Borrower agrees that final judgment in any such suit, action or
proceeding brought in such a court shall be enforced in any court of proper
jurisdiction by a suit upon such judgment, provided that service of process in
such action, suit or proceeding shall have been effected upon the Borrower in
one of the manners specified in the following paragraph of this ss.6.8 or as
otherwise permitted by law.
The Borrower hereby consents to process being served in any suit, action or
proceeding of the nature referred to in the preceding paragraph of this ss.6.8
either (i) by mailing a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to it at its address set forth in ss.6.6 (as
such address may be changed from time to time pursuant to said ss.6.6) or (ii)
by serving a copy thereof upon it at its address set forth in ss.6.6 (as such
address may be changed from time to time pursuant to said ss.6.6).
6.9. SEVERABILITY. In the event that any provision of this letter agreement
or the application thereof to any Person, property or circumstances shall be
held to any extent to be invalid or unenforceable, the remainder of this letter
agreement, and the application of such provision to Persons, properties or
circumstances other than those as to which it has been held invalid and
unenforceable, shall not be affected thereby, and each provision of this letter
agreement shall be valid and enforced to the fullest extent permitted by law.
6.10. REPLACEMENT NOTE. Upon receipt of an affidavit of an officer of the
Bank as to the loss, theft, destruction or mutilation of the Revolving Note or
of any other Loan Document which is not of public record and, in the case of any
such mutilation, upon surrender and cancellation of such Revolving Note or other
Loan Document, the Borrower will issue, in lieu thereof, a replacement Revolving
Note or other Loan Document in the same principal amount (as to the Revolving
Note) and in any event of like tenor.
6.11. USURY. All agreements between the Borrower and the Bank are hereby
expressly limited so that in no contingency or event whatsoever, whether by
reason of acceleration of maturity of the Revolving Note or otherwise, shall the
amount paid or agreed to be paid to the Bank for the use or the forbearance of
the Indebtedness represented by the Revolving Note exceed the maximum
permissible under applicable law. In this regard, it is expressly agreed that it
is the intent of the Borrower and the Bank, in the execution, delivery and
acceptance of the Revolving Note, to contract in strict compliance with the laws
of The
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Commonwealth of Massachusetts. If, under any circumstances whatsoever,
performance or fulfillment of any provision of the Revolving Note or any of the
other Loan Documents at the time such provision is to be performed or fulfilled
shall involve exceeding the limit of validity prescribed by applicable law, then
the obligation so to be performed or fulfilled shall be reduced automatically to
the limits of such validity, and if under any circumstances whatsoever the Bank
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced by the Revolving Note and not to
the payment of interest. The provisions of this ss.6.11 shall control every
other provision of this letter agreement and of the Revolving Note.
6.12. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LETTER AGREEMENT, THE REVOLVING NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE REVOLVING LOANS AND EXTEND
OTHER CREDIT AS CONTEMPLATED HEREIN.
VII. DEFINED TERMS
7.1. DEFINITIONS. In addition to terms defined elsewhere in this letter
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"ACH Exposure" - As defined in ss.1.6.
"Acquisition" - Any purchase or other acquisition made by the Borrower of
all or substantially all of the business or assets of any other corporation or
other entity or any line of business of another corporation or entity, all
whether through the acquisition of stock or assets or otherwise.
"Aggregate Bank Liabilities" - At any time, the sum of (i) the principal
amount of all Revolving Loans then outstanding, PLUS (ii) all then undrawn
amounts of letters of credit issued by the Bank for the account of the Borrower,
PLUS (iii) all amounts then drawn on any such letter of credit which at said
date shall not have been reimbursed to the Bank by the Borrower.
"Borrowing Base" - As determined at any date, 80% of the aggregate
principal amount of the Qualified Receivables of the Borrower then outstanding.
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"Business Day" - Any day which is not a Saturday, nor a Sunday nor a public
holiday under the laws of the United States of America or The Commonwealth of
Massachusetts applicable to a national bank.
"Capital Base" - At any time, the sum of (i) the consolidated Tangible Net
Worth of the Borrower and Subsidiaries then existing, PLUS (ii) the principal
amount of Subordinated Debt of the Borrower then outstanding (nothing contained
herein being deemed to authorize the incurrence of any additional Subordinated
Debt).
"Collateral" - All property now or hereafter owned by the Borrower or in
which the Borrower now or hereafter has any interest which is described as
"Collateral" in the Security Agreement or in the Pledge or in ss.7.2(b) below.
"Current Liabilities" - All liabilities of the Borrower and/or any
Subsidiary of the Borrower which would properly be shown as current liabilities
on a consolidated balance sheet of the Borrower prepared in accordance with
generally accepted accounting principles consistently applied. Further, "Current
Liabilities" will in any event be deemed to include all Revolving Loans.
"Default" - Any event or circumstance which, with the giving of notice or
the passage of time or both, could become an Event of Default.
"Determination Date" - As defined in ss.3.7.
"ERISA" - The Employee Retirement Income Security Act of 1974, as amended.
"Event of Default" - As defined in ss.5.1.
"Expiration Date" - June 30, 2000, unless extended pursuant to ss.1.3,
which extension may be given or withheld by the Bank in its sole discretion.
"F/X Exposure" - As defined in ss.1.7.
"Indebtedness" - All obligations of a Person, whether current or long-term,
senior or subordinated, which in accordance with generally accepted accounting
principles would be included as liabilities upon such Person's balance sheet at
the date on which Indebtedness, is to be determined, and shall also include
guaranties, endorsements (other than for collection in the ordinary course of
business) or other arrangements whereby responsibility is assumed for the
obligations of others, whether by agreement to purchase or otherwise acquire the
obligations of others, including any agreement, contingent or otherwise, to
furnish funds through the purchase of goods, supplies or services for the
purpose of payment of the obligations of others.
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"Liabilities" - All Indebtedness of the Borrower and/or any of its
Subsidiaries which would properly be shown as liabilities on the face of a
consolidated balance sheet of the Borrower prepared in accordance with generally
accepted accounting principles consistently applied, and not merely in the
footnotes to such balance sheet.
"Loan Documents" - Each of this letter agreement, the Revolving Note, the
Security Agreement, the Pledge and each other instrument, document or agreement
evidencing, securing, guaranteeing or relating in any way to any of the
Revolving Loans or any of the letters of credit issued hereunder or to any
Foreign Exchange Contract or ACH transaction, all whether now existing or
hereafter arising or entered into.
"Net Income" (or "Net Loss") - The book net income (or book net loss, as
the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, cash-equivalents, Receivables (less an allowance for bad debt consistent
with the Borrower's prior experience) and Unbilled Revenue ("Unbilled Revenue"
being used herein in a manner consistent with the use of that term in the
Borrower's financial statements as at December 31, 1997 heretofore delivered to
the Bank).
"Obligations" - All Indebtedness, covenants, agreements, liabilities and
obligations, now existing or hereafter arising, made by the Borrower with or for
the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"Obligations" includes, without limitation, the Revolving Loans and obligations
with respect to ACH transactions, letters of credit and Foreign Exchange
Contracts issued hereunder.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor thereto.
"Permitted Acquisition" - Any Acquisition made by the Borrower after an
initial public offering which meets all of the following criteria: (1) at the
time of such Acquisition and after giving effect thereto, there is no Default or
Event of Default hereunder; (2) such Acquisition is not opposed by the Board of
Directors of the Person sought to be acquired; (3) after giving effect to such
Acquisition, the Company is in PRO FORMA compliance with each of ss.3.7
(leverage ratio), ss.3.8 (capital base) and ss.3.10 (liquidity), with compliance
with each of said Sections being determined on a PRO FORMA basis as at the date
of such Acquisition, even if not a fiscal quarter-end; (4) such Acquisition
relates to a Person primarily engaged in (or assets primarily used in) the same
line of business as the Borrower; (5) the total amount of cash or other property
(other than stock of the Borrower) expended as consideration for such
Acquisition (taken together with all such other amounts theretofore expended for
the purposes of any Acquisition from and after the date of this letter
agreement) will not exceed an aggregate of $5,000,000; and (6) the value of the
total amount of the shares of stock of the
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Borrower issued as consideration for such Acquisition (taken together with all
other such shares of stock issued for the purposes of any Acquisition from and
after the date of this letter agreement) will not exceed an aggregate of
$20,000,000.
"Person" - An individual, corporation, limited liability company,
partnership, joint venture, trust or unincorporated organization, or a
government or any agency or political subdivision thereof.
"Pledge" - As defined in ss.1.1 above.
"Qualified Receivables" - Only those billed Receivables of the Borrower
(determined on the basis of generally accepted accounting principles,
consistently applied) the payment of which is not in dispute which arise out of
BONA FIDE sales made to customers of the Borrower (which customers are located
in the United States and are unrelated to the Borrower) in the ordinary course
of the Borrower's business, which remain unpaid no more than 90 days past the
respective invoice dates of such Receivables and which represent product that
has been shipped to the end-users (including OEMs); provided that the 90-day
period described above will be deemed extended to 120 days with respect to
Receivables arising from product that has been purchased by [Xxxxxx-Micro] or
[Tech Data] and has been shipped by such purchaser to one of its customers to
fulfill a pending order. Unless the Bank in its sole discretion otherwise
determines with respect to any Receivable, a Receivable which would otherwise be
a Qualified Receivable shall be deemed not to be a Qualified Receivable (i) if
the Bank does not have a fully perfected first priority security interest in
such Receivable; (ii) if such Receivable is not free and clear of all interests
in favor of any Person other than the Bank; (iii) if such Receivable is subject
to any deduction, off-set, contra account, counterclaim or condition; (iv) if a
field examination made by the Bank fails to confirm that such Receivable exists
and satisfies all of the criteria set forth herein to be a Qualified Receivable;
(v) if such Receivable is not properly invoiced at the date of sale; (vi) if the
customer or account debtor has disputed liability or made any claim with respect
to the Receivable or the merchandise covered thereby or with respect to any
other Receivable due from said customer to the Borrower; (vii) if the customer
or account debtor has filed a petition for bankruptcy or any other application
for relief under the Bankruptcy Code or has effected an assignment for the
benefit of creditors, or if any petition or any other application for relief
under the Bankruptcy Code has been filed against said customer or account
debtor, or if the customer or account debtor has suspended business, become
insolvent, ceased to pay its debts as they become due, or had or suffered a
receiver or trustee to be appointed for any of its assets or affairs; (viii) if
the customer or account debtor has failed to pay other Receivables so that an
aggregate of 25% of the total Receivables owing to the Borrower by such customer
or account debtor has been outstanding for more than 90 days past their
respective due dates; (ix) if such Receivable is owed by the United States
government or any agency or department thereof (unless assigned to the Bank
under the Federal Assignment of Claims Act); or (x) if the Bank reasonably
believes that collection of such Receivable is insecure or that it may not be
paid by reason of financial inability to pay or otherwise, or that
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such Receivable is not for any reason suitable for use as a basis for borrowing
hereunder. Notwithstanding the first sentence of this definition, the Borrower
may include within "Qualified Receivables" any Receivable which meets all of the
criteria set forth above to be a Qualified Receivable except that the relevant
customer is located outside the United States; provided that such Receivable is
secured by a letter of credit in form and substance satisfactory to the Bank and
issued by a financial institution satisfactory to the Bank or is insured by
Eximbank credit insurance or other credit insurance satisfactory to the Bank.
"Receivables" - All of the Borrower's present and future accounts and
accounts receivable representing a right to payment for goods sold or for
services rendered.
"Revolving Note" - As defined in ss.1.1.
"Senior Liabilities" - All Liabilities which are not Subordinated Debt.
"Subordinated Debt" - Any Indebtedness of the Borrower which is expressly
subordinated, pursuant to a subordination agreement in form and substance
satisfactory to the Bank, to all Indebtedness now or hereafter owed by the
Borrower to the Bank.
"Subsidiary" - Any corporation or other entity of which the Borrower and/or
any of its Subsidiaries, directly or indirectly, owns, or has the right to
control or direct the voting of, fifty (50%) percent or more of the outstanding
capital stock or other ownership interest having general voting power (under
ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any Person
(excluding (i) the total intangible assets of such Person and (ii) any assets
representing amounts due from any officer or employee of such Person or from any
Subsidiary of such Person) minus the total liabilities of such Person. Total
intangible assets shall be deemed to include, but shall not be limited to, the
excess of cost over book value of acquired businesses accounted for by the
purchase method, formulae, trademarks, trade names, patents, patent rights and
deferred expenses (including, but not limited to, unamortized debt discount and
expense, organizational expense, capitalized software costs and experimental and
development expenses).
Any defined term used in the plural preceded by the definite article shall
be taken to encompass all members of the relevant class. Any defined term used
in the singular preceded by "any" shall be taken to indicate any number of the
members of the relevant class.
7.2. SECURITY AGREEMENT. (a) The Borrower acknowledges and agrees that the
"Obligations" described in and secured by the Security Agreement include,
without limitation, all of the obligations of the Borrower under the Revolving
Note and/or this letter agreement and/or with respect to any letter of credit
which may be issued by the Bank for the account of the Borrower, as well as
obligations in respect of ACH transactions and Foreign Exchange Contracts.
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(b) The Security Agreement is hereby modified to provide as follows:
(i) That the "Collateral" subject thereto includes, without
limitation and in addition to the Collateral described therein, all of
the Borrower's files, books and records (including, without
limitation, all electronically recorded data) all whether now owned or
existing or hereafter acquired, created or arising. The Borrower
hereby grants to the Bank a security interest in all such Collateral
in order to secure the full and prompt payment and performance of all
of the Obligations.
(ii) That, upon the occurrence of any Event of Default (as
defined in ss.5.1 of this letter agreement), the Bank may, at any
time, notify account debtors that the Collateral has been assigned to
the Bank and that payments by such account debtors shall be made
directly to the Bank. At any time after the occurrence of an Event of
Default, the Bank may collect the Borrower's Receivables, or any of
same, directly from account debtors and may charge the collection
costs and expenses to the Borrower.
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
DRAGON SYSTEMS, INC.
By
--------------------------------
Name:
Title:
Accepted and agreed:
FLEET NATIONAL BANK
By
----------------------------------
Its
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DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified; Subsidiaries
Item 2.1(b) Stock ownership
Item 2.1(e) Litigation
Item 2.1(j) Collateral locations; record owners
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 4.5 Existing Loans
Item 5.1(n) Permitted 50% Stockholders
