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EXHIBIT 10.11
CREDIT AND SECURITY AGREEMENT
Dated as of July 5, 1999
CHAPARRAL NETWORK STORAGE, INC., a Delaware corporation formerly known
as Chaparral Technologies, Inc. (the "Borrower"), and XXXXX FARGO BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising out
of the sale or lease of goods or rendition of services by the Borrower on an
open account or deferred payment basis.
"Advance" has the meaning given in Section 2.1.
"Advance Rate" means 80%; provided, however, that Lender may,
in its sole discretion, from time to time upon not less than five (5) days prior
notice to Borrower, reduce the Advance Rate to the extent that Lender determines
in good faith that: (A) the dilution with respect to the Accounts for any period
(based on the ratio of (1) the aggregate amount of reductions in Accounts other
than as a result of payments in cash to (2) the aggregate amount of total sales)
has increased in excess of 5% or may be reasonably anticipated to increase in
any material respect above historical levels, or (B) the general
creditworthiness of account debtors has declined. In determining whether to
reduce the Advance Rate, Lender may consider events, conditions, contingencies
or risks which are also considered in determining Eligible Accounts.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including (without
limitation) any Subsidiary of the Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
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"Availability" means the difference of (i) the Borrowing Base
and (ii) the outstanding, principal balance of the Note.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in Minneapolis,
Minnesota and Denver, Colorado.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower, determined in accordance with
GAAP.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the Advance Rate multiplied by Eligible Accounts.
"Capital" means the sum of Book Net Worth and Subordinated
Debt.
"Capital Expenditures" for a period means any expenditure of
money for the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset whether payable currently or in the future, and
whether or not capitalized on the Borrower's balance sheet.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on deposit in
any Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii)
proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods and (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, Norwest Bank Colorado
and the Lender.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article II.
"Copyright Security Agreement" means the Copyright Security
Agreement by the Borrower in favor of the Lender of even date herewith.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
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"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has occurred
and ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to three percent
(3%) over the Floating Rate, which rate shall change when and as the Floating
Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts unpaid 90 days or more after the
invoice date;
(ii) That portion of Accounts that is (a) disputed or (b)
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the final
delivery of goods or rendition of services, as applicable, by the Borrower to
the customer;
(iv) Accounts owed by any unit of government, whether foreign
or domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for which the
Borrower has provided evidence satisfactory to the Lender that (A) the Lender
has a first priority perfected security interest and (B) such Accounts may be
enforced by the Lender directly against such unit of government under all
applicable laws);
(v) Accounts owed by an account debtor located outside the
United States which are not (A) backed by a bank letter of credit naming the
Lender as beneficiary or assigned to the Lender, in the Lender's possession and
acceptable to the Lender in all respects, in its sole discretion, or (B) covered
by a foreign receivables insurance policy acceptable to the Lender in its sole
discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary, Affiliate,
officer or employee of the Borrower;
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(viii) Accounts not subject to a duly perfected security
interest in the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender including without
limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified;
(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if 15% or more of the total amount due under Accounts from
such debtor is ineligible under clauses (i), (ii)(a) or (ix) above;
(xii) That portion of the aggregate Accounts of a single
customer that exceeds 15% of all Accounts of the Borrower, except for the
customers listed below, for which such limit shall be the amount shown opposite
such customer; and
nStor Technologies, Inc. $500,000
CONSAN, Inc. $150,000
Xxxx Micro Products, Inc. $150,000
ATL Products, Inc. $100,000 but not more than 20% of
all Accounts of the Borrower
(xiii) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section
5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, supplies, and including specifically (without
limitation) the goods described in any equipment schedule or list herewith or
hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus the Interest Rate Margin, which annual rate shall change when
and as the Prime Rate changes.
"Funding Date" has the meaning given in Section 2.1.
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"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the financial
statements described in Section 5.5.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or hereafter
acquired, including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
"Interest Rate Margin" means one and one-half percent (1.5%);
provided, however, that if no Default Period then exists and if the Borrower's
audited financial statements for its fiscal year ending March 31, 2000
demonstrate that its Net Income exceeded $2,000,000 during such fiscal year, the
Interest Rate Margin shall be reduced to one percent (1.0%), effective on the
first day of the month following the month during which the Lender receives such
financial statements; and provided further that if after such reduction an Event
of Default shall occur, Interest Rate Margin shall, at the Lender's option and
upon written notice to the Borrower, increase to one and one-half percent
(1.5%).
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security entitlements,
securities accounts, commodity contracts, commodity accounts, stocks, bonds,
mutual fund shares, money market shares and U.S. Government securities.
"Loan Documents" means this Agreement, the Notes and the
Security Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among
the Borrower, Norwest Bank Colorado and the Lender, of even date herewith.
"Maturity Date" means July 31, 2002.
"Maximum Line" means $3,000,000, unless said amount is reduced
pursuant to Section 2.6, in which event it means the amount to which said amount
is reduced.
"Minimum Interest Charge" has the meaning given in Section
2.2(b).
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"Net Income" means fiscal year-to-date after-tax net income
from continuing operations, as determined in accordance with GAAP.
"Norwest Bank Colorado" means Norwest Bank Colorado, National
Association.
"Note" means the Borrower's revolving promissory note, payable
to the order of the Lender in substantially the form of Exhibit A hereto and any
note or notes issued in substitution therefor, as the same may hereafter be
amended, supplemented or restated from time to time.
"Obligations" means the Notes and each and every other debt,
liability and obligation of every type and description which the Borrower may
now or at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises in
a transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising under
this Agreement, the Notes or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter entered
into.
"Patent Security Agreement" means the Patent Security
Agreement by the Borrower in favor of the Lender of even date herewith.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without limitation) the
premises described in Exhibit C attached hereto.
"Prepayment Penalty" means three percent (3%) on or prior to
July 31, 2000, two percent (2%) on or after August 1, 2000 and on or prior to
July 31, 2001, and one percent (1%) on or after August 1, 2001.
"Prime Rate" means the rate of interest publicly announced
from time to time by Xxxxx Fargo Bank, N.A.-San Francisco as its "prime rate"
or, if such bank ceases to announce a rate so designated, any similar successor
rate designated by the Lender.
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"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property, out of a rendering of services, out of a
loan, out of the overpayment of taxes or other liabilities, or otherwise arises
under any contract or agreement, whether such right to payment is created,
generated or earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to payment
is or is not already earned by performance, and howsoever such right to payment
may be evidenced, together with all other rights and interests (including all
liens and security interests) which the Borrower may at any time have by law or
agreement against any account debtor or other obligor obligated to make any such
payment or against any property of such account debtor or other obligor, all
including but not limited to all present and future accounts, contract rights,
loans and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Security Documents" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Patent Security Agreement, the
Copyright Security Agreement and any other document delivered to the Lender from
time to time to secure the Obligations, as the same may hereafter be amended,
supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subordinated Debt" means Debt that is subject to a
Subordination Agreement.
"Subordination Agreement" means the Subordination Agreement of
even date herewith, executed by Xxxxxxx X. Childs in the Lender's favor and
acknowledged by the Borrower, and any other subordination agreement accepted by
the Lender from time to time, as the same may hereafter be amended, supplemented
or restated from time to time.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the Borrower, by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facility, or (iii) the
date the Lender demands payment of the Obligations after an Event of Default
pursuant to Section 8.2.
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"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
"Year 2000 Compliance" means that all material software,
hardware, firmware, equipment, goods or systems utilized by or material to the
business operations or financial condition of Borrower will properly perform
date-sensitive functions before, during and after the year 2000.
Section 1.2 Cross References. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Advances. The Lender agrees, on the terms and subject to
the conditions herein set forth, to make advances to the Borrower from time to
time from the date all of the conditions set forth in Section 4.1 are satisfied
or waived in writing by the Lender (the "Funding Date") to the Termination Date
(the "Advances"). The Lender shall have no obligation to make an Advance if,
after giving effect to such requested Advance, the sum of the outstanding and
unpaid Advances would exceed the Borrowing Base. The Borrower's obligation to
pay the Advances shall be evidenced by the Note and shall be secured by the
Collateral as provided in Article III. Within the limits set forth in this
Section 2.1, the Borrower may borrow, prepay pursuant to Section 2.6 and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Advances under this Section 2.1:
(a) The Borrower shall make each request for an Advance to the
Lender before 11:00 a.m. (Denver time) of the day of the requested Advance.
Requests may be made in writing or by telephone, specifying the date of the
requested Advance and the amount thereof. Each request shall be by (i) any
officer of the Borrower; or (ii) any person designated as the Borrower's agent
by any officer of the Borrower in a writing delivered to the Lender; or (iii)
any person whom the Lender reasonably believes to be an officer of the Borrower
or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Advance by
crediting the same to the Borrower's demand deposit account maintained with
Norwest Bank Colorado unless the Lender and the Borrower shall agree in writing
to another manner of disbursement. Upon the Lender's request, the Borrower shall
promptly confirm each telephonic request for an Advance by executing and
delivering an appropriate confirmation certificate to the Lender. The Borrower
shall repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized to do
so. Any request for an Advance, whether written or telephonic, shall be deemed
to be a representation by the Borrower that the conditions set forth in Section
4.2 have been satisfied as of the time of the request.
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Section 2.2 Interest; Minimum Interest Charge; Default Interest; Usury.
(a) INTEREST. Except as set forth in Sections 2.2(c) and
2.2(e), the outstanding principal balance of the Note shall bear interest at the
Floating Rate. Interest accruing on the Note shall be due and payable in arrears
on the first day of each month.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest
payable pursuant to Section 2.2(a), the Borrower shall pay to the Lender
interest of not less than $15,000 per calendar quarter (the "Minimum Interest
Charge") during the term of this Agreement, and the Borrower shall pay any
deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under Sections 2.2(a) and 2.2(c) in arrears in the manner
provided in Section 2.4. The Minimum Interest Charge for each period of less
than a full calendar quarter shall be prorated for the number of days during
such quarter that this Agreement is in effect.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its other
rights and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods designated by
the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall be
obligated to the Lender to pay the full amount of all interest calculated under
this Agreement, along with all other fees, charges and other amounts due under
this Agreement, regardless if such Person elects to accept interest with respect
to its participation at a lower rate than the Floating Rate, or otherwise elects
to accept less than its prorata share of such fees, charges and other amounts
due under this Agreement.
(e) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate permitted by
law. Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
any applicable usury laws. If any payments in the nature of interest, additional
interest and other charges made under any Loan Document are held to be in excess
of the limits imposed by any applicable usury laws, it is agreed that any such
amount held to be in excess shall be considered payment of principal hereunder,
and the indebtedness evidenced hereby shall be reduced by such amount so that
the total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and the
Lender. This provision shall never be superseded or waived and shall control
every other provision of the Loan Documents and all agreements between the
Borrower and the Lender, or their successors and assigns.
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Section 2.3 Fees.
(a) ORIGINATION FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable origination fee of $30,000, due and
payable upon the execution of this Agreement. The Lender acknowledges receipt of
$9,000 toward payment of this fee and the fees, costs and expenses described in
Sections 2.3(c) and 9.6.
(b) UNUSED LINE FEE. For the purposes of this Section 2.3(b),
"Unused Amount" means the Maximum Line reduced by outstanding Advances. The
Borrower agrees to pay to the Lender an unused line fee at the rate of
one-quarter of one percent (0.25%) per annum on the average daily Unused Amount
from the date of this Agreement to and including the Termination Date, due and
payable monthly in arrears on the first day of the month and on the Termination
Date.
(c) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections conducted by
the Lender of any Collateral or the Borrower's operations or business at the
rates established from time to time by the Lender as its audit fees (which fees
are currently $70 per hour per auditor), together with all actual out-of-pocket
costs and expenses incurred in conducting any such audit or inspection.
Section 2.4 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
Section 2.5 Capital Adequacy. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change,
upon not less than fifteen days written notice to Borrower, which notice must be
received by Borrower not less than 180 days after the effective date of the
applicable Rule Change. For purposes of this Section 2.5:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or the
interpretation or administration thereof by any governmental or regulatory
authority, central bank or comparable agency, whether or not having the force of
law, that applies to any Related Lender. Such rules include rules requiring
financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.
(b) "Return", for any period, means the return as determined
by such Related Lender on the Advances based upon its total capital requirements
and a reasonable attribution formula that takes account of the Capital Adequacy
Rules then in effect. Return may be calculated for each calendar quarter and for
the shorter period between the end of a calendar quarter and the date of
termination in whole of this Agreement.
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(c) "Rule Change" means any change in any Capital Adequacy
Rule occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the date of this Agreement are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to the
extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the
Lender, any parent corporation of the Lender and any assignee of any interest of
the Lender hereunder and any participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower. Except as otherwise provided
herein, the Borrower may prepay the Advances in whole at any time or in part
from time to time. The Borrower may terminate the Credit Facility in whole (but
not in part) at any time and, subject to payment and performance of all the
Borrower's obligations to the Lender, may obtain any release or termination of
the Security Interest to which the Borrower is otherwise entitled by law by (i)
giving at least 30 days' prior written notice to the Lender of the Borrower's
intention to terminate this Agreement; and (ii) paying the Lender a prepayment
fee equal to the product of the Prepayment Penalty and the Maximum Line if the
Borrower terminates this Agreement effective as of any date other than the
Maturity Date, unless the Credit Facility is refinanced with the proceeds of a
loan from an Affiliate of the Lender or is refinanced within 90 days of a
request by any Related Lender for compensation under Section 2.5. The Borrower
may decrease the Maximum Line at any time by (i) giving at least 30 days' prior
written notice to the Lender of the Borrower's intention to decrease the Maximum
Line, which notice shall set forth the exact amount of the reduction; (ii)
prepaying all Advances in excess of the decreased amount of the Maximum Line
(taking into effect such reduction); and (iii) paying the Lender a prepayment
fee equal to the product of the Prepayment Penalty and the amount by which the
Maximum Line is decreased. Any reduction in the Maximum Line must be in an
amount not less than $100,000 or an integral multiple thereof. If the Borrower
reduces the Maximum Line to zero, all Obligations shall be immediately due and
payable. Borrower acknowledges and agrees that Lender shall not release any
Security Interest in the Collateral unless and until Borrower has paid and
performed all of Borrower's obligations to Lender and this Agreement has been
terminated.
Section 2.7 Mandatory Prepayment. Without notice or demand, if the
outstanding principal balance of the Advances shall at any time exceed the
Borrowing Base, the Borrower shall immediately prepay the Advances to the extent
necessary to eliminate such excess. Any payment received by the Lender under
this Section 2.7 or under Section 2.6 may be applied to the
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Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
Section 2.8 Payment. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations one Banking
Day after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) days (consisting of two
Banking Days for collection and one Banking Day for processing) before applying
them to the Obligations. Notwithstanding anything in Section 2.1, the Borrower
hereby authorizes the Lender, in its discretion at any time or from time to time
without the Borrower's request and even if the conditions set forth in Section
4.2 would not be satisfied, to make an Advance in an amount equal to the portion
of the Obligations from time to time due and payable.
Section 2.9 Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.10 Use of Proceeds. The Borrower shall use the proceeds of
Advances for ordinary working capital purposes and to lease or purchase capital
assets.
Section 2.11 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 60 days after
receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time during a Default Period notify any account debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, xxx for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
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obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
xxxxx xxxx to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, (ii) final sale or disposition of
all goods constituting Collateral and delivery of all such goods to purchasers,
and (iii) the termination of all Default Periods giving rise to such right.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of the
Premises, the Borrower shall reimburse the Lender promptly for the full amount
thereof. In addition, the Borrower will pay, or reimburse the Lender for, all
taxes, fees, duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
Section 3.5 License. Without limiting the generality of the Patent
Security Agreement or Copyright Security Agreement, the Borrower hereby grants
to the Lender a non-exclusive, worldwide and royalty-free license to use or
otherwise exploit all trademarks, franchises, trade
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names, copyrights and patents of the Borrower for the purpose of selling,
leasing or otherwise disposing of any or all Collateral during any Default
Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Chaparral Network Storage, Inc.
0000 X. Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000-0000
Federal Tax Identification No. 00-0000000
Section 3.7 Setoff. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Advance. The Lender's
obligation to make the initial Advance hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
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(d) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank Colorado.
(e) The Lockbox Agreement, properly executed by the Borrower
and Norwest Bank Colorado.
(f) The Patent Security Agreement, properly executed by the
Borrower.
(g) The Copyright Security Agreement, properly executed by the
Borrower.
(h) A Subordination Agreement, properly executed by Xxxxxxx X.
Childs and acknowledged by the Borrower.
(i) A certificate of an officer of each Borrower confirming,
in his capacity as an officer of the Borrower, the representations and
warranties set forth in Article V.
(j) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by Persons
who have agreed in writing that upon receipt of proceeds of the Advances, they
will deliver UCC releases and/or terminations and releases of such assignments
of patents, trademarks or copyrights satisfactory to the Lender, and (iii) the
Lender has duly filed all financing statements necessary to perfect the Security
Interest, to the extent the Security Interest is capable of being perfected by
filing.
(k) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's directors and,
if required, shareholders, authorizing the execution, delivery and performance
of the Loan Documents, (ii) the Borrower's certificate of incorporation and
bylaws, and (iii) the signatures of the Borrower's officers or agents authorized
to execute and deliver the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on the Borrower's behalf.
(l) A current certificate issued by the Secretary of State of
Delaware, certifying that the Borrower is in compliance with all applicable
organizational requirements of the State of Delaware.
(m) Evidence that the Borrower is duly licensed or qualified
to transact business in Colorado and all other jurisdictions where the character
of the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(n) Audited financial statement for Borrower's fiscal year
ending March 31, 1999.
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(o) A separate support agreement in favor of the Lender,
properly executed by each of Xxxx Xxxxxxx and Xxxx Xxxxxxxx, each in his
personal capacity.
(p) An opinion of counsel to the Borrower, addressed to the
Lender.
(q) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in the Lender's
favor and with all liability insurance naming the Lender as an additional
insured.
(r) Payment of the fees and commissions due through the date
of the initial Advance under Section 2.3 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section 9.6,
including all legal expenses incurred through the date of this Agreement.
(s) Evidence that the Borrower will have at least $200,000 in
Availability following the initial Advance, which shall be in excess of the
amount sufficient to pay all of the Borrower's trade payables that are more than
60 days past due.
(t) Such other documents as the Lender in its reasonable
discretion may require.
Section 4.2 Conditions Precedent to All Advances. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or qualified to
transact business in Colorado and all other jurisdictions where the character of
the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary. The Borrower has all requisite
power and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents. During its existence, the Borrower has done business
solely under the names set forth in Schedule 5.1 hereto and such
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other names as the Borrower shall notify the Lender in writing not less than 30
days prior to the use of such names. The Borrower's chief executive office and
principal place of business is located at the address set forth in Schedule 5.1
hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto,
or at such other locations as the Borrower shall notify the Lender in writing
not less than 30 days prior to the use of such other locations. The Borrower's
tax identification number is correctly set forth in Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect that is applicable to the
Borrower or of the Borrower's articles of incorporation or bylaws and that is
material to the Borrower's business; (iv) result in a breach of or constitute a
default 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 it
or its properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature (other than the Security
Interest) upon or with respect to any of the properties now owned or hereafter
acquired by the Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding therefor may be
brought.
Section 5.4 Subsidiaries. Except as set forth in Schedule 5.4 hereto,
the Borrower has no Subsidiaries.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender its unaudited financial statement for its
fiscal year ended March 31, 1999 which statement fairly presents the Borrower's
financial condition on this date thereof and the results of its operations and
cash flows for the periods then ended and were prepared in accordance with
generally accepted accounting principles. Since the date of the most recent
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financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or
remitted or caused to be paid or remitted to the proper authorities when due all
federal, state and local taxes required to be paid or remitted by each of them
or, to the extent that any taxes are being contested in good faith, adequate
reserves have been established therefore in accordance with GAAP. The Borrower
and its Affiliates have filed all federal, state and local tax returns which to
the knowledge of the officers of the Borrower or any Affiliate, as the case may
be, are required to be filed, and the Borrower and its Affiliates have paid or
caused to be paid to the respective taxing authorities all taxes as shown on
said returns or on any assessment received by any of them to the extent such
taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and marketable
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for (i) provision of existing building and zoning laws; (ii) liens for current
taxes not yet due; and (iii) Permitted Liens. No financing statement naming the
Borrower as debtor is on file in any office except to perfect only Permitted
Liens.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the
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Department of Labor or any participant in connection with any Plan (other than
accrued benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could reasonably be expected to have a material adverse effect on the Borrower's
financial condition, properties or operations.
Section 5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or quantity
as to create any liability or obligation for either the Borrower or the Lender
under common law of any jurisdiction or under any Environmental Law, and no
Hazardous Substances have ever been stored, buried, spilled, leaked, discharged,
emitted or released in, on or under the Premises in such a way as to create any
such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any liability
under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings, hearings
or litigation, relating in any way to the Borrower or, to the Borrower's best
knowledge, to the Premises, alleging liability under, violation of, or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance in all
material respects with all Environmental Laws and all licenses, permits and
other authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the Borrower's
possession and are in full force and effect. No permit required under any
Environmental Law is scheduled to expire within 12 months and to the Borrower's
best
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knowledge there is no threat that any such permit will be withdrawn, terminated,
limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not and
never have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or any
similar federal, state or local list, schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other similar documents
describing or relating in any way to the Borrower's businesses, and all such
documents known to the Borrower relating in any way to the Premises.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
Lender signed financing statements, which, when filed, will be sufficient to
perfect the Security Interest and the other security interests created by the
Security Documents to the extent that the Security Interest can be perfected by
the filing of financing statements. When such financing statements are filed in
the offices noted therein, the Lender will have a valid and perfected security
interest in all Collateral and all other collateral described in the Security
Documents which is capable of being perfected by filing financing statements.
None of the Collateral or other collateral covered by the Security Documents is
or will become a fixture on real estate, unless a sufficient fixture filing is
in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation except as enforceability is limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding therefor may be
brought.
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ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower, the Borrower's audited
financial statements with the unqualified opinion of independent certified
public accountants selected by the Borrower and reasonably acceptable to the
Lender, which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if the Lender so requests, on a consolidating and consolidated
basis to include any Affiliates, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion they obtained no
knowledge, except as specifically stated, of any Default or Event of Default
hereunder and all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with the
requirements set forth in Sections 6.12, 6.13, and 7.10; and (iii) a certificate
of the Borrower's chief financial officer stating that such financial statements
have been prepared in accordance with GAAP and whether or not such officer has
knowledge of the occurrence of any Default or Event of Default hereunder and, if
so, stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days after
the end of each month, an unaudited/internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for such month
and for the year to date period then ended, prepared, if the Lender so requests,
on a consolidating and consolidated basis to include any Affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end audit adjustments; and accompanied by a
certificate of the Borrower's chief financial officer, substantially in the form
of Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit adjustments, (ii)
whether or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the requirements set forth in
Sections 6.12, 6.13, and 7.10;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, and a
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calculation of the Borrower's Eligible Accounts as at the end of such month or
shorter time period;
(d) weekly or more frequently if the Lender so requires,
copies of invoices, shipping documents, and delivery receipts for goods sold in
excess of $100,000, reporting of sales, credit memoranda, and a reconciliation
to Borrower's accounts receivable aging;
(e) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer as
being the most accurate projections available and identical to the projections
used by the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its discretion
require;
(f) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.12
or which seek a monetary recovery against the Borrower in excess of $25,000;
(g) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(h) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the Borrower's chief financial
officer setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the Borrower's chief financial officer setting forth details as
to such failure and the action which the Borrower proposes to take with respect
thereto, together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding $50,000 individually or
$125,000 in the aggregate during any fiscal year; (ii) credit memos not
disclosed pursuant to Section 6.1(d); (iii) any goods returned to or recovered
by the Borrower involving an amount in controversy or claim amount in excess of
$10,000 individually or in excess of $50,000 for a single customer during any
fiscal year; and (iv) any change in the persons constituting the Borrower's
officers and directors;
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(k) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(m) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(n) promptly upon filing, copies of the state and federal tax
returns and all schedules thereto of the Borrower;
(o) as soon as possible, and in any event by not later than 15
days after filing with the Internal Revenue Service, copies of the state and
federal tax returns and all schedules thereto of the Borrower;
(p) within five days of any change in Borrower's continued
coverage by accounts receivable credit insurance, including the account debtors
covered by such insurance, notice of such change;
(q) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
reasonably be expected to materially and adversely affect the Borrower's
business or its financial condition; and
(r) from time to time, with reasonable promptness, deposit
records, equipment schedules, and such other material, reports, records or
information as the Lender may request.
Section 6.2 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time reasonably request in
which true and complete entries will be made in accordance with GAAP and, upon
the Lender's request, will permit any officer, employee, attorney or accountant
for the Lender to audit, review, make extracts from or copy any and all
corporate and financial books and records of the Borrower at all times during
ordinary business hours, to send and discuss with account debtors and other
obligors requests for verification of amounts owed to the Borrower, and to
discuss the Borrower's affairs with any of its directors, officers, employees or
agents. The Borrower will permit the Lender, or its employees, accountants,
attorneys or agents, to examine and inspect any Collateral, other collateral
covered by the Security Documents or any other property of the Borrower at any
time during ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of
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assignment to account debtors and other obligors. The Lender may also at any
time and from time to time telephone account debtors and other obligors to
verify accounts.
Section 6.4 Compliance with Laws.
(a) Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws, and will not generate, use, transport, treat, store
or dispose of any Hazardous Substances in such a manner as to create any
liability or obligation under the common law of any jurisdiction or any
Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be paid or remitted by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien or charge
upon any properties of the Borrower; provided, that the Borrower shall not be
required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is desirable in
the conduct of the Borrower's business and not disadvantageous in any material
respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
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Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
reasonably required by the Lender, but in all events in such amounts and against
such risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower will at
all times maintain business interruption insurance including coverage for force
majeure and keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured. The Lender agrees that the insurance policies presently held
by the Borrower, in the types and amounts set forth on Schedule 6.7 hereto, are
reasonable based on the Lender's knowledge of the Borrower's current business.
Section 6.8 Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, Etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 Collateral Account.
(a) If, notwithstanding the instructions to debtors to make
payments to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as the
property of the Lender and shall not commingle such payments with any of its
other funds or property.
(b) Amounts deposited in the Collateral Account shall not bear
interest and shall not be subject to withdrawal by the Borrower, except after
full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the Obligations.
After allowing two Banking Days for collection of items deposited in the
Collateral Account, the Borrower authorizes the Lender to transmit deposited
funds in the amount of the deposit to the payment of the Obligations, in any
order or manner of application satisfactory to the Lender (and deposits shall be
applied to the Obligations after allowing one additional Business Day for
processing), by transferring such funds to the Lender's general account
maintained with Norwest Bank Minnesota, N.A., ABA #000000000, Account No.
635-0000000.
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(d) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the Borrower
will promptly pay the Lender, or, for items deposited in the Collateral Account,
the bank maintaining such account, the amount of that item, or such bank at its
discretion may charge any uncollected item to the Borrower's commercial account
or other account. The Borrower shall be liable as an endorser on all items
deposited in the Collateral Account, whether or not in fact endorsed by the
Borrower.
Section 6.11 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.10,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.12.
Section 6.12 Minimum Capital. The Borrower will maintain, as of each
date described below, its Capital at an amount not less than the amount set
forth opposite such date:
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Date Minimum Capital
---- ---------------
April 30, 1999 $ 250,000
May 31, 1999 $ (75,000)
June 30, 1999 $ 350,000
July 31, 1999 $ 150,000
August 31, 1999 $ 125,000
September 30, 1999 $ 350,000
October 31, 1999 $ 600,000
November 30, 1999 $1,025,000
December 31, 1999 $1,350,000
January 31, 2000 $1,800,000
February 28, 2000 $2,275,000
March 31, 2000 and thereafter $2,750,000
On or before March 31, 2000, the Borrower and the Lender shall work in good
faith to agree on new covenant levels for Minimum Capital for periods after such
date, but if the Borrower and the Lender do not agree, the Lender may, but is
not obligated to, designate the required Minimum Capital for the last day of
each month after March 31, 2000, which amounts shall be equal to the sum of (a)
$250,000 multiplied by the number of months such day is past March 31, 2000 (for
example, December 31, 2000 is nine months past March 31, 2000; thus the amount
calculated under this clause (a) for December 31, 2000 is $2,250,000) plus (b)
the greater of (1) the Borrower's actual Capital as of March 31, 2000 or (2)
$2,750,000. The failure by the Borrower to maintain the designated amounts shall
constitute an Event of Default.
Section 6.13 Minimum Net Income. The Borrower will achieve as of each
date described below, fiscal year-to-date Net Income of not less than the amount
set forth opposite such date:
Date Minimum Capital
---- ---------------
June 30, 1999 $(1,200,000)
September 30, 1999 $(1,200,000)
December 31, 1999 $ (200,000)
March 31, 2000 $ 1,200,000
On or before March 31, 2000, the Borrower and the Lender shall work in good
faith to agree on new covenant levels for Net Income for periods after such
date, but if the Borrower and the Lender do not agree, the Lender may, but is
not obligated to, designate the required fiscal year-to-date Net Income for each
quarter after March 31, 2000, which amounts shall be equal to, for each quarter
ending June 30, $750,000; for each quarter ending September 30, $1,500,000; for
each quarter ending December 31, $2,250,000; and for each quarter ending March
31, $3,000,000. The failure by the Borrower to maintain the designated amounts
shall constitute an Event of Default.
Section 6.14 Mandatory Additional Financing. At any time that either
(a) average Availability for any 90-day period is less than or equal to $200,000
or (b) Availability is less than
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$25,000 for each of ten consecutive Banking Days, within 30 days of a written
request by the Lender, the Borrower shall obtain at Lender's request additional
Subordinated Debt or additional equity financing in an amount such that after
payment of all of the Borrower's trade payables that are 60 days or more past
due, Availability equals or exceeds $200,000.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however , from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents, covenants,
restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the Borrower's business or operations as presently
conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Schedule
7.1 hereto, securing indebtedness permitted under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents;
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding the lesser
of cost or fair market value thereof and so long as no Default Period is then in
existence and none would exist immediately after such acquisition;
(e) landlords', mortgagees', and lessors' liens in respect of
rent not in default, to the extent landlord/mortgagee waivers shall have been
delivered to the Lender or liens in respect of pledges or deposits under
worker's compensation, unemployment insurance, social security laws, or similar
legislation (other than ERISA) or in connection with appeal and similar bonds
incidental to litigation; mechanics', laborers', and materialmen's and similar
liens, if the obligations secured by such liens are not then delinquent; and
statutory obligations incidental to the conduct of its business and that do not
in the aggregate materially detract from the value of its property or materially
impair the use thereof in the operation of its business;
(f) judgment liens that shall not have been in existence for a
period longer than 15 days after the creation thereof or, if a stay of execution
shall have been obtained, for a period longer than 15 days after the expiration
of such stay; and
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(g) easements, rights of way restrictions and other similar
charges or encumbrances relating to real property and not interfering in a
material way with the ordinary conduct of its business.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto, and replacements and refinancings
thereof;
(c) indebtedness relating to liens permitted in accordance
with Section 7.1;
(d) Subordinated Debt that may be required under Section 6.15,
and
(e) indebtedness in respect of current liabilities, other than
for borrowed money, of the Borrower incurred in the ordinary course of business
and of a type and magnitude consistent with past practices.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in existence on
the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or permit to
exist any loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without limitation
any partnership or joint venture, except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U. S. corporations rated
"A-1" or "A-2" by
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Standard & Poors Corporation or "P-1" or "P-2" by Xxxxx'x
Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by
members of the Federal Reserve System having deposits in
excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit
Insurance Corporation), or money market funds having a rating
of at least AAA;
(ii) mutual funds that invest primarily in
investments described in 7.4(a)(i);
(iii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $15,000; and
(iv) advances in the form of progress payments,
prepaid rent, or security deposits, the sum of which shall not
exceed at any one time an aggregate of $100,000.
(b) The Borrower will not create or permit to exist any
Subsidiary, other than any Subsidiary in existence on the date hereof and listed
in Schedule 5.4.
Section 7.5 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
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Section 7.9 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures of more than $450,000 in the aggregate
for fiscal year ending March 31, 2000. On or before March 31, 2000, the Borrower
and the Lender shall work in good faith to agree on new covenant levels for
Capital Expenditures for periods after such date, but if the Borrower and the
Lender do not agree, the Lender may, but is not obligated to, designate the
required maximum Capital Expenditures for each fiscal year after March 31, 2000,
which amounts shall be equal to the lesser of (a) the Borrower's actual Capital
Expenditures for the previous fiscal year or (b) $450,000. The failure by the
Borrower to maintain the designated amounts shall constitute an Event of
Default.
Section 7.11 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, Etc. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur and the applicable period of grace, if any,
to expire, under any note, loan agreement, indenture, lease, mortgage, contract
for deed, security agreement or other contractual obligation binding upon the
Borrower.
Section 7.15 Place of Business; Name. The Borrower will not without at
least 30 days' written notice to Lender and execution by the appropriate parties
of such documents as the Lender may in its sole discretion require, which
documents may include, but shall not be limited to, financing statements or
amendments to existing financing statements, landlord's disclaimers and
mortgagee's disclaimers, all of which shall be acceptable to the Lender in its
sole discretion, transfer its chief executive office or principal place of
business, or move, relocate, close or sell any business location or change its
name. The Borrower will not permit any tangible Collateral or any records
pertaining to the Collateral to be located in any state or area in which, in the
event of such location, a financing statement covering such Collateral would be
required to be, but has not in fact been, filed in order to perfect the Security
Interest.
Section 7.16 Organizational Documents; S Corporation Status. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws (but consent for such
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amendment shall not be unreasonably withheld). The Borrower will not become an S
Corporation within the meaning of the Internal Revenue Code of 1986, as amended.
Section 7.17 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations within five
Banking Days after receipt of notice that such amounts are owing;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement within five
Banking Days after receipt of notice that such amounts are owing;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) The Borrower shall be or become insolvent, or admit in
writing its or his inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply for or
consent to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the application
or consent of the Borrower, as the case may be; or the Borrower shall institute
(by petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it or him under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Borrower; or any judgment, writ, warrant
of attachment or execution or similar process shall be issued or levied against
a substantial part of the property of the Borrower;
(e) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor;
(f) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement shall
prove to have been incorrect in any material respect when deemed to be
effective;
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(g) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $100,000 and the
continuance of such judgment, decree or order unsatisfied and in effect for any
period of 30 consecutive days without a stay of execution;
(h) A material default under any bond, debenture, note or
other evidence of indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which any such evidence
of indebtedness has been issued or by which it is governed, or under any lease
of any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness, indenture, other instrument or
lease;
(i) Any Reportable Event, which the Lender determines in good
faith could reasonably be expected to constitute grounds for the termination of
any Plan or for the appointment by the appropriate United States District Court
of a trustee to administer any Plan, shall have occurred and be continuing 30
days after written notice to such effect shall have been given to the Borrower
by the Lender; or a trustee shall have been appointed by an appropriate United
States District Court to administer any Plan; or the Pension Benefit Guaranty
Corporation shall have instituted proceedings to terminate any Plan or to
appoint a trustee to administer any Plan; or the Borrower shall have filed for a
distress termination of any Plan under Title IV of ERISA; or the Borrower shall
have failed to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended, which the
Lender determines in good faith may by itself, or in combination with any such
failures that the Lender may determine are likely to occur in the future, result
in the imposition of a lien on the Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any obligations of the
Borrower hereunder or under any note, which default is not cured or waived
within any applicable grace period therefor;
(k) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
Lender's prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued and not released or
otherwise terminated within ten days of such filing or issuance;
(m) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder, which default is
not cured or waived within any applicable grace period therefor;
(n) The Borrower shall take or participate in any action which
would be prohibited under the provisions of any Subordination Agreement or make
any payment on the
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Subordinated Indebtedness (as defined in the Subordination Agreement) that any
Person was not entitled to receive under the provisions of the Subordination
Agreement;
(o) Any event or circumstance with respect to the Borrower
shall occur such that the Lender shall believe in good faith that the prospect
of payment of all or any part of the Obligations or the performance by the
Borrower under the Loan Documents is impaired or any material adverse change in
the business or financial condition of the Borrower shall occur;
(p) There shall occur any breach, default or event of default
by or attributable to any Affiliate under any agreement between such Affiliate
and the Lender;
(q) The Lender shall determine that the Borrower has failed to
achieve Year 2000 Compliance on or before September 30, 1999;
(r) Any person who has executed a support agreement in
connection with the Credit Facility shall die, become mentally or physically
incapacitated, or cease to be employed by the Borrower; provided, however, that
such occurrence shall not constitute an Event of Default if within 60 days of
such occurrence (i) the Borrower employs a replacement acceptable to the Lender
in its reasonable discretion and (ii) such replacement executes a support
agreement substantially in the form of the agreement executed by the person so
replaced;
(s) Xxxxxxx Xxxxx shall cease to be the President and Chief
Operating Officer of the Borrower, or Xxxx Xxxxxxx shall cease to be the
Chairman and Chief Executive Officer of the Borrower, or Xxxxx Xxxxxx shall
cease to be the Executive Vice President/Engineering of the Borrower, or Xxxx
Xxxxxxxx shall cease to be the Vice President/Finance of the Borrower, or any
replacement for any such person shall cease to hold his or her position with the
Borrower; provided, however, that no such occurrence shall constitute an Event
of Default if within 60 days of such occurrence the Borrower employs a
replacement acceptable to the Lender in its reasonable discretion.
Section 8.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations shall
become and be forthwith due and payable, without presentment, notice of
dishonor, protest or further notice of any kind, all of which the Borrower
hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower to
the payment of the Obligations;
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(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail,
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(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
Chaparral Network Storage, Inc.
0000 X. Xxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Telecopier: (000) 000-0000
Attention: Xxxxxxx Xxxxxxxx
If to the Lender:
Xxxxx Fargo Business Credit, Inc.
0000 Xxxxxxxx
Xxxxxx, Xxxxxxxx 00000-0000
Telecopier: (000) 000-0000
Attention: Xxx Xxxxxx
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party 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 to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
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parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) reasonable attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including without limitation
all such costs, expenses and reasonable fees incurred in connection with the
negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses pursuant
to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(a) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of the Loan Documents or the making of the Advances;
(b) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12 proves to
be incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(c) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of
counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances, provided that the Borrower, shall
not have any obligation to any Indemnitee hereunder with respect to Indemnified
Liabilities caused by or resulting from the willful misconduct or gross
negligence of such Indemnitee or the breach by such Indemnitee of this Agreement
or any other loan document.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold
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harmless may be held to be unenforceable because it violates any law or public
policy, the Borrower shall nevertheless make the maximum contribution to the
payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. The Borrower's obligation under this Section
9.7 shall survive the termination of this Agreement and the discharge of the
Borrower's other obligations hereunder.
Section 9.8 Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender, WFC Holdings Corporation, and all direct and indirect
subsidiaries of WFC Holdings Corporation, may exchange any and all information
they may have in their possession regarding the Borrower and its Affiliates, and
the Borrower waives any right of confidentiality it may have with respect to
such exchange of such information.
Section 9.11 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. This
Agreement shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Colorado. The parties hereto
hereby (i) consent to the personal jurisdiction of the state and federal courts
located in the State of Colorado in connection with any controversy related to
this Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan
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Documents shall be venued in either the District Court for the City and County
of Denver, Colorado, or the United States District Court, District of Colorado;
and (iv) agree that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS
AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
XXXXX FARGO BUSINESS CREDIT, INC. CHAPARRAL NETWORK STORAGE, INC.
By /s/ Xxx Xxxxxx By /s/ Xxxxxxx X. Xxxxxxxx
-------------------------------- ----------------------------------
Xxx Xxxxxx, Vice President Its Vice President, Finance
-------------------------------
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