extent that Lender determines that: (A) the number of days of the turnover of
the Inventory for any period has changed in any material respect or (B) the
liquidation value of the Eligible Inventory, or any category thereof, has
materially decreased, or (C) the nature and quality of the Inventory has
materially deteriorated. In determining whether to reduce the lending
formula(s), Lender may consider events, conditions, contingencies or risks which
are also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of
the Loans outstanding at any time shall not exceed the Maximum Credit and the
aggregate amount of Revolving Loans outstanding at any time shall not exceed the
Revolving Credit Limit. In the event that the outstanding amount of any
component of the Loans, or the aggregate amount of the outstanding Loans, exceed
the amounts available under the lending formulas, the Revolving Credit Limit or
the Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
2.2 Term Loan. Lender is making a Term Loan to Borrower in the original
---------
principal amount of $950,000. The Term Loan is (a) evidenced by a Term
Promissory Note in such original principal amount duly executed and delivered by
Borrower to Lender concurrently herewith; (b) to be repaid, together with
interest and other amounts, in accordance with this Agreement, the Term
Promissory Note, and the other Financing Agreements and (c) secured by all of
the Collateral.
2.3 Availability Reserves. All Revolving Loans otherwise available to
---------------------
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves.
2.4 Equipment Loans.
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(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Equipment Loans to Borrower from time to time, up
to the amount equal seventy (70%) percent of the Hard Cost of Eligible Equipment
acquired with such Equipment Loan, provided that the outstanding principal
amount of all Equipment Loans shall not exceed $500,000.00.
(b) Each Equipment Loan requested by Borrower hereunder shall
be in a minimum amount of $50,000. Each request by Borrower for an Equipment
Loan shall be accompanied by copies of all purchase orders, invoices and other
documentation relating to the Eligible Equipment to be purchased with the
proceeds of such Equipment Loan, including a list and description of the
Eligible Equipment (by model, make, manufacturer, serial no. (if available)
and/or such other identifying information as may be required by Lender) and such
other information and documents as may be requested by Lender. Each Equipment
Loan shall be (a) evidenced by an Equipment Loan Promissory Note substantially
in the form attached as
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Exhibit B hereto, completed, executed and delivered by Borrower to Lender (in a
manner satisfactory to Lender) prior to the making of any Equipment Loan or by
the records and loan accounts maintained by Lender; (b) repaid, together with
interest and other amounts, in accordance with this Agreement, the Equipment
Loan Promissory Note, and the other Financing Agreements and (c) secured by a
first and only security interest on the acquired Equipment and by all the other
Collateral. Borrower shall deliver to Lender upon request evidence of full
payment for all Eligible Equipment acquired with the proceeds of an Equipment
Loan and the absence of liens thereon. The principal amount of each Equipment
Loan shall be repaid in equal consecutive monthly payments, payable on the first
day of each calendar month, commencing on the first such day to occur after the
date each such Loan is made. The principal amount shall be amortized over a
sixty (60) month period and the outstanding principal balance thereof and all
accrued and unpaid interest, fees and charges shall be due and payable on the
first to occur of (a) the election of Lender upon and following an Event of
Default and (b) the date of termination or nonrenewal of this Agreement.
Interest on the Equipment Loans shall be computed and paid in accordance with
Section 3.1 hereof.
SECTION 3. INTEREST AND FEES
3.1 Interest.
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(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the rate of one and one
half (1 1/2%) percent per annum in excess of the Prime Rate, except that
Borrower shall pay to Lender interest, at Lender's option, without notice, at
the rate of four and one half (4 1/2%) percent per annum in excess of the Prime
Rate: (i) on the non-contingent Obligations for the period from and after the
date of termination or non-renewal hereof, or the date of the occurrence of an
Event of Default, and for so long as such Event of Default is continuing as
determined by Lender and until such time as Lender has received full and final
payment of all such Obligations (notwithstanding entry of any judgment against
Borrower) and (ii) on the Revolving Loans at any time outstanding in excess of
the amounts available to Borrower under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge or consent and
whether made before or after an Event of Default). All interest accruing
hereunder on and after the occurrence of any of the events referred to in
Sections 3.1(a)(i) or 3.1(a)(ii) above shall be payable on demand.
(b) Interest shall be payable by Borrower to Lender monthly
in arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in
11
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
-----------
amount of $50,000, which shall be fully earned as of and payable on the date
hereof.
3.3 Servicing Fee. Borrower shall pay to Lender monthly a servicing fee
-------------
in an amount equal to $1,000 in respect of Lender's services for each month (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each month
hereafter.
3.4 Unused Line Fee. Borrower shall pay to Lender monthly an unused line
---------------
fee equal to one half of one (1/2%) percent per annum calculated upon the amount
by which the Revolving Credit Limit exceeds the average daily principal balance
of the outstanding Revolving Loans during the immediately preceding month (or
part thereof) while this Agreement is in effect and for so long thereafter as
any of the Obligations are outstanding, which fee shall be payable on the first
day of each month in arrears.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans. Each of the following is a
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condition precedent to Lender making the initial Loans hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, a pro-forma balance sheet of Borrower reflecting the
initial transactions contemplated hereunder, including, but not limited to, (i)
the consummation of the acquisition of the Purchased Stock by Quadrax from
Seller and the other transactions contemplated by the Purchase Agreements and
(ii) the Loans provided by Lender to Borrower on the date hereof and the use of
the proceeds of the initial Loans as provided herein, and forecasted financial
statements for the Borrower for the term of this Agreement (together with all
assumptions therefore) accompanied by a certificate, dated of even date
herewith, of the chief financial officer of Borrower, stating, among other
things, that such pro-forma balance sheet, financial projections and assumptions
represent the reasonable, good faith opinion of such officer as to the subject
matter thereof as of the date of such certificate and that the Borrower is in
the opinion of such officer, solvent (as defined in Section 8.9(d));
(b) Lender shall have received, in form and substance
satisfactory to Lender, evidence that Quadrax has paid not less than $700,000 to
the Seller as part of the cash portion of the purchase price of the Purchased
Stock payable pursuant to the Purchase Agreements;
(c) Lender shall have received, in form and substance
satisfactory to Lender, the agreement of Seller consenting to the collateral
assignment by Quadrax to Lender of all of Quadrax's rights and remedies and
claims for damages and other relief under the Purchase
12
Agreements and granting Lender such other rights as Lender may require, duly
authorized, executed and delivered by Seller;
(d) Lender shall have received, in form and substance
satisfactory to Lender, evidence that the Purchase Agreements have been duly
executed and delivered by and to the appropriate parties thereto and the
transactions contemplated under the terms of the Purchase Agreements have been
consummated prior to or contemporaneously with the execution of this Agreement;
(e) Lender shall have received evidence, in form and
substance satisfactory to Lender, that Lender has valid perfected and first
priority security interests in and liens upon the Collateral and any other
property which is intended to be security for the Obligations or the liability
of any Obligor in respect thereof, subject only to the security interests and
liens permitted herein or in the other Financing Agreements;
(f) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including, without limitation, records
of requisite corporate action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or its counsel to
be certified by appropriate corporate officers or governmental authorities;
(g) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which would impair
the ability of Borrower or any Obligor to perform its obligations hereunder or
under any of the other Financing Agreements to which it is a party or of Lender
to enforce the Obligations or realize upon the Collateral;
(h) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than three (3) business days
prior to the date hereof;
(i) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by the existing
lender or lenders to Borrower of their respective financing arrangements with
Borrower and the termination and release by it or them, as the case may be, of
any interest in and to any assets and properties of Borrower and each Obligor,
duly authorized, executed and delivered by it or each of them, including, but
not limited to, (i) UCC termination statements for all UCC financing statements
previously filed by it or any of them or their predecessors, as secured party
and Borrower or any Obligor, as debtor and (ii) satisfactions and discharges of
any mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor
in favor of such existing lender or lenders, in form acceptable for recording in
the appropriate government office;
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(j) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, acknowledgments
by lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(k) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(l) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower, Quadrax and
Victel with respect to the Financing Agreements and such other matters as Lender
may request;
(m) the Excess Availability as determined by Lender, as of
the date hereof, shall be not less than $450,000 after giving effect to the
initial Loans made or to be made with the initial transactions hereunder;
(n) Each of Quadrax and Victel shall have delivered to Lender
its Guarantee of the Obligations in form and substance satisfactory to Lender;
(o) Lender shall have received a copy of the duly executed
Employment Agreement between the Borrower and John Palermo as chief executive
officer of the Borrower, which Employment Agreement shall be reasonably
satisfactory to the Lender; and
(p) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, shall be for a term coterminous with this Agreement and shall
otherwise be in form and substance satisfactory to Lender;
4.2 Conditions Precedent to All Loans. Each of the following is an
---------------------------------
additional condition precedent to Lender making Loans, including the initial
Loans and any future Loans:
(a) all representations and warranties contained herein and
in the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan and after giving
effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be
14
continuing on and as of the date of the making of such Loan or providing each
such Letter of Credit Accommodation and after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Investment Property;
5.7 Records; and
15
5.8 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
-----------------------
account(s) on its books in which shall be recorded (a) all Loans, and other
Obligations and the Collateral, (b) all payments made by or on behalf of
Borrower and (c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs, expenses and
interest. All entries in the loan account(s) shall be made in accordance with
Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
----------
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
----------------------
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance satisfactory to Lender, providing that all items received or deposited
in the Blocked Accounts are the property of Lender, that the depository bank has
no lien upon, or right to setoff against, the Blocked Accounts, the items
received for deposit therein, or the funds from time to time on deposit therein
and that the depository bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or deposited into the
Blocked Accounts to such bank account of Lender as Lender may from time to time
designate for such purpose ("Payment Account"). Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be the property of Lender.
16
(b) For purposes of calculating interest on the Obligations,
such payments or other funds received will be applied (conditional upon final
collection) to the Obligations two (2) business days following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Revolving Loans available to Borrower
such payments will be applied (conditional upon final collection) to the
Obligations on the business day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person in connection
with Borrower's Blocked Accounts. The obligation of Borrower to reimburse Lender
for such amounts pursuant to this Section 6.3 shall survive the termination or
non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account as
--------
provided in Section 6.3 or such other place as Lender may designate from time to
time. Lender may apply payments received or collected from Borrower or for the
account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines provided
that prior to the occurrence of an Event of Default, the Lender will not apply
such proceeds to the prepayment of the Term Loan unless the source of such
proceeds is the sale or other disposition of Equipment or fixed assets of the
Borrower or the Borrower otherwise agrees to such application. At Lender's
option, all principal, interest, fees, costs, expenses and other charges
provided for in this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrower. Borrower shall make all payments to
Lender on the Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in
17
reliance upon such payment or proceeds. This Section 6.4 shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
---------------------------
based upon telephonic or other instructions received from anyone purporting to
be an officer of Borrower or other authorized person or, at the discretion of
Lender, if such Loans are necessary to satisfy any Obligations. All requests for
Loans hereunder shall specify the date on which the requested advance is to be
made (which day shall be a business day) and the amount of the requested Loan.
Requests received after 11:00 a.m. Boston, Massachusetts time on any day shall
be deemed to have been made as of the opening of business on the immediately
following business day. All Loans under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
---------------
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement, the Purchase Agreement and the other Financing Agreements. All other
Loans made by Lender to Borrower pursuant to the provisions hereof shall be used
by Borrower only for payments to be made under the Purchase Agreements and for
general operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof. None of the proceeds will
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
--------------------
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender, a schedule of Accounts; (b) on a monthly basis or more
frequently as Lender may request, (i) inventory roll-forward reports, (ii)
inventory reports by category and (iii) agings of accounts payable, (c) upon
Lender's request, (i) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower; (d) agings of accounts rec |
