EXHIBIT 10.1
CITIZENS BANK OF MASSACHUSETTS
LOAN AND SECURITY AGREEMENT
(ALL ASSETS)
October 22, 2001
1. SECURITY INTEREST. SeaChange International, Inc. a Delaware
corporation (hereinafter referred to as the "Borrower"), for valuable
consideration, receipt whereof is hereby acknowledged, hereby grants to Citizens
Bank of Massachusetts, a Massachusetts bank, the secured party hereunder
(hereinafter called the "Bank"), a continuing security interest in and to, and
assigns to Bank, all property of the Borrower including the following property
of the Borrower, wherever located and whether now owned or hereafter acquired:
(a) all inventory, including all goods, merchandise, raw materials,
goods and work in process, finished goods, and other tangible personal property
now owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in Borrower's business
(all hereinafter called the "Inventory");
(b) all accounts (as defined in the Uniform Commercial Code,
hereinafter "Accounts"), contracts, contract rights, notes, bills, drafts,
acceptances, health care insurance receivables, general intangibles (including
without limitation registered and unregistered tradenames, copyrights, customer
lists, goodwill, computer programs, computer records, computer software,
computer data, trade secrets, trademarks, patents, ledger sheets, files,
records, data processing records relating to any Accounts and all tax refunds of
every kind and nature to which Borrower is now or hereafter may become entitled
to, no matter how arising), instruments (including promissory notes), documents,
chattel paper, securities, security entitlements, security accounts, investment
property, supporting obligations, software, letter of credit rights (whether or
not the letter of credit is evidenced by a writing) commercial tort claims,
chattel paper, whether tangible or intangible or electronic, deposit accounts,
choses in action, and all other debts, obligations and liabilities in whatever
form, owing to Borrower from any person, firm or corporation or any other legal
entity, whether now existing or hereafter arising, now or hereafter received by
or belonging or owing to Borrower, for goods sold by it or for services rendered
by it, or however otherwise same may have been established or created, all
guarantees and securities therefor, all right, title and interest of Borrower in
the merchandise or services which gave rise thereto, including the rights of
reclamation and stoppage in transit, all rights to replevy goods, and all rights
of an unpaid seller of merchandise or services (all hereinafter called the
"Receivables");
(c) all machinery, equipment, fixtures and other goods (as defined in
Article 9 of the Uniform Commercial Code) whether now owned or hereafter
acquired by the Borrower and wherever located, all replacements and
substitutions therefor or accessions thereto and all proceeds thereof (all
hereinafter called the "Equipment");
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(d) all proceeds and products of all of the foregoing in any form,
including, without limitation, all proceeds of credit, fire or other insurance,
and also including, without limitation, rents and profits resulting from the
temporary use of any of the foregoing (which, with Inventory, Receivables and
Equipment are all hereinafter called "Collateral").
2. OBLIGATIONS SECURED. The security interest granted hereby is to
secure payment and performance of all debts, liabilities and obligations of
Borrower to Bank hereunder and also any and all other debts, liabilities and
obligations of Borrower to Bank of every kind and description, direct or
indirect, absolute or contingent, primary or secondary, due or to become due,
now existing or hereafter arising, whether or not such obligations are related
to the transactions described in this Agreement, by class, or kind, or whether
or not contemplated by the parties at the time of the granting of this security
interest, regardless of how they arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, and
includes obligations to perform acts and refrain from taking action as well as
obligations to pay money including, without limitation, all interest, fees,
charges, expenses and overdrafts, and also including, without limitation, all
obligations and liabilities which Bank may incur or become liable for, on
account of, or as a result of, any transactions between Bank and Borrower
including any which may arise out of any letter of credit, acceptance or similar
instrument or obligation issued or caused to be issued pursuant to this
Agreement (all hereinafter called "Obligations").
3. BORROWER'S PLACES OF BUSINESS, INVENTORY LOCATIONS AND RETURNS
POLICY. Borrower warrants that Borrower has no material places of business other
than that shown at the end of this Agreement, unless other places of business
are listed on Schedule "A", annexed hereto, in which event Borrower represents
that it has additional places of business at those locations set forth on
Schedule "A".
Borrower's principal executive office and the office where Borrower
keeps its records concerning its accounts, contract rights and other property,
is that shown at the end of this Agreement. With the exception of Inventory at
customers' sites as described in the Borrower's books and records (the "Offsite
Inventory"), all Inventory presently owned by Borrower is stored at the
locations set forth on Schedule "A".
Borrower will promptly notify Bank in writing of any change in the
location of any place of business or the location of any Inventory or the
establishment of any new place of business or location of Inventory or office
where its records are kept which would be shown in this Agreement if it were
executed after such change.
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4. BORROWER'S ADDITIONAL REPRESENTATIONS AND WARRANTIES. Borrower
represents and warrants that:
(a) Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and shall hereafter remain
in good standing as a corporation in that state, and is duly qualified and in
good standing in every other state in which it is doing business, and shall
hereafter remain duly qualified and in good standing in every other state in
which the failure to qualify or become licensed could have a material adverse
effect on the financial condition, business or operations of the Borrower.
(b) Borrower's exact legal name is as set forth in this Agreement and
Borrower will not undertake or commit to undertake any act which will result in
a change of Borrower's legal name, without giving Bank at least thirty (30)
days' prior written notice of the same.
(c) The execution, delivery and performance of this Agreement, and
any other document executed in connection herewith, are within the Borrower's
corporate powers, have been duly authorized, are not in contravention of law or
the terms of the Borrower's charter, bylaws or other incorporation papers, or of
any indenture, agreement or undertaking to which the Borrower is a party or by
which it or any of its properties may be bound.
(d) All Certificates of Incorporation and all amendments thereto of
Borrower have been duly filed and are in proper order. All capital stock issued
by Borrower and outstanding was and is properly issued and all books and records
of Borrower, including but not limited to its minute books, bylaws and books of
account, are accurate and up to date and will be so maintained.
(e) Borrower owns all of the assets reflected in the most recent of
Borrower's financial statements provided to Bank, except assets sold or
otherwise disposed of in the ordinary course of business since the date thereof,
and such assets together with any assets acquired since such date, including
without limitation the Collateral, are free and clear of any lien, pledge,
security interest, charge, mortgage or encumbrance of any nature whatsoever,
except (i) the security interests and other encumbrances (if any) listed on
Schedule "B" annexed hereto, (ii) those leases described on Schedule "C" annexed
hereto, (iii) those liens permitted pursuant to Section 14(h) of this Agreement,
or (iv) liens and security interests in favor of Bank.
(f) Borrower has made or filed all tax returns, reports and
declarations relating to any material tax liability required by any jurisdiction
to which it is subject (any tax liability which may result in a lien on any
Collateral being hereby deemed material); has paid all taxes shown or determined
to be due thereon except those being contested in good faith and which Borrower
has, prior to the date of such contest, identified in writing to Bank as being
contested; and has made adequate provision for the payment of all taxes so
contested, so that no lien will encumber any Collateral, and in respect of
subsequent periods.
(g) Borrower (i) is subject to no charter, corporate or other legal
restriction, or any judgment, award, decree, order, governmental rule or
regulation or contractual restriction
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which could have a material adverse effect on its financial condition or
business, and (ii) is in compliance with its charter documents and bylaws, all
contractual requirements by which it or any of its properties may be bound and
all applicable laws, rules and regulations (including without limitation those
relating to environmental protection) other than laws, rules or regulations the
validity or applicability of which it is contesting in good faith or provisions
of any of the foregoing the failure to comply with which cannot reasonably be
expected to materially adversely affect its financial condition or business.
(h) There is no action, suit, proceeding or investigation pending or,
to Borrower's knowledge, threatened against or affecting it or any of its assets
before or by any court or other governmental authority which, if determined
adversely to it, would have a material adverse effect on its financial condition
or business.
(i) Borrower is in compliance with ERISA; no Reportable Event has
occurred and is continuing with respect to any Plan; and it has no unfunded
vested liability under any Plan. The word "Plan" as used in this Agreement means
any employee plan subject to Title IV of the Employee Retirement Income Security
Act of 1974 ("ERISA") maintained for employees of Borrower, any subsidiary of
Borrower or any other trade or business under common control with Borrower
within the meaning of Section 414(c) of the Internal Revenue Code of 1986 or
any regulations thereunder.
5. LOANS AND OTHER FINANCIAL ACCOMMODATIONS.
(a) From time to time upon Borrower's request, so long as the sum of
the aggregate principal amount of all loans outstanding and the requested loan
does not exceed the lesser of (i) the Borrowing Base (as defined below), or (ii)
the Credit Limit (as defined below), Bank shall make such requested loan,
provided that there has not occurred and is existing an Event of Default or an
event which, with notice or the lapse of time or both, would constitute an Event
of Default.
(b) All loans shall bear interest and at the option of the Bank shall
be evidenced by and repayable in accordance with a revolving note drawn to the
order of Bank substantially the form of Exhibit 1 hereto (the "Note"), as the
same may hereafter be amended, supplemented or restated from time to time and
any note or notes issued in substitution therefor, but in the absence of the
Note shall be presumptively evidenced by Bank's records of loans and repayments.
Interest will be charged to Borrower at a fluctuating rate which is
the daily equivalent to a rate equal to the per annum rate equal to the Prime
Rate or at such other rate agreed on from time to time by the parties, upon any
balance owing to Bank at the close of each day and shall be payable (i) on the
first day of each month in arrears; (ii) on termination of this Agreement
pursuant to Section 19 hereof; (iii) on acceleration of the time for payment of
the Obligations pursuant to Section 15 hereof; and (iv) on the date the
Obligations are paid in full. The rate of interest payable by Borrower shall be
changed effective as of that date in which a change in the Prime Rate becomes
effective. Interest shall be computed on the basis of the actual number of days
elapsed over a year of three hundred sixty (360) days. The term "Prime Rate"
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as used herein and in any supplement and amendment hereto shall mean the per
annum rate of interest announced from time to time by Bank at its offices in
Boston, Massachusetts, as its Prime Rate (or if Bank ceases to announce a rate
so designated, any similar successor rate designated by Bank), it being
understood that such rate is a reference rate and not necessarily the lowest
rate of interest charged by Bank. Interest shall be payable in lawful money of
the United States of America to Bank, or as Bank shall direct, without set-off,
deduction or counterclaim monthly, in arrears, on the first day of each month,
commencing on the first day of the month next succeeding the date hereof.
(c) The term "Borrowing Base" as used herein shall mean the sum of
the following:
(i) eighty (80%) percent of the unpaid face amount of Qualified
Accounts (as defined below), PLUS
(ii) seventy (70%) percent of the unpaid face amount of Investment
Grade Qualified Accounts (as defined below) or such other percentage
thereof as may from time to time be fixed by Bank upon notice to Borrower,
if Bank determines in its reasonable judgment that there has been a change
in circumstances relating to any or all of such Accounts from those
circumstances in existence on or prior to the date hereof, PLUS
(iii) the lesser of: (I) Three Million Five Hundred Thousand Dollars
($3,500,000.00), and (II) eighteen (18%) percent (to be recalculated no
earlier than annually upon the Bank or the Borrower's request by an updated
appraisal of the Borrower's Inventory at the Borrower's expense) of the
value (as determined by the Bank) of the Borrower's Eligible Raw Material
Inventory (as defined below), finished Inventory and logistics Inventory
located in Maynard, Massachusetts and Greenville, New Hampshire, MINUS
(iv) one hundred (100%) percent of the aggregate amount then undrawn
on all letters of credit and acceptances issued pursuant to this Agreement
for the account of the Borrower;
but in no event shall the sum of all loans plus the sum of the aggregate amount
undrawn on all letters of credit and acceptances be in excess of the Credit
Limit.
(d) The term "Credit Limit" as used herein shall mean an amount equal
to Ten Million ($10,000,000.00) Dollars.
(e) Borrower hereby authorizes and directs Bank, in Bank's sole
discretion (provided, however, Bank shall have no obligation to do so unless
Bank has otherwise agreed): (i) to pay accrued interest as the same becomes due
and payable pursuant to this Agreement or pursuant to any note or other
agreement between Borrower and Bank, and to treat the same as a loan to
Borrower, which shall be added to Borrower's loan balance pursuant to this
Agreement; (ii) to charge any of Borrower's accounts under the control of Bank;
or (iii) apply the proceeds of Collateral, including, without limitation,
payments on Accounts and other payments from sales
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or lease of Inventory and any other funds to the payment of such items. Bank
shall promptly notify Borrower of any such charges or applications.
(f) The Borrowing Base formula set forth above is intended solely for
monitoring purposes. The making of loans, advances, and credits by Bank to the
Borrower in excess of the above described Borrowing Base formula is for the
benefit of the Borrower and does not affect the obligations of Borrower
hereunder; all such loans constitute Obligations and must be repaid by Borrower
in accordance with the terms of this Agreement.
(g) At the request of the Borrower, and upon the execution of letter
of credit documentation satisfactory to Bank, Bank, within the limits of the
Letter of Credit Limit and Borrowing Base, as then computed and also within the
limits of the Credit Limit as then computed, shall issue letters of credit from
time to time by Bank for the account of the Borrower (collectively "Letters of
Credit"). The Letters of Credit shall be on terms mutually acceptable to Bank
and the Borrower, and no Letter of Credit shall have an expiration date later
than the sooner to occur of (i) twelve (12) months from the date of issuance of
the subject Letter of Credit, or (ii) the termination date of this Agreement. A
loan in an amount equal to any amount paid by Bank under a Letter of Credit
shall be deemed made to Borrower, without request therefor, immediately upon any
payment by Bank on such Letter of Credit. In connection with the issuance of any
Letter of Credit, Borrower shall pay to Bank 1.5% of the face amount of such
Letter of Credit plus transaction fees at the customary rates charged by Bank
and all other normal and customary fees charged by Bank. Borrower hereby
authorizes and directs Bank, in Bank's sole discretion (provided, however, Bank
shall have no obligation to do so) to pay all such fees and costs as the same
become due and payable and to treat the same as a loan to Borrower, which shall
be added to Borrower's loan balance pursuant to this Agreement. The term "Letter
of Credit Limit" as used herein shall mean an amount equal to Two Million
($2,000,000.00) Dollars. For purposes of computing the Credit Limit, all Letters
of Credit and acceptances shall be deemed to be loans.
(h) Borrower shall pay to Bank the principal amount of all loans as
follows:
(i) Borrowing Base Exceeded. Whenever the outstanding principal
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balance of all loans exceed the Borrowing Base, Borrower shall immediately
pay to Bank the excess of the outstanding principal balance of the loans
over the Borrowing Base.
(ii) Payment in Full on Termination. On termination of this Agreement,
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pursuant to Section 19 or acceleration of the obligations pursuant to
Section 15, Borrower shall pay to Bank the entire outstanding principal
balance of all loans and shall deliver to Bank cash collateral in an amount
equal to the aggregate of (A) amounts then undrawn on all outstanding
Letters of Credit issued pursuant to this Agreement for the account of the
Borrower, and (B) the amount of all outstanding acceptances issued pursuant
to this Agreement.
(i) Intentionally Deleted.
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(j) It is the intention of the parties hereto to comply strictly with
applicable usury laws, if any; accordingly, notwithstanding any provisions to
the contrary in this Agreement or any other documents or instruments executed in
connection herewith, in no event shall this Agreement or such documents or
instruments require or permit the payment, taking, reserving, receiving,
collecting or charging of any sums constituting interest under applicable laws
which exceed the maximum amount permitted by such laws. If any such excess
interest is called for, contracted for, charged, paid, taken, reserved,
collected or received in connection with the Obligations or in any communication
by Bank or any other person to the Borrower or any other person, or in the event
all or part of the principal of the Obligations or interest thereon shall be
prepaid or accelerated, so that under any of such circumstances or under any
other circumstance whatsoever the amount of interest contracted for, charged,
taken, collected, reserved, or received on the amount of principal actually
outstanding from time to time under this Agreement shall exceed the maximum
amount of interest permitted by applicable usury laws, if any, then in any such
event it is agreed as follows: (i) the provisions of this paragraph shall govern
and control, (ii) neither the Borrower nor any other person or entity now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws, if any, (iii) any
such excess which is or has been received notwithstanding this paragraph shall
be credited against the then unpaid principal balance hereof or, if the
Obligations have been or would be paid in full by such credit, refunded to the
Borrower, and (iv) the provisions of this Agreement and the other documents or
instruments executed in connection herewith, and any communication to the
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, collected,
reserved, or received in connection herewith which are made for the purpose of
determining whether such rate exceeds the maximum lawful rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Obligations, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, collected, reserved or received. The terms of
this paragraph shall be deemed to be incorporated in every Loan Document and
communication relating to the Obligations.
(k) The Borrower shall pay the Bank, quarterly in arrears, an unused
fee based upon the difference between the Credit Limit and the average
outstanding under the Loan (inclusive of outstanding, but undrawn Letters of
Credit) during the preceding fiscal quarter multiplied by one eighth of one
percent (.125%) per annum.
(l) In addition to any other charges due hereunder the Borrower shall
pay the Bank a late charge equal to five (5%) percent of any amounts not paid
within ten (10) days of the date when due hereunder.
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6. DEFINITiON OF QUALIFIED ACCOUNT AND ELIGIBLE EQUIPMENT. (a)
The term "Qualified Account", as used herein, means an Account owing to Borrower
which met the following specifications at the time it came into existence and
continues to meet the same until it is collected in full:
(i) The Account is: not more than ninety (90) days from the date of
the earlier of shipment or invoice thereof.
(ii) The Account arose from the performance of services or an
outright sale of goods by Borrower, such goods have been shipped to the account
debtor, and Borrower has possession of, or has delivered to Bank, shipping and
delivery receipts evidencing such shipment.
(iii) The Account is not subject to any prior assignment, claim,
lien, or security interest, and Borrower will not make any further assignment
thereof or create any further security interest therein, nor permit Borrower's
rights therein to be reached by attachment, levy, garnishment or other judicial
process.
(iv) Except as set forth below, the Account is not subject to
setoff, credit, allowance or adjustment by the account debtor, except discount
allowed for prompt payment and the account debtor has not complained as to his
liability thereon and has not returned any of the goods from the sale of which
the Account arose.
(v) The Account arose in the ordinary course of Borrower's business
and except as set forth below, did not arise from the performance of services or
a sale of goods to a supplier or employee of the Borrower.
(vi) No notice of bankruptcy or insolvency of the account debtor has
been received by or is known to the Borrower.
(vii) The Account is not owed by an account debtor whose principal
place of business is outside the United States of America unless supported by a
satisfactory letter of credit or credit insurance in favor of the Bank.
(viii) Account is not owed by an entity which is a parent,
brother/sister, subsidiary or affiliate of Borrower.
(ix) The account debtor is not located in the State of New Jersey or
in the State of Minnesota, unless Borrower has filed and shall file all legally
required Notice of Business Activities Reports with the New Jersey Division of
Taxation or the Minnesota Department of Revenue, as the case may be.
(x) The Account when aggregated with all of the Accounts of that
account debtor does not exceed thirty five (35%) percent or fifty (50%) percent
if pre-approved by the Bank of the then aggregate of Qualified Accounts,
provided, however, this subsection shall not apply to investment-grade
customers, customers whose accounts are covered by satisfactory
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credit insurance in favor of the Bank, or supported by a satisfactory letter of
credit in favor of the Bank and for the purposes of this subsection the Bank
shall treat the separate divisions of AOL Time Warner, AT&T Broadband Cable,
Comcast, Cox, and Cablevision as separate customers.
(xi) The Account is not evidenced by a promissory note.
(xii) The Account did not arise out of any sale made on a bill and
hold, dating of more than thirty (30) days or delayed shipment basis.
(xiii) The Account does not arise out of a progress billing prior to
completion of the order therefor.
(xiv) The Account does not arise out of contracts with the United
States or any department, agency, or instrumentality thereof, unless the
Borrower has taken any steps required by Bank in order that all monies due and
to become due under such contracts shall be assigned to Bank and notice thereof
given to the Government under the Federal Assignment of Claims Act.
(xv) Bank, in accordance with its normal credit policies, has not
provided notice to the Borrower that it has deemed the Account to be
unacceptable for any reason.
PROVIDED THAT if at any time fifty (50%) percent or more of the aggregate amount
of the Accounts due from any account debtor are unpaid in whole or in part more
than ninety (90) days from the respective earlier dates of shipment or invoice,
from and after such time none of the Accounts (then existing or hereafter
arising) due from such account debtor shall be deemed to be Qualified Accounts
until such time as at least sixty (60%) percent of all Accounts due from such
account debtor are (as a result of actual payments received thereon) no more
than ninety (90) days from the earlier date of shipment or invoice; Accounts
payable by Borrower to an account debtor shall be netted against Accounts due
from such account debtor and the difference (if positive) shall constitute
Qualified Accounts from such account debtor for purposes of determining the
Borrowing Base (notwithstanding paragraphs (iv) or (v) above); characterization
of any Account due from an account debtor as a Qualified Account shall not be
deemed a determination by Bank as to its actual value nor in any way obligate
Bank to accept any Account subsequently arising from such account debtor to be,
or to continue to deem such Account to be, a Qualified Account; it is Borrower's
responsibility to determine the creditworthiness of account debtors and all
risks concerning the same and collection of Accounts are with Borrower; and all
Accounts whether or not Qualified Accounts constitute Collateral.
(b) The term "Investment Grade Qualified Accounts" shall mean such
Qualified Accounts from non United States based account debtors which carry
public debt ratings of BBB -- from Standard and Poors or Bbb3 from Moody's or
better.
(c) The term "Eligible Raw Material Inventory" shall mean such
Inventory of the Borrower consisting of components and assemblies per the
Borrower's financial statements, but which the Bank deems acceptable, excluding
finished goods and work-in-process Inventory, consigned Inventory, and bill and
hold Inventory.
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7. BANK'S REPORTS. After the end of each month, Bank will render to
Borrower a statement of Borrower's loan account with Bank hereunder, showing all
applicable credits and debits. Each statement shall be considered correct and to
have been accepted by Borrower and shall be conclusively binding upon Borrower
in respect of all charges, debits and credits of whatsoever nature contained
therein under or pursuant to this Agreement, and the closing balance shown
therein, unless Borrower notifies Bank in writing of any discrepancy within
twenty (20) days from the mailing by Bank to Borrower of any such monthly
statement.
8. CONDITIONS OF LENDING.
(a) The obligation of Bank to make the initial loan hereunder or
issuing or causing to be issued any Letter of Credit hereunder shall be subject
to the condition precedent that Bank shall have received all of the following,
each in form and substance satisfactory to Bank:
(i) This Agreement, properly executed on behalf of Borrower.
(ii) The Note drawn to the order of Bank in the face amount of
the Credit Limit.
(iii) a Mortgage, Security Agreement and Assignment from the
Borrower granting a third mortgage, assignment of leases and rents,
contracts and permits on the property located at 32 Mill Street,
Greenville, New Hampshire, subject only to the existing first and second
liens in favor of Bank of New Hampshire and other associated mortgage
documents.
(iv) A true and correct copy of any and all leases pursuant to
which Borrower is leasing any real property, together with a landlord's
consent and waiver with respect to such real property. If Borrower is
unable to obtain a landlord's consent and waiver for any real property
prior to closing then the Borrower shall use all reasonable efforts to
obtain same after the closing of the Loan.
(v) Current searches of appropriate filing offices showing that
(A) no state or federal tax liens have been filed and remain in effect
against Borrower, (B) no financing statements have been filed and remain in
effect against Borrower, except those financing statements relating to
liens set forth on Schedule "B", the liens of the secured lender to be paid
with the proceeds of the initial loan and those financing statements filed
by the Bank, and (C) the Bank has duly filed all financing statements
necessary to perfect the security interests granted hereunder, to the
extent the security interests are capable of being perfected by filing.
(vi) A certificate of the Secretary or an Assistant Secretary of
the Borrower, certifying as to (A) the resolutions of the directors and, if
required, the shareholders of Borrower, authorizing the execution, delivery
and performance of this Agreement and related documents, (B) the
Certificate of Incorporation and By-Laws of Borrower, and (C) the
signatures of the officers or agents of Borrower authorized to
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execute and deliver this Agreement and other instruments, agreements and
certificates, including loan requests, on behalf of Borrower.
(vii) A current certificate issued by the Secretary of State of
the state of the Borrower's incorporation, certifying that Borrower is in
compliance with all corporate organizational requirements of such state.
(viii) Evidence that Borrower is duly licensed or qualified to
transact business in all 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.
(ix) An opinion of counsel to the Borrower, addressed to Bank.
(x) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable endorsement in
favor of Bank.
(xi) Intentionally Deleted.
(xii) Payment of the fees due through the date of the initial
loan and expenses incurred by Bank through such date required to be paid by
Borrower pursuant to this Agreement for which invoices have previously been
delivered to the Borrower.
(xiii) A Borrowing Base Certificate (including an accounts
receivable aging) which indicates that the Borrower has the necessary loan
availability to pay all existing secured lenders which are to be paid as of
such date.
(xiv) A Covenant Compliance Certificate in the form of Exhibit
2 indicating that the Borrower is in compliance with this Agreement.
(xv) Receipt and satisfactory review by Bank of management
prepared balance sheet of Borrower for period ending August 31, 2001.
(xvi) Receipt and satisfactory review by the Bank of an
appraisal of the Borrower's Inventory.
(xvii) Receipt of the origination and commitment fee.
(xviii) Such other documents, instruments and agreements as Bank
may reasonably request.
(b) The obligation of Bank to make each loan shall be subject to the
further conditions precedent on such date:
(i) the representations and warranties contained in Sections 3
and 4 hereof are correct in all material respects on and as of the date of
such loan or the issuance of a Letter of Credit, as the case may be, as
though made on and as of such date,
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except to the extent that such representations and warranties relate solely
to an earlier date; and
(ii) no event has occurred and is continuing, or would result
from such loan or issuance of such Letter of Credit, as the case may be,
which constitutes an Event of Default or which, with notice or the passage
of time or both, would constitute an Event of Default.
9. CAPITAL ADEQUACY.
(a) If Bank shall determine that, after the date hereof, the adoption
of any applicable future law, rule or regulation, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Bank or its parent corporation with any
requirement or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency:
(i) shall subject Bank or its parent corporation to any tax,
duty or other similar charge with respect to any Letter of Credit, the
loans or the Note or shall change the basis of taxation of payments to Bank
or its parent corporation of the Obligations or reimbursement obligations
of Letters of Credit or the principal of or interest on the loans or of any
other amounts due under this Agreement in respect of any Letter of Credit,
the loans or the Note (except for any change in respect of any tax imposed
on the overall income of Bank or its parent corporation); or
(ii) shall impose, modify or deem applicable any reserve, special
deposit or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve
System) against assets of, deposits with or for the account of, or credit
extended by, Bank or its parent corporation or shall impose on Bank or its
parent corporation any other condition affecting any Letter of Credit, the
loans or the Note;
add the result of any of the foregoing is to increase the cost to Bank or its
parent corporation of issuing or maintaining any Letter of Credit or of making
or maintaining any loans, or to reduce the amount of any sum received or
receivable by Bank or its parent corporation under the application and agreement
pursuant to which the Letter of Credit was issued, this Agreement or the Note
with respect thereto, by an amount reasonably deemed by Bank or its parent
corporation to be material, then upon demand by Bank made promptly after Bank
becomes aware of such circumstances, Borrower shall pay to Bank such additional
amount or amounts as will compensate Bank or its parent corporation for such
increased cost or reduction.
(b) If Bank shall determine that the adoption after the date hereof
of any applicable law, rule or regulation regarding capital adequacy, or any
change therein after the date hereof, any change after the date hereof in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Bank or its parent corporation with any guideline
or
-12-
request issued after the date hereof regarding capital adequacy (whether nor not
having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Bank's or the Bank's parent corporation's capital as a consequence of any
Letters of Credit, the loans or the Bank's obligations hereunder to a level
below that which the Bank or its parent corporation could have achieved but for
such adoption, change or compliance (taking into consideration the Bank's
policies with respect to capital adequacy and those of the Bank's parent
corporation) by an amount reasonably deemed to the Bank or its parent
corporation to be material, then from time to time on demand by the Bank, made
promptly after Bank becomes aware of such circumstances, the Borrower shall pay
to the Bank such additional amount or amounts as will compensate the Bank or its
parent corporation for such reduction.
(c) Bank shall allocate such cost increases or reductions in its
returns among its customers reasonably and in good faith and on an equitable
basis. Notwithstanding anything to the contrary contained herein, the Borrower
shall not have any obligation to pay to the Bank amounts owing under this
section unless, at the time it requests such compensation, it is the policy or
general practice of the Bank to request compensation for comparable costs in
similar circumstances under other comparable loan agreements. Certificates of
the Bank sent to the Borrower from time to time claiming compensation under this
section, stating the reason therefor and setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to the Bank hereunder
shall be conclusive absent manifest error. In determining such amounts, the Bank
or its parent corporation may use any reasonable averaging and attribution
methods consistent with the other provisions of this section.
10.COLLECTIONS; SET OFF; NOTICE OF ASSIGNMENT; EXPENSES; POWER OF
ATTORNEY.
(a) Borrower will immediately, upon receipt of all checks, drafts,
cash and other remittances in payment of any Inventory sold or in payment or on
account of Borrower's accounts, contracts, contract rights, notes, bills,
drafts, acceptances, general intangibles, choses in action and all other forms
of obligations, deliver the same to Bank accompanied by a remittance report in
form specified by Bank. Said proceeds shall be delivered to Bank in the same
form received except for the endorsement of Borrower where necessary to permit
collection of items, which endorsement Borrower agrees to make. While an Event
of Default does not exist, upon the request of the Borrower, or while an Event
of Default does exist at the Bank's option, Bank will credit (conditional upon
final collection) all such payments against the principal or interest of any
loans secured hereby. The order and method of such application shall be in the
sole discretion of Bank and any portion of such funds which Bank elects not to
so apply shall be paid over from time to time by Bank to Borrower. Bank will at
all times have the right to require Borrower (i) to enter into a lockbox
arrangement with Bank for the collection of such remittances and payments, or
(ii) to maintain its deposit accounts at Bank, or, in the alternative, at
another financial institution which has agreed to accept drafts drawn on it by
Bank under a written depository transfer agreement with Bank and to block
Borrower's account and waive its rights as against such account.
-13-
(b) Borrower hereby grants to Bank a lien, security interest and
right of setoff as security for all liabilities and Obligations to Bank, whether
now existing or hereafter arising, upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of Bank or any entity in the control of Citizens
Financial Group, Inc., or in transit to any of them. At any time, without demand
or notice, Bank may set off the same or any part thereof and apply the same to
any Obligation of Borrower or any guarantor even though unmatured and regardless
of the adequacy of any other collateral securing the Obligations. ANY AND ALL
RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY
OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
(c) Bank may at any time, after the occurrence and during the
continuation of an Event of Default, notify account debtors that Collateral has
been assigned to Bank and that payments shall be made directly to or as directed
by Bank. Upon request of Bank at any such time, Borrower will so notify such
account debtors and will indicate on all billings to such account debtors that
their Accounts must be paid directly to or as directed by Bank. At any such
time, Bank shall have full power to collect, compromise, endorse, sell or
otherwise deal with the Collateral or proceeds thereof in its own name or in the
name of Borrower.
(d) Borrower shall pay to Bank on demand any and all reasonable
counsel fees and other expenses incurred by Bank in connection with the
preparation, enforcement, or amendment of this Agreement, or of any documents
relating thereto, and any and all expenses, including, but not limited to, a
collection charge on all Accounts collected, all attorneys' fees and expenses,
and all other expenses of like or unlike nature which may be reasonably expended
by Bank to obtain or enforce payment of any Account either as against the
account debtor, at any time during the existence of an Event of Default or
Borrower, or in the prosecution or defense of any action or concerning any
matter growing out of or connected with the subject matter of this Agreement,
the Obligations or the Collateral or any of Bank's rights or interests therein
or thereto, including, without limiting the generality of the foregoing, any
counsel fees or expenses reasonably incurred in any bankruptcy or insolvency
proceedings and all costs and expenses reasonably incurred or paid by Bank in
connection with the administration, supervision, protection or realization on
any security held by Bank for the debt secured hereby, whether such security was
granted by Borrower or by any other person primarily or secondarily liable (with
or without recourse) with respect to such debt, and all costs and expenses
reasonably incurred by Bank in connection with the defense, settlement or
satisfaction of any action, claim or demand asserted against Bank in connection
with the debt secured hereby, all of which amounts shall be considered advances
to protect Bank's security, and shall be secured hereby. At its option, and
without limiting any other rights or remedies, Bank may at any time pay or
discharge any taxes, liens, security interests or other encumbrances at any time
levied against or placed on any of the Collateral, and may procure and pay any
premiums on any insurance required to be carried by Borrower, and provide for
the maintenance and preservation of any of the Collateral, and otherwise take
any action reasonably deemed necessary to Bank to protect its security, and all
amounts reasonably expended by Bank in connection with any of the foregoing
matters,
-14-
including reasonable attorneys' fees, shall be considered obligations of
Borrower and shall be secured hereby.
(e) Borrower does hereby make, constitute and appoint any officer or
agent of Bank as Borrower's true and lawful attorney-in-fact, with power during
the existence of an Event of Default to endorse the name of Borrower or any of
Borrower's officers or agents upon any notes, checks, drafts, money orders, or
other instruments of payment (including payments payable under any policy of
insurance on the Collateral) or Collateral that may come into possession of Bank
in full or part payment of any amounts owing to Bank; to sign and endorse the
name of Borrower or any of Borrower's officers or agents upon any invoice,
freight or express bill, bill of lading, storage or warehouse receipts, drafts
against debtors, assignments, verifications and notices in connection with
Accounts, and any instrument or documents relating thereto or to Borrower's
rights therein; to give written notice to such office and officials of the
United States Post Office to effect such change or changes of address so that
all mail addressed to Borrower may be delivered directly to Bank; granting upon
Borrower's said attorney full power to do any and all things necessary to be
done in and about the premises as fully and effectually as Borrower might or
could do. Neither Bank nor the attorney shall be liable for any acts or
omissions nor for any error of judgment or mistake, except for their gross
negligence or willful misconduct. This power of attorney shall be irrevocable
for the term of this Agreement and all transactions hereunder and thereafter as
long as Borrower may be indebted to Bank.
11. FINANCING STATEMENTS. At the request of Bank, Borrower will join
with Bank in executing one or more Financing Statements pursuant to the Uniform
Commercial Code or other notices appropriate under applicable law in form
satisfactory to Bank and will pay the cost of filing the same in all public
offices wherever filing is deemed by Bank to be necessary or desirable. A
legible carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement. The Borrower authorizes the Bank to file a
financing statement describing the Collateral.
12. BORROWER'S REPORTS.
(a) Borrower shall deliver to Bank, monthly, an invoice register
describing the invoices issued by Borrower since the last schedule submitted to
Bank. The invoice register to be provided under this subsection are solely for
the convenience of Bank in administering this Agreement and maintaining records
of the Collateral. Borrower's failure to provide Bank with any such invoice
register shall not affect the security interest of Bank in such Accounts.
(b) Borrower shall cause all of its invoices, including the copies
thereof, to be printed and to bear consecutive numbers and shall prepare and
issue its invoices in such consecutive numerical order. If requested by Bank,
all copies of invoices not previously delivered to Bank shall be delivered to
Bank with each schedule of Accounts. Copies of all invoices which are voided or
canceled or which for any other reason do not evidence an Account shall be
included in such delivery. If any invoice or copy thereof is lost, destroyed or
otherwise unavailable, Borrower shall account in writing, in form satisfactory
to Bank, for such missing invoice.
-15-
(c) Within fifteen (15) calendar days after the end of each month, or
on such other more frequent basis as may be reasonably requested by Bank upon
reasonable notice to the Borrower from time to time during the existence of an
Event of Default, Borrower shall submit to Bank an aging report in form
satisfactory to Bank showing the amounts due and owing on all Accounts according
to Borrower's records as of the close of such month, or such shorter period as
may be reasonably requested by Bank upon reasonable notice to the Borrower from
time to time during the existence of an Event of Default, together with such
other information as Bank may reasonably request. If Borrower's monthly aging
reports are prepared by an accounting service or other agent, Borrower hereby
authorizes such service or agent to deliver the final approved version of such
aging reports and any other related documents to Bank.
(d) Within thirty (30) calendar days after the end of each month, or
on such other basis as may be reasonably requested by Bank upon reasonable
notice to the Borrower from time to time during the existence of an Event of
Default, Borrower shall submit to Bank an accounts payable aging report in form
satisfactory to Bank showing the amounts due and owing on all accounts payable
according to Borrower's records as of the close of such month, or such shorter
period as may be reasonably requested by Bank upon reasonable notice to the
Borrower from time to time during the existence of an Event of Default, together
with such other information as Bank may reasonably request. Borrower's monthly
accounts payable aging reports are prepared by an accounting service or other
agent, Borrower hereby authorizes such service or agent to deliver the final
approved version of such accounts payable aging reports and any other related
documents to Bank.
(e) Borrower shall deliver to Bank all documents, as frequently as
indicated below, or at such other times as Bank may upon reasonable notice to
the Borrower request during the existence of an Event of Default, and all other
documents and information requested by Bank:
- --------------------------------------------------------------------------------------------------
DOCUMENT FREQUENCY DUE
- --------------------------------------------------------------------------------------------------
(i) A Borrowing Base Certificate, in the form Monthly within fifteen (15) days after the
of Exhibit Borrowing Base annexed end of each calendar month.
----------------------
hereto prior to the execution hereof and
incorporated by reference herein.
- --------------------------------------------------------------------------------------------------
(ii) List of names and addresses of account Annually, within sixty (60) days after the
debtors to whom Borrower has made sales end of each fiscal year of Borrower
during the previous fiscal year
- --------------------------------------------------------------------------------------------------
(iii) Reconciliation report, in form satisfactory Monthly within thirty (30) days after the
to Bank, showing all accounts, end of each calendar month.
collections, payments, credits, and
extensions since the preceding report
- --------------------------------------------------------------------------------------------------
(iv) Projections of Borrower's balance sheet, Annually, within thirty (30) days after the
statement of profit and loss and cash flow end of each fiscal year of the Borrower
for the next succeeding fiscal year broken
down on a quarterly basis
- --------------------------------------------------------------------------------------------------
(v) A listing of the names and addresses of all Annually within sixty (60) after the
- --------------------------------------------------------------------------------------------------
-16-
- --------------------------------------------------------------------------------------------------
suppliers and vendors from whom end of each fiscal year of Borrower
Borrower has made purchases during the
previous fiscal year.
- --------------------------------------------------------------------------------------------------
(vi) Notice of noncompliance with the Immediately upon learning of such
covenants of this Agreement noncompliance.
- --------------------------------------------------------------------------------------------------
(vii) Compliance Certificate in the form As soon as available and in any event
annexed hereto as Exhibit 2 within sixty (60) days after the close of
each quarterly period of Borrower's fiscal
year
- --------------------------------------------------------------------------------------------------
(viii) List of Offsite Inventory Quarterly within thirty (30) days after the
end of each calendar quarter.
- --------------------------------------------------------------------------------------------------
(f) Borrower will furnish Bank as soon as available, and in any event
within thirty (30) days after the close of each calendar month period of its
fiscal year, a balance sheet as of the end of such period, and a statement of
income and retained earnings for the period commencing at the end of the
previous fiscal year and ending with the end of such period, and a statement of
cash flows (on a quarterly basis only) of the Borrower for the portion of the
fiscal year ended with the last day of such period, all in reasonable detail and
stating in comparative form the respective figures for the corresponding date
and period in the previous fiscal year, and all prepared in accordance with
generally accepted accounting principles consistently applied, certified by the
chief financial officer of the Borrower (subject to year end adjustment).
(g) Borrower will furnish Bank as soon as available, and in any event
within forty five (45) days after the close of each quarterly period of its
fiscal year, a copy of it Securities and Exchange Commission 10-Q report.
(h) Borrower will furnish Bank, annually, as soon as available, and
in any event within one hundred and five (105) days after the end of each fiscal
year of Borrower, a balance sheet as of the end of such fiscal year, and a
statement of income and retained earnings for such fiscal year, and a statement
of cash flows for such fiscal year, all in reasonable detail and stating in
comparative form the respective figures for the prior fiscal year, and all
prepared in accordance with generally accepted accounting principles
consistently applied, accompanied by an opinion thereon reasonably acceptable to
Bank by independent public accountants selected by the Borrower and reasonably
acceptable to Bank.
(i) Borrower will promptly, upon receipt thereof, deliver to Bank,
copies of any reports submitted to the Borrower by Borrower's independent public
accountants in connection with the examination of the financial statements of
the Borrower made by such accountants (the so-called "Management Letter").
(j) In addition to the foregoing, the Borrower promptly shall provide
Bank with such other and additional information concerning the Borrower, the
Collateral, the operation of the Borrower's business, and the Borrower's
financial condition, including financial reports and statements, as Bank may
from time to time reasonably request from the Borrower. All financial
information provided Bank by the Borrower shall be prepared in accordance with
-17-
generally accepted accounting or auditing principles (as applicable) applied
consistently in the preparation thereof and with prior periods to fairly reflect
the financial conditions of the Borrower at the close of, and its results of
operations for, the periods in question (subject, in the case of unaudited
information, to year-end adjustments and the absence of footnotes).
(k) Field examinations at the Borrower's expense, may be performed by
the Bank semi-annually if the average outstanding balance of the Loan is greater
than $7,500,000.00 for any calendar quarter, annually if the average outstanding
remains less than $7,500,000.00, or at any time while an Event of Default
exists.
13. GENERAL AGREEMENTS OF BORROWER.
(a) Borrower agrees to keep all the Collateral insured with coverage
and in amounts not less than that usually carried by one engaged in a like
business and in any event not less than that reasonably requested by Bank with
loss payable to Bank and Borrower, as their interests may appear, hereby
appointing Bank as attorney for Borrower during the existence of an Event of
Default in obtaining, adjusting, settling and canceling such insurance and
endorsing any drafts. As further assurance for the payment and performance of
the Obligations, Borrower hereby assigns to Bank all sums, including returns of
unearned premiums, which may become payable under any policy of insurance on the
Collateral and Borrower hereby directs each insurance company issuing any such
policy to make payment of such sums directly to Bank provided, however as long
as; (i) no Event of Default exists, and (ii) no Obligations are outstanding, or
if Obligations are outstanding the insurance proceeds are not in excess of
$500,000.00, then such sums shall be paid to the Borrower.
(b) Bank or its agents have the right to inspect the Collateral and
all records pertaining thereto during the Borrower's regular business hours and
upon reasonable prior notice as long as no Event of Default exists and without
prior notice while an Event of Default exists.
(c) Intentionally Deleted.
(d) Borrower will at all times keep accurate and complete records of
Borrower's Inventory, Accounts and other Collateral, and Bank, or any of its
agents, shall have the right to call at Borrower's place or places of business
during the Borrower's regular business hours and upon reasonable prior notice as
long as no Event of Default exists and without prior notice while an Event of
Default exists, to inspect, audit, check, and make extracts from any copies of
the books, records, journals, orders, receipts, correspondence which relate to
Borrower's Accounts, and other Collateral or other transactions, between the
parties thereto and the general financial condition of Borrower and Bank may
make copies of any of such records. During the existence of an Event of Default,
Borrower shall pay to Bank all reasonable audit and field examination fees plus
all travel and other expenses incurred in connection with any such audit.
(e) Intentionally Deleted.
-18-
(f) Borrower will maintain its corporate existence in good standing
and comply with all laws and regulations of the United States or of any state or
states thereof or of any political subdivision thereof, or of any governmental
authority which may be applicable to it or to its business.
(g) Borrower will pay all real and personal property taxes,
assessments and charges and all franchises, income, unemployment, old age
benefits, withholding, sales and other taxes assessed against it, or payable by
it at such times and in such manner as to prevent any penalty from accruing or
any lien or charge from attaching to its property.
(h) Bank may in its own name or in the name of others communicate
with account debtors in order to verify with them to Bank's satisfaction the
existence, amount and terms of any Accounts, provided, however, while an Event
of Default does not exist such verification shall be by mail and not in the
Bank's own name.
(i) Intentionally Deleted.
(j) Intentionally Deleted.
(k) If any of Borrower's Accounts should be evidenced by promissory
notes, trade acceptances, or other instruments for the payment of money,
Borrower will immediately deliver same to Bank, appropriately endorsed to Bank's
order and, regardless of the form of such endorsement, Borrower hereby waives
presentment, demand, notice of dishonor, protest and notice of protest and all
other notices with respect thereto.
(l) Intentionally Deleted.
(m) Borrower will promptly notify Bank upon receipt of notification
of any potential or known release or threat of release of hazardous materials,
hazardous waste, hazardous or toxic substance or oil from any site operated by
Borrower or of the incurrence of any expense or loss in connection therewith or
with the Borrower's obtaining knowledge of any investigation, action or the
incurrence of any expense or loss by any governmental authority in connection
with the assessment, containment or removal of any hazardous material or oil for
which expense or loss the Borrower may be liable. As used herein, the terms
"hazardous waste," "hazardous or toxic substance," "hazardous material" or "oil"
shall have the same meanings as defined and used in any of the following (the
"Acts"): the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 USC Sections 9601-9657, as amended by the Superfund Accounts
and Reauthorization Act of 1986; the Federal Resource Conservation and Recovery
Act, 42 USC Sections 6901 et seq.; the Hazardous Materials Transportation Act,
------
49 USC Sections 1801 et seq.; the Toxic Substances Control Act, 15 USC Sections
------
2601 et seq.; the Federal Water Pollution Control Act, 33 USC Sections 1251 et
------ --
seq.; the Clean Air Act, 42 USC Sections 741 et seq.; the Clean Water Act, 33
- --- ------
USC Section 701; the Safe Drinking Water Act, 42 USC Sections 300(f)- 300(j);
M.G.L.A. c. 21E (Massachusetts Oil and Hazardous Material Release Prevention
Act); M.G.L.A. c. 21C (Massachusetts Hazardous Waste Management Act); and/or the
regulations adopted and publications promulgated pursuant to any of the Acts, as
the same may be amended from time to time.
-19-
(n) Except for Bank's gross negligence or willful misconduct,
Borrower will indemnify and save Bank harmless from all loss, costs, damage,
liability or expenses (including, without limitation, court costs and reasonable
attorneys' fees) that Bank may sustain or incur by reason of defending or
protecting this security interest or the priority thereof or enforcing the
Obligations, or in the prosecution or defense of any action or proceeding
concerning any matter growing out of or in connection with this Agreement and/or
any other documents now or hereafter executed in connection with this Agreement
and/or the Obligations and/or the Collateral. This indemnity shall survive the
repayment of the Obligations and the termination of Bank's agreement to make
loans available to Borrower and the termination of this Agreement.
(o) At the reasonable request of Bank during the existence of an
Event of Default, Borrower will furnish to Bank, from time to time, within five
(5) days after the accrual in accordance with applicable law of Borrower's
obligation to make deposits for F.I.C.A. and withholding taxes and/or sales
taxes, proof satisfactory to Bank that such deposits have been made as required.
(p) Should Borrower, during the existence of an Event of Default,
fail to make any of such deposits or furnish such proof then Bank may, in its
sole and absolute discretion, (a) make any of such deposits or any part thereof,
(b) pay such taxes, or any part thereof, or (c) setup such reserves as Bank, in
its reasonable judgment, shall deem necessary to satisfy the liability for such
taxes. Each amount so deposited or paid shall constitute an advance under the
terms hereof, repayable on demand with interest, as provided herein, and secured
by all Collateral and any other property at any time pledged by Borrower with
Bank. Nothing herein shall be deemed to obligate Bank to make any such deposit
or payment or setup such reserve and the making of one or more of such deposits
or payments or the setting-up of such reserve shall not constitute (i) an
agreement on Bank's part to take any further or similar action, or (ii) a waiver
of any default by Borrower under the terms hereof.
(q) All advances by Bank to Borrower under this Agreement and under
any other agreement constitute one general revolving fluctuating loan, and all
indebtedness of Borrower to Bank under this and under any other agreement
constitute one general Obligation. Each advance to Borrower hereunder or
otherwise shall be made upon the security of all of the Collateral held and to
be held by Bank. It is distinctly understood and agreed that all of the rights
and obligations of Bank contained in this Agreement shall likewise apply,
insofar as applicable, to any modification of or supplement to this Agreement
and to any other agreements between Bank and Borrower. Any default of this
Agreement by Borrower shall constitute, likewise, a default by Borrower of any
other existing agreement with Bank, and any default by Borrower of any other
agreement with Bank shall constitute a default of this Agreement. The entire
Obligation of Borrower to Bank shall become due and payable upon termination of
this Agreement.
(r) Borrower hereby grants to Bank for a term to commence on the date
of this Agreement and continuing thereafter until all debts and Obligations of
any kind or character owing from Borrower to Bank are fully paid and discharged,
the right to use all premises or places of business which Borrower presently
owns or may hereafter acquire and where any of the
-20-
Collateral may be located, at a total rental for the entire period of $1.00.
Bank agrees not to exercise the rights granted in this paragraph unless and
until Bank determines to exercise its rights against the Collateral in
accordance with Section 15 hereof.
(s) Borrower will, at its expense, upon request of Bank promptly and
duly execute and deliver such documents and assurances and take such actions as
may be necessary or desirable or as Bank may reasonably request in order to
correct any defect, error or omission which may at any time be discovered or to
more effectively carry out the intent and purpose of this Agreement and to
establish, perfect and protect Bank's security interest, rights and remedies
created or intended to be created hereunder. Without limiting the generality of
the above, Borrower will join with Bank in executing financing and continuation
statements pursuant to the Uniform Commercial Code or other notices appropriate
under applicable Federal or state law in form satisfactory to Bank and filing
the same in all public offices and jurisdictions wherever and whenever requested
by Bank.
(t) Borrower shall perform any and all further steps reasonably
requested by Bank to perfect Bank's security interest in Inventory, such as
leasing warehouses to Bank or its designee, placing and maintaining signs,
appointing custodians, maintaining stock records and transferring Inventory to
warehouses. A physical listing of all Inventory, wherever located, shall be
taken by Borrower at least annually and whenever reasonably requested by Bank if
one or more of the Events of Default exist.
(u) Borrower hereby grants to Bank for a term to commence on the date
of this Agreement and continuing thereafter until all debts and Obligations of
any kind or character owed to Bank are fully paid and discharged, a
non-exclusive irrevocable royalty-free license in connection with Bank's
exercise of its rights in accordance with Section 15 hereof, to use, apply or
affix any trademark, trade name logo or the like and to use any patents, in
which the Borrower now or hereafter has rights, which license may be used by
Bank during the existence of any one or more of the Events of Default, provided,
however, that such use by Bank shall be suspended if such Events of Default are
cured. This license shall be in addition to, and not in lieu of, the inclusion
of all of Borrower's trademarks, servicemarks, tradenames, logos, goodwill,
patents, franchises and licenses in the Collateral; in addition to the right to
use said Collateral as provided in this paragraph, Bank shall have full right
during the existence of an Event of Default to exercise any and all of its other
rights regarding Collateral with respect to such trademarks, servicemarks,
tradenames, logos, goodwill, patents, franchises and licenses.
(v) Borrower shall notify the Bank if the Borrower shall acquire a
Commercial Tort Claim and grant to the Bank a security interest therein and in
the proceeds thereof.
(w) Intentionally Deleted.
(x) Borrower shall at any time and from time to time, take such steps
as the Bank may reasonably request for the Bank (a) to obtain an acknowledgment,
in form and substance satisfactory to the Bank, of any bailee having possession
of any of the Collateral that the bailee holds such Collateral for the Bank, (b)
to obtain "control" of any letter-of-credit rights
-21-
or electronic Chattel Paper (as such terms are defined in sections 9-104, 9-105,
9-106 Bank and 9-107 of the Uniform Commercial Code relating to what constitutes
"control" for such items of Collateral), with any agreements establishing
control to be in form and substance satisfactory to the Bank, and (c) otherwise
to insure the continued perfection of the Bank's security interest in any of the
Collateral with the priority described in this Agreement and of the preservation
of its rights therein.
(y) The Borrower shall maintain its operating accounts at the Bank.
14. BORROWER'S NEGATIVE COVENANTS. Borrower will not at the closing or
at any time:
(a) (Capital Base) permit its senior indebtedness to be more than 0.9
------------
times the amount of its tangible capital base tested quarterly.
(b) (Fixed Charge Coverage) permit, for the twelve-month period
---------------------
ending on the last day of any fiscal quarter, the ratio of cash flow to fixed
charges to be less than 1.5 to 1 tested quarterly;
(c) (Capital Expenditures) for the quarter ending January 31, 2002,
--------------------
make, directly or indirectly, capital expenditures in an aggregate amount
greater than $750,000.00, and for any fiscal year thereafter $4,000,000.00
tested annually.
(d) (Current Ratio) permit the ratio of current assets to be less
-------------
than 1.5 times its current liabilities tested quarterly.
(e) (Minimum EBITDA) commencing with the quarter at or near October
--------------
31, 2001, permit EBITDA to be less than $4,500,000.00 and thereafter
$7,000,000.00 on a trailing twelve (12) month basis, to be tested quarterly.
(f) (Net Loss) commencing with the Borrower's fiscal year ending
--------
January 31, 2003, permit any annual net loss;
(g) (Disposition of Collateral) sell, assign, exchange or otherwise
-------------------------
dispose of more than $100,000.00 of the Collateral, other than Inventory
consisting of (i) scrap, waste, defective goods and the like; (ii) obsolete
goods; (iii) finished goods sold in the ordinary course of business or any
interest therein to any individual, partnership, trust or other corporation; and
(iv) Equipment which is no longer required or deemed necessary for the conduct
of Borrower's business;
(h) (Liens) create, permit to be created or suffer to exist any lien,
-----
encumbrance or security interest of any kind ("Lien") upon any of the Collateral
or any other property of Borrower, now owned or hereafter acquired, except: (i)
landlords', carriers', warehousemen's, mechanics' and other similar liens
arising by operation of law in the ordinary course of Borrower's business; (ii)
arising out of pledge or deposits under worker's compensation. unemployment
insurance, old age pension, social security retirement benefits or
-22-
other similar legislation; (iii) purchase money Liens arising in the ordinary
course of business (so long as the indebtedness secured thereby does not exceed
the lesser of the cost or fair market value of the property subject thereto, and
such Lien extends to no other property); (iv) Liens which total more than
$1,000,000.00 in aggregate other than those granted to the Bank provided such
Liens are subject and subordinate to the Bank in form and substance satisfactory
to the Bank; (v) Liens for unpaid taxes that are either (x) not yet due and
payable, or (y) are subject of permitted protests; (vi) Liens which are the
subject of permitted protests; (vii) those Liens and encumbrances set forth on
Schedule "B" annexed hereto; (viii) Liens in favor of local lenders to foreign
subsidiaries of the Borrower, in assets of such foreign subsidiaries and in
amounts agreed upon by the Bank and the Borrower from time to time; and (xi) in
favor of Bank; the term "permitted protests" as used herein means the right of
the Borrower to protest any Lien (other than a Lien that secures the
Obligations), tax (other than payroll taxes or taxes that are the subject of a
federal or state tax lien) or rental payment, provided that (x) a reserve with
respect to such liability is established on the books of the Borrower in an
amount that is reasonably satisfactory to the Bank, (y) any such protest is
instituted and diligently prosecuted by the Borrower in good faith, and (z) the
Bank has not notified the Borrower that, while such protest is pending, there
will be any material impairment of the enforceability, validity or priority of
any of the Liens of the Bank in and to the Collateral;
(i) (Dividends) except for stock or stock dividends to employees of
---------
the Borrower's New Hampshire subsidiary, SeaChange Systems, Inc., pay any
dividends on or make any distribution on account of any class of Borrower's
capital stock in cash or in property (other than additional shares of such
stock), or redeem, purchase or otherwise acquire, directly or indirectly, any of
such stock other than stock repurchased from terminated or departed employees;
(j) (Loans) make any loans or advances to any individual,
-----
partnership, trust or other corporation, including without limitation Borrower's
directors, officers and employees, except (1) advances to officers or employees
with respect to expenses incurred by them in the ordinary course of their duties
which are properly reimbursable by Borrower and (2) loans to officers or
employees not to exceed $250,000 at any time;
(k) (Guarantees) assume, guaranty, endorse or otherwise become
----------
directly or contingently liable in respect of (including without limitation by
way of agreement, contingent or otherwise, to purchase, provide funds to or
otherwise invest in a debtor or otherwise to assure a creditor against loss),
any indebtedness which total more than $1,000,000.00 in the aggregate (except
guarantees by endorsement of instruments for deposit or collection in the
ordinary course of business and guarantees in favor of Bank) of any individual,
partnership, trust or other corporation;
(l) (Investments) (i) use any loan proceeds to purchase or carry any
-----------
"margin stock" (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) or (ii) invest in or purchase any stock or securities of
any individual, partnership, trust or other corporation except (x) readily
marketable direct obligations of, or obligations guaranteed by, the United
States of America or any agency thereof, (y) time deposits with or certificates
of deposit issued by the Bank or (z) stock of subsidiaries of the Borrower;
-23-
(m) (Transactions with Affiliates) enter into any lease or other
------------------------------
transaction (other than employee agreements or similar arrangements) with any
shareholder, officer or affiliate on terms any less favorable than those which
might be obtained at the time from persons who (or entities which) are not such
a shareholder, officer or affiliate;
(n) (Subsidiaries) sell, transfer or otherwise dispose of any stock
--------------
of any subsidiary of Borrower; or
(o) (Mergers, Consolidations or Sales) (a) merge or consolidate with
----------------------------------
or into any corporation; (b) enter into any joint venture or partnership with
any person, firm or corporation; (c) convey, lease or sell all or any material
portion of its property or assets or business to any other person, firm or
corporation, except for the sale of Inventory in the ordinary course of its
business; or (d) convey, lease or sell any of its assets to any person, firm or
corporation for less than the fair market value thereof provided, however,
acquisitions will be permitted without the consent of the Bank if they meet the
following tests: (i) the acquired company must be in a similar or complementary
line of business, (ii) the Borrower must be in pro forma compliance with all
financial covenants, and (iii) the Borrower is the surviving entity (the
"Permitted Acquisitions"). The Borrower with the prior consent of the Bank may
make non Permitted Acquisitions.
For purposes of this section: "affiliate" shall mean any person or
entity (i) which directly or indirectly controls, or is controlled by or is
under common control with the Borrower or a subsidiary, (ii) which directly or
indirectly beneficially holds or owns twenty (20%) percent or more of any class
of voting stock of the Borrower or any subsidiary, or (iii) five (5%) percent or
more of the voting stock of which is directly or indirectly beneficially owned
or held by the Borrower or a subsidiary; "capital assets" shall mean assets
that, in accordance with generally accepted accounting principles, are required
or permitted to be depreciated or amortized on the Borrower's balance sheet;
"capital expenditures" shall mean but not be limited to amounts paid during such
fiscal year for capital assets or capital leases and shall include, in the case
of a purchase, the entire purchase price and, in the case of a capital lease
(but not an operating lease), the entire rental for the term; "capital leases"
shall mean capital leases, conditional sales contracts and other title retention
agreements relating to the purchase or acquisition of capital assets; "cash
equivalents" shall mean bonds, stocks, or other marketable securities approved
by the Bank "cash flow" shall mean EBITDA, plus new cash equity, minus capital
expenditures, minus taxes actually paid; "CMLTD" shall mean the current maturity
of long term indebtedness paid during the applicable period, including but not
limited to, amounts required to be paid during such period under capital leases;
"control" shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of any person or
entity, whether through the ownership of voting securities, by contract or
otherwise; "current assets" shall mean cash, accounts receivable and inventory;
"current liabilities" shall mean current liabilities as determined in accordance
with GAAP; "distributions" shall mean all payment or distributions to
shareholders in cash or in property other than reasonable salaries, bonuses and
expense reimbursements; "EBITDA" shall mean, for the applicable period, income
from continuing operations before the payment of interest and taxes, plus
depreciation and amortization, determined in accordance with generally accepted
accounting principles; "fixed
-24-
charges" shall mean interest, plus CMLTD; "indebtedness" shall mean (i) all
liabilities for borrowed money, for the deferred purchase price of property or
services, and under leases which are or should be, under generally accepted
accounting principles, recorded as capital leases, in respect of which a person
or entity is directly or indirectly, absolutely or contingently liable as
obligor, guarantor, endorser or otherwise, or in respect of which such person or
entity otherwise assures a creditor against loss, (ii) all liabilities of the
type described in (i) above which are secured by (or for which the holder has an
existing right, contingent or otherwise, to be secured by) any lien upon
property owned by such person or entity, whether or not such person or entity
has assumed or become liable for the payment thereof, and (iii) all other
liabilities or obligations which would, in accordance with generally accepted
accounting principles, be classified as liabilities of such person or entity;
"interest" shall mean, for the applicable period, all interest paid or payable,
including, but not limited to, interest paid or payable on indebtedness and on
capital leases, determined in accordance with generally accepted accounting
principles; operating income shall mean income from operations before
depreciation, amortization, stock based compensation, interest income, interest
expense and taxes "senior indebtedness" shall mean any indebtedness which is not
subordinated indebtedness; "subordinated indebtedness" shall mean indebtedness
which is expressly stated to be subordinated or junior in right of payment to
Borrower's Obligations to Bank in a manner and in a form which is satisfactory
to Bank; "tangible capital base" shall mean Borrower's tangible net worth plus
its subordinated indebtedness; "tangible net worth" shall mean Borrower's
stockholders' equity determined in accordance with generally accepted accounting
principles, consistently applied, subtracting therefrom (i) intangibles (as
----------- ---------
determined in accordance with such principles so applied) and (ii) accounts and
indebtedness owing to Borrower from any employee or parent, subsidiary or other
affiliate of Borrower; and "unfinanced capital expenditures" shall mean capital
expenditures, minus long term indebtedness issued during the applicable period
for the acquisition of capital assets.
15. DEFAULT; RIGHTS AND REMEDIES UPON DEFAULT.
(a) During the existence of any one or more of the following events
(herein, "Events of Default"), Bank may decline to make any or all further loans
hereunder or under any other agreements with Borrower, any and all Obligations
of the Borrower to Bank shall become immediately due and payable, at the option
of Bank without notice or demand. The occurrence of any such Event of Default
shall also constitute, without notice or demand, a default under all other
agreements between Bank and the Borrower and instruments and papers given Bank
by the Borrower, whether such agreements, instruments, or papers now exist or
hereafter arise, namely:
(i) The failure by the Borrower to pay when due any principal,
interest, fees, costs, and expenses due pursuant to this Agreement.
(ii) The failure by the Borrower to pay, when due, any other
Obligations.
(iii) Default by the Borrower in the observance or performance of any
of the covenants or agreements of the Borrower contained in Sections 10(a)
or 14 of this Agreement.
-25-
(iv) The failure by the Borrower to promptly, punctually and
faithfully perform, or observe any term, covenant or agreement on its part
to be performed or observed pursuant to any of the provisions of this
Agreement, other than those described in Sections 5(b), 5(h), 5(i), 10(a),
10(d), 14, or in any other agreement with Bank which is not remedied within
the earlier of ten (10) days after (i) notice thereof by Bank to Borrower,
or (ii) the date Borrower was required to give notice to Bank pursuant to
Section 12 hereof.
(v) Any representation or warranty heretofore, now or hereafter made
by the Borrower to Bank, in any documents, instrument, agreement, or paper
was not true or accurate when given in any material respect.
(vi) The occurrence of any event such that any indebtedness of the
Borrower in excess of $500,000.00 from any lender other than Bank could be
accelerated, notwithstanding that such acceleration has not taken place.
(vii) The occurrence of any event which would cause a lien creditor,
as that term is defined in Section 9-301 of the Code, to take priority over
advances made by Bank.
(viii) A filing against or relating to the Borrower of (A) a federal
tax lien in favor of the United States of America or any political
subdivision of the United States of America, or (B) a state tax lien in
favor of any state of the United States of America or any political
subdivision of any such state which is not dismissed or stayed with thirty
(30) days or for claims under $100,000.00 being diligently contested by the
Borrower.
(ix) The occurrence of any event of default under any agreement
between Bank and the Borrower or instrument or paper given Bank by the
Borrower, whether such agreement, instrument, or paper now exists or
hereafter arises (notwithstanding that Bank may not have exercised its
rights upon default under any such other agreement, instrument or paper).
(x) Any act by, against, or relating to the Borrower, or its property
or assets, which act constitutes the application for, consent to, or
sufferance of the appointment of a receiver, trustee or other person,
pursuant to court action or otherwise, over all, or any part of the
Borrower's property.
(xi) The granting of any trust mortgage or execution of an assignment
for the benefit of the creditors of the Borrower, or the occurrence of any
other voluntary or involuntary liquidation or extension of debt agreement
for the Borrower; the failure by the Borrower to generally pay the debts of
the Borrower as they mature; adjudication of bankruptcy or insolvency
relative to the Borrower; the entry of an order for relief or similar order
with respect to the Borrower in any proceeding pursuant to Title 11 of the
United States Code entitled "Bankruptcy" (hereinafter the "Bankruptcy
Code") or any other federal bankruptcy law; the filing of any complaint,
application, or petition by or
-26-
against the Borrower initiating any matter in which the Borrower is or may
be granted any relief from the debts of the Borrower pursuant to the
Bankruptcy Code or any other insolvency statute or procedure; the calling
or sufferance of a meeting of creditors of the Borrower; the meeting by the
Borrower of a formal or informal creditor's committee; the offering by or
entering into by the Borrower of any composition, extension or any other
arrangement seeking relief or extension for the debts of the Borrower, or
the initiation of any other judicial or non-judicial proceeding or
agreement by, against or including the Borrower which seeks or intends to
accomplish a reorganization or arrangement with creditors.
(xii) The entry of any judgment in excess of $100,000.00 against
Borrower, which judgment is not satisfied or appealed from (with execution
or similar process stayed) within fifteen (15) days of its entry.
(xiii) Intentionally Deleted.
(xiv) The entry of any court order which enjoins, restrains or in any
way prevents the Borrower from conducting all or any material portion of
its business affairs in the ordinary course of business.
(xv) The service of any process upon Bank seeking to attach by trustee
process any funds of the Borrower on deposit with Bank.
(xvi) If all of William Styslinger, Bruce Mann, and William Fiedler
cease to be executive officers of the Borrower.
(xvii) The occurrence of any material uninsured loss, theft, damage or
destruction to any material asset(s) of the Borrower.
(xviii) Any act by or against, or relating to the Borrower or its
assets pursuant to which any creditor of the Borrower seeks to reclaim or
repossess or reclaims or repossesses all or a material portion of the
Borrower's assets.
(xix) The termination of existence, dissolution, or liquidation of the
Borrower, or the ceasing to carry on actively any substantial part of
Borrower's current business.
(xx) This Agreement shall, at any time after its execution and
delivery and for any reason, cease (A) to create a valid and perfected
first priority security interest in and to the property purported to be
subject to this Agreement; or (B) to be in full force and effect or shall
be declared null and void, or the validity or enforceability hereof shall
be contested by the Borrower or any guarantor of the Borrower denies it has
any further liability or obligation hereunder.
(xxi) Any of the following events occur or exist with respect to the
Borrower or any ERISA affiliate: (A) any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Internal Revenue
Code) involving any Plan; (B) any
-27-
"reportable event" (as defined in Section 4043 of ERISA and the regulations
issued under such Section) shall occur with respect to any Plan; (C) The
filing under Section 4041 of ERISA of a notice of intent to terminate any
Plan or the termination of any Plan; (D) any event or circumstance exists
which might constitute grounds entitling the Pension Benefit Guaranty
Corporation (PBGC) to institute proceedings under Section 4042 of ERISA for
the termination of, or for the appointment of a trustee to administer, any
Plan, or the institution by the PBGC of any such proceedings; (E) or
partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer
Plan or the reorganization, insolvency, or termination of any Multiemployer
Plan; and in each case above, such event or condition, together with all
other events or conditions, if any, could in the opinion of Bank subject
the Borrower to any tax, penalty, or other liability to a Plan, a
Multiemployer Plan, the PBGC, or otherwise.
(xxii) The occurrence of (A) any of the Events of Default described in
Sections 15(vi), 15 (viii), 15(xi), 15(xii), or 15(xix), with respect to
any guarantor to Bank of the Obligations, as if such guarantor were the
"Borrower" described therein, or (B) the failure by any guarantor to Bank
of the Obligations to perform in accordance with the terms of any agreement
between such guarantor and the Bank.
(xxiii) The termination of any guaranty by any guarantor of the
Obligations.
During the existence of an Event of Default, Bank may declare any
obligation Bank may have hereunder to be canceled, declare all Obligations
of Borrower to be due and payable and proceed to enforce payment of the
Obligations and to exercise any and all of the rights and remedies afforded
to Bank by the Uniform Commercial Code or under the terms of this Agreement
or otherwise. In addition, during the existence of an Event of Default, if
Bank proceeds to enforce payment of the Obligations, Borrower shall be
obligated to deliver to Bank cash collateral in an amount equal to the
aggregate amounts then undrawn on all outstanding Letters of Credit or
acceptances issued or guaranteed by Bank for the account of Borrower, and
Bank may proceed to enforce payment of the same and to exercise all rights
and remedies afforded to Bank by the Uniform Commercial Code or under the
terms of this Agreement or otherwise. During the existence of an Event of
Default, the Borrower, as additional compensation to the Bank for its
increased credit risk, promises to pay interest on all Obligations
(including, without limitation, principal, whether or not past due, past
due interest and any other amounts past due under this Agreement) at a per
annum rate of four (4%) percent greater than the rate of interest then
specified in Section 5 of this Agreement.
(b) Upon the filing of any complaint, application, or petition by or
against the Borrower initiating any matter in which the Borrower is or may be
granted any relief from the debts of the Borrower pursuant to the Bankruptcy
Code, Bank's obligation hereunder shall be canceled immediately, automatically,
and without notice, and all Obligations of the Borrower then outstanding shall
become immediately due and payable without presentation, demand, or notice of
any kind to the Borrower.
-28-
(c) Any sale or other disposition of the Collateral by Bank during
the existence of an Event of Default may be at public or private sale upon such
terms and in such manner as the Bank deems advisable, having due regard to
compliance with any statute or regulation which might affect, limit or apply to
the Bank's disposition of the Collateral. The Bank may conduct any such sale or
other disposition of the Collateral upon the Borrower's premises. Unless the
Collateral is perishable or threatens to decline speedily in value, or is of a
type customarily sold on a recognized market (in which event the Bank shall
provide the Borrower with such notice as may be practicable under the
circumstances), the Bank shall give the Borrower at least the greater of the
minimum notice required by law or ten (10) days prior written notice of the
date, time and place of any proposed public sale, and of the date after which
any private sale or other disposition of the Collateral may be made. The Bank
may purchase the Collateral, or any portion of it at any public sale.
(d) The Bank may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral and compliance
will not be considered adversely to affect the commercial reasonableness of any
sale of the Collateral.
(e) In connection with the Bank's exercise of the Bank's rights
during the existence of an Event of Default, the Bank may enter upon, occupy and
use any premises owned or occupied by the Borrower, and may exclude the Borrower
from such premises or portion thereof as may have been so entered upon,
occupied, or used by the Bank. The Bank shall not be required to remove any of
the Collateral from any such premises upon the Bank's taking possession thereof,
and may render any Collateral unusable to the Borrower. In no event shall the
Bank be liable to the Borrower for use or occupancy by the Bank of any premises
pursuant to this Agreement other than as a result of Bank's gross negligence or
willful misconduct.
(f) During the existence of any Event of Default, the Bank may
require the Borrower to assemble the Collateral and make it available to the
Bank at the Borrower's sole risk and expense at a place or places which are
reasonably convenient to both the Bank and the Borrower.
16. PROCESSING AND SALES OF INVENTORY. So long as Borrower is not in
default hereunder, Borrower shall have the right, in the regular course of
business, to process and sell Borrower's Inventory. A sale in the ordinary
course of business shall not include a transfer in total or partial satisfaction
of a debt.
17. WAIVER OF JURY TRIAL. BORROWER AND BANK EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE OR HEREAFTER HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. Borrower hereby certifies that neither Bank nor any
of its representatives, agents or counsel has represented, expressly or
otherwise, that Bank would not, in the event of any such suit, action or
proceeding, seek to enforce this waiver of right to trial by jury. Borrower
acknowledges that Bank has been induced to enter into this Agreement by, among
other things, this waiver. Borrower acknowledges that it has read the provisions
of this Agreement and in particular, this section; has consulted legal counsel;
understands the right it is granting in this
-29-
Agreement and is waiving in this section in particular; and makes the above
waiver knowingly, voluntarily and intentionally.
18. CONSENT TO JURISDICTION. Borrower and Bank agree that any action
or proceeding to enforce or arising out of this Agreement may be commenced in
any court of the Commonwealth of Massachusetts sitting in the county of Suffolk,
or in the District Court of the United States for the District of Massachusetts,
and Borrower waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to Borrower, or as otherwise provided by the laws of the Commonwealth of
Massachusetts or the United States of America.
19. TERMINATION
(a) Unless renewed in writing, this Agreement shall terminate on
October 22, 2003 (the "Termination Date"), and all Obligations shall be due and
payable in full without presentation, demand, or further notice of any kind,
whether or not all or any part of the Obligations is otherwise due and payable
pursuant to the agreement or instrument evidencing same. Bank may terminate this
Agreement immediately and without notice upon the occurrence of an Event of
Default. Notwithstanding the foregoing or anything in this Agreement or
elsewhere to the contrary, the security interest, Bank's rights and remedies
hereunder and Borrower's obligations and liabilities hereunder shall survive any
termination of this Agreement and shall remain in full force and effect until
all of the Obligations outstanding, or contracted or committed for (whether or
not outstanding), before the receipt of such notice by Bank, and any extensions
or renewals thereof (whether made before or after receipt of such notice),
together with interest accruing thereon after such notice, shall be finally and
irrevocably paid in full. No Collateral shall be released or financing statement
terminated until such final and irrevocable payment in full of the Obligations,
as described in the preceding sentence.
(b) In the event that Bank continues to make loans hereunder after
the Termination Date without a written extension of the Termination Date, all
such loans: (i) shall be made in the sole and absolute discretion of Bank; and
(ii) shall, together with all other Obligations, be payable thereafter ON
DEMAND.
20. MISCELLANEOUS.
(a) No delay or omission on the part of Bank in exercising any rights
shall operate as a waiver of such right or any other right. Waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion. All Bank's rights and remedies, whether evidenced hereby or
by any other agreement, instrument or paper, shall be cumulative and may be
exercised singularly or concurrently.
(b) Bank is authorized to make loans under the terms of this
Agreement upon the request, either written or oral, in the name of Borrower or
any authorized person whose name appears at the end of this Agreement or of any
of the following named person, or persons, from
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time to time, holding the following offices of Borrower, President, Treasurer
and such other officers and authorized signatories as may from time to time be
set forth in separate resolutions.
(c) This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties hereto; provided,
--------
however, that Borrower may not assign this Agreement or any rights or duties
- -------
hereunder without Bank's prior written consent and any prohibited assignment
shall be absolutely void. No consent to an assignment by Bank shall release
Borrower from its Obligations. Bank may assign this Agreement and its rights and
duties hereunder to a financial institution in the business of making similar
loans, and with capabilities reasonably similar to the Bank, but without any
such restriction while an Event of Default exists and no consent or approval by
Borrower is required in connection with any such assignment. Bank reserves the
right to sell, assign, transfer, negotiate or grant participations in all or any
part of, or any interest in Bank's rights and benefits hereunder. In connection
with any assignment or participation, Bank may disclose all documents and
information which Bank now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Bank assigns its rights and obligations
hereunder to another party, Bank thereafter shall be released from such assigned
obligations to Borrower and such assignment shall effect a novation between
Borrower and such other party.
(d) Borrower agrees that any and all loans made by Bank to Borrower
or for its account under this Agreement shall be conclusively deemed to have
been authorized by Borrower and to have been made pursuant to duly authorized
requests therefor on its behalf.
(e) Unless otherwise defined in this Agreement, capitalized words
shall have the meanings set forth in the Uniform Commercial Code as in effect in
the Commonwealth of Massachusetts as of the date of this Agreement.
(f) Paragraph and section headings used in this Agreement are for
convenience only, and shall not effect the construction of this Agreement. If
one or more provisions of this Agreement (or the application thereof) shall be
invalid, illegal or unenforceable in any respect in any jurisdiction, the same
shall not, invalidate or render illegal or unenforceable such provision (or its
application) in any other jurisdiction or any other provision of this Agreement
(or its application). This Agreement is the entire agreement of the parties with
respect to the subject matter hereof and supersedes any prior written or verbal
communications or instruments relating thereto.
(g) Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other loan document shall
be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), overnight courier, or telefacsimile to Borrower or to
Bank, as the case may be, at its address set forth below:
-31-
If to Bank: Citizens Bank of Massachusetts
53 State Street
Boston, Massachusetts 02109
Attn: Mr. Ralph L. Letner
Telephone: (617) 725-5621
Telecopier: (617) 742-9548
With a copy to: Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, MA 02110
Attn: James H. Lerner, Esq.
Telephone: (617) 574-3525
Telecopier: (617) 574-4112
If to Borrower: SeaChange International, Inc.
124 Acton Street
Maynard, Massachusetts 01754
Attn: Mr. William Fiedler, CFO
Telephone: (978) 889-3002
Telecopier: (978) 897-9590
With a copy to: Testa, Hurwitz & Thibeault, LLP
Oliver Street Tower
125 High Street
Boston, Massachusetts 02110
Attention: Mark D. Smith, Esquire
Telephone: (617) 248-7296
Telecopier: (617) 790-0259
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. All notices or demand sent in accordance with this section shall be
deemed received on the earlier of the date of actual receipt or three (3) days
after the deposit thereof in the mail.
(h) Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any rule
of construction or otherwise. On the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.
(i) Each provision of this Agreement shall be severable from every
other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
(j) This Agreement, together with the other documents and instruments
executed concurrently herewith represent the entire and final understanding of
the parties with
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respect to the transactions contemplated hereby and shall not be contradicted or
qualified by evidence of any prior, contemporaneous or subsequent other
agreement, oral or written, before the date hereof.
(k) This Agreement can only be amended by a writing signed by both
Bank and Borrower.
(1) The laws of Massachusetts shall govern the construction of this
Agreement and the rights and duties of the parties hereto. This Agreement shall
take effect as a sealed instrument.
Witnessed by: SEACHANGE INTERNATIONAL, INC.
/s/ ALYSSA V. ADAMS By: /s/ WILLIAM L. FIEDLER
- ---------------------------- --------------------------------
Address:
CITIZENS BANK OF MASSACHUSETTS
By: /s/ RALPH L LETNER
--------------------------------
RALPH L LETNER
Address: 53 State Street
Boston, Massachusetts 02109
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SCHEDULES
The following Schedules to the within Loan and Security Agreement (All
Assets) are respectively described in the section indicated. Those Schedules in
which no information has been inserted shall be deemed to read "None".
-34-
EXHIBIT 1
---------
CITIZENS BANK OF MASSACHUSETTS
REVOLVING NOTE
--------------
$10,000,000.00 Boston, Massachusetts
October 22, 2001
For value received, the undersigned, SeaChange International, Inc. a
Delaware corporation (the "Borrower"), hereby promises to pay on October 22,
2003 to the order of Citizens Bank of Massachusetts (the "Bank"), at its main
office in Boston, Massachusetts, or at any other place designated at any time by
the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Ten Million ($10,000,000.00)
Dollars, or, if less, the aggregate unpaid principal amount of all loans made by
the Bank to the Borrower under the Loan Agreement (defined below) together with
interest on the principal amount hereunder remaining unpaid from time to time,
computed on the basis of the actual number of days elapsed and a 360-day year,
from the date hereof until this Note is fully paid at the rate from time to time
in effect under the Loan and Security Agreement (All Assets) of even date
herewith (the "Loan Agreement") by and between the Bank and the Borrower. The
principal hereof and interest accruing thereon shall be due and payable as
provided in the Loan Agreement. This Note may be prepaid only in accordance with
the Loan Agreement.
This Note is issued pursuant, and is subject, to the Loan Agreement, which
provides, among other things, for acceleration hereof. This Note is the "Note"
referred to in the Loan Agreement.
This Note is secured, among other things, pursuant to the Loan Agreement,
and may now or hereafter be secured by one or more other security agreements or
other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
reasonable attorneys' fees and legal expenses in the event this Note is not paid
when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
SEACHANGE INTERNATIONAL, INC.
By:
-----------------------------
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EXHIBIT 2
---------
COMPLIANCE CERTIFICATE
----------------------
SeaChange International, Inc. ("Borrower") hereby certifies to Citizens
Bank of Massachusetts ("Bank"), pursuant to the Loan and Security Agreement (All
Assets) between Borrower and Bank dated October 22, 2001 as may be amended from
time to time ("Loan Agreement"), that:
A. General
-------
1. Capitalized terms not defined herein shall have the meanings set forth
in the Loan Agreement.
2. The Borrower has complied with all the terms, covenants and conditions
to be performed or observed by the Borrower contained in the Loan Agreement and
other documents required to be executed by the Borrower in connection with the
Loan Agreement.
3. Neither on the date hereof nor, if applicable, after giving effect to
the loan made on the date hereof, does there exist an Event of Default or an
event which would with notice or the lapse of time, or both, constitute an Event
of Default.
4. The representations and warranties contained in the Loan Agreement and
in any certificate, document or financial or other statement furnished at any
time thereunder are true, correct and complete in all material respects with the
same effect as though such representations and warranties had been made on the
date hereof, except to the extent that any such representation and warranty
relates solely to an earlier date (in which case such representation and
warranty shall be true, correct and complete on and as of such earlier date).
B. Financial Covenants
-------------------
As of the date hereof or, for such period as may be designated below, the
computations, ratios and calculations as set forth below in accordance with
Section 14 of the Loan Agreement are true and correct:
Capital Base - Section 14(a).
The rate of senior indebtedness to tangible capital base of the Borrower as
of _______ 200_ was equal to:
A. Senior Indebtedness $___________
B. Tangible Capital Base $___________
A: B = ___________
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Required: Not more than 0.9 times
Fixed Charge Coverage- Section 14(b).
The rate of cash flow to fixed charges of the Borrower as of
_____________ 200___, was ______________ and was computed as follows:
A. Cash Flow $___________
B. Fixed Charges $___________
A:B= ___________
Required: At least 1.5 times
Capital Expenditures- Section 14(c)
The Capital Expenditures for the preceding twelve-month period was
equal to ______
Required: Not more than $750,000.00 tested quarterly ending January
31, 2002; thereafter $4,000,000.00 annually.
Current Ratio-- Section 14(d)
The ratio of current assets to current liabilities of the Borrower as
of __________ 200_ was ____________ and was computed as follows:
A. Current Assets $____________
B. Current Liabilities: $____________
A:B= ____________
Required: At least 1.5 times
Minimum EBITDA-- Section 14(e)
The EBITDA for the preceding three month period was equal to $________
Required: $4,500,000.00 through October 31, 2001 quarterly, thereafter
$7,000,000.00 each quarter thereafter.
-40-
Net Loss-- Section 14(f)
The annual net loss was equal to $______________
Required: No annual net loss
IN WITNESS WHEREOF, the undersigned, a duly authorized officer of
Borrower, has executed and delivered this Certificate in the name and on behalf
of the Borrower on _____________, 200_.
SEACHANGE INTERNATIONAL, INC.
By:
-------------------------------
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SCHEDULE A
----------
Borrower's Places of Business ((S)3)
Address Property Located at Such Address
- ------- --------------------------------
124 Acton Street 105,000 sq. ft. of manufacturing and office
Maynard MA space
32 Mill Street 100,000 sq. ft. of manufacturing and office
Greenville New Hampshire space
15, 45 and 47 Main Street 50,000 sq. ft. of office space
Greenville New Hampshire
316 Business Center, Building D 5,000 sq. ft. of manufacturing and office
Gwinett County, GA space
1075 Virginia Drive 5,000 sq. ft. of office space
Fort Washington PA
710 North Second Street 1,200 sq. ft. of office space
St. Louis, MO
6050 S. Greenwood Blvd. 1,200 sq. ft. of office space
Englewood, CO
10 Tannery Lane, Singapore 1,000 sq. ft. of office space
Centre International DE 10,000 sq. ft. of manufacturing and office
Sophia Antipolis, France space
Ventures House Prince Street 1,200 sq. ft. of office space
Bristol UK
4-8-11 Takanawa, Minatu-ku 500 sq. ft. of office space
Tokyo Japan
38 Bellchase Court 200 sq. ft. of office space
Baltimore MD
SCHEDULE B
Other Encumbrances and Liens (s4(e)(i))
Secured Party or Mortgagee Description of Collateral Filing # Filing Filing Date
- -------------------------- ------------------------- -------- ------ -----------
location
--------
Bank of New Hampshire All fixtures, machinery, 753830 MA 11/2/00
furniture and all other SOS
tangible personal property
Arrow Electronics, Inc. Specified products 630773 MA 5/11/99
SOS
Paramount Financial Specified equipment 590156 MA 11/21/98
Corporation SOS
Paramount Financial Specified equipment 588294 MA 11/03/98
Corporation SOS
AT&T Credit Corp. Specified equipment 494205 MA 9/2/97
SOS
Xerox Corporation Specified equipment 420118 MA 10/1/96
SOS
Wyle Electronics Specified equipment 497186 NH SOS 10/9/97
Bank of New Hampshire All fixtures, machinery, 569945 NH SOS 11/1/00
furniture and all other
tangible personal property
De Lage Landen Financial Specified equipment 294355 PA-- 1/26/01
Services Inc. Montgomery
County
SCHEDULE C
Leases ((S)4(e)(ii))
Equipment Leases
- ----------------
Lessor Payable Description of Property
- -------------- -----------------------
Ikon Office Solutions Canon copiers
AT&T Credit Corp. AT&T/Lucent Definity Generic 3SI
Comm. System
Microspace Communications Group Transponder Lease Agreement
Paramount Financial Corporation Movie Systems & TV Sets
Lily Transport Company Truck
Silicon Valley Bank TV Sets
Property Leases
- ---------------
Lessor Payable/Landlord Description of Property/Property
- ----------------------- --------------------------------
Address
-------
Alden T. Greenwood 15, 42 and 47 Main Street,
773 Greenville Road #1 Mill
Mason, NH 03048 Greenville, NH 03048
(603) 878-2485 (603) 878-5055
Ira Goldfarb 38 Bellchase Court
38 Bellchase Court Baltimore, MD 21208
Baltimore, MD 21208 (410)653-7175
(410) 653-7175
Arch Equities II, LLC 710 North Second Street
St. Louis, MO 63102319 No. Fourth Street Suite 350S
Suite 300 St. Louis, MO 63102
St. Louis, MO 63102 (314)436-8989
Bet Investments 1075 Virginia Drive
2660 Philmont Avenue Fort Washington, PA 19034
Suite 212
Huntingdon Valley, PA 19006
Axis Commercial Realty 6050 S. Greenwood Blvd.
Suite 150
Englewood, CO 80111
(303) 694-0900
316 BC, LLC 100 Hurricane Shoals Rd NE
316 Business Center D-1200
Gwinett County, GA Lawrenceville, GA 30043
Kashima Construction 1-2-7 Akasaka 4-8-11 Takanawa, Minato-ku Tokyo
Minato-ku Tokyo Japan Japan
Ventures House Prince Street Prince Street
Bristol UK Bristol UK
IPC Corporation 10 Tannery Lane
Singapore #03-02, Singapore 347773
Monsieur Alain ANDRE. Centre International DE
C.I.COM. Organisation, S.A.R.L. Communication Avancee De Sophia
06560 Valbonne 2229 Antipolis (C.I.C.A.)
401 432 059 (France) FRANCE
Maynard Industrial Properties Association 124 Acton Street
124 Acton Street Maynard, MA 01754
Maynard, MA 01754