SECOND AMENDED AND RESTATED LOAN AGREEMENT

Exhibit 10.1

Second Amended and Restated Loan Agreement

between

WACHOVIA CAPITAL FINANCE CORPORATION (CENTRAL)

as Lender and US Collateral Agent

and

MAD CATZ, INC.

as Borrower

October 30, 2006

TABLE OF CONTENTS

 

 

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INDEX TO EXHIBITS AND SCHEDULES

 

[The exhibits and schedules listed above have been omitted. A copy of the omitted exhibits and schedules will be furnished to the Securities and Exchange Commission upon its request.]

SECOND AMENDED AND RESTATED LOAN AGREEMENT

This Second Amended and Restated Loan Agreement dated as of October 30, 2006 (this “ Agreement ”) is entered into by and between Wachovia Capital Finance Corporation (Central), formerly known as Congress Financial Corporation (Central), an Illinois corporation (as lender, “ Lender ”; and as US collateral agent, “ US Collateral Agent ”), and Mad Catz, Inc., a Delaware corporation (“ Borrower ”).

W I T N E S S E T H:

WHEREAS Lender entered into certain financing arrangements with Borrower pursuant to which Lender made loans and provided other financial accommodations to Borrower on the terms and conditions set forth in a loan agreement dated September 25, 2000 (the “ Original Loan Agreement ”) made between Lender, US Collateral Agent and Borrower;

AND WHEREAS Lender, US Collateral Agent and Borrower amended the Original Loan Agreement and, for ease of reference, restated such amended Original Loan Agreement in a first amended and restated loan agreement dated September 5, 2001 (the “ First Amended and Restated Loan Agreement ”) between Lender, US Collateral Agent and Borrower;

AND WHEREAS Lender, US Collateral Agent and Borrower amended or extended, as the case may be, the First Amended and Restated Loan Agreement pursuant to:

(a) an amending agreement dated June 18, 2002;

(b) a second amending agreement dated January 22, 2003;

(c) a renewal/extension letter dated July 23, 2003;

(d) an acknowledgment letter dated September 22, 2003;

(e) a renewal/extension letter dated July 27, 2004;

(f) an amending and extension letter dated August 31, 2005;

(g) a third amending agreement dated August 9, 2006;

(h) an extension letter dated September 20, 2006;

(i) an extension letter dated September 28, 2006; and

(j) an extension letter dated October 16, 2006,

(the foregoing amendments and extensions together with the First Amended and Restated Loan Agreement, the “ Loan Agreement ”);

AND WHEREAS Lender, US Collateral Agent and Borrower have, without novation, agreed to amend and restate the Loan Agreement as hereinafter provided;

AND WHEREAS Borrower, each Obligor, Lender and US Collateral Agent have confirmed to each other that the security, guarantees and other agreements provided by Borrower and each Obligor in connection with the Loan Agreement remain in full force and effect, and continue as security for the indebtedness and the obligations of Borrower and each Obligor to Lender under this Agreement and the other Financing Agreements;

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

SECTION 1 DEFINITIONS

All terms used herein which are defined in Article 1 or Article 9 of the UCC shall have the meanings given therein unless otherwise defined in this Agreement. All references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. All references to Borrower, Lender and US Collateral Agent pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their respective successors and assigns. The words “ hereof ”, “ herein ”, “ hereunder ”, “ this Agreement ” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. The word “ including ” when used in this Agreement shall mean “ including, without limitation ”. References herein to any statute or any provision thereof include such statute or provision as amended, revised, re-enacted, and/or consolidated from time to time and any successor statute thereto. An Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 10.3 hereof or is cured in a manner satisfactory to Lender, if such Event of Default is capable of being cured as determined by Lender. Any accounting term used herein unless otherwise defined in this Agreement shall have the meanings customarily given to such term in accordance with GAAP. The term “ US Dollars ” and the sign “ $ ” mean lawful money of the United States of America. The term “ Canadian Dollars ” and the sign “ CDN$ ” mean lawful money of Canada. For purposes of this Agreement, the following terms shall have the respective meanings given to them below:

 

1.1	“Acceptable Liquidation Agreement”

“Acceptable Liquidation Agreement” shall mean, with respect to any license of intellectual property between Borrower, as licensee, and the licensor of such intellectual property which pertains to any Collateral, (i) an agreement in form and substance satisfactory to Lender or (ii) an amendment to such license agreement in form and substance satisfactory to Lender, in each case permitting Lender to exercise its rights under this Agreement with respect to such Collateral.

 

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1.2	“Accounts”

“Accounts” shall mean all present and future rights of Borrower, MCE and MCC to payment for goods sold or leased or for services rendered, which are not evidenced by instruments or chattel paper, and whether or not earned by performance.

 

1.3	“Acquisition”

“Acquisition” shall mean any transaction whereby Borrower will acquire assets, shares or other equity interest, or a combination thereof, of a business identified by Borrower as a strategic acquisition target pursuant to terms and conditions acceptable to Lender and in respect of which Borrower has received the prior written consent of Lender.

 

1.4	“Approved In-Transit Inventory”

“Approved In-Transit Inventory” shall mean Inventory that is owned and insured by Borrower and is in transit from and is under the control of MCIA to premises located in North America or Europe that are owned or controlled by Borrower and in respect of which Lender has received sufficient documentation, including bills of lading and shipping contracts, in each case assigned to Lender, to confirm the foregoing; provided that the maximum value of such Inventory does not exceed $6,000,000 at any time during the month of November and does not exceed $4,000,000 at any time other than during the month of November.

 

1.5	“Availability Reserves”

“Availability Reserves” shall mean, as of any date of determination, the Royalty Reserve and such amounts as Lender may from time to time establish and revise reducing the amount of Revolving Loans and Letter of Credit Accommodations which would otherwise be available to Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks (including anticipated seasonal variations in dilution of Accounts) which, as determined by Lender, do or may affect either (i) the Collateral or any other property which is security for the Obligations or its value, (ii) the assets, business or prospects of Borrower or any Obligor or (iii) the Liens and other rights of Lender and/or US Collateral Agent in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Lender’s belief that any collateral report or financial information furnished by or on behalf of Borrower or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) to reflect outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in respect of any state of facts which Lender determines constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default (including rents or other payments due and unpaid or which Lender reasonably expects will not be paid when due).

 

1.6	“Blocked Accounts”

“Blocked Accounts” shall have the meaning set forth in Section 5.3 hereof.

 

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1.7	“Borrower”

“Borrower” shall have the meaning set forth in the preamble hereof.

1.8 “Borrower General Security Agreement”

“Borrower General Security Agreement” shall mean the amended and restated general security agreement dated November 30, 2001 given by Borrower (and certain U.S. affiliates of Borrower named therein) in favor of US Collateral Agent in respect of the Obligations, as it now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.9	“Business Day”

“Business Day” shall mean a day (other than a Saturday, Sunday or statutory holiday in Ontario, Illinois or New York) on which Lender’s Chicago and Toronto office, the U.S. Reference Bank’s main office and banks in New York City and Toronto are open for business in the normal course.

 

1.10	“Canadian Collateral Agent”

“Canadian Collateral Agent” shall mean Wachovia Capital Finance Corporation (Canada), formerly known as Congress Financial Corporation (Canada), in its capacity as collateral agent for Lender, and its successors and assigns.

 

1.11

“Code”

“Code” shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto.

 

1.12	“Collateral”

“Collateral” shall mean, collectively, “Collateral” as such term is defined in the Borrower General Security Agreement and in the Intellectual Property Security Agreements and all assets and undertakings of each Obligor in respect of which Lender and/or US Collateral Agent and/or Canadian Collateral Agent is or has been granted a Lien pursuant to any Financing Agreement.

 

1.13

“EBITDA”

“EBITDA” shall mean, as to any Person, with respect to any period, an amount equal to the net income of such Person for such period determined in accordance with GAAP, plus or minus, to the extent deducted or added in determining such net income for such period, and without duplication:

(a) interest paid or payable or received or receivable;

(b) income taxes paid or payable or refunds received or receivable in respect of income taxes; and

 

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(c) depreciation and amortization expenses.

 

1.14	“Eligible Accounts”

“Eligible Accounts” shall mean Accounts created by Borrower, MCE or MCC which are and continue to be acceptable to Lender based on the criteria set forth below. In general, Accounts shall be Eligible Accounts if:

(a) such Accounts arise from the actual and bona fide sale and delivery of goods by Borrower, MCE or MCC or rendition of services by Borrower, MCE or MCC in the ordinary course of their respective businesses which transactions are completed in accordance with the terms and provisions contained in any documents related thereto;

(b) such Accounts are not unpaid more than ninety (90) days after the date of the original invoice for them and are not unpaid more than sixty (60) days past the due date thereof;

(c) such Accounts comply with the terms and conditions contained in Section 6.2(c) of this Agreement;

(d) such Accounts do not arise from sales on consignment, guaranteed sale, sale and return, sale on approval, or other terms under which payment by the account debtor may be conditional or contingent;

(e) the chief executive office of the account debtor with respect to such Accounts is located in Canada, the United States of America or the United Kingdom or, if the chief executive office of the account debtor is not located in Canada, the United States of America or the United Kingdom, the Account is payable in Canadian Dollars, US Dollars, Pounds Sterling or Euro, and, at Lender’s option, if: (i) the account debtor has delivered to Borrower, MCE or MCC, as applicable, an irrevocable letter of credit issued or confirmed by a bank satisfactory to Lender and payable only in the United States of America in the currency in which the Account is denominated, sufficient to cover such Account, in form and substance satisfactory to Lender and, if required by Lender, the original of such letter of credit has been delivered to Lender or Lender’s agent and the issuer thereof notified of the assignment of the proceeds of such letter of credit to Lender, or (ii) such Account is subject to credit insurance payable to Lender issued by an insurer and on terms and in an amount acceptable to Lender, or (iii) such Account is otherwise acceptable in all respects to Lender (subject to such lending formula with respect thereto as Lender may determine);

(f) such Accounts do not consist of progress billings, bill and hold invoices or retainage invoices, except as to bill and hold invoices, unless Lender shall have received an agreement in writing from the account debtor, in form and substance satisfactory to Lender, confirming the unconditional obligation of the account debtor to take the goods related thereto and pay such invoice;

(g) the account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which may give rise to, any right of setoff against such Accounts (but the portion of the Accounts of such account debtor in excess of the amount at any time and from time to time owed by Borrower, MCE or

 

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MCC, as applicable, to such account debtor or claimed owed by such account debtor may be deemed Eligible Accounts);

(h) there are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable or delay payment thereunder;

(i) such Accounts are subject to the first priority, valid and perfected Lien of Lender and/or US Collateral Agent and any goods giving rise thereto are not, and were not at the time of the sale thereof, subject to any Liens except those permitted in this Agreement;

(j) neither the account debtor nor any officer or employee of the account debtor with respect to such Accounts is an officer, employee or agent of or affiliated with Borrower, MCE or MCC directly or indirectly by virtue of family membership, ownership, control, management or otherwise;

(k) the account debtors with respect to such Accounts are not any foreign government, the United States of America, any State, political subdivision, department, agency or instrumentality thereof, unless, if the account debtor is the United States of America, any State, political subdivision, department, agency or instrumentality thereof, upon Lender’s request, the Federal Assignment of Claims Act of 1940, as amended or any similar State or local law, if applicable, has been complied with in a manner satisfactory to Lender or a letter of credit has been provided with respect thereto on terms and conditions satisfactory to Lender;

(l) there are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which might result in any material adverse change in any such account debtor’s financial condition;

(m) such Accounts of a single account debtor or its affiliates do not constitute more than twenty-five percent (25%) of all otherwise Eligible Accounts or, with respect to each of Electronics Boutique/Gamestop and Walmart, such Accounts do not constitute more than forty percent (40%) or such higher percentage as may be agreed by Lender of all otherwise Eligible Accounts or, with respect to such other account debtors as may from time to time be approved in writing by Lender on a case by case basis, such Accounts do not constitute more than such percentage in excess of twenty-five percent (25%) as may be agreed by Lender of all otherwise Eligible Accounts of such account debtor (but in each case the portion of the Accounts not in excess of such percentage may be deemed Eligible Accounts);

(n) such Accounts are not owed by an account debtor who has Accounts unpaid more than ninety (90) days after the date of the original invoice for them which constitute more than fifty percent (50%) of the total Accounts of such account debtor;

(o) such Accounts are owed by account debtors whose total indebtedness to Borrower, MCE or MCC does not exceed the credit limit with respect to such account debtors as determined by Lender from time to time (but the portion of the Accounts not in excess of such credit limit may still be deemed Eligible Accounts); and

 

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(p) such Accounts are owed by account debtors deemed creditworthy at all times by Lender, as determined by Lender.

General criteria for Eligible Accounts may be established and revised from time to time by Lender. Any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral and subject to the Lien of Lender and/or US Collateral Agent.

 

1.15	“Eligible Inventory”

“Eligible Inventory” shall mean Inventory consisting of finished goods held for resale in the ordinary course of the business of Borrower or MCE and raw materials (including electronic chips) for such finished goods, in each case which are acceptable to Lender in its absolute discretion based on the criteria set forth below. In general, Eligible Inventory shall not include (a) work-in-process; (b) components which are not part of finished goods; (c) spare parts for equipment; (d) packaging and shipping materials; (e) supplies used or consumed in Borrower’s or MCE’s business; (f) Inventory at premises which are not owned and controlled by Borrower or MCE, unless US Collateral Agent has received an agreement in writing from the person in possession of such Inventory and/or the owner or operator of such premises in form and substance satisfactory to US Collateral Agent acknowledging US Collateral Agent’s first priority Lien in the Inventory, waiving or subordinating Liens by such person against the Inventory and permitting US Collateral Agent access to, and the right to remain on, the premises so as to exercise US Collateral Agent’s rights and remedies and otherwise deal with the Collateral, or unless such Inventory is Approved In-Transit Inventory; (g) Inventory subject to a Lien in favor of any person other than US Collateral Agent and/or Lender except those permitted in this Agreement; (h) bill and hold goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which is not subject to the first priority, valid and perfected Lien of US Collateral Agent and/or Lender; (k) damaged and/or obsolete and/or defective Inventory; (1) Inventory purchased or sold on consignment and (m) Inventory subject to a license agreement or other arrangement with a third party which, in Lender’s determination, restricts the ability of Lender to exercise its rights under this Agreement with respect to such Inventory unless such third party has entered into an Acceptable Liquidation Agreement or Lender has otherwise agreed to allow such Inventory to be eligible in Lender’s sole discretion. General criteria for Eligible Inventory may be established and revised from time to time by Lender. Any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral and subject to the Lien of Lender and/or US Collateral Agent.

1.16 “EMU Legislation”

“EMU Legislation” shall mean legislative measures of the Council of European Union for the introduction of, change over to or operation of the Euro.

1.17 “Environmental Laws”

“Environmental Laws” shall mean with respect to any Person all federal (United States of America and Canada), state, provincial, district, local, municipal and foreign laws, statutes, rules, regulations, ordinances, orders, directives, permits, licenses and consent decrees relating to health, safety, hazardous, dangerous or toxic substances, waste or material, pollution and

 

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environmental matters, as now or at any time hereafter in effect, applicable to such Person and/or its business and facilities (whether or not owned by it), including laws relating to emissions, discharges, releases or threatened releases of pollutants, contamination, chemicals, or hazardous, toxic or dangerous substances, materials or wastes into the environment (including ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals, or hazardous, toxic or dangerous substances, materials or wastes.

 

1.18	“Equipment”

“Equipment” shall mean all of Borrower’s now owned and hereafter acquired equipment, machinery, computers and computer hardware and software (whether owned or licensed), vehicles, tools, furniture, fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located.

 

1.19

“ERISA”

“ERISA” shall mean the United States Employee Retirement Income Security Act of 1974, as the same now exists or may hereafter from time to time be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto.

 

1.20	“ERISA Affiliate”

“ERISA Affiliate” shall mean any person required to be aggregated with Borrower or any of its subsidiaries under Sections 414(b), 414(c), 414(m) or 414(o) of the Code.

 

1.21

“Euro”

“Euro” means the single currency to which the Participating Member States of the European Union have converted.

 

1.22	“Event of Default”

“Event of Default” shall mean the occurrence or existence of any event or condition described in Section 9.1 hereof.

 

1.23	“Excess Availability”

“Excess Availability” shall mean the amount in US Dollars, as determined by Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of the Revolving Loans available to Borrower as of such time (based on the applicable lending formulas multiplied by the Net Amount of Eligible Accounts, the Value of Eligible Inventory and Net Orderly Liquidation Value, as determined by Lender) and subject to the sublimits and Availability Reserves from time to time established by Lender hereunder and (ii) the Maximum Credit, minus (b) the sum of: (i) the amount of all then outstanding and unpaid Obligations with respect to Revolving

 

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Loans, plus (ii) the aggregate amount of all due but unpaid tax obligations, and trade payables of Borrower, MCE, MCC and MCII that are past due more than sixty (60) days.

 

1.24	“Exchange Equivalent”

“Exchange Equivalent” shall mean in respect of any amount (the “original amount”) expressed in Canadian Dollars (the “original currency”), the amount expressed in US Dollars (the “new currency”) which the Lender would be required to pay in Toronto on the date specified using the Bank of Canada noon rate on such date (or, if no date is specified, on the date on which such amount is being determined), in order to purchase the original amount of the original currency in the new currency, in accordance with the Lender’s usual foreign exchange practice.

 

1.25	“Financing Agreements”

“Financing Agreements” shall mean, collectively, this Agreement, the Borrower General Security Agreement, the Intellectual Property Security Agreements and all notes, guarantees, security agreements and other agreements, documents and instruments now or at any time hereafter executed and/or delivered by Borrower or any Obligor in connection with this Agreement, as the same now exist or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.26	“Fiscal Quarter”

“Fiscal Quarter” shall mean any of the following three (3) month periods in any fiscal year of Borrower: April 1 to June 30, July 1 to September 30, October 1 to December 31 and January 1 to March 31.

 

1.27

“GAAP”

“GAAP” shall mean generally accepted accounting principles in Canada or the United States of America, as applicable, as in effect from time to time as set forth in the opinions and pronouncements of the relevant Canadian or American public and private accounting boards and institutes which are applicable to the circumstances as of the date of determination consistently applied.

 

1.28	“Gameshark Software”

“Gameshark Software” shall mean the video game enhancement software sold by Borrower and certain Obligors that enables video game players to access and take full advantage of the secret codes, short cuts, hints and cheats incorporated by video game publishers into their video game offerings.

 

1.29	“Hazardous Materials”

“Hazardous Materials” shall mean any hazardous, toxic or dangerous substances, materials and wastes, including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, biological substances, polychlorinated biphenyls, pesticides, herbicides and any other

 

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kind and/or type of pollutants or contaminants (including materials which include hazardous constituents), sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law).

 

1.30	“Information Certificates”

“Information Certificates” shall mean, collectively, the Information Certificates of Borrower and each Obligor constituting Exhibit A hereto, each containing material information with respect to such Person, its business and assets provided by or on behalf of such Persons to Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein.

 

1.31	“Intellectual Property Security Agreements”

“Intellectual Property Security Agreements” shall mean, collectively, (i) the Trademark Security Agreement dated as of September 25, 2000 and executed by Borrower in favor of US Collateral Agent, (ii) the Patent Security Agreement dated as of September 25, 2000 and executed by Borrower in favor of US Collateral Agent, and (iii) the Copyright Security Agreement dated as of September 25, 2000 and executed by Borrower in favor of US Collateral Agent, as each now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.32	“Interest Rate”

“Interest Rate” shall mean, as to the non-contingent Obligations, a rate of one quarter of one percent (0.25%) per annum in excess of the Prime Rate; provided that the Interest Rate shall mean, at Lender’s option, without notice, the rate of three and one-quarter percent (3.25%) per annum in excess of the Prime Rate: (i) on the non-contingent Obligations for (A) the period from and after the date of termination hereof until such time as Lender has received full and final payment of all such Obligations, and (B) the period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by Lender (notwithstanding entry of any judgment against Borrower) and (ii) on the Revolving Loans at any time outstanding in excess of the amounts available to Borrower under Section 2 hereof (whether or not such excess(es), arise or are made with or without Lender’s knowledge or consent and whether made before or after an Event of Default).

 

1.33	“Inventory”

“Inventory” shall mean all of Borrower’s and MCE’s now owned and hereafter existing or acquired raw materials, work in process, finished goods and all other inventory of whatsoever kind or nature, wherever located.

 

1.34

“Lender”

“Lender” shall have the meaning set forth in the preamble hereof.

 

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1.35	“Letter of Credit Accommodations”

“Letter of Credit Accommodations” shall mean the letters of credit, merchandise purchase or other guarantees denominated in Canadian Dollars or US Dollars which are from time to time either (a) issued or opened by Lender for the account of Borrower or any Obligor or (b) with respect to which Lender has agreed to indemnify the issuer or guaranteed to the issuer the performance by Borrower or any Obligor of its obligations to such issuer.

 

1.36

“Lien”

“Lien” shall mean any mortgage, deed of trust, pledge, fixed or floating charge, lien, security interest, hypothec or encumbrance or security arrangement of any nature whatsoever, whether arising by written or oral agreement or by operation of law, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security.

 

1.37	“Material Adverse Change”

“Material Adverse Change” shall mean, where used in relation to the affairs of Borrower or any Obligor, a change in the business, operations or capital of Borrower or such Obligor, as applicable, that, in the opinion of Lender, has or could be expected to have a Material Adverse Effect.

 

1.38	“Material Adverse Effect”

“Material Adverse Effect” shall mean (i) a material adverse effect on the property or assets of Borrower, any Obligor, their respective subsidiaries or the business or operations of any of them or all of them, taken as a whole, (ii) a material adverse effect on the condition or prospects, financial or otherwise, of Borrower, any Obligor and their respective subsidiaries or any of them or all of them, taken as a whole, (iii) a material adverse effect on the ability of Borrower or any Obligor to perform and discharge any of its obligations under the Financing Agreements, or (iv) a material adverse effect on the priority, effectiveness or enforceability of any Lien granted by Borrower or any Obligor in favor of Canadian Collateral Agent, Lender and/or US Collateral Agent or the ability of Lender, Canadian Collateral Lender and/or US Collateral Agent to enforce any Obligation or realize upon any Collateral or any other property securing the Obligations.

 

1.39	“Maximum Credit”

“Maximum Credit” shall mean the amount of $35,000,000.

 

1.40	“Maximum Letter of Credit Facility”

“Maximum Letter of Credit Facility” shall mean the amount of $1,000,000.

 

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1.41

“MCC”

“MCC” shall mean 1328158 Ontario Inc., a corporation incorporated under the laws of the Province of Ontario.

 

1.42

“MCE”

“MCE” shall mean Mad Catz Europe Limited, a company incorporated and existing under the laws of England and Wales.

 

1.43

“MCII”

“MCII” means Mad Catz Interactive, Inc., a corporation existing under the federal laws of Canada.

 

1.44

“MCIA”

“MCIA” shall mean Mad Catz Interactive Asia Limited, a company incorporated under the laws of Hong Kong.

 

1.45	“Net Amount of Eligible Accounts”

“Net Amount of Eligible Accounts” shall mean the gross amount in US Dollars of Eligible Accounts less (a) sales, excise or similar taxes included in the amount thereof and (b) returns, discounts, claims, credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect to such Eligible Accounts; provided that the amounts deducted under clause (a) shall not duplicate items for which Availability Reserves have been established by Lender.

 

1.46	“Net Orderly Liquidation Value”

“Net Orderly Liquidation Value” shall mean the amount in US Dollars to be realized from any orderly liquidation of Inventory, net of all liquidation costs, including deductions for all commissions and taxes, as evidenced by an appraisal of such Inventory conducted, at the cost of Borrower by Hilco Appraisal Services, LLC or such other appraiser as is acceptable to Lender, such appraisal to be in form, scope and methodology acceptable to Lender and addressed to Lender or upon which Lender is permitted to rely.

 

1.47	“Obligations”

“Obligations” shall mean any and all Revolving Loans, Letter of Credit Accommodations and all other obligations, liabilities and indebtedness of every kind, nature and description owing by Borrower to Lender, US Collateral Agent, Canadian Collateral Agent and/or their respective affiliates, including principal, interest, charges, fees, costs and expenses, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under this Agreement and the other Financing Agreements, whether now existing or hereafter arising, whether arising before, during or after the initial or any renewal term of this Agreement or after the commencement of any proceeding with respect to Borrower under the United States Bankruptcy

 

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Code or any similar statute in any jurisdiction (including the payment of interest and other amounts which would accrue and become due but for the commencement of such proceeding, whether or not such amounts are allowed or allowable in whole or in part in such proceeding), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender, US Collateral Agent and/or their respective affiliates.

 

1.48

“Obligor”

“Obligor” shall mean any guarantor, endorser, acceptor, surety or other person liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrower.

 

1.49	“Participating Member State”

“Participating Member State” shall mean each state so described in any EMU Legislation.

 

1.50	“Payment Account”

“Payment Account” shall have the meaning set forth in Section 5.3 hereof.

 

1.51	“Permitted Inter-Company Debt”

“Permitted Inter-Company Debt” shall mean indebtedness owing by Borrower to any Obligor, by any Obligor to Borrower and/or by any Obligor to another Obligor provided that:

(a) such indebtedness is incurred in the ordinary course of business of Borrower and/or such Obligor, as applicable, consistent with past practice;

(b) all promissory notes and security agreements (if any) executed by Borrower or any Obligor in respect of such indebtedness shall be assigned to US Collateral Agent in form and content satisfactory to US Collateral Agent; and

(c) if requested by Lender, such indebtedness is subordinated and postponed pursuant to subordination agreements in form and content satisfactory to Lender.

 

1.52

“Person”

“Person” or “person” shall mean any individual, sole proprietorship, partnership, limited partnership, corporation (including any corporation which elects subchapter S status under the Internal Revenue Code of 1986, as amended), limited liability company, limited liability partnership, business trust, unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof.

 

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1.53	“Pounds Sterling”

“Pounds Sterling” shall mean, at any time of determination, the then official currency of the United Kingdom.

 

1.54

“PPSA”

“PPSA” shall mean the Personal Property Security Act (Ontario).

 

1.55	“Prime Rate”

“Prime Rate” shall mean the rate from time to time publicly announced by the U.S. Reference Bank, or its successors, as its prime rate, whether or not such announced rate is the best rate available at such bank.

 

1.56

“Records”

“Records” shall mean all of Borrower’s and each Obligor’s present and future books of account of every kind or nature, purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any rights of Borrower or any Obligor with respect to the foregoing maintained with or by any other person).

 

1.57	“Renewal Date”

“Renewal Date” shall have the meaning given to such term in Section 11.1(a).

 

1.58	“Revolving Loans”

“Revolving Loans” shall mean the loans now or hereafter made by Lender to or for the benefit of Borrower on a revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof.

 

1.59	“Royalty Reserve”

“Royalty Reserve” shall mean an amount equal to all accrued and unpaid royalty obligations owing by Borrower and MCE as set forth on the most recent Royalty Reserve Report, adjusted up or down as of any date of determination by Lender in its sole discretion based on Lender’s findings that such royalty obligations owing by Borrower and/or MCE have increased or decreased since the date of such Royalty Reserve Report.

 

1.60	“Royalty Reserve Report”

“Royalty Reserve Report” shall mean a report for the period since the date hereof (for the initial report) or the date of the last such report (for subsequent reports) delivered in accordance with Section 6.1 hereof which shall set forth (i) each license of intellectual property for which

 

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Borrower and/or MCE is licensee and for which it pays royalties, (ii) the licensor of each such license, (iii) the aggregate accrued and unpaid royalty obligations owing under each such license and (iv) the date such accrued and unpaid royalty obligations are due under each such license. Each Royalty Reserve Report shall be certified by the chief financial officer of the Borrower as being complete and accurate.

 

1.61	“Software”

“Software” shall mean all software and computer programs (regardless of form or format, DVD, disc or otherwise) and all packaging, containers, artwork, end-user guides or instructions, user manuals and related materials concerning the use and operation of such software and computer programs other than Gameshark Software.

 

1.62	“Software Inventory”

“Software Inventory” shall mean all Eligible Inventory consisting of Software.

 

1.63

“Solvent”

“Solvent” shall mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person; (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guarantees and pension plan liabilities) at any time shall be computed as the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can be reasonably be expected to become an actual or matured liability.

 

1.64	“Spot Rate”

“Spot Rate” shall mean, with respect to a currency, the rate quoted by the US Reference Bank as the spot rate for the purchase by the US Reference Bank of such currency with another currency at approximately 10:00 a.m. (Charlotte, North Carolina time) on the date two (2) Business Days prior to the date as of which the foreign exchange computation is made.

 

1.65

“UCC”

“UCC” shall mean the Uniform Commercial Code.

 

1.66	“United Kingdom”

“United Kingdom” shall mean the United Kingdom of Great Britain and Northern Ireland.

 

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1.67	“US Collateral Agent”

“US Collateral Agent” shall mean Wachovia Capital Finance Corporation (Central), formerly known as Congress Financial Corporation (Central), in its capacity as collateral agent for itself, as Lender, and its successors and assigns.

 

1.68	“US Reference Bank”

“US Reference Bank” shall mean Wachovia Bank, National Association or its successors, or such other major bank in the United States as Lender may from time to time designate in its discretion.

 

1.69

“Value”

“Value” shall mean, as determined by Lender, with respect to Inventory, the lower of (a) cost computed on a first-in-first-out basis in accordance with GAAP and (b) net realizable value.

SECTION 2 CREDIT FACILITIES

2.1 Revolving Loans

(a) Subject to and upon the terms and conditions contained herein, Lender agrees to make Revolving Loans to Borrower from time to time in amounts requested by Borrower up to the amount equal to the lesser of:

 

(i)

the Maximum Credit; and

 

(ii)

the sum of:

 

(A)

seventy-five percent (75%) of the Net Amount of Eligible Accounts;

plus

 

(B)

the lesser of :

 

(1)

(X) for any date of determination during the period from and including January 1 of any year to and including July 31 of such year, the lesser of (i) eighty-five percent (85%) of Net Orderly Liquidation Value of Eligible Inventory (excluding Software Inventory) and (ii) fifty-five percent (55%) of the Value of Eligible Inventory (excluding Software Inventory); or (Y) for any date of determination during the period from and including August 1 of any year to and including December 31 of such year, sixty percent (60%) of the Value of Eligible Inventory (excluding Software Inventory); and

 

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(2)

$15,000,000 (less the amount, if any, determined in accordance with Section 2.1(a)(ii)(C) below),

plus

 

(C)

the lesser of (i) twenty-five percent (25%) of the Value of Software Inventory, (ii) eighty-five percent (85%) of Net Orderly Liquidation Value of Software Inventory and (iii) $1,000,000,

minus

 

(D)

any Availability Reserves.

(b) Lender may, in its discretion, from time to time, upon not less than five (5) days prior written notice to Borrower, (i) reduce the lending formula with respect to Eligible Accounts to the extent that Lender determines that: (A) the dilution with respect to the Accounts for any period (based on the ratio of (1) the aggregate amount of reductions in Accounts other than as a result of payments in cash to (2) the aggregate amount of total sales) has increased in any material respect or may be reasonably anticipated to increase in any material respect above historical levels or as a result of seasonal variations, or (B) the general creditworthiness of account debtors has declined or (ii) reduce the lending formula(s) with respect to Eligible Inventory to the extent that Lender determines that: (A) the number of days of the turnover of the Inventory for any period has changed in any material respect or (B) the Net Orderly Liquidation Value of the Eligible Inventory, or any category thereof, has decreased, or (C) the nature and quality of the Inventory has deteriorated. In determining whether to reduce the lending formula(s), Lender may consider events, conditions, contingencies or risks which are also considered in determining Eligible Accounts, Eligible Inventory or in establishing Availability Reserves.

(c) Except in Lender’s discretion, the aggregate amount of the Revolving Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit. In the event that the outstanding amount of any component of the Revolving Loans, or the aggregate amount of the outstanding Revolving Loans and Letter of Credit Accommodations, exceeds the amounts available under the lending formulas, the sublimits for Letter of Credit Accommodations set forth in Section 2.2(d) hereof or the Maximum Credit, as applicable, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrower shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded.

(d) For purposes only of applying the sublimit on Revolving Loans based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B)(2) hereof, Lender may treat the then undrawn amounts of outstanding Letter of Credit Accommodations for the purpose of purchasing Eligible Inventory as Revolving Loans to the extent Lender is in effect basing the issuance of the Letter of Credit Accommodations on the Value of the Eligible Inventory being purchased with such Letter of Credit Accommodations. In determining the actual amounts of such Letter of Credit Accommodations to be so treated for purposes of the sublimit, the outstanding Revolving Loans

 

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and Availability Reserves shall be attributed first to any components of the lending formulas in Section 2.1(a) hereof that are not subject to such sublimit, before being attributed to the components of the lending formulas subject to such sublimit.

 

2.2	Letter of Credit Accommodations

(a) Subject to and upon the terms and conditions contained herein, at the request of Borrower, Lender agrees to provide or arrange for Letter of Credit Accommodations for the account of Borrower containing terms and conditions acceptable to Lender and the issuer thereof. Any payments made by Lender to any issuer thereof and/or related parties in connection with the Letter of Credit Accommodations shall constitute additional Revolving Loans to Borrower pursuant to this Section 2.

(b) In addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, Borrower shall pay to Lender a letter of credit fee at a rate equal to one and one-quarter percent (1.25%) per annum on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the first day of each succeeding month, except that Borrower shall pay to Lender such letter of credit fee, at Lender’s option, without notice, at a rate equal to three and three-quarters percent (3.75%) per annum on such daily outstanding balance for: (i) the period from and after the date of termination hereof until Lender has received full and final payment of all Obligations (notwithstanding entry of a judgment against Borrower) and (ii) the period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by Lender. Such letter of credit fee shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed and the obligation of Borrower to pay such fee shall survive the termination of this Agreement.

(c) No Letter of Credit Accommodations shall be available unless on the date of the proposed issuance of any Letter of Credit Accommodations, the Revolving Loans available to Borrower (subject to the Maximum Credit, the Maximum Letter of Credit Facility and any Availability Reserves) are equal to or greater than: (i) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible Inventory and all negotiable documents of title with respect to such Eligible Inventory have been consigned to the issuer of the Letter of Credit Accommodation, the sum of (A) the percentage equal to one hundred (100%) percent minus the then applicable percentage set forth in Section 2.1(a)(ii)(B) above of the Value of such Eligible Inventory, plus (B) freight, taxes, duty and other amounts which Lender estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrower’s locations for Eligible Inventory within the United States of America and (ii) if the proposed Letter of Credit Accommodation is for any other purpose, an amount equal to one hundred (100%) percent of the face amount thereof and all other commitments and obligations made or incurred by Lender with respect thereto. Effective on the issuance of each Letter of Credit Accommodation, an Availability Reserve shall be established in the applicable amount set forth in Section 2.2(c)(i) or Section 2.2(c)(ii) hereof.

(d) Except in Lender’s discretion, the amount of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred by Lender in connection therewith shall not at any time exceed the Maximum Letter of Credit Facility. At any

 

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time an Event of Default exists or has occurred and is continuing, upon Lender’s request, Borrower will either furnish cash collateral to secure the reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or furnish cash collateral to US Collateral Agent for the Letter of Credit Accommodations, and in either case, the Revolving Loans otherwise available to Borrower shall not be reduced as provided in Section 2.2(c) hereof to the extent of such cash collateral.

(e) Borrower shall indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including, but not limited to, any losses, claims, damages, liabilities, costs and expenses due to any action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation. Borrower assumes all risks with respect to the acts or omissions of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrower’s agent. Borrower assumes all risks for, and agrees to pay, all foreign, Federal, State and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder. Borrower hereby releases and holds Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by Borrower, by any issuer or correspondent or otherwise with respect to or relating to any Letter of Credit Accommodation. The provisions of this Section 2.2(e) shall survive the payment of Obligations and the termination of this Agreement.

(f) Nothing contained herein shall be deemed or construed to grant Borrower any right or authority to pledge the credit of Lender in any manner. Lender shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Lender unless Lender has duly executed and delivered to such issuer the application or a guarantee or indemnification in writing with respect to such Letter of Credit Accommodation. Borrower shall be bound by any interpretation made by Lender, or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such interpretation may be inconsistent with any instructions of Borrower. Lender shall have the sole and exclusive right and authority to, and Borrower shall not at any time while an Event of Default exists, (A) approve or resolve any questions of non-compliance of documents, (B) give any instructions as to acceptance or rejection of any documents or goods, (C) execute any and all applications for steamship or airway guarantees, indemnities or delivery orders, (D) grant any extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, or (E) agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included in the Collateral. Lender may take such actions either in its own name or in Borrower’s name.

(g) Any rights, remedies, duties or obligations granted or undertaken by Borrower to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrower to Lender.

 

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Any duties or obligations undertaken by Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Lender in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrower to Lender and to apply in all respects to Borrower.

 

2.3	Availability Reserves

All Revolving Loans otherwise available to Borrower pursuant to the lending formulas and subject to the Maximum Credit, the Maximum Letter of Credit Facility and other applicable limits hereunder shall be subject to Lender’s continuing right to establish and revise Availability Reserves, upon not less than five (5) days’ prior written notice to Borrower.

SECTION 3 INTEREST AND FEES

 

3.1

Interest

(a) Borrower shall pay to Lender interest on the outstanding principal amount of the non-contingent Obligations at the applicable Interest Rate.

(b) Interest shall be payable by Borrower to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of a three hundred sixty (360) day year and actual days elapsed. The interest rate shall increase or decrease by an amount equal to each increase or decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced. The increase or decrease shall be based on the Prime Rate in effect on the last day of the month in which any such change occurs. All interest accruing hereunder on and after an Event of Default or termination hereof shall be payable on demand. In no event shall charges constituting interest payable by Borrower to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto.

 

3.2	Commitment Fee

Borrower shall pay to Lender annually a commitment fee in an amount equal to $10,000 per annum while this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be fully earned as of and payable in advance on the first day of the thirteenth month following the date of closing under the Original Loan Agreement and on each anniversary of such date thereafter.

 

3.3	Closing Fee

Borrower shall pay to Lender as a closing fee the amount of $35,000, which shall be fully earned as of and payable on the date hereof.

 

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3.4	Servicing Fee

Borrower shall pay to Lender a monthly servicing fee in an amount equal to $1,000 per month in respect of Lender’s services for each month (or part thereof) while this Agreement remains in effect and for so long thereafter as any of the Obligations are outstanding, which monthly fee shall be fully earned as of and payable in advance on the date of closing hereof and on the first day of each month thereafter.

 

3.5	Unused Line Fee

Borrower shall pay to Lender a monthly unused line fee at a rate equal to one-quarter of one percent (0.25%) per annum calculated on the amount by which the Maximum Credit exceeds the average daily principal balance of the outstanding Revolving Loans and Letter of Credit Accommodations during the immediately preceding month (or part thereof) during which this Agreement is in effect and for so long thereafter as any of the Obligations are outstanding, which fee shall be payable on the first day of each month.

 

3.6	Currency of Payments

Unless otherwise specified by Lender, all interest, fees and other payments by Borrower hereunder shall be in the currency in which such Obligations are denominated.

SECTION 4 CONDITIONS PRECEDENT

 

4.1	Conditions Precedent to Revolving Loans and Letter of Credit Accommodations

This Agreement shall not be effective until each of the agreements or actions set out in the Closing Checklist attached hereto as Exhibit B have been executed, delivered or completed, as the case may be, to the satisfaction of Lender or waived in writing (in whole or in part) by Lender in its sole discretion and each of the following is a condition precedent to Lender continuing to make Revolving Loans and/or provide Letter of Credit Accommodations to Borrower hereunder:

(a) all representations and warranties contained in this Agreement and in the other Financing Agreements shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of the making of each such Revolving Loan or providing each such Letter of Credit Accommodation and after giving effect thereto, except with respect to those representations and warranties that were or are expressly made as of a particular date and except to the extent that there are changes with respect to matters referenced in such representations and warranties after the date thereof that do not and will not otherwise cause a Default or Event of Default hereunder, and

(b) no Event of Default and no event or condition which, with notice or passage of time or both, would constitute an Event of Default, shall exist or have occurred and be continuing on and as of the date of the making of such Revolving Loan or providing each such Letter of Credit Accommodation or after giving effect thereto.

 

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SECTION 5 COLLECTION AND ADMINISTRATION

 

5.1	Borrower’s Loan Account

Lender shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Revolving Loans, Letter of Credit Accommodations and other Obligations and the Collateral, (b) all payments made by or on behalf of Borrower and (c) all other appropriate debits and credits as provided in this Agreement, including fees, charges, costs, expenses and interest. All entries in the loan account(s) shall be made in accordance with Lender’s customary practices as in effect from time to time.

 

5.2	Statements

Lender shall render to Borrower each month a statement setting forth the balance in Borrower’s loan account(s) maintained by Lender for Borrower pursuant to the provisions of this Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be considered correct and deemed accepted by Borrower and conclusively binding upon Borrower as an account stated except to the extent that Lender receives a written notice from Borrower of any specific exceptions of Borrower thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrower a written statement as provided above, the balance in Borrower’s loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrower.

 

5.3	Collection of Accounts

(a) Borrower shall establish and maintain, at its expense, blocked accounts (“ Blocked Accounts ”), with such banks as are acceptable to Lender into which Borrower shall, in accordance with Lender’s instructions, promptly deposit all payments on Accounts and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by cash, check or other manner. Upon the occurrence and during the continuation of an Event of Default, Lender may, and Borrower shall upon Lender’s request, direct Borrower’s, MCE’s and MCC’s account debtors to directly remit all payment on Accounts to the Blocked Accounts. The banks at which the Blocked Accounts are established shall enter into an agreement, in form and substance satisfactory to Lender, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the depository bank has no lien upon, or right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the depository bank will wire, or otherwise transfer, in immediately available funds, on a daily basis, all funds received or deposited into the Blocked Accounts to such bank account of Lender as Lender may from time to time designate for such purpose (“ Payment Account ”). Borrower agrees that all payments made to such Blocked Accounts or other funds received and collected by Lender, whether on the Accounts or as proceeds of Inventory or other Collateral or otherwise shall be the security of Lender and/or US Collateral Agent.

(b) For purposes of calculating the amount of the Revolving Loans available to Borrower, such payments will be applied (conditional upon final collection) to the Obligations

 

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on the Business Day of receipt by Lender of immediately available funds in a Payment Account provided such payments and notice thereof are received in accordance with Lender’s usual and customary practices as in effect from time to time and within sufficient time to credit Borrower’s loan account on such day, and if not, then on the next Business Day. For the purposes of calculating interest on the Obligations, such payments or other funds received will be applied (conditional upon final collection) to the Obligations on the date of receipt of immediately available funds by Lender in the applicable Payment Account provided such payments or other funds and notice thereof are received in accordance with Lender’s usual and customary practices as in effect from time to time and within sufficient time to credit Borrower’s loan account on such day, and if not,