LOAN AND SECURITY AGREEMENT

 

(h)                                                                                  Unless otherwise defined herein, all capitalized terms in this Agreement shall have the meanings given those terms in the UCC.

 

1.3                                  Exhibits and Schedules.   All Exhibits and Schedules attached hereto are by reference made a part hereof.

 

Section 2.                                           Loans.

 

2.1                                  Schedule of Factor Sub Accounts .  If required by Lender from time to time, all Factor Sub Accounts of Borrower, shall be submitted to Lender on a Schedule of Factor Sub Accounts listing each Factor Sub Account separately.  The Schedule of Factor Sub Accounts shall be in the form attached hereto as Schedule 1 and shall be signed by a person acting or purporting to act on behalf of Borrower.  At the time the Schedule of Factor Sub Accounts is presented, if required by Lender, Borrower shall also deliver to Lender one copy of an invoice for each Factor Sub Account together with evidence of shipment, and/or delivery of the Goods or other property or rendition of service(s).

 

2.2                                  Advances .

 

(a)                                                                                   In Lender’s sole discretion, subject to the terms and conditions of this Agreement, and during the term of this Agreement and so long as no Default has occurred and is continuing, Lender may from time to time make advances to Borrower (each, an “Advance” and collectively, the “Advances”) in an amount up to, but not to exceed, an amount equal to the lesser of (i) the Maximum Revolving Credit Limit, less the amount of outstanding advances under this Section 2.2 , or (ii) the Borrowing Base, less the amount of outstanding advances under this Section  2.2 as follows: For purposes of this Agreement, “ Borrowing Base ,” as of any date of determination, shall mean the result of: up to eighty  percent (80.0%) of the aggregate unpaid Purchase Price of all Factor Sub Accounts outstanding at such time so long as dilution is less than or equal to ten percent (10.0%), less the sum of: (1) the aggregate unpaid Purchase Price of any such Factor Sub Accounts with respect to which a Dispute exists, (2) at Lender’s option, the aggregate unpaid Purchase Price of Factor Sub Accounts that are not Approved Accounts, (3) any interest, expenses or fees, actual or estimated, that are chargeable to the Reserve Account pursuant to the terms hereof, and (4) the amount of the Reserve.  The Advances shall be reduced by a minimum of two percent (2%) for every one percent (1%) of dilution in excess of ten percent (10%).

 

(b)                                                                                  Notwithstanding the forgoing, the aggregate amount of all outstanding Obligations (including the face amount of all letters of credit, banker’s acceptances or other financial accommodations issued or guaranteed by Lender for or on behalf of Borrower) shall in no event exceed the Maximum Revolving Credit Limit.

 

(c)                                                                                   Any Advances shall bear interest at the rate set forth in Section 2.5 from the date such Advance is made until the date such Advance is paid in full in cash.  Borrower will cause all Factor Sub Accounts Proceeds to be forwarded directly to a lockbox designated by Lender.  Borrower will also cause Factor Sub to make all payments of the Purchase Price of each Factor Sub Account into a lockbox designated by Lender.  All payments received in such lockbox shall be deposited in a bank account as directed by Lender for application to payment of the Obligations.  All Advances, Interest, fees and other Obligations outstanding from Borrower shall be deducted from collections and other proceeds of Collateral received by Lender.

 

(d)                                                                                  Borrower shall make each payment required under this Agreement, and/or under any instrument delivered hereunder, without setoff, deduction or counterclaim.

 

2.3                                  Overadvance.   All of the Advances made pursuant to Section 2.2 shall be added to and deemed part of the Obligations when made.  If, at any time and for any reason, the aggregate amount of Advances made pursuant to Section 2.2 exceeds the above percentage or dollar limitations, or if all of Borrower’s Obligations, at any time and for any reason, exceed the Maximum Revolving Credit Limit (an “Overadvance”), then Borrower, upon Lender’s election and demand, shall immediately pay to Lender, in cash, the amount of such Overadvance.

 

2.4                                  Reserve Account .  Without limiting any other provision hereof, Lender shall be entitled to withhold a Required Reserve Amount from the cash proceeds of the Factor Sub Accounts and other Collateral, and

 

2

 

may revise the Required Reserve Amount or Reserve Percentage at any time and from time to time if Lender deems it necessary to do so in order to protect Lender’s interests.  Lender may charge against the Reserve Account any amount for which Borrower may be obligated to Lender at any time hereunder, whether under the terms of this Agreement, or otherwise, including but not limited to the repayment of any Overadvance, any damages suffered by Lender as a result of Borrower’s breach of any provision of Section 5(b) (whether intentional or unintentional), any adjustments due and any attorneys’ fees, costs and disbursements due.  Borrower recognizes that the Reserve Account represents bookkeeping entries only and not cash funds.  It is further agreed that Lender is authorized to withhold, without giving prior notice to Borrower, any credit balance in the Reserve Account due to Borrower under the terms of this Agreement for reasonably anticipated claims or to adequately satisfy reasonably anticipated Obligation(s) Borrower may owe Lender.  If a Default has occurred and is continuing, Lender shall be under no obligation to pay the amount in the Reserve Account until all Factor Sub Accounts listed on all Schedules of Factor Sub Accounts have been collected and applied to repay all Obligations hereunder or Lender has determined, in its sole discretion, that it will make no further efforts to collect any Factor Sub Accounts and all sums due Lender hereunder have been paid in full in cash.

 

2.5                                  Interest .  (a)  Borrower will pay Lender or, at Lender’s option, Lender may charge Borrower’s loan account with, interest on the average daily net principal amount of Obligations outstanding hereunder, calculated monthly and payable on the first day of each calendar month, at a rate (computed on the basis of the actual number of days elapsed over a year of 360 days) (the “Interest Rate”) equal to the sum of (i) LIBOR (as defined below), plus (ii) five and one-half percent (5.5%) (the “Interest Margin”), but in no event less than 7.75%.  The Interest Rate may not be the lowest or best rate at which Lender calculates interest or extends credit.  The Interest Rate for each calendar month shall be adjusted (if necessary) on the first day of such calendar month and shall be equal to the Interest Rate in effect as of the close of business on the last Business Day of the immediately preceding calendar month.

 

  As used herein, the following terms shall have the following meanings:

 

 “ LIBOR ” means, at any time, an interest rate per annum equal to the interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 th  of 1%) as published in the “Money Rates” section of The Wall Street Journal (or another national publication selected by the Lender) as the one month London Interbank Offered Rate for United States dollar deposits or such other language (or, if such page shall cease to be publicly available or, if the information/description contained on such page, in Lender’s sole judgment, shall cease to accurately reflect such London Interbank Offered Rate, then such rate as reported by any publicly available recognized source of similar market data selected by Lender that, in Lender’s reasonable judgment, accurately reflects such London Interbank Offered Rate).

 

(b)  Market Disruption Event . If, at any time, Lender determines (which determination shall be conclusive and binding) that (a) by reason of circumstances affecting the London interbank market generally, adequate and fair means do not exist for ascertaining LIBOR for the following month as provided in subsection (a) hereof, or (b) disruptions in the short term money markets have materially and adversely affected Lender’s cost of funds such that the interest rate hereunder does not adequately or fairly reflect Lender’s cost of making, funding or maintaining the loan hereunder, a “Market Disruption Event” will be deemed to have occurred and the Lender shall promptly notify the Borrower thereof. The rate of interest hereunder (the “Adjusted Rate of Interest”) shall be adjusted and shall thereafter be a rate equal to the sum of (x) the rate that Lender determines (which determination shall be conclusive and binding), expressed as a percentage rate per annum, to be the cost to Lender of funding the loan from whatever source it may reasonably elect, plus (y) the Interest Margin. Lender shall give prompt notice to Borrower of the Adjusted Rate of Interest.

 

Borrower shall begin to be charged interest at the Adjusted Rate of Interest effective as of the first day of the month following the month in which Lender provides notice thereof to Borrower, provided, however, that if Borrower is unwilling to accept the Adjusted Rate of Interest, it may terminate this Agreement and prepay all amounts due hereunder within thirty (30) days of the effective date of the Adjusted Rate of Interest without paying a prepayment fee.

 

 (c)     Lender shall be entitled to charge Borrower for five (5) days of “clearance” or “float” at the interest rate then applicable on all collections that are received.  This across-the-board five (5) day clearance or float charge on all

 

3

 

collections of Borrower is acknowledged by the parties to constitute an integral aspect of the pricing of this financing of Borrower and shall apply irrespective of whether or not there are any outstanding Obligations; the effect of such clearance or float charge being the equivalent of charging interest on such collections through the completion of a period ending five (5) days after the receipt thereof.  The parties acknowledge and agree that the economic benefit of the foregoing provisions shall be for the exclusive benefit of Lender.

 

 (d)                               To the extent permitted by law and without limiting any other right or remedy of Lender hereunder, whenever there is a Default under this Agreement, the rate of interest on the Obligations shall, at the option of Lender, be increased to a default interest rate by adding five percent (5%) to the highest interest rate otherwise in effect hereunder.  Lender may charge such default interest rate retroactively beginning on the date the applicable Default first occurred or existed.  Borrower acknowledges that: (i) such additional rate is a material inducement to Lender to purchase Accounts and consider requests for Advances hereunder; (ii) Lender would not have made the Advances in the absence of the agreement of Lender to pay such additional rate; (iii) such additional rate represents compensation for increased risk to Lender that Lender will not be repaid; and (iv) such rate is not a penalty and represents a reasonable estimate of (A) the cost to Lender in allocating its resources (both personnel and financial) to the ongoing review, monitoring, administration and collection of the Advances and Obligations, and (B) compensation to Lender for losses that are difficult to ascertain.  In the event of termination of this Agreement by either party hereto, Lender’s entitlement to this charge will continue until all Obligations are paid in full.

 

(e)                                   THE PARTIES HERETO INTEND TO CONTRACT IN STRICT COMPLIANCE WITH APPLICABLE USURY LAW FROM TIME TO TIME IN EFFECT.  IN FURTHERANCE THEREOF, SUCH PARTIES STIPULATE AND AGREE THAT NONE OF THE TERMS AND PROVISIONS CONTAINED IN THIS AGREEMENT SHALL EVER BE CONSTRUED TO CREATE A CONTRACT TO PAY, FOR THE USE, FORBEARANCE OR DETENTION OF MONEY, INTEREST IN EXCESS OF THE MAXIMUM RATE (AS HEREINAFTER DEFINED) FROM TIME TO TIME IN EFFECT.  NEITHER BORROWER, ANY PRESENT OR FUTURE GUARANTOR OR ANY OTHER PERSON HEREAFTER BECOMING LIABLE FOR THE PAYMENT OF THE ADVANCES, SHALL EVER BE LIABLE FOR ANY OBLIGATION THAT MAY BE CHARACTERIZED AS UNEARNED INTEREST THEREON OR SHALL EVER BE REQUIRED TO PAY ANY OBLIGATION THAT MAY BE CHARACTERIZED AS INTEREST THEREON IN EXCESS OF THE MAXIMUM AMOUNT THAT MAY BE LAWFULLY CHARGED UNDER APPLICABLE LAW FROM TIME TO TIME IN EFFECT, AND THE PROVISIONS OF THIS SECTION SHALL CONTROL OVER ALL OTHER PROVISIONS OF THIS AGREEMENT WHICH MAY BE IN CONFLICT THEREWITH.  IF ANY INDEBTEDNESS OR OBLIGATION OWED BY BORROWER HEREUNDER IS DETERMINED TO BE IN EXCESS OF THE LEGAL MAXIMUM, OR LENDER SHALL OTHERWISE COLLECT MONIES WHICH ARE DETERMINED TO CONSTITUTE INTEREST WHICH WOULD OTHERWISE INCREASE THE INTEREST ON ALL OR ANY PART OF SUCH OBLIGATIONS TO AN AMOUNT IN EXCESS OF THAT PERMITTED TO BE CHARGED BY APPLICABLE LAW THEN IN EFFECT, THEN ALL SUCH SUMS DETERMINED TO CONSTITUTE INTEREST IN EXCESS OF SUCH LEGAL LIMIT SHALL, WITHOUT PENALTY, BE PROMPTLY APPLIED TO REDUCE THE THEN OUTSTANDING OBLIGATIONS OR, AT LENDER’S OPTION, RETURNED TO BORROWER OR THE OTHER PAYOR THEREOF UPON SUCH DETERMINATION.  IF AT ANY TIME THE RATE AT WHICH INTEREST IS PAYABLE HEREUNDER EXCEEDS THE MAXIMUM RATE, THE AMOUNT OUTSTANDING HEREUNDER SHALL CEASE BEARING INTEREST UNTIL SUCH TIME AS THE TOTAL AMOUNT OF INTEREST ACCRUED HEREUNDER EQUALS (BUT DOES NOT EXCEED) THE MAXIMUM RATE APPLICABLE HERETO.   AS USED IN THIS SECTION, THE TERM “APPLICABLE LAW” MEANS THE LAWS OF THE STATE OF CALIFORNIA OR, IF DIFFERENT, THE LAWS OF THE STATE OR TERRITORY IN WHICH THE BORROWER RESIDES, WHICHEVER LAW ALLOWS THE GREATER RATE OF INTEREST, AS SUCH LAWS NOW EXIST OR MAY BE CHANGED OR AMENDED OR COME INTO EFFECT IN THE FUTURE AND THE TERM “MAXIMUM RATE” MEANS THE MAXIMUM NONUSURIOUS RATE OF INTEREST THAT LENDER IS PERMITTED UNDER APPLICABLE LAW TO CONTRACT FOR, TAKE, CHARGE OR RECEIVE WITH RESPECT TO THE ADVANCES.

 

2.6                                  Conditions to Obligation to Make Advances .  Borrower acknowledges that Lender’s obligation to make Advances to Borrower is subject to the following terms and conditions:

 

4

 

(a)                                                                                   Lender has no obligation to make the initial Advance to Borrower unless and until Borrower delivers to Lender, in form and substance reasonably satisfactory to Lender, each agreement, instrument, and other document requested by Lender.

 

(b)                                                                                  Lender’s obligation to consider Borrower’s requests for Advances is subject to the conditions that, as of the date of any such Advance, no default or Default will have occurred and be continuing hereunder, there will have occurred no material adverse change in Borrower’s financial condition or operations or in Borrower’s business prospects as compared to the state of facts existing on the date of this Agreement, and Borrower’s representations and warranties set forth in this Agreement (including any amendment, modification, supplement or extension hereof) will be true and correct as if made on and as of the date of each subsequent credit request.  Each request by Borrower for an Advance will be deemed to be a reaffirmation of each of Borrower’s warranties and representations hereunder.

 

Section 3.                                           Collections.

 

(a)                                   Borrower shall cause Factor Sub to forward Factor Sub Accounts Proceeds and payments of the Purchase Price with respect to any Factor Sub Accounts to such lockbox as Lender may direct from time to time. Lender shall have the right at any time after the occurrence of a Default and without notice to Borrower, to notify Factor Sub of the grant of the Security Interest to Lender and to notify Factor Sub to make payment of all amounts due or to become due to Borrower, as Lender may direct.  So long as no Default has occurred and is continuing and so long as no Obligations are then owing by Borrower to Lender, Lender shall be deemed to have received any such Factor Sub Account Proceeds as a pure pass-through for and on account of Borrower.

 

(b)                                  Lender shall have the sole and exclusive power and authority to collect the Factor Sub Account Proceeds, through legal action or otherwise, and Lender may, in its sole discretion, settle, compromise, or assign (in whole or in part) any of such Factor Sub Account Proceeds, or otherwise exercise, to the maximum extent permitted by applicable law, any other right now existing or hereafter arising with respect to any of such Factor Sub Accounts Proceeds.  If Borrower receives payment of all or any portion of any of such Factor Sub Accounts or any other Factor Sub Account, Borrower shall notify Lender immediately and shall hold all checks and other instruments so received in trust for Lender, separate and apart from Borrower’s other property and shall deliver to Lender such checks and other instruments without delay.

 

(c)                                   Without limiting Lender’s right to apply cash proceeds to increase the balance of the Reserve Account, all amounts collected by Lender on Factor Sub Accounts Proceeds or other Collateral shall be available (i) to repay outstanding Advances hereunder (ii) to pay other outstanding Obligations or (iii) if all Obligations have been paid in full in cash or, otherwise, if Lender in its sole and absolute discretion so elects, for turnover to Borrower, in each case not later than the date a check, draft or other item representing payment of such cash proceeds is received by Lender plus five (5) days.

 

Section 4.                                           Collateral.

 

4.1  Security Interest .  In order to secure the payment of all indebtedness and other Obligations of Borrower to Lender, Borrower hereby grants to Lender a security interest in and lien upon and assigns, mortgages and pledges to Lender all of Borrower’s right, title and interest in and to all of Borrower’s presently existing or hereafter arising Collateral wherever located.  Lender and Borrower acknowledge that all Factor Sub Accounts sold pursuant to the terms of the Factor Sub Factoring Agreement shall be sold free and clear of any lien or interest of Lender in such Factor Sub Accounts, but that Lender shall have a Lien on the Factor Sub Accounts Proceeds.

 

4.2 Perfection/Further Assurances . Borrower agrees to comply with all appropriate laws in order to perfect Lender’s security interest in and to the Collateral and to execute such documents as Lender may require from time to time.  Borrower authorizes Lender to file at such times and places as Lender may designate such financing statements, continuations and amendments thereto as are necessary or desirable to perfect Lender’s rights in and give notice of Lender’s purchase of the Accounts under the UCC in effect in any applicable jurisdiction and Lender’s security interest in the Collateral.  Lender may at any time and from time to time file Financing Statements, continuation statements and amendments thereto that describe the Collateral as “all assets” of Borrower or words of similar effect and which contain any other information required by Part 5 of Article 9 of the applicable UCC for the

 

5

 

sufficiency or filing office acceptance of any Financing Statement, continuation statement or amendment, including whether Borrower is an organization, the type of organization and any organization identification number issued to Borrower.  Borrower agrees to furnish any such information to Lender promptly upon request.  Any such Financing Statements, continuation statements or amendments may be signed by Lender on behalf of Borrower or filed by Lender without the signature of Borrower and may be filed at any time in any jurisdiction.  Borrower acknowledges that it is not authorized to file any Financing Statement or amendment or termination statement with respect to any Financing Statement naming Borrower as the debtor and Lender as the secured party without the prior written consent of Lender, and Borrower agrees that it shall not do so without the prior written consent of Lender.  Borrower hereby ratifies any UCC Financing Statements previously filed by Lender.

 

4.3  Collateral Representations, Warranties and Covenants

 

(a)  Borrower is the sole owner and holder of all Collateral and there is no security interest, Lien, judgment or other encumbrance in or affecting such Accounts or any of the other Collateral except for Permitted Liens;

 

(b)  The Collateral is located at the locations set forth on Schedule 4.3 (b) hereof and at no other location.  Borrower shall provide written notice to Lender of any change in the locations at which it keeps its Collateral at least thirty (30) days prior to any such change. Borrower shall obtain from any landlord, warehouseman, or other third party operator of premises on which any Collateral is located an acceptable lien waiver or subordination agreement in Lender’s favor with respect to such Collateral.  In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall, immediately endorse and assign such Negotiable Collateral over to Lender and deliver actual physical possession of the Negotiable Collateral to Lender.  Borrower shall at any time and from time to time take such steps as Lender may request for Lender (i) to obtain an acknowledgment, in form and substance satisfactory to Lender, of any bailee having possession of any of the Collateral that such bailee holds such Collateral for Lender, (ii) to obtain “control” of any investment property, deposit accounts, letter-of-credit rights or electronic chattel paper in accordance with Article 9 of the UCC, with any agreements establishing control to be in form and substance satisfactory to Lender, and (iii) otherwise to insure the continued perfection and priority of Lender’s security interest in the Collateral and of the preservation of its rights therein other than the Inventory in Mexico.

 

(c)  Factor Sub Accounts Proceeds.  There is no Lien, encumbrance, security interest or other claim of any kind or nature on the Factor Sub Account Proceeds or the Collateral except the liens, encumbrances and security interests arising under the Factor Sub Factoring Agreement and the Factoring and Inventory Advance and Security Agreement.  Borrower will not grant a security interest or execute any Financing Statement in favor of any other Person with respect to the Collateral during the Term of this Agreement, without the prior written consent of Lender.  The Purchase Price for the Factor Sub Accounts is due and owing to Borrower without offset, deduction or counterclaim except as set forth in the Factor Sub Factoring Agreement.

 

(d)  Inventory.  Borrower will maintain Inventory at the locations set forth on Schedule 4.3 (b) hereof subject to a perfected, first-priority Lien in favor of Lender (other than Inventory located in Mexico).  Sales of Inventory will be made in compliance with all material requirements of applicable law. Until Default, Borrower may use the Inventory in any lawful manner not inconsistent with this Agreement or with the terms or conditions of any policy of insurance thereon, may use and consume any raw materials or supplies, the use and consumption of which is necessary in order to carry on Borrower’s business, and may also sell the Inventory in the ordinary course of business.  (A sale in the ordinary course of business does not include a transfer in partial or total satisfaction of a debt owing by Borrower to any person other than Lender.)

 

(e)  Equipment.  Borrower will maintain all Equipment used or useful in Borrower’s business in good and workable condition, ordinary wear and tear excepted, subject to a perfected, first-priority security interest in Lender’s favor and free and clear of all other Liens except Permitted Liens at one of the locations set forth on Schedule 4.3(b).

 

(f)  Defense of Title.  All Collateral will at all times be owned by Borrower, and Borrower will defend Borrower’s title to the Collateral against the claims of third parties.  Borrower will at all times keep accurate and complete records of the Collateral.

 

6

 

(g)  Insurance.  Borrower will obtain and maintain in full force and effect insurance covering the Collateral against all risks to which the Collateral is exposed, including loss, damage, fire, theft, and all other such risks, in such amounts, with such companies, under such policies and in such form as will be satisfactory to Lender, which policies will name Lender as an additional insured and provide that loss thereunder will be payable to Lender as Lender’s interests may appear upon a loss payee endorsement acceptable to Lender.  All proceeds of any such insurance will be paid over to Lender directly, and Lender may apply such proceeds to payment of the Obligations, whether or not due, in such order of application as Lender determines or, in Lender’s sole discretion, apply such proceeds, in whole or in part, to the replacement, restoration or rebuilding of the lost or damaged property.  Borrower will provide to Lender from time to time certificates showing such coverage in effect and, at Lender’s request, the underlying policies.

 

(h)  Commercial Tort Claims.  If Borrower shall at any time acquire a commercial tort claim, Borrower shall immediately notify Lender in a writing signed by Borrower of the details thereof and grant to Lender in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to Lender.

 

Section 5.   Power of Attorney.   Borrower grants to Lender an irrevocable power of attorney authorizing and permitting Lender, at its option, with or without notice to Borrower to do any or all of the following:  (a) Endorse the name of Borrower on any checks or other evidences of payment whatsoever that may come into the possession of Lender regarding Collateral, including checks received by Lender pursuant to Section 5;  (b) Receive, open and dispose of any mail addressed to Borrower and put Lender’s address on any statements mailed to Account Debtors; (c) Pay, settle, compromise, prosecute or defend any action, claim, conditional waiver and release, or proceeding relating to Collateral; (d) Upon the occurrence of a Default, notify in the name of the Borrower, the U.S. Post Office to change the address for delivery of mail addressed to Borrower to such address as Lender may designate, provided, however, Lender shall turn over to Borrower all such mail not relating to Collateral; (e) File any Financing Statement deemed necessary or appropriate by Lender to protect Lender’s interest in and to the Collateral, or under any provision of this Agreement; (f) Effect debits to any Deposit Account that Borrower maintains at any bank for any sums due to or from the Borrower under this Agreement; and (g) To do all other things necessary and proper in order to carry out this Agreement.  The authority granted to Lender herein is irrevocable until this Agreement is terminated and all Obligations are fully satisfied.

 

Section 6.   Borrower’s Representations, Warranties and Covenants .

 

6.1  Borrower’s Representations, Warranties and Covenants.  Borrower represents, warrants and covenants to Lender that:

 

(a)                                                                                   Borrower is a corporation or limited liability company, duly organized, validly existing and in good standing under the laws of the state of Delaware and is qualified and authorized to do business and is in good standing in all states in which such qualification and good standing are necessary or desirable.

 

(b)                                                                                  The execution, delivery and performance by Borrower of this Agreement does not and will not constitute a violation of any applicable law, violation of Borrower’s articles of organization, operating agreement or other organizational documents, or a material breach of any other document, agreement or instrument to which Borrower is a party or by which Borrower is bound.  The Agreement is a legal, valid and binding obligation of Borrower enforceable against it in accordance with its terms.

 

(c)                                                                                   Borrower’s address, as set forth below its signature line hereto, is Borrower’s mailing address, its state of organization, its chief executive office, principal place of business and the office where all of the books and records concerning the Factor Sub Accounts and Inventory are maintained which shall not be changed without giving thirty (30) days prior written notice to Lender.

 

(d)                                                                                  Borrower shall maintain its books and records in accordance with GAAP.  Borrower shall furnish Lender, upon request, such information and statements, as Lender shall require from time to time regarding Borrower’s business affairs, financial condition and results of its operations.  Without limiting the generality of the foregoing, Borrower shall provide Lender, (i) on or prior to the 30 th  day of each month, unaudited financial statements with respect to the prior month, (ii) within forty-five (45) days after the end of each of Borrower’s quarters, unaudited

 

7

 

financial statements (on a fiscal year-to-date basis) prepared by a CPA acceptable to Lender, (iii) within ninety (90) days after the end of each of Borrower’s fiscal years, audited financial statements prepared by a CPA acceptable to Lender, (iv) a certificate from the president or chief financial officer of Borrower stating whether any Default has occurred and stating the nature of the Default, and (v) such other information as Lender may request.  Borrower will furnish to Lender upon request a current listing of all open and unpaid accounts payable. All financial statements and reports furnished to Lender hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP, consistently applied.  Lender shall have the right at any time, at Borrower’s expense, to visit and inspect Borrower’s books and records, and to make and take away copies of Borrower’s books and records.

 

(e)                                                                                   Borrower has paid and will pay all taxes and governmental charges imposed with respect to sale of Goods or other property and furnish to Lender upon request satisfactory proof of payment and compliance with all federal, state and local tax requirements.

 

(f)                                                                                     Borrower will promptly notify Lender of (i) the filing of any lawsuit against Borrower involving amounts greater than $50,000.

 

(g)                                                                                  The Application made or delivered by or on behalf of Borrower in connection with this Agreement, and the statements made therein, are true and correct at the time that this Agreement is executed.  There is no fact which Borrower has not disclosed to Lender in writing which could materially adversely affect the properties, business or financial condition of Borrower, or any of the Approved Accounts or other Collateral, or which is necessary to disclose in order to keep the foregoing representations and warranties from being misleading.

 

(h)                                                                                  In no event shall the funds paid to Borrower hereunder be used directly or indirectly for personal, family, household or agricultural purposes.

 

(i)                                                                                      Borrower does business under no trade or assumed names except as indicated below.  These names are a trade name and/or tradestyle by which Borrower will or may identify and sell certain of its products and under which Borrower will or may conduct a portion of its business, and are not an independent corporation or other legal entity.  Lender is hereby authorized to receive, endorse and deposit any and all checks sent to it in payment of such Accounts including such checks as are payable to any of the trade styles or tradenames.  Accounts invoiced in the name of any tradename or tradestyle are subject to all of the terms and conditions of this Agreement with the same force and effect as if they were in Borrower’s corporate name.

 

Meade

Meade.com

Coronado

 

(j)                                                                                      Any invoice or written communication that is issued by Borrower to Lender by facsimile transmission is a duplicate of the original.

 

(k)                                                                                   Any electronic communication of data, whether by e-mail, tape, disk, or otherwise, Borrower remits or causes to be remitted to Lender shall be authentic and genuine.

 

(l)                                                                                      Borrower does not own, control or exercise dominion over, in any way whatsoever, the business of any Account or Customer.

 

(m)                                                                                Borrower represents and warrants to Lender that: (i) Borrower is not engaged as one of Borrower’s principal activities in owning, carrying or financing the purchase or ownership by others of “margin stock” (as defined in Regulation U of the Board of Governors of the Federal Reserve System); (ii) Borrower owns no real property and leases no real property other than as listed on Schedule 6.1 (m); (iii) a true, correct and complete list of any warehousemen, processors, consignees or other bailees with possession or control of any Inventory is set forth on Schedule 4.3 (b); and (iv) a list and brief description of all bank accounts maintained by Borrower with any bank or financial institution is set forth on Schedule 8.1 (m)

 

8

 

(n)                                                                                  In the event any such attempted return occurs after the occurrence of a Default hereunder, Borrower shall segregate all returned Inventory from all other property of Borrower or in Borrower’s possession and shall conspicuously label said returned Inventory as the property of Lender.  With respect to any return or attempted return of Inventory, Borrower shall notify Lender of the same immediately, specifying the reason for such return and the location and condition of the returned Inventory.

 

(o)                                  (i) The Factor Sub Accounts shall have been sold only to Factor Sub and Borrower has not and will not factor, sell, transfer, pledge or give a security interest in any Factor Sub Accounts to anyone other than Factor Sub.  There is no lien, encumbrance, security interest or other claim of any kind or nature on the Factor Sub Account Proceeds or the Collateral except the liens, encumbrances and security interests arising under the Factor Sub Factoring Agreement and the Factoring and Inventory Loan and Security Agreement, or Permitted Liens.  Borrower will not grant a security interest or execute any Financing Statement in favor of any other Person during the Term of this Agreement, without the prior written consent of Lender.

 

(ii) The amount of each Factor Sub Account is due according to its terms and owing to Borrower and represents an accurate statement of a bona fide sale, delivery and acceptance of Goods or other property or performance of service by Borrower to or for an Account Debtor.  The payment of such Factor Sub Accounts is not contingent upon the fulfillment by Borrower of any further performance of any nature whatsoever.  Each Factor Sub Account Debtor’s business is solvent to the best of Borrower’s knowledge.

 

(iii) There are and shall be no set-offs, allowances, discounts, deductions, counterclaims, or Disputes with respect to any Factor Sub Account in excess of $10,000, prior to the date it is to be paid.  Borrower shall submit to Lender on a separate Schedule of Accounts for each Account Debtor that is indebted on a Factor Sub Account, credit memos itemizing all such returns and allowances made during the previous week with respect to such Factor Sub Accounts and at Lender’s option a check (or wire transfer) payable to Lender for the amount thereof, or in Lender’s sole and exclusive discretion, Lender may agree to accept the Schedule of Factor Sub Accounts and apply same to Borrower’s Reserve Account.  Borrower agrees to give Lender notice of all set-offs, allowances, discounts, deductions, counterclaims or Disputes in excess of $100,000.

 

6.2                                  Negative Covenants .

 

(a)                                   No Merger .  Borrower will not merge or consolidate with any other Person or sell, transfer, lease, abandon, or otherwise dispose of a substantial portion of Borrower’s assets or any of the Collateral or any interest therein, except that, so long as no Default has occurred and is continuing, Borrower may sell Inventory in the ordinary course of Borrower’s business.

 

(b)                                  No Debt or Liens; Taxes .  Borrower will not obtain or attempt to obtain from any Person other than Lender any loans, advances, or other financial accommodations or indebtedness of any kind, nor will Borrower enter into any direct or indirect guaranty of any obligation of another Person.  Borrower will not permit any of Borrower’s assets or any part of the Collateral to be subject to any Lien.  Borrower shall pay when due (or before the expiration of any extension period) any tax or other assessment (including all required payments or deposits with respect to withholding taxes), and Borrower will, upon request by Lender, promptly furnish Lender with proof satisfactory to Lender that Borrower has made such payments and deposits.

 

(c)                                   No Distributions .  Borrower will not retire, repurchase or redeem any of Borrower’s capital stock or other ownership interest in Borrower, nor declare or pay any dividend in cash or other property (other than additional shares of capital stock or additional ownership interests) to any owner or holder of Borrower’s shares or other ownership interest.

 

(d)                                  No ERISA Liabilities .  Borrower will make timely payments of all contributions required to meet the minimum funding standards for Borrower’s employee benefit plan