Exhibit
10.5
REVOLVING CREDIT AND
SECURITY AGREEMENT
By and
Between
COMPASS
BANK
and
COSTAR VIDEO SYSTEMS,
LLC
August
21 ,
2009
REVOLVING CREDIT
AND SECURITY AGREEMENT
This Revolving Credit
and Security Agreement (as may be amended, this
“Agreement”) is executed and delivered this
21 day of
August , 2009, by and between
COSTAR VIDEO SYSTEMS, LLC , a Delaware limited liability
company ( “ Borrower ” ), with its chief
executive office and its principal place of business at 2720
Commodore Drive, Carrollton, Texas 75007, and COMPASS BANK (
“ Bank ” ), 8080 N. Central Expressway,
Suite 320, Dallas, Texas 75206, Attention: Dallas Commercial
Funding Department. Borrower has applied to Bank for a revolving
line of credit not to exceed an aggregate principal amount at
anyone time outstanding the sum of FOUR MILLION AND N0/100
DOLLARS ($4,000,000.00) (as may be amended, the “
Revolving Line ” ) to be evidenced by a Master
Revolving Promissory Note (as may be amended, the “
Note ” ) in such amount and to be secured by a
security interest in all of the Collateral (as defined herein) on
the terms hereinafter set forth.
Bank is willing to
extend the Revolving Line to Borrower up to an aggregate principal
amount not in excess of the amount set forth above upon the
security of the Collateral on the terms and subject to the
conditions hereinafter set forth to refinance some of
Borrower’s existing indebtedness and to provide Borrower with
ordinary working capital.
Accordingly, Borrower
and Bank, in consideration of the premises, the credit to be
extended hereunder, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, agree as
follows:
Capitalized terms not
otherwise defined herein shall have the meaning attributed to the
same in Addendum A hereto incorporated herein by reference as if
fully set forth.
SECTION 1.
Bank’s Agreement to Make Advances.
1.1
Borrowing
Base .
From the date hereof until August 21, 2010 (the
“ Maturity Date ” ), or such future date
to which the Maturity Date of the Revolving Line may be extended
(any such extension to be at Bank’s sole discretion and
evidenced by a writing executed by Bank), subject to the terms and
conditions of this Agreement and Borrower’s and all
Guarantors’ (as applicable) performance of and compliance
with each of the Loan Documents, and so long as no event of default
(including, without limitation, the breach of any warranty or
representation) hereunder or under any of the other Loan Documents
shall have occurred, be continuing, or would result, Bank agrees to
extend to Borrower an open-end credit line (also referred to as the
Revolving Line) on the basis of the following advance formula (such
advance formula being hereinafter referred to as the “
Borrowing Base ” ): eighty percent (80%) of the
outstanding value of the Eligible Accounts Receivable, plus fifty
percent (50%) of the value of the Eligible Inventory, not to
exceed the lesser of (a) fifty percent (50%) of the Borrowing
Base availability, or (b) $2,000,000.00; less such reserves
as Bank may establish in its reasonable discretion; provided
, however , that in no event shall the aggregate sum of all
principal advances made by Bank to Borrower at anyone time
outstanding hereunder exceed the sum of $4,000,000.00. Within such
limits and subject to the terms of this Agreement, Borrower may
borrow, repay without penalty or premium, and reborrow hereunder,
from the date of this Agreement until the Maturity Date. It is
expressly understood and agreed that Bank shall have no obligation
to make an advance under the Revolving Line if the amount of such
advance together with the amount outstanding under the Revolving
Line exceeds or would exceed the lesser of (i) $4,000,000.00 or
(ii) the Borrowing Base.
The value of all
Eligible Inventory shall be determined on the basis of any and all
factors and criteria as Bank (in its sole discretion) shall deem
appropriate, including, without limitation, that unless Bank shall
determine that some other basis is more appropriate, such value
shall be determined on the basis of the lower of cost, book or
market value, net of all handling charges, taxes, assessments,
insurance, warranty, interest, finance and other
charges.
If at any time Borrower
is not entitled to any advances by the terms of this Agreement,
Bank may, in its sole discretion, make requested advances; however,
it is expressly acknowledged and agreed that, in such event, Bank
shall have the right, in its sole discretion, to decline to make
any requested advance and to require any payment required under the
terms of the Agreement without prior notice to Borrower and the
making of any such advances shall not be construed as a waiver of
such right by Bank.
It is understood that
Borrower may from time to time request and apply for and Bank may,
in its sole discretion, issue letters of credit for the benefit of
such parties and on such terms and conditions as Borrower may
request and apply for in written application(s) for letter(s) of
credit in form and substance satisfactory to Bank, as delivered to
Bank along with such other documentation as Bank may require. In no
event shall Bank be required to issue any requested letter of
credit, although otherwise acceptable in form and substance if (i)
Borrower has not
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 1
executed and delivered
one or more promissory notes in form and substance acceptable to
Bank further evidencing Borrower’s agreement to reimburse
Bank for any advances or payments made or which could be made under
such letter of credit; (ii) the sum of the debit balance of
Borrower’s Loan Account, plus (a) the aggregate dollar amount
of all issued and unexpired L/Cs; plus (b) the dollar amount of the
requested letter of credit exceeds the lesser of (c) the Borrowing
Base or (d) $4,000,000.00; (iii) Borrower has not paid to Bank all
required fees and executed and delivered such associated
documentation as Bank shall request in form and substance
acceptable to Bank; (iv) the requested letter of credit is not
acceptable to Bank and does not provide for an expiration date
acceptable to Bank; or (v) any default or event of default shall
have occurred, be continuing or would result hereunder or under any
of the other Loan Documents.
1.2
Evidence of Advance
Not Causing Excess of Borrowing Base. If requested by Bank,
prior to any request for an advance hereunder, Borrower shall
submit to Bank such information and documents as Bank shall
reasonably request to establish to Bank’s satisfaction that,
if approved, the requested advance will not cause the amount of
funds outstanding to Borrower hereunder plus the aggregate dollar
amount of all issued and unexpired L/Cs to exceed the lesser of (i)
the Borrowing Base, or (ii) $4,000,000.00. Bank shall have no
obligation to make any advance for which Borrower is unable to
establish such to Bank’s satisfaction.
1.3
Borrower’s
Loan Account. All borrowings/advances
under the Revolving Line shall be evidenced by the Note and by
entering such borrowings/advances as debits to Borrower’s
Loan Account. Bank shall also record in Borrower’s Loan
Account all other charges, expenses and items properly chargeable
to Borrower hereunder (which shall also be evidenced by the Note),
all payments made by Borrower on account of indebtedness under the
Revolving Line and other appropriate debits (including, without
limitation, debits for advances made to honor drafts presented
under L/Cs (which advances Borrower hereby expressly authorize))
and credits. The debit balance of Borrower’s Loan Account
shall also be evidenced by the Note and shall reflect the amount of
Borrower’s indebtedness to Bank from time to time
hereunder.
1.4
Exceeding Borrowing
Base. IT at any time the
outstanding balance of Borrower’s Loan Account plus the
aggregate dollar amount of all issued and unexpired L/Cs exceeds
the lesser of (i) the Borrowing Base, or (ii) $4,000,000.00, then
Borrower shall not be entitled to any additional advances under the
Revolving Line while such excess exists and shall immediately remit
to Bank immediately available funds sufficient to eliminate such
excess or, if Bank requests, deliver to Bank additional collateral
of a value and character satisfactory to Bank. If the
Reconciliation Report (as defined in Section 2.6) indicates that
Borrower’s Loan Account or advances made to Borrower
hereunder plus the aggregate dollar amount of all issued and
unexpired L/Cs exceeds the lesser of (i) the Borrowing Base, or
(ii) $4,000,000.00, then Borrower shall not be entitled to any
additional advances under the Revolving Line while such excess
exists and shall immediately remit to Bank (with the relevant
Reconciliation Report) immediately available funds in the amount
sufficient to eliminate such excess.
1.5
Discretionary
Advances. In the event that the
availability of the Revolving Line hereunder expires by the terms
of this Agreement, or by the terms of any agreement extending the
Maturity Date of the Revolving Line, Bank may, in its sole
discretion, make requested advances; however, it is expressly
acknowledged and agreed that, in such event, Bank shall have the
right, in its sole discretion, to decline to make any requested
advance and may require payment in full of Borrower’s Loan
Account at any time without prior notice to Borrower and the making
of any such advances shall not be construed as a waiver of such
right by Bank. With regard to advances to honor drafts under L/Cs,
if, for any reason, any such advances are made after the
termination or expiration of the Revolving Line or the occurrence
or continuation of any default or event of default hereunder, or
when Bank otherwise has no obligation to make advances hereunder,
Borrower shall reimburse Bank for such advances in full upon demand
by Bank and until the time of such reimbursement, such advance
shall bear interest at the rate of interest set forth in the Note
(unless otherwise agreed by Bank and Borrower in writing) and be
secured by the Collateral.
Bank’s right to
demand reimbursement with interest under this Section shall be in
addition to and cumulative of and not in lieu of any and all other
rights and remedies available to Bank under the Loan Documents or
under any document executed in connection with any L/Cs. Any such
reimbursement obligation shall be evidenced by the Note, or, at
Bank’s option, by the Borrower’s executing and
delivering additional promissory notes to Bank in form and
substance acceptable to Bank.
Nothing in this Section
1 shall be deemed to extend the availability of the Revolving Line
beyond the time noted in Section 13 hereof.
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 2
SECTION 2.
Borrower’s Representations and Warranties;
Certain Covenants. To induce Bank to enter
into this Agreement, Borrower represents, warrants and covenants as
follows:
2.1
Organization,
Licenses, Qualifications, Etc. Borrower (a) is a duly
organized limited liability company, validly existing, and in good
standing under the laws of the State of Delaware; (b) has all
necessary licenses, power and authority to own its assets and
conduct its business as now conducted or presently proposed to be
conducted; (c) has no subsidiaries; and (d) is duly qualified and
in good standing (and will remain so qualified and in good
standing) in every jurisdiction in which it is or shall be doing
business or in which the failure to so qualify and remain in good
standing would or could have an adverse effect on its business or
properties, the Collateral or Bank.
2.2
Power and Authority;
Enforceability. The execution, delivery
and performance hereof are within Borrower’s limited
liability powers, have been duly and validly authorized and are not
in contravention of the law or the terms of Borrower’s
articles of organization, regulations or company agreement, or of
any indenture, agreement, or undertaking or any law, regulation or
order to which Borrower is a party or by which it or any of its
properties is or may be bound. Upon execution and delivery hereof,
this Agreement will be a valid and binding obligation of Borrower
enforceable in accordance with its terms. This Agreement, the Note
and all other Loan Documents executed by Borrower have been validly
executed and delivered by Borrower and constitute legal, valid, and
binding obligations of Borrower enforceable against Borrower in
accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws at the time in effect affecting the rights of
creditors generally.
2.3
Liens.
Except for
the Permitted Liens and the security interests granted to Bank
hereby or by any of the other Loan Documents in favor of Bank,
Borrower is and, as to Accounts Receivable, Inventory and other
Collateral arising or to be acquired after the date hereof, shall
be the sole and exclusive owner of the Accounts, the Inventory and
each and every other item of Collateral free from any lien, claim,
charge, security interest, mortgage, secondary financing or
encumbrance, and Borrower shall defend the Accounts, the Inventory
and each and every other item of Collateral and all Proceeds and
products thereof against all claims and demands of all persons at
any time claiming the same or any interest therein adverse to the
interests of Bank.
2.4
Payment of Taxes,
Charges, Etc. Borrower will promptly
pay all taxes or charges levied on or with respect to, and will at
all times keep the Accounts, the Inventory and each and every other
item of Collateral, free and clear of all liens, claims, charges,
security interests, mortgages, secondary financing and encumbrances
whatsoever, other than the Permitted Liens and the security
interests granted to Bank hereby or by any of the other Loan
Documents. Borrower agrees to take all actions that Bank may
request to establish and maintain a valid title and security
interest in the Accounts, the Inventory and each and every other
item of Collateral, free and clear of all other liens, claims,
charges, security interests, mortgages, secondary financing and
encumbrances whatsoever (other than the Permitted Liens),
including, without limitation, the payment of any amounts, taxes,
assessments, fees and/or charges necessary to perfect and note
Bank’s interest in the same. If such amounts, taxes,
assessments, fees and/or charges remain unpaid after the date fixed
for the payment of same, or if any lien, claim, charge, security
interest, mortgage, secondary financing or encumbrance shall arise,
or be claimed or asserted with respect to the Accounts, the
Inventory or any other item of Collateral, Bank may, without notice
to Borrower, pay such taxes, assessments, charges or claims, or
take any and all other actions (including the payment of money)
deemed desirable by Bank to remove any such lien, claim, charge,
security interest, mortgage, secondary financing or encumbrance,
and Borrower agrees that the amounts thereof, along with any
amounts necessary to perfect and note Bank’s interest in any
Collateral, shall be charged to Borrower’s Loan Account
described herein and shall bear interest at the rate of interest
borne by Borrower’s obligations under the Note.
2.5
Restrictions on
Transfer of Collateral. Borrower will not (and
will not allow or suffer any other person or entity to) sell
(except for the sale of Inventory in the normal and ordinary course
of Borrower’s business), transfer, lease, conveyor otherwise
dispose of the Collateral, any portion thereof, or any interest
therein (or any of the Proceeds thereof, including, without
limitation, money, checks, money orders, drafts, notes,
instruments, documents, chattel paper, Accounts, returns or
repossessions), without Bank’s prior written
consent.
2.6
Reporting
Requirements. Borrower will deliver
to Bank, so long as any of the Liabilities shall remain
outstanding, the following:
(a)
monthly, on or before
the twentieth (20th) day of each calendar month or more often as
Bank shall request, (i) detailed reports in form acceptable to Bank
of all Accounts Receivable of Borrower (including the aggregate
balance of all Accounts) and accounts payable as of the last day of
the immediately preceding calendar month (or such shorter
applicable period), and the period of time which has elapsed with
respect to such
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 3
Accounts Receivable and
accounts payable since the invoice date with respect thereto
(together with the certification of Borrower as to any
counterclaims, offsets or contra-accounts with respect to any of
Accounts of Borrower); (ii) summaries of all Inventory of Borrower
as of the last day of the immediately preceding calendar month (or
such shorter applicable period), and the value thereof; (iii) an
Accounts Receivable aging in such form and detail as Bank shall
require and an accounts payable aging, also in such form and detail
as Bank shall require, (iv) a customer deposit list in form and
substance acceptable to Bank; (v) in connection with each report
submitted pursuant to subsections (i) and (ii) above, a completed
and executed Accounts Receivable and Inventory Reconciliation Form
substantially in accordance with Exhibit A hereto
(herein referred to as a “ Reconciliation Report
” ); and (vi) if requested by Bank, a copy of the sales
journal or invoice register of Borrower for the immediately
preceding calendar month (or such shorter applicable period) and
the dates, amounts and Account Debtors with respect to such
billings;
(b)
if requested by Bank,
weekly, by Wednesday of each week, a completed Reconciliation
Report as of the preceding week, together with a listing or
register of all related invoices for such preceding week of
Borrower;
(c)
if requested by Bank,
when and as generated by Borrower, copies of all invoices (or
similar documents relating to the sales and leasing of Inventory or
the provision of services), which such invoices (or similar
documents) shall be in form satisfactory to Bank and shall specify
the location at which the goods or services related thereto are to
be delivered, installed and/or performed;
(d)
promptly upon any
reduction or diminution in the face value of any Account
Receivable, Borrower shall advise Bank thereof and, if Bank
requests, Borrower shall provide Bank with a signed writing
explaining the circumstances resulting in such reduction; and
further, immediately upon production thereof, copies of all credit
memos of Borrower shall be forwarded to Bank;
(e)
if requested by Bank,
daily sales and invoice registers or journals reflecting, on a
daily basis, the information described above;
(f)
if requested by Bank,
contemporaneously with each and every remittance with respect to
the Accounts Receivable and upon each deposit of funds to the
remittances account maintained by and in the name of Bank (the
“ Remittances Account ” ), Borrower shall
provide to Bank a report reflecting the amount of all such
remittances and the Accounts with respect to which such remittances
were made, together with copies of any cash receipts journal
reflecting such remittances; and
(g)
such other documents,
instruments, data or information of any type requested by Bank with
respect to the Accounts Receivable, Inventory and any other
Collateral.
2.7
Additional
Representations Regarding Accounts. At the time any Account
becomes subject to a security interest in favor of Bank, said
Account shall be a good and valid Account representing an
undisputed, bona fide indebtedness incurred by the Account Debtor
named therein, for merchandise held subject to delivery
instructions or theretofore shipped or delivered pursuant to a
contract of sale; or for services theretofore performed for said
Account Debtor; there shall be no set-offs, counterclaims, or
disputes against any such Account except as indicated in some
written list, statement or invoice furnished to Bank with reference
thereto; and Borrower shall be the lawful owner of all such
Accounts and shall have good right to subject the same to a
security interest in favor of Bank. No such Account shall be sold,
assigned, or transferred to any person other than Bank or in any
way encumbered except to Bank, and Borrower shall defend the same
against the lawful claims and demands of all persons other than
Bank. If any Account shall be in violation of (a) anyone or more of
the warranties expressed in this section or (b) any of the
requirements to be an Eligible Account Receivable, it shall not be
deemed an Eligible Account Receivable for purposes of this
Agreement.
2.8
Additional
Representations Regarding Instruments, Chattel Paper,
Etc. At the time Borrower
pledges, sells, assigns or transfers to Bank any instrument,
document of title, security, chattel paper or other property, or
any interest therein, said party shall be the lawful owner thereof
and shall have good right to pledge, sell, assign or transfer the
same; none of such property shall have been pledged, sold, assigned
or transferred to any person other than Bank or in any way
encumbered (except for the Permitted Liens), and said party shall
defend the same against the lawful claims and demands of all
persons other than Bank.
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 4
2.9
Location of
Collateral. Except for Inventory
sold in the ordinary course of business, all Inventory and other
tangible Collateral have always been, are and shall continue to be
kept at Borrower’s principal place of business as noted on
the first page of this Agreement.
2.10
Location of
Records. All records pertaining
to Accounts Receivable, general intangibles and contract rights
have always been, are and shall continue to be kept at
Borrower’s chief executive office as noted on the first page
of this Agreement.
2.11
Additional
Representations Regarding Financial Statements.
Subject to
any limitations stated therein or in connection therewith, all
balance sheets, earnings statements and other financial data which
have been or may hereafter be furnished to Bank to induce it to
enter into this Agreement, to extend credit from time to time
hereunder, or otherwise furnished in connection herewith, do or
shall fairly represent the financial condition of Borrower (or
other persons or entities, as applicable) as of the dates and
results of operations for the periods for which the same are
furnished in accordance with generally accepted accounting
principles consistently applied, and all other information, reports
and other papers and data furnished to Bank shall be accurate, as
of the relevant date, and correct in all material respects and
complete insofar as completeness may be necessary to give Bank a
true and accurate knowledge of the subject matter.
2.12
Possession of and
Insurance on Equipment. With respect to any and
all equipment which may now or hereafter constitute Collateral
hereunder, Borrower shall maintain possession of same, keep the
same in good repair, and maintain casualty insurance on the same
naming Bank as additional insured and lender loss payee under a
lender loss payee endorsement.
2.13
Borrower’s
Names and Offices . Borrower’s name,
chief executive office and principal place of business are and
always have been as set forth on the first page of this Agreement,
except as otherwise disclosed in writing to Bank. Borrower will
promptly advise Bank in writing thirty (30) days prior to any
change in Borrower’s name, place of organization,
organizational identification number, chief executive office or
principal place of business.
2.14
Additional
Representations Regarding Absence of Defaults Under Other
Agreements .
Borrower is not now and will not be in default under
any agreement evidencing an obligation for the payment of money,
performance of a service or delivery of goods, demand for
performance under which, or acceleration of the maturity of which
would render Borrower insolvent or unable to meet its other debts
as they become due or conduct its business as usual.
2.15
Indemnification.
In the
event (a) any of Borrower’s warranties or representations
shall prove to be false or misleading; (b) any Account Debtor in
judicial proceeding, shall assert against Bank or any of its
officers, employees, directors, managers or agents a claim or
defense arising out of any transaction between the Account Debtor
and Borrower; or (c) Borrower or any other person or entity shall
assert against Bank or any of its officers, employees, directors,
managers or agents a claim or defense arising out of or relating to
any of the Collateral, the Liabilities or any of the Loan
Documents, Borrower agrees to indemnify and hold Bank harmless from
and against any liability, judgment, cost, attorneys’ fees or
other expense whatsoever arising therefrom.
2.16
Taxes, Charges and
Expenses Incurred with Respect to Revolving Line.
Borrower
will pay any and all taxes (with the exception of taxes measured by
income), charges and reasonable expenses of every kind or
description paid or incurred by Bank under or with respect to the
Revolving Line, the Loan Documents, any advances hereunder or any
Collateral therefor or the collection of or realization upon the
same. Borrower hereby authorizes Bank to debit such and all other
taxes, charges and expenses provided for in this Agreement
(including, without limitation, those taxes, charges and expenses
for which such party is liable under Section 12) to
Borrower’s Loan Account.
2.17
Patents, Copyrights,
Trademarks and Licenses. None of the Collateral
is patented, copyrighted, copyrightable, licensed or trademarked by
Borrower or incorporates or is subject, in whole or part, to any
copyright, license, patent or trademark in favor of Borrower or any
of its affiliates. Prior to the time any Collateral is copyrighted,
licensed, patented or trademarked or incorporates or is subjected,
in whole or in part, to any copyright, license, patent or
trademark, Borrower shall notify Bank and shall take (or cause to
be taken) all actions necessary to preserve the perfection and
priority of Bank’s security interest in such
Collateral.
2.18
Judgments/Actions.
There are no
judgments, actions, suits, claims, proceedings or investigations
existing, outstanding, pending, or to the best of Borrower’s
knowledge after due inquiry, threatened or in prospect, before any
court, agency or tribunal, or governmental authority against or
involving Borrower or any Guarantors which do or could materially
affect the business, properties, prospects, financial condition,
earnings, results of operations or earnings capacity of Borrower or
any Guarantors or which question the validity of the Revolving Line
or any of the Loan Documents, or any action or instrument
contemplated by any of them.
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 5
2.19
Margin
Stock. Borrower is not engaged
in the business of extending credit for the purpose of purchasing
or carrying “margin” stock within the meaning of
Regulation U of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 221), as amended from time to time (
“ Regulation U ” ). No part of the
proceeds of any advance under the Revolving Line shall be used
directly or indirectly for the purpose of purchasing, acquiring,
carrying, financing or refinancing the purchase of any
“margin stock” as defined in and contemplated by
Regulation U or for any other purpose which would constitute
“purpose credit” under Regulation U. Borrower is not an
“investment company” or a company
“controlled” by an “investment company”
within the meaning of the Investment Company Act of 1940, as
amended.
2.20
No Untrue Statements
or Omissions. Neither this Agreement,
nor any document, certificate, or statement furnished (or to be
furnished) to Bank by or on behalf of Borrower pursuant to or in
connection with this Agreement contains (or will contain) any
untrue statement of a material fact or omits (or will omit) to
state a material fact necessary to make the statements contained
herein and therein not misleading. There is no fact known to
Borrower that materially and adversely affects, or will materially
and adversely affect, the assets, business, operations, or
condition of Borrower that has not been specifically set forth in
this Agreement or otherwise disclosed by Borrower to Bank in
writing.
2.21
Bankruptcy. Borrower is and at all
times shall remain solvent as defined under applicable Texas state
law and the federal bankruptcy code and is not now and has not been
in the past three (3) years a debtor under any title of the United
States Bankruptcy Code, 11 U.S.C. §§ 101, et
seq.
2.22
Organizational
Identification Number, Etc. The file number assigned
by the State of Delaware to Borrower is 3990669. Borrower
understands that the file number above is not Borrower’s
federal or state tax or employer identification number. Further,
the Revolving Line is being obtained and the Collateral is being
used, held or acquired for business purposes.
2.23
Purpose of
Loan. The proceeds of the Revolving
Line shall be used to refinance existing indebtedness secured by a
lien on the Collateral, for operating capital, to fund a payment of
approximately $750,000.00 associated with the 2008 SOUTHERN
IMAGING, INC. seller earn-out requirement (subject to
Borrower’s receipt of a corresponding receivable payment in
the amount of $750,000.00 from SIELOX, LLC) and to further the
business interest of Borrower.
Nothing in this Section
2 shall be deemed to extend the availability of the Revolving Line
beyond the time noted in Section 13 hereof.
SECTION
3.
Inspection of
Records; Further Assurance.
Borrower shall at
reasonable times and from time to time on reasonable notice to
Borrower allow Bank, by or through any of its officers, managers,
agents, employees, attorneys or accountants to (i) examine, inspect
and make extracts from Borrower’s books and records; (ii)
analyze Borrower’s financial statements; (iii) arrange for
verification of any Accounts Receivable, Inventory, Eligible
Accounts Receivable and Eligible Inventory under reasonable
procedures, directly with Account Debtors or by other methods; and
(iv) inspect, review and audit any Inventory and other Collateral
at any time during normal business hours, without prior notice to
Borrower. In connection with the foregoing, Borrower acknowledges
and agrees that Borrower shall permit representatives of Bank at
the expense of Borrower to conduct an audit of all of
Borrower’s assets and properties (both real and personal
including, Accounts and Inventory); provided ,
however , if such audit is conducted by Bank more than twice
during any fiscal year, and such additional audits are not the
result of an occurrence and continuation of an event of default,
Bank shall be responsible for the fees and expenses relating to
such additional audits. Borrower shall allow, do, make, execute and
deliver all such additional and further acts, things, deeds,
assurances, agreements and instruments which Bank may require more
completely to vest in and assure to Bank its rights hereunder and
in any Collateral and to assure that Borrower’s Loan Account
balance does not exceed Borrower’s availability
hereunder.
Nothing in this Section
3 shall be deemed to extend the availability of the Revolving Line
beyond the time noted in Section 13 hereof.
SECTION
4.
Security Interest of
Bank in Collateral.
4.1
Collateral.
As security for the payment
and performance of all Liabilities, Bank shall have and Borrower
hereby assigns to Bank and grants to Bank a continuing lien on,
security interest in and right of set-off against the following
described property and rights:
All of
Borrower’s:
(a)
Accounts and Accounts
Receivable;
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 6
(b)
Inventory, equipment,
machinery, furnishings and furniture, wheresoever the same may be
located;
(c)
contract rights,
investment property, chattel paper, electronic chattel paper and
software, commercial tort claims, deposit accounts, letter of
credit rights, health-care-insurance receivables, documents,
documents of title, warehouse receipts, bills of lading, notes,
notes receivable, instruments, general intangibles and payment
intangibles;
(d)
licenses, patents,
tradenames, trademarks and copyrights and any and all licenses and
other rights to use, incorporate, license, sell and/or assign any
licenses, patents, tradenames, trademarks, and copyrights and any
property incorporating any of the foregoing, together with all
applications for registration and registrations obtained for any of
the foregoing, and all renewals and/or extensions thereof, rights
to sue for infringements and all other rights corresponding
thereto, and all related licenses and royalties, and all further or
other property that pertains, incorporates or relates to or
emanates or derives from any license, patent, tradename, trademark
or copyright and/or the ownership, use, possession, transfer or
licensing thereof (whether as licensor or licensee) and any
property which embodies or incorporates any of the foregoing, and
all proceeds, products, rents, issues, royalties, profits and
returns of and from any of the foregoing, and all related rights
and property (collectively, referred to as “
Intellectual Property ” );
(e)
goods, instruments,
notes, notes receivable, documents, documents of title, warehouse
receipts, bills of lading, certificates of title, policies and
certificates of insurance, securities, investment property, chattel
paper, deposits, cash and other property which are now or may
hereafter be in the possession of or deposited with Bank, or which
are otherwise assigned to Bank, or as to which Bank may now or
hereafter control possession by documents of title or otherwise;
and
(f)
substitutions,
accessions, additions, parts, accessories, attachments,
replacements, Proceeds and products of, for and to any and all of
the foregoing, including, without limitation, any and all insurance
and tort proceeds, and any and all such substitutions, accessions,
additions, parts, accessories, attachments, replacements, Proceeds
and products in the form of any of the property described or
referenced in (a) through (e) above, whether now or hereafter
owned, existing, created, arising or acquired.
4.2
Security Interest in
Collateral Created/Acquired Hereafter. No submission by
Borrower to Bank of any schedule or other particular identification
of Collateral shall be necessary to vest in Bank a security
interest in each and every item of Collateral now existing or
hereafter created or acquired, but rather, such security interest
shall vest in Bank immediately upon the creation or acquisition of
any item of Collateral, without the necessity for any other or
further action by Borrower or Bank; provided, however, that
Borrower shall execute such other and additional documents,
instruments and agreements as requested by Bank to evidence the
security interests contemplated hereby. In addition to and without
limiting any other rights and remedies of Bank arising under this
Agreement and/or applicable law, Borrower hereby grants, assigns
and transfers to Bank a fully-paid, royalty-free, perpetual,
non-exclusive, unrestricted license to use, sell, assign, modify,
reproduce, distribute, license and sublicense any copyright,
patent, tradename, trademark or license and other Intellectual
Property constituting Collateral and any goods and other property
incorporating any of the foregoing which Bank may exercise at any
time upon or after the occurrence of a default or event of default
under this Agreement or any of the other Loan Documents without
further action, consent or approval of Borrower.
4.3
Further
Assurances. To the extent allowable
under applicable law, the Uniform Commercial Code of Texas shall
govern the security interests provided for herein. In connection
therewith, Borrower (at said party’s expense) shall take such
steps and execute, deliver and file (as applicable) (or cause the
execution, delivery and filing (as applicable) of) such financing
statements, continuation statements, agreements (including, without
limitation, security agreements and landlord, creditor and
mortgagee subordination agreements), documents, and papers (all in
form and substance acceptable to Bank) as Bank may from time to
time request to perfect or preserve the perfection and priority of
Bank’s security interests granted hereby or by any of the
other Loan Documents. Borrower hereby appoints and empowers Bank,
or any employee of Bank which Bank may designate for the purpose,
as its attorney-in-fact, to execute and/or endorse (and file, as
appropriate) on its behalf any documents, agreements, papers,
checks, financing statements and other documents which, in
Bank’s sole judgment, are necessary to be executed, endorsed
and/or filed in order to (i) perfect or preserve the perfection and
priority of Bank’s security interests granted hereby or by
any of the other Loan Documents and (ii) collect or realize upon
the Collateral or otherwise exercise its rights and remedies under
any of the Loan Documents or applicable law. Without limiting any
of Bank’s rights and remedies under law or any other
provisions of this Agreement or any of the other Loan Documents,
Borrower authorizes the filing by Bank of any and all financing
statements in any and all jurisdictions Bank deems necessary or
appropriate to perfect Bank’s security interest in the
Collateral and/or any other property.
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 7
4.4
Additional Further
Assurances. It: by reason of
location of Borrower, the Collateral or otherwise, the creation,
validity, or perfection of security interests provided for herein
are governed by law other than the Uniform Commercial Code of
Texas, Borrower shall take such steps and execute and deliver such
documents, agreements, papers and financing statements as Bank may
from time to time request to comply with the Uniform Commercial
Code, or other laws of Texas or other states or jurisdictions.
Borrower hereby appoints and empowers Bank, or any employee of Bank
which Bank may designate for the purpose, as its attorney-in-fact,
to execute and/or endorse (and file, as appropriate) on its behalf
any documents, agreements, papers, checks, financing statements and
other documents which, in Bank’s sole judgment, are necessary
to be executed, endorsed and/or filed in order to (i) perfect or
preserve the perfection and priority of Bank’s security
interests granted hereby or by any of the other Loan Documents and
(ii) collect or realize upon the Collateral or otherwise exercise
its rights and remedies under any of the Loan Documents or
applicable law.
4.5
Restrictions on
Pledging, Mortgaging Collateral. Except for the Permitted
Liens, Borrower shall not pledge, mortgage, or create or suffer to
exist a security interest in any of the Collateral or any Proceeds
or products thereof, or sell, assign, or create a security interest
in any of the Collateral or any Proceeds or products thereof in
favor of any person other than Bank unless such security interest
is expressly subordinated to Bank’s security interest therein
and Bank has approved in writing the existence and status of such
security interest.
Nothing in this Section
4 shall be deemed to extend the availability of the Revolving Line
beyond the time noted in Section 13 hereof.
SECTION 5.
Collection of Accounts Receivable.
5.1
Collection and
Application of Proceeds; Notifying Account Debtors.
Until Bank
requests that Account Debtors on Accounts Receivable of Borrower be
notified of Bank’s security interest therein, Borrower shall
continue to collect such Accounts Receivable. Upon Bank’s
request, Borrower shall notify Bank of any collections received and
shall hold the same in trust for Bank without commingling the same
with other funds of Borrower and, if Bank shall request, shall turn
the same over to Bank immediately upon receipt in the identical
form received. All Account payments and other Proceeds transmitted
to Bank via any lock-box, by Borrower or otherwise, may be handled
and administered in and through a remittance or special account;
the maintenance of any such account shall be solely for the
convenience of Bank, and Borrower shall not have any right, title,
or interest in or to any such account or in the amounts at any time
appearing to the credit thereof. Bank may apply and credit Account
payments and other Proceeds transmitted to or otherwise received by
Bank via any lock-box, by Borrower or otherwise, against the
outstanding balance in Borrower’s Loan Account or any other
Liabilities; however, Bank shall not be required to credit
Borrower’s Loan Account or any other Liabilities with the
amount of any check or other instrument constituting provisional
payment until Bank has received final payment thereof at its office
in cash or solvent credits accepted by Bank. In addition, Borrower
shall, at the request of Bank, notify the Account Debtors of the
security interest of Bank in any Account and shall instruct Account
Debtors to remit payments directly to Bank, and Bank may itself at
any time so notify and instruct Account Debtors.
5.2
Collection of
Accounts. Borrower (i) shall (a)
deliver any instrument or chattel paper evidencing or constituting
an Account to Bank, and (b) use its best efforts to collect the
Accounts in a commercially reasonable manner; and (ii) agrees that
no court action or other legal proceeding or garnishment,
attachment, repossession of property, detinue, sequestration or any
other attempt to repossess any merchandise covered by an Account
shall be attempted except by or under the direction of competent
legal counsel. Borrower hereby agrees to indemnify and hold Bank
harmless for any loss or liability of any kind or character which
may be asserted against Bank by virtue of any suit filed, process
issued, or any repossession or attempted repossession done or
attempted by Borrower or by virtue of any other actions or
endeavors which Borrower may make to collect any Accounts or
repossess any such merchandise.
Nothing in this Section
5 shall be deemed to extend the availability of the Revolving Line
beyond the time noted in Section 13 hereof.
SECTION 6.
Additional Affirmative Covenants.
Until all indebtedness
of Borrower to Bank has been paid in full and all Liabilities have
been satisfied:
6.1
Financial
Statements. Borrower shall submit or
cause to be submitted to Bank (i) Borrower’s internally
prepared quarterly financial statements within forty-five (45) days
after the close of each fiscal quarter in each fiscal year,
including a balance sheet as of the close of such period, an income
statement, and such other statements containing financial
information which Bank reasonably may require, prepared and
analyzed in accordance with generally accepted
accounting
REVOLVING CREDIT AND
SECURITY AGREEMENT-Page 8
principles and attested
to by an authorized officer of Borrower; (ii) Guarantor, SIELOX
INC.’s audited consolidated and consolidating fiscal year-end
financial statements (in form, preparation and substance acceptable
to Bank) within one hundred twenty (120) days after the close of
each of its fiscal years, including a balance sheet as of the close
of such period, an income statement, a reconciliation of
stockholders’ equity, a statement of cash flows and an
inventory valuation, all certified by an independent certified
public accountant acceptable to Bank and analyzed in accordance
with generally accepted accounting principles; (iii) Guarantor,
SIELOX INC.’s internally prepared quarterly financial
statements within forty-five (45) days after the close of each
fiscal quarter in each fiscal year, including a balance sheet as of
the close of such period, an income statement and such other
statements containing financial information which Bank may
reasonably require, prepared and analyzed in accordance with
generally accepted accounting principles and attested to by an
authorized officer of Guarantor; (iv) within forty-five (45) days
after the close of each fiscal quarter in each fiscal year a
certificate of Borrower and Guarantor substantially in the form of
Exhibit B hereto signed by an officer of Borrower and
Guarantor stating, among other things, that no event has occurred
which constitutes an event of default or would constitute an event
of default but for the requirement that notice be given, or time
elapse or both, under any loans, notes, debentures, bonds, leases,
or other obligations of Borrower or Guarantor then outstanding,
including, but not limited to, this Agreement (in addition to the
foregoing, at the end of every quarter, such certificate shall
include a fully completed schedule in the form attached hereto
publishing the accounting calculations used to determine compliance
or noncompliance with the financial obligations and financial
covenants, provided in this Agreement), or, if any such event of
default or defaults exists, specifying the nature thereof; (v)
copies of Borrower and Guarantor’s annual tax returns (and
all related schedules, forms and attachments) within thirty (30)
days following the filing thereof with the Internal Revenue
Service, but no later than October 15th of each calendar year; and
(vi) such other financial and related information when and as
requested by Bank regarding Borrower, the Collateral and any
endorser, Guarantor or surety of any of the Liabilities of Borrower
to Bank.
6.2
Insurance. Borrower shall (i)
maintain insurance (written by insurance companies acceptable to
Bank) in form, amount and substance acceptable to Bank, including,
without limitation, extended multi-peril hazard, worker’s
compensation, general liability insurance and insurance upon
Borrower’s property, all facets of its businesses and all the
Collateral; (ii) furnish to Bank, upon request, a statement of the
insurance coverage; (iii) use its best efforts to protect and
preserve the Collateral and shall obtain other or additional
insurance promptly, upon request of Bank, to the extent that such
insurance may be available and customarily obtained for
Borrower’s type of business; and (iv) cause Bank to be named
as an additional insured and a lender loss payee as to all
insurance covering Collateral, pursuant to endorsements in form and
substance acceptable to Bank. All insurance proceeds, payments and
other amounts paid to or received by Bank under or in connection
with any and all such policies may be retained by Bank in whole or
part as additional Collateral for the Liabilities and/or, at
Bank’s option, be applied in whole or part to the payment of
such of the Liabilities as shall then be due and/or, at
Bank’s option, be held (in a remittance or other special
account in which neither Borrower nor any other party shall have an
interest) for application to Liabilities not yet due and be applied
to such Liabilities as and when the same shall come due, in such
order as Bank may determine in its sole discretion; provided
, however , that notwithstanding the foregoing to the
contrary, provided no event of default exists, Bank agrees that
Borrower may use the proceeds of any such insurance to replace
and/or restore any Collateral which may have been lost, damaged or
destroyed. All insurance policies shall provide for a minimum often
(10) days’ written cancellation notice to Bank and, at
Bank’s request, copies of all such policies shall be
delivered to and held by Bank. In the event of failure to provide
and maintain insurance required by this Agreement, Bank may, at its
option, provide such insurance and charge the costs and expenses
incurred to Borrower’s Loan Account. Bank is hereby made
attorney-in-fact for Borrower to (i) obtain, adjust, and settle, in
its sole discretion, such insurance, and (ii) endorse any drafts or
checks issued in connection with such insurance.
6.3
Compliance with
Laws. Borrower shall at all
times while any Liabilities remain unsatisfied comply with all
applicable laws, ordinances, rules and regulations of any
governmental authority or entity governing or affecting Borrower,
any of its property, the Collateral or any part thereof, and shall
immediately notify Bank of any and all actual, alleged or asserted
violations of any such laws, ordinances, rules or regulations.
Without limitation to the generality of the foregoing, Borrower
shall comply, and cause to be complied, with all laws, governmental
standards and regulations applicable to Borrower or any Collateral
in respect of occupational health and safety, toxic and hazardous
waste and substances and environmental matters. Borrower shall
promptly notify Bank of receipt of any notice of any actual,
alleged or asserted violation of any such law, standard or
regulation. Borrower hereby agrees to indemnify, defend and hold
Bank harmless from all loss, cost, damage, claim and expense
incurred by Bank on account of the breach of any representation,
warranty or requirement of this Section, the failure to perform the
obli
