Document:

ex10-1.htm

Exhibit 10.1

 

REVOLVING CREDIT

AND

SECURITY AGREEMENT

 

 

PNC BANK, NATIONAL ASSOCIATION

(AS LENDER AND AS AGENT)

 

AND

 

The Financial Institutions Named Herein Or Which Hereafter Become A Party Hereto

 

WITH

 

EMTEC, INC. (a Delaware corporation), EMTEC, INC. (a New Jersey corporation), EMTEC INFRASTRUCTURE SERVICES CORPORATION, EMTEC VIASUB LLC, EMTEC GLOBAL SERVICES LLC, KOAN-IT (US) CORP., EMTEC FEDERAL, INC., eBUSINESS APPLICATION SOLUTION, INC., LUCEO, INC., AVEEVA, INC., SECURE DATA, INC., COVELIX, INC., DINERO SOLUTIONS, LLC, GNUCO, LLC

 

AND

 

All Other Persons Joined Hereto As A Borrower From Time To Time

 

(BORROWERS)

 

 

December 30, 2011

 

  

  

  

 

TABLE OF CONTENTS

 

Page

 

 

	
I.

	
DEFINITIONS. 

	1

	
  

	
1.1.

	
Accounting Terms 

	1

	
  

	
1.2.

	
General Terms 

	1

	
  

	
1.3.

	
Uniform Commercial Code Terms 

	25 

	
  

	
1.4.

	
Certain Matters of Construction 

	25 

 

	
II.

	
ADVANCES, PAYMENTS. 

	26

	
  

	
2.1.

	
Revolving Advances 

	26 

	
  

	
2.2.

	
Procedure for Revolving Advances Borrowing 

	27 

	
  

	
2.3.

	
Disbursement of Advance Proceeds 

	29 

	
  

	
2.4.

	
Reserved 

	30

	
  

	
2.5.

	
Maximum Advances 

	30

	
  

	
2.6.

	
Repayment of Advances 

	30 

	
  

	
2.7.

	
Repayment of Excess Advances 

	30 

	
  

	
2.8.

	
Statement of Account 

	31 

	
  

	
2.9.

	
Letters of Credit 

	31 

	
  

	
2.10.

	
Issuance of Letters of Credit 

	31 

	
  

	
2.11.

	
Requirements For Issuance of Letters of Credit 

	32 

	
  

	
2.12.

	
Disbursements, Reimbursement 

	32 

	
  

	
2.13.

	
Repayment of Participation Advances 

	34 

	
  

	
2.14.

	
Documentation 

	34 

	
  

	
2.15.

	
Determination to Honor Drawing Request 

	34 

	
  

	
2.16.

	
Nature of Participation and Reimbursement Obligations 

	34 

	
  

	
2.17.

	
Indemnity 

	36

	
  

	
2.18.

	
Liability for Acts and Omissions 

	36 

	
  

	
2.19.

	
Additional Payments 

	37 

	
  

	
2.20.

	
Manner of Borrowing and Payment 

	38 

	
  

	
2.21.

	
Mandatory Prepayments 

	39 

	
  

	
2.22.

	
Use of Proceeds 

	39 

	
  

	
2.23.

	
Defaulting Lender 

	40 

 

	
III.

	
INTEREST AND FEES. 

	41 

	
  

	
3.1.

	
Interest 

	41

	
  

	
3.2.

	
Letter of Credit Fees 

	41 

	
  

	
3.3.

	
Closing Fee and Facility Fee 

	42 

	
  

	
3.4.

	
Collateral Evaluation Fee and Collateral Monitoring Fee 

	42 

	
  

	
3.5.

	
Computation of Interest and Fees 

	43 

	
  

	
3.6.

	
Maximum Charges 

	43 

	
  

	
3.7.

	
Increased Costs 

	43 

	
  

	
3.8.

	
Basis For Determining Interest Rate Inadequate or Unfair 

	44 

	
  

	
3.9.

	
Capital Adequacy 

	45 

	
  

	
3.10.

	
Gross Up for Taxes 

	45 

	
  

	
3.11.

	
Withholding Tax Exemption 

	46 

 

  

(i)

  

 

	
IV.

	
COLLATERAL: GENERAL TERMS 

	47

	
  

	
4.1.

	
Security Interest in the Collateral 

	47 

	
  

	
4.2.

	
Perfection of Security Interest 

	47

	
  

	
4.3.

	
Disposition of Collateral 

	47 

	
  

	
4.4.

	
Preservation of Collateral 

	48 

	
  

	
4.5.

	
Ownership of Collateral 

	
48

	
  

	
4.6.

	
Defense of Agent’s and Lenders’ Interests 

	
49

	
  

	
4.7.

	
Books and Records 

	
49

	
  

	
4.8.

	
Financial Disclosure 

	
49

	
  

	
4.9.

	
Compliance with Laws 

	
50

	
  

	
4.10.

	
Inspection of Premises 

	
50

	
  

	
4.11.

	
Insurance 

	
50

	
  

	
4.12.

	
Failure to Pay Insurance 

	
51

	
  

	
4.13.

	
Payment of Taxes 

	
51

	
  

	
4.14.

	
Payment of Leasehold Obligations 

	
51

	
  

	
4.15.

	
Receivables. 

	
52

	
  

	
4.16.

	
Inventory 

	
54

	
  

	
4.17.

	
Maintenance of Equipment 

	
54

	
  

	
4.18.

	
Exculpation of Liability 

	
54

	
  

	
4.19.

	
Environmental Matters 

	
55

	
  

	
4.20.

	
Financing Statements 

	
56

	
  

	
4.21.

	
Appraisals 

	
56

 

	
V.

	
REPRESENTATIONS AND WARRANTIES. 

	
57

	
  

	
5.1.

	
Authority 

	
57

	
  

	
5.2.

	
Formation and Qualification 

	
57

	
  

	
5.3.

	
Survival of Representations and Warranties 

	
58

	
  

	
5.4.

	
Tax Returns 

	
58

	
  

	
5.5.

	
Financial Statements 

	
58

	
  

	
5.6.

	
Entity Names 

	
59

	
  

	
5.7.

	
O.S.H.A. and Environmental Compliance 

	
59

	
  

	
5.8.

	
Solvency; No Litigation, Violation, Indebtedness or Default 

	
59

	
  

	
5.9.

	
Patents, Trademarks, Copyrights and Licenses 

	
61

	
  

	
5.10.

	
Licenses and Permits 

	
61

	
  

	
5.11.

	
Default of Indebtedness 

	
61

	
  

	
5.12.

	
No Default 

	
61

	
  

	
5.13.

	
No Burdensome Restrictions 

	
61

	
  

	
5.14.

	
No Labor Disputes 

	
61

	
  

	
5.15.

	
Margin Regulations 

	
62

	
  

	
5.16.

	
Investment Company Act 

	
62

	
  

	
5.17.

	
Disclosure 

	
62

	
  

	
5.18.

	
Delivery of Subordinated Loan Documentation 

	
62

	
  

	
5.19.

	
Swaps 

	
62

	
  

	
5.20.

	
Conflicting Agreements 

	
62

	
  

	
5.21.

	
Application of Certain Laws and Regulations 

	
62

	
  

	
5.22.

	
Business and Property of Borrowers 

	
63

	
  

	
5.23.

	
Section 20 Subsidiaries 

	
63

	
  

	
5.24.

	
Anti-Terrorism Laws 

	
63

	
  

	
5.25.

	
Trading with the Enemy 

	
64

	
  

	
5.26.

	
Foreign Subsidiaries 

	
64

	
  

	
5.27.

	
Equity Interests 

	
64

	
  

	
5.28.

	
Commercial Tort Claims 

	
64

	
  

	
5.29.

	
Letter of Credit Rights 

	
64

 

  

(ii)

  

 

	
VI.

	
AFFIRMATIVE COVENANTS. 

	
65

	
  

	
6.1.

	
Payment of Fees 

	
65

	
  

	
6.2.

	
Conduct of Business and Maintenance of Existence and Assets 

	
65

	
  

	
6.3.

	
Violations 

	
65

	
  

	
6.4.

	
Government Receivables 

	
65

	
  

	
6.5.

	
Financial Covenants 

	
65

	
  

	
6.6.

	
Execution of Supplemental Instruments 

	
66

	
  

	
6.7.

	
Payment of Indebtedness 

	
66

	
  

	
6.8.

	
Standards of Financial Statements 

	
66

	
  

	
6.9.

	
Federal Securities Laws 

	
66

	
  

	
6.10.

	
Exercise of Rights 

	
66

 

	
VII.

	
NEGATIVE COVENANTS. 

	
66

	
  

	
7.1.

	
Merger, Consolidation, Acquisition and Sale of Assets 

	
67

	
  

	
7.2.

	
Creation of Liens 

	
67

	
  

	
7.3.

	
Guarantees 

	
67

	
  

	
7.4.

	
Investments 

	
67

	
  

	
7.5.

	
Loans 

	
68

	
  

	
7.6.

	
Capital Expenditures 

	
68

	
  

	
7.7.

	
Dividends and Distributions 

	
68

	
  

	
7.8.

	
Indebtedness 

	
68

	
  

	
7.9.

	
Nature of Business 

	
68

	
  

	
7.10.

	
Transactions with Affiliates 

	
69

	
  

	
7.11.

	
Leases 

	
69

	
  

	
7.12.

	
Subsidiaries 

	
69

	
  

	
7.13.

	
Fiscal Year and Accounting Changes

	
69

	
  

	
7.14.

	
Pledge of Credit 

	
69

	
  

	
7.15.

	
Amendment of Organizational Documents

	
69

	
  

	
7.16.

	
Compliance with ERISA 

	
70

	
  

	
7.17.

	
Prepayment of Indebtedness 

	
70

	
  

	
7.18.

	
Anti-Terrorism Laws 

	
70

	
  

	
7.19.

	
Membership/Partnership Interests 

	
70

	
  

	
7.20.

	
Trading with the Enemy Act 

	
71

	
  

	
7.21.

	
Subordinated Debt 

	
71

	
  

	
7.22.

	
Other Agreements 

	
71

	
  

	
7.23.

	
Earn Out Payments 

	
71

 

	
VIII.

	
CONDITIONS PRECEDENT. 

	71 

	
  

	
8.1.

	
Conditions to Initial Advances 

	71 

	
  

	
8.2.

	
Conditions to Each Advance 

	74 

 

  

(iii)

  

 

	
IX.

	
INFORMATION AS TO BORROWERS. 

	75 

	
  

	
9.1.

	
Disclosure of Material Matters 

	75 

	
  

	
9.2.

	
Schedules 

	75 

	
  

	
9.3.

	
Environmental Reports 

	76 

	
  

	
9.4.

	
Litigation 

	76 

	
  

	
9.5.

	
Material Occurrences 

	76 

	
  

	
9.6.

	
Government Receivables 

	77 

	
  

	
9.7.

	
Annual Financial Statements 

	77 

	
  

	
9.8.

	
Quarterly Financial Statements 

	77 

	
  

	
9.9.

	
Monthly Financial Statements 

	77 

	
  

	
9.10.

	
Other Reports 

	78 

	
  

	
9.11.

	
Additional Information 

	78 

	
  

	
9.12.

	
Projected Operating Budget 

	78 

	
  

	
9.13.

	
Variances From Operating Budget 

	78 

	
  

	
9.14.

	
ERISA Notices and Requests 

	78 

	
  

	
9.15.

	
Intellectual Property 

	79 

	
  

	
9.16.

	
Additional Documents 

	79 

 

	
X.

	
EVENTS OF DEFAULT. 

	79 

	
  

	
10.1.

	
Nonpayment 

	79 

	
  

	
10.2.

	
Breach of Representation 

	79 

	
  

	
10.3.

	
Financial Information 

	79 

	
  

	
10.4.

	
Judicial Actions 

	80 

	
  

	
10.5.

	
Noncompliance 

	80 

	
  

	
10.6.

	
Judgments 

	80 

	
  

	
10.7.

	
Bankruptcy 

	80 

	
  

	
10.8.

	
Inability to Pay 

	80 

	
  

	
10.9.

	
Subsidiary Bankruptcy 

	80 

	
  

	
10.10.

	
Material Adverse Effect 

	80 

	
  

	
10.11.

	
Lien Priority 

	81 

	
  

	
10.12.

	
Subordinated Debt 

	81 

	
  

	
10.13.

	
Cross Default 

	81 

	
  

	
10.14.

	
Breach of Guaranty 

	81 

	
  

	
10.15.

	
Change of Ownership 

	81 

	
  

	
10.16.

	
Invalidity 

	81 

	
  

	
10.17.

	
Licenses 

	81 

	
  

	
10.18.

	
Seizures 

	81 

	
  

	
10.19.

	
Operations 

	82 

	
  

	
10.20.

	
Pension Plans 

	82 

 

	
XI.

	
LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT. 

	82

	
  

	
11.1.

	
Rights and Remedies 

	82 

	
  

	
11.2.

	
Agent’s Discretion 

	84 

	
  

	
11.3.

	
Setoff 

	84 

	
  

	
11.4.

	
Rights and Remedies not Exclusive 

	84 

	
  

	
11.5.

	
Allocation of Payments After Event of Default 

	84 

 

  

(iv)

  

 

	
XII.

	
WAIVERS AND JUDICIAL PROCEEDINGS. 

	85

	
  

	
12.1.

	
Waiver of Notice 

	85

	
  

	
12.2.

	
Delay 

	85

	
  

	
12.3.

	
Jury Waiver 

	85 

 

	
XIII.

	
EFFECTIVE DATE AND TERMINATION. 

	85

	
  

	
13.1.

	
Term 

	85

	
  

	
13.2.

	
Termination 

	86 

 

	
XIV.

	
REGARDING AGENT. 

	86

	
  

	
14.1.

	
Appointment 

	86 

	
  

	
14.2.

	
Nature of Duties 

	87 

	
  

	
14.3.

	
Lack of Reliance on Agent and Resignation 

	87 

	
  

	
14.4.

	
Certain Rights of Agent 

	88 

	
  

	
14.5.

	
Reliance 

	88 

	
  

	
14.6.

	
Notice of Default 

	88 

	
  

	
14.7.

	
Indemnification 

	88 

	
  

	
14.8.

	
Agent in its Individual Capacity 

	89 

	
  

	
14.9.

	
Delivery of Documents 

	89 

	
  

	
14.10.

	
Borrowers’ Undertaking to Agent 

	89 

	
  

	
14.11.

	
No Reliance on Agent’s Customer Identification Program 

	89 

	
  

	
14.12.

	
Other Agreements 

	89 

 

	
XV.

	
BORROWING AGENCY. 

	90

	
  

	
15.1.

	
Borrowing Agency Provisions 

	90 

	
  

	
15.2.

	
Waiver of Subrogation 

	90 

 

	
XVI.

	
MISCELLANEOUS 

	90

	
  

	
16.1.

	
Governing Law 

	90 

	
  

	
16.2.

	
Entire Understanding 

	91 

	
  

	
16.3.

	
Successors and Assigns; Participations; New Lenders 

	93 

	
  

	
16.4.

	
Application of Payments 

	95 

	
  

	
16.5.

	
Indemnity 

	96 

	
  

	
16.6.

	
Notice 

	96

	
  

	
16.7.

	
Survival 

	98 

	
  

	
16.8.

	
Severability 

	99 

	
  

	
16.9.

	
Expenses 

	99 

	
  

	
16.10.

	
Injunctive Relief 

	99 

	
  

	
16.11.

	
Consequential Damages 

	99 

	
  

	
16.12.

	
Captions 

	99 

	
  

	
16.13.

	
Counterparts; Facsimile Signatures 

	99 

	
  

	
16.14.

	
Construction 

	100 

	
  

	
16.15.

	
Confidentiality; Sharing Information 

	100 

	
  

	
16.16.

	
Publicity 

	100 

	
  

	
16.17.

	
Certifications From Banks and Participants; US PATRIOT Act 

	100 

 

  

(v)

  

LIST OF EXHIBITS AND SCHEDULES

 

 

	Exhibits	 
	 	 
	Exhibit 1.2	Borrowing Base Certificate
	Exhibit 2.1(a) 	Revolving Credit Note
	Exhibit 5.5(b) 	Financial Projections
	Exhibit 8.1(k)	Financial Condition Certificate
	Exhibit 16.3 	Commitment Transfer Supplement
	Exhibit A	Payroll Reserve
	 	 
	
Schedules

	 
	 	 
	Schedule 1.2	Permitted Encumbrances
	Schedule 4.5	Equipment and Inventory Locations
	Schedule 4.15(c)	Chief Executive Offices
	Schedule 4.15(h)	Deposit and Investment Accounts
	Schedule 4.19 	Real Property
	Schedule 5.1 	Consents
	Schedule 5.2(a) 	States of Qualification and Good Standing
	Schedule 5.2(b)	Subsidiaries
	Schedule 5.4   	Federal Tax Identification Number
	Schedule 5.6  	Prior Names
	Schedule 5.7 	OSHA and Environmental Compliance
	Schedule 5.8(b) 	Litigation
	Schedule 5.8(d)	Plans
	Schedule 5.9	Intellectual Property
	Schedule 5.10 	Licenses and Permits
	Schedule 5.14	Labor Disputes
	Schedule 5.27	Equity Interests
	Schedule 7.3 	Guarantees

 

  

(vi)

  

 

REVOLVING CREDIT

AND

SECURITY AGREEMENT

 

Revolving Credit and Security Agreement dated as of December 30, 2011 among Emtec, Inc. (a Delaware corporation) (“Emtec DE”), Emtec, Inc. (a New Jersey corporation) (“Emtec NJ”), Emtec Infrastructure Services Corporation (“Infrastructure”), Emtec Viasub LLC (“Viasub”), Emtec Global Services LLC (“Global”), KOAN-IT (US) CORP. (“Koan-It”), Emtec Federal, Inc. (“Federal”), eBusiness Application Solution, Inc. (“Application”), Luceo, Inc. (“Luceo”), Aveeva, Inc. (“Aveeva”), Secure Data, Inc. (“Secure”), Covelix, Inc. (“Covelix”), Dinero Solutions, LLC (“Dinero”) and Gnuco, LLC (“Gnuco”), and each other Person joined hereto as a borrower from time to time (each a “Borrower”, and collectively “Borrowers”), the financial institutions which are now or which hereafter become a party hereto (collectively, the “Lenders” and individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for Lenders (PNC, in such capacity, the “Agent”).

 

IN CONSIDERATION of the mutual covenants and undertakings herein contained, Borrowers, Lenders and Agent hereby agree as follows:

 

I.              DEFINITIONS.

 

1.1.           Accounting Terms.  As used in this Agreement, the Other Documents or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined in Section 1.2 or elsewhere in this Agreement and accounting terms partly defined in Section 1.2 to the extent not defined, shall have the respective meanings given to them under GAAP; provided, however, whenever such accounting terms are used for the purposes of determining compliance with financial covenants in this Agreement, such accounting terms shall be defined in accordance with GAAP as applied in preparation of the audited financial statements of Borrowers for the fiscal year ended August 31, 2011.

 

1.2.           General Terms.  For purposes of this Agreement the following terms shall have the following meanings:

 

“Accountants” shall have the meaning set forth in Section 9.7 hereof.

 

“Advance Rates” shall mean, collectively, the Receivables Advance Rate, the Unbilled Receivables Advance Rate and the Finished Goods Inventory Advance Rate.

 

“Advances” shall mean and include the Revolving Advances and Letters of Credit.

 

“Affiliate” of any Person shall mean (a) any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any Person who is a director, managing member, general partner or officer of (i) such Person, (ii) any Subsidiary of such Person or (iii) any Person described in clause (a) above.  For purposes of this definition, control of a Person shall mean the power, direct or indirect, to (x) vote ten percent (10%) or more of the Equity Interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for any such Person, or (y) direct or cause the direction of the management and policies of such Person whether by ownership of Equity Interests, contract or otherwise.

 

  

1

  

 

“Agent” shall have the meaning set forth in the preamble to this Agreement and shall include its successors and assigns.

 

“Agreement” shall mean this Revolving Credit and Security Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.

 

“Alternate Base Rate” shall mean, for any day, a rate per annum equal to the highest of (a) the Base Rate in effect on such day, (b) the Federal Funds Open Rate in effect on such day plus one half of one percent (0.5%) and (c) the Daily LIBOR Rate plus one percent (1%).  For purposes of this definition, “Daily LIBOR Rate” shall mean, for any day, the rate per annum determined by Agent by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the percentage prescribed by the Federal Reserve for determining the maximum reserve requirements with respect to any eurocurrency funding by banks on such day.  For the purposes of this definition, “Published Rate” shall mean the rate of interest published each Business Day in The Wall Street Journal “Money Rates” listing under the caption “London Interbank Offered Rates” for a one month period (or, if no such rate is published therein for any reason, then the Published Rate shall be the eurodollar rate for a one month period as published in another publication determined by Agent).

 

“Anti-Terrorism Laws” shall mean any Applicable Laws relating to terrorism or money laundering, including Executive Order No. 13224, the USA PATRIOT Act, the Applicable Laws comprising or implementing the Bank Secrecy Act, and the Applicable Laws administered by the United States Treasury Department’s Office of Foreign Asset Control (as any of the foregoing Applicable Laws may from time to time be amended, renewed, extended, or replaced).

 

“Applicable Law” shall mean all laws, rules and regulations applicable to the Person, conduct, transaction, covenant, Other Document or contract in question, including all applicable common law and equitable principles; all provisions of all applicable state, federal and foreign constitutions, statutes, laws, rules, regulations, treaties, directives and orders of any Governmental Body, and all orders, judgments and decrees of all courts and arbitrators.

 

“Applicable Margin” for Revolving Advances shall mean (a) for Domestic Rate Loans, one percent (1%) and (b) for Eurodollar Rate Loans, three percent (3%).

 

“Authority” shall have the meaning set forth in Section 4.19(d) hereof.

 

“Availability Block” shall mean the amount of One Million Dollars ($1,000,000), provided that such amount shall be permanently reduced to zero if, after receipt of the annual audited financial statements for the period ending August 31,2012, (a) Borrowing Agent  shall certify to Agent that based upon the review of such statements (i) no Default or Event of Default then exists and (ii) Borrowers had net income of greater than zero for such fiscal year and (b) Borrowing Agent shall certify to Agent that based upon the review of such statements or any quarterly financial statements furnished to Agent thereafter pursuant to Section 9.8 hereof, (i) the Fixed Charge Coverage Ratio for the twelve (12) month period ending on August 31, 2012 or the last day of any such subsequent fiscal quarter, as applicable, is no less than 1.5 to 1.0 and (ii) Borrowers shall have an average Undrawn Availability, for the thirty (30) Business Day period immediately preceding the end of such fiscal year or fiscal quarter, as applicable, of not less than Five Million Dollars ($5,000,000).

 

  

2

  

 

“Base Rate” shall mean the base commercial lending rate of PNC as publicly announced to be in effect from time to time, such rate to be adjusted automatically, without notice, on the effective date of any change in such rate.  This rate of interest is determined from time to time by PNC as a means of pricing some loans to its customers and is neither tied to any external rate of interest or index nor does it necessarily reflect the lowest rate of interest actually charged by PNC to any particular class or category of customers of PNC.

 

“Blocked Accounts” shall have the meaning set forth in Section 4.15(h) hereof.

 

“Blocked Account Bank” shall have the meaning set forth in Section 4.15(h) hereof.

 

“Blocked Person” shall have the meaning set forth in Section 5.24(b) hereof.

 

“Borrower” or “Borrowers” shall have the meaning set forth in the preamble to this Agreement and shall extend to all permitted successors and assigns of such Persons.

 

“Borrowers on a Consolidated Basis” shall mean the consolidation in accordance with GAAP of the accounts or other items of Borrowers and their respective Subsidiaries.

 

“Borrowers’ Account” shall have the meaning set forth in Section 2.8 hereof.

 

“Borrowing Agent” shall mean Emtec DE.

 

“Borrowing Base Certificate” shall mean a certificate in substantially the form of Exhibit 1.2 duly executed by the President, Chief Financial Officer or Controller of Borrowing Agent and delivered to Agent, appropriately completed, by which such officer shall certify to Agent the Formula Amount and calculation thereof as of the date of such certificate.

 

“Business Day” shall mean any day other than Saturday or Sunday or a legal holiday on which commercial banks are authorized or required by law to be closed for business in East Brunswick, New Jersey and, if the applicable Business Day relates to any Eurodollar Rate Loans, such day must also be a day on which dealings are carried on in the London interbank market.

 

“Capital Expenditures” shall mean expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, including the total principal portion of Capitalized Lease Obligations, which, in accordance with GAAP, would be classified as capital expenditures.

 

“Capitalized Lease Obligation” shall mean any Indebtedness of any Borrower represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.

 

  

3

  

 

“CERCLA” shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.

 

“Change of Ownership” shall mean (a) one hundred percent (100%) of the Equity Interests of any Subsidiary is no longer owned (directly or indirectly) or controlled by Emtec DE (including for the purposes of any calculation of percentage ownership, any Equity Interests into which any Equity Interests of any Subsidiary held by Emtec DE are convertible or for which any such Equity Interests of any Subsidiary or of any other Person may be exchanged and any Equity Interests issuable to Emtec DE upon exercise of any warrants, options or similar rights which may at the time of calculation be held by Emtec DE), unless any of the foregoing is the result of a transaction permitted under Section 7.1 hereof, (b) (i) any “person” or “group of persons” (within the meaning of Section 13(d) or 14(a) of the Exchange Act), other than the shareholders of Emtec DE as of the date of this Agreement or any of their respective Affiliates (provided that with respect to DARR, for purposes of this definition, “Affiliates” shall include its Permitted Transferees), shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the SEC under the Exchange Act) of thirty-five percent (35%) or more of the voting Equity Interest of Emtec DE; or (ii) from and after the date hereof, individuals who on the date hereof constitute the Board of Directors of Emtec DE (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of Emtec DE was approved by a vote of a majority of the directors then still in office who were either directors on the date hereof or whose election or nomination for election was previously approved) cease for any reason to constitute a majority of the board of directors of Emtec DE then in office; or (c) any merger, consolidation or sale of substantially all of the property or assets of any Borrower or any direct or indirect Subsidiary of any Borrower unless any of the foregoing is the result of a transaction permitted under Section 7.1 hereof or a transaction in which a Subsidiary is merged  into or consolidated with any other Subsidiary or a Borrower, provided that, in the case of a merger into or consolidation with a Borrower, the Borrower is the surviving Person (and in the case of a merger into or consolidation with Emtec DE, Emtec DE is the surviving Person).  For purposes of this definition, control or controlled shall mean the power (direct or indirect) to direct or cause the direction of the management and policies of any Person, by contract or otherwise.

 

“Charges” shall mean all taxes, charges, fees, imposts, levies or other assessments, including all net income, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation and property taxes, custom duties, fees, assessments, liens, claims and charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts, imposed by any taxing or other authority, domestic or foreign (including the PBCG or any environmental agency or superfund), upon the Collateral, any Borrower or any of its Affiliates.

 

“Closing Date” shall mean December 30, 2011 or such other date as may be agreed to by the parties hereto.

 

“Code” shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.

 

  

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“Collateral” shall mean and include:

 

(a)           all Receivables;

 

(b)           all Equipment;

 

(c)           all General Intangibles;

 

(d)           all Inventory;

 

(e)           all Investment Property;

 

(f)            all Subsidiary Stock;

 

(g)           the Leasehold Interests;

 

(h)           all of each Borrower’s right, title and interest in and to, whether now owned or hereafter acquired and wherever located, (i) its respective goods and other property including, but not limited to, all merchandise returned or rejected by Customers, relating to or securing any of the Receivables; (ii) all of each Borrower’s rights as a consignor, a consignee, an unpaid vendor, mechanic, artisan, or other lienor, including stoppage in transit, setoff, detinue, replevin, reclamation and repurchase; (iii) all additional amounts due to any Borrower from any Customer relating to the Receivables; (iv) other property, including warranty claims, relating to any goods securing the Obligations; (v) all of each Borrower’s contract rights, rights of payment which have been earned under a contract right, instruments (including promissory notes), documents, chattel paper (including electronic chattel paper), warehouse receipts, deposit accounts, letters of credit and money; (vi) all commercial tort claims (whether now existing or hereafter arising); (vii) if and when obtained by any Borrower, all real and personal property of third parties in which such Borrower has been granted a lien or security interest as security for the payment or enforcement of Receivables; (viii) all letter of credit rights (whether or not the respective letter of credit is evidenced by a writing); (ix) all supporting obligations; and (x) any other goods, personal property or real property now owned or hereafter acquired in which any Borrower has expressly granted a security interest or may in the future grant a security interest to Agent hereunder, or in any amendment or supplement hereto or thereto, or under any other agreement between Agent and any Borrower;

 

(i)           all of each Borrower’s ledger sheets, ledger cards, files, correspondence, records, books of account, business papers, computers, computer software (owned by any Borrower or in which it has an interest), computer programs, tapes, disks and documents relating to (a), (b), (c), (d), (e), (f), (g) or (h) of this Paragraph; and

 

(j)           all proceeds and products of (a), (b), (c), (d), (e), (f), (g), (h) and (i) in whatever form, including, but not limited to:  cash, deposit accounts (whether or not comprised solely of proceeds), certificates of deposit, insurance proceeds (including hazard, flood, liability and credit insurance), negotiable instruments and other instruments for the payment of money, chattel paper, security agreements, documents, eminent domain proceeds, condemnation proceeds and tort claim proceeds.

 

  

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Notwithstanding the foregoing, “Collateral” shall not include any property or agreement of any Borrower to the extent (but only to the extent) the granting of a security interest therein is prohibited by applicable laws, requires a consent not obtained of any Governmental Body pursuant to applicable laws or is prohibited by, or constitutes a breach or default under, or results in the termination of, or requires any consent not obtained under, any contract, instrument or other document giving rise to or affecting such property, in each case solely to the extent that such breach, default, termination or requirement for consent is not rendered ineffective by any of Sections 9-406, 9-407 or 9-408 of the Uniform Commercial Code or other applicable laws.

 

“Commitment Percentage” of any Lender shall mean the percentage set forth below such Lender’s name on the signature page hereof as the same may be adjusted upon any assignment by a Lender pursuant to Section 16.3(c) or (d) hereof.

 

“Commitment Transfer Supplement” shall mean a document in the form of Exhibit 16.3 hereto, properly completed and otherwise in form and substance satisfactory to Agent by which the Purchasing Lender purchases and assumes a portion of the obligation of Lenders to make Advances under this Agreement.

 

“Compliance Certificate” shall mean a compliance certificate to be signed by the Chief Executive Officer, Chief Financial Officer, President, Chairman or Controller of Borrowing Agent, which shall state that, based on an examination sufficient to permit such officer to make an informed statement, no Default or Event of Default exists, or if such is not the case, specifying such Default or Event of Default, its nature, when it occurred, whether it is continuing and the steps being taken by Borrowers with respect to such default and, such certificate shall have appended thereto calculations which set forth Borrowers’ compliance with the requirements or restrictions imposed by Sections 6.5, 7.4, 7.5, 7.6, 7.7, 7.8, 7.10, 7.11 and 7.21 hereof.

 

“Consents” shall mean all filings and all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Bodies and other third parties, domestic or foreign, necessary to carry on any Borrower’s business or necessary (including to avoid a conflict or breach under any agreement, instrument, other document, license, permit or other authorization) for the execution, delivery or performance of this Agreement, the Other Documents or the Subordinated Loan Documentation, including any Consents required under Applicable Law.

 

“Consigned Inventory” shall mean Inventory of any Borrower that is in the possession of another Person on a consignment, sale or return, or other basis that does not constitute a final sale and acceptance of such Inventory.

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (a) any Indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (b) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (c) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the Ordinary Course of Business of such Person.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

  

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“Controlled Group” shall mean, at any time, each Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with any Borrower, are treated as a single employer under Section 414 of the Code.

 

“Covelix India” means Covelix Technologies Private, Ltd., an entity incorporated in India.

 

“Customer” shall mean and include the account debtor with respect to any Receivable and/or the prospective purchaser of goods, services or both with respect to any contract or contract right, and/or any party who enters into or proposes to enter into any contract or other arrangement with any Borrower, pursuant to which such Borrower is to deliver any personal property or perform any services.

 

“Customs” shall have the meaning set forth in Section 2.11(b) hereof.

 

“DARR” means DARR Westwood LLC, a Delaware limited liability company.

 

“Debt Payments” shall mean collectively, all Senior Debt Payments and Subordinated Debt Payments.

 

“Default” shall mean an event, circumstance or condition which, with the giving of notice or passage of time or both, would constitute an Event of Default.

 

“Default Rate” shall have the meaning set forth in Section 3.1 hereof.

 

“Defaulting Lender” shall have the meaning set forth in Section 2.23(a) hereof.

 

“Depository Accounts” shall have the meaning set forth in Section 4.15(h) hereof.

 

“Designated Lender” shall have the meaning set forth in Section 16.2(b) hereof.

 

“Dollar” and the sign “$” shall mean lawful money of the United States of America.

 

“Domestic Rate Loan” shall mean any Advance that bears interest based upon the Alternate Base Rate.

 

“Drawing Date” shall have the meaning set forth in Section 2.12(b) hereof.

 

  

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“Early Termination Date” shall have the meaning set forth in Section 13.1 hereof.

 

“Earn Out Payments” shall mean cash payments made by a Borrower pursuant to earn-out liabilities incurred in connection with the acquisition of all or a substantial part of the assets or Equity Interests of any Person.

 

“EBITDA” shall mean for any period the sum of (a) net income (or loss) of Borrowers on a Consolidated Basis for such period (excluding extraordinary gains or losses), plus (b) all interest expense of Borrowers on a Consolidated Basis for such period, plus (c) all charges against income of Borrowers on a Consolidated Basis for such period for federal, state and local taxes actually paid, plus (d) depreciation expenses for Borrowers on a Consolidated Basis for such period, plus (e) amortization expenses for Borrowers on a Consolidated Basis for such period, plus (f) all non-cash stock based compensation paid during such period, plus (g) all cash payments due during such period under any bonus, retention or other performance based agreement.

 

“Eligible Inventory” shall mean and include finished goods Inventory, with respect to each Borrower, valued at the lower of cost or market value, determined on a weighted average basis, which is not, in Agent’s reasonable credit judgment, obsolete, slow moving or unmerchantable and which Agent, in its reasonable credit judgment, shall not deem ineligible Inventory, based on such considerations as Agent may from time to time deem appropriate in its reasonable credit judgment, including whether the Inventory is subject to a perfected, first priority security interest in favor of Agent and no other Lien (other than a Permitted Encumbrance).  In addition, Inventory shall not be Eligible Inventory if it (a) does not conform to all standards imposed by any Governmental Body which has regulatory authority over such goods or the use or sale thereof, (b) is in transit, (c) is located outside the continental United States or at a location that is not otherwise in compliance with this Agreement, (d) constitutes Consigned Inventory, (e) is the subject of an Intellectual Property Claim; (f) is subject to a License Agreement or other agreement that limits, conditions or restricts any Borrower’s or Agent’s right to sell or otherwise dispose of such Inventory, unless Agent is a party to a Licensor/Agent Agreement with the Licensor under such License Agreement; or (g) is situated at a location not owned by a Borrower unless the owner or occupier of such location has executed in favor of Agent a Lien Waiver Agreement.  Eligible Inventory shall not include Inventory being acquired pursuant to a trade Letter of Credit to the extent such trade Letter of Credit remains outstanding.

 

“Eligible Receivables” shall mean and include with respect to each Borrower, each Receivable of such Borrower arising in the Ordinary Course of Business and which Agent, in its reasonable credit judgment, shall deem to be an Eligible Receivable, based on such considerations as Agent may from time to time deem appropriate.  A Receivable shall not be deemed eligible unless such Receivable is subject to Agent’s first priority perfected security interest and no other Lien (other than Permitted Encumbrances), and is evidenced by an invoice or other documentary evidence satisfactory to Agent.  In addition, no Receivable shall be an Eligible Receivable if:

 

(a)           it arises out of a sale made by any Borrower to an Affiliate of any Borrower or to a Person controlled by an Affiliate of any Borrower;

 

  

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(b)           it is due or unpaid more than either (i) sixty (60) days after the original due date or (ii) one hundred twenty (120) days after the original invoice date, whichever is sooner; provided that Receivables owing from the United States of America or any department, agency or instrumentality of the United States of America that are due or unpaid more than sixty (60) days after the original due date, but less than ninety (90) days after the original due date (such Receivables are referred to as the “Extended US Receivables”) shall be deemed Eligible Receivables so long as the Extended US Receivables (A) do not exceed, at any given time Three Million Dollars ($3,000,000) and (B) not due and unpaid one hundred twenty (120) days after the invoice date;

 

(c)           fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible Receivables hereunder, provided that for purposes of this clause (c), each department, agency or instrumentality of the United States of America or Canada and each department, agency or instrumentality of any state, province or territory of the United State of America or Canada, shall be treated as a separate Customer.  Such percentage may, in Agent’s reasonable credit judgment, be increased or decreased from time to time;

 

(d)           any covenant, representation or warranty contained in this Agreement with respect to such Receivable has been breached;

 

(e)           the Customer shall (i) apply for, suffer, or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or call a meeting of its creditors, (ii) admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business, (iii) make a general assignment for the benefit of creditors, (iv) commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take advantage of any other law providing for the relief of debtors, (vii) acquiesce to, or fail to have dismissed, any petition which is filed against it in any involuntary case under such bankruptcy laws, or (viii) take any action for the purpose of effecting any of the foregoing;

 

(f)           the sale is to a Customer outside the continental United States of America or Canada, unless the sale is on letter of credit, guaranty or acceptance terms, in each case acceptable to Agent in its reasonable discretion;

 

(g)           the sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;

 

(h)           Agent believes, in its reasonable credit judgment, that collection of such Receivable is insecure or that such Receivable may not be paid by reason of the Customer’s financial inability to pay;

 

(i)            the Customer is the United States of America, any state or any department, agency or instrumentality of any of them, unless the applicable Borrower assigns its right to payment of such Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 6305 et seq.) or has otherwise complied with other applicable statutes or ordinances or Agent otherwise, in its reasonable credit judgment, deems such Receivable an Eligible Receivable; provided that any such Receivable shall be an Eligible Receivable for the first sixty (60) days following the Closing Date;

 

  

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(j)            the goods giving rise to such Receivable have not been delivered to the Customer or the services giving rise to such Receivable have not been performed by the applicable Borrower or the Receivable otherwise does not represent a final sale;

 

(k)           the Receivables of the Customer exceed a credit limit determined by Agent, in its reasonable credit judgment, to the extent such Receivable exceeds such limit;

 

(l)            the Receivable is subject to any offset, deduction, defense, dispute, or counterclaim, the Customer is also a creditor or supplier of a Borrower or the Receivable is contingent in any respect or for any reason, but only to the extent of the amount of such offset, deduction, defense, dispute or counterclaim.

 

(m)           the applicable Borrower has made any agreement with any Customer for any deduction therefrom, except for discounts or allowances made in the Ordinary Course of Business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto;

 

(n)           any return, rejection or repossession of the merchandise has occurred or the rendition of services has been disputed, but only to the extent of such returned, rejected or repossessed item or such services that have been disputed, as applicable;

 

(o)           such Receivable is not payable to a Borrower; or

 

(p)           such Receivable is not otherwise satisfactory to Agent as determined in good faith by Agent in the exercise of its reasonable credit judgment.

 

“Eligible Unbilled Receivables” shall mean each Receivable that would otherwise be an Eligible Receivable but for the fact that it is not evidenced by an invoice or other evidence that it has been submitted to a Customer for payment; provided, however such Borrower shall have acceptable records as to the Receivables and provided further that no Receivable shall be an Eligible Unbilled Receivable if such Borrower does not generate an invoice therefor or otherwise submit such Receivable to a Customer for payment within thirty-five (35) days of when such Receivable is first treated as an Eligible Unbilled Receivable hereunder.

 

“Emerging Cloud” shall mean a non-wholly-owned Subsidiary of Gnuco to be formed after the Closing Date and joined as a borrower subject to the terms of Section 7.12 hereof.

 

“Emtec Canada” shall mean Emtec Infrastructure Services Canada Corporation, a corporation organized under the federal laws of Canada.

 

“Emtec India” shall mean Emtec Software India Private Limited, an entity incorporated in India.

 

  

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“Environmental Complaint” shall have the meaning set forth in Section 4.19(d) hereof.

 

“Environmental Laws” shall mean all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes relating to the protection of the environment and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Substances and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state and local governmental agencies and authorities with respect thereto.

 

“Equipment” shall mean and include as to each Borrower all of such Borrower’s goods (other than Inventory) whether now owned or hereafter acquired and wherever located including all equipment, machinery, apparatus, motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and all replacements and substitutions therefor or accessions thereto.

 

“Equity Interests” of any Person shall mean any and all shares, rights to purchase, options, warrants, general, limited or limited liability partnership interests, member interests, participation or other equivalents of or interest in (regardless of how designated) equity of such Person, whether voting or nonvoting, including common stock, preferred stock, convertible securities or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time and the rules and regulations promulgated thereunder.

 

“Eurodollar Rate” shall mean for any Eurodollar Rate Loan for the then current Interest Period relating thereto the interest rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Agent by dividing (a) the rate which appears on the Bloomberg Page BBAM1 (or on such other substitute Bloomberg page that displays rates at which US dollar deposits are offered by leading banks in the London interbank deposit market), or the rate which is quoted by another source selected by Agent which has been approved by the British Bankers’ Association as an authorized information vendor for the purpose of displaying rates at which US dollar deposits are offered by leading banks in the London interbank deposit market (an “Alternative Source”), at approximately 11:00 a.m., London time two (2) Business Days prior to the first day of such Interest Period (or if there shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or any substitute page) or any Alternate Source, a comparable replacement rate determined by Agent at such time (which determination shall be conclusive absent manifest error)) for an amount comparable to such Eurodollar Rate Loan and having a borrowing date and a maturity comparable to such Interest Period by (b) a number equal to 1.00 minus the Reserve Percentage.

 

The Eurodollar Rate shall be adjusted with respect to any Eurodollar Rate Loan that is outstanding on the effective date of any change in the Reserve Percentage as of such effective date.  Agent shall give prompt notice to Borrowing Agent of the Eurodollar Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.

 

  

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“Eurodollar Rate Loan” shall mean a Revolving Advance at any time that bears interest based on the Eurodollar Rate.

 

“Event of Default” shall have the meaning set forth in Article X hereof.

 

“Exchange Act” shall have the mean the Securities Exchange Act of 1934, as amended.

 

“Executive Order No. 13224” shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

“Existing Credit Agreement” shall mean that certain Loan and Security Agreement dated December 7, 2006 among Borrowers and De Lage Landen Financial Services, Inc., as amended from time to time.

 

“Existing Floor Plan Agreement” shall mean that certain Loan Agreement (Revolving Credit Loan and Floorplan Loan) dated June 23, 2011 between Emtec Canada and De Lage Landen Financial Services Canada, Inc., as amended from time to time.

 

“FATCA” shall mean Sections 1471 through 1475 of the Code, and any official interpretation thereof.

 

“Federal Funds Effective Rate” for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate” as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.

 

“Federal Funds Open Rate” for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by PNC (an “Alternate Source”) (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate determined by the PNC at such time (which determination shall be conclusive absent manifest error); provided however, that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the “open” rate on the immediately preceding Business Day.  If and when the Federal Funds Open Rate changes, the rate of interest with respect to any advance to which the Federal Funds Open Rate applies will change automatically without notice to the Borrowers, effective on the date of any such change.

 

  

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“Finished Goods Inventory Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(iii) hereof.

 

“Fixed Charge Coverage Ratio” shall mean and include, with respect to any fiscal period, the ratio of (a) EBITDA minus Unfinanced Capital Expenditures made during such period minus cash taxes paid during such period minus dividends and distributions on account of any Equity Interests during such period to (b) all Debt Payments made during such period.

 

“Foreign Subsidiary” of any Person, shall mean (i) any Subsidiary of such Person that is not organized or incorporated in the United States of America any state or territory thereof, and (ii) any other Subsidiary of such Person, if the grant of a security interest in or a pledge of the Equity Interests of such Subsidiary would create an investment in “United States property” within the meaning of Section 956 of the Code that could give rise to taxable income for any Borrower pursuant to Section 951 of the Code.

 

“Formula Amount” shall have the meaning set forth in Section 2.1(a) hereof.

 

“GAAP” shall mean generally accepted accounting principles in the United States of America in effect from time to time.

 

“General Intangibles” shall mean and include as to each Borrower all of such Borrower’s general intangibles, whether now owned or hereafter acquired, including all payment intangibles, all choses in action, causes of action, corporate or other business records, inventions, designs, patents, patent applications, equipment formulations, manufacturing procedures, quality control procedures, trademarks, trademark applications, service marks, trade secrets, goodwill, copyrights, design rights, software, computer information, source codes, codes, records and updates, registrations, licenses, franchises, customer lists, tax refunds, tax refund claims, computer programs, all claims under guaranties, security interests or other security held by or granted to such Borrower to secure payment of any of the Receivables by a Customer (other than to the extent covered by Receivables) all rights of indemnification and all other intangible property of every kind and nature (other than Receivables).

 

“Gnuco Seller” shall mean a “Seller” as defined in that certain Securities Purchase Agreement, dated August 15, 2011, by and among Global, Emtec DE, Gnuco, the members of Gnuco listed on the signature pages thereto and solely for the purposes of Section 8.2, Section 9.2 and Article X thereto, Greg Lewis and Don Sweeney.

 

“Governmental Acts” shall have the meaning set forth in Section 2.17 hereof.

 

“Governmental Body” shall mean any nation or government, any state or other political subdivision thereof or any entity, authority, agency, division or department exercising the legislative, judicial, regulatory or administrative functions of or pertaining to a government.

 

“Gross-Up Payment” shall have the meaning set forth in Section 3.10 hereof.

 

“Guarantor” shall mean any Person who may hereafter guarantee payment or performance of the whole or any part of the Obligations and “Guarantors” means collectively all such Persons.

 

  

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“Guarantor Security Agreement” shall mean any Security Agreement executed by any Guarantor in favor of Agent securing the Guaranty of such Guarantor, in form and substance satisfactory to Agent.

 

“Guaranty” shall mean any guaranty of the obligations of Borrowers executed by a Guarantor in favor of Agent for its benefit and for the ratable benefit of Lenders, in form and substance satisfactory to Agent.

 

“Hazardous Discharge” shall have the meaning set forth in Section 4.19(d) hereof.

 

“Hazardous Substance” shall mean, without limitation, any flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous materials, Hazardous Wastes, hazardous or Toxic Substances or related materials as defined in CERCLA, the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801, et  seq.), RCRA, or any other applicable Environmental Law and in the regulations adopted pursuant thereto.

 

“Hazardous Wastes” shall mean all waste materials subject to regulation under CERCLA, RCRA or applicable state law, and any other applicable Federal and state laws now in force or hereafter enacted relating to hazardous waste disposal.

 

“Hedge Liabilities” shall have the meaning provided in the definition of “Lender-Provided Interest Rate Hedge”.

 

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness for borrowed money, (b) all indebtedness for the deferred purchase price of property or services (other than accounts payable incurred in the Ordinary Course of Business and any Earn-Out Payments and similar payment obligations that have not been earned in full as of such date or are contingent), (c) all indebtedness for reimbursement and other obligations with respect to surety bonds and letters of credit, (d) all obligations evidenced by notes, bonds, debentures or similar instruments, (e) all Capitalized Lease Obligations, (f) all Contingent Obligations, and (g) Earn-Out Payments and similar payment obligations that have been earned in full as of such date and are not contingent.

 

“Ineligible Security” shall mean any security which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.

 

“Intellectual Property” shall mean property constituting under any Applicable Law a patent, patent application, copyright, trademark, service mark, trade name, mask work, trade secret or license or other right to use any of the foregoing.

 

“Intellectual Property Claim” shall mean the assertion by any Person of a claim (whether asserted in writing, by action, suit or proceeding or otherwise) that any Borrower’s ownership, use, marketing, sale or distribution of any Inventory, Equipment, Intellectual Property or other property or asset is violative of any ownership of or right to use any Intellectual Property of such Person.

 

  

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“Interest Period” shall mean the period provided for any Eurodollar Rate Loan pursuant to Section 2.2(b) hereof.

 

“Interest Rate Hedge” shall mean an interest rate exchange, collar, cap, swap, adjustable strike cap, adjustable strike corridor or similar agreements entered into by any Borrower or its Subsidiaries in order to provide protection to, or minimize the impact upon, such Borrower, any Guarantor and/or their respective Subsidiaries of increasing floating rates of interest applicable to Indebtedness.

 

“Inventory” shall mean and include as to each Borrower all of such Borrower’s now owned or hereafter acquired goods, merchandise and other personal property, wherever located, to be furnished under any consignment arrangement, contract of service or held for sale or lease, all raw materials, work in process, finished goods and materials and supplies of any kind, nature or description which are or might be used or consumed in such Borrower’s business or used in selling or furnishing such goods, merchandise and other personal property, and all documents of title or other documents representing them.

 

“Investment Property” shall mean and include as to each Borrower, all of such Borrower’s now owned or hereafter acquired securities other than Equity Interests of any Subsidiary (whether certificated or uncertificated), securities entitlements, securities accounts, commodities contracts and commodities accounts.

 

“Issuer” shall mean any Person who issues a Letter of Credit and/or accepts a draft pursuant to the terms hereof.

 

“Leasehold Interests” shall mean all of each Borrower’s right, title and interest in and to the premises described in Schedule 4.19 and identified as leased premises.

 

“Lender” and “Lenders” shall have the meaning ascribed to such term in the preamble to this Agreement and shall include each Person which becomes a transferee, successor or assign of any Lender.

 

“Lender Default” shall have the meaning set forth in Section 2.23 hereof.

 

“Lender-Provided Interest Rate Hedge” shall mean an Interest Rate Hedge which is provided by any Lender and with respect to which Agent confirms meets the following requirements: such Interest Rate Hedge (a) is documented in a standard International Swap Dealer Association Agreement, (b) provides for the method of calculating the reimbursable amount of the provider's credit exposure in a reasonable and customary manner, and (c) is entered into for hedging (rather than speculative) purposes.  The liabilities of any Borrower to the provider of any Lender-Provided Interest Rate Hedge (the “Hedge Liabilities”) shall be “Obligations” hereunder, guaranteed obligations under the Guaranty and secured obligations under the Guarantor Security Agreement and otherwise treated as Obligations for purposes of each of the Other Documents. The Liens securing the Hedge Liabilities shall be pari passu with the Liens securing all other Obligations under this Agreement and the Other Documents.

 

“Letter of Credit Borrowing” shall have the meaning set forth in Section 2.12(d) hereof.

 

  

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“Letter of Credit Fees” shall have the meaning set forth in Section 3.2 hereof.

 

“Letter of Credit Sublimit” shall mean Seven Million Dollars ($7,000,000).

 

“Letters of Credit” shall have the meaning set forth in Section 2.9 hereof.

 

“License Agreement” shall mean any agreement between any Borrower and a Licensor pursuant to which such Borrower is authorized to use any Intellectual Property in connection with the manufacturing, marketing, sale or other distribution of any Inventory of such Borrower or otherwise in connection with such Borrower’s business operations.

 

“Licensor” shall mean any Person from whom any Borrower obtains the right to use (whether on an exclusive or non-exclusive basis) any Intellectual Property in connection with such Borrower’s manufacture, marketing, sale or other distribution of any Inventory or otherwise in connection with such Borrower’s business operations.

 

“Licensor/Agent Agreement” shall mean an agreement between Agent and a Licensor, in form and content satisfactory to Agent, by which Agent is given the unqualified right, vis-a-vis such Licensor, to enforce Agent’s Liens with respect to and to dispose of any Borrower’s Inventory with the benefit of any Intellectual Property applicable thereto, irrespective of such Borrower’s default under any License Agreement with such Licensor.

 

“Lien” shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, security interest, lien (whether statutory or otherwise), Charge, claim or encumbrance, or preference, priority or other security agreement or preferential arrangement held or asserted in respect of any asset of any kind or nature whatsoever including any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction.

 

“Lien Waiver Agreement” shall mean an agreement which is executed in favor of Agent by a Person who owns or occupies premises at which any Collateral may be located from time to time and by which such Person shall waive (or subordinate) any Lien that such Person may ever have with respect to any of the Collateral and shall authorize Agent from time to time to enter upon the premises to inspect or remove the Collateral from such premises or to use such premises to store or dispose of such Collateral.

 

“Material Adverse Effect” shall mean a material adverse effect on (a) the condition (financial or otherwise), results of operations, assets, business or properties of any Borrower or any Guarantor, (b) any Borrower’s ability to duly and punctually pay or perform the Obligations in accordance with the terms thereof, (c) the value of the Collateral, or Agent’s Liens on the Collateral or the priority of any such Lien or (d) the practical realization of the benefits of Agent’s and each Lender’s rights and remedies under this Agreement and the Other Documents.

 

“Material Contract” shall mean all agreements, contracts, plans, leases, arrangements or commitments that are deemed to be a material contract within the meaning of Item 601(b)(10) of Regulation S-K promulgated under the Securities Act.

 

  

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“MauritiusCo” shall mean Emtec Services Mauritius, a company organized under the laws of Mauritius.

 

“Maximum Face Amount” shall mean, with respect to any outstanding Letter of Credit, the face amount of such Letter of Credit including all automatic increases provided for in such Letter of Credit, whether or not any such automatic increase has become effective.

 

“Maximum Revolving Advance Amount” shall mean for the period from February 1 through August 31, an amount not to exceed Thirty Million Dollars ($30,000,000) and for the period from September 1 through January 31, an amount not to exceed Forty Five Million Dollars ($45,000,000).

 

“Maximum Undrawn Amount” shall mean with respect to any outstanding Letter of Credit, the amount of such Letter of Credit that is or may become available to be drawn, including all automatic increases provided for in such Letter of Credit, whether or not any such automatic increase has become effective.

 

“Modified Commitment Transfer Supplement” shall have the meaning set forth in Section 16.3(d) hereof.

 

“Multiemployer Plan” shall mean a “multiemployer plan” as defined in Sections 3(37) and 4001(a)(3) of ERISA.

 

“Multiple Employer Plan” shall mean a Plan which has two or more contributing sponsors (including any Borrower or any member of the Controlled Group) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.

 

“NewSpring” shall mean NewSpring SBIC Mezzanine Capital II, L.P, a Delaware limited partnership, and any permitted successors and assigns.

 

“NewSpring/Peachtree Loan Agreement” shall have the meaning set forth in the definition of NewSpring/Peachtree Subordinated Debt Documents.

 

“NewSpring Subordinated Debt” shall mean Indebtedness in the original principal amount of Ten Million Dollars ($10,000,000) owing by Borrowers to NewSpring and evidenced by the NewSpring/Peachtree Subordinated Debt Documents.

 

“NewSpring/Peachtree Subordinated Debt Documents” shall mean collectively, that certain Senior Subordinated Promissory Note dated of even date herewith and issued by Borrowers in favor of Peachtree, that certain Amended and Restated Senior Subordinated Promissory Note dated of even date herewith and issued by Borrowers in favor of NewSpring, that certain Amended and Restated Subordinated Loan Agreement dated of even date herewith among Borrowers, Peachtree, NewSpring and Subordinated Collateral Agent (“NewSpring/Peachtree Loan Agreement”) and any instruments, documents and agreements executed in connection therewith or related thereto, all as may be amended, restated, supplemented or otherwise modified from time to time, as permitted under the terms of the NewSpring Subordination Agreement.

 

  

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“NewSpring/Peachtree Subordination Agreement” shall mean that certain Subordination Agreement among Agent, Peachtree, NewSpring, Subordinated Collateral Agent and Borrowers, in form and substance satisfactory to Agent, as the same may be amended, restated, supplemented or otherwise modified from time to time.

 

“Note” shall mean collectively, the Revolving Credit Notes.

 

“Obligations” shall mean and include any and all loans, advances, debts, liabilities, obligations, covenants and duties owing by any Borrower to Lenders or Agent or to any other direct or indirect subsidiary or affiliate of Agent or any Lender of any kind or nature, present or future under this Agreement and the Other Documents (including any interest or other amounts accruing thereon after maturity, or after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding relating to any Borrower, whether or not a claim for post-filing or post-petition interest or other amounts is allowed in such proceeding), whether or not evidenced by any note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, opening of a letter of credit, loan, equipment lease or guarantee, under any interest or currency swap, future, option or other similar agreement (including, without limitation, any Hedge Liability), or in any other manner, and any obligations of Borrowers to Lenders arising out of overdrafts or deposit or other accounts or electronic funds transfers (whether through automated clearing houses or otherwise) or out of Agent’s or any Lenders non-receipt of or inability to collect funds or otherwise not being made whole in connection with depository transfer check or other similar arrangements, whether any of the foregoing is direct or indirect (including those acquired by assignment or participation), absolute or contingent, joint or several, due or to become due, now existing or hereafter arising, contractual or tortious, liquidated or unliquidated, and shall also include any amendments, extensions, renewals or increases and all costs and expenses of Agent and any Lender incurred in the documentation, negotiation, modification, enforcement, collection or otherwise in connection with this Agreement and the Other Documents, including, but not limited to, reasonable attorneys’ fees and expenses and all obligations of any Borrower to Agent or Lenders to perform acts or refrain from taking any action.

 

“Ordinary Course of Business” shall mean with respect to any Borrower, the ordinary course of such Borrower’s business as substantially conducted on or after the Closing Date, subject to any limitations set forth in the terms of this Agreement.

 

“Organizational Documents” shall mean (a) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (b) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (c) with respect to any general partnership, its partnership agreement, as amended, and (d) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended.  In the event any term or condition of this Agreement or any Other Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.

 

  

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“Other Documents” shall mean the Note, the Questionnaire, the Pledge Agreement, any Guaranty, any Guarantor Security Agreement, the NewSpring/Peachtree Subordination Agreement, any Lender-Provided Interest Rate Hedge, any assignment documents necessary under the Federal Assignment of Claims Acts and any and all other agreements, instruments and documents, including guaranties, pledges, powers of attorney, consents, interest or currency swap agreements or other similar agreements and all other writings heretofore, now or hereafter executed by any Borrower or any Guarantor and/or delivered to Agent or any Lender in respect of the transactions contemplated by this Agreement, as each may be amended, restated, supplemented or otherwise modified from time to time.

 

“Out-of-Formula Loans” shall have the meaning set forth in Section 16.2(b) hereof.

 

“Participant” shall mean each Person who shall be granted the right by any Lender to participate in any of the Advances and who shall have entered into a participation agreement in form and substance satisfactory to such Lender.

 

“Participation Advance” shall have the meaning set forth in Section 2.12(d) hereof.

 

“Participation Commitment” shall mean each Lender’s obligation to buy a participation of the Letters of Credit issued hereunder.

 

“Payee” shall have the meaning set forth in Section 3.10 hereof.

 

“Payment Office” shall mean initially Two Tower Center Boulevard, East Brunswick, New Jersey 08816; thereafter, such other office of Agent, if any, which it may designate by notice to Borrowing Agent and to each Lender to be the Payment Office.

 

“Payroll Reserve” shall mean an amount at any given time equal to the product of (a) the gross amount of Borrowers’ average daily payroll obligations for the immediately preceding calendar month (or for a shorter time frame as Agent may determine in its reasonable credit judgment) times (b) the number of days since the last payroll funding as of the date of the applicable Borrowing Base Certificate.  For illustrative purposes only, an example of the calculation is attached as Exhibit A.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.

 

“Peachtree” shall mean Peachtree II, L.P., a limited partnership.

 

“Peachtree Subordinated Debt” shall mean Indebtedness in the original principal amount of Three Million Dollars ($3,000,000) owing by Borrowers to Peachtree and evidenced by the NewSpring/Peachtree Subordinated Debt Documents.

 

“Pension Benefit Plan” shall mean at any time any employee pension benefit plan (including a Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and either (a) is maintained by any member of the Controlled Group for employees of any member of the Controlled Group; or (b) has at any time within the preceding five (5) years been maintained by any entity which was at such time a member of the Controlled Group for employees of any entity which was at such time a member of the Controlled Group.

 

  

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“Permitted Encumbrances” shall mean:

 

(a)           Liens in favor of Agent for the benefit of Agent and Lenders securing the Obligations;

 

(b)           Liens for taxes, assessments or other governmental charges not delinquent or being Properly Contested;

 

(c)           Liens created or arising securing the Peachtree Subordinated Debt and NewSpring Subordinated Debt;

 

(d)           deposits or pledges to secure obligations under worker’s compensation, social security or similar laws, or under unemployment insurance;

 

(e)           deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the Ordinary Course of Business;

 

(f)            Liens arising by virtue of the rendition, entry or issuance against any Borrower or any Subsidiary, or any property of any Borrower or any Subsidiary, of any judgment, writ, order, or decree for so long as each such Lien (i) is in existence for less than twenty (20) consecutive days after it first arises or is being Properly Contested and (ii) is at all times junior in priority to any Liens in favor of Agent;

 

(g)           mechanics’, workers’, materialmen’s or other like Liens arising in the Ordinary Course of Business with respect to obligations which are not due or which are being Properly Contested;

 

(h)           Liens placed upon fixed assets hereafter acquired to secure a portion of the purchase price thereof, provided that (i) any such lien shall not encumber any other property of any Borrower and (ii) the aggregate amount of Indebtedness secured by such Liens incurred as a result of such purchases during any fiscal year shall not exceed the amount provided for in Section 7.6 hereof;

 

(i)            other Liens incidental to the conduct of any Borrower’s business or the ownership of its property and assets which were not incurred in connection with the borrowing of money or the obtaining of advances or credit, and which do not in the aggregate materially detract from Agent’s or Lenders’ rights in and to the Collateral or the value of any Borrower’s property or assets or which do not materially impair the use thereof in the operation of any Borrower’s business;

 

(j)            Liens disclosed on Schedule 1.2; provided that each such Lien shall secure only those obligations which such Lien secures on the Closing Date and shall not subsequently apply to any other property or assets of any Borrower; and

 

(k)           operating leases for equipment or otherwise and associated security interests securing the subject(s) of such leases in the Ordinary Course of Business.

 

  

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“Permitted Transferee” means: (a) Dinesh R. Desai or the managing member of DARR, and any corporation, partnership or other entity that is an Affiliate of any of the foregoing persons in this clause (a) (collectively, “DARR Affiliates”), (b) any present or former managing director, director, trustee or other fiduciary, general partner, limited partner, member, officer or employee of DARR or any DARR Affiliate, or any spouse or lineal descendant (natural or adopted), sibling or parent of any of the foregoing persons in this clause (b), any heir, executor, administrator, testamentary trustee, legatee or beneficiary of any of the foregoing persons described in this clause (b), or any personal representative upon the death, disability or incompetency of any of the foregoing persons described in this clause (b) for the purpose of the protection and management of the assets of such person (collectively, “DARR Associates”), and (c) any trust, the beneficiaries of which, or any charitable trust, the grantor of which, or any corporation, limited liability company, partnership or other business entity, the stockholders, members or general and limited partners of which, include only DARR, DARR Affiliates, or DARR Associates.

 

“Person” shall mean any individual, sole proprietorship, partnership, corporation, business trust, joint stock company, trust, unincorporated organization, association, limited liability company, limited liability partnership, institution, public benefit corporation, joint venture, entity or Governmental Body (whether federal, state, county, city, municipal or otherwise, including any instrumentality, division, agency, body or department thereof).

 

“Plan” shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Benefit Plan), maintained for employees of any Borrower or any member of the Controlled Group or any such Plan to which any Borrower or any member of the Controlled Group is required to contribute on behalf of any of its employees.

 

“Pledge Agreement” shall mean any Pledge Agreement executed by any Borrower in favor of Agent pledging all Equity Interests in any Subsidiary that is not a Borrower and all Subsidiary Stock to secure the Obligations, in form and substance satisfactory to Agent.

 

“PNC” shall have the meaning set forth in the preamble to this Agreement and shall extend to all of its successors and assigns.

 

“Pro Forma Balance Sheet” shall have the meaning set forth in Section 5.5(a) hereof.

 

“Pro Forma Financial Statements” shall have the meaning set forth in Section 5.5(b) hereof.

 

“Projections” shall have the meaning set forth in Section 5.5(b) hereof.

 

  

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“Properly Contested” shall mean, in the case of any Indebtedness or Lien, as applicable, of any Person (including any taxes) that is not paid as and when due or payable by reason of such Person’s bona fide dispute concerning its liability to pay same or concerning the amount thereof, (a) such Indebtedness or Lien, as applicable, is being properly contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (b) such Person has established appropriate reserves as shall be required in conformity with GAAP; (c) the non-payment of such Indebtedness will not have a Material Adverse Effect and will not result in the forfeiture of any assets of such Person; (d) no Lien is imposed upon any of such Person’s assets with respect to such Indebtedness unless such Lien is at all times junior and subordinate in priority to the Liens in favor of Agent (except only with respect to property taxes that have priority as a matter of applicable state law) and enforcement of such Lien is stayed during the period prior to the final resolution or disposition of such dispute; (e) if such Indebtedness or Lien, as applicable, results from, or is determined by the entry, rendition or issuance against a Person or any of its assets of a judgment, writ, order or decree, enforcement of such judgment, writ, order or decree is stayed pending a timely appeal or other judicial review; and (f) if such contest is abandoned, settled or determined adversely (in whole or in part) to such Person, such Person or such Person’s insurance forthwith pays such Indebtedness and all penalties, interest and other amounts due in connection therewith.

 

“Purchasing CLO” shall have the meaning set forth in Section 16.3(d) hereof.

 

“Purchasing Lender” shall have the meaning set forth in Section 16.3(c) hereof.

 

“Questionnaire” shall mean the Documentation Information Questionnaire and the responses thereto provided by Borrowing Agent and delivered to Agent.

 

“RCRA” shall mean the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as same may be amended from time to time.

 

“Real Property” shall mean all of each Borrower’s right, title and interest in and to the owned and leased premises identified on Schedule 4.19 hereto or which is hereafter owned or leased by any Borrower.

 

“Receivables” shall mean and include, as to each Borrower, all of such Borrower’s accounts, contract rights, instruments (including those evidencing indebtedness owed to such Borrower by its Affiliates), documents, chattel paper (including electronic chattel paper), general intangibles relating to accounts, drafts and acceptances, credit card receivables and all other forms of obligations owing to such Borrower arising out of or in connection with the sale or lease of Inventory or the rendition of services, all supporting obligations, guarantees and other security therefor, whether secured or unsecured, now existing or hereafter created, and whether or not specifically sold or assigned to Agent hereunder.

 

“Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(i) hereof.

 

“Register” shall have the meaning set forth in Section 16.3(e).

 

“Reimbursement Obligation” shall have the meaning set forth in Section 2.12(b) hereof.

 

“Release” shall have the meaning set forth in Section 5.7(c)(i) hereof.

 

“Reportable Event” shall mean a reportable event described in Section 4043(c) of ERISA or the regulations promulgated thereunder.

 

  

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“Required Lenders” shall mean Lenders holding at least fifty percent (50%) of the Advances and, if no Advances are outstanding, shall mean Lenders holding fifty percent (50%) of the Commitment Percentages; provided, however, if there are fewer than three (3) Lenders, Required Lenders shall mean all Lenders.

 

“Reserve Percentage” shall mean as of any day the maximum percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as “Eurocurrency Liabilities”.

 

“Revolving Advances” shall mean Advances made other than Letters of Credit.

 

“Revolving Credit Note” shall mean, collectively, the promissory notes referred to in Section 2.1(a) hereof.

 

“Revolving Interest Rate” shall mean an interest rate per annum equal to (a) the sum of the Alternate Base Rate plus the Applicable Margin with respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus the Applicable Margin with respect to Eurodollar Rate Loans.

 

“SEC” shall mean the Securities and Exchange Commission or any successor thereto.

 

“Section 20 Subsidiary” shall mean the Subsidiary of the bank holding company controlling PNC, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Senior Debt Payments” shall mean and include the sum of (a) all cash actually expended by any Borrower to make (i) interest payments on any Advances hereunder, plus (ii) payments for all fees, commissions and charges set forth herein and with respect to any Advances, plus (iii) payments on account of any Capitalized Lease Obligation, plus (iv) payments with respect to any other Indebtedness for borrowed money other than Subordinated Debt Payments plus (v) Earn Out Payments and any other cash payments due during such period under any bonus, retention or other performance based agreement and (b) without duplication, all interest expense accrued on Eurodollar Rate Loans.

 

“Settlement Date” shall mean the Closing Date and thereafter Wednesday or Thursday of each week or more frequently if Agent deems appropriate unless such day is not a Business Day in which case it shall be the next succeeding Business Day.

 

“Subordinated Collateral Agent” shall mean NewSpring, in its capacity as collateral agent for NewSpring and Peachtree under the terms of the NewSpring/Peachtree Subordinated Debt Documents.

 

  

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“Subordinated Debt” shall mean collectively, the Peachtree Subordinated Debt, the NewSpring Subordinated Debt and any other Indebtedness of any Borrower that is subordinate to the Obligations on written terms and conditions satisfactory to Agent.

 

“Subordinated Debt Payments” shall mean and include all cash actually expended to make payments of principal, interest or premium on account of the Subordinated Debt.

 

“Subordinated Loan Documentation” shall mean collectively, the NewSpring/Peachtree Subordinated Debt Documents and any other instruments, documents or agreements evidencing any Subordinated Debt.

 

“Subsidiary” of any Person shall mean a corporation or other entity of whose Equity Interests having ordinary voting power (other than Equity Interests having such power only by reason of the happening of a contingency) to elect a majority of the directors of such corporation, or other Persons performing similar functions for such entity, are owned, directly or indirectly, by such Person.

 

“Subsidiary Stock” shall mean (a) all of the issued and outstanding Equity Interests of any Subsidiary other than a Foreign Subsidiary owned by any Borrower and (b) with respect to any first-tier Foreign Subsidiary owned by any Borrower, sixty-five percent (65%) of the Equity Interests of such Foreign Subsidiary.

 

“Term” shall have the meaning set forth in Section 13.1 hereof.

 

“Termination Event” shall mean (a) a Reportable Event with respect to any Plan or Multiemployer Plan; (b) the withdrawal of any Borrower or any member of the Controlled Group from a Plan or Multiemployer Plan during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA; (c) the providing of notice of intent to terminate a Plan in a distress termination described in Section 4041(c) of ERISA; (d) the institution by the PBGC of proceedings to terminate a Plan or Multiemployer Plan; (e) any event or condition (i) which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA; or (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ERISA of any Borrower or any member of the Controlled Group from a Multiemployer Plan.

 

“Toxic Substance” shall mean and include any material present on the Real Property or the Leasehold Interests which has been shown to have significant adverse effect on human health or which is subject to regulation under the Toxic Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et seq., applicable state law, or any other applicable Federal or state laws now in force or hereafter enacted relating to toxic substances.  “Toxic Substance” includes but is not limited to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.

 

“Trading with the Enemy Act” shall mean the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) and any enabling legislation or executive order relating thereto.

 

“Transactions’ shall have the meaning set forth in Section 5.5 hereof.

 

  

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“Transferee” shall have the meaning set forth in Section 16.3(d) hereof.

 

“Unbilled Receivables Advance Rate” shall have the meaning set forth in Section 2.1(a)(y)(ii) hereof.

 

“Undrawn Availability” at a particular date shall mean an amount equal to (a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance Amount, minus (b) the sum of (i) the outstanding amount of Advances plus (ii) all amounts due and owing to any Borrower’s trade creditors which are due or unpaid more than sixty (60) days past the due date unless otherwise on formal written extended terms, plus (iii) fees and expenses for which Borrowers are liable but which have not been paid or charged to Borrowers’ Account.

 

“Unfinanced Capital Expenditures” shall mean all Capital Expenditures of Borrowers other than those made utilizing financing provided by the applicable seller or third party lenders.  For the avoidance of doubt, Capital Expenditures made by a Borrower utilizing Revolving Advances shall be deemed Unfinanced Capital Expenditures.

 

“Uniform Commercial Code” shall have the meaning set forth in Section 1.3 hereof.

 

“USA PATRIOT Act” shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.

 

“Week” shall mean the time period commencing with the opening of business on a Wednesday and ending on the end of business the following Tuesday.

 

1.3.           Uniform Commercial Code Terms.  All terms used herein and defined in the Uniform Commercial Code as adopted in the Commonwealth of Pennsylvania from time to time (the “Uniform Commercial Code”) shall have the meaning given therein unless otherwise defined herein.  Without limiting the foregoing, the terms “accounts”, “chattel paper”, “commercial tort claims”, “instruments”, “general intangibles”, “goods”, “payment intangibles”, “proceeds”, “supporting obligations”, “securities”, “investment property”, “documents”, “deposit accounts”, “software”, “letter of credit rights”, “inventory”, “equipment” and “fixtures”, as and when used in the description of Collateral shall have the meanings given to such terms in Articles 8 or 9 of the Uniform Commercial Code.  To the extent the definition of any category or type of collateral is expanded by any amendment, modification or revision to the Uniform Commercial Code, such expanded definition will apply automatically as of the date of such amendment, modification or revision.

 

1.4.           Certain Matters of Construction.  The terms “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision.  All references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement.  Any pronoun used shall be deemed to cover all genders.  Wherever appropriate in the context, terms used herein in the singular also include the plural and vice versa.  All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations.  Unless otherwise provided, all references to any instruments or agreements to which Agent is a party, including references to any of the Other Documents, shall include any and all amendments, restatements, supplements or other modifications thereto and any and all extensions or renewals thereof.  All references herein to the time of day shall mean the time in Philadelphia, Pennsylvania.  All financial calculations shall be performed with Inventory valued on a weighted average basis.  Whenever the words “including” or “include” shall be used, such words shall be understood to mean “including, without limitation” or “include, without limitation”.  A Default or Event of Default shall be deemed to exist at all times during the period commencing on the date that such Default or Event of Default occurs to the date on which such Default or Event of Default is waived in writing pursuant to this Agreement or, in the case of a Default, is cured within any period of cure expressly provided for in this Agreement; and an Event of Default shall “continue” or be “continuing” until such Event of Default has been waived in writing by the Required Lenders.  Any Lien referred to in this Agreement or any of the Other Documents as having been created in favor of Agent, any agreement entered into by Agent pursuant to this Agreement or any of the Other Documents, any payment made by or to or funds received by Agent pursuant to or as contemplated by this Agreement or any of the Other Documents, or any act taken or omitted to be taken by Agent, shall, unless otherwise expressly provided, be created, entered into, made or received, or taken or omitted, for the benefit or account of Agent and Lenders. Wherever the phrase “to the best of Borrowers’ knowledge” or words of similar import relating to the knowledge or the awareness of any Borrower are used in this Agreement or Other Documents, such phrase shall mean and refer to (i) the actual knowledge of a senior officer of any Borrower or (ii) the knowledge that a senior officer would have obtained if he had engaged in good faith and diligent performance of his duties, including the making of such reasonably specific inquiries as may be necessary of the employees or agents of such Borrower and a good faith attempt to ascertain the existence or accuracy of the matter to which such phrase relates.  All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or otherwise within the limitations of, another covenant shall not avoid the occurrence of a default if such action is taken or condition exists.  In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of a breach of a representation or warranty hereunder.

 

  

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II.           ADVANCES, PAYMENTS.

 

2.1.           Revolving Advances.

 

(a)           Amount of Revolving Advances.  Subject to the terms and conditions set forth in this Agreement including Section 2.1(b) hereof, each Lender, severally and not jointly, will make Revolving Advances to Borrowers in aggregate amounts outstanding at any time equal to such Lender’s Commitment Percentage of the lesser of (x) the Maximum Revolving Advance Amount less the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit or (y) an amount equal to the sum of:

 

(i)            up to eighty-five percent (85%), subject to the provisions of Section 2.1(b) hereof (“Receivables Advance Rate”), of Eligible Receivables, plus

 

(ii)           up to the lesser of (A) seventy-five percent (75%), subject to the provisions of Section 2.1(b) hereof (“Unbilled Receivables Advance Rate”), of Eligible Unbilled Receivables or (B) Five Million Dollars ($5,000,000), plus

 

(iii)           up to the lesser of (A) sixty-five percent (65%), subject to the provisions of Section 2.1(b) hereof, of the value of the Eligible Inventory (“Finished Goods Inventory Advance Rate”) or (B) Three Million Dollars ($3,000,000) in the aggregate at any one time, plus

 

(iv)           during the period from September 1 through January 31, up to the lesser of (A) the product of (i) the aggregate Maximum Undrawn Amount of all outstanding trade Letters of Credit for Inventory purchases times (ii) the Finished Goods Inventory Advance Rate or (B) Four Million Dollars ($4,000,000), minus

 

(v)            the aggregate Maximum Undrawn Amount of all outstanding Letters of Credit, minus

 

(vi)           the Availability Block, minus

 

(vii)          such reserves (including, without limitation, the Payroll Reserve) all as Agent may reasonably deem proper and necessary from time to time in its reasonable credit judgment.

 

The amount derived from the sum of (x) the amounts in Sections 2.1(a)(y)(i), (ii), (iii) and (iv) minus (y) the amounts in Section 2.1 (a)(y)(vi) and (vii) at any time and from time to time shall be referred to as the “Formula Amount”.  The Revolving Advances shall be evidenced by one or more secured promissory notes (collectively, the “Revolving Credit Note”) substantially in the form attached hereto as Exhibit 2.1(a).

 

(b)           Discretionary Rights.  The Advance Rates may be increased or decreased by Agent at any time and from time to time in the exercise of its reasonable credit judgment.  Each Borrower consents to any such increases or decreases and acknowledges that decreasing the Advance Rates or increasing or imposing reserves may limit or restrict Advances requested by Borrowing Agent.  Agent shall give Borrowers five (5) Business Days prior written notice of its intention to decrease the Advance Rates or impose reserves.  The rights of Agent under this subsection are subject to the provisions of Section 16.2(b) hereof.

 

2.2.           Procedure for Revolving Advances Borrowing.

 

(a)           Borrowing Agent on behalf of any Borrower may notify Agent prior to 11:00 a.m. on a Business Day of a Borrower’s request to incur, on that day, a Revolving Advance hereunder.  Should any amount required to be paid as interest hereunder, or as fees or other charges under this Agreement or any Other Document, or with respect to any other Obligation, become due, the same shall be deemed a request for a Revolving Advance maintained as a Domestic Rate Loan as of the date such payment is due, in the amount required to pay in full such interest, fee, charge or Obligation under this Agreement or any other agreement with Agent or Lenders, and such request shall be irrevocable.

 

  

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(b)           Notwithstanding the provisions of subsection (a) above, in the event any Borrower desires to obtain a Eurodollar Rate Loan, Borrowing Agent shall give Agent written notice by no later than 11:00 a.m. on the day which is three (3) Business Days prior to the date such Eurodollar Rate Loan is to be borrowed, specifying (i) the date of the proposed borrowing (which shall be a Business Day), (ii) the type of borrowing and the amount on the date of such Advance to be borrowed, which amount shall be in an aggregate principal amount that is not less than One Million Dollars ($1,000,000) and integral multiples of One Hundred Thousand Dollars ($100,000) in excess thereof, and (iii) the duration of the first Interest Period therefor.  Interest Periods for Eurodollar Rate Loans shall be for one, two or three months; provided, if an Interest Period would end on a day that is not a Business Day, it shall end on the next succeeding Business Day unless such day falls in the next succeeding calendar month in which case the Interest Period shall end on the next preceding Business Day.  No Eurodollar Rate Loan shall be made available to any Borrower during the continuance of a Default or an Event of Default.  After giving effect to each requested Eurodollar Rate Loan, including those which are converted from a Domestic Rate Loan under Section 2.2(d), there shall not be outstanding more than five (5) Eurodollar Rate Loans, in the aggregate.

 

(c)           Each Interest Period of a Eurodollar Rate Loan shall commence on the date such Eurodollar Rate Loan is made and shall end on such date as Borrowing Agent may elect as set forth in subsection (b)(iii) above provided that the exact length of each Interest Period shall be determined in accordance with the practice of the interbank market for offshore Dollar deposits and no Interest Period shall end after the last day of the Term.

 

Borrowing Agent shall elect the initial Interest Period applicable to a Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to Section 2.2(b) or by its notice of conversion given to Agent pursuant to Section 2.2(d), as the case may be.  Borrowing Agent shall elect the duration of each succeeding Interest Period by giving irrevocable written notice to Agent of such duration not later than 11:00 a.m. on the day which is three (3) Business Days prior to the last day of the then current Interest Period applicable to such Eurodollar Rate Loan.  If Agent does not receive timely notice of the Interest Period elected by Borrowing Agent, Borrowing Agent shall be deemed to have elected to convert to a Domestic Rate Loan subject to Section 2.2(d) herein.

 

(d)           Provided that no Event of Default shall have occurred and be continuing, Borrowing Agent may, on the last Business Day of the then current Interest Period applicable to any outstanding Eurodollar Rate Loan, or on any Business Day with respect to Domestic Rate Loans, convert any such loan into a loan of another type in the same aggregate principal amount provided that any conversion of a Eurodollar Rate Loan shall be made only on the last Business Day of the then current Interest Period applicable to such Eurodollar Rate Loan.  If Borrowing Agent desires to convert a loan, Borrowing Agent shall give Agent written notice by no later than 11:00 a.m. (i) on the day which is three (3) Business Days’ prior to the date on which such conversion is to occur with respect to a conversion from a Domestic Rate Loan to a Eurodollar Rate Loan, or (ii) on the day which is one (1) Business Day prior to the date on which such conversion is to occur with respect to a conversion from a Eurodollar Rate Loan to a Domestic Rate Loan, specifying, in each case, the date of such conversion, the loans to be converted and if the conversion is from a Domestic Rate Loan to a Eurodollar Rate Loan, the duration of the first Interest Period therefor.

 

  

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(e)           At its option and upon written notice given prior to 11:00 a.m., at least three (3) Business Days’ prior to the date of such prepayment, any Borrower may prepay the Eurodollar Rate Loans in whole at any time or in part from time to time with accrued interest on the principal being prepaid to the date of such repayment.  Such Borrower shall specify the date of prepayment of Advances which are Eurodollar Rate Loans and the amount of such prepayment.  In the event that any prepayment of a Eurodollar Rate Loan is required or permitted on a date other than the last Business Day of the then current Interest Period with respect thereto, such Borrower shall indemnify Agent and Lenders therefor in accordance with Section 2.2(f) hereof.

 

(f)           Each Borrower shall indemnify Agent and Lenders and hold Agent and Lenders harmless from and against any and all losses or expenses that Agent and Lenders may sustain or incur as a consequence of any prepayment, conversion of or any default by any Borrower in the payment of the principal of or interest on any Eurodollar Rate Loan or failure by any Borrower to complete a borrowing of, a prepayment of or conversion of or to a Eurodollar Rate Loan after notice thereof has been given, including, but not limited to, any interest payable by Agent or Lenders to lenders of funds obtained by it in order to make or maintain its Eurodollar Rate Loans hereunder.  A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Agent or any Lender to Borrowing Agent shall be conclusive absent manifest error.

 

(g)           Notwithstanding any other provision hereof, if any Applicable Law, or any change therein or in the interpretation or application thereof, shall make it unlawful for any Lender (for purposes of this subsection (g), the term “Lender” shall include any Lender and the office or branch where any Lender or any corporation or bank controlling such Lender makes or maintains any Eurodollar Rate Loans) to make or maintain its Eurodollar Rate Loans, the obligation of Lenders to make Eurodollar Rate Loans hereunder shall forthwith be cancelled and Borrowers shall, if any affected Eurodollar Rate Loans are then outstanding, promptly upon request from Agent, either pay all such affected Eurodollar Rate Loans or convert such affected Eurodollar Rate Loans into loans of another type.  If any such payment or conversion of any Eurodollar Rate Loan is made on a day that is not the last day of the Interest Period applicable to such Eurodollar Rate Loan, Borrowers shall pay Agent, upon Agent’s request, such amount or amounts as may be necessary to compensate Lenders for any loss or expense sustained or incurred by Lenders in respect of such Eurodollar Rate Loan as a result of such payment or conversion, including (but not limited to) any interest or other amounts payable by Lenders to lenders of funds obtained by Lenders in order to make or maintain such Eurodollar Rate Loan.  A certificate as to any additional amounts payable pursuant to the foregoing sentence submitted by Lenders to Borrowing Agent shall be conclusive absent manifest error.

 

2.3.           Disbursement of Advance Proceeds.  All Advances shall be disbursed from whichever office or other place Agent may designate from time to time and, together with any and all other Obligations of Borrowers to Agent or Lenders, shall be charged to Borrowers’ Account on Agent’s books.  During the Term, Borrowers may use the Revolving Advances by borrowing, prepaying and reborrowing, all in accordance with the terms and conditions hereof.  The proceeds of each Revolving Advance requested by Borrowing Agent on behalf of any Borrower or deemed to have been requested by any Borrower under Section 2.2(a) hereof shall, with respect to requested Revolving Advances to the extent Lenders make such Revolving Advances, be made available to the applicable Borrower on the day so requested by way of credit to such Borrower’s operating account at PNC, or such other bank as Borrowing Agent may designate in writing to Agent, in immediately available federal funds or other immediately available funds or, with respect to Revolving Advances deemed to have been requested by any Borrower, be disbursed to Agent to be applied to the outstanding Obligations giving rise to such deemed request.

 

  

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2.4.           Reserved.

 

2.5.           Maximum Advances.  The aggregate balance of Revolving Advances outstanding at any time shall not exceed the lesser of (a) the Maximum Revolving Advance Amount or (b) the Formula Amount, less in each case the aggregate Maximum Undrawn Amount of all issued and outstanding Letters of Credit.

 

2.6.           Repayment of Advances.

 

(a)           The Revolving Advances shall be due and payable in full on the last day of the Term subject to earlier prepayment as herein provided.

 

(b)           Each Borrower recognizes that the amounts evidenced by checks, notes, drafts or any other items of payment relating to and/or proceeds of Collateral may not be collectible by Agent on the date received.  In consideration of Agent’s agreement to conditionally credit Borrowers’ Account as of the next Business Day following Agent’s receipt of those items of payment, each Borrower agrees that, in computing the charges under this Agreement, all items of payment shall be deemed applied by Agent on account of the Obligations one (1) Business Day after (i) the Business Day Agent receives such payments via wire transfer or electronic depository check or (ii) in the case of payments received by Agent in any other form, the Business Day such payment constitutes good funds in Agent’s account.  Agent is not, however, required to credit Borrowers’ Account for the amount of any item of payment which is unsatisfactory to Agent and Agent may charge Borrowers’ Account for the amount of any item of payment which is returned to Agent unpaid.

 

(c)           All payments of principal, interest and other amounts payable hereunder, or under any of the Other Documents shall be made to Agent at the Payment Office not later than 1:00 p.m. on the due date therefor in lawful money of the United States of America in federal funds or other funds immediately available to Agent.  Agent shall have the right to effectuate payment on any and all Obligations due and owing hereunder by charging Borrowers’ Account or by making Advances as provided in Section 2.2 hereof.

 

(d)           Borrowers shall pay principal, interest, and all other amounts payable hereunder, or under any related agreement, without any deduction (other than withholdings or deductions expressly described in Section 3.10 hereof) whatsoever, including, but not limited to, any deduction for any setoff or counterclaim.

 

2.7.           Repayment of Excess Advances.  The aggregate balance of Advances outstanding at any time in excess of the maximum amount of Advances permitted hereunder shall be immediately due and payable without the necessity of any demand, at the Payment Office, whether or not a Default or Event of Default has occurred.

 

  

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2.8.           Statement of Account.  Agent shall maintain, in accordance with its customary procedures, a loan account (“Borrowers’ Account”) in the name of Borrowers in which shall be recorded the date and amount of each Advance made by Agent and the date and amount of each payment in respect thereof; provided, however, the failure by Agent to record the date and amount of any Advance shall not adversely affect Agent or any Lender.  Each month, Agent shall send to Borrowing Agent a statement showing the accounting for the Advances made, payments made or credited in respect thereof, and other transactions between Agent and Borrowers during such month.  The monthly statements shall be deemed correct and binding upon Borrowers in the absence of manifest error and shall constitute an account stated between Lenders and Borrowers unless Agent receives a written statement of Borrowers’ specific exceptions thereto within thirty (30) days after such statement is received by Borrowing Agent.  The records of Agent with respect to the loan account shall be conclusive evidence absent manifest error of the amounts of Advances and other charges thereto and of payments applicable thereto.

 

2.9.           Letters of Credit.  Subject to the terms and conditions hereof, Agent shall issue or cause the issuance of trade and/or standby letters of credit (“Letters of Credit”) for the account of any Borrower; provided, however, that Agent will not be required to issue or cause to be issued any Letters of Credit to the extent that the issuance thereof would then cause the sum of (i) the outstanding Revolving Advances plus (ii) the Maximum Undrawn Amount of all outstanding Letters of Credit to exceed the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula Amount.  The Maximum Undrawn Amount of outstanding Letters of Credit shall not exceed in the aggregate at any time the Letter of Credit Sublimit.  All disbursements or payments related to Letters of Credit shall be deemed to be Domestic Rate Loans consisting of Revolving Advances and shall bear interest at the Revolving Interest Rate for Domestic Rate Loans.  Letters of Credit that have not been drawn upon shall not bear interest.

 

2.10.           Issuance of Letters of Credit.

 

(a)           Borrowing Agent, on behalf of Borrowers, may request Agent to issue or cause the issuance of a Letter of Credit by delivering to Agent at the Payment Office, prior to 11:00 a.m., at least five (5) Business Days’ prior to the proposed date of issuance, Agent’s form of Letter of Credit Application (the “Letter of Credit Application”) completed to the satisfaction of Agent; and, such other certificates, documents and other papers and information as Agent may reasonably request.  Borrowing Agent, on behalf of Borrowers, also has the right to give instructions and make agreements with respect to any application, any applicable letter of credit and security agreement, any applicable letter of credit reimbursement agreement and/or any other applicable agreement, any letter of credit and the disposition of documents, disposition of any unutilized funds, and to agree with Agent upon any amendment, extension or renewal of any Letter of Credit.

 

(b)           Each Letter of Credit shall, among other things, (i) provide for the payment of sight drafts, other written demands for payment, or acceptances of usance drafts when presented for honor thereunder in accordance with the terms thereof and when accompanied by the documents described therein and (ii) have an expiry date not later than twenty-four (24) months after such Letter of Credit’s date of issuance and in no event later than the last day of the Term.  Each standby Letter of Credit shall be subject either to The Uniform Customs and Practice for Documentary Credits as most recently published by the International Chamber of Commerce at the time a Letter of Credit is issued (the “UCP”) or the International Standby Practices (ISP98 International Chamber of Commerce Publication Number 590) (the “ISP98 Rules”)), and any subsequent revision thereof at the time a standby Letter of Credit is issued, as determined by Agent, and each trade Letter of Credit shall be subject to the UCP.

 

(c)           Agent shall use its reasonable efforts to notify Lenders of the request by Borrowing Agent for a Letter of Credit hereunder.

 

  

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2.11.           Requirements For Issuance of Letters of Credit.

 

(a)           Borrowing Agent shall authorize and direct any Issuer to name the applicable Borrower as the “Applicant” or “Account Party” of each Letter of Credit.  If Agent is not the Issuer of any Letter of Credit, Borrowing Agent shall authorize and direct the Issuer to deliver to Agent all instruments, documents, and other writings and property received by the Issuer pursuant to the Letter of Credit and to accept and rely upon Agent’s instructions and agreements with respect to all matters arising in connection with the Letter of Credit or the application therefor.

 

(b)           In connection with all Letters of Credit issued or caused to be issued by Agent under this Agreement, each Borrower hereby appoints Agent, or its designee, as its attorney, with full power and authority if an Event of Default shall have occurred and be continuing, (i) to sign and/or endorse such Borrower’s name upon any warehouse or other receipts, letter of credit applications and acceptances, (ii) to sign such Borrower’s name on bills of lading; (iii) to clear Inventory through the United States of America Customs Department (“Customs”) in the name of such Borrower or Agent or Agent’s designee, and to sign and deliver to Customs officials powers of attorney in the name of such Borrower for such purpose; and (iv) to complete in such Borrower’s name or Agent’s, or in the name of Agent’s designee, any order, sale or transaction, obtain the necessary documents in connection therewith, and collect the proceeds thereof.  Neither Agent nor its attorneys will be liable for any acts or omissions nor for any error of judgment or mistakes of fact or law, except for Agent’s or its attorney’s willful misconduct.  This power, being coupled with an interest, is irrevocable as long as any Letters of Credit remain outstanding.

 

2.12.           Disbursements, Reimbursement.

 

(a)           Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from Agent a participation in such Letter of Credit and each drawing thereunder in an amount equal to such Lender’s Commitment Percentage of the Maximum Face Amount of such Letter of Credit and the amount of such drawing, respectively.

 

(b)           In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, Agent will promptly notify Borrowing Agent.  Provided that Borrowing Agent shall have received such notice, the Borrowers shall reimburse (such obligation to reimburse Agent shall sometimes be referred to as a “Reimbursement Obligation”) Agent (i) prior to 12:00 Noon on each date that an amount is paid by Agent under any Letter of Credit (each such date, a “Drawing Date”) if it has received notice of such payment prior to 11:00 a.m. on such date (ii) or by 12:00 Noon on the next Business Day if it received notice of such payment after 11:00 a.m. on such date, in each case in an amount equal to the amount so paid by Agent.  In the event Borrowers fail to reimburse Agent for the full amount of any drawing under any Letter of Credit by 12:00 Noon, on the Drawing Date, Agent will promptly notify each Lender thereof, and Borrowers shall be deemed to have requested that a Revolving Advance maintained as a Domestic Rate Loan be made by the Lenders to be disbursed on the Drawing Date under such Letter of Credit, subject to the amount of the unutilized portion of the lesser of Maximum Revolving Advance Amount or the Formula Amount and subject to Section 8.2 hereof.  Any notice given by Agent pursuant to this Section 2.12(b) may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

 

  

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(c)           Each Lender shall upon any notice pursuant to Section 2.12(b) make available to Agent an amount in immediately available funds equal to its Commitment Percentage of the amount of the drawing, whereupon the participating Lenders shall (subject to Section 2.12(d)) each be deemed to have made a Revolving Advance maintained as a Domestic Rate Loan to Borrowers in that amount.  If any Lender so notified fails to make available to Agent the amount of such Lender’s Commitment Percentage of such amount by no later than 2:00 p.m. on the Drawing Date, then interest shall accrue on such Lender’s obligation to make such payment, from the Drawing Date to the date on which such Lender makes such payment (i) at a rate per annum equal to the Federal Funds Effective Rate during the first three (3) days following the Drawing Date and (ii) at a rate per annum equal to the rate applicable to Revolving Advances maintained as a Domestic Rate Loans on and after the fourth (4th) day following the Drawing Date.  Agent will promptly give notice of the occurrence of the Drawing Date, but failure of Agent to give any such notice on the Drawing Date or in sufficient time to enable any Lender to effect such payment on such date shall not relieve such Lender from its obligation under this Section 2.12(c), provided that such Lender shall not be obligated to pay interest as provided in Section 2.12(c)(i) and (ii) until and commencing from the date of receipt of notice from Agent of a drawing.

 

(d)           With respect to any unreimbursed drawing that is not converted into a Revolving Advance maintained as a Domestic Rate Loan to Borrowers in whole or in part as contemplated by Section 2.12(b), because of Borrowers’ failure to satisfy the conditions set forth in Section 8.2 (other than any notice requirements) or for any other reason, Borrowers shall be deemed to have incurred from Agent a borrowing (each a “Letter of Credit Borrowing”) in the amount of such drawing. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to a Revolving Advance maintained as a Domestic Rate Loan.  Each Lender’s payment to Agent pursuant to Section 2.12(c) shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing and shall constitute a “Participation Advance” from such Lender in satisfaction of its Participation Commitment under this Section 2.12.

 

(e)           Each Lender’s Participation Commitment shall continue until the last to occur of any of the following events: (i) Agent ceases to be obligated to issue or cause to be issued Letters of Credit hereunder; (ii) no Letter of Credit issued or created hereunder remains outstanding and uncancelled and (iii) all Persons (other than Borrowers) have been fully reimbursed for all payments made under or relating to Letters of Credit.

 

  

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2.13.           Repayment of Participation Advances.

 

(a)           Upon (and only upon) receipt by Agent for its account of immediately available funds from Borrowers (i) in reimbursement of any payment made by Agent under the Letter of Credit with respect to which any Lender has made a Participation Advance to Agent, or (ii) in payment of interest on such a payment made by Agent under such a Letter of Credit, Agent will pay to each Lender, in the same funds as those received by Agent, the amount of such Lender’s Commitment Percentage of such funds, except Agent shall retain the amount of the Commitment Percentage of such funds of any Lender that did not make a Participation Advance in respect of such payment by Agent.

 

(b)           If Agent is required at any time to return to any Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any insolvency proceeding, any portion of the payments made by Borrowers to Agent pursuant to Section 2.13(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Lender shall, on demand of Agent, forthwith return to Agent the amount of its Commitment Percentage of any amounts so returned by Agent plus interest at the Federal Funds Effective Rate.

 

2.14.           Documentation.  Each Borrower agrees to be bound by the terms of the Letter of Credit Application and by Agent’s interpretations of any Letter of Credit issued on behalf of such Borrower and by Agent’s written regulations and customary practices relating to letters of credit, though Agent’s interpretations may be different from such Borrower’s own.  In the event of a conflict between the Letter of Credit Application and this Agreement, this Agreement shall govern.  It is understood and agreed that, except in the case of gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment), Agent shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following Borrowing Agent’s or any Borrower’s instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto.

 

2.15.           Determination to Honor Drawing Request.  In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, Agent shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that such documents and certificates comply on their face with the requirements of such Letter of Credit and that any other drawing condition appearing on the face of such Letter of Credit has been satisfied in the manner so set forth.

 

2.16.           Nature of Participation and Reimbursement Obligations.  Each Lender’s obligation in accordance with this Agreement to make the Revolving Advances or Participation Advances as a result of a drawing under a Letter of Credit, and the obligations of Borrowers to reimburse Agent upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.16 under all circumstances, including the following circumstances:

 

(a)           any set-off, counterclaim, recoupment, defense or other right which such Lender or Borrower may have against Agent, any Borrower or any other Person for any reason whatsoever;

 

  

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(b)           the failure of any Borrower or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in this Agreement for the making of a Revolving Advance, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing and the obligation of the Lenders to make Participation Advances under Section 2.12;

 

(c)           any lack of validity or enforceability of any Letter of Credit;

 

(d)           any claim of breach of warranty that might be made by Borrower or any Lender against the beneficiary of a Letter of Credit, or the existence of any claim, set-off, recoupment, counterclaim, cross-claim, defense or other right which any Borrower or any Lender may have at any time against a beneficiary, any successor beneficiary or any transferee of any Letter of Credit or the proceeds thereof (or any Persons for whom any such transferee may be acting), Agent or any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Borrower or any Subsidiaries of such Borrower and the beneficiary for which any Letter of Credit was procured);

 

(e)           the lack of power or authority of any signer of (or any defect in or forgery of any signature or endorsement on) or the form of or lack of validity, sufficiency, accuracy, enforceability or genuineness of any draft, demand, instrument, certificate or other document presented under or in connection with any Letter of Credit, or any fraud or alleged fraud in connection with any Letter of Credit, or the transport of any property or provisions of services relating to a Letter of Credit, in each case even if Agent or any of Agent’s Affiliates has been notified thereof;

 

(f)           payment by Agent under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit;

 

(g)           the solvency of, or any acts or omissions by, any beneficiary of any Letter of Credit, or any other Person having a role in any transaction or obligation relating to a Letter of Credit, or the existence, nature, quality, quantity, condition, value or other characteristic of any property or services relating to a Letter of Credit;

 

(h)           any failure by Agent or any of Agent’s Affiliates to issue any Letter of Credit in the form requested by Borrowing Agent, unless Agent has received written notice from Borrowing Agent of such failure within three (3) Business Days after Agent shall have furnished Borrowing Agent a copy of such Letter of Credit and such error is material and no drawing has been made thereon prior to receipt of such notice;

 

(i)            any Material Adverse Effect on any Borrower or any Guarantor;

 

  

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(j)            any breach of this Agreement or any Other Document by any party thereto;

 

(k)           the occurrence or continuance of an insolvency proceeding with respect to any Borrower or any Guarantor;

 

(l)            the fact that a Default or Event of Default shall have occurred and be continuing;

 

(m)           the fact that the Term shall have expired or this Agreement or the Obligations hereunder shall have been terminated; and

 

(n)           any other circumstance or happening whatsoever, whether or not similar to any of the foregoing.

 

2.17.           Indemnity.  In addition to amounts payable as provided in Section 16.5, each Borrower hereby agrees to protect, indemnify, pay and save harmless Agent and any of Agent’s Affiliates that have issued a Letter of Credit from and against any and all claims, demands, liabilities, damages, taxes (other than taxes of a type for which a Borrower would not be required to make a Gross-Up Payment under Section 3.10 hereof), penalties, interest, judgments, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which Agent or any of Agent’s Affiliates may incur or be subject to as a consequence, direct or indirect, of the issuance of any Letter of Credit, other than as a result of (A) the gross negligence or willful misconduct of Agent as determined by a final and non-appealable judgment of a court of competent jurisdiction or (b) the wrongful dishonor by Agent or any of Agent’s Affiliates of a proper demand for payment made under any Letter of Credit, except if such dishonor resulted from any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Body (all such acts or omissions herein called “Governmental Acts”).

 

2.18.           Liability for Acts and Omissions.  As among Borrowers and Agent and Lenders, each Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit.  In furtherance and not in limitation of the respective foregoing, Agent shall not be responsible for: (a) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if Agent shall have been notified thereof); (b) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (c) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of any Borrower against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among any Borrower and any beneficiary of any Letter of Credit or any such transferee; (d) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, facsimile, telex or otherwise, whether or not they be in cipher; (e) errors in interpretation of technical terms; (f) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (g) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (h) any consequences arising from causes beyond the control of Agent, including any governmental acts, and none of the above shall affect or impair, or prevent the vesting of, any of Agent’s rights or powers hereunder. Nothing in the preceding sentence shall relieve Agent from liability for Agent’s gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment) in connection with actions or omissions described in such clauses (a) through (h) of such sentence.  In no event shall Agent or Agent’s Affiliates be liable to any Borrower for any indirect, consequential, incidental, punitive, exemplary or special damages or expenses (including without limitation attorneys’ fees), or for any damages resulting from any change in the value of any property relating to a Letter of Credit.

 

  

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Without limiting the generality of the foregoing, Agent and each of its Affiliates (a) may rely on any oral or other communication believed in good faith by Agent or  such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit, (b) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (c) may honor a previously dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by Agent or its Affiliates; (d) may honor any drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (e) may pay any paying or negotiating bank claiming that it rightfully honored under the laws or practices of the place where such bank is located; and (f) may settle or adjust any claim or demand made on Agent or its Affiliate in any way related to any order issued at the applicant’s request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an “Order”) and honor any drawing in connection with any Letter of Credit that is the subject of such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.

 

In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by Agent under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith and without gross negligence (as determined by a court of competent jurisdiction in a final non-appealable judgment), shall not put Agent under any resulting liability to any Borrower or any Lender.

 

2.19.           Additional Payments.  Any sums expended by Agent or any Lender due to any Borrower’s failure to perform or comply with its obligations under this Agreement or any Other Document including any Borrower’s obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14, 4.21 and 6.1 hereof, may be charged to Borrowers’ Account as a Revolving Advance and added to the Obligations.

 

2.20.           Manner of Borrowing and Payment.

 

(a)           Each borrowing of Revolving Advances shall be advanced according to the applicable Commitment Percentages of Lenders.

 

(b)           Each payment (including any application of proceeds of Collateral under Section 4.15(h) hereof and each prepayment) by any Borrower on account of the principal of and interest on the Revolving Advances, shall be applied to the Revolving Advances pro rata according to the applicable Commitment Percentages of Lenders.  Except as expressly provided herein, all payments (including prepayments) to be made by any Borrower on account of principal, interest and fees shall be made without set off or counterclaim and shall be made to Agent on behalf of the Lenders to the Payment Office, in each case on or prior to 1:00 p.m., in Dollars and in immediately available funds.

 

  

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(c)           (i)           Notwithstanding anything to the contrary contained in Sections 2.20(a) and (b) hereof, commencing with the first Business Day following the Closing Date, each borrowing of Revolving Advances shall be advanced by Agent and each payment by any Borrower on account of Revolving Advances shall be applied first to those Revolving Advances advanced by Agent.  On or before 1:00 p.m. on each Settlement Date commencing with the first Settlement Date following the Closing Date, Agent and Lenders shall make certain payments as follows: (A) if the aggregate amount of new Revolving Advances made by Agent during the preceding Week (if any) exceeds the aggregate amount of repayments applied to outstanding Revolving Advances during such preceding Week, then each Lender shall provide Agent with funds in an amount equal to its applicable Commitment Percentage of the difference between (1) such Revolving Advances and (2) such repayments and (B) if the aggregate amount of repayments applied to outstanding Revolving Advances during such Week exceeds the aggregate amount of new Revolving Advances made during such Week, then Agent shall provide each Lender with funds in an amount equal to its applicable Commitment Percentage of the difference between (1) such repayments and (2) such Revolving Advances.

 

(ii)           Each Lender shall be entitled to earn interest at the applicable Revolving Interest Rate on outstanding Revolving Advances which it has funded.

 

(iii)           Promptly following each Settlement Date, Agent shall submit to each Lender a certificate with respect to payments received and Revolving Advances made during the Week immediately preceding such Settlement Date.  Such certificate of Agent shall be conclusive in the absence of manifest error.

 

(d)           If any Lender or Participant (a “benefited Lender”) shall at any time receive any payment of all or part of its Advances, or interest thereon, or receive any Collateral in respect thereof (whether voluntarily or involuntarily or by set-off) in a greater proportion than any such payment to and Collateral received by any other Lender, if any, in respect of such other Lender’s Advances, or interest thereon, and such greater proportionate payment or receipt of Collateral is not expressly permitted hereunder, such benefited Lender shall purchase for cash from the other Lenders a participation in such portion of each such other Lender’s Advances, or shall provide such other Lender with the benefits of any such Collateral, or the proceeds thereof, as shall be necessary to cause such benefited Lender to share the excess payment or benefits of such Collateral or proceeds ratably with each of the other Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.  Each Lender so purchasing a portion of another Lender’s Advances may exercise all rights of payment (including rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion.

 

  

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(e)           Unless Agent shall have been notified by telephone, confirmed in writing, by any Lender that such Lender will not make the amount which would constitute its applicable Commitment Percentage of the Advances available to Agent, Agent may (but shall not be obligated to) assume that such Lender shall make such amount available to Agent on the next Settlement Date and, in reliance upon such assumption, make available to Borrowers a corresponding amount.  Agent will promptly notify Borrowing Agent of its receipt of any such notice from a Lender.  If such amount is made available to Agent on a date after such next Settlement Date, such Lender shall pay to Agent on demand an amount equal to the product of (i) the daily average Federal Funds Effective Rate (computed on the basis of a year of 360 days) during such period as quoted by Agent, times (ii) such amount, times (iii) the number of days from and including such Settlement Date to the date on which such amount becomes immediately available to Agent.  A certificate of Agent submitted to any Lender with respect to any amounts owing under this paragraph (e) shall be conclusive, in the absence of manifest error.  If such amount is not in fact made available to Agent by such Lender within three (3) Business Days after such Settlement Date, Agent shall be entitled to recover such an amount, with interest thereon at the rate per annum then applicable to such Revolving Advances hereunder, on demand from Borrowers; provided, however, that Agent’s right to such recovery shall not prejudice or otherwise adversely affect Borrowers’ rights (if any) against such Lender.

 

2.21.           Mandatory Prepayments.  Subject to Section 4.3 hereof, when any Borrower sells or otherwise disposes of any Collateral other than Inventory in the Ordinary Course of Business, Borrowers shall repay the Advances in an amount equal to the net proceeds of such sale (i.e., gross proceeds less the reasonable costs of such sales or other dispositions), such repayments to be made promptly but in no event more than one (1) Business Day following receipt of such net proceeds, and until the date of payment, such proceeds shall be held in trust for Agent.  The foregoing shall not be deemed to be implied consent to any such sale otherwise prohibited by the terms and conditions hereof.  Such repayments shall be applied first, to repayment of Domestic Rate Loans and second, to repayment of Eurodollar Rate Loans, subject to Borrowers’ ability to reborrow Revolving Advances in accordance with the terms hereof.

 

2.22.           Use of Proceeds.

 

(a)           Borrowers shall apply the proceeds of Advances to (i) repay existing indebtedness owed under the Existing Credit Agreement and Existing Floor Plan Agreement, (ii) pay fees and expenses relating to this transaction, (iii) provide for its working capital needs and reimburse drawings under Letters of Credit and (iv) for other general corporate purposes.

 

(b)           Without limiting the generality of Section 2.22(a) above, neither the Borrowers, any Guarantor nor any other Person which may in the future become party to this Agreement or the Other Documents as a Borrower or Guarantor, intends to use nor shall they use any portion of the proceeds of the Advances, directly or indirectly, for any purpose in violation of the Trading with the Enemy Act.

 

  

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2.23.           Defaulting Lender.

 

(a)           Notwithstanding anything to the contrary contained herein, in the event any Lender (i) has refused (which refusal constitutes a breach by such Lender of its obligations under this Agreement) to make available its portion of any Advance, (ii) notifies either Agent or Borrowing Agent that it does not intend to make available its portion of any Advance or has made a public statement to the effect that it does not intend to comply with its funding obligations (if the actual refusal or failure to comply would constitute a breach by such Lender of its obligations under this Agreement) or (iii) (A) has become or is insolvent or has a parent company that has become or is insolvent or (B) becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian, appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment (each, a “Lender Default”), all rights and obligations hereunder of such Lender (a “Defaulting Lender”) as to which a Lender Default is in effect and of the other parties hereto shall be modified to the extent of the express provisions of this Section 2.23 while such Lender Default remains in effect.

 

(b)           Advances shall be incurred pro rata from Lenders (the “Non-Defaulting Lenders”) which are not Defaulting Lenders based on their respective Commitment Percentages, and no Commitment Percentage of any Lender or any pro rata share of any Advances required to be advanced by any Lender shall be increased as a result of such Lender Default.  Amounts received in respect of principal of any type of Advances shall be applied to reduce the applicable Advances of each Lender (other than any Defaulting Lender) pro rata based on the aggregate of the outstanding Advances of that type of all Lenders at the time of such application; provided, that, Agent shall not be obligated to transfer to a Defaulting Lender any payments received by Agent for the Defaulting Lender’s benefit, nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder (including any principal, interest or fees).  Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent.  Agent may hold and, in its discretion, re-lend to a Borrower the amount of such payments received or retained by it for the account of such Defaulting Lender.

 

(c)           A Defaulting Lender shall not be entitled to give instructions to Agent or to approve, disapprove, consent to or vote on any matters relating to this Agreement and the Other Documents.  All amendments, waivers and other modifications of this Agreement and the Other Documents may be made without regard to a Defaulting Lender and, for purposes of the definition of “Required Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to have either Advances outstanding or a Commitment Percentage.

 

  

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(d)           Other than as expressly set forth in this Section 2.23, the rights and obligations of a Defaulting Lender (including the obligation to indemnify Agent) and the other parties hereto shall remain unchanged.  Nothing in this Section 2.23 shall be deemed to release any Defaulting Lender from its obligations under this Agreement and the Other Documents, shall alter such obligations, shall operate as a waiver of any default by such Defaulting Lender hereunder, or shall prejudice any rights which any Borrower, Agent or any Lender may have against any Defaulting Lender as a result of any default by such Defaulting Lender hereunder.

 

(e)           In the event a Defaulting Lender retroactively cures to the satisfaction of Agent the breach which caused a Lender to become a Defaulting Lender, such Defaulting Lender shall no longer be a Defaulting Lender and shall be treated as a Lender under this Agreement.

 

III.           INTEREST AND FEES.

 

3.1.           Interest.  Interest on Advances shall be payable in arrears on the first day of each month with respect to Domestic Rate Loans and, with respect to Eurodollar Rate Loans, at the end of each Interest Period.  Interest charges shall be computed on the actual principal amount of Revolving Advances outstanding during the month at a rate per annum equal to the applicable Revolving Interest Rate.  Whenever, subsequent to the date of this Agreement, the Alternate Base Rate is increased or decreased, the Revolving Interest Rate for Domestic Rate Loans shall be similarly changed without notice or demand of any kind by an amount equal to the amount of such change in the Alternate Base Rate during the time such change or changes remain in effect.  The Eurodollar Rate shall be adjusted with respect to Eurodollar Rate Loans without notice or demand of any kind on the effective date of any change in the Reserve Percentage as of such effective date.  Upon and after the occurrence of an Event of Default, and during the continuation thereof, at the option of Agent or at the direction of Required Lenders, the Obligations shall bear interest at the applicable Revolving Interest Rate plus two (2%) percent per annum (as applicable, the “Default Rate”).

 

3.2.           Letter of Credit Fees.

 

(a)           Borrowers shall pay (i) to Agent, for the ratable benefit of Lenders, fees for each Letter of Credit for the period from and excluding the date of issuance of same to and including the date of expiration or termination, equal to the average daily face amount of each outstanding Letter of Credit multiplied by three percent (3%) per annum, such fees to be calculated on the basis of a 360-day year for the actual number of days elapsed and to be payable quarterly in arrears on the first day of each quarter and on the last day of the Term, and (ii) to the Issuer, any and all administrative, issuance, amendment, payment and negotiation charges with respect to Letters of Credit and all fees and expenses as agreed upon by the Issuer and the Borrowing Agent in connection with any Letter of Credit, including in connection with the opening, amendment or renewal of any such Letter of Credit and any acceptances created thereunder and shall reimburse Agent for any and all fees and expenses, if any, paid by Agent to the Issuer (all of the foregoing fees, the “Letter of Credit Fees”).  All such charges shall be deemed earned in full on the date when the same are due and payable hereunder and shall not be subject to rebate or pro-ration upon the termination of this Agreement for any reason.  Any such charge in effect at the time of a particular transaction shall be the charge for that transaction, notwithstanding any subsequent change in the Issuer’s prevailing charges for that type of transaction.  All Letter of Credit Fees and Acceptance Fees payable hereunder shall be deemed earned in full on the date when the same are due and payable hereunder and shall not be subject to rebate or pro-ration upon the termination of this Agreement for any reason.  Upon and after the occurrence of an Event of Default, and during the continuation thereof, at the option of Agent or at the direction of Required Lenders, the Letter of Credit Fees described in clause (i) of this Section 3.2(a) shall be increased by an additional two percent (2%) per annum.

 

  

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During the continuance of an Event of Default, Borrowers will cause cash to be deposited and maintained in an account with Agent, as cash collateral, in an amount equal to one hundred and three percent (103%) of the Maximum Undrawn Amount of all outstanding Letters of Credit, and each Borrower hereby irrevocably authorizes Agent, in its discretion, on such Borrower’s behalf and in such Borrower’s name, to open such an account and to make and maintain deposits therein, or in an account opened by such Borrower, in the amounts required to be made by such Borrower, out of the proceeds of Receivables or other Collateral or out of any other funds of such Borrower coming into any Lender’s possession at any time.  Agent will invest such cash collateral (less applicable reserves) in such short-term money-market items as to which Agent and such Borrower mutually agree and the net return on such investments shall be credited to such account and constitute additional cash collateral.  No Borrower may withdraw amounts credited to any such account except upon the waiver or cure of such Event of Default or the occurrence of all of the following: (x) payment and performance in full of all Obligations, (y) expiration of all Letters of Credit and (z) termination of this Agreement.

 

3.3.           Closing Fee and Facility Fee.

 

(a)           Closing Fee.  Upon the execution of this Agreement, Borrowers shall be unconditionally obligated to pay to Agent for the ratable benefit of Lenders a closing fee of One Hundred Fifty Thousand  Dollars ($150,000) and to Agent an underwriting fee of Three Thousand Five Hundred Dollars ($3,500) (each of which is fully earned and non-refundable as of the Closing Date), less that portion of the commitment fee of Thirty-Five Thousand Dollars ($35,000) and the deposit fee of Thirty-Five Thousand Dollars ($35,000), each heretofore paid by Borrowers to Agent remaining after application of such fees to out of pocket expenses.

 

(b)           Facility Fee.  If, for any calendar quarter during the Term, the average daily unpaid balance of the Revolving Advances and undrawn amount of any outstanding Letters of Credit for each day of such calendar quarter does not equal the Maximum Revolving Advance Amount, then Borrowers shall pay to Agent for the ratable benefit of Lenders a fee at a rate equal to one quarter of one percent (0.25%) per annum on the amount by which the Maximum Revolving Advance Amount exceeds such average daily unpaid balance.  Such fee shall be payable to Agent in arrears on the first day of each calendar quarter with respect to the previous calendar quarter.

 

3.4.           Collateral Evaluation Fee and Collateral Monitoring Fee.

 

(a)           Collateral Evaluation Fee.  Borrowers shall pay Agent a collateral evaluation fee equal to Two Thousand Dollars ($2,000) per month commencing on the first day of the month following the Closing Date and on the first day of each month thereafter during the Term.  The collateral evaluation fee shall be deemed earned in full on the date when same is due and payable hereunder and shall not be subject to rebate or proration upon termination of this Agreement for any reason.

 

  

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(b)           Collateral Monitoring Fee.  Borrowers shall pay to Agent on the first day of each month following any month in which Agent performs any collateral monitoring - namely any field examination, collateral analysis or other business analysis, the need for which is to be determined by Agent and which monitoring is undertaken by Agent or for Agent’s benefit - a collateral monitoring fee in an amount equal to Eight Hundred Fifty Dollars ($850) per day for each person employed to perform such monitoring, plus all costs and disbursements incurred by Agent in the performance of such examination or analysis.  Absent the occurrence and continuation of a Default or Event of Default, Agent shall not conduct more than four (4) field examinations in any year.

 

3.5.           Computation of Interest and Fees.  Interest and fees hereunder shall be computed on the basis of a year of 360 days and for the actual number of days elapsed.  If any payment to be made hereunder becomes due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the Revolving Interest Rate for Domestic Rate Loans during such extension.

 

3.6.           Maximum Charges.  In no event whatsoever shall interest and other charges charged hereunder exceed the highest rate permissible under law. In the event interest and other charges as computed hereunder would otherwise exceed the highest rate permitted under law, such excess amount shall be first applied to any unpaid principal balance owed by Borrowers, and if the then remaining excess amount is greater than the previously unpaid principal balance, Lenders shall promptly refund such excess amount to Borrowers and the provisions hereof shall be deemed amended to provide for such permissible rate.

 

3.7.           Increased Costs.  In the event that any Applicable Law, or any change therein or in the interpretation or application thereof, or compliance by any Lender (for purposes of this Section 3.7, the term “Lender” shall include Agent or any Lender and any corporation or bank controlling Agent or any Lender) and the office or branch where Agent or any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any request or directive (whether or not having the force of law) from any central bank or other financial, monetary or other authority, shall:

 

(a)           subject Agent or any Lender to any tax of any kind whatsoever with respect to this Agreement or any Other Document or change the basis of taxation of payments to Agent or any Lender of principal, fees, interest or any other amount payable hereunder or under any Other Documents (except for changes in the rate of tax on the overall net income of Agent or any Lender by the jurisdiction in which it maintains its principal office and taxes referred to in Section 3.10);

 

(b)           impose, modify or hold applicable any reserve, special deposit, assessment or similar requirement against assets held by, or deposits in or for the account of, advances or loans by, or other credit extended by, any office of Agent or any Lender, including pursuant to Regulation D of the Board of Governors of the Federal Reserve System; or

 

  

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(c)           impose on Agent or any Lender or the London interbank Eurodollar market any other condition with respect to this Agreement or any Other Document;

 

and the result of any of the foregoing is to increase the cost to Agent or any Lender of making, renewing or maintaining its Advances hereunder by an amount that Agent or such Lender deems to be material or to reduce the amount of any payment (whether of principal, interest or otherwise) in respect of any of the Advances by an amount that Agent or such Lender deems to be material, then, in any case Borrowers shall promptly pay Agent or such Lender, upon its demand, such additional amount as will compensate Agent or such Lender for such additional cost or such reduction, as the case may be, provided that the foregoing shall not apply to increased costs which are reflected in the Eurodollar Rate, as the case may be.  Agent or such Lender shall certify in writing the amount of such additional cost or reduced amount to Borrowing Agent and set forth in reasonable detail the calculation thereof, and such certification shall be conclusive absent manifest error.

 

3.8.           Basis For Determining Interest Rate Inadequate or Unfair.  In the event that Agent or any Lender shall have determined that:

 

(a)           reasonable means do not exist for ascertaining the Eurodollar Rate applicable pursuant to Section 2.2 hereof for any Interest Period; or

 

(b)           Dollar deposits in the relevant amount and for the relevant maturity are not available in the London interbank Eurodollar market, with respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate Loan, or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate Loan,

 

then Agent shall give Borrowing Agent prompt written or telephonic of such determination.  If such notice is given, (i) any such requested Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrowing Agent shall notify Agent no later than 11:00 a.m. two (2) Business Days prior to the date of such proposed borrowing, that its request for such borrowing shall be cancelled or made as an unaffected type of Eurodollar Rate Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have been converted to an affected type of Eurodollar Rate Loan shall be continued as or converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 11:00 a.m. two (2) Business Days prior to the proposed conversion, shall be maintained as an unaffected type of Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate Loans shall be converted into a Domestic Rate Loan, or, if Borrowing Agent shall notify Agent, no later than 11:00 a.m. two (2) Business Days prior to the last Business Day of the then current Interest Period applicable to such affected Eurodollar Rate Loan, shall be converted into an unaffected type of Eurodollar Rate Loan, on the last Business Day of the then current Interest Period for such affected Eurodollar Rate Loans.  Until such notice has been withdrawn, Lenders shall have no obligation to make an affected type of Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate Loans and no Borrower shall have the right to convert a Domestic Rate Loan or an unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar Rate Loan.

 

  

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3.9.           Capital Adequacy.

 

(a)           In the event that Agent or any Lender shall have determined that any change in Applicable Law or guideline regarding capital adequacy, or any change in the interpretation or administration thereof by any Governmental Body, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Agent or any Lender (for purposes of this Section 3.9, the term “Lender” shall include Agent or any Lender and any corporation or bank controlling Agent or any Lender) and the office or branch where Agent or any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Agent or any Lender’s capital as a consequence of its obligations hereunder to a level below that which Agent or such Lender could have achieved but for such adoption, change or compliance (taking into consideration Agent’s and each Lender’s policies with respect to capital adequacy) by an amount deemed by Agent or any Lender to be material, then, from time to time, Borrowers shall pay upon demand to Agent or such Lender such additional amount or amounts as will compensate Agent or such Lender for such reduction.  In determining such amount or amounts, Agent or such Lender may use any reasonable averaging or attribution methods.  The protection of this Section 3.9 shall be available to Agent and each Lender regardless of any possible contention of invalidity or inapplicability with respect to the Applicable Law or condition.

 

(b)           A certificate of Agent or such Lender setting forth such amount or amounts as shall be necessary to compensate Agent or such Lender with respect to Section 3.9(a) hereof when delivered to Borrowing Agent shall be conclusive absent manifest error.

 

(c)           Notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and each request, rule, guideline or directive thereunder or issued in connection therewith and (ii) all requests, rules, regulations, guidelines, interpretations on directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities (whether or not having the force of law), in each case pursuant to Basel III, shall in any event be deemed to be a change in Applicable Law for purposes of clause (a) above, regardless of the date enacted, adopted or issued.

 

3.10.           Gross Up for Taxes.  If any Borrower shall be required by Applicable Law to withhold or deduct any taxes from or in respect of any sum payable under this Agreement or any of the Other Documents to Agent, or any Lender, assignee of any Lender, or Participant (each, individually, a “Payee” and collectively, the “Payees”), (a) the sum payable to such Payee or Payees, as the case may be, shall be increased as may be necessary so that, after making all required withholding or deductions, the applicable Payee or Payees receives an amount equal to the sum it would have received had no such withholding or deductions been made (the “Gross-Up Payment”), (b) such Borrower shall make such withholding or deductions, and (c) such Borrower shall pay the full amount withheld or deducted to the relevant Governmental Body or other authority in accordance with Applicable Law.  Notwithstanding the foregoing, no Borrower shall be obligated to make any portion of the Gross-Up Payment that is attributable to any (w) taxes imposed on or measured by the applicable Payee’s overall income or profits or franchise taxes imposed on it by any jurisdiction (or any political subdivision thereof) under which such Payee is organized or is otherwise determined to have a present or former connection with, (x) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the applicable Payee is organized or is otherwise determined to have a present or former connection with, (y) taxes imposed under FATCA, and (z) withholding or deductions that would not have been paid or claimed had the applicable Payee or Payees properly claimed a complete exemption with respect thereto pursuant to Section 3.11 hereof.

 

  

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3.11.           Withholding Tax Exemption.

 

(a)           Each Payee agrees that it will deliver to Borrowing Agent and Agent two (2) duly completed appropriate valid Withholding Certificates certifying its status (i.e., U.S. or foreign person) and, if appropriate, making a claim of reduced, or exemption from, U.S. withholding tax on the basis of an income tax treaty or an exemption provided by the Code.  The term “Withholding Certificate” means a Form W-9; a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related statements and certifications as required under §1.1441-1(e)(2) and/or (3) of the Income Tax Regulations (“Regulations”); a statement described in §1.871-14(c)(2)(v) of the Regulations; or any other certificates under the Code or Regulations that certify or establish the status of a payee or beneficial owner as a U.S. or foreign person.

 

(b)           Each Payee required to deliver to Borrowing Agent and Agent a valid Withholding Certificate pursuant to Section 3.11(a) hereof shall deliver such valid Withholding Certificate as follows:  (A) each Payee which is a party hereto on the Closing Date shall deliver such valid Withholding Certificate at least five (5) Business Days prior to the first date on which any interest or fees are payable by any Borrower hereunder for the account of such Payee; (B) each Payee shall deliver such valid Withholding Certificate at least five (5) Business Days before the effective date of such assignment or participation (unless Agent in its sole discretion shall permit such Payee to deliver such Withholding Certificate less than five (5) Business Days before such date in which case it shall be due on the date specified by Agent).  Each Payee which so delivers a valid Withholding Certificate further undertakes to deliver to Borrowing Agent and Agent two (2) additional copies of such Withholding Certificate (or a successor form) on or before the date that such Withholding Certificate expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent Withholding Certificate so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by Borrowing Agent or Agent.

 

(c)           Notwithstanding the submission of a Withholding Certificate claiming a reduced rate of or exemption from U.S. withholding tax required under Section 3.11(b) hereof, Agent shall be entitled to withhold United States federal income taxes at the full thirty percent (30%) withholding rate if in its reasonable judgment it is required to do so under the due diligence requirements imposed upon a withholding agent under §1.1441-7(b) of the Regulations.  Further, Agent is indemnified under §1.1461-1(e) of the Regulations against any claims and demands of any Payee for the amount of any tax it deducts and withholds in accordance with regulations under §1441 of the Code.

 

  

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IV.           COLLATERAL:  GENERAL TERMS

 

4.1.           Security Interest in the Collateral.  To secure the prompt payment and performance to Agent and each Lender of the Obligations, each Borrower hereby assigns, pledges and grants to Agent for its benefit and for the ratable benefit of each Lender a continuing security interest in and to and Lien on all of its Collateral, whether now owned or existing or hereafter acquired or arising and wheresoever located.  Each Borrower shall promptly provide Agent with written notice of all commercial tort claims in excess of One Hundred Thousand Dollars ($100,000), such notice to contain the case title together with the applicable court and a brief description of the claim(s).  Upon delivery of each such notice, such Borrower shall be deemed to hereby grant to Agent a security interest and lien in and to such commercial tort claims and all proceeds thereof.

 

4.2.           Perfection of Security Interest.  Each Borrower shall take all action that may be necessary, or that Agent may reasonably request, so as at all times to maintain the validity, perfection, enforceability and priority of Agent’s security interest in and Lien on the Collateral or to enable Agent to protect, exercise or enforce its rights hereunder and in the Collateral, including, but not limited to, (a) immediately discharging all Liens other than Permitted Encumbrances, (b) using commercially reasonable efforts to obtain Lien Waiver Agreements, (c) delivering to Agent, endorsed or accompanied by such instruments of assignment as Agent may reasonably specify, and stamping or marking, in such manner as Agent may specify, any and all chattel paper, instruments, letters of credits and advices thereof and documents evidencing or forming a part of the Collateral, (d) entering into warehousing, lockbox and other custodial arrangements reasonably satisfactory to Agent, and (e) executing and delivering financing statements, control agreements, instruments of pledge, mortgages, notices and assignments, in each case in form and substance reasonably satisfactory to Agent, relating to the creation, validity, perfection, maintenance or continuation of Agent’s security interest and Lien under the Uniform Commercial Code or other Applicable Law.  By its signature hereto, each Borrower hereby authorizes Agent to file against such Borrower, one or more financing, continuation or amendment statements pursuant to the Uniform Commercial Code in form and substance satisfactory to Agent (which statements may have a description of collateral which is broader than that set forth herein).  All charges, expenses and fees Agent may incur in doing any of the foregoing, and any local taxes relating thereto, shall be charged to Borrowers’ Account as a Revolving Advance of a Domestic Rate Loan and added to the Obligations, or, at Agent’s option, shall be paid to Agent for its benefit and for the ratable benefit of Lenders promptly upon demand.

 

4.3.           Disposition of Collateral.  Each Borrower will safeguard and protect all Collateral for Agent’s general account and make no disposition thereof whether by sale, lease or otherwise except (a) the sale of Inventory in the Ordinary Course of Business and (b) the disposition or transfer of obsolete and worn-out Equipment in the Ordinary Course of Business during any fiscal year having an aggregate fair market value of not more than Two Hundred Fifty Thousand Dollars ($250,000) and only to the extent that (i) the proceeds of any such disposition are used to acquire replacement Equipment which is subject to Agent’s first priority security interest or (ii) the proceeds of which are remitted to Agent to be applied pursuant to Section 2.21.

 

  

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4.4.           Preservation of Collateral.  Following the occurrence of a Default or Event of Default which is continuing, in addition to the rights and remedies set forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent deems necessary to protect Agent’s interest in and to preserve the Collateral, including the hiring of such security guards or the placing of other security protection measures as Agent may deem appropriate; (b) may employ and maintain at any of any Borrower’s premises a custodian who shall have full authority to do all acts necessary to protect Agent’s interests in the Collateral; (c) may lease warehouse facilities to which Agent may move all or part of the Collateral; (d) may use any Borrower’s owned or leased lifts, hoists, trucks and other facilities or equipment for handling or removing the Collateral; and (e) shall have, and is hereby granted, a right of ingress and egress to the places where the Collateral is located, and may proceed over and through any of Borrower’s owned or leased property.  Each Borrower shall cooperate fully with all of Agent’s efforts to preserve the Collateral and will take such actions to preserve the Collateral as Agent may direct.  All of Agent’s expenses of preserving the Collateral, including any expenses relating to the bonding of a custodian, shall be charged to Borrowers’ Account as a Revolving Advance maintained as a Domestic Rate Loan and added to the Obligations or, at Agent’s option shall be paid to Agent for its benefit and for the ratable benefit of Lenders immediately upon demand.

 

4.5.           Ownership of Collateral.

 

(a)           With respect to the Collateral, at the time the Collateral becomes subject to Agent’s security interest:  (i) each Borrower shall be the sole owner of and fully authorized and able to sell, transfer, pledge and/or grant a first priority security interest in each and every item of the its respective Collateral to Agent; and, except for Permitted Encumbrances the Collateral shall be free and clear of all Liens and encumbrances whatsoever; (ii) each document and agreement executed by each Borrower or delivered to Agent or any Lender in connection with this Agreement shall be true and correct in all respects; (iii) all signatures and endorsements of each Borrower that appear on such documents and agreements shall be genuine and each Borrower shall have full capacity to execute same; and (iv) each Borrower’s Equipment and Inventory shall be located as set forth on Schedule 4.5, as the same may be supplemented from time to time, and shall not be removed from such location(s) except with respect to the sale of Inventory in the Ordinary Course of Business and Equipment to the extent permitted in Section 4.3 hereof.

 

(b)           (i) There is no location at which any Borrower has any Inventory (except for Inventory in transit) other than those locations listed on Schedule 4.5; (ii) Schedule 4.5 hereto contains a correct and complete list, as of the Closing Date, of the legal names and addresses of each warehouse at which Inventory of any Borrower is stored; none of the receipts received by any Borrower from any warehouse states that the goods covered thereby are to be delivered to bearer or to the order of a named Person or to a named Person and such named Person’s assigns;  (iii) Schedule 4.5 hereto sets forth a correct and complete list as of the Closing Date of (A) each place of business of each Borrower and (B) the chief executive office of each Borrower; and (iv) Schedule 4.5 hereto sets forth a correct and complete list as of the Closing Date of the location, by state and street address, of all Real Property owned or leased by each Borrower, together with the names and addresses of any landlords.  Borrowers may supplement Schedule 4.5 for new locations of Real Property acquired or leased by a Borrower following the Closing Date by giving written notice to Agent of such new locations that includes the information required by Section 4.5(b)(iv).

 

  

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4.6.           Defense of Agent’s and Lenders’ Interests.  Until (a) payment and performance in full of all of the Obligations and (b) termination of this Agreement, Agent’s interests in the Collateral shall continue in full force and effect.  During such period no Borrower shall, without Agent’s prior written consent, pledge, sell (except Inventory in the Ordinary Course of Business and Equipment to the extent permitted in Section 4.3 hereof), assign, transfer, create or suffer to exist a Lien upon or encumber or allow or suffer to be encumbered in any way except for Permitted Encumbrances, any part of the Collateral.  Each Borrower shall defend Agent’s interests in the Collateral against any and all Persons whatsoever.  At any time following an Event of Default and during the continuation thereof (in addition to the rights and remedies set forth in Section 11.1 hereof), Agent shall have the right to take possession of the indicia of the Collateral and the Collateral in whatever physical form contained, including:  labels, stationery, documents, instruments and advertising materials.  If Agent exercises this right to take possession of the Collateral, Borrowers shall, upon demand, assemble it in the best manner possible and make it available to Agent at a place reasonably convenient to Agent.  In addition, with respect to all Collateral, Agent and Lenders shall be entitled to all of the rights and remedies set forth herein and further provided by the Uniform Commercial Code or other Applicable Law.  Each Borrower shall, and Agent may, at its option, instruct all suppliers, carriers, forwarders, warehousers or others receiving or holding cash, checks, Inventory, documents or instruments in which Agent holds a security interest to deliver same to Agent and/or subject to Agent’s order and if any such items shall come into any Borrower’s possession, such items shall be held by such Borrower in trust as Agent’s trustee, and such Borrower will immediately deliver such items to Agent in their original form together with any necessary endorsement.

 

4.7.           Books and Records.  Each Borrower shall (a) keep proper books of record and account in which full, true and correct entries will be made of all dealings or transactions of or in relation to its business and affairs; (b) set up on its books accruals with respect to all taxes, assessments, charges, levies and claims; and (c) on a reasonably current basis set up on its books, from its earnings, allowances against doubtful Receivables, advances and investments and all other proper accruals (including by reason of enumeration, accruals for premiums, if any, due on required payments and accruals for depreciation, obsolescence, or amortization of properties), which should be set aside from such earnings in connection with its business.  All determinations pursuant to this subsection shall be made in accordance with, or as required by, GAAP consistently applied in the opinion of such independent public accountant as shall then be regularly engaged by Borrowers.

 

4.8.           Financial Disclosure.  Subject to the obligations of Agent and each Lender under Section 16.15 hereof regarding confidentiality, each Borrower hereby irrevocably (a) authorizes and directs all accountants and auditors employed by such Borrower at any time during the Term to exhibit and deliver to Agent and each Lender copies of any of such Borrower’s financial statements, trial balances or other accounting records of any sort in the accountant’s or auditor’s possession, and to disclose to Agent and each Lender any information such accountants may have concerning such Borrower’s financial status and business operations and (b) authorizes all Governmental Bodies to furnish to Agent and each Lender copies of reports or examinations relating to such Borrower, whether made by such Borrower or otherwise.  Agent and each Lender will attempt to obtain such information or materials directly from such Borrower prior to obtaining such information or materials from such accountants or Governmental Bodies.

 

  

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4.9.           Compliance with Laws.  Each Borrower shall comply with all Applicable Laws with respect to the Collateral or any part thereof or to the operation of such Borrower’s business the non-compliance with which could reasonably be expected to have a Material Adverse Effect.  Each Borrower may, however, contest or dispute any Applicable Laws in any reasonable manner, provided that any related Lien is inchoate or stayed and sufficient reserves are established to the reasonable satisfaction of Agent to protect Agent’s Lien on or security interest in the Collateral.

 

4.10.           Inspection of Premises.  At all reasonable times and upon advance notice to Borrowers, Agent and each Lender shall have full access to and the right to audit, check, inspect and make abstracts and copies from each Borrower’s books, records, audits, correspondence and all other papers relating to the Collateral and the operation of each Borrower’s business.  Agent, any Lender and their agents may enter upon any premises of any Borrower at any time during business hours and at any other reasonable time upon advance notice, and from time to time, for the purpose of inspecting the Collateral and any and all records pertaining thereto and the operation of such Borrower’s business.  Notwithstanding anything herein to the contrary, no advance notice is required if a Default or Event of Default exists.

 

4.11.           Insurance.  The assets and properties of each Borrower at all times shall be maintained in accordance with the requirements of all insurance carriers which provide insurance with respect to the assets and properties of such Borrower so that such insurance shall remain in full force and effect.  Each Borrower shall bear the full risk of any loss of any nature whatsoever with respect to the Collateral.  At each Borrower’s own cost and expense in amounts and with carriers acceptable to Agent, each Borrower shall (a) keep all its insurable properties and properties in which such Borrower has an interest insured against the hazards of fire, flood, sprinkler leakage, those hazards covered by extended coverage insurance and such other hazards, and for such amounts, as is customary in the case of companies engaged in businesses similar to such Borrower’s including business interruption insurance; (b) maintain a bond in such amounts as is customary in the case of companies engaged in businesses similar to such Borrower insuring against larceny, embezzlement or other criminal misappropriation of insured’s officers and employees who may either singly or jointly with others at any time have access to the assets or funds of such Borrower either directly or through authority to draw upon such funds or to direct generally the disposition of such assets; (c) maintain public and product liability insurance against claims for personal injury, death or property damage suffered by others; (d) maintain all such worker’s compensation or similar insurance as may be required under the laws of any state or jurisdiction in which such Borrower is engaged in business; (e) furnish Agent with (i) copies of all policies and evidence of the maintenance of such policies by the renewal thereof at least thirty (30) days before any expiration date, and (ii) appropriate loss payable endorsements in form and substance reasonably satisfactory to Agent, naming Agent as an additional insured and lender loss payee as its interests may appear with respect to all insurance coverage referred to in clauses (a) and (c) above, and providing (A) that all proceeds thereunder shall be payable to Agent, provided that if no Default or Event of Default is continuing, any claim for an amount less than One Hundred Thousand Dollars ($100,000) may be paid to the Borrowers, (B) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy, and (C) that such policy and lender loss payable clauses may not be cancelled, amended or terminated unless at least thirty (30) days’ prior written notice is given to Agent.  In the event of any loss thereunder, the carriers named therein hereby are directed by Agent and the applicable Borrower to make payment for such loss to Agent and not to such Borrower and Agent jointly.  If any insurance losses are paid by check, draft or other instrument payable to any Borrower and Agent jointly, Agent may endorse such Borrower’s name thereon and do such other things as Agent may deem advisable to reduce the same to cash.  Agent is hereby authorized to adjust and compromise claims under insurance coverage referred to in clauses (a) and (b) above, provided that if no Default or Event of Default has occurred and is continuing it will not adjust or compromise any such claim without the prior consent of Borrowing Agent.  All loss recoveries received by Agent upon any such insurance may be applied to the Obligations, in such order as Agent in its sole discretion shall determine, provided that if no Default or Event of Default has occurred and is continuing, Borrowers may reborrow Advances in accordance with the terms hereof.  Any surplus shall be paid by Agent to Borrowers or applied as may be otherwise required by law.  Any deficiency thereon shall be paid by Borrowers to Agent, on demand.

 

  

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4.12.           Failure to Pay Insurance.  If any Borrower fails to obtain insurance as hereinabove provided, or to keep the same in force, Agent, if Agent so elects, upon notice to Borrowers, may obtain such insurance and pay the premium therefor on behalf of such Borrower, and charge Borrowers’ Account therefor as a Revolving Advance of a Domestic Rate Loan and such expenses so paid shall be part of the Obligations.

 

4.13.           Payment of Taxes.  Each Borrower will pay, when due, all taxes, assessments and other Charges lawfully levied or assessed upon such Borrower or any of the Collateral including real and personal property taxes, assessments and charges and all franchise, income, employment, social security benefits, withholding, and sales taxes; provided, however, that no Borrower shall be required to pay or discharge any such tax, assessment or other Charge that is being Properly Contested.  If any tax by any Governmental Body is or may be imposed on or as a result of any transaction between any Borrower and Agent or any Lender which Agent or any Lender may be required to withhold or pay or if any taxes, assessments, or other Charges remain unpaid after the date fixed for their payment, or if any claim shall be made which, in Agent’s or any Lender’s opinion, may possibly create a valid Lien on the Collateral, Agent may without notice to Borrowers pay the taxes, assessments or other Charges and each Borrower hereby indemnifies and holds Agent and each Lender harmless in respect thereof.  Agent will not pay any taxes, assessments or Charges to the extent that any applicable Borrower has Properly Contested those taxes, assessments or Charges.  The amount of any payment by Agent under this Section 4.13 shall be charged to Borrowers’ Account as a Revolving Advance maintained as a Domestic Rate Loan and added to the Obligations and, until Borrowers shall furnish Agent with an indemnity therefor (or supply Agent with evidence satisfactory to Agent that due provision for the payment thereof has been made), Agent may hold without interest any balance standing to Borrowers’ credit and Agent shall retain its security interest in and Lien on any and all Collateral held by Agent.

 

4.14.           Payment of Leasehold Obligations.  Each Borrower shall at all times pay, when and as due, its rental obligations under all leases under which it is a tenant, and shall otherwise comply, in all material respects, with all other terms of such leases, except to the extent such rental obligations or other terms of such lease are being Properly Contested, and keep them in full force and effect to the extent still necessary in any Borrower’s business and, at Agent’s request will provide evidence of having done so.

 

4.15.           Receivables.

 

(a)           Nature of Receivables.  Each of the Receivables shall be a bona fide and valid account representing a bona fide indebtedness incurred by the Customer therein named, for a fixed sum as set forth in the invoice (or other supporting documentation) relating thereto (provided immaterial or unintentional invoice errors shall not be deemed to be a breach hereof) with respect to an absolute sale or lease and delivery of goods upon stated terms of a Borrower, or work, labor or services theretofore rendered by a Borrower as of the date each Receivable is created.  Each of the Receivables shall be owing in accordance with the applicable Borrower’s standard terms of sale without dispute, setoff or counterclaim except as may be stated on the accounts receivable schedules delivered by Borrowers to Agent.

 

  

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(b)           Solvency of Customers.  Each Customer, to the best of each Borrower’s knowledge, as of the date each Receivable is created, is and will be solvent and able to pay all Receivables on which the Customer is obligated in full when due or with respect to such Customers of any Borrower who are not solvent such Borrower has set up on its books and in its financial records bad debt reserves adequate to cover such Receivables.

 

(c)           Location of Borrowers.  Each Borrower’s chief executive office is located at the address set forth on Schedule 4.15(c) hereof.  Until written notice is given to Agent by Borrowing Agent of any other office at which any Borrower keeps its records pertaining to Receivables, all such records shall be kept at such executive office.

 

(d)           Collection of Receivables.  Borrowers shall instruct all Customers to deliver all remittances upon Receivables to such lockbox account, Blocked Account or Depository Account as Agent shall designate from time to time as contemplated by Section 4.15(h) hereof or as otherwise agreed to from time to time by Agent.  Notwithstanding the foregoing, to the extent any Borrower directly receives any remittances upon Receivables, such Borrower shall, at such Borrower’s sole cost and expense, but on Agent’s behalf and for Agent’s account, collect as Agent’s property and in trust for Agent all amounts received on Receivables, and shall not commingle such collections with any Borrower’s funds or use the same except to pay Obligations.  Each Borrower shall deposit in the Blocked Account or any Depository Account or, upon request by Agent, deliver to Agent, in original form and on the date of receipt thereof, all checks, drafts, notes, money orders, acceptances, cash and other evidences of Indebtedness.  All remittances of Receivables received by Agent pursuant to this Section 4.15(d) shall be applied  to the Obligations.

 

(e)           Notification of Assignment of Receivables.  At any time following the occurrence of a Default or Event of Default which is continuing, Agent shall have the right to send notice of the assignment of, and Agent’s security interest in and Lien on, the Receivables to any and all Customers or any third party holding or otherwise concerned with any of the Collateral.  Thereafter, Agent shall have the sole right to collect the Receivables, take possession of the Collateral, or both.  Agent’s actual collection expenses, including, but not limited to, stationery and postage and telephone, secretarial and clerical expenses and the salaries of any collection personnel used for collection, may be charged to Borrowers’ Account and added to the Obligations.

 

  

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(f)           Power of Agent to Act on Borrowers’ Behalf.  Agent shall have the right to receive, endorse, assign and/or deliver in the name of Agent or any Borrower any and all checks, drafts and other instruments for the payment of money relating to the Receivables, and each Borrower hereby waives notice of presentment, protest and non-payment of any instrument so endorsed.  Each Borrower hereby constitutes Agent or Agent’s designee as such Borrower’s attorney with power (i) to endorse such Borrower’s name upon any notes, acceptances, checks, drafts, money orders or other evidences of payment or Collateral; (ii) to sign such Borrower’s name on any invoice or bill of lading relating to any of the Receivables, drafts against Customers, assignments and verifications of Receivables; (iii) to send verifications of Receivables to any Customer; (iv) to sign such Borrower’s name on all financing statements or any other documents or instruments deemed necessary or appropriate by Agent to preserve, protect, or perfect Agent’s interest in the Collateral and to file same; (v) following an Event of Default which is continuing, to demand payment of the Receivables; (vi) following an Event of Default which is continuing, to enforce payment of the Receivables by legal proceedings or otherwise; (vii) following an Event of Default which is continuing, to exercise all of such Borrower’s rights and remedies with respect to the collection of the Receivables and any other Collateral; (viii) following an Event of Default which is continuing, to settle, adjust, compromise, extend or renew the Receivables; (ix) following an Event of Default which is continuing, to settle, adjust or compromise any legal proceedings brought to collect Receivables; (x) following an Event of Default which is continuing, to prepare, file and sign such Borrower’s name on a proof of claim in bankruptcy or similar document against any Customer; (xi) following an Event of Default which is continuing, to prepare, file and sign such Borrower’s name on any notice of Lien, assignment or satisfaction of Lien or similar document in connection with the Receivables; and (xii) following an Event of Default which is continuing, such other obligations as Borrowers may be required to fulfill under this Agreement but have failed to fulfill.  All acts of said attorney or designee are hereby ratified and approved, and said attorney or designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or of law, unless done maliciously or with gross (not mere) negligence (as determined by a court of competent jurisdiction in a final non-appealable judgment); this power being coupled with an interest is irrevocable while any of the Obligations remain unpaid.  Agent shall have the right at any time following the occurrence of an Event of Default or Default, to change the address for delivery of mail addressed to any Borrower to such address as Agent may designate and to receive, open and dispose of all mail addressed to any Borrower.

 

(g)           No Liability.  Neither Agent nor any Lender shall, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the settlement, collection or payment of any of the Receivables or any instrument received in payment thereof, or for any damage resulting therefrom.  During the continuance of an Event of Default or Default Agent may, without notice or consent from any Borrower, sue upon or otherwise collect, extend the time of payment of, compromise or settle for cash, credit or upon any terms any of the Receivables or any other securities, instruments or insurance applicable thereto and/or release any obligor thereof.  Agent is authorized and empowered to accept following the occurrence of a Default or Event of Default the return of the goods represented by any of the Receivables, without notice to or consent by any Borrower, all without discharging or in any way affecting any Borrower’s liability hereunder.

 

  

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(h)           Establishment of a Lockbox Account, Dominion Account.  Except as provided in the last sentence of this Section 4.15(h), all proceeds of Collateral shall be deposited by Borrowers into either (i) a lockbox account, dominion account or such other “blocked account” (“Blocked Accounts”) established at a bank or banks (each such bank, a “Blocked Account Bank”) pursuant to an arrangement with such Blocked Account Bank as may be selected by Borrowing Agent and be reasonably acceptable to Agent or (ii) depository accounts (“Depository Accounts”) established at Agent for the deposit of such proceeds.  Each applicable Borrower, Agent and each Blocked Account Bank shall enter into a deposit account control agreement in form and substance reasonably satisfactory to Agent directing such Blocked Account Bank to transfer such funds so deposited to Agent, either to any account maintained by Agent at said Blocked Account Bank or by wire transfer to a Depository Account of Agent.  Borrowing Agent shall obtain the agreement by such Blocked Account Bank to waive any offset rights against the funds so deposited.  All funds deposited in such Blocked Accounts or Depository Accounts shall immediately become the property of Agent for use by Agent in applying such funds to the Obligations,  Neither Agent nor any Lender assumes any responsibility for such blocked account arrangement, including any claim of accord and satisfaction or release with respect to deposits accepted by any Blocked Account Bank thereunder.  All deposit accounts and investment accounts of each Borrower and its Subsidiaries as of the Closing Date are set forth on Schedule 4.15(h).  Notwithstanding the foregoing, Borrowers, within forty-five (45) days of the Closing Date, shall either (x) cause Leaders Bank, Bank of America, BB&T Bank, NBT Bank and CIBC Bank to each enter into deposit account control agreements in favor of Agent or (y) close all accounts maintained at such bank.

 

(i)           Adjustments.  No Borrower will, without Agent’s consent, compromise or adjust any material amount of the Receivables (or extend the time for payment thereof) or accept any material returns of merchandise or grant any additional discounts, allowances or credits thereon except for those compromises, adjustments, returns, discounts, credits and allowances as have been heretofore customary in the business of such Borrower.

 

4.16.           Inventory.  To the extent Inventory held for sale or lease has been produced by any Borrower, it has been and will be produced by such Borrower in accordance with the Federal Fair Labor Standards Act of 1938, as amended, and all rules, regulations and orders thereunder.

 

4.17.           Maintenance of Equipment.  The Equipment shall be maintained in good operating condition and repair (reasonable wear and tear excepted) and all necessary replacements of and repairs thereto shall be made so that the value and operating efficiency of the Equipment shall be maintained and preserved.  No Borrower shall use or operate the Equipment in violation of any Applicable Law.  Each Borrower shall have the right to sell Equipment to the extent set forth in Section 4.3 hereof.

 

4.18.           Exculpation of Liability.  Nothing herein contained shall be construed to constitute Agent or any Lender as any Borrower’s agent for any purpose whatsoever, nor shall Agent or any Lender be responsible or liable for any shortage, discrepancy, damage, loss or destruction of any part of the Collateral wherever the same may be located and regardless of the cause thereof.  Neither Agent nor any Lender, whether by anything herein or in any assignment or otherwise, assume any of any Borrower’s obligations under any contract or agreement assigned to Agent or such Lender, and neither Agent nor any Lender shall be responsible in any way for the performance by any Borrower of any of the terms and conditions thereof.

 

  

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4.19.           Environmental Matters.

 

(a)           Borrowers shall ensure that the Real Property and all operations and businesses conducted thereon by Borrowers remain in compliance with all Environmental Laws and Borrowers shall not place any Hazardous Substances on any Real Property except as permitted by Applicable Law or appropriate governmental authorities.

 

(b)           Reserved.

 

(c)           Borrowers shall dispose of any and all Hazardous Waste generated by Borrowers at the Real Property in accordance in all material respects with applicable Environmental Laws.  Borrowers shall use commercially reasonable efforts to obtain certificates of disposal, such as hazardous waste manifest receipts, from all treatment, transport, storage or disposal facilities or operators employed by Borrowers in connection with the transport or disposal of any Hazardous Waste generated at the Real Property.

 

(d)           In the event any Borrower obtains, gives or receives notice of any Release or threat of Release of a reportable quantity of any Hazardous Substances at the Real Property (any such event being hereinafter referred to as a “Hazardous Discharge”) or receives any notice of violation, request for information or notification that it is potentially responsible for investigation or cleanup of environmental conditions at the Real Property, demand letter or complaint, order, citation, or other written notice with regard to any Hazardous Discharge or violation of Environmental Laws affecting the Real Property or any Borrower’s interest therein (any of the foregoing is referred to herein as an “Environmental Complaint”) from any Person, including any state agency responsible in whole or in part for environmental matters in the state in which the Real Property is located or the United States Environmental Protection Agency (any such person or entity hereinafter the “Authority”), then Borrowing Agent shall, within five (5) Business Days, give written notice of the same to Agent detailing facts and circumstances of which any Borrower is aware giving rise to the Hazardous Discharge or Environmental Complaint.  Such information is to be provided to allow Agent to protect its security interest in and Lien on the and the Collateral and is not intended to create nor shall it create any obligation upon Agent or any Lender with respect thereto.

 

(e)           Borrowing Agent shall promptly forward to Agent copies of any request for information, notification of potential liability, demand letter relating to potential responsibility with respect to the investigation or cleanup of Hazardous Substances at any other site owned, operated or used by any Borrower to dispose of Hazardous Substances and shall continue to forward copies of correspondence between any Borrower and the Authority regarding such claims to Agent until the claim is settled.  Borrowing Agent shall promptly forward to Agent copies of all documents and reports concerning a Hazardous Discharge at the Real Property that any Borrower is required to file under any Environmental Laws.  Such information is to be provided solely to allow Agent to protect Agent’s security interest in and Lien on the Real Property and the Collateral.

 

  

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(f)           Borrowers shall respond promptly to any Hazardous Discharge caused by Borrowers or any Environmental Complaint and take all necessary action in order to safeguard the health of any Person and to avoid subjecting the Collateral to any Lien.  If any Borrower shall fail to respond promptly to any Hazardous Discharge or Environmental Complaint, Agent on behalf of Lenders may, but without the obligation to do so, for the sole purpose of protecting Agent’s interest in the Collateral:  (i) give such notices or (ii) enter onto the Real Property (or authorize third parties to enter onto the Real Property) and take such actions as Agent (or such third parties as directed by Agent) deem reasonably necessary or advisable, to clean up, remove, mitigate or otherwise deal with any such Hazardous Discharge or Environmental Complaint.  All reasonable costs and expenses incurred by Agent and Lenders (or such third parties) in the exercise of any such rights, including any sums paid in connection with any judicial or administrative investigation or proceedings, fines and penalties, together with interest thereon from the date expended at the Default Rate for Domestic Rate Loans constituting Revolving Advances shall be paid upon demand by Borrowers, and until paid shall be added to and become a part of the Obligations secured by the Liens created by the terms of this Agreement or any other agreement between Agent, any Lender and any Borrower.

 

(g)           Reserved.

 

(h)           Borrowers shall defend and indemnify Agent and Lenders and hold Agent, Lenders and their respective employees, agents, directors and officers harmless from and against all loss, liability, damage and expense, claims, costs, fines and penalties, including attorney’s fees, suffered or incurred by Agent or Lenders under or on account of any Borrower’s violation of any Environmental Laws, including the assertion of any Lien thereunder, with respect to any Hazardous Discharge, the presence of any Hazardous Substances affecting the Real Property, whether or not the same originates or emerges from the Real Property or any contiguous real estate, including any loss of value of the Real Property as a result of the foregoing except to the extent such loss, liability, damage and expense is attributable to any Hazardous Discharge resulting from actions on the part of Agent or any Lender.  Borrowers’ obligations under this Section 4.19 shall arise upon the discovery of the presence of any Hazardous Substances at the Real Property, whether or not any federal, state, or local environmental agency has taken or threatened any action in connection with the presence of any Hazardous Substances.  Borrowers’ obligation and the indemnifications hereunder shall survive the termination of this Agreement.

 

(i)           For purposes of Section 4.19 and 5.7, all references to Real Property shall be deemed to include all of each Borrower’s right, title and interest in and to its owned and leased premises.

 

4.20.           Financing Statements.  Except for financing statements filed by Agent and the financing statements described on Schedule 1.2, as of the Closing Date no financing statement covering any of the Collateral or any proceeds thereof is on file in any public office.

 

4.21.           Appraisals.  Agent may, in its sole discretion, exercised in a commercially reasonable manner, at any time after the Closing Date, engage the services of an independent appraisal firm or firms of reputable standing, satisfactory to Agent, for the purpose of appraising the then current values of Borrowers’ Inventory.  Borrowers shall pay the costs of such Inventory appraisal.  Absent the occurrence and continuance of an Event of Default at such time, Agent shall consult with Borrowers as to the identity of any such firm.  Absent an Event of Default which is continuing, Agent shall not conduct more than one Inventory appraisal in any year.

 

  

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V.           REPRESENTATIONS AND WARRANTIES.

 

Each Borrower represents and warrants as follows:

 

5.1.           Authority.  Each Borrower has full power, authority and legal right to enter into this Agreement and the Other Documents and to perform all its respective Obligations hereunder and thereunder.  This Agreement and each of the Other Documents have been duly executed and delivered by each Borrower, and this Agreement and each of the Other Documents constitute the legal, valid and binding obligation of such Borrower enforceable in accordance with their terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally.  The execution, delivery and performance of this Agreement and of the Other Documents (a) are within such Borrower’s powers, have been duly authorized by all necessary action, are not in contravention of law or the terms of such Borrower’s Organizational Documents or to the conduct of such Borrower’s business or of any material agreement or undertaking to which such Borrower is a party or by which such Borrower is bound, including the Subordinated Loan Documentation, (b) will not conflict with or violate any Applicable Law or any judgment, order or decree of any Governmental Body, (c) will not require the Consent of any Governmental Body or any other Person, except those Consents set forth on Schedule 5.1 hereto, all of which will have been duly obtained, made or compiled prior to the Closing Date and which are in full force and effect and (d) will not conflict with, nor result in any breach in any of the provisions of or constitute a default under or result in the creation of any Lien except Permitted Encumbrances upon any asset of such Borrower under the provisions of any Organizational Document or other instrument to which such Borrower is a party or by which it or its property may be bound including the provisions of the Subordinated Loan Documentation.

 

5.2.           Formation and Qualification.

 

(a)           Each Borrower is duly incorporated or formed as applicable and in good standing under the laws of the state listed on Schedule 5.2(a) and is qualified to do business and is in good standing in the states listed on Schedule 5.2(a) which constitute all states in which qualification and good standing are necessary for such Borrower to conduct its business and own its property and where the failure to so qualify could reasonably be expected to have a Material Adverse Effect on such Borrower.  Each Borrower has delivered to Agent true and complete copies of its Organizational Documents as in effect on the Closing Date and will promptly notify Agent of any amendment or changes thereto.

 

(b)           As of the Closing Date, the only Subsidiaries of each Borrower are listed on Schedule 5.2(b).

 

  

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5.3.           Survival of Representations and Warranties.  All representations and warranties of such Borrower contained in this Agreement and the Other Documents shall be true at the time of such Borrower’s execution of this Agreement and the Other Documents, and shall survive the execution, delivery and acceptance thereof by the parties thereto and the closing of the transactions described therein or related thereto.

 

5.4.           Tax Returns.  Each Borrower’s federal tax identification number is set forth on Schedule 5.4.  Each Borrower has filed all federal, and material state and local tax returns and other reports each is required by law to file and has paid all material taxes, assessments, fees and other governmental charges that are due and payable.  Federal, state and local income tax returns of each Borrower have been examined and reported upon by the appropriate taxing authority or closed by applicable statute and satisfied for all fiscal years prior to and including the fiscal year ending August 31, 2011, except for tax returns that are being Properly Contested.  The provision for taxes on the books of each Borrower is adequate for all years not closed by applicable statutes, and for its current fiscal year, and no Borrower has any knowledge of any deficiency or additional assessment in connection therewith not provided for on its books.

 

5.5.           Financial Statements.

 

(a)           The pro forma balance sheet of Borrowers on a Consolidated Basis (the “Pro Forma Balance Sheet”) furnished to Agent on the Closing Date reflects the consummation of the transactions contemplated by the Subordinated Loan Documentation and under this Agreement (collectively, the “Transactions”) and is accurate, complete and correct and fairly reflects the financial condition of Borrowers on a Consolidated Basis as of the Closing Date after giving effect to the Transactions, and has been prepared in accordance with GAAP, consistently applied.  The Pro Forma Balance Sheet has been certified as accurate, complete and correct in all material respects by the President and Chief Financial Officer of Borrowing Agent.  All financial statements referred to in this subsection 5.5(a), including the related schedules and notes thereto, have been prepared, in accordance with GAAP, except as may be disclosed in such financial statements.

 

(b)           The twelve (12)-month cash flow projections of Borrowers on a Consolidated Basis and their projected balance sheets as of the Closing Date, copies of which are annexed hereto as Exhibit 5.5(b) (the “Projections”) were prepared by the Chief Financial Officer of Borrowing Agent, are, to Borrowers’ knowledge, good faith estimates (utilizing assumptions reasonably believed to be reasonable at the time made) of the financial condition and operations of Borrowers for the periods represented therein, it being recognized by Agent and the Lenders that such projections as to future events are not to be viewed as fact and that actual results during the periods covered therein may differ from such projections and such differences may be material.  The cash flow Projections together with the Pro Forma Balance Sheet, are referred to as the “Pro Forma Financial Statements.”

 

(c)           The consolidated and consolidating balance sheets of Borrowers and such other Persons described therein (including the accounts of all Subsidiaries for the respective periods during which a subsidiary relationship existed) as of August 31, 2011, and the related statements of income, changes in stockholder’s equity, and changes in cash flow for the period ended on such date, all accompanied by reports thereon containing opinions (as to the financial statements on a Consolidated Basis) without qualification by independent certified public accountants, copies of which have been delivered to Agent, have been prepared in accordance with GAAP, consistently applied (except for changes in application in which such accountants concur) and present fairly in all material respects the financial position of Borrowers and their Subsidiaries at such date and the results of their operations for such period.  Since August 31, 2011, there has been no change in the condition, financial or otherwise, of Borrowers or their Subsidiaries as shown on the consolidated balance sheet as of such date and no change in the aggregate value of machinery, equipment and Real Property owned by Borrowers and their respective Subsidiaries, except changes in the Ordinary Course of Business, none of which individually or in the aggregate has been materially adverse.

 

  

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5.6.           Entity Names.  No Borrower has been known by any other corporate name in the past five (5) years and does not sell Inventory under any other name except as set forth on Schedule 5.6, nor has any Borrower been the surviving person of a merger or consolidation or acquired all or substantially all of the assets of any Person during the preceding five (5) years.

 

5.7.           O.S.H.A. and Environmental Compliance.

 

(a)           Except as set forth on Schedule 5.7, each Borrower has duly complied in all material respects with, and its facilities, business, assets, property, leaseholds, Real Property and Equipment are in compliance in all material respects with, the provisions of the Federal Occupational Safety and Health Act, the Environmental Protection Act, RCRA and all other Environmental Laws; there have been no outstanding citations, notices or orders of non-compliance issued to any Borrower or relating to its business, assets, property, leaseholds or Equipment under any such laws, rules or regulations.

 

(b)           Each Borrower has been issued all required federal, state and local licenses, certificates or permits relating to all applicable Environmental Laws.

 

(c)           Except as set forth on Schedule 5.7, to Borrowers’ knowledge, (i) there are no visible signs of releases, spills, discharges, leaks or disposal (collectively referred to as “Releases”) of Hazardous Substances at, upon, under or within any Real Property; (ii) there are no underground storage tanks or polychlorinated biphenyls on the Real Property; (iii) the Real Property has never been used as a treatment, storage or disposal facility of Hazardous Waste; and (iv) no Hazardous Substances are present on the Real Property, excepting such quantities as are handled in accordance with all applicable manufacturer’s instructions and governmental regulations and in proper storage containers and as are necessary for the operation of the commercial business of any Borrower.

 

5.8.           Solvency; No Litigation, Violation, Indebtedness or Default.

 

(a)           After giving effect to the Transactions, each Borrower is solvent, able to pay its debts as they mature, has capital sufficient to carry on its business and all businesses in which it is about to engage, and (i) as of the Closing Date, the fair present saleable value of its assets, calculated on a going concern basis, is in excess of the amount of its liabilities and (ii) subsequent to the Closing Date, the fair saleable value of its assets (calculated on a going concern basis) will be in excess of the amount of its liabilities.

 

(b)           Except as disclosed in Schedule 5.8(b), no Borrower has (i) any pending or to any Borrower’s knowledge, threatened litigation, arbitration, actions or proceedings which could reasonably be expected to have a Material Adverse Effect, and (ii) as of the Closing Date any liabilities or Indebtedness for borrowed money or Capitalized Lease Obligations, other than the Obligations.

 

  

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(c)           No Borrower is in violation of any Applicable Law in any respect which could reasonably be expected to have a Material Adverse Effect nor is any Borrower in violation of any material order of any court, Governmental Body or arbitration board or tribunal.

 

(d)           Except as disclosed in Schedule 5.8(d), (i) no Plan has incurred any “accumulated funding deficiency,” as defined in Section 302(a)(2) of ERISA and Section 412(a) of the Code, whether or not waived, and each Borrower and each member of the Controlled Group has met all applicable minimum funding requirements under Section 302 of ERISA in respect of each Plan; (ii) each Plan which is intended to be a qualified plan under Section 401(a) of the Code as currently in effect has been determined by the Internal Revenue Service to be qualified under Section 401(a) of the Code and the trust related thereto is exempt from federal income tax under Section 501(a) of the Code; (iii) neither any Borrower nor any member of the Controlled Group has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due which are unpaid; (iv) no Plan has been terminated by the plan administrator thereof nor by the PBGC, and there is no occurrence which would cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Plan; (v) at this time, the current value of the assets of each Plan exceeds the present value of the accrued benefits and other liabilities of such Plan and neither any Borrower nor any member of the Controlled Group knows of any facts or circumstances which would materially change the value of such assets and accrued benefits and other liabilities; (vi) neither any Borrower nor any member of the Controlled Group has breached any of the responsibilities, obligations or duties imposed on it by ERISA with respect to any Plan; (vii) neither any Borrower nor any member of a Controlled Group has incurred any liability for any excise tax arising under Section 4972 or 4980B of the Code, and no fact exists which could give rise to any such liability; (viii) neither any Borrower nor any member of the Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has engaged in a “prohibited transaction” described in Section 406 of the ERISA or Section 4975 of the Code nor taken any action which would constitute or result in a Termination Event with respect to any such Plan which is subject to ERISA; (ix) each Borrower and each member of the Controlled Group has made all contributions due and payable with respect to each Plan; (x) there exists no event described in Section 4043(b) of ERISA, for which the thirty (30) day notice period has not been waived; (xi) neither any Borrower nor any member of the Controlled Group has any fiduciary responsibility for investments with respect to any plan existing for the benefit of persons other than employees or former employees of any Borrower and any member of the Controlled Group; (xii) neither any Borrower nor any member of the Controlled Group maintains or contributes to any Plan which provides health, accident or life insurance benefits to former employees, their spouses or dependents, other than in accordance with Section 4980B of the Code; (xiii) neither any Borrower nor any member of the Controlled Group has withdrawn, completely or partially, from any Multiemployer Plan so as to incur liability under the Multiemployer Pension Plan Amendments Act of 1980 and there exists no fact which would reasonably be expected to result in any such liability; and (xiv) no Plan fiduciary (as defined in Section 3(21) of ERISA) has any liability for breach of fiduciary duty or for any failure in connection with the administration or investment of the assets of a Plan.

 

  

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5.9.           Patents, Trademarks, Copyrights and Licenses.  Each Borrower, to its knowledge, owns or has the right to use all of the Intellectual Property set forth on Schedule 5.9, which constitutes all of the Intellectual Property that is reasonably necessary for the operation of its business; there is pending challenge to, or to Borrower's knowledge, objection to the validity of any such Intellectual Property and except as set forth in Schedule 5.9 hereto, no Borrower is aware of any grounds for any challenge which could reasonably be expected to have a Material Adverse Effect.  Each patent, patent application, patent license, trademark, trademark application, trademark license, service mark, service mark application, service mark license, design rights, copyright, copyright application and copyright license material to any Borrower’s business, and all trade secrets material to any Borrower’s business, consist of original material or property developed by such Borrower or was lawfully acquired by such Borrower from the proper and lawful owner thereof.  Each of such items has been maintained so as to preserve the value thereof from the date of creation or acquisition thereof.

 

5.10.           Licenses and Permits.  Except as disclosed in Schedule 5.10, each Borrower (a) is in compliance in all material respects with, and (b) has procured and is now in possession of, all material licenses or permits required by any Applicable Law for the operation of its business in each jurisdiction wherein it is now conducting or proposes to conduct business.

 

5.11.           Default of Indebtedness.  No Borrower is in default in the payment of the principal of or interest on any Indebtedness or under any instrument or agreement under or subject to which any Indebtedness has been issued and no other default (which has not been cured within any applicable grace and/or cure periods or, with respect to any failure to comply with Section 8.14(a) of the NewSpring/Peachtree Loan Agreement for the fiscal period ending November 30, 2011, such failure is not subject to receipt of a written waiver from NewSpring on or prior to February 15, 2012) has occurred under the provisions of any such instrument or agreement.

 

5.12.           No Default.  No Borrower is in default in the payment or performance of any of its contractual obligations which could reasonably be expected to have a Material Adverse Effect and no Default has occurred and is continuing.

 

5.13.           No Burdensome Restrictions.  No Borrower is party to any contract or agreement the performance of which could reasonably be expected to have a Material Adverse Effect.  Each Borrower has heretofore delivered to Agent true and complete copies of all Material Contracts to which it is a party or to which it or any of its properties is subject.  No Borrower has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien which is not a Permitted Encumbrance.

 

5.14.           No Labor Disputes.  No Borrower is involved in any labor dispute; there are no strikes or walkouts or union organization of any Borrower’s employees threatened or in existence which could reasonably be expected to have a Material Adverse Effect and as of the Closing Date no labor contract is scheduled to expire during the Term other than as set forth on Schedule 5.14 hereto.

 

  

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5.15.           Margin Regulations.  No Borrower is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect.  No part of the proceeds of any Advance will be used for “purchasing” or “carrying” “margin stock” as defined in Regulation U of such Board of Governors.

 

5.16.           Investment Company Act.  No Borrower is an “investment company” registered or required to be registered under the Investment Company Act of 1940, as amended, nor is it controlled by such a company.

 

5.17.           Disclosure.  No representation or warranty made by any Borrower in this Agreement, the Subordinated Loan Documentation or in any financial statement, report, certificate or any other document furnished in connection herewith contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.  There is no fact known to any Borrower which such Borrower has not disclosed to Agent in writing with respect to the transactions contemplated by this Agreement or the Subordinated Loan Documentation which could reasonably be expected to have a Material Adverse Effect.

 

5.18.           Delivery of Subordinated Loan Documentation.  Agent has received complete copies of the Subordinated Loan Documentation (including all exhibits, schedules and disclosure letters, if any) and all amendments thereto, waivers relating thereto and other side letters or agreements affecting the terms thereof.  None of such documents and agreements has been amended or supplemented, nor have any of the provisions thereof been waived, except pursuant to a written agreement or instrument which has heretofore been delivered to Agent.

 

5.19.           Swaps.  No Borrower is a party to, nor will it be a party to, any swap agreement whereby such Borrower has agreed or will agree to swap interest rates or currencies unless same provides that damages upon termination following an event of default thereunder are payable on an unlimited “two-way basis” without regard to fault on the part of either party.

 

5.20.           Conflicting Agreements.  No provision of any mortgage, indenture, contract, agreement, judgment, decree or order binding on any Borrower (including any of the Subordinated Loan Documentation) or affecting the Collateral conflicts with, or requires any Consent which has not already been obtained to, or would in any way prevent the execution, delivery or performance of, the terms of this Agreement or the Other Documents.

 

5.21.           Application of Certain Laws and Regulations.  Neither any Borrower nor any Affiliate of any Borrower is subject to any Applicable Law, which regulates the incurrence of any Indebtedness, including laws, statutes, rules or regulations relative to common or interstate carriers or to the sale of electricity, gas, steam, water, telephone, telegraph or other public utility services.

 

  

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5.22.           Business and Property of Borrowers.  Upon and after the Closing Date, Borrowers do not propose to engage in any businesses other than as information technology systems integrators, providing consulting, staffing application services and infrastructures solutions and businesses reasonably related thereto, and activities necessary to conduct the foregoing.  On the Closing Date, each Borrower will own all the property and possess all of the rights and Consents necessary for the conduct of the business of such Borrower.

 

5.23.           Section 20 Subsidiaries.  Borrowers do not intend to use and shall not use any portion of the proceeds of the Advances, directly or indirectly, to purchase during the underwriting period, or for thirty (30) days thereafter, Ineligible Securities being underwritten by a Section 20 Subsidiary.

 

5.24.           Anti-Terrorism Laws.

 

(a)           General.  Neither any Borrower nor, to Borrowers’ knowledge, any Affiliate of any Borrower is in violation of any Anti-Terrorism Law or engages in or conspires to engage in any transaction  that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.

 

(b)           Executive Order No. 13224.  Neither any Borrower nor, to Borrowers’ knowledge, any Affiliate of any Borrower or their respective agents acting or benefiting in any capacity in connection with the Advances or other transactions hereunder, is any of the following (each a “Blocked Person”):

 

(i)           a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

 

(ii)           a Person owned or  controlled  by, or acting for or on behalf  of,  any  Person  that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224;

 

(iii)           a Person or entity with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;

 

(iv)           a Person or entity that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order No. 13224;

 

(v)           a Person or entity that is named as a “specially designated national” on the most current list published by the U.S. Treasury Department Office of Foreign Asset Control at its official website or any replacement website or other replacement official publication of such list, or

 

(vi)           a Person or entity who is affiliated or associated with a Person or entity listed above.

 

Neither any Borrower nor to the knowledge of any Borrower, any of its agents acting in any capacity in connection with the Advances or other transactions hereunder (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property  blocked  pursuant to the Executive Order No. 13224.

 

  

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5.25.           Trading with the Enemy.  No Borrower has engaged, nor does it intend to engage, in any business or activity prohibited by the Trading with the Enemy Act.

 

5.26.           Foreign Subsidiaries.  (a) The only direct and indirect Foreign Subsidiaries of any Borrower as of the Closing Date consist of (i) MauritiusCo, (ii) Emtec India, (iii) Covelix India and (iv) Emtec Canada; (b) MauritiusCo does not and will not conduct any business other than the business of acting as an intermediate foreign holding company owning all of the Equity Interests of Emtec India and MauritiusCo does not and will not have any assets other than the Equity Interests of Emtec India (c) the current and issued and outstanding Equity Interests in MauritiusCo as of the Closing Date consists of 567,798 shares of common stock issued to Global, (d) Emtec India does not and will not conduct any business other than the business of providing back office support, IT products, services and consulting to Global and the other Borrowers and their direct and indirect Subsidiaries and also directly to third party clients, (e) the current and issued and outstanding Equity Interests in Emtec India as of the Closing Date consists of 112,956 shares of common stock issued to MauritiusCo and one (1) share issued to Global, (f) the current and issued and outstanding Capital Stock in Covelix India as of the Closing Date consists of 9,999 shares of common stock issued to Covelix and one (1) share of common stock issued to Global; and (g) Emtec Canada is involved in and conducts businesses substantially similar to those conducted by Borrowers and (h) the current and issued and outstanding Capital Stock of Emtec Canada as of the Closing Date consists of 10,000 common shares issued to Infrastructure.

 

5.27.           Equity Interests. The authorized and outstanding Equity Interests of each Borrower as of the Closing Date is as set forth on Schedule 5.27 hereto.  All of the Equity Interests of each Borrower has been duly and validly authorized and issued and is fully paid and non-assessable and has been sold and delivered to the holders hereof in compliance with, or under valid exemption from, all federal and state laws and the rules and regulations of each Governmental Body governing the sale and delivery of securities.  Except for the rights and obligations set forth on Schedule 5.27, as of the Closing Date, there are no subscriptions, warrants, options, calls, commitments, rights or agreement by which any Borrower or any of the shareholders of any Borrower is bound relating to the issuance, transfer, voting or redemption of shares of its Equity Interests or any pre-emptive rights held by any Person with respect to the Equity Interests of Borrowers.  Except as set forth on Schedule 5.27, as of the Closing Date, Borrowers have not issued any securities convertible into or exchangeable for shares of its Equity Interests or any options, warrants or other rights to acquire such shares or securities convertible into or exchangeable for such shares.

 

5.28.           Commercial Tort Claims.  As of the Closing Date, no Borrower is a party to any commercial tort claims.

 

5.29.           Letter of Credit Rights:  As of the Closing Date, no Borrower has any letter of credit rights.

 

  

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VI.           AFFIRMATIVE COVENANTS.

 

Each Borrower shall, until payment in full of the Obligations and termination of this Agreement:

 

6.1.           Payment of Fees.  Pay to Agent on demand all usual and customary fees and expenses which Agent incurs in connection with (a) the forwarding of Advance proceeds, (b) the establishment and maintenance of any Blocked Accounts or Depository Accounts as provided for in Section 4.15(h) hereof and (c) any costs incurred by Agent under Section 4.21 hereof.  Agent may, without making demand, charge Borrowers’ Account for all such fees and expenses.

 

6.2.           Conduct of Business and Maintenance of Existence and Assets.  (a) Conduct continuously and operate actively its business according to sound business practices and maintain all of its properties necessary in its business in good working order and condition (reasonable wear and tear excepted and except as may be disposed of in accordance with the terms of this Agreement), including all licenses, patents, copyrights, design rights, tradenames, trade secrets and trademarks necessary in its business and take all actions necessary to enforce and protect the validity of any intellectual property right or other right included in the Collateral except for licenses, patents, copyrights, design rights, tradenames, trade secrets and trademarks reasonably deemed by a Borrower no longer useful in such Borrower’s business; (b) keep in full force and effect its existence and comply in all material respects with the laws and regulations governing the conduct of its business where the failure to do so could reasonably be expected to have a Material Adverse Effect; and (c) make all such reports and pay all such franchise and other taxes and license fees and do all such other acts and things as may be lawfully required to maintain its rights, licenses, leases, powers and franchises under the laws of the United States or any political subdivision thereof where the failure to do so could reasonably be expected to have a Material Adverse Effect, except for any reports, taxes, fees and acts that are being Properly Contested.

 

6.3.           Violations.  Promptly notify Agent in writing of any violation of any law, statute, regulation or ordinance of any Governmental Body, or of any agency thereof, applicable to any Borrower which could reasonably be expected to have a Material Adverse Effect.

 

6.4.           Government Receivables.  Take all steps reasonably requested by Agent and necessary to protect Agent’s interest in the Collateral under the Federal Assignment of Claims Act, the Uniform Commercial Code and all other applicable state or local statutes or ordinances and deliver to Agent appropriately endorsed, any instrument or chattel paper connected with any Receivable arising out of contracts between any Borrower and the United States, any state or any department, agency or instrumentality of any of them.

 

6.5.           Financial Covenants.

 

(a)           Fixed Charge Coverage Ratio.  Cause to be maintained as of the end of each fiscal quarter, commencing with the fiscal quarter ending February 29, 2012, a Fixed Charge Coverage Ratio of not less than 1.2 to 1.0.  The Fixed Charge Coverage Ratio shall be measured as of each fiscal quarter end on a rolling four (4) quarter basis; provided that (a) for the testing period ending February 29, 2012, the Fixed Charge Coverage Ratio shall be measured on the basis of the two (2) consecutive fiscal quarters then ending; and (b) for the testing period ending May 31, 2012, the Fixed Charge Coverage Ratio shall be measured on the basis of the three (3) consecutive fiscal quarters then ending.

 

  

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6.6.           Execution of Supplemental Instruments.  Execute and deliver to Agent from time to time, upon demand, such supplemental agreements, statements, assignments and transfers, or instructions or documents relating to the Collateral, and such other instruments as Agent may request, in order that the full intent of this Agreement may be carried into effect.

 

6.7.           Payment of Indebtedness.  Pay, discharge or otherwise satisfy at or before maturity (subject, where applicable, to specified grace periods and, in the case of the trade payables, to normal payment practices) all its obligations and liabilities of whatever nature, except when the failure to do so could not reasonably be expected to have a Material Adverse Effect or when the amount or validity thereof is currently being contested in good faith by appropriate proceedings and each Borrower shall have provided for such reserves as Agent may reasonably deem proper and necessary, subject at all times to any applicable subordination arrangement in favor of Lenders.

 

6.8.           Standards of Financial Statements.  Cause all financial statements referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 and 9.13 as to which GAAP is applicable to be complete and correct in all material respects (subject, in the case of interim financial statements, to normal year-end audit adjustments and the absence of footnotes) and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein (except as concurred in by such reporting accountants or officer, as the case may be, and disclosed therein).

 

6.9.           Federal Securities Laws.  Promptly notify Agent in writing if any Borrower or any of its Subsidiaries (a) registers any additional classes of securities under the Exchange Act or (b) files a registration statement under the Securities Act, other than a registration statements relating to issuances of securities to employees on Form S-8.

 

6.10.           Exercise of Rights.  In the exercise of its reasonable business judgment, enforce all of its rights under any acquisition agreement executed in connection with any acquisition permitted by Required Lenders, including, but not limited to, all indemnification rights and pursue all remedies available to it with diligence and in good faith in connection with the enforcement of any such rights.

 

6.11.           Post Closing.  Use commercially reasonably efforts to deliver to Agent within forty-five (45) days following the Closing Date, a Lien Waiver Agreement, in form and substance reasonably satisfactory to Agent, with respect to all premises leased by Borrowers at which Inventory and books and records are located.

 

  

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VII.           NEGATIVE COVENANTS.

 

No Borrower shall, until satisfaction in full of the Obligations and termination of this Agreement:

 

7.1.           Merger, Consolidation, Acquisition and Sale of Assets.

 

(a)           Enter into any merger, consolidation or other reorganization with or into any other Person or acquire all or a substantial portion of the assets or Equity Interests of any Person or permit any other Person to consolidate with or merge with it, except that a Borrower may merge into or consolidate with another Borrower or any Subsidiary, as long as a Borrower is the surviving Person (and with respect to any merger or consolidation involving Emtec DE, as long as Emtec DE is the surviving Person).

 

(b)           Sell, lease, transfer or otherwise dispose of any of its properties or assets, except (i) dispositions of Inventory and Equipment to the extent expressly permitted by Section 4.3, (ii) providing Emerging Cloud has been joined as a Borrower hereunder (A) the transfer by Gnuco to Emerging Cloud of all of its assets and liabilities relating to its cloud computing practice and (B) the sale by Emerging Cloud of up to twenty percent (20%) of its membership interests to the Gnuco Sellers and up to ten percent (10%) of its membership interests to its management and (iii) any other sales or dispositions expressly permitted by this Agreement.

 

7.2.           Creation of Liens.  Create or suffer to exist any Lien or transfer upon or against any of its property or assets now owned or hereafter acquired, except Permitted Encumbrances.

 

7.3.           Guarantees.  Become liable upon the obligations or liabilities of any Person by assumption, endorsement or guaranty thereof or otherwise (other than to Lenders) except (a) as disclosed on Schedule 7.3, (b) guarantees of a Borrower in respect of Indebtedness otherwise permitted hereunder of any other Borrower, and (c) the endorsement of checks in the Ordinary Course of Business.

 

7.4.           Investments.  Purchase or acquire obligations or Equity Interests of, or any other interest in, any Person, except (a) obligations issued or guaranteed by the United States of America or any agency thereof, (b) commercial paper with maturities of not more than one hundred eighty (180) days and a published rating of not less than A-1 or P-1 (or the equivalent rating), (c) certificates of deposit, overnight time deposits, bankers acceptances and other “money market instruments” having maturities of not more than one hundred eighty (180) days, issued by any bank or trust company organized under the laws of the United States of America or any State thereof and (x) whose deposits are insured by the Federal Deposit Insurance Corporation or (y) having capital and surplus in an aggregate amount of not less than One Hundred Million Dollars ($100,000,000), (d) repurchase agreements backed by United States government securities of a commercial bank if (i) such bank has a combined capital and surplus of at least One Hundred Million Dollars ($100,000,000) or (ii) its debt obligations, or those of a holding company of which it is a Subsidiary, are rated not less than A (or the equivalent rating) by a nationally recognized investment rating agency, (d) shares of money market funds, each having net assets of not less than One Hundred Million Dollars ($100,000,000), (e) advances, loans or extensions or credit permitted by Section 7.5 below, (f) obligations or Equity Interests of, or any other interest in, another Borrower, (g) provided no Default or Event of Default is then continuing, investments of up to Three Hundred Thousand Dollars ($300,000) in any fiscal year throughout the Term to any one or more Foreign Subsidiaries (other than Emtec Canada as permitted by Section 7.5 hereof), any of which are in existence as of the Closing Date that is a direct Subsidiary of a Borrower (whether as capital contributions, intercompany loans and/or such other transactions as a Borrower may elect in its discretion) to be used either directly by such direct Foreign Subsidiary and/or indirectly by any other Foreign Subsidiary after the further transfer thereof from such direct Foreign Subsidiary to such indirect Foreign Subsidiary, but only to the extent that prior to making any such transfer, such Borrower shall give Agent prior written notice thereof, which such notice shall include the amount of such transfer and a reasonably detailed description of the purpose of such transfer, and (h) investments existing on the date hereof and set forth on Schedule 7.4.

 

  

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7.5.           Loans.  Make advances, loans or extensions of credit to any Person, including any Parent, Subsidiary or Affiliate except with respect to (a) the extension of commercial trade credit in connection with the sale of Inventory in the Ordinary Course of Business, (b) loans to its employees in the Ordinary Course of Business not to exceed the aggregate amount of Two Hundred Fifty Thousand Dollars ($250,000) at any time outstanding, (c) prior to any time Emtec Canada becomes a Borrower hereunder, advances, loans or extensions of credit to Emtec Canada in an amount not to exceed the sum of (i) any amounts advanced on the Closing Date to repay Indebtedness under the Existing Floor Plan Agreement and (ii) an additional Two Hundred Fifty Thousand Dollars ($250,000) at any one time outstanding, and (d) advances, loans or extensions of credit to another Borrower.

 

7.6.           Capital Expenditures.  Contract for, purchase or make any expenditure or commitments for Capital Expenditures in any fiscal year in an aggregate amount for all Borrowers in excess of Two Million Dollars ($2,000,000).

 

7.7.           Dividends and Distributions.  Make or cause to be made any distribution of cash, securities or other property of such Borrower to any of its shareholders or members, whether such distribution would be characterized as a dividend or otherwise (other than distributions payable in its stock, or split-ups or reclassifications of its stock) other than (a) distributions to a Borrower, (b) payments to employees that are shareholders or members of a Borrower or a Subsidiary thereof of wages, salary and bonuses in the Ordinary Course of Business, and (c) provided no Default or Event of Default is then continuing, payments by Emerging Cloud to its members to the extent necessary to enable the members of Emerging Cloud to pay their respective federal, state and local income tax liability arising solely out of their membership in Emerging Cloud (assuming for such purpose that such members are taxed at the highest applicable combined federal and state income tax rate).

 

7.8.           Indebtedness.  Create, incur, assume or suffer to exist any Indebtedness (exclusive of trade debt) except in respect of (a) Indebtedness to Lenders, (b) Indebtedness incurred for Capital Expenditures permitted under Section 7.6 hereof, (c) Indebtedness due under the Subordinated Loan Documentation, (d) except as permitted under Section 7.4 or Section 7.5 hereof, including Indebtedness owed to another Borrower, and (e) Indebtedness disclosed on Schedule 5.8.

 

7.9.           Nature of Business.  Substantially change the nature of the business in which it is presently engaged in any manner nor, except as specifically permitted hereby, purchase or invest, directly or indirectly, in any assets or property, other than in the Ordinary Course of Business, for assets or property which are necessary for, and are to be used in, its business as presently conducted.

 

  

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7.10.           Transactions with Affiliates.  Directly or indirectly, purchase, acquire or lease any property from, or sell, transfer or lease any property to, or otherwise enter into any transaction or deal with, any Affiliate, except transactions which are in the Ordinary Course of Business, on an arm’s-length basis on terms and conditions no less favorable than terms and conditions which would have been obtainable from a Person other than an Affiliates.

 

7.11.           Leases.  Enter as lessee into any lease arrangement for real or personal property (unless capitalized and permitted under Section 7.6 hereof) if after giving effect thereto, aggregate annual rental payments for all leased property would exceed Three Million Dollars ($3,000,000) in any one fiscal year in the aggregate for all Borrowers.

 

7.12.           Subsidiaries; Emtec Canada.

 

(a)           Form any Subsidiary unless (i) such Subsidiary expressly joins in this Agreement as a borrower and becomes jointly and severally liable for the Obligations of Borrowers hereunder, under the Notes, and under any Other Document between any Borrower and Lenders and grants Agent, for the ratable benefit of Lenders, a security interest in all its Collateral subject to no Lien other than a Permitted Lien including a pledge of any Subsidiary Stock and (ii) Agent shall have received all documents, including legal opinions, it may reasonably require to establish compliance with each of the foregoing conditions including such items required under Section 8.1 of this Agreement as are customary.

 

(b)           Enter into any partnership, joint venture or similar arrangement, provided that Gnuco may enter into such a limited liability company agreement, in form and substance reasonably satisfactory to Agent, with the other members of Emerging Cloud in connection with the establishment of Emerging Cloud in accordance with the requirements of Section 7.12(a).

 

(c)           Emtec Canada may join in as a Borrower hereunder provided that Emtec Canada expressly joins in this Agreement as a borrower and becomes jointly and severally liable for the Obligations of Borrowers hereunder, under the Notes, and under any Other Document between any Borrower and Lenders and grants Agent, for the ratable benefit of Lenders, a security interest in all its Collateral subject to no Lien other than a Permitted Lien including a pledge of any Subsidiary Stock and (ii) Agent shall have received all documents, including legal opinions, it may reasonably require to establish compliance with each of the foregoing conditions including such items required under Section 8.1 of this Agreement as are customary.

 

7.13.           Fiscal Year and Accounting Changes.  Change its fiscal year from August 31 or make any significant change (a) in accounting treatment and reporting practices except as required by GAAP or (b) in tax reporting treatment except as required by Applicable Law.

 

7.14.           Pledge of Credit.  Now or hereafter pledge Agent’s or any Lender’s credit on any purchases or for any purpose whatsoever or use any portion of any Advance in or for any business other than such Borrower’s business as conducted on the date of this Agreement.

 

7.15.           Amendment of Organizational Documents.  Amend, modify or waive any material term or provision of its applicable Organizational Documents in a manner adverse to Lenders unless required by Applicable Law.

 

  

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7.16.           Compliance with ERISA.  (a) (i) Maintain, or permit any member of the Controlled Group to maintain, or (ii) become obligated to contribute, or permit any member of the Controlled Group to become obligated to contribute, to any Plan, other than any Plan for which Agent has provided its prior written consent, (b) engage, or permit any member of the Controlled Group to engage, in any non-exempt “prohibited transaction”, as that term is defined in section 406 of ERISA and Section 4975 of the Code, (c) incur, or permit any member of the Controlled Group to incur, any “accumulated funding deficiency”, as that term is defined in Section 302 of ERISA or Section 412 of the Code, (d) terminate, or permit any member of the Controlled Group to terminate, any Plan where such event could result in any liability of any Borrower or any member of the Controlled Group or the imposition of a lien on the property of any Borrower or any member of the Controlled Group pursuant to Section 4068 of ERISA, (e) assume, or permit any member of the Controlled Group to assume, any obligation to contribute to any Multiemployer Plan not in existence on the Closing Date, (f) incur, or permit any member of the Controlled Group to incur, any withdrawal liability to any Multiemployer Plan; (g) fail promptly to notify Agent of the occurrence of any Termination Event, (h) fail to comply, or permit a member of the Controlled Group to fail to comply, with the requirements of ERISA or the Code or other Applicable Laws in respect of any Plan or (i) fail to meet, or permit any member of the Controlled Group to fail to meet, all minimum funding requirements under ERISA or the Code or postpone or delay or allow any member of the Controlled Group to postpone or delay any funding requirement with respect of any Plan.

 

7.17.           Prepayment of Indebtedness.  Except as permitted pursuant to Section 7.21 hereof, at any time, directly or indirectly, prepay any Indebtedness (other than to Lenders), or repurchase, redeem, retire or otherwise acquire any Indebtedness of any Borrower.

 

7.18.           Anti-Terrorism Laws.  No Borrower shall, until satisfaction in full of the Obligations and termination of this Agreement, nor shall it permit any Subsidiary to:

 

(a)           Conduct any business or engage in any transaction or dealing with any Blocked Person, including the making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person.

 

(b)           Deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.

 

(c)           Engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order No. 13224, the USA PATRIOT Act or any other Anti-Terrorism Law.  Borrower shall deliver to Lenders any certification or other evidence requested from time to time by any Lender in its sole discretion, confirming Borrower’s compliance with this Section.

 

7.19.           Membership/Partnership Interests.  Elect to treat or permit any of its Subsidiaries to (a) treat its limited liability company membership interests or partnership interests, as the case may be, as securities as contemplated by the definition of “security” in Section 8-102(15) and by Section 8-103 of Article 8 of Uniform Commercial Code or (b) certificate its limited liability company membership interests or partnership interests, as the case may be.

 

  

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7.20.           Trading with the Enemy Act.  Engage in any business or activity in violation of the Trading with the Enemy Act.

 

7.21.           Subordinated Debt.  At any time, directly or indirectly, pay, prepay, repurchase, redeem, retire or otherwise acquire, or make any payment on account of any principal of, interest on or premium payable in connection with the repayment or redemption of any Subordinated Debt, except as expressly permitted in any applicable Subordination Agreement.

 

7.22.           Other Agreements.  Enter into any material amendment, waiver or modification of any acquisition agreement, the Subordinated Loan Documentation (except as permitted by the NewSpring/Peachtree Subordination Agreement), and agreement related to Earn Out Payments, bonus, retention or other performance based agreements or any related agreements.

 

7.23.           Earn Out Payments.  At any time, make any Earn Out Payments or cash payments on account of other bonus, retention or similar performance based agreements, except with respect to bonuses for employees in the Ordinary Course of Business, unless Borrowers shall have certified in writing to Agent that after giving effect to such payment (a) no Default or Event of Default exists and (b) on the date of any such payment, Borrowers shall have an average Undrawn Availability for the immediately preceding thirty (30) days of no less than Two Million Dollars ($2,000,000).

 

VIII.           CONDITIONS PRECEDENT.

 

8.1.           Conditions to Initial Advances.  The agreement of Lenders to make the initial Advances requested to be made on the Closing Date is subject to the satisfaction, or waiver by Agent, immediately prior to or concurrently with the making of such Advances, of the following conditions precedent:

 

(a)           Note.  Agent shall have received the Notes duly executed and delivered by an authorized officer of each Borrower;

 

(b)           Filings, Registrations and Recordings.  Each document (including any Uniform Commercial Code financing statement) required by this Agreement, any related agreement or under law or reasonably requested by Agent to be filed, registered or recorded in order to create, in favor of Agent, a perfected security interest in or lien upon the Collateral shall have been properly filed, registered or recorded in each jurisdiction in which the filing, registration or recordation thereof is so required  or requested, and Agent shall have received an acknowledgment copy, or other evidence satisfactory to it, of each such filing, registration or recordation and satisfactory evidence of the payment of any necessary fee, tax or expense relating thereto;

 

(c)           Proceedings of Borrowers.  Agent shall have received a copy of the resolutions in form and substance reasonably satisfactory to Agent, of the Board of Directors or Managers of each Borrower authorizing (i) the execution, delivery and performance of this Agreement and the Other Documents, and (ii) the granting by each Borrower of the security interests in and liens upon the Collateral in each case certified by the Secretary or an Assistant Secretary of each Borrower as of the Closing Date; and, such certificate shall state that the resolutions thereby certified have not been amended, modified, revoked or rescinded as of the date of such certificate;

 

  

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(d)           Incumbency Certificates of Borrowers.  Agent shall have received a certificate of the Secretary or an Assistant Secretary of each Borrower, dated the Closing Date, as to the incumbency and signature of the officers of each Borrower executing this Agreement, the Other Documents, any certificate or other documents to be delivered by it pursuant hereto, together with evidence of the incumbency of such Secretary or Assistant Secretary;

 

(e)           Certificates.  Agent shall have received a copy of the Organizational Documents of each Borrower and all amendments thereto, certified as applicable by the Secretary of State or other appropriate official of its jurisdiction of incorporation or formation;

 

(f)           Good Standing Certificates.  Agent shall have received good standing certificates for each Borrower dated not more than thirty (30) days prior to the Closing Date, issued by the Secretary of State or other appropriate official of each Borrower’s jurisdiction of incorporation and each jurisdiction in which qualification and good standing are necessary for such Borrower to conduct its business and own its property and where the failure to so qualify could reasonably be expected to have a Material Adverse Effect on such Borrower;

 

(g)           Legal Opinion.  Agent shall have received the executed legal opinion of Dechert LLP in form and substance satisfactory to Agent which shall cover such matters incident to the transactions contemplated by this Agreement and the Other Documents, and related agreements as Agent may reasonably require and each Borrower hereby authorizes and directs such counsel to deliver such opinions to Agent and Lenders;

 

(h)           No Litigation.  (i) No litigation, investigation or proceeding before or by any arbitrator or Governmental Body shall be continuing or threatened against any Borrower or against the officers, directors or managers of any Borrower (A) in connection with this Agreement, the Other Documents, the Subordinated Loan Documentation or any of the transactions contemplated hereby or thereby and which, in the reasonable opinion of Agent, is deemed material or (B) which could, in the reasonable opinion of Agent, have a Material Adverse Effect; and (ii) no injunction, writ, restraining order or other order of any nature materially adverse to any Borrower or the conduct of its business or inconsistent with the due consummation of the Transactions shall have been issued by any Governmental Body;

 

(i)           Financial Condition Certificate.  Agent shall have received an executed Financial Condition Certificate in the form of Exhibit 8.1(k).

 

(j)           Collateral Examination.  Agent shall have completed Collateral examinations, the results of which shall be satisfactory in form and substance to Lenders, of the Receivables, Inventory, General Intangibles, Leasehold Interests and Equipment of each Borrower and all books and records in connection therewith;

 

(k)           Fees.  Agent shall have received all fees payable to Agent and Lenders on or prior to the Closing Date hereunder, including pursuant to Article III hereof;

 

  

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(l)           Pro Forma Financial Statements.  Agent shall have received a copy of the Pro Forma Financial Statements which shall be satisfactory in all respects to Lenders;

 

(m)           Subordinated Loan Documents.  Agent shall have received final executed copies of the Subordinated Loan Documentation, and all related agreements, documents and instruments as in effect on the Closing Date all of which shall be satisfactory in form and substance to Agent and the transactions contemplated by such documentation shall be consummated prior to or simultaneously with the making of the initial Advance including, without limitation, the receipt by Borrowers of the proceeds of the Peachtree Subordinated Debt in the amount of Three Million Dollars ($3,000,000);

 

(n)           Subordination Agreements.  Agent shall have entered into the NewSpring/Peachtree Subordination Agreement with Borrowers, NewSpring, Peachtree and Subordinated Collateral Agent, which shall be satisfactory in form and substance to Agent in its sole discretion;

 

(o)           Insurance.  Agent shall have received in form and substance satisfactory to Agent, certificates of Borrowers’ casualty insurance showing Agent as lender loss payee, and certificates of Borrowers’ liability insurance policies, showing Agent as an additional insured all in accordance with the requirements of Section 4.11;

 

(p)           Payment Instructions.  Agent shall have received written instructions from Borrowing Agent directing the application of proceeds of the initial Advances made pursuant to this Agreement;

 

(q)           Blocked Accounts.  Agent shall have received duly executed agreements establishing the Blocked Accounts or Depository Accounts (as applicable) with financial institutions acceptable to Agent for the collection or servicing of the Receivables and proceeds of the Collateral;

 

(r)           Consents.  Agent shall have received any and all Consents necessary to permit the effectuation of the transactions contemplated by this Agreement and the Other Documents; and, Agent shall have received such Consents and waivers of such third parties as might assert claims with respect to the Collateral, as Agent and its counsel shall deem necessary;

 

(s)           No Adverse Material Change.  (i) since August 31, 2011, there shall not have occurred any event, condition or state of facts which could reasonably be expected to have a Material Adverse Effect and (ii) no representations made or information supplied to Agent or Lenders shall have been proven to be inaccurate or misleading in any material respect;

 

(t)           reserved;

 

(u)           Other Documents.  Agent shall have received the executed Other Documents, all in form and substance satisfactory to Agent;

 

(v)           Contract Review.  Agent shall have reviewed all material contracts of Borrowers including leases, federal government contracts, union contracts, labor contracts, vendor supply contracts, license agreements and distributorship agreements and such contracts and agreements shall be satisfactory in all respects to Agent;

 

  

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(w)           Closing Certificate.  Agent shall have received a closing certificate signed by the President, Chief Financial Officer, Chief Executive Officer or Chairman of each Borrower dated as of the date hereof, stating that (i) all representations and warranties set forth in this Agreement and the Other Documents are true and correct on and as of such date, (ii) Borrowers are on such date in compliance with all the terms and provisions set forth in this Agreement and the Other Documents and (iii) on such date no Default or Event of Default has occurred or is continuing;

 

(x)           Borrowing Base.  Agent shall have received evidence from Borrowers that the Formula Amount is sufficient in value and amount to support Advances in the amount requested by Borrowers on the Closing Date;

 

(y)           Undrawn Availability.  After giving effect to the initial Advances hereunder, Borrowers shall have Undrawn Availability of at least Three Million Dollars ($3,000,000);

 

(z)           Compliance with Laws.  Agent shall be reasonably satisfied that each Borrower is in compliance with all Applicable Laws, including those with respect to the Federal Occupational Safety and Health Act, the Environmental Protection Act, ERISA and the Trading with the Enemy Act;

 

(aa)           Existing Credit Agreement and Existing Floor Plan Agreement.  Agent shall have received evidence, including without limitation, payoff letters from the applicable lenders, in form and substance satisfactory to Agent that each of the financing arrangements under the Existing Credit Agreement and Existing Floor Plan Agreement have been terminated, all Indebtedness thereunder has been paid in full and that all Liens securing such Indebtedness have terminated; and

 

(bb)           Other.  All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the Transactions contemplated by this Agreement shall be satisfactory in form and substance to Agent and its counsel.

 

8.2.           Conditions to Each Advance.  The agreement of Lenders to make any Advance requested to be made on any date (including the initial Advance), is subject to the satisfaction of the following conditions precedent as of the date such Advance is made:

 

(a)           Representations and Warranties.  Each of the representations and warranties made by any Borrower in or pursuant to this Agreement, the Other Documents and any related agreements to which it is a party, and each of the representations and warranties contained in any certificate, document or financial or other statement furnished at any time under or in connection with this Agreement, the Other Documents or any related agreement shall be true and correct in all material respects on and as of such date as if made on and as of such date;

 

(b)           No Default.  No Event of Default or Default shall have occurred and be continuing on such date, or would exist after giving effect to the Advances requested to be made, on such date; provided, however that Agent, in its sole discretion, may continue to make Advances notwithstanding the existence of an Event of Default or Default and that any Advances so made shall not be deemed a waiver of any such Event of Default or Default; and

 

  

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(c)           Maximum Advances.  In the case of any type of Advance requested to be made, after giving effect thereto, the aggregate amount of such type of Advance shall not exceed the maximum amount of such type of Advance permitted under this Agreement.

 

Each request for an Advance by any Borrower hereunder shall constitute a representation and warranty by each Borrower as of the date of such Advance that the conditions contained in this subsection shall have been satisfied.

 

IX.           INFORMATION AS TO BORROWERS.

 

Each Borrower shall, or (except with respect to Section 9.11) shall cause Borrowing Agent on its behalf to, until satisfaction in full of the Obligations and the termination of this Agreement:

 

9.1.           Disclosure of Material Matters.  Immediately upon learning thereof, report to Agent all matters materially affecting the value, enforceability or collectability of any portion of the Collateral, including any Borrower’s reclamation or repossession of, or the return to any Borrower of, goods or claims or disputes asserted by any Customer or other obligor in excess of One Hundred Thousand Dollars ($100,000) for any individual Customer.

 

9.2.           Schedules.

 

(a)             Deliver to Agent weekly, on or before the last Business Day of each week, a Borrowing Base Certificate in form and substance satisfactory to Agent (which shall be calculated as of the last Business Day of the prior week and which shall not be binding upon Agent or restrictive of Agent’s rights under this Agreement), together with an accounts receivable aging (both as to billed and unbilled Receivables), inclusive of all reconciliations to the general ledger with respect to sales, collections and credits.

 

(b)           Deliver to Agent on or before the twentieth (20th) day of each month as and for the prior month, (i) accounts payable schedules inclusive of reconciliations to the general ledger in electronic format, (ii) Inventory reports (including reporting as to non-moving and slow moving Inventory) in electronic format, (iii) detailed accounts receivable agings with account roll-forwards, (iv) schedules of accrued expenses and held checks, and notices of any claims disputes or offsets with respect to Receivables and (v) a detailed report of all of Borrowers’ cash and cash equivalents.

 

(c)           Deliver to Agent at such intervals as Agent may reasonably require: (i) confirmatory assignment schedules, (ii) copies of Customer’s invoices, (iii) evidence of shipment or delivery, and (iv) such further schedules, documents and/or information regarding the Collateral as Agent may reasonably require including trial balances and test verifications.

 

(d)           Agent shall have the right to confirm and verify all Receivables by any manner and through any medium it considers advisable and do whatever it may deem reasonably necessary to protect its interests hereunder.  The items to be provided under this Section are to be in form satisfactory to Agent and executed by each Borrower and delivered to Agent from time to time solely for Agent’s convenience in maintaining records of the Collateral, and any Borrower’s failure to deliver any of such items to Agent shall not affect, terminate, modify or otherwise limit Agent’s Lien with respect to the Collateral.

 

  

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9.3.           Environmental Reports.  Furnish Agent, concurrently with the delivery of the financial statements referred to in Sections 9.7 and 9.8, with a Compliance Certificate signed by the President of Borrowing Agent stating, to the best of his knowledge, that each Borrower is in compliance in all material respects with all federal, state and local Environmental Laws.  To the extent any Borrower is not in compliance with the foregoing laws, the certificate shall set forth with specificity all areas of non-compliance and the proposed action such Borrower will implement in order to achieve full compliance.

 

9.4.           Litigation.  Promptly notify Agent in writing of any claim, litigation, suit or administrative proceeding affecting any Borrower or any Guarantor, whether or not the claim is covered by insurance, and of any litigation, suit or administrative proceeding, which in any such case affects the Collateral or which could reasonably be expected to have a Material Adverse Effect.

 

9.5.           Material Occurrences.  Promptly notify Agent in writing upon the occurrence of (a) any Event of Default or Default; (b) any “event of default” or event which with the passage of time or giving of notice or both, would constitute an “event of default” under and as defined in the Subordinated Loan Documentation; (c) any event, development or circumstance whereby any financial statements or other reports furnished to Agent fail in any material respect to present fairly, in accordance with GAAP consistently applied, the financial condition or operating results of any Borrower as of the date of such statements; (d) any accumulated retirement plan funding deficiency which, if such deficiency continued for two (2) plan years and was not corrected as provided in Section 4971 of the Code, could subject any Borrower to a tax imposed by Section 4971 of the Code; (e) each and every default by any Borrower which might result in the acceleration of the maturity of any Indebtedness, including the names and addresses of the holders of such Indebtedness with respect to which there is a default existing or with respect to which the maturity has been or could be accelerated, and the amount of such Indebtedness; (f) any other development in the business or affairs of any Borrower or any Guarantor, which could reasonably be expected to have a Material Adverse Effect, including any notice of any investigation related to, or the termination of, any contract between any Borrower and any Governmental Body; (g) any lapse or other termination of any Consent issued to any Borrower by any Governmental Body or any other Person that is material to the operation of any Borrower’s business, (h) any filing of periodic or special reports by any Borrower with any Governmental Body or Person, if such reports indicate any material change in the business, operations, affairs or condition of any Borrower, in each case, including a copy thereof, (i) receipt of any material notices or other communications from any Governmental Body or Person which specifically relate to any Borrower; in each case, including a copy thereof and describing the nature thereof and the action Borrowers propose to take with respect thereto and (j) entering into any Material Contract or any non-standard contract with any Customer, in each case, including a copy thereof.

 

  

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9.6.           Government Receivables

 

.  Notify Agent immediately if any of its Receivables arise out of contracts between any Borrower and the United States, any state, or any department, agency or instrumentality of any of them including a schedule showing the applicable contract, administrative office and finance office and such other information as Agent may request in order to properly effectuate an assignment of claims under federal law.  Upon receipt of any such notice, Agent shall assist the applicable Borrower or Borrowers in assigning its or their rights to payment of such Receivables to Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 6305 et seq.).

 

9.7.           Annual Financial Statements.  Furnish Agent within one hundred twenty (120) days after the end of each fiscal year of Emtec DE, financial statements of Borrowers on a consolidating and on a Consolidated Basis including, but not limited to, statements of income and stockholders’ equity and cash flow from the beginning of the current fiscal year to the end of such fiscal year and the balance sheet as at the end of such fiscal year, all prepared in accordance with GAAP applied on a basis consistent with prior practices, and in reasonable detail and reported upon, as to the financial statements on a Consolidated Basis, without qualification, other than as to non-renewal of this facility in the final year of the Term, by an independent certified public accounting firm selected by Borrowers and satisfactory to Agent (the “Accountants”) it being understood and agreed that the delivery of Emtec DE’s Form 10-K, if required, promptly after the filing thereof with the SEC shall satisfy the requirements set forth in this Section 9.7 with respect to consolidated financial statements and reports (subject to the time periods set forth in this Section 9.7).  The reports shall be accompanied by a Compliance Certificate.

 

9.8.           Quarterly Financial Statements.  Furnish Agent within forty five (45) days after the end of each fiscal quarter (other than the last fiscal quarter of each fiscal year which shall be furnished within seventy-five (75) days), an unaudited balance sheet of Borrowers on a consolidating and on a Consolidated Basis and unaudited statements of income and stockholders’ equity and cash flow of Borrowers on a consolidating and on a Consolidated Basis reflecting results of operations from the beginning of the fiscal year to the end of such quarter and for such quarter, which shall present fairly the financial condition of the Borrowers on a consolidating and on a Consolidated Basis and shall be prepared in accordance with GAAP (without notes and subject to year-end adjustments), it being understood and agreed that the delivery of Emtec DE’s Form 10-Q, if required, promptly after the filing thereof with the SEC shall satisfy the requirements set forth in this Section 9.8 with respect to consolidated financial statements and reports (subject to the time periods set forth in this Section 9.8).  The reports (other than the reports for the last fiscal quarter of each fiscal year) shall be accompanied by a Compliance Certificate.

 

9.9.           Monthly Financial Statements.  Furnish Agent within thirty (30) days after the end of each month (other than a month that is the end of a fiscal quarter), an unaudited balance sheet of Borrowers on a consolidating and on a Consolidated Basis and unaudited statements of income and stockholders’ equity of Borrowers on a consolidating and on a consolidating and on a Consolidated Basis reflecting results of operations from the beginning of the fiscal year to the end of such month and for such month (and showing comparisons to both Borrowers’ prior year results and to the projected operating budget furnished pursuant to Section 9.12) and a statement of cash flow of Borrowers on a Consolidated Basis reflecting results of operations from the beginning of the fiscal year to the end of such month and for such month.

 

  

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9.10.           Other Reports.  Furnish Agent as soon as available, but in any event within ten (10) days after the issuance thereof, with copies of such financial statements, reports and returns as each Borrower shall be required to (a) file under the Exchange Act or Securities Act or (b) to provide to holders of the Subordinated Debt.

 

9.11.           Additional Information.  Furnish Agent with such additional information as Agent shall reasonably request in order to enable Agent to determine whether the terms, covenants, provisions and conditions of this Agreement have been complied with by Borrowers including, without the necessity of any request by Agent, (a) copies of all environmental audits and reviews, (b) at least thirty (30) days prior thereto, notice of any Borrower’s opening of any new office or place of business or any Borrower’s closing of any existing office or place of business, and (c) promptly upon any Borrower’s learning thereof, notice of any labor dispute to which any Borrower may become a party, any strikes or walkouts relating to any of its plants or other facilities, and the expiration of any labor contract to which any Borrower is a party or by which any Borrower is bound.

 

9.12.           Projected Operating Budget.  Furnish Agent no later than thirty (30) days after the beginning of each Borrower’s fiscal years commencing with fiscal year beginning September 1, 2012, a month by month projected operating budget and cash flow of Borrowers on a Consolidated Basis for such fiscal year (including an income statement for each month and a balance sheet as at the end of the last month in each fiscal quarter), such projections to be accompanied by a certificate signed by the President, Chief Financial Officer, Chief Executive Officer, or Chairman of such Borrower to the effect that, to such officer’s knowledge, such projections are good faith estimates (utilizing assumptions reasonably believed to be reasonable at the time made) of the financial condition and operations of such Borrower for the periods represented therein, it being recognized by Agent and the Lenders that such projections as to future events are not to be viewed as fact and that actual results during the periods covered therein may differ from such projections and such differences may be material.

 

9.13.           Variances From Operating Budget.  Furnish Agent, concurrently with the delivery of the financial statements referred to in Section 9.7 and each monthly report, a written report summarizing all material variances from budgets submitted by Borrowers pursuant to Section 9.12 and a discussion and analysis by management with respect to such variances.

 

9.14.           ERISA Notices and Requests.  Furnish Agent with immediate written notice in the event that (a) any Borrower or any member of the Controlled Group knows or has reason to know that a Termination Event has occurred, together with a written statement describing such Termination Event and the action, if any, which such Borrower or any member of the Controlled Group has taken, is taking, or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor or PBGC with respect thereto, (b) any  Borrower or any member of the Controlled Group knows or has reason to know that a prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has occurred together with a written statement describing such transaction and the action which such Borrower or any member of the Controlled Group has taken, is taking or proposes to take with respect thereto, (c) a funding waiver request has been filed with respect to any Plan together with all communications received by any Borrower or any member of the Controlled Group with respect to such request, (d) any increase in the benefits of any existing Plan or the establishment of any new Plan or the commencement of contributions to any Plan to which any Borrower or any member of the Controlled Group was not previously contributing shall occur, (e) any Borrower or any member of the Controlled Group shall receive from the PBGC a notice of intention to terminate a Plan or to have a trustee appointed to administer a Plan, together with copies of each such notice, (f) any Borrower or any member of the Controlled Group shall receive any favorable or unfavorable determination letter from the Internal Revenue Service regarding the qualification of a Plan under Section 401(a) of the Code, together with copies of each such letter; (g) any Borrower or any member of the Controlled Group shall receive a notice regarding the imposition of withdrawal liability, together with copies of each such notice; (h) any Borrower or any member of the Controlled Group shall fail to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment; or (i) any Borrower or any member of the Controlled Group knows that (ii) a Multiemployer Plan has been terminated, (iii) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (iv) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan.

 

  

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9.15.           Intellectual Property.  Immediately upon the acquisition, modification or registration thereof, a report of all newly acquired, modified or registered Intellectual Property of any Borrower.

 

9.16.           Additional Documents.  Execute and deliver to Agent, upon request, such documents and agreements as Agent may, from time to time, reasonably request to carry out the purposes, terms or conditions of this Agreement.

 

X.           EVENTS OF DEFAULT.

 

The occurrence of any one or more of the following events shall constitute an “Event of Default”:

 

10.1.           Nonpayment.  Failure by any Borrower to pay any principal or interest on the Obligations when due, whether at maturity or by reason of acceleration pursuant to the terms of this Agreement or by notice of intention to prepay, or by required prepayment or failure to pay any other liabilities or make any other payment, fee or charge provided for herein when due or in any Other Document;

 

10.2.           Breach of Representation.  Any representation or warranty made or deemed made by any Borrower in this Agreement, any Other Document or any related agreement or in any certificate, document or financial or other statement furnished at any time in connection herewith or therewith shall prove to have been misleading in any material respect on the date when made or deemed to have been made;

 

10.3.           Financial Information.  Failure by any Borrower to (a)(i) furnish financial information when due, or (ii) when requested which is unremedied for a period of fifteen (15) days of such request, or (b) permit the inspection of its books or records in accordance with this Agreement;

 

10.4.           Judicial Actions.  Issuance of a notice of Lien, levy, assessment, injunction or attachment against any Borrower’s Inventory or Receivables or against a material portion of any Borrower’s other property;

 

  

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10.5.           Noncompliance.  Except as otherwise provided for in Sections 10.1, 10.3 and 10.5(b), (a) failure or neglect of any Borrower to perform, keep or observe any term, provision, condition, covenant herein contained, or contained in any Other Document, or (b) failure or neglect of any Borrower to perform, keep or observe any term, provision, condition or covenant, contained in Sections 4.6, 4.7, 4.9, 4.13, 4.18, 6.1, 6.3, 6.4, 6.10, 9.4 or 9.6 hereof which is not cured within thirty (30) days from the occurrence of such failure or neglect;

 

10.6.           Judgments.  Any judgment or judgments are rendered against any Borrower for an aggregate amount in excess of Five Hundred Thousand Dollars ($500,000) and (a) enforcement proceedings shall have been commenced by a creditor upon such judgment, (b) there shall be any period of thirty (30) consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, shall not be in effect, or (c) any such judgment results in the creation of a Lien upon any of the Collateral (other than a Permitted Encumbrance);

 

10.7.           Bankruptcy.  Any Borrower or any Guarantor shall (a) apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property, (b) make a general assignment for the benefit of creditors, (c) commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), (d) be adjudicated a bankrupt or insolvent, (e) file a petition seeking to take advantage of any other law providing for the relief of debtors, (f) acquiesce to, or fail to have dismissed, within sixty (60) days, any petition filed against it in any involuntary case under such bankruptcy laws,  or (vii) take any action for the purpose of effecting any of the foregoing;

 

10.8.           Inability to Pay.  Any Borrower shall admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business;

 

10.9.           Subsidiary Bankruptcy.  Any Subsidiary of any Borrower shall apply for, consent to or suffer the appointment of, or the taking of possession by, a receiver, custodian, trustee, liquidator or similar fiduciary of itself or of all or a substantial part of its property, admit in writing its inability, or be generally unable, to pay its debts as they become due or cease operations of its present business, make a general assignment for the benefit of creditors, commence a voluntary case under any state or federal bankruptcy laws (as now or hereafter in effect), be adjudicated a bankrupt or insolvent, file a petition seeking to take advantage of any other law providing for the relief of debtors, acquiesce to, or fail to have dismissed, within sixty (60) days, any petition filed against it in any involuntary case under such bankruptcy laws, or  take any action for the purpose of effecting any of the foregoing;

 

10.10.           Material Adverse Effect.  Any change in any Borrower’s results of operations or condition (financial or otherwise) which in Agent’s reasonable credit judgment has a Material Adverse Effect;

 

  

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10.11.           Lien Priority.  Any Lien created hereunder or provided for hereby or under any related agreement for any reason ceases to be or is not a valid and perfected Lien having a first priority interest, subject to Permitted Liens;

 

10.12.           Subordinated Debt  Any “event of default” under and as defined in any Subordinated Loan Documentation has occurred; unless, if such “event of default” arose from failure to comply with Section 8.14(a) of the NewSpring/Peachtree Loan Agreement, for the fiscal period ending November 30, 2011, Borrowers have delivered to Agent a written waiver of such “event of default” from NewSpring prior to  February 15, 2012.

 

10.13.           Cross Default.  Any (a) default (which is not cured within any applicable grace and/or cure periods), by any Borrower shall have occurred under any other instrument, document or agreement with respect to any Indebtedness for borrowed money or Capitalized Lease Obligations with a principal amount in excess of Five Hundred Thousand Dollars ($500,000) or (b) default by any Borrower shall have occurred under any other instrument, document or agreement which results in a Material Adverse Effect;

 

10.14.           Breach of Guaranty.  Termination or breach of any Guaranty or Guaranty Security Agreement or similar agreement executed and delivered to Agent in connection with the Obligations of any Borrower, or if any Guarantor attempts to terminate, challenges the validity of, or its liability under, any such Guaranty or Guaranty Security Agreement or similar agreement;

 

10.15.           Change of Ownership.  Any Change of Ownership shall occur;

 

10.16.           Invalidity.  Any material provision of this Agreement or any Other Document shall, for any reason, cease to be valid and binding on Borrower, or any Borrower shall so claim in writing to Agent or any Lender;

 

10.17.           Licenses.  (a) Any Governmental Body shall (i) revoke, terminate, suspend or adversely modify any license, permit, patent trademark or tradename of any Borrower, the continuation of which is necessary to the continuation of any Borrower’s business, or (ii) commence proceedings to suspend, revoke, terminate or adversely modify any such license, permit, trademark, tradename or patent and such proceedings shall not be dismissed or discharged within sixty (60) days, (iii) schedule or conduct a hearing on the renewal of any license, permit, trademark, tradename or patent necessary for the continuation of any Borrower’s business and the staff of such Governmental Body issues a report recommending the termination, revocation, suspension or material, adverse modification of any such license, permit, trademark, tradename or patent or (iv) terminate or revoke any Borrower’s ability to conduct business with such Governmental Body; or (b) any agreement which is necessary or material to the operation of any Borrower’s business shall be revoked or terminated and not replaced by a substitute acceptable to Agent within thirty (30) days after the date of such revocation or termination, and such revocation or termination and non-replacement would reasonably be expected to have a Material Adverse Effect;

 

10.18.           Seizures.  Any portion of the Collateral shall be seized or taken by a Governmental Body, or any Borrower or the title and rights of any Borrower in any material portion of the Collateral shall have become the subject matter of claim, litigation, suit or other proceeding which might, in the opinion of Agent, upon final determination, result in impairment or loss of the security provided by this Agreement or the Other Documents;

 

  

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10.19.           Operations.  Reserved; or

 

10.20.           Pension Plans.  An event or condition specified in Sections 7.16 or 9.15 hereof shall occur or exist with respect to any Plan and, as a result of such event or condition, together with all other such events or conditions, any Borrower or any member of the Controlled Group shall incur, or in the opinion of Agent be reasonably likely to incur, a liability to a Plan or the PBGC (or both) which, in the reasonable judgment of Agent, would have a Material Adverse Effect.

 

XI.           LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.

 

11.1.           Rights and Remedies.

 

(a)           Upon the occurrence and continuance of (i) an Event of Default pursuant to Section 10.7 all Obligations shall be immediately due and payable and this Agreement and the obligation of Lenders to make Advances shall be deemed terminated; and, (ii) any of the other Events of Default and at any time thereafter, at the option of Agent or at the direction of Required Lenders all Obligations shall be immediately due and payable and Lenders shall have the right to terminate this Agreement and to terminate the obligation of Lenders to make Advances and (iii) a filing of a petition against any Borrower in any involuntary case under any state or federal bankruptcy laws, all Obligations shall be immediately due and payable and the obligation of Lenders to make Advances hereunder shall be terminated other than as may be required by an appropriate order of the bankruptcy court having jurisdiction over such Borrower.  Upon the occurrence of any Event of Default, Agent shall have the right to exercise any and all rights and remedies provided for herein, under the Other Documents, under the Uniform Commercial Code and at law or equity generally, including the right to foreclose the security interests granted herein and to realize upon any Collateral by any available judicial procedure and/or to take possession of and sell any or all of the Collateral with or without judicial process.  Agent may enter any of any Borrower’s premises or other premises without legal process and without incurring liability to any Borrower therefor, and Agent may thereupon, or at any time thereafter, in its discretion without notice or demand, take the Collateral and remove the same to such place as Agent may deem advisable and Agent may require Borrowers to make the Collateral available to Agent at a convenient place.  With or without having the Collateral at the time or place of sale, Agent may sell the Collateral, or any part thereof, at public or private sale, at any time or place, in one or more sales, at such price or prices, and upon such terms, either for cash, credit or future delivery, as Agent may elect.  Except as to that part of the Collateral which is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Agent shall give Borrowers reasonable notification of such sale or sales, it being agreed that in all events written notice mailed to Borrowing Agent at least ten (10) days prior to such sale or sales is reasonable notification.  At any public sale Agent or any Lender may bid for and become the purchaser, and Agent, any Lender or any other purchaser at any such sale thereafter shall hold the Collateral sold absolutely free from any claim or right of whatsoever kind, including any equity of redemption and all such claims, rights and equities are hereby expressly waived and released by each Borrower.  In connection with the exercise of the foregoing remedies, including the sale of Inventory, Agent is granted a perpetual nonrevocable, royalty free, nonexclusive license and Agent is granted permission to use all of each Borrower’s (a) trademarks, trade styles, trade names, patents, patent applications, copyrights, service marks, licenses, franchises and other proprietary rights which are used or useful in connection with Inventory for the purpose of marketing, advertising for sale and selling or otherwise disposing of such Inventory and (b) Equipment for the purpose of completing the manufacture of unfinished goods.  The cash proceeds realized from the sale of any Collateral shall be applied to the Obligations in the order set forth in Section 11.5 hereof.  Noncash proceeds will only be applied to the Obligations as they are converted into cash.  If any deficiency shall arise, Borrowers shall remain liable to Agent and Lenders therefor.

 

  

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(b)           To the extent that Applicable Law imposes duties on Agent to exercise remedies in a commercially reasonable manner, each Borrower acknowledges and agrees that it is not commercially unreasonable for Agent (i) to fail to incur expenses reasonably deemed significant by Agent to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (iii) to fail to exercise collection remedies against Customers or other Persons obligated on Collateral or to remove Liens on or any adverse claims against Collateral, (iv) to exercise collection remedies against Customers and other Persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (vi) to contact other Persons, whether or not in the same business as any Borrower, for expressions of interest in acquiring all or any portion of such Collateral, (vii) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the Collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, such as title, possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements to insure Agent against risks of loss, collection or disposition of Collateral or to provide to Agent a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by Agent, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist Agent in the collection or disposition of any of the Collateral.  Each Borrower acknowledges that the purpose of this Section 11.1(b) is to provide non-exhaustive indications of what actions or omissions by Agent would not be commercially unreasonable in Agent’s exercise of remedies against the Collateral and that other actions or omissions by Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 11.1(b).  Without limitation upon the foregoing, nothing contained in this Section11.1(b) shall be construed to grant any rights to any Borrower or to impose any duties on Agent that would not have been granted or imposed by this Agreement or by Applicable Law in the absence of this Section 11.1(b).

 

  

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11.2.           Agent’s Discretion.  Agent shall have the right in its sole discretion to determine which rights, Liens, security interests or remedies Agent may at any time pursue, relinquish, subordinate, or modify or to take any other action with respect thereto and such determination will not in any way modify or affect any of Agent’s or Lenders’ rights hereunder.

 

11.3.           Setoff.  Subject to Section 14.12, in addition to any other rights which Agent or any Lender may have under Applicable Law, upon the occurrence of an Event of Default hereunder, Agent and such Lender shall have a right, immediately and without notice of any kind, to apply any Borrower’s property held by Agent and such Lender to reduce the Obligations.

 

11.4.           Rights and Remedies not Exclusive.  The enumeration of the foregoing rights and remedies is not intended to be exhaustive and the exercise of any rights or remedy shall not preclude the exercise of any other right or remedies provided for herein or otherwise provided by law, all of which shall be cumulative and not alternative.

 

11.5.           Allocation of Payments After Event of Default.  Notwithstanding any other provisions of this Agreement to the contrary, after the occurrence and during the continuance of an Event of Default, all amounts collected or received by Agent on account of the Obligations or any other amounts outstanding under any of the Other Documents or in respect of the Collateral may, at Agent’s discretion, be paid over or delivered as follows:

 

FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of Agent in connection with enforcing its rights and the rights of the Lenders under this Agreement and the Other Documents and any protective advances made by Agent with respect to the Collateral under or pursuant to the terms of this Agreement;

 

SECOND, to payment of any fees owed to Agent;

 

THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees) of each Lender to the extent owing to such Lender pursuant to the terms of this Agreement;

 

FOURTH, to the payment of all of the Obligations consisting of accrued fees and interest;

 

FIFTH, to the payment of the outstanding principal amount of the Obligations (including the payment or cash collateralization of any outstanding Letters of Credit);

 

SIXTH, to all other Obligations and other obligations which shall have become due and payable under the Other Documents or otherwise and not repaid pursuant to clauses “FIRST” through “FIFTH” above; and

 

SEVENTH, to the payment of the surplus, if any, to whoever may be lawfully entitled to receive such surplus.

 

  

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In carrying out the foregoing, (a) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category; (b) each of the Lenders shall receive (so long as it is not a Defaulting Lender) an amount equal to its pro rata share (based on the proportion that the then outstanding Advances held by such Lender bears to the aggregate then outstanding Advances) of amounts available to be applied pursuant to clauses “FOURTH”, “FIFTH” and “SIXTH” above; and (c) to the extent that any amounts available for distribution pursuant to clause “FIFTH” above are attributable to the issued but undrawn amount of outstanding Letters of Credit, such amounts shall be held by Agent in a cash collateral account and applied (i) first, to reimburse the Issuer from time to time for any drawings under such Letters of Credit and (ii) then, following the expiration of all Letters of Credit, to all other obligations of the types described in clauses “FIFTH” and “SIXTH” above in the manner provided in this Section 11.5.

 

XII.           WAIVERS AND JUDICIAL PROCEEDINGS.

 

12.1.           Waiver of Notice.  Each Borrower hereby waives notice of non-payment of any of the Receivables, demand, presentment, protest and notice thereof with respect to any and all instruments, notice of acceptance hereof, notice of loans or advances made, credit extended, Collateral received or delivered, or any other action taken in reliance hereon, and all other demands and notices of any description, except such as are expressly provided for herein.

 

12.2.           Delay.  No delay or omission on Agent’s or any Lender’s part in exercising any right, remedy or option shall operate as a waiver of such or any other right, remedy or option or of any Default or Event of Default.

 

12.3.           Jury Waiver.  EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

XIII.           EFFECTIVE DATE AND TERMINATION.

 

13.1.           Term.  This Agreement, which shall inure to the benefit of and shall be binding upon the respective successors and permitted assigns of each Borrower, Agent and each Lender, shall become effective on the date hereof and shall continue in full force and effect until December 29, 2014 (the “Term”) unless sooner terminated as herein provided.  Borrowers may terminate this Agreement at any time upon thirty (30) days’ prior written notice upon payment in full of the Obligations (other than contingent indemnification obligations).  In the event the Obligations are prepaid in full prior to the last day of the Term (the date of such prepayment hereinafter referred to as the “Early Termination Date”), Borrowers shall pay to Agent for the benefit of Lenders an early termination fee in an amount equal to (x) two percent (2%) of the Maximum Revolving Advance Amount if the Early Termination Date occurs on or after the Closing Date to and including the date immediately preceding the first (1st) anniversary of the Closing Date, (y) one percent (1%) of the Maximum Revolving Advance Amount if the Early Termination Date occurs on or after the first anniversary of the Closing Date to and including the date immediately preceding the second (2nd) anniversary of the Closing Date, and (z) one half percent (0.5%) of the Maximum Revolving Advance Amount if the Early Termination Date occurs on or after the second (2nd) anniversary of the Closing Date to and including the date that is two hundred seventy (270) days after the second (2nd) anniversary of the Closing Date.

 

  

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13.2.           Termination.  The termination of the Agreement shall not affect any Borrower’s, Agent’s or any Lender’s rights, or any of the Obligations having their inception prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into, rights or interests created or Obligations (other than contingent indemnification obligations) have been fully and indefeasibly paid, disposed of, concluded or liquidated.  The security interests, Liens and rights granted to Agent and Lenders hereunder and the financing statements filed hereunder shall continue in full force and effect, notwithstanding the termination of this Agreement or the fact that Borrowers’ Account may from time to time be temporarily in a zero or credit position, until all of the Obligations of each Borrower have been indefeasibly paid and performed in full after the termination of this Agreement or each Borrower has furnished Agent and Lenders with an indemnification satisfactory to Agent and Lenders with respect thereto.  Accordingly, each Borrower waives any rights which it may have under the Uniform Commercial Code to demand the filing of termination statements with respect to the Collateral, and Agent shall not be required to send such termination statements to each Borrower, or to file them with any filing office, unless and until this Agreement shall have been terminated in accordance with its terms and all Obligations (other than contingent indemnification obligations) have been indefeasibly paid in full in immediately available funds.  All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until all Obligations are indefeasibly paid and performed in full.

 

XIV.           REGARDING AGENT.

 

14.1.           Appointment.  Each Lender hereby designates PNC to act as Agent for such Lender under this Agreement and the Other Documents.  Each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and the Other Documents and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto and Agent shall hold all Collateral, payments of principal and interest, fees (except the fees set forth in Sections 3.3(a) and 3.4), charges and collections (without giving effect to any collection days) received pursuant to this Agreement, for the ratable benefit of Lenders.  Agent may perform any of its duties hereunder by or through its agents or employees.  As to any matters not expressly provided for by this Agreement (including collection of the Note) Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding; provided, however, that Agent shall not be required to take any action which exposes Agent to liability or which is contrary to this Agreement or the Other Documents or Applicable Law unless Agent is furnished with an indemnification reasonably satisfactory to Agent with respect thereto.

 

  

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14.2.           Nature of Duties.  Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Other Documents.  Neither Agent nor any of its officers, directors, employees or agents shall be (a) liable for any action taken or omitted by them as such hereunder or in connection herewith, unless caused by their gross (not mere) negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment), or (b) responsible in any manner for any recitals, statements, representations or warranties made by any Borrower or any officer thereof contained in this Agreement, or in any of the Other Documents or in any certificate, report, statement or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any of the Other Documents or for the value, validity, effectiveness, genuineness, due execution, enforceability or sufficiency of this Agreement, or any of the Other Documents or for any failure of any Borrower to perform its obligations hereunder.  Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any of the Other Documents, or to inspect the properties, books or records of any Borrower.  The duties of Agent as respects the Advances to Borrowers shall be mechanical and administrative in nature; Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon Agent any obligations in respect of this Agreement except as expressly set forth herein.

 

14.3.           Lack of Reliance on Agent and Resignation.  Independently and without reliance upon Agent or any other Lender, each Lender has made and shall continue to make (a) its own independent investigation of the financial condition and affairs of each Borrower and each Guarantor in connection with the making and the continuance of the Advances hereunder and the taking or not taking of any action in connection herewith, and (b) its own appraisal of the creditworthiness of each Borrower and each Guarantor.  Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before making of the Advances or at any time or times thereafter except as shall be provided by any Borrower pursuant to the terms hereof.  Agent shall not be responsible to any Lender for any recitals, statements, information, representations or warranties herein or in any agreement, document, certificate or a statement delivered in connection with or for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any Other Document, or of the financial condition of any Borrower or any Guarantor, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement, the Note, the Other Documents or the financial condition of any Borrower, or the existence of any Event of Default or any Default.

 

  

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Agent may resign on sixty (60) days’ written notice to each of Lenders and Borrowing Agent and upon such resignation, Required Lenders will promptly designate a successor Agent reasonably satisfactory to Borrowers.

 

Any such successor Agent shall succeed to the rights, powers and duties of Agent, and the term “Agent” shall mean such successor agent effective upon its appointment, and the former Agent’s rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent.  After any Agent’s resignation as Agent, the provisions of this Article XIV shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

 

14.4.           Certain Rights of Agent.  If Agent shall request instructions from Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any Other Document, Agent shall be entitled to refrain from such act or taking such action unless and until Agent shall have received instructions from the Required Lenders; and Agent shall not incur liability to any Person by reason of so refraining.  Without limiting the foregoing, Lenders shall not have any right of action whatsoever against Agent as a result of its acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders.

 

14.5.           Reliance.  Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or telecopier message, cablegram, order or other document or telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to this Agreement and the Other Documents and its duties hereunder, upon advice of counsel selected by it.  Agent may employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by Agent with reasonable care.

 

14.6.           Notice of Default.  Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder or under the Other Documents, unless Agent has received notice from a Lender or Borrowing Agent referring to this Agreement or the Other Documents, describing such Default or Event of Default and stating that such notice is a “notice of default”.  In the event that Agent receives such a notice, Agent shall give notice thereof to Lenders.  Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of Lenders.

 

14.7.           Indemnification.  To the extent Agent is not reimbursed and indemnified by Borrowers, each Lender will reimburse and indemnify Agent in proportion to its respective portion of the Advances (or, if no Advances are outstanding, according to its Commitment Percentage), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent in performing its duties hereunder, or in any way relating to or arising out of this Agreement or any Other Document; provided that, Lenders shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from Agent’s gross (not mere) negligence or willful misconduct (as determined by a court of competent jurisdiction in a final non-appealable judgment).

 

  

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14.8.           Agent in its Individual Capacity.  With respect to the obligation of Agent to lend under this Agreement, the Advances made by it shall have the same rights and powers hereunder as any other Lender and as if it were not performing the duties as Agent specified herein; and the term “Lender” or any similar term shall, unless the context clearly otherwise indicates, include Agent in its individual capacity as a Lender.  Agent may engage in business with any Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Agreement or otherwise without having to account for the same to Lenders.

 

14.9.           Delivery of Documents.  To the extent Agent receives financial statements required under Sections 9.7, 9.8, 9.9, 9.12 and 9.13 or Borrowing Base Certificates from any Borrower pursuant to the terms of this Agreement which any Borrower is not obligated to deliver to each Lender, Agent will promptly furnish such documents and information to Lenders.

 

14.10.           Borrowers’ Undertaking to Agent.  Without prejudice to their respective obligations to Lenders under the other provisions of this Agreement, each Borrower hereby undertakes with Agent to pay to Agent from time to time on demand all amounts from time to time due and payable by it for the account of Agent or Lenders or any of them pursuant to this Agreement to the extent not already paid.  Any payment made pursuant to any such demand shall pro tanto satisfy the relevant Borrower’s obligations to make payments for the account of Lenders or the relevant one or more of them pursuant to this Agreement.

 

14.11.           No Reliance on Agent’s Customer Identification Program.  Each Lender acknowledges and agrees that neither such Lender, nor any of its Affiliates, participants or assignees, may rely on Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s customer identification program, or other obligations required or imposed under or pursuant to the USA PATRIOT Act or the regulations thereunder, including the regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the “CIP Regulations”), or any other Anti-Terrorism Law, including any programs involving any of the following items relating to or in connection with any Borrower, its Affiliates or its agents, this Agreement, the Other Documents or the transactions hereunder or contemplated hereby: (1) any identity verification procedures, (2) any record-keeping, (3) comparisons with government lists, (4) customer notices or (5) other procedures required under the CIP Regulations or such other laws.

 

14.12.           Other Agreements.  Each Lender agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the request of Agent, set off against the Obligations, any amounts owing by such Lender to any Borrower or any deposit accounts of any Borrower now or hereafter maintained with such Lender.  Anything in this Agreement to the contrary notwithstanding, each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take any action to protect or enforce its rights arising out of this Agreement or the Other Documents, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and the Other Documents shall be taken in concert and at the direction or with the consent of Agent or Required Lenders.

 

  

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XV.           BORROWING AGENCY.

 

15.1.           Borrowing Agency Provisions.

 

(a)           Each Borrower hereby irrevocably designates Borrowing Agent to be its attorney and agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all instruments, documents, writings and further assurances now or hereafter required hereunder, on behalf of such Borrower or Borrowers, and hereby authorizes Agent to pay over or credit all loan proceeds hereunder in accordance with the request of Borrowing Agent.

 

(b)           The handling of this credit facility as a co-borrowing facility with a borrowing agent in the manner set forth in this Agreement is solely as an accommodation to Borrowers and at their request.  Neither Agent nor any Lender shall incur liability to Borrowers as a result thereof.  To induce Agent and Lenders to do so and in consideration thereof, each Borrower hereby indemnifies Agent and each Lender and holds Agent and each Lender harmless from and against any and all liabilities, expenses, losses, damages and claims of damage or injury asserted against Agent or any Lender by any Person arising from or incurred by reason of the handling of the financing arrangements of Borrowers as provided herein, reliance by Agent or any Lender on any request or instruction from Borrowing Agent or any other action taken by Agent or any Lender with respect to this Section 15.1 except due to willful misconduct or gross (not mere) negligence by the indemnified party (as determined by a court of competent jurisdiction in a final and non-appealable judgment).

 

(c)           All Obligations shall be joint and several, and each Borrower shall make payment upon the maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the part of each Borrower shall in no way be affected by any extensions, renewals and forbearance granted to Agent or any Lender to any Borrower, failure of Agent or any Lender to give any Borrower notice of borrowing or any other notice, any failure of Agent or any Lender to pursue or preserve its rights against any Borrower, the release by Agent or any Lender of any Collateral now or thereafter acquired from any Borrower, and such agreement by each Borrower to pay upon any notice issued pursuant thereto is unconditional and unaffected by prior recourse by Agent or any Lender to the other Borrowers or any Collateral for such Borrower’s Obligations or the lack thereof.  Each Borrower waives all suretyship defenses.

 

15.2.           Waiver of Subrogation.  Each Borrower expressly waives any and all rights of subrogation, reimbursement, indemnity, exoneration, contribution of any other claim which such Borrower may now or hereafter have against the other Borrowers or other Person directly or contingently liable for the Obligations hereunder, or against or with respect to the other Borrowers’ property (including, without limitation, any property which is Collateral for the Obligations), arising from the existence or performance of this Agreement, until termination of this Agreement and repayment in full of the Obligations.

 

  

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XVI.           MISCELLANEOUS

 

16.1.           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania applied to contracts to be performed wholly within the Commonwealth of Pennsylvania.  Any judicial proceeding brought by or against any Borrower with respect to any of the Obligations, this Agreement, the Other Documents or any related agreement may be brought in any court of competent jurisdiction in the Commonwealth of Pennsylvania, and, by execution and delivery of this Agreement, each Borrower accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.  Each Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to Borrowing Agent at its address set forth in Section 16.6 and service so made shall be deemed completed five (5) days after the same shall have been so deposited in the mails of the United States of America, or, at Agent’s option, by service upon Borrowing Agent which each Borrower irrevocably appoints as such Borrower’s Agent for the purpose of accepting service within the Commonwealth of Pennsylvania.  Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of Agent or any Lender to bring proceedings against any Borrower in the courts of any other jurisdiction.  Each Borrower waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  Each Borrower waives the right to remove any judicial proceeding brought against such Borrower in any state court to any federal court.  Any judicial proceeding by any Borrower against Agent or any Lender involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this Agreement or any related agreement, shall be brought only in a federal or state court located in the County of Philadelphia, Commonwealth of Pennsylvania.

 

16.2.           Entire Understanding.

 

(a)           This Agreement and the documents executed concurrently herewith contain the entire understanding between each Borrower, Agent and each Lender and supersedes all prior agreements and understandings, if any, relating to the subject matter hereof.  Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect unless in writing, signed by each Borrower’s, Agent’s and each Lender’s respective officers.  Neither this Agreement nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged.  Each Borrower acknowledges that it has been advised by counsel in connection with the execution of this Agreement and Other Documents and is not relying upon oral representations or statements inconsistent with the terms and provisions of this Agreement.

 

  

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(b)           The Required Lenders, Agent with the consent in writing of the Required Lenders, and Borrowers may, subject to the provisions of this Section 16.2 (b), from time to time enter into written supplemental agreements to this Agreement or the Other Documents executed by Borrowers, for the purpose of adding or deleting any provisions or otherwise changing, varying or waiving in any manner the rights of Lenders, Agent or Borrowers thereunder or the conditions, provisions or terms thereof or waiving any Event of Default thereunder, but only to the extent specified in such written agreements; provided, however, that no such supplemental agreement shall, without the consent of all Lenders:

 

(i)           increase the Commitment Percentage, the maximum dollar commitment of any Lender or the Maximum Revolving Advance Amount;

 

(ii)           extend the maturity of any Note or the due date for any amount payable hereunder, or decrease the rate of interest or reduce any fee payable by Borrowers to Lenders pursuant to this Agreement;

 

(iii)           alter the definition of the term Required Lenders or alter, amend or modify this Section 16.2(b);

 

(iv)           release any Collateral during any calendar year (other than in accordance with the provisions of this Agreement) having an aggregate value in excess of One Million Dollars ($1,000,000);

 

(v)           change the rights and duties of Agent;

 

(vi)           permit any Revolving Advance to be made if after giving effect thereto the total of Revolving Advances outstanding hereunder would exceed the Formula Amount for more than sixty (60) consecutive Business Days or exceed one hundred and ten percent (110%) of the Formula Amount;

 

(vii)           increase the Advance Rates above the Advance Rates in effect on the Closing Date; or

 

(viii)           release any Guarantor.

 

Any such supplemental agreement shall apply equally to each Lender and shall be binding upon Borrowers, Lenders and Agent and all future holders of the Obligations.  In the case of any waiver, Borrowers, Agent and Lenders shall be restored to their former positions and rights, and any Event of Default waived shall be deemed to be cured and not continuing, but no waiver of a specific Event of Default shall extend to any subsequent Event of Default (whether or not the subsequent Event of Default is the same as the Event of Default which was waived), or impair any right consequent thereon.

 

In the event that Agent requests the consent of a Lender pursuant to this Section 16.2 and such consent is denied, then Agent may, at its option and so long as no Default on Event of Default is then continuing with the prior consent of Borrowing Agent, require such Lender to assign its interest in the Advances to PNC or to another Lender or to any other Person designated by Agent (the “Designated Lender”), for a price equal to (i) the then outstanding principal amount thereof plus (ii) accrued and unpaid interest and fees due such Lender, which interest and fees shall be paid when collected from Borrowers.  In the event PNC elects to require any Lender to assign its interest to PNC or to the Designated Lender, PNC will so notify such Lender in writing within forty five (45) days following such Lender’s denial, and such Lender will assign its interest to PNC or the Designated Lender no later than five (5) days following receipt of such notice pursuant to a Commitment Transfer Supplement executed by such Lender, PNC or the Designated Lender, as appropriate, and Agent.

 

  

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Notwithstanding (a) the existence of a Default or an Event of Default, (b) that any of the other applicable conditions precedent set forth in Section 8.2 hereof have not been satisfied or (c) any other provision of this Agreement, Agent may at its discretion and without the consent of the Required Lenders, voluntarily permit the sum of the outstanding Revolving Advances and the Maximum Undrawn Amount at any time to exceed an amount equal to the Formula Amount at such time by up to ten percent (10%) of the Formula Amount for up to sixty (60) consecutive Business Days (the “Out-of-Formula Loans”); provided, that, such outstanding Revolving Advances do not exceed the Maximum Revolving Advance Amount.  If Agent is willing in its sole and absolute discretion to make such Out-of-Formula Loans, such Out-of-Formula Loans shall be payable on demand and shall bear interest at the Default Rate for Revolving Advances consisting of Domestic Rate Loans; provided that, if Lenders do make Out-of-Formula Loans, neither Agent nor Lenders shall be deemed thereby to have changed the limits of Section 2.1(a).  For purposes of this paragraph, the discretion granted to Agent hereunder shall not preclude involuntary overadvances that may result from time to time due to the fact that the Formula Amount was unintentionally exceeded for any reason, including, but not limited to, Collateral previously deemed to be either “Eligible Receivables,” “Eligible Unbilled Receivables” or “Eligible Finished Goods Inventory” as applicable, becomes ineligible, collections of Receivables applied to reduce outstanding Revolving Advances are thereafter returned for insufficient funds or overadvances are made to protect or preserve the Collateral.  In the event Agent involuntarily permits the outstanding Revolving Advances to exceed the Formula Amount by more than ten percent (10%), Agent shall use its efforts to have Borrowers decrease such excess in as expeditious a manner as is practicable under the circumstances and not inconsistent with the reason for such excess.  Revolving Advances made after Agent has determined the existence of involuntary overadvances shall be deemed to be involuntary overadvances and shall be decreased in accordance with the preceding sentence.

 

In addition to (and not in substitution of) the discretionary Revolving Advances permitted above in this Section 16.2, Agent is hereby authorized by Borrowers and the Lenders, from time to time in Agent’s sole discretion, (A) after the occurrence and during the continuation of a Default or an Event of Default, or (B) at any time that any of the other applicable conditions precedent set forth in Section 8.2 hereof have not been satisfied, to make Revolving Advances to Borrowers on behalf of the Lenders which Agent, in its reasonable business judgment, deems necessary or desirable (a) to preserve or protect the Collateral, or any portion thereof, (b) to enhance the likelihood of, or maximize the amount of, repayment of the Advances and other Obligations, or (c) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement; provided, that at any time after giving effect to any such Revolving Advances the outstanding Revolving Advances do not exceed one hundred and ten percent (110%) of the Formula Amount.

 

16.3.           Successors and Assigns; Participations; New Lenders.

 

(a)           This Agreement shall be binding upon and inure to the benefit of Borrowers, Agent, each Lender, all future holders of the Obligations and their respective successors and permitted assigns, except that no Borrower may assign or transfer any of its rights or obligations under this Agreement without the prior written consent of Agent and each Lender.

 

  

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(b)           Each Borrower acknowledges that in the regular course of commercial banking business one or more Lenders may at any time and from time to time sell participating interests in the Advances to other financial institutions (each such transferee or purchaser of a participating interest, a “Participant”).  Each Participant may exercise all rights of payment (including rights of set-off) with respect to the portion of such Advances held by it or other Obligations payable hereunder as fully as if such Participant were the direct holder thereof provided that Borrowers shall not be required to pay to any Participant more than the amount which it would have been required to pay to Lender which granted an interest in its Advances or other Obligations payable hereunder to such Participant had such Lender retained such interest in the Advances hereunder or other Obligations payable hereunder and in no event shall Borrowers be required to pay any such amount arising from the same circumstances and with respect to the same Advances or other Obligations payable hereunder to both such Lender and such Participant.  Any Lender that sells its participating interests in the Advances to a Participant shall retain the sole right to approve any amendment, waiver or other modification of any provision of this Agreement, provided that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification of the provisions set forth in clauses (i) through (viii) of Section 16.2(b).  Each Borrower hereby grants to any Participant a continuing security interest in any deposits, moneys or other property actually or constructively held by such Participant as security for the Participant’s interest in the Advances.

 

(c)           Any Lender, with the consent of Agent and, if no Event of Default has occurred and is continuing, Borrowing Agent, which consents shall not be unreasonably withheld or delayed, may sell, assign or transfer all or any part of its rights and obligations under or relating to Revolving Advances under this Agreement and the Other Documents to one or more additional banks or financial institutions and one or more additional banks or financial institutions may commit to make Advances hereunder (each a “Purchasing Lender”), in minimum amounts of not less than Five Million Dollars ($5,000,000), pursuant to a Commitment Transfer Supplement, executed by a Purchasing Lender, the transferor Lender, and Agent and delivered to Agent for recording.  Upon such execution, delivery, acceptance and recording, from and after the transfer effective date determined pursuant to such Commitment Transfer Supplement, (i) Purchasing Lender thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Lender thereunder with a Commitment Percentage as set forth therein, and (ii) the transferor Lender thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Agreement, the Commitment Transfer Supplement creating a novation for that purpose.  Such Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Lender and the resulting adjustment of the Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Other Documents.  If Borrowing Agent’s consent is not required for the addition of the Purchasing Lender as set forth above, each Borrower hereby consents to the addition of such Purchasing Lender and the resulting adjustment of the Commitment Percentages arising from the purchase by such Purchasing Lender of all or a portion of the rights and obligations of such transferor Lender under this Agreement and the Other Documents.  Borrowers shall execute and deliver such further documents and do such further acts and things in order to effectuate the foregoing.

 

  

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(d)           Any Lender, with the consent of Agent which shall not be unreasonably withheld or delayed, may directly or indirectly sell, assign or transfer all or any portion of its rights and obligations under or relating to Revolving Advances under this Agreement and the Other Documents to an entity, whether a corporation, partnership, trust, limited liability company or other entity that (i) is engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business and (ii) is administered, serviced or managed by the assigning Lender or an Affiliate of such Lender (a “Purchasing CLO” and together with each Participant and Purchasing Lender, each a “Transferee” and collectively the “Transferees”), pursuant to a Commitment Transfer Supplement modified as appropriate to reflect the interest being assigned (“Modified Commitment Transfer Supplement”), executed by any intermediate purchaser, the Purchasing CLO, the transferor Lender, and Agent as appropriate and delivered to Agent for recording.  Upon such execution and delivery, from and after the transfer effective date determined pursuant to such Modified Commitment Transfer Supplement, (i) Purchasing CLO thereunder shall be a party hereto and, to the extent provided in such Modified Commitment Transfer Supplement, have the rights and obligations of a Lender thereunder and (ii) the transferor Lender thereunder shall, to the extent provided in such Modified Commitment Transfer Supplement, be released from its obligations under this Agreement, the Modified Commitment Transfer Supplement creating a novation for that purpose.  Such Modified Commitment Transfer Supplement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing CLO.  Each Borrower hereby consents to the addition of such Purchasing CLO.  Borrowers shall execute and deliver such further documents and do such further acts and things in order to effectuate the foregoing.

 

(e)           Agent shall maintain at its address a copy of each Commitment Transfer Supplement and Modified Commitment Transfer Supplement delivered to it and a register (the “Register”) for the recordation of the names and addresses of each Lender and the outstanding principal, accrued and unpaid interest and other fees due hereunder.  The entries in the Register shall be conclusive, in the absence of manifest error, and each Borrower, Agent and Lenders may treat each Person whose name is recorded in the Register as the owner of the Advance recorded therein for the purposes of this Agreement.  The Register shall be available for inspection by Borrowing Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice.  Agent shall receive a fee in the amount of Three Thousand Five Hundred Dollars ($3,500) payable by the applicable Purchasing Lender and/or Purchasing CLO upon the effective date of each transfer or assignment (other than to an intermediate purchaser) to such Purchasing Lender and/or Purchasing CLO.

 

(f)           Subject to the confidentiality requirements set forth in Section 16.15, each Borrower authorizes each Lender to disclose to any Transferee and any prospective Transferee any and all financial information in such Lender’s possession concerning such Borrower which has been delivered to such Lender by or on behalf of such Borrower pursuant to this Agreement or in connection with such Lender’s credit evaluation of such Borrower.

 

16.4.           Application of Payments.  Agent shall have the continuing and exclusive right to apply or reverse and re-apply any payment and any and all proceeds of Collateral to any portion of the Obligations.  To the extent that any Borrower makes a payment or Agent or any Lender receives any payment or proceeds of the Collateral for any Borrower’s benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under any bankruptcy law, common law or equitable cause, then, to such extent, the Obligations or part thereof intended to be satisfied shall be revived and continue as if such payment or proceeds had not been received by Agent or such Lender.

 

  

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16.5.           Indemnity.  Each Borrower shall indemnify Agent, each Lender and each of their respective officers, directors, Affiliates, attorneys, employees and agents from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including reasonable fees and disbursements of counsel) which may be imposed on, incurred by, or asserted against Agent or any Lender in any claim, litigation, proceeding or investigation instituted or conducted by any Governmental Body or instrumentality or any other Person with respect to any aspect of, or any transaction contemplated by, or referred to in, or any matter related to, this Agreement or the Other Documents, whether or not Agent or any Lender is a party thereto, except to the extent that any of the foregoing arises out of the gross negligence or willful misconduct of the party being indemnified (as determined by a court of competent jurisdiction in a final and non-appealable judgment).  Without limiting the generality of the foregoing, this indemnity shall extend to any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements of any kind or nature whatsoever (including reasonable fees and disbursements of counsel) asserted against or incurred by any of the indemnitees described above in this Section 16.5 by any Person under any Environmental Laws or similar laws by reason of any Borrower’s or any other Person’s failure to comply with laws applicable to solid or hazardous waste materials, including Hazardous Substances and Hazardous Waste, or other Toxic Substances.  Additionally, if any taxes (excluding taxes of a type for which a Borrower would not be required to make a Gross-Up Payment under Section 3.10 hereof but including any intangibles taxes, stamp tax, recording tax or franchise tax) shall be payable by Agent, Lenders or Borrowers on account of the execution or delivery of this Agreement, or the execution, delivery, issuance or recording of any of the Other Documents, or the creation or repayment of any of the Obligations hereunder, by reason of any Applicable Law now or hereafter in effect, Borrowers will pay (or will promptly reimburse Agent and Lenders for payment of) all such taxes, including interest and penalties thereon, and will indemnify and hold the indemnitees described above in this Section 16.5 harmless from and against all liability in connection therewith.

 

16.6.           Notice.  Any notice or request hereunder may be given to Borrowing Agent or any Borrower or to Agent or any Lender at their respective addresses set forth below or at such other address as may hereafter be specified in a notice designated as a notice of change of address under this Section.  Any notice, request, demand, direction or other communication (for purposes of this Section 16.6 only, a “Notice”) to be given to or made upon any party hereto under any provision of this Loan Agreement shall be given or made by telephone or in writing (which includes by means of electronic transmission (i.e., “e-mail”) or facsimile transmission or by setting forth such Notice on a site on the World Wide Web (a “Website Posting”) if Notice of such Website Posting (including the information necessary to access such site) has previously been delivered to the applicable parties hereto by another means set forth in this Section 16.6) in accordance with this Section 16.6.  Any such Notice must be delivered to the applicable parties hereto at the addresses and numbers set forth under their respective names on Section 16.6 hereof or in accordance with any subsequent unrevoked Notice from any such party that is given in accordance with this Section 16.6.  Any Notice shall be effective:

 

(a)           In the case of hand-delivery, when delivered;

 

  

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(b)           If given by mail, four (4) days after such Notice is deposited with the United States Postal Service, with first-class postage prepaid, return receipt requested;

 

(c)           In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of such telephonic Notice is confirmed no later than the next Business Day by hand delivery, a facsimile or electronic transmission, a Website Posting or an overnight courier delivery of a confirmatory Notice (received at or before noon on such next Business Day);

 

(d)           In the case of a facsimile transmission, when sent to the applicable party’s facsimile machine’s telephone number, if the party sending such Notice receives confirmation of the delivery thereof from its own facsimile machine;

 

(e)           In the case of electronic transmission, when actually received;

 

(f)           In the case of a Website Posting, upon delivery of a Notice of such posting (including the information necessary to access such site) by another means set forth in this Section 16.6; and

 

(g)           If given by any other means (including by overnight courier), when actually received.

 

Any Lender giving a Notice to Borrowing Agent or any Borrower shall concurrently send a copy thereof to Agent, and Agent shall promptly notify the other Lenders of its receipt of such Notice.

 

(A)           If to Agent or PNC at:

 

PNC Bank, National Association

1600 Market Street – 31st Floor

Philadelphia, PA  19103

Attention:                      Jacqualine MacKenzie

Telephone:                      (215) 585-2056

Facsimile:                      (215) 585-4771

with a copy to:

PNC Bank, National Association

PNC Agency Services

PNC Firstside Center

500 First Avenue, 4th Floor

Pittsburgh, Pennsylvania 15219

Attention:                      Lisa Pierce

Telephone:                      (412) 762-6442

Facsimile:                      (412) 762-8672

with an additional copy to:

Ballard Spahr LLP

1735 Market Street

Philadelphia, PA  19103

Attention:  Steven M. Miller, Esquire

Telephone:                      (215) 864-8310

Facsimile:                      (215) 864-8999

 

  

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(B)           If to a Lender other than Agent, as specified on the signature pages hereof.

 

(C)           If to Borrowing Agent or any Borrower:

 

Emtec, Inc.

100 Matsonford Road

Two Radnor Corporate Center

Suite 420

Radnor, PA 19087

Attention:                      Chief Financial Officer

Telephone:                      (973) 376-4242

Facsimile:                      (484) 654-2539

with a copy to:

Dechert LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104-2808

Attention:                      Gary L. Green, Esquire

Stephen M. Leitzell, Esquire

Telephone:                      (215) 994-4000

Facsimile:                      (215) 994-2222

16.7.           Survival.  The obligations of Borrowers under Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h), and 16.5 and the obligations of Lenders under Section 14.7, shall survive termination of this Agreement and the Other Documents and payment in full of the Obligations.

 

16.8.           Severability.  If any part of this Agreement is contrary to, prohibited by, or deemed invalid under Applicable Laws, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder hereof shall not be invalidated thereby and shall be given effect so far as possible.

 

  

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16.9.           Expenses.  All out-of-pocket costs and expenses including reasonable attorneys’ fees (including the allocated costs of in-house counsel) and disbursements incurred by Agent on its behalf or on behalf of Lenders (a) in all efforts made to enforce payment of any Obligation or effect collection of any Collateral, or (b) in connection with the entering into, modification, amendment, administration and enforcement of this Agreement, any Subordination Agreement or any amendments, consents or waivers hereunder or thereunder and all related agreements, documents and instruments (whether or not such amendments, consents or waivers are consummated), or (c) in instituting, maintaining, preserving, enforcing and foreclosing on Agent’s security interest in or Lien on any of the Collateral, or maintaining, preserving or enforcing any of Agent’s or any Lender’s rights hereunder or under any Subordination Agreement and under all related agreements, documents and instruments, whether through judicial proceedings or otherwise, or (d) in defending or prosecuting any actions or proceedings arising out of or relating to Agent’s or any Lender’s transactions with any Borrower, any holder of Subordinated Debt or any Guarantor or (e) in connection with any advice given to Agent or any Lender with respect to its rights and obligations under this Agreement, any Subordination Agreement and all related agreements, documents and instruments, may be charged to Borrowers’ Account and shall be part of the Obligations.

 

16.10.           Injunctive Relief.  Each Borrower recognizes that, in the event any Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, or threatens to fail to perform, observe or discharge such obligations or liabilities, any remedy at law may prove to be inadequate relief to Lenders; therefore, Agent, if Agent so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving that actual damages are not an adequate remedy.

 

16.11.           Consequential Damages.  Neither Agent nor any Lender, nor any agent or attorney for any of them, shall be liable to any Borrower or any Guarantor (or any Affiliate of any such Person) for indirect, punitive, exemplary or consequential damages arising from any breach of contract, tort or other wrong relating to the establishment, administration or collection of the Obligations or as a result of any transaction contemplated under this Agreement or any Other Document.

 

16.12.           Captions.  The captions at various places in this Agreement are intended for convenience only and do not constitute and shall not be interpreted as part of this Agreement.

 

16.13.           Counterparts; Facsimile Signatures.  This Agreement may be executed in any number of and by different parties hereto on separate counterparts, all of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.

 

16.14.           Construction.  The parties acknowledge that each party and its counsel have reviewed this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments, schedules or exhibits thereto.

 

  

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16.15.           Confidentiality; Sharing Information.  Agent, each Lender and each Transferee shall hold all non-public information obtained by Agent, such Lender or such Transferee pursuant to the requirements of this Agreement in accordance with Agent’s, such Lender’s and such Transferee’s customary procedures for handling confidential information of this nature; provided, however, Agent, each Lender and each Transferee may disclose such confidential information (a) to its examiners, Affiliates, outside auditors, counsel and other professional advisors, (b) to Agent, any Lender or to any prospective Transferees, and (c) as required or requested by any Governmental Body or representative thereof or pursuant to legal process; provided, further that (i) unless specifically prohibited by Applicable Law, Agent, each Lender and each Transferee shall use its reasonable best efforts prior to disclosure thereof, to notify the applicable Borrower of the applicable request for disclosure of such non-public information (A) by a Governmental Body or representative thereof (other than any such request in connection with an examination of the financial condition of a Lender or a Transferee by such Governmental Body) or (B) pursuant to legal process and (ii) in no event shall Agent, any Lender or any Transferee be obligated to return any materials furnished by any Borrower other than those documents and instruments in possession of Agent or any Lender in order to perfect its Lien on the Collateral once the Obligations have been paid in full and this Agreement has been terminated.  Each Borrower acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to such Borrower or one or more of its Affiliates (in connection with this Agreement or otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such Lender and each Borrower hereby authorizes each Lender to share any information delivered to such Lender by such Borrower and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Lender to enter into this Agreement, to any such Subsidiary or Affiliate of such Lender, it being understood that any such Subsidiary or Affiliate of any Lender receiving such information shall be bound by the provisions of this Section 16.15 as if it were a Lender hereunder.  Such authorization shall survive the repayment of the other Obligations and the termination of this Agreement.

 

16.16.           Publicity

 

.  Each Borrower and each Lender hereby authorizes Agent to make appropriate announcements of the financial arrangement entered into among Borrowers, Agent and Lenders, including announcements which are commonly known as tombstones, in such publications and to such selected parties as Agent shall in its sole and absolute discretion deem appropriate.

 

16.17.           Certifications From Banks and Participants; US PATRIOT Act

 

.  Each Lender or assignee or participant of a Lender that is not incorporated under the Laws of the United States of America or a state thereof (and is not excepted from the certification requirement contained in Section 313 of the USA PATRIOT Act and the applicable regulations because it is both (a) an affiliate of a depository institution or foreign bank that maintains a physical presence in the United States or foreign country, and (b) subject to supervision by a banking authority regulating such affiliated depository institution or foreign bank) shall deliver to Agent the certification, or, if applicable, recertification, certifying that such Lender is not a “shell” and certifying to other matters as required by Section 313 of the USA PATRIOT Act and the applicable regulations: (1) within ten (10) days after the Closing Date, and (2) as such other times as are required under the USA PATRIOT Act.

 

  

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Each of the parties has signed this Agreement as of the day and year first above written.

 

	  	
EMTEC, INC. (a Delaware corporation)

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
EMTEC, INC. (a New Jersey corporation)

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
EMTEC INFRASTRUCTURE SERVICES CORPORATION

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           President

	  	  
	  	  
	  	
EMTEC VIASUB LLC

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
EMTEC GLOBAL SERVICES LLC

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  

 

  

  

  

 

	  	  
	  	
KOAN-IT (US) CORP.

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chairman

	  	  
	  	  
	  	
EMTEC FEDERAL, INC.

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
eBUSINESS APPLICATION SOLUTION, INC.

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
LUCEO, INC.

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
AVEEVA, INC.

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
SECURE DATA, INC.

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
COVELIX, INC.

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chairman

	  	  
	  	  

 

  

  

  

 

 

	  	
DINERO SOLUTIONS, LLC

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           Chief Executive Officer

	  	  
	  	  
	  	
GNUCO, LLC

	  	  
	  	  
	  	
By: /s/ Dinesh Desai

	  	
Name: Dinesh Desai

	  	
Title:           President

	  	  
	  	  
	  	
PNC BANK, NATIONAL ASSOCIATION,

	  	
as Lender and as Agent

	  	  
	  	  
	  	
By: /s/ Diane M. Shaak

	  	
Name:           Diane M. Shaak

	  	
Title:           Senior Vice President

	  	  
	  	  
	  	  
	  	
Commitment Percentage:  100%ex10-2.htm

EXHIBIT 10.2

 

AMENDED AND RESTATED SUBORDINATED LOAN AGREEMENT

 

THIS AMENDED AND RESTATED SUBORDINATED LOAN AGREEMENT (the “Agreement”) is dated this 30th day of December, 2011, by and among EMTEC, INC., a Delaware corporation (“Emtec”), each of the other entities set forth on Appendix I and signatory hereto (together with Emtec, each a “Company” and collectively the “Companies”), NEWSPRING SBIC MEZZANINE CAPITAL II, L.P., a Delaware limited partnership (“NewSpring”), PEACHTREE II, L.P., a Delaware limited partnership (“Peachtree” and together with NewSpring each with its successors and assigns, each an “Investor” and collectively the “Investors”) and NEWSPRING-SBIC MEZZANINE CAPITAL II, L.P., in its capacity as collateral agent for the Investors under the terms of the Participation Agreement (defined below) (together with its successors and assigns, the “Collateral Agent”).

 

BACKGROUND

 

NewSpring and the Companies entered into a Subordinated Loan Agreement dated August 15, 2011 (the “Existing Subordinated Loan Agreement”) whereby NewSpring made a senior subordinated secured loan to the Companies in the original principal amount of Ten Million Dollars ($10,000,000) (the “NewSpring Subordinated Loan”).

 

The Companies and NewSpring hereby desire to amended and restate the Existing Subordinated Loan Agreement to include Peachtree as Investor, to provide for an additional senior subordinated secured term loan in the original principal amount of Three Million Dollars ($3,000,000) from Peachtree to the Companies (the “Peachtree Subordinated Loan”, and together with the NewSpring Subordinated Loan, each a “Subordinated Loan”, and collectively, the “Subordinated Loans”)  on the terms and pursuant to the conditions set forth herein, to effect the appointment of NewSpring as collateral agent for the Investors, under the terms of the Participation Agreement, and to make certain other amendments and modifications as set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and promises set forth herein, the parties hereto, intending to be legally bound, agree as follows:

 

ARTICLE 1

Definitions

 

Section 1.1.                           Definitions

 

  Unless the context otherwise requires, the following terms shall have the following meanings for purposes of this Agreement:

 

“1940 Act” has the meaning given to it in Section 4.26.

 

  

  

  

 

“Act of Bankruptcy” when used in reference to any Person, means the occurrence of any of the following with respect to such Person: (a) such Person shall have made an assignment of all or substantially all of its assets for the benefit of his, her or its creditors; (b) such Person shall have filed a voluntary petition in bankruptcy; (c) such Person shall have been adjudicated as bankrupt or insolvent by a court of competent jurisdiction; (d) such Person shall have filed any petition or answer seeking for himself, herself or itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future applicable Law pertinent to such circumstances; (e) such Person shall have filed or shall file any answer admitting or not contesting the material allegations of a bankruptcy, insolvency or similar petition filed against such Person; (f) such Person shall have sought or consented to, or acquiesced in, the appointment of any trustee, receiver, or liquidator of such Person of all or substantially all of the properties of such Person; (g) sixty (60) days shall have elapsed after the commencement of an action against such Person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future applicable Law without such action having been dismissed or without all orders or proceedings thereunder affecting the operations or the business of such Person having been stayed, or if a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (h) sixty (60) days shall have expired after the appointment, without the consent or acquiescence of such Person of any trustee, receiver or liquidator of such Person or of all or substantially all of the assets and properties of such Person without such appointment having been vacated.

 

“Act of Dissolution” when used in reference to any Person (other than an individual) means the occurrence of any action initiating, or any event that results in, the dissolution, liquidation, winding-up or termination of such Person.

 

“Affiliate” when used in reference to any Person, shall mean any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the Person in question.  For purposes of this definition, “control” (including, with correlative meaning, the terms “controlled by” and “under common control with”), as used with respect to a Person, means the possession, directly or indirectly, of the power to direct or cause the direction of management policies of such Person, whether through ownership of voting securities, by contract or otherwise.

 

“Board” means the Board of Directors of Emtec.

 

“Books and Records” means all of the Companies’ books and records, including, but not limited to, records indicating, summarizing, or evidencing the Collateral, the Company Liabilities, and the Companies’ property, business operations, or financial condition; computer runs, invoices, tapes, processing software, processing contracts (such as contracts for computer time and services) and any computer prepared information, tapes, or data of every kind and description, whether in the possession of the Companies or in the possession of third parties.

 

“Business” means the Companies’ current business of providing consulting, application services and infrastructure services to public sector and commercial clients and other businesses reasonably related thereto.

 

“Business Day” means any day other than a Saturday, a Sunday or any other day which is considered a federal holiday or on which banks in the Commonwealth of Pennsylvania are closed.

 

“Capital Expenditure” means expenditures for any fixed assets or improvements, replacements, substitutions or additions thereto or therefor which have a useful life of more than one year, and shall include all payments in respect of obligations which are appropriately characterized as capital leases under GAAP and leasehold improvements.

 

  

-2-

  

 

“Capital Stock” means:

 

(a)           in the case of a corporation, corporate stock;

 

(b)           in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

 

(c)           in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and

 

(d)           any other interests or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

 

“Change of Control” means one or more transactions undertaken by Emtec resulting in either: (a) the Transfer of fifty percent (50%) or more of the assets of Emtec to another Person (excluding the Federal Procurement Business); (b) a merger or consolidation of Emtec with another Person where the shareholders of Emtec immediately prior to such merger or consolidation do not hold a majority of the outstanding equity securities of the surviving or successor entity or the ability to elect a majority of the board of directors or managers of the surviving or successor entity immediately following such merger or consolidation; or (c) the Transfer by the shareholders of Emtec, as of the date hereof, of fifty percent (50%) or more of the then issued and outstanding shares of Capital Stock of Emtec to any other Person who is not (i) an Affiliate of such shareholder (provided, that with respect to DARR, “Affiliates” shall include its Permitted Transferees) or (ii) another shareholder or an Affiliate of such other shareholder.

 

“Claim” means any claim, demand, suit, litigation, arbitration, investigation, action or proceeding by or before any Governmental Authority seeking penalties, monetary damages, equitable relief or compliance with any Law under any theory, including those based on theories of contract, tort, equity, statutory liability, strict liability, employer liability, premises liability, product liability or breach of warranty.

 

“Closing Date” means the date on which the conditions precedent set forth in Article 6 have been satisfied in the sole discretion of the Investors and Collateral Agent or waived by the Investors and Collateral Agent.

 

“Code” has the meaning set forth in Section 4.14 hereof.

 

“Collateral” has the meaning assigned to it in the Security Agreement.

 

“Common Stock” means the common stock of the Emtec, par value $0.01 per share.

 

“Company Liabilities” means the outstanding amount of principal under the Note, together with all accrued and unpaid interest thereon, as well as all other monetary obligations or liabilities that are payable by the Companies with respect to the Note.

 

  

-3-

  

 

“Contingent Obligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any Indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable; (ii) any obligations with respect to undrawn letters of credit issued for the account of that Person; and (iii) all obligations arising under any interest rate, currency or commodity swap agreement, interest rate cap agreement, interest rate collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the Ordinary Course of Business of such Person.  The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other support arrangement.

 

“Contract” means a purchase order, sales agreement, equipment lease, distribution agreement, licensing agreement, franchise, bond, note, mortgage, indenture, guaranty, release, instrument, contract, agreement, commitment and arrangement (in every case, oral or written).

 

“Copyrights” means (a) all copyrights, registrations and applications for registration, issued or filed, including any extensions or renewals thereof, by or with the United States Copyright Office or any similar office or agency of the United States, any state thereof, or any other country or political subdivision thereof, or otherwise, including, all rights in and to the material constituting the subject matter thereof, and (b) any rights in any original works of authorship or other copyrightable material protected by common law, United States copyright laws or similar laws or any law of any state thereof.

 

“Copyright License” means any agreement, written or oral, providing for a grant by or to any Person of any right in any Copyright.

 

“Covelix” means Covelix, Inc., a Delaware corporation.

 

“Covelix India” means Covelix Technologies Private Ltd., an entity incorporated in India.

 

“DARR” means DARR Westwood LLC, a Delaware limited liability company.

 

“Default” shall mean any event or condition that, but for the giving of notice or the lapse of time, or both, would constitute an Event of Default.

 

  

-4-

  

 

“Emerging Cloud” means a non-wholly-owned Subsidiary of Gnuco to be formed after the Closing Date and joined as a borrower subject to the terms of Section 8.15 hereof.

 

“Employee Plans” means each material employee benefit plan or arrangement (whether or not an employee benefit plan as defined in section 3(3) of ERISA), including cafeteria, severance pay, salary continuation for disability, retirement, deferred compensation, bonus, incentive compensation, stock purchase, stock option, health (including hospitalization, medical and dental) and life insurance maintained by any Company or any ERISA Affiliate for the benefit of any current or former employees, directors or consultants of any Company or with respect to which any Company has any material liability (contingent or otherwise).

 

“Emtec Canada” means Emtec Infrastructure Services Canada Corporation, a corporation organized under the laws of Canada and an indirect subsidiary of Emtec.

 

“Emtec Certificate of Incorporation” means the Certificate of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware.

 

“Emtec Global” means Emtec Global Services LLC, a Delaware limited liability company and a direct wholly-owned subsidiary of Emtec.

 

“Emtec Federal” means Emtec Federal, Inc., a New Jersey corporation f/k/a Westwood Computer Corporation (as successor by merger to DARR Westwood Acquisition Corporation).

 

“Emtec India” means Emtec Software India Private Limited (formerly known as Aviance Software India Pvt., Ltd.), an entity incorporated in India.

 

“Emtec SEC Documents” has the meaning set forth in Section 4.42 hereof.

 

“Environmental Laws” shall mean the Federal Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. §§ 9601, et. seq., the Federal Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et. seq., the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801, et. seq., all other federal, state and local environmental or health laws applicable to the Companies or their business, operations or assets now or hereafter enacted, and all rules, regulations, orders and publications adopted or promulgated pursuant thereto from time to time.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA Affiliate” means any entity that is, together with any Company treated as a single employer under Section 414(b), (c), (m) or (o) of the Code.

 

“Event of Default” has the meaning set forth in Article 10 hereof.

 

“Exchange Act” has the meaning set forth in Section 4.42 hereof.

 

  

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“Federal Procurement Business” means Emtec Federal, excluding the assets and Capital Stock of Secure Data, Inc., a Delaware corporation.

 

“Financial Statements” has the meaning set forth in Section 4.11 hereof.

 

“Fixed Charges” means the sum of the following for Emtec and its Subsidiaries on a consolidated basis:  (i) all interest paid in cash (exclusive of non-cash interest expense charges)  in respect of Indebtedness (provided, that: (1) for the fiscal quarter of Emtec and its consolidated Subsidiaries ending on November 30, 2011, all interest paid in cash with respect to Indebtedness under the Notes for the quarter ending on such date shall be multiplied by 4; (2) for the fiscal quarter of Emtec and its consolidated Subsidiaries ending on February 28, 2012, all interest paid in cash with respect to Indebtedness under the Notes for the prior two quarters ending on such date shall be multiplied by 2; and (3) for the fiscal quarter of Emtec and its consolidated Subsidiaries ending on May 31, 2012, all interest paid in cash with respect to Indebtedness under the Notes for the prior three quarters ending on such date shall be multiplied by 4/3),  and (ii) current maturities of: (A) long term Indebtedness, (B) capital lease payments, and (C) any other cash payment due under any earn out, bonus, retention or other performance-based agreement.

 

“Fixed Charge Coverage Ratio” means the ratio of: (a) Pro Forma Adjusted EBITDA minus cash taxes, distributions and Unfunded Capital Expenditures to (b) Fixed Charges.

 

“Foreign Subsidiaries” means any Subsidiary not organized under the laws of the United States of America, any State or the District of Columbia.

 

“GAAP” means generally accepted accounting principles applicable in the United States of America.

 

“Gnuco” means Gnuco, LLC, a Delaware limited liability company d/b/a Emerging Solutions.

 

“Gnuco Acquisition Agreement” means that certain Securities Purchase Agreement, dated the date hereof, by and among Emtec Global, Emtec, Gnuco, the members of Gnuco listed on the signature pages thereto and solely for the purposes of Section 8.2, Section 9.2 and Article X, Greg Lewis and Don Sweeney.

 

“Gnuco Acquisition Documents” means the Gnuco Acquisition Agreement and the Ancillary Agreements (as defined in the Gnuco Acquisition Agreement).

 

“Gnuco Collateral Assignment of Undertakings” has the meaning assigned to it in Section 6.1(o) hereof.

 

“Governmental Authority(ies)” when used in the singular, means any federal, state, local or foreign governmental or quasi-governmental instrumentality, agency, board, commission or department or any regulatory agency, bureau, commission or authority and, when used in the plural, shall mean all such entities.

 

  

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“Hazardous Materials” means all materials of any kind which are flammable, explosive, toxic, radioactive or otherwise hazardous to animal or plant life or the environment, including, without limitation, “hazardous wastes,” “hazardous substances” and “contaminants,” as such terms are defined by Environmental Laws.

 

“Hedging Liability” means, relative to any Person, all liabilities of such Person under interest rate and currency swap, cap and collar agreements and all other writings designed to protect such Person against fluctuations in interest or currency exchange rates.

 

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness for borrowed money, (b) all indebtedness for the deferred purchase price of property or services (other than any “earnouts” and similar payment obligations that have not been earned in full as of such date or are contingent), (c) all indebtedness for reimbursement and other obligations with respect to surety bonds and letters of credit, (d) all obligations evidenced by notes, bonds, debentures or similar instruments, (e) all capitalized lease obligations, (f) all Contingent Obligations, (g) all obligations to guarantee the Indebtedness of another Person, and (h) “earnouts” and similar payment obligations that have been earned in full as of such date and are not contingent.

 

“Indemnified Party” has the meaning set forth in Section 7.2.1 hereof.

 

“Information” has the meaning assigned to it in Section 12.11 hereof.

 

“Intellectual Property” means all rights in and to Copyrights, Copyright Licenses, Patents, Patent Licenses, Software, Trademarks, Trademark Licenses, Trade Secrets, web sites, and any other tangible or intangible proprietary or confidential information, and all improvements, modifications, and enhancements to and derivatives of any of the foregoing protected, created, developed and/or arising, as of the date hereof under the laws of the United States or any other jurisdiction, in whatever stage of development.

 

“Investor Rights Agreement” means the Amended and Restated Investor Rights Agreement by and among the Investors and Emtec, substantially in the form attached hereto as Exhibit A.

 

“IP Security Agreement(s)” means each Amended and Restated Intellectual Property Security Agreement delivered to Collateral Agent under Article 6 hereof by and between any Company and the Collateral Agent, for the benefit of the Investors, in form and substance acceptable to the Collateral Agent.

 

“Issue Date” means the date on which any Note is first issued.

 

“Key Management” means those persons identified as “Key Management” pursuant to Schedule 4.8 hereto.

 

“Law or Laws” means all (i) constitutions, treaties, statutes, laws (including common law), codes, rules, regulations, ordinances, requests or orders of any Governmental Authority; and (ii) orders, decisions, injunctions, judgments, awards and decrees of or agreements with any Governmental Authority, in each case including all Environmental Laws, Tax, labor, employment and Intellectual Property laws.

 

  

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“Liabilities” means, without limitation, any direct or indirect Indebtedness, guaranty, endorsement, Claim, loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or unfixed, known or unknown, asserted or unasserted, choate or inchoate, liquidated or unliquidated, secured or unsecured.

 

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever.

 

“Loan Documents” means, collectively, this Agreement, the Notes, the Security Documents, the PNC Intercreditor Agreement, the Warrants, and all other instruments and documents executed and delivered in connection with the Subordinated Loans.

 

“Losses” has the meaning set forth in Section 7.2.1 hereof.

 

“Mandatory Prepayment Event” has the meaning set forth in Section 2.7 hereof.

 

“Material Adverse Effect” means (i) any material adverse change in the condition (financial or otherwise), assets, liabilities, business, results of operation or prospects of Emtec and its Subsidiaries, taken as a whole, or (ii) any event, matter, condition or effect which materially impairs the ability of the Companies taken as a whole to perform their obligations under the Loan Documents.

 

“Material Contract” and “Material Contracts” has the meaning set forth in Section 4.6 hereof.

 

“Maturity Date” has the meaning set forth in Section 2.2 hereof.

 

“MauritiusCo” means Emtec Services Mauritius, a company organized under the laws of Mauritius and a direct wholly-owned subsidiary of Emtec Global.

 

“Multiemployer Plan” means a “multiemployer plan” within the meaning of Section 3(37) of ERISA.

 

“No Default/Compliance Certificate” means a certificate in the form of Exhibit E hereto.

 

“Note” means individually and “Notes” means collectively the senior subordinated promissory notes executed by the Companies in favor of each of the Investors, substantially the form attached hereto as Exhibit B.

 

“Ordinary Course of Business” means, as to any Person, the ordinary course of business for such Person consistent in all material respects with past practices.

 

“Participation Agreement” means the Participation Agreement between NewSpring, for itself and as Collateral Agent, and Peachtree dated of even date herewith.

 

  

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“Patents” means (a) all letters patent of the United States or any other country or any political subdivision thereof, and all reissues and extensions thereof, and (b) all applications for letters patent of the United States and all divisions, continuations and continuations-in-art thereof or any other country or any political subdivision.

 

“Patent License” means all agreements, whether written or oral, providing for the grant by or to any Person of any right to manufacture, use or sell any invention covered by a Patent.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any successor authority.

 

“Permitted Acquisition” means the purchase or acquisition (whether in one or a series of related transactions) by any Person of (a) all of the Capital Stock with ordinary voting power of another Person or (b) all or substantially all of the assets of another Person or division or line of business or business unit of another Person, whether or not involving a merger or consolidation with such Person; provided that (i) at the time thereof and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result from such acquisition or purchase, (ii) the aggregate amount of the consideration (or, in the case of consideration consisting of assets, the fair market value of the assets) paid by the Companies and their respective Subsidiaries shall not exceed One Million Dollars ($1,000,000) (including assumed obligations and liabilities) in the aggregate for any fiscal year, (iii) the Companies would be in compliance with the financial covenants set forth in Section 8.14 for the most recent calculation period and as of the last day thereof, if such acquisition or purchase had been completed on the first day of such calculation period, (iv) not less than five (5) days prior to the consummation of such proposed acquisition, the Borrower shall deliver to the Investor, a certificate from the Chief Executive Officer, Chief Financial Officer, Executive Offer or President of Emtec setting forth in reasonable detail calculations demonstrating compliance with the conditions set forth in clauses (ii) and (iii) above.

 

“Permitted Encumbrances” means any Lien, mortgage, security interest or other encumbrance, whether now existing or hereafter created, that results from any of the following:  (a) the Liens, mortgages, security interests and other encumbrances created or arising pursuant to this Agreement and the other Loan Documents; (b) Liens for taxes and assessments and other governmental charges incurred in the Ordinary Course of Business of any Company which are not delinquent or actively being contested in good faith by such Company and for which such Company has adequate reserves; (c) deposits or pledges made in the Ordinary Course of Business of any Company to secure payment of worker’s compensation or to participate in any fund in connection with worker’s compensation, unemployment insurance or other social security, old age pension or public liability obligations; (d) surety, appeal, indemnity, performance or other similar bonds required in the Ordinary Course of Business of any Company; (e) Liens, mortgages or security interests securing purchase money obligations (where the purchase money obligation is not undertaken in contravention of the terms of the Loan Documents), provided that any such Lien, mortgage or security interest does not encumber any property other than the property acquired in such purchase money transaction, the Indebtedness incurred in connection therewith does not exceed 100% of the purchase price of the asset(s) being acquired and the aggregate Indebtedness permitted under this clause (e) shall not exceed Five Hundred Thousand Dollars ($500,000) during any fiscal year of Emtec; (f) Liens, mortgages, security interests or other encumbrances securing the Senior Debt; (g) inchoate and unperfected mechanics, bankers, carriers, landlords, warehousemen, laborers and materialmen Liens arising in the Ordinary Course of Business of any Company that are not yet due and payable or which are being contested in good faith and for which adequate reserves have been established; (h) Liens, mortgages or security interests securing any Company’s property as expressly set forth as to the approximate amount as of the date hereof, identity of the creditor and the security interest or other collateral therefor, all as listed on Schedule 4.21 hereto; (i) Liens on assets (other than inventory or receivables) of Persons which become Subsidiaries after the date of this Agreement acquired in connection with a transaction permitted under Section 9.11, provided that: (1) such Liens existed at the time the respective Persons became a Subsidiary and were not created in anticipation thereof, (2) any such Lien does not by its terms cover any property or assets after the time such Person becomes a Subsidiary which were not covered immediately prior thereto, and (3) the applicable Company has complied with the terms of Section 8.15; (j) leases for equipment or otherwise and associated security interests securing the subject(s) of such leases in the Ordinary Course of Business; and (k) judgment Liens that do not constitute an Event of Default hereunder.

 

  

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“Permitted Foreign Subsidiary” means each individually and “Permitted Emtec Canada Foreign Subsidiaries” means collectively, MauritiusCo, Emtec India, Covelix India, Emtec Canada and any other Foreign Subsidiary hereafter created, formed or acquired by any Company or any Subsidiary thereof in accordance with Section 9.1(d).

 

“Permitted Transferee” means:  (i) Dinesh R. Desai or the managing member of DARR, and any corporation, partnership or other entity that is an Affiliate of any of the foregoing persons in this clause (i) (collectively, “DARR Affiliates”) (ii) any present or former managing director, director, trustee or other fiduciary, general partner, limited partner, member, officer or employee of DARR or any DARR Affiliate, or any spouse or lineal descendant (natural or adopted), sibling or parent of any of the foregoing persons in this clause (ii), any heir, executor, administrator, testamentary trustee, legatee or beneficiary of any of the foregoing persons described in this clause (ii), or any personal representative upon the death, disability or incompetency of any of the foregoing persons described in this clause (ii) for the purpose of the protection and management of the assets of such person (collectively, “DARR Associates”), and (iii) any trust, the beneficiaries of which, or any charitable trust, the grantor of which, or any corporation, limited liability company, partnership or other business entity, the stockholders, members or general and limited partners of which, include only DARR, DARR Affiliates, or DARR Associates.

 

“Person” means an individual, corporation, partnership, joint venture, association, trust, or other entity or organization.

 

“PNC Intercreditor Agreement” has the meaning set forth in Section 6.1(l) hereof.

 

“Prepayment Premium” has the meaning set forth in Section 2.8 hereof.

 

“Pro Forma Adjusted EBITDA” means for the applicable period for Emtec and its Subsidiaries on a consolidated basis , the sum of Emtec’s and its Subsidiaries’ net income, plus (1) interest expense, (2) tax expense (as determined in accordance with GAAP), (3) non-cash stock based compensation, the mark to market expenses for any Warrant, or any other mark to market expenses which are non-cash, (4) depreciation and amortization, plus: (i) those addbacks set forth on Schedule 1.1A hereto (which addbacks shall not exceed the actual final amounts paid), (ii) those addbacks related to Project Fitness set forth on the No Default/Compliance Certificate delivered by Emtec for the applicable period, and approved by the Investors in their sole discretion (which addbacks shall not exceed the final amounts paid); and (iii) those addbacks approved by the Investors in their sole discretion (which addbacks shall not exceed the actual final amounts paid), (5) any restructuring charges in accordance with GAAP, (6) any fees or expenses paid to lenders that are nonrecurring in nature, and (7) any goodwill write downs; provided, that the above calculation shall be deemed to include the trailing twelve months or the results of operations of all Subsidiaries acquired by Emtec or any of its Subsidiaries during the twelve month period prior to the Closing Date (including without limitation, Gnuco).

 

  

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“Project Fitness” means the Companies’ 2011 restructuring plan.

 

“Real Property” means, collectively, all real property owned by any Company or in which any Company has a leasehold interest and all real property hereafter acquired by any Company in fee or by means of a leasehold interest, including all real property on which any Company’s Business is now conducted, together with all goods located on any such real property that are or may become “fixtures” under the law of the jurisdiction in which such real property is located.

 

“Sarbanes-Oxley Act” has the meaning set forth in Section 4.42 hereof.

 

“SBA” has the meaning set forth in Section 4.25 hereof.

 

“SBA Act” has the meaning set forth in Section 4.25 hereof.

 

“SEC” has the meaning set forth in Section 4.42 hereof.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Security Agreement” means the Amended and Restated Security Agreement delivered to the Collateral Agent under Article 6 hereof by the Companies in favor of Collateral Agent, for the benefit of the Investors, in form and substance acceptable to Collateral Agent.

 

“Security Document” means individually and “Security Documents” means collectively, any or all of (i) this Agreement, (ii) the IP Security Agreements, (iii) the Security Agreement, (iv) the Gnuco Collateral Assignment of Undertakings, (v) any landlord or bailee waivers reasonably required by Collateral Agent under the terms of the Security Agreement, (vi) any additional documents required by Collateral Agent under Section 8.17 hereof, (vii) the ancillary documents relating to the documents set forth in prior clauses (i) – (vi), and (viii) all extensions, renewals, amendments, substitutions or replacements to any of the foregoing.

 

  

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“Senior Agent” means PNC Bank, National Association, as agent for the Senior Lenders under the terms of the Senior Loan Agreement.

 

“Senior Debt” means Indebtedness incurred by the Companies under the terms of the Senior Loan Agreement, all of which includes any amount owed under any Interest Rate Protection Agreement entered into with respect thereto and which is subject to the terms of the PNC Intercreditor Agreement.

 

“Senior Lenders” means the lenders party to the Senior Loan Agreement.

 

“Senior Loan Agreement” means the Revolving Credit and Security Agreement among the Companies, the lenders party thereto, and PNC Bank, National Association, as agent, as it may be amended, restated or modified from time to time as permitted under the terms of the PNC Intercreditor Agreement.

 

“Software” means (i) all software programs, including all versions of source code, object code, assembly language, compiler language, machine code, and all other computer instructions, code, and languages embodied in computer software of any nature whatsoever and whether for use in or in conjunction with a mainframe computer, personal computer (desk top, lap top or hand held), personal digital assistant (PDA) or any other programmable hardware or device; computer systems, computer hardware, network infrastructure and related equipment, and all error corrections updates, upgrades, enhancements, translations, modifications, adaptations, further developments, derivative works, and other changes or functionality additions, of any kind to any of the foregoing; (ii) all designs and design documents (whether detailed or not), technical summaries, and documentation (including flow charts, logic diagrams, white papers, manuals, guides and specifications) with respect to such software described in the preceding clause; and (iii) all firmware and middleware associated with any of the foregoing in subparts (i) and (ii) hereof.

 

“Solvent” means, with respect to any Person, that (i) the fair value of all of such Person’s properties and assets is in excess of the total amount of its Indebtedness; (ii) it is able to pay its debts as they mature; (iii) it does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage; and (iv) it is not “insolvent” as such term is defined in Section 101(31) of Title 11 of the United States Code, 11 U.S.C.  Section 101, et seq.

 

“Subordinated Loans” has the meaning set forth in the Background section hereof.

 

“Subsidiary” means any corporation, partnership, limited liability company or entity of which any Company owns or holds, directly or indirectly, a greater than 50% voting or economic interest, if any.

 

“Tax” and “Taxes” means any tax (including any income tax, franchise tax, capital gains tax, estimated tax, gross receipts tax, value added tax, surtax, excise tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property tax, business tax, occupation tax, inventory tax, occupancy tax, withholding tax or payroll tax), levy, assessment, tariff, impost, imposition, toll, duty (including any customs duty), deficiency or fee, and any related charge or amount (including any fine, penalty or interest), imposed, assessed or collected by or under the authority of any Governmental Authority.

 

  

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“Total Funded Senior Debt” means, for Emtec and its consolidated Subsidiaries, the sum of all:  (i) Senior Debt, (ii) Indebtedness under the Notes and (iii) retention bonuses owed under the terms of acquisition agreements (including without limitation the Gnuco Acquisition Agreement) and related documents, minus cash.

 

“Trademarks” means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof, or otherwise, and (b) all renewals thereof.

 

“Trademark License” means any agreement, written or oral, providing for the grant by or to any Person of any right to use any Trademark.

 

“Trade Secrets” means all common law and statutory trade secrets and all other confidential information or other non-public information, whether or not reduced to a writing or other tangible form including, without limitation, patterns, designs, plans, product road maps, specifications, compilations, programs, devices, schematics, technology, methods, inventions, discoveries, improvements, concepts, ideas, drawings, analytics, techniques, processes and procedures, working notes and memos, market studies, consultant reports, know-how, research, customer lists, marketing, distribution and sales methods and systems, formulae, technical and laboratory data, competitive samples, and engineering prototypes and all similar information and know-how, whether or not reduced to a writing or other tangible form, including all documents and things embodying, incorporating or referring in any way to such Trade Secret, and all licenses to any of the foregoing, in any country or other geographic area in the world.

 

“Transfer” means the sale, assignment, lease, transfer, mortgaging, encumbering or other disposition, whether voluntary or involuntary, and whether or not consideration is received therefor.

 

“UCC” means the Uniform Commercial Code as in effect from time to time in the Commonwealth of Pennsylvania.

 

“Unfunded Capital Expenditure” means capital expenditures not funded by borrowing or from a source other than the Companies.

 

“Warrant” means individually and “Warrants” means collectively the warrants for the Capital Stock of Emtec issued in favor of each of the Investors, substantially in the forms attached hereto as Exhibit C.

 

  

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Section 1.2.                           Interpretation.  Each reference herein to a particular Person shall include a reference to such Person’s successors and permitted assigns.  A reference to any document or agreement shall include such document or agreement as amended, restated, modified or supplemented from time to time in accordance with its terms.  A reference to any law, rule, regulation or statute includes any amendment or modification thereto.  A reference to the knowledge or awareness of a Company shall mean the actual knowledge of Key Management after reasonable inquiry by those individuals.  The words “herein” “hereof,” “hereunder,” “hereto,” and words of like import shall refer to this Agreement as a whole and not any particular article, section or subdivision of this Agreement.  A reference to an Article, Section, Exhibit or Appendix is a reference to the Article, Section, Exhibit or Appendix of this Agreement unless otherwise indicated.  The Exhibits and Schedules hereto shall be deemed as fully a part of this Agreement as if set forth herein in full.  The headings in this Agreement are inserted for convenience of reference only and shall not affect the interpretation of this Agreement.  In this Agreement, the singular includes the plural and the plural includes the singular, pronouns stated in the neuter gender shall include the masculine, the feminine and the neuter, and the words “including,” “include” and “includes” shall be deemed to be followed by the words “without limitation.”  Terms defined in the UCC but not otherwise defined herein shall have the meanings assigned to them in the UCC.

 

ARTICLE 2

Subordinated Loan

 

Section 2.1.                           The Peachtree Subordinated Loan.  Subject to the provisions of this Agreement, and relying upon the representations and warranties herein set forth as and when made or deemed to be made, Peachtree will advance the principal amount of the Peachtree Subordinated Loan to the Companies upon the satisfaction of the applicable conditions set forth in Section 6.1.

 

Section 2.2.                           Notes.  The indebtedness of the Companies to the Investors for the Subordinated Loans shall be evidenced by Notes to the Investors in the original principal amounts of their Subordinated Loans.  Each Note shall mature on August 15, 2016 (the “Maturity Date”).  Each Note shall be subordinated to the Senior Debt pursuant to the terms of the PNC Intercreditor Agreement.

 

Section 2.3.                           Payments of Interest and Principal.  Each Note shall bear interest on the outstanding amounts owed thereunder, computed on the basis of a 360-day year for the actual number of days elapsed, and shall be payable in accordance with the following:

 

(a)               Regular Interest.  Interest shall accrue on the outstanding principal amount of each Note at a rate equal to twelve percent (12%) per annum, subject to Section 2.4.  The Companies shall pay unpaid interest accruing under this Section 2.3(a) on the last Business Day of every fiscal quarter beginning with February 28, 2012.

 

(b)               PIK Interest.  Additional interest shall accrue on the outstanding principal amount of each Note at a rate equal to two percent (2%) per annum.  Interest accrued under this Section 2.3(b) shall, at the Companies’ option, be paid in cash or added to the principal amount then outstanding hereunder on the last Business Day of every fiscal quarter beginning with February 28, 2012.

 

(c)               [Intentionally Omitted].

 

  

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(d)               All remaining amounts owed under the Notes shall be due and payable on the Maturity Date, unless due sooner in accordance with Section 11.1.

 

Section 2.4.                           Default and Remedies.  In the event of the occurrence and continuance of any of the Events of Default described in Article 10 of this Agreement or described in Section 2 of the Notes, the Investors and Collateral Agent shall be entitled to the remedies set forth in Article 11 of this Agreement and Section 2 of the Notes.

 

Section 2.5.                           Payments.  All payments of principal, interest, fees and other amounts due under the Notes shall be made by the Companies to the Investors in lawful money of the United States of America, by check or wire transfer (according to the wiring instructions set forth at Schedule 2.5) of immediately available funds before 5:00 p.m. on the Business Day on which any such amount is due at the office of any Investor or such other office or by such other means as any Investor shall direct in a written notice delivered to Emtec in accordance with the terms of Article 12.

 

Section 2.6.                           Optional Prepayments.  Upon five (5) Business Days’ prior written notice to any Investor, the Company may elect to prepay, in whole or in part, the outstanding amount of principal under any Note, together with all accrued and unpaid interest on the principal amount prepaid to the date of prepayment, as well as all of the other monetary obligations or Company Liabilities that are payable with respect to any Note; provided, however, that any such prepayment must be accompanied by the applicable Prepayment Premium, if any, computed pursuant to Section 2.8 hereof.  Notwithstanding the above, a Prepayment Premium shall not be applicable if any prepayment is made from the proceeds of a Mandatory Prepayment Event due to an Act of Dissolution as provided in Section 2.7(b).

 

Section 2.7.                           Mandatory Prepayments.  The Notes, including the outstanding principal balance thereof, any accrued and unpaid interest thereon (and the appropriate Prepayment Premium, if any, computed pursuant to Section 2.8 hereof with respect to a Change of Control), and all other Companies Liabilities shall be immediately due and payable if any of the following events occur (each, a “Mandatory Prepayment Event”):

 

(a)               the occurrence of a Change of Control; or

 

(b)               the occurrence of an Act of Dissolution of a Company.

 

Emtec shall deliver to each Investor notice; (x) at least thirty (30) days prior to the occurrence of a Mandatory Prepayment Event of which Emtec is aware, or (y) if Emtec has no knowledge of the occurrence of a Mandatory Prepayment Event, promptly upon becoming aware of such Mandatory Prepayment Event, which such notice shall describe the Mandatory Prepayment Event in detail.

 

Section 2.8.                           Prepayment Premium.  Any prepayment made by the Companies pursuant to Section 2.6 or Section 2.7(a) prior to the fourth (4th) anniversary of the Closing Date is subject to the following schedule of prepayment premiums which such premiums shall be paid in full by the Companies at the time of any such prepayment (the “Prepayment Premium”):

 

	
Prepayment made on or

After:

	
Premium

	 	 
	
the Closing Date, but before August 15, 2012

	
Premium equal to 4% of the outstanding principal amount of the Subordinated Loan being repaid

	 	 
	
August 15, 2012, but before August 15, 2013

	
Premium equal to 3% of the outstanding principal amount of the Subordinated Loan being repaid

	 	 
	
August 15, 2013, but before August 15, 2014

	
Premium equal to 2% of the outstanding principal amount of the Subordinated Loan being repaid

	 	 
	
August 15, 2014, but before August 15, 2015

	
Premium equal to 1% of the outstanding principal amount of the Subordinated Loan being repaid

 

  

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Notwithstanding the foregoing, prepayments: (i) made with the proceeds of the life insurance policy required under the terms of Section 8.12 and (ii) of interest added to the principal amount outstanding hereunder under the terms of Section 2.3(b) hereof, shall not be subject to this prepayment premium.

 

Section 2.9.                           Joint and Several Obligations.  The obligations of the Companies hereunder shall be joint and several.

 

Section 2.10.                           Lead Company.  Each Company hereby designates Emtec as that Company’s agent to:  (i) obtain the Subordinated Loan hereunder, the proceeds of which shall be available to each Company for those uses as those set forth in Section 4.27, (ii) give and receive notices, (iii) deliver certificates and demands, and (iv) apply for waivers and consents.

 

ARTICLE 3

[Intentionally Omitted]

 

ARTICLE 4

Representations and Warranties of the Company

 

Each Company hereby represents and warrants to each Investor and the Collateral Agent, as of the date hereof, as follows:

 

Section 4.1.                           Organization.  Each Company is a corporation or limited liability company, duly incorporated or organized, validly existing and in good standing under the laws of the jurisdiction in which it was organized and has all requisite power and authority to own and lease its properties, to carry on its business as presently conducted and as presently proposed to be conducted and to enter into and to carry out the transactions contemplated under this Agreement and the other Loan Documents to which it is a party.  Each Company is qualified and in good standing as a foreign corporation or limited liability company in all such other jurisdictions, if any, in which the conduct of its Business as presently conducted or as presently proposed to be conducted or its present ownership, leasing or operation of property requires such qualification, and in which the failure to be so qualified would be likely to result in a Material Adverse Effect.

 

  

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Section 4.2.                           Authorization of this Agreement.  Each Company has all necessary corporate or limited liability company power to enter into the Loan Documents to which it is a party, to issue and deliver the Notes, and to carry out all of the transactions contemplated hereby or thereby.  The execution, delivery and performance by each Company of this Agreement and the other Loan Documents to which it is a party have been duly authorized by all requisite corporate or limited liability company action by each Company; and such Loan Documents have been duly executed and delivered by each Company.  The officer(s) executing this Agreement and the other Loan Documents are duly authorized to act on behalf of each Company.

 

Section 4.3.                           Validity and Binding Effect.  This Agreement and the other Loan Documents are the valid and legally binding obligations of each Company, enforceable in accordance with their respective terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equity principles.

 

Section 4.4.                           Capitalization.

 

(a)               The authorized capital for each Company as of the Closing Date is set forth on Schedule 4.4(a).

 

(b)               Except as set forth on Schedule 4.4(b), no subscription, warrant, option or other right or commitment to purchase or acquire from any Company any Capital Stock of any Company, or any other securities of any Company, is authorized or outstanding, as of the Closing Date.

 

(c)               To the Companies’ knowledge, there are no sale agreements, pledges, proxies, voting agreements, voting trusts, powers of attorney or other agreements or instruments binding upon the Companies’ shareholders with respect to beneficial and record ownership of, or voting rights with respect to, the Companies’ equity securities as of the Closing Date.

 

Section 4.5.                           Subsidiaries; Equity Investments.  As of the Closing Date, no Company owns, and no Subsidiary of a Company owns, nor has it owned in the last five (5) years, any Capital Stock or other proprietary interest, directly or indirectly, in any corporation, association, trust, partnership, limited liability company, joint venture or other entity, other than as set forth on Schedule 4.5.  Schedule 4.5 also includes, as of the Closing Date, each Company’s and each Subsidiary’s ownership interest in any such entities.

 

  

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Section 4.6.                           Material Contracts, Leases, Agreements and Other Commitments.

 

(a)               Except for agreements, contracts, plans, leases, arrangements or commitments disclosed on Schedule 4.6 (each, a “Material Contract”) no Company is a party to or subject to:

 

(i)           any agreement for the provision of products or services to any Company by any supplier or vendor for consideration greater than $1,000,000 in any fiscal year;

 

(ii)           any agreement for the provision of products or services by any Company to any customer for consideration greater than $1,000,000 in any fiscal year;

 

(iii)           any agreement that cannot be terminated or cancelled by any Company without the payment of a penalty or other cost of less than $500,000;

 

(iv)           any agreement that involves any partnership, joint venture or other similar arrangement;

 

(v)           any agreement that restricts any Company from engaging in or competing in any line of business or with any Person or in any geographic area;

 

(vi)           any agreement that involves any material Intellectual Property used, owned or licensed by any Company, other than licenses entered into in the Ordinary Course of Business with respect to “off-the-shelf” Software;

 

(vii)           any agreement that:  (A) any Person directly or indirectly owning, controlling or holding the power to vote 5% or more of the outstanding voting securities of any Company or any Affiliate of any Company, (B) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote by any Company or any Affiliate of any Company, or (C) any director, corporate officer, or Key Management of any Company or any Affiliates or any “associates” or members of the “immediate family” (as such terms are respectively defined in Rule 12b-2 and Rule 16a-1 of the Exchange Act) of any such director, corporate officer, or Key Management;

 

(viii)           any agreement that relates to Indebtedness of any Company with a principal amount in excess of $500,000; or

 

(ix)           any agreement that creates a Lien on any of the Real Property relating to Indebtedness in excess of $500,000.

 

  

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(b)               True and complete copies of each of the Material Contracts have been provided or made available to the Investors prior to the date hereof.  Each Material Contract is in full force and effect and is a valid and binding agreement (assuming due authorization and execution by all parties thereto other than any Company) of each Company, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally.  No Company, nor any other party thereto is in default or breach in any material respect under the terms of any such Material Contract, and, no event or circumstance has occurred that, with notice or lapse of time or both, would constitute, or would reasonably be expected to constitute, a Material Adverse Effect.  Except as set forth on Schedule 4.6(b), no Company is engaged in a dispute with another party with respect to any Material Contract.  No Company has assigned or encumbered any of its rights, title or interest in or under any of the Material Contracts or agreed to any oral modifications of any of the provisions of any of the Material Contracts other than Liens granted therein in favor of the Investors or Senior Lenders or Senior Agent and other Permitted Encumbrances.

 

Section 4.7.                           Breach.  No Company is in violation or breach of any of the terms, conditions or provisions of its articles or certificate of incorporation or certificate of formation, as applicable, or its bylaws or limited liability company agreement, as applicable.  No Company is in violation or breach of any court order, judgment, arbitration award, or decree to which it is a party or by which it is bound, which violation or breach would be likely to result in a Material Adverse Effect.

 

Section 4.8.                           Employees, Officers, and Directors.  

 

(a)               A current list of the names of all of the corporate or company officers, Key Management and the members of the board of directors or managers, of each Company, as applicable, is attached hereto as Schedule 4.8(a).

 

(b)               Except as described on Schedule 4.8(b), no Company has entered into any agreement or transaction with any of its employees, officers, executives, Key Management or directors that involves aggregate consideration payable by or to such Company equal to at least $250,000 in any fiscal year.

 

(c)               No officer, executive or Key Management of any Company has advised such Company in writing that he or she intends to terminate employment with such Company.  Each Company has complied with all applicable Laws relating to the employment of labor, including provisions relating to wages, hours, equal opportunity, collective bargaining and the payment of Social Security and other employment Taxes, except where such non-compliance would not reasonably be likely to result in a Material Adverse Effect.

 

(d)               Except as set forth on Schedule 4.8(d) or as would not reasonably be likely to result in a Material Adverse Effect:

 

(i)           To the Companies’ knowledge, no third party has claimed or has reason to claim that any person employed by any Company has (i) violated or may be violating any of the terms or conditions of his or her employment, non-competition or non-disclosure agreement with such third party, (ii) disclosed to such Company or may be disclosing to such Company or utilized or may be utilizing on such Company’s behalf any trade secret or proprietary information or documentation of such third party or (iii) interfered or may be interfering in the employment relationship between such third party and any of its present or former employees, and no third party has requested information from such Company which suggests that such a claim might be contemplated.

 

  

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(ii)           To the Companies’ knowledge, no employee of any Company has (i) violated or may be violating any of the terms or conditions of his or her employment, non-competition or non-disclosure agreement with such Company, (ii) disclosed to such Company or may be disclosing to such Company or utilized or may be utilizing on such Company’s behalf any Trade Secret or proprietary information or documentation of any third party or (iii) interfered or may be interfering in the employment relationship between such Company and any of its present employees.

 

(iii)           To the Companies’ knowledge, no Person currently or formerly employed by any Company has employed any Trade Secret or any information or documentation proprietary to such Company other than on behalf of such Company, and to the Companies’ knowledge, no Person currently or formerly employed by any Company has violated any confidential relationship which such Person may have had with such Company or any third party, in connection with the development, manufacture or sale of any product or proposed product or the development or sale of any service or proposed service of such Company.

 

(iv)           To the Companies’ knowledge, none of the execution or delivery of this Agreement, or the carrying on of the Business of any Company by an officer, director or key employee of any Company, or the conduct or proposed conduct of Business, will conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under any contract, covenant or instrument under which any such person is obligated.

 

Section 4.9.                           Compliance with Laws; Permits.  Each Company is in compliance, in all material respects (i) with all existing requirements of applicable Law, and (ii) all existing requirements of all governmental bodies or agencies having jurisdiction over it which are applicable to it and its Business, including, without limitation, all environmental laws, securities laws and labor and employment laws.  Each Company has all material permits, licenses and other authority necessary to the conduct of its business as presently constituted and conducted, and all such permits, licenses and other authorities are in full force and effect and valid.

 

Section 4.10.                           Conflict with Documents.  Neither the execution, delivery and performance of this Agreement nor any other Loan Document to which it is a party by each Company, nor the consummation of the transactions contemplated by this Agreement, either immediately or with the passage of time or the giving of notice or both, will:

 

(a)               conflict with or cause a breach or default under any of the terms, conditions or provisions of, result in a termination or modification of, or cause any acceleration of any obligation of any Company under any contract, lease, indenture, mortgage, or other agreement or instrument to which it is bound or by which any of its properties or assets may be affected;

 

(b)               conflict with the provisions of the Company’s articles or certificate of incorporation or certificate of formation, as applicable, or its bylaws or limited liability company agreement, as applicable, or any Law to which any Company, or any of its properties or assets are subject; or

 

  

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(c)               result in the creation or imposition of any Lien against any Company, or any Company’s properties or assets other than those Liens in favor of the Investor contemplated under this Agreement and the Permitted Encumbrances.

 

Section 4.11.                           Financial Statements.  The following have been provided or made available to the Investor prior to the date hereof: (i) the annual audited financial statements of Emtec as of August 31, 2010 (including the notes thereto, if any) together with the report thereon, if any, of Emtec’s independent accountants (the “Audited Financial Statements”); and (ii) the internally prepared financial statements of Emtec for the twelve month period ending August 31, 2011 and two month period ending October 31, 2011 (the “Internally Prepared Financial Statements, collectively with the Audited Financial Statements, the “Financial Statements”).  The books and records of the Companies fairly reflect their business and the results of their operations in all material respects, and the Financial Statements fairly present the financial condition and results of operations of Emtec and its consolidated Subsidiaries as of the respective dates thereof and for the periods therein referred to in all material respects, all in accordance with GAAP and Emtec’s historical accounting practices and principles applied on a consistent basis, subject, in the case of Financial Statements for interim periods, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be material) and the absence of notes (which, if presented, would not differ materially from those included in the Financial Statements).  To the knowledge of the Companies, no event has occurred, and nothing has come to the attention of the Companies since the date of the Financial Statements, that would indicate that such Financial Statements do not fairly present in all material respects the Companies financial position at such dates and the results of its operations and the financial condition for the period therein specified.

 

Section 4.12.                           No Undisclosed or Contingent Liabilities.  Except as set forth in Schedule 4.12, the Companies have no Liabilities required to be disclosed in a balance sheet prepared in accordance with GAAP other than (a) those reflected or reserved against in the Financial Statements, and (b) those trade liabilities incurred in the Ordinary Course of Business since the date of the Internally Prepared Financial Statements, including any obligations arising under any Contracts, which, neither individually nor in the aggregate, are material.

 

Section 4.13.                           Solvency.  The Companies are Solvent prior to the Closing Date.  Upon the completion of the transactions contemplated in this Agreement, the Companies will be Solvent.  The Companies reasonably believes that they will remain Solvent, giving effect to the Company Liabilities incurred in connection with the transactions contemplated by this Agreement, as long as any of the Company Liabilities remain outstanding or the Companies obligated to the Investor in any other manner whatsoever.  Giving effect to the Subordinated Loans, as of the Closing Date, the Companies have sufficient capital to carry on their business and transactions as now conducted and as planned to be conducted in the future.

 

Section 4.14.                           Taxes.

 

(a)               All material federal, state, local and foreign returns and reports relating to Taxes (as defined below), or extensions relating thereto, required to be filed by or with respect to the Companies have been timely and properly filed with the appropriate governmental authorities in all jurisdictions in which such returns and reports are required to be filed, and all such returns and reports are correct and complete in all material respects.

 

  

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(b)               All material federal, state, local and foreign income, ad valorem, profits, franchise, sales, use, payroll, premium, occupancy, gross receipts, capital levy, property, severance, excise, withholding, customs duties, unemployment, transfer, license, employment, stamp, registration, disability, estimated, Capital Stock, windfall, environmental (including taxes under Section 59A of the Internal Revenue Code of 1986, as amended (the “Code”)) and other taxes, including interest, additions to tax and penalties (for purposes of this Section 4.14 only, collectively, “Taxes”) payable by the Companies with respect to taxable periods ending on or prior to, and the portion of any interim period up to, the date hereof have been fully and timely paid or, in the case of Taxes not yet due, fully provided for on the Internally Prepared Financial Statements or, in the case of Taxes accruing after the date of such financial statement, on the books of account of the Companies; and there are no levies, liens, or other encumbrances relating to Taxes existing or pending, or to the knowledge of the Companies, threatened with respect to any asset of any Company.

 

(c)               No Company is a party to any tax sharing agreement or tax indemnification agreement.

 

Section 4.15.                           Litigation.  Except as set forth in Schedule 4.15, there are no pending or, to the knowledge of any Company, threatened suits, legal or administrative proceedings, inquiries, claims or governmental investigations against or with respect to any Company, or any of its managers, directors or officers, or the properties or assets of any Company.  To the knowledge of the Companies, there is no basis or grounds for any such suit, action, claim, investigation or proceeding.

 

Section 4.16.                           Orders; Decrees; Judgments.  Except as set forth in Schedule 4.16, there are no outstanding orders, judgments, writs, injunctions or decrees of any court, Government Authority or arbitration or mediation panel or tribunal against any Company, any of the Collateral or any of the other properties, assets or business of any Company.

 

Section 4.17.                           Intellectual Property.  Each Company, to its knowledge, owns or has the right to use all Intellectual Property used in the conduct of its business as currently constituted and conducted.  No Company has any pending unresolved written claim, demand or offer of license, or is party to any proceeding or suit alleging any conflict with, or infringement of, the asserted rights of others with respect to any Intellectual Property and no Company has any knowledge of any basis therefor.

 

Section 4.18.                           [Intentionally Omitted]

 

Section 4.19.                           Insurance.  Each Company maintains and has the insurance coverage provided under the insurance policies listed on Schedule 4.19.  All such insurance policies are in full force and effect and no Company is in default of any provision thereof.  No Company has received written notice from any issuer of any such insurance policies of its intention to cancel or refusal to renew any policy issued by it.  The hazards insured against by such policies and the amounts thereof are consistent with prudent business judgment, applicable to companies similarly situated to the Companies.  The Companies have made available to the Investors and Collateral Agent accurate and complete copies of the insurance binders or policies for all of the insurance listed in Schedule 4.19.

 

  

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Section 4.20.                           Governmental Consent.  Except for the filing of financing statements at the necessary jurisdictions, no permit, consent, approval or authorization of, or filing with, any governmental regulatory authority or agency is required of any Company in connection with the execution, delivery and performance by the Companies of the Loan Documents, or the consummation by the Companies of the transactions contemplated thereby.

 

Section 4.21.                           Title to Assets.  Except as set forth on Schedule 4.21, each Company has good and marketable title to all of the assets owned by it, and a valid leasehold interest in all assets leased by it, free and clear of all Liens, except for Permitted Encumbrances.  All equipment, furniture and fixtures, and other tangible personal property of each Company necessary for the material operations in the foreseeable future of such Company is in reasonable operating condition and repair (ordinary wear and tear excepted) and is adequate for the conduct of the Business, consistent with past practices.

 

Section 4.22.                           Title to Properties; Location of Properties; Places of Business.  Each Company has good and insurable title to or valid leasehold interests in, all its real properties, free and clear of all Liens other than Permitted Encumbrances. The locations of the owned and leased real property of each Company is set forth on Schedule 4.22.   The chief executive office of each Company is set forth on Schedule 4.22.  All billings for the supply of goods and services by each Company are made from, and require payment to be made to, its chief executive office, as indicated on Schedule 4.22.  Except as set forth on Schedule 4.22, no Company has, during the five years preceding the date of this Agreement, been known as or used any other corporate, trade or fictitious name, nor acquired all or substantially all of the assets, or Capital Stock of any other Person.  Except as set forth on Schedule 4.22, no Company has, during the five years preceding the date of this Agreement, had a business location at any other address.

 

Section 4.23.                           Conflicting Interests.  Except as set forth on Schedule 4.23, neither any Key Management, director, corporate officer, or any relative or Affiliate of any Key Management, director or corporate officer, nor, to the knowledge of any Company, any employee or shareholder of any Company or any relative or Affiliate of any of such employees or shareholders, (a) has any pecuniary interest in any supplier or customer of any Company or in any other business enterprise with which any Company conducts material business or with which any Company is in competition, or (b) is indebted to any Company for money borrowed.

 

Section 4.24.                           Absence of Certain Changes and Events.  Except as set forth in Schedule 4.24, since August 31, 2010, each Company has conducted its Business only in the Ordinary Course of Business and there has not been any Material Adverse Effect or event, condition or contingency that is likely to result in a Material Adverse Effect.

 

Section 4.25.                           SBA Forms and Representations.  Attached hereto as Schedule 4.25(a), Schedule 4.25(b) and Schedule 4.25(c), are accurate and complete copies of the Size Status Declaration (SBA Form 480), the Assurance of Compliance for Non-Discrimination (SBA Form 652), and the Portfolio Financing Report (SBA Form 1031) executed by Emtec.  Each of the representations, statements and certifications made in each of such SBA forms is accurate and complete and does not fail to state a material fact necessary to make such representations, statements and certifications not misleading.  Emtec is a “small business concern” as defined in the Small Business Investment Act of 1958, as amended (the “SBA Act”), and the rules and regulations of the U.S. Small Business Administration (the “SBA”) issued or promulgated thereunder.  There exists no agreement, expressed or implied, and no condition, statement of facts or relationship between Emtec and any other entity or entities which would prevent it from qualifying as a “small business concern” under the SBA Act.

 

  

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Section 4.26.                           Investment Company Act Representations.  Emtec  is not, and Emtec does not intend to become, an “investment company,” as such term is defined in the Investment Company Act of 1940, as amended (the “1940 Act”), and no Company is, and to the Companies’ knowledge, none of the Companies’ officers, directors, members, partners or controlling persons is either an “associate” of the Investor, as such terms are defined in Section 107.50 of the amended regulations promulgated under the SBA Act, or an “affiliated person” of the Investor, as such term is defined in Section 2(a)(3) of the 1940 Act.

 

Section 4.27.                           Use of Proceeds.  The amounts borrowed pursuant to the Peachtree Subordinated Loan shall be used:  (i) to paydown existing Indebtedness and (ii) to fund transaction costs.  No Company is engaged in the business of extending credit for the purpose of purchasing or carrying any “margin stock” or “margin security” (within the meaning of Regulations T or X issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Subordinated Loans will be used to purchase or carry any margin stock or margin security or to extend credit to others for the purpose of purchasing or carrying any margin stock or margin security.  If requested by any Investor, each Company will furnish to such Investor a statement to the foregoing effect in conformity with the requirements of FR Form U-l referred to in said Regulation U.  No part of the proceeds of any Subordinated Loan hereunder will be used for any purpose which violates, or which is inconsistent with, the provisions of either of Regulations T or X.

 

Section 4.28.                           Employee Benefits.   Except as disclosed on Schedule 4.28, with respect to each Employee Plan:  (i) each Employee Plan has been administered in compliance with its terms, and in compliance with the applicable provisions of ERISA, the Code and all other applicable Laws, except where such non-compliance would not reasonably be likely to result in a Material Adverse Effect; and (ii) there is no circumstance or event that would reasonably be expected to cause the imposition on any Company of any material liability, penalty or tax under ERISA or the Code with respect to any Employee Plan.  Neither the Company nor any ERISA Affiliate participates in or has any liability, including contingent liability, to, (i) any “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) that is subject to the provisions of Title IV of ERISA or (ii) any Multiemployer Plan.  No Employee Plan provides, or reflects or represents any liability to provide medical benefits, whether or not insured, with respect to any former or current employee, or any spouse or dependent of any such employee, beyond the employee’s retirement or other termination of employment with the Company or any of its ERISA Affiliates other than coverage required by Part 6 of Title I of ERISA or Section 4980B of the Code or any similar state law (including any such coverage that any Company has agreed to provide at its expense (in whole or in part)).

 

  

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Section 4.29.                           Collective Bargaining.  Except as disclosed on Schedule 4.29, no Company is, and immediately after the Closing Date no Company will be, a party to or subject to any collective bargaining agreements or union contracts.  There are no labor disputes pending or, to the knowledge of the Companies, threatened against any Company, on the one hand, and its employees, on the other hand.

 

Section 4.30.                           Company’s Business.  Each Company is currently engaged in the Business and no other business or businesses.

 

Section 4.31.                           Management History.  To the knowledge of the Companies, during the past six (6) years, no corporate officer, director, shareholder or Key Management of any Company has been convicted of any felony criminal offense or been the subject of an Act of Bankruptcy.

 

Section 4.32.                           No Side Agreements.  To the knowledge of the Companies, no Company nor any of the officers, directors, managers, shareholders, members, or Key Management of any Company is party to any agreement, either written or oral, with any Person whereby any Company or any of the officers, directors, managers, shareholders or Key Management of such Company, acting in such capacities, have agreed to do anything beyond the requirements of formal, written contracts executed by such Company, outside the Ordinary Course of Business of such Company.  To the Companies’ knowledge, there exists no agreement or understanding calling for any payment or consideration from a customer or supplier of any Company to an officer, director, manager, shareholder or Key Management of such Company or to any Affiliates of such Persons, with respect to any transaction between such Company and such supplier or customer.

 

Section 4.33.                           Indebtedness.  Schedule 4.33 hereto sets forth a true and complete list of all Indebtedness of each Company as of the Closing Date.

 

Section 4.34.                           Foreign Corrupt Practices.  To the knowledge of the Companies, no Company, nor any director, officer, manager, agent, employee or other person acting on behalf of any Company has, in the course of his or her actions for, or on behalf of, such Company, used any funds of such Company for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

Section 4.35.                           Broker’s or Finder’s Commissions.  Except as set forth on Schedule 4.35, no broker’s or finder’s or placement fee or commission will be payable to any broker or agent engaged by any Company or any of its officers, Key Management, directors, managers, shareholders or agents with respect to the transactions contemplated under the Loan Documents.  The Investors shall have no liability for any broker’s or finder’s or placement fees or similar commissions to any broker or agent engaged by any Company or any of its officers, Key Management, directors, managers, members, shareholders or agents.

 

  

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Section 4.36.                           Environmental Matters.  Other than as set forth on Schedule 4.36:

 

(a)               each Company has performed all of its material obligations under, has obtained all necessary approvals, permits, authorizations and other consents required by, and is not in material violation of any Environmental Laws;

 

(b)               no Company has received any notice, citation, summons, directive, order or other communication, written or oral from, and no Company has any actual knowledge of the filing or giving of any such notice, citation, summons, directive, order or other communication by, any Governmental Authority or any other Person concerning the presence, generation, treatment, storage, transportation, transfer, disposal, release or other handling of any Hazardous Materials within, on, from, related to, or affecting any Real Property;

 

(c)               no Real Property has ever been used by any Company, to the actual knowledge of any Company, by any prior owner, lessee or operator, to generate, treat, store, transport, transfer, dispose of, release or otherwise handle any Hazardous Material in violation of any Environmental Law; and

 

(d)               there are, to the Companies’ actual knowledge, no Hazardous Materials within, on or under any Real Property owned or occupied by any Company in violation of any Environmental Law.

 

Section 4.37.                           Customers and Suppliers.  Since January 1, 2011, except as set forth in Schedule 4.37, no Company has received any notice from any material customer or supplier of such customer’s or supplier’s intent to terminate its relationship with such Company or to materially reduce the amount of products or services that it purchases from, or supplies to (as the case may be) such Company, and no Company has any reasonable basis to believe that any such customer or supplier intends to terminate such relationship.

 

Section 4.38.                           Other Document Representations.  Each of the representations and warranties set forth in the documents evidencing the Senior Debt, together with all related definitions and schedules thereto, are incorporated herein by reference mutatis mutandis such that the Investors have the full benefit of each such representation and warranty and that such representations and warranties are true and correct in all material respects, except as (i) waived by Senior Lenders or Senior Agent, or (ii) disclosed by reference to any of the Schedules hereto.

 

Section 4.39.                           Statements and Other Documents Not Misleading.  No provision of this Agreement (including the schedules and exhibits hereto), or of any other Loan Document, when taken together with all related or similar provisions, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to be stated in order to make the statement, in light of the circumstances in which it is made, not misleading.

 

  

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Section 4.40.                           Permitted Foreign Subsidiaries.  (i) the only direct and indirect Foreign Subsidiaries of the Companies as of the Closing Date consist of (1) MauritiusCo, (2) Emtec India, (3) Covelix India and (4) Emtec Canada; (ii) MauritiusCo does not and will not conduct any business other than the business of acting as an intermediate foreign holding company owning all of the Capital Stock and other equity interest of Emtec India and certain other Permitted Foreign Subsidiaries of Borrower that may hereafter be created, formed or acquired by Borrower in accordance with the terms of this Agreement) and MauritiusCo does not and will not have any significant or material assets other than the Capital Stock of such Permitted Foreign Subsidiaries, (iii) the current and issued and outstanding Capital Stock in MauritiusCo as of the Closing Date consists of 567,398 shares of common stock issued to Emtec Global, (iv) Emtec India does not and will not conduct any business other than the business of providing back office support, IT products, services and consulting to Emtec Global and the other Company entities and their direct and indirect Subsidiaries and also directly to third party clients, (v) the current and issued and outstanding Capital Stock in Emtec India as of the Closing Date consists of 112,956 shares of common stock issued to MauritiusCo and one (1) share issued to Emtec Global, (vi) the current and issued and outstanding Capital Stock in Covelix India as of the Closing Date consists of 9,999 shares of common stock issued to Covelix and one (1) share of common stock issued to Emtec Global.

 

Section 4.41.                           Permitted Canadian Subsidiaries.  (i) the only direct or indirect Canadian Subsidiary of any Company as of the Closing Date is the Emtec Canada, (ii) Emtec Canada is involved in and conducts businesses substantially similar to those conducted by the Companies, and (iii) the current and issued and outstanding Capital Stock of Emtec Canada as of the Closing Date consists of 1,000 common shares issued to Emtec Infrastructure Services Corporation, a Company and Delaware corporation.

 

Section 4.42.                           Emtec SEC Documents.

 

(a)               Emtec has filed with or furnished to the Securities and Exchange Commission (“SEC”) all forms, reports, statements, certifications and other documents required to be filed by it with the SEC since September 1, 2008 (collectively, and in each case including all exhibits and schedules thereto and documents incorporated by reference therein, the “Emtec SEC Documents”).  As of their respective effective dates (in the case of Emtec SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in the case of all other Emtec SEC Documents), Emtec SEC Documents complied in all material respects with the requirements of the Securities Act, the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as the case may be, and the rules and regulations of the SEC thereunder applicable to such Emtec SEC Documents, and none of Emtec SEC Documents as of such respective dates (or, if amended prior to the date of this Agreement, the date of the filing of such amendment, with respect to the disclosures that are amended) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent corrected in a subsequently filed Emtec SEC Document. As of the date of this Agreement, no Subsidiary of Emtec is subject to the reporting requirements of Section 13(a) or 15(d) under the Exchange Act.

 

  

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(b)               Each of the audited consolidated financial statements and unaudited consolidated financial statements of Emtec included in the Emtec SEC Documents (including the related notes and schedules), as of their respective effective dates (in the case of the Emtec SEC Documents that are registration statements filed pursuant to the requirements of the Securities Act) and as of their respective SEC filing dates (in the case of all other Emtec SEC Documents), complied as to form in all material respects with all applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto (except, in the case of unaudited statements, as permitted by Quarterly Report Form 10-Q of the SEC), were prepared in accordance with GAAP and applicable accounting requirements and published rules and regulations of the SEC consistently applied during the periods involved (except (i) with respect to financial statements included in Emtec SEC Documents filed as of the date of this Agreement, as may be indicated in the notes thereto, or (ii) as permitted by the rules and regulations of the SEC, including Regulation S-X), and fairly present in all material respects the consolidated financial position of Emtec and its consolidated Subsidiaries as of the dates thereof and the consolidated statements of operations, changes in stockholders’ equity and cash flows of such companies as of the dates and for the periods shown therein.  As of the date of this Agreement, there are no outstanding or unresolved comments in comment letters received from the SEC or its staff.  To Emtec’s knowledge, as of the Closing Date, none of the Emtec SEC Documents filed on or prior to the date hereof is the subject of ongoing review or investigation.

 

(c)               There are no unconsolidated Subsidiaries of Emtec or any off-balance sheet arrangements of any type (including any off-balance sheet arrangement required to be disclosed pursuant to Item 303(a)(4) of Regulation S-K promulgated under the Securities Act) that have not been so described in Emtec SEC Documents nor any obligations to enter into any such arrangements.

 

(d)               Since September 1, 2008, subject to any applicable grace periods, Emtec and each of its officers and directors have been and are in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act (as amended and including the rules and regulations promulgated thereunder).  Each of the principal executive officer of Emtec and the principal financial officer of Emtec (or each former principal executive officer of Emtec and each former principal financial officer of Emtec, as applicable) has made all certifications required by Rule 13a-14 or 15d-14 under the Exchange Act and Sections 302 and 906 of the Sarbanes-Oxley Act, in each case, with respect to the Emtec SEC Documents, and the statements contained in such certifications were true and complete on the date such certifications were made.  For purposes of this Agreement, “principal executive officer” and “principal financial officer” shall have the meanings given to such terms in the Sarbanes-Oxley Act.

 

(e)               Emtec has established and maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as required under Rule 13a-15(a) and 15d-15(a) of the Exchange Act that are reasonably designed to ensure that material information relating to Emtec, including its Subsidiaries, required to be included in reports filed under the Exchange Act is made known to the chief executive officer and chief financial officer of Emtec by others within those entities to allow timely decisions regarding required disclosure as required under the Exchange Act and is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.  Emtec has evaluated the effectiveness of Emtec’s disclosure controls and procedures and, to the extent required by applicable Law, presented in any applicable Emtec SEC Document on Form 10-K or Form 10-Q, or any amendment thereto, its conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by such report or amendment based on such evaluation.

 

  

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(f)               Emtec’s system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is reasonably sufficient in all material respects to provide reasonable assurance (A) that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, (B) that receipts and expenditures are executed in accordance with the authorization of management, and (C) that any unauthorized use, acquisition or disposition of Emtec’s assets that would materially affect Emtec’s financial statements would be detected or prevented in a timely manner.

 

(g)               Since September 1, 2008, (i) neither Emtec nor any Subsidiary or Emtec, nor, to Emtec’s knowledge, any director or executive officer of Emtec or any Subsidiary of Emtec has received any material complaint, allegation, assertion or claim, in writing that Emtec or any Subsidiary or Emtec has engaged in improper, illegal or fraudulent accounting or auditing practices and (ii) to Emtec’s knowledge, no attorney representing Emtec or any Subsidiary of Emtec, whether or not employed by Emtec or any Subsidiary of Emtec, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by Emtec or any Subsidiary of Emtec or any of their respective officers, directors, employees or agents to the board of directors of Emtec or any committee thereof or to any director or officer of Emtec.

 

Section 4.43.                           Gnuco Acquisition.  To the Companies’ knowledge, the representations and warranties of Gnuco and its members contained in the Gnuco Acquisition Agreement are true and correct as of the date they were made.

 

Section 4.44.                           No Stock Exchange.  Emtec’s common stock has not been listed on a stock exchange since September 1, 2008; provided, that neither the Over-the-Counter Bulletin Board nor the “Pink Sheets” shall be considered a stock exchange.

 

ARTICLE 5

Representations and Warranties of the Investors

 

Each Investor separately represents and warrants to the Companies as follows:

 

Section 5.1.                           Authorization of this Agreement.  The Investor has all necessary power to enter into this Agreement.  The execution, delivery and performance by the Investor of this Agreement has been duly authorized by all requisite action by the Investor; and this Agreement, has been duly executed and delivered by the Investor and constitutes the legal, valid and binding obligation of the Investor, enforceable in accordance with its respective terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equity principles.

 

Section 5.2.                           Non-Contravention.  The execution, delivery and performance of this Agreement will not violate any provision of applicable Law, or any provision of any indenture, agreement or other instrument to which the Investor or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Investor.

 

  

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Section 5.3.                           Valid and Binding.  This Agreement has been duly executed and delivered by the Investor and constitutes the legal, valid and binding obligation of the Investor, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors rights and to general equity principles.

 

Section 5.4.                           No Conflict of Interest.  The Investor has not loaned (and will not loan during the term hereof) any money to and has not made (and will not make during the term hereof) any investment in any Person that competes with the Companies in the Business, and to the knowledge of the Investor, the exercise by Investor of its rights set forth in this Agreement, including but not limited to those rights set forth in Sections 8.1 through and including 8.6, do not create and will not create any conflict of interest.

 

Section 5.5.                           Investment Representations.  The Investor is an “Accredited Investor” as defined in Rule 501 of Regulation D under the Securities Act.  The Investor has such knowledge and experience in financial and business matters, and with respect to transactions of the kind and scope contemplated by this Agreement, that the Investor is capable of evaluating the merits and risks of an investment in such Investor’s Note and of making an informed investment decision.

 

ARTICLE 6

Conditions Precedent to Closing

 

Section 6.1.                           Conditions Precedent to Closing.  The obligations of each Investor to provide its Subordinated Loan and to consummate the transactions to be consummated herein are subject to the following conditions precedent:

 

(a)               Agreement. The Companies shall deliver this Agreement to the Investors, duly executed by the Companies;

 

(b)               Notes.  The Companies shall deliver the Notes to the Investors, duly executed by the Companies;

 

(c)               Security Documents.  The Companies shall deliver the Security Documents to the Collateral Agent, duly executed by the Companies;

 

(d)               Warrants.  Emtec shall deliver:  (i) a Warrant to Peachtree, in form and substance acceptable to Peachtree and (ii) and Amended and Restated Warrant to NewSpring, in form and substance acceptable to Newspring, each duly executed by Emtec;

 

(e)               Investor Rights Agreement.  Emtec shall deliver the Investor Rights Agreement to the Investors, duly executed by Emtec;

 

(f)               Certificate of Emtec.  Emtec shall deliver to the Investors a certificate, executed by the President or the Chief Executive Officer of Emtec, dated the Closing Date, certifying to the fulfillment of the conditions specified in this Article 6, and further certifying that there does not exist as of the Closing Date a state of facts that would constitute a Default or Event of Default under any of the terms, conditions or provisions of this Agreement, and no Company is in default under any of the terms, conditions or provisions of its certificate or articles of incorporation or certificate of formation, as applicable, or its bylaws or limited liability company agreement, as applicable, or in default in any material respect under the terms, conditions or provisions of any: (i) indenture, mortgage, deed of trust, lease, instrument or other material contract or agreement or (ii) court order, judgment, arbitration award, or decree, to which it is a party or by which it is bound or, which state of facts would, with notice or lapse of time, or both, constitute such default;

 

  

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(g)               Secretary Certificates.  Each Company shall deliver to Investors a certificate of the secretary of such Company attaching:

 

(A)           copies of such Company’s certificate or articles of incorporation or certificate of formation, as applicable (certified by the secretary of state of its state of formation), and its bylaws or limited liability company agreement, certified by the secretary of such Company as being in full force in such form as of the Closing Date (or if there has been no amendment to such documents since the date of delivery of same to NewSpring on the date of the Existing Subordinated Loan Agreement, then certifying such);

 

(B)           copies of resolutions adopted by the board of directors (or other applicable body) of such Company authorizing and approving this Agreement, the issuance of the Notes, and the consummation of all other transactions contemplated hereby;

 

(C)           a good standing certificate for such Company from its state of formation dated within a recent date prior to the Closing Date and satisfactory to the Investors’ counsel; and

 

(D)           certificates of incumbency certifying the names, titles and signatures of the Company’s officers executing the Loan Documents;

 

(h)               Opinion Letter(s).  The Companies shall deliver to Investors opinion letter(s) from legal counsel to the Companies, addressed to the Investors dated the Closing Date, in form and substance reasonably satisfactory to the Investors;

 

(i)               SBA Documentation.  The Companies shall deliver to Peachtree the fully executed documents required by the SBA to be executed by each Company in connection with the Peachtree Subordinated Loan as set forth in Section 4.25;

 

(j)               Foreign Good Standings.  From each jurisdiction where each Company is required to be qualified, except where the failure to be so qualified would not reasonably be likely to result in a Material Adverse Effect, dated within a recent date prior to the Closing Date and satisfactory to the Investors’ counsel.

 

(k)               Insurance.  The Collateral Agent shall have received insurance certificates and endorsements satisfying the requirements of Section 8.6(a) below;

 

(l)               PNC Intercreditor Agreement.  The Companies, Investors, Collateral Agent and Senior Agent shall have executed and delivered an intercreditor agreement in form and substance acceptable to the Investors in the Investors’ sole discretion (the “PNC Intercreditor Agreement”).

 

  

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(m)               Senior Loan Agreement.  The Senior Loan Agreement is in form and substance acceptable to Investors, is valid and existing, and all rights of the Companies, including the right to draw advances, are available thereunder.  The Investors shall have received a fully executed copy of the documents evidencing the Senior Debt through the date hereof, together with Senior Agent’s consent to the Companies’ entering into the Subordinated Loans, in form and substance acceptable to Investor.

 

(n)               Amended and Restated Collateral Assignment of Undertakings.  The Companies shall deliver to Collateral Agent an Amended and Restated Collateral Assignment of Undertakings with respect to the Gnuco Acquisition Agreement (the “Gnuco Collateral Assignment  of Undertakings”), in form and substance acceptable to Collateral Agent.

 

(o)               Projections.  The Companies shall deliver to Investors quarterly financial projections for Emtec and its consolidated Subsidiaries' fiscal years ending August 31, 2012 and 2013 (including profit and loss statement, statement of cash flows, and balance sheet.

 

(p)               Capital Structure.  The capital structure of the Companies shall be satisfactory to the Investors.

 

(q)               Financial Statements.  The Companies shall deliver the Financial Statements to the Investors, which shall be in form and substance satisfactory to the Investors.

 

(r)               No Default/Compliance Certificate.  The Companies shall deliver to the Investors a completed No Default/Compliance Certificate of the Chief Executive Officer, Chief Financial Officer, Executive Officer or President of Emtec, certifying to the matters set forth therein (including, without limitation, compliance with the financial covenants as of August 31, 2011).

 

(s)               Flow of Funds.  The Companies shall deliver to Investors a flow of funds for the Closing Date, including all legal, accounting and other soft costs payable by the Companies in connection with the closing, which funds  are to be approved by and reasonably satisfactory to Investors;

 

(t)               Payoff of Existing Indebtedness; Lien Releases.  The Companies shall provide Investors with evidence of payoff of the Indebtedness to DeLage Landen Financial Services Canada, Inc. and DeLage Landen Financial Services, Inc. and release of any related Liens, in a form satisfactory to the Collateral Agent;

 

(u)               Payment of Amounts Due.  The Companies shall pay all fees, expenses and other obligations of each Company which are then due to any Investor in accordance with this Agreement;

 

(v)               Corporate and Limited Liability Company Proceedings; Consents; Etc.  All proceedings (corporate or otherwise) to be taken and all waivers and consents to be obtained in connection with the transactions contemplated by this Agreement have been taken or obtained and this Agreement and all documents incident hereto shall be satisfactory in form and substance to Investor and its counsel, each of whom shall have received all such originals or certified or other copies of such documents as it may reasonably request;

 

  

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(w)               Compliance with Securities Laws.  The offering and sale of the Notes to the Investors shall have complied with all applicable requirements of federal and state securities laws;

 

(x)                Due Diligence.  The Investors shall have completed their due diligence review of the Companies in all respects satisfactory to the Investors, including without limitation all regulatory agreements with public or private licensing entities necessary for the operation and growth of the Business;

 

(y)                No Adverse U.S. Legislation, Action or Decision, Etc.  No legislation shall have been enacted by Congress, no other formal action shall have been taken by any Governmental Authority, whether by order, regulation, rule, ruling or otherwise, and no action shall exist and no decision shall have been rendered by any court of competent jurisdiction, which could materially and adversely affect the Notes being purchased by the Investors hereunder;

 

(z)                 No Material Adverse Change.  Prior to funding, there shall have occurred no event or circumstance that has had or could reasonably be expected to have a Material Adverse Effect;

 

(aa)               Absence of Litigation.  There shall be no pending, or to the knowledge of the Companies, threatened, suits, legal or administrative proceedings, inquiries, claims or governmental investigations against or with respect to any Company, or any of their respective managers, officers, properties or assets, which if adversely determined would reasonably be expected to have a Material Adverse Effect;

 

(bb)               Approval by Peachtree.  Peachtree’s investment committee shall have approved this Agreement and all of the transactions contemplated hereby and authorized Peachtree to become an Investor hereunder; and

 

(cc)               Other Document or Action.  The Companies shall deliver such other documents or perform such other actions relating to the transactions set forth in this Agreement as the Investors may reasonably request.

 

ARTICLE 7

Survival of Representations, Warranties and Agreements;

Indemnification; Fees and Expenses

 

Section 7.1.                           Survival of Representations, Warranties and Agreements.  All representations and warranties contained herein shall survive the Closing Date and shall continue in full force and effect so long as any Indebtedness hereunder or Company Liabilities are outstanding or unperformed or this Agreement otherwise remains in effect.  All statements contained in a certificate or other instrument delivered by any Company pursuant to this Agreement in connection with the transactions contemplated by this Agreement shall constitute representations and warranties by the Companies under this Agreement.  All agreements contained herein shall survive indefinitely until, by their respective terms, they are no longer operative.

 

  

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Section 7.2.                           Indemnification.

 

7.2.1.           The Companies, without limitation as to time, will defend and indemnify the Investors and the Collateral Agent and their officers, directors, partners, managers, employees, attorneys and agents (each, an “Indemnified Party”) against, and hold each Indemnified Party harmless from, all losses, claims, damages, liabilities, costs (including the reasonable costs of preparation and reasonable attorneys’ fees and expenses) (collectively, the “Losses”) incurred by an Indemnified Party as a result of, or arising out of, or relating to (A) any misrepresentation or breach of any representation or warranty made by any Company herein, (B) any breach of any covenants, agreement or Company Liabilities of any Company contained in any of the Loan Documents or (C) any investigation or proceeding against any Company or any Indemnified Party and arising out of or in connection with this Agreement or any of the Loan Documents, whether or not the transactions contemplated by this Agreement are consummated, which investigation or proceeding requires the participation of, or is commenced or filed against, any Indemnified Party because of this Agreement, any other Loan Document such other documents and the transactions contemplated hereby or thereby, other than any Losses resulting from action or omission on the part of such Indemnified Party which is finally determined in such proceeding to be a result of such party’s gross negligence or willful misconduct.  Each Company agrees, on a joint and several basis, to reimburse each Indemnified Party promptly for all such Losses as they are incurred by such Indemnified Party in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom.  The obligations of the Companies under this paragraph will survive any Transfer of any Note and the termination of this Agreement.

 

7.2.2.           If any action, proceeding or investigation is commenced, as to which any Indemnified Party proposes to demand such indemnification, it shall notify the Companies with reasonable promptness; provided, however, that any failure by such Indemnified Party to notify the Companies shall not relieve the Companies from their obligations hereunder except to the extent the Companies are prejudiced thereby.

 

Section 7.3.                           Fees and Expenses.

 

7.3.1.           On the Closing Date, the Companies shall pay:  (i) a closing fee to Peachtree of Fifty-Two Thousand Dollars ($52,000); and (ii)  all reasonable professional fees and reasonable out-of-pocket costs and expenses incurred by the Investors in connection with the Subordinated Loans, including, without limitation, all unpaid fees and disbursements for work done for the Investors by their attorneys and legal staff.  All amounts described in this section shall be due and payable in full by the Companies on the Closing Date.

 

7.3.2.           The Company shall pay, as and when due, all of the following fees and expenses:  (i) the fees and expenses of its own counsel; (ii) any registration or qualification costs required in connection with the issuance of the Notes or otherwise required pursuant to the terms of this Agreement; (iii) any recordation, transfer, documentary or other taxes or costs of, or incidental to, any recording or filing of any of the Security Documents (including any financing statements) concerning the Collateral; (iv) the fees and expenses incurred in connection with any amendment, modification or waiver to this Agreement, the other Loan Documents and any other documents prepared in connection herewith or therewith; and (v) any income, excise, franchise or other taxes incident to the transactions described herein.

 

  

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ARTICLE 8

Affirmative Covenants

 

The Companies covenant and agree with the Investors and Collateral Agent that until payment in full of the Company Liabilities:

 

Section 8.1.                           ACH Debt Authorization.  

 

  At the request of Peachtree, Companies will authorize Peachtree’s bank of account to initiate direct payments of interest payments due under the Note in favor of Peachtree from the Companies’ bank(s) of account pursuant to one or more authorizations in the form of Exhibit D.

 

Section 8.2.                           Financial Statements, Reports, Etc.

 

  From and after the date hereof until all Company Liabilities have been irrevocably paid in full and discharged, the Companies shall deliver to the Investors:

 

(a)               Monthly Financial Statements.  Within thirty (30) days after the last day of each month:  (i) financial statements of Emtec and its consolidated Subsidiaries, including a balance sheet and a statement of income as of the last date of each such month, a cumulative statement of income from the first day of the current fiscal year to the last day of such month (each of the above with comparison to the operating budget and the comparable period from the prior year), and a cumulative cash flow analysis from the first day of the current fiscal year to the last day of such month, and (ii) as soon as available, but in any event simultaneously with delivery to the holder of Senior Debt, copies of all monthly and all other information furnished to such holder of Senior Debt, including, without limitation, all borrowing base calculations pursuant to the terms of the agreements evidencing the Senior Debt.

 

(b)               Quarterly Financial Statements.  Within forty-five (45) days after the end of each fiscal quarter (other than the last fiscal quarter of each fiscal year), the quarterly management prepared financial statements of Emtec and its consolidated Subsidiaries, including a balance sheet, statement of income and a statement of cash flows, which shall present fairly the financial condition of Emtec and its consolidated Subsidiaries as of the close of such fiscal quarter and the results of their operations, during such quarter, in accordance with GAAP (without notes and subject to year end adjustments).

 

(c)               Annual Financial Statements.  Within one hundred twenty (120) days after the end of each fiscal year of Emtec, audited financial statements of Emtec and its consolidated Subsidiaries for such fiscal year.

 

(d)               Budget.  No later than sixty (60) days after the beginning of each fiscal year of Emtec and its consolidated Subsidiaries, an operating budget for such fiscal year for Emtec and its consolidated Subsidiaries and to include the following:  a projected income statement, statement of cash flows and balance sheet, with assumptions related to the budget, accompanied by a certificate from the Chief Executive Officer, Chief Financial Officer, Executive Officer or President of Emtec to the effect that, to such officer’s knowledge, such projections are good faith estimates (utilizing assumptions reasonably believed to be reasonable at the time made) of the financial condition and operations of Emtec and its consolidated Subsidiaries for the periods represented therein.

 

(e)               No Default/Compliance Certificate.  On a quarterly and annual basis, simultaneously with delivery of the financial statements described in Section 8.2(b) and Section 8.2(c) hereof, a No Default/Compliance Certificate of the Chief Executive Officer, Chief Financial Officer, Executive Officer or President of Emtec certifying to the matters set forth therein.

 

  

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8.2.2.           Notices.

 

(a)               Promptly upon any such occurrence, the Companies shall deliver a written notice to each Investor of any default or any event which, upon a lapse of time or notice or both, would constitute a default under:  (i) the Senior Debt or (ii) any Subordinated Seller Loan.

 

(b)               The Companies shall notify each Investor of any suits, actions, claims, investigations or adversarial proceedings in excess of One Hundred Thousand Dollars ($100,000) filed against any Company or any Subsidiary thereof by delivering to each Investor, within ten (10) Business days of receipt thereof, a copy of the complaint or other such pleadings or filings served on or by such Company or Subsidiary.  As to any suit or other proceedings in excess of One Hundred Thousand Dollars ($100,000) to which any Company and/or its Subsidiaries is not a party but which could substantially affect the Collateral or the operation of the Business, such Company shall notify each Investor by delivering to each Investor a copy of all pleadings or filings obtained by such Company or its Subsidiary in regard to such litigation, or if no pleadings or filings are obtained, a letter setting out the facts known about the matter within ten (10) Business days of receipt thereof or knowledge of such suit.  Each Company agrees to notify each Investor as soon as practicable after such Company or any of its Subsidiaries becomes aware of any Hazardous Material or other environmental problem with respect to the Real Property, which causes, or any lien, action or notice resulting from the violation of any applicable Environmental Law on or connected to the Real Property.

 

(c)               Each Company shall give each Investor notice of the occurrence of any default declared or waived and of which such Company has knowledge with respect to (a) the Senior Debt, any Material Contract or other material obligation of any Company, provided that payment disputes would reasonably be expected to have a Material Adverse Effect, or (b) any judgment entered against any Company in an amount in excess of One Hundred Thousand Dollars ($100,000), by delivering an accurate and complete copy thereof to the Investor within ten (10) Business days of receipt thereof by such Company.

 

(d)               Each Company shall promptly provide each Investor notice in writing within ten business days of receipt by such Company of any notice from the PBGC or any other party that such Company or any of their ERISA Affiliates have or could have any liability with respect to a defined benefit pension plan;

 

(e)               Other Notices. Within ten (10) Business Days after a written request therefor, the Companies shall deliver to each Investor such other information as to the business, affairs, financial condition or information evidencing compliance with the requirements of the Loan Documents, and such other data and information routinely available to any Company, as such Investor may reasonably request from time to time to enable such Investor to comply with applicable Law and governmental filings.

 

  

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Section 8.3.                           Information Requests.  From and after the date hereof until all of the Company Liabilities have been paid in full, the Companies shall furnish from time to time to each Investor all information such Investor may reasonably request to enable such Investor to prepare and file any form required of the Investor by the SEC, the SBA, or any other Governmental Authority, upon not less than ten (10) Business Days written notice.

 

Section 8.4.                           Access.  From and after the date hereof until all of the Company Liabilities have been paid in full: (a) the Companies shall afford to each Investor and its representatives (including an SBA representative) free and full access, upon reasonable notice and during regular business hours, to all the books, records, properties and offices of Emtec and its Subsidiaries and the right to make excerpts therefrom and copies and transcripts thereof, to discuss the affairs, finances and accounts of Emtec and its Subsidiaries with the officers of Emtec and its Subsidiaries and to conduct any audit or similar examination of any other documents deemed to be reasonably necessary or appropriate by such Investor, which shall be conducted by an independent audit firm selected by such Investor and shall be at such Investor’s expense; (b) the Companies shall allow each Investor or its agents, upon reasonable notice to Emtec, to interview Emtec and its Subsidiaries’ outside accounting firm and shall instruct them to cooperate with such Investor in connection with such interview.  Nothing in this Section 8.4 shall in any way be deemed to limit any Investor, its representative and the SBA’s ability to inspect any such information to the extent that it is required to make the Subordinated Loans compliant with all requirements of investment by a Small Business Investment Company in a “small business concern” as defined in the SBA Act, and the rules and regulations of the SBA issued or promulgated thereunder and to the extent that this Section 8.4 conflicts with such requirements of investment, the requirements of investment by a Small Business Investment Company in a “small business concern” as defined in the SBA Act, and the rules and regulations of the SBA issued or promulgated thereunder shall control.

 

Section 8.5.                           Books and Records.  Emtec and its Subsidiaries shall keep proper books of record and account in which full, true and correct entries in all material respects shall be made of all dealings or transactions in relation to its business and activities and maintain accounts and reserves in accordance with GAAP, for all taxes (including income taxes) (prepared in the Ordinary Course of Business), all depreciation, depletion, obsolescence and amortization of its properties, all contingencies, and all other reserves.

 

Section 8.6.                           Insurance.  Each Company shall:

 

(a)               Maintain with responsible insurance companies such insurance on its properties against such risks, including public liability, property damage and worker’s compensation insurance as are usually insured against by persons engaged in the Companies’ Business in the same location in at least such amounts as such insurance is usually carried by persons engaged in the same or similar business as the Companies in such state or states or country or countries as the Companies’ Business may be conducted.  Such policies owned by the Companies contain additional insured and loss payable provisions in favor of the Collateral Agent.  Insurance proceeds shall be applied as set forth in Section 8 of the Security Agreement.

 

  

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(b)               File with the Collateral Agent upon the request of the Collateral Agent a detailed list of the insurance then in effect, stating, as applicable, the names of the insurance companies, the amounts of the insurance, dates of expiration thereof and the properties and risks covered thereby.

 

Section 8.7.                           Use of Proceeds.  The Companies shall use the net proceeds of the Subordinated Loans as set forth in Section 4.27.

 

Section 8.8.                           Payments and Obligations to the Investor.  The Companies shall make all payments of principal, interest and other charges as and when due under the Notes, shall timely make all payments of any other monetary liabilities and obligations, and shall perform and comply in all respects with all applicable terms, conditions and covenants of this Agreement and the other Loan Documents.

 

Section 8.9.                           Other Debts; Taxes.  The Companies shall promptly make all payments of principal and interest as and when due under the Senior Debt and any other debt obligations of the Companies and their Subsidiaries; provided, however, that this covenant shall not be construed as permitting the making of any payments on account of any other debt obligations of the Companies or their Subsidiaries that are not otherwise permitted by the terms and conditions of this Agreement.  Each Company will pay and discharge all taxes, assessments and governmental charges or levies imposed upon it or upon any of its income or profits, or upon any properties belonging to it or its Subsidiaries, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any of its properties, or cause a failure or forfeiture of title thereto; provided, however, that no Company shall be required to pay any such tax, assessment, charge, levy, claim or debt obligation that is being contested in good faith and by proper proceedings timely instituted and diligently conducted if such Company or its Subsidiaries has maintained adequate reserves with respect thereto in accordance with GAAP.

 

Section 8.10.                           Maintain Existence, Licenses.

 

(a)               Each Company and its Subsidiaries shall take or cause to be taken all steps and perform or cause to be performed all actions necessary or appropriate to preserve and keep in full force and effect its existence as a corporation or limited liability company (or other entity) in good standing and its right to conduct its Business in a prudent and lawful manner in all jurisdictions in which it then conducts business, and

 

(b)               Each Company and its Subsidiaries shall maintain in full force and effect all Licenses necessary or appropriate to operate its Business in compliance with all applicable Laws in all material respects.

 

  

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Section 8.11.                           Intellectual Property.  If any Company files with the United States Patent and Trademark Office or United States Copyright Office any applications for the registration or issuance of any Intellectual Property, Company shall notify the Collateral Agent promptly in writing of any such action, and, upon the request of the Collateral Agent, such Company shall execute and file promptly such collateral security agreements and related documents reasonably requested by Collateral Agent, and otherwise cooperate with the Collateral Agent, to provide the Collateral Agent a valid and perfected security interest in and to such Intellectual Property, subject to the rights of the secured parties relating to the Senior Debt.

 

Section 8.12.                           Key Man Insurance.  As soon as commercially practicable after the Closing Date (but no later than sixty (60) days after the Closing Date) and so long as such Person is employed by Emtec or is a shareholder of Emtec, Emtec shall be the beneficiary of a life insurance policy on the life of Dinesh R. Desai (which, other than the amount, shall otherwise be identical to the policy that was assigned to NewSpring, and shall be in form and substance satisfactory to Peachtree) in the amount of One Million Five Hundred Thousand Dollars ($1,500,000), excluding any similar insurance required pursuant to the terms of the Senior Debt or by NewSpring pursuant to the terms of the Existing Subordinated Loan Agreement.  Emtec shall execute and deliver all such notices, assignments or other documents as may be necessary or appropriate to assign the proceeds of such insurance to Peachtree.  Any payment of the proceeds of such insurance to Peachtree shall be applied against the outstanding Company Liabilities to Peachtree, first to any unpaid fees and costs, then to accrued and unpaid interest, then to principal.

 

Section 8.13.                           Compliance With Laws; Perform Obligations.  Emtec and each of its Subsidiaries shall comply in all material respects with all applicable Laws, rules, regulations, and orders.  Each Company shall perform all of its material obligations, if any, under each agreement relating to the Senior Debt, any Material Contract or other material obligation of any Company to do, or cause to be done, all things necessary in order to keep each such agreement in full force and effect if the failure to do so could reasonably be expected to have a Material Adverse Effect.

 

Section 8.14.                           Financial Ratios and Covenants.

 

(a)               Total Funded Senior Debt to Pro Forma Adjusted EBITDA Ratio.  Emtec and its consolidated Subsidiaries shall maintain, as of the last Business Day of each fiscal quarter, a ratio of (i) Total Funded Senior Debt on such date to (ii) Pro Forma Adjusted EBITDA on a trailing twelve (12) months basis for such period, of not less than the level in the right hand column below for each period set forth in the corresponding left hand column below:

 

	
Fiscal Quarter Ending On:

	
Ratio

 

	
November 30, 2011

	
4.0 to 1.0

	
February 28, 2012

	
4.0 to 1.0

	
May 31, 2012

	
3.75 to 1.0

	
August 31, 2012

	
4.0 to 1.0

	
November 30, 2012

	
4.0 to 1.0

	
February 28, 2013

	
3.5 to 1.0

	
May 31, 2013

	
3.5 to 1.0

	
August 31, 2013

	
3.5 to 1.0

	
November 30, 2013

	
4.0 to 1.0

	
February 28, 2014

	
3.5 to 1.0

	
May 31, 2014

	
3.5 to 1.0

	
August 31, 2014

	
3.5 to 1.0

	
November 30, 2014

	
4.0 to 1.0

	
February 28, 2015

	
3.5 to 1.0

	
May 31, 2015

	
3.5 to 1.0

	
August 31, 2015

	
3.5 to 1.0

	
November 30, 2015

	
4.0 to 1.0

	
February 28, 2016

	
3.5 to 1.0

	
May 31, 2016

	
3.5 to 1.0

; provided, that if the Companies sell the Federal Procurement Business, then the ratio in the right hand column above shall be “3.5 to 1.0” for each listed date.

 

  

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(b)               Minimum Fixed Charge Coverage Ratio.  Emtec and its consolidated Subsidiaries shall maintain, as of the last Business Day of each fiscal quarter on a trailing twelve (12) months basis, a Fixed Charge Coverage Ratio of not less than the level in the right hand column below for each period set forth in the corresponding left hand column below:

 

	
Fiscal Quarter Ending On:

	
Ratio

 

	
November 30, 2011

	
1.3 to 1.0

	
February 28, 2012

	
1.3 to 1.0

	
May 31, 2012

	
1.3 to 1.0

	
August 31, 2012

	
1.3 to 1.0

	
November 30, 2012

	
1.4 to 1.0

	
February 28, 2013

	
1.5 to 1.0

	
May 31, 2013

	
1.5 to 1.0

	
August 31, 2013 and each fiscal quarter thereafter

	
1.5 to 1.0

Section 8.15.                           Subsidiaries.  From and after the date hereof until all of the Company Liabilities have been repaid in full, each Company shall cause all of its Subsidiaries hereafter created that are not Foreign Subsidiaries to execute documentation required by Collateral Agent for the purpose of (a) becoming a borrower hereunder and under the Notes, and (b) granting to the Collateral Agent for the benefit of the Investors a security interest in the assets of such Subsidiary.

 

Section 8.16.                           Compliance with Environmental Laws.  Each Company shall operate in material compliance with all Environmental Laws and not use any property which it owns or occupies to generate, treat, store, transport, transfer, dispose of, release or otherwise handle any Hazardous Material, except in material compliance with all Environmental Laws.

 

Section 8.17.                           Updated Schedules. Within ten (10) days after the Closing Date, the Companies shall deliver to Investors an updated Schedule 4.6 (Material Contracts) and updated Schedule 4.33 (Indebtedness).

 

Section 8.18.                           Further Assurances; Post Closing Items.    Each Company shall promptly upon the reasonable request by the Collateral Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, pledge agreements, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Collateral Agent, may reasonably require from time to time in order to (a) to the fullest extent permitted by applicable law and the terms of this Agreement and the Security Documents, subject such Company’s properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Security Documents, (b) perfect and maintain the validity, effectiveness and priority of any of the Security Documents and any of the Liens intended to be created thereunder and (c) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Collateral Agent the rights granted or now or hereafter intended to be granted to the Collateral Agent under any Loan Document or under any other instrument executed in connection with any Loan Document to which such Company or any Subsidiaries thereof (that are not Foreign Subsidiaries) formed or acquired after the Closing Date is or is to be a party.

 

  

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ARTICLE 9

Negative Covenants

 

Until the Company Liabilities are repaid in full, each Company, for itself and on behalf of each of its Subsidiaries covenants and agrees with the Investors and the Collateral Agent not to do any of the following without the prior written consent of the Investors and the Collateral Agent (which consent shall not unreasonably be withheld or delayed).

 

Section 9.1.                           Change of Capital Structure.  No Company or any of its Subsidiaries shall, directly or indirectly, take any of the following actions: (a) authorize or issue any additional shares or units of Capital Stock of any Company or any Subsidiary thereof, any equity or debt securities convertible or exchangeable into shares of Capital Stock of any Company or any Subsidiary thereof, or any options, warrants or other rights to acquire shares or units of Capital Stock of any Company or any Subsidiary thereof; provided that: (i) the limitations in this Section 9.1(a) shall not apply to Emtec and (ii) Emerging Cloud is permitted to issue up to 20% of its Capital Stock to Sellers of Gnuco and up to 10% of its Capital Stock to management; (b) the reclassification, repurchase, retirement or redemption (or other direct or indirect acquisition) of or the making of any sinking fund payments with respect to, any Capital Stock, options, warrants, or convertible securities of any Company or any of Subsidiary thereof, or set apart any sum for such purpose; provided that the limitations in this Section 9.1(b) shall not apply to any wholly-owned direct or indirect Subsidiary of Emtec, or the exercise of put rights granted to sellers in connection with the SDI, Covelix, Dinero or Gnuco acquisitions; (c) the merger, consolidation or other combination of any Company with one or more other Persons (other than with any other Company); or (d) establish any Subsidiary of any Company or any Subsidiary thereof (provided, that Gnuco may establish Emerging Cloud, subject to the terms of Section 8.15 hereof).

 

Section 9.2.                           Distributions.  No Company or any Subsidiary thereof shall make or cause to be made any distribution of cash, securities or other property of such Company or Subsidiary to any of its shareholders or members, whether such distribution would be characterized as a dividend or otherwise; provided, that nothing herein shall prohibit:  (i) any Company or Subsidiary thereof from making or causing to be made distributions in the form of payments:  (A) to employees that are shareholders or members of a Company or a Subsidiary thereof of wages, salary and bonuses in the ordinary course of business; (B) in respect to “earnouts” and similar payment obligations that have been earned in full as of such date and are not contingent; or (C) to a Company; or (ii) Emerging Cloud from making payments to its members to the extent necessary to enable the members of Emerging Cloud to pay their respective federal, state and local income tax liability arising solely out of their membership in Emerging Cloud (assuming for such purpose that such members are taxed at the highest applicable combined federal and state income tax rate).

 

  

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Section 9.3.                           Dissipation of Assets.  No Company or any Subsidiary thereof shall in any manner convey or dispose of any equitable, beneficial or legal interest in any such Company’s or Subsidiary’s material assets, except for: (i) inventory sold and equipment disposed of in the Ordinary Course of Business and (ii) other sales of assets not to exceed One Million Dollars ($1,000,000) in sale price in the aggregate in any fiscal year.

 

Section 9.4.                           No Encumbrances.  No Company or any Subsidiary thereof shall permit to exist against any of its assets any Lien, except for the Permitted Encumbrances.

 

Section 9.5.                           Affiliate Transactions.  No Company or any Subsidiary thereof shall purchase or sell any property or services, or borrow or lend money or property from or to, or co-invest in, any transaction with any officer, director, member, employee or Affiliate of any such Company or Subsidiary except on fair and reasonable terms substantially as favorable to such Company or Subsidiary as would be obtainable by such Company or Subsidiary at the time in a comparable arm’s length transaction with a Person other than the Persons listed above.

 

Section 9.6.                           Change of Business, Future Business.  No Company or any Subsidiary thereof shall change the nature of its Business operations or expend or invest any funds in any manner not reasonably related to its Business.

 

Section 9.7.                           Additional Debts and Company Liabilities; Amendments.  No Company or any Subsidiary thereof shall incur any additional Indebtedness or create or incur any Contingent Obligation other than:  (a) the Company Liabilities; (b) trade payables or other short-term working capital debt incurred in the Ordinary Course of Business; (c) the Senior Debt; (d) Indebtedness incurred by Emtec Canada under the terms of the Senior Loan Agreement; (e) Indebtedness set forth on Schedule 9.7 hereto; (f) leases in the Ordinary Course of Business or purchase money obligations to finance Capital Expenditures permitted under the terms of Section 9.9 hereof; (g) intercompany debt guaranties permitted by Section 9.12 hereof and (h) earn-out arrangements in connection with Permitted Acquisitions; and provided that the Company may refinance Indebtedness permitted under clauses (e) and (f), so long as the principal amount of such Indebtedness is not increased.  No Company or Subsidiary thereof shall amend or modify the terms of the Subordinated Seller Notes or the Senior Debt in any manner that would reasonably be expected to have a Material Adverse Effect.  Emtec Canada may join in as a Company hereunder provided that: (i) Emtec Canada expressly joins in this Agreement as a borrower and becomes jointly and severally liable for the obligations of Companies hereunder and under any other Loan Document between any Company and the Investors and grants Collateral Agent, for the ratable benefit of Investors, a security interest in all its Collateral subject to no Lien other than a Permitted Encumbrance including a pledge of any equity interests of its Subsidiaries and (ii) Collateral Agent shall have received all documents, including legal opinions, it may reasonably require, including those needed  to establish compliance with each of the foregoing conditions including such items required under Section 6.1 of this Agreement as are customary

 

  

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Section 9.8.                           No Adverse Actions.  No Company or any Subsidiary thereof shall, through any reorganization, reclassification, consolidation, merger, sale of assets, Act of Dissolution, issuance or Transfer of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms, covenants and conditions of this Agreement or any of the other Loan Documents, but shall at all times carry out in good faith all such terms.

 

Section 9.9.                           Limits on Capital Expenditures.  Emtec and its direct and indirect Subsidiaries shall not make capital expenditures and/or contracts for capital expenditures in excess of the amount set forth in Emtec and its consolidated Subsidiaries’ annual plan or budget approved by the Board.

 

Section 9.10.                           No Management Fees.  No Company or any Subsidiary thereof shall pay any management fees or similar payments to, or on behalf of, any shareholder of any Company or any Subsidiary thereof unless paid to the parent of such Company and eliminated in any intercompany elimination.  No Company nor any Subsidiary thereof shall amend the terms of any agreement with any shareholder or member of any Company or any Subsidiary thereof.

 

Section 9.11.                           Acquisitions.  Except for the transaction described in the Gnuco Acquisition Agreement and any Permitted Acquisition, no Company or any Subsidiary thereof shall merge or consolidate with any Person for the purpose of acquiring such Person or acquire all or substantially all of the assets or any of the equity interest in any Person.

 

Section 9.12.                           Guaranties.  Except: (i) Guaranties of Indebtedness of Emtec Canada under the Senior Loan Agreement; (ii) as disclosed on Schedule 9.12, (iii) guarantees of a Company in respect of Indebtedness otherwise permitted hereunder of another Company, (iv) guarantees of a Company in connection with any Permitted Acquisition; and (v) except to the extent the same shall constitute Indebtedness permitted under Section 9.7, no Company or any Subsidiary thereof shall directly or indirectly, assume, endorse, be or become liable for, or guarantee, the obligations of any Person other than the endorsement of negotiable instruments for deposit or collection in the Ordinary Course of Business.  For the purposes hereof, the term “guarantee” shall include any agreement, whether such agreement is on a contingency or otherwise, to purchase, repurchase or otherwise acquire Indebtedness of any other Person, or to purchase, sell or lease, as lessee or lessor, property or services primarily for the purpose of enabling another Person to make payment of Indebtedness, or to make any payment (whether as an advance, capital contribution, purchase of any equity interest or otherwise) to assure a minimum equity asset base, working capital or other balance sheet or financial condition, in connection with the Indebtedness of another person or to supply funds to or in any manner invest in another person in connection with such person’s Indebtedness.

 

  

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Section 9.13.                           Advances.  No Company or any Subsidiary thereof shall make, or suffer to exist, any loan or advance or extend any credit to any Person, including, without limitation, any Affiliate of such Company other than:

 

(a)               trade credit advanced in the Ordinary Course of Business;

 

(b)               investments permitted by Section 9.14;

 

(c)               reasonable travel and expense advances in the Ordinary Course of Business; and

 

(d)               inter-Company loans.

 

Section 9.14.                           Investments.  No Company or any Subsidiary thereof shall make, or suffer to exist, any investment in any Person, except investments in:

 

(a)               obligations issued or guaranteed by the United States of America;

 

(b)               certificates of deposit, overnight time deposits, bankers acceptances and other “money market instruments” issued by any bank or trust company organized under the laws of the United States of America or any State thereof and (x) whose deposits are insured by the Federal Deposit Insurance Corporation or (y) having capital and surplus in an aggregate amount of not less than $100,000,000;

 

(c)               open market commercial paper rated at least A-1 by Standard & Poor’s, a division of the McGraw-Hill Companies, or P-1 by Moody’s Investor Service or the equivalent rating from another nationally recognized credit rating firm;

 

(d)               repurchase agreements entered into with any bank or trust company organized under the laws of the United States of America or any State thereof and having capital and surplus in an aggregate amount of not less than $100,000,000 relating to United States of America government obligations;

 

(e)               shares of “money market funds,” each having net assets of not less than $100,000,000;

 

in each case with respect to clauses (a) – (e) above maturing or being due or payable in full not more than 180 days after the Company’s acquisition thereof;

 

(f)               advances permitted pursuant to Section 9.13;

 

  

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(g)               another Company;

 

(h)               investments up to $300,000 in aggregate for such fiscal year in monies or assets to any one or more of MauritiusCo or any other Permitted Foreign Subsidiary that is a direct Subsidiary of a Company (whether as capital contributions, intercompany loans and/or such other transactions as a Company may elect in its discretion) to be used (either directly by MauritiusCo or such direct Permitted Foreign Subsidiary and/or indirectly by Emtec India and/or any other Permitted Foreign Subsidiaries of MauritiusCo after the further transfer thereof from MauritiusCo to such Permitted Foreign Subsidiaries and any other direct Permitted Foreign Subsidiaries of any Company, but only to the extent that prior to making any such transfer, such Company shall give Investor prior written notice thereof, which such notice shall include the amount of such transfer and a reasonably detailed description of the purpose of such transfer; and

 

(i)               advances, loans or extensions of credit to Emtec Canada in an amount equal to the sum of (i) any amounts advanced on the Closing Date to repay Indebtedness to DeLage Landen Financial Services Canada, Inc. and (ii) an additional amount not to exceed $250,000 at any one time outstanding.

 

Section 9.15.                           Fiscal Year; Accounting Changes.  Emtec and its direct and indirect Subsidiaries shall not change their fiscal year or make a material change to its accounting policies or practices, except as required by changes in GAAP.

 

Section 9.16.                           ERISA Obligations.  No Company shall:

 

(a)               Cause or suffer to exist any event that would reasonably be expected to result in the imposition of a Lien under ERISA or the Code with respect to any Employee Plan;

 

(b)               Incur (i) any termination liability with respect to the termination of an “employee pension benefit plan” (within the meaning of Section 3(2) of ERISA) that is subject to Title IV of ERISA or (ii) any withdrawal liability (either in a complete or partial withdrawal) with respect to a Multiemployer Plan, individually or in the aggregate with respect to (i) and (ii), in excess of $300,000; or

 

(c)               Incur (i) any liability for any tax or civil penalty under Chapter 43 of the Code or Section 502 of ERISA (or any successor provisions) or (ii) any liability or obligation for, under, with respect to, or otherwise in connection with any Employee Plan, in each case, that would reasonably be expected to have a Material Adverse Effect.

 

Section 9.17.                           Amendments of Organizational Documents.  No Company or any Subsidiary thereof shall modify, amend, supplement or terminate, or agree to modify, amend or supplement, any such Company’s or Subsidiary’s formation documents in a manner that materially and adversely affects any Investor.

 

  

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ARTICLE 10

Default Provisions

 

The occurrence of any of the events specified below in this Article 10 (each an “Event of Default”) shall constitute an immediate breach of, and default under this Agreement, entitling the Investor to exercise all of the rights and remedies specified in this Agreement as provided for herein and in any other Loan Document, and under all applicable Laws, without the obligation to furnish any further notice or opportunity to cure (beyond that specified in the applicable sections of this Article 10), all of which are hereby expressly waived by the Company:

 

Section 10.1.                           Monetary Defaults.

 

(a)           Any payment of principal, Prepayment Premium interest or any other monetary amount owed under any Note, hereunder or any other Loan Document is not received by any Investor or Collateral Agent on or before the due date thereof, and such failure to pay continues for a period of fifteen (15) days after the Companies have received written notice thereof, regardless of whether such payment is prohibited by the PNC Intercreditor Agreement (provided, that if a payment is prohibited by the PNC Intercreditor Agreement but permitted by the other parties thereto, upon payment of such sum by the Companies, such Event of Default shall cease to exist);

 

Section 10.2.                           Other Breaches.  Any Company shall fail to comply with its affirmative or negative covenants, agreements or undertakings in this Agreement, any Note or any of the Loan Documents; provided, however, that if such default is a failure to comply with non-monetary covenants, agreements and undertakings and does not otherwise have a grace or cure period, then such failure shall not be an Event of Default under this Section 10.2 unless it continues for a period of thirty (30) days after the earlier of the date on which any Investor or Collateral Agent gives written notice thereof to the Companies or on which the Companies became aware or should in the exercise of reasonable due diligence have become aware of such failure; provided, further, that such notice and opportunity to cure is expressly inapplicable to (a) any failure constituting an Event of Default under any other section of this Article 10; (b) any failure to comply with the provisions of Section 8.14 or Article 9; or (c) any failure which is incapable of cure or was willfully caused or permitted by any Company.

 

Section 10.3.                           Misrepresentation.  Any representation or warranty made by any Company in this Agreement or in any of the other Loan Documents, shall be untrue in any material respect when made.

 

Section 10.4.                           Act of Bankruptcy or Dissolution.  Any Act of Bankruptcy or Act of Dissolution shall have occurred with respect to any Company.

 

Section 10.5.                           Final Judgments.  Any final judgment shall be entered against any Company or any Subsidiary thereof in excess of Five Hundred Thousand Dollars ($500,000) not covered by insurance and is not discharged, annulled or stayed (and bonded if required) within sixty (60) days from the date of entry.

 

Section 10.6.                           Senior Debt.  Any default shall have occurred (after giving effect to any applicable grace and/or cure periods) and be continuing under any agreement evidencing, securing or otherwise related to the Senior Debt or the occurrence of any event that would entitle the holder of such Indebtedness to accelerate the maturity thereof for any reason, in either case which would not otherwise constitute an Event of Default under this Agreement.

 

  

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Section 10.7.                           Other Defaults Generally.  Any default shall have occurred (after giving effect to any applicable grace and/or cure periods) and be continuing under any material Indebtedness (other than the Senior Debt) giving rise to an obligation on the part of any Company to pay or incur an amount in excess of Five Hundred Thousand Dollars ($500,000).

 

Section 10.8.                           Fraudulent Conveyance or Transfer.  Any Company shall conceal, remove or Transfer its property with the intent to hinder, delay or defraud its creditors or any of them, or the making or sufferance of any Transfer of any Company's property which is fraudulent under any bankruptcy, fraudulent conveyance, fraudulent transfer or similar state or federal law.

 

ARTICLE 11

Remedies

 

Upon the occurrence of an Event of Default under this Agreement, the Investor shall be entitled to exercise any or all of the rights and remedies set forth below, in addition to such other rights and remedies as may be provided for in the other Loan Documents or as may be available at law or in equity.

 

Section 11.1.                           Acceleration.  Following the occurrence and during the continuance of an Event of Default (except an Event of Default under Section 10.4 hereof resulting from an Act of Bankruptcy or an Act of Dissolution), the Investors, under the terms of the Participation Agreement, may, at their option, accelerate the maturity of the Notes and all other monetary obligations or Company Liabilities owed to the Investors or Collateral Agent and demand immediate payment in full of all amounts payable under the Notes and all of the Company Liabilities owed to the Investors or Collateral Agent, including, without limitation, the Prepayment Premium, if applicable, without presentment, demand, protest, or further notice by the Investors to the Companies, all of which are hereby expressly waived by the Companies.  Following the occurrence of an Event of Default under Section 10.4 hereof resulting from an Act of Bankruptcy or an Act of Dissolution, all principal and interest outstanding under the Notes and all other Company Liabilities owed to the Investors or Collateral Agent, including without limitation, the Prepayment Premium, shall become immediately due and payable, without presentment, demand, protest or further notice by the Investors to the Companies, all of which are hereby expressly waived by the Companies.

 

Section 11.2.                           Post Default Interest.  Following the occurrence and during the continuation of an Event of Default, the outstanding principal balance of the Notes shall bear interest at a rate per annum equal to four percent (4%) in excess of the interest rate then in effect, payable on demand to the Investors.

 

Section 11.3.                           Costs.  The Companies shall pay all reasonable expenses of any nature, whether incurred in or out of court, and whether incurred before or after the Notes shall become due, at the Maturity Date or otherwise, (including without limitation, reasonable attorneys’ fees and costs) which the Investors or Collateral Agent may deem necessary or proper in connection with the collection of any of the monetary obligations or liabilities or the administration, supervision, preservation, protection of (including without limitation, the maintenance of adequate insurance).  The Investors and Collateral Agent are authorized to pay at any time and from time to time any or all of such expenses, to add the amount of such payment to the amount of principal outstanding under the Notes, and to charge interest thereon at the rate specified in Section 11.2, if applicable.

 

  

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Section 11.4.                           Remedies Non-Exclusive.  None of the rights, remedies, privileges or powers of the Investors and Collateral Agent expressly provided for herein shall be exclusive, but each of them shall be cumulative with, and in addition to, every other right, remedy, privilege and power now or hereafter existing in favor of any Investor or Collateral Agent, whether pursuant to the other Loan Documents, at law or in equity, by statute or otherwise.  No failure or delay on the part of any Investor or Collateral Agent in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege.

 

Section 11.5.                           Waiver of Rights by the Companies.  Except as may be otherwise specifically provided herein or in any other agreement between the Investors, Collateral Agent and the Companies which may be applicable, the Companies waive to the extent permitted by law, any bonds, security or sureties required by an statute, rule or otherwise by law as an incident to any taking of possession by the Investors or Collateral Agent of property subject to the Lien in favor of the Collateral Agent for the benefit of the Investors.  Upon the occurrence and during the continuance of an Event of Default, and subject to the terms of the PNC Intercreditor Agreement, the Companies also consent to the Collateral Agent entering upon any premises owned by or leased to any of them without obligation to pay rent or for use and occupancy, through self help, without judicial process and without having first given notice to the Companies or obtained an order of any court.  These waivers and all other waivers provided for in this Agreement and any other agreements or instruments executed in connection herewith have been negotiated by the parties.

 

ARTICLE 12

Miscellaneous

 

Section 12.1.                           Notices.  All notices required to be given to any of the parties to this Agreement shall be in writing and shall be deemed to have been sufficiently given, subject to the further provisions of this Section 12.1, for all purposes when presented personally to such party or sent via facsimile or by certified or registered mail, return receipt requested, with proper postage prepaid, or any national overnight delivery service, with proper charges prepaid, to such party at its address set forth below:

 

(a)               The Companies:

 

Emtec, Inc.

100 Matsonford Road

Two Radnor Corporate Center

Suite 420

Radnor, PA 19087

Fax No:  (484) 654-2539

Attention:  Gregory Chandler

with a required copy to:

Dechert LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104-2808

Fax No:  (215) 994-2222

	
  

	
Attention:  Gary L. Green, Esquire and Stephen M. Leitzell, Esquire

 

  

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(b)               NewSpring or Collateral Agent:

 

NewSpring SBIC Mezzanine Capital II, L.P.

Radnor Financial Center

555 Lancaster Avenue, Suite 444

Radnor, PA  19087

Fax: (610) 567-2388

Attention:  Steven Hobman

 

with a required copy to:

 

Pepper Hamilton LLP

400 Berwyn Park

899 Cassatt Road

Berwyn, Pennsylvania 19312

Fax: (610) 640-7835

Attention: Christopher S. Miller, Esquire

 

(c)               Peachtree:

 

Peachtree II, L.P.

1230 Peachtree Street

Suite 1900

Atlanta, GA 30309

Telecopier: (404) 870-8191

Attention:  John McCarty

 

 

With a copy to:

 

 

King & Spalding LLP

100 N Tryon Street, Suite 3900

Charlotte, NC 28202

Attention: W. Todd Holleman

Telecopier: 404.572.5128

 

  

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Such notice shall be deemed to be received (i) when delivered if delivered personally, or sent via facsimile, (ii) the next business day after the date sent if sent by a national overnight delivery service, or (iii) three (3) business days after the date mailed if mailed by certified or registered mail.  Any notice of any change in such address shall also be given in the manner set forth above.  Whenever the giving of notice is required, the giving of such notice may be waived in writing by the party entitled to receive such notice.

 

Section 12.2.                           Binding Agreement; Assignment.  This Agreement, the Notes and each other Loan Document shall inure to the benefit of the Investors, the Collateral Agent, the Companies and all future holders of the Notes, and each of their respective successors and assigns.  Other than as required by Law or by the SBA, this Agreement, the Notes and each other Loan Document shall be binding upon the Companies, the Investors, the Collateral Agent and all future holders of the Notes and their respective successors and assigns, and no such Person may assign, delegate or transfer any Loan Document or any of its rights or obligations thereunder: (a) with respect to the Companies, without the prior written consent of the Investors and the Collateral Agent and (b) with respect to the Investors and the Collateral Agent, without the prior written consent of Emtec, which consent shall not be unreasonably withheld, delayed or conditioned.  No rights are intended to be created under any Loan Document for the benefit of any third party debtor, creditor or incidental beneficiary of any Company.  Nothing contained in any Loan Document shall be construed as a delegation to any of the Collateral Agent, or any Investor of any other Person’s duty of performance.  NOTWITHSTANDING THE FOREGOING, EACH COMPANY ACKNOWLEDGES AND AGREES THAT EACH INVESTOR AT ANY TIME AND FROM TIME TO TIME MAY (SUBJECT TO THE LIMITATIONS ON, AND REQUIREMENTS FOR, THE ASSIGNMENT OR TRANSFER OF ANY NOTE, CONTAINED HEREIN OR THEREIN) SELL, ASSIGN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER ITS NOTE OR ANY OTHER LOAN DOCUMENT AND/OR THE COLLATERAL TO ITS AFFILIATES (EACH SUCH TRANSFEREE, ASSIGNEE OR PURCHASER, AN “ADDITIONAL INVESTOR”) AND GRANT PARTICIPATING INTERESTS IN ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS UNDER SUCH NOTE OR ANY OTHER LOAN DOCUMENT AND/OR THE COLLATERAL TO ITS AFFILIATES (EACH SUCH PERSON, A “PARTICIPANT”).  Each Additional Investor shall have all of the rights and benefits with respect to such Note, the Collateral and/or the other Loan Documents held by it as fully as if the original holder thereof and shall become a party to this Agreement by signing a counterpart of this Agreement or a joinder or similar agreement.  Each Participant shall have only the rights granted to it by such Investor granting its participating interest; provided, however, that (i) the assigning Investor’s obligations under this Agreement shall remain unchanged; (ii) the assigning Investor shall remain solely responsible to the Companies for the performance of such obligations; and (iii) the Companies shall, unless otherwise notified in writing, continue to deal solely and directly with the assigning Investor in connection with such Investor’s rights, interests and obligations under this Agreement, its Note and the other Loan Documents and the assigning Investor shall retain the sole right to enforce this Agreement.  Notwithstanding any other provision of any Loan Document, the assigning Investor may disclose to any Additional Investor or Participant all information, reports, financial statements, certificates and documents obtained under any provision of any Loan Document.

 

  

-50-

  

 

Section 12.3.                           Amendment.  Except as expressly provided herein and in the Participation Agreement, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Companies, the Investors and the Collateral Agent.  Any such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each holder of the Notes acquired under this Agreement at the time outstanding and each future holder of the Notes.

 

Section 12.4.                           Consents and Waivers.

  No consent or waiver, express or implied, by any party hereto of the breach, default or violation by any other party hereto of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach, default or violation of the same or any other obligations of such party hereunder.  Failure on the part of any party hereto to complain of any act of any of the other parties or to declare any of the other parties hereto in default, irrespective or how long such failure continues, shall not constitute a waiver by such party of its rights hereunder.

 

Section 12.5.                           Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury.

 

12.5.1.                      Governing Law.  This Agreement and all questions relating to its validity, interpretation and performance shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to conflicts of laws principles.

 

12.5.2.                      Consent to Jurisdiction.

 

(a)               Each Company irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the Commonwealth of Pennsylvania, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Pennsylvania state court or, to the fullest extent permitted by applicable Law, in such Federal court.

 

(b)               Each Company irrevocably and unconditionally waives, to the fullest extent permitted by applicable Law, any objection which it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (a) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement or in any other Loan Document shall affect any right that the Investor may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Company or its properties in the courts of any jurisdiction.

 

  

-51-

  

 

(c)               Venue for the adjudication of any claim or dispute arising out of this Agreement or any of the other Loan Documents shall be proper only in the state or federal courts of the Commonwealth of Pennsylvania, and all parties to this Agreement and the other Loan Documents hereby consent to such venue and agree that it shall not be inconvenient and not subject to review by any court other than such courts in Pennsylvania.

 

(d)               Each Company intends and agrees that the courts of the jurisdiction in which such Company is formed and in which it conducts its Business should afford full faith and credit to any judgment rendered by a court of the Commonwealth of Pennsylvania against such Company under this Agreement and the other Loan Documents, and such Company intends and agrees that such courts should hold that the Pennsylvania courts have jurisdiction to enter a valid judgment against such Company.

 

(e)               Each Company, the Investors and the Collateral Agent agree that service of any summons and complaint, and other process which may be served in any suit, action or other proceeding, may be made by mailing via U.S. certified or registered mail, return receipt requested, or by hand-delivering a copy of such process to the Company or the Investor (as applicable) or Collateral Agent at its address specified above.

 

(f)               The Company expressly acknowledges and agrees that the provisions of this section are reasonable and made for the express benefit of the Investors and Collateral Agent.

 

12.5.3.                      Waiver of Trial by Jury.  Each party to this Agreement agrees that any suit, action or proceeding, whether claim, defense or counterclaim, brought or instituted by any party hereto or any successor or assign of any party on or with respect to this Agreement or any other Loan Document or which in any way relates, directly or indirectly, to the Notes or any event, transaction or occurrence arising out of or in any way connected with this Agreement, the other Loan Documents or the dealings of the parties with respect thereto, shall be tried only by a court and not by a jury.  EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING, AND ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT AND THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH, OR THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE.

 

Section 12.6.                           Prior Agreements.  This Agreement supersedes any prior or contemporaneous understanding or agreement among the parties respecting the subject matter hereof.  There are no arrangements, understandings or agreements, oral or written, among the parties hereto relating to the subject matter of this Agreement, except:  (i) those fully expressed herein or (ii) in documents executed contemporaneously herewith, including without limitation the Participation Agreement.

 

  

-52-

  

 

Section 12.7.                           Counting of Days; Payments on Business Days.  In computing the number of days for purposes of this Agreement, all days shall be counted, including Saturdays, Sundays and holidays; provided, however, that if the final day of any time period falls on a Saturday, Sunday or holiday, then the final day shall be deemed to be the next day which is a Business Day.  Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of the payment of interest fees, as the case may be; provided that if such extension would cause payment of any interest on or principal of the Subordinated Loans or payment of any fees to be made in the next following calendar month, such payment shall be made on the immediately preceding Business Day.

 

Section 12.8.                           Captions.  The captions used in this Agreement are for convenience only and shall not be construed in interpreting this Agreement.  Whenever the context so required, the neuter shall include the feminine and masculine, and the singular shall include the plural, and conversely.

 

Section 12.9.                           Headings.  All section headings herein are inserted for convenience of reference only and shall in no way modify or restrict any of the terms or provisions hereof.

 

Section 12.10.                           Counterparts.  This Agreement may be signed in any number of counterparts, each of which shall be an original for all purposes, but all of which taken together shall constitute only one agreement.  This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

 

Section 12.11.                           Confidentiality.  Each of the Investors and Collateral Agent agree to maintain the confidentiality of the Information, except that Information may be disclosed (a) to its Affiliates (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential); (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including the SBA); (c) to the extent  required by applicable Laws or regulations or by any subpoena or similar legal process; (d) to any other party to this Agreement; (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder; (f) with the consent of Emtec; (g) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 12.11 or (y) becomes available to the Investor or Collateral Agent or any of their respective Affiliates on a nonconfidential basis from a source other than the Companies; (h) to any state, Federal or foreign authority or examiner regulating the Investor; or (i) to any rating agency when required by it (it being understood that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Information relating to the Companies received by it from the Investor or Collateral Agent).  For the purposes of this Section, "Information" means all information received from the Investor relating to any of the Companies or their businesses, other than any such information that is available to the Investor or Collateral Agent on a nonconfidential basis prior to disclosure by any Company.

 

Section 12.12.                           Waivers of Events of Default.(a) Reference is hereby made to Section 8.14(a) (Total Funded Senior Debt to ProForma Adjusted EBITDA Ratio).  The Companies have failed to meet the covenant set forth in Section 8.14(a) for the fiscal quarter ending November 30, 2011 (the “Financial Covenant Default”).  Collateral Agent and Investors hereby waive any Event of Default arising from the Financial Covenant Default and (b) Reference is made to the negative covenants in the Existing Credit Agreement and elated security agreement prohibiting a Borrower’s name change without notice or consent.  eBusiness Applications Solutions, Inc. changed its name without such notice or consent (the “Name Change Default”).  Collateral Agent and Investors hereby waive any Event of Default arising from the Name Change Default.

 

Section 12.13.                            Amendment and Restatement.  This Agreement amends and restates the Existing Subordinated Loan Agreement; provided, however, that the execution and delivery of this Agreement shall not in any circumstance be deemed to have terminated, extinguished or discharged the Companies’ indebtedness under such Existing Subordinated Loan Agreement, all of which shall continue under and be governed by this Agreement.  This Agreement is NOT a NOVATION.

 

[Signature Page to Follow Immediately Hereafter]

 

  

-53-

  

 

IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Subordinated Loan Agreement as of the day and year first above written.

 

 

	 	EMTEC, INC., a Delaware corporation	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 
	 	 	 	 

	 	
EMTEC, INC., a New Jersey corporation

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 

 

	 	
EMTEC INFRASTRUCTURE SERVICES CORPORATION

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 
	 	 	 	 

	 	
EMTEC VIASUB, LLC

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 

 

	 	
EMTEC GLOBAL SERVICES LLC

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 
	 	 	 	 

	 	
KOAN-IT (US) CORP.

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 

(Signatures Continued on Next Page)

 

 

 

 

 

 

	 	
EMTEC FEDERAL, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 
	 	 	 	 

	 	
eBUSINESS APPLICATION SOLUTIONS, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 

 

	 	
LUCEO, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 
	 	 	 	 

	 	
AVEEVA, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 

 

	 	
SECURE DATA, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 
	 	 	 	 

	 	
COVELIX, INC.

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 

(Signatures Continued on Next Page)

 

  

 

  

 

	 	
DINERO SOLUTIONS, LLC

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 	 	 	 
	 	 	 	 

	 	
GNUCO, LLC

	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ Samir Bhatt	 
	 	Name: 	Samir Bhatt	 
	 	Title: 	Secretary	 
	 

(Signatures Continued on Next Page)

 

  

 

  

 

 

	 	NEWSPRING SBIC MEZZANINE CAPITAL II, L.P., for itself as an Investor and as Collateral Agent	 
	 	 	 	 
	 	By:	NSM SBIC II GP, L.P.	 
	 	Its General Partner	 
	 	 	 
	 	By:	NSM SBIC II GP, LLC	 
	 	Its General Partner	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	Steven D. Hobman	 
	 	 	
Steven D. Hobman

	 
	 	 	
President

	 
	 	 	 	 
	 	 	 	 

	 	
PEACHTREE II, L.P., as an Investor

	 
	 	 	 	 
	 	By: 	Peachtree II Management, LLC,	 
	 	Its General Partner	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	
 

	
By: 

	/s/ David Christopher 	 
	 	
 

	
        Name:  David Christopher

	 
	 	 	        Title: Manager	 
	 

 

  

 

  

 

APPENDIX I

 

BORROWERS

 

 

Emtec, Inc. (Delaware corporation)

Emtec, Inc. (New Jersey corporation)

Emtec Infrastructure Services Corporation (Delaware corporation)

Emtec Viasub, LLC (Delaware limited liability company)

Emtec Global Services, LLC (Delaware limited liability company)

KOAN-IT (US) Corp. (Delaware corporation)

Emtec Federal, Inc. (New Jersey corporation)

eBusiness Application Solutions, Inc. (New Jersey corporation)

Luceo, Inc. (Illinois corporation)

Aveeva, Inc. (Delaware corporation)

Secure Data, Inc. (Delaware corporation)

Covelix, Inc. (Delaware corporation)

Dinero Solutions, LLC (Georgia limited liability company)

Gnuco, LLC (Delaware limited liability company)

 

  

 

  

THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED AS OF DECEMBER __, 2011, AS IT MAY BE AMENDED, RESTATED OR MODIFIED FROM TIME TO TIME, BY NEWSPRING SBIC MEZZANINE CAPITAL II, L.P., FOR ITSELF AND IN ITS CAPACITY AS COLLATERAL AGENT FOR THE INVESTORS, PEACHTREE II, L.P., AND PNC BANK, NATIONAL ASSOCIATION, AS AGENT FOR THE LENDERS (AS DEFINED THEREIN), (AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS), EMTEC INC. AND EACH OTHER OBLIGOR A PARTY THERETO FROM TIME TO TIME, AND EACH HOLDER HEREOF BY ITS ACCEPTANCE HEREOF SHALL BE BOUND BY THE PROVISIONS OF SUCH SUBORDINATION AGREEMENT.

 

AMENDED AND RESTATED

SUBORDINATED LOAN AGREEMENT

 

BY AND AMONG

 

NEWSPRING SBIC MEZZANINE CAPITAL II, L.P.,

for Itself as an Investor and in its Capacity as Collateral Agent,

 

PEACHTREE II, L.P., as an Investor,

 

and

 

EMTEC, INC.

 

AND THE OTHER BORROWERS SET FORTH ON APPENDIX I HERETO

 

 

December30, 2011

 

  

 

  

 

TABLE OF CONTENTS

 

Page

 

 

	ARTICLE 1 Definitions	1
	 	 	 	 
	
Section 1.1.

	 	Definitions	1
	 	 	 	 
	
Section 1.2.

	 	Interpretation	13
	 	 	 	 
	ARTICLE 2 Subordinated Loan	14
	 	 	 	 
	
Section 2.1. 

	 	The Peachtree Subordinated Loan	14
	 	 	 	 
	Section 2.2.	 	Notes	14
	 	 	 	 
	Section 2.3. 	 	Payments of Interest and Principal	14
	 	 	 	 
	Section 2.4. 	 	Default and Remedies	15
	 	 	 	 
	Section 2.5. 	 	Payments	15
	 	 	 	 
	Section 2.6. 	 	Optional Prepayments	15
	 	 	 	 
	Section 2.7. 	 	Mandatory Prepayments	15
	 	 	 	 
	Section 2.8. 	 	Prepayment Premium	15
	 	 	 	 
	Section 2.9. 	 	Joint and Several Obligations	16
	 	 	 	 
	Section 2.10. 	 	Lead Company	16
	 	 	 	 
	ARTICLE 3 [Intentionally Omitted]	16 
	 	 	 	 
	ARTICLE 4 Representations and Warranties of the Company	16
	 	 	 	 
	Section 4.1.	 	Organization	16
	 	 	 	 
	Section 4.2. 	 	Authorization of this Agreement	17
	 	 	 	 
	Section 4.3. 	 	Validity and Binding Effect	17
	 	 	 	 
	Section 4.4. 	 	Capitalization	17
	 	 	 	 
	Section 4.5. 	 	Subsidiaries; Equity Investments	17
	 	 	 	 
	Section 4.6.	 	Material Contracts, Leases, Agreements and Other Commitments	18
	 	 	 	 
	Section 4.7. 	 	Breach	19
	 	 	 	 
	Section 4.8. 	 	Employees, Officers, and Directors	19
	 	 	 	 
	Section 4.9. 	 	Compliance with Laws; Permits	20
	 	 	 	 
	Section 4.10. 	 	Conflict with Documents	20
	 	 	 	 
	Section 4.11. 	 	Financial Statements	21
	 	 	 	 
	Section 4.12. 	 	No Undisclosed or Contingent Liabilities	21
	 	 	 	 
	Section 4.13. 	 	Solvency	21
	 	 	 	 
	Section 4.14. 	 	Taxes	21

 

 

  

 

  

 

 

 

	Section 4.15. 	 	Litigation	22
	 	 	 	 
	Section 4.16. 	 	Orders; Decrees; Judgments	22
	 	 	 	 
	Section 4.17.	 	Intellectual Property	22
	 	 	 	 
	Section 4.18. 	 	[Intentionally Omitted]	22
	 	 	 	 
	Section 4.19.	 	Insurance	22
	 	 	 	 
	Section 4.20. 	 	Governmental Consent	23
	 	 	 	 
	Section 4.21. 	 	Title to Assets	23
	 	 	 	 
	Section 4.22.	 	Title to Properties; Location of Properties; Places of Business	23
	 	 	 	 
	Section 4.23.	 	Conflicting Interests	23
	 	 	 	 
	Section 4.24. 	 	Absence of Certain Changes and Events	23
	 	 	 	 
	Section 4.25. 	 	SBA Forms and Representations	23
	 	 	 	 
	Section 4.26. 	 	Investment Company Act Representations	24
	 	 	 	 
	Section 4.27. 	 	Use of Proceeds	24
	 	 	 	 
	Section 4.28. 	 	Employee Benefits	24
	 	 	 	 
	Section 4.29.	 	Collective Bargaining	25
	 	 	 	 
	Section 4.30. 	 	Company’s Business	25
	 	 	 	 
	Section 4.31. 	 	Management History	25
	 	 	 	 
	Section 4.32.	 	No Side Agreements	25
	 	 	 	 
	Section 4.33. 	 	Indebtedness	25
	 	 	 	 
	Section 4.34.	 	Foreign Corrupt Practices	25
	 	 	 	 
	Section 4.35. 	 	Broker’s or Finder’s Commissions	25
	 	 	 	 
	Section 4.36. 	 	Environmental Matters	26
	 	 	 	 
	Section 4.37. 	 	Customers and Suppliers	26
	 	 	 	 
	Section 4.38. 	 	Other Document Representations	26
	 	 	 	 
	Section 4.39. 	 	Statements and Other Documents Not Misleading	26
	 	 	 	 
	Section 4.40. 	 	Permitted Foreign Subsidiaries	26
	 	 	 	 
	Section 4.41. 	 	Permitted Canadian Subsidiaries	27 
	 	 	 	 
	Section 4.42. 	 	Emtec SEC Documents	27 
	 	 	 	 
	Section 4.43.	 	Gnuco Acquisition	29 
	 	 	 	 
	Section 4.44. 	 	No Stock Exchange	29 
	 	 	 	 
	ARTICLE 5 Representations and Warranties of the Investors	29 
	 	 	 	 
	Section 5.1. 	 	Authorization of this Agreement	 
	 	 	 	 
	Section 5.2. 	 	Non-Contravention	 

 

  

 

  

 

	Section 5.3. 	 	Valid and Binding	29
	 	 	 	 
	Section 5.4.	 	No Conflict of Interest	30
	 	 	 	 
	Section 5.5. 	 	Investment Representations	30
	 	 	 	 
	ARTICLE 6 Conditions Precedent to Closing	30
	 	 	 	 
	Section 6.1.	 	Conditions Precedent to Closing	30
	 	 	 	 
	ARTICLE 7 Survival of Representations, Warranties and Agreements; Indemnification; Fees and Expenses	33
	 	 	 	 
	Section 7.1. 	 	Survival of Representations, Warranties and Agreements	33
	 	 	 	 
	Section 7.2.	 	Indemnification	34
	 	 	 	 
	Section 7.3. 	 	Fees and Expenses	34
	 	 	 	 
	ARTICLE 8 Affirmative Covenants	35
	 	 	 	 
	Section 8.1. 	 	ACH Debt Authorization	35
	 	 	 	 
	Section 8.2. 	 	Financial Statements, Reports, Etc	35
	 	 	 	 
	Section 8.3. 	 	Information Requests	37
	 	 	 	 
	Section 8.4.	 	Access	37
	 	 	 	 
	Section 8.5.	 	Books and Records	37
	 	 	 	 
	Section 8.6. 	 	Insurance	37
	 	 	 	 
	Section 8.7. 	 	Use of Proceeds	38
	 	 	 	 
	Section 8.8. 	 	Payments and Obligations to the Investor	38
	 	 	 	 
	Section 8.9. 	 	Other Debts; Taxes	38
	 	 	 	 
	Section 8.10. 	 	Maintain Existence, Licenses	38
	 	 	 	 
	Section 8.11. 	 	Intellectual Property	38
	 	 	 	 
	Section 8.12. 	 	Key Man Insurance	39
	 	 	 	 
	Section 8.13. 	 	Compliance With Laws; Perform Obligations	39
	 	 	 	 
	Section 8.14. 	 	Financial Ratios and Covenants	39
	 	 	 	 
	Section 8.15. 	 	Subsidiaries	40
	 	 	 	 
	Section 8.16. 	 	Compliance with Environmental Laws	40
	 	 	 	 
	Section 8.17. 	 	Updated Schedules	41
	 	 	 	 
	Section 8.18. 	 	Further Assurances; Post Closing Items	41
	 	 	 	 
	ARTICLE 9 Negative Covenants	41
	 	 	 	 
	Section 9.1. 	 	Change of Capital Structure	41
	 	 	 	 
	Section 9.2. 	 	Distributions	42
	 	 	 	 
	Section 9.3. 	 	Dissipation of Assets	42

 

  

 

  

 

	Section 9.4. 	 	No Encumbrances	42
	 	 	 	 
	Section 9.5. 	 	Affiliate Transactions	42
	 	 	 	 
	Section 9.6. 	 	Change of Business, Future Business	42
	 	 	 	 
	Section 9.7. 	 	Additional Debts and Company Liabilities; Amendments	42
	 	 	 	 
	Section 9.8. 	 	No Adverse Actions	43
	 	 	 	 
	Section 9.9. 	 	Limits on Capital Expenditures	43
	 	 	 	 
	Section 9.10. 	 	No Management Fees	 
	 	 	 	 
	Section 9.11. 	 	Acquisitions	43
	 	 	 	 
	Section 9.12. 	 	Guaranties	43
	 	 	 	 
	Section 9.13. 	 	Advances	43
	 	 	 	 
	Section 9.14. 	 	Investments	44
	 	 	 	 
	Section 9.15. 	 	Fiscal Year; Accounting Changes	44
	 	 	 	 
	Section 9.16. 	 	ERISA Obligations	45
	 	 	 	 
	Section 9.17. 	 	Amendments of Organizational Documents	45
	 	 	 	 
	ARTICLE 10 Default Provisions	45
	 	 	 	 
	Section 10.1. 	 	Monetary Defaults	46
	 	 	 	 
	Section 10.2. 	 	Other Breaches	46
	 	 	 	 
	Section 10.3. 	 	Misrepresentation	46
	 	 	 	 
	Section 10.4. 	 	Act of Bankruptcy or Dissolution	46
	 	 	 	 
	Section 10.5. 	 	Final Judgments	46
	 	 	 	 
	Section 10.6.	 	Senior Debt	46
	 	 	 	 
	Section 10.7. 	 	Other Defaults Generally	47
	 	 	 	 
	Section 10.8. 	 	Fraudulent Conveyance or Transfer	47
	 	 	 	 
	ARTICLE 11 Remedies	47
	 	 	 	 
	Section 11.1. 	 	Acceleration	47
	 	 	 	 
	Section 11.2. 	 	Post Default Interest	47
	 	 	 	 
	Section 11.3. 	 	Costs	47
	 	 	 	 
	Section 11.4. 	 	Remedies Non-Exclusive	48
	 	 	 	 
	Section 11.5. 	 	Waiver of Rights by the Companies	48
	 	 	 	 
	ARTICLE 12 Miscellaneous	48
	 	 	 	 
	Section 12.1. 	 	Notices	48
	 	 	 	 
	Section 12.2. 	 	Binding Agreement; Assignment	50
	 	 	 	 
	Section 12.3. 	 	Amendment	51

 

  

 

  

 

	Section 12.4. 	 	Consents and Waivers	51
	 	 	 	 
	Section 12.5.	 	Governing Law; Consent to Jurisdiction; Waiver of Trial by Jury	51
	 	 	 	 
	Section 12.6. 	 	Prior Agreements	52
	 	 	 	 
	Section 12.7. 	 	Counting of Days; Payments on Business Days	52
	 	 	 	 
	Section 12.8. 	 	Captions	53
	 	 	 	 
	Section 12.9. 	 	Headings	53
	 	 	 	 
	Section 12.10. 	 	Counterparts	53
	 	 	 	 
	Section 12.11. 	 	Confidentiality	53
	 	 	 	 
	Section 12.12. 	 	Waivers of Events of Default	53
	 	 	 	 
	Section 12.13.	 	Amendment and Restatement	54

 

 

Appendix:

 

Appendix I - Borrowers

 

Exhibits:

 

Exhibit A:  Form of Investor Rights Agreement

Exhibit B:  Form of Subordinated Promissory Note

Exhibit C:  Forms of Warrant

Exhibit D:  Form of Automatic Debit Authorization

Exhibit E:  Form of Compliance Certificate

 

Schedules:

 

Schedule 1.1A - Addbacks to Pro Forma Adjusted EBITDA

Schedule 2.5 – Investor Wire Instructions

Schedule 4.4(a) – Capitalization

Schedule 4.4(b) – Purchase Rights

Schedule 4.5 – Subsidiaries; Equity Investments

Schedule 4.6 – Material Contracts

Schedule 4.6(b) – Material Contract Disputes

Schedule 4.8(a) – Employees, Officers, Directors and Affiliates

Schedule 4.8(b) – Agreements or Transactions with Employees, Officers, Directors and Affiliates

Schedule 4.8(d) – Third Party Claims

Schedule 4.11 – Financial Statements

Schedule 4.12 – Liabilities

Schedule 4.15 – Litigation

Schedule 4.16 – Orders, Decrees, Judgments

Schedule 4.19 – Insurance

Schedule 4.21 – Title to Assets

Schedule 4.22 – Title to Properties; Location of Properties; Place of Business

Schedule 4.23 – Conflicting Interests

Schedule 4.24 – Absence of Certain Changes and Events

Schedule 4.25(a) – Size Status Declaration (SBA Form 480)

Schedule 4.25(b) – Assurance of Compliance for Non-Discrimination (SBA Form 652)

Schedule 4.25(c) – Portfolio Financing Report (SBA Form 1031)

Schedule 4.28(a) – Employee Benefit Plans

Schedule 4.28(b) – Compliance with Employee Plans

Schedule 4.29 – Collective Bargaining

Schedule 4.33 – Indebtedness

Schedule 4.35 – Fees or Commissions

Schedule 4.36 – Environmental

Schedule 4.37 – Customers and Suppliers

Schedule 8.10(b) – Licenses

Schedule 9.7 – Additional Debts and Company Liabilities

Schedule 9.12 – Guaranties

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