-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T37gFCN8r1YOW4ZwYee4oggJ4xaHWfLhP94tqge76kSJ2UNiWxJk61FJjBvNEuXI igR1BhwW1PBCh6q0R5CbTw== 0000950117-01-501703.txt : 20020412 0000950117-01-501703.hdr.sgml : 20020412 ACCESSION NUMBER: 0000950117-01-501703 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20011121 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20011127 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMTEC INC/NJ CENTRAL INDEX KEY: 0000005117 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870273300 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-32789 FILM NUMBER: 1799610 BUSINESS ADDRESS: STREET 1: 817 EAST LAKE GATE DRIVE CITY: MT LAUREL STATE: UT ZIP: 08054 BUSINESS PHONE: 8013633283 MAIL ADDRESS: STREET 1: 817 EAST GATYE DRIVE CITY: MT LAUREL STATE: NJ ZIP: 08054 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GEOLOGICAL ENTERPRISES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN GEOTHERMAL ENERGY INC DATE OF NAME CHANGE: 19681212 FORMER COMPANY: FORMER CONFORMED NAME: NUCLEAR PROCESSING CORP DATE OF NAME CHANGE: 19820318 8-K 1 a31677.txt EMTEC, INC. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: November 21, 2001 EMTEC, INC. (Exact name of Registrant as specified in Charter) Delaware 2-54020 87-0273300 (State or other jurisdiction of (Commission File No.) (IRS Employer incorporation Identification Number) 817 East Gate Drive, Mount Laurel, New Jersey 08054 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (856) 235-2121 ITEM 5. OTHER EVENTS. On November 21, 2001, we entered into a $10.0 million revolving credit facility with Fleet Capital Corporation, formerly Summit Business Capital Corporation ("Fleet"). We simultaneously terminated our prior financing agreement with IBM Credit Corporation ("IBM") by paying IBM an aggregate of $2,270,636. Interest on outstanding loans under our revolving credit facility with Fleet is charged monthly at a fluctuating rate per annum equal to 0.25% above the Prime Rate and, at our option, interest on up to 50% of the outstanding loans may be charged at LIBOR plus 2.75%. Our Fleet revolving credit facility is collateralized by a lien upon and security interest in substantially all of our assets. As our current credit facilities with two of our primary trade vendors, GE Access, and Ingram Micro, were also collateralized by substantially all of our assets, we, Fleet, GE Access and Ingram Micro, have entered into intercreditor agreements, which provide that as regards to these vendors, our obligations to Fleet are accorded priority. On November 21, 2001, we also entered into a Wholesale Financing Security Agreement with IBM. This credit facility, which is collateralized by a $750,000 letter of credit in favor of IBM, affords us up to a like amount of credit to purchase IBM products. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits:
EXHIBIT NO. DESCRIPTION 10.1 Loan and Security Agreement, dated November 21, 2001, by and between Fleet Capital Corporation and Registrant. 10.2 Agreement for Wholesale Financing, dated November 21, 2001, by and between IBM Credit Corporation and Registrant. 10.3 Subordination Agreement, dated as of the 21st day of November, 2001, among Registrant, MRA Systems, Inc. dba GE Access and Fleet Capital Corporation. 10.4 Intercreditor Agreement, dated as of November 21, 2001, between Fleet Capital Corporation and Ingram Micro Inc. and accepted by Registrant.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 26, 2001 EMTEC, INC. (Registrant) By: /s/John Howlett ---------------------- John Howlett Chairman and President STATEMENT OF DIFFERENCES The section symbol shall be expressed as....................................'SS' EX-10 3 ex10-1.txt EXHIBIT 10.1 Exhibit 10.1 -------------------------------------------------- EMTEC, INC. -------------------------------------------------- ================================================== LOAN AND SECURITY AGREEMENT Dated: ____________________, 2001 $10,000,000.00 ================================================== [FLEET CAPITAL LOGO] TABLE OF CONTENTS
Page ---- SECTION 1. CREDIT FACILITY........................................................1 1.1 Revolving Credit Loans.................................................1 SECTION 2. INTEREST, FEES AND CHARGES...........................................2 2.1 Interest...............................................................2 2.2 Computation of Interest and Fees.......................................2 2.3 Commitment Fee.........................................................2 2.4 Unused Line Fee........................................................2 2.5 Collateral Management Fees.............................................3 2.6 Collection Charges.....................................................3 2.7 Audit and Appraisal Fees...............................................3 2.8 Letter of Credit Fee...................................................3 2.9 Reimbursement of Expenses..............................................4 2.10 Bank Charges...........................................................4 SECTION 3. LOAN ADMINISTRATION....................................................4 3.1 Manner of Borrowing Revolving Credit Loans.............................4 3.2 Payments...............................................................7 3.3 Mandatory Prepayments..................................................8 3.4 Application of Payments and Collections................................8 3.5 All Loans to Constitute One Obligation.................................9 3.6 Loan Account...........................................................9 3.7 Statements of Account..................................................9 3.8 Increased Costs........................................................9 3.9 Basis for Determining Interest Rate Inadequate or Unfair..............10 SECTION 4. TERM AND TERMINATION.................................................11 4.1 Term of Agreement.....................................................11 4.2 Termination...........................................................11 SECTION 5. SECURITY INTERESTS....................................................12 5.1 Security Interest in Collateral.......................................12 5.2 Other Collateral.......................................................13 5.3 Lien Perfection; Further Assurances...................................14 SECTION 6. COLLATERAL ADMINISTRATION............................................14 6.1 General...............................................................14
6.2 Administration of Accounts............................................15 6.3 [THIS SECTION WAS INTENTIONALLY LEFT BLANK]...........................17 6.4 Administration of Equipment...........................................17 6.5 Payment of Charges....................................................17 SECTION 7. REPRESENTATIONS AND WARRANTIES.........................................18 7.1 General Representations and Warranties................................18 7.2 Continuous Nature of Representations and Warranties...................23 7.3 Survival of Representations and Warranties............................23 SECTION 8. COVENANTS AND CONTINUING AGREEMENTS....................................24 8.1 Affirmative Covenants.................................................24 8.2 Negative Covenants....................................................26 8.3 Specific Financial Covenants..........................................28 SECTION 9. CONDITIONS PRECEDENT...................................................29 9.1 Documentation.........................................................29 9.2 No Default............................................................29 9.3 Other Loan Documents..................................................29 9.4 Availability..........................................................29 9.5 No Litigation.........................................................29 9.6 Other Conditions......................................................29 SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT......................30 10.1 Events of Default.....................................................30 10.2 Acceleration of the Obligations.......................................32 10.3 Other Remedies........................................................32 10.4 Remedies Cumulative; No Waiver........................................33 SECTION 11. MISCELLANEOUS..........................................................33 11.1 Power of Attorney.....................................................34 11.2 Indemnity.............................................................34 11.3 Modification of Agreement; Sale of Interest...........................35 11.4 Severability..........................................................35 11.5 Successors and Assigns................................................35 11.6 Cumulative Effect; Conflict of Terms..................................35 11.7 Execution in Counterparts.............................................35 11.8 Notice................................................................36 11.9 Lender's Consent......................................................37 11.10 Credit Inquiries......................................................37 11.11 Time of Essence.......................................................37
11.12 Entire Agreement......................................................37 11.13 Interpretation........................................................37 11.14 GOVERNING LAW; CONSENT TO FORUM.......................................37 11.15 WAIVERS BY BORROWER...................................................38 GENERAL DEFINITIONS.............................................................41
LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is made this day of November 21, 2001, by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode Island corporation with an office at 4900 Route 70, Pennsauken, NJ 08109-4792; and EMTEC, INC. ("Borrower"), a New Jersey corporation with its chief executive office and principal place of business at 817 East Gate Drive, Mount Laurel, NJ 08054. Capitalized terms used in this Agreement have the meanings assigned to them in Appendix A, General Definitions. Accounting terms not otherwise specifically defined herein shall be construed in accordance with GAAP consistently applied. SECTION 1. CREDIT FACILITY Subject to the terms and conditions of, and in reliance upon the representations and warranties made in, this Agreement and the other Loan Documents, Lender agrees to make a Total Credit Facility of up to $10,000,000.00 available upon Borrower's request therefor, as follows: 1.1 Revolving Credit Loans. 1.1.1 Loans and Reserves. Lender agrees, for so long as no Default or Event of Default exists, to make Revolving Credit Loans to Borrower from time to time, as requested or as deemed requested by Borrower in the manner set forth in subsection 3.1.1 hereof, up to a maximum principal amount at any time outstanding equal to the Borrowing Base at such time minus reserves, if any. Lender shall have the right to establish reserves in such amounts, and with respect to such matters, as Lender shall deem necessary or appropriate, against the amount of Revolving Credit Loans which Borrower may otherwise request under this subsection 1.1.1, including, without limitation, with respect to (i) price adjustments, damages, unearned discounts, returned products or other matters for which credit memoranda are issued in the ordinary course of Borrower's business; (ii) shrinkage, spoilage and obsolescence of Inventory; (iii) slow moving Inventory; (iv) other sums chargeable against Borrower's Loan Account as Revolving Credit Loans under any section of this Agreement; (v) amounts owing by Borrower to any Person to the extent secured by a Lien on, or trust over, any Property of Borrower; (vi) rent to landlords who have not delivered a landlord's waiver to Lender; and (vii) such other matters, events, conditions or contingencies as to which Lender, in its sole credit judgment, determines reserves should be established from time to time hereunder. The Revolving Credit Loans shall be further evidenced by the Revolving Credit Note and shall be secured by all of the Collateral. 1.1.2 Issuance of the Letter of Credit. Lender agrees, on the Closing Date to cause the Bank to issue the Letter of Credit for the account of Borrower. 1.1.3 Use of Proceeds. The Revolving Credit Loans shall be used solely for the satisfaction of existing Indebtedness of Borrower to IBM Credit Corporation and for Borrower's general operating capital needs in a manner consistent with the provisions of this Agreement and all applicable laws. SECTION 2. INTEREST, FEES AND CHARGES 2.1 Interest. 2.1.1 Rates of Interest. Interest shall accrue on the Revolving Credit Loans in accordance with the terms of the Revolving Credit Note. Interest shall accrue on the principal amount of the Base Rate Advances outstanding at the end of each day at a fluctuating rate per annum equal to 0.25% plus the Base Rate. Interest shall accrue on the principal amount of each of the LIBOR Advances outstanding at the end of each day at a fixed rate per annum equal to 2.75% plus LIBOR for the applicable Interest Period. The rate of interest applicable to Base Rate Advances shall increase or decrease by an amount equal to any increase or decrease in the Base Rate, effective as of the opening of business on the day that any such change in the Base Rate occurs. 2.1.2 Default Rate of Interest. Upon and after the occurrence of an Event of Default, and during the continuation thereof, the principal amount of all Loans shall bear interest at a rate per annum equal to 3% above the interest rate otherwise applicable thereto (the "Default Rate"). Lender shall charge and collect the Default Rate in a commercially reasonable manner. 2.1.3 Maximum Interest. In no event whatsoever shall the aggregate of all amounts deemed interest under the Revolving Credit Note and charged or collected pursuant to the terms of this Agreement or pursuant to the Revolving Credit Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. If any provisions of this Agreement or the Revolving Credit Note are in contravention of any such law, such provisions shall be deemed amended to conform thereto. 2.2 Computation of Interest and Fees. Interest, unused line fees and collection charges hereunder shall be calculated daily and shall be computed on the actual number of days elapsed over a year of 360 days. For the purpose of computing interest hereunder, all items of payment received by Lender shall be deemed applied by Lender on account of the Obligations (subject to final payment of such items) on the 2nd Business Day after receipt by Lender of such items in Lender's account located in Pennsauken, New Jersey. 2.3 Commitment Fee. Borrower shall pay to Lender a commitment fee of $25,000.00, which shall be fully earned and nonrefundable on the Closing Date. The commitment fee shall be paid in twelve (12) consecutive equal installments commencing on the Closing Date and continuing on the first day of each of the next eleven (11) calendar months following the Closing Date. 2.4 Unused Line Fee. Borrower shall pay to Lender an unused line fee equal to .125% per annum of the average monthly amount by which the Total Credit Facility exceeds the sum of the outstanding principal balance of the Revolving Credit Loans; provided that from and -2- after December 31, 2001, the unused line fee shall be calculated in accordance with the table and text below:
Leverage Ratio is: Unused Line Fee ------------------ --------------- Greater than 5.0:1.0 .125% Less than or equal to 5.0:1.0 .0625%
The calculation of the unused line fee pursuant to the above table shall be made quarterly based upon the financial statements of Borrower for such period. In the event the unused line fee changes, such change shall become effective as of the first day of the month immediately following the month in which Borrower's quarterly statements used in such calculation are delivered to Lender. The unused line fee, once reset, shall remain in effect for not less than ninety (90) days. The unused line fee shall be payable (i) quarterly in arrears commencing on December 31, 2001 and on the last day of each calendar quarter thereafter and (ii) the earlier of (1) termination of this Agreement pursuant to Section 4 hereof or (2) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations. 2.5 Collateral Management Fees. Borrower shall pay to Lender a collateral management fee of $300.00 per month payable monthly in arrears on the first day of each calendar month hereafter. In addition to such monthly fee, Borrower shall reimburse Lender for field exam expenses at a rate of $750.00 per man or woman, per day. 2.6 Collection Charges. If items of payment are received by Lender at a time when there are no Revolving Credit Loans outstanding, such items of payment shall be subject to a collection charge equal to two (2) days' interest on the amount thereof at the rate then applicable to Base Rate Advances, which collection charges shall be payable on the first Business Day of each month. 2.7 Audit and Appraisal Fees. Borrower shall pay to Lender audit and appraisal fees in accordance with Lender's current schedule of fees in effect from time to time in connection with audits and appraisals of Borrower's books and records and such other matters as Lender shall deem appropriate, plus all reasonable out-of-pocket expenses incurred by Lender in connection with such audits and appraisals, provided that prior to a Default or Event of Default, Borrower shall only be required to reimburse Lender for audit fees for up to the first three (3) days of each audit. Audit fees shall be payable on the first day of the month following the date of issuance by Lender of a request for payment thereof to Borrower. 2.8 Letter of Credit Fee. Borrower shall pay to Lender a letter of credit fee calculated at a rate per annum equal to .5% of the face amount of the Letter of Credit payable on December 31, 2001 for the period then ending and thereafter quarterly in arrears on the last day of each calendar quarter, and on the Termination Date. With respect to the issuance, amendment, transfer, administration or cancellation of the Letter of Credit and each drawing made thereunder, documentary and processing charges in accordance with the Bank's standard schedule for such -3- charges in effect at the time of such issuance, amendment, transfer, administration, cancellation or drawing, as the case may be, or as otherwise agreed to by the Bank. 2.9 Reimbursement of Expenses. If, at any time or times regardless of whether or not an Event of Default then exists, Lender incurs legal or accounting expenses or any other costs or out-of-pocket expenses in connection with (i) the negotiation and preparation of this Agreement or any of the other Loan Documents, any amendment of or modification of this Agreement or any of the other Loan Documents; (ii) the administration of this Agreement or any of the other Loan Documents and the transactions contemplated hereby and thereby; (iii) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, Borrower or any other Person) in any way relating to the Collateral, this Agreement or any of the other Loan Documents or Borrower's affairs; (iv) any attempt to enforce any rights of Lender against Borrower or any other Person which may be obligated to Lender by virtue of this Agreement or any of the other Loan Documents, including, without limitation, the Account Debtors; or (v) any attempt to inspect, verify, protect, preserve, restore, collect, sell, liquidate or otherwise dispose of or realize upon the Collateral; then all such legal and accounting expenses, other costs and out of pocket expenses of Lender shall be charged to Borrower. All amounts chargeable to Borrower under this Section 2.8 shall be Obligations secured by all of the Collateral, shall be payable on demand to Lender and shall bear interest from the date such demand is made until paid in full at the rate applicable to Base Rate Advances from time to time. Borrower shall also reimburse Lender for expenses incurred by Lender in its administration of the Collateral to the extent and in the manner provided in Section 6 hereof. 2.10 Bank Charges. Borrower shall pay to Lender, on demand, any and all fees, costs or expenses which Lender pays to a bank or other similar institution arising out of or in connection with (i) the forwarding to Borrower or any other Person on behalf of Borrower, by Lender, of proceeds of loans made by Lender to Borrower pursuant to this Agreement and (ii) the depositing for collection, by Lender, of any check or item of payment received or delivered to Lender on account of the Obligations. SECTION 3. LOAN ADMINISTRATION. 3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the credit facility established pursuant to Section 1 hereof shall be made as follows: 3.1.1 Loan Requests. A request for a Revolving Credit Loan shall be made, or shall be deemed to be made, in the following manner: (i) Borrower may give Lender notice of its intention to borrow, in which notice Borrower shall specify the amount of the proposed borrowing and the proposed borrowing date and, if applicable, wiring instructions as set forth below, no later than 11:00 a.m. New York City time on the proposed borrowing date, provided, however, that no such request may be made at a time when there exists a Default or an Event of Default; and (ii) the becoming due of any amount required to be paid under this Agreement, whether as a drawing under the Letter of Credit, as interest or for any other Obligation, shall be deemed irrevocably to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest or other Obligation. As an accommodation to Borrower, Lender, at -4- Borrower's request, will wire transfer Revolving Credit Loan proceeds into an operating account maintained by Borrower in a state in which Bank does not maintain branches. As an accommodation to Borrower, Lender may permit telephonic or electronic requests for loans and electronic transmittal of instructions, authorizations, agreements or reports to Lender by Borrower. Unless Borrower specifically directs Lender in writing not to accept or act upon telephonic or electronic communications from Borrower, Lender shall have no liability to Borrower for any loss or damage suffered by Borrower as a result of Lender's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any reports communicated to it telephonically or electronically and purporting to have been sent to Lender by Borrower and Lender shall have no duty to verify the origin of any such communication or the authority of the person sending it. 3.1.2 Disbursement. Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Credit Loan requested, or deemed to be requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(i) shall be disbursed by Lender in lawful money of the United States of America in immediately available funds, in the case of the initial borrowing, in accordance with the terms of the written disbursement letter from Borrower, and in the case of each subsequent borrowing, by wire transfer to such bank account as may be agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to a written direction from Borrower; and (ii) the proceeds of each Revolving Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by way of direct payment of the relevant interest or other Obligation. 3.1.3 Authorization. Borrower hereby irrevocably authorizes Lender, in Lender's sole discretion, to advance to Borrower, and to charge to Borrower's Loan Account hereunder as a Base Rate Advance, a sum sufficient to pay all interest accrued on the Obligations during the immediately preceding month and to pay all costs, fees and expenses at any time owed by Borrower to Lender hereunder. 3.1.4 LIBOR Advances. Notwithstanding the provisions of subsection 3.1.1, in the event Borrower desires to obtain a LIBOR Advance, Borrower shall give Lender prior, written, irrevocable notice no later than 11:00 A.M. New York City Time on the 2nd Business Day prior to the requested borrowing date specifying (i) Borrower's election to obtain a LIBOR Advance, (ii) the date of the proposed borrowing (which shall be a Business Day) and (iii) the amount to be borrowed, which amount shall be in a minimum principal amount of $100,000 and may increase in integral multiples of $100,000. In no event shall (i) Borrower be permitted to have outstanding at any one time LIBOR Advances with more than five (5) different Interest Periods and/or (ii) the sum of the outstanding principal balance of LIBOR Advances exceed 50% of the sum of the outstanding principal balance of Revolving Credit Loans. If at any time the sum of the outstanding principal balance of LIBOR Advances exceed 50% of the sum of the outstanding principal balance of Revolving Credit Loans, Borrower shall, promptly upon request from Lender, convert LIBOR Advances into Base Rate Advances to the extent necessary to cause the sum of the outstanding principal balance of LIBOR Advances to be less than or equal to 50% of the sum of the outstanding principal balance of Revolving Credit Loans and Borrower shall -5- pay any amount required to be paid in connection with such conversion pursuant to subsection 3.2.5 hereof. 3.1.5 Conversion of Base Rate Advances. Provided that no Default or Event of Default has occurred which is then continuing, Borrower may convert any Base Rate Advance into a LIBOR Advance pursuant to this subsection. If Borrower desires to convert a Base Rate Advance, Borrower shall give Lender not less than two (2) Business Days' prior written notice (prior to 11:00 A.M. New York City Time on such Business Day), specifying the date of such conversion and the amount to be converted. Each conversion into or conversion of a LIBOR Advance shall be in a minimum principal amount of $100,000 and may increase in integral multiples of $100,000 in excess thereof. After giving effect to any conversion of Base Rate Advances to LIBOR Advances, Borrower must still be in compliance with subsection 3.1.4 hereof. 3.1.6 Continuation of LIBOR Advances. Borrower shall have the right on two (2) Business Days' prior irrevocable written notice given to Lender by Borrower (prior to 11:00 A.M. New York City Time on such Business Day), subject to the provisions hereof, to continue any LIBOR Advance into a subsequent Interest Period of the same or a different permitted duration, in each case subject to the satisfaction of the following conditions: (i) in the case of a continuation of less than all LIBOR Advances, the LIBOR Advances continued shall each be in a minimum principal amount of $100,000 and may increase in integral multiples of $100,000; (ii) no LIBOR Advance (or portion thereof) may be continued as a LIBOR Advance if a Default or Event of Default has occurred which is then continuing or if, after giving effect to such continuation, Borrower would not be in compliance with subsection 3.1.4 hereof. If Borrower shall fail to give timely notice of its election to continue any LIBOR Advance or portion thereof as provided above, or if such continuation shall not be permitted, such LIBOR Advance or portion thereof, unless such LIBOR Advance shall be repaid, shall automatically be converted into a Base Rate Advance at the end of the Interest Period then in effect with respect to such LIBOR Advance. 3.1.7 Inability to Make LIBOR Advances. Notwithstanding any other provision hereof, if any applicable law, treaty, regulation or directive, or any change therein or in the interpretation or application thereof, shall make it unlawful for Lender (for purposes of this subsection 3.1.7, the term "Lender" shall include the office or branch where Lender or any corporation or bank then controlling any Lender makes or maintains any LIBOR Advances) to make or maintain its LIBOR Advances, or if with respect to any Interest Period, Lender is unable to determine the LIBOR relating thereto, or adverse or unusual conditions in, or changes in applicable law relating to, the London interbank market make it, in the reasonable judgment of Lender, impracticable to fund therein any of the LIBOR Advances, or make the projected LIBOR unreflective of the actual costs of funds therefor to Lender, the obligation of Lender to make -6- LIBOR Advances hereunder shall forthwith be suspended during the pendency of such circumstances and Borrower shall, if any affected LIBOR Advances are then outstanding, promptly upon request from Lender, convert such affected LIBOR Advances into Base Rate Advances. 3.2 Payments. Except where evidenced by notes or other instruments issued or made by Borrower to Lender specifically containing payment provisions which are in conflict with this Section 3.2 (in which event the conflicting provisions of said notes or other instruments shall govern and control), the Obligations shall be payable as follows: 3.2.1 Principal. Principal payable on account of Revolving Credit Loans shall be payable by Borrower to Lender immediately upon the earliest of (i) the receipt by Lender or Borrower of any proceeds of any of the Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations, or (iii) termination of this Agreement pursuant to Section 4 hereof; provided, however, that if an Overadvance shall exist at any time, Borrower shall, on demand, repay the Overadvance. Each payment (including principal prepayment) by Borrower on account of principal of the Revolving Credit Loans shall be applied first to Base Rate Advances, then to LIBOR Advances; provided, however, if any payment is received when the sum of the outstanding principal balance of LIBOR Advances exceeds 50% of the sum of the outstanding principal balance of Revolving Credit Loans, such payment shall be applied first to LIBOR Advances to the extent necessary to cause the outstanding principal balance of LIBOR Advances to be equal to or less than 50% of sum of the outstanding principal balance of Revolving Credit Loans. 3.2.2 Interest. Interest accrued on the Revolving Credit Loans shall be due on the earliest of (i) the first day of each month (for the immediately preceding month), computed through the last day of the preceding month, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations or (iii) termination of this Agreement pursuant to Section 4 hereof. 3.2.3 Costs, Fees and Charges. Costs, fees and charges payable pursuant to this Agreement shall be payable by Borrower as and when provided in Section 2 hereof, to Lender or to any other Person designated by Lender in writing. 3.2.4 Other Obligations. The balance of the Obligations requiring the payment of money, if any, shall be payable by Borrower to Lender as and when provided in this Agreement, the Other Agreements or the Security Documents, or on demand, whichever is later. 3.2.5 Prepayment of LIBOR Advances. Borrower may prepay a LIBOR Advance only upon at least three (3) Business Days prior written notice to Lender (which notice shall be irrevocable), and any such prepayment shall occur only on the last day of the Interest Period for such LIBOR Advance. Borrower shall pay to Lender, upon request of Lender, such amount or amounts as shall be sufficient (in the reasonable opinion of Lender) to compensate Lender for any loss, cost, or expense incurred as a result of: (i) any payment of a LIBOR -7- Advance on a date other than the last day of the Interest Period for such Loan; (ii) any failure by Borrower to borrow a LIBOR Advance on the date specified by Borrower's written notice; or (iii) any failure by Borrower to pay a LIBOR Advance on the date for payment specified in Borrower's written notice. Without limiting the foregoing, Borrower shall pay to Lender a "yield maintenance fee" in an amount computed as follows: the current rate for United States Treasury securities (bills on a discounted basis shall be converted to a bond equivalent) with a maturity date closest to the Interest Period chosen pursuant to the LIBOR Advance as to which the prepayment is made, shall be subtracted from the LIBOR in effect at the time of prepayment. If the result is zero or a negative number, there shall be no yield maintenance fee. If the result is a positive number, then the resulting percentage shall be multiplied by the amount of the principal balance being prepaid. The resulting amount shall be divided by 360 and multiplied by the number of days remaining in the Interest Period chosen pursuant to the LIBOR Advance as to which the prepayment is made. Said amount shall be reduced to present value calculated by using the above referenced United States Treasury securities rate and the number of days remaining in the term chosen pursuant to the LIBOR Advance as to which prepayment is made. The resulting amount shall be the yield maintenance fee due to Lender upon the prepayment of a LIBOR Advance. If by reason of an Event of Default, Lender elects to declare the Obligations to be immediately due and payable, then any yield maintenance fee with respect to a LIBOR Advance shall become due and payable in the same manner as though the Borrower had exercised such right of prepayment. 3.3 Mandatory Prepayments. 3.3.1 Proceeds of Sale, Loss, Destruction or Condemnation of Collateral. Except as provided in subsection 6.4.2 hereof, if Borrower sells any of the Equipment, or if any of the Collateral is lost or destroyed or taken by condemnation, Borrower shall pay to Lender, unless otherwise agreed by Lender, as and when received by Borrower and as a mandatory prepayment of the Revolving Loan, a sum equal to the proceeds (including insurance payments) received by Borrower from such sale, loss, destruction or condemnation. 3.4 Application of Payments and Collections. All items of payment received by Lender by 12:00 noon, New York City time, on any Business Day shall be deemed received on that Business Day. All items of payment received after 12:00 noon, New York City time, on any Business Day shall be deemed received on the following Business Day. Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times hereafter received by Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Lender or its agent against the Obligations, in such manner as Lender may deem advisable, notwithstanding any entry by Lender upon any of its books and records. If as the result of collections of Accounts as authorized by subsection 6.2.6 hereof a credit balance exists in the Loan Account, such credit balance shall not accrue interest in favor of Borrower, but shall be available to Borrower at any time or times for so long as no Default or Event of Default exists. Such credit balance shall not be applied or be deemed to have been applied as a prepayment of -8- the Revolving Credit Loan, except that Lender may, at its option, offset such credit balance against any of the Obligations upon and after the occurrence of an Event of Default. 3.5 All Loans to Constitute One Obligation. The Loans shall constitute one general Obligation of Borrower, and shall be secured by Lender's Lien upon all of the Collateral. 3.6 Loan Account. Lender shall enter all Loans as debits to the Loan Account and shall also record in the Loan Account all payments made by Borrower on any Obligations and all proceeds of Collateral which are finally paid to Lender, and may record therein, in accordance with customary accounting practice, other debits and credits, including interest and all charges and expenses properly chargeable to Borrower. 3.7 Statements of Account. Lender will account to Borrower monthly with a statement of Loans, charges and payments made pursuant to this Agreement, and such account rendered by Lender shall be deemed final, binding and conclusive upon Borrower unless Lender is notified by Borrower in writing to the contrary within thirty (30) days of the date each accounting is mailed to Borrower. Such notice shall only be deemed an objection to those items specifically objected to therein. 3.8 Increased Costs. If any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) adopted after the date of this Agreement and having general applicability to all banks within the jurisdiction in which Lender operates (excluding, for the avoidance of doubt, the effect of and phasing in of capital requirements or other regulations or guidelines passed prior to the date of this Agreement), or any interpretation or application thereof by any governmental authority charged with the interpretation or application thereof, or the compliance of Lender therewith, shall: (i) (1) subject Lender to any tax with respect to this Agreement (other than (a) any tax based on or measured by net income or otherwise in the nature of a net income tax, including, without limitation, any franchise tax or any similar tax based on capital, net worth or comparable basis for measurement and (b) any tax collected by a withholding on payments and which neither is computed by reference to the net income of the payee nor is in the nature of an advance collection of a tax based on or measured by the net income of the payee) or (2) change the basis of taxation of payments to Lender of principal, fees, interest or any other amount payable hereunder or under any Loan Documents (other than in respect of (a) any tax based on or measured by net income or otherwise in the nature of a net income tax, including, without limitation, any franchise tax or any similar tax based on capital, net worth or comparable basis for measurement and (b) any tax collected by a withholding on payments and which neither is computed by reference to the net income of the payee nor is in the nature of an advance collection of a tax based on or measured by the net income of the payee); (ii) impose, modify or hold applicable any reserve (except any reserve taken into account in the determination of the applicable LIBOR), special deposit, assessment or similar requirement against assets held by, or deposits in or for the account -9- of, advances or loans by, or other credit extended by, any office of Lender, including (without limitation) pursuant to Regulation D of the Board of Governors of the Federal Reserve System; or (iii) impose on Lender or the London interbank market any other condition with respect to any Loan Document; and the result of any of the foregoing is to increase the cost to Lender of making, renewing or maintaining Loans hereunder by an amount that 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 Loans by an amount that Lender deems to be material, then, in any such case, Borrower shall pay Lender, upon demand and certification not later than sixty (60) days following its receipt of notice of the imposition of such increased costs, such additional amount as will compensate Lender for such additional cost or such reduction, as the case may be, to the extent Lender has not otherwise been compensated, with respect to a particular Loan, for such increased cost as a result of an increase in the Base Rate or the LIBOR. An officer of Lender shall determine the amount of such additional cost or reduced amount using reasonable averaging and attribution methods and shall certify the amount of such additional cost or reduced amount to Borrower, which certification shall include a written explanation of such additional cost or reduction to Borrower. Such certification shall be conclusive absent manifest error. If Lender claims any additional cost or reduced amount pursuant to this Section 3.8, then Lender shall use reasonable efforts (consistent with legal and regulatory restrictions) to designate a different lending office or to file any certificate or document reasonably requested by Borrower if the making of such designation or filing would avoid the need for, or reduce the amount of, any such additional cost or reduced amount and would not, in the sole discretion of Lender, be otherwise disadvantageous to Lender. If Lender claims any additional cost or reduced amount pursuant to this Section 3.8, then Borrower may terminate this Agreement and prepay in full the outstanding Revolving Credit Loans, all accrued and unpaid interest thereon and any other amount due and owing hereunder (including the amount requested pursuant to this Section 3.8 properly accruable to the date of prepayment) but excluding any prepayment compensation which may otherwise be due under Section 4.2.3. 3.9 Basis for Determining Interest Rate Inadequate or Unfair. In the event that Lender shall have determined that: (i) reasonable means do not exist for ascertaining the LIBOR for any Interest Period; or (ii) Dollar deposits in the relevant amount and for the relevant maturity are not available in the London interbank market with respect to a proposed LIBOR Advance, or a proposed conversion of a Base Rate Advance into a LIBOR Advance; then Lender shall give Borrower prompt written, telephonic or electronic notice of the determination of such effect. If such notice is given, (i) any such requested LIBOR Advance shall be made as a Base Rate Advance, unless Borrower shall notify Lender no later than 10:00 A.M. (New York -10- City Time) two (2) Business Days prior to the date of such proposed borrowing that the request for such borrowing shall be canceled or made as an unaffected type of LIBOR Advance, and (ii) any Base Rate Advance which was to have been converted to an affected type of LIBOR Advance shall be continued as or converted into a Base Rate Advance, or, if Borrower shall notify Lender, no later than 10:00 A.M. (New York City Time) two (2) Business Days prior to the proposed conversion, shall be maintained as an unaffected type of LIBOR Advance. SECTION 4. TERM AND TERMINATION 4.1 Term of Agreement. Subject to Lender's right to cease making Loans to Borrower upon or after the occurrence of any Default or Event of Default, this Agreement shall be in effect for a period of three (3) years from Closing Date, through and including November __, 2004 . 4.2 Termination. 4.2.1 Termination by Lender. Lender may terminate this Agreement without notice upon or after the occurrence of an Event of Default. 4.2.2 Termination by Borrower. Upon at least ninety (90) days prior written notice to Lender, Borrower may, at its option, terminate this Agreement; provided, however, no such termination shall be effective until Borrower has paid all of the Obligations in immediately available funds or, with respect to the Letter of Credit established cash collateral with the Bank in an amount sufficient to cover all draws thereunder and any fee and cost due in accordance with subsection 2.8. Any notice of termination given by Borrower shall be irrevocable unless Lender otherwise agrees in writing, and Lender shall have no obligation to make any Loans on or after the termination date stated in such notice. Borrower may elect to terminate this Agreement in its entirety only. No section of this Agreement or type of Loan available hereunder may be terminated singly. 4.2.3 Termination Charges. At the effective date of termination of this Agreement for any reason, Borrower shall pay to Lender (in addition to the then outstanding principal, accrued interest and other charges owing under the terms of this Agreement and any of the other Loan Documents) as liquidated damages for the loss of the bargain and not as a penalty, an amount equal to 2% of the Total Credit Facility if termination occurs prior to the first anniversary of Closing Date and 1% of the Total Credit Facility if termination occurs on or after the first anniversary of Closing Date but prior to the second anniversary of Closing Date, provided however that, if Lender terminates this Agreement (other than as a result of an Event of Default under subsections 10.1.1, 10.1.2, 10.1.3 or 10.1.10), then the foregoing charges shall be reduced by 50%. If termination occurs on or after the second anniversary of Closing Date, no termination charge shall be payable. 4.2.4 Effect of Termination. All of the Obligations shall be immediately due and payable upon the Termination Date. All undertakings, agreements, covenants, warranties and representations of Borrower contained in the Loan Documents shall survive any such -11- termination and Lender shall retain its Liens in the Collateral and all of its rights and remedies under the Loan Documents notwithstanding such termination until Borrower has paid the Obligations to Lender, in full, in immediately available funds, together with the applicable termination charge, if any. Notwithstanding the payment in full of the Obligations, Lender shall not be required to terminate its security interests in the Collateral unless, with respect to any loss or damage Lender may incur as a result of dishonored checks or other items of payment received by Lender from Borrower or any Account Debtor and applied to the Obligations, Lender shall, at its option, (i) have received a written agreement, executed by Borrower and by any Person whose loans or other advances to Borrower are used in whole or in part to satisfy the Obligations, indemnifying Lender from any such loss or damage; or (ii) have retained such monetary reserves and Liens on the Collateral for such period of time as Lender, in its reasonable discretion, may deem necessary to protect Lender from any such loss or damage. SECTION 5. SECURITY INTERESTS 5.1 Security Interest in Collateral. To secure the prompt payment and performance to Lender and/or the Bank of the Obligations, Borrower hereby grants to Lender a continuing Lien upon all of Borrower's assets, including all of the following Property and interests in Property of Borrower, whether now owned or existing or hereafter created, acquired or arising and wherever located: (i) Accounts; (ii) Certificated Securities; (iii) Chattel Paper; (iv) Computer Hardware and Software and all rights with respect thereto, including, any and all licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, renewal rights and indemnifications, and any substitutions, replacements, additions or model conversions of any of the foregoing; (v) Contract Rights; (vi) Deposit Accounts; (vii) Documents; (viii) Equipment; (ix) Financial Assets; (x) Fixtures; (xi) General Intangibles, including Payment Intangibles and Software; -12- (xii) Goods (including all of its Equipment, Fixtures and Inventory), and all accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor; (xiii) Instruments; (xiv) Intellectual Property; (xv) Inventory; (xvi) Investment Property; (xvii) money (of every jurisdiction whatsoever); (xviii) Letter-of-Credit Rights; (xix) Payment Intangibles; (xx) Security Entitlements; (xxi) Software; (xxii) Supporting Obligations; (xxiii) Uncertificated Securities; and (xxiv) to the extent not included in the foregoing, all other personal property of any kind or description; together with all books, records, writings, data bases, information and other property relating to, used or useful in connection with, or evidencing, embodying, incorporating or referring to any of the foregoing, and all Proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing; provided that to the extent that the provisions of any lease or license of Computer Hardware and Software or Intellectual Property expressly prohibit (which prohibition is enforceable under applicable law) any assignment thereof, and the grant of a security interest therein, Lender will not enforce its security interest in Borrower's rights under such lease or license (other than in respect of the Proceeds thereof) for so long as such prohibition continues, it being understood that upon request of Lender, Borrower will in good faith use reasonable efforts to obtain consent for the creation of a security interest in favor of Lender (and to Lender's enforcement of such security interest) in such Lender's rights under such lease or license. 5.2 Other Collateral 5.2.1 Commercial Tort Claims. Borrower shall promptly notify Lender in writing upon incurring or otherwise obtaining a Commercial Tort Claim after the Closing Date against any third party and, upon request of Lender, promptly enter into an amendment to this -13- Agreement and do such other acts or things deemed appropriate by Lender to give Lender a security interest in any such Commercial Tort Claim. 5.2.2 Other Collateral. Borrower shall promptly notify Lender in writing upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of Deposit Accounts, Investment Property, Letter-of-Credit Rights or Electronic Chattel Paper and, upon the request of Lender, promptly execute such other documents, and do such other acts or things deemed appropriate by Lender to deliver to Lender control with respect to such Collateral; promptly notify Lender in writing upon acquiring or otherwise obtaining any Collateral after the date hereof consisting of Documents or Instruments and, upon the request of Lender, will promptly execute such other documents, and do such other acts or things deemed appropriate by Lender to deliver to Lender possession of such Documents which are negotiable and Instruments, and, with respect to nonnegotiable Documents, to have such nonnegotiable Documents issued in the name of Lender; and with respect to Collateral in the possession of a third party, other than Certificated Securities and Goods covered by a Document and obtain an acknowledgement from the third party that it is holding the Collateral for the benefit of Lender. 5.3 Lien Perfection; Further Assurances. Borrower shall execute such UCC-1 financing statements as are required by the UCC and such other instruments, assignments or documents as are necessary to perfect Lender's Lien upon any of the Collateral and shall take such other action as may be required to perfect or to continue the perfection of Lender's Lien upon the Collateral. Unless prohibited by applicable law, Borrower hereby irrevocably authorizes Lender to execute and file any such financing statements, including, without limitation, financing statements that indicate the Collateral (i) as all assets of Borrower or words of similar effect, or (ii) as being of an equal or lesser scope, or with greater or lesser detail, than as set forth in Section 5.1, on Borrower's behalf. Borrower also hereby ratifies its authorization for Lender to have filed in any jurisdiction any like financing statements or amendments thereto if filed prior to the date hereof. The parties agree that a photographic or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof. At Lender's request, Borrower shall also promptly execute or cause to be executed and shall deliver to Lender any and all documents, instruments and agreements deemed necessary by Lender to give effect to or carry out the terms or intent of the Loan Documents. SECTION 6. COLLATERAL ADMINISTRATION 6.1 General. 6.1.1 Location of Collateral. All Collateral, other than Inventory in transit and motor vehicles, will at all times be kept by Borrower and its Subsidiaries at one or more of the business locations set forth in Exhibit B hereto and shall not, without the prior written approval of Lender, be moved therefrom except, prior to an Event of Default and Lender's acceleration of the maturity of the Obligations in consequence thereof, for (i) sales of Inventory in the ordinary course of business; and (ii) removals in connection with dispositions of Equipment that are authorized by subsection 6.4.2 hereof. -14- 6.1.2 Insurance of Collateral. Borrower shall maintain and pay for insurance upon all Collateral wherever located and with respect to Borrower's business, covering casualty, hazard, public liability and such other risks in such amounts and with such insurance companies as are reasonably satisfactory to Lender. Borrower shall deliver the originals of such policies to Lender with satisfactory lender's loss payable endorsements, naming Lender as loss payee, assignee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less than thirty (30) days prior written notice to Lender in the event of cancellation of the policy for any reason whatsoever and a clause specifying that the interest of Lender shall not be impaired or invalidated by any act or neglect of Borrower or the owner of the Property or by the occupation of the premises for purposes more hazardous than are permitted by said policy. If Borrower fails to provide and pay for such insurance, Lender may, at its option, but shall not be required to, procure the same and charge Borrower therefor. Borrower agrees to deliver to Lender, promptly as rendered, true copies of all reports made in any reporting forms to insurance companies. 6.1.3 Protection of Collateral. All expenses of protecting, storing, warehousing, insuring, handling, maintaining and shipping the Collateral, any and all excise, property, sales, and use taxes imposed by any state, federal, or local authority on any of the Collateral or in respect of the sale thereof shall be borne and paid by Borrower. If Borrower fails to promptly pay any portion thereof when due, Lender may, at its option, but shall not be required to, pay the same and charge Borrower therefor. Lender shall not be liable or responsible in any way for the safekeeping of any of the Collateral or for any loss or damage thereto (except for reasonable care in the custody thereof while any Collateral is in Lender's actual possession) or for any diminution in the value thereof, or for any act or default of any warehouseman, carrier, forwarding agency, or other person whomsoever, but the same shall be at Borrower's sole risk. 6.2 Administration of Accounts. 6.2.1 Records, Schedules and Assignments of Accounts. Borrower shall keep accurate and complete records of its Accounts and all payments and collections thereon and shall submit to Lender on such periodic basis as Lender shall request a sales and collections report for the preceding period, in form satisfactory to Lender. On or before the fifteenth (15th) day of each month from and after the date hereof, Borrower shall deliver to Lender, in form acceptable to Lender, a detailed, aged trial balance of all Accounts existing as of the last day of the preceding month, specifying the names, addresses, face value, dates of invoices and due dates for each Account Debtor obligated on an Account so listed ("Schedule of Accounts"), and, upon Lender's request therefor, copies of proof of delivery and the original copy of all documents, including, without limitation, repayment histories and present status reports relating to the Accounts so scheduled and such other matters and information relating to the status of then existing Accounts as Lender shall reasonably request. In addition, if Accounts in an aggregate face amount in excess of $25,000 become ineligible because they fall within one of the specified categories of ineligibility set forth in the definition of Eligible Accounts or otherwise established by Lender, Borrower shall notify Lender of such occurrence on the first Business Day following such occurrence and the Borrowing Base shall thereupon be adjusted to reflect such occurrence. If requested by Lender, Borrower shall execute and deliver to Lender formal written assignments -15- of all of its Accounts weekly or daily, which shall include all Accounts that have been created since the date of the last assignment, together with copies of invoices or invoice registers related thereto. 6.2.2 Discounts, Allowances, Disputes. If Borrower grants any discounts, allowances or credits that are not shown on the face of the invoice for the Account involved, Borrower shall report such discounts, allowances or credits, as the case may be, to Lender as part of the next required Schedule of Accounts. If any amounts due and owing in excess of $25,000 are in dispute between Borrower and any Account Debtor, Borrower shall provide Lender with written notice thereof at the time of submission of the next Schedule of Accounts, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. Upon and after the occurrence of an Event of Default, Lender shall have the right to settle or adjust all disputes and claims directly with the Account Debtor and to compromise the amount or extend the time for payment of the Accounts upon such terms and conditions as Lender may deem advisable, and to charge the deficiencies, costs and expenses thereof, including attorney's fees, to Borrower. 6.2.3 Taxes. If an Account includes a charge for any tax payable to any governmental taxing authority, Lender is authorized, in its sole discretion, to pay the amount thereof to the proper taxing authority for the account of Borrower and to charge Borrower therefor, provided, however that Lender shall not be liable for any taxes to any governmental taxing authority that may be due by Borrower. 6.2.4 Account Verification. Whether or not a Default or an Event of Default has occurred, any of Lender's officers, employees or agents shall have the right, at any time or times hereafter, in the name of Lender, any designee of Lender, or Borrower, to verify the validity, amount or any other matter relating to any Accounts by mail, telephone, electronic communication or otherwise. Borrower shall cooperate fully with Lender in an effort to facilitate and promptly conclude any such verification process. 6.2.5 Maintenance of Lockbox; Dominion Account. Borrower hereby agrees to execute and deliver to Lender an irrevocable lockbox agreement on Bank's standard form under which Borrower agrees to indicate on all invoices and other correspondence with Account Debtors that all payments should be made and sent in care of a post office box which will be under the exclusive control of the Bank, as agent for Lender, and further under which Borrower will appoint the Bank, as agent for the Lender, as Borrower's true and lawful attorney-in-fact to receive and open all in-coming mail, remove all collections and remittances therefrom in payment of or on account of any of Borrower's Accounts and use Bank's reasonable efforts to forward all other mail received to Borrower. All collections and remittances received by the Bank in the lockbox shall be deposited into the Dominion Account. Borrower shall maintain the Dominion Account at all times prior to the repayment in full of the Obligations and termination of Lender's obligation to make Loans hereunder. Borrower shall issue an irrevocable letter of instruction directing the Bank to deposit all payments or other remittances received in the lockbox to the Dominion Account for application on account of the Obligations. All funds deposited in the Dominion Account shall immediately become the property of Lender and -16- Borrower shall obtain the agreement by the Bank in favor of Lender to waive any recoupment, setoff rights, and any security interest in, or against the funds so deposited. Lender assumes no responsibility for such lockbox arrangement, including, without limitation, any claim of accord and satisfaction or release with respect to deposits accepted by the Bank thereunder. 6.2.6 Collection of Accounts, Proceeds of Collateral. To expedite collection, Borrower shall endeavor in the first instance to make collection of its Accounts for Lender, directing all such payment to a lockbox established pursuant to subsection 6.2.5. All remittances received by Borrower on account of Accounts, together with the proceeds of any other Collateral, shall be held as Lender's property by Borrower as trustee of an express trust for Lender's benefit and Borrower shall immediately deposit same in kind in the Dominion Account. Lender retains the right at all times after the occurrence of a Default or an Event of Default to notify Account Debtors that Accounts have been assigned to Lender and to collect Accounts directly in its own name, or in the name of Lender's agent, and to charge the collection costs and expenses, including attorneys' fees to Borrower. 6.3 [THIS SECTION WAS INTENTIONALLY LEFT BLANK] 6.4 Administration of Equipment. 6.4.1 Records and Schedules of Equipment. Borrower shall keep accurate records itemizing and describing the kind, type, quality, quantity and value of its Equipment and all dispositions made in accordance with subsection 6.4.2 hereof, and shall furnish Lender with a current schedule containing the foregoing information if requested by Lender. Immediately on request therefor by Lender, Borrower shall deliver to Lender any and all evidence of ownership, if any, of any of the Equipment. 6.4.2 Dispositions of Equipment. Borrower will not sell, lease or otherwise dispose of or transfer any of the Equipment or any part thereof without the prior written consent of Lender; provided, however, that the foregoing restriction shall not apply, for so long as no Default or Event of Default exists, to (i) dispositions of Equipment which, in the aggregate during any consecutive twelve-month period, has a fair market value or book value, whichever is less, of $100,000 or less, provided that all proceeds thereof are remitted to Lender for application to the Loans, or (ii) replacements of Equipment that is substantially worn, damaged or obsolete with Equipment of like kind, function and value, provided that the replacement Equipment shall be acquired prior to or concurrently with any disposition of the Equipment that is to be replaced, the replacement Equipment shall be free and clear of Liens other than Permitted Liens that are not Purchase Money Liens, and Borrower shall have given Lender at least five (5) days prior written notice of such disposition. 6.5 Payment of Charges. All amounts chargeable to Borrower under Section 6 hereof shall be Obligations secured by all of the Collateral, shall be payable on demand and shall bear interest from the date such advance was made until paid in full at the rate applicable to Base Rate Advances from time to time. -17- SECTION 7. REPRESENTATIONS AND WARRANTIES 7.1 General Representations and Warranties. To induce Lender to enter into this Agreement and to make advances hereunder, Borrower warrants, represents and covenants to Lender that: 7.1.1 Organization and Qualification. Each of Parent, Borrower and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each of Parent, Borrower and its Subsidiaries is duly qualified and is authorized to do business and is in good standing as a foreign corporation in each state or jurisdiction listed on Exhibit C hereto and in all other states and jurisdictions in which the failure of Parent, Borrower or any of its Subsidiaries to be so qualified would have a material adverse effect on the financial condition, business or Properties of Parent, Borrower or any of its Subsidiaries. 7.1.2 Corporate Power and Authority. Each of Parent, Borrower and its Subsidiaries is duly authorized and empowered to enter into, execute, deliver and perform this Agreement and each of the other Loan Documents to which it is a party. The execution, delivery and performance of this Agreement and each of the other Loan Documents have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the shareholders (or members, in the case of a limited liability company) of Parent, Borrower or any of its Subsidiaries; (ii) contravene Parent's, Borrower's or any of its Subsidiaries' charter, articles or certificate of incorporation or by-laws; (iii) violate, or cause Parent, Borrower or any of its Subsidiaries to be in default under, any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award in effect having applicability to Parent, Borrower or any of its Subsidiaries; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Parent, Borrower or any of its Subsidiaries is a party or by which it or its Properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Permitted Liens) upon or with respect to any of the Properties now owned or hereafter acquired by Parent, Borrower or any of its Subsidiaries. 7.1.3 Legally Enforceable Agreement. This Agreement is, and each of the other Loan Documents when delivered under this Agreement will be, a legal, valid and binding obligation of each of Parent, Borrower and its Subsidiaries enforceable against it in accordance with its respective terms. 7.1.4 Capital Structure. Exhibit D hereto states (i) the correct name of each of the Subsidiaries of Borrower, its jurisdiction of incorporation and the percentage of its Voting Stock owned by Borrower, (ii) the name of each of Borrower's corporate or joint venture Affiliates and the nature of the affiliation, (iii) the number, nature and holder of all outstanding Securities of each Subsidiary of Borrower and (iv) the number of authorized, issued and treasury shares of Borrower and each Subsidiary of Borrower. Borrower has good title to all of the shares it purports to own of the stock of each of its Subsidiaries, free and clear in each case of any Lien other than Permitted Liens. All such shares have been duly issued and are fully paid and non- -18- assessable. There are no outstanding options to purchase, or any rights or warrants to subscribe for, or any commitments or agreements to issue or sell, or any Securities or obligations convertible into, or any powers of attorney relating to, shares of the capital stock of Borrower or any of its Subsidiaries. There are no outstanding agreements or instruments binding upon any of Borrower's shareholders (or members, in the case of a limited liability company) relating to the ownership of its shares of capital stock (or member interests, in the case of a limited liability company). 7.1.5 Corporate Names, etc. Neither Parent, Borrower nor any of its Subsidiaries has been known as or used any corporate, fictitious or trade names except those listed on Exhibit E hereto. Except as set forth on Exhibit E, neither Parent, Borrower nor any of its Subsidiaries has been the surviving corporation of a merger or consolidation or acquired all or substantially all of the assets of any Person. Each of Parent's, Borrower's and its Subsidiaries' state(s) of incorporation or organization, Type of Organization and Organizational I.D. Number is set forth on Exhibit E. The exact legal name of Parent, Borrower and each of its Subsidiaries is set forth on Exhibit E. 7.1.6 Business Locations; Agent for Process. Each of Parent's, Borrower's and its Subsidiaries' chief executive office and other places of business are as listed on Exhibit B hereto. During the preceding one-year period, neither Borrower nor any of its Subsidiaries has had an office, place of business or agent for service of process other than as listed on Exhibit B. Except as shown on Exhibit B, no Inventory is stored with a bailee, warehouseman or similar party, nor is any Inventory consigned to any Person. 7.1.7 Title to Properties; Priority of Liens. Each of Parent, Borrower and its Subsidiaries has good, indefeasible and marketable title to and fee simple ownership of, or valid and subsisting leasehold interests in, all of its real Property, and good title to all of the Collateral and all of its other Property, in each case, free and clear of all Liens except Permitted Liens. Borrower has paid or discharged all lawful claims which, if unpaid, might become a Lien against any of Borrower's Properties that is not a Permitted Lien. The Liens granted to Lender under Section 5 hereof are first-priority Liens, subject only to Permitted Liens. 7.1.8 Accounts. Lender may rely, in determining which Accounts are Eligible Accounts, on all statements and representations made by Borrower with respect to any Account or Accounts. Unless otherwise indicated in writing to Lender, with respect to each Account: (i) It is genuine and in all respects what it purports to be, and it is not evidenced by a judgment; (ii) It arises out of a completed, bona fide sale and delivery of goods or rendition of services by Borrower in the ordinary course of its business and in accordance with the terms and conditions of all purchase orders, contracts or other documents relating thereto and forming a part of the contract between Borrower and the Account Debtor; -19- (iii) It is for a liquidated amount maturing as stated in the duplicate invoice covering such sale or rendition of services, a copy of which has been furnished or is available to Lender; (iv) Such Account, and Lender's security interest therein, is not, and will not (by voluntary act or omission of Borrower) be in the future, subject to any offset, Lien, deduction, recoupment, defense, dispute, counterclaim or any other adverse condition except for disputes resulting in returned goods where the amount in controversy is deemed by Lender to be immaterial, and each such Account is absolutely owing to Borrower and is not contingent in any respect or for any reason; (v) Borrower has made no agreement with any Account Debtor thereunder for any extension, compromise, settlement or modification of any such Account or any deduction therefrom, except discounts or allowances which are granted by Borrower in the ordinary course of its business for prompt payment and which are reflected in the calculation of the net amount of each respective invoice related thereto and are reflected in the Schedules of Accounts submitted to Lender pursuant to subsection 6.2.1 hereof; (vi) There are no facts, events or occurrences which in any way impair the validity or enforceability of any Accounts or tend to reduce the amount payable thereunder from the face amount of the invoice and statements delivered to Lender with respect thereto; (vii) To the best of Borrower's knowledge, the Account Debtor thereunder (1) had the capacity to contract at the time any contract or other document giving rise to the Account was executed and (2) such Account Debtor is Solvent; and (viii) To the best of Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Account Debtor thereunder which might result in any material adverse change in such Account Debtor's financial condition or the collectibility of such Account. 7.1.9 Equipment. The Equipment is in good operating condition and repair, 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, reasonable wear and tear excepted. Borrower will not permit any of the Equipment to become affixed to any real Property leased to Borrower so that an interest arises therein under the real estate laws of the applicable jurisdiction unless the landlord of such real Property has executed a landlord waiver or leasehold mortgage in favor of and in form acceptable to Lender, and Borrower will not permit any of the Equipment to become an accession to any personal Property other than Equipment that is subject to first-priority (except for Permitted Liens) Liens in favor of Lender. 7.1.10 Financial Statements; Fiscal Year. The [Consolidated and consolidating] balance sheets of Parent and its Subsidiaries as of March 31, 2001, and the related -20- statements of income, changes in stockholder's equity, and changes in financial position for the periods ended on such dates, have been prepared in accordance with GAAP, and present fairly the financial position of Parent and such Persons at such dates and the results of Parent's and such Persons' operations for such periods. Since March 31, 2001, there has been no material change in the condition, financial or otherwise, of Borrower and such other Persons as shown on the Consolidated balance sheet as of such date and no change in the aggregate value of Equipment and real Property owned by Borrower or such other Persons, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. The fiscal year of Borrower ends on March 31st of each year. 7.1.11 Full Disclosure. The financial statements referred to in subsection 7.1.10 hereof do not, nor does this Agreement or any other written statement of Borrower to Lender, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact which Borrower has failed to disclose to Lender in writing which materially affects adversely or, so far as Borrower can now foresee, will materially affect adversely the Properties, business, prospects, profits or condition (financial or otherwise) of Parent, Borrower or any of its Subsidiaries or the ability of Parent, Borrower or its Subsidiaries to perform this Agreement or the other Loan Documents. 7.1.12 Solvent Financial Condition. Each of Parent, Borrower and its Subsidiaries is now and, after giving effect to the Loans to be made hereunder, at all times will be, Solvent. 7.1.13 Surety Obligations. Neither Parent, Borrower nor any of its Subsidiaries is obligated as surety or indemnitor under any surety or similar bond or other contract, or has issued or entered into any agreement to assure payment, performance or completion of performance of any undertaking or obligation of any Person. 7.1.14 Taxes. Borrower's federal tax identification number is 22-3386933. The federal tax identification number of Parent and each of Borrower's Subsidiaries is shown on Exhibit F hereto. Parent, Borrower and each of its Subsidiaries has filed all federal, state and local tax returns and other reports it is required by law to file and has paid, or made provision for the payment of, all taxes, assessments, fees, levies and other governmental charges upon it, its income and Properties as and when such taxes, assessments, fees, levies and charges are due and payable, unless and to the extent any thereof are being actively contested in good faith and by appropriate proceedings and Borrower maintains reasonable reserves on its books therefor. The provision for taxes on the books of Parent, Borrower and its Subsidiaries are adequate for all years not closed by applicable statutes, and for its current fiscal year. 7.1.15 Brokers. There are no claims for brokerage commissions, finder's fees or investment banking fees in connection with the transactions contemplated by this Agreement. 7.1.16 Patents, Trademarks, Copyrights and Licenses. Each of Parent, Borrower and its Subsidiaries owns or possesses all the patents, trademarks, service marks, tradenames, copyrights and licenses necessary for the present and planned future conduct of its -21- business without any known conflict with the rights of others. All such patents, trademarks, service marks, tradenames, copyrights, licenses and other similar rights are listed on Exhibit G hereto. 7.1.17 Governmental Consents. Each of Parent, Borrower and its Subsidiaries has, and is in good standing with respect to, all governmental consents, approvals, licenses, authorizations, permits, certificates, inspections and franchises necessary to continue to conduct its business as heretofore or proposed to be conducted by it and to own or lease and operate its Properties as now owned or leased by it. 7.1.18 Compliance with Laws. Each of Parent, Borrower and its Subsidiaries has duly complied with, and its Properties, business operations and leaseholds are in compliance in all material respects with, the provisions of all federal, state and local laws, rules and regulations applicable to Parent, Borrower or such Subsidiary, as applicable, its Properties or the conduct of its business and there have been no citations, notices or orders of noncompliance issued to Parent, Borrower or any of its Subsidiaries under any such law, rule or regulation. Each of Parent, Borrower and its Subsidiaries has established and maintains an adequate monitoring system to insure that it remains in compliance with all federal, state and local laws, rules and regulations applicable to it. No Inventory has been produced in violation of the Fair Labor Standards Act (29 U.S.C. 'SS'201 et seq.), as amended. 7.1.19 Restrictions. Neither Parent, Borrower nor any of its Subsidiaries is a party or subject to any contract, agreement, or charter or other corporate restriction, which materially and adversely affects its business or the use or ownership of any of its Properties. Neither Parent, Borrower nor any of its Subsidiaries is a party or subject to any contract or agreement which restricts its right or ability to incur Indebtedness, other than as set forth on Exhibit H hereto, none of which prohibit the execution of or compliance with this Agreement or the other Loan Documents by Parent, Borrower or any of its Subsidiaries, as applicable. 7.1.20 Litigation. Except as set forth on Exhibit I hereto, there are no actions, suits, proceedings or investigations pending, or to the knowledge of Borrower, threatened, against or affecting Parent, Borrower or any of its Subsidiaries, or the business, operations, Properties, prospects, profits or condition of Parent, Borrower or any of its Subsidiaries. Neither Parent, Borrower nor any of its Subsidiaries is in default with respect to any order, writ, injunction, judgment, decree or rule of any court, governmental authority or arbitration board or tribunal. 7.1.21 No Defaults. No event has occurred and no condition exists which would, upon or after the execution and delivery of this Agreement or Borrower's performance hereunder, constitute a Default or an Event of Default. Neither Parent, Borrower nor any of its Subsidiaries is in default, and no event has occurred and no condition exists which constitutes, or which with the passage of time or the giving of notice or both would constitute, a default in the payment of any Indebtedness to any Person for Money Borrowed. -22- 7.1.22 Leases. Exhibit J hereto is a complete listing of all capitalized leases of Parent, Borrower and its Subsidiaries and Exhibit K hereto is a complete listing of all operating leases of Parent, Borrower and its Subsidiaries. Each of Parent, Borrower and its Subsidiaries is in full compliance with all of the terms of each of its respective capitalized and operating leases. 7.1.23 Pension Plans. Except as disclosed on Exhibit L hereto, neither Parent, Borrower nor any of its Subsidiaries has any Plan. Parent, Borrower and each of its Subsidiaries is in full compliance with the requirements of ERISA and the regulations promulgated thereunder with respect to each Plan. No fact or situation that could result in a material adverse change in the financial condition of Parent, Borrower or any of its Subsidiaries exists in connection with any Plan. Neither Parent, Borrower nor any of its Subsidiaries has any withdrawal liability in connection with a Multi-employer Plan. 7.1.24 Trade Relations. There exists no actual or threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between Parent, Borrower or any of its Subsidiaries and any customer or any group of customers whose purchases individually or in the aggregate are material to the business of Parent, Borrower or any of its Subsidiaries, or with any material supplier, and there exists no present condition or state of facts or circumstances which would materially affect adversely Parent, Borrower or any of its Subsidiaries or prevent Parent, Borrower or any of its Subsidiaries from conducting such business after the consummation of the transaction contemplated by this Agreement in substantially the same manner in which it has heretofore been conducted. 7.1.25 Labor Relations. Except as described on Exhibit M hereto, neither Parent, Borrower nor any of its Subsidiaries is a party to any collective bargaining agreement. There are no material grievances, disputes or controversies with any union or any other organization of Parent, Borrower's or any of its Subsidiaries' employees, or threats of strikes, work stoppages or any asserted pending demands for collective bargaining by any union or organization. 7.2 Continuous Nature of Representations and Warranties. Each representation and warranty contained in this Agreement and the other Loan Documents shall be continuous in nature and shall remain accurate, complete and not misleading at all times during the term of this Agreement, except for changes in the nature of Parent's, Borrower's or its Subsidiaries' business or operations that would render the information in any exhibit attached hereto either inaccurate, incomplete or misleading, so long as Lender has consented to such changes or such changes are expressly permitted by this Agreement. Without limiting the generality of the foregoing, each loan request made pursuant to subsection 3.1.1 hereof shall constitute Borrower's reaffirmation, as of the date of each such loan request, of each representation, warranty or other statement made or furnished to Lender by or on behalf of Parent, Borrower, any Subsidiary of Borrower, or Guarantor in this Agreement, any of the other Loan Documents, or any instrument, certificate or financial statement furnished in compliance with or in reference thereto. 7.3 Survival of Representations and Warranties. All representations and warranties of Borrower contained in this Agreement or any of the other Loan Documents shall -23- survive the execution, delivery and acceptance thereof by Lender and the parties thereto and the closing of the transactions described therein or related thereto. SECTION 8. COVENANTS AND CONTINUING AGREEMENTS 8.1 Affirmative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless otherwise consented to by Lender in writing, it shall or shall cause Parent or its Subsidiaries to: 8.1.1 Visits and Inspections. Permit representatives of Lender, from time to time, as often as may be reasonably requested, but only during normal business hours, to visit and inspect the Properties of Parent, Borrower and each of its Subsidiaries, inspect, audit and make extracts from its books and records, and discuss with its officers, its employees and its independent accountants, Parent's, Borrower's and each of its Subsidiaries' business, assets, liabilities, financial condition, business prospects and results of operations. 8.1.2 Notices. Promptly notify Lender in writing of the occurrence of any event or the existence of any fact which renders any representation or warranty in this Agreement or any of the other Loan Documents inaccurate, incomplete or misleading. 8.1.3 Financial Statements. Keep, and cause Parent and each Subsidiary to keep, adequate records and books of account with respect to its business activities in which proper entries are made in accordance with GAAP reflecting all its financial transactions; and cause to be prepared and furnished to Lender the following (all to be prepared in accordance with GAAP applied on a consistent basis, unless Borrower's certified public accountants concur in any change therein and such change is disclosed to Lender and is consistent with GAAP): (i) not later than ninety (90) days after the close of each fiscal year of Borrower, unqualified, audited financial statements of Parent and its Subsidiaries as of the end of such year, on a Consolidated and consolidating basis, certified by a firm of independent certified public accountants of recognized standing selected by Borrower but acceptable to Lender (except for a qualification for a change in accounting principles with which the accountant concurs); (ii) not later than twenty-five (25) days after the end of each month hereafter, including the last month of Borrower's fiscal year, unaudited, interim financial statements of Parent and its Subsidiaries as of the end of such month and of the portion of Parent's fiscal year then elapsed, on a Consolidated and consolidating basis, certified by the principal financial officer of Borrower as prepared in accordance with GAAP and fairly presenting the Consolidated financial position and results of operations of Parent and its Subsidiaries for such month and period subject only to changes from audit and year-end adjustments and except that such statements need not contain notes; -24- (iii) promptly upon Lender's request, but in any event, (1) on the last Business Day of each week and (2) with each request for a Revolving Credit Loan, a Borrowing Base Certificate; (iv) promptly after the sending or filing thereof, as the case may be, copies of any proxy statements, financial statements or reports which Borrower has made available to its shareholders (or members, in the case of a limited liability company) and copies of any regular, periodic and special reports or registration statements which Borrower files with the Securities and Exchange Commission or any governmental authority which may be substituted therefor, or any national securities exchange, including without limitation, all forms 10k and 10q filed by Parent or Borrower; and (v) such other data and information (financial and otherwise) as Lender, from time to time, may reasonably request, bearing upon or related to the Collateral or Borrower's and each of its Subsidiaries' financial condition or results of operations. Concurrently with the delivery of the financial statements described in clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy of the accountants' letter to Borrower's management that is prepared in connection with such financial statements and also shall cause to be prepared and shall furnish to Lender a certificate of the aforesaid certified public accountants certifying to Lender that, based upon their examination of the financial statements of Borrower and its Subsidiaries performed in connection with their examination of said financial statements, they are not aware of any Default or Event of Default, or, if they are aware of such Default or Event of Default, specifying the nature thereof, and acknowledging, in a manner satisfactory to Lender, that they are aware that Lender is relying on such financial statements in making its decisions with respect to the Loans. Concurrently with the delivery of the financial statements described in clauses (i) and (ii) of this subsection 8.1.3, Borrower shall cause to be prepared and furnished to Lender a Compliance Certificate in the form of Exhibit N hereto executed by the Chief Financial Officer of Borrower. 8.1.4 Landlord and Storage Agreements. Provide Lender with copies of all agreements between Parent, Borrower or any of its Subsidiaries and any landlord or warehouseman which owns any premises at which any Inventory may, from time to time, be kept. 8.1.5 Projections. No later than thirty (30) days prior to the end of each fiscal year of Borrower, deliver to Lender Projections of Borrower for the forthcoming fiscal year, month by month. 8.1.6 Deposit and Brokerage Accounts. For each deposit account or brokerage account that Borrower at any time opens or maintains, Borrower shall, at Lender's request and option, pursuant to an agreement in form and substance satisfactory to Lender, cause the depository bank or securities intermediary, as applicable, to agree to comply at any time with instructions from Lender to such depository bank or securities intermediary, as applicable, -25- directing the disposition of funds from time to time credited to such deposit or brokerage account, without further consent of Borrower. 8.1.7 Primary Operating Accounts. While any of the Obligations remain outstanding or Lender has any obligation to make Revolving Credit Loans, Borrower shall keep its primary operating accounts at Fleet National Bank. 8.2 Negative Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless Lender has first consented thereto in writing, it will not, and it will not permit Parent and its Subsidiaries to: 8.2.1 Mergers; Consolidations; Acquisitions; Structural Changes. Merge or consolidate, or permit Parent or any Subsidiary of Borrower to merge or consolidate, with any Person; nor acquire, nor permit Parent or any of its Subsidiaries to acquire, all or any substantial part of the Properties of any Person; nor change Parent's, its or any of its Subsidiaries' state of incorporation or organization or Type of Organization; nor change Parent's, its or any of its Subsidiaries' legal names. 8.2.2 Loans. Make, or permit Parent or any Subsidiary of Borrower to make, any loans or other advances of money (other than for salary, travel advances, advances against commissions and other similar advances in the ordinary course of business) to any Person. 8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist, or permit Parent or any Subsidiary of Borrower to create, incur or suffer to exist, any Indebtedness, except: (i) Obligations owing to Lender; (ii) accounts payable to trade creditors and current operating expenses (other than for Money Borrowed) which are not aged more than ninety (90) days from billing date or more than sixty (60) days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being actively contested in good faith and by appropriate and lawful proceedings; and Borrower or such Subsidiary shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower or such Subsidiary and its independent accountants; (iii) Obligations to pay Rentals permitted by subsection 8.2.13; (iv) Permitted Purchase Money Indebtedness; (v) contingent liabilities arising out of endorsements of checks and other negotiable instruments for deposit or collection in the ordinary course of business; and -26- (vi) Indebtedness not included in paragraphs (i) through (v) above which does not exceed at any time, in the aggregate, the sum of $200,000. 8.2.4 Affiliate Transactions. Enter into, or be a party to, or permit Parent or any Subsidiary of Borrower to enter into or be a party to, any transaction with any Affiliate of Borrower or stockholder, except in the ordinary course of and pursuant to the reasonable requirements of Parent's, Borrower's or such Subsidiary's business and upon fair and reasonable terms which are fully disclosed to Lender and are no less favorable to Borrower than would obtain in a comparable arm's length transaction with a Person not an Affiliate or stockholder of Parent, Borrower or such Subsidiary. 8.2.5 Limitation on Liens. Create or suffer to exist, or permit Parent or any Subsidiary of Borrower to create or suffer to exist, any Lien upon any of its Property, income or profits, whether now owned or hereafter acquired, except: (i) Liens at any time granted in favor of Lender; (ii) Liens for taxes (excluding any Lien imposed pursuant to any of the provisions of ERISA) not yet due, or being contested in the manner described in subsection 7.1.14 hereto, but only if in Lender's judgment such Lien does not adversely affect Lender's rights or the priority of Lender's Lien in the Collateral; (iii) Liens arising in the ordinary course of Borrower's business by operation of law or regulation, but only if payment in respect of any such Lien is not at the time required and such Liens do not, in the aggregate, materially detract from the value of the Property of Borrower or materially impair the use thereof in the operation of Borrower's business; (iv) Purchase Money Liens securing Permitted Purchase Money Indebtedness; (v) such other Liens as appear on Exhibit 0 hereto; and (vi) such other Liens as Lender may hereafter approve in writing. 8.2.6 Subordinated Debt. Make, or permit Parent or any Subsidiary of Borrower to make, any payment of any part or all of any Subordinated Debt or take any other action or omit to take any other action in respect of any Subordinated Debt, except in accordance with the Subordination Agreement relative thereto. 8.2.7 Distributions. Declare or make, or permit Parent or any Subsidiary of Borrower to declare or make, any Distributions excluding Distributions of Subsidiaries to Borrower. -27- 8.2.8 Capital Expenditures. Make Capital Expenditures (including, without limitation, by way of capitalized leases) which, in the aggregate, as to Borrower, exceed $400,000 during any fiscal year of Borrower. 8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of any of, or permit Parent or any Subsidiary of Borrower to sell, lease or otherwise dispose of any of, its Properties, including any disposition of Property as part of a sale and leaseback transaction, to or in favor of any Person, except (i) sales of Inventory in the ordinary course of business for so long as no Event of Default exists hereunder, (ii) a transfer of Property to Borrower by a Subsidiary of Borrower or (iii) dispositions expressly authorized by this Agreement. 8.2.10 Stock of Subsidiaries. Permit any of its Subsidiaries to issue any additional shares of its capital stock except director's qualifying shares. 8.2.11 Guaranteed Sales, Etc. Make a sale to any customer on a guaranteed sale, sale and return, sale on approval or consignment basis, or any sale on a repurchase or return basis. 8.2.12 Restricted Investment. Make or have, or permit Parent or any Subsidiary of Borrower to make or have, any Restricted Investment. 8.2.13 Leases. Become, or permit Parent or any of its Subsidiaries to become, a lessee under any operating lease (other than a lease under which Parent, Borrower or any of its Subsidiaries is lessor) of Property if the aggregate Rentals payable during any current or future period of twelve (12) consecutive months under the lease in question and all other leases under which Parent, Borrower or any of its Subsidiaries is then lessee would exceed $300,000. The term "Rentals" means, as of the date of determination, all payments which the lessee is required to make by the terms of any lease. 8.2.14 Tax Consolidation. File or consent to the filing of any consolidated income tax return with any Person other than a Subsidiary of Borrower. 8.3 Specific Financial Covenants. During the term of this Agreement, and thereafter for so long as there are any Obligations to Lender, Borrower covenants that, unless otherwise consented to by Lender in writing: 8.3.1 Leverage Ratio. Borrower will not permit the Leverage Ratio to exceed 11.0:1.0 at any time, tested quarterly commencing December 31, 2001. 8.3.2 Debt Service Coverage Ratio. Borrower will not permit the Debt Service Coverage Ratio to be less than 1.20:1.00 at any time as of the end of any fiscal quarter calculated on a rolling four quarter basis beginning March 31, 2002. 8.3.3 Tangible Net Worth. -28- (i) As of December 31, 2001, Borrower will not permit Tangible Net Worth to be less than $1,842,000.00. (ii) As of the end of each fiscal quarter ending from and after March 31, 2002, Borrower will not permit Tangible Net Worth to be less than Tangible Net Worth as of the end of the previous fiscal quarter or year plus 40% of net profit earned during the fiscal quarter then ending. 8.3.4 Prohibition on Losses. Borrower will not permit any quarterly net losses beginning with the quarter ending March 31, 2002 and thereafter, provided however that, it shall not be an Event of Default hereunder if Borrower has a loss not to exceed $150,000 in any quarter so long as Borrower does not have a loss in any of the three (3) quarters ending after the quarter in which the loss occurs. SECTION 9. CONDITIONS PRECEDENT Notwithstanding any other provision of this Agreement or any of the other Loan Documents, and without affecting in any manner the rights of Lender under the other sections of this Agreement, Lender shall not be required to make any Loan under this Agreement unless and until each of the following conditions has been and continues to be satisfied: 9.1 Documentation. Lender shall have received, in form and substance satisfactory to Lender, a duly executed copy of this Agreement and the other Loan Documents, together with such additional documents, instruments and certificates as Lender shall require in connection therewith from time to time, all in form and substance satisfactory to Lender. 9.2 No Default. No Default or Event of Default shall exist. 9.3 Other Loan Documents. Each of the conditions precedent set forth in the other Loan Documents shall have been satisfied. 9.4 Availability. Lender shall have determined that immediately after Lender has made the initial Loans contemplated hereby, and paid all closing costs incurred in connection with the transactions contemplated hereby, Availability shall not be less than $750,000. 9.5 No Litigation. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement or the consummation of the transactions contemplated hereby. 9.6 Other Conditions. Parent, Borrower and its Subsidiaries shall have satisfied the other conditions precedent on the Closing Checklist attached hereto as Appendix B. -29- SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 10.1 Events of Default. The occurrence of one or more of the following events shall constitute an "Event of Default": 10.1.1 Payment of Note. Borrower shall fail to pay any installment of principal, interest or premium, if any, owing on the Revolving Credit Note after the due date of such installment. 10.1.2 Payment of Other Obligations. Borrower shall fail to pay any of the Obligations that are not evidenced by the Revolving Credit Note on the due date thereof (whether due at stated maturity, on demand, upon acceleration or otherwise). 10.1.3 Misrepresentations. Any representation, warranty or other statement made or furnished to Lender by or on behalf of Parent, Borrower, any Subsidiary of Borrower, or Guarantor in this Agreement, any of the other Loan Documents or any instrument, certificate or financial statement furnished in compliance with or in reference thereto proves to have been false or misleading in any material respect when made or furnished or when reaffirmed pursuant to Section 7.2 hereof. 10.1.4 Breach of Specific Covenants. Borrower shall fail or neglect to perform, keep or observe any covenant contained in Sections 5.2, 5.3, 6.1.1, 6.1.2, 6.2.5, 6.2.6, 8.1, 8.2 or 8.3 hereof on the date that Borrower is required to perform, keep or observe such covenant. 10.1.5 Breach of Other Covenants. Borrower shall fail or neglect to perform, keep or observe any covenant contained in this Agreement (other than a covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and the breach of such other covenant is not cured to Lender's satisfaction within fifteen (15) days after the sooner to occur of Borrower's receipt of notice of such breach from Lender or the date on which such failure or neglect first becomes known to any officer of Borrower. 10.1.6 Default Under Security Documents/Other Agreements. Any event of default shall occur under, or Borrower shall default in the performance or observance of any term, covenant, condition or agreement contained in, any of the Security Documents or the Other Agreements and such default shall continue beyond any applicable grace period. 10.1.7 Other Defaults. There shall occur any default or event of default on the part of Borrower under any agreement, document or instrument to which Borrower is a party or by which Borrower or any of its Property is bound, creating or relating to any Indebtedness (other than the Obligations) if the payment or maturity of such Indebtedness is accelerated in consequence of such event of default or demand for payment of such Indebtedness is made. -30- 10.1.8 Uninsured Losses. Any material loss, theft, damage or destruction of any of the Collateral not fully covered (subject to such deductibles as Lender shall have permitted) by insurance. 10.1.9 Adverse Changes. There shall occur any material adverse change in the financial condition or business prospects of Borrower or any Guarantor. 10.1.10 Insolvency and Related Proceedings. Parent, Borrower, any Subsidiary of Borrower or any Guarantor shall cease to be Solvent or shall suffer the appointment of a receiver, trustee, custodian or similar fiduciary, or shall make an assignment for the benefit of creditors, or any petition for an order for relief shall be filed by or against Parent, Borrower, any Subsidiary of Borrower or any Guarantor under the Bankruptcy Code (if against Parent, Borrower, any Subsidiary of Borrower or any Guarantor, the continuation of such proceeding for more than thirty (30) days), or Parent, Borrower, any Subsidiary of Borrower or any Guarantor shall make any offer of settlement, extension or composition to their respective unsecured creditors generally. 10.1.11 Business Disruption; Condemnation. There shall occur a cessation of a substantial part of the business of Parent, Borrower, any Subsidiary of Borrower or any Guarantor for a period which significantly affects such Person's capacity to continue its business, on a profitable basis; or Parent, Borrower, any Subsidiary of Borrower or any Guarantor shall suffer the loss or revocation of any license or permit now held or hereafter acquired by such Person which is necessary to the continued or lawful operation of its business; or Parent, Borrower or any Guarantor shall be enjoined, restrained or in any way prevented by court, governmental or administrative order from conducting all or any material part of its business affairs; or any material lease or agreement pursuant to which Parent, Borrower or any Guarantor leases, uses or occupies any Property shall be canceled or terminated prior to the expiration of its stated term; or any part of the Collateral shall be taken through condemnation or the value of such Property shall be impaired through condemnation. 10.1.12 Public Company Status. Parent shall not be a reporting company under the Exchange Act or Parent's shares of common stock shall not be eligible for public trading. 10.1.13 ERISA. A Reportable Event shall occur which Lender, in its sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee for any Plan, or if any Plan shall be terminated or any such trustee shall be requested or appointed, or if Parent, Borrower, any Subsidiary of Borrower or any Guarantor is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multi-employer Plan resulting from Parent's, Borrower's, such Subsidiary's or such Guarantor's complete or partial withdrawal from such Plan. 10.1.14 Challenge to Agreement. Parent, Borrower, any Subsidiary of Borrower or any Guarantor, or any Affiliate of any of them, shall challenge or contest in any action, suit or proceeding the validity or enforceability of this Agreement, or any of the other Loan Documents, -31- the legality or enforceability of any of the Obligations or the perfection or priority of any Lien granted to Lender. 10.1.15 Repudiation of or Default Under Guaranty Agreement. Any Guarantor shall revoke or attempt to revoke the Guaranty Agreement signed by such Guarantor, or shall repudiate such Guarantor's liability thereunder or shall be in default under the terms thereof. 10.1.16 Criminal Forfeiture. Parent, Borrower, any Subsidiary of Borrower or any Guarantor shall be criminally indicted or convicted under any law that could lead to a forfeiture of any Property of Parent, Borrower, any Subsidiary of Borrower or any Guarantor. 10.1.17 Judgments. Any money judgment, writ of attachment or similar process is filed against Parent, Borrower, any Subsidiary of Borrower or any Guarantor, or any of their respective Property. 10.2 Acceleration of the Obligations. Without in any way limiting the right of Lender to demand payment of any portion of the Obligations payable on demand in accordance with Section 3.2 hereof, upon or at any time after the occurrence of an Event of Default, all or any portion of the Obligations shall, at the option of Lender and without presentment, demand, protest or further notice by Lender, become at once due and payable and Borrower shall forthwith pay to Lender, the full amount of such Obligations, provided, that upon the occurrence of an Event of Default specified in subsection 10.1.10 hereof, all of the Obligations shall become automatically due and payable without declaration, notice or demand by Lender. 10.3 Other Remedies. Upon and after the occurrence of an Event of Default, Lender shall have and may exercise from time to time the following other rights and remedies: 10.3.1 All of the rights and remedies of a secured party under the UCC or under other applicable law, and all other legal and equitable rights to which Lender may be entitled, all of which rights and remedies shall be cumulative and shall be in addition to any other rights or remedies contained in this Agreement or any of the other Loan Documents, and none of which shall be exclusive. 10.3.2 The right to take immediate possession of the Collateral, and to (i) require Borrower to assemble the Collateral, at Borrower's expense, and make it available to Lender at a place designated by Lender which is reasonably convenient to both parties, and (ii) enter any premises where any of the Collateral shall be located and to keep and store the Collateral on said premises until sold (and if said premises be the Property of Borrower, Borrower agrees not to charge Lender for storage thereof). 10.3.3 The right to sell or otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, all as Lender, in its sole discretion, may deem advisable. Seller may, at Seller's option, disclaim any -32- and all warranties regarding the Collateral in connection with any such sale. Borrower agrees that ten (10) days written notice to Borrower of any public or private sale or other disposition of Collateral shall be reasonable notice thereof, and such sale shall be at such locations as Lender may designate in said notice. Lender shall have the right to conduct such sales on Borrower's premises, without charge therefor, and such sales may be adjourned from time to time in accordance with applicable law. Lender shall have the right to sell, lease or otherwise dispose of the Collateral, or any part thereof, for cash, credit or any combination thereof, and Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Obligations. The proceeds realized from the sale of any Collateral may be applied, after allowing two (2) Business Days for collection, first to the costs, expenses and attorneys' fees incurred by Lender in collecting the Obligations, in enforcing the rights of Lender under the Loan Documents and in collecting, retaking, completing, protecting, removing, storing, advertising for sale, selling and delivering any Collateral; second to the interest due upon any of the Obligations; and third, to the principal of the Obligations. If any deficiency shall arise, Borrower and each Guarantor shall remain jointly and severally liable to Lender therefor. 10.3.4 Lender is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any Property of a similar nature, as it pertains to the Collateral, in advertising for sale and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit. 10.4 Remedies Cumulative; No Waiver. All covenants, conditions, provisions, warranties, guaranties, indemnities, and other undertakings of Borrower contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or in any schedule or in any Guaranty Agreement given to Lender or contained in any other agreement between Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to and not in derogation or substitution of any of the terms, covenants, conditions, or agreements of Borrower herein contained. The failure or delay of Lender to require strict performance by Borrower of any provision of this Agreement or to exercise or enforce any rights, Liens, powers, or remedies hereunder or under any of the aforesaid agreements or other documents or security or Collateral shall not operate as a waiver of such performance, Liens, rights, powers and remedies, but all such requirements, Liens, rights, powers, and remedies shall continue in full force and effect until all Loans and all other Obligations owing or to become owing from Borrower to Lender shall have been fully satisfied. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by Borrower under this Agreement or any other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to Borrower. SECTION 11. MISCELLANEOUS -33- 11.1 Power of Attorney. Borrower hereby irrevocably designates, makes, constitutes and appoints Lender (and all Persons designated by Lender) as Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's agent, may, without notice to Borrower and in either Borrower's or Lender's name, but at the cost and expense of Borrower: 11.1.1 At such time or times upon or after the occurrence of a Default or an Event of Default as Lender or said agent, in its sole discretion, may determine, endorse Borrower's name on any checks, notes, acceptances, drafts, money orders or any other evidence of payment or proceeds of the Collateral which come into the possession of Lender or under Lender's control. 11.1.2 At such time or times upon or after the occurrence of an Event of Default as Lender or its agent in its sole discretion may determine: (i) demand payment of the Accounts from the Account Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and generally exercise all of Borrower's rights and remedies with respect to the collection of the Accounts; (ii) settle, adjust, compromise, discharge or release any of the Accounts or other Collateral or any legal proceedings brought to collect any of the Accounts or other Collateral; (iii) sell or assign any of the Accounts and other Collateral upon such terms, for such amounts and at such time or times as Lender deems advisable and, at Lender's option, with all warranties regarding the Collateral disclaimed; (iv) take control, in any manner, of any item of payment or proceeds relating to any Collateral; (v) prepare, file and sign Borrower's name to a proof of claim in bankruptcy or similar document against any Account Debtor or to any notice of lien, assignment or satisfaction of lien or similar document in connection with any of the Collateral; (vi) receive, open and dispose of all mail addressed to Borrower and to notify postal authorities to change the address for delivery thereof to such address as Lender may designate; (vii) endorse the name of Borrower upon any of the items of payment or proceeds relating to any Collateral and deposit the same to the account of Lender on account of the Obligations; (viii) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts, Inventory and any other Collateral; (ix) use Borrower's stationery and sign the name of Borrower to verifications of the Accounts and notices thereof to Account Debtors; (x) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, Inventory, Equipment and any other Collateral; (xi) make and adjust claims under policies of insurance; and (xii) do all other acts and things necessary, in Lender's determination, to fulfill Borrower's obligations under this Agreement. 11.2 Indemnity. Borrower hereby agrees to indemnify Lender and hold Lender harmless from and against any liability, loss, damage, suit, action or proceeding ever suffered or incurred by Lender (including reasonable attorneys fees and legal expenses) as the result of Borrower's failure to observe, perform or discharge Borrower's duties hereunder. In addition, Borrower shall defend Lender against and save it harmless from all claims of any Person with respect to the Collateral. Without limiting the generality of the foregoing, these indemnities shall extend to any claims asserted against Lender by any Person under any Environmental Laws or similar laws by reason of Borrower's or any other Person's failure to comply with laws applicable to solid or hazardous waste materials or other toxic substances. Notwithstanding any -34- contrary provision in this Agreement, the obligation of Borrower under this Section 11.2 shall survive the payment in full of the Obligations and the termination of this Agreement. 11.3 Modification of Agreement; Sale of Interest. This Agreement may not be modified, altered or amended, except by an agreement in writing signed by Borrower and Lender. Borrower may not sell, assign or transfer any interest in this Agreement, any of the other Loan Documents, or any of the Obligations, or any portion thereof, including, without limitation, Borrower's rights, title, interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby consents to Lender's participation, sale, assignment, transfer or other disposition, at any time or times hereafter, of this Agreement and any of the other Loan Documents, or of any portion hereof or thereof, including, without limitation, Lender's rights, title, interests, remedies, powers, and duties hereunder or thereunder. In the case of an assignment, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as it would if it were "Lender" hereunder and Lender shall be relieved of all obligations hereunder upon any such assignments. Borrower agrees that it will use its best efforts to assist and cooperate with Lender in any manner reasonably requested by Lender to effect the sale of participations in or assignments of any of the Loan Documents or any portion thereof or interest therein, including, without limitation, assisting in the preparation of appropriate disclosure documents. Borrower further agrees that Lender may disclose credit information regarding Borrower, its Subsidiaries and any Guarantor to any potential participant or assignee. 11.4 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 11.5 Successors and Assigns. This Agreement, the Other Agreements and the Security Documents shall be binding upon and inure to the benefit of the successors and assigns of Borrower and Lender permitted under Section 11.3 hereof. 11.6 Cumulative Effect; Conflict of Terms. The provisions of the Other Agreements and the Security Documents are hereby made cumulative with the provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof and except as otherwise provided in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 11.7 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. -35- 11.8 Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto, to be effective, shall be in writing and shall be sent by certified or registered mail, return receipt requested, by personal delivery against receipt, by overnight courier or by facsimile and, unless otherwise expressly provided herein, shall be deemed to have been validly served, given or delivered immediately when delivered against receipt, one Business Day after deposit in the mail, postage prepaid, or with an overnight courier or, in the case of facsimile notice, when sent, addressed as follows: -36- If to Lender: Fleet Capital Corporation 4900 Route 70 Pennsauken, NJ 08109-4792 Attention: Mr. Charles Kirschner Facsimile No.: (856) 486-4129 If to Borrower: Emtec, Inc. 817 East Gate Drive - Mount Laurel, NJ 08054 Attention: Mr. Sam Bhatt Facsimile No.: (856) 222-4348
or to such other address as each party may designate for itself by notice given in accordance with this Section 11.8; provided, however, that any notice, request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof shall not be effective until received by Lender. 11.9 Lender's Consent. Whenever Lender's consent is required to be obtained under this Agreement, any of the Other Agreements or any of the Security Documents as a condition to any action, inaction, condition or event, Lender shall be authorized to give or withhold such consent in its reasonable discretion and to condition its consent upon the giving of additional collateral security for the Obligations, the payment of money or any other matter. 11.10 Credit Inquiries. Borrower hereby authorizes and permits Lender to respond to usual and customary credit inquiries from third parties concerning Borrower or any of its Subsidiaries or any Guarantor. 11.11 Time of Essence. Time is of the essence of this Agreement, the Other Agreements and the Security Documents. 11.12 Entire Agreement. This Agreement and the other Loan Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. 11.13 Interpretation. No provision of this Agreement or any of the other Loan Documents shall be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or dictated such provision. 11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN NEW JERSEY. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY; PROVIDED, HOWEVER, THAT IF -37- ANY OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN NEW JERSEY, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF NEW JERSEY. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR COURT OF CAMDEN COUNTY, NEW JERSEY, OR, AT LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION. 11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (ii) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON -38- PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS; (v) NOTICE OF ACCEPTANCE HEREOF; AND (VI) EXCEPT AS PROHIBITED BY LAW, ANY RIGHT TO CLAIM OR RECOVER ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. -39- IN WITNESS WHEREOF, this Agreement has been duly executed in ____________, ____________, on the day and year specified at the beginning of this Agreement. ATTEST: EMTEC, INC. ("Borrower") Rosemary Howlett By John Howlett - --------------------- ---------------------------------------- Secretary Title CEO ------------------------------- Accepted in , : --------- ------------ FLEET CAPITAL CORPORATION ("Lender") By David B. Rivkind ---------------------------------- Title SVP ------------------------------- -40- APPENDIX A GENERAL DEFINITIONS When used in the Loan and Security Agreement dated as of November __, 2001, by and between Fleet Capital Corporation and Emtec, Inc., (a) the terms Account, Certificated Security, Chattel Paper, Commercial Tort Claims, Deposit Account, Document, Electronic Chattel Paper, Equipment, Financial Asset, Fixture, General Intangibles, Goods, Health-Care-Insurance Receivables, Instrument, Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangibles, Proceeds, Security, Security Entitlement, Software, Supporting Obligations, Tangible Chattel Paper and Uncertificated Security have the respective meanings assigned thereto under the UCC (as defined below); (b) all terms indicating Collateral having the meanings assigned thereto under the UCC shall be deemed to mean such Property, whether now owned or hereafter created or acquired by Borrower or in which Borrower now has or hereafter acquires any interest; (c) capitalized terms which are not otherwise defined have the respective meanings assigned thereto in said Loan and Security Agreement; and (d) the following terms shall have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): Account Debtor - any Person who is or may become obligated on or under or on account of any Account, Contract Right, Chattel Paper or General Intangible. Affiliate - a Person (other than a Subsidiary): (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, a Person; (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of a Person; or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by a Person or a Subsidiary of a Person. Agreement - the Loan and Security Agreement referred to in the first sentence of this Appendix A, all Exhibits thereto and this Appendix A. Availability - the amount of money which Borrower is entitled to borrow from time to time as Revolving Credit Loans, such amount being the difference derived when the sum of the principal amount of Revolving Credit Loans then outstanding (including any amounts which Lender may have paid for the account of Borrower pursuant to any of the Loan Documents and which have not been reimbursed by Borrower) is subtracted from the Borrowing Base. If the amount outstanding is equal to or greater than the Borrowing Base, Availability is zero (0). Bank - Fleet National Bank. Base Rate - the rate of interest announced or quoted by Bank from time to time as its prime rate for commercial loans, whether or not such rate is the lowest rate charged by Bank to its most preferred borrowers; and, if such prime rate for commercial loans is discontinued by Bank as a standard, a comparable reference rate designated by Bank as a substitute therefor shall be the Base Rate. Base Rate Advances - any Loan bearing interest computed by reference to the Base Rate. Borrowing Base - as at any date of determination thereof, an amount equal to the lesser of: (i) $10,000,000.00; or (ii) an amount equal to: (a) 85% of Eligible Accounts outstanding at such date MINUS (b) the face amount of the Letter of Credit For purposes hereof, the net amount of Eligible Accounts at any time shall be the face amount of such Eligible Accounts less any and all returns, rebates, discounts (which may, at Lender's option, be calculated on shortest terms), credits, allowances or excise taxes of any nature at any time issued, owing, claimed by Account Debtors, granted, outstanding or payable in connection with such Accounts at such time. Borrowing Base Certificate - a certificate by a responsible officer of Borrower, substantially in the form of Exhibit P (or another form acceptable to Lender) setting forth the calculation of the Borrowing Base, including a calculation of each component thereof, all in such detail as shall be satisfactory to Lender. All calculations of the Borrowing Base in connection with the preparation of any Borrowing Base Certificate shall originally be made by Borrower and certified to Lender; provided, that Lender shall have the right to review and adjust, in the exercise of its reasonable credit judgment, any such calculation after giving notice thereof to the Borrower, (1) to reflect its reasonable estimate of declines in value of any of the Collateral described therein, and (2) to the extent that such calculation is not in accordance with this Agreement. Business Day - any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New Jersey or is a day on which banking institutions located in such state are closed. Capital Expenditures - 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. Capitalized Lease Obligation - any Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. Closing Date - the date on which all of the conditions precedent in Section 9 of the Agreement are satisfied and the initial Loan is made under the Agreement. Collateral - all of the Property and interests in Property described in Section 5 of the Agreement, and all other Property and interests in Property that now or hereafter secure the payment and performance of any of the Obligations. Computer Hardware and Software - all of Borrower's rights (including rights as licensee and lessee) with respect to (i) computer and other electronic data processing hardware, including all integrated computer systems, central processing units, memory units, display terminals, printers, computer elements, card readers, tape drives, hard and soft disk drives, cables, electrical supply hardware, generators, power equalizers, accessories, peripheral devices and other related computer hardware; (ii) all Software and all software programs designed for use on the computers and electronic data processing hardware described in clause (i) above, including all operating system software, utilities and application programs in any form (source code and object code in magnetic tape, disk or hard copy format or any other listings whatsoever); (iii) any firmware associated with any of the foregoing; and (iv) any documentation for hardware, Software and firmware described in clauses (i), (ii) and (iii) above, including flow charts, logic diagrams, manuals, specifications, training materials, charts and pseudo codes. Consolidated - the consolidation in accordance with GAAP of the accounts or other items as to which such term applies. Contract Right - any right of Borrower to payment under a contract for the sale or lease of goods or the rendering of services, which right is at the time not yet earned by performance. Current Assets - at any date means the amount at which all of the current assets of a Person would be properly classified as current assets shown on a balance sheet at such date in accordance with GAAP except that amounts due from Affiliates and investments in Affiliates shall be excluded therefrom. Current Liabilities - at any date means the amount at which all of the current liabilities of a Person would be properly classified as current liabilities on a balance sheet at such date in accordance with GAAP excluding the Loans and current maturities of any long-term Indebtedness. Debt Service Coverage Ratio - means, for Borrower on a Consolidated basis, the ratio of (A) Operating Cash Flow, to (B) interest expense plus principal paid (including capitalized lease obligations), all as calculated for the immediately preceding four fiscal quarters. Default - an event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, become an Event of Default. Default Rate - as defined in subsection 2.1.2 of the Agreement. Distribution - Any dividend, distribution or payment of cash, securities or property directly or indirectly on account of, or for the purchase, redemption or retirement of, any capital stock of the Borrower or any Subordinated Debt. Dominion Account - a special account established by Borrower pursuant to the Agreement at the Bank, and over which Lender shall have sole and exclusive access and control for withdrawal purposes. EBITDA - with respect to any fiscal period, the sum of Borrower's net earnings (or loss) before interest expense, taxes, depreciation and amortization for said period as determined in accordance with GAAP. Eligible Account - an Account arising in the ordinary course of Borrower's business from the sale of goods or rendition of services which Lender, in its sole credit judgment, deems to be an Eligible Account. Without limiting the generality of the foregoing, no Account shall be an Eligible Account if: (i) it arises out of a sale made by Borrower to a Subsidiary or an Affiliate of Borrower or to a Person controlled by an Affiliate of Borrower; or (ii) it is due or unpaid more than ninety (90) days after the original invoice date; or (iii) 50% or more of the Accounts from the Account Debtor are not deemed Eligible Accounts hereunder; or (iv) the total unpaid Accounts of the Account Debtor (other than Gwinette County Public Schools) exceed 20% of the net amount of all Eligible Accounts, to the extent of such excess; or (v) the total unpaid Accounts of Gwinette County Public Schools exceed 25% of the net amount of all Eligible Accounts, the extent of such excess; or (vi) any covenant, representation or warranty contained in the Agreement with respect to such Account has been breached; or (vii) the Account Debtor is also Borrower's creditor or supplier, or the Account Debtor has disputed liability with respect to such Account, or the Account Debtor has made any claim with respect to any other Account due from such Account Debtor to Borrower, or the Account otherwise is or may become subject to any right of setoff by the Account Debtor; or (viii) the Account Debtor has commenced a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief has been entered by a court having jurisdiction in the premises in respect of the Account Debtor in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other petition or other application for relief under the federal bankruptcy laws has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed for it or for all or a significant portion of its assets or affairs; or (ix) it arises from a sale to an Account Debtor outside the United States, unless the sale is on letter of credit, guaranty or acceptance terms, in each case acceptable to Lender in its sole discretion; or (x) it arises from a sale to the Account Debtor on a guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis; or (xi) it arises from a sale to the Account Debtor on a bill-and-hold sale unless the agreement between the Account Debtor and Borrower with respect to such bill-and-hold sale has been received by Lender and is satisfactory in form and content to Lender; or (xii) the Account Debtor is the United States of America or any department, agency or instrumentality thereof, unless Borrower assigns its right to payment of such Account to Lender, in a manner satisfactory to Lender, so as to comply with the Assignment of Claims Act of 1940 (31 U.S.C. 'SS'203 et seq., as amended); or (xiii) the Account is subject to a Lien other than a Permitted Lien; or (xiv) the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by Borrower and accepted by the Account Debtor or the Account otherwise does not represent a final sale; or (xv) the Account is evidenced by chattel paper or an instrument of any kind, or has been reduced to judgment; or (xvi) Borrower has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Account; or (xvii) Borrower has made an agreement with the Account Debtor to extend the time of payment thereof. Environmental Laws - all federal, state and local laws, rules, regulations, ordinances, programs, permits, guidances, orders and consent decrees relating to health, safety and environmental matters. ERISA - the Employee Retirement Income Security Act of 1974, as amended, and all rules and regulations from time to time promulgated thereunder. Event of Default - as defined in Section 10.1 of the Agreement. GAAP - generally accepted account principles in the United States of America in effect from time to time. Guarantor - any Person who may hereafter guarantee payment or performance of the whole or any part of the Obligations. Guaranty and Security Agreement - the Continuing Guaranty and Security Agreements which are to be executed by each Guarantor, if any, in form and substance satisfactory to Lender. Indebtedness - as applied to a Person means, without duplication (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, including, without limitation, Capitalized Lease Obligations, (ii) all obligations of other Persons which such Person has guaranteed, (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person, and (iv) in the case of Borrower (without duplication), the Obligations. Intellectual Property - all past, present and future: trade secrets, know-how and other proprietary information; trademarks, internet domain names, service marks, trade dress, trade names, business names, designs, logos, slogans (and all translations, adaptations, derivations and combinations of the foregoing) indicia and other source and/or business identifiers, and the goodwill of the business relating thereto and all registrations or applications for registrations which have heretofore been or may hereafter be issued thereon throughout the world; copyrights (including copyrights for computer programs) and copyright registrations or applications for registrations which have heretofore been or may hereafter be issued throughout the world and all tangible property embodying the copyrights, unpatented inventions (whether or not patentable); patent applications and patents; industrial design applications and registered industrial designs; license agreements related to any of the foregoing and income therefrom; books, records, writings, computer tapes or disks, flow diagrams, specification sheets, computer software, source codes, object codes, executable code, data, databases and other physical manifestations, embodiments or incorporations of any of the foregoing; the right to sue for all past, present and future infringements of any of the foregoing; all other intellectual property; and all common law and other rights throughout the world in and to all of the foregoing. Interest Period - as applicable to any LIBOR Advance, a period commencing on the date a LIBOR Advance is made, and ending on the date which is one (1) month, two (2) months, three (3) months, or six (6) months later, as may then be requested by Borrower; provided that (i) any Interest Period which would otherwise end on a day which is not a Business Day shall end in the next preceding or succeeding Business Day as is Lender's custom in the market to which such LIBOR Advance relates; (ii) there remains a minimum of one (1) month, two (2) months, three (3) months or six (6) months (depending upon which Interest Period Borrower selects) in the Term; and (iii) all Interest Periods of the same duration which commence on the same date shall end on the same date. Letter of Credit - means the standby irrevocable letter of credit issued by the Bank pursuant to subsection 1.1.2 hereof. Leverage Ratio - means the ratio of (A) Total Liabilities minus Subordinated Debt to (B) Tangible Net Worth. LIBOR - as applicable to any LIBOR Advance, the rate per annum (rounded upward, if necessary, to the nearest 1/32 of one percent) as determined on the basis of the offered rates for deposits in U.S. dollars, for a period of time comparable to such LIBOR Advance which appears on the Telerate page 3750 as of 11:00 a.m. (London time) on the day that is two (2) London Banking Days preceding the first day of such LIBOR Advance; provided, however, if the rate described above does not appear on the Telerate System on any applicable interest determination date, the LIBOR rate shall be the rate (rounded upwards as described above, if necessary) for deposits in U.S. dollars for a period substantially equal to the interest period on the Reuters Page "LIBO" (or such other page as may replace the LIBO Page on that service for the purpose of displaying such rates), as of 11:00 a.m. (London Time), on the day that is two (2) London Banking Days prior to the beginning of such interest period. If both the Telerate and Reuters systems are unavailable, then the rate for that date will be determined on the basis of the offered rates for deposits in U.S. dollars for a period of time comparable to such LIBOR Advance which are offered by four (4) major banks in the London interbank market at approximately 11:00 a.m. (London time), on the day that is two (2) London Banking Days preceding the first day of such LIBOR Advance as selected by Lender. The principal London office of each of the major London Banks so selected will be requested to provide a quotation of its U.S. dollar deposit offered rate. If at least two (2) such quotations are provided, the rate for that date will be the arithmetic mean of the quotations. If fewer than two quotations are provided as requested, the rate for that date will be determined on the basis of the rates quoted for loans in U.S. dollars to leading European banks for a period of time comparable to such LIBOR Advance offered by major banks in New York City at approximately 11:00 a.m. (New York City time), on the day that is two (2) London Banking Days preceding the first day of such LIBOR Advance. In the event that Lender is unable to obtain any such quotation as provided above, it will be determined that LIBOR pursuant to a LIBOR Advance cannot be determined. In the event that the Board of Governors of the Federal Reserve System shall impose a Reserve Percentage with respect to LIBOR deposits of Bank then for any period during which such Reserve Percentage shall apply, LIBOR shall be equal to the amount determined above divided by an amount equal to 1 minus the Reserve Percentage. LIBOR Advance - any Loan bearing interest computed by reference to the LIBOR. Lien - any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on common law, statute or contract. The term "Lien" shall also include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting Property. For the purpose of the Agreement, Borrower shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes. Loan Account - the loan account established on the books of Lender pursuant to Section 3.6 of the Agreement. Loan Documents - the Agreement, the Other Agreements and the Security Documents. Loans - all loans and advances of any kind made by Lender, and/or by any affiliate of Lender, pursuant to the Agreement. London Banking Day - any date on which commercial banks are open for business in London, England. Money Borrowed - means (i) Indebtedness arising from the lending of money by any Person to Borrower; (ii) Indebtedness, whether or not in any such case arising from the lending by any Person of money to Borrower, (A) which is represented by notes payable or drafts accepted that evidence extensions of credit, (B) which constitutes obligations evidenced by bonds, debentures, notes or similar instruments, or (C) upon which interest charges are customarily paid (other than accounts payable) or that was issued or assumed as full or partial payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease Obligation; (iv) reimbursement obligations with respect to letters of credit or guaranties of letters of credit and (v) Indebtedness of Borrower under any guaranty of obligations that would constitute Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed directly by Borrower. Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of ERISA. Net Income - for any period means net profit after taxes for such period. Obligations - all Loans and all other advances, debts, liabilities, obligations, covenants and duties, together with all interest, fees and other charges thereon, owing, arising, due or payable from Borrower to Lender, and/or to any affiliate of Lender, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under the Agreement or any of the other Loan Documents or otherwise whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however acquired, including without limitation, the obligation to reimburse the Bank for any draws under the Letter of Credit. Operating Cash Flow - EBITDA minus unfinanced Capital Expenditures and cash taxes. Organizational I.D. Number - the organizational identification number assigned to a Person by the applicable governmental unit or agency of the jurisdiction of organization of such Person. Other Agreements - any and all agreements, instruments and documents (other than the Agreement and the Security Documents), heretofore, now or hereafter executed by Parent, Borrower, any Subsidiary of Borrower or any other third party and delivered to Lender in respect of the transactions contemplated by the Agreement. Overadvance - the amount, if any, by which the outstanding principal amount of Revolving Credit Loans exceeds the Borrowing Base. Parent - Emtec, Inc., a Delaware corporation. Participating Lender - each Person who shall be granted the right by Lender to participate in any of the Loans described in the Agreement and who shall have entered into a participation agreement in form and substance satisfactory to Lender. Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of the Agreement. Permitted Purchase Money Indebtedness - (A) Purchase Money Indebtedness of Borrower to Ingram Micro Inc., (B) Purchase Money Indebtedness of Borrower to MRA Systems, Inc. dba GE Access, and (C) Purchase Money Indebtedness of Borrower (other than Purchase Money Indebtedness to referred to in clauses (A) and (B) of this definition) not to exceed $200,000 incurred in any fiscal year. For the purposes of this definition, the principal amount of any Purchase Money Indebtedness consisting of capitalized leases shall be computed as a Capitalized Lease Obligation. Person - an individual, partnership, corporation, limited liability company, joint stock company, land trust, business trust, or unincorporated organization, or a government or agency or political subdivision thereof. Plan - an employee benefit plan now or hereafter maintained for employees of Borrower that is covered by Title IV of ERISA. Projections - Borrower's forecasted [Consolidated and consolidating] (a) balance sheets, (b) profit and loss statements, (c) cash flow statements, and (d) capitalization statements, all prepared on a consistent basis with Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. Property - any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. Purchase Money Indebtedness - means and includes (i) Indebtedness (other than the Obligations) for the payment of all or any part of the purchase price of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred at the time of or within ten (10) days prior to or after the acquisition of any fixed assets for the purpose of financing all or any part of the purchase price thereof, and (iii) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time. Purchase Money Lien - a Lien upon fixed assets which secures Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. Rentals - as defined in subsection 8.2.13 of the Agreement. Reportable Event - any of the events set forth in Section 4043(b) of ERISA. Reserve Percentage - the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed on member banks of the Federal Reserve System against "Euro-currency Liabilities" as defined in Regulation D. Restricted Investment - any investment made in cash or by delivery of Property to any Person, whether by acquisition of stock, Indebtedness or other obligation or Security, or by loan, advance or capital contribution, or otherwise, or in any Property except the following: (i) Property to be used in the ordinary course of business; (ii) Current Assets arising from the sale of goods and services in the ordinary course of business of Borrower; (iii) investments in direct obligations of the United States of America, or any agency thereof or obligations guaranteed by the United States of America, provided that such obligations mature within one (1) year from the date of acquisition thereof; (iv) investments in certificates of deposit maturing within one (1) year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or any state thereof having capital surplus and undivided profits aggregating at least $100,000,000; and (v) investments in commercial paper given the highest rating by a national credit rating agency and maturing not more than 270 days from the date of creation thereof. Revolving Credit Loan - a Loan made by Lender as provided in Section 2.1 of the Agreement. Revolving Credit Note - the Revolving Credit Note to be executed by Borrower on or about the Closing Date in favor of Lender to evidence the Revolving Credit Loan, which shall be in the form of Exhibit A to the Agreement. Schedule of Accounts - as defined in subsection 6.2.1 of the Agreement. Security - shall have the same meaning as in Section 2(1) of the Securities Act of 1933, as amended. Security Documents - the Guarantee and Security Agreement and all other instruments and agreements now or at any time hereafter securing the whole or any part of the Obligations. Solvent - as to any Person, that such Person (i) owns Property whose fair saleable value is greater than the amount required to pay all of such Person's Indebtedness (including contingent debts), (ii) is able to pay all of its Indebtedness as such Indebtedness matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. Subordinated Debt - Indebtedness of Borrower that is subordinated to the Obligations in a manner satisfactory to Lender. Subordination Agreement - any subordination agreement executed by Borrower, and approved by Lender, in connection with any Subordinated Debt. Subsidiary - any corporation of which a Person owns, directly or indirectly through one or more intermediaries, more than 50% of the Voting Stock at the time of determination. Tangible Assets - means all assets of Borrower on a Consolidated basis that would, in accordance with GAAP, be classified as tangible assets of Borrower on a Consolidated basis less any amount due from Subsidiaries or Affiliates not otherwise eliminated by such consolidation. Tangible Net Worth - means the amount by which Tangible Assets exceed Total Liabilities. Term - as defined in Section 4.1 of this Agreement. Termination Date - the date on which the obligation of Lender to make Loans hereunder is terminated whether pursuant to Section 4.2 of this Agreement or otherwise. Total Liabilities - means the sum of (A) all liabilities of Borrower on a Consolidated basis that would, in accordance with GAAP, be classified as liabilities of Borrower on a Consolidated basis plus (B) all obligations of Borrower on a Consolidated basis with respect to contingent liabilities not otherwise classified as liabilities pursuant to (A), above. Total Credit Facility - $10,000,000.00. Type of Organization - with respect to Borrower, the kind or type of entity by which Borrower is organized, such as a corporation or limited liability company. UCC - the Uniform Commercial Code as in effect in the State of New Jersey on the date of this Agreement, as the UCC may be amended or otherwise modified. Voting Stock - Securities of any class or classes of a corporation the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors (or Persons performing similar functions). Other Terms All other terms contained in the Agreement shall have, when the context so indicates, the meanings provided for by the UCC to the extent the same are used or defined therein. Certain Matters of Construction The terms "herein," "hereof" and "hereunder" and other words of similar import refer to the Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to cover all genders. The section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of the Agreement. All references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations. All references to any of the Loan Documents shall include any and all modifications thereto and any and all extensions or renewals thereof. EX-10 4 ex10-2.txt EXHIBIT 10.2 Exhibit 10.2 AGREEMENT FOR WHOLESALE FINANCING (Security Agreement) (ILOC Collateral) This AGREEMENT FOR WHOLESALE FINANCING (as amended, supplemented or otherwise modified from time to time, this "Agreement") is hereby made this 21 day of November, 2001, by and between IBM Credit Corporation, a Delaware corporation with a place of business at 1500 Riveredge Parkway, Atlanta, GA 30328 ("IBM Credit"), and Emtec, Inc., duly organized under the laws of the State of Delaware with its principal place of business at 817 East Gate Drive, Mt. Laurel, NJ 08054 ("Customer"). In the course of Customer's business, Customer acquires products and wants IBM Credit to finance Customer's purchase of such products under the following terms and conditions: 1. IBM Credit may in its sole discretion from time to time decide the amount of credit IBM Credit extends to Customer, notwithstanding any prior course of conduct between IBM Credit and Customer. IBM Credit may combine all of its advances to make one debt owed by Customer. 2. IBM Credit may in its sole discretion decide the amount of funds, if any, IBM Credit will advance on any products Customer may seek to acquire. Customer agrees that any decision to finance products will not be binding on IBM Credit until such time as the funds are actually advanced by IBM Credit. 3. In the course of Customer's operations, Customer intends to purchase from persons approved in writing by IBM Credit for the purpose of this Agreement (the "Authorized Suppliers") computer hardware and software products manufactured or distributed by or bearing any trademark or trade name of such Authorized Suppliers (the "Approved Inventory"). When IBM Credit advances funds, IBM Credit may send Customer a Statement of Transaction or other statement. If IBM Credit does, Customer will have acknowledged the indebtedness to be an account stated and Customer will have agreed to the terms set forth on such statement unless Customer notifies IBM Credit in writing of any question or objection within seven (7) days after such statement is mailed to Customer. 4. To secure payment of all of Customer's current and future indebtedness to IBM Credit whether under this Agreement, any guaranty or surety agreement that Customer executes, or any other agreement between Customer and IBM Credit, whether direct or contingent, Customer hereby agrees to cause an institution acceptable to IBM Credit to issue in IBM Credit's favor an Irrevocable Letter of Credit in a form acceptable to IBM Credit ("Letter of Credit") in the amount of Seven hundred fifty thousand Dollars ($750,000.00) bearing an effective date as of the date of this Agreement and expiring no earlier than twelve (12) months from the date hereof. At least sixty (60) days prior to the expiration of the Letter of Credit or any subsequent Letter of Credit, Customer will renew and extend such Letter of Credit for a term of twelve (12) months or longer, or will have a new Letter of Credit issued to IBM Credit for a term of twelve (12) months or longer and in an amount, form and from an institution acceptable to IBM Credit. 5. Customer represents that its business is conducted as a __ SOLE PROPRIETORSHIP, __ PARTNERSHIP, __ JOINT VENTURE, _X_ CORPORATION, __ COOPERATIVE, ___ LIMITED LIABILITY COMPANY (check applicable term). Customer agrees to notify IBM Credit immediately of any change in identity, name, form of ownership or management, and of any additions or discontinuances of other business locations. 6. Customer will execute any and all documents IBM Credit may request to confirm or perfect IBM Credit's title or interest in the Letter of Credit. Customer will pay all taxes, license fees, assessments and charges when due. Customer warrants and represents that it is not in default in the payment of any principal, interest or other charges relating to any indebtedness owed to any third party for any reason whatsoever, and no event has occurred under the terms or provisions of any agreement, Page 1 of 7 document, promissory note or other instrument, which with or without the passage of time and/or the giving of notice constitutes or would constitute an event of default thereunder. Each financial statement that Customer submits to IBM Credit, is and will be correct and will accurately represent Customer's financial condition. Customer further acknowledges IBM Credit's reliance on the truthfulness and accuracy of each and every financial statement that Customer submits to IBM Credit in its extension of various financial accommodations to Customer. 7. Customer agrees to immediately pay IBM Credit the full amount of the principal balance owed IBM Credit, at or before the time payment is required under the terms of Customer's financing program with IBM Credit. Regardless of the terms of any scheduled payment program with IBM Credit, if IBM Credit determines that the current outstanding indebtedness owed by Customer to IBM Credit exceeds the value of the Letter of Credit in IBM Credit's possession, Customer agrees to immediately pay to IBM Credit an amount equal to the difference between such outstanding indebtedness and the Letter of Credit. Customer will make all payments to IBM Credit according to the remit to instructions in the billing statement. Any checks or other instruments delivered to IBM Credit to be applied against Customer's outstanding obligations will constitute conditional payment until the funds represented by such instruments are actually received by IBM Credit. IBM Credit may apply payments to reduce finance charges first and then principal, irrespective of Customer's instructions. Further, IBM Credit may apply principal payments to the oldest (earliest) invoice for the Approved Inventory financed by IBM Credit, or to such Approved Inventory which is sold, lost, stolen, destroyed, damaged, or otherwise disposed of. If Customer signs any instrument for any outstanding obligations, it will be evidence of Customer's obligation to pay and will not be payment. Any discount, rebate, bonus, or credit for Approved Inventory granted to Customer by any Authorized Supplier will not, in any way, reduce the obligations Customer owes IBM Credit, until IBM Credit has received payment in good funds, provided, however, that in the event any such discount, rebate, bonus, or credit must be returned or disgorged or are otherwise unavailable for application, then Customer's indebtedness will be reinstated as if such discount, rebate, bonus, or credit had never been applied. 8. Customer will pay IBM Credit finance charges on the total amount of credit extended to Customer in the amount agreed to between Customer and IBM Credit from time to time. The period of any financing will begin on the invoice date for the Approved Inventory whether or not IBM Credit advances payment on such date. This period will be included in the calculation of the annual percentage rate of the finance charges. Customer also agrees to pay IBM Credit additional charges which will include: late payment fees at a per annum rate equal to the Prime Rate plus 6.5%; flat charges; charges for receiving NSF checks from Customer; renewal charges; and any other charges agreed to by Customer and IBM Credit from time to time. For purposes of this Agreement, "Prime Rate" will mean the average of the rates of interest announced by banks which IBM Credit uses in its normal course of business of determining prime rate. Unless Customer hereafter otherwise agrees in writing, the finance charges and additional charges agreed upon will be IBM Credit's applicable finance charges and additional charges for the class of Approved Inventory involved prevailing from time to time at IBM Credit's principal place of business, but in no event greater than the highest rate from time to time permitted by applicable law. If it is determined that amounts received from Customer were in excess of such highest rate, then the amount representing such excess will be considered reductions to the outstanding principal of IBM Credit's advances to Customer. IBM Credit will send Customer, at monthly or other intervals, a statement of all charges due on Customer's account with IBM Credit. Customer will have acknowledged the charges due, as indicated on the statement, to be an account stated, unless Customer objects in writing to IBM Credit within seven (7) days after such statement is mailed to Customer. This statement may be adjusted by IBM Credit at any time to conform to applicable law and this Agreement. IBM Credit shall calculate any free financing period utilizing a methodology that is consistent with the methodologies used for similarly situated customers of IBM Credit. The Customer understands that IBM Credit may not offer, may change or may cease to offer a free financing period for the Customer's purchases of Approved Inventory. If any Authorized Supplier fails to provide payment of a finance charge for Customer, as agreed, Customer will be responsible for and pay to IBM Credit all finance charges billed to Customer's account. Page 2 of 7 9. Any one or more of the following events shall constitute a default by Customer under this Agreement: Customer breaches any of the terms, warranties or representations contained in this Agreement or in any other agreements between Customer and IBM Credit or between Customer and any of IBM Credit's affiliates; any guarantor or surety of Customer's indebtedness to IBM Credit under this Agreement or any other agreements breaches any of the terms, warranties or representations contained in any guaranty, surety agreement or in any other agreements between any guarantor or surety and IBM Credit or between any guarantor or surety and any of IBM Credit's affiliates; any representation, statement, report or certificate made or delivered by Customer or any of Customer's owners, representatives, employees or agents or any guarantor or surety to IBM Credit is not true and correct; Customer fails to pay any of the indebtedness owed to IBM Credit or any of IBM Credit's affiliates when due and payable or declared to be due and payable under this Agreement or under any other agreements between Customer and IBM Credit or between Customer and any of IBM Credit's affiliates; IBM Credit determines that it is insecure with respect to the payment of any part of Customer's indebtedness owed to IBM Credit; Customer or any guarantor or surety becomes in default in the payment of any indebtedness owed to any third party, or any event occurs under the terms or provisions of any agreement, document, promissory note or other instrument, for any reason whatsoever, which with or without the passage of time and/or the giving of notice constitutes or would constitute an event of default thereunder; a judgment issues on any money demand against Customer or any guarantor or surety which is not paid in full within sixty (60) days; a writ of capias, attachment, sale or seizure is issued against Customer or any of Customer's assets; any of Customer's assets are seized or taken in execution; the death of the undersigned if the business is operated as a sole proprietorship or partnership, or the death of any guarantor or surety; Customer ceases or suspends its business; Customer or any guarantor or surety makes a general assignment for the benefit of Customer's or any guarantor's or surety's creditors; Customer or any guarantor or surety become bankrupt or insolvent or voluntarily or involuntarily become subject to the provisions of the Federal Bankruptcy Code, state insolvency laws or any act or code for the benefit of creditors; any receiver is appointed for any of Customer's or any guarantor's or surety's properties, assets, businesses or undertakings; any guaranty or surety agreement pertaining to Customer's indebtedness to IBM Credit is terminated for any reason whatsoever; Customer loses any franchise, permission, license or right to sell or deal in any Approved Inventory; if at least sixty (60) days prior to the expiration of the Letter of Credit or any subsequent Letter of Credit, such Letter of Credit is not extended for a term of twelve (12) months or longer, or a new Letter of Credit in an amount, form and from an institution acceptable to IBM Credit and for a term of twelve (12) months or longer is not provided to IBM Credit; Customer or any guarantor or surety misrepresents its respective financial condition or organizational structure. Following an event of a default: (a) IBM Credit may, at any time at IBM Credit's election, without notice or demand to Customer do any one or more of the following: declare all or any part of the obligations Customer owes IBM Credit immediately due and payable, together with all court costs and all costs and expenses of IBM Credit's repossession and collection activity, including, but not limited to, all attorney's fees; exercise any or all rights of a secured party under applicable law; exercise any and all of IBM Credit's rights to draw upon the Letter of Credit; and/or cease making any further financial accommodations or extending any additional credit to Customer; and/or exercise any or all rights available at law or in equity. All of IBM Credit's rights and remedies are cumulative. (b) Customer waives and releases: any and all claims and causes of action which Customer may now or ever have against IBM Credit arising directly or indirectly out of this Agreement or Customer's financing program with IBM Credit. If Customer brings any action or asserts any claim against IBM Credit which arises out of this Agreement, any other agreement or any of the business dealings between IBM Credit and Customer, in which Customer does not prevail, Customer agrees to pay IBM Credit all costs and expenses of IBM Credit's defense of such action or claim including, but not limited to, all attorney's fees. If IBM Credit fails to Page 3 of 7 exercise any of IBM Credit's rights or remedies under this Agreement, such failure will in no way or manner waive any of IBM Credit's rights or remedies as to any past, current or future default. 10. Customer agrees that IBM Credit does not warrant the Approved Inventory. Customer will pay IBM Credit in full even if the Approved Inventory is defective or fails to conform to any warranties extended by any third party. Customer's obligations to IBM Credit will not be affected by any dispute Customer may have with any third party. Customer will not assert against IBM Credit any claim or defense Customer may have against any third party. 11. Customer will indemnify and hold IBM Credit harmless against any claims or defenses asserted by any buyer of the Approved Inventory by reason of: the condition of any Approved Inventory; any representations made about the Approved Inventory; or for any and all other reasons whatsoever. 12. We authorize you to provide to third parties such standard credit reference information about us as is customarily provided in the industry. 13. Each party may electronically transmit to or receive from the other party certain documents specified in the E-Business Schedule A attached hereto ("E-Documents") via the Internet or electronic data interchange ("EDI"). Any transmission of data which is not an E-Document shall have no force or effect between the parties. EDI transmissions may be transmitted directly or through any third party service provider ("Provider") with which either party may contract. Each party will be liable for the acts or omissions of its Provider while handling E-Documents for such party, provided, that if both parties use the same Provider, the originating party will be liable for the acts or omissions of such Provider as to such E-Document. Some information to be made available to Customer will be specific to Customer and will require Customer to register with IBM Credit before access is provided. After IBM Credit has approved the registration submitted by Customer, IBM Credit will provide an ID and password(s) to an individual designated by Customer ("Customer Recipient"). Customer accepts responsibility for the designated individual's distribution of the ID and password(s) within its organization and Customer will take reasonable measures to ensure that passwords are not shared or disclosed to unauthorized individuals. Customer will conduct an annual review of all IDs and passwords to ensure that they are accurate and properly authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR PASSWORD AT ITS DISCRETION AT ANY TIME. E-Documents will not be deemed to have been properly received, and no E-Document will give rise to any obligation, until accessible to the receiving party at such party's receipt computer at the address specified herein. Upon proper receipt of an E-Document, the receiving party will promptly transmit a functional acknowledgment in return. A functional acknowledgment will constitute conclusive evidence that an E-Document has been properly received. If any transmitted E-Document is received in an unintelligible or garbled form, the receiving party will promptly notify the originating party in a reasonable manner. In the absence of such a notice, the originating party's records of the contents of such E-Document will control. Each party will use those security procedures which are reasonably sufficient to ensure that all transmissions of E-Documents are authorized and to protect its business records and data from improper access. Any E-Document received pursuant to this paragraph 13 will have the same effect as if the contents of the E-Document had been sent in paper rather than electronic form. The conduct of the parties pursuant to this paragraph 13 will, for all legal purposes, evidence a course of dealing and a course of performance accepted by the parties. The parties agree not to contest the validity or enforceability of E-Documents under the provisions of any applicable law relating to whether certain agreements are to be in writing or signed by the party to be bound thereby. The parties agree, as to any E-Document accompanied by Customer's ID, that IBM Credit can reasonably rely on the fact that such E-Document is properly authorized by Customer. E-Documents, if introduced as evidence on paper in any judicial, arbitration, mediation or administrative proceedings, will be admissible as between the parties to the same extent and under the same conditions as other business records originated and maintained in documentary form. Neither party will contest the admissibility of copies of E-Documents under either the Page 4 of 7 business records exception to the hearsay rule or the best evidence rule on the basis that the E-Documents were not originated or maintained in documentary form. Neither party will be liable to the other for any special, incidental, exemplary or consequential damages arising from or as a result of any delay, omission or error in the electronic transmission or receipt of any E-Document pursuant to this paragraph 13, even if either party has been advised of the possibility of such damages. In the event Customer requests IBM Credit to effect a withdrawal or debit of funds from an account of Customer, then in no event will IBM Credit be liable for any amount in excess of any amount incorrectly debited, except in the event of IBM Credit's gross negligence or willful misconduct. No party will be liable for any failure to perform its obligations pursuant to this paragraph 14 in connection with any E-Document, where such failure results from any act of God or other cause beyond such party's reasonable control (including, without limitation, any mechanical, electronic or communications failure) which prevents such party from transmitting or receiving E-Documents. CUSTOMER RECIPIENT for Internet transmissions: (PLEASE PRINT) Name of Customer's Designated Central Contact Authorized to Receive IDs and Passwords: Robert Waite - ------------------------------------------------------------------------- e-mail Address: Robert_Waite@emtecinc.com Phone Number: 856-235-2121 x275 ----------------------------------------------------------- 14. Time is of the essence in this Agreement. This Agreement will be effective from the date of its acceptance at IBM Credit's office. Customer acknowledges receipt of a true copy and waives notice of IBM Credit's acceptance of it. If IBM Credit advances funds under this Agreement, IBM Credit will have accepted it. This Agreement will remain in force until one of the parties gives notice to the other that it is terminated. If Customer terminates this Agreement, IBM Credit may declare all or any part of the indebtedness Customer owes IBM Credit due and payable immediately. If this Agreement is terminated, Customer will not be relieved from any obligations to IBM Credit arising out of IBM Credit's advances or commitments made before the effective date of termination. IBM Credit's rights under this Agreement and IBM Credit's interest and title in present and future Letters of Credit will remain valid, binding and enforceable until all Customer's indebtedness to IBM Credit is paid in full. This Agreement shall be binding upon and inure to the benefit of IBM Credit and the Customer and their respective successors and assigns; provided, that the Customer shall have no right to assign this Agreement without the prior written consent of IBM Credit. This Agreement will protect and bind IBM Credit's and Customer's respective heirs, representatives, successors and assigns. It can be varied only by a document signed by IBM Credit's and Customer's authorized representatives. If any provision of this Agreement or its application is invalid or unenforceable, the remainder of this Agreement will not be impaired or affected and will remain binding and enforceable. This Agreement is executed with the authority of Customer's Board of Directors, and with shareholder approval, if required by the law, if Customer is a corporation or if Customer is a limited liability company, with the authority of authorized members. All notices IBM Credit sends to Customer will be sufficiently given if mailed or delivered to Customer at Customer's address first written above. 15. The laws of the State of New Jersey will govern this Agreement. Customer agrees that venue for any lawsuit will be in the State or Federal Court within the county, parish, or district where IBM Credit's office, which provides the financial accommodations, is located. Customer hereby waives any right to change the venue of any action. Page 5 of 7 16. If Customer has previously executed any security agreements with IBM Credit, Customer agrees that this Agreement is intended only to amend and supplement such written agreements, and will not be deemed to be a novation or termination of such written agreements. In the event the terms of this Agreement conflict with the terms of any prior security agreement that Customer previously executed with IBM Credit, the terms of this Agreement will control in determining the agreement between Customer and IBM Credit. 17. CUSTOMER WAIVES ANY STATUTORY RIGHT TO NOTICE OR HEARING PRIOR TO IBM CREDIT'S DRAW UPON THE LETTER OF CREDIT. CUSTOMER FURTHER WAIVES ANY AND ALL RIGHTS OF SETOFF CUSTOMER MAY HAVE AGAINST IBM CREDIT. CUSTOMER AGREES THAT ANY PROCEEDING IN WHICH CUSTOMER, OR IBM CREDIT OR ANY OF IBM CREDIT'S AFFILIATES, OR CUSTOMER'S OR IBM CREDIT'S ASSIGNS ARE PARTIES, AS TO ALL MATTERS AND THINGS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, OR THE RELATIONS AMONG THE PARTIES LISTED IN THIS PARAGRAPH WILL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE WITHOUT A JURY. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO A JURY TRIAL IN ANY SUCH PROCEEDING. ATTEST: - ------------------------------------ Emtec, Inc. Secretary Customer Print Name: Rosemary Howlett By: Sam Bhatt -------------------------- Print Name: ------------------ (CORPORATE SEAL) Title: V.P. Finance ----------------------- Page 6 of 7 E-BUSINESS SCHEDULE A ("SCHEDULE A) CUSTOMER NAME: Emtec, Inc. ----------------------------------------------------- EFFECTIVE DATE OF THIS SCHEDULE A: November 21, 2001 E-DOCUMENTS AVAILABLE TO SUPPLIERS: Invoices Payment Report/Remittance Advisor E-DOCUMENTS AVAILABLE TO CUSTOMER: Invoices Remittance Advisor Transaction Approval Billing Statement Payment Planner Auto Cash Statements of Transaction Common Dispute Form Page 7 of 7 EX-10 5 ex10-3.txt EXHIBIT 10.3 Exhibit 10.3 SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT (the "Agreement") is made as of the _21_ day of November, 2001 among EMTEC, INC. ("Debtor"), MRA SYSTEMS, INC. dba GE ACCESS ("Creditor"), and FLEET CAPITAL CORPORATION ("Fleet"). BACKGROUND A. Debtor and Fleet executed a certain a Loan and Security Agreement dated as of the date hereof (such agreement, as amended from time to time hereafter, the "Loan Agreement") whereby Fleet agreed to extend to Debtor a revolving credit facility in the maximum principal amount of Ten Million Dollars ($10,000,000.00) (the "Revolving Credit"). Debtor's obligations to repay the Revolving Credit are evidenced by a certain promissory note executed by Debtor dated as of the date hereof in the face amount of $10,000,000 payable to the order of Fleet (the "Note"). B. Debtor's obligations to Fleet with respect to the Revolving Credit, together with any and all obligations of Debtor to Fleet, whether now existing or hereafter incurred, direct or indirect, absolute or contingent, and whether or not arising in connection with the Revolving Credit including, without limitation, principal, interest (including without limitation post-petition interest if any), fees, costs and expenses of administration and enforcement (including reasonable attorney's fees and expenses), and any amount paid to Fleet but thereafter rescinded, restored or returned by the recipient thereof are hereinafter referred to collectively as the "Senior Debt" C. To secure Debtor's obligations to repay the Senior Debt, among other things, Debtor granted to Fleet a security interest in and to all of Debtor's tangible and intangible personal property including without limitation accounts, chattel paper, contract rights, deposit accounts, documents, equipment including fixtures, financial assets, general intangibles, including payment intangibles and software, instruments, intellectual property, inventory, investment property, letter-of-credit rights, money, security entitlements, software, supporting obligations, uncertificated securities and any proceeds of the foregoing, including the Common Collateral (as such term is hereinafter defined) (collectively the "Collateral"). D. Debtor is indebted to Creditor from time to time for product that has been sold to Debtor from time to time (all obligations of Debtor to Creditor together with all documents evidencing or securing such obligation, together with any other obligation of Debtor to Creditor shall be hereinafter referred to as the "Subordinated Debt"). As security for the Subordinated Debt, Debtor delivered to the Creditor a Security Agreement dated August 14, 2001 (the "Creditor Security Agreement"), granting the Creditor a security interest in all assets of Debtor (collectively, the "Common Collateral"). E. The parties hereto desire to set forth their agreement with respect to the subordination by Creditor of (i) its security interest in and to the Common Collateral to the security interest of Fleet in and to the Common Collateral and (ii) its right to payment under the Subordinated Debt to the prior payment in full of the Senior Debt. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Priorities as to Common Collateral. Any lien or security interest now existing or hereafter acquired by Creditor in and to the Common Collateral shall be subject and subordinate in all respects and for all purposes to the liens and security interests now existing or hereafter acquired by Fleet in and to the Common Collateral, regardless of the order of creation, attachment, filing or other perfection. Except as set forth in this Agreement, Fleet shall be entitled to receive from the proceeds of any Common Collateral in which Creditor has or acquires a security interest all amounts due to Fleet with respect to the Senior Debt, whether principal, interest, costs of collection or otherwise, before Creditor receives any proceeds therefrom with respect to the Subordinated Debt. 2. Priorities Generally. Creditor represents and warrants that Creditor does not have, and covenants that without Fleet's prior written consent, Creditor will not take, any lien or security interest in and to any assets of Debtor, any subsidiary or affiliate of Debtor or any other Person other than its now existing security interest in the Common Collateral and Debtor covenants and agrees not to grant or allow any of its subsidiaries or affiliates to grant any lien or security interest to Creditor, in and to any assets other than the now existing security interest in favor of Creditor in the Common Collateral. In the event that the Creditor has or hereafter takes such lien or security interest, whether in violation of the preceding sentence or with the prior written consent of Fleet, (a) to the extent that Fleet has a lien or security interest in the same property, the lien or security interest of Creditor shall be subject and subordinate in all respects and for all purposes to the liens and security interests now existing or hereafter acquired by Fleet therein, regardless of the order of creation, attachment or filing or other perfection, and (b) to the extent that Fleet does not have a lien or security interest in the same property, the lien or security interest received by Creditor shall be received by it IN TRUST for the benefit of Fleet (and, as provided below, for its own benefit), and Creditor shall promptly assign (in part) such lien or security interest and any and all perfection filings to Fleet, shall transfer possession of any such collateral at any time in its possession (provided however that Creditor shall retain its subordinate security interest in such collateral and hereby agrees to take such actions as reasonably requested by Fleet to assist Fleet in obtaining a perfected senior security interest in such collateral without releasing Creditor's subordinate security interest), and, except as provided to the contrary herein, shall pay over to Fleet any and all payments or proceeds received by it in respect to such lien or security interest for application on the Senior Debt, and Fleet shall be entitled to receive from the proceeds thereof all amounts due to Fleet by Debtor, whether principal, interest, costs of collection or otherwise, before Creditor receives any proceeds therefrom. 3. Priorities of Payment. Creditor covenants and agrees that the Subordinated Debt and all of the rights and remedies of Creditor with respect to the Subordinated Debt are hereby made subordinate and subject in right of payment to the prior payment in full of any and all Senior Debt, and Debtor covenants and agrees not to make any payment on or with respect to the Subordinated Debt until payment in full of any and all Senior Debt, except as set forth in the immediately following sentence. Creditor shall be entitled to receive and Debtor shall be permitted to pay amounts due to Creditor under the Subordinated Debt, provided that Creditor has not been given written notice that Fleet has declared Debtor in default and has accelerated all amounts due to Fleet. 4. Exercise of Remedies. (a) Creditor covenants and agrees that until the Senior Debt shall have been paid in full, except as expressly permitted under this Subordination Agreement, Creditor will not take any action to exercise any of its remedies, including without limitation under the Creditor Security Agreement, to initiate a reorganization of, or litigation against, Debtor or to foreclose or otherwise realize on any security (including without limitation the Common Collateral) given by Debtor or any other person to secure such indebtedness prior to the repayment in full of the Senior Debt. Notwithstanding the foregoing, Creditor shall be entitled: (i) to accelerate the obligations outstanding under the Subordinated Debt if an event of default shall have occurred under the Subordinated Debt or if Fleet has accelerated the Senior Debt; and (ii) during any period, after giving not less than 120 days prior written notice thereof to Fleet, to take any action prohibited by the prior sentence of this Section 4(a) but otherwise available under the Subordinated Debt, provided however that, if Fleet accelerates the Senior Debt, commences legal proceedings against Debtor, seizes Collateral or takes any other remedial action permitted by the Loan Agreement (collectively, "Remedial Actions") after Creditor commences any action permitted under this Section 4(a)(ii), Creditor will discontinue such action until the Senior Debt is repaid in full or Fleet otherwise consents in writing. Any proceeds received by Creditor in connection with the enforcement of its rights (which proceeds shall not include payments received in accordance with Section 3 hereof or payments received by Creditor for or on account of inventory in advance of, or simultaneously with, delivery thereof ("c.o.d. payments"), and after Creditor is reimbursed for any costs of such action, including reasoanble attorneys fees, out of such proceeds) shall be immediately paid over to Fleet to be applied toward repayment of the Senior Debt, until the Senior Debt is repaid in full. (b) Creditor and Debtor acknowledge that after the occurrence and during the continuance of an event of default under and as defined in the Loan Agreement, Fleet, at its option, may take any action to foreclose or realize upon or enforce any of its rights, including without limitation any of its rights with respect to any Collateral held by Fleet (including the Common Collateral), without the prior consent of Debtor or Creditor. (c) Upon notice of the acceleration of the Senior Debt or upon distribution of all or substantially all the assets, winding up, total or partial liquidation, dissolution, reorganization or readjustment of debt, custodianship, bankruptcy, receivership, or insolvency or upon an assignment for the benefit of creditors or upon any other marshalling of the assets and liabilities of Debtor or upon any similar proceeding relating to Debtor or its property (whether voluntary or involuntary), unless otherwise agreed by Fleet, then as regards the receipt of any funds from Debtor by Creditor on or after the occurrence of any such event: (i) all of the principal, interest and other amounts constituting the Senior Debt, whether or not then due and payable, shall first be paid in full before any payment of principal, interest, or any other amount due under the Subordinated Debt; (ii) any payment or distribution of assets of Debtor of any kind or character, whether in cash, property or securities to which Creditor would be otherwise entitled (but for the terms hereof), shall be paid or delivered by the trustee in bankruptcy, receiver, assignee for the benefit of creditors or other person making such distribution directly to Fleet for application to the payment of the Senior Debt to the extent necessary to pay the Senior Debt in full; and (iii) Creditor shall execute and deliver to Fleet or its representative all such further instruments confirming the authorization referred to in the foregoing clause (ii), (iv) Creditor shall have the right to file all proofs of claim and other instruments necessary or advisable to enforce all claims upon or in respect of the Subordinated Debt; provided however, that any amounts received shall be applied as set forth in clause (i) above until the Senior Debt is paid in full. (d) If, notwithstanding the provisions of this Subordination Agreement, any payment or distribution of any character (whether in cash, securities, or other property) or any security shall be received by Creditor in contravention of the terms of this Subordination Agreement (a "Prohibited Transfer"), and before all the Senior Debt shall have been paid in full, such Prohibited Transfer shall be held IN TRUST for the benefit of Fleet and shall immediately be paid over or delivered or transferred to Fleet, or its representative, for application to the payment of all of the Senior Debt remaining unpaid, until all of the Senior Debt shall have been paid in full. (e) For purposes of this Subordination Agreement, a distribution may consist of cash, securities or other property. 5. Subrogation. Until all Senior Debt is paid in full, Creditor shall not have any rights of subrogation with respect to the rights of Fleet to receive distributions applicable to Senior Debt. Nothing herein is intended to give Creditor any rights of subrogation which it otherwise would have under applicable law. 6. Relative Rights. This Section 6 defines the relative rights of Creditor and Debtor. Except as otherwise provided herein, nothing herein shall: (a) impair, as between Debtor and Creditor, the obligations of Debtor, which are absolute and unconditional, to pay the amounts due under the Subordinated Debt in accordance with the terms thereof; or (b) affect the relative rights of Creditor and creditors of Debtor other than Fleet; or (c) prevent Creditor from exercising, subject to the restrictions set forth in this Subordination Agreement, its available remedies upon a default or event of default under the Subordinated Debt and all other remedies, after the Senior Debt has been repaid in full. Nothing in this Agreement shall limit Creditor's right to suspend or stop shipment of goods to Debtor or adjust Debtor's credit limit from time to time, and Creditor shall not incur any liability for refraining from shipping goods to Debtor. 7. Obligations not Affected. So long as Senior Debt remains outstanding, all rights and interests of Fleet under this Subordination Agreement, and all agreements and obligations of Creditor and Debtor under the Subordinated Debt, shall remain in full force and effect irrespective of: (a) any change in the time, manner or place of payment of, or in any other term of, or any other amendment or waiver of or any consent to departure from any agreement, instrument or document in respect of such Senior Debt; or (b) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any of such Senior Debt. This Subordination Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of such Senior Debt is rescinded or must otherwise be returned by Fleet upon the insolvency, bankruptcy or reorganization of Debtor or otherwise, all as though such payment had not been made. 8. Additional Representations, Warranties and Covenants of Creditor. Creditor represents, warrants and covenants that (a) it has not made any prior assignment of the Subordinated Debt or its rights relating thereto, (b) it will not make any such assignment unless the proposed assignee has delivered to Fleet an executed subordination agreement in form and substance satisfactory to Fleet; provided that Creditor may make any such assignment to an affiliate of Creditor provided that such assignee agrees to be bound by the terms of this Agreement, (c) as of the date hereof, to Creditor's knowledge there is no event of default or event which with the passage of time or giving of notice would constitute an event of default under and as defined in the Subordinated Debt, (d) this Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of Creditor, enforceable in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, other similar laws affecting the enforcement of creditors' rights generally or general principles of equity; (e) Fleet has not made any representation or warranty, expressed or implied, to Creditor, and no act by Fleet heretofore or hereafter taken, including any review of the financial condition or business affairs of Debtor shall be deemed to constitute any representation or warranty by Fleet to Creditor; and (f) in connection with its entry into and performance of its obligations under this Agreement, Creditor has made and shall continue to make its own independent investigation of the financial condition and business affairs of Debtor, and its own independent appraisal of the creditworthiness of Debtor. 9. Additional Representations, Warranties and Covenants of Fleet. Fleet represents, warrants and covenants that (a) it has not made any prior assignment of the Senior Debt or its rights relating thereto, (b) this Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of Fleet, enforceable in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, other similar laws affecting the enforcement of creditors' rights generally or general principles of equity; (c) Creditor has not made any representation or warranty, expressed or implied, to Fleet, and no act by Creditor heretofore or hereafter taken, including any review of the financial condition or business affairs of Debtor shall be deemed to constitute any representation or warranty by Creditor to Fleet; and (d) in connection with its entry into and performance of its obligations under this Agreement, Fleet has made and shall continue to make its own independent investigation of the financial condition and business affairs of Debtor, and its own independent appraisal of the creditworthiness of Debtor. Fleet shall endeavor to use commercially reasonable efforts to notify Creditor of an assignment of all of its rights hereunder and under the Loan Documents. Any assignee of Fleet shall be bound by the terms of this Subordination Agreement. 10. Additional Representations, Warranties and Covenants of Debtor. (a) This Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of Debtor, enforceable in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance, other similar laws affecting the enforcement of creditors' rights generally or general principles of equity; (b) upon request, Debtor agrees to provide to Creditor copies of the Loan Agreement, Note, and/or the documents evidencing or securing the Senior Debt; (c) Debtor shall provide to Creditor copies of: (i) all amendments, modifications, extensions or renewals of the Senior Debt and/or the documents evidencing or securing the Senior Debt which are entered into after the date of this Agreement, which copies shall be provided no later than the execution of such documents by Debtor, and (ii) all notices to Debtor from Fleet of an event of default under the Loan Agreement promptly upon receipt thereof. 11. Miscellaneous. (a) Each right, power and remedy of Fleet provided for in this Subordination Agreement, or any other document referred to herein, as applicable, whether now existing or hereafter available at law or in equity or by statute or otherwise, shall be cumulative and concurrent (except to the extent otherwise provided in any such document) and shall be in addition to every other such right, power or remedy. The exercise or the beginning of the exercise by Fleet of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise of all other such rights, powers or remedies, and no course of dealing or failure or delay on the part of Fleet in exercising any such right, power or remedy shall operate as a waiver thereof or otherwise prejudice its rights, powers or remedies. (b) Each party hereto agrees to execute such documents, instruments and agreements as may be reasonably necessary to carry out the agreements set forth herein. (c) The parties are entering into this Subordination Agreement only for the purpose of defining the relative rights of Creditor and Fleet and nothing herein shall impair any of the obligations of Debtor to Fleet or of Debtor to Creditor which are unconditional and absolute, nor shall this Subordination Agreement confer any rights on any person or entity not a party hereto, nor shall Debtor be entitled to use the failure of Creditor and/or Fleet to comply with the terms of this Subordination Agreement as a defense against any claim by Creditor against Debtor or Fleet against Debtor or as a basis for a claim or counterclaim by Debtor against either Fleet or Creditor. (d) No amendment, modification, extension or renewal of the Senior Debt and/or the documents evidencing or securing the Senior Debt, and any other document executed or to be executed in connection with the Senior Debt, exercise or failure to exercise any right, power, remedy or privilege under or with respect to the Senior Debt or any of aforementioned documents, granting or withholding of any waiver, consent or approval with respect of any of the covenants, terms, conditions or agreements contained in any of the aforementioned documents, indulgence, forbearance or extension of the time for performance of any covenant or agreement of Debtor under or in connection with the aforementioned documents or otherwise taking or failing to take any action with respect to the Senior Debt without the prior consent of Creditor shall affect any of the rights or privileges of Fleet hereunder, provided, however, that Fleet agrees to use commercially reasonable efforts to notify Creditor of any increase in the Revolving Credit or other facility to Debtor over the $10,000,000 level. (e) This Subordination Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to principles of conflicts of laws. (f) This Subordination Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the terms and conditions hereof limiting the ability of Creditor to assign the Subordinated Debt or its lien on and security interest in the Common Collateral. (g) Upon request, Debtor and Creditor shall join with Fleet in executing one or more financing statements pursuant to the Uniform Commercial Code or other notice appropriate under applicable law, in form satisfactory to Fleet, for filing in all public offices where such filing is reasonably deemed by Fleet to be necessary or desirable. (h) In the event of any conflict between any term, covenant or condition of this Subordination Agreement and any term, covenant or condition of any of the documents evidencing, securing or otherwise executed in connection with the Subordinated Debt, the provisions of this Subordination Agreement shall control and govern except to the extent otherwise expressly provided herein. (i) Any notices required or permitted to be given hereunder shall be validly given if delivered or mailed by certified, or registered mail or by nationally recognized overnight delivery service or transmitted by telecopier to the parties hereto at the respective addresses set forth on the signature page of this Subordination Agreement, or at such other addresses as the addressee shall have specified by notice given in compliance with this Section. Such notice shall be effective five (5) days after deposit with the United States Postal Service in the case of certified or registered mail, one day after deposit with a nationally recognized overnight delivery service or upon receipt of confirmation of delivery if transmitted by telecopier. (j) This Subordination Agreement may not be amended or modified orally but may be amended or modified only in writing, signed by all parties hereto. No waiver of any term or provision of this Subordination Agreement shall be effective unless it is in writing, making specific reference to this Subordination Agreement and signed by the party against whom such waiver is sought or to be enforced. This Subordination Agreement may be signed in one or more counterparts which, when taken together, shall constitute one and the same document. IN WITNESS WHEREOF the undersigned have caused this Agreement to be executed by their respective duly authorized officers as of the date above written. MRA SYSTEMS, INC. dba GE Access By: -------------------------- Name: Jason Romero Title: Director, Risk Management Address: 1426 Pearl Street Boulder, CO 80302 Attn: Financial Services Department Fax No. 303-938-9388 FLEET CAPITAL CORPORATION By: -------------------------- Name: David B. Rivkind SVP Address: Fleet Capital Corporation 4900 Route 70 Pennsauken, NJ 08109-4792 Attention: Mr. Charles Kirschner Fax no. 856-486-4129 Agreed to and accepted by: EMTEC, INC. By: -------------------------- Name: Sam Bhatt Title: VP Finance Address: Emtec, Inc. 817 East Gate Drive Mount Laurel, NJ 08054 EX-10 6 ex10-4.txt EXHIBIT 10.4 Exhibit 10.4 INTERCREDITOR AGREEMENT THIS INTERCREDITOR AGREEMENT is made as of November 21, 2001, between FLEET CAPITAL CORPORATION ("Fleet") and INGRAM MICRO INC., a Delaware corporation ("Ingram"); and accepted by EMTEC, INC. (the "Borrower"). BACKGROUND A. The Borrower and Fleet executed a certain a Loan and Security Agreement dated as of the date hereof (such agreement, as amended from time to time hereafter, the "Loan Agreement") whereby Fleet agreed to extend to Borrower a revolving credit facility in the maximum principal amount of Ten Million Dollars ($10,000,000.00) (the "Revolving Credit"). B. The Borrower's obligations to repay the Revolving Credit are evidenced by a certain promissory note executed by the Borrower dated as of the date hereof in the face amount of $10,000,000 payable to the order of Fleet (the "Note"). C. The Borrower's obligations to Fleet with respect to the Revolving Credit, together with any and all obligations of the Borrower to Fleet, whether now existing or hereafter incurred, direct or indirect, absolute or contingent, and whether or not arising in connection with the Revolving Credit including, without limitation, principal, interest (including without limitation post-petition interest if any), fees, costs and expenses of administration and enforcement (including reasonable attorney's fees and expenses), and any amount paid to Fleet but thereafter rescinded, restored or returned by the recipient thereof are hereinafter referred to collectively as the "Fleet Debt". D. To secure the Borrower's obligations to repay Fleet Debt, among other things, the Borrower granted to Fleet a security interest in and to all of the Borrower's tangible and intangible personal property including without limitation accounts, chattel paper, contract rights, deposit accounts, documents, equipment including fixtures, financial assets, general intangibles, including payment intangibles and software, instruments, intellectual property, inventory, investment property, letter-of-credit rights, money, security entitlements, software, supporting obligations, uncertificated securities and any proceeds of the foregoing (collectively the "Fleet Collateral"). E. The Borrower is indebted to Ingram for amounts (the "Ingram Debt") incurred in connection with the sale of inventory by Ingram (the "Ingram Inventory") to the Borrower. F. The Ingram Debt is secured by a security interest in and to all of the Borrower's equipment, inventory, accounts and chattel paper, including but not limited to the Ingram Inventory and the proceeds thereof (collectively, the "Ingram Collateral"). The Ingram Collateral excluding the Ingram Inventory but including the proceeds of sale of the Ingram Inventory (except as otherwise provided herein) shall be referred to herein as the "Fleet Priority Collateral. -1- G. The parties hereto desire to set forth their agreement with respect to the relative rights of Ingram and Fleet in the Fleet Priority Collateral and the Ingram Inventory. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties hereto, intending to be legally bound hereby, agree as follows: SECTION 1. Priorities as to Collateral. 1.1 Any lien or security interest now existing or hereafter acquired by Ingram in and to the Fleet Priority Collateral, including without limitation all accounts and general intangibles of the Borrower shall be subject and subordinate in all respects and for all purposes to the liens and security interests now existing or hereafter acquired by Fleet in and to the Fleet Priority Collateral, including without limitation the Borrower's accounts and general intangibles whether or not proceeds of Ingram Inventory. Ingram shall have no lien on Fleet Collateral which is not part of the Fleet Priority Collateral. 1.2 Any lien or security interest now existing or hereafter acquired by Fleet in and to the Ingram Inventory shall be subject and subordinate in all respects and for all purposes to the liens and security interests now existing or hereafter acquired by Ingram in and to the Ingram Inventory. Notwithstanding the foregoing, as set forth above, Fleet shall have a prior and superior right in and to all accounts and general intangibles whether or not proceeds of Ingram Inventory. 1.3 The priorities of liens and security interests stated in subsections 1.1 and 1.2 above, of this Section 1, shall be applicable regardless of the order of creation, attachment, or perfection of such liens or security interests or any priority that might otherwise be available under applicable law and notwithstanding any representation, warranty, covenant, or agreement to the contrary made by the Borrower. SECTION 2. Priorities Generally. 2.1 Ingram represents and warrants that it does not have, and covenants that without Fleet's prior written consent, it will not take, any lien or security interest in and to any assets of the Borrower, any Subsidiary or Affiliate of Borrower other than its now existing security interest in the Fleet Priority Collateral and the Ingram Inventory and the Borrower covenants and agrees not to grant or allow any of its Subsidiaries or Affiliates to grant any lien or security interest to Ingram, in and to any assets other than the interest in favor of Ingram in the Fleet Priority Collateral and the Ingram Inventory. In the event that Ingram has or hereafter takes such lien or security interest, whether in violation of the preceding sentence or with the prior written consent of Fleet, (1) to the extent that Fleet has a lien or security interest in the same property, the lien or security interest of Ingram shall be subject and subordinate in all respects and for all purposes to the liens and security interests now existing or hereafter acquired by Fleet therein, regardless of the order of creation, attachment or filing or other perfection (excluding Ingram's lien on the Ingram Inventory which shall be superior and senior in all respects to the lien of Fleet -2- in the Ingram Inventory), and (2) to the extent that Fleet does not have a lien or security interest in the same property (excluding Ingram Inventory), the lien or security interest received by Ingram shall be received by it IN TRUST for the benefit of Fleet and Ingram shall promptly assign such lien or security interest and any and all perfection filings to Fleet, shall transfer possession of any such collateral at any time in its possession, and shall pay over to Fleet any and all payments or proceeds received by it in respect to such lien or security interest, and in either such case Fleet shall be entitled to receive from the proceeds thereof all amounts due to Fleet by the Borrower, whether principal, interest, costs of collection or otherwise, before Ingram receives any proceeds therefrom. 2.2 Ingram covenants and agrees that the Ingram Debt and all of the rights and remedies of Ingram with respect to the Ingram Debt (excluding any and all rights and remedies with respect to the Ingram Inventory) are hereby made subordinate and subject in right of payment to the prior payment in full of any and all Fleet Debt, and the Borrower covenants and agrees not to make any payment on or with respect to the Ingram Debt until payment in full of any and all Fleet Debt, except as set forth in the immediately following sentence. Ingram shall be entitled to receive and the Borrower shall be permitted to pay regularly scheduled payments due under the Ingram Debt, provided that each of the following conditions are met at the time of each such payment due: (a) any such payment shall be made on or after the date such payment is due; (b) on or prior to the date on which payment under the Ingram Debt is to be paid, the Borrower shall have paid to Fleet any and all amounts which were due and payable to Fleet under or in connection with the Fleet Debt; and (c) such payment shall not be prohibited by Section 3 hereof. Notwithstanding anything to the contrary contained herein, Ingram shall be permitted to retain any proceeds received by Ingram from the exercise of its remedies in accordance with Section 3.2 hereof or payments received by Ingram for or on account of Ingram Inventory in advance of, or simultaneously with, delivery thereof ("c.o.d. payments"). SECTION 3. Exercise of Remedies. 3.1 Ingram covenants and agrees that until the Fleet Debt shall have been paid in full, except as expressly permitted under this Agreement, Ingram will not take any action to accelerate the obligations outstanding under the Ingram Debt, to exercise any of its remedies in respect of such obligations, including without limitation to initiate a reorganization of, or litigation against, the Borrower or to foreclose or otherwise realize on any Fleet Priority Collateral. Ingram shall be entitled: (i) to accelerate the obligations outstanding under the Ingram Debt if an event of default shall have occurred under the Ingram Debt or if Fleet has accelerated the Fleet Debt; and (ii) during any period when there is no Standstill Period (as hereinafter defined) but only during such period, after giving not less than five (5) Business Days prior written notice thereof to Fleet, to take any action prohibited by the prior sentence of this Section 3.1 but otherwise available under the Ingram Debt (excluding actions to foreclose upon or exercise remedies with respect to the Ingram Inventory), provided however that, if Fleet accelerates the Fleet Debt, commences legal proceedings against the Borrower, seizes Fleet Priority Collateral or takes any other remedial action permitted by the Fleet Debt (collectively, "Remedial Actions") (other than solely instituting legal proceedings against the Borrower without accelerating or undertaking any other Remedial Action) after Ingram commences any action permitted under this Section 3.1(ii), -3- Ingram will discontinue such action until the Fleet Debt is repaid in full or Fleet otherwise consents in writing. Any proceeds received by Ingram in connection with the Ingram Debt (excluding payments received from the Ingram Inventory) shall be immediately paid over to Fleet to be applied toward repayment of the Fleet Debt, until the Fleet Debt is repaid in full. 3.2 Ingram and the Borrower acknowledge that after the occurrence and during the continuance of an Event of Default (as defined under the Fleet Debt), Fleet, at its option, may take any action to foreclose or realize upon or enforce any of its rights, including without limitation any of its rights with respect to any Fleet Collateral, without the prior consent of the Borrower or Ingram. Upon written notice of such Event of Default given to the Borrower and Ingram by Fleet unless and until there is no Standstill Period with respect to such Event of Default, no payment shall be made by the Borrower with respect to the Ingram Debt. Fleet and the Borrower acknowledge that after the occurrence and during the continuance of an Event of Default (as defined under the Ingram Debt), Ingram, at its option, may take any action to foreclose or realize upon or enforce any of its rights or remedies with respect to any Ingram Inventory, without the prior consent of the Borrower or Fleet. 3.3 The term "Standstill Period" shall mean a period commencing on the date Fleet sends written notice to the Borrower and Ingram that the Borrower has failed to comply with any covenant in the Loan Documents or that an Event of Default under the Loan Documents, not involving the Borrower's obligation to make payments to Fleet, has occurred and that as a result, a Standstill Period is to commence, and ending on the earlier of (i) the date that such breach, failure or Event of Default is cured by the Borrower or waived in writing by Fleet, or (iii) that date which is 180 days after the commencement of the Standstill Period. 3.4 Upon any acceleration of Fleet Debt, distribution of assets, winding up, total or partial liquidation, dissolution, reorganization or readjustment of the debt, custodianship, bankruptcy, receivership, or insolvency or upon an assignment for the benefit of creditors or upon any other marshalling of the assets and liabilities of the Borrower: (a) all of the principal, interest and other amounts constituting Fleet Debt whether or not then due and payable shall first be paid in full before any payment of principal, interest, or any other amount constituting Ingram Debt, excluding any payments received by Ingram in accordance with subsection 3.6(e); (b) any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities to which Ingram would be otherwise entitled (but for the terms hereof) excluding the Ingram Inventory and proceeds solely from disposition by Ingram or a trustee of the Ingram Inventory shall be paid or delivered by the trustee in bankruptcy, receiver, assignee for the benefit of creditors or other person making such distribution directly to Fleet, for application to the payment of Fleet Debt to the extent necessary to pay Fleet Debt in full, and Ingram irrevocably (a) authorizes and empowers Fleet or Fleet's representative to demand, sue for, collect and receive all such payments and distributions, and to file, vote and prove all claims therefor and to take all such other action, in its name or otherwise, as Fleet or Fleet's representative may determine to be necessary or appropriate, and (b) -4- authorizes, empowers and directs all receivers, trustees, liquidators, custodians, conservators and others having authority to effect all such payments and distributions; (c) Ingram shall execute and deliver to Fleet or its representative all such further instruments confirming the authorization referred to in the foregoing subsection 3.6(b), and any powers of attorney specifically confirming the rights of Fleet arising under the foregoing subsection 3.6(b), and all such proofs of claim, assignments of claim and other instruments and shall take all such other actions as may be reasonably requested by Fleet in order to enable Fleet to enforce all claims upon or in respect of the Ingram Debt; (d) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Borrower of any kind or character, whether in cash, property or securities shall be received by Ingram before all of Fleet Debt is paid in full excluding any payment Ingram is entitled to receive in accordance with the provisions of Section 2.3 or subsection 3.6(e) hereof, such payments or distributions shall be held IN TRUST by Ingram for Fleet and shall be forthwith paid over or delivered to Fleet, for application to payment of Fleet Debt remaining unpaid to the extent necessary to pay Fleet Debt in full; and (e) in the event of any disposition of Ingram Inventory outside of the ordinary course of business of the Borrower, all proceeds of Ingram Inventory shall be distributed first to Ingram until the Ingram Debt has been paid in full. Fleet agrees that if it should receive any monies from the liquidation, collection or other disposition outside of the ordinary course of business of the Borrower of any Ingram Inventory prior to payment in full of the Ingram Debt, it will hold such monies in trust for Ingram and will promptly pay them over to Ingram. SECTION 4. Additional Representations, Warranties and Covenants of Ingram. Ingram represents, warrants and covenants that (a) it has not made any prior assignment of or other agreement respecting the Ingram Debt, the Fleet Priority Collateral or any of its rights relating thereto, (b) it will not make any such assignment or other agreement without the prior written consent of Fleet, (c) as of the date of this Agreement, there is no event of default or event which with the passage of time or the giving of notice or both would be an event of default under and as defined in the Ingram Debt, (d) while this Agreement is in effect, it will not enter into any material amendment accelerating the payment schedules for principal or interest or accelerating the maturity date thereof; (e) the execution, delivery and performance of this Intercreditor Agreement and all other agreements, instruments and documents provided for herein, have been duly authorized by all necessary and proper corporate action, no consent or approval of any person, no consent or approval of any landlord or mortgagee, no waiver of any lien or right of distraint or other similar right nor any other consent, order, license, approval, authorization or declaration of, or filing with, any governmental authority, bureau or agency, is or will be required in connection with the execution, delivery, performance, validity or enforcement of, or priority created by, this Intercreditor Agreement, and any other agreements, instruments or documents to be executed or delivered pursuant hereto; (f) neither the execution and delivery of this Intercreditor Agreement nor the consummation of the transactions herein contemplated, nor compliance with the terms and provisions hereof, will contravene any provision of law, statute, rule or regulation to which Ingram is subject or will conflict with or result in a breach of any -5- judgment, decree, writ, injunction, ordinance, resolution, award, franchise, order or permit or other similar document or instrument of any court or governmental authority, bureau or agency, domestic or foreign, or its charter documents; (g) this Intercreditor Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of Ingram, enforceable in accordance with its terms, except to the extent that enforceability may be subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors' rights generally and by principles of equity; (h) Fleet has not made any representation or warranty, expressed or implied, to Ingram, and no acts by Fleet heretofore or hereafter taken, including any review of the financial condition or business affairs of the Borrower shall be deemed to constitute any representation or warranty by Fleet to Ingram; and (i) in connection with its entry into and performance of its obligations under this Intercreditor Agreement, Ingram has made and shall continue to make its own independent investigation of the financial condition and business affairs of the Borrower, its own independent appraisal of the creditworthiness of the Borrower, and its own independent evaluation of the value and lien status of the Fleet Priority Collateral. SECTION 5. Additional Representations, Warranties and Covenants of Fleet. Fleet represents, warrants and covenants that: (a) this Intercreditor Agreement has been duly executed and delivered and constitutes the valid and legally binding obligation of Fleet, enforceable in accordance with its terms; (b) Ingram has not made any representation or warranty, expressed or implied, to Fleet, and no acts by Ingram heretofore or hereafter taken, including any review of the financial condition or business affairs of the Borrower shall be deemed to constitute any representation or warranty by Ingram to Fleet; and (c) in connection with this entry into and performance of its obligations under this Intercreditor Agreement, Fleet has made and shall continue to make its own independent investigation of the financial condition and business affairs of the Borrower, its own appraisal of the creditworthiness of the Borrower, its own independent evaluation of the value and lien status of the Fleet Priority Collateral. SECTION 6. Events of Default. Each of the following shall constitute an event of default (an "Event of Default") hereunder (a) the failure of Ingram to comply with its covenants and agreements herein contained if such failure continues for more than twenty (20) days after Ingram is given written notice of such failure by Fleet, or (b) if any representation or warranty of Ingram is false or materially misleading when made. The Borrower acknowledges that the occurrence of any Event of Default hereunder constitutes an Event of Default as defined in the Loan Agreement. SECTION 7. Miscellaneous. 7.1 With respect to their respective relationships with the Borrower, each right, power and remedy of Fleet and/or Ingram provided for in this Agreement, or any other document referred to herein, as applicable, whether now existing or hereafter available at law or in equity or by statute or otherwise with respect to the Borrower, shall be cumulative and concurrent (except to the extent otherwise provided in any such document) and shall be in addition to every other such right, power or remedy. Except to the extent otherwise provided in this Agreement or any other document referred to herein, as applicable, the exercise or the beginning of the exercise by -6- Fleet and/or Ingram of any one or more of such rights, powers or remedies with respect to the Borrower shall not preclude the simultaneous or later exercise of all other such rights, powers or remedies, and no course of dealing or failure or delay on the part of Fleet and/or Ingram in exercising any such right, power or remedy shall operate as a waiver thereof or otherwise prejudice its rights, powers or remedies. 7.2 Each party hereto agrees to execute such documents, instruments and agreements as may be reasonably necessary to carry out the agreements set forth herein. 7.3 The parties are entering into this Agreement only for the purpose of defining the relative rights of Ingram and Fleet and nothing herein shall impair any of the obligations of the Borrower to either or both Ingram and Fleet which are unconditional and absolute; nor shall this Agreement confer any rights on any person or entity not a party hereto nor shall the Borrower be entitled to use the failure of Ingram and/or Fleet to comply with the terms of this Agreement as a defense against any claim by Ingram or Fleet against the Borrower or as a basis for a claim or counterclaim by the Borrower against either Fleet or Ingram. 7.4 Except as expressly set forth above, Fleet shall have the right to amend, modify, supplement, extend or renew Fleet Debt and/or the Loan Agreement, the Note and any other document executed or to be executed in connection with Fleet Debt, exercise or fail to exercise any right, power, remedy or privilege under or with respect to Fleet Debt or any of aforementioned documents, grant or withhold any waiver, consent or approval with respect of any of the covenants, terms, conditions or agreements contained in any of the aforementioned documents, indulge, forebear or extend the time for performance of any covenant or agreement of the Borrower under or in connection with the aforementioned documents or otherwise take or fail to take any action with respect to Fleet Debt without the prior consent of Ingram and without affecting any of the rights or privileges of Fleet hereunder. Fleet shall promptly give Ingram notice of any amendment, modification, extension or supplement of Fleet Debt and/or the Loan Agreement, the Note, the Guaranty or any other document executed in connection with Fleet Debt. 7.5 This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without regard to principles of conflicts of laws. 7.6 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the terms and conditions hereof limiting the ability of Ingram to assign the Ingram Debt or its lien on and security interest in the Fleet Priority Collateral. 7.7 The Borrower and Ingram shall join with the Agent in executing one or more financing statements pursuant to the Uniform Commercial Code or other notice appropriate under applicable law, in form satisfactory to Fleet, for filing in all public offices where such filing is deemed by Fleet to be necessary or desirable. -7- 7.8 In the event of any conflict between any term, covenant or condition of this Intercreditor Agreement and any term, covenant or condition of any of the documents evidencing, securing or otherwise executed in connection with the Ingram Debt, the provisions of this Intercreditor Agreement shall control and govern. 7.9 Any notices required or permitted to be given hereunder shall be validly given if set forth in writing and delivered by hand against receipt or mailed, by certified mail, return receipt requested, addressed to the parties hereto at the respective addresses set forth in this Intercreditor Agreement. Any party hereto may designate any other address to which any notices shall be given by notice duly given hereunder. Any notice hereunder shall be deemed given on the day delivered by hand or on the earlier of actual receipt by the recipient two (2) business days after deposit in the mails, if so given by mail. 7.10 This Intercreditor Agreement may not be amended or modified orally but may be amended or modified only in writing, signed by all parties hereto. No waiver of any term or provision of this Intercreditor Agreement shall be effective unless it is in writing, making specific reference to this Intercreditor Agreement and signed by the party against whom such waiver is sought or to be enforced. This Intercreditor Agreement may be signed in one or more counterparts which, when taken together, shall constitute one in the same document. -8- IN WITNESS WHEREOF the undersigned have caused this Agreement to be executed by their respective duly authorized officers as of the date above written. INGRAM MICRO INC. By:_Paul Savasir Name:Paul Savasir Title: Sr. Director of Credit Address: Ingram Micro Inc. 1759 Wehrle Drive Williamsville, New York 14221-7887 Attn: Vice President - Credit FLEET CAPITAL CORPORATION By: David B Rivkind Name: Title: SVP Address: Fleet Capital Corporation 4900 Route 70 Pennsauken, NJ 08109-4792 Attention: Mr. Charles Kirschner Agreed to and accepted by: EMTEC, INC. By: Sam Bhatt Name: Title: VP FINANCE Address: Emtec, Inc. 817 East Gate Drive Mount Laurel, NJ 08054 -----END PRIVACY-ENHANCED MESSAGE-----