Exhibit 10.47
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CREDIT AND SECURITY AGREEMENT
Table of Contents
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ARTICLE I - Definitions................................................................................. 1
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Section 1.1 Definitions.................................................................. 1
Section 1.2 Cross References............................................................. 13
ARTICLE II - Amount and Terms of the Credit Facility.................................................... 13
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Section 2.1 Revolving Advances........................................................... 13
Section 2.2 Interest; Minimum Charge; Default Interest; Participations; Usury............ 14
Section 2.3 Fees......................................................................... 15
Section 2.4 Computation of Interest and Fees; When Interest Due and Payable.............. 15
Section 2.5 Capital Adequacy............................................................. 15
Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower........................... 16
Section 2.7 Termination and Line Reduction Fees; Waiver of Termination Fees.............. 16
Section 2.8 Mandatory Prepayment......................................................... 17
Section 2.9 Payment...................................................................... 17
Section 2.10 Payment on Non-Banking Days.................................................. 17
Section 2.11 Use of Proceeds.............................................................. 17
Section 2.12 Liability Records............................................................ 17
Section 2.13 Automatic Renewal............................................................ 17
Section 2.14 Facility Subject to Eximbank Rules........................................... 18
ARTICLE III - Security Interest; Occupancy; Setoff...................................................... 18
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Section 3.1 Grant of Security Interest................................................... 18
Section 3.2 Notification of Account Debtors and Other Obligors........................... 18
Section 3.3 Assignment of Insurance...................................................... 19
Section 3.4 Occupancy.................................................................... 19
Section 3.5 License...................................................................... 19
Section 3.6 Financing Statement.......................................................... 19
Section 3.7 Setoff....................................................................... 20
ARTICLE IV - Conditions of Lending...................................................................... 20
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Section 4.1 Conditions Precedent to the Initial Revolving Advance........................ 20
Section 4.2 Conditions Precedent to All Revolving Advances............................... 22
ARTICLE V - Representations and Warranties.............................................................. 23
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Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number................... 23
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements................ 23
Section 5.3 Legal Agreements............................................................... 23
Section 5.4 Subsidiaries................................................................... 23
Section 5.5 Financial Condition; No Adverse Change......................................... 23
Section 5.6 Litigation..................................................................... 24
Section 5.7 Regulation U................................................................... 24
Section 5.8 Taxes.......................................................................... 24
Section 5.9 Titles and Liens............................................................... 24
Section 5.10 Plans.......................................................................... 24
Section 5.11 Default........................................................................ 25
Section 5.12 Environmental Matters.......................................................... 25
Section 5.13 Submissions to Lender.......................................................... 26
Section 5.14 Financing Statements........................................................... 26
Section 5.15 Rights to Payment.............................................................. 26
Section 5.16 Financial Solvency............................................................. 27
Section 5.17 Suspension and Debarment, etc.................................................. 27
Section 5.18 Ownership of Borrower.......................................................... 28
ARTICLE VI - Borrower's Affirmative Covenants............................................................. 28
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Section 6.1 Reporting Requirements......................................................... 28
Section 6.2 Books and Records; Inspection and Examination.................................. 30
Section 6.3 Account Verification........................................................... 31
Section 6.4 Compliance with Laws........................................................... 31
Section 6.5 Payment of Taxes and Other Claims.............................................. 31
Section 6.6 Maintenance of Properties...................................................... 32
Section 6.7 Insurance...................................................................... 32
Section 6.8 Preservation of Existence...................................................... 32
Section 6.9 Delivery of Instruments, etc................................................... 32
Section 6.10 Chattel Paper.................................................................. 32
Section 6.11 Lockbox; Collateral Account.................................................... 33
Section 6.12 Performance by the Lender...................................................... 33
Section 6.13 Control Agreements............................................................. 34
Section 6.14 Minimum Tangible Net Worth..................................................... 34
Section 6.15 Minimum Book Net Worth......................................................... 34
Section 6.16 Quarterly Minimum Net Income................................................... 35
Section 6.17 Monthly Minimum Net Income..................................................... 35
Section 6.18 New Covenants.................................................................. 35
Section 6.19 Quarterly Inspection and Review................................................ 35
Section 6.20 Assembly of Export Order Summaries............................................. 35
Section 6.21 Perfection of Intellectual Property Security Interest.......................... 35
Section 6.22 Location of Collateral; Acknowledgment from Bailees........................... 36
ARTICLE VII - Negative Covenants.......................................................................... 36
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Section 7.1 Liens.......................................................................... 36
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Section 7.2 Indebtedness............................................................... 37
Section 7.3 Guaranties................................................................. 37
Section 7.4 Investments and Subsidiaries............................................... 37
Section 7.5 Dividends.................................................................. 38
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations.............. 38
Section 7.7 Consolidation and Merger; Asset Acquisitions............................... 39
Section 7.8 Sale and Leaseback......................................................... 39
Section 7.9 Restrictions on Nature of Business......................................... 39
Section 7.10 Capital Expenditures....................................................... 39
Section 7.11 Accounting................................................................. 39
Section 7.12 Discounts, etc............................................................. 39
Section 7.13 Defined Benefit Pension Plans.............................................. 39
Section 7.14 Other Defaults............................................................. 39
Section 7.15 Place of Business; Name.................................................... 39
Section 7.16 Organizational Documents................................................... 40
Section 7.17 Salaries................................................................... 40
ARTICLE VIII - Events of Default, Rights and Remedies................................................. 40
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Section 8.1 Events of Default.......................................................... 40
Section 8.2 Rights and Remedies........................................................ 42
Section 8.3 Certain Notices............................................................ 43
ARTICLE IX - Miscellaneous............................................................................ 43
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Section 9.1 No Waiver; Cumulative Remedies............................................. 43
Section 9.2 Amendments, Etc............................................................ 43
Section 9.3 Addresses for Notices, Etc................................................. 43
Section 9.4 Further Documents.......................................................... 44
Section 9.5 Collateral................................................................. 44
Section 9.6 Costs and Expenses......................................................... 44
Section 9.7 Indemnity.................................................................. 44
Section 9.8 Participants............................................................... 46
Section 9.9 Execution in Counterparts.................................................. 46
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging Information..... 46
Section 9.11 Severability of Provisions................................................. 46
Section 9.12 Entire Agreement........................................................... 46
Section 9.13 Headings................................................................... 46
Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial................... 47
Section 9.15 Confidentiality............................................................ 47
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CREDIT AND SECURITY AGREEMENT
(Eximbank Guaranteed Loan No. __________)
Dated as of December 8, ▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇▇, INC., a Delaware corporation (the "Borrower"), and
▇▇▇▇▇ FARGO BANK MINNESOTA, N.A. a national banking association (the "Lender"),
hereby agree as follows:
ARTICLE I
Definitions
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Section 1.1 Definitions. For all purposes of this Agreement, except as
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otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article, and include the plural as well as the singular;
and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term may be
defined from time to time in the UCC, whether now owned or hereafter arising,
including without limitation the aggregate unpaid obligations of customers and
other account debtors to the Borrower arising out of the sale or lease of goods
or rendition of services by the Borrower on an open account or deferred payment
basis.
"Affiliate" or "Affiliates" means any Person controlled by, controlling or
under common control with the Borrower, including (without limitation) any
Subsidiary of the Borrower. For purposes of this definition, "control," when
used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as amended,
supplemented or restated from time to time.
"Availability" means, the lesser of:
(a) the Borrowing Base; or
(b) the difference between (i) $13,500,000 and (ii) the
outstanding principal balance of the WFBCI Revolving Advances.
"Banking Day" means a day other than a Saturday, Sunday or other day on
which banks are generally not open for business in Dallas, Texas.
"Book Net Worth" means the aggregate of the common and preferred
stockholders' equity of the Borrower, determined in accordance with GAAP on a
consolidated basis.
"Borrower Agreement" means the Borrower Agreement of even date herewith by
and between the Borrower and the Lender in the form attached hereto as Exhibit
B.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of:
(i) 85% of Eligible Export-Related Accounts, plus
(ii) the lesser of (A) 50% of Eligible Export Inventory or (B)
$4,000,000;
provided, however, (A) at no time shall the outstanding principal balance of the
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Revolving Advances supported by Eligible Export Inventory exceed 60% of the
aggregate amount of all outstanding Revolving Advances and (B) the overall
amount of the Items shall be determined by reference to the percentage which
sales of the Items bears to the Borrower's total Inventory sales during the
twelve (12) month period preceding the date of determination plus the projected
sales in the next ninety (90) days.
"Borrowing Base Certificate" means a certificate, substantially in the form
attached hereto as Exhibit D, executed by the Borrower and accepted by the
Lender.
"Capital Expenditures" for a period means any expenditure of money for the
lease, purchase or other acquisition of any capital asset, or the lease of any
other asset whether payable currently or in the future.
"Charges" means all fees, charges, and/or other items of value, if any,
contracted for, charged, taken, received or reserved by Lender in connection
with the transactions contemplated hereunder, which are treated as interest
under applicable law.
"Chattel Paper" means all of the Borrower's Chattel Paper, as such term may
be defined from time to time in the UCC, whether now owned or hereafter
acquired.
"Collateral" means all of the Borrower's assets, including all Chattel
Paper, deposit accounts, Equipment, General Intangibles, Instruments, Inventory,
Receivables, Investment Property, Letter of Credit Rights, Intellectual
Property, all sums on deposit in any Collateral Account, and any items in any
Lockbox; together with (i) all substitutions and replacements for and products
of any of the foregoing; (ii) proceeds of any and all of the foregoing; (iii) in
the case of all tangible goods, all accessions; (iv) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or affixed
to or used in connection with any tangible goods; and (v) all warehouse
receipts, bills of lading and other documents of title now or hereafter covering
such goods; provided, however that
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Collateral shall not include any cash, cash equivalents or marketable securities
which are not Proceeds of Collateral.
"Collateral Account" means the Lender Account, as such term is defined in
the Lockbox Agreement.
"Commitments" means the Lender's commitments to make Revolving Advances to
or for the Borrower's account pursuant to Article II.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit B attached hereto.
"Country Limitation Schedule" means the most recent schedule published by
Eximbank and provided to the Borrower by the Lender which sets forth on a
country-by-country basis whether and under what conditions Eximbank will provide
coverage for the financing of export transactions to countries listed therein.
"Credit Facility" means the credit facility being made available to the
Borrower by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or liability which in
accordance with GAAP would be included in determining total liabilities as shown
on the liabilities side of a balance sheet of that Person as at the date as of
which Debt is to be determined. For purposes of determining a Person's aggregate
Debt at any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Default" means an event that, with giving of notice or passage of time or
both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the first day of any
month during which a Default or Event of Default has occurred and ending on the
date the Lender notifies the Borrower in writing that such Default or Event of
Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances, an annual
rate equal to three percent (3%) over the Revolving Floating Rate, which rate
shall change when and as the Revolving Floating Rate changes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eligible Export-Related Accounts" means all unpaid Export Related Accounts
owed by account debtors located outside the United States for the sale or
provision of Items, net of any credits, but in no event shall Eligible Export-
Related Accounts include any Export Related Account:
(i) that does not arise from the sale of Items in the
ordinary course of Borrower's business;
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(ii) that is not subject to a valid, perfected first
priority Lien in favor of Lender;
(iii) as to which any covenant, representation or warranty
contained in the Loan Documents with respect to such Account has been
breached;
(iv) that is not owned by Borrower or is subject to any
right, claim or interest of another Person other than the Lien in
favor of Lender and the junior Lien in favor of WFBCI;
(v) with respect to which an invoice has not been sent;
(vi) that arises from the sale of defense articles or
defense services;
(vii) that is due and payable from an account debtor located
in a Prohibited Country;
(viii) that does not comply with the requirements of the
Country Limitation Schedule;
(ix) that is due and payable more than 90 days from the
earlier of the shipment date or the date of the invoice;
(x) that is not paid within 60 calendar days from its
original due date, unless it is insured through Eximbank export credit
insurance for comprehensive commercial and political risk, or through
Eximbank approved private insurers for comparable coverage, in which
case it is not paid within 90 calendar days from its due date;
(xi) that arises from a sale of goods to or performance of
services for an employee of Borrower, a stockholder of Borrower, a
Subsidiary of Borrower, a Person with a controlling interest in
Borrower or a Person which shares common controlling ownership with
Borrower;
(xii) that is backed by a letter of credit unless the Items
covered by the subject letter of credit have been shipped;
(xiii) that Lender or Eximbank, in its reasonable judgment,
deems uncollectible for any reason;
(xiv) that is due and payable in a currency other than U.S.
dollars, (a) except as may be approved in writing by Eximbank and (b)
except for up to an aggregate of $500,000 in accounts receivable
payable by customers of the Borrower existing on the Funding Date in
British Pounds Sterling;
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(xv) that is due and payable from a military account debtor,
except as may be approved in writing by Eximbank;
(xvi) that does not comply with the terms of sale set forth
in Section 7 of the Loan Authorization Notice;
(xvii) that is due and payable from an account debtor who (a)
applies for, suffers, or consents to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of
itself or of all or a substantial part of its property or calls a
meeting of its creditors, (b) admits in writing its inability, or is
generally unable, to pay its debts as they become due or ceases
operations of its present business, (c) makes a general assignment for
the benefit of creditors, (d) commences a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect), (e)
is adjudicated as bankrupt or insolvent, (f) files a petition seeking
to take advantage of any other law providing for the relief of
debtors, (g) acquiesces to, or fails to have dismissed, any petition
which is filed against it in any involuntary case under such
bankruptcy laws, or (h) takes any action for the purpose of effecting
any of the foregoing;
(xviii) that arises from a ▇▇▇▇-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by Chattel Paper;
(xix) for which the Items giving rise to such Account have
not been shipped and 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;
(xx) that is subject to any offset, deduction, defense,
dispute, or counterclaim or the account debtor is also a creditor or
supplier of Borrower or the Account is contingent in any respect or
for any reason;
(xxi) for which Borrower has made any agreement with the
account debtor for any deduction therefrom, except for discounts or
allowances made in the ordinary course of business for prompt payment,
all of which discounts or allowances are reflected in the calculation
of the face value of each respective invoice related thereto;
(xxii) for which any of the Items giving rise to such Account
have been returned, rejected or repossessed;
(xxiii) to the extent it includes any finance charges, service
charges, taxes, discounts, credits, allowances and Retainages;
(xxiv) that arise from the sale of Items containing less than
50% US Content;
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(xxv) that arise from the sale of Items containing any
Foreign Content not incorporated into such Items in the United States;
(xxvi) that arise from the sale of any Items to be used in the
construction, alteration, operation or maintenance of nuclear power,
enrichment, reprocessing, research or heavy water production
facilities; or
(xxvii) that are otherwise deemed ineligible for any reason by
the Lender or Eximbank in its discretion.
"Eligible Export Inventory" means the Items including raw materials,
components and work-in-process that has been purchased, manufactured or
otherwise acquired by the Borrower for resale pursuant to Export Orders and for
which the Lender has received a Borrowing Base Certificate certifying that such
Inventory will be used for export purposes only, at the lower of cost or market
value as determined in accordance with GAAP with market value as of the date of
any Inventory appraisal completed pursuant to the provisions of Section 6.15
being established pursuant to such appraisal; provided, however, that in no
event shall Eligible Export Inventory include any Inventory:
(i) that is not subject to a valid, perfected first
priority Lien in favor of Lender and subject to no other Liens except
those Liens in favor of WFBCI to secure repayment of WFBCI Credit
Agreement;
(ii) that is located at an address that has not been
disclosed to Lender in writing;
(iii) that is placed by Borrower on consignment or held by
Borrower on consignment from another Person;
(iv) that is in-transit; covered by any negotiable or non-
negotiable warehouse receipt, ▇▇▇▇ of lading or other document of
title; that is in the possession of a processor or bailee, or located
on premises leased or subleased to Borrower, or on premises subject to
a mortgage in favor of a Person other than Lender, unless such
processor or bailee or mortgagee or the lessor or sublessor of such
premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the subordination
or other limitation or extinguishment of such Person's rights with
respect to such Inventory and Lender's right to gain access thereto;
(v) that is produced in violation of the Fair Labor
Standards Act or subject to the "hot goods" provisions contained in 29
U.S.C.ss.215 or any successor statute or section;
(vi) as to which any covenant, representation or warranty
with respect to such Inventory contained in the Loan Documents has
been breached;
(vii) that is not located in the United States;
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(viii) that is sample or demonstration Inventory;
(ix) that consists of proprietary software (i.e. software
designed solely for Borrower's internal use and not intended for
resale);
(x) that is damaged, slow moving, obsolete, returned,
defective, recalled or unfit for further processing or not currently
saleable in the normal course of the Borrower's operations;
(xi) that has been previously exported from the United
States;
(xii) that constitutes defense articles or defense services;
(xiii) that is to be incorporated into Items destined for
shipment to a Prohibited Country, unless and only to the extent that
such Items are to be sold to such Prohibited Country on terms of a
letter of credit confirmed by a bank acceptable to Eximbank; or
(xiv) that is to be incorporated into Items whose sale would
result in an Account which would not be an Eligible Export-Related
Account;
(xv) that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the
vendor thereof;
(xvi) the Foreign Content portion of the Inventory containing
less than 50% US Content;
(xvii) for Inventory containing at least 50% US Content, any
Foreign Content not incorporated into such Inventory in the United
States; and
(xviii) Inventory otherwise deemed ineligible by the Lender in
its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such term may be
defined from time to time in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery, vehicles,
furniture, fixtures, manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including specifically
(without limitation) the goods described in any equipment schedule or list
herewith or hereafter furnished to the Lender by the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
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"Exceptions Approval Letter" means a letter from Eximbank approving
any and all applicable exceptions from the rules and regulations of Eximbank
governing the Working Capital Guaranty Program.
"Export Collateral" means that portion of Collateral consisting of
Export Related Accounts and the Items.
"Export Related Accounts" means all Accounts of the Borrower owed by
account debtors located outside the United States.
"Export Order" means a written export order or contract for the
purchase from the Borrower of Items from a customer outside the United States.
"Foreign Content" means that portion of the cost of Inventory arising
from materials which are not of United States origin or from labor and services
not performed in the United States.
"Funding Date" has the meaning given in Section 2.1.
"FYE" means the last day of the Borrower's fiscal year, which is
August 31.
"GAAP" means generally accepted accounting principles, applied on a
basis consistent with the accounting practices applied in the audited financial
statements described in Section 6.1(a), except for any change in accounting
practices to the extent that, due to a promulgation of the Financial Accounting
Standards Board changing or implementing any new accounting standard, the
Borrower either (i) is required to implement such change, or (ii) for future
periods will be required to and for the current period may in accordance with
generally accepted accounting principles implement such change, for its
financial statements to be in conformity with generally accepted accounting
principles (any such change is herein referred to as a "Required GAAP Change"),
provided that (x) the Borrower shall fully disclose in such financial statements
any such Required GAAP Change and the effects of the Required GAAP Change on the
Borrower's income, retained earnings or other accounts, as applicable, and (y)
the Borrower's financial covenants set forth in Section 6.14 and 7.10 shall be
adjusted as necessary to reflect the effects of such Required GAAP Change.
"General Intangibles" means all of the Borrower's general intangibles,
as such term may be defined from time to time in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and future
patents, patent applications, copyrights, trademarks, trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's name, and the
goodwill of the Borrower's business.
"Guarantor" means RFM Export, Inc., a company incorporated under the
laws of Barbados.
"Guaranty" means that certain Guaranty of even date herewith executed
by the Guarantor in favor of the Lender.
"Hazardous Substance" has the meaning given in Section 5.12.
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"Instruments" means all of the Borrower's instruments, as such term
may be defined from time to time in the UCC, whether now owned or hereafter
acquired.
"Intellectual Property" means all rights, priorities and privileges
relating to intellectual property, whether arising under United States,
multinational or foreign laws or otherwise, including, without limitation, any
now owned or hereafter arising copyrights, copyright licenses, patents, patent
licenses, trademarks and trademark licenses and all rights to ▇▇▇ at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Interest Payment Date" has the meaning given in Section 2.2.
"Inventory" means all of the Borrower's inventory, as such term may be
defined from time to time in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies or
materials, whether acquired, held or furnished for sale, for lease or under
service contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property,
as such term may be defined from time to time in the UCC, whether now owned or
hereafter acquired, including but not limited to all securities, security
entitlements, securities accounts, commodity contracts, commodity accounts,
stocks, bonds, mutual fund shares, money market shares and U.S. Government
securities.
"Items" means all Inventory of the Borrower to be sold by the Borrower
to customers outside the United States.
"Letter of Credit Rights" means a right to payment or performance
under a letter of credit, whether or not the Borrower has demanded or is at the
time entitled to demand payment or performance but does not include the right to
demand payment or performance.
"Lien" means any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement perfecting a security
interest under the UCC or comparable law of any jurisdiction) by which property
is encumbered or otherwise charged.
"Loan Authorization Notice" means that certain Loan Authorization
Notice submitted to the Eximbank by Lender in connection with this Agreement.
"Loan Documents" means this Agreement, the Revolving Note, the
Borrower Agreement and the Security Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
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"Lockbox Agreement" means the Lockbox and Collection Account Agreement
by and among the Borrower, Regulus West LLC, ▇▇▇▇▇ Fargo Bank Texas, N.A. and,
the Lender, of even date herewith.
"Master Guaranty" means that certain Master Guarantee Agreement No.
MN-MGA-99-001 dated July 20, 1999, by and between the Lender and Eximbank, as
supplemented by a Delegated Authority Letter Agreement No. MN-DA-99-001 dated
September 30, 1999.
.
"Maturity Date" has the meaning given in Section 2.13.
"Maximum Line" means $8,500,000, unless said amount is reduced
pursuant to Section 2.6, in which event it means the amount to which said amount
is reduced.
"Maximum Rate" means the maximum lawful rate of interest which may be
contracted for, charged, taken, received or reserved by Lender in accordance
with the applicable laws of the State of Texas (or applicable United States
federal law to the extent that such law permits Lender to contract for, charge,
take, receive or reserve a greater amount of interest than under Texas law),
taking into account all Charges made in connection with the transaction
evidenced by the Loan Documents. To the extent, if any, that Chapter 303 of the
Texas Finance Code, as amended, establishes the Maximum Rate, the Maximum Rate
shall be the "weekly ceiling" as defined therein.
"Minimum Charge" has the meaning given in Section 2.2(c).
"Net Income" means fiscal year-to-date after-tax consolidated net
income of a Person, decreased by the sum of any extraordinary, non-operating or
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non-cash income recorded by such Person as determined in accordance with GAAP.
"Obligations" means the Revolving Note and each and every other debt,
liability and obligation of every type and description which the Borrower may
now or at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises in
a transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising under
this Agreement, the Revolving Note, or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Original Maturity Date" means December 31, 2003.
"Patent Security Agreement" means the Patent Security Agreement by the
Borrower in favor of the Lender of even date herewith, as the same may be
amended, supplemented or restated from time to time.
"Permitted Lien" has the meaning given in Section 7.1.
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"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained for the
Borrower's employees and covered by Title IV of ERISA.
"Premises" means the Texas premises legally described in Exhibit D
attached hereto.
"Prime Rate" means the rate of interest publicly announced from time
to time by ▇▇▇▇▇ Fargo Bank, N.A.-San Francisco, as its "prime rate" or, if such
bank ceases to announce a rate so designated, any similar successor rate
designated by the Lender.
"Prohibited Country" means any country in which Eximbank coverage is
not available for commercial reasons or in which Eximbank is legally prohibited
from doing business, as designated in the Country Limitation Schedule.
"Receivables" means each and every right of the Borrower to the
payment of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a loan, out
of the overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently transfers such
person's interest to the Borrower, whether such right to payment is or is not
already earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all liens and
security interests) which the Borrower may at any time have by law or agreement
against any account debtor or other obligor obligated to make any such payment
or against any property of such account debtor or other obligor; all including
but not limited to all present and future Accounts, tax refunds and rights to
payment not constituting General Intangibles.
"Reportable Event" shall have the meaning assigned to that term in
Title IV of ERISA.
"Retainage" means that portion of an Account that an account debtor is
not obligated to pay until the end of a specified period of time following
satisfactory performance by the Borrower.
"Revolving Advance" has the meaning given in Section 2.1.
"Revolving Floating Rate" means an annual rate equal to the sum of the
Prime Rate plus two percent (2.00%), which annual rate shall change when and as
the Prime Rate changes.
"Revolving Note" means the Borrower's revolving promissory note,
payable to the order of the Lender in substantially the form of Exhibit A hereto
and any note or notes issued in substitution therefor, as the same may hereafter
be amended, supplemented or restated from time to time.
11
"Security Documents" means this Agreement, the Lockbox Agreement, the
Patent Security Agreement, the Guaranty and any other document delivered to the
Lender from time to time to secure the Obligations, as the same may hereafter be
amended, supplemented or restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Subsidiary" means any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Tangible Net Worth" means the difference between (i) the tangible
assets of the Borrower, which, in accordance with GAAP are tangible assets,
after deducting adequate reserves in each case where, in accordance with GAAP, a
reserve is proper and (ii) all Debt of the Borrower; provided, however, that
-------- -------
notwithstanding the foregoing in no event shall there be included as such
tangible assets patents, trademarks, trade names, copyrights, licenses,
goodwill, receivables from Affiliates, directors, officers or employees, prepaid
expenses, deposits, deferred charges or treasury stock or any securities or Debt
of the Borrower or any other securities unless the same are readily marketable
in the United States of America or entitled to be used as a credit against
federal income tax liabilities, and any other assets designated from time to
time by the Lender, in its sole discretion, in each case computed on a
consolidated basis.
"Termination Date" means the earliest of (i) the Maturity Date, (ii)
the date the Borrower terminates the Credit Facility, or (iii) the date the
Lender demands payment of the Obligations after an Event of Default pursuant to
Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time
in the State of Texas.
"US Content" means that portion of the cost of an Item arising from
materials which are of United States origin or from labor and services performed
in the United States.
"WFBCI" means ▇▇▇▇▇ Fargo Business Credit, Inc., a Minnesota
corporation.
"WFBCI Credit Agreement" means that certain Credit and Security
Agreement of even date herewith by and between the Borrower and WFBCI, as the
same may hereafter be amended, supplemented or restated from time to time.
"WFBCI Revolving Advances" means the Revolving Advances as defined in
WFBCI Credit Agreement.
Section 1.2 Cross References. All references in this Agreement to
----------------
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
12
ARTICLE II
Amount and Terms of the Credit Facility
---------------------------------------
Section 2.1 Revolving Advances. The Lender agrees, on the terms and
------------------
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). In no
event shall the provisions of Chapter 346 of the Texas Finance Code (which
regulates certain revolving credit loan accounts) apply to this Agreement or the
Revolving Note or other Loan Documents. The Lender shall have no obligation to
make a Revolving Advance if, after giving effect to such requested Revolving
Advance, the sum of the outstanding and unpaid Revolving Advances would exceed
Availability. In addition, at no time shall the outstanding Revolving Advances
supported by Eligible Export Inventory exceed 60% of all Revolving Advances. The
Borrower's obligation to pay the Revolving Advances shall be evidenced by the
Revolving Note and shall be secured by the Collateral as provided in Article
III. Within the limits set forth in this Section 2.1, the Borrower may borrow,
prepay pursuant to Section 2.6 and reborrow. On the Termination Date, the entire
unpaid principal balance of the Revolving Note, and all unpaid interest accrued
thereon, shall be due and payable. The Borrower agrees to comply with the
following procedures in requesting Revolving Advances under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 11:00 a.m. (Central time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone,
specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or (ii)
any person designated as the Borrower's agent by any officer of the
Borrower in a writing delivered to the Lender; or (iii) any person whom the
Lender reasonably believes to be an officer of the Borrower or such a
designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand deposit
account maintained with ▇▇▇▇▇ Fargo Bank Texas, N.A. unless the Lender and
the Borrower shall agree in writing to another manner of disbursement. Upon
the Lender's request, the Borrower shall promptly confirm each telephonic
request for a Revolving Advance by executing and delivering an appropriate
confirmation certificate to the Lender. The Borrower shall repay all
Revolving Advances even if the Lender does not receive such confirmation
and even if the person requesting a Revolving Advance was not in fact
authorized to do so. Any request for a Revolving Advance, whether written
or telephonic, shall be deemed to be a representation by the Borrower that
the conditions set forth in Section 4.2 have been satisfied as of the time
of the request.
Section 2.2 Interest; Minimum Charge; Default Interest; Participations;
-----------------------------------------------------------
Usury. Interest accruing on the Revolving Note shall be due and payable in
-----
arrears on the first day of each month (each an "Interest Payment Date").
13
(a) Revolving Note. Except as set forth in Sections 2.2(c) and
2.2(e), the outstanding principal balance of the Revolving Note shall bear
interest at the Revolving Floating Rate.
(b) Minimum Charge. In addition to the provisions of Section
2.2(a), the Borrower shall pay to the Lender on each Interest Payment Date
an additional commitment fee equal to the difference, if any, between (i)
$20,000.00 per calendar month during the term of this Agreement, and (ii)
the amount of interest calculated under Sections 2.2(a) and 2.2(e).
(c) Default Interest Rate. At any time during any Default Period,
in the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Revolving Advances outstanding from time
to time shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) Participations. The Lender may sell participations to one or
more Persons in all or a portion of its rights and obligations under this
Agreement. If any Person shall acquire a participation in the Revolving
Advances under this Agreement, the Borrower shall be obligated to the
Lender to pay the full amount of all interest calculated under, along with
all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Revolving Floating Rate, or
otherwise elects to accept less than its prorata share of such fees,
charges and other amounts due under this Agreement.
(e) Usury. In any event no rate change shall be put into effect
which would result in a rate greater than the Maximum Rate. It is not the
intention of the parties to this Agreement to make an agreement in
violation of the laws of any applicable jurisdiction relating to usury.
Regardless of any provision in any Loan Documents, the Lender shall never
be entitled to charge, receive, collect or apply, as interest on the
Obligations, any amount in excess of Maximum Rate. If the Lender receives,
collects or applies, as interest, any such excess, such amount which would
be excessive interest shall be deemed a partial repayment of principal and
treated hereunder as such; and if principal is paid in full, any remaining
excess shall be paid to the Borrower. All sums constituting interest under
applicable law shall be, to the extent permitted by applicable law,
amortized or spread, using the actuarial method, throughout the stated term
of the Revolving Note.
Section 2.3 Fees.
----
(a) Facility Fee. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable facility fee of 1.5% of the Maximum Line,
due and payable upon the execution of this Agreement and on each
anniversary hereof.
(b) Unused Line Fee. For the purposes of this Section 2.3(b),
"Unused Amount" means the Maximum Line reduced by outstanding Revolving
Advances. The Borrower agrees to pay to the Lender an unused line fee at
the rate of one-half percent (.5%) per annum
14
on the average daily Unused Amount from the date of this Agreement to and
including the Termination Date, due and payable monthly in arrears on each
Interest Payment Date and on the Termination Date.
(c) Audit Fees. The Borrower hereby agrees to pay the Lender, on
demand, audit fees in connection with any audits or inspections conducted
by the Lender of any Collateral or the Borrower's operations or business at
the rates established from time to time by the Lender as its audit fees
(which fees are currently $750 per day per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such
audit or inspection.
Section 2.4 Computation of Interest and Fees; When Interest Due and
-------------------------------------------------------
Payable. Interest accruing on the outstanding principal balance of the Revolving
-------
Advances and fees hereunder outstanding from time to time shall be computed on
the basis of actual number of days elapsed in a year of 360 days.
Section 2.5 Capital Adequacy. If any Related Lender determines at any time
----------------
that its Return has been reduced as a result of any Rule Change, such Related
Lender may require the Borrower to pay it the amount necessary to restore its
Return to what it would have been had there been no Rule Change. For purposes of
this Section 2.5:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "Return", for any period, means the return as determined by
such Related Lender on the Revolving Advances based upon its total capital
requirements and a reasonable attribution formula that takes account of the
Capital Adequacy Rules then in effect. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(c) "Rule Change" means any change in any Capital Adequacy Rule
occurring after the date of this Agreement, but the term does not include
any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to
the extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to) the Lender,
WFBCI, any parent corporation of the Lender and any assignee of any
interest of the Lender hereunder and any participant in the loans made
hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation
15
of the additional amount or amounts to be paid to the Related Lender hereunder
to restore its Return shall be conclusive absent manifest error. In determining
such amounts, the Related Lender may use any reasonable averaging and
attribution methods.
Section 2.6 Voluntary Prepayment; Reduction of the Maximum Line;
----------------------------------------------------
Termination of the Credit Facility by the Borrower. Except as otherwise provided
--------------------------------------------------
herein, the Borrower may prepay the Revolving Advances in whole at any time or
from time to time in part. The Borrower may terminate the Credit Facility or
reduce the Maximum Line at any time if it (i) gives the Lender at least 30 days'
prior written notice and (ii) pays the Lender the termination or line reduction
fees in accordance with Section 2.7. Any reduction in the Maximum Line must be
in an amount not less than $100,000 or an integral multiple thereof. If the
Borrower reduces the Maximum Line to zero, all Obligations shall be immediately
due and payable. Upon termination of the Credit Facility and payment and
performance of all Obligations, the Lender shall release or terminate the
Security Interest and the Security Documents to which the Borrower is entitled
by law.
Section 2.7 Termination and Line Reduction Fees; Waiver of
----------------------------------------------
Termination Fees.
----------------
(a) Termination and Line Reduction Fees. If the Credit
Facility is terminated for any reason as of a date other than the
Maturity Date, or the Borrower reduces the Maximum Line, the Borrower
shall pay to the Lender a fee in an amount equal to a percentage of the
Maximum Line (or the reduction, as the case may be) as follows: (i)
three percent (3%) if the termination or reduction occurs on or before
December 31, 2001; (ii) two percent (2%) if the termination or
reduction occurs after December 31, 2001 but on or before December 31,
2002; and (iii) one percent (1%) if the termination or reduction occurs
after December 31, 2002.
(b) Waiver of Termination Fees. The Borrower will not be
required to pay the termination and line reduction fees otherwise due
under this Section 2.7 if such termination or line reduction is made
because of increased cash flow generated from the Borrower's operations
or refinancing by an Affiliate of the Lender occurring after the first
anniversary of the Funding Date.
Section 2.8 Mandatory Prepayment. Without notice or demand, if the
--------------------
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess. Any payment received by the
Lender under this Section 2.8 or under Section 2.7 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
Section 2.9 Payment. All payments to the Lender shall be made in
-------
immediately available funds and shall be applied to the Obligations two (2)
Banking Days after receipt by the Lender. The Lender may hold all payments not
constituting immediately available funds for three (3) additional Banking Days
before applying them to the Obligations. Notwithstanding anything in Section
2.1, the Borrower hereby authorizes the Lender, in its discretion at any time or
from time to time without the Borrower's request and even if the conditions set
forth in Section 4.2 would not be satisfied, to
16
make a Revolving Advance in an amount equal to the portion of the Obligations
from time to time due and payable.
Section 2.10 Payment on Non-Banking Days. Whenever any payment to be
---------------------------
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Revolving Advances or the fees hereunder, as the case may be.
Section 2.11 Use of Proceeds. The Borrower shall use the proceeds of
---------------
Revolving Advances only as a source of working capital to fulfill Export Orders
and to finance the manufacture, production or purchase and subsequent export
sale of Items. Without limiting the generality of the foregoing, the Borrower
shall not use any proceeds of Revolving Advances for any purpose prohibited by
the Borrower Agreement or (i) to service or repay any of Borrower's pre-existing
or future indebtedness unrelated to the Credit Facility, (ii) to acquire fixed
assets or capital goods for use in the Borrower's business, (iii) to acquire,
equip or rent commercial space outside the United States, (iv) to employ
non-United States citizens or non-U.S. permanent residents located outside of
the United States, or (v) to serve as a retainage or warranty bond.
Section 2.12 Liability Records. The Lender may maintain from time to
-----------------
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct absent manifest error or
unless the Borrower establishes the contrary. Upon the Lender's demand, the
Borrower will admit and certify in writing the exact principal balance of the
Obligations that the Borrower then asserts to be outstanding. Any billing
statement or accounting rendered by the Lender shall be conclusive and fully
binding on the Borrower unless the Borrower gives the Lender specific written
notice of exception within 30 days after receipt absent manifest error.
Section 2.13 Automatic Renewal. Unless terminated (a) by the Lender
-----------------
(i) by giving written notice to the Borrower no less than ninety (90) days prior
to the Maturity Date or (ii) in accordance with Section 8.2, or (b) by the
Borrower (i) by giving written notice to the Lender no less than ninety (90)
days prior to the Maturity Date or (ii) in accordance with Section 2.6, the
Credit Facility shall remain in effect until the Original Maturity Date, and,
thereafter, shall automatically renew for successive one-year periods; provided,
however that the Credit Facility shall not renew unless all applicable
conditions set forth in the rules and regulations of Eximbank governing the
Working Capital Guaranty Program for such renewal are satisfied and the Eximbank
guaranty with respect to the Credit Facility pursuant to the Master Guaranty
shall remain in full force and effect for the renewal term. "Maturity Date"
shall initially mean the Original Maturity Date; provided, however, that if at
any time the Credit Facility has been automatically renewed, "Maturity Date"
shall mean the one-year anniversary of the date that was formerly the Maturity
Date.
Section 2.14 Facility Subject to Eximbank Rules. The Borrower
----------------------------------
acknowledges that the Lender is willing to make the Credit Facility available to
the Borrower because the Eximbank is willing to guaranty payment of a
significant portion of the Obligations pursuant to the Master Guaranty.
Accordingly, in the event of any inconsistency among the Loan Documents and the
Master Guaranty or related documents and the rules and regulations of the
Eximbank governing the Working Capital Guaranty Program, the provision that is
the more stringent on the Borrower shall
17
control. Compliance with any such applicable rule or regulation shall constitute
an additional covenant of the Borrower incorporated herein by reference.
ARTICLE III
Security Interest; Occupancy; Setoff
------------------------------------
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
--------------------------
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
--------------------------------------------------
Lender may at any time during a Default Period notify any account debtor or
other person obligated to pay the amount due that such right to payment has been
assigned or transferred to the Lender for security and shall be paid directly to
the Lender. The Borrower will join in giving such notice if the Lender so
requests. At any time after the Borrower or the Lender gives such notice to an
account debtor or other obligor, the Lender may, but need not, in the Lender's
name or in the Borrower's name, (a) demand, ▇▇▇ for, collect or receive any
money or property at any time payable or receivable on account of, or securing,
any such right to payment, or grant any extension to, make any compromise or
settlement with or otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such account debtor or
other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the
United States Postal Service to change the address for delivery of the
Borrower's mail to any address designated by the Lender, otherwise intercept the
Borrower's mail, and receive, open and dispose of the Borrower's mail, applying
all Collateral as permitted under this Agreement and holding all other mail for
the Borrower's account or forwarding such mail to the Borrower's last known
address.
Section 3.3 Assignment of Insurance. As additional security for the
-----------------------
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
---------
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
18
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good ▇▇▇▇▇ ▇▇▇▇ to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitments, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. The Borrower hereby grants to the Lender a
-------
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
-------------------
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
RF Monolithics, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Federal Tax Identification No.: ▇▇-▇▇▇▇▇▇▇
Name and address of Secured Party:
▇▇▇▇▇ Fargo Bank Minnesota, ▇.▇.
▇▇▇▇▇ Fargo Center
Sixth and ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The Borrower hereby (i) authorizes the Secured Party to file one or more UCC
financing statements describing the Collateral, which financing statements may
contain broader collateral descriptions than the descriptions set forth herein
and (ii) agrees to execute UCC financing statements covering the Collateral when
and as requested by the Lender from time to time.
19
Section 3.7 Setoff. The Borrower agrees that the Lender may at any time
------
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to the Initial Revolving Advance. The
-----------------------------------------------------
Lender's obligation to make the initial Revolving Advances hereunder shall be
subject to the condition precedent that the Borrower shall have satisfied and/or
the Lender shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) This Agreement, properly executed by the Borrower.
(b) The Revolving Note, properly executed by the Borrower.
(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease.
(d) The Patent Security Agreement, properly executed by the
Borrower.
(e) The Guaranty, properly executed by the Guarantor.
(f) A properly completed and executed Borrowing Base Certificate
as of a date not more than 5 Banking Days before the date of this
Agreement.
(g) The Borrower has simultaneously entered into the WFBCI Credit
Agreement and all conditions precedent to the initial Advance set forth
therein have been satisfied or waived by WFBCI.
(h) An Exceptions Approval Letter, properly signed by Eximbank.
(i) The Lockbox Agreement, properly executed by the Borrower,
Regulus West LLC and ▇▇▇▇▇ Fargo Bank Texas, N.A.
(j) The Borrower Agreement, properly executed by the Borrower.
(k) The SBA/Eximbank Joint Application, properly completed and
executed by the Borrower.
20
(l) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) no financing statements have been
filed and remain in effect against the Borrower except those financing
statements relating to Permitted Liens or to liens held by Persons who
have agreed in writing that upon receipt of proceeds of the Revolving
Advances, they will deliver UCC releases and/or terminations
satisfactory to the Lender, and (iii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest as
first in priority to all other perfected security interests, to the
extent the Security Interest is capable of being perfected by filing.
Within 90 days of the Funding Date the Borrower shall provide searches
of appropriate filing offices showing that no assignments of patents,
trademarks or copyrights have been filed and remain in effect against
the Borrower.
(m) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Revolving Advance requests, on the Borrower's behalf.
(n) A current certificate issued by the Secretary of State of
Delaware, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Delaware and is
in existence in good standing.
(o) A current certificate issued by the Secretary of State of
Texas, certifying that the Borrower is duly licensed and qualified to
transact business in the State of Texas.
(p) An opinion of counsel to the Borrower, addressed to the
Lender, and in form and substance reasonably acceptable to the Lender.
(q) Evidence that the net proceeds from the Borrower's
issuance of equity securities pursuant to a Unit Subscription Agreement
between the Borrower and certain investors in the amount of at least
$1,550,000 have been deposited into the Borrower's demand deposit
account with ▇▇▇▇▇ Fargo Bank Texas, N.A.
(r) Certificates of the insurance required hereunder, with
all hazard insurance and the foreign credit insurance containing a
lender's loss payable endorsement in the Lender's favor and with all
liability insurance naming the Lender as an additional insured.
(s) Payment of the fees and commissions due through the date
of the initial Revolving Advance under Section 2.3 and expenses
incurred by the Lender through such date and required to be paid by the
Borrower under Section 9.6, including all legal expenses incurred
through the date of this Agreement.
(t) Evidence that all indebtedness and lease obligations of
the Borrower to Bank One, Texas, NA and its affiliates have been paid
in full or will be paid out of the proceeds of the initial Advances.
21
(u) Such other documents as the Lender may reasonably
require.
Section 4.2 Conditions Precedent to All Revolving Advances. The
----------------------------------------------
Lender's obligation to make each Revolving Advance shall be subject to the
further conditions precedent that on such date:
(a) the Lender has received a Borrowing Base Certificate
submitted no less than one month before the requested day of the
Revolving Advance and copies of the Export Orders (or a written summary
thereof) against which the Borrower is requesting such Revolving
Advance.
(b) the representations and warranties contained in Article V
are correct on and as of the date of such Revolving Advance as though
made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(c) no event has occurred and is continuing, or would result
from such Revolving Advance, which constitutes a Default or an Event of
Default.
ARTICLE V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
----------------------------------------------------
Office; Inventory and Equipment Locations; Tax Identification Number. The
--------------------------------------------------------------------
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or the other locations set forth in Schedule 5.1 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
----------------------------------------------------
Agreements. The execution, delivery and performance by the Borrower of the Loan
----------
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except
Eximbank; (iii) violate any provision of any law, rule or regulation (including,
without limitation, Regulation T, U or X of the Board of Governors of the
Federal Reserve System) or of any order, writ, injunction or decree presently in
effect having applicability
22
to the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower 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
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
----------------
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. The Borrower has no Subsidiaries except as
------------
disclosed on Schedule 5.4 attached hereto. The Guarantor's net assets are less
than $5,000.
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
--------------------------------------
heretofore furnished to the Lender its unaudited financial statements for its
fiscal year ended August 31, 2000 and its unaudited financial statements for the
months ended September 30, 2000 and October 31, 2000 and those statements fairly
present in all material respects the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with generally accepted accounting
principles. Since the date of the most recent financial statements, there has
been no material adverse change in the Borrower's business, properties or
condition (financial or otherwise).
Section 5.6 Litigation. There are no actions, suits or proceedings
----------
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business
------------
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Revolving Advance will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused
-----
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due
other than any tax the amount of which, applicability, or validity is being
contested in good faith by appropriate proceedings and (x) for which proper
reserves have been made, (y) there is no risk of forfeiture of Collateral during
the pendency of such action, and (z)
23
any lien arising as a result of such tax is at all times junior in priority to
the Lender's security interest in the Collateral.
Section 5.9 Titles and Liens. The Borrower has good and indefeasible
----------------
title to all Collateral described in the collateral reports provided to the
Lender and all other Collateral, properties and assets reflected in the latest
financial statements referred to in Section 5.5 and all proceeds thereof, free
and clear of all mortgages, security interests, liens and encumbrances, except
for Permitted Liens. No financing statement naming the Borrower as debtor is on
file in any office except to perfect only Permitted Liens. Upon the proper
filing of a UCC financing statements in Texas and Delaware describing the
Collateral, the Lender's Security Interest in the Collateral will constitute a
valid, perfected security interest in the Collateral capable of being perfected
by filing, prior to all other security interests of any other Person except for
the security interest of WFBCI in Collateral not constituting Export Collateral.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
-----
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in compliance with any
of the material requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. The Borrower is in compliance with all
-------
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 Environmental Matters.
---------------------
(a) Definitions. As used in this Agreement, the following
-----------
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other
24
chemicals, wastes, substances and materials listed in,
regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under
any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law, except for liabilities in the
aggregate amount of less than $25,000 and with respect to which no
liens have attached to any of the Collateral.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in compliance
in all material respects with all Environmental Laws and all licenses,
permits and other authorizations required pursuant to any Environmental
Law and necessary for the lawful and efficient operation of such
businesses are in the Borrower's possession and are in full force and
effect. No permit required under any Environmental Law is scheduled to
expire within 12 months for which renewal is not expected to be
obtained and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not
and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13 Submissions to Lender. All financial and other
---------------------
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, present a good faith opinion as to such
projections, valuations and proforma condition and results.
25
Section 5.14 Financing Statements. The Borrower has provided to the
--------------------
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
-----------------
Instrument, document, Chattel Paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.16 Financial Solvency. Both before and after giving effect
------------------
to the transactions contemplated in the Loan Documents, none of the Borrower or
its Affiliates:
(a) was or will be insolvent, as that term is used and
defined in Section 101(32) of the United States Bankruptcy Code and
Section 2 of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or about to
engage in a business or a transaction for which any remaining assets of
the Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or
by taking any action with respect thereto, intends to, nor believes
that it will, incur debts beyond its ability to pay them as they
mature;
(d) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or
by taking any action with respect thereto, intends to hinder, delay or
defraud either its present or future creditors; and
(e) at this time contemplates filing a petition in bankruptcy
or for an arrangement or reorganization or similar proceeding under any
law any jurisdiction, nor, to the best knowledge of the Borrower, is
the subject of any actual, pending or threatened bankruptcy, insolvency
or similar proceedings under any law of any jurisdiction.
Section 5.17 Suspension and Debarment, etc. Neither the Borrower nor
------------------------------
any of its Principals (as defined below) are (A) debarred, suspended, proposed
for debarment with a final determination still pending, declared ineligible or
voluntarily excluded (as such terms are defined under any of the Debarment
Regulations referred to below) from participating in procurement or
nonprocurement transactions with any US federal government department or agency
pursuant to any of the Debarment Regulations (as defined below) or (B) indicted,
convicted or had a civil judgment
26
rendered against the Borrower or any of its Principals for any of the offenses
listed in any of the Debarment Regulations. Unless authorized by Eximbank, the
Borrower will not knowingly enter into any transactions in connection with the
Items with any person who is debarred, suspended, declared ineligible or
voluntarily excluded from participation in procurement or nonprocurement
transactions with any US federal government department or agency pursuant to any
of the Debarment Regulations. The Borrower will provide immediate written notice
to the Lender if at any time it learns that the certification set forth in this
Section 5.17 was erroneous when made or has become erroneous by reason of
changed circumstances. For the purposes hereof, (1) "Principals" shall mean any
officer, director, owner, partner, key employee, or other person with primary
management or supervisory responsibilities with respect to the Borrower; or any
other person (whether or not an employee) who has critical influence on or
substantive control over the transaction covered by this Agreement and (2) the
Debarment Regulations shall mean (x) the Government wide Debarment and
Suspension (Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May
26, 1988), (y) Subpart 9.4 (Debarment, Suspension and Ineligibility) of the
Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (z) the revised
Government wide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 60 Fed. Reg. 33037 (June 26, 1995). The Borrower acknowledges that any
statement, certification or representation made by it in connection with the
Credit Facility is subject to the penalties provided in Article 18 U.S.C.
Section 1001.
Section 5.18 Ownership of Borrower. No Person or affiliated Persons
---------------------
owns or controls the right to vote more than 20% of the outstanding capital
stock of the Borrower.
ARTICLE VI
Borrower's Affirmative Covenants
--------------------------------
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or
----------------------
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) except with respect to the FYE August 31, 2000, which
shall be delivered no later than December 15, 2000, as soon as
available, and in any event on the earlier of (x) the date the Borrower
files its Annual Report on SEC form 10-K and (y) 90 days after the end
of each fiscal year of the Borrower, the Borrower's audited financial
statements with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender,
which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of
the Borrower's income, retained earnings and cash flows for the fiscal
year then ended, prepared, on a consolidating and consolidated basis to
include the Guarantor and any other Affiliates, all in reasonable
detail and prepared in accordance with GAAP, together with (i) copies
of all management letters prepared and delivered by such accountants;
(ii) a report signed by such accountants stating that in making the
investigations necessary for said opinion they obtained
27
no knowledge, except as specifically stated, of any Default or Event of
Default hereunder and all relevant facts in reasonable detail to
evidence, and the computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 6.14 and 7.10;
and (iii) a certificate of the Borrower's chief financial officer
stating that such financial statements have been prepared in accordance
with GAAP and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so,
stating in reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 20 days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, on a consolidating and consolidated basis to include the
Guarantor and any other Affiliates, in reasonable detail and stating in
comparative form the figures for the corresponding date and periods in
the previous year, all prepared in accordance with GAAP, subject to
year-end audit adjustments; and accompanied by a Compliance Certificate
signed by the Borrower's chief financial officer stating (i) that such
financial statements have been prepared in accordance with GAAP,
subject to normal year-end audit adjustments, (ii) whether or not such
officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto, and (iii)
all relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in compliance with
the requirements set forth in Sections 6.14 and 7.10;
(c) within 15 days after the end of each month or more
frequently if the Lender so requires, agings of the Borrower's accounts
receivable, Eligible Export-Related Accounts, inventory, Eligible
Export Inventory and its accounts payable, an inventory certification
report, an accounts receivable certification as of the end of such
month or shorter time period and such information as the Lender shall
require to establish the sales percentage of the Items to total
Inventory sales for such periods as the Lender may request;
(d) as soon as available and in any event within 15 days
after the end of each month, a properly completed Borrowing Base
Certificate as of the end of such month, signed by the Borrower's chief
financial officer.
(e) at least 10 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as having been prepared in good faith and no more
positive as to the Borrower's operating results or financial condition
than the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as
the Lender may in its reasonable discretion require;
(f) within 5 Banking Days after the commencement thereof,
notice in writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.12 or which seek a monetary recovery against the
Borrower in excess of $10,000;
28
(g) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(h) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within 10 days
after the Borrower fails to make any quarterly contribution required
with respect to any Plan under Section 412(m) of the Internal Revenue
Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the
action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding $10,000
individually or $25,000 in the aggregate during any fiscal year; (ii)
credit memos; (iii) any goods returned to or recovered by the Borrower;
and (iv) any change in the persons constituting the Borrower's officers
and directors; provided, however, that events described in clauses (ii)
and (iii) may be reported using the daily collateral report provided to
the Lender.
(k) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(m) promptly after the sending or filing thereof, copies of
all regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(n) as soon as possible, and in any event by not later than
five Banking Days after the earlier of the due date or filing date
thereof each year, copies of the franchise and federal and state income
tax returns of the Borrower and all schedules thereto and any and all
other state tax returns of the Borrower no later than five Banking Days
of the Lender's request for the same;
29
(o) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition;
(p) within 5 days after knowledge thereof, notice of a change
in ownership of the Premises or any parcel thereof; and
(q) from time to time, with reasonable promptness, any and
all receivables schedules, collection reports, deposit records,
equipment schedules, copies of invoices to account debtors, shipment
documents and delivery receipts for goods sold, and such other
material, reports, records or information as the Lender may reasonably
request.
Section 6.2 Books and Records; Inspection and Examination. The
---------------------------------------------
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
and such other matters as the Lender may from time to time request in which true
and complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from
--------------------
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 Compliance with Laws.
--------------------
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply in all material respects with
all applicable Environmental Laws and obtain and comply in all material
respects with all permits, licenses and similar approvals required by
any Environmental Laws, and will not generate, use, transport, treat,
store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any
jurisdiction or any Environmental Law.
30
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
---------------------------------
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
Section 6.6 Maintenance of Properties. The Borrower will: (a) keep and
-------------------------
maintain the Collateral, the other collateral covered by the Security Documents
and all of its other properties necessary or useful in its business in good
condition, repair and working order (normal wear and tear excepted) and will
from time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the Borrower
from discontinuing the operation and maintenance of any of its properties if
such discontinuance is, in the Lender's judgment, desirable in the conduct of
the Borrower's business and not disadvantageous in any material respect to the
Lender; (b) defend the Collateral against all claims or demands of all persons
(other than the Lender) claiming the Collateral or any interest therein; and (c)
keep all Collateral and other collateral covered by the Security Documents free
and clear of all security interests, liens and encumbrances except Permitted
Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
---------
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure,
keep all tangible Collateral insured against risks of fire (including so- called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles), insure its foreign receivables with foreign credit insurance, and
insurance for such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit acceptable to the Lender. All policies of liability
insurance required hereunder shall name the Lender as an additional insured.
Section 6.8 Preservation of Existence. The Borrower will preserve and
-------------------------
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. The Borrower will promptly
----------------------------
deliver to the Lender in pledge all Instruments payable to it or any Subsidiary.
In addition, the Borrower will deliver to the Lender all Chattel Paper
evidencing a right to payment in excess of $5,000.
31
Section 6.10 Chattel Paper. The Borrower will shall place the
-------------
following legend in conspicuous type on all Chattel Paper (including electronic
Chattel Paper) it creates:
"This Chattel Paper has been assigned to ▇▇▇▇▇ Fargo Bank
Minnesota, N.A. (the "Secured Party") Further assignment of
this Chattel Paper violates the rights of the Secured Party."
Section 6.11 Lockbox; Collateral Account.
---------------------------
(a) For so long as the Credit Facility is in existence or
any Obligations are outstanding, the Borrower shall irrevocably direct
all present and future account debtors of Export Related Accounts and
other Persons obligated to make payments constituting Export
Collateral to make such payments directly to the Lockbox. All of the
Borrower's invoices, account statements and other written or oral
communications directing, instructing, demanding or requesting payment
of any Account or any other amount constituting Export Collateral
shall conspicuously direct that all payments be made to the Lockbox
and shall include the Lockbox address. All payments received in the
Lockbox shall be processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral
Account or, at the Lender's option, to deliver to the Lender all
collections on Accounts, contract rights, chattel paper and other
rights to payment constituting Export Collateral, and all other cash
proceeds of Export Collateral, which the Borrower may receive directly
notwithstanding its direction to account debtors and other obligors to
make payments to the Lockbox, immediately upon receipt thereof, in the
form received, except for the Borrower's endorsement when deemed
necessary. Until delivered to the Lender or deposited in a Collateral
Account, all proceeds or collections of Export Collateral shall be
held in trust by the Borrower for and as the property of the Lender
and shall not be commingled with any funds or property of the
Borrower.
(c) Amounts deposited in the Collateral Account shall not
bear interest and shall not be subject to withdrawal by the Borrower,
except after full payment and discharge of all Obligations.
(d) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing one (1) Banking Day, apply deposited funds in the Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender, by transferring such funds to
the Lender's general account.
(e) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected,
the Borrower will immediately pay the Lender, or, for items deposited
in the Collateral Account, the bank maintaining such account, the
amount of that item, or such bank at its discretion may charge any
uncollected item to the Borrower's commercial account or other
account. The Borrower shall be liable as an
32
endorser on all items deposited in the Collateral Account, whether or
not in fact endorsed by the Borrower.
Section 6.12 Performance by the Lender. If the Borrower at any time
-------------------------
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5, 6.7 and 6.11,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower during any Default Period any
and all instruments, documents, assignments, security agreements, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by the Borrower under
this Section 6.12.
Section 6.13 Control Agreements. Upon request by the Lender, the
------------------
Borrower hereby agrees to cooperate with the Lender in obtaining a control
agreement in form and substance reasonably satisfactory to the Lender with
respect to Collateral consisting of deposit accounts, letter of credit rights
and Investment Property sufficient to perfect the Lender's Security Interest in
such Collateral.
Section 6.14 Minimum Tangible Net Worth. The Borrower will maintain
--------------------------
its Tangible Net Worth as of the end of each month at an amount not less than
$1.00.
Section 6.15 Minimum Book Net Worth. The Borrower will maintain,
----------------------
during each period described below, its Book Net Worth of an amount not less
than the amount set forth below:
(a) From September 1, 2000 through November 30, 2000, a
minimum Book Net Worth of not less than $28,886,000;
(b) From December 1, 2000 through the Funding Date, a
minimum Book Net Worth of not less than $28,386,000;
(c) From the Funding Date through February 28, 2001, a
minimum Book Net Worth of not less than $30,295,995;
33
(d) From March 1, 2001 through May 31, 2001, a minimum Book
Net Worth of not less than $29,795,995;
(e) From June 1, 2001 through August 31, 2001, a minimum
Book Net Worth of not less than $30,295,995; and
(f) From September 1, 2001 through November 30, 2001, a
minimum Book Net Worth of not less than the Book Net Worth as of FYE
August 31, 2001 minus $1,500,000.
Section 6.16 Quarterly Minimum Net Income. The Borrower will
----------------------------
achieve: (a) during the three month fiscal period ending on November 30, 2000, a
minimum Net Income of greater than ($1,500,000); (b) during the six month fiscal
period ending on February 28, 2001, a minimum Net Income of greater than
($2,000,000); (c) during the nine month fiscal period ending on May 31, 2001, a
minimum Net Income of greater than ($2,500,000); (d) during the fiscal year
ending on August 31, 2001, a minimum Net Income of greater than ($2,000,000);
and (e) during the three month fiscal period from August 31, 2001, to November
30, 2001, a minimum Net Income of greater than ($1,500,000).
Section 6.17 Monthly Minimum Net Income. The Borrower will achieve,
--------------------------
as of the end of each month during the fiscal year ended August 31, 2001, other
than the months of September and October, minimum Net Income of greater than
($500,000).
Section 6.18 New Covenants. On or before December 1, 2001, the
-------------
Borrower and the Lender shall agree on new covenant levels for Sections 6.15,
6.16, 6.17 and 7.10 for periods after such date. The new covenant levels will be
based on Borrower's projections for such periods and shall be no less stringent
than the present levels. In addition, the Lender may readjust the covenant
levels (x) set forth in Section 6.15 to new levels determined in its sole
discretion in the event the Borrower issues additional equity securities after
the Funding Date or (y) set forth in Sections 6.15, 6.16 and 6.17 in the event
the Borrower assumes any new term indebtedness or capital lease obligations.
Section 6.19 Quarterly Inspection and Review. The Borrower shall
-------------------------------
cooperate with and assist the Lender and its agents in conducting a field
examination, audit and appraisal of the Collateral once every quarter while any
Obligations remain outstanding for the purpose of determining the value of the
Collateral, verification of the Borrowing Base and Borrower's compliance with
the Loan Documents. The field examination shall include an inspection and
valuation of the Inventory, a book audit of Borrower's Accounts and a review of
the accounts receivable aging report. During any Default Period, the Lender may
require more frequent exams. The costs of such field exams shall be paid by the
Borrower.
Section 6.20 Assembly of Export Order Summaries. In the event the
----------------------------------
Borrower has furnished summaries of Export Orders to the Lender pursuant to
Section 4.2(a), the Borrower shall at least once each calendar quarter make a
sampling of such Export Orders selected by the Lender representing at least 10%
of the aggregate U.S. dollar volume of all Export Orders and 10% of the number
of Export Orders supporting Revolving Advances made during the preceding
calendar quarter available for the Lender's review and inspection.
34
Section 6.21 Perfection of Intellectual Property Security Interest.
-----------------------------------------------------
No later than 90 days after the Funding Date, the Borrower shall execute and
file in all appropriate filing offices such instruments as may be required to
properly perfect the security interests granted pursuant to the Patent Security
Agreement. The Borrower shall provide the Lender with updates on its progress in
obtaining the perfection of such security interests in all foreign jurisdictions
every thirty days after the Funding Date until all such security interests are
properly perfected as first priority security interests.
Section 6.22 Location of Collateral; Acknowledgment from Bailees.
---------------------------------------------------
The Debtor will not permit the Collateral to be kept at any location not set
forth on Schedule 5.1 hereto. In the event Collateral is in the possession of a
third party, upon request of the Lender, Debtor will join with Secured Party in
notifying the third party of Secured Party's security interest and obtaining an
acknowledgment from the third party that it is holding the Collateral for the
benefit of the Secured Party.
ARTICLE VII
Negative Covenants
------------------
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
-----
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
--------- -------
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is
not Collateral or other collateral described in the Security
Documents, covenants, restrictions, rights, easements and minor
irregularities in title which do not materially interfere with the
Borrower's business or operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed
in Schedule 7.1 hereto, securing indebtedness for borrowed money
permitted under Section 7.2;
(c) the Security Interest and Liens created by the Security
Documents;
(d) the Liens in favor of WFBCI provided such Liens are
subordinate to the Security Interest in Export Collateral;
(e) purchase money security interests (including capital
leases) relating to permitted Capital Expenditures under Section 7.10
not exceeding the lesser of cost or fair market value thereof so long
as no Default Period is then in existence and none would exist
immediately after such acquisition;
35
(f) liens for taxes not then delinquent or the amount,
applicability or validity of which is being contested in good faith by
appropriate proceedings for which proper reserves have been made and
(x) which do not materially interfere with the Borrower's business or
operations as presently conducted, (y) there is no risk of forfeiture
of Collateral during the pendency of such action, and (z) any lien
arising as a result of such tax is at all times junior in priority to
the Lender's security interest in the Collateral;
(g) any landlord's lien on fixtures or personal property
arising by operation of law to the extent such lien is subordinate to
the security interest of the Lender in the Collateral and the rent
secured thereby is not in default; and
(h) any judgment lien which is subordinate to the security
interest of the Lender in the Collateral in an amount not exceeding
$25,000 so long as (x) the finality of such judgment is being
contested in good faith by appropriate proceedings, (y) for which
proper reserves have been made and (z) such proceedings or such lien
does not materially interfere with the Borrower's business or
operations as presently conducted.
Section 7.2 Indebtedness. The Borrower will not incur, create,
------------
assume or permit to exist any indebtedness or liability on account of deposits
or advances or any indebtedness for borrowed money or letters of credit issued
on the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto including any renewals or
extensions thereof; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
----------
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the
ordinary course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
----------------------------
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
36
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by ▇▇▇▇▇'▇ Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $50,000; and
(iii) advances in the form of progress payments for
the purchase of capital assets permitted pursuant to Section
7.10, prepaid rent not exceeding one month and security
deposits maintained in the ordinary course of business.
(b) The Borrower will not create or permit to exist any
Subsidiary except the Guarantor and any successor company that obtains
similar tax benefits provided that such company executes a guaranty on
substantially the same terms as the Guaranty immediately upon its
formation. The Borrower will not permit the Guarantor's net assets and
the net assets of any successor company permitted to be formed under
the preceding sentence at any one time to exceed $5,000 in the
aggregate other than commissions realized in the ordinary course of
business to the extent that same are transferred to the Borrower
within 5 Banking Days after payment thereof.
(c) Within 90 days after the Funding Date, the Borrower
shall cause the Guarantor to execute and deliver (x) a security
agreement (or other appropriate document) granting the Lender a
blanket lien in all of its assets as additional security for the
Guaranty, and take any other actions as may be necessary to cause the
security interests granted thereby to be perfected under applicable
law as first priority security interests and (y) a legal opinion in
form and substance reasonably acceptable to the Lender relating to the
due authorization, execution and delivery of the security agreement
and the enforceability thereof under applicable law.
Section 7.5 Dividends. The Borrower will not declare or pay any
---------
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
--------------------------------------------------
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
----------
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property other than obsolete or worn-out Equipment
37
in the aggregate value of $25,000 or less during any fiscal year without prior
or present receipt of full and adequate consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The
--------------------------------------------
Borrower will not dissolve, consolidate with or merge into any Person, or permit
any other Person to merge into it, or acquire (in a transaction analogous in
purpose or effect to a consolidation or merger) all or substantially all the
assets of any other Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into
------------------
any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will
----------------------------------
not engage in any line of business materially different from that presently
engaged in by the Borrower and will not purchase, lease or otherwise acquire
assets not related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
--------------------
contract to incur Capital Expenditures of more than $3,500,000 in the aggregate
during fiscal year 2001 of which not more than $1,500,000 shall be unfinanced.
Section 7.11 Accounting. The Borrower will not adopt any material
----------
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after notice
--------------
from the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
Section 7.13 Defined Benefit Pension Plans. The Borrower will not
-----------------------------
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not permit any
--------------
breach, default or event of default to occur under any note, loan agreement,
indenture, lease, mortgage, contract for deed, security agreement or other
contractual obligation binding upon the Borrower.
Section 7.15 Place of Business; Name. The Borrower will not transfer
-----------------------
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name or place of incorporation.
38
Section 7.16 Organizational Documents. The Borrower will not amend
------------------------
its certificate of incorporation or bylaws except to permit the issuance of
additional equity securities provided such amendment does not adversely affect
the Lender's rights or remedies.
Section 7.17 Salaries. The Borrower will not pay excessive or
--------
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or, without the prior approval of the independent members of the
Borrower's Board of Directors, increase the salary, bonus, commissions,
consultant fees or other compensation of any director, officer or consultant, or
any member of their families, by more than 10% in any one year, either
individually or for all such persons in the aggregate, or pay any such increase
from any source other than profits earned in the year of payment or improvements
in operating results compared to the preceding period or periods.
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default", wherever used
-----------------
herein, means any one of the following events:
(a) Default in the payment of the Obligations when they
become due and payable;
(b) Default in the payment of any fees, commissions, costs
or expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant
or agreement of the Borrower contained in this Agreement;
(d) The Borrower shall be or become insolvent (as such term
is defined in Section 5.16(a) hereof), or admit in writing its or his
inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply
for or consent to the appointment of any receiver, trustee, or similar
officer for it or him or for all or any substantial part of its or his
property; or such receiver, trustee or similar officer shall be
appointed without the application or consent of the Borrower, as the
case may be; or the Borrower shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it or him under the laws
of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower; or any
judgment, writ, warrant of attachment or execution or similar process
shall be issued or levied against a substantial part of the property
of the Borrower for an amount in excess of $25,000 at any one time in
the aggregate;
(e) A petition shall be filed by or against the Borrower
under the United States Bankruptcy Code naming the Borrower as debtor;
39
(f) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any
agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement shall prove to have been incorrect in
any material respect when deemed to be effective;
(g) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $25,000 and the
continuance of such judgment, decree or order unsatisfied and in
effect for any period of 30 consecutive days without a stay of
execution;
(h) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, including without limitation Next Millennium, or under any
indenture or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed, or under any
lease of any of the Premises, and the expiration of the applicable
period of grace, if any, specified in such evidence of indebtedness,
indenture, other instrument or lease;
(i) Any Reportable Event, which the Lender determines in
good faith constitutes grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Plan; or
the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress
termination of any Plan under Title IV of ERISA; or the Borrower shall
have failed to make any quarterly contribution required with respect
to any Plan under Section 412(m) of the Internal Revenue Code of 1986,
as amended, which the Lender determines in good faith may by itself,
or in combination with any such failures that the Lender may determine
are likely to occur in the future, result in the imposition of a lien
on the Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(k) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(l) The Borrower shall fail to pay, withhold, collect or
remit any tax or tax deficiency when assessed or due (other than any
tax deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books
adequate reserves therefor) or notice of any state or federal tax
liens shall be filed or issued;
40
(m) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising hereunder;
(n) An Event of Default shall occur under the Borrower
Agreement;
(o) Any of ▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇ or
▇▇▇ ▇▇▇▇▇▇ cease to be actively involved in the day-to-day management
of the Borrower;
(p) The Borrower fails to deliver a new landlord's waiver
acceptable to the Lender within 30 days following a change in
ownership of the Premises;
(q) An Event of Default shall occur under the WFBCI Credit
Agreement; or
(r) Any breach, default or event of default by or
attributable to any Affiliate under any agreement between such
Affiliate and the Lender.
Section 8.2 Rights and Remedies. During any Default Period, the
-------------------
Lender may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitments to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of
which the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and
without further action, apply any and all money owing by the Lender or
any affiliate of the Lender to the Borrower to the payment of the
Obligations;
(d) the Lender may exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
41
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 Certain Notices. If notice to the Borrower of any
---------------
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 9.3) at least ten
calendar days before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by
------------------------------
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification,
---------------
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom or any release of a Security Interest shall
be effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances.
Section 9.3 Addresses for Notices, Etc. Except as otherwise
--------------------------
expressly provided herein, all notices, requests, demands and other
communications provided for under the Loan Documents shall be in writing and
shall be (a) personally delivered, (b) sent by first class United States mail,
(c) sent by overnight courier of national reputation, or (d) transmitted by
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to the Borrower:
RF Monolithics, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
If to the Lender:
▇▇▇▇▇ Fargo Bank Minnesota, N.A.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
42
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 Further Documents. The Borrower will from time to time
-----------------
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a sale
----------
of accounts, contract rights or Chattel Paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on
------------------
demand all costs and expenses, including (without limitation) reasonable
attorneys' fees, incurred by the Lender in connection with the Obligations, this
Agreement, the Loan Documents, and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, including without
limitation all such costs, expenses and fees incurred in connection with the
negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.7 Indemnity. IN ADDITION TO THE PAYMENT OF EXPENSES
---------
PURSUANT TO SECTION 9.6, THE BORROWER AGREES TO INDEMNIFY, DEFEND AND HOLD
HARMLESS THE LENDER, AND ANY OF ITS PARTICIPANTS, PARENT CORPORATIONS,
SUBSIDIARY CORPORATIONS, AFFILIATED CORPORATIONS, SUCCESSOR CORPORATIONS, AND
ALL PRESENT AND FUTURE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS OF
THE FOREGOING (THE "INDEMNITEES") FROM AND AGAINST ANY OF THE FOLLOWING
(COLLECTIVELY, "INDEMNIFIED LIABILITIES"):
43
(i) ANY AND ALL TRANSFER TAXES, DOCUMENTARY TAXES,
ASSESSMENTS OR CHARGES MADE BY ANY GOVERNMENTAL
AUTHORITY BY REASON OF THE EXECUTION AND DELIVERY OF THE
LOAN DOCUMENTS OR THE MAKING OF THE ADVANCES;
(ii) ANY CLAIMS, LOSS OR DAMAGE TO WHICH ANY
INDEMNITEE MAY BE SUBJECTED IF ANY REPRESENTATION OR WARRANTY
CONTAINED IN SECTION 5.12 PROVES TO BE INCORRECT IN ANY
RESPECT OR AS A RESULT OF ANY VIOLATION OF THE COVENANT
CONTAINED IN SECTION 6.4(B); AND
(iii) ANY AND ALL OTHER LIABILITIES, LOSSES,
DAMAGES, PENALTIES, JUDGMENTS, SUITS, CLAIMS, COSTS AND
EXPENSES OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL)
IN CONNECTION WITH THE FOREGOING AND ANY OTHER INVESTIGATIVE,
ADMINISTRATIVE OR JUDICIAL PROCEEDINGS, WHETHER OR NOT SUCH
INDEMNITEE SHALL BE DESIGNATED A PARTY THERETO, WHICH MAY BE
IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY SUCH
INDEMNITEE, IN ANY MANNER RELATED TO OR ARISING OUT OF OR IN
CONNECTION WITH THE MAKING OF THE ADVANCES AND THE LOAN
DOCUMENTS OR THE USE OR INTENDED USE OF THE PROCEEDS OF THE
ADVANCES (INCLUDING ANY OF THE FOREGOING ARISING FROM THE
NEGLIGENCE OF THE INDEMNITEE), EXCEPT TO THE EXTENT SUCH
LIABILITY, LOSS, DAMAGE, PENALTY, JUDGMENT, SUIT, CLAIM, COST
OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A
COURT OF COMPETENT JURISDICTION TO HAVE RESULTED FROM THE
INDEMNITEE'S GROSS NEGLIGENCE OR WILFUL MISCONDUCT.
IF ANY INVESTIGATIVE, JUDICIAL OR ADMINISTRATIVE PROCEEDING ARISING FROM ANY OF
THE FOREGOING IS BROUGHT AGAINST ANY INDEMNITEE, UPON SUCH INDEMNITEE'S REQUEST,
THE BORROWER, OR COUNSEL DESIGNATED BY THE BORROWER AND SATISFACTORY TO THE
INDEMNITEE, WILL RESIST AND DEFEND SUCH ACTION, SUIT OR PROCEEDING TO THE EXTENT
AND IN THE MANNER DIRECTED BY THE INDEMNITEE, AT THE BORROWER'S SOLE COSTS AND
EXPENSE. EACH INDEMNITEE WILL USE ITS BEST EFFORTS TO COOPERATE IN THE DEFENSE
OF ANY SUCH ACTION, SUIT OR PROCEEDING. IF THE FOREGOING UNDERTAKING TO
INDEMNIFY, DEFEND AND HOLD HARMLESS MAY BE HELD TO BE UNENFORCEABLE BECAUSE IT
VIOLATES ANY LAW OR PUBLIC POLICY, THE BORROWER SHALL NEVERTHELESS MAKE THE
MAXIMUM CONTRIBUTION TO THE PAYMENT AND SATISFACTION OF EACH OF THE INDEMNIFIED
LIABILITIES WHICH IS PERMISSIBLE UNDER APPLICABLE LAW. THE BORROWER'S OBLIGATION
UNDER THIS SECTION 9.7 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT AND THE
DISCHARGE OF THE
44
BORROWER'S OTHER OBLIGATIONS HEREUNDER. THE BORROWER AGREES NOT TO ASSERT ANY
CLAIM AGAINST THE LENDER OR ANY OF ITS AFFILIATES OR ITS OR THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS AND ADVISORS, ON ANY THEORY OF LIABILITY,
FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR
OTHERWISE RELATING TO THE LOAN DOCUMENTS.
Section 9.8 Participants. The Lender and its participants, if any,
------------
are not partners or joint venturers, and the Lender shall not have any liability
or responsibility for any obligation, act or omission of any of its
participants. All rights and powers specifically conferred upon the Lender may
be transferred or delegated to any of the Lender's participants, successors or
assigns.
Section 9.9 Execution in Counterparts. This Agreement and other
-------------------------
Loan Documents may be executed in any number of 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.
Section 9.10 Binding Effect; Assignment; Complete Agreement;
----------------------------------------------
Exchanging Information. The Loan Documents shall be binding upon and inure to
----------------------
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
Section 9.11 Severability of Provisions. Any provision of this
--------------------------
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 Entire Agreement. THIS AGREEMENT, TOGETHER WITH THE
----------------
OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 9.13 Headings. Article and Section headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
Section 9.14 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
--------------------------------------------------------
This Agreement and the Loan Documents shall be governed by and construed in
accordance with the substantive laws (other than conflict laws) of the State of
Texas. The parties hereto hereby (i) consents to the personal jurisdiction of
the state and federal courts located in the State of Texas in connection with
any controversy related to this Agreement; (ii) waives any argument that venue
in any such forum is not convenient, (iii) agrees that any litigation initiated
by the Lender or the Borrower in connection with this Agreement or the other
Loan Documents shall be venued in either the District Court of Collin County,
Texas, or the United States District Court for the Northern District of Texas;
and (iv) agrees that a final judgment in any such suit, action or proceeding
shall be conclusive and may be enforced
45
in other jurisdictions by suit on the judgment or in any other manner provided
by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
BASED ON OR PERTAINING TO THIS AGREEMENT.
Section 9.15 Confidentiality. Lender shall use its best efforts to
---------------
hold in confidence all information, memoranda, or extracts furnished to Lender
by Borrower hereunder or in connection with the negotiation hereof, including
without limitation, the information provided to Lender by Borrower pursuant to
Section 6.1 hereof; provided that the Lender may disclose such information (i)
to its Affiliates, accountants or counsel, (ii) to any regulatory agency having
the authority to examine the Lender, (iii) as required by any legal or
governmental process or otherwise by law (iv) to any Person to which the Lender
sells or proposes to sell an assignment or participation hereunder in accordance
herewith, and (v) to the extent that such information shall be publicly
available or shall have been known to the Lender independently of any disclosure
by the Borrower hereunder or in connection herewith.
[Remainder of page intentionally left blank.]
46
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
▇▇▇▇▇ FARGO BANK MINNESOTA, N.A.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
--------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇, Assistant Vice President
RF MONOLITHICS, INC.
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇, President