Exhibit 10.35
LOAN AND SECURITY AGREEMENT
By and Between
MELLON BANK, N.A.
and
CONSOLIDATED STAINLESS, INC.
Dated: March 10, 1997
TABLE OF CONTENTS
1. DEFINITIONS.................................................... 1
1.1 "Accounting Terms"....................................... 1
1.2 "Affiliate".............................................. 1
1.3 "Applicable Base Rate Margin"............................ 1
1.4 "Bank Indebtedness"...................................... 2
1.5 "Base Rate".............................................. 2
1.6 "Borrowing Base"......................................... 2
1.7 "Business Day"........................................... 2
1.8 "Capital Expenditures"................................... 2
1.9 "Capitalized Leases"..................................... 2
1.10 "Capitalized Lease Obligations".......................... 2
1.11 "Change in Control"...................................... 3
1.12 "Contract Period"........................................ 3
1.13 "Corporation"............................................ 3
1.14 "Current Assets"......................................... 3
1.15 "Current Liabilities".................................... 3
1.16 "EBITDA"................................................. 3
1.17 "Effective Net Worth".................................... 3
1.18 "Eligible Inventory"..................................... 3
1.19 "Eligible Receivables"................................... 4
1.20 "Event of Default"....................................... 4
1.21 "Fixed Charge Coverage Ratio"............................ 4
1.22 "Fixed Charges".......................................... 4
1.23 "GAAP"................................................... 4
1.24 "Good Business Day"...................................... 4
1.25 "Indebtedness"........................................... 4
1.26 "Initial Permitted Out-of-Formula Period"................ 5
1.27 "Inventory Turnover Frequency"........................... 5
1.28 "LIBOR Rate"............................................. 5
1.29 "LIBOR Rate Notification"................................ 5
1.30 "LIBOR Rate Portion"..................................... 6
1.31 "LIBOR Rate Reserve Percentage".......................... 6
1.32 "Line Base Rate"......................................... 6
1.33 "Line Base Rate Notification"............................ 6
1.34 "Line Base Rate Portion"................................. 6
1.35 "Loan Documents"......................................... 6
1.36 "Maximum Amount"......................................... 6
1.37 "Net Income" or "Net Loss"............................... 6
1.38 "Net Operating Loss"..................................... 6
1.39 "Out-Of-Formula Advance"................................. 7
1.40 "Permitted Out-of-Formula Advance"....................... 7
1.41 "Person"................................................. 7
1.42 "Prime Rate"............................................. 7
1.43 "Rate Period"............................................ 7
1.44 "Senior Indebtedness".................................... 7
1.45 "Subordinated Indebtedness".............................. 7
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1.46 "Subsidiary"............................................. 7
1.47 "Tangible Net Worth"..................................... 7
1.48 "Total Funded Indebtedness".............................. 7
1.49 "Value".................................................. 8
1.50 "Working Capital"........................................ 8
2. THE LINE; USE OF PROCEEDS...................................... 8
2.1 Line of Credit........................................... 8
2.2 Use of Proceeds.......................................... 9
2.3 Method of Advances....................................... 9
2.4 Letters of Credit........................................ 9
2.5 Closing.................................................. 10
3. INTEREST RATES................................................. 10
3.1 Interest Rate Options on the Line........................ 10
3.2 Permitted Out-of-Formula Advance......................... 12
3.3 Default Interest......................................... 12
3.4 Post Judgment Interest................................... 12
3.5 Calculation.............................................. 12
3.6 Limitation of Interest to Maximum Lawful Rate............ 12
4. PAYMENTS AND FEES.............................................. 12
4.1 Interest Payments on the Line............................ 12
4.2 Principal Payments on the Line........................... 12
4.3 Equipment Purchase Sublimit.............................. 13
4.4 Letter of Credit Fees.................................... 13
4.5 Loan Fee................................................. 13
4.6 Minimum Interest Fee..................................... 13
4.7 Usage Fee................................................ 14
4.8 Collateral Management Fee................................ 14
4.9 Late Charge.............................................. 14
4.10 Termination of Line and Termination Fee.................. 14
4.11 Payment Method........................................... 14
4.12 Application of Payments.................................. 15
4.13 Loan Account............................................. 15
4.14 Indemnity; Loss of Margin................................ 15
4.15 Indemnity for LIBOR Portion.............................. 16
5. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF
5.1 Personal Property........................................ 16
5.2 Real Property............................................ 18
5.3 Insurance................................................ 18
5.4 Surety................................................... 18
5.5 Validity Assurance and Management Support Letter......... 19
5.6 General.................................................. 19
5.7 Collection of Receivables; Proceeds of Collateral........ 19
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6. REPRESENTATIONS AND WARRANTIES................................. 20
6.1 Valid Organization, Good Standing and Qualification...... 20
6.2 Licenses................................................. 21
6.3 Subsidiaries............................................. 21
6.4 Financial Statements..................................... 21
6.5 No Material Adverse Change in Financial Condition........ 21
6.6 Pending Litigation or Proceedings........................ 21
6.7 Due Authorization; No Legal Restrictions................. 21
6.8 Enforceability........................................... 22
6.9 No Default Under Other Obligations, Orders or
Governmental Regulations................................. 22
6.10 Governmental Consents.................................... 22
6.11 Taxes.................................................... 22
6.12 Title to Collateral...................................... 22
6.13 Addresses................................................ 22
6.14 Current Compliance....................................... 22
6.15 Pension Plans............................................ 22
6.16 Leases and Contracts..................................... 23
6.17 Intellectual Property.................................... 23
6.19 Eligible Account Warranties.............................. 23
6.20 Business Interruptions................................... 24
6.21 Accuracy of Representations and Warranties............... 24
7. GENERAL COVENANTS.............................................. 24
7.1 Payment of Principal, Interest and Other Amounts Due..... 25
7.2 Limitation on Sale and Leaseback......................... 25
7.3 Limitation on Indebtedness............................... 25
7.4 Investments and Loans.................................... 25
7.5 Guaranties............................................... 26
7.6 Disposition of Assets.................................... 26
7.7 Merger; Consolidation; Business Acquisitions;
Subsidiaries............................................. 26
7.8 Taxes; Claims for Labor and Materials.................... 27
7.9 Liens.................................................... 27
7.10 Existence; Approvals; Qualification; Business
Operations; Compliance with Laws......................... 28
7.11 Maintenance of Properties, Intellectual Property......... 28
7.12 Insurance................................................ 29
7.13 Inspections; Examinations................................ 30
7.14 Default Under Other Indebtedness......................... 30
7.15 Pension Plans............................................ 30
7.16 Bank of Account.......................................... 31
7.17 Maintenance of Management................................ 31
7.18 Capital Stock; Dividends................................. 31
7.19 Transactions with Affiliates............................. 31
7.20 Name or Address Change................................... 31
7.21 Notices.................................................. 31
7.22 Additional Documents and Future Actions.................. 31
7.23 Accounts Receivable...................................... 32
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7.24 Material Adverse Contracts............................... 33
7.25 Restrictions on Use of Proceeds.......................... 33
7.26 Subordinated Indebtedness................................ 33
7.27 Life Insurance........................................... 33
7.28 Mortgaged Property....................................... 33
7.29 Books and Records........................................ 33
7.30 Year End................................................. 33
7.31 Specified Tax Refund..................................... 34
8. FINANCIAL COVENANTS............................................ 34
8.1 Financial Covenants...................................... 34
8.2 Changes to Financial Covenants........................... 36
9. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS........... 36
9.1 Annual Statements........................................ 36
9.2 Projections and Cash Flow................................ 37
9.3 Monthly Statements....................................... 37
9.4 10-K; 10-Q Statements.................................... 37
9.5 Accounts Receivable and Accounts Payable Statements...... 37
9.6 Accounts Receivable Borrowing Base Information and
Related Documents........................................ 38
9.7 Inventory Borrowing Base Information and Related
Documents................................................ 38
9.8 Audit Reports............................................ 38
9.9 Reports to Governmental Agencies and Other Creditors..... 38
9.10 Requested Information.................................... 38
9.11 Compliance Certificates.................................. 38
9.12 Accountant's Certificate................................. 39
9.13 Guarantor's Annual Statements............................ 39
10. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS.................... 39
10.1 Representations.......................................... 39
10.2 Real Property............................................ 39
10.3 Covenant Regarding Compliance............................ 40
10.4 Notices.................................................. 40
10.5 Indemnity................................................ 40
10.6 Testing.................................................. 40
10.7 Survival................................................. 41
10.8 Definitions.............................................. 41
11. CONDITIONS OF CLOSING.......................................... 42
11.1 Loan Documents........................................... 42
11.2 Representations and Warranties........................... 42
11.3 No Default............................................... 42
11.4 Proceedings and Documents................................ 42
11.5 Landlord's or Warehouseman's Release and Waiver
Agreements............................................... 42
11.6 Delivery of Other Documents.............................. 42
11.7 Lockbox/Cash Collateral Account.......................... 43
11.8 Minimum Availability..................................... 44
11.9 Non-Waiver of Rights..................................... 44
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12. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES........................ 44
12.1 Representations and Warranties........................... 44
12.2 No Default............................................... 44
12.3 Other Requirements....................................... 44
13. DEFAULT AND REMEDIES............................................. 44
13.1 Events of Default........................................ 44
13.2 Remedies................................................. 47
13.3 Sale or Other Disposition of Collateral.................. 47
13.4 Actions with Respect to Accounts......................... 48
13.5 Set-Off.................................................. 49
13.6 Turnover of Property Held by Bank........................ 50
13.7 Delay or Omission Not Waiver............................. 50
13.8 Remedies Cumulative; Consents............................ 50
13.9 Certain Fees, Costs, Expenses, Expenditures and
Indemnification.......................................... 50
13.10 Time is of the Essence................................... 51
13.11 Acknowledgement of Confession of Judgment Provisions..... 51
14. COMMUNICATIONS AND NOTICES....................................... 52
14.1 Communications and Notices............................... 52
15. WAIVERS.......................................................... 53
15.1 Waivers.................................................. 53
15.2 Forbearance.............................................. 53
15.3 Limitation on Liability.................................. 53
16. SUBMISSION TO JURISDICTION....................................... 54
16.1 Submission to Jurisdiction............................... 54
17. MISCELLANEOUS.................................................... 54
17.1 Brokers.................................................. 54
17.2 Use of Bank's Name....................................... 54
17.3 No Joint Venture......................................... 55
17.4 Survival................................................. 55
17.5 No Assignment by Borrower................................ 55
17.6 Assignment or Sale by Bank............................... 55
17.7 Publicity................................................ 55
17.8 Binding Effect........................................... 55
17.9 Severability............................................. 56
17.10 No Third Party Beneficiaries............................ 56
17.11 Modifications........................................... 56
17.12 Holidays................................................ 56
17.13 Law Governing........................................... 56
17.14 Integration............................................. 56
17.15 Exhibits and Schedules.................................. 56
17.16 Headings................................................ 56
17.17 Counterparts............................................ 56
17.18 Waiver of Right to Trial by Jury........................ 56
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made effective the
10th day of March, 1997, by and between CONSOLIDATED STAINLESS, INC.
("Borrower") and MELLON BANK, N.A. ("Bank").
BACKGROUND
A. Borrower has requested that Bank extend a certain credit facility to
Borrower, which Bank is willing to do on the terms set forth herein.
B. Capitalized terms not otherwise defined herein will have the meanings
set forth therefor in Section 1 of this Agreement.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein, and of any extensions of credit now or hereafter made to or for the
benefit of Borrower by Bank, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. DEFINITIONS. The following words and phrases as used in capitalized form in
this Agreement, whether in the singular or plural, shall have the meanings
indicated:
1.1 "Accounting Terms". As used in this Agreement, or any certificate,
report or other document made or delivered pursuant to this Agreement,
accounting terms not defined elsewhere in this Agreement shall have the
respective meanings given to them under GAAP.
1.2 "Affiliate", as to any Person, means each other Person that directly
or indirectly through one or more intermediaries, controls, or is controlled by,
or is under common control with, the Person in question.
1.3 "Applicable Base Rate Margin" shall mean initially three-quarters of
one percent (.75%) and the "Applicable LIBOR Rate Margin" shall mean initially
three percent (3%).
Provided that Borrower is in compliance with all of the financial
covenants set forth in Section 8.1 below and no other Event of Default shall
have occurred and be continuing, the Applicable Base Rate Margin and the
Applicable LIBOR Rate Margin will be adjusted based on Borrower's ratio of Total
Funded Indebtedness to EBITDA as provided in the chart set forth below.
Adjustments to the Applicable Base Rate Margin and the Applicable LIBOR Rate
Margin will be determined semi-annually based on Borrower's annual audited
financial statements and Borrower's internally prepared semi-annual financial
statements as of June 30 of each fiscal year, with the first such determination
to be based on Borrower's audited financial statements for its fiscal year
ending December 31, 1997. Any adjustment in the Applicable Base Rate Margin and
the Applicable LIBOR Rate Margin will become effective only upon delivery by
Borrower to Bank of such financial statements (together with a calculation of
the ratio of Borrower's Total Funded Indebtedness to EBITDA) within the time
periods set forth in Sections 9.1 and 9.3 below and Bank's review and
verification of such financial statements. If any such financial statements are
not delivered within the time periods required in Sections 9.1 and 9.3 below,
then until the next timely delivery of complying financial statements and in
addition to all other rights and remedies available to Bank
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hereunder, the Applicable Base Rate Margin and the Applicable LIBOR Rate Margin
will automatically be the initial Applicable Base Rate Margin and the initial
Applicable LIBOR Rate Margin set forth above. For the purpose of calculating the
Applicable Base Rate Margin and the Applicable LIBOR Rate Margin, the ratio of
Borrower's Total Funded Indebtedness to EBITDA will be determined on the basis
of a trailing four-quarter period.
Ratio of Total Funded Applicable Base Applicable LIBOR
Indebtedness to EBITDA Rate Margin Rate Margin
--------------------- --------------- ----------------
> = 3.50 .75% 3%
> = 2.50 < 3.50:1 .50% 2.75%
< = 2.50:1 .25% 2.5%
1.4 "Bank Indebtedness" shall mean all obligations and Indebtedness of
Borrower to Bank, whether now or hereafter owing or existing, including, without
limitation, all obligations under the Loan Documents, all obligations to
reimburse Bank for payments made by Bank pursuant to any letter of credit issued
for the account or benefit of Borrower by Bank, all other obligations or
undertakings now or hereafter made by or for the benefit of Borrower to or for
the benefit of Bank under any other agreement, promissory note or undertaking
now existing or hereafter entered into by Borrower with Bank, including, without
limitation, all obligations of Borrower to Bank under any guaranty or surety
agreement and all obligations of Borrower to immediately pay to Bank the amount
of any overdraft on any deposit account maintained with Bank, together with all
interest and other sums payable in connection with any of the foregoing.
Notwithstanding the foregoing, Bank Indebtedness shall not include unsecured
Indebtedness of Borrower to a third Person which may be purchased or acquired by
Bank at any time or from time to time.
1.5 "Base Rate" means the per annum rate determined by Bank (which
determination shall be deemed conclusive absent manifest error) to be the higher
of (a) Bank's Prime Rate, or (b) the effective Federal Funds Rate plus one-half
of one percent (.50%) per annum.
1.6 "Borrowing Base" means, as of any date, an amount equal to the sum of
up to (a) eighty-five percent (85%) of the amount of Borrower's Eligible
Receivables, plus (b) sixty-five percent (65%) of the Value of Borrower's
Eligible Inventory.
1.7 "Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in Philadelphia, Pennsylvania are authorized by law to
close.
1.8 "Capital Expenditures" means any expenditure that would be classified
as a capital expenditure on a statement of cash flow of Borrower prepared in
accordance with GAAP, including any deposits made on items which, when such
items are purchased, will be a Capital Expenditure.
1.9 "Capitalized Leases" means all lease obligations which have been or
should be, in accordance with GAAP, capitalized on the books of the lessee.
1.10 "Capitalized Lease Obligations" means all amounts payable with
respect to a Capitalized Lease, determined in accordance with GAAP.
2
1.11 "Change in Control" shall have the same meaning as provided for such
term in that certain Convertible Subordinated Note Purchase Agreement between
Borrower, Guarantors and SunTrust Banks, Inc. dated October 18, 1996, as the
same may be amended from time to time.
1.12 "Contract Period" shall have the meaning as provided in Section
2.1(a) below.
1.13 "Corporation" means a corporation, partnership, trust, unincorporated
organization, association or joint stock company.
1.14 "Current Assets" at a particular date means the aggregate amount of
all assets of Borrower which would be classified as current assets on a balance
sheet at such date, in accordance with GAAP.
1.15 "Current Liabilities" at a particular date means the liabilities
(including tax and other proper accruals) of Borrower which would be included as
current liabilities on a balance sheet of Borrower at such date, in accordance
with GAAP, plus the outstanding principal balance of the Line at such date.
1.16 "EBITDA" for any period, means Net Income of Borrower for such
period, plus the aggregate amounts deducted in determining Net Income in respect
of (i) interest expense on Indebtedness of Borrower for such period, (ii) income
tax expense for such period, (iii) depreciation for such period, and (iv)
amortization for such period, all as determined in accordance with GAAP.
1.17 "Effective Net Worth" means the Tangible Net Worth of Borrower, plus
the outstanding principal balance of the Subordinated Indebtedness, minus any
increase or plus any non-cash decrease in the Tangible Net Worth of Borrower as
a result of a conversion ("Conversion") under Section 9 of that certain
Convertible Subordinated Note Agreement between Borrower and SunTrust Banks,
Inc., dated October 18, 1996.
1.18 "Eligible Inventory" means inventory in the possession of Borrower
which complies with the representations set forth in Section 6.18, and meets all
specifications established by Bank in its sole discretion (exercised in good
faith) from time to time. Eligible Inventory shall not include: (a) inventory
consisting of fuels; (b) inventory consisting of stores; (c) inventory which is
not in good condition or not currently usable or salable in the ordinary course
of Borrower's business as determined by Bank; (d) inventory consisting of
finished goods which do not meet the specifications of the purchase order for
which such inventory was produced; (e) inventory with respect to which Bank does
not have a first and valid, fully perfected security interest; (f) inventory
consisting of packaging, shipping materials or supplies; (g) inventory produced
in violation of the Fair Labor Standards Act and subject to the so-called "hot
goods" provision contained in Title 29 U.S.C. Section 215(a)(1); (h) slow-moving
inventory; (i) tooling; (j) inventory located with a processor; (k) consigned
inventory; (l) inventory consisting of controlled substance or substances for
which Bank would need a license or permit to sell or dispose of; (m) inventory
in transit (except between locations of Borrower described on Schedule 6.13
hereto and other locations of Borrower established in accordance with the terms
and conditions of this Agreement); and (n) work-in-process inventory in excess
of the sublimit set forth in Section 2.1(a) below. In the event that any item or
items of inventory with a Value in excess of One Hundred Thousand Dollars
($100,000.00) individually or in the aggregate previously scheduled, listed or
referred to, in any statement or report by or on behalf of Borrower and upon
which Borrower is basing availability under the Line ceases to be Eligible
Inventory (other than by reason of the sale of such inventory in the ordinary
course of Borrower's business), Borrower shall notify Bank thereof immediately.
3
1.19 "Eligible Receivables" means accounts receivable of Borrower in which
Bank has a prior, perfected, first priority lien which have been due no more
than ninety (90) days from the invoice date, are not subject to offsets,
deductions, counterclaims, discounts (other than prompt payment discounts not in
excess of five percent (5%) of the face amount thereof), credit, charge back,
freight claim, allowance or adjustment, which comply with the representations
set forth in Section 6.19 and which meet all specifications established by Bank
in its sole discretion from time to time. Eligible Receivables shall not
include: (a) non-trade receivables; (b) foreign accounts receivable not secured
by domestic letters of credit in form and from issuers satisfactory to Bank,
which letters of credit must be assigned to Bank; (c) contra-accounts; (d)
intercompany accounts or accounts from other affiliated corporations,
organizations or individuals; (e) accounts receivable from the United States
government or any of its agencies which have not been assigned to Bank under the
Assignment of Claims Act; (f) finance charges; (g) lease receivables; (h)
accounts receivable owed by a Person if fifty percent (50%) or more of such
Person's accounts receivable owed to Borrower are ninety (90) days or more past
due; (i) accounts receivable of poor credit quality; and (j) that portion of
accounts receivable due from any particular account debtor which exceeds ten
percent (10%) of all Eligible Receivables of Borrower. In the event that any
account receivable or group of accounts receivable in excess of Fifty Thousand
Dollars ($50,000.00) individually or in the aggregate previously scheduled,
listed or referred to in any certificate, statement or report by Borrower and
upon which Borrower is basing availability under the Line ceases to be an
Eligible Receivable (other than by reason of agings in the ordinary course of
business and payments due from Borrower to its account debtors in the ordinary
course of business), Borrower shall notify Bank thereof immediately.
1.20 "Event of Default" means each of the events specified in Section
13.1.
1.21 "Fixed Charge Coverage Ratio" for any period shall mean the ratio of
(a) EBITDA for such period, plus the amount actually received on account of the
Specified Tax Refund in such period, less unfunded Capital Expenditures for such
period to (b) Fixed Charges.
1.22 "Fixed Charges" for any period shall mean the sum of Borrower's
interest expense (excluding deferred interest not paid) for such period, plus
the principal payments of Borrower's long-term Indebtedness and Capital Lease
Obligations for such period, plus the net reduction of the Permitted
Out-of-Formula Advance occurring during such period, plus interest payments
during such period related to previously deferred interest.
1.23 "GAAP" means generally accepted accounting principles in the United
States of America, in effect from time to time, consistently applied and
maintained.
1.24 "Good Business Day" means any Business Day when banks in London,
England and Philadelphia, Pennsylvania are opened for business.
1.25 "Indebtedness", as applied to a Person, means:
(a) all items (except items of capital stock or of surplus) which in
accordance with GAAP would be included in determining total liabilities as shown
on the liability side of a balance sheet of such Person as at the date as of
which Indebtedness is to be determined;
4
(b) to the extent not included in the foregoing, all indebtedness,
obligations, and liabilities secured by any mortgage, pledge, lien, conditional
sale or other title retention agreement or other security interest to which any
property or asset owned or held by such Person is subject (to the extent of the
value of such asset or property), whether or not the indebtedness, obligations
or liabilities secured thereby shall have been assumed by such Person; and
(c) to the extent not included in the foregoing, all indebtedness,
obligations and liabilities of others which such Person has directly or
indirectly guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business), sold with recourse, or agreed (contingently or
otherwise) to purchase or repurchase or otherwise acquire or in respect of which
such Person has agreed to supply or advance funds (whether by way of loan, stock
purchase, capital contribution or otherwise) or otherwise to become directly or
indirectly liable.
1.26 "Initial Permitted Out-of-Formula Period" means the period commencing
the date hereof through and including June 10, 1997.
1.27 "Inventory Turnover Frequency" means the number of days Borrower's
inventory turns over calculated by (a) dividing the Value of Borrower's
inventory as of the end of the applicable fiscal period by the cost of goods
sold incurred by Borrower through the end of such fiscal period, and (b)
multiplying such fraction by the number of days through the end of the
applicable fiscal period.
1.28 "LIBOR Rate" shall mean, for any day for any proposed or existing
LIBOR Rate Portion of the Line corresponding to a Rate Period, the rate per
annum determined by Bank by adding the Applicable LIBOR Rate Margin to the
quotient obtained by dividing (the resulting quotient to be rounded upward to
the nearest 1/100 of 1%) (a) the rate of interest (which shall be the same for
each day in such Rate Period) determined by Bank (which determination shall be
conclusive) to be the average of the rates per annum for deposits in United
States dollars offered to major money center banks in the London interbank
market at approximately 11:00 a.m., London time, two (2) Good Business Days
prior to the first day of such Rate Period for delivery on the first day of such
Rate Period in amounts comparable to such LIBOR Rate Portion (or, if there are
no such comparable amounts actively traded, the smallest amounts actively
traded) and having maturities comparable to such Rate Period by (b) a number
equal to 1.00 minus the LIBOR Rate Reserve Percentage for such day.
1.29 "LIBOR Rate Notification" means an irrevocable written notice
requesting the LIBOR Rate which must be provided to Bank prior to 11:00 a.m.
Philadelphia time on a business Day which is at least three (3) Good Business
Days prior to the date on which such rate is requested to take effect,
specifying:
(a) The principal amount which is to accrue interest at such rate;
(b) The date on which such rate is to take effect;
(c) Whether such principal amount is a new advance, a conversion
from another interest rate, a renewal of another interest rate
or a combination thereof; and
(d) The Rate Period.
5
1.30 "LIBOR Rate Portion" shall mean at any time the part, including the
whole, of the unpaid principal amount of the Line bearing interest at such time
at the LIBOR Rate.
1.31 "LIBOR Rate Reserve Percentage" for any day shall mean the percentage
(rounded upward to the nearest 1/100 of 1%), as determined by Bank (which
determination shall be conclusive) as representing for such day the maximum
effective reserve requirement (including without limitation, supplemental,
marginal and emergency requirements) for member banks of the Federal Reserve
System with respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities") of any maturity. Each LIBOR Rate shall be adjusted
automatically as of the effective date of any change in the LIBOR Rate Reserve
Percentage.
1.32 "Line Base Rate" means the Base Rate plus the Applicable Base Rate
Margin.
1.33 "Line Base Rate Notification" means an irrevocable written notice
requesting the Line Base Rate which must be provided to Bank prior to 11:00 a.m.
Philadelphia time on the Business Day on which such rate is requested to take
effect, specifying:
(a) The principal amount which is to accrue interest at such rate;
(b) The date on which such rate is to take effect; and
(c) Whether such principal amount is a new advance, a conversion
from another interest rate option or a combination thereof.
1.34 "Line Base Rate Portion" shall mean at any time the part, including
the whole, of the unpaid principal amount of the Line bearing interest at such
time at the Line Base Rate.
1.35 "Loan Documents" means this Agreement, the Line Note, the Surety
Agreement and all other documents, executed or delivered by Borrower or
Guarantors pursuant to this Agreement, as they may be amended, supplemented or
restated from time to time.
1.36 "Maximum Amount" means Twenty-Five Million Dollars ($25,000,000.00).
1.37 "Net Income" or "Net Loss" means income or loss, as applicable, of
Borrower after income and franchise taxes and shall have the meaning given such
term by GAAP, provided that there shall be specifically excluded therefrom: (a)
gains from the sale of assets (other than sales of inventory in the ordinary
course of business); (b) net income of any Person in which Borrower has an
ownership interest, unless received by Borrower in a cash distribution or unless
it is Net Income of a wholly owned Subsidiary of Borrower formed with the prior
written consent of and subject to such terms and conditions as are established
by Bank and which for financial reporting purposes consolidates its operations
and assets with those of Borrower; and (c) any gains arising from extraordinary
items, as defined by GAAP. In determining Net Income, there shall be no
deduction for any non-cash expenses incurred in connection with a Conversion (as
defined in Section 1.17 above).
1.38 "Net Operating Loss" shall mean Net Income before income tax expense,
interest expense and other income.
6
1.39 "Out-Of-Formula Advance" means the amount by which the then
outstanding principal balance of the Line exceeds the Borrowing Base, subject to
such other restrictions on advances as are otherwise set forth in this
Agreement.
1.40 "Permitted Out-of-Formula Advance" means an amount not to exceed
Three Million Seven Hundred Fifty Thousand Dollars ($3,750,000.00), which amount
will be reduced as provided for in Section 2.1(c) below.
1.41 "Person" means an individual, a Corporation or a government or any
agency or subdivision thereof, or any other entity.
1.42 "Prime Rate" means the annual interest rate established from time to
time by Bank and generally known by Bank as its "prime rate", whether published
by it publicly or only for the internal guidance of its loan officers. The prime
rate is used merely as a pricing index and is not and should not be considered
to represent the lowest or best rate available to a borrower.
1.43 "Rate Period" shall mean for any portion of the Line for which the
Borrower elects the LIBOR Rate, the period of time for which such rate shall
apply to such principal portions. The Rate Period for the LIBOR Rate shall be
for periods of one, two, three or six months.
1.44 "Senior Indebtedness" means all Indebtedness of Borrower, minus the
outstanding principal balance of the Subordinated Indebtedness.
1.45 "Subordinated Indebtedness" means that certain Indebtedness of
Borrower owed to (a) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ in the principal amount of Three Hundred
Sixty-Three Thousand One Hundred Fifty-Eight and 31/100 ($363,158.31); (b)
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ in the principal amount of One Hundred Thousand Dollars
($100,000.00); (c) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in the principal amount of One Hundred
Thousand Dollars ($100,000.00); (d) Suntrust Banks, Inc. in the principal amount
of Two Million Five Hundred Thousand Dollars ($2,500,000.00) plus interest
thereon which has been deferred and not paid; and (e) other Indebtedness of
Borrower hereafter incurred and subordinated to the Bank Indebtedness, all of
which Indebtedness must be subordinated to all Bank Indebtedness and otherwise
be in amounts and on terms acceptable to Bank in its sole discretion.
1.46 "Subsidiary" means a Corporation: (a) which is organized under the
laws of the United States or any State thereof, or any other county or
jurisdiction; (b) which conducts substantially all of its business and has
substantially all of its assets within the United States; and (c) of which more
than fifty percent (50%) of its outstanding voting stock of every class (or
other voting equity interest) is owned by Borrower or one or more of its
Subsidiaries.
1.47 "Tangible Net Worth", shall mean, at any time, the amount by which
all assets of Borrower, excluding intangible assets, as that term would be
defined under GAAP, exceed all of Borrower's liabilities, as would be shown on a
balance sheet of Borrower prepared as of such date in accordance with GAAP.
1.48 "Total Funded Indebtedness" means all Indebtedness for borrowed money
including, without limitation, all Bank Indebtedness, Subordinated Indebtedness
and Capitalized Lease Obligations.
7
1.49 "Value" with respect to Eligible Inventory means the lower of average
cost or market value determined in accordance with GAAP, exclusive of any
transportation, processing or handling charges.
1.50 "Working Capital" as applied to Borrower means the amount, as of the
date of determination thereof, equal to the difference between the aggregate
Current Assets and the aggregate Current Liabilities (including without
limitation all accrued dividends) of any Person, determined in accordance with
GAAP.
2. THE LINE; USE OF PROCEEDS.
2.1 Line of Credit.
(a) Bank will establish for Borrower for and during the period from
the date hereof and until March 10, 2001 (the "Contract Period"), subject to the
terms and conditions hereof, a revolving line of credit (the "Line") pursuant to
which Bank will from time to time make loans or other extensions of credit to
Borrower in an aggregate amount not exceeding at any time the lesser of: the (i)
Borrowing Base, plus the Permitted Out-of-Formula Advance, if available, or (ii)
Maximum Amount. Notwithstanding the foregoing, the aggregate maximum amount of
advances against the Value of that portion of Borrower's Eligible Inventory
consisting of work-in-process will at no time exceed Two Million Dollars
($2,000,000.00) and the maximum amount of advances against the Value of all of
Borrower's Eligible Inventory (including, without limitation, work-in-process)
will at no time exceed Seventeen Million Dollars ($17,000,000.00).
(b) Subject to the limitations set forth below, Borrower may from
time to time borrow principal amounts under the Line not to exceed, in the
aggregate, Five Hundred Thousand Dollars ($500,000.00) to be used for the
purchase of equipment for use in Borrower's operations (the "Equipment Purchase
Sublimit"). If no advance is made under the Equipment Purchase Sublimit on or
before March 10, 1998 (the period from the date hereof through and including
March 10, 1998 being the "Initial Draw Period"), the Equipment Purchase Sublimit
will no longer be available to Borrower. If an advance is made under the
Equipment Purchase Sublimit during the Initial Draw Period, the unfunded balance
of the Equipment Purchase Sublimit will remain available to Borrower for the
twelve (12) month period following the date of the first such advance
thereunder. Advances under the Equipment Purchase Sublimit shall be in an amount
not to exceed eighty percent (80%) of the invoiced purchase price (exclusive of
taxes, license, freight/shipping and installation costs) for the items of
equipment in respect of which such advance is being made. In addition, each
request for an advance under the Equipment Purchase Sublimit must be for an
amount equal to at least Fifty Thousand Dollars ($50,000.00) (provided that no
request for such an advance shall include any individual item with a cost to
Borrower of less than Twenty Thousand Dollars ($20,000.00)), and no more than
four (4) total advances will be made thereunder. Advances under the Equipment
Purchase Sublimit shall be repaid in accordance with the terms of Section 4.3
below.
(c) In addition to the sums otherwise available to Borrower in
accordance with the Borrowing Base calculation, during the Initial Permitted
Out-of-Formula Period only, Borrower may borrow an additional amount under the
Line not to exceed the Permitted Out-of-Formula Advance. Commencing on June 10,
1997, and on the 10th day of each of the next sixteen (16) consecutive months
thereafter, the Permitted Out-of-Formula Advance will be reduced by an amount
equal to One Hundred Seventy-Five Thousand Dollars ($175,000.00) per month and a
final reduction
8
of Twenty-Five Thousand Dollars ($25,000.00) will occur on November 10, 1998. In
addition to such monthly reductions, the Permitted Out-of-Formula Advance will
be reduced by an amount equal to an additional Seven Hundred Fifty Thousand
Dollars ($750,000.00) by the earlier of (i) December 31, 1997, or (ii) the date
of receipt by Borrower of its federal income tax refund for its fiscal year
ended December 31, 1996 (the "Specified Tax Refund"). In any event, the entire
Permitted Out-of-Formula Advance, together with all accrued and unpaid interest
thereon, will be reduced to zero by, and will no longer be available to Borrower
after, November 10, 1998.
(d) Bank may, in its sole discretion exercised in good faith,
require that certain reserves be established against certain Eligible
Receivables or Eligible Inventory from time to time. Within the limitations set
forth in this Section 2.1, Borrower may borrow, repay and reborrow under the
Line. The Line shall be subject to all terms and conditions set forth in all of
the Loan Documents which terms and conditions are incorporated herein.
Borrower's obligation to repay the loans and extensions of credit under the Line
shall be evidenced by Borrower's promissory note (the "Line Note") in the
maximum face amount of Twenty-Five Million Dollars ($25,000,000.00), which shall
be in the form attached hereto as Exhibit "A", with the blanks appropriately
filled in.
2.2 Use of Proceeds. Borrower agrees to use advances under the Line (a) to
repay existing Indebtedness in an aggregate amount of approximately Twenty-One
Million Six Hundred Thousand Dollars ($21,600,000.00) owed by Borrower to
SunTrust Bank, Central Florida, National Association and SouthTrust Bank of
Alabama, National Association, (b) for working capital purposes, and (c) with
respect to advances under the Equipment Purchase Sublimit, the purchase of
equipment for use in Borrower's operations.
2.3 Method of Advances. On any Business Day, Borrower may request an
advance under the Line by delivering to the bank officer designated by Bank no
later than 11:00 a.m. Philadelphia time on the Business Day such advance is
requested to be funded, a completed and executed borrowing base certificate
together with such supporting and back-up documentation as Bank may from time to
time require. In addition, with respect to advances under the Equipment Purchase
Sublimit, Borrower shall deliver to Bank evidence satisfactory to Bank of the
purchase price of the equipment being purchased with such advance identifying
separately all taxes, license, freight/shipping and installation charges in
connection therewith, which evidence shall include, without limitation, the
invoice for such equipment. Subject to the terms and conditions of this
Agreement, Bank may make the proceeds of an advance available to Borrower by
crediting such proceeds to Borrower's operating account with Bank. Each request
for an advance under the Line shall be conclusively presumed to be made by a
Person authorized by Borrower to do so. However, Bank may require that specified
officers of Borrower sign each borrowing base certificate.
2.4 Letters of Credit. Bank, at its sole discretion, may issue for the
account of Borrower merchandise and standby letters of credit in form and
content satisfactory to Bank, at its sole discretion, with a term not to exceed
the earlier to occur of (a) ninety (90) days (for merchandise letters of
credit), (b) twelve (12) months (for standby letters of credit), or (c) the
expiration date of the Contract Period. Notwithstanding the foregoing, (i) at no
time shall the aggregate face amount of all outstanding letters of credit issued
under the Line exceed the amount of Three Million Dollars ($3,000,000.00); and
(ii) at no time shall the principal balance of the Line, plus the aggregate face
amount of all outstanding letters of credit issued under the Line exceed the
amount of the loans and extensions of credit then available to Borrower under
the Line pursuant to Section 2.1 (a) above.
9
Borrower will execute a letter of credit application and letter of
credit agreement, and such other documents as may be required by Bank in
connection with the issuance of letters of credit hereunder. The outstanding
face amount of all letters of credit issued by Bank pursuant hereto will reduce
Borrower's ability to borrow under the Line as if such face amount were an
advance under the Line. In the event that Bank pays any sums due pursuant to
such letters of credit for any reason, such payment shall be deemed to be an
advance under the Line repayable by Borrower pursuant to the terms hereof.
In the event that the Line is terminated for any reason or demand is
made thereunder, Borrower will deposit with Bank an amount equal to the undrawn
face amount of all letters of credit then outstanding which have been issued
hereunder, plus all fees related thereto or to accrue thereunder. Such funds
will be held and applied by Bank as cash collateral to secure Borrower's
obligations hereunder in respect of such letters of credit.
2.5 Closing. Closing hereunder will take place at the offices of Wolf,
Block, ▇▇▇▇▇▇ & ▇▇▇▇▇-▇▇▇▇▇ at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇ effective on the date of this Agreement.
3. INTEREST RATES.
3.1 Interest Rate Options on the Line.
(a) Options. Provided that no Event of Default shall have occurred
and be continuing, interest on that portion of the unpaid principal balance of
the Line supported by the Borrowing Base will accrue from the date of advance
until final payment thereof, at a rate or rates selected by Borrower from one of
the two (2) interest rate options set forth below, subject to the restrictions
and in accordance with the procedures set forth in this Agreement:
(i) Line Base Rate (such rate to change automatically and
simultaneously with any change in the Line Base Rate);
or
(ii) LIBOR Rate.
(b) Request for Line Base Rate. If the Borrower desires that the
Line Base Rate shall apply to all or part of the principal balance under the
Line, Borrower shall give Bank a Line Base Rate Notification. Upon delivery by
Borrower to Bank of a Line Base Rate Notification, the principal balance under
the Line identified in such Line Base Rate Notification shall accrue interest at
the Line Base Rate as follows: (i) with respect to the principal amount of any
new cash advance under the Line, from the date of such advance until the
effective date of another interest rate chosen for such amount in accordance
with the terms of this Agreement; and/or (ii) with respect to the principal
amount of any portion of the Line outstanding and accruing interest at the LIBOR
Rate at the time of the Line Base Rate Notification related to such principal
amount, from the expiration of the then current Rate Period related to such
principal amount until the effective date of another interest rate option chosen
for such amount in accordance with the terms of this Agreement.
(c) Request for LIBOR Rate. If the Borrower desires that all or part
of the principal balance under the Line accrue interest at the LIBOR Rate,
Borrower shall give Bank a LIBOR Rate Notification. Upon delivery by Borrower to
Bank of a LIBOR Rate Notification, that
10
portion of the principal balance outstanding under the Line identified in such
LIBOR Rate Notification shall accrue interest at the LIBOR Rate as follows: (i)
with respect to the principal amount of any new cash advance under the Line,
from the date of such advance until the end of the Rate Period specified in such
LIBOR Rate Notification; and/or (ii) with respect to the principal amount of any
portion of the Line outstanding and accruing interest at another LIBOR Rate at
the time of the LIBOR Rate Notification related to such principal amount, from
the expiration of the then current Rate Period related to such principal amount
until the end of the Rate Period specified in such LIBOR Rate Notification;
and/or (iii) with respect to all or any portion of the principal amount of the
Line outstanding and accruing interest at the Line Base Rate at the time of such
LIBOR Rate Notification, from the date set forth in such LIBOR Rate Notification
until the end of the Rate Period specified in such LIBOR Rate Notification.
(d) Certain Provisions Concerning Interest Rates. Subject to the
provisions of this Agreement, (i) the interest rates set forth in Section 3.1(a)
above may apply simultaneously to different portions of the outstanding
principal of the Line; (ii) the LIBOR Rate may apply simultaneously to various
portions of the outstanding principal of the Line for various Rate Periods;
(iii) the LIBOR Rate applicable to any portion of the outstanding principal of
the Line may be different from the LIBOR Rate applicable to any other portion of
the outstanding principal of the Line; (iv) each advance under the Line accruing
interest at the LIBOR Rate must be in a minimum amount of Five Million Dollars
($5,000,000.00) with One Million Dollar ($1,000,000.00) increments in excess
thereof; and (v) no more than three (3) advances under the Line accruing
interest at the LIBOR Rate may be outstanding at any one time.
(e) Line Base Rate Fall Back for the Line. After expiration of any
Rate Period, any principal portion of the Line corresponding to such Rate Period
which has not been converted or renewed in accordance with the terms of this
Agreement shall accrue interest automatically at the Line Base Rate from the
date of expiration of such Rate Period until paid in full, unless and until the
Borrower requests a conversion to the LIBOR Rate in accordance with the terms of
this Agreement.
(f) LIBOR Rate Unascertainable or Unavailable. If, at any time, Bank
shall determine (which determination shall be conclusive) that the LIBOR Rate is
unavailable or adequate means for ascertaining the LIBOR Rate do not exist, Bank
shall promptly notify Borrower of such determination. Upon such determination,
the right of Borrower to select, maintain and/or convert to the LIBOR Rate shall
be suspended until notice from Bank to Borrower that the LIBOR Rate is again
available or ascertainable and, until such time, the outstanding balance under
the Line shall accrue interest at the Line Base Rate.
(g) LIBOR Unlawful. In the event that, as a result of any change in
any applicable law or regulation or the interpretation thereof, it becomes
unlawful for Bank to maintain or fund any advance under the Line at the LIBOR
Rate, then Bank shall notify Borrower thereof and Bank's obligation to make,
convert to, or maintain any advance under the Line at the LIBOR Rate shall be
suspended until such time as Bank may again cause the LIBOR Rate to be
applicable and, until such time, the advances under the Line subject to the
LIBOR Rate shall accrue interest at the Line Base Rate. Promptly after becoming
aware that it is no longer unlawful for Bank to maintain or fund advances under
the Line at the LIBOR Rate, Bank shall notify Borrower thereof and such
suspension shall cease to exist.
11
3.2 Permitted Out-of-Formula Advance. Interest on that portion of the
outstanding principal balance of the Line supported by the Permitted
Out-of-Formula Advance will accrue at a per annum rate equal to two and one-half
percent (2 1/2%) in excess of the Base Rate in effect from time to time (such
rate to change automatically and simultaneously with any change in the Base
Rate).
3.3 Default Interest. Interest will accrue on the principal balance of the
Line during the continuance of an Event of Default or following expiration of
the Contract Period at a rate which is three percent (3%) in excess of the Line
Base Rate. The LIBOR Rate shall not be available to Borrower after the
occurrence of and during the continuance of an Event of Default or an event
which with the giving of notice or the passage of time or both would be an Event
of Default. If Bank, in its sole discretion, (a) permits Borrower to cure an
Event of Default, or (b) waives an Event of Default, the LIBOR Rate shall
thereafter be available to Borrower subject to the terms and conditions of this
Agreement.
3.4 Post Judgment Interest. Any judgment obtained for sums due hereunder
or under the Loan Documents will accrue interest at the applicable default rate
set forth above until paid.
3.5 Calculation. Interest will be computed on the basis of a year of 360
days and paid for the actual number of days elapsed.
3.6 Limitation of Interest to Maximum Lawful Rate. In no event will the
rate of interest payable hereunder exceed the maximum rate of interest permitted
to be charged by applicable law (including the choice of law rules) and any
interest paid in excess of the permitted rate will be refunded to Borrower.
Provided that no Event of Default shall have occurred and be continuing, such
refund will be made by application of the excessive amount of interest paid
against the outstanding principal balance of the Line (excluding that portion
outstanding under the Equipment Purchase Sublimit). If the excessive amount of
interest paid exceeds the principal balance under the Line then outstanding, the
portion exceeding such outstanding amount will be refunded in cash by Bank. Any
such crediting or refunding will not cure or waive any default by Borrower.
Borrower agrees, however, that in determining whether or not any interest
payable hereunder exceeds the highest rate permitted by law, any non-principal
payment, including without limitation prepayment fees and late charges, will be
deemed to the extent permitted by law to be an expense, fee, premium or penalty
rather than interest.
4. PAYMENTS AND FEES.
4.1 Interest Payments on the Line. Borrower will pay interest on the
principal balance of the Line monthly in arrears, on the first day of each
calendar month commencing the first day of the first calendar month following
the date hereof and, as applicable, at the end of each Rate Period.
4.2 Principal Payments on the Line. Borrower will pay the outstanding
principal balance of the Line, together with all accrued and unpaid interest
thereon, and any other sums due pursuant to the terms hereof, ON DEMAND during
the continuance of an Event of Default or immediately upon expiration of the
Contract Period. If any Out-Of-Formula Advance arises or exists under the Line
for any reason whatsoever, including inventory or accounts becoming ineligible
or required reserves, Borrower will repay such Out-Of-Formula Advance
immediately, without demand,
12
except for the Permitted Out-of-Formula Advance which shall be reduced as
provided for in Section 2.1(c) above.
4.3 Equipment Purchase Sublimit. In addition to Section 4.2 above,
Borrower will repay all advances under the Equipment Purchase Sublimit in
thirty-six (36) equal and consecutive monthly installments of principal,
commencing on the first anniversary of the date of the first draw under the
Equipment Purchase Sublimit and continuing on the same day of each of the next
thirty-five (35) consecutive months. Notwithstanding the foregoing, all advances
under the Capital Expenditures Sublimit, together with all accrued and unpaid
interest thereon, shall be due and payable in full ON DEMAND during the
continuance of an Event of Default or immediately upon the expiration of the
initial Contract Period.
4.4 Letter of Credit Fees. For each issuance or renewal of a merchandise
letter of credit hereunder, Borrower will pay to Bank an issuance or renewal fee
in an amount equal to one and one-half percent (1.5%) of the face amount of such
merchandise letter of credit, payable coincident with and as a condition of the
issuance or renewal of such merchandise letter of credit. For each issuance or
renewal of a standby letter of credit hereunder, Borrower will pay to Bank an
issuance or renewal fee in an amount equal to one and one-half percent (1.5%)
per annum of the face amount of such standby letter of credit, payable
coincident with and as a condition of the issuance or renewal of such standby
letter of credit. In addition, Borrower shall pay such other fees and charges in
connection with the negotiation or cancellation of each merchandise and standby
letter of credit as may be customarily charged by Bank. Such fees shall be
computed on the basis of a year of 360 days.
4.5 Loan Fee. Borrower shall pay to Bank a loan fee equal to Two Hundred
Fifty Thousand Dollars ($250,000.00) to be paid as follows:
(a) One Hundred Twenty-Five Thousand Dollars ($125,000.00) has
been received by Bank prior to the date hereof;
(b) Sixty-Two Thousand Five Hundred Dollars ($62,500.00) will be
paid to the Bank on the date hereof; and
(c) Sixty-Two Thousand Five Hundred Dollars ($62,500.00) will be
paid to the Bank on March 10, 1998 or, if the Line is
terminated for any reason prior to such date, such sum shall
be paid on the date of such termination.
Borrower agrees that the entire loan fee has been fully earned by
Bank as compensation for the Bank's time and effort in closing the
transactions contemplated hereunder.
4.6 Minimum Interest Fee. If, in any given month, the amount of interest
which actually accrued on the outstanding principal balance of the Line for such
month is less than the amount of interest which would have accrued at the Line
Base Rate on the outstanding principal balance under the Line for such month
assuming that the average daily outstanding principal balance for such month was
Ten Million Dollars ($10,000,000.00), Borrower shall pay to Bank a fee in an
amount equal to such difference.
13
4.7 Usage Fee. So long as the Line is outstanding and has not been
terminated, Borrower shall unconditionally pay to Bank a fee equal to one
quarter of one percent (.25%) per annum of the daily unused portion of the Line,
which fee shall be computed on a monthly basis in arrears and shall be due and
payable on the first day of each month commencing on the first day of the first
full month after the date hereof. The daily unused portion of the Line shall be
calculated as the lower of (a) the difference between Twenty-Five Million
Dollars ($25,000,000.00) (or such greater amount if the maximum committed amount
for the Line is ever increased by written agreement of Bank and Borrower), minus
the outstanding principal balance of cash advances under the Line at the close
of business on the date such calculation is made, or (b) Ten Million Dollars
($10,000,000.00),
4.8 Collateral Management Fee. So long as the Line has not been terminated
pursuant to the terms hereof, and the Bank Indebtedness has not been satisfied
in full, Borrower shall unconditionally pay to Bank a non-refundable annual
collateral management fee of Thirty-Six Thousand Dollars ($36,000.00), payable
in equal quarterly payments, in advance, commencing on the date of closing
hereunder.
4.9 Late Charge. In the event that Borrower fails to pay any principal,
interest or other fees or expenses payable hereunder for a period of at least
fifteen (15) days after such payment is first due, in addition to paying such
sums, Borrower will pay to Bank a late charge equal to five percent (5%) of such
past due payment as compensation for the expenses incident to such past due
payment. The foregoing late charge will not be imposed on a payment of the
principal balance of the Bank Indebtedness which is due by reason of
acceleration.
4.10 Termination of Line and Termination Fee. Borrower may terminate the
Line upon forty-five (45) days prior written notice to Bank, which notice, once
given, shall be irrevocable. In the event that (a) the Line is terminated by
Borrower for any reason, including without limitation, prepayment or refinancing
of the Line with another lender, or (b) an Event of Default occurs and the Line
is terminated by Bank, Borrower shall pay Bank a termination fee calculated as
follows:
(a) 2.25% of the Maximum Amount if such termination occurs prior
to March 10, 1998;
(b) 1.5% of the Maximum Amount if such termination occurs on or
after March 10, 1998 but prior to March 10, 1999;
(c) 1% of the Maximum Amount if such termination occurs on or
after March 10, 1999 but prior to March 10, 2000; and
(d) .5% of the Maximum Amount if such termination occurs on or
after March 10, 2000.
In the event the Line is terminated as a result of an Event of
Default, expiration of the Contract Period, or otherwise, the outstanding
balance of the Line, together with any accrued and unpaid interest thereon and
any other sums due pursuant to the terms hereof shall be due and payable
immediately.
4.11 Payment Method. Borrower irrevocably authorizes Bank to debit all
payments required to be made by Borrower hereunder, under the Line, on the date
due, from any deposit
14
account maintained by Borrower with Bank. Otherwise, Borrower will be obligated
to make such payments directly to Bank. All payments are to be made in
immediately available funds. If Bank accepts payment in any other form, such
payment shall not be deemed to have been made until the funds comprising such
payment have actually been received by or made available to Bank.
4.12 Application of Payments. Any and all payments on account of the Line
will be applied to accrued and unpaid interest, outstanding principal and other
sums due hereunder or under the Loan Documents, in such order as Bank, in its
discretion, elects. If Borrower makes a payment or payments and such payment or
payments, or any part thereof, are subsequently invalidated, declared to be
fraudulent or preferential, set aside or are required to be repaid to a trustee,
receiver, or any other person under any bankruptcy act, state or federal law,
common law or equitable cause, then to the extent of such payment or payments,
the obligations or part thereof hereunder intended to be satisfied shall be
revived and continued in full force and effect as if said payment or payments
had not been made.
4.13 Loan Account. Bank will open and maintain on its books a loan account
(the "Loan Account") with respect to advances made, repayments, prepayments, the
computation and payment of interest and fees and the computation and final
payment of all other amounts due and sums paid to Bank under this Agreement.
Except in the case of manifest error in computation, the Loan Account will be
conclusive and binding on the Borrower as to the amount at any time due to Bank
from Borrower under this Agreement or the Line Note. Bank will deliver to
Borrower a summary of the activity in the Loan Account on a monthly basis.
4.14 Indemnity; Loss of Margin. Borrower will indemnify Bank against any
loss or expense which Bank sustains or incurs as a consequence of an Event of
Default, including, without limitation, any failure of Borrower to pay when due
(at maturity, by acceleration or otherwise) any principal, interest, fee or any
other amount due under this Agreement or the other Loan Documents. If Bank
sustains or incurs any such loss or expense it will from time to time notify
Borrower in writing of the amount determined in good faith by the Bank to be
necessary to indemnify Bank for the loss or expense. Such amount will be due and
payable by Borrower to Bank within ten (10) days after presentation by Bank of a
statement setting forth a brief explanation of and Bank's calculation of such
amount, which statement shall be conclusively deemed correct absent manifest
error. Any amount payable to the Bank under this Section will bear interest at
the default rate payable under the Line from the due date until paid, both
before and after judgment.
In the event that any present or future law, rule, regulation,
treaty or official directive or the interpretation or application thereof by any
central bank, monetary authority or governmental authority, or the compliance
with any guideline or request of any central bank, monetary authority or
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to any amounts payable
under this Agreement or the other Loan Documents by Borrower or otherwise with
respect to the transactions contemplated under this Agreement or the other Loan
Documents (except for taxes on the overall net income of Bank imposed by the
United States of America or any political subdivision thereof); or
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit, capital maintenance, capital adequacy, or similar
requirement against assets held by, or
15
deposits in or for the account of, or loans or advances or commitment to make
loans or advances by, or letters of credit issued or commitment to issue letters
of credit by, the Bank; or
(c) imposes upon Bank any other condition with respect to advances
or extensions of credit or the commitment to make advances or extensions of
credit under this Agreement,
and the result of any of the foregoing is to increase the costs of Bank, reduce
the income receivable by or return on equity of Bank or impose any additional
expense upon Bank with respect to any advances or extensions of credit or
commitments to make advances or extensions of credit under this Agreement, Bank
shall so notify Borrower in writing. Borrower agrees to pay Bank the amount of
such increase in cost, reduction in income, reduced return on equity or capital,
or additional expense within ten (10) days after presentation by Bank of a
statement concerning such increase in cost, reduction in income, reduced return
on equity or capital, or additional expense. Such statement shall set forth a
brief explanation of the amount and Bank's calculation of the amount (in
determining such amount the Bank may use any reasonable averaging and
attribution methods), which statement shall be conclusively deemed correct
absent manifest error. If the amount set forth in such statement is not paid
within ten (10) days after such presentation of such statement, interest will be
payable on the unpaid amount at the default rate payable under the Line from the
due date until paid, both before and after judgment.
4.15 Indemnity for LIBOR Portion. Borrower shall indemnify Bank against
any loss or expense (including loss of margin) which Bank has sustained or
incurred as a consequence of (a) payment, prepayment or conversion of any LIBOR
Rate Portion on a day other than the last day of the corresponding Rate Period
(whether or not any such payment is pursuant to demand by Bank and whether or
not any such payment, prepayment or conversion is consented to by Bank); or (b)
attempt by Borrower to revoke in whole or in part any irrevocable LIBOR Rate
Notification pursuant to this Agreement. If any such loss is sustained, Bank
shall notify Borrower of the amount determined in by Bank (which determination
shall be conclusive absent manifest error) to be necessary to indemnify Bank for
such loss or expense. Such amount shall be due and payable by Borrower on
demand.
5. SECURITY; COLLECTION OF RECEIVABLES AND PROCEEDS OF COLLATERAL.
5.1 Personal Property. As security for the full and timely payment and
performance of all Bank Indebtedness, Borrower hereby grants to Bank a security
interest in all of Borrower's personal property including, without limitation,
all of the following:
(a) All of Borrower's present and future accounts, contract rights,
chattel paper, instruments and documents and all other rights to the payment of
money whether or not yet earned, for services rendered or goods sold, consigned,
leased or furnished by Borrower or otherwise, together with (i) all goods
(including any returned, rejected, repossessed or consigned goods), the sale,
consignment, lease or other furnishing of which shall be given or may give rise
to any of the foregoing; (ii) all of Borrower's rights as a consignor,
consignee, unpaid vendor or other lienor in connection therewith, including
stoppage in transit, set-off, detinue, replevin and reclamation; (iii) all
general intangibles related thereto; (iv) all guaranties, mortgages, security
interests, assignments, and other encumbrances on real or personal property,
leases and other agreements or property securing or relating to any accounts;
(v) choses-in-action, claims and judgments; (vi) any return or
16
unearned premiums which may be due upon cancellation of any insurance policies;
and (vii) all products and proceeds of any of the foregoing.
(b) All of Borrower's present and future inventory (including but
not limited to goods held for sale or lease or furnished or to be furnished
under contracts for service, raw materials, work-in-process, finished goods and
goods used or consumed in Borrower's business) whether owned, consigned or held
on consignment, together with all merchandise, component materials, supplies,
packing, packaging and shipping materials, and all returned, rejected or
repossessed goods sold, consigned, leased or otherwise furnished by Borrower,
all documents of title covering any of such goods or inventory and all products
and proceeds of any of the foregoing.
(c) All of Borrower's present and future general intangibles
(including but not limited to tax refunds and rebates, manufacturing and
processing rights, designs, patent rights and applications therefor, trademarks
and registrations or applications therefor, tradenames, brand names, logos,
inventions, copyrights and all applications and registrations therefor),
licenses, permits, approvals, software and computer programs, license rights,
royalties, trade secrets, methods, processes, know-how, formulas, drawings,
specifications, descriptions, label designs, plans, blueprints, patterns and all
memoranda, notes and records with respect to any research and development, and
all products and proceeds of any of the foregoing.
(d) All of Borrower's present and future machinery, equipment,
furniture, fixtures, motor vehicles, tools, dies, jigs, molds and other articles
of tangible personal property of every type together with all parts,
substitutions, accretions, accessions, attachments, accessories, additions,
components and replacements thereof, all documents of title covering all of such
goods and inventory and all manuals of operation, maintenance or repair, and all
products and proceeds of any of the foregoing.
(e) All of Borrower's present and future general ledger sheets,
files, records, customer lists, books of account, invoices, bills, certificates
or documents of ownership, bills of sale, business papers, correspondence,
credit files, tapes, cards, computer runs and all other data and data storage
systems whether in the possession of Borrower or any service bureau.
(f) All letters of credit now existing or hereafter issued naming
Borrower as a beneficiary or assigned to Borrower, including the right to
receive payment thereunder, and all documents and records associated therewith.
(g) All of Borrower's investment property.
(h) All deposits, funds, instruments, documents, policies, evidence
and certificates of insurance, securities, chattel paper and other assets of
Borrower or in which Borrower has an interest and all proceeds thereof, now or
at any time hereafter on deposit with or in the possession or control of Bank or
owing by Bank to Borrower or in transit by mail or carrier to Bank or in the
possession of any other Person acting on Bank's behalf, without regard to
whether Bank received the same in pledge, for safekeeping, as agent for
collection or otherwise, or whether Bank has conditionally released the same,
and in all assets of Borrower in which Bank now has or may at any time hereafter
obtain a lien, mortgage, or security interest for any reason.
17
(i) All of Borrower's right, title and interest in and to the
Specified Tax Refund and the payment thereof. Borrower shall execute and deliver
to Bank all documents required by Bank in accordance with Section 7.31 below in
order to insure that the payment of such refund will be made directly to Bank.
(j) All of Borrower's right, title and interest as seller in and to
any agreement of sale for the Mortgaged Property (as defined below). Bank shall
not be liable for or be deemed to have assumed any obligations of Borrower under
any such agreement of sale.
5.2 Real Property. As further security for the Bank Indebtedness, Borrower
shall grant to Bank a first priority mortgage lien encumbering the premises
situate at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, and all
improvements thereon and all rights, licenses, permits and approvals related
thereto, together with an assignment of all rents and leases related thereto
(collectively, the "Mortgaged Property"). Bank shall not record such documents
except as provided for in Section 7.29 below.
5.3 Insurance. As further security for the Bank Indebtedness, Borrower
(and all owners and beneficiaries applicable thereto) shall assign and grant to
Bank a security interest in a life insurance policy and the proceeds payable
thereunder issued by and maintained with an insurance company acceptable to
Bank, insuring the lives of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, each in an
amount at least equal to One Million Dollars ($1,000,000.00). Such insurance
collateral shall be in addition to all insurance required to be maintained under
Section 7.12 hereof.
5.4 Surety. As further security for the Bank Indebtedness, Borrower shall
cause to be executed and delivered to Bank, the absolute, unconditional, joint
and several surety agreement (the "Surety Agreement") of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (collectively, "Guarantors") in form and content satisfactory to
Bank. The liability of Guarantors under the Surety Agreement shall be limited to
an aggregate principal amount equal to Three Million Dollars ($3,000,000.00)
(the "Maximum Surety Amount"), together with interest thereon and all costs
incurred in collecting such sums.
Provided that (a) Borrower has complied with all financial covenants
set forth in Section 8.1 below (as the same may be amended from time to time,
unless such amendments were in connection with an Event of Default or agreed to
by Bank in order to avoid the occurrence of an Event of Default), and (b) no
other Event of Default or event which with the giving of notice or the passage
of time or both would become an Event of Default shall have occurred and is
continuing, the Maximum Surety Amount will be reduced to One Million Five
Hundred Thousand Dollars ($1,500,000.00) upon request of Guarantors and upon:
(a) receipt by Bank of Borrower's annual audited financial
statements for Borrower's fiscal year ending December 31, 1997, showing Net
Income (before taxes) for such year of not less than Four Million Dollars
($4,000,000.00);
(b) delivery of evidence satisfactory to Bank that Borrower has
maintained excess availability for advances under the Line (not including any
Permitted Out-of-Formula Advance) of at least Two Million Five Hundred Thousand
Dollars ($2,500,000.00) for ninety (90) consecutive days preceding the date of
such reduction and that no accounts payable of Borrower during such ninety (90)
day period and on the date of such reduction are or were past due; and
18
(c) Bank having a period of thirty (30) days from the date of
receipt of the items referred to in (a) and (b) above to review and verify the
information contained therein.
Provided that (a) Borrower has complied with all financial covenants
set forth in Section 8.1 below (as the same may be amended from time to time,
unless such amendments were in connection with an Event of Default or agreed to
by Bank in order to avoid the occurrence of an Event of Default), and (b) no
other Event of Default or event which with the giving of notice or the passage
of time or both would become an Event of Default shall have occurred and is
continuing, the Guarantors shall be released from their obligations under the
Surety Agreement upon request of Borrower and upon:
(i) delivery of evidence satisfactory to Bank that Borrower
has received additional cash equity in an amount equal to at least Ten Million
Dollars ($10,000,000.00) (net of all offering expenses); or
(ii) delivery of evidence satisfactory to Bank that (A) for a
period of two (2) consecutive fiscal years, (1) Borrower achieved profitability
for each such fiscal year, and (2) Borrower achieved Net Income (before taxes)
of not less than Four Million Dollars ($4,000,000.00) for each such fiscal year;
and (B) Borrower maintained excess availability for advances under the Line (not
including any Permitted Out-of-Formula Advance) of at least Two Million Five
Hundred Thousand Dollars ($2,500,000.00) for ninety (90) consecutive days
preceding the date of such release and that no accounts payable of Borrower
during such ninety (90) day period and on the date of such release are or were
past due; and
(iii) Bank having a period of thirty (30) days from the date
of receipt of the items referred to in (i) or (ii) above, as applicable, to
review and verify the information contained therein.
5.5 Validity Assurance and Management Support Letter. As further security
for the Bank Indebtedness, Borrower shall cause to be executed and delivered to
Bank a validity assurance and management support letter from each of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ in form
satisfactory to Bank.
5.6 General. The collateral described above in Sections 5.1, 5.2, 5.3 and
5.4 is collectively referred to herein as the "Collateral". The above-described
security interests, assignments, liens and guarantees shall not be rendered void
by the fact that no Bank Indebtedness exists as of any particular date, but
shall continue in full force and effect until the Bank Indebtedness has been
repaid, and Bank has no agreement or commitment outstanding pursuant to which
Bank may extend credit to or on behalf of Borrower. IT IS THE EXPRESS INTENT OF
THE BORROWER THAT ALL OF THE COLLATERAL SHALL SECURE NOT ONLY THE OBLIGATIONS
UNDER THE LOAN DOCUMENTS, BUT ALSO ALL OTHER PRESENT AND FUTURE BANK
INDEBTEDNESS (as defined herein).
5.7 Collection of Receivables; Proceeds of Collateral.
(a) Borrower will collect its accounts receivable only in the
ordinary course of business. Borrower will notify all of its account debtors to
forward all accounts receivable collections owed to Borrower to a lockbox
maintained by Bank, and will execute such lockbox
19
agreements as may be required by Bank and will pay to Bank all customary fees in
connection with such lockbox arrangement. Immediately upon receipt, Borrower
will forward to Bank all other checks, drafts and other monies received by
Borrower which are proceeds of the Collateral to the lockbox maintained by Bank.
(b) All accounts receivable collections of Borrower and all checks,
drafts and other monies received by Borrower which are proceeds of the
Collateral will be deposited in a non-interest bearing cash collateral account
maintained at Bank (the "Cash Collateral Account"). Bank will have sole dominion
and control over all items and funds in the Cash Collateral Account and such
items and funds may be withdrawn only by Bank. However, Bank will apply all such
funds towards payment of the Bank Indebtedness.
(c) Solely for purposes of calculating interest on the balance of
the Line, all items deposited into the Cash Collateral Account will be credited
by Bank as payments of the principal balance of the Line on the Business Day on
which such items are deposited into the Cash Collateral Account. As compensation
for the foregoing arrangement, Borrower will pay to Bank a sum equal to one
day's interest on all such deposits, at the interest rate set forth in Section
3.1(a)(i). Borrower will reimburse Bank on demand for the amount of any items
credited as provided above and subsequently returned unpaid. Bank may terminate
the foregoing arrangement upon notice to Borrower.
(d) Borrower agrees that all monies, checks, notes, instruments,
drafts or other payments relating to or constituting proceeds of any accounts
receivable or other Collateral of Borrower which come into the possession or
under the control of Borrower or any employees, agents or other persons acting
for or in concert with Borrower, shall be received and held in trust for Bank
and such items shall be the sole and exclusive property of Bank. Immediately
upon receipt thereof, Borrower and such other persons shall remit the same or
cause the same to be remitted, in kind, to Bank. Borrower shall deliver or cause
to be delivered to Bank, with appropriate endorsement and assignment to Bank
with full recourse to Borrower, all instruments, notes and chattel paper
constituting an account receivable or proceeds thereof or other Collateral. Bank
is hereby authorized to open all mail addressed to Borrower and endorse all
checks, drafts or other items for payment on behalf of Borrower. Bank is granted
a power of attorney by Borrower with full power of substitution to execute on
behalf of Borrower and in Borrower's name or to endorse Borrower's name on any
check, draft, instrument, note or other item of payment or to take any other
action or sign any document in order to effectuate the foregoing. Such power of
attorney being coupled with an interest is irrevocable until the Bank
Indebtedness has been paid in full and Bank has no further commitment or
obligation to make any advances under the Line.
6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as follows:
6.1 Valid Organization, Good Standing and Qualification. Borrower is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, has full power and authority to execute, deliver
and comply with the Loan Documents, and to carry on its business as it is now
being conducted and is duly licensed or qualified as a foreign corporation in
good standing under the laws of each other jurisdiction in which the character
or location of the properties owned by it or the business transacted by it
requires such licensing or qualification and
20
the failure to be so qualified would have a material adverse effect on the
Collateral, business operations or financial condition of Borrower.
6.2 Licenses. Borrower and its employees, servants and agents have all
licenses, registrations, approvals and other authority as may be necessary to
enable it to own and operate its business and perform all services and business
which it has agreed to perform in any state, municipality or other jurisdiction,
except where the failure to have such licenses, registrations, approvals or
other authority would not have a material adverse affect on the Collateral,
business, operations or financial condition of Borrower or the ability of
Borrower to perform its obligations under the Loan Documents.
6.3 Subsidiaries. Borrower owns no shares of stock or other equity
interests in any Person, directly or indirectly (by any Subsidiary or
otherwise).
6.4 Financial Statements. Borrower has furnished to Bank the audited
financial statements of Borrower certified without qualification by independent
public accountants as of December 31, 1995 and all management and comment
letters from such accountants in connection therewith, and its internally
prepared fiscal year end financial statements as of December 31, 1996. Such
financial statements of Borrower (together with the related notes and comments),
are correct and complete, fairly present the financial condition and the assets
and liabilities of Borrower at such date, and have been prepared in accordance
with GAAP. With respect to the internally prepared fiscal year end statements,
such statements may be subject to year-end adjustment and any accompanying
footnotes.
6.5 No Material Adverse Change in Financial Condition. There has been no
material adverse change in the financial condition of Borrower since December
31, 1996.
6.6 Pending Litigation or Proceedings. Except as set forth on Schedule 6.6
attached hereto, there are no judgments outstanding or actions, suits or
proceedings pending or, to the best of Borrower's knowledge, threatened against
or affecting Borrower, at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
6.7 Due Authorization; No Legal Restrictions. The execution and delivery
by Borrower of the Loan Documents, the consummation of the transactions
contemplated by the Loan Documents and the fulfillment and compliance by
Borrower with the respective terms, conditions and provisions of the Loan
Documents: (a) have been duly authorized by all requisite corporate action of
Borrower; (b) will not conflict with or result in a breach of, or constitute a
default (or might, upon the passage of time or the giving of notice or both,
constitute a default) under, any of the terms, conditions or provisions of any
applicable statute, law, rule, regulation or ordinance or Borrower's Certificate
of Incorporation or By-Laws or any indenture, mortgage, loan or credit agreement
or instrument to which Borrower is a party or by which Borrower may be bound or
affected, or any judgment or order of any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign; and
(c) will not result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of
Borrower under the terms or provisions of any such agreement or instrument,
except liens in favor of Bank.
21
6.8 Enforceability. The Loan Documents have been duly executed by Borrower
and delivered to Bank and constitute legal, valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their terms, except as
enforceability may be limited by any bankruptcy, insolvency, reorganization,
moratorium or other laws or equitable principles affecting creditors' rights
generally.
6.9 No Default Under Other Obligations, Orders or Governmental
Regulations. Borrower is not in violation of its Certificate of Incorporation or
in default in the performance or observance of any of its obligations, covenants
or conditions contained in any indenture or other agreement creating, evidencing
or securing any Indebtedness or pursuant to which any such Indebtedness is
issued and Borrower is not in violation of or in default under any other
agreement or instrument or any judgment, decree, order, statute, rule or
governmental regulation, applicable to it or by which its properties may be
bound or affected.
6.10 Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing (other than the filing of UCC financing
statements) with any governmental authority on the part of Borrower is required
in connection with the execution, delivery or performance by Borrower of the
Loan Documents or the consummation of the transactions contemplated thereby.
6.11 Taxes. Borrower has filed all tax returns which it is required to
file and has paid, or made provision for the payment of, all taxes which have or
may have become due pursuant to such returns or pursuant to any assessment
received by Borrower. Such tax returns are complete and accurate in all material
respects. Borrower knows of no proposed additional assessment or basis for any
assessment of additional taxes.
6.12 Title to Collateral. The Collateral is and will be owned by Borrower
free and clear of all liens and other encumbrances of any kind (including liens
or other encumbrances upon properties acquired or to be acquired under
conditional sales agreements or other title retention devices), excepting only
liens in favor of the Bank and those liens and encumbrances permitted under
Section 7.9 below. Borrower will defend the Collateral against any claims of all
persons or entities other than the Bank.
6.13 Addresses. During the past five (5) years, Borrower has not been
known by any names (including tradenames) other than those set forth in Schedule
6.13 attached hereto and has not been located at any addresses other than those
set forth on Schedule 6.13 attached hereto. The portions of the Collateral which
are tangible property and Borrower's books and records pertaining thereto will
at all times be located at the addresses set forth on Schedule 6.13; or such
other location determined by Borrower after prior notice to Bank and delivery to
Bank of any items requested by Bank to maintain perfection and priority of
Bank's security interests and access to Borrower's books and records. Schedule
6.13 identifies the chief executive office of Borrower.
6.14 Current Compliance. Borrower is currently in compliance with all of
the terms and conditions of the Loan Documents.
6.15 Pension Plans. Except as disclosed on Schedule 6.15 hereto: (a)
Borrower has no obligations with respect to any employee pension benefit plan
("Plan") (as such term is defined in the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")); (b) no events,
22
including, without limitation, any "Reportable Event" or "Prohibited
Transaction" (as those terms are defined under ERISA), have occurred and are
continuing in connection with any Plan of Borrower which might constitute
grounds for the termination of any such Plan by the Pension Benefit Guaranty
Corporation ("PBGC") or for the appointment by any United States District Court
of a trustee to administer any such Plan; (c) all of Borrower's Plans meet with
the minimum funding standards of Section 302 of ERISA; and (d) Borrower has no
existing liability to the PBGC. Borrower is not subject to or bound to make
contributions to any "multi-employer plan" as such term is defined in Section
4001(a)(3) of ERISA.
6.16 Leases and Contracts. Borrower has complied with the provisions of
all material leases, contracts or commitments of any kind (such as employment
agreements, collective bargaining agreements, powers of attorney, distribution
agreements, patent license agreements, contracts for future purchase or delivery
of goods or rendering of services, bonus, pension and retirement plans or
accrued vacation pay, insurance and welfare agreements) to which it is a party
and is not in default thereunder. To the best of Borrower's knowledge, no other
party is in default under any such leases, contracts or other commitments and no
event has occurred which, but for the giving of notice or the passage of time or
both, would constitute an event of default thereunder.
6.17 Intellectual Property. Borrower owns or possesses the irrevocable
right to use all of the patents, trademarks, service marks, trade names,
copyrights, licenses, franchises and permits and rights with respect to the
foregoing necessary to own and operate the Borrower's properties and to carry on
its business as presently conducted and presently planned to be conducted
without conflict with the rights of others. Schedule 6.17 sets forth an accurate
list and description of each such patent, trademark, service ▇▇▇▇, trade name,
copyright, license, franchise and permit and right with respect to the
foregoing, together with all registration or application numbers or information
with respect thereto.
6.18 Eligible Inventory Warranties. With respect to Eligible Inventory
from time to time scheduled, listed or referred to in any certificate, statement
or report prepared by or for Borrower and delivered to Bank and upon which
Borrower is basing availability under the Line, Borrower warrants and represents
that: (a) such inventory is located at the address or addresses listed on
Schedule 6.13 attached hereto and is not in transit (except between locations of
Borrower described on Schedule 6.13 hereto and other locations of Borrower
established in accordance with the terms and conditions of this Agreement); (b)
Borrower has good, indefeasible and merchantable title to such inventory and
such inventory is not subject to any lien or security interest whatsoever except
for the prior, perfected security interest granted to Bank; (c) such inventory
is of good and merchantable quality, free from any defects; (d) such inventory
is not subject to any licensing, patent, royalty, trademark, trade name or
copyright agreements with any third parties; and (e) the completion of the
manufacture and sale or other disposition of such inventory by Bank following an
Event of Default shall not require the consent of any person and shall not
constitute a breach or default under any contract or agreement to which Borrower
is a party or to which the inventory is subject.
6.19 Eligible Account Warranties. With respect to all Eligible Receivables
from time to time scheduled, listed or referred to in any certificate, statement
or report prepared by or for Borrower and delivered to Bank and upon which
Borrower is basing availability under the Line, Borrower warrants and represents
that: (a) the accounts arose in the ordinary course of Borrower's business; (b)
the accounts are genuine, are in all respects what they purport to be, and are
not
23
evidenced by any chattel paper, note, instrument or judgment; (c) Borrower has
absolute title to such accounts and the accounts represent undisputed, bona fide
transactions completed in accordance with the terms thereof and as represented
to Bank; (d) no payments have been or will be made thereon, except payments
immediately delivered to Bank pursuant to the Loan Documents; (e) there are no
setoffs, counterclaims, disputes, discounts (other than prompt payment discounts
not in excess of five percent (5%) of the face amount thereof), credits, charge
backs, freight claims, allowances or adjustments existing or asserted with
respect thereto and Borrower has not made any agreement with any account debtor
for any deduction therefrom; (f) there are no facts, events or occurrences which
impair the validity or enforcement thereof or may reduce the amount payable
thereunder as shown on any certificates, statements or reports, prepared by or
for Borrower and delivered to Bank, Borrower's books and records and all
invoices and statements delivered to Bank with respect thereto; (g) to the best
of Borrower's knowledge, all account debtors have the capacity to contract and
are solvent; (h) the goods sold giving rise thereto are not subject to any lien,
claim, encumbrance or security interest except that of Bank; (i) to the best of
Borrower's knowledge, there are no proceedings or actions which are threatened
or pending against any account debtor which might result in any material adverse
change in such account debtor's financial condition; (j) the account is not an
account with respect to which the account debtor is an Affiliate of Borrower or
a director, officer or employee of Borrower or its Affiliates; (k) the account
does not arise with respect to goods which have been returned, rejected, lost or
damaged or which have not been shipped or arise with respect to services which
have not been fully performed and accepted as satisfactory by the account
debtor; (l) the account is not an account with respect to which the account
debtor's obligation to pay the account is conditional upon the account debtor's
approval or is otherwise subject to any repurchase obligation or return right,
as with sales made on a consignment ▇▇▇▇-and-hold, guaranteed sale,
sale-and-return, or sale on approval basis; (m) the amounts shown on the
applicable certificates, statements, on Borrower's books and records and all
invoices and statements which may be delivered to Bank with respect to such
accounts are actually and absolutely owing to Borrower and are not in any way
contingent (except in connection with Borrower's standard product warranties);
and (n) the accounts have not been sold, assigned or transferred to any other
Person and no Person except Borrower has any claim thereto or (with the
exception of the applicable account debtor) any claims to the goods sold.
6.20 Business Interruptions. Within five (5) years prior to the date
hereof, neither the business, Collateral nor operations of Borrower have been
materially and adversely affected in any way by any casualty, strike, lockout,
combination of workers, order of the United States of America, or any state or
local government, or any political subdivision or agency thereof, directed
against Borrower. There are no pending or threatened labor disputes, strikes,
lockouts or similar occurrences or grievances against the business being
operated by Borrower.
6.21 Accuracy of Representations and Warranties. No representation or
warranty by Borrower contained herein or in any certificate or other document
furnished by Borrower pursuant hereto or in connection herewith fails to contain
any statement of material fact necessary to make such representation or warranty
not misleading in light of the circumstances under which it was made. There is
no fact which Borrower knows or should know and has not disclosed to Bank, which
does or may materially and adversely affect Borrower, or any of its operations.
7. GENERAL COVENANTS. Except with the prior written consent of Bank, Borrower
will comply with the following:
24
7.1 Payment of Principal, Interest and Other Amounts Due. Borrower will
pay when due all Bank Indebtedness and all other amounts payable by it
hereunder.
7.2 Limitation on Sale and Leaseback. Borrower will not enter into any
arrangement whereby it will sell or transfer any real property or improvements
thereon or other fixed assets owned by it and then or thereafter rent or lease
as lessee such property, improvements or assets or any part thereof, or other
property which any Borrower shall intend to use for substantially the same
purposes as the property sold or transferred.
7.3 Limitation on Indebtedness. Borrower will not have at any time
outstanding to any Person other than Bank, any Indebtedness for borrowed money,
Capitalized Lease Obligations, or any outstanding letters of credit issued for
Borrower's account, except:
(a) Current accounts payable incurred in the ordinary course of
Borrower's business, accrued expenses and other current items arising out of
transactions (other than borrowings) in the ordinary course of Borrower's
business;
(b) Existing Indebtedness for borrowed money and for Capitalized
Lease Obligations described on Schedule 7.3;
(c) Future purchase money Indebtedness and Capitalized Lease
Obligations in an aggregate amount not to exceed Twenty-Five Thousand Dollars
($25,000.00) per transaction or One Hundred Thousand Dollars ($100,000.00) in
the aggregate per fiscal year of Borrower, provided that Bank shall have the
right of first refusal to provide such financing on substantially similar terms,
which right of first refusal must be exercised, if at all, within fifteen (15)
days after written notice thereof to Bank in each instance. The foregoing
permitted purchase money indebtedness and Capitalized Lease Obligations shall be
on a non-cumulative basis as to any unused portions from year to year; and
(d) Letters of credit issued pursuant to this Agreement.
Except as provided in the next succeeding sentence, any of such
existing permitted Indebtedness may not be refinanced or replaced without the
consent of Bank. Borrower may refinance or replace existing permitted
Indebtedness (other than the Subordinated Indebtedness) provided that such
replacement or refinancing does not result in an increase in the interest rate
or payments due in connection with such existing permitted Indebtedness or is
otherwise on more burdensome terms to Borrower.
7.4 Investments and Loans. Borrower will not have or make any investments
in all or a material portion of the capital stock or securities of any Person,
or any loans, advances or extensions of credit to any Person, except:
(a) Investments in direct or indirect obligations of, or obligations
unconditionally guaranteed by, the United States of America and maturing within
twelve (12) months from the date of acquisition;
(b) Investments in commercial paper of Bank or commercial paper
rated "Prime-1" by ▇▇▇▇▇'▇ Investors Services or "A-1" by Standard & Poor's
Corporation, or with an equivalent
25
rating by another rating agency of nationally recognized standing, maturing
within three hundred sixty-five (365) days from the date of acquisition;
(c) Certificates of deposit maturing within twelve (12) months from
the date of acquisition issued by Bank;
(d) Investments and loans listed on Schedule 7.4 attached hereto;
(e) Future loans to employees (other than ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇) of not more than Ten Thousand Dollars ($10,000.00)
per employee or One Hundred Thousand Dollars ($100,000.00) in the aggregate
outstanding at any one time. In lieu of year-end bonuses to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Borrower may make loans to ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in an amount not to exceed any
bonuses provided for in any employment contract of such Person with Borrower,
which bonuses have not or will not be paid, provided that, assuming such bonuses
were expensed by Borrower, Borrower would be in compliance with all of the
financial covenants in Section 8.1 below; and
(f) Advances to employees for reimbursable business expenses in
amounts not to exceed Two Thousand Dollars ($2,000.00) per employee outstanding
at any time.
7.5 Guaranties. Borrower will not directly or indirectly guarantee,
endorse (other than for collection or deposit in the ordinary course of
business), discount, sell with recourse or for less than the face value or agree
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
otherwise become directly or indirectly liable for, or agree (contingently or
otherwise) to supply or advance funds (whether by loan, stock purchase, capital
contribution or otherwise) in respect of, any Indebtedness, obligations or
liabilities of any Person.
7.6 Disposition of Assets. Borrower will not sell, lease, transfer or
otherwise dispose of all, substantially all, or any material portion of its
property or assets, except for sales of inventory in the ordinary course for
fair consideration and sales of assets (not financed by Bank) with a value not
in excess of Twenty-Five Thousand Dollars ($25,000.00) individually or One
Hundred Thousand Dollars ($100,000.00) in the aggregate per fiscal year of
Borrower. The foregoing limitation shall be on a non-cumulative basis as to any
unused portions from year to year.
7.7 Merger; Consolidation; Business Acquisitions; Subsidiaries. Borrower
will not (a) merge into or consolidate with any Person, or (b) without the prior
written consent of Bank (which consent will not be unreasonably withheld or
delayed) acquire any material portion of the stock, ownership interests, assets
or business of any Person, permit any Person to merge into it, or form any new
Subsidiaries. Borrower acknowledges and agrees that any consent by Bank in
connection with Section 7.7(b) shall be conditioned upon no Event of Default or
event which with the giving of notice or the passage of time or both would
become an Event of Default being continuing and may be further conditioned upon
minimum availability requirements, financial covenants and other requirements as
Bank may establish in its sole discretion. Any acquisition by Borrower described
in Section 7.7(b) shall only be in connection with the stock, assets or
securities of an entity engaged in a line of business reasonably similar to that
currently engaged in by Borrower.
26
7.8 Taxes; Claims for Labor and Materials. Borrower will pay or cause to
be paid when due all taxes, assessments, governmental charges or levies imposed
upon it or its income, profits, payroll or any property belonging to it,
including without limitation all withholding taxes, and all claims for labor,
materials and supplies which, if unpaid, might become a lien or charge upon any
of its properties or assets; provided that Borrower shall not be required to pay
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings promptly initiated
and diligently conducted by Borrower and neither execution, foreclosure nor levy
shall have been commenced in respect thereof and Borrower shall have set aside
on its books adequate reserves with respect thereto. Borrower will not file or
consent to the filing of, any consolidated income tax return with any Person
other than a Subsidiary.
7.9 Liens. Borrower will not create, incur or permit to exist any
mortgage, pledge, encumbrance, lien, security interest or charge of any kind
(including liens or charges upon properties acquired or to be acquired under
conditional sales agreements or other title retention devices) on its property
or assets, whether now owned or hereafter acquired, or upon any income, profits
or proceeds therefrom, except:
(a) Security interests and mortgages held by Bank;
(b) Liens incurred or deposits made in the ordinary course of
business (i) in connection with worker's compensation, unemployment insurance,
social security and other like laws, (ii) to secure the performance of statutory
obligations or bids, tenders or contracts, not incurred in connection with
either (A) the borrowing of money or (B) the deferred purchase price of goods or
inventory, or (iii) liens for taxes, assessments or other governmental charges
not delinquent, or being contested in good faith by appropriate proceedings;
(c) Encumbrances consisting of zoning restrictions, easements,
restrictions on the use of real property or minor irregularities of title
thereto, none of which materially impairs the use of such property by Borrower
in the operation of its business;
(d) Liens and security interests listed on Schedule 7.9 attached
hereto;
(e) Purchase money liens or Capitalized Leases, provided that:
(1) the property subject to any of the foregoing is acquired
or leased by Borrower in the ordinary course of its business and the lien on any
such property is created contemporaneously with such acquisition;
(2) purchase money Indebtedness or Capitalized Lease
Obligations so created shall not exceed one hundred percent (100%) of the lesser
of cost or fair market value as of the time of acquisition or lease of the
property covered thereby;
(3) the purchase money Indebtedness or Capitalized Lease
Obligations shall only be secured by the property so acquired or leased; and
(4) the purchase money Indebtedness or Capitalized Lease
Obligations are permitted by the provisions of Section 7.3; or
27
(f) Judgment liens not greater than Fifty Thousand Dollars
($50,000.00) individually or in the aggregate, provided that the creditor
thereunder shall not have commenced any collection proceedings in connection
therewith (unless such proceedings shall have been stayed pending appeal).
Borrower shall not enter into any agreement with any other Person
which shall prohibit Borrower from granting, creating or suffering to exist, or
otherwise restrict in any way (whether by covenant, by identifying such event as
a default under such agreement or otherwise) the ability of Borrower to grant,
create or suffer to exist, any lien, security interest or other charge or
encumbrance upon or with respect to any of its assets in favor of Bank.
Borrower will not apply for or obtain any letters of credit for the
payment of or to secure the payment for any inventory or other assets to be
acquired by Borrower, except letters of credit issued by Bank, at its
discretion.
7.10 Existence; Approvals; Qualification; Business Operations; Compliance
with Laws. Borrower (a) will obtain, preserve and keep in full force and effect
its separate corporate existence and all rights, licenses, registrations and
franchises necessary to the proper conduct of its business or affairs; (b) will
qualify and remain qualified as a foreign corporation in each jurisdiction in
which the character or location of the properties owned by it or the business
transacted by it requires such qualification and the failure to be so qualified
would have a material adverse effect on the Collateral, business operations or
financial condition of Borrower; (c) will continue to operate its business in
substantially the same manner as presently operated; and (d) will comply in all
material respects with the requirements of all applicable laws and all rules,
regulations (including environmental regulations) and orders of regulatory
agencies and authorities having jurisdiction over it.
7.11 Maintenance of Properties, Intellectual Property. Borrower will
maintain, preserve, protect and keep or cause to be maintained, preserved,
protected and kept its real and personal property used or useful in the conduct
of its business in good working order and condition, reasonable wear and tear
excepted, and will pay and discharge when due the cost of repairs to and
maintenance of the same.
With respect to any and all trademarks, registrations, copyrights,
patents, patent rights and applications for any of the foregoing, Borrower shall
maintain and protect the same and shall, in the exercise of its reasonable
business judgment, take and assert such remedies as are available to Borrower to
prevent any other Person from infringing upon or claiming any interest in any
such trademarks, registrations, copyrights, patents, patent rights or
application for any of the foregoing.
Borrower will notify Bank immediately of: (a) Borrower's learning of
the creation by Borrower or any of its employees of any significant inventions
relating to Borrower's business; (b) Borrower's learning of any changes or
improvements made to an invention created or owned by Borrower or any of its
employees and relating to Borrower's business; (c) the filing of any patent or
trademark application, whether domestic or foreign, by Borrower or, if Borrower
will have any rights therein, any of its employees; (d) the grant of any patent
or trademark, whether domestic or foreign, to Borrower or, if Borrower will have
any rights therein, any of its employees; or (e) Borrower's intent to abandon a
patent or trademark.
28
Borrower will, if requested by Bank: (i) execute and deliver to Bank
assignments, financing statements, patent mortgages or such other documents, in
form and substance acceptable to Bank, necessary to perfect and maintain Bank's
security interest in all existing and future patents, patent applications,
trademarks, trademark applications, and other general intangibles owned by
Borrower; (ii) furnish Bank with evidence satisfactory to Bank that all actions
necessary to maintain and protect each trademark and patent owned by Borrower or
its employees and relating to Borrower's business have been taken in a timely
manner; and (iii) execute and deliver to Bank an agreement permitting Bank to
exercise all of Borrower's rights in, to and under any patent or trademark owned
by Borrower or, to the extent Borrower has any rights therein, any of its
employees.
7.12 Insurance. Borrower will carry adequate insurance issued by an
insurer acceptable to Bank, in amounts acceptable to Bank (at least adequate to
comply with any co-insurance provisions) and against all such liability and
hazards as are usually carried by entities engaged in the same or a similar
business similarly situated or as may be required by Bank, and in addition, will
carry business interruption insurance in such amounts as may be required by
Bank. In the case of insurance on any of the Collateral, Borrower shall carry
insurance in the full insurable value thereof and cause Bank to be named as
insured mortgagee with respect to all real property, loss payee (with a lender's
loss payable endorsement) with respect to all personal property, and additional
insured with respect to all liability insurance, as its interests may appear,
with thirty (30) days' notice to be given Bank by the insurance carrier prior to
cancellation or material modification of such insurance coverage.
Borrower shall cause to be delivered to Bank the insurance policies
therefor or in the alternative, evidence of insurance and at least thirty (30)
business days prior to the expiration of any such insurance, additional policies
or duplicates thereof or in the alternative, evidence of insurance evidencing
the renewal of such insurance and payment of the premiums therefor. Borrower
shall direct all insurers that in the event of any loss thereunder or the
cancellation of any insurance policy, the insurers shall make payments for such
loss and pay all return or unearned premiums directly to Bank and not to
Borrower and Bank jointly.
In the event of any loss, Borrower will give Bank immediate notice
thereof and Bank may make proof of loss whether the same is done by Borrower.
Bank is granted a power of attorney by Borrower with full power of substitution
to file any proof of loss in Borrower's or Bank's name, to endorse Borrower's
name on any check, draft or other instrument evidencing insurance proceeds, and
to take any action or sign any document to pursue any insurance loss claim. Such
power being coupled with an interest is irrevocable until all Bank Indebtedness
is paid in full and Bank has no further funding commitment under or in respect
of the Line.
In the event of any loss, Bank, at its option, may: (a) retain and
apply all or any part of the insurance proceeds to reduce, in such order and
amounts as Bank may elect, the Bank Indebtedness (excluding, provided that no
Event of Default shall have occurred and be continuing, that portion of the Line
outstanding under the Equipment Purchase Sublimit, except to the extent such
insurance proceeds were received in respect of equipment purchased with proceeds
advanced under the Equipment Purchase Sublimit); or (b) disburse all or any part
of such insurance proceeds to or for the benefit of Borrower for the purpose of
repairing or replacing Collateral after receiving proof satisfactory to Bank of
such repair or replacement or the estimated cost thereof, in either case without
waiving or impairing the Bank Indebtedness or any provision of this Agreement.
Borrower
29
shall not take out any insurance on the Collateral without having Bank named as
loss payee or additional insured thereon. Borrower shall bear the full risk of
loss from any loss of any nature whatsoever with respect to the Collateral.
7.13 Inspections; Examinations. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time to exhibit
and deliver to Bank copies of any and all of Borrower's financial statements,
trial balances or other accounting records of any sort in the accountant's or
auditor's possession and copies of all reports submitted to Borrower by such
accountants or auditors, including management letters, "comment" letters and
audit reports, and to disclose to Bank any information they may have concerning
Borrower's financial status and business operations. Borrower further authorizes
all federal, state and municipal authorities to furnish to Bank copies of
reports or examinations relating to Borrower, whether made by Borrower or
otherwise.
The officers of Bank, or such Persons as any of them may designate,
may visit and inspect any of the properties of Borrower, examine (either by
Bank's employees or by independent accountants) any of the Collateral or other
assets of Borrower, including the books of account of Borrower, and discuss the
affairs, finances and accounts of Borrower with its officers and with its
independent accountants, at such times as Bank may desire. Provided no Event of
Default shall have occurred, Bank will visit Borrower's locations only upon
reasonable notice and during normal business hours.
Bank may, at its expense provided that no Event of Default shall
have occurred and be continuing, conduct at any time and from time to time, and
Borrower will fully cooperate with, field examinations of the inventory,
accounts receivable and business affairs of Borrower.
7.14 Default Under Other Indebtedness. Borrower will not permit any of its
Indebtedness to be in default. If any Indebtedness of Borrower is declared or
becomes due and payable before its expressed maturity by reason of default or
otherwise or to the knowledge of Borrower, the holder of any such Indebtedness
shall have the right (or upon the giving of notice or the passage of time, or
both, shall have the right) to declare such Indebtedness to be so due and
payable, Borrower will immediately give Bank written notice of such declaration,
acceleration or right of declaration.
7.15 Pension Plans. Borrower will: (a) keep in full force and effect any
and all Plans which are presently in existence or may, from time to time, come
into existence under ERISA, unless such Plans can be terminated without material
liability to Borrower in connection with such termination (as distinguished from
any continuing funding obligation); (b) make contributions to all of Borrower's
Plans in a timely manner and in a sufficient amount to comply with the minimum
funding requirements of ERISA; (c) comply with all material requirements of
ERISA which relate to such Plans so as to preclude the occurrence of any
Reportable Event, Prohibited Transaction or material "accumulated funding
deficiency" as such term is defined in ERISA; and (d) notify Bank immediately
upon receipt by Borrower of any notice of the institution of any proceeding or
other action which may result in the termination of any Plan and deliver to
Bank, promptly after the filing or receipt thereof, copies of all reports or
notices which Borrower files or receives under ERISA with or from the Internal
Revenue Service, the PBGC, or the U.S. Department of Labor.
30
7.16 Bank of Account. Borrower will maintain Bank as its major bank of
account, unless otherwise agreed by Bank in writing.
7.17 Maintenance of Management. Borrower will cause its business to be
continuously managed by its present senior management team consisting of ▇▇▇▇▇▇
▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ or such other persons (serving
in such management positions) as may be reasonably satisfactory to Bank.
7.18 Capital Stock; Dividends. Borrower will not redeem, repurchase or
otherwise make any payment or distribution to acquire any of its capital stock.
Borrower will not pay cash dividends or make other distributions on account of
its capital stock. The foregoing shall not preclude Borrower from implementing
stock splits or paying stock dividends.
7.19 Transactions with Affiliates. Except for those disclosed on Schedule
7.19 attached hereto, Borrower will not enter into or conduct any transaction
with any Affiliate except on terms that would be usual and customary in a
similar transaction between Persons not affiliated with each other and except as
disclosed to Bank. Borrower will not make any loans or extensions of credit to
any of its Affiliates, shareholders, directors or officers, except for the
existing loans described in Schedule 7.19 attached hereto or to the extent
permitted pursuant to Section 7.4(e) or (f) above. Borrower will cause all of
its Indebtedness at any time owed to its Affiliates, shareholders, directors and
officers to be subordinated in all respects to all present and future Bank
Indebtedness and will not make any payments thereon, except as approved by Bank
in writing.
7.20 Name or Address Change. Borrower shall not change its name or the
address of its principal executive office except upon thirty (30) days prior
written notice to Bank and delivery to Bank of any items requested by Bank to
maintain perfection and priority of Bank's security interests and access to
Borrower's books and records.
7.21 Notices. Borrower will promptly notify Bank of: (a) any action or
proceeding brought against Borrower wherein such action or proceeding would, if
determined adversely to Borrower, result in any material liability of Borrower;
(b) the occurrence of any Event of Default; (c) any fact, condition or event
which, with the giving of notice or the passage of time or both, could become an
Event of Default; (d) the failure of Borrower to observe any of its undertakings
under the Loan Documents; or (e) any material adverse change in the assets,
business, operations or financial condition of Borrower.
7.22 Additional Documents and Future Actions. Borrower will, at its sole
cost, take such actions and provide Bank from time to time with such agreements,
financing statements and additional instruments, documents or information as
Bank may in its discretion deem necessary or advisable to perfect, protect,
maintain or enforce the security interests in the Collateral, to permit Bank to
protect or enforce its interest in the Collateral, or to carry out the terms of
the Loan Documents. Borrower hereby authorizes and appoints Bank as its
attorney-in-fact, with full power of substitution, to take such actions as Bank
may deem advisable to protect the Collateral and its interests thereon and its
rights hereunder, to execute on Borrower's behalf and file at Borrower's expense
financing statements, and amendments thereto, in those public offices deemed
necessary or appropriate by Bank to establish, maintain and protect a
continuously perfected security interest in the Collateral, and to execute on
Borrower's behalf such other documents and notices as Bank may deem advisable to
protect the Collateral and its interests therein and its rights hereunder. Such
31
power being coupled with an interest is irrevocable until the Bank Indebtedness
is paid in full and Bank has no further funding commitment under or in respect
of the Line. Borrower irrevocably authorizes the filing of a carbon,
photographic or other copy of this Agreement, or of a financing statement, as a
financing statement and agrees that such filing is sufficient as a financing
statement.
7.23 Accounts Receivable. Unless Bank notifies Borrower in writing that it
dispenses with any one or more of the following requirements, Borrower will: (a)
inform Bank immediately of the rejection of goods, claims made or delay in
delivery or performance in regard to any account or contract right upon which
Borrower has based availability for advances under the Line and will adjust the
Borrowing Base calculation under the Line to reduce the availability for
advances under the Line by the applicable percentage of the amount of such
account; (b) make no change in any account upon which Borrower has based
availability for advances under the Line, unless such change is reflected in the
Borrowing Base calculation; (c) furnish to Bank all information received by
Borrower materially adversely affecting the financial standing of any account
debtor whose account or contract right has been specifically assigned to Bank;
(d) pay Bank the amount loaned against any account or contract right if the
goods are returned by purchaser or the contract is canceled or terminated or
adjust the Borrowing Base calculation to reduce the availability for advances
under the Line by the applicable percentage of the amount of such account; (e)
immediately notify Bank if any of its accounts arise out of contracts with the
United States or any department, agency or instrumentality thereof, and execute
any instruments and take any steps required by Bank in order that all monies due
and to become due under such contract shall be assigned to Bank and notice
thereof given to the Government under the Federal Assignment of Claims Act; and
(f) deliver to Bank, with appropriate endorsement or assignment, any instrument
or chattel paper representing an account or contract right. Any permission
granted to Borrower by Bank to omit any of the requirements of this Section 7.23
may be revoked by Bank at any time.
Borrower will, if requested by Bank: (a) give Bank assignments, in
form acceptable to Bank, of specific accounts or groups of accounts and monies
due and to become due under specific contracts and specific general intangibles;
(b) furnish to Bank a copy, with such duplicate copies as Bank may request, of
the invoice applicable to each account specifically assigned to Bank or arising
out of a contract right, bearing a statement that such account has been assigned
to Bank and such additional statements as Bank may require; (c) ▇▇▇▇ its records
evidencing its accounts in a manner satisfactory to Bank so as to show which
accounts have been assigned to Bank; (d) furnish to Bank satisfactory evidence
of the shipment and receipt of any goods specified by Bank and the performance
of any services or obligations covered by accounts or contracts in which Bank
has a security interest; (e) pay Bank the unpaid portion of the amount advanced
under the Line in respect of any account or contract right upon which Borrower
has based availability for advances under the Line, or adjust the Borrowing Base
under the Line by the applicable percentage of the amount of such account, if
(i) such account is not paid within ninety (90) days of its invoice date, (ii)
the subject account debtor does not accept the goods or services, (iii) any
petition under the Bankruptcy Code or any similar Federal or State statute is
filed by or against the subject account debtor, or (iv) Bank shall at any time
reject the account as unsatisfactory; and until such payment or adjustment is
made by Borrower, Bank may retain any such account or contract right as security
and may charge any deposit account of Borrower with any such amounts; (f) join
with Bank in executing a financing statement, notice, affidavit or similar
instrument, in form satisfactory to Bank, and such continuation statements and
other instruments as Bank may from time to time request and pay the cost of
filing the same in any public office deemed advisable by Bank; (g) give Bank
such financial statements, reports, certificates, lists of purchasers (showing
names, addresses, and amounts owing) and other
32
data concerning its accounts, contracts, collections, inventory, general
intangibles and other matters as Bank may from time to time specify; (h)
segregate cash proceeds of Collateral so that they may be identified readily,
and deliver the same to the Bank at such time or times and in such manner and
form as the Bank may direct; (i) furnish such witnesses as may be necessary to
establish legal proof of the Collateral or records relating to the Collateral;
and (j) obtain from any owner, encumbrancer or other person having an interest
in the property where any Collateral is located, written consent to Bank's
removal of the Collateral therefrom, without liability on the part of Bank to
such owner, encumbrancer or other person, or from any such owner, encumbrancer
or other person such waivers of any interest in the Collateral as Bank may
require.
7.24 Material Adverse Contracts. Neither Borrower nor either Guarantor
will become or be a party to any contract or agreement which might reasonably be
expected to have a materially adverse impact on its or either Guarantor's
ability to perform under this Agreement, the Surety Agreement or any other
agreement with Bank to which it or either Guarantor is a party.
7.25 Restrictions on Use of Proceeds. Borrower will not carry or purchase
with the proceeds of the Line any "margin security" within the meaning of
Regulations U, G, T or X of the Board of Governors of the Federal Reserve
System.
7.26 Subordinated Indebtedness. Borrower will not prepay or otherwise
accelerate payment of any Subordinated Indebtedness except as authorized by Bank
in that certain Subordination Agreement of even date; and will comply with all
of the terms of such Subordination Agreement.
7.27 Life Insurance. Borrower will cause to be maintained the life
insurance coverage required under Section 5.3 and will deliver to Bank evidence
of such coverage showing all premiums paid for the subsequent 12-month period at
least thirty (30) days prior to the expiration of such insurance policy.
7.28 Mortgaged Property. Borrower shall use its best efforts to sell the
Mortgaged Property, provided that any such sale must be for an amount (net of
all closing costs) equal to at least Three Hundred Thousand Dollars
($300,000.00). All proceeds of such sale shall be paid to Bank and applied to
the outstanding balance of the Line or any other Bank Indebtedness. In the event
the Mortgaged Property is not sold in the manner described above on or before
June 10, 1997, Bank will be authorized to record the Mortgaged Property
documents delivered pursuant to Section 5.2 above and Borrower will, on or
before such date, provide Bank with a title insurance policy insuring the Bank's
first priority mortgage lien against the Mortgaged Property in an amount and
issued by a title insurance company acceptable to Bank and such other documents
and information as Bank may reasonably require in connection therewith. Upon
request of Bank from time to time, Borrower shall provide Bank with a status
report regarding Borrower's efforts to sell the Mortgaged Property.
7.29 Books and Records. On or before January 1, 1998, Borrower shall cause
the books and records related to its Flow Components operation, which books and
records shall initially be located at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, to be
maintained at Borrower's principal office in Orlando, Florida.
7.30 Year End. Borrower shall not change its fiscal year end without
Bank's prior written consent.
33
7.31 Specified Tax Refund. Immediately upon completion of Borrower's
federal income tax return for Borrower's fiscal year ended December 31, 1996,
Borrower shall deliver to Bank a copy of such return certified to be true and
complete by Borrower's chief financial officer, together with four (4) fully
executed and completed originals of the Assignment of Tax Refund in the form
attached hereto as Schedule 7.31. In addition, Borrower shall deliver to Bank
all other documentation and information required by Bank in order to insure that
the payment of the Specified Tax Refund is made directly to Bank. Bank is
authorized to deliver such Assignment of Tax Refund and all such other documents
to any governmental agency necessary to insure that the Specified Tax Refund is
paid directly to Bank.
8. FINANCIAL COVENANTS.
8.1 Financial Covenants. Except with the prior written consent of Bank,
Borrower will comply with the following:
(a) Net Income. Borrower shall have Net Income of not less than (i)
Zero Dollars ($0) for the three (3) month period ending ▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇)
Five Hundred Eighteen Thousand Dollars ($518,000.00) for the six (6) month
period ending June 30, 1997, (iii) Eight Hundred Fifty Thousand Dollars
($850,000.00) for the nine (9) month period ending September 30, 1997, (iv) One
Million Two Hundred Thousand Dollars ($1,200,000.00) for the twelve (12) month
period ending December 31, 1997, (v) Five Hundred Thousand Dollars ($500,000.00)
for the three (3) month period ending March 31, 1998, (vi) One Million Dollars
($1,000,000.00) for the six (6) month period ending June 30, 1998, (vii) One
Million Five Hundred Thousand Dollars ($1,500,000.00) for the nine (9) month
period ending September 30, 1998, (viii) Two Million Dollars ($2,000,000.00) for
the twelve (12) month period ending December 31, 1998, (ix) Five Hundred
Thousand Dollars ($500,000.00) for the three (3) month period ending March 31,
1999, (x) One Million Dollars ($1,000,000.00) for the six (6) month period
ending June 30, 1999, (xi) One Million Five Hundred Thousand Dollars
($1,500,000.00) for the nine (9) month period ending September 30, 1999, (xii)
Two Million Dollars ($2,000,000.00) for the twelve (12) month period ending
December 31, 1999, (xiii) Five Hundred Thousand Dollars ($500,000.00) for the
three (3) month period ending March 31, 2000, (xiv) One Million Dollars
($1,000,000.00) for the six (6) month period ending June 30, 2000, (xv) One
Million Five Hundred Thousand Dollars ($1,500,000.00) for the nine (9) month
period ending September 30, 2000, and (xvi) Two Million Dollars ($2,000,000.00)
for the twelve (12) month period ending December 31, 2000. In addition,
commencing with Borrower's fiscal quarter ending June 30, 1997, Borrower shall
have Net Income of not less than One Hundred Fifty Thousand Dollars
($150,000.00) for each of its fiscal quarters.
(b) Net Loss. Borrower's Net Loss for the twelve (12) month period
ended December 31, 1996 shall not be greater than Two Million Nine Hundred
Eleven Thousand Dollars ($2,911,000.00).
(c) Net Operating Loss. Borrower's Net Operating Loss for the twelve
(12) month period ended December 31, 1996 shall not be greater than One Million
Five Hundred Two Thousand Dollars ($1,502,000.00).
(d) Effective Net Worth. Borrower shall have Effective Net Worth of
not less than (i) Eight Million Three Hundred Fifty-Three Thousand Dollars
($8,353,000.00) as of December 31, 1996, (ii) Eight Million Three Hundred
Fifty-Three Thousand Dollars ($8,353,000.00) as of
34
▇▇▇▇▇ ▇▇, ▇▇▇▇, (▇▇▇) Nine Million Two Hundred Fifty-Three Thousand Dollars
($9,253,000.00) as of June 30, 1997, (iv) Nine Million Five Hundred Eighty-Five
Thousand Dollars ($9,585,000.00) as of September 30, 1997, (v) Ten Million Three
Hundred Seventeen Thousand Dollars ($10,317,000.00) as of December 31, 1997,
(vi) Eleven Million Eight Thousand Dollars ($11,008,000.00) as of March 31,
1998, (vii) Eleven Million Six Hundred Ninety-Nine Thousand Dollars
($11,699,000.00) as of June 30, 1998, (viii) Twelve Million Three Hundred Ninety
Thousand Dollars ($12,390,000.00) as of September 30, 1998, (ix) Thirteen
Million Eighty-One Thousand Dollars ($13,081,000.00) as of December 31, 1998,
(x) Thirteen Million Seven Hundred Seventy-Two Thousand Dollars ($13,772,000.00)
as of March 31, 1999, (xi) Fourteen Million Four Hundred Sixty-Three Thousand
Dollars ($14,463,000.00) as of June 30, 1999, (xii) Fifteen Million One Hundred
Fifty-Four Thousand Dollars ($15,154,000.00) as of September 30, 1999, (xiii)
Fifteen Million Eight Hundred Forty-Five Thousand Dollars ($15,845,000.00) as of
December 31, 1999, (xiv) Sixteen Million Five Hundred Thirty-Six Thousand
Dollars ($16,536,000.00) as of March 31, 2000, (xv) Seventeen Million Two
Hundred Twenty-Seven Thousand Dollars ($17,227,000.00) as of June 30, 2000,
(xvi) Seventeen Million Nine Hundred Eighteen Thousand Dollars ($17,918,000.00)
as of September 30, 2000, and (xvii) Eighteen Million Six Hundred Nine Thousand
Dollars ($18,609,000.00) as of December 31, 2000.
(e) Capital Expenditures. Borrower shall not cause, suffer or permit
to exist Capital Expenditures in excess of (i) Five Million Three Hundred
Sixty-Seven Thousand Dollars ($5,367,000.00) for Borrower's fiscal year ended
December 31, 1996, and (ii) Five Hundred Thousand Dollars ($500,000.00) during
any fiscal year of Borrower thereafter. The foregoing permitted Capital
Expenditures shall be non-cumulative as to any unused portions during any fiscal
year and shall be measured as of the end of each fiscal quarter.
(f) Current Ratio. Borrower shall maintain a ratio of Current Assets
to Current Liabilities of not less than (i) .99 to 1.0 as of December 31, 1996,
(ii) .90 to 1.0 as of the end of each fiscal quarter of Borrower commencing with
Borrower's fiscal quarter ending March 31, 1997 through and including Borrower's
fiscal quarter ending December 31, 1997, (iii) 1.0 to 1.0 as of the end of each
fiscal quarter of Borrower commencing with Borrower's fiscal quarter ending
March 31, 1998 through and including Borrower's fiscal quarter ending December
31, 1998, (iv) 1.10 to 1.0 as of the end of each fiscal quarter of Borrower
commencing with Borrower's fiscal quarter ending March 31, 1999 through and
including Borrower's fiscal quarter ending December 31, 1999, and (v) 1.20 to
1.0 as of the end of each fiscal quarter of Borrower commencing with Borrower's
fiscal quarter ending March 31, 2000 through and including Borrower's fiscal
quarter ending December 31, 2000.
(g) Senior Indebtedness to Effective Net Worth. Borrower shall
maintain a ratio of Senior Indebtedness to Effective Net Worth of not greater
than (i) 4.68 to 1.0 as of December 31, 1996, (ii) 5.78 to 1.0 as of ▇▇▇▇▇ ▇▇,
▇▇▇▇, (▇▇▇) 5.12 to 1.0 as of June 30, 1997, (iv) 4.85 to 1.0 as of September
30, 1997, (v) 4.33 to 1.0 as of December 31, 1997, (vi) 4.06 to 1.0 as of March
31, 1998, and (vii) 4.00 to 1.0 as of June 30, 1998 and as of the end of each
fiscal quarter of Borrower thereafter.
(h) Inventory Turnover. Borrower shall maintain an Inventory
Turnover Frequency of not more than (i) one hundred ninety (190) days for the
six (6) month period ending June 30, 1997, (ii) one hundred ninety (190) days
for the nine (9) month period ending September 30, 1997, (iii) one hundred
eighty-five (185) days for the twelve (12) month period ending December
35
31, 1997, (iv) one hundred eighty-five (185) days for the three (3) month period
ending March 31, 1998, (v) one hundred eighty (180) days for the six (6) month
period ending June 30, 1998, (vi) one hundred seventy-five (175) days for the
nine (9) month period ending September 30, 1998, (vii) one hundred seventy (170)
days for the twelve (12) month period ending December 31, 1998, (viii) one
hundred seventy (170) days for the three (3) month period ending March 31, 1999,
(ix) one hundred sixty-five (165) days for the six (6) month period ending June
30, 1999, (x) one hundred sixty-five (165) days for the nine (9) month period
ending September 30, 1999, (xi) one hundred sixty (160) days for the twelve (12)
month period ending December 31, 1999, (xii) one hundred sixty (160) days for
the three (3) month period ending March 31, 2000, (xiii) one hundred fifty-five
(155) days for the six (6) month period ending June 30, 2000, (xiv) one hundred
fifty-five (155) days for the nine (9) month period ending September 30, 2000,
and (xv) one hundred fifty (150) days for the twelve (12) month period ending
December 31, 2000.
(i) Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed
Charge Coverage Ratio of not less than (i) 1.0 to 1.0 for the twelve (12) month
period ending December 31, 1997, (ii) 1.25 to 1.0 for the twelve (12) month
period ending December 31, 1998, (iii) 1.5 to 1.0 for the twelve (12) month
period ending December 31, 1999, and (iv) 1.5 to 1.0 for the twelve (12) month
period ending December 31, 2000.
8.2 Changes to Financial Covenants. The financial covenants described in
Section 8.1 above may be reset by Bank based on and to fairly reflect (a) the
effect of any capital infusion into Borrower or additional Subordinated
Indebtedness loaned to Borrower after the date hereof, and/or (b) any
improvement in Borrower's financial condition, as shown on Borrower's audited
annual financial statements delivered to Bank for Borrower's fiscal year ended
December 31, 1996, over Borrower's financial condition as shown on Borrower's
internally prepared financial statements (draft number 2) for Borrower's fiscal
year ended December 31, 1996, which were delivered to Bank on February 19, 1997.
9. ACCOUNTING RECORDS, REPORTS AND FINANCIAL STATEMENTS. Borrower
will maintain books of record and account in which full, correct and current
entries in accordance with GAAP will be made of all of Borrower's dealings,
business and affairs, and Borrower will deliver or cause to be delivered to Bank
the following:
9.1 Annual Statements. As soon as available and in any event within one
hundred ten (110) days after the end of each fiscal year of Borrower:
(a) the audited income and retained earnings statements of Borrower
for such fiscal year,
(b) the audited balance sheet of Borrower as at the end of such
fiscal year, and
(c) the audited statement of cash flows of Borrower for such fiscal
year,
setting forth in comparative form the corresponding figures as at the end of the
previous fiscal year, all in reasonable detail, including all supporting
schedules and comments. The foregoing statements and balance sheets shall be
prepared in accordance with GAAP and shall be audited by independent certified
public accountants of recognized standing acceptable to Bank in the reasonable
exercise of its discretion (provided that Bank confirms that BDO ▇▇▇▇▇▇▇, LLP,
Borrower's current independent
36
certified public accountants, are currently acceptable to Bank) with respect to
which such accountants shall deliver their unqualified opinion and accountant
prepared management letter. As soon as available and in any event within eighty
(80) days after the end of each fiscal year of Borrower, Borrower shall deliver
to Bank the foregoing statements in draft form.
9.2 Projections and Cash Flow. As soon as available and in any event
within sixty (60) days prior to the end of each fiscal year of Borrower,
projections and cash flows on a month-by-month basis for the next succeeding
twelve (12) months, prepared or reviewed by the chief financial officer of
Borrower. Borrower has furnished to Bank initial projections dated as of the
date hereof and attached hereto as Schedule 9.2 containing the information
required by this Section 9.2. Borrower represents and covenants that (a) the
initial projections attached hereto have been and all projections required by
this Section 9.2 shall be prepared by the chief financial officer of Borrower
and represent, and in the future shall represent, the best available good faith
estimate of Borrower regarding the course of Borrower's business for the periods
covered thereby; (b) the assumptions set forth in the initial projections are
and the assumptions set forth in the future projections delivered hereafter
shall be reasonable and realistic based on then current economic conditions; (c)
Borrower knows of no reason why Borrower should not be able to achieve the
performance levels set forth in the initial projections and Borrower shall have
no knowledge at the time of delivery of future projections of any reason why
Borrower shall not be able to meet the performance levels set forth in said
projections; and (d) Borrower has or has commitments for sufficient capital as
may be required for its ongoing business and to pay its existing and anticipated
debts as they mature.
9.3 Monthly Statements. As soon as available and in any event within
forty-five (45) days after the end of each calendar month prior to January 1998
and within thirty (30) days after the end of each calendar month commencing with
January 1998:
(a) the income and retained earnings statements of Borrower for such
month and for the portion of the fiscal year then ended,
(b) the balance sheet of Borrower as of the end of such month and
for the portion of the fiscal year then ended, and
(c) the statement of cash flows of Borrower for such month and for
the portion of the fiscal year then ended (in a form acceptable to Bank),
setting forth in comparative form the corresponding figures as at the end of the
corresponding month of the previous fiscal year (if applicable) and the
projected figures based upon the projections required under Section 9.2, all in
reasonable detail, subject to year-end adjustments, and certified by the chief
financial officer of Borrower to be accurate and to have been prepared in
accordance with GAAP (subject to year-end adjustments and the absence of full
footnote disclosures).
9.4 10-K; 10-Q Statements. Copies of Borrower's 10-K and 10-Q statements
promptly upon the filing of such statements with the Securities and Exchange
Commission but in any event within five (5) days thereafter.
9.5 Accounts Receivable and Accounts Payable Statements. As soon as
available and in any event within fifteen (15) days after the end of each
calendar month, a schedule of Borrower's accounts receivable and accounts
payable, identifying all Eligible Receivables, and the aging thereof
37
by open invoice of each customer of Borrower, all certified as to accuracy by
the chief financial officer of Borrower. Borrower will also provide Bank with
all information reasonably requested by Bank with respect to any account debtor.
9.6 Accounts Receivable Borrowing Base Information and Related Documents.
At least once every calendar week and, if requested by Bank, as a condition of
each advance under the Line, and otherwise as requested by Bank, an accounts
receivable assignment and a sales, collection and credit report in the form of
Exhibit "B" attached hereto, a copy of Borrower's sales, collection and credit
journal entries for the week then ended, together with such additional
information and details as may be requested by Bank, all certified as to
accuracy by (a) the chief financial officer or corporate controller of Borrower
with respect to those delivered monthly or as otherwise specifically requested
by Bank, and (b) any Person identified in writing by Borrower to Bank as being
authorized to do so with respect to all other such reports.
9.7 Inventory Borrowing Base Information and Related Documents. On or
before the fifteenth (15th) day after the end of each calendar month and, if
required by Bank, as a condition of each advance under the Line, and otherwise
as requested by Bank, an inventory certification in the form of Exhibit "C"
attached hereto, together with such additional information and details as may be
requested by Bank, including without limitation identification of all Eligible
Inventory, all certified as to accuracy by (a) the chief financial officer or
corporate controller of Borrower with respect to those delivered monthly or as
otherwise specifically requested by Bank, and (b) any Person identified in
writing by Borrower to Bank as being authorized to do so with respect to all
other such reports.
9.8 Audit Reports. Promptly upon receipt thereof, one copy of each other
report submitted to Borrower, by independent accountants, including management
letters, "comment" letters, in connection with any annual, interim or special
audit report made by them of the books of Borrower.
9.9 Reports to Governmental Agencies and Other Creditors. With reasonable
promptness, copies of all such financial reports, statements and returns which
Borrower shall file with any federal or state department, commission, board,
bureau, agency or instrumentality and any report or statement delivered by
Borrower to any supplier or other creditor in connection with any payment
restructuring.
9.10 Requested Information. With reasonable promptness, all such other
data and information in respect of the condition, operation and affairs of
Borrower as Bank may reasonably request from time to time.
9.11 Compliance Certificates. Within the periods provided in Sections 9.1
and 9.3 above, a certificate of the chief financial officer or corporate
controller of Borrower: (a) stating that Borrower has observed, performed and
complied with each and every undertaking contained herein (or, as applicable,
the nature of any non-compliance and the action taken or proposed to be taken by
Borrower with respect thereto); (b) setting forth the information and
computations (in sufficient detail) required in order to establish whether
Borrower is operating in compliance with the financial covenants in Section 8 of
this Agreement; and (c) certifying that as of the date of such certification,
there does not exist any Event of Default or any occurrence or state of affairs
which with the giving of notice, passage of time or both would constitute an
Event of Default (or, if any Event of Default
38
or incipient Event of Default exists, the nature thereof and the action being
taken or proposed to be taken by Borrower with respect thereto). Such
certificate will be in the form of Exhibit "D" attached hereto.
9.12 Accountant's Certificate. Within the period provided in Section 9.1,
a report of the independent public accountants who render an opinion with
respect to the financial statements referred to therein, stating that they have
reviewed the terms of this Agreement and that in making the examinations
necessary to their certification mentioned in Section 9.1, they have reviewed
the accounts and condition of Borrower during the accounting period covered by
their certificate and that such review did not disclose the existence of any
condition or event which constitutes an Event of Default or would, upon giving
notice or passage of time or both, constitute an Event of Default (or if such
conditions or events existed, describing them).
9.13 Guarantor's Annual Statements. On or before April 15 of each year,
financial statements of each Guarantor, in a form reasonably satisfactory to
Bank, and upon filing thereof, a copy of the annual federal tax returns
(including all applicable schedules) of each Guarantor, certified by the subject
Guarantor to be accurate and complete.
10. ENVIRONMENTAL REPRESENTATIONS AND COVENANTS.
10.1 Representations. Borrower represents to Bank as follows: (a) the
Environmental Affiliates are in compliance in all material respects with all
Environmental Requirements and Borrower has no knowledge of any circumstances
which may prevent or interfere with such compliance in the future; (b) the
Environmental Affiliates have all licenses, permits, approvals and
authorizations required under applicable Environmental Requirements unless the
failure to have the same would not have a material adverse effect on the
business operations, Collateral or financial condition of Borrower; (c) there
are no pending or threatened claims against any of the Environmental Affiliates
or any of their assets related to the failure to comply with any Environmental
Requirements, or any facts or circumstances which could give rise to a material
claim; (d) no facility or property now or previously owned, operated or leased
by any Environmental Affiliate is an Environmental Cleanup Site; (e) no
Environmental Affiliate has treated, stored, transported, handled or disposed of
Special Materials at or adjacent to any Environmental Cleanup Site except in
compliance with all applicable Environmental Requirements; (f) there are no
liens or claims for cost reimbursement outstanding or threatened against any
Environmental Affiliate or any of their assets, or any facts or circumstances
which could give rise to such a lien or claim; and (g) there are no facts or
circumstances which, under the provisions of any Environmental Requirements,
could restrict the use, occupancy or transferability of any of the Collateral or
any of the facilities owned, leased or operated by any Environmental Affiliate.
10.2 Real Property. Borrower represents and warrants to Bank that there
are no Special Materials presently located on or, to the best of its knowledge,
near any real property owned, leased or operated by any Environmental Affiliate
(collectively, "Real Property") except for Special Materials which are and have
at all times been treated, stored, transported, handled and disposed of in
compliance with all Environmental Requirements. Borrower represents to Bank that
the Real Property is not now being used nor, to the best of its knowledge, has
it ever been used in the past for activities involving Special Materials,
including but not limited to the use, generation, collection, storage,
treatment, or disposal of any Special Materials except for Special Materials
which are and have at all times been treated, stored, transported, handled and
disposed of in compliance with all
39
Environmental Requirements. Without limiting the generality of the foregoing,
the Real Property is not being used nor, to the best of Borrower's knowledge,
has it ever been used in the past for a landfill, surface impoundment or other
area for the treatment, storage or disposal of solid waste (including solid
waste such as sludge).
10.3 Covenant Regarding Compliance. Borrower shall take or cause all
Environmental Affiliates to take, at Borrower's and such Environmental
Affiliate's sole expense, such actions as may be necessary to comply with all
Environmental Requirements, as hereinafter defined. If any Environmental
Affiliate shall fail to take such action, Bank may make advances or payments
towards performance or satisfaction of the same but shall be under no obligation
to do so. All sums so advanced or paid, including all sums advanced or paid by
Bank in connection with any judicial or administrative investigation or
proceeding relating thereto, including, without limitation, attorney's fees,
fines, or other penalty payments, shall be at once repayable by Borrower and all
sums so advanced or paid shall become a part of the Bank Indebtedness.
The Environmental Affiliates will maintain all licenses, permits,
approvals and authorizations required under applicable Environmental
Requirements. In connection with off-site treatment, storage, handling,
transportation or disposal of Special Materials, the Environmental Affiliates
will conduct such activities only at facilities and with carriers who operate in
compliance with all Environmental Requirements and will obtain certificates of
compliance or disposal from all contractors retained in connection with such
activities.
10.4 Notices. In the event Borrower becomes aware of any past, present or
future facts or circumstances which have given rise or could give rise to a
claim against any Environmental Affiliate related to a failure to comply with
any Environmental Requirements, Borrower will promptly give Bank notice thereof,
together with a written statement of an officer of Borrower setting forth the
known details thereof and the action with respect thereto taken or proposed to
be taken by the Environmental Affiliates.
10.5 Indemnity. Borrower agrees to indemnify, defend and hold harmless
Bank, its parents, subsidiaries, successors and assigns, and any officer,
director, shareholder, employee, Affiliate or agent of Bank, for all loss,
liability, damage, cost and expenses, including, without limitation, attorney's
fees and disbursements (including the reasonable allocated cost of in-house
counsel and staff) arising from or related to: (a) the release of any Special
Materials at any facility at any time owned, leased or operated by Borrower or
any Environmental Affiliates, (b) the release of any Special Materials treated,
stored, transported, handled, generated or disposed of by or on behalf of
Borrower or any Environmental Affiliates, at any third party owned site; (c) any
claim against Borrower or any Environmental Affiliate that they have failed to
comply with all Environmental Requirements; and (d) the breach by Borrower of
any representation or covenant in this Section 10; provided that this indemnity
shall not protect any Person from its own willful misconduct.
10.6 Testing. Bank shall have the right from time to time to designate
such persons ("Environmental Consultants") as Bank may select to visit, inspect,
examine and test all properties owned, leased or operated by and all products
and wastes generated, treated, stored, transported, handled or disposed of by or
on behalf of any Environmental Affiliate, for the purpose of investigating
compliance with Environmental Requirements, any actual or potential claims
related thereto, and any condition which could result in potential liability,
cost or expenses to Bank.
40
Borrower will permit, and will cause all Environmental Affiliates to permit,
such Environmental Consultants to have access to all of such properties,
products and wastes and all books, records and reports related to compliance by
the Environmental Affiliates with all Environmental Requirements. Borrower will
supply, and will cause all Environmental Affiliates to supply, Bank or the
Environmental Consultants with all information, records, correspondence, audits,
reviews and materials related to compliance by the Environmental Affiliates with
all Environmental Requirements and will make available to Bank or the
Environmental Consultants appropriate personnel employed by or consultants
retained by the Environmental Affiliates having knowledge of such matters.
Provided that an Event of Default has occurred and is continuing or
Bank has a good faith belief that an Environmental Affiliate has failed to
comply with any Environmental Requirements, the cost of such visits,
inspections, examination and tests shall be borne by the Borrower and, if in any
such event, Bank pays such costs, such sums shall be at once repayable by
Borrower and all sums so advanced or paid by Bank shall become part of the Bank
Indebtedness. Notwithstanding the foregoing, Bank shall have no obligation to
perform any tests, examinations or inspections or to monitor the Environmental
Affiliates' compliance with all Environmental Requirements.
10.7 Survival. The representations and covenants of Borrower contained in
this Section 10, including without limitation the indemnification obligation of
Borrower, shall survive the occurrence of any event whatsoever, including the
payment of the Bank Indebtedness or any investigation by or knowledge of Bank.
10.8 Definitions. For purposes of the foregoing:
(a) "Environmental Affiliate" means Borrower and any other Person
for whom Borrower at any time has any liability (contingent or otherwise) with
respect to any claims arising out of the failure of Borrower or such person to
comply with all applicable Environmental Requirements.
(b) "Environmental Cleanup Site" shall mean any location which is
listed or proposed for listing on the National Priorities List, on CERCLIS or on
any similar state list of sites requiring investigation or cleanup, or which is
the subject of any pending or threatened action, suit, proceeding or
investigation related to or arising from any alleged violation of any
Environmental Requirements.
(c) "Environmental Requirements" means any and all applicable
federal, state or local laws, statutes, ordinances, regulations or standards,
administrative or court orders or decrees, common law doctrines or private
agreements, relating to (i) pollution or protection of the environment and
natural resources, (ii) exposure of employees or other persons to Special
Materials, (iii) protection of the public health and welfare from the effects of
Special Materials and their products, by-products, wastes, emissions, discharges
or releases, and (iv) regulation, licensing, approval or authorization of the
manufacture, generation, use, formulation, packaging, labeling, transporting,
distributing, handling, storing or disposing of any Special Materials.
(d) "Special Materials" means any and all materials which, under
Environmental Requirements, require special handling in use, generation,
collection, storage, treatment or disposal, or payment of costs associated with
responding to the lawful directives of any court or agency of
41
competent jurisdiction. Special Materials shall include, without limitation: (i)
any flammable substance, explosive, radioactive material, hazardous material,
hazardous waste, toxic substance, solid waste, pollutant, contaminant or any
related material, raw material, substance, product or by-product of any
substance specified in or regulated or otherwise affected by any Environmental
Requirements (including but not limited to any "hazardous substance" as defined
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980 as amended or any similar state or local law), (ii) any toxic chemical or
other toxic substance from or related to industrial, commercial or institutional
activities, and (iii) asbestos, gasoline, diesel fuel, motor oil, waste and used
oil, heating oil and other petroleum products or compounds, polychlorinated
biphenyls, radon, urea formaldehyde and lead-containing materials.
11. CONDITIONS OF CLOSING. The obligation of Bank to make available the Line is
subject to the performance by Borrower of all of its agreements to be performed
hereunder and to the following further conditions (any of which may be waived by
Bank):
11.1 Loan Documents. Borrower and all other required persons and entities
will have executed and delivered to Bank the Loan Documents.
11.2 Representations and Warranties. All representations and warranties of
Borrower set forth in the Loan Documents will be true at and as of the date
hereof.
11.3 No Default. No condition or event shall exist which would constitute
an Event of Default hereunder (or would, upon the giving of notice or the
passage of time or both, constitute such an Event of Default).
11.4 Proceedings and Documents. All proceedings taken by Borrower in
connection with the transactions contemplated by this Agreement and all
documents incident to such transactions shall be satisfactory in form and
substance to Bank and Bank's counsel, and Bank shall have received all documents
or other evidence which it reasonably may request in connection with such
proceedings and transactions. Borrower shall have delivered to Bank a
certificate, in form and substance satisfactory to Bank, dated the date hereof
and signed on behalf of Borrower by an officer of Borrower, certifying (a) true
copies of the Articles of Incorporation and bylaws of Borrower in effect on such
date, (b) true copies of all corporate actions taken by Borrower relative to the
Loan Documents, and (c) the names, true signatures and incumbency of the
officers of Borrower authorized to execute and deliver this Agreement and the
other Loan Documents. Bank may conclusively rely on such certificate unless and
until a later certificate revising the prior certificate has been received by
Bank.
11.5 Landlord's or Warehouseman's Release and Waiver Agreements. Bank
shall have received a landlord's or warehouseman's release and waiver agreement,
satisfactory in form and substance to Bank, from each landlord and warehouseman
for each location leased by Borrower or at which Borrower warehouses inventory.
11.6 Delivery of Other Documents. The following documents shall have been
delivered by or on behalf of Borrower to Bank:
(a) Good Standing and Tax Lien Certificates. A good standing
certificate of the Department of State of Delaware certifying to the good
standing and corporate status of
42
Borrower, good standing/foreign qualification certificates from all other
jurisdictions in which Borrower is required to be qualified to do business, and
tax lien certificates for Borrower from each jurisdiction in which Borrower is
required to be qualified to do business.
(b) Authorization Documents. Evidence of authorization of Borrower's
execution and full performance of this Agreement, the Loan Documents and all
other documents and actions required hereunder.
(c) Insurance. Evidence of the insurance coverage required under
Section 7.12.
(d) Opinion of Counsel. An opinion of counsel for Borrower in form
and content satisfactory to Bank.
(e) Life Insurance. Evidence of the life insurance coverage and the
assignment thereof as required under Section 5.3.
(f) Lien Search. Copies of record searches (including UCC searches
and judgments, suits, tax and other lien searches) confirming that Bank has or
will receive a first priority security interest in the Collateral, except as
otherwise provided in this Agreement, acceptable to Bank.
(g) No Material Adverse Change. Evidence satisfactory to Bank that
no material adverse change has occurred with respect to Borrower since December
31, 1996.
(h) Subordination Agreement. Subordination Agreements in form and
content satisfactory to Bank from each holder of the Subordinated Indebtedness.
(i) Financial Reporting. All 10-K, 10-Q and other reports filed or
required to be filed by Borrower with the Securities and Exchange Commission
through the date hereof.
(j) Personal Financial Statements. Personal financial statements for
each Guarantor in form and content satisfactory to Bank.
(k) Environmental. Evidence satisfactory to Bank that Borrower is in
compliance in all material respects with all applicable federal, state and local
environmental laws, rules and regulations and that no environmental hazards
exist upon any property owned or operated by Borrower.
(l) Assignment of Federal Tax Refund. All documents required by
Lender in connection with the assignment to Lender of Borrower's Federal income
tax refund and payment thereof directly to Bank for Borrower's fiscal year
ending December 31, 1996.
(m) Other Documents. Such other documents as may be required to be
submitted to Bank by the terms hereof or of any Loan Document.
11.7 Lockbox/Cash Collateral Account; Operating Account. Establishment
with Bank of the lockbox and cash collateral account referred to in Section 5.7
above and Borrower's main operating account.
43
11.8 Minimum Availability. There shall be a minimum additional
availability for advances under the Line (including the Permitted Out-of-Formula
Advance) of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00) after
repayment of the line of credit and term loan extended by SunTrust Bank, Central
Florida, National Association and SouthTrust Bank of Alabama, National
Association, payment of all payables (including all trade and supplier payables)
in the ordinary course of business then due without delay, default or any
requested extensions, and payment of all closing costs and expenses and all
other advances hereunder.
11.9 Non-Waiver of Rights. By completing the closing hereunder, or by
making advances hereunder, Bank does not thereby waive a breach of any warranty
or representation made by Borrower or either Guarantor hereunder or any
agreement, document or instrument delivered to Bank or otherwise referred to
herein, and any claims and rights of Bank resulting from any breach or
misrepresentation by Borrower or either Guarantor are specifically reserved by
Bank.
12. CERTAIN CONDITIONS TO SUBSEQUENT ADVANCES. Subsequent advances shall be
conditioned upon the following conditions and each request by Borrower for an
advance shall constitute a representation by Borrower to Bank that each
condition has been met or satisfied:
12.1 Representations and Warranties. All representations and warranties of
Borrower contained herein or in the Loan Documents shall be true at and as of
the date of such advance as if made on such date, and each request for an
advance shall constitute reaffirmation by Borrower that such representations and
warranties are then true, or to the extent any such representations or
warranties are not true as of the date of such advance, the events which render
such representations and warranties untrue shall have been disclosed to Bank in
writing prior to such advance being made.
12.2 No Default. No condition or event shall exist at or as of the date of
such advance which would constitute an Event of Default hereunder (or would,
upon the giving of notice or the passage of time or both, constitute such an
Event of Default).
12.3 Other Requirements. Bank shall have received all certificates,
authorizations, affidavits, schedules and other documents which are provided for
hereunder or under the Loan Documents, or which Bank may reasonably request.
13. DEFAULT AND REMEDIES.
13.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an Event or Events of Default hereunder:
(a) The failure of Borrower to pay any amount of principal or
interest on the Line Note, or any fee or other sums payable hereunder, or any
other Bank Indebtedness on the date on which such payment is due, whether on
demand, at the stated maturity or due date thereof, or by reason of any
requirement for the prepayment thereof, by acceleration or otherwise;
(b) The failure of Borrower to duly perform or observe any other
obligation, covenant or agreement on its part contained herein or in any other
Loan Document not otherwise specifically constituting an Event of Default under
this Section 13.1 and such failure continues unremedied for a period of ten (10)
days after the earlier of (i) notice from Bank to Borrower of the existence of
such failure, or (ii) any officer of Borrower knows or should have known of the
44
existence of such failure, provided that, in the event such failure is incapable
of remedy or consists of a default of the covenant in Section 7.31 or any of the
financial covenants in Section 8.1 above, or was willfully caused or permitted
by Borrower, Borrower shall not be entitled to any notice or grace hereunder;
(c) The failure of Borrower to pay any Indebtedness for borrowed
money due to any third Person with an outstanding balance in excess of Fifty
Thousand Dollars ($50,000.00) individually or in the aggregate or the existence
of any other event of default under any loan, security agreement, mortgage or
other agreement pertaining thereto binding Borrower after the expiration of any
notice and/or grace periods permitted in such documents;
(d) The failure of Borrower to pay or perform any other obligation
to Bank under any other agreement or note or otherwise arising, whether or not
related to this Agreement, after the expiration of any notice and/or grace
periods permitted in such documents;
(e) The adjudication of Borrower or either Guarantor as a bankrupt
or insolvent, or the entry of an Order for Relief against Borrower or either
Guarantor or the entry of an order appointing a receiver or trustee for Borrower
or either Guarantor of any of their property or approving a petition seeking
reorganization or other similar relief under the bankruptcy or other similar
laws of the United States or any state or any other competent jurisdiction;
(f) A proceeding under any bankruptcy, reorganization, arrangement
of debt, insolvency, readjustment of debt or receivership law is filed by or
(unless dismissed within forty-five (45) days after the filing thereof, provided
that Bank shall have no obligation to make any advances under this Agreement
during such forty-five (45) day period) against Borrower or either Guarantor
makes an assignment for the benefit of creditors, or Borrower or either
Guarantor takes any action to authorize any of the foregoing;
(g) The suspension of the operation of any substantial portion of
Borrower's present business for a period in excess of sixty (60) consecutive
days, or Borrower becoming unable to meet its debts as they mature, or the
admission in writing by Borrower to such effect, or Borrower calling any meeting
of all or any material portion of its creditors for the purpose of debt
restructure;
(h) All or any part of the Collateral or the assets of Borrower
consisting of (i) accounts receivable or inventory, or (ii) other than accounts
receivable or inventory and with a fair market value in excess of Fifty Thousand
Dollars ($50,000.00) are attached, seized, subjected to a writ or distress
warrant, or levied upon, or come within the possession or control of any
receiver, trustee, custodian or assignee for the benefit of creditors;
(i) The entry of a final judgment for the payment of money against
Borrower in an uninsured amount in excess of Fifty Thousand Dollars ($50,000.00)
individually or in the aggregate which, within twenty (20) days after such
entry, shall not have been discharged or execution thereof stayed pending appeal
or shall not have been discharged within five (5) days after the expiration of
any such stay;
(j) Any representation or warranty of Borrower in any of the Loan
Documents is discovered to be untrue in any material respect or any statement,
certificate or data furnished by
45
Borrower pursuant hereto is discovered to be untrue in any material respect as
of the date as of which the facts therein set forth are stated or certified;
(k) Borrower voluntarily or involuntarily dissolves or is dissolved,
terminates or is terminated or both Guarantors die;
(l) Either Guarantor dies, unless Borrower shall have, within ninety
(90) days after such event, (i) replaced such deceased Guarantor with a
management person acceptable to Bank in its reasonable discretion, and (ii)
delivered evidence satisfactory to Bank that the estate of such deceased
Guarantor has fully assumed the obligations of such Guarantor under the Surety
Agreement;
(m) Borrower is enjoined, restrained, or in any way prevented by the
order of any court or any administrative or regulatory agency, the effect of
which order restricts Borrower from conducting all or any material part of its
business;
(n) A material and adverse change occurs in Borrower's operations,
management or financial condition or in the value of the Collateral;
(o) The Collateral or the prospects of the payment of the Bank
Indebtedness is jeopardized or impaired;
(p) Any material uninsured damage to, or loss, theft, or destruction
of, any of the Collateral occurs;
(q) Any strike, lockout, labor dispute, embargo, condemnation, act
of God or public enemy, or other casualty loss occurs resulting in the cessation
or substantial curtailment of production or other revenue producing activities
at any facility of Borrower for more than sixty (60) consecutive days;
(r) The loss, suspension, revocation or failure to renew any license
or permit now held or hereafter acquired by Borrower, which loss, suspension,
revocation or failure to renew would likely have a material adverse effect on
the business profits, assets or financial condition of Borrower;
(s) Any projection delivered to Bank pursuant hereto indicates that
an Event of Default will occur;
(t) Any breach by Borrower or any creditor of its obligations under
any subordination agreement now or hereafter executed in favor of Bank;
(u) The validity or enforceability of this Agreement, or any of the
Loan Documents, is contested by Borrower; or Borrower or either Guarantor denies
that it has any or any further liability or obligation hereunder or thereunder;
(v) Any draw is made on any letter of credit issued by any Person
(other than Bank) for the account of Borrower;
46
(w) The occurrence of a default under any of the Subordinated
Indebtedness which has not been cured or waived; or
(x) A Change in Control shall have occurred.
13.2 Remedies. At the option of Bank, upon the occurrence and during the
continuance of an Event of Default:
(a) The entire unpaid principal of the Line, all other Bank
Indebtedness, or any part thereof, all interest accrued thereon, all fees due
hereunder and all other obligations of Borrower to Bank hereunder or under any
other agreement, note or otherwise arising will become immediately due and
payable without any further demand or notice;
(b) The Line will immediately terminate and Borrower will receive no
further extensions of credit thereunder;
(c) Bank may increase the interest rate on the Line to the
applicable default rate set forth herein, without notice;
(d) Bank may reduce availability for advances under the formula set
forth in Section 2.1(a) or require additional reserves without notice;
(e) Bank may enter the premises occupied by Borrower and take
possession of the Collateral and any records relating thereto; and/or
(f) Bank may exercise each and every right and remedy granted to it
under the Loan Documents, under the Uniform Commercial Code and under any other
applicable law or at equity.
If an Event of Default occurs under Section 13.1(e) or (f), all Bank
Indebtedness shall become immediately due and payable.
13.3 Sale or Other Disposition of Collateral. The sale, lease or other
disposition of the Collateral, or any part thereof, by Bank after an Event of
Default may be for cash, credit or any combination thereof, and Bank may
purchase all or any part of the Collateral at public or, if permitted by law,
private sale, and in lieu of actual payment of such purchase price, may set-off
the amount of such purchase price against the Bank Indebtedness then owing. Any
sales of the Collateral may be adjourned from time to time with or without
notice. Bank may cause the Collateral to remain on Guarantor's premises or
otherwise or to be removed and stored at premises owned by other persons, at
Borrower's expense, pending sale or other disposition of the Collateral.
Borrower, at Bank's request, shall assemble the Collateral consisting of
inventory and tangible assets and make such assets available to Bank at a place
to be designated by Bank. Bank shall have the right to conduct such sales on
Borrower's premises, at Borrower's expense, or elsewhere, on such occasion or
occasions as Bank may see fit. Any notice required to be given by Bank of a
sale, lease or other disposition or other intended action by Bank with respect
to any of the Collateral which is deposited in the United States mail, postage
prepaid and duly addressed to Borrower at the address specified in Section 14.1
below, at least five (5) business days prior to such proposed action, shall
constitute fair and reasonable notice to Borrower of any such action. The net
proceeds realized by Bank upon
47
any such sale or other disposition, after deduction for the expenses of
retaking, holding, storing, transporting, preparing for sale, selling or
otherwise disposing of the Collateral incurred by Bank in connection therewith
and all other costs and expenses related thereto including attorney fees, shall
be applied in such order as Bank, in its sole discretion, elects, toward
satisfaction of the Bank Indebtedness. Bank shall account to Borrower for any
surplus realized upon such sale or other disposition, and Borrower shall remain
liable for any deficiency. The commencement of any action, legal or equitable,
or the rendering of any judgment or decree for any deficiency shall not affect
Bank's security interest in the Collateral. Borrower agrees that Bank has no
obligation to preserve rights to the Collateral against any other parties. Bank
is hereby granted a license or other right to use, during the continuance of an
Event of Default, without charge, Borrower's labels, general intangibles,
intellectual property, equipment, real estate, patents, copyrights, rights of
use of any name, trade secrets, trade names, trademarks, service marks and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in completing production of, advertising for sale and selling any
inventory or other Collateral and Borrower's rights under all contracts,
licenses, approvals, permits, leases and franchise agreements shall inure to
Bank's benefit. Bank shall be under no obligation to ▇▇▇▇▇▇▇▇ any assets in
favor of Borrower or any other party or against or in payment of any or all of
the Bank Indebtedness.
13.4 Actions with Respect to Accounts. Borrower hereby irrevocably makes,
constitutes and appoints Bank (and any of Bank's designated officers, employees
or agents) as its true and lawful attorney-in-fact, with full power of
substitution, with power to sign its name and to take any of the following
actions, in its name or the name of Bank, as Bank may determine, without notice
to Borrower and at Borrower's expense:
(a) Verify the validity and amount of or any other matter relating
to the Collateral by mail, telephone, telecopy or otherwise;
(b) Notify all account debtors that Borrower's accounts have been
assigned to Bank and that Bank has a security interest therein;
(c) During the continuance of an Event of Default, direct all
account debtors to make payment of all Borrower's accounts directly to Bank and
forward invoices directly to such account debtors;
(d) Take control in any manner of any cash or non-cash items of
payment or proceeds of such accounts;
(e) During the continuance of an Event of Default, notify the United
States Postal Service to change the address for delivery of mail addressed to
Borrower to such address as Bank may designate;
(f) Have access to any lockbox or postal boxes into which Borrower's
mail is deposited and receive, open and dispose of all mail addressed to
Borrower relating to the Collateral (any sums received pursuant to the exercise
of the rights provided in Sections 13.4 (a) through (f) above may, at Bank's
option, be deposited in the cash collateral account provided for herein);
(g) Take control in any manner of any rejected, returned, stopped in
transit or repossessed goods relating to any accounts;
48
(h) During the continuance of an Event of Default, enforce payment
of and collect any accounts, by legal proceedings or otherwise, and for such
purpose Bank may:
(1) Demand payment of any accounts or direct any account
debtors to make payment of accounts directly to Bank;
(2) Receive and collect all monies due or to become due to
Borrower;
(3) Exercise all of Borrower's rights and remedies with
respect to the collection of accounts;
(4) Settle, adjust, compromise, extend, renew, discharge or
release the accounts;
(5) Sell or assign the accounts on such terms, for such amount
and at such times as Bank deems advisable;
(6) Prepare, file and sign Borrower's name or names on any
Proof of Claim or similar document in any proceeding filed under federal or
state bankruptcy, insolvency, reorganization or other similar law as to any
account debtor;
(7) Prepare, file and sign Borrower's name or names on any
Notice of Lien, Claim of Mechanic's Lien, Assignment or Satisfaction of Lien or
Mechanic's Lien or similar document in connection with the Collateral;
(8) Endorse the name of Borrower upon any chattel papers,
documents, instruments, invoices, freight bills, bills of lading or similar
documents or agreements relating to the accounts or goods pertaining thereto or
upon any checks or other media of payment or evidences of a security interest
relating to the Collateral that may come into Bank's possession;
(9) Sign the name of Borrower to verifications of accounts and
notices thereof sent by account debtors to Borrower; or
(10) Take all other actions necessary or desirable to protect
Borrower's or Bank's interest in the accounts.
Borrower ratifies and approves all acts of said attorneys and agree that said
attorneys shall not be liable for any acts of commission or omission, nor for
any error of judgment or mistake of fact or law, except willful misconduct. This
power, being coupled with an interest, is irrevocable. Borrower agrees to assist
Bank in the collection and enforcement of its accounts and not to hinder, delay
or impede Bank in its collection or enforcement of said accounts until the Bank
Indebtedness is paid in full and Bank has no further funding commitment under or
in respect of the Line.
13.5 Set-Off. Without limiting the rights of Bank under applicable law,
Bank has and may exercise a right of set-off, a lien against and a security
interest in all property of Borrower now or at any time in Bank's possession in
any capacity whatsoever, including but not limited to any balance of any
deposit, trust or agency account, or any other bank account with Bank, as
security for all Bank Indebtedness. At any time and from time to time during the
continuance of an Event of
49
Default, Bank may without notice or demand, set-off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by Bank to or for the credit of
Borrower against any or all of the Bank Indebtedness.
If any bank account of Borrower with Bank is attached or
otherwise liened or levied upon by any third party, Bank need not await the
running of any applicable grace period hereunder, but Bank shall have and be
deemed to have the immediate right of set-off and may apply the funds or amount
thus set-off against Borrower's obligations to Bank.
13.6 Turnover of Property Held by Bank. Borrower and Guarantor irrevocably
authorize any Affiliate of Bank, during the continuance of an Event of Default,
at the request of Bank and without further notice, to turnover to Bank any
property of Borrower or Guarantor held by such Affiliate, including without
limitation funds and securities held for Borrower's or Guarantor's account and
to debit, for the benefit of the Bank, any deposit account maintained by
Borrower or Guarantor with such Affiliate (even if such deposit account is not
then due or there results a loss or reduction of interest or the imposition of
as penalty in accordance with law applicable to the early withdrawal of time
deposits), in the amount requested by Bank up to the amount of the Bank
Indebtedness, and to pay or transfer such amount or property to Bank for
application to the Bank Indebtedness. The provisions of this Section 13.6 as
they relate to Guarantors shall be limited to Guarantors' maximum liability
under the Surety Agreement.
13.7 Delay or Omission Not Waiver. Neither the failure nor any delay on
the part of Bank to exercise any right, remedy, power or privilege under the
Loan Documents upon the occurrence of any Event of Default or otherwise shall
operate as a waiver thereof or impair any such right, remedy, power or
privilege. No waiver of any Event of Default shall affect any later Event of
Default or shall impair any rights of Bank. No single, partial or full exercise
of any rights, remedies, powers and privileges by Bank shall preclude further or
other exercise thereof. No course of dealing between Bank and Borrower shall
operate as or be deemed to constitute a waiver of Bank's rights under the Loan
Documents or affect the duties or obligations of Borrower.
13.8 Remedies Cumulative; Consents. The rights, remedies, powers and
privileges provided for herein shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other rights, remedies, powers and
privileges in Bank's favor at law or in equity. Whenever the Bank's consent or
approval is required or permitted, except as otherwise specifically provided for
in this Agreement, such consent or approval shall be at the sole and absolute
discretion of Bank.
13.9 Certain Fees, Costs, Expenses, Expenditures and Indemnification.
Except as otherwise specifically provided for in this Agreement, Borrower agrees
to pay on demand all costs and expenses of Bank relating to Bank's relationship
with Borrower, including without limitation:
(a) all costs and expenses in connection with the preparation,
review, negotiation, execution, delivery and administration of the Loan
Documents, and the other documents to be delivered in connection therewith or
any amendments, extensions and increases to any of the foregoing (including,
without limitation, attorney's fees and expenses, and the cost of appraisals and
reappraisals of Collateral, provided that if no Event of Default shall have
occurred, Borrower shall not be liable for the cost of more than one such
appraisal per year), and the cost of periodic lien searches and tax clearance
certificates, as Bank deems advisable; provided, however Borrower shall not be
obligated to pay Bank's counsel fees incurred through and including the date of
closing
50
hereunder in an amount in excess of Twenty-Five Thousand Dollars ($25,000.00)
(exclusive of filing fees and out-of-pocket expenses);
(b) all losses, costs and expenses in connection with the
enforcement, protection and preservation of Bank's rights or remedies under the
Loan Documents, or any other agreement relating to any Bank Indebtedness, or in
connection with legal advice relating to the rights or responsibilities of Bank
(including without limitation court costs, attorney's fees and expenses of
accountants and appraisers); and
(c) any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of the Loan Documents, and
all liabilities to which Bank may become subject as the result of delay in
paying or omission to pay such taxes.
In the event Borrower shall fail to pay taxes, insurance,
assessments, costs or expenses which it is required to pay hereunder, or fails
to keep the Collateral free from security interests or lien (except as expressly
permitted herein), or fails to maintain or repair the Collateral as required
hereby, or otherwise breaches any obligations under the Loan Documents, Bank in
its discretion, may make expenditures for such purposes and the amount so
expended (including attorney's fees and expenses, filing fees and other charges)
shall be payable by Borrower on demand and shall constitute part of the Bank
Indebtedness.
With respect to any amount required to be paid by Borrower under
this Section, in the event Borrower fails to pay such amount on demand, Borrower
shall also pay to Bank interest thereon at the default rate set forth in Section
3.3 for the Line.
Borrower agrees to indemnify and hold harmless, Bank and Bank
officers, directors, shareholders, employees and agents, from and against any
and all claims, liabilities, losses, damages, costs and expenses (whether or not
such person is a party to any litigation), including attorney's fees and costs
and costs of investigation, document production, attendance at depositions or
other discovery with respect to or arising out of this Agreement, the use of any
proceeds advanced hereunder, the transactions contemplated hereunder, or any
claim, demand, action or cause of action being asserted against Borrower or any
of its Affiliates, except to the extent arising out of any such indemnified
Person's willful misconduct.
Borrower's obligations under this Section shall survive termination
of this Agreement and repayment of the Bank Indebtedness.
13.10 Time is of the Essence. Time is of the essence in Borrower's
performance of its obligations under the Loan Documents.
13.11 Acknowledgement of Confession of Judgment Provisions. BORROWER AND
GUARANTORS ACKNOWLEDGE AND AGREE THAT THE LINE NOTE, THE SURETY AGREEMENT AND
THE LOAN DOCUMENTS CONTAIN PROVISIONS WHEREBY BANK MAY ENTER JUDGMENT BY
CONFESSION AGAINST BORROWER OR GUARANTORS, AS APPLICABLE. BEING FULLY AWARE OF
THEIR RIGHTS TO PRIOR NOTICE AND HEARING ON THE QUESTION OF THE VALIDITY OF ANY
CLAIMS THAT MAY BE ASSERTED AGAINST THEM BY BANK UNDER THE LINE NOTE, THE SURETY
AGREEMENT AND LOAN DOCUMENTS, BEFORE JUDGMENT CAN BE ENTERED,
51
BORROWER AND GUARANTORS HEREBY WAIVE THESE RIGHTS AND AGREE AND CONSENT TO BANK
ENTERING JUDGMENT AGAINST BORROWER AND GUARANTORS BY CONFESSION. ANY PROVISION
IN A CONFESSION OF JUDGMENT IN ANY OF THE LOAN DOCUMENTS FOR AN ATTORNEY'S
COLLECTION COMMISSION SHALL IN NO WAY LIMIT BORROWER'S OR GUARANTORS' LIABILITY
TO REIMBURSE BANK FOR ALL LEGAL FEES ACTUALLY INCURRED BY BANK, EVEN IF SUCH
FEES ARE IN EXCESS OF THE ATTORNEY'S COLLECTION COMMISSION PROVIDED FOR IN SUCH
CONFESSION OF JUDGMENT.
14. COMMUNICATIONS AND NOTICES.
14.1 Communications and Notices. All notices, requests and other
communications made or given in connection with the Loan Documents shall be in
writing and, unless receipt is stated herein to be required, shall be deemed to
have been validly given if delivered personally to the individual or division or
department to whose attention notices to a party are to be addressed, or by
private carrier, or registered or certified mail, return receipt requested, or
by telecopy with the original forwarded by first-class mail, in all cases, with
charges prepaid, addressed as follows, until some other address (or individual
or division or department for attention) shall have been designated by notice
given by one party to the other:
To Borrower: Consolidated Stainless, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Greenberg, Traurig, Hoffman,
Lipoff, ▇▇▇▇▇ & ▇▇▇▇▇▇▇
Citicorp Center
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇, Esquire
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
To Bank: Mellon Bank, N.A.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Wolf, Block, ▇▇▇▇▇▇ & ▇▇▇▇▇-▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇. ▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
52
15. WAIVERS.
15.1 Waivers. In connection with any proceedings under the Loan Documents,
including without limitation any action by Bank in replevin, foreclosure or
other court process or in connection with any other action related to the Loan
Documents or the transactions contemplated hereunder, Borrower waives:
(a) all errors, defects and imperfections of a procedural nature in
such proceedings;
(b) all benefits under any present or future laws exempting any
property, real or personal, or any part of any proceeds thereof from attachment,
levy or sale under execution, or providing for any stay of execution to be
issued on any judgment recovered under any of the Loan Documents or in any
replevin or foreclosure proceeding, or otherwise providing for any valuation,
appraisal or exemption;
(c) all rights to inquisition on any real estate, which real estate
may be levied upon pursuant to a judgment obtained under any of the Loan
Documents and sold upon any writ of execution issued thereon in whole or in
part, in any order desired by Bank;
(d) presentment for payment, demand, notice of demand, notice of
non-payment, protest and notice of protest of any of the Loan Documents,
including the Line Note;
(e) any requirement for bonds, security or sureties required by
statute, court rule or otherwise;
(f) any demand for possession of Collateral prior to commencement of
any suit; and
(g) all rights to claim or recover attorney's fees and costs in the
event that Borrower is successful in any action to remove, suspend or prevent
the enforcement of a judgment entered by confession, unless such judgment is
removed or suspended or enforcement thereof prevented as a result of a
determination by a court of competent jurisdiction that such judgment was
improperly entered.
15.2 Forbearance. Bank may release, compromise, forbear with respect to,
waive, suspend, extend or renew any of the terms of the Loan Documents, without
notice to Borrower.
15.3 Limitation on Liability. Borrower shall be responsible for and Bank
is hereby released from any claim or liability in connection with:
(a) Safekeeping any Collateral;
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(b) Any loss or damage to any Collateral;
(c) Any diminution in value of the Collateral; or
(d) Any act or default of another Person.
Bank shall only be liable for any act or omission on its part
constituting wilful misconduct. In the event that Bank breaches its required
standard of conduct, Borrower agrees that Bank's liability shall be only for
direct damages suffered and shall not extend to consequential or incidental
damages. In the event Borrower brings suit against Bank in connection with the
transactions contemplated hereunder and Bank is found not to be liable, Borrower
will indemnify and hold Bank harmless from all costs and expenses, including
attorney's fees, incurred by Bank in connection with such suit. This Agreement
is not intended to obligate Bank to take any action with respect to the
Collateral or to incur expenses or perform any obligation or duty of Borrower.
16. SUBMISSION TO JURISDICTION.
16.1 Submission to Jurisdiction. Borrower and Guarantors hereby consent to
the exclusive jurisdiction of any state or federal court located within the
Commonwealth of Pennsylvania, and irrevocably agree that, subject to the Bank's
election, all actions or proceedings relating to the Loan Documents or the
transactions contemplated hereunder shall be litigated in such courts, and
Borrower and Guarantors waive any objection which they may have based on lack of
personal jurisdiction, improper venue or forum non conveniens to the conduct of
any proceeding in any such court and waive personal service of any and all
process upon them, and consent that all such service of process be made by mail
or messenger directed to them at the address set forth in Section 14.1. Nothing
contained in this Section 16.1 shall affect the right of Bank to serve legal
process in any other manner permitted by law or affect the right of Bank to
bring any action or proceeding against Borrower, Guarantors or their property in
the courts of any other jurisdiction.
17. MISCELLANEOUS.
17.1 Brokers. The transaction contemplated hereunder was brought about and
entered into by Bank and Borrower acting as principals and without any brokers,
agents or finders being the effective procuring cause hereof. Borrower
represents to Bank that Borrower has not committed Bank to the payment of any
brokerage fee or commission in connection with this transaction. If any such
claim is made against Bank by any broker, finder or agent or any other Person,
Borrower agrees to indemnify, defend and hold Bank harmless against any such
claim, at Borrower's own cost and expense, including Bank's attorneys' fees.
Borrower further agrees that until any such claim or demand is adjudicated in
Bank's favor, the amount claimed and/or demanded shall be deemed part of the
Bank Indebtedness secured by the Collateral.
17.2 Use of Bank's Name. Borrower shall not use Bank's name or the name of
any of Bank's Affiliates in connection with any of its business or activities
except as may otherwise be required by the rules and regulations of the
Securities and Exchange Commission or any like regulatory body and except as may
be required in its dealings with any governmental agency.
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17.3 No Joint Venture. Nothing contained herein is intended to permit or
authorize Borrower to make any contract on behalf of Bank, nor shall this
Agreement be construed as creating a partnership, joint venture or making Bank
an investor in Borrower.
17.4 Survival. All covenants, agreements, representations and warranties
made by Borrower and Guarantors in the Loan Documents or made by or on their
behalf in connection with the transactions contemplated herein shall be true at
all times this Agreement is in effect (or, if untrue, the events which render
such covenants, agreements, representations and warranties untrue shall have
been disclosed to Bank in writing) and shall survive the execution and delivery
of the Loan Documents, any investigation at any time made by Bank or on its
behalf and the making by Bank of the loans or advances to Borrower. All
statements contained in any certificate, statement or other document delivered
by or on behalf of Borrower pursuant hereto or in connection with the
transactions contemplated hereunder shall be deemed representations and
warranties by Borrower.
17.5 No Assignment by Borrower. Borrower may not assign any of its rights
hereunder without the prior written consent of Bank, and Bank shall not be
required to lend hereunder except to Borrower.
17.6 Assignment or Sale by Bank. Bank may sell, assign or participate all
or a portion of its interest in the Loan Documents and in connection therewith
may make available to any prospective purchaser, assignee or participant any
information relative to Borrower in its possession. If Bank determines to sell
or assign all or any part of its interest in the Loan Documents, Borrower shall
execute and deliver such documents as Bank may require in connection with such
sale or assignment including, without limitation, a modification to this
Agreement regarding the appointing of an agent and the rights and
responsibilities among the agent and the lenders hereunder. In addition, upon
any such sale or assignment, Borrower shall execute and deliver separate
promissory notes to each lender hereunder in a face amount equal to each such
lenders' pro-rata share of the Line, provided that such promissory notes shall
not, in the aggregate, exceed the Maximum Amount. Any documents required to be
executed by Borrower in connection with any such sale or assignment shall not
impose obligations on the Borrower substantially different than those under the
Loan Documents and shall be limited to issues concerning the management of the
credit facility hereunder and the rights and responsibilities of the agent and
the lenders. Provided that no Event of Default shall have occurred and that Bank
shall not be prohibited from doing so by any applicable law, rule, regulation or
otherwise, Bank agrees in connection with any such sale or assignment (other
than by way of a participation) to maintain an interest in the Line and the Loan
Documents of not less than fifty-one percent (51%) of the Maximum Amount then in
effect. Provided that no Event of Default shall have occurred and the documents
to be executed by Borrower in connection with any such sale or assignment do not
provide for an increase in the Maximum Amount or any other terms more favorable
to Borrower, Borrower shall not be liable for Bank's attorney's fees with
respect to such documents in an amount greater than Three Thousand Dollars
($3,000.00) (exclusive of out-of-pocket disbursements).
17.7 Publicity. Bank may use its reasonable discretion in disclosing the
fact of the financing under this Agreement to any public forum including,
without limitation, "tombstone" announcements in the print media whether
individually or part of a general advertisement.
17.8 Binding Effect. This Agreement and all rights and powers granted
hereby will bind and inure to the benefit of the parties hereto and their
respective permitted successors and assigns.
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17.9 Severability. The provisions of this Agreement and all other Loan
Documents are deemed to be severable, and the invalidity or unenforceability of
any provision shall not affect or impair the remaining provisions which shall
continue in full force and effect.
17.10 No Third Party Beneficiaries. The rights and benefits of this
Agreement and the Loan Documents shall not inure to the benefit of any third
party.
17.11 Modifications. No modification of this Agreement or any of the Loan
Documents shall be binding or enforceable unless in writing and signed by or on
behalf of the party against whom enforcement is sought.
17.12 Holidays. If the day provided herein for the payment of any amount
or the taking of any action falls on a Saturday, Sunday or public holiday at the
place for payment or action, then the due date for such payment or action will
be the next succeeding Business Day.
17.13 Law Governing. This Agreement has been made, executed and delivered
in the Commonwealth of Pennsylvania and will be construed in accordance with and
governed by the laws of such Commonwealth.
17.14 Integration. The Loan Documents shall be construed as integrated and
complementary of each other, and as augmenting and not restricting Bank's
rights, powers, remedies and security. The Loan Documents contain the entire
understanding of the parties thereto with respect to the matters contained
therein and supersede all prior agreements and understandings between the
parties with respect to the subject matter thereof and do not require parol or
extrinsic evidence in order to reflect the intent of the parties. In the event
of any inconsistency between the terms of this Agreement and the terms of the
other Loan Documents, the terms of this Agreement shall prevail.
17.15 Exhibits and Schedules. All exhibits and schedules attached hereto
are hereby made a part of this Agreement.
17.16 Headings. The headings of the Articles, Sections, paragraphs and
clauses of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part of this Agreement.
17.17 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
17.18 Waiver of Right to Trial by Jury. BORROWER, GUARANTORS AND BANK
WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
(a) ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER, GUARANTORS OR BANK WITH
RESPECT TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR
THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER, GUARANTORS AND BANK AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
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WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF BORROWER, GUARANTORS AND BANK TO THE WAIVER OF THEIR RIGHT TO TRIAL
BY JURY. BORROWER AND GUARANTORS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY
TO CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT THEY FULLY UNDERSTAND ITS
TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE
TERMS OF THIS SECTION.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CONSOLIDATED STAINLESS, INC.
By:________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Executive Vice President
(CORPORATE SEAL)
MELLON BANK, N.A.
By:________________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Vice President
The undersigned, intending to be legally bound, but subject in all cases to the
limitation on liability contained in the undersigned's Surety Agreement, hereby
joins in the representations and warranties and consents to and agrees to be
bound by the terms, conditions and covenants applicable to the undersigned as
set forth in the foregoing Loan and Security Agreement, including without
limitation the waivers set forth in Sections 15.1 and Section 17.18.
___________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
___________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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