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EXHIBIT 4.10
CREDIT AND SECURITY AGREEMENT
Dated as of April 14, 1995
CRAGAR INDUSTRIES, INC., a Delaware corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby
agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis.
"Advance" means an advance to the Borrower by the Lender under
the Credit Facility.
"Adjusted Net Worth" means net worth determined in accordance
with generally accepted accounting principals consistent with those
used in preparing Borrower's most recent audited financial statement
plus Subordinated Debt other than the Bridge Loan.
"Affiliate" or "Affiliates" any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control", when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement.
"Applicable Percentage" means, from the date of this Agreement
to and including April 13, 1996, 3%; from April 14, 1996, to and
including April 13, 1997, 2%; and from April 14, 1997 until the date
immediately preceding the Termination Date, 1%.
"Banking Day" means a day other than a Saturday on which banks
are generally open for business in Phoenix, Arizona.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota, National Association as its
"base rate" or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
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"Blemished Finished Goods Inventory" means Finished Goods
Inventory which is damaged or defective but still saleable as blemished
or seconds and is so classified in the books and records of Borrower.
"Borrowing Base" means, at any time and subject to change from
time to time in the Lender's sole discretion, the lesser of
(i) the Commitment, or
(ii) the sum of
(A) 75% of Eligible Accounts, plus
(B) the lesser of (x) the sum of the following
percentages of various classes of Eligible
Inventory; (i) 55% of Raw Materials
Inventory; (ii) 55% of Current Finished
Goods Inventory; (iii) 35 % of Dated
Finished Goods Inventory not to exceed
$500,000.00; and (iv) 30% of Blemished
Finished Goods Inventory not to exceed
$75,0000.00; or (y) $4,500,000.00, plus
(C) to the extent the Advances allowed by
clauses (A) and (B) above shall have been
made in full, the "Inventory Overadvance" in
an amount equal to the lesser of (a) from
the date of this Agreement to and including
June 30, 1995, (1) 5% of Eligible Inventory,
or (2) $375,000.00; (b) from July 1, 1995 to
and including September 30, 1995, (1) 4% of
Eligible Inventory, or (2) $300,000.00; (c)
from October 1, 1995, to and including
December 31, 1995, (1)3% of Eligible
Inventory, or (2) $225,000.00; (d) from
January 1, 1996 to and including March 31,
1996, (1) 2% of Eligible Inventory or (2)
$150,000.00; and (e) from April 1, 1996 to
and including June 30, 1996, (1) 1% of
Eligible Inventory or (2) $75,000.00.
"Bridge Loan" means that portion of the Subordinated
Indebtedness identified as the "Bridge Loan" on Exhibit C.
"Capital Expenditures" means net tangible and intangible
expenditures of the applicable Person or Persons for the lease,
purchase or acquisition of capital assets, or a capitalized lease of
any other asset (capitalized leases being determined in accordance with
generally accepted accounting principles).
"Collateral" means all of the Equipment, General Intangibles,
Inventory, Receivables and all sums on deposit in the Collateral
Account, together with all substitutions and replacements for and
products of any of the foregoing Collateral and together with proceeds
of any and all of the foregoing Collateral and, in the case of all
tangible Collateral, together with all accessions and together with (i)
all accessories, attachments, parts, equipment and repairs now or
hereafter attached or affixed to or used in connection with any such
goods, and (ii) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
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"Collateral Account" has the meaning specified in Section
4.1(d) hereof.
"Commitment" means $9,500,000.00, unless said amount is
reduced pursuant to Section 2.8(b) hereof, in which event it means the
amount to which said amount is reduced.
"Credit Facility" means the revolving credit facility being
made available to the Borrower in the amount of the Commitment by the
Lender pursuant to Article 2 hereof.
"Current Finished Goods Inventory" means Finished Goods
Inventory which is not damaged or defective which is of a SKU type of
which the quantity in Borrower's inventory at the date of determination
is less than the quantity of such SKU type sold by Borrower in the one
year period preceding the date of determination; provided, however,
that upon the prior approval of Lender, reasonable inventories of new
products or reasonably anticipated inventory needs due to increased
demand for existing products may be included in the definition of
Current Finished Goods Inventory from time to time.
"Current Maturities Long-Term Debt" means contractual debt
amortization of long-term debt and capitalized leases of the Borrower.
"Dated Finished Goods Inventory" means Finished Goods
Inventory which is not damaged or defective and consisting of all SKU
types which do not qualify as Current Finished Goods Inventory.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means the period following the occurrence of
a Default or Event of Default which period shall continue until and
unless the Lender shall thereafter waive such Default or Event of
Default in writing.
"Default Rate" means at any time 2% over the Floating Rate,
which Default Rate shall change when and as the Floating Rate changes.
"Default Rate Commencement Date" means:
(i) in the case of a Default arising under Sections
6.12 through 6.14, 7.10 or 7.17, the date of the financial
statement disclosing such Default; or
(ii) in the case of any other Default, 30 days after
the date of such Default.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts over 60 days past
scheduled due date;
(ii) That portion of Accounts that are disputed or
subject to a claim of offset or a contra account;
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(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be
included in Eligible Accounts that portion of Accounts owed by
such units of government with respect to which the Borrower
has provided evidence satisfactory to the Lender that (A) the
Lender has a first priority perfected security interest and
(B) such Account may be enforced by the Lender directly
against such unit of government under all applicable laws);
(v) Accounts owed by an account debtor located
outside the United States or Canada which are not backed by a
bank letter of credit assigned to the Lender, in the
possession of the Lender and acceptable to the Lender in all
respects, in its sole discretion;
(vi) Accounts owed by an account debtor that is the
subject of bankruptcy proceedings or has gone out of business
unless Lender agrees otherwise;
(vii) Accounts owed by a shareholder, subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in favor of the Lender or which are subject
to any lien, security interest or claim in favor of any Person
other than the Lender;
(ix) That portion of Accounts that have been
restructured, extended, amended or modified unless otherwise
consented to by Lender in writing;
(x) That portion of Accounts that constitutes finance
charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 25% or more of the total
amount due under Accounts from such debtor is ineligible under
clauses (i), (ii) or (ix) above;
(xii) Accounts which by their terms allow the account
debtor to pay more than 210 days from the date of sale;
(xiii) That portion of Eligible Accounts of any one
account debtor which are not insured by credit insurance
acceptable to Lender and naming Lender as loss payee and which
exceed 10% of Borrower's total Eligible Accounts, provided,
however, that in the case of Super Shops the applicable
percentage of Borrower's total Eligible Accounts shall be 40%
and in the case of Keystone Automotive, 20%; and
(xiv) Accounts, or portions thereof, otherwise deemed
ineligible by the Lender in its sole discretion.
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"Eligible Inventory" means all inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
generally accepted accounting principles plus the amount reserved
against inventory as of December 31, 1994, to the extent the inventory
to which such reserves relate remain in Borrower's inventory; provided,
however, that the following shall not in any event be deemed Eligible
Inventory:
(i) Inventory that is: in-transit; located at any
warehouse or other premises not approved by the Lender in
writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements
to perfect a first priority security interest in such
inventory; covered by any negotiable or non-negotiable
warehouse receipt, ▇▇▇▇ of lading or other document of title;
on consignment to or from any other person or subject to any
bailment;
(ii) Supplies, packaging or parts inventory;
(iii) Work-in-process inventory except raw materials
which have been segmented for use in a particular production
run to the extent reported as raw materials by Borrower;
(iv) Inventory that is damaged, obsolete or not
currently saleable in the normal course of the Borrower's
operations;
(v) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(vi) Inventory that is subject to a security interest
in favor of any Person other than the Lender;
(vii) Pre-1991 Inventory; and
(viii) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section 5.12
hereof.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures (whether located upon the Premises or
otherwise), manufacturing equipment, shop equipment, office and
recordkeeping equipment, parts, tools, supplies, and including
specifically (without limitation) the goods described in any equipment
schedule or list herewith or hereafter furnished to the Lender by the
Borrower.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Event of Default" has the meaning specified in Section 8.1
hereof.
"Excess Cash Flow" means the Net Income of Borrower as shown
on the audited financial statement of Borrower required by Section
6.1(a) hereof for the fiscal year in
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question, plus or minus non-cash items, less unfinanced Capital
Expenditures and scheduled debt service, and less principal and
interest paid on Subordinated Indebtedness during such fiscal year.
"Finished Goods Inventory" means Eligible Inventory which is
fully assembled and ready for sale by Borrower.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus one and one-quarter percent (1-1/4%), which Floating
Rate shall change when and as the Base Rate changes.
"Funds from Operations" means after tax net income of the
Borrower for the applicable period or periods, adjusted to exclude
non-cash items or income or expense which are extraordinary items or
items not related to operations (determined in accordance with
generally accepted accounting principles).
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future Patents (or Borrower's rights therein where Borrower is a
licensee), patent applications, copyrights, Trademarks (or Borrower's
rights therein where Borrower is a licensee), trade names, trade
secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use the Borrower's
name, and the goodwill of the Borrower's business.
"Initial Advance" has the meaning specified in Section 4.1 (m)
hereof.
"Interest Expense" means total gross interest expense of the
Borrower (cash and capitalized, including interest on capitalized
leases and not net of interest income).
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies
or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and
wherever located.
"Inventory Overadvance Rate" means an annual rate equal to the
sum of the Base Rate, plus 2.25%, which Inventory Overadvance Rate
shall change when and as the Base Rate changes.
"Investor Debt" means that portion of the Subordinated
Indebtedness identified as the "Investor Debt" on Exhibit C.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
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"Letter of Credit" has the meaning specified in Section 2.2
hereof.
"Loan Documents" means this Agreement, the Note and the
Security Documents.
"Lockbox " has the meaning specified in Section 4.1(e) hereof.
"Net Income" means after tax net income of the Borrower from
continuing operations.
"Note" means the Revolving Note of the Borrower payable to the
order of the Lender in substantially the form attached hereto as
Exhibit A.
"Obligations" has the meaning specified in Section 3.1 hereof.
"Obligation of Reimbursement" has the meaning specified in
Section 2.4(a) hereof.
"Patent" all letters patent currently or hereafter issued by
the government of the United States or any foreign government held by
Borrower, in which the Borrower is a licensee or otherwise used by
Borrower in its business, including, but not limited to those listed on
Exhibit F.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for employees of the Borrower and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit E attached
hereto.
"Raw Materials Inventory" means that portion of Eligible
Inventory consisting of spare parts, components, supplies and materials
useable in producing Finished Goods Inventory but not yet incorporated
into Finished Goods Inventory.
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
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"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Security Documents" means the Collateral Account Agreement
and the Lockbox Agreement.
"Security Interest" has the meaning specified in Section 3.1
hereof.
"Seller Debt" means that portion of the Subordinated
Indebtedness identified as the "Seller Debt" on Exhibit C.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Sections 2.5 and
3.6 hereof.
"Subordinated Indebtedness" means the indebtedness of the
Borrower shown as such on Exhibit C and which is in fact subordinated
as to payment of principal and interest to the indebtedness of the
Borrower to the Lender, and to the extent such indebtedness is secured,
such liens are subordinated to the liens in favor of Lender on the
Collateral, all such subordinations to be in writing and in form and
substance satisfactory to the Lender.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Termination Date" means April 15, 1998.
"Trademarks" means all trademarks, tradenames and servicemarks
whether federally registered or not, held by Borrower, in which
Borrower is a licensee or otherwise used by Borrower in its business,
including, but not limited to those listed on Exhibit F.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.12 hereof as the state
whose laws shall govern this Agreement, or in any other state whose
laws are held to govern this Agreement or any portion hereof.
ARTICLE 2
Amount and Terms of the Credit Facility
2.1 Advances. The Lender agrees, on the terms and subject to the
conditions herein set forth, to make Advances to the Borrower from time to time
during the period from the date hereof to and including the Termination Date, or
the earlier date of termination in whole of the Credit Facility pursuant to
Sections 2.8(a) or 8.2 hereof, in an aggregate amount at any time outstanding
not to exceed the Borrowing Base less the L/C Amount, which Advances shall be
secured by the Collateral as provided in Article 3 hereof. The Credit Facility
shall be a revolving facility and it is contemplated
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that the Borrower will request Advances, make prepayments and request additional
Advances. The Borrower agrees to comply with the following procedures in
requesting Advances under this Section 2.1:
(a) The Borrower will not request any Advance under this
Section 2.1 if, after giving effect to such requested Advance, the sum of the
outstanding and unpaid Advances under this Section 2.1 or otherwise would exceed
the Borrowing Base less the L/C Amount.
(b) Each request for an Advance under this Section 2.1 shall
be made to the Lender prior to 12:00 noon (Minneapolis time) of the day of the
requested Advance by the Borrower. Each request for an Advance may be made in
writing or by telephone, specifying the date of the requested Advance and the
amount thereof, and shall be by (i) any officer of the Borrower; or (ii) any
person designated as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Lender; or (iii) any person reasonably believed by the
Lender to be an officer of the Borrower or such a designated agent.
(c) Upon fulfillment of the applicable conditions set forth in
Article 4 hereof, the Lender shall disburse loan proceeds by crediting the same
to the Borrower's demand deposit operating account maintained with Norwest Bank
Arizona, N.A. unless the Lender and the Borrower shall agree in writing to
another manner of disbursement. Upon request of the Lender, the Borrower shall
promptly confirm each telephonic request for an Advance by executing and
delivering an appropriate confirmation certificate to the Lender. The Borrower
shall be obligated to repay all Advances under this Section 2.1 notwithstanding
the failure of the Lender to receive such confirmation and notwithstanding the
fact that the person requesting the same was not in fact authorized to do so.
Any request for an Advance under this Section 2.1, whether written or
telephonic, shall be deemed to be a representation by the Borrower that (i) the
condition set forth in Section 2.1(a) hereof has been met, and (ii) the
conditions set forth in Section 4.2 hereof have been met as of the time of the
request.
2.2 Note. All Advances made by the Lender under this Article 2 shall be
evidenced by and repayable with interest in accordance with the Note. The
principal of the Note shall be payable as provided herein and on the earlier of
the Termination Date or acceleration by the Lender pursuant to Section 8.2
hereof, and shall bear interest as provided herein.
2.3 Issuance of Letters of Credit.
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to issue or cause to be issued by an Issuer one or
more documentary letters of credit for the account of the Borrower (each a
"Letter of Credit") from time to time during the period from the date hereof
until the earlier of the Termination Date or the Credit Facility has been
terminated pursuant to Section 2.8 or 8.2 hereof, in an aggregate amount at any
time outstanding not to exceed the Borrowing Base less the sum of (i) all
outstanding and unpaid Advances hereunder and (ii) the unpaid amount of the
Obligation of Reimbursement. Each Letter of Credit, if any, shall be issued
pursuant to a separate L/C Application entered into by the Borrower and the
Lender as co-applicants for the benefit of the Issuer, completed in a manner
satisfactory to the Lender and the Issuer. The terms and conditions set forth in
each such L/C Application shall supplement the terms and conditions hereof, but
in the event of inconsistency between the terms of any such L/C Application and
the terms hereof, the terms hereof shall control.
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(b) No Letter of Credit shall be issued under this Section 2.3
if, after the issuance of such requested Letter of Credit, the sum of the face
amounts of all issued and outstanding Letters of Credit would exceed the
Borrowing Base less the sum of (i) all outstanding and unpaid Advances hereunder
and (ii) the unpaid amount of the Obligation of Reimbursement.
(c) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(d) Any request for the issuance of a Letter of Credit under
this Section 2.3 shall be deemed to be a representation by the Borrower that (i)
the condition set forth in Section 2.3(b) hereof has been met, and (ii) the
statements set forth in Section 4.2 hereof are correct as of the time of the
request.
2.4 Payment of Amounts Drawn Under Letters of Credit. The Borrower
acknowledges that the Lender, as co-applicant, will be liable to the Issuer of
any Letter of Credit for reimbursement of any and all draws thereunder and all
other amounts required to be paid under the applicable L/C Application.
Accordingly, the Borrower agrees to pay to the Lender any and all amounts
required to be paid under the applicable L/C Application, when and as required
to be paid thereby, and the amounts designated below, when and as designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts drawn
under such Letter of Credit plus any and all reasonable charges and expenses
that the Issuer or the Lender may pay or incur relative to such draw, plus
interest on all such amounts, charges and expenses as set forth below (all such
amounts are hereinafter referred to, collectively, as the "Obligation of
Reimbursement"). So long as no Default shall then exist, the Obligation of
Reimbursement shall be paid first through an Advance to the extent available
under the Credit Facility.
(b) The Borrower hereby agrees to pay the Lender on demand
interest on all amounts, charges and expenses payable by the Borrower to the
Lender under this Section 2.3, accrued from the date any such draft, charge or
expense is paid by the Issuer until payment in full by the Borrower at the
Default Rate.
If the Borrower fails to pay to the Lender promptly the amount of its
Obligation of Reimbursement in accordance with the terms hereof and the L/C
Application pursuant to which such Letter of Credit was issued, the Lender is
hereby irrevocably authorized and directed, in its sole discretion, to make an
Advance in an amount sufficient to discharge the Obligation of Reimbursement,
including all interest accrued thereon but unpaid at the time of such Advance,
and such Advance shall be evidenced by the Note and shall bear interest as
provided in Section 2.7 hereof.
2.5 Special Account. If the Credit Facility is terminated for any
reason whatsoever, while any Letter of Credit is outstanding, the Borrower shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the maximum aggregate amount available to be
drawn under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder. The Special Account shall be maintained for
the Lender by any financial institution acceptable to the Lender. Any interest
earned on amounts deposited in the Special Account shall be credited to the
Special Account. Amounts on deposit in the Special Account may be applied by the
Lender at any time or from time to time to the Borrower's Obligation
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of Reimbursement or any other Obligations, in the Lender's sole discretion, and
shall not be subject to withdrawal by the Borrower so long as the Lender
maintains a security interest therein. The Lender agrees to transfer any balance
in the Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
2.6 Obligations Absolute. The obligations of the Borrower arising under
this Agreement shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of Credit
(collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom any such
beneficiary or any such transferee may be acting), or other person or entity,
whether in connection with this Agreement, the transactions contemplated herein
or in the Related Documents or any unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect
whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate which does
not strictly comply with the terms of such Letter of Credit; or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
2.7 Interest.
(a) The principal of the Advances under the Commitment
outstanding from time to time during any month shall bear interest (computed on
the basis of actual days elapsed in a 360- day year) at the Floating Rate;
provided, however, that the portion of the Advances which constitutes an
Inventory Overadvance outstanding from time to time during any month shall bear
interest (computed on the basis of actual days elapsed in a 360-day year) at the
Inventory Overadvance Rate. In the Lender's discretion and without waiving any
of its other rights and remedies, the principal of the Advances under the
Commitment outstanding from time to time shall bear interest at the Default Rate
from the Default Rate Commencement Date until the end of the Default Period.
Notwithstanding any provision of this Agreement to the contrary, no rate change
shall be put into effect which would result in a rate greater than the highest
rate permitted by law. Interest accruing on the principal balance of the
Advances outstanding from time to time shall be payable on the first day of each
succeeding month and on the Termination Date or earlier demand or prepayment in
full. The Borrower agrees that the interest rate contracted for includes the
interest rate set forth herein
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plus any other charges or fees set forth herein and costs and expenses incident
to this transaction paid by the Borrower to the extent same are deemed interest
under applicable law.
(b) If any Person shall acquire a participation in the
Advances under this Agreement, the Borrower shall be obligated to the Lender
to pay the full amount of all interest calculated under Sections 2.7(a) hereof,
along with all other fees, charges and other amounts due under this Agreement,
regardless if such Person elects to accept interest with respect to its
participation at a lower rate than the Floating Rate, or otherwise elects to
accept less than its pro rata share of such fees, charges and other amounts
due under this Agreement.
2.8 Voluntary Prepayment; Termination of Agreement by the Borrower;
Permanent Reduction of the Commitment.
(a) Except as otherwise provided herein, the Borrower may, in
its discretion, prepay the Advances in whole at any time or from time to time in
part. The Borrower may terminate this Agreement at any time so long as either
(i) no Letter of Credit has been issued and is outstanding with an expiration
date after such date, or (ii) Borrower shall have fully complied with Section
2.5 hereof, and, subject to payment and performance of all the Borrower's
obligations to the Lender, may obtain any release or termination of the Security
Interest to which the Borrower is otherwise entitled by law by giving at least
30 days' prior written notice to the Lender of the Borrower's intention to
terminate this Agreement. Upon any termination of this Agreement by Borrower
pursuant to this Section 2.8(a), Borrower shall pay to Lender a prepayment fee
of the Applicable Percentage of the Commitment; provided, however, that no such
fee shall be payable if and to the extent (i) the funds for any termination of
the Commitment are derived from Funds From Operations, or (ii) such termination
represents a refinancing of the Obligations by Norwest Bank Arizona, N.A.
(b) The Borrower may at any time and from time to time, upon
at least 30 days' prior written notice to the Lender, permanently reduce in part
the Commitment; provided, however, that no reduction shall reduce the Commitment
to an amount less than the then-aggregate amount of the Advances plus the L/C
Amount; and provided, further, that if the Borrower shall elect permanently to
reduce in part the Commitment at any time other than the Termination Date, the
Borrower shall pay to the Lender a premium in an amount equal to the Applicable
Percentage.
2.9 Mandatory Prepayment. Without notice or demand, if the sum of the
outstanding principal balance of the Advances plus the L/C Amount shall at any
time exceed the Borrowing Base, the Borrower shall (i) first, immediately prepay
the Advances to the extent necessary to eliminate such excess; and (ii) if
prepayment in full of the Advances is insufficient to eliminate such excess, pay
to the Lender in immediately available funds for deposit in the Special Account
an amount equal to the remaining excess. Any payment received by the Lender
under this Section 2.9 or under Section 2.8 may be applied to the Obligation of
Reimbursement or the Advances, including interest thereon and any fees,
commissions, costs and expenses hereunder and under the Security Documents, in
such order and in such amounts as the Lender, in its discretion, may from time
to time determine. For each day or portion thereof that the Advances shall
exceed the Borrowing Base, the Borrower shall pay to the Lender an overadvance
charge in the amount of $100.00; provided, however, that if any such day occurs
during a Default Period, the overadvance charge for such day shall be $250.00.
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2.10 Payment. All payments of principal of and interest on the
Advances, the Obligation of Reimbursement, the commissions and fees hereunder
and amounts required to be paid to the Lender for deposit in the Special Account
shall be made to the Lender in immediately available funds. The Borrower hereby
authorizes the Lender, in its discretion at any time or from time to time and
without request by the Borrower, to make an Advance or Advances in such amount
as shall be necessary to pay any interest, fees, costs or expenses hereunder or
under the Loan Documents.
2.11 Payment on Non-Banking Days. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment may be made on the next succeeding Banking Day, and such extension of
time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
2.12 Use of Proceeds. The proceeds of Advances and each Letter of
Credit issued or caused to be issued shall be used by the Borrower (i) to repay
all outstanding indebtedness to Foothill Capital Corporation, (ii) for ordinary
working capital purposes; or (iii) to pay certain other existing indebtedness of
Borrower but only to the extent specifically permitted by this Agreement.
2.13 Liability Records. The Lender may maintain from time to time, at
Its discretion, liability records as to any and all Advances made or repaid,
interest accrued or paid under this Agreement, outstanding Letters of Credit and
fees thereon and the Borrower's Obligation of Reimbursement. All entries made on
any such record shall be presumed correct until the Borrower establishes the
contrary. On demand by the Lender, the Borrower will admit and certify in
writing the exact principal balance that the Borrower then asserts to be
outstanding to the Lender for Advances under this Agreement and the amount of
any Letters of Credit outstanding. Any billing statement or accounting rendered
by the Lender shall be conclusive and fully binding on the Borrower unless
specific written notice of exception is given to the Lender by the Borrower
within 180 days after its receipt by the Borrower.
2.14 Setoff. The Borrower agrees that the Lender may at any time or
from time to time, at its sole discretion and without demand and without notice
to anyone, setoff any liability owed to the Borrower by the Lender, whether or
not due, against any indebtedness owed to the Lender by the Borrower (for
Advances or for any other transaction or event), whether or not due. In
addition, each other Person holding a participating interest in any Advances
made to the Borrower by the Lender shall have the right to appropriate or setoff
any deposit or other liability then owed by such Person to the Borrower, whether
or not due, and apply the same to the payment of said participating interest, as
fully as if such Person had lent directly to the Borrower the amount of such
participating interest.
2.15 Fees.
(a) The Borrower hereby agrees to pay the Lender a fully
earned and non-refundable origination fee of $98,000.00, due and payable upon
the execution of this Agreement.
(b) The Borrower agrees to pay to the Lender an unused fee
each month at the annual rate of 0.5% on the average daily unused amount of the
Commitment from the date hereof to and including the date on which such facility
is terminated, due and payable monthly in arrears on the first day of each
month, commencing May 1, 1995, provided that any such unused fee remaining
unpaid upon termination of the Credit Facility or acceleration of the Note by
the Lender
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pursuant to Section 8.2 hereof shall be due and payable on the date of such
termination or acceleration. Such fee shall be calculated on the basis of actual
days elapsed in a 360-day year.
(c) The Borrower hereby agrees to pay any and all fees,
commissions and charges of any Issuer of a Letter of Credit with respect to or
in connection with such Letter of Credit.
(d) The Borrower agrees to pay the Lender, on written demand,
the administrative fees charged by the Issuer in connection with the honoring of
drafts under any Letter of Credit, amendments thereto, transfers thereof and all
other activity with respect to the Letters of Credit.
(e) The Borrower hereby agrees to pay the Lender, on demand,
audit fees of $50.00 per hour per auditor in connection with any audits or
inspections by the Lender of any collateral or the operations or business of the
Borrower, together with all actual out-of-pocket costs and expenses incurred in
conducting any such audit or inspection; provided, however, such audit and
inspection fees shall not exceed $25,000.00 in any one calendar year, excluding
the pre-loan audit performed by or on behalf of Lender.
(f) The Borrower hereby agrees to pay the Lender a management
fee in the amount of $20,000.00 per annum due and payable on April 14th of each
year (commencing April 14, 1996) so long as this Agreement remains in effect and
on the Termination Date; provided, however, that upon the termination of this
Agreement in accordance with Section 2.8 Borrower shall pay that portion of the
management fee for the year of such termination equal to $20,000.00 multiplied
by a fraction, the numerator of which shall be the number of days which shall
have elapsed from the previous April 14, and the denominator of which shall be
365.
(g) The Borrower shall pay to the Lender a fee on the
aggregate face amount of any issued and outstanding Letters of Credit (computed
on the basis of actual days elapsed in a 360 day year) at the rate of 3% per
annum payable monthly.
2.16 Capital Adequacy. If the Lender shall determine that the adoption
after the date hereof of any applicable law, rule or regulation regarding
capital adequacy, or any change therein after the date hereof, any change after
the date hereof in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender or its
parent corporation with any guideline or request issued after the date hereof
regarding capital adequacy (whether nor not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's or the Lender's parent corporation's
capital as a consequence of the Lender's obligations hereunder to a level below
that which the Lender or its parent corporation could have achieved but for such
adoption, change or compliance (taking into consideration the Lender's policies
with respect to capital adequacy and those of the Lender's parent corporation)
by an amount deemed to the Lender or its parent corporation to be material, then
from time to time on demand by the Lender, the Borrower shall pay to the Lender
such additional amount or amounts as will compensate the Lender or its parent
corporation for such reduction. Certificates of the Lender sent to the Borrower
from time to time claiming compensation under this Section, stating the reason
therefor and setting forth in reasonable detail the calculation of the
additional amount or amounts to be paid to the Lender hereunder shall be
conclusive absent manifest error. In determining such amounts, the Lender or its
parent corporation may use any reasonable averaging and attribution methods. If,
pursuant to this Section 2.16, the Lender requires
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the Borrower to pay the additional amount or amounts as will compensate the
Lender or its parent corporation for a reduction in the rate of return on the
Lender's or the Lender's parent corporation's capital as a consequence of the
Lender's obligations hereunder, then Borrower shall have the right to prepay the
Advances in whole and terminate this Agreement, which prepayment and termination
shall not be subject to the prepayment fee set forth in Section 2.8 hereof.
ARTICLE 3
Security Interest
3.1 Grant of Security Interest. The Borrower hereby assigns and grants
to the Lender a security interest (collectively referred to as the "Security
Interests") in the Collateral, as security for the payment and performance of
each and every debt, liability and obligation of every type and description
which the Borrower may now or at any time hereafter owe to the Lender (whether
such debt, liability or obligation now exists or is hereafter created or
incurred, whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and whether it is direct
or indirect, due or to become due, absolute or contingent, primary or secondary,
liquidated or unliquidated, or sole, joint, several or joint and several, and
including specifically, but not limited to, the Obligation of Reimbursement and
all indebtedness of the Borrower arising under this Agreement, the Note, any L/C
Application completed by the Borrower or any other loan or credit agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered into; all such debts, liabilities and obligations are herein
collectively referred to as the "Obligations").
3.2 Notification of Account Debtors and Other Obligors. In addition to
the rights of the Lender under Section 6.10 hereof, with respect to any and all
rights to payment constituting Collateral, the Lender may at any time (after the
occurrence of an Event of Default) notify any account debtor or other person
obligated to pay the amount due that such right to payment has been assigned or
transferred to the Lender for security and shall be paid directly to the Lender.
The Borrower will join in giving such notice if the Lender so requests. At any
time after the Borrower or the Lender gives such notice to an account debtor or
other obligor, the Lender may, but need not, in the Lender's name or in the
Borrower's name, (a) demand, ▇▇▇ for, collect or receive any money or property
at any time payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the obligations (including
collateral obligations) of any such account debtor or other obligor; and (b) as
agent and attorney in fact of the Borrower, notify the United States Postal
Service to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
3.3 Assignment of Insurance. As additional security for the payment and
performance of the Obligations, the Borrower hereby assigns to the Lender any
and all monies (including, without limitation, proceeds of insurance and refunds
of unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time, whether before or after the occurrence of any Event of Default, the
Lender may (but need not), in the Lender's name or in the Borrower's name,
execute
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and deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time after the occurrence and
during the continuance of an Event of Default.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of
goods that are Collateral and for other purposes that the Lender may in good
▇▇▇▇▇ ▇▇▇▇ to be related or incidental purposes.
(c) The right of the Lender to hold the Premises shall cease
and terminate upon the earlier of (A) payment in full and discharge of all
Obligations, and (B) final sale or disposition of all goods constituting
Collateral and delivery of all such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of any of
the Premises; provided, however, in the event that the Lender does pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time
reasonably incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this Agreement
or the provisions of this Section 3.4.
3.5 License. The Borrower hereby grants to the Lender a non-exclusive,
worldwide and royalty-free license to use or otherwise exploit all Trademarks,
franchises, trade names, copyrights and Patents of the Borrower for the purpose
of selling, leasing or otherwise disposing of any or all Collateral following an
Event of Default.
3.6 Security Interest in Special Account and Collateral Account. The
Borrower hereby pledges, and grants to the Lender a security interest in, all
funds held in the Special Account and in the Collateral Account from time to
time and all proceeds thereof, as security for the payment of all present and
future Obligations of Reimbursement and all other Obligations.
ARTICLE 4
Conditions of Lending
4.1 Conditions Precedent to the Initial Advance. The obligation of the
Lender to make the initial Advance under the Credit Facility, or causing to be
issued any Letter of Credit hereunder shall be subject to the condition
precedent that the Lender shall have received all of the following, each in form
and substance satisfactory to the Lender:
(a) This Agreement, properly executed on behalf of the
Borrower.
(b) The Note, properly executed on behalf of the Borrower.
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(c) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises, together with a landlord's
disclaimer and consent with respect to each such lease; and with respect to any
and all of the Premises owned by Borrower a Mortgagee's disclaimer as to all
such Premises which are subject to a Mortgage, deed of trust or other lien.
(d) A Collateral Account Agreement, duly executed by the
Borrower and Norwest Bank Arizona, N.A. pursuant to which the Borrower and
Norwest Bank Arizona, N.A. establish a depository account (the "Collateral
Account") in the name of and under the sole and exclusive control of the Lender,
from which such institution agrees to transfer finally collected funds to the
Lender for application to the Advances.
(e) A Lockbox Agreement, duly executed by the Borrower and an
institution acceptable to the Lender, pursuant to which the Borrower agrees to
maintain and direct account debtors to make payment to, and such institution
agrees to maintain and process payments received in, a lockbox for the benefit
of the Lender (the "Lockbox"), from which Lockbox such institution shall
transfer funds to the Collateral Account.
(f) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in effect
against the Borrower, (ii) no financing statements have been filed and remain in
effect against the Borrower, except those financing statements relating to liens
permitted pursuant to Section 7.1 hereof and those financing statements filed by
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interests granted hereunder, to the extent the
Security Interests are capable of being perfected by filing.
(g) A certificate of the Secretary or an Assistant Secretary
of the Borrower, certifying as to (i) the resolutions of the directors and, if
required, the shareholders of the Borrower, authorizing the execution, delivery
and performance of this Agreement and the Security Documents, (ii) the articles
of incorporation and bylaws of the Borrower, and (iii) the signatures of the
officers or agents of the Borrower authorized to execute and deliver this
Agreement, the Loan Documents and other instruments, agreements and
certificates, including Advance requests, on behalf of the Borrower.
(h) A current certificate issued by the Secretary of State of
the state of the Borrower's incorporation, certifying that the Borrower is in
compliance with all corporate organizational requirements of such state.
(i) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it makes such
licensing or qualification necessary.
(j) A certificate of an officer of the Borrower confirming, in
his personal capacity, the representations and warranties set forth in Article 5
hereof.
(k) An opinion of counsel to the Borrower, addressed to the
Lender, together with the results of a litigation search or searches showing all
actions and proceedings where the Borrower is a defendant or involving a claim
against the Borrower.
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(l) Certificates of the insurance required hereunder, with all
hazard insurance containing a lender's loss payable endorsement in favor of the
Lender and with all liability insurance naming the Lender as an additional
insured.
(m) Evidence from the Borrower satisfactory to the Lender
establishing the amount of the Borrowing Base and a request for Advance from the
Borrower in an amount such that the minimum excess loan availability of the
Borrower after such Advance (the "Initial Advance") and payment of (i) all
indebtedness owing to Foothill Capital Corporation, (ii) all trade payables of
the Borrower older than 60 days from the due date; (iii) all Bank overdrafts;
and (iv) all fees of the Lender required hereunder shall be $250,000.00.
(n) Payment of the fees and commissions due through the date
of the initial Advance, or Letter of Credit under Section 2.15 hereof and
expenses incurred by the Lender through such date and required to be paid by the
Borrower under Section 9.7 hereof.
(o) Subordination agreements satisfactory to the Lender with
respect to all Subordinated Debt and all liens securing the same.
(p) A support agreement from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ in form and
substance satisfactory to the Lender.
(q) Such agreements as shall be required to grant to Lender
valid and enforceable securities interests in the Patents, Trademarks and any
contract rights necessary for the operation of Borrower's business.
(r) Such other documents as the Lender in its sole discretion
may require.
4.2 Conditions Precedent to All Advances. The obligation of the Lender
to make each Advance, or cause to be issued any Letter of Credit shall be
subject to the further conditions precedent that on such date:
(a) the representations and warranties contained in Article 5
hereof are correct on and as of the date of such Advance, or issuance of Letter
of Credit as though made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance, or the issuance of such Letter of Credit, as the case may be,
which constitutes a Default or an Event of Default.
ARTICLE 5
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations. The Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware, and is duly licensed or qualified to transact
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business in all jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its corporate existence, the Borrower has done business solely
under the names set forth in Exhibit B hereto. The chief executive office and
principal place of business of the Borrower is located at the address set forth
in Exhibit B hereto, and all of the Borrower's records relating to its business
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in Exhibit B
hereto. The Borrower's tax identification number is correctly set forth in
Section 9.4.
5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.
The execution, delivery and performance by the Borrower of the Loan Documents
and the borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (a) require any consent or
approval of the stockholders of the Borrower, (b) require any authorization,
consent or approval by, or registration, declaration or filing with, or notice
to, any governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof, (c) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower, (d)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (e) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interests) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
5.4 Subsidiaries. Except as set forth in Exhibit B attached hereto, the
Borrower has no Subsidiaries.
5.5 Financial Condition; No Adverse Change. The Borrower has heretofore
furnished to the Lender audited financial statements of the Borrower for its
fiscal year ended December 31, 1994, and unaudited financial statements of the
Borrower for the months ended February 28, 1995, and those statements fairly
present the financial condition of the Borrower on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with generally accepted accounting principles. Since the
date of the most recent financial statements, there has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower.
5.6 Litigation. There are no actions, suits or proceedings pending or,
to the knowledge of the Borrower, threatened against or affecting the Borrower
or any of its Affiliates or the properties of the Borrower or any of its
Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the
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Borrower or any of its Affiliates, would have a material adverse effect on the
financial condition, properties or operations of the Borrower or any of its
Affiliates.
5.7 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Advance will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.
5.8 Taxes. The Borrower and its Affiliates have paid or caused to be
paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
5.9 Titles and Liens. The Borrower has good and absolute title to all
Collateral described in the collateral reports provided to the Lender and all
other Collateral, properties and assets reflected in the latest balance sheet
referred to in Section 5.5 hereof and all proceeds thereof, free and clear of
all mortgages, security interests, liens and encumbrances, except for (i)
mortgages, security interests and liens permitted by Section 7.1 hereof, and
(ii) in the case of any such property which is not Collateral or other
collateral described in the Security Documents, covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower as presently conducted. No
financing statement naming the Borrower as debtor is on file in any office
except to perfect only security interests permitted by Section 7.1 hereof.
5.10 Plans. Except as disclosed to the Lender in writing prior to the
date hereof, neither the Borrower nor any of its Affiliates maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty Corporation, the
Internal Revenue Service, the Department of Labor or any participant in
connection with any Plan (other than accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).
5.11 Default. The Borrower is in compliance with all provisions of all
agreements, instruments, decrees and orders to which it is a party or by which
it or its property is bound or affected, the breach or default of which could
have a material adverse effect on the financial condition, properties or
operations of the Borrower.
5.12 Environmental Protection. The Borrower has obtained all permits,
licenses and other authorizations which are required under federal, state and
local laws and regulations relating to
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emissions, discharges, releases of pollutants, contaminants, hazardous or toxic
materials, or wastes into ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants or
hazardous or toxic materials or wastes ("Environmental Laws") at the Borrower's
facilities or in connection with the operation of its facilities. The Borrower
shall provide copies of all such permits, licenses and other authorizations to
the Lender upon the Lender's request. The Borrower also shall provide to the
Lender copies of all environmental investigation and inspection reports
available to the Borrower that pertain to the Borrower's facilities, upon the
Lender's request. Except as previously disclosed to the Lender in writing, to
the best of Borrower's knowledge after due and diligent investigation, the
Borrower and all activities of the Borrower at its facilities comply with all
Environmental Laws and with all terms and conditions of any required permits,
licenses and authorizations applicable to the Borrower with respect thereto.
Except as previously disclosed to the Lender in writing, the Borrower is also in
compliance with all limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
Environmental Laws or contained in any plan, order, decree, judgment or notice
of which the Borrower is aware. Except as previously disclosed to the Lender in
writing, to the best of Borrower's knowledge after due and diligent
investigation, the Borrower is not aware of, nor has the Borrower received
notice of, any events, conditions, circumstances, activities, practices,
incidents, actions or plans which may interfere with or prevent continued
compliance with, or which may give rise to any liability under, any
Environmental Laws. Except as previously disclosed to the Lender in writing, the
Borrower has received no inquiry from any federal, state or local agency
concerning the Borrower's facilities or any adjacent properties involving
possible environmental contamination or violations of any Environmental Laws,
and has no knowledge of any such inquiry to any party concerning the Borrower's
facilities or any adjacent properties. The Borrower agrees to notify Lender
promptly in writing of any inquiries by third parties or regulatory agencies
concerning the possible presence of environmental contamination on the
Borrower's facilities or any adjacent properties or concerning any possible
violations of Environmental Laws involving the Borrower's facilities or any
adjacent properties. The Lender shall have the right to enter the Borrower's
facilities for the purpose of conducting environmental investigations, including
taking soil and water samples, during the Borrower's normal business hours of
operation and without unreasonable interference with Borrower's business
operations.
5.13 Submissions to the Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
5.14 Financing Statements. The Borrower has provided to the Lender
signed financing statements sufficient when filed to perfect the Security
Interests and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financial statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
5.15 Rights to Payment. Each right to payment and each instrument,
document, chattel paper and other agreement constituting or evidencing
Collateral or other collateral covered by the Security Documents is (or, in the
case of all future Collateral or such other collateral, will be when
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arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE 6
Affirmative Covenants of the Borrower
So long as the Note shall remain unpaid, the Credit Facility or any
Letter of Credit shall be outstanding, the Borrower will comply with the
following requirements, unless the Lender shall otherwise consent in writing:
6.1 Reporting Requirements. The Borrower will deliver, or cause to be
delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 120 days
after the end of each fiscal year of the Borrower, audited financial statements
of the Borrower with the unqualified opinion of independent certified public
accountants selected by the Borrower and acceptable to the Lender, which annual
financial statements shall include the balance sheet of the Borrower as at the
end of such fiscal year and the related statements of income, retained earnings
and cash flows of the Borrower for the fiscal year then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the accounting
practices applied in the financial statements referred to in Section 5.5 hereof,
together with (i) a report signed by such accountants stating whether or not the
Borrower is in compliance with the requirements set forth in Sections 6.12
through 6.14 and Sections 7.10, 7.17 and 7.19 hereof; and (ii) a certificate of
the chief financial officer of the Borrower stating that such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the accounting practices reflected
in the annual financial statements referred to in Section 5.5 hereof and whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 30 days after
the end of each month, an unaudited/internal balance sheet and statements of
income and retained earnings of the Borrower as at the end of and for such month
and for the year to date period then ended, prepared, if the Lender so requests,
on a consolidating and consolidated basis to include any Affiliates, in
reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the accounting practices reflected in the financial statements referred to in
Section 5.5 hereof, subject to year-end audit adjustments; and accompanied by a
certificate of the chief financial officer of the Borrower, substantially in the
form of Exhibit D hereto stating (i) that such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a basis consistent with the accounting practices reflected in the financial
statements referred to in Section 5.5 hereof, subject to year-end audit
adjustments, (ii) whether or not such officer has knowledge of the occurrence of
any Default or Event of Default hereunder not theretofore reported and remedied
and, if so, stating in reasonable detail the facts with respect thereto, and
(iii) all relevant facts in reasonable detail to evidence, and the computations
as to, whether or not the Borrower is in compliance with the requirements set
forth in Sections 6.12 through 6.14 and Sections 7.10, 7.17 and 7.19 hereof;
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(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable and an inventory
certification report as at the end of such month;
(d) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the good faith
projections of the Borrower and certified by the Borrower's chief financial
officer as being the most accurate projections available and identical to the
projections used by the Borrower for internal planning purposes, together with
such supporting schedules and information as the Lender may in its discretion
require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.6
hereof or which seek a monetary recovery against the Borrower in excess of
$100,000.00;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains knowledge of
the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the chief financial officer of the
Borrower setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the chief financial officer of the Borrower setting forth
details as to such failure and the action which the Borrower proposes to take
with respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i) any
disputes or claims in excess of $25,000.00 by customers of the Borrower; (ii)
any credits for goods returned to or recovered by the Borrower; and (iii) any
change in the persons constituting the officers and directors of the Borrower;
(j) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
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(l) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Borrower shall file with
the Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the violation
by the Borrower of any law, rule or regulation, the non-compliance with which
could materially and adversely affect its business or its financial condition;
and
(n) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors, shipment documents and delivery receipts
for goods sold, and such other material, reports, records or information as the
Lender may request.
(o) on each Banking Day a report of Receivables, collections
and deposit information of the Borrower.
6.2 Books and Records; Inspection and Examination. The Borrower will
keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with generally accepted accounting
principles consistently applied and, upon request of the Lender, will permit any
officer, employee, attorney or accountant for the Lender to audit, review, make
extracts from or copy any and all corporate and financial books and records of
the Borrower at all times during ordinary business hours, to send and discuss
with account debtors and other obligors requests for verification of amounts
owed to the Borrower, and to discuss the affairs of the Borrower with any of its
directors, officers, employees or agents. The Borrower will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
6.3 Account Verification. The Borrower will at any time and from time
to time upon request of the Lender send requests for verification of accounts or
notices of assignment to account debtors and other obligors.
6.4 Compliance with Laws; Environmental Indemnity. The Borrower will
(a) comply with the requirements of applicable laws and regulations, the
non-compliance with which would materially and adversely affect its business or
its financial condition, (b) comply with all applicable Environmental Laws and
obtain any permits, licenses or similar approvals required by any such
Environmental Laws, and (c) use and keep the Collateral, and will require that
others use and keep the Collateral, only for lawful purposes, without violation
of any federal, state or local law, statute or ordinance. The Borrower will
indemnify, defend and hold the Lender harmess from and against any claims, loss
or damage to which the Lender may be subjected as a result of any past, present
or future existence, use, handling, storage, transportation or disposal of any
hazardous waste or substance or toxic substance by the Borrower or on property
owned, leased or controlled by the Borrower. This indemnification agreement
shall survive the termination of this Agreement and payment of the indebtedness
hereunder.
6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income
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or profits, upon any properties belonging to it (including, without limitation,
the Collateral) or upon or against the creation, perfection or continuance of
the Security Interests, prior to the date on which penalties attach thereto, (b)
all federal, state and local taxes required to be withheld by it, and (c) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien or charge upon any properties of the Borrower; provided, that the
Borrower shall not be required to pay any such tax, assessment, charge or claim
whose amount, applicability or validity is being contested in good faith by
appropriate proceedings and so long as the Collateral and Lender's lien thereon
is not in any manner impaired by any enforcement remedy available to the tax
levying entity during the period of such contest.
6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
judgment of the Lender, desirable in the conduct of the Borrower's business and
not disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except the Security Interests and other security
interests permitted by Section 7.1 hereof.
6.7 Insurance. The Borrower will obtain and at all times maintain
insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates. If
the Lender increases the amounts of insurance required to be maintained by the
Borrower, the Borrower shall have 20 days to obtain such increased limits of
insurance. Without limiting the generality of the foregoing, the Borrower will
at all times keep all tangible Collateral insured against risks of fire
(including so-called extended coverage), theft, collision (for Collateral
consisting of motor vehicles) and such other risks and in such amounts as the
Lender may reasonably request, with any loss payable to the Lender to the extent
of its interest, and all policies of such insurance shall contain a lender's
loss payable endorsement for the benefit of the Lender. All policies of
liability insurance required hereunder shall name the Lender as an additional
insured.
6.8 Preservation of Corporate Existence. The Borrower will preserve and
maintain its corporate existence and all of its rights, privileges and
franchises necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.
6.9 Delivery of Instruments, etc. Upon request by the Lender, the
Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
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6.10 Lockbox; Collateral Account.
(a) The Borrower will irrevocably direct all present and
future Account debtors and other Persons obligated to make payments constituting
Collateral to make such payments directly to the Lockbox. All of the Borrower's
invoices, account statements and other written or oral communications directing,
instructing, demanding or requesting payment of any Account or any other amount
constituting Collateral shall conspicuously direct that all payments be made to
the Lockbox and shall include the Lockbox address. All payments received in the
Lockbox shall be processed to the Collateral Account.
(b) The Borrower agrees to deposit in the Collateral Account
or, at the Lender's option, to deliver to the Lender all collections on
Accounts, contract rights, chattel paper and other rights to payment
constituting Collateral, and all other proceeds of Collateral, which the
Borrower may receive directly notwithstanding its direction to Account debtors
and other obligors to make payments to the Lockbox, immediately upon receipt
thereof, in the form received, except for the Borrower's endorsement when deemed
necessary. Until delivered to the Lender or deposited in the Collateral Account,
all proceeds or collections of Collateral shall be held in trust by the Borrower
for and as the property of the Lender and shall not be commingled with any funds
or property of the Borrower. Amounts deposited in the Collateral Account shall
not bear interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations. All such collections shall
constitute proceeds of Collateral and shall not constitute payment of any
Obligation. Collected funds from the Collateral Account shall be transferred to
the Lender's general account, and the Lender may deposit in its general account
or in the Collateral Account any and all collections received by it directly
from the Borrower. The Lender may commingle such funds with other property of
the Lender or any other person. The Lender from time to time at its discretion
may, after allowing 2 Banking Days, apply such funds to the payment of any and
all Obligations, in any order or manner of application satisfactory to the
Lender. All items delivered to the Lender or deposited in the Collateral Account
shall be subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in the
Collateral Account, the bank maintaining such account, the amount of that item,
or such bank at its discretion may charge any uncollected item to the Borrower's
commercial account or other account. The Borrower shall be liable as an endorser
on all items deposited in the Collateral Account, whether or not in fact
endorsed by the Borrower.
6.11 Performance by the Lender. If the Borrower at any time fails to
perform or observe any of the foregoing covenants contained in this Article 6 or
elsewhere herein, and if such failure shall continue for a period of ten
calendar days after the Lender gives the Borrower written notice thereof (or in
the case of the agreements contained in Sections 6.5, 6.7 and 6.10 hereof,
immediately upon the occurrence of such failure, without notice or lapse of
time), the Lender may, but need not, perform or observe such covenant on behalf
and in the name, place and stead of the Borrower (or, at the Lender's option, in
the Lender's name) and may, but need not, take any and all other actions which
the Lender may reasonably deem necessary to cure or correct such failure
(including, without limitation, the payment of taxes, the satisfaction of
security interests, liens or encumbrances, the performance of obligations owed
to account debtors or other obligors, the procurement and maintenance of
insurance, the execution of assignments, security agreements and financing
statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all
costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the
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Lender, together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the delegate of the Lender, acting alone, as the attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file in the name and on behalf of the Borrower any and all
instruments, documents, assignments, security agreements, financing statements,
applications for insurance and other agreements and writings required to be
obtained, executed, delivered or endorsed by the Borrower under this Section
6.11.
6.12 Debt Service Coverage Ratio. The Borrower agrees that it shall as
of the last day of each calendar month, on and after June 30, 1995, maintain the
average minimum debt service coverage ratio required below based upon the
immediately preceding 12 month period; provided, however, that until February 1,
1996, such calculation shall be based on the period from January 1, 1995, until
the date of calculation. The average minimum debt service coverage ratio as of
the last day of each calendar month beginning June 30, 1995, through August 31,
1995, shall be 1.0. The average minimum debt service coverage ratio as of the
last day of each calendar month beginning September 30, 1995, through November
30, 1995, shall be 1.10. The average minimum debt service coverage ratio as of
the last day of each calendar month on and after December 31, 1995, shall be
1.20. The debt service coverage ratio shall be calculated according to the
following formula.
Funds from Operations + Interest Expense - Unfinanced Portion of Capital Expense
--------------------------------------------------------------------------------
Current Maturities Long Term Debt + Interest Expense
In making the foregoing calculation Interest Expenses shall not include
any interest on Subordinated Indebtedness, the payment of which is accrued but
deferred under the terms of a subordination agreement between the holder of such
debt and Lender in accordance with the provisions of Section 7.19 until such
interest is actually paid.
6.13 Adjusted Net Worth. The Borrower will at all times maintain a
minimum book Adjusted Net Worth of $3,550,000.00 as of the last day of each
calendar month; provided, however, that such minimum Adjusted Net Worth shall be
increased by $100,000.00 per fiscal quarter over the minimum of $3,550,000.00
commencing June 30, 1995. Adjusted Net Worth decreases for any one calendar
month will be permitted so long as the Adjusted Net Worth minimums set forth
herein are achieved.
6.14 Net Income. Borrower will, as of the last day of each fiscal
quarter beginning with the quarter ending June 30, 1995, achieve a minimum Net
Income as follows:
(a) as of June 30, 1995, for the preceding two fiscal
quarters, a cumulative Net Income of not less than $150,000.00;
(b) as of September 30, 1995, for the preceding three fiscal
quarters, a cumulative Net Income of not less than $225,000.00;
(c) as of December 31, 1995, for the preceding four fiscal
quarters, a cumulative Net Income of not less than $275,000.00;
(d) as of each March 31 commencing with March 31, 1996, for
the preceding fiscal quarter, a cumulative Net Income of not less than
$125,000.00;
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(e) as of each June 30 commencing with June 30, 1996, for the
preceding two fiscal quarters, a cumulative Net Income of not less than
$275,000.00;
(f) as of each September 30 commencing with September 30,
1996, for the preceding three fiscal quarters, a cumulative Net Income of not
less than $350,000.00;
(g) as of each December 31 commencing with December 31, 1996,
for the preceding four fiscal quarters, a cumulative Net Income of not less than
$400,000.00.
ARTICLE 7
Negative Covenants
So long as the Note shall remain unpaid, the Credit Facility shall be
outstanding or any Letter of Credit shall be outstanding, the Borrower agrees
that, without the prior written consent of the Lender:
7.1 Liens. The Borrower will not create, incur or suffer to exist any
mortgage, deed of trust, pledge, lien, security interest, assignment or transfer
upon or of any of its assets, now owned or hereafter acquired, to secure any
indebtedness; excluding, however, from the operation of the foregoing:
(a) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Exhibit
C hereto, securing indebtedness for borrowed money permitted under Section
7.2(b) hereof;
(b) the Security Interests; and
(c) purchase money security interests relating to Capital
Expenditures (and which attach only to the assets acquired by such Capital
Expenditures) made after the date of this Agreement by the Borrower or any
Affiliate so long as the Borrower is in, and maintains, compliance with every
other provision of this Agreement.
7.2 Indebtedness. The Borrower will not incur, create, assume or permit
to exist any indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Exhibit C hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1(c) hereof.
7.3 Guaranties. The Borrower will not assume, guarantee, endorse or
otherwise become directly or contingently liable in connection with any
obligations of any other Person, except:
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(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in existence on
the date hereof and listed in Exhibit C hereto.
7.4 Investments and Subsidiaries.
(a) The Borrower will not, without the prior written consent
of Lender, purchase or hold beneficially any stock or other securities or
evidences of indebtedness of, make or permit to exist any loans or advances to,
or make any investment or acquire any interest whatsoever in, any other Person,
including specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof whose obligations
constitute full faith and credit obligations of the United States of America
having a maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by ▇▇▇▇▇'▇ Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000.00 (which
certificates of deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to officers and
employees of the Borrower not exceeding at any one time an aggregate of
$20,000.00; and
(iii) advances in the form of progress payments,
prepaid rent or security deposits.
(b) The Borrower will not, without the prior written consent
of Lender, create or permit to exist any Subsidiary, other than any Subsidiary
in existence on the date hereof and listed in Exhibit B hereto.
7.5 Dividends. The Borrower will not declare or pay any dividends
(other than dividends payable solely in stock of the Borrower) on any class of
its stock or make any payment on account of the purchase, redemption or other
retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly; provided, however, that if the Borrower
is an S Corporation within the meaning of the Internal Revenue Code of 1986, as
amended, or shall become such an S Corporation with the Lender's consent under
Section 7.16 hereof, and after first providing such supporting documentation as
the Lender may request, the Borrower may pay dividends in an amount equal to the
amount of state and federal income tax which would be due by each shareholder
with respect to income deemed to be received by such shareholder from the
Borrower as a result of the Borrower's status as an S Corporation at the highest
marginal income tax rate for federal and state (for the state or states in which
each shareholder is liable for income taxes with respect to such income) income
tax purposes, after taking into account any deduction for state income taxes in
calculating the federal income tax liability.
7.6 Sale or Transfer of Assets; Suspension of Business Operations. The
Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the
stock of any Subsidiary, (ii) all or a substantial part of its assets, or (iii)
any Collateral or any interest therein (whether in one transaction
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or in a series of transactions) to any other Person other than (x) the sale of
Inventory in the ordinary course of business, (y) the sale or disposal of
equipment worn out in the ordinary course of business and replaced by equipment
of comparable use and value, and (z) the Equipment listed on Exhibit G and the
Borrower will not liquidate, dissolve or suspend business operations. The
Borrower will not in any manner transfer any property without prior or present
receipt of full and adequate consideration.
7.7 Consolidation and Merger; Asset Acquisitions. The Borrower will not
consolidate with or merge into any Person, or permit any other Person to merge
into it, or acquire (in a transaction analogous in purpose or effect to a
consolidation or merger) all or substantially all the assets of any other
Person.
7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
7.9 Restrictions on Nature of Business. The Borrower will not engage in
any line of business materially different from that presently engaged in by the
Borrower and will not purchase, lease or otherwise acquire assets not related to
its business.
7.10 Capital Expenditures. The Borrower will not expend or contract to
make Capital Expenditure greater than (i) $300,000.00 in the aggregate during
fiscal year 1995, (ii) $400,000.00 in the aggregate for fiscal year 1996; and
(iii) $500,000.00 in the aggregate for each fiscal year thereafter, whether
payable currently or in the future.
7.11 Accounting. The Borrower will not adopt any material change in
accounting principles other than as required by generally accepted accounting
principles. The Borrower will not adopt, permit or consent to any change in its
fiscal year.
7.12 Discounts, etc. The Borrower will not, after notice from the
Lender, grant any discount, credit or allowance to any customer of the Borrower
or accept any return of goods sold other than to the extent customary and
standard in Borrower's normal business practices, or at any time (whether before
or after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
7.13 Defined Benefit Pension Plans. The Borrower will not adopt,
create, assume or become a party to any deemed benefit pension plan, unless
disclosed to the Lender pursuant to Section 5.10 hereof.
7.14 Other Defaults. The Borrower will not permit any breach, default
or event of default to occur under any note, loan agreement, indenture, lease,
mortgage, contract for deed, security agreement or other contractual obligation
binding upon the Borrower.
7.15 Place of Business; Name. The Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or
sell any business location. The Borrower will not permit any tangible Collateral
or any records pertaining to the Collateral to be located in any state or area
in which, in the event of such location, a financing statement covering such
Collateral
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would be required to be, but has not in fact been, filed in order to perfect the
Security Interests. The Borrower will not change its name.
7.16 Organizational Documents; S Corporation Status. The Borrower will
not amend its certificate of incorporation, articles of incorporation or bylaws.
The Borrower will not become an S Corporation within the meaning of the Internal
Revenue Code of 1986, as amended, or, if the Borrower already is such an S
Corporation, it shall not change or rescind its status as an S Corporation.
7.17 Salaries. The Borrower will not pay excessive or unreasonable
salaries, bonuses, commissions, consultant fees or other compensation; or
increase the salary, bonus, commissions, consultant fees or other compensation
of any director (including the compensation paid to a director for their service
as an officer or consultant), or any member of their families, by more than 20%
in any one year, either individually or for all such persons in the aggregate,
or pay any such increase from any source other than profits earned in the year
of payment.
7.18 Change in Ownership. The Borrower will not issue or sell any stock
of the Borrower and will not permit or suffer to occur the sale, transfer,
assignment, pledge or other disposition of any or all of the issued and
outstanding shares of stock of the Borrower if the result shall be to vest
majority ownership of Borrower or the control of the majority of any class of
voting stock of Borrower in any Person or Persons other than those Persons who
constitute the majority shareholders of Borrower as of the date of this
Agreement.
7.19 Payments on Subordinated Indebtedness. The Borrower will not make
any payment of principal or interest on any Subordinated Indebtedness so long as
any of the Obligations are outstanding. Notwithstanding the foregoing, in each
fiscal year the Borrower may make payments (i) in an amount equal to 25% of
Borrower's Excess Cash Flow on the Investor Debt payable by the Borrower
semi-annually upon receipt by the Lender of the Borrower's June 30 unaudited
statement showing such calculation and upon receipt by the Lender of the
Borrower's audited financial statement for the fiscal year; (ii) of regularly
scheduled principal and interest payments on the Seller Debt; and (iii)
regularly scheduled payments of interest and after July 1, 1995, of all
principal and interest owing on the Bridge Loan; provided, however, that at the
time of any such payment on the Subordinated Indebtedness each of the following
conditions are satisfied;
(a) No Default Period exists and such payment does not and
will not result in a Default or Event of Default;
(b) The average unborrowed availability under the Commitment
less the L/C Amount for the 30 day period immediately preceding such payment as
shown in the Lender's records shall equal not less than $250,000.00; and
(c) Upon such payment by the Borrower the unborrowed
availability under the Commitment, less the L/C Amount shall total not less than
$250,000.00.
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ARTICLE 8
Events of Default, Rights and Remedies
8.1 Events of Default. "Event of Default", wherever used herein, means
any one of the following events:
(a) Default in the payment of any interest on or principal of
the Note when it becomes due and payable; or
(b) Failure to pay when due any amount specified in Section
2.5 hereof relating to the Borrower's Obligation of Reimbursement, or failure to
pay immediately when due or upon termination of the Credit Facility any amounts
required to be paid for deposit in the Special Account under Section 2.5 or 3.6
hereof; or
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement; or
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement; provided, however, that
in the case of a Default arising under Section 6.1, 6.6(a) or 6.6(b) the
Borrower shall have 5 days (or such longer time as may be consented to in
writing by the Lender in its sole discretion) to cure such Default before it
shall constitute an Event of Default; or
(e) The Borrower shall be or become insolvent, or admit in
writing its inability to pay its or his debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply for or
consent to the appointment of any receiver, trustee, or similar officer for it
or him or for all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed without the application
or consent of the Borrower; or the Borrower shall institute (by petition,
application, answer, consent or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceeding relating to it under the laws of any jurisdiction; or any
such proceeding shall be instituted (by petition, application or otherwise)
against the Borrower; or any judgment, writ, warrant of attachment, garnishment
or execution or similar process shall be issued or levied against a substantial
part of the property of the Borrower; or
(f) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor; provided,
however, that in the case of an involuntary petition filed against Borrower it
shall not be an Event of Default unless Borrower shall have failed to have such
petition dismissed within 60 days from the date of its filing; or
(g) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement or any
such guaranty shall prove to have been incorrect in any material respect when
deemed to be effective; or
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(h) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $100,000.00 and the
continuance of such judgment, decree or order unsatisfied and in effect for any
period of 30 consecutive days without a stay of execution; or
(i) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than the
Lender and other than the failure to make payments on the Subordinated
Indebtedness, or default under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is governed, or
under any lease of any of the Premises, and the expiration of the applicable
period of grace, if any, specified in such evidence of indebtedness, indenture,
other instrument or lease; or
(j) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed to make
any quarterly contribution required with respect to any Plan under Section
412(m) of the Internal Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination with any such failures
that the Lender may determine are likely to occur in the future, result in the
imposition of a lien on the assets of the Borrower in favor of the Plan; or
(k) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing any obligations of the
Borrower hereunder or under any note; or
(l) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
prior written consent of the Lender; or
(m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax deficiency when assessed or due (other than any tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) or notice of
any state or federal tax liens shall be filed or issued; or
(n) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder; or
(o) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the Lender.
8.2 Rights and Remedies. Upon the occurrence of an Event of Default or
at any time thereafter during the resulting Default Period, the Lender may
exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the
Credit Facility to be terminated, whereupon the same shall forthwith terminate;
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(b) The Lender may, by notice to the Borrower, declare to be
forthwith due and payable the entire unpaid principal amount of the Note then
outstanding, all interest accrued and unpaid thereon, all amounts payable under
this Agreement and any other Obligations, whereupon the Note, all such accrued
interest and all such amounts and Obligations shall become and be forthwith due
and payable, without presentment, notice of dishonor, protest or further notice
of any kind, all of which are hereby expressly waived by the Borrower;
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower,
including without limitation any funds on deposit with the Lender, whether or
not matured, to the payment of the Advances, including interest accrued thereon,
and of all other sums then owing by the Borrower hereunder, including, without
limitation, the Obligation of Reimbursement;
(d) The Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in immediately
available funds for deposit in the Special Account pursuant to Sections 2.5 and
3.6 hereof an amount equal to the maximum aggregate amount available to be drawn
under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder;
(e) The Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which the Borrower hereby expressly waives) and
the right to sell, lease or otherwise dispose of any or all of the Collateral,
and, in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be designated by
the Lender which is reasonably convenient to both parties;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(f) hereof, the entire unpaid principal amount of the
Note and the Obligation of Reimbursement (whether contingent or funded), all
interest accrued and unpaid thereon, all other amounts payable under this
Agreement and any other Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind.
8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days prior
to the date of intended disposition or other action.
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ARTICLE 9
Miscellaneous
9.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
the Lender in exercising any right, power or remedy under the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy under the Loan Documents.
The remedies provided in the Loan Documents are cumulative and not exclusive of
any remedies provided by law.
9.2 Amendments, Etc. No amendment, modification, termination or waiver
of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
9.3 Addresses for Notices, Etc. Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for
under the Loan Documents shall be in writing and shall be (a) personally
delivered, (b) sent by first class United States mail, (c) sent by overnight
courier of national reputation, or (d) transmitted by telecopy, in each case
addressed to the party to whom notice is being given at its address as set forth
below and, if telecopied, transmitted to that party at its telecopier number set
forth below:
If to the Borrower:
Cragar Industries, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
If to the Lender:
Norwest Business Credit, Inc.
Norwest Tower
Mail Station 9025
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if
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delivered by telecopy, except that notices or requests to the Lender pursuant to
any of the provisions of Article 2 hereof shall not be effective until received
by the Lender.
9.4 Financing Statement. A carbon, photographic or other reproduction
of this Agreement or of any financing statements signed by the Borrower is
sufficient as a financing statement and may be filed as a financing statement in
any state to perfect the security interests granted hereby. For this purpose,
the following information is set forth:
Name and address of Debtor:
Cragar Industries, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Federal Tax Identification No. ▇▇-▇▇▇▇▇▇▇
Name and address of Secured Party:
Norwest Business Credit, Inc.
Norwest Tower
Mail Station 9025
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
9.5 Further Documents. The Borrower will from time to time execute and
deliver or endorse any and all instruments, documents, conveyances, assignments,
security agreements, financing statements and other agreements and writings that
the Lender may reasonably request in order to secure, protect, perfect or
enforce the Security Interests or the rights of the Lender under this Agreement
(but any failure to request or assure that the Borrower executes, delivers or
endorses any such item shall not affect or impair the validity, sufficiency or
enforceability of this Agreement and the Security Interests, regardless of
whether any such item was or was not executed, delivered or endorsed in a
similar context or on a prior occasion).
9.6 Collateral. This Agreement does not contemplate a sale of accounts,
contract rights or chattel paper, and, as provided by law, the Borrower is
entitled to any surplus and shall remain liable for any deficiency. The Lender's
duty of care with respect to Collateral in its possession (as imposed by law)
shall be deemed fulfilled if it exercises reasonable care in physically keeping
such Collateral, or in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and the Lender need not otherwise preserve,
protect, insure or care for any Collateral. The Lender shall not be obligated to
preserve any rights the Borrower may have against prior parties, to realize on
the Collateral at all or in any particular manner or order or to apply any cash
proceeds of the Collateral in any particular order of application.
9.7 Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses, including (without limitation) attorneys' fees, incurred by the
Lender in connection with the Obligations, this Agreement, the Loan Documents,
any Letters of Credit, and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby,
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including without limitation all such costs, expenses and fees incurred in
connection with the negotiation, preparation, execution, amendment,
administration, performance, collection and enforcement of the Obligations and
all such documents and agreements and the creation, perfection, protection,
satisfaction, foreclosure or enforcement of the Security Interests.
9.8 Indemnity. In addition to the payment of expenses pursuant to
Section 9.7 hereof and the environmental indemnity pursuant to Section 6.4
hereof, the Borrower agrees to indemnify, defend and hold harmless the Lender,
and any of its participants, parent corporations, subsidiary corporations,
affiliated corporations, successor corporations, and all present and future
officers, directors, employees and agents of the foregoing (the "Indemnitees"),
from and against (i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of this Agreement and the other Loan Documents or the making of the
Advances, or issuance of any Letter of Credit, and (ii) any and all liabilities,
losses, damages, penalties, judgments, suits, claims, costs and expenses of any
kind or nature whatsoever (including, without limitation, the reasonable fees
and disbursements of counsel) in connection with any investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against such Indemnitee, in any manner relating to or arising out of or in
connection with the making of the Advances, or the issuance of any Letter of
Credit, this Agreement and all other Loan Documents or the use or intended use
of the proceeds of the Advances or any Letter of Credit unless arising directly
from the gross negligence or willful misconduct of the Lender (the "Indemnified
Liabilities"). If any investigative, judicial or administrative proceeding
arising from any of the foregoing is brought against any Indemnitee, upon
request of such Indemnitee, the Borrower, or counsel designated by the Borrower
and satisfactory to the Indemnitee, will resist and defend such action, suit or
proceeding to the extent and in the manner directed by the Indemnitee, at the
Borrower's sole cost and expense. Each Indemnitee will use its best efforts to
cooperate in the defense of any such action, suit or proceeding. If the
foregoing undertaking to indemnify, defend and hold harmless may be held to be
unenforceable because it violates any law or public policy, the Borrower shall
nevertheless make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
The obligation of the Borrower under this Section 9.8 shall survive the
termination of this Agreement and the discharge of the Borrower's other
Obligations.
9.9 Participants. The Lender and its participants, if any, are not
partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the participants, successors or assigns of the Lender.
9.10 Execution in Counterparts. This Agreement and other Loan Documents
may be executed in any number of counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which counterparts,
taken together, shall constitute but one and the same instrument.
9.11 Binding Effect; Assignment; Complete Agreement. The Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights thereunder or any interest therein without
the prior written consent of the Lender. This Agreement, together with the Loan
Documents, comprises the complete and integrated agreement of the parties
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on the subject matter hereof and supersedes all prior agreements, written or
oral, on the subject matter hereof.
9.12 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial. The Loan
Documents shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Arizona. Each party consents to
the personal jurisdiction of the state and federal courts located in the State
of Arizona in connection with any controversy related to this Agreement, waives
any argument that venue in any such forum is not convenient and agrees that any
litigation initiated by any of them in connection with this Agreement shall be
venued in either the Superior Court of Maricopa County, Arizona, or the United
States District Court, District of Arizona. The parties waive any right to trial
by jury in any action or proceeding based on or pertaining to this Agreement.
Notwithstanding the foregoing, except for "Core Proceedings" under the United
States Bankruptcy Code, the Lender and the Borrower agree to submit to binding
arbitration all claims, disputes and controversies between or among them,
whether in tort, contract or otherwise (and their respective employees,
officers, directors, attorneys and other agents) arising out of or relating to
in any way (i) the loan and related loan and security documents which are the
subject of this Agreement and its negotiation, execution, collateralization,
administration, repayments, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit. Any arbitration proceeding will (i) proceed in Phoenix, Arizona; (ii) be
governed by the Federal Arbitration Act (Title 9 of the United States Code); and
(iii) be conducted in accordance with the Commercial Arbitration rules of the
American Arbitration Association ("AAA").
The arbitration requirements does not limit the right of any party to
(i) foreclose against real or personal property collateral; (ii) exercise
self-help remedies relating to collateral or proceeds of collateral such as
setoff or repossession; or (iii) obtain provisional ancillary remedies such as
replevin, injunctive relief, attachment or the appointment of a receiver,
before, during or after the pendency of any arbitration proceeding. This
exclusion does not constitute a waiver of the right or obligation of either
party to submit any dispute to arbitration, including those arising from the
exercise of the actions detailed in sections (i), (ii) and (iii) of this
paragraph.
Any arbitration proceeding will be before a single arbitrator selected
according to the Commercial Arbitration Rules of the AAA. The arbitrator will be
a neutral attorney who has practiced in the area of commercial law for a minimum
of ten years, The arbitrator will determine whether or not an issue is
arbitrable and will give effect to the statutes of limitation in determining any
claim. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction.
In any arbitration proceeding the arbitrator will decide (by documents
only or with a hearing at the arbitrator's discretion) any pre-hearing motions
which are similar to motions to dismiss for failure to state a claim or motions
for summary adjudication.
In any arbitration proceeding discovery will be permitted and will be
governed by the Arizona Rules of Civil Procedure. All discovery must be
completed no later than 20 days before the hearing date and within 180 days of
the commencement of arbitration proceedings. Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery is
essential for the party's presentation and that no alternative means for
obtaining information is available.
The arbitrator shall award costs and expenses of the arbitration
proceeding in accordance with the provisions of this Agreement, the Note and/or
other Loan Documents.
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9.13 Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof.
9.14 Headings. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
REMAINDER OF PAGE INTENTIONALLY BLANK; SIGNATURE PAGE FOLLOWS
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
CRAGAR INDUSTRIES, INC., a Delaware corporation
By ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------------------------
Its Pres/CEO
---------------------------------------
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation
By ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------------
Its Vice President
--------------------------------------
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EXHIBIT A TO CREDIT AND
SECURITY AGREEMENT
REVOLVING NOTE
$9,500,000.00 Phoenix, Arizona
April 14, 1995
For value received, the undersigned, CRAGAR INDUSTRIES, INC., a
Delaware corporation (the "Borrower"), hereby promises to pay on April 1, 1998,
to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the
"Lender"), at its office in Phoenix, Arizona, or at any other place designated
at any time by the holder hereof, in lawful money of the United States of
America and in immediately available funds, the principal sum of NINE MILLION
FIVE HUNDRED THOUSAND and NO/100 Dollars ($9,500,000.00) or, if less, the
aggregate unpaid principal amount of all Advances made by the Lender to the
Borrower under the Credit Agreement (defined below) together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement of even date herewith (the "Credit
Agreement") by and between the Lender and the Borrower. The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
The Borrower agrees that the interest rate contracted for includes the
interest rate set forth herein plus any other charges or fees set forth herein
and costs and expenses incident to this transaction paid by the Borrower to the
extent the same are deemed interest under applicable law.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
CRAGAR INDUSTRIES, INC., a Delaware
corporation
By
------------------------------------
Its
------------------------------
A-1
41
EXHIBIT B TO CREDIT AND
SECURITY AGREEMENT
NAMES
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
OTHER INVENTORY AND EQUIPMENT LOCATIONS
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Mexicali, Mexico
SUBSIDIARIES
▇▇▇▇▇▇
▇▇. Cuatro Cienegas #800
Ex - Ejido Coahuila
Mexicali, B.C., Mexico C.P. 21360
B-1
42
EXHIBIT C TO CREDIT AND
SECURITY AGREEMENT
PERMITTED LIENS, INDEBTEDNESS AND GUARANTIES
Liens
Time Clocks (UCC filed)
▇▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇▇▇▇ Leasing Corp.
XL/Datacomp, Inc.
ACM Equipment Rental and Sales, Co.
Indebtedness
Subordinated Indebtedness
("Bridge Loan")
("Investor Debt")
("Seller Debt")
Guaranties
C-1
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EXHIBIT D TO CREDIT AND
SECURITY AGREEMENT
COMPLIANCE CERTIFICATE
In accordance with our Credit and Security Agreement dated as of April
14, 1995 (the "Credit Agreement"), attached are the financial statements of
Cragar Industries, Inc. (the "Borrower") as of and for the month and
year-to-date period ended ____________ ___, 199_ (the "Current Financials").
I certify that the Current Financials have been prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the accounting practices reflected in the financial statements referred to in
Section 5.5 of the Credit Agreement, subject to year-end audit adjustments.
Defaults and Events of Default (check one)
/ / I have no knowledge of the occurrence of any
Default or Event of Default under the Credit
Agreement which has not previously been reported to
you and remedied.
/ / Attached is a detailed description of all Defaults
and Events of Default of which I have knowledge and
which have not previously been reported to you and
remedied.
For the date and periods covered by the Current Financials,
the Borrower is in compliance with the covenants set forth in Sections 6.12
through 6.14, 7.10, 7.17 and 7.19 of the Credit Agreement, except as indicated
below. The calculations made to determine compliance are as follows:
Covenant Actual Requirement
6.12) Debt Service _______ __________
6.13) Adjusted Net Worth _______ __________
6.14) Net Income _______ __________
Actual Maximum Allowed
7.10) Capital Expenditures ______ $__________
7.17) Compensation Increases ______% 20%
7.19) Subordinated Indebtedness
Payments
(i) Investor Debt $_______ $__________
(i) Seller Debt $_______ $__________
(i) Bridge Loan $_______ $__________
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Minimum Average
Commitment Availability less
L/C Amount of $250,000.00
for 30 days prior to payment
Yes ____ No ____
Minimum Commitment Yes ____ No ____
Availability Less L/C Amount
after payment
Attached hereto are all relevant facts in reasonable detail to evidence, and the
computation of the financial covenants referred to above. The computations were
made in accordance with GAAP.
__________________________________________
Title_____________________________________
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EXHIBIT E TO CREDIT AND
SECURITY AGREEMENT
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
A portion of the Northeast quarter of Section 21, Township 2 North,
Range 2 East of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona, described as follows:
COMMENCING at the intersection of the centerline of Highland Avenue
with the East line of said Section 21, said Section line being also the
centerline of 43rd Avenue, as shown on Map of Dedication recorded on
June 3, 1977 at Book 190, Page 21, records of said County; thence along
said centerline North 89(degree)51'58" West 65.00 feet; thence at right
angles South 00(degree)08'02" West 33.00 feet to the Northwesterly
terminus of the Southwesterly curved line of said Highland Avenue,
which line is a curve concave Southwesterly having a radius of 25.00
feet, said point being tangent to the South line of said Highland
Avenue and being also the TRUE POINT OF BEGINNING for this description;
thence Southeasterly along said curved street line, a distance of 39.27
feet to tangency with the Westerly line of said ▇▇▇▇ ▇▇▇▇▇▇; thence
South 00(degree)08'02" West thereon 627.00 feet to a line that is
parallel with and distant Southerly 652.00 feet at right angles from
said Southerly street line; thence along said parallel line North
89(degree)51'58" West 400.94 feet to a line that is parallel with and
distant Westerly 400.94 feet at right angles from said Westerly street
line; thence along said last-mentioned parallel line North
00(degree)08'02" East 652.00 feet to said Southerly street line; thence
South 89(degree)51'58" East thereon 375.94 feet to the Point of
Beginning.
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▇▇▇▇▇▇▇ ▇ TO CREDIT AND
SECURITY AGREEMENT
Patents
PATENT NO./ SERIAL NO./
ISSUE DATE FILING DATE PATENTEE/TITLE
---------- ----------- --------------
3,635,529 835,999 Nass; Motor Vehicle Wheel Assembly
01/18/72 06/24/69
3,759,576 189,971 ▇▇▇▇▇▇▇; Custom Wheel Assembly
09/18/73 10/18/71
3,871,708 242,678 ▇▇▇▇▇▇▇; Custom Wheel Assembly
03/18/75 04/10/72
3,960,047 504,208 ▇▇▇▇▇▇▇; Dual Size Lug Nut
06/01/76 09/09/74
4,138,160 811,044 ▇▇▇▇▇▇▇▇; Simulated Knock Off
02/06/79 06/29/77 Spinner Nut and Adaptor
4,150,854 795,287 ▇▇▇▇▇▇▇▇; Wire Wheel Sealing System
04/24/79 05/09/77
4,191,427 919,325 ▇▇▇▇▇▇▇; Simulated Knock Off
03/04/80 06/26/78 Spinner Nut
4,223,952 896,246 Weld; Automotive Wheel Construction
09/23/80 04/14/78
4,226,479 918,606 Weld; Wire Spoke Automotive Wheel
10/07/80 06/23/78
4,294,393 079,962 Weld; Method of Manufacturing a
10/13/81 09/29/79 Wire Spoke Automotive Wheel
4,339,859 178,795 Weld; Wire Spoke Automotive Wheel
07/20/82 08/18/80 Manufacturing Method
4,361,358 214,177 ▇▇▇▇▇▇▇▇▇ et al; Wheel Disc Offset
11/30/82 12/08/80 Attachment to Wheel Rim
4,363,521 176,083 ▇▇▇▇▇▇▇▇▇ et al; Wheel Disc Offset
12/14/82 08/07/80 Attachment to Wheel Rim
4,511,183 512,771 Spiegel et al; Steel Wheel with
04/16/85 07/11/83 Decorative Cover
4,530,542 509,818 Spiegel et al; Wheel Center and
07/23/85 06/29/83 Wheel Constructed Therewith
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PATENT NO./ SERIAL NO./
ISSUE DATE FILING DATE PATENTEE/TITLE
---------- ----------- --------------
D230,008 280,711 ▇▇▇▇▇▇▇; Automotive Vehicle Wheel
01/22/74 08/14/72 Lock
D241,421 513,451 ▇▇▇▇▇▇▇▇; Spoked Vehicle Wheel
09/14/76 10/09/74
D241,828 588,305 Hall; Wheel
10/12/76 06/19/75
D241,829 588,304 Hall; Wheel
10/12/76 06/19/75
D252,749 911,440 ▇▇▇▇▇▇▇▇; Spoked Vehicle Wheel
08/28/79 06/01/78
D253,050 840,555 ▇▇▇▇▇▇▇▇; Vehicle Wheel
10/02/79 10/11/77
D253,286 840,543 ▇▇▇▇▇▇▇▇; Vehicle Wheel
10/30/79 10/11/77
D253,817 840,554 ▇▇▇▇▇▇▇▇; Vehicle Wheel
01/01/80 10/11/77
D254,064 911,442 ▇▇▇▇▇▇▇▇; Spoked Vehicle Wheel
01/29/80 06/01/78
D257,032 006,192 Weld; Automotive Wheel Center
09/23/80 01/24/79
D270,050 248,525 ▇▇▇▇▇▇▇▇; Spoked Vehicle Wheel
08/09/83 03/27/81
D295,370 707,944 Carlo et al; Wheel Nut
04/26/88 03/04/85
Federally Registered Trademarks
Non-Federally registered Trademarks
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EXHIBIT G TO CREDIT
AND SECURITY
AGREEMENT
ASSETS FOR SALE BY BORROWER
Paint Line (with associated conveyors, washers, burners, blowers,
booths, powder guns, cyclones, baghouses, dryers, motors, pumps, and
other related equipment)
Waster Water Treatment Equipment
Miscellaneous Chrome Plating Equipment
Vapor Degreaser
Pro-Trac Tire Molds
One-Piece Aluminum Wheel Molds
Mexicali Polishing Equipment
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