Exhibit 10.26
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AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
ROCKSHOX, INC.
AND
▇▇▇▇▇ FARGO BUSINESS CREDIT, INC.
Dated as of: June 29, 2000
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AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
Dated as of June 29, 2000
This Amended and Restated Credit and Security Agreement (the "Agreement") is
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entered into as of June 29, 2000 between ROCKSHOX, INC., a Delaware corporation
(the "Borrower") and ▇▇▇▇▇ FARGO BUSINESS CREDIT, INC., a Minnesota corporation
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(the "Lender").
WHEREAS, Borrower has previously entered into a Credit and Security Agreement
with Lender dated as of December 10, 1999 (the "Existing Credit Agreement");
WHEREAS, Borrower has requested certain changes to the existing credit facility;
WHEREAS, Lender is willing to amend and restate the Existing Credit Agreement
pursuant to which Lender will continue to make loans and provide other financial
accommodations to Borrower;
NOW, THEREFORE, in consideration of the promises and of the mutual covenants and
agreements contained herein, the parties hereto hereby agree to amend and
restate the Existing Credit Agreement as follows:
ARTICLE I
Definitions
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Section 1.1 Definitions. For all purposes of this Agreement, except as
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otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term is
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defined in the UCC, including without limitation the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising
out of the sale or lease of goods or rendition of services by the Borrower
on an open account or deferred payment basis.
"Adjusted Net Income" means Net Income, decreased by the sum of any
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extraordinary, non-operating or non-cash income recorded by the Borrower
and increased by any extraordinary, non-cash or non-operating expense or
loss recorded by the Borrower, as determined in accordance with GAAP.
"Advance" means a Revolving Advance.
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"Affiliate" or "Affiliates" means any Person controlled by or under
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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 Amended and Restated Credit and Security
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Agreement, as amended, restated, supplemented or otherwise modified from
time to time.
"Availability" means the difference of (i) the Borrowing Base and (ii)
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the sum of (A) the then outstanding principal balance of the Revolving Note
and (B) the L/C Amount.
"Availability Reserve" means as of any date of determination, such
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amount or amounts as Lender may from time to time establish and revise in
good faith and in its reasonable judgment reducing the amount of Revolving
Advances which would otherwise be available to Borrower under the lending
formula(s) provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as determined by Lender in good faith and in
its reasonable judgment, do or may affect either (i) the Collateral or its
value, (ii) the assets, business or prospects of Borrower, or (iii) the
security interests and other rights of Lender in the Collateral (including
the enforceability, perfection and priority thereof), or (b) to reflect
Lender's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower to Lender is or may have
been incomplete, inaccurate or misleading in any material respect, or (c)
in respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or may, with notice or passage of time or
both, constitute an Event of Default.
"Banking Day" means a day other than a Saturday, Sunday or other day
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on which banks are generally not open for business in Pasadena, California.
"Base Rate" means the rate of interest publicly announced from time to
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time by ▇▇▇▇▇ Fargo Bank, N.A., San Francisco, California, as its "prime
rate" (which "prime rate" shall not deviate from the Wall Street Journal
Prime Rate except for time lag in adjustments which shall not exceed five
(5) Banking Days) or, if such bank ceases to announce a rate so designated,
any similar successor rate designated by the Lender.
"Book Net Worth" means the difference between (i) the book value of
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tangible assets of the Borrower, which, in accordance with GAAP are
tangible assets, after deducting adequate reserves in each case where, in
accordance with GAAP, a reserve is proper and (ii) all Debt of the
Borrower.
"Borrowing Base" means, at any time the lesser of:
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(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's
reasonable discretion, the sum of:
10 eighty five percent (85%) of Eligible Accounts, plus
11 the lesser of (A) eighty-five percent (85%) of Eligible Foreign Accounts
and (B) One Million Dollars ($1,000,000), and
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12 minus any Availability Reserves.
"Capital Expenditures" for a period means any expenditure of money for
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the lease, purchase or other acquisition of any fixed or capital asset.
"Collateral" means all current or hereafter acquired or arising
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Equipment, General Intangibles, Inventory, Receivables, Investment
Property, deposit accounts, letters of credit, proceeds of letters of
credit, chattel paper and all sums on deposit in any Collateral Account,
and any items in any Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) proceeds of any
and all of the foregoing; (iii) in the case of all tangible goods, all
accessions; (iv) all accessories, attachments, parts, equipment and repairs
now or hereafter attached or affixed to or used in connection with any
tangible goods; (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods; (vi) all sums on
deposit in the Special Account; and (vii) the Life Insurance Policy.
"Collateral Account" means the "WFBCI Account" as defined in the
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Collection Account Agreement and the "Lender Account" as defined in the
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Lockbox Agreement.
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"Collection Account Agreement" means the Collection Account Agreement,
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dated as of December 10, 1999, by and among the Borrower, ▇▇▇▇▇ Fargo Bank,
National Association and the Lender.
"Commitment" means the Lender's commitment to make Advances and to
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cause the Issuer to issue Letters of Credit to or for the Borrower's
account pursuant to Article II.
"Credit Facility" means the credit facility being made available to
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the Borrower by the Lender pursuant to Article II.
"Deactivation Period" has the same meaning specified in Section 2.18.
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"Debt" of any Person means, without duplication, all items of
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indebtedness or liability which in accordance with GAAP would be included
in determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at any
time, "Debt" shall also include the aggregate principal payments
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required to be made by such Person at any time under any lease that is
considered a capitalized lease under GAAP.
"Default" means an event that, with giving of notice or passage of
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time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the day a
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Default or Event of Default has occurred and ending on the date the Lender
notifies the Borrower in writing that such Default or Event of Default has
been waived.
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"Default Rate" means an annual rate equal to three percent (3%) over
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the Floating Rate, which rate shall change when and as the Floating Rate
changes.
"Eligible Accounts" means all unpaid Accounts, net of any credits,
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except the following shall not in any event be deemed Eligible Accounts:
(i) That portion of Accounts unpaid 90 days or more after the
invoice date (in the event the Accounts have trade terms beyond 30
days, that portion of Accounts unpaid 30 days after the due date or
120 days after the invoice date, whichever is shorter);
(ii) That portion of Accounts that is disputed or subject to a
claim of offset or a contra account;
(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 federal 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 for which the Borrower has provided evidence satisfactory
to the Lender that (A) the Lender has a first priority perfected
security interest and (B) such Accounts may be enforced by the Lender
directly against such unit of government under all applicable laws,
including, without limitation, the Federal Assignment of Claims Act of
1940, as amended, or any similar law);
(v) Accounts owed by an account debtor located outside the United
States or Canada which are not (A) backed by a bank letter of credit
naming the Lender as beneficiary or assigned to the Lender, in the
Lender's possession and acceptable to the Lender in all respects, in
its sole discretion, or (B) covered by a foreign receivables insurance
policy acceptable to the Lender in its reasonable discretion;
(vi) Accounts owed by an account debtor that is insolvent, the
subject of bankruptcy proceedings or has gone out of business;
(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 the Lender's favor or which are subject to any lien, security
interest or claim in favor of any Person other than the Lender
including without limitation any payment or performance bond;
(ix) That portion of Accounts that has been restructured,
extended, amended or modified which exceeds an aggregate amount of
Fifty-Thousand Dollars ($50,000);
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(x) That portion of Accounts that constitutes advertising,
finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless of whether
otherwise eligible, if twenty-five percent (25%) or more of the total
amount due under Accounts from such debtor is ineligible under clauses
(i) or (ix) above;
(xii) That portion of Accounts of a single debtor or its
affiliates which constitute more than twenty-five percent (25%),
(forty percent (40%) for Trek Bicycles subject to credit checks
satisfactory to Lender) of all otherwise Eligible Accounts; and
(xiii) Accounts, or portions thereof, otherwise deemed ineligible
by the Lender in its reasonable discretion.
"Eligible Foreign Accounts" means Accounts due and owing by an Account
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debtor located outside the United States; but excluding any Accounts having the
following characteristics:
(i) (A) That portion of Accounts unpaid 90 days or more after the
invoice date (in the event the Accounts have trade terms beyond 30 days,
that portion of Accounts unpaid 30 days after the due date or 120 days
after the invoice date, whichever is shorter);
(ii) That portion of Accounts that is disputed or subject to a claim
of offset or a contra account;
(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;
(v) Accounts owed by an account debtor that is insolvent, the subject
of bankruptcy proceedings or has gone out of business;
(vi) Accounts owed by a shareholder, Subsidiary, Affiliate, officer or
employee of the Borrower;
(vii) Accounts not subject to a duly perfected security interest in
the Lender's favor or which are subject to any lien, security interest or
claim in favor of any Person other than the Lender including without
limitation any payment or performance bond;
(viii) That portion of Accounts that has been restructured, extended,
amended or modified which exceeds an aggregate amount of Fifty-Thousand
Dollars ($50,000);
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(ix) That portion of Accounts that constitutes advertising, finance
charges, service charges or sales or excise taxes;
(x) Accounts denominated in any currency other than United States
dollars, Canadian dollars, French francs, Swiss francs, German marks,
Japanese yen, United Kingdom pounds sterling or New Taiwan Dollars;
(xi) Accounts with respect to which the Borrower has not instructed
the Account debtor to pay the Account to the Collateral Account;
(xii) Accounts owed by debtors located in countries not acceptable to
the Lender in its reasonable discretion (consistent with its internal
policies);
(xiii) 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) or (viii) above; and
(xiv) Accounts otherwise deemed unacceptable to the Lender in its
reasonable discretion.
"Environmental Laws" has the meaning specified in Section 5.12.
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"Equipment" means all of the Borrower's equipment, as such term is defined
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in the UCC, whether now owned or hereafter acquired, including but not limited
to all present and future machinery, vehicles, furniture, fixtures,
manufacturing equipment, shop equipment, office and recordkeeping equipment,
parts, tools, supplies, and including specifically (without limitation) the
goods described in any equipment schedule or list herewith or hereafter
furnished to the Lender by the Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"Event of Default" has the meaning specified in Section 8.1.
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"Floating Rate" means an annual rate equal to the sum of the Base Rate plus
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one and three hundred seventy five thousandths percent (1.375%), which annual
rate shall change when and as the Base Rate changes; provided, however, such
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Floating Rate shall be adjusted as follows: if, on December 31, 2000, (i) no
Event of Default exists or has occurred and is continuing, (ii) Borrower's Book
Net Worth is not less than Twenty Million Dollars ($20,000,000), (iii)
Borrower's Net Income is not less than negative Three Million Two Hundred
Thousand Dollars (-$3,200,000) for the nine (9) month period ending on December
31, 2000, and (iv) Borrower's Net Income (net of costs incurred to relocate the
Borrower's corporate headquarters to Colorado Springs, Colorado) is not less
than negative Seven Hundred Thousand Dollars (-$700,000) for the nine (9) month
period ending on December 31, 2000, the Floating Rate shall be reduced to an
annual rate equal to the sum of the Base Rate plus three hundred seventy five
thousandths percent (0.375%).
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"Funding Date" has the meaning specified in Section 2.1.
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"GAAP" means generally accepted accounting principles, applied on a basis
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consistent with the accounting practices applied in the financial statements
described in Section 5.5, except for any change in accounting practices to the
extent that, due to a promulgation of the Financial Accounting Standards Board
changing or implementing any new accounting standard, the Borrower either (i) is
required to implement such change, or (ii) for future periods will be required
to and for the current period may in accordance with generally accepted
accounting principles implement such change, for its financial statements to be
in conformity with generally accepted accounting principles (any such change is
herein referred to as a "Required GAAP Change"), provided that (1) the Borrower
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shall fully disclose in such financial statements any such Required GAAP Change
and the effects of the Required GAAP Change on the Borrower's income, retained
earnings or other accounts, as applicable, and (2) the Borrower's financial
covenants set forth in Sections 6.12, 6.13 and 7.10 shall be adjusted as
necessary to reflect the effects of such Required GAAP Change.
"General Intangibles" means all of the Borrower's general intangibles, as
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such term is defined in the UCC, whether now owned or hereafter acquired,
including (without limitation) all present and future patents, patent
applications, copyrights, trademarks, trade names, trade secrets, customer or
supplier lists and contracts, manuals, operating instructions, permits,
franchises, the right to use the Borrower's name, and the goodwill of the
Borrower's business. "Hazardous Substance" has the meaning specified in Section
5.12 -------------------
"Inventory" means all of the Borrower's inventory, as such term is defined
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in the UCC, whether now owned or hereafter acquired, whether consisting of whole
goods, spare parts or components, supplies or materials, whether acquired, held
or furnished for sale, for lease or under service contracts or for manufacture
or processing, and wherever located.
"Investment Property" means all of the Borrower's investment property, as
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such term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all securities, security entitlements, securities
accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund
shares, money market shares and U.S. Government securities.
"Issuer" means the issuer of any Letter of Credit.
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"L/C Amount" means the sum of (i) the aggregate face amount of any issued
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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
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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.
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"Loan Documents" means this Agreement, the Note and the Security Documents.
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"Lockbox" has the meaning given in the Lockbox Agreement.
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"Lockbox Agreement" means the Lockbox and Collection Account Agreement by
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and among the Borrower, ▇▇▇▇▇ Fargo Bank, National Association, Regulus West LLC
and the Lender, dated as of December 10, 1999.
"Maturity Date" has the meaning specified in Section 2.10.
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"Maximum Line" means Five Million Dollars ($5,000,000), unless said amount
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is reduced pursuant to Section 2.11, in which event it means the amount to which
said amount is reduced.
"Minimum Interest Charge" has the meaning specified in Section 2.6(b).
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"Net Income" has the meaning defined by GAAP.
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"Note" means the Revolving Note.
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"Obligations" means the Note and each and every other debt, liability and
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obligation of every type and description which the Borrower may now or at any
time hereafter owe to the Lender under this Agreement and the other Loan
Documents, whether such debt, liability or obligation now exists or is hereafter
created or incurred, 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.
"Obligation of Reimbursement" has the meaning given in Section 2.3(a).
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"Patent and Trademark Security Agreement" means the Patent and Trademark
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Security Agreement by the Borrower in favor of the Lender, dated as of December
10, 1999.
"Permitted Lien" has the meaning specified in Section 7.1.
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"Person" means any individual, corporation, partnership, joint venture,
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limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained for the
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Borrower's employees and covered by Title IV of ERISA.
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"Premises" means all premises where the Borrower conducts its business and
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has any rights of possession, including (without limitation) the premises
legally described in Exhibit C attached hereto.
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"Receivables" means each and every right of the Borrower to the payment of
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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.
"Reportable Event" shall have the meaning assigned to that term in Title IV
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of ERISA.
"Revolving Advance" has the meaning specified in Section 2.1.
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"Revolving Note" means the Borrower's revolving promissory note, payable to
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the order of the Lender in substantially the form of Exhibit A hereto, as the
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same may hereafter be amended, restated, supplemented otherwise modified from
time to time, and any note or notes issued in substitution therefor, as the same
may hereafter be amended, restated, supplemented otherwise modified from time to
time.
"Security Documents" means this Agreement, the Collection Account
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Agreement, the Lockbox Agreement, the Patent and Trademark Security Agreement
and any other document delivered to the Lender from time to time to secure the
Obligations, as the same may hereafter be amended, restated, supplemented
otherwise modified from time to time.
"Security Interest" has the meaning specified in Section 3.1.
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"Special Account" means a specified cash collateral account maintained by a
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financial institution acceptable to the Lender in connection with Letters of
Credit, as contemplated by Section 2.4.
"Subsidiary" means any corporation of which more than fifty percent (50%)
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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.
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"Termination Date" means the earliest of (i) the Maturity Date, (ii) the
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date the Borrower terminates the Credit Facility, or (iii) the date the Lender
demands payment of the Obligations after an Event of Default pursuant to Section
8.2.
"UCC" means the Uniform Commercial Code as in effect from time to time in
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the state designated in Section 9.13 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.
Section 1.2 Cross References. All references in this Agreement to
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Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
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Section 2.1 Revolving Advances. The Lender agrees, on the terms and
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subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date (the "Revolving
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Advances"). The Lender shall have no obligation to make a Revolving Advance if,
after giving effect to such requested Revolving Advance, the sum of the
outstanding and unpaid Revolving Advances would exceed the Borrowing Base less
the L/C Amount. The Borrower's obligation to pay the Revolving Advances shall
be evidenced by the Revolving Note and shall be secured by the Collateral as
provided in Article III. Within the limits set forth in this Section 2.1, the
Borrower may borrow, prepay pursuant to Section 2.11 and reborrow. The Borrower
agrees to comply with the following procedures in requesting Revolving Advances
under this Section 2.1:
(a) The Borrower shall make each request for a Revolving Advance to
the Lender before 10:30 a.m. (California time) of the day of the requested
Revolving Advance. Requests may be made in writing or by telephone
(promptly confirmed in writing), specifying the date of the requested
Revolving Advance and the amount thereof. Each request shall be by (i) any
officer of the Borrower; or (ii) any person designated as the Borrower's
agent by any officer of the Borrower in a writing delivered to the Lender;
or (iii) any person whom the Lender reasonably believes to be an officer of
the Borrower or such a designated agent.
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(b) Upon fulfillment of the applicable conditions set forth in Article
IV, the Lender shall disburse the proceeds of the requested Revolving
Advance by crediting the same to the Borrower's demand deposit account
maintained with ▇▇▇▇▇ Fargo Bank, National Association, unless the Lender
and the Borrower shall agree in writing to another manner of disbursement.
Upon the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such confirmation
and even if the person requesting an Advance was not in fact authorized to
do so. Any request for an Advance, whether written or telephonic, shall be
deemed to be a representation by the Borrower that the conditions set forth
in Section 4.2 have been satisfied as of the time of the request.
Section 2.2 Letters of Credit.
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(a) The Lender agrees, on the terms and subject to the conditions
herein set forth, to cause an Issuer to issue, from the Funding Date to the
Termination Date, one or more irrevocable standby or documentary letters of
credit (each, a "Letter of Credit") for the Borrower's account. The Lender
shall have no obligation to cause an Issuer to issue any Letter of Credit
if the face amount of the Letter of Credit to be issued would exceed the
lesser of:
(i) Two Million Dollars ($2,000,000) less the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all outstanding and
unpaid Revolving Advances and (B) the L/C Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate L/C
Application entered into by the Borrower and the Lender 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 if the terms of any
such L/C Application and the terms of this Agreement are inconsistent, the
terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date later than
the Termination Date in effect as of the date of issuance.
(c) Any request to cause an Issuer to issue a Letter of Credit under
this Section 2.2 shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of the
date of the request.
Section 2.3 Payment of Amounts Drawn Under Letters of Credit;
Obligation of Reimbursement. The Borrower acknowledges that the Lender, as
co-applicant, will be liable to the Issuer for reimbursement of any and all
draws under Letters of Credit and for 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 and the
applicable L/C Application, plus interest on all such amounts, charges and
expenses as set forth below (the Borrower's obligation to pay all such
amounts is herein referred to as the "Obligation of Reimbursement").
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(b) Whenever a draft is submitted under a Letter of Credit, except
during a Deactivation Period, Issuer shall notify the Borrower and the
Lender thereof, and the Lender shall make a Revolving Advance in the amount
of the Obligation of Reimbursement and shall apply the proceeds of such
Revolving Advance thereto. Such Revolving Advance shall be repayable in
accordance with and be treated in all other respects as a Revolving Advance
hereunder.
(c) If a draft is submitted under a Letter of Credit during a
Deactivation Period, the Borrower shall either (i) deposit to the Special
Account an amount, in immediately available funds, equal to the Obligation
of Reimbursement (such deposit shall be made within one (1) Banking Day
from the date the draft is honored), or (ii) request the Lender to make a
Revolving Advance in the amount of the Obligation of Reimbursement and
apply the proceeds of such Revolving Advance thereto, provided that, such
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Revolving Advance by the Lender shall constitute a reactivation of the
Credit Facility and all charges and fees under Section 2 of this Agreement.
If the Credit Facility is reactivated pursuant to this Section 2.3(c), all
fees pursuant to Section 2.7(b) for the thirty (30) day period prior to
such reactivation shall become immediately due and payable.
(d) If a draft is submitted under a Letter of Credit when the Borrower
is unable, because a Default Period then exists or for any other reason, to
obtain a Revolving Advance to pay the Obligation of Reimbursement, the
Borrower shall pay to the Lender on demand and in immediately available
funds, the amount of the Obligation of Reimbursement together with
interest, accrued from the date of the draft until payment in full at the
Default Rate. Notwithstanding the Borrower's inability to obtain a
Revolving Advance for any reason, the Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to
discharge the Obligation of Reimbursement and all accrued but unpaid
interest thereon.
(e) The Borrower's obligation to pay any Revolving Advance made under
this Section 2.3, shall be evidenced by Revolving Note and shall bear
interest as provided in Section 2.6.
Section 2.4 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 L/C Amount. The Special Account shall be
an interest bearing account 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 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 or at
such time as no Letters of Credit remain outstanding.
- 12 -
Section 2.5 Obligations Absolute. The Borrower's obligations arising
---------------------
under Section 2.3 shall be absolute, unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of Section 2.3, 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.
Section 2.6 Interest; Minimum Interest Charge; Default
----------------------------------------------
Interest; Participations; Usury.
--------------------------------
(a) REVOLVING NOTE. Except as set forth in Sections 2.6(c) and 2.6(e),
the outstanding principal balance of the Revolving Note shall bear interest
at the Floating Rate.
(b) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable
pursuant to Section 2.6(a), the Borrower shall pay to the Lender interest
of not less than Twenty-Five Thousand Dollars ($25,000) per calendar
quarter on a pro rated basis (the "Minimum Interest Charge") during the
-------------------------
term of this Agreement, and the Borrower shall pay any deficiency between
the Minimum Interest Charge and the amount of interest otherwise calculated
under Sections 2.6(a) and 2.6(d) on the date and in the manner provided in
Section 2.8.
- 13 -
(c) DEFAULT INTEREST RATE. At any time during any Default Period, in
the Lender's sole discretion and without waiving any of its other rights
and remedies, the principal of the Advances outstanding from time to time
shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(d) PARTICIPATIONS. 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 Section
2.6(a), 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.
(e) USURY. In any event no rate change shall be put into effect which
would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements
between the Borrower and the Lender are hereby limited so that in no
contingency or event whatsoever shall the total liability for payments in
the nature of interest, additional interest and other charges exceed the
applicable limits imposed by any applicable usury laws. If any payments in
the nature of interest, additional interest and other charges made under
any Loan Document are held to be in excess of the limits imposed by any
applicable usury laws, it is agreed that any such amount held to be in
excess shall be considered payment of principal hereunder, and the
indebtedness evidenced hereby shall be reduced by such amount so that the
total liability for payments in the nature of interest, additional interest
and other charges shall not exceed the applicable limits imposed by any
applicable usury laws, in compliance with the desires of the Borrower and
the Lender. This provision shall never be superseded or waived and shall
control every other provision of the Loan Documents and all agreements
between the Borrower and the Lender, or their successors and assigns.
Section 2.7 Fees.
----
(a) AMENDMENT FEE. The Borrower hereby agrees to pay the Lender a
fully earned and non-refundable amendment fee of Three Thousand Dollars
($3,000) due and payable upon the execution of this Agreement.
(b) UNUSED LINE FEE. For the purposes of this Section 2.7(b), "Unused
------
Amount" means the Maximum Line reduced by (1) outstanding Revolving
------
Advances and (2) the L/C Amount. The Borrower agrees to pay to the Lender
an unused line fee at the rate of one-quarter of one percent (0.25%) per
annum on the average monthly Unused Amount from the date of this Agreement
to and including the Termination Date, due and payable quarterly in
arrears.
- 14 -
(c) LETTER OF CREDIT FEES. The Borrower agrees to pay the Lender a fee
with respect to each Letter of Credit, if any, accruing on a daily basis
and computed at the annual rate of two percent (2%) of the aggregate amount
that may then be drawn on all issued and outstanding Letters of Credit
assuming compliance with all conditions for drawing thereunder (the
"Aggregate Face Amount"), from and including the date of issuance of such
Letter of Credit until such date as such Letter of Credit shall terminate
by its terms or be returned to the Lender, due and payable monthly in
advance on the first day of each month. The foregoing fee shall be in
addition to 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) LETTER OF CREDIT ADMINISTRATIVE FEES. 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 at the then-current rates published by the
Issuer for such services rendered on behalf of customers of the Issuer
generally.
(e) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on
demand, reasonable audit fees in connection with any standard bank audits
or inspections conducted by the Lender of any Collateral or the Borrower's
operations or business at the rates established from time to time by the
Lender as its audit fees, together with all actual out-of-pocket costs and
expenses incurred in conducting any such audit or inspection provided,
however, that unless an Event of Default shall have occurred, the Borrower
shall be required to pay for no more than three (3) audits in any calendar
year.
Section 2.8 Computation of Interest and Fees; When Interest Due and
---------------------------------------------------------
Payable. Interest accruing on the outstanding principal balance of the Advances
-------
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be due
and payable in arrears on the first day of each month and on the Termination
Date.
Section 2.9 Capital Adequacy. If any Related Lender determines at any
----------------
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.9:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
------------------------
guideline, directive, requirement or request regarding capital adequacy, or
the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules requiring financial institutions to maintain total capital in
amounts based upon percentages of outstanding loans, binding loan
commitments and letters of credit.
(b) "L/C Rule" means any law, rule, regulation, guideline, directive,
--------
requirement or request regarding letters of credit, or the interpretation
or administration thereof by any governmental or regulatory authority,
central bank or comparable agency, whether or not having the force of law,
that applies to any Related Lender. Such rules include rules imposing
taxes, duties or other similar charges, or mandating reserves, special
deposits or similar requirements against assets of, deposits with or for
the account of, or credit extended by any Related Lender, on letters of
credit.
- 15 -
(c) "Return", for any period, means the return as determined by such
------
Related Lender on the Advances and Letters of Credit based upon its total
capital requirements and a reasonable attribution formula that takes
account of the Capital Adequacy Rules then in effect and cost of issuing or
maintaining any Letter of Credit. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(d) "Rule Change" means any change in any Capital Adequacy Rule or L/C
-----------
Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or L/C
Rules or any increases in the capital that any Related Lender is required
to maintain to the extent that the increases are required due to a
regulatory authority's assessment of the financial condition of such
Related Lender.
(e) "Related Lender" includes (but is not limited to) the Lender, the
--------------
Issuer, any parent corporation of the Lender or the Issuer and any assignee
of any interest of the Lender hereunder and any participant in the loans
made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.9, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2.10 Maturity Date. This Agreement and the other Loan
--------------
Documents shall become effective as of the date set forth on the first page
hereof ("Effective Date") and shall continue in full force and effect for a term
ending on December 10, 2001 (the "Maturity Date"), unless earlier terminated by
-------------
Lender or Borrower pursuant to the terms hereof. Upon the Termination Date,
Borrower shall immediately pay to Lender, in full, all outstanding and unpaid
Obligations and shall furnish cash collateral to Lender in such amounts as
Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including checks and other payments
provisionally credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Upon final and indefeasible payment in
full, Lender shall promptly refund to Borrower any cash collateral then held by
Lender, if any.
Section 2.11 Voluntary Prepayment; Reduction of the Maximum Line;
---------------------------------------------------------
Termination of the Credit Facility by the Borrower. Except as otherwise
---------------------------------------------------------
provided herein, the Borrower may prepay the Advances in whole at any time or
from time to time in part. The Borrower may terminate the Credit Facility if it
(i) gives the Lender at least thirty (30) days prior written notice and (ii)
pays the Lender termination or line reduction fees in accordance with Section
2.12.
Section 2.12 Termination and Line Reduction Fees; Waiver of Termination
----------------------------------------------------------
and Line Reduction Fees.
--------------------------
(a) TERMINATION AND LINE REDUCTION FEES. If the Credit Facility is
terminated for any reason as of a date other than the Maturity Date, or the
Borrower reduces the Maximum Line, the Borrower shall pay to the Lender a
fee in an amount equal to a percentage of the Maximum Line (or the
reduction, as the case may be) as follows: (A) two percent (2.0%) if the
termination or reduction occurs on or before the first anniversary of the
Funding Date; (B) one percent (1.0%) if the termination or reduction occurs
after the first anniversary of the Funding Date but on or before the second
anniversary of the Funding Date.
(b) WAIVER OF TERMINATION AND LINE REDUCTION FEES. The Borrower will
not be required to pay the termination or line reduction fees otherwise due
under this Section 2.12 if such termination or line reduction is made
because of refinancing by an affiliate of the Lender.
Section 2.13 Mandatory Prepayment. Without notice or demand, if the
---------------------
sum of the outstanding principal balance of the Revolving Advances plus the L/C
Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving 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 2.13 or
under Section 2.11 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine.
Section 2.14 Payment. For purposes of calculating the amount of
-------
Revolving Advances available to Borrower, each payment will be applied
(conditional upon final collection) to the outstanding principal balance of the
Revolving Note on the Banking Day of receipt by Lender of advices of deposit in
the Collateral Account, if such advices are received within sufficient time (in
accordance with Lender's usual and customary practices as in effect from time to
time) to credit Borrower's loan account on such day, and if not, then on the
next Banking Day. Such payment shall be applied in any order or manner of
application satisfactory to Lender. For purposes of calculating interest, Lender
shall be entitled to charge Borrower for one (1) Calendar Day of clearance at
the Floating Rate on all payments deposited into the Collateral Account, whether
or not such payments are applied to reduce the outstanding principal balance of
the Revolving Note. This clearance charge is acknowledged to constitute an
integral part of the pricing of the loans and financial accommodations
contemplated herein, and shall apply whether or not the amount of payments
deposited exceeds the obligations outstanding. Notwithstanding anything in
Section 2.1, the Borrower hereby authorizes the Lender, in its discretion at any
time or from time to time without the Borrower's request and even if the
conditions set forth in Section 4.2 would not be satisfied, to make a Revolving
Advance in an amount equal to the portion of the Obligations from time to time
due and payable. At Lender's option, all principal, interest, fees, costs,
expenses and other charges provided for in this Agreement or the other Loan
Documents may be charged directly to the loan account(s) of Borrower.
- 16 -
Section 2.15 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.
Section 2.16 Use of Proceeds. All Advances made to Borrower and each
---------------
Letter of Credit shall be used by Borrower only for general operating, working
capital and other proper corporate purposes of Borrower not otherwise prohibited
by the terms hereof.
Section 2.17 Liability Records. The Lender may maintain from time to
-----------------
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within thirty (30) days
after receipt or in the case of manifest error.
Section 2.18 Deactivation of Credit Facility. So long as no
-------------------------------
obligations are outstanding, Borrower may deactivate the Credit Facility (any
period during which the Credit Facility is deactivated pursuant to this Section
2.18 shall hereinafter be referred to as, a "Deactivation Period"); provided
--------
that, if a Deactivation Period commences within thirty (30) days after the date
----
hereof, Borrower shall give Lender prior written notice of its intention to
deactivate the Credit Facility promptly upon knowledge thereof and if a
Deactivation Period commences after thirty (30) days of the date hereof,
Borrower shall give Lender thirty (30) days prior written notice of its
intention to deactivate the Credit Facility. During a Deactivation Period,
Lender's Commitment shall not be in effect, and the charges pursuant to sections
2.6(b) and 2.7(b) and the clearance charge referred to in section 2.14 shall not
be applied. Notwithstanding any provisions in the Collection Account Agreement
or the Lockbox Agreement, Borrower may receive all payments on Receivables or
payments constituting proceeds of other Collateral directly (rather than
depositing or directing its account debtors or other obligors to remit such
payment or proceeds to the Lockbox or the Collateral Account). Except as
provided in Section 2.3(c) of this Agreement, a Deactivation Period shall remain
in effect until the date thirty (30) days after the Borrower notifies the Lender
that it desires to reactivate the Credit Facility. No more than three (3)
Deactivation Periods may be initiated by Borrower within a calendar year. During
a Deactivation Period, Borrower shall continue to comply with the reporting
requirements set forth in Section 6.1 of this Agreement.
- 17 -
ARTICLE III
Security Interest; Occupancy; Setoff
------------------------------------
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
---------------------------
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
-----------------
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. Upon
---------------------------------------------------
the occurrence of an Event of Default, the Lender may notify any account debtor
or other person obligated to pay the amount due that such right to payment has
been assigned or transferred to the Lender for security and shall be paid
directly to the Lender. The Borrower will join in giving such notice if the
Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, ▇▇▇ for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney in fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail for
purposes of the collection of Collateral, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
Section 3.3 Assignment of Insurance. As additional security for the payment
-----------------------
and performance of the Obligations, the Borrower hereby assigns to the Lender
any and all monies (including, without limitation, proceeds of insurance and
refunds of unearned premiums) due or to become due under, and all other rights
of the Borrower with respect to, any and all policies of insurance now or at any
time hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time, whether or not a Default Period then exists, the Lender may (but need
not), in the Lender's name or in the Borrower's name, execute and deliver proof
of claim, receive all such monies and endorse checks and other instruments
representing payment of such monies. Following the occurrence of an Event of
Default, the Lender may (but need not), in the Lender's name or in the
Borrower's name, adjust, litigate, compromise or release any claim against the
issuer of any such policy.
Section 3.4 Occupancy.
---------
(a) The Borrower hereby irrevocably grants to the Lender the right to
take possession of the Premises at any time following the occurrence 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.
- 18 -
(c) The Lender's right to hold the Premises shall cease and terminate
upon the earlier of (i) payment in full and discharge of all Obligations
and termination of the Commitment, (ii) final sale or disposition of all
goods constituting Collateral and delivery of all such goods to purchasers
and (iii) the waiver of such Event of Default.
(d) The Lender shall not be obligated to pay or account for any rent
or other compensation for the possession, occupancy or use of any of the
Premises; provided, however, that if the Lender does pay or account for any
rent or other compensation for the possession, occupancy or use of any of
the Premises, the Borrower shall reimburse the Lender promptly for the full
amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time
incurred by or imposed upon the Lender by reason of the execution,
delivery, existence, recordation, performance or enforcement of this
Agreement or the provisions of this Section 3.4.
Section 3.5 License. Without limiting the generality of the Patent and
-------
Trademark Security Agreement, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
--------------------
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Rockshox, Inc.
1610 Garden of the ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Federal Tax Identification No. ▇▇-▇▇▇▇▇▇▇
Name and address of Secured Party:
▇▇▇▇▇ Fargo Business Credit, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Section 3.7 Setoff. The Borrower agrees that, upon the occurrence of
------
an Event of Default, the Lender may, at its sole discretion and without demand
and without notice to anyone, setoff any liability owed to the Borrower by the
Lender, whether or not due, against any Obligation, whether or not due. In
addition, each other Person holding a participating interest in any Obligations
shall have the right to appropriate or setoff any deposit or other liability
then owed by such Person to the Borrower, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had
lent directly to the Borrower the amount of such participating interest.
- 19 -
ARTICLE IV
Conditions of Lending
---------------------
Section 4.1 Conditions Precedent to the Initial Revolving Advance and
----------------------------------------------------------
the Initial Letter of Credit. The Lender's obligation to make the initial
-------------------------------
Revolving Advance or to cause to be issued the initial 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 by the Borrower.
(b) A true and correct copy of the lease pursuant to which the
Borrower has leased the Premises, together with a landlord's disclaimer and
consent with respect to such lease.
(c) 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 or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the
Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by
Persons who have agreed in writing that upon receipt of proceeds of the
Advances, they will deliver UCC releases and/or terminations and releases
of such assignments of patents, trademarks or copyrights satisfactory to
the Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.
(d) A true and correct copy of any and all agreements pursuant to
which the Borrower's property is in the possession of any Person other than
the Borrower, together with, (i) an acknowledgment and waiver of liens from
each subcontractor who has possession of the Borrower's goods from time to
time, (ii) UCC financing statements sufficient to protect the Borrower's
and the Lender's interests in such goods, and (iii) UCC searches showing
that no other secured party has filed a financing statement covering such
Person's property other than the Borrower, or if there exists any such
secured party, evidence that each such secured party has received notice
from the Borrower and the Lender sufficient to protect the Borrower's and
the Lender's interests in the Borrower's goods from any claim by such
secured party.
(e) A certificate of an officer of the Borrower confirming that the
representations and warranties set forth in Article V are true and correct
in all material respects.
(f) Payment of the fees and commissions due through the date of the
initial Advance under Section 2.7 and expenses incurred by the Lender
through such date and required to be paid by the Borrower under Section
9.6, including reasonable legal expenses incurred through the date of this
Agreement.
- 20 -
(g) Such other documents as the Lender may reasonably require.
Section 4.2 Conditions Precedent to All Advances and Letters of Credit.
----------------------------------------------------------
The Lender's obligation to make each Advance or to cause the Issuer to issue any
Letter of Credit shall be subject to the further conditions precedent that on
such date:
(a) the representations and warranties contained in Article V are
correct in all material respects 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;
(b) no material adverse change, as determined by Lender, shall have
occurred in the financial condition or business of Borrower nor any
material decline, as determined by Lender, in the market value of any
Collateral or a substantial or material portion of the assets of Borrower
since the date of the latest financial statements delivered to Lender prior
to the Funding Date; and
(c) 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 V
Representations and Warranties
------------------------------
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
----------------------------------------------------------
Office; Inventory and Equipment Locations; Tax Identification Number. The
--------------------------------------------------------------------
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under
the names set forth in Schedule 5.1 hereto. The Borrower's chief executive
------------
office and principal place of business is located at the address set forth in
Schedule 5.1 hereto, and all of the Borrower's records relating to its business
-------------
or the Collateral are kept at that location. All Inventory and Equipment is
located at that location or at one of the other locations set forth in Schedule
--------
5.1 hereto. The Borrower's tax identification number is correctly set forth in
---
Section 3.6 hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
----------------------------------------------------------
Agreements. The execution, delivery and performance by the Borrower of the Loan
----------
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
- 21 -
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; (iii) 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 Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
-----------------
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. Except as set forth in Schedule 5.4, the
------------ ------------
Borrower has no Subsidiaries.
Section 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 March 31, 1999 and unaudited financial statements of
the Borrower for the fiscal year ended March 31, 2000, and those statements
fairly present the Borrower's financial condition on the dates thereof and the
results of its operations and cash flows for the periods then ended and were
prepared in accordance with GAAP (subject, in the case of unaudited financial
statements, to the absence of footnotes and year-end adjustments). Since the
date of the most recent financial statements, there has been no material adverse
change in the Borrower's business, properties or condition (financial or
otherwise).
Section 5.6 Litigation. There are no actions, suits or proceedings pending
----------
or, to the Borrower's knowledge, threatened against or affecting the Borrower or
any of its Affiliates or the properties of the Borrower or any of its Affiliates
before any court or governmental department, commission, board, bureau, agency
or instrumentality, domestic or foreign, which could reasonably be expected to
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business of
-------------
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System, as amended), 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 or to retire any indebtedness which
was originally incurred to purchase or carry any margin stock or for any other
purpose which might cause any of the Advances to be considered a "purpose
credit" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, as amended.
- 22 -
Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused to
-----
be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns reflecting tax liabilities in
excess of $50,000 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 except such taxes or
assessments, if any, as are being contested in good faith and as to which
adequate reserves have been provided in accordance with GAAP.
Section 5.9 Titles and Liens. The Borrower has good and absolute title
----------------
to all Collateral described in the collateral reports provided to the Lender at
the time of delivery hereof and all other Collateral, properties and assets
reflected in the latest financial statements referred to in Section 5.5 and all
proceeds thereof, free and clear of all mortgages, security interests, liens and
encumbrances, except for Permitted Liens. No financing statement naming the
Borrower as debtor is on file in any office except to perfect only Permitted
Liens.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior to
-----
the date hereof, neither the Borrower nor any of its Affiliates maintains or has
maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in 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).
Section 5.11 Default. The Borrower is in compliance with all
-------
provisions of all agreements, instruments, decrees and orders to which it is a
party or by which it or its property is bound or affected, the breach or default
of which could have a material adverse effect on the Borrower's financial
condition, properties or operations.
Section 5.12 Environmental Matters.
----------------------
(a) Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
- 23 -
(i) "Environmental Law" means any federal, state, local or other
-----------------
governmental statute, regulation, law or ordinance dealing with the
protection of human health and the environment.
(ii) "Hazardous Substances" means pollutants, contaminants,
---------------------
hazardous substances, hazardous wastes, petroleum and fractions
thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) Except as would not reasonably be expected to have a material
adverse effect, to the Borrower's best knowledge, there are not present in,
on or under the Premises any Hazardous Substances in such form or quantity
as to create any liability or obligation for either the Borrower or the
Lender under common law of any jurisdiction or under any Environmental Law,
and no Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way
as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not disposed of
Hazardous Substances in such a manner as to create any liability exceeding
$100,000, individually or in the aggregate, under any Environmental Law.
(d) Except as would not reasonably be expected to have a material
adverse effect, there are not now and, since Borrower's occupancy of the
Premises, there never have been any requests, claims, notices,
investigations, demands, administrative proceedings, hearings or
litigation, relating in any way to the Premises or the Borrower, alleging
liability under, violation of, or noncompliance with any Environmental Law
or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's businesses are
and have in the past always been conducted in accordance with all
Environmental Laws and all licenses, permits and other authorizations
required pursuant to any Environmental Law and necessary for the lawful and
efficient operation of such businesses are in the Borrower's possession and
are in full force and effect except, in each case, as would not reasonable
be expected to result in a material adverse effect.
(f) To the Borrower's best knowledge, the Premises are not and never
have been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System or
any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender, to the extent Borrower has
such items in its possession, all environmental assessments, audits,
reports, permits and licenses describing or relating in any way to the
Premises or Borrower's businesses.
- 24 -
Section 5.13 Submissions to Lender. All financial and other
-----------------------
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's request for the credit facilities contemplated hereby is
true and correct in all material respects and, as to projections, valuations or
proforma financial statements, are based on assumptions made in good faith (it
being acknowledged by the Lender that no assurance can be given that such
projections, valuations, or proforma results will be realized).
Section 5.14 Financing Statements. The Borrower has provided to the
---------------------
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
-----------------
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor named
therein or in the Borrower's records pertaining thereto as being obligated to
pay such obligation.
ARTICLE VI
Borrower's Affirmative Covenants
--------------------------------
So long as the Obligations shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower will comply with the following requirements,
unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or
-----------------------
cause to be delivered, to the Lender each of the following, which shall be in
form and detail acceptable to the Lender:
(a) as soon as available, and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, the Borrower's audited
financial statements with the unqualified opinion of independent certified
public accountants selected by the Borrower and acceptable to the Lender,
which annual financial statements shall include the Borrower's balance
sheet as at the end of such fiscal year and the related statements of the
Borrower's income, retained earnings and cash flows for the fiscal year
then ended, prepared, if the Lender so requests, on a consolidating (if
applicable) and consolidated basis to include any subsidiaries of Borrower,
all in reasonable detail and prepared in accordance with GAAP, together
with (i) copies of all management letters prepared by such accountants; and
(ii) a certificate of the Borrower's chief financial officer stating that
such financial statements have been prepared in accordance with GAAP and
whether or not such officer has knowledge of the occurrence of any Default
or Event of Default hereunder and, if so, stating in reasonable detail the
facts with respect thereto;
- 25 -
(b) as soon as available and in any event within thirty (30) days
after the end of each month, financial statements, 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
(if applicable) and consolidated basis to include any subsidiaries of
Borrower, in reasonable detail and stating in comparative form the figures
for the corresponding date and periods in the previous year, all prepared
in accordance with GAAP, subject to year-end audit adjustments; and
accompanied by a certificate of the Borrower's chief financial officer,
substantially in the form of Exhibit B hereto stating (i) that such
financial statements have been prepared in accordance with GAAP, 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, 6.13 and
7.10;
(c) within ten (10) days after the end of each month and weekly during
a Deactivation Period when one or more Letter of Credit has been issued and
remains outstanding or more frequently if the Lender so requires after the
occurrence of an Event of Default, agings of the Borrower's accounts
receivable and its accounts payable and a calculation of the Borrower's
Accounts and Eligible Accounts as at the end of such month or shorter time
period;
(d) at least thirty (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
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most recent 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 reasonably require;
(e) as soon as possible and in any event within 10 days after receipt
of notice thereof by the Borrower, notice in writing of all litigation and
of all proceedings before any governmental or regulatory agency affecting
the Borrower of the type described in Section 5.12 or which seek a monetary
recovery in excess of One Hundred Thousand Dollars ($100,000).
(f) as promptly as practicable (but in any event not later than ten
Banking 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 thirty (30) days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and the
action which the Borrower proposes to take with respect thereto, together
with a copy of the notice of such Reportable Event to the Pension Benefit
Guaranty Corporation;
- 26 -
(h) as soon as possible, and in any event within ten (10) days after
the Borrower fails to make any quarterly contribution required with respect
to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as
amended, the statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the Borrower proposes
to take with respect thereto, together with a copy of any notice of such
failure required to be provided to the Pension Benefit Guaranty
Corporation;
(i) promptly upon knowledge thereof, notice of (i) any disputes or
claims by the Borrower's customers in which the disputed amount or amounts
exceeds an aggregate amount of $100,000; (ii) credit memos; (iii) any goods
returned to or recovered by the Borrower other than in the ordinary course
of business ; and(iv) any change in the persons constituting the Borrower's
senior executive officers and directors;
(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 to the extent the value
of such loss, damage or adverse change or any combination thereof exceeds
$100,000;
(k) within ten (10) days of their distribution, copies of all
financial statements, reports and proxy statements which the Borrower shall
have sent to its stockholders;
(l) within ten (10) days of sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the
Securities and Exchange Commission or any national securities exchange;
(m) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; 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 reasonably request, including, without
limitation, weekly borrowing base certificates.
- 27 -
Section 6.2 Books and Records; Inspection and Examination. The
-------------------------------------------------
Borrower will keep accurate books of record and account for itself pertaining to
the Collateral and pertaining to the Borrower's business and financial condition
in which true and complete entries will be made in accordance with GAAP and,
upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any and
all corporate and financial books and records of the Borrower at all times
during ordinary business hours and upon reasonable notice, to send and discuss
with account debtors and other obligors requests for verification of amounts
owed to the Borrower, and to discuss the Borrower's affairs with any of its
directors, officers, employees or agents. The Borrower will permit the Lender,
or its employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours and upon
reasonable notice.
Section 6.3 Account Verification. The Lender may at any time and from
--------------------
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 Compliance with Laws.
----------------------
(a) The Borrower will (i) comply with the requirements of applicable
laws and regulations, the non-compliance with which would materially and
adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral,
only for lawful purposes, without violation of any federal, state or local
law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental
Laws and obtain and comply with all permits, licenses and similar approvals
required by any Environmental Laws, and will not generate, use, transport,
treat, store or dispose of any Hazardous Substances in such a manner as to
create any liability or obligation under the common law of any jurisdiction
or any Environmental Law except as would not reasonably be expected to have
a material adverse effect.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay
----------------------------------
or discharge, when due, (a) all material taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interest, prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties.
---------------------------
(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 Borrower's judgment, desirable in the
conduct of the Borrower's business and not disadvantageous in any material
respect to the Lender.
- 28 -
(b) The Borrower will defend the Collateral against all claims or
demands of all persons (other than the Lender and holders of Permitted
Liens) 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 Permitted Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
---------
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
reasonably required by the Lender, but in all events in such amounts and against
such risks as is usually carried by companies engaged in similar business and
owning similar properties in the same general areas in which the Borrower
operates. Without limiting the generality of the foregoing, the Borrower will
at all times maintain business interruption insurance including coverage for
force majeure and 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 Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 Preservation of Existence. The Borrower will preserve and
-------------------------
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. 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.
Section 6.10 Collateral Account.
-------------------
(a) If, notwithstanding the instructions to debtors to make payments
to the Lockbox, the Borrower receives any payments on Receivables, the
Borrower shall deposit such payments into the Collateral Account. Until so
deposited, the Borrower shall hold all such payments in trust for and as
the property of the Lender and shall not commingle such payments with any
of its other funds or property.
(b) 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 deposits in the
Collateral Account shall constitute proceeds of Collateral and shall not
constitute payment of the Obligations.
- 29 -
(c) All items deposited in the Collateral Account shall be subject to
final payment. If any such item is returned uncollected, the Borrower will
immediately pay the Lender, or, for items deposited in the Collateral
Account, the bank maintaining such account, the amount of that item, or
such bank at its discretion may charge any uncollected item to the
Borrower's commercial account or other account. The Borrower shall be
liable as an endorser on all items deposited in the Collateral Account,
whether or not in fact endorsed by the Borrower.
Section 6.11 Performance by the Lender. Following the occurrence of an
-------------------------
Event of Default, the Lender may, but need not, perform or observe any covenant
which the Borrower has failed to perform on behalf and in the name, place and
stead of the Borrower (or, at the Lender's option, in the Lender's name) and
may, but need not, take any and all other actions which the Lender may
reasonably deem necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of security interests, liens
or encumbrances, the performance of obligations owed to account debtors or other
obligors, the procurement and maintenance of insurance, the execution of
assignments, security agreements and financing statements, and the endorsement
of instruments); and the Borrower shall thereupon pay to the Lender on demand
the amount of all monies expended and all costs and expenses (including
reasonable attorneys' fees and legal expenses) incurred by the Lender in
connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To facilitate
the Lender's performance or observance of such covenants of the Borrower
following the occurrence of an Event of Default, the Borrower hereby irrevocably
appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's
attorney in fact (which appointment is coupled with an interest) with the right
(but not the duty) from time to time to create, prepare, complete, execute,
deliver, endorse or file in the name and on behalf of the Borrower 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.
Section 6.12 Minimum Book Net Worth. The Borrower will maintain,
-------------------------
during each period described below, its Book Net Worth, determined as at the end
of each month, at an amount not less than the amount set forth opposite such
period:
- 30 -
Period Minimum Book Net Worth
-------------------- ----------------------
July 31, 2000 $17,000,000
August 31, 2000 $17,000,000
September 30, 2000 $17,800,000
October 31, 2000 $18,000,000
November 30, 2000 $18,500,000
December 31, 2000
and thereafter $19,100,000
Section 6.13 Minimum Adjusted Net Income. The Borrower will achieve
-----------------------------
during each period described below, Adjusted Net Income of not less than the
amount set forth opposite such period:
Period Minimum Adjusted
------ -----------------
Net Income
----------
Six months ending September 30, 2000 ($5,500,000)
Three months ending December 31, 2000 $1,300,000
Three months ending March 31, 2001 0
Section 6.14 New Covenants. On or before March 31, 2001 Lender shall
-------------
set new covenant levels for Sections 6.12, 6.13 and 7.10 for periods after such
date. The new covenant levels will be based on the Borrower's projections for
such periods received by Lender pursuant to Section 6.1(c) and shall be no less
stringent than the present levels.
Section 6.15 Premises. The Borrower agrees to provide the Lender with
--------
true and correct copies of leases pursuant to which the Borrower is leasing the
Premises, and to use its best efforts to obtain and provide to the Lender a
landlord's disclaimer and consent with respect to each such lease.
Section 6.16 Off-Site Inventory. In the event Inventory at any
-------------------
location other than those listed in Schedule 5.1 hereto, exceeds an amount equal
------------
to Two Hundred and Fifty Thousand Dollars ($250,000), Borrower shall (i) notify
Lender of such location, and (ii) execute UCC financing statements sufficient to
protect the Borrower's and the Lender's interests in such Inventory.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower agrees that, without the Lender's prior written
consent:
- 31 -
Section 7.1 Liens. The Borrower will not create, incur or suffer to
-----
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
--------- -------
foregoing, the following (collectively, "Permitted Liens"):
----------------
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security interests and
assignments in existence on the date hereof and listed in Schedule 7.1
hereto; -------------
(c) the Security Interest and liens and security interests created by
the Security Documents;
(d) purchase money security interests relating to the acquisition of
machinery and equipment of the Borrower not exceeding the cost or fair
market value thereof and so long as no Default Period is then in existence
and none would exist immediately after such acquisition.
(e) liens for taxes, assessments or governmental charges or levies on
the Borrower's property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in good
faith and by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on the Borrower's books;
(f) liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar lines arising in the ordinary course of
business which secure payment of obligations not more than 60 days past due
or which are being contested in good faith by appropriate proceedings and
for which adequate reserves shall have been set aside on its books;
(g) liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(h) liens securing capitalized leases permitted pursuant to Section
7.2; and
(i) the replacement, extension or renewal of any lien permitted
hereunder so long as the Debt secured by such lien is not increased by such
replacement, extension or renewal.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
------------
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
- 32 -
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date hereof and
listed in Schedule 7.2 hereto and all refundings and refinancings thereof;
------------
provided, however, that the dollar amount of such indebtedness may not be
increased;
(c) indebtedness relating to liens permitted in accordance with
Section 7.1;
(d) obligations in respect of capitalized leases in an aggregate
amount not to exceed $1,200,000 at any time outstanding, and
(e) indebtedness in respect of performance bonds, bankers acceptances,
letter of credit and surety or appeal bonds entered into by the Borrower in
the ordinary course of business.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
----------
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower for
deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
--------------
Section 7.4 Investments and Subsidiaries.
------------------------------
(a) The Borrower will not purchase or hold beneficially any stock or other
securities or evidences of indebtedness of, make or permit to exist any
loans or advances to, or make any investment or acquire any interest
whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(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 One Hundred Million Dollars
($100,000,000) (which certificates of deposit or bankers' acceptances
are fully insured by the Federal Deposit Insurance Corporation);
(ii) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of Twenty Five
Thousand Dollars ($25,000), except for the loan in the amount of Two
Hundred Thousand Dollars ($200,000), provided by Borrower to ▇▇▇▇▇
▇▇▇▇▇ as evidenced by that certain Employment Agreement, dated
December 23, 1999, between ▇▇▇▇▇ ▇. ▇▇▇▇▇ and Borrower;
- 33 -
(iii) advances in the form of progress payments, prepaid rent not
exceeding three (3) months or security deposits;
(iv) investments existing on the date hereof and described in
Schedule 7.4;
(v) accounts receivable;
(vi) investments received in settlement of arms length disputes;
and
(vii) any endorsement of a check or other medium of payment for
deposit or collection, or any similar transaction in the ordinary
course of business.
(b) The Borrower will not create or permit to exist any Subsidiary.
Section 7.5 Dividends. The Borrower will not declare or pay any
---------
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
-----------------------------------------------------
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
----------
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and the sale of any other
property which is obsolete, worn out or no longer useful in the Borrower's
business, and will not liquidate, dissolve or suspend business operations.
Section 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.
Section 7.8 Sale and Leaseback. The Borrower will not enter
--------------------
into any arrangement, directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property, whether now owned
or hereafter acquired, and then or thereafter rent or lease as lessee such
property or any part thereof or any other property which the Borrower intends to
use for substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business.
-----------------------------------
The Borrower will not engage in any line of business materially different from
that presently engaged in by the Borrower and will not purchase, lease or
otherwise acquire assets not related to its business.
- 34 -
Section 7.10 Capital Expenditures. The Borrower will not incur or
--------------------
contract to incur Capital Expenditures of more than Three Million Six Hundred
Thousand Dollars ($3,600,000) in the aggregate during any fiscal year.
Section 7.11 Accounting. The Borrower will not adopt any
----------
material change in accounting principles other than as required by GAAP. The
Borrower will not adopt, permit or consent to any change in its fiscal year.
Section 7.12 Discounts, etc. The Borrower will not, after
---------------
notice from the Lender, grant any discount, credit or allowance to any customer
of the Borrower or accept any return of goods sold, or at any time (whether
before or after notice from the Lender) modify, amend, subordinate, cancel or
terminate the obligation of any account debtor or other obligor of the Borrower
other than in accordance with its customary business practice.
Section 7.13 Defined Benefit Pension Plans.
-------------------------------
The Borrower will not adopt, create, assume or become a party to any defined
benefit pension plan, unless disclosed to the Lender pursuant to Section 5.10.
Section 7.14 Other Defaults. The Borrower will not
---------------
permit any breach, default or event of default to occur under any note, loan
agreement, indenture, lease, mortgage, contract for deed, security agreement or
other contractual obligation binding upon the Borrower.
Section 7.15 Place of Business; Name. Without providing 30
-----------------------
days' notice to the Lender, (a) the Borrower will not transfer its chief
executive office or principal place of business, or move, relocate, close or
sell any business location; (b) the Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest; and (c) the Borrower will not
change its name.
Section 7.16 Organizational Documents. The Borrower will
-------------------------
not amend its certificate of incorporation, articles of incorporation or bylaws
in a manner which would adversely affect the Lender.
Section 7.17 Salaries. The Borrower will not pay excessive or
--------
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation or excessively increase the salary, bonus, commissions, consultant
fees or other compensation of any director, officer or consultant, or any member
of their families, either individually or for all such persons in the aggregate.
Section 7.18 Change in Ownership. The Borrower will not issue
--------------------
or sell any stock of the Borrower so as to change the percentage of voting and
non-voting stock owned by each of the Borrower's shareholders.
Section 7.19 Transactions with Affiliates.
------------------------------
Borrower shall not enter into any transaction for the purchase, sale or exchange
of property or the rendering of any service to or by any Affiliate, except in
the ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms no less favorable to Borrower than
Borrower would obtain in a comparable arms length transaction with an
unaffiliated Person.
- 35 -
ARTICLE VIII
Events of Default, Rights and Remedies
--------------------------------------
Section 8.1 Events of Default. "Event of Default", wherever used
------------------- ------------------
herein, means any one of the following events, which Event of Default shall
exist or continue or be continuing until such Event of Default is waived in
accordance with Section 9.2 hereof:
(a) Default in the payment of the Obligations when they become due and
payable;
(b) Failure to pay when due any amount specified in Section 2.3
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 2.4
or;
(c) Default in the payment of any fees, commissions, costs or expenses
required to be paid by the Borrower under this Agreement;
(d) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement and such default or
breach shall continue for ten (10) Banking Days; provided, that such ten
(10) Banking Day cure period shall not apply in the case of (i) any default
or event addressed in any other provision or paragraph of this Section,
(ii) the failure to comply with the covenants set forth in Sections 6.12,
6.13 or 7.10, (iii) any default in the performance, or breach, of any such
covenant or agreement which is not capable of being cured at all or within
such ten (10) Banking Day period or which has previously been the subject
of a previous default or breach within the prior twelve (12) month period
or (iv) an intentional breach by Borrower of such covenant or agreement;
(e) The Borrower shall be or become insolvent, or admit in writing its
inability to pay its 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 for all
or any substantial part of its property; or such receiver, trustee or
similar officer shall be appointed without the application or consent of
the Borrower and not dismissed in 60 days; 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 and not dismissed in 60
days; or any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the
property of the Borrower and not dismissed in 60 days;
- 36 -
(f) A petition shall be filed by or against the Borrower under the
United States Bankruptcy Code naming the Borrower as debtor and, in the
case of petitions filed against Borrower, not dismissed within 60 days;
provided, Borrower shall not receive an Advance prior to the dismissal of
any such petition filed against the Borrower;
(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 shall prove to have been incorrect in any material respect when
deemed to be effective;
(h) The rendering against the Borrower of a final judgment, decree or
order for the payment of money in excess of One Hundred Thousand Dollars
($100,000) and the continuance of such judgment, decree or order
unsatisfied and in effect for any period of thirty (30) consecutive days
without a stay of execution;
(i) A default under any bond, debenture, note or other evidence of
indebtedness (excluding trade payables) of the Borrower owed to any Person
other than the Lender, or under any indenture or other instrument under
which any such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration of
the applicable period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument or lease;
(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 thirty (30) days
after written notice to such effect shall have been given to the Borrower
by the Lender; or a trustee shall have been appointed by an appropriate
United States District Court to administer any Plan; or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any
Plan or to appoint a trustee to administer any Plan; or the Borrower shall
have filed for a distress termination of any Plan under Title IV of ERISA;
or the Borrower shall have failed to make any quarterly contribution
required with respect to any Plan under Section 412(m) of the Internal
Revenue Code of 1986, as amended, which the Lender determines in good faith
may by itself, or in combination with any such failures that the Lender may
determine are likely to occur in the future, result in the imposition of a
lien on the Borrower's assets in favor of the Plan;
(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 and such event of default shall not be cured or
waived within ten (10) Banking Days; provided, that such ten (10) Banking
Day cure period shall not apply in the case of (i) any default or event
addressed in any other provision or paragraph of this Section, (ii) any
event of default which is not capable of being cured at all or within such
ten (10) Banking Day period or which has previously been the subject of a
previous default or breach within the prior twelve (12) month period or
(iv) an intentional default by Borrower;
- 37 -
(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 Lender's prior written consent;
Section 8.2 Rights and Remedies. Following the occurrence of an Event
-------------------
of Default, the Lender may exercise any or all of the following rights and
remedies:
(a) the Lender may, by notice to the Borrower, declare the Commitment
to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Obligations
to be forthwith due and payable, whereupon all Obligations shall become and
be forthwith due and payable, without presentment, notice of dishonor,
protest or further notice of any kind, all of which the Borrower hereby
expressly waives;
(c) the Lender may, without notice to the Borrower and without further
action, apply any and all money owing by the Lender to the Borrower to the
payment of the Obligations;
(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 Section 2.13 an amount
equal to the aggregate maximum 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 subsections (d) or (e) of Section 8.1, the Obligations shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
- 38 -
Section 8.3 Certain Notices. If notice to the Borrower of any intended
---------------
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten (10) calendar days
before the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
-------------
Section 9.1 No Waiver; Cumulative Remedies. No failure or delay by the
------------------------------
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 Amendments, Etc. No amendment, modification, termination
---------------
or waiver of any provision of any Loan Document or consent to any departure by
the Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances. No amendment or modification of any Loan
Document shall be effective unless the same shall be signed by the Borrower.
Section 9.3 Addresses for Notices, Etc. Except as otherwise expressly
-----------------------------
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower:
Rockshox, Inc.
1610 Garden of the ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: _________________
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
If to the Lender:
▇▇▇▇▇ Fargo Business Credit, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Account Executive
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
- 39 -
Section 9.4 Further Documents. The Borrower will from time to time
-----------------
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 Collateral. This Agreement does not contemplate a sale of
----------
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender
shall not be obligated to preserve any rights the Borrower may have against
prior parties, to realize on the Collateral at all or in any particular manner
or order or to apply any cash proceeds of the Collateral in any particular order
of application.
Section 9.6 Costs and Expenses. The Borrower agrees to pay on demand
------------------
all reasonable 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, including
without limitation all such costs, expenses and fees incurred in connection with
the negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.7 Indemnity. In addition to the payment of expenses pursuant
---------
to Section 9.6, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its parent corporations, subsidiary corporations, affiliated
corporations, successor corporations, and all present and future officers,
directors, employees, attorneys and agents of the foregoing (the "Indemnitees")
-----------
from and against any of the following except to the extent arising from the
gross negligence or willful misconduct of Lender or the breach by Lender of any
Loan Document (collectively, "Indemnified Liabilities"):
------------------------
(i) any and all transfer taxes, documentary taxes, assessments or
charges made by any governmental authority by reason of the execution
and delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12
proves to be incorrect in any respect or as a result of any violation
of the covenant contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages, penalties,
judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel) in connection with the foregoing and any
other investigative, administrative or judicial proceedings, whether
or not such Indemnitee shall be designated a party thereto, which may
be imposed on, incurred by or asserted against any such Indemnitee, in
any manner related to or arising out of or in connection with the
making of the Advances and the Loan Documents or the use or intended
use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's
obligation under this Section 9.7 shall survive the termination of this
Agreement and the discharge of the Borrower's other obligations hereunder.
Section 9.8 Participants. The Lender and its participants, if any, are
------------
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.9 Execution in Counterparts. This Agreement and other Loan
-------------------------
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.10 Binding Effect; Assignment; Complete Agreement;
-------------------------------------------------------
Exchanging Information. The Loan Documents shall be binding upon and inure to
------------------------
the benefit of the Borrower and the Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors involved in the transactions subject to this Agreement, the Lender,
▇▇▇▇▇ Fargo Corporation, and all direct and indirect subsidiaries of ▇▇▇▇▇ Fargo
Corporation, may exchange any and all information they may have in their
possession regarding the Borrower as may be reasonably necessary in the
administration of this Agreement, and the Borrower waives any right of
confidentiality it may have with respect to such exchange of such information.
- 40 -
Section 9.11 Severability of Provisions. Any provision of this
----------------------------
Agreementwhich is prohibited or unenforceable shall be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof.
Section 9.12 Headings. Article and Section headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
--------------------------------------------------------
This Agreement and the other Loan Documents shall be governed by and construed
in accordance with the substantive laws (other than conflict laws) of the State
of California. Each of the parties hereto hereby (i) consents to the personal
jurisdiction of the state and federal courts located in the State of California
in connection with any controversy related to this Agreement or the other Loan
Documents; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the State Courts of the County of Los Angeles, State of
California, or the United States District Court for the Central District of
California; and (iv) agrees that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. THE PARTIES WAIVE
ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO
THIS AGREEMENT.
Section 9.14 Release of Collateral. Upon a sale or other disposition
---------------------
of assets of the Borrower constituting Collateral which was consented to or
otherwise approved by Lender or is permitted under this Agreement, the Lender,
at the request of the Borrower, will execute and deliver to the Borrower the
proper instruments (including UCC termination statements) acknowledging the
release of the Lender's Security Interest in such Collateral.
Section 9.15 Termination, Release. This Agreement and the Lender's
--------------------
Security Interest shall terminate upon satisfaction in full of the Obligations.
Upon such termination, the Lender, at the request of the Borrower, will execute
and deliver to the Borrower the proper instruments (including UCC termination
statements) acknowledging the termination of this Agreement and will duly
assign, transfer and deliver to the Borrower such of the Collateral as may be in
the possession of the Lender and has not theretofore been disposed of, applied
or released.
- 41 -
Section 9.16 Confidentiality. The Lender agrees to keep
---------------
confidential all information provided by the Borrower under this Agreement
except as required by applicable law or if such information is otherwise
publicly available (other than as a result of actions by the Lender).
- 42 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
▇▇▇▇▇ FARGO BUSINESS CREDIT, INC., ROCKSHOX, INC.,
a Minnesota corporation a Delaware corporation
By By
------------------------------- -----------------------------
Name: Name:
------------------------------- -----------------------------
Its Vice President Its
- 43 -
TABLE OF CONTENTS
Page
----
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A Form of Revolving Note
Exhibit B Compliance Certificate
Exhibit C Premises
---------------------------------------------------------------------
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
Schedule 7.4 Investments
---------------------------------------------------------------------
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$5,000,000 San Jose, California
December 10, 1999
For value received, the undersigned, ROCKSHOX, INC., a Delaware corporation (the
"Borrower"), hereby promises to pay on the Termination Date under the Credit
--------
Agreement (defined below), to the order of ▇▇▇▇▇ FARGO BUSINESS CREDIT, INC., a
Minnesota corporation (the "Lender"), at its main office in Pasadena,
------
California, 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 Five Million Dollars ($5,000,000) or, if less, the
aggregate unpaid principal amount of all Revolving 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 (as the
same may hereafter be amended, restated, supplemented or otherwise modified from
time to time, 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
Revolving 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 reasonable
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest are
expressly waived.
ROCKSHOX, INC.,
a Delaware corporation
By
-----------------------------------
Its President
A - 1
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: ▇▇▇▇▇ Fargo Business Credit, Inc.
Date:
---------------------
Subject: Financial Statements
---------------------
In accordance with our Amended and Restated Credit and Security Agreement dated
as of June __, 2000 (the "Credit Agreement"), attached are the financial
-----------------
statements of ROCKSHOX, INC. (the "Borrower") as of and for ________________,
--------
_____ (the "Reporting Date") and the year-to-date period then ended (the
---------------
"Current Financials"). All terms used in this certificate have the meanings
-------------
given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance with
GAAP, subject, in the case of quarterly or interim financial statements, to
year-end audit adjustments and the absence of footnotes, and fairly present the
Borrower's financial condition and the results of its operations as of the date
thereof.
Events of Default. (Check one):
[ ] The undersigned does not have knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement.
[ ] The undersigned has knowledge of the occurrence of a Default or Event
of Default under the Credit Agreement and attached hereto is a statement of
the facts with respect to thereto.
I hereby certify to the Lender as follows:
[ ] The Reporting Date does not ▇▇▇▇ the end of one of the Borrower's
fiscal quarters, hence I am completing only paragraph __ below.
[ ] The Reporting Date marks the end of one of the Borrower's fiscal
quarters, hence I am completing all paragraphs below except paragraph __.
[ ] The Reporting Date marks the end of the Borrower's fiscal year, hence I
am completing all paragraphs below.
Financial Covenants. I further hereby certify as follows:
--------------------
B - 1
1. Minimum Book Net Worth. Pursuant to Section 6.12 of the Credit
----------------------
Agreement, as of the Reporting Date the Borrower's Book Net Worth was
$____________ which [ ] satisfies [ ] does not satisfy the requirements of
Section 6.12.
2. Minimum Adjusted Net Income. Pursuant to Section 6.13 of the
-----------------------------
Credit Agreement, the Borrower's Adjusted Net Income for the ________ period
ending on the Reporting Date, was $___________, which [ ] satisfies [ ]
does not satisfy the requirements of Section 6.13.
3. Capital Expenditures. Pursuant to Section 7.10 of the Credit
---------------------
Agreement, for the year-to-date period ending on the Reporting Date, the
Borrower has expended or contracted to expend during the _____________ year
ended ______________, ___, for Capital Expenditures, $__________________ in the
aggregate, which [ ] satisfies [ ] does not satisfy the requirements of
Section 7.10.
4. Salaries. As of the Reporting Date, the Borrower [ ] is [ ]
--------
is not in compliance with Section 7.16 of the Credit Agreement concerning
salaries.
B - 2
Attached hereto are all relevant facts in reasonable detail to evidence, and the
computations of the financial covenants referred to above. These computations
were made in accordance with GAAP.
ROCKSHOX, INC.,
a Delaware corporation
By
------------------------------------
[Name]
Its Chief Financial Officer
B - 3
Exhibit C to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement are legally
described as follows:
(See Attached)
C - 1
Schedule 5.1 to Credit and Security Agreement
TRADE NAMES, CHIEF EXECUTIVE OFFICE, PRINCIPAL PLACE OF
BUSINESS, AND LOCATIONS OF COLLATERAL
(See Attached)
Schedule 5.1
Schedule 5.4 to Credit and Security Agreement
SUBSIDIARIES
Rockshox Taiwan (branch office)
Schedule 5.1
Schedule 7.1 to Credit and Security Agreement
PERMITTED LIENS
[See attached]
Schedule 7.1
Schedule 7.2 to Credit and Security Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
NONE.
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Cross References . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY . . . . . . . . . . . . . . . 10
Section 2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.2 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.3 Payment of Amounts Drawn Under Letters of Credit; Obligation of
Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.4 Special Account . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.5 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2.6 Interest; Minimum Interest Charge; Default Interest; Participations;
Usury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 2.8 Computation of Interest and Fees; When Interest Due and Payable . . . 15
Section 2.9 Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 2.10 Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.11 Voluntary Prepayment; Reduction of the Maximum Line;
Termination of the Credit Facility by the Borrower . . . . . . . . . 17
Section 2.12 Termination and Line Reduction Fees; Waiver of Termination and
Line Reduction Fees . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.13 Mandatory Prepayment . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 2.14 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.15 Payment on Non-Banking Days . . . . . . . . . . . . . . . . . . . . 18
Section 2.16 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.17 Liability Records . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2.18 Deactivation of Credit Facility . . . . . . . . . . . . . . . . . . 18
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF . . . . . . . . . . . . . . . . 19
Section 3.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . 19
Section 3.2 Notification of Account Debtors and Other Obligors . . . . . . . . . 19
Section 3.3 Assignment of Insurance . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.4 Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.5 License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.6 Financing Statement . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.7 Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.1 Conditions Precedent to the Initial Revolving Advance and the
Initial Letter of Credit . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.2 Conditions Precedent to All Advances and Letters of Credit . . . . . 22
ARTICLE V REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 23
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number . . . . 23
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements . . . 23
Section 5.3 Legal Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.5 Financial Condition; No Adverse Change . . . . . . . . . . . . . . . 24
Section 5.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.7 Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.9 Titles and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.10 Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.11 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.13 Submissions to Lender . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.14 Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.15 Rights to Payment . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . 27
Section 6.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . 27
Section 6.2 Books and Records; Inspection and Examination . . . . . . . . . . . . 29
Section 6.3 Account Verification . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.4 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 6.5 Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . 30
Section 6.6 Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.8 Preservation of Existence . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.9 Delivery of Instruments, etc. . . . . . . . . . . . . . . . . . . . . 31
Section 6.10 Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.11 Performance by the Lender . . . . . . . . . . . . . . . . . . . . . 31
Section 6.12 Minimum Book Net Worth . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.13 Minimum Net Income . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.14 New Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.15 Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 6.16 Off-Site Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.1 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 7.2 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.3 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.4 Investments and Subsidiaries . . . . . . . . . . . . . . . . . . . . 35
Section 7.5 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations . . . . 35
Section 7.7 Consolidation and Merger; Asset Acquisitions . . . . . . . . . . . . 36
Section 7.8 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.9 Restrictions on Nature of Business . . . . . . . . . . . . . . . . . 36
Section 7.10 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.11 Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.12 Discounts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.13 Defined Benefit Pension Plans . . . . . . . . . . . . . . . . . . . 36
Section 7.15 Place of Business; Name . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.16 Organizational Documents . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.17 Salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 7.18 Change in Ownership . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES . . . . . . . . . . . . . . . 37
Section 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 8.2 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.3 Certain Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.1 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . 40
Section 9.2 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 9.3 Addresses for Notices, Etc. . . . . . . . . . . . . . . . . . . . . . 40
Section 9.4 Further Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.5 Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 9.6 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.7 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 9.8 Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.9 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.10 Binding Effect; Assignment; Complete Agreement; Exchanging
Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.11 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . 43
Section 9.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 9.13 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial . . . . . . 43
Section 9.14 Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.15 Termination, Release . . . . . . . . . . . . . . . . . . . . . . . 44
Section 9.16 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 44