EXHIBIT 10.61
LOAN AND SECURITY AGREEMENT
by and among
HILCO CAPITAL LP
as Lender,
and
ROCKFORD CORPORATION and
AUDIO INNOVATIONS, INC.
as Borrowers
Dated: March 29, 2004
TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS ......................................................... 1
SECTION 2. CREDIT FACILITIES ................................................... 24
2.1 Revolving Loans ....................................................... 24
2.2 Letter of Credit Accommodations ....................................... 24
2.3 Term Loan ............................................................. 28
2.4 Commitments ........................................................... 28
SECTION 3. INTEREST AND FEES ................................................... 28
3.1 Interest .............................................................. 28
3.2 Changes in Laws and Increased Costs of Loans .......................... 30
3.3 Closing Fee ........................................................... 32
3.4 Servicing Fee ......................................................... 32
3.5 Unused Line Fee ....................................................... 32
SECTION 4. CONDITIONS PRECEDENT ................................................ 33
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations ........................................................ 33
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations . 35
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST ........................... 35
5.1 Grant of Security Interest ............................................ 35
5.2 Perfection of Security Interests ...................................... 37
SECTION 6. COLLECTION AND ADMINISTRATION ....................................... 40
6.1 Borrowers' Loan Accounts .............................................. 40
6.2 Statements ............................................................ 41
6.3 Collection of Accounts ................................................ 41
6.4 Payments .............................................................. 42
6.5 Taxes ................................................................. 43
6.6 Authorization to Make Loans ........................................... 45
6.7 Use of Proceeds ....................................................... 45
6.8 Pro Rata Treatment .................................................... 46
6.9 Sharing of Payments, Etc. ............................................. 46
6.10 Settlement Procedures ................................................. 47
SECTION 7. COLLATERAL REPORTING AND COLLATERAL COVENANTS ....................... 49
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(continued)
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7.1 Collateral Reporting ..................................................... 49
7.2 Accounts Covenants ....................................................... 50
7.3 Inventory Covenants ...................................................... 50
7.4 Equipment and Real Property Covenants ................................... 51
7.5 Power of Attorney ........................................................ 52
7.6 Right to Cure ............................................................ 53
7.7 Access to Premises ....................................................... 53
SECTION 8. REPRESENTATIONS AND WARRANTIES ......................................... 53
8.1 Corporate Existence; Power and Authority ................................. 53
8.2 Name; State of Organization; Chief Executive Office; Collateral Locations. 54
8.3 Financial Statements; No Material Adverse Change ......................... 54
8.4 Priority of Liens; Title to Properties ................................... 54
8.5 Tax Returns .............................................................. 55
8.6 Litigation ............................................................... 55
8.7 Compliance with Other Agreements and Applicable Laws ..................... 55
8.8 Environmental Compliance ................................................. 55
8.9 Employee Benefits ........................................................ 56
8.10 Bank Accounts ............................................................ 57
8.11 Intellectual Property .................................................... 57
8.12 Subsidiaries; Affiliates; Capitalization; Solvency ....................... 57
8.13 Labor Disputes ........................................................... 58
8.14 Restrictions on Subsidiaries ............................................. 58
8.15 Material Contracts ....................................................... 58
8.16 Payable Practices ........................................................ 59
8.17 Accuracy and Completeness of Information ................................. 59
8.18 Survival of Warranties; Cumulative ....................................... 59
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS ..................................... 59
9.1 Maintenance of Existence ................................................. 59
9.2 New Collateral Locations ................................................. 60
9.3 Comnliance with Laws, Regulations, Etc. .................................. 60
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TABLE OF CONTENTS
(continued)
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9.4 Payment of Taxes and Claims .................................................. 61
9.5 Insurance .................................................................... 61
9.6 Financial Statements and Other Information ................................... 62
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. ..................... 63
9.8 Encumbrances ................................................................. 64
9.9 Indebtedness ................................................................. 65
9.10 Loans, Investments, Etc. ..................................................... 66
9.11 Dividends and Redemptions .................................................... 67
9.12 Transactions with Affiliates ................................................. 67
9.13 Compliance with ERISA ........................................................ 67
9.14 End of Fiscal Years and Fiscal Quarters ...................................... 67
9.15 Change in Business ........................................................... 68
9.16 Limitation of Restrictions Affecting Subsidiaries ............................ 68
9.17 Fixed Charge Coverage Ratio .................................................. 68
9.18 License Agreements ........................................................... 68
9.19 After Acquired Real Property ................................................. 69
9.20 Distribution of Loan Proceeds Amongst Borrowers .............................. 69
9.21 Costs and Expenses ........................................................... 70
9.22 Further Assurances ........................................................... 70
SECTION 10. EVENTS OF DEFAULT AND REMEDIES ............................................ 70
10.1 Events of Default ........................................................... 70
10.2 Remedies ..................................................................... 73
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW .............. 76
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver ........ 76
11.2 Waiver of Notices ............................................................ 77
11.3 Amendments and Waivers ....................................................... 78
11.4 Confidentiality .............................................................. 79
11.5 Other Waivers ................................................................ 80
11.6 Indemnification..... ............ ........................................ ... 80
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(continued)
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SECTION 12. THE AGENT .................................................................... 80
12.1 Appointment; Powers and Immunities .............................................. 80
12.2 Reliance By Agent ............................................................... 81
12.3 Events of Default ............................................................... 81
12.4 Congress in its Individual Capacity ............................................. 82
12.5 Indemnification ................................................................. 82
12.6 Non-Reliance on Agent and Other Lender .......................................... 82
12.7 Failure to Act .................................................................. 83
12.8 Additional Loans ................................................................ 83
12.9 Concerning the Collateral and the Related Financing Agreements .................. 83
12.10 Field Audits; Examination Reports and other Information; Disclaimer by Lender ... 83
12.11 Collateral Matters .............................................................. 84
12.12 Agency for Perfection ........................................................... 85
12.13 Failure to Respond Deemed Consent ............................................... 85
SECTION 13. JOINT AND SEVERAL LIABILITY; SURETYSHIP WAIVERS;
APPOINTMENT OF BORROWER AGENT ................................................ 86
13.1 Independent Obligations; Subrogation ............................................ 86
13.2 Authority to Modify Obligations and Security .................................... 86
13.3 Waiver of Defenses .............................................................. 87
13.4 Exercise of Agent's and Lender' Rights .......................................... 87
13.5 Additional Waivers .............................................................. 87
13.6 Additional Indebtedness ......................................................... 87
13.7 Notices, Demands, Etc. .......................................................... 88
13.8 Subordination ................................................................... 88
13.9 Revival ......................................................................... 89
13.10 Understanding of Waivers ........................................................ 89
13.11 Appointment of Borrower Agent.................................................... 89
SECTION 14. TERM OF AGREEMENT; MISCELLANEOUS ............................................. 90
14.1 Term ............................................................................ 90
14.2 Interpretive Provisions ......................................................... 91
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(continued)
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14.3 Notices ................................... 92
14.4 Partial Invalidity ........................ 93
14.5 Successors ................................ 93
14.6 Assignments; Participations ............... 94
14.7 Participant's Security Interests .......... 96
14.8 Entire Agreement .......................... 97
14.9 Counterparts, Etc. ........................ 97
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LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement"), dated March 29,
2004, is entered into by and among HILCO CAPITAL LP, a Delaware limited
partnership (hereinafter "Lender"), and Rockford Corporation, an Arizona
corporation ("Borrower Agent"), and Audio Innovations, Inc., an Oklahoma
corporation ("All" and, together with Borrower Agent, "Borrowers" and,
individually, each a "Borrower").
WITNESSETH:
WHEREAS, Borrowers have requested that Lender enter into a financing
arrangement with Borrowers pursuant to which Lender shall make a term loan to
Borrowers; and
WHEREAS, All is a wholly owned Subsidiary of Borrower Agent, and
Borrowers, together with their Subsidiaries, are inter-related entities which,
collectively constitute an integrated business operation of designing,
manufacturing and distributing aftermarket mobile audio products, home theater
sound products and professional audio products; and
WHEREAS, the directors of each Borrower view the entities as
sufficiently dependent upon each other and so inter-related that any advance
made hereunder to any Borrower would benefit all Borrowers as a result of their
consolidated operations and identity of interests; and
WHEREAS, each Borrower has requested that Lender treat them as
co-borrowers hereunder, jointly and severally responsible for the obligations of
each other hereunder; and
WHEREAS, Lender is willing to agree to make such term loan to
Borrowers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of any Borrower
to payment of a monetary obligation, whether or not earned by performance, which
is not evidenced by chattel paper or an instrument, (a) for property that has
been or is to be sold, leased, licensed, assigned, or otherwise disposed of, (b)
for services rendered or to be rendered, (c) for a secondary obligation incurred
or to be incurred, or (d) arising out of the use of a credit, charge or debit
card along with all information contained on or for use with such card.
1.2 "Affiliate" shall mean, with respect to a specified Person, any
other Person which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under
S-1
common control with such Person, and without limiting the generality of the
foregoing, includes (a) any Person which beneficially owns or holds five percent
(5%) or more of any class of Voting Stock of such Person or other equity
interests in such Person, (b) any Person of which such Person beneficially owns
or holds five percent (5%) or more of any class of Voting Stock or in which such
Person beneficially owns or holds five percent (5%) or more of the equity
interests and (c) any director or executive officer of such Person. For purposes
of this definition, the term "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by agreement or otherwise.
1.3 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.4 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of Illinois, and a day on which LaSalle Bank National
Association and Lender are open for the transaction of business.
1.5 "Capital Expenditures" shall mean, for any period, any expenditure
of money under a Capital Lease or for the lease, purchase or other acquisition
of any capital asset, for the lease of any other asset, whether payable
currently or in the future, or for the purchase or construction of assets, or
for improvements or additions thereto, which are capitalized on a Person's
balance sheet.
1.6 "Capital Leases" shall mean, as applied to any Person, any lease of
(or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is
required to be reflected as a liability on the balance sheet of such Person.
1.7 "Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's capital stock, or partnership, limited liability company or other
equity interests at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital stock or other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
1.8 "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of ninety (90) days or less issued or directly
and fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof; provided, that, the full faith and credit of the United
States of America is pledged in support thereof; (b) certificates of deposit or
bankers' acceptances with a maturity of ninety (90) days or less of any
financial institution that is a member of the Federal Reserve System having
combined capital and unimpaired surplus of not less than One Billion Dollars
($1,000,000,000); (c) commercial paper (including variable rate demand notes)
with a maturity of ninety (90) days or less issued by a corporation (except an
Affiliate of any Borrower) organized under the laws of any State of the United
States of America or the District of Columbia and rated at least A-1 by Standard
& Poor's Ratings Service, a division of The ▇▇▇▇▇▇-▇▇▇▇ Companies, Inc. or at
least P-1 by ▇▇▇▇▇'▇
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Investors Service, Inc.; (d) repurchase obligations with a term of not more than
thirty (30) days for underlying securities of the types described in clause (a)
above entered into with any financial institution having combined capital and
unimpaired surplus of not less than One Billion Dollars ($1,000,000,000); (e)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or issued by any governmental agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
ninety (90) days or less from the date of acquisition; provided, that, the terms
of such agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f)
investments in money market funds and mutual funds that are registered under the
Investment Company Act of 1940, as amended, which invest substantially all of
their assets in securities of the types described in clauses (a) through (e)
above.
1.9 "Change of Control" shall mean (a) the transfer (in one transaction
or a series of transactions) of all or substantially all of the assets of any
Borrower to any Person or group (as such term is used in Section 13(d)(3) of the
Exchange Act); (b) the liquidation or dissolution of any Borrower or the
adoption of a plan by the stockholders of any Borrower relating to the
dissolution or liquidation of such Borrower (except that All's liquidation,
dissolution or merger as part of a sale of assets to, or merger with, Borrower
Agent will not constitute a Change of Control if Borrower Agent is the surviving
corporation and owner of all assets of All after the liquidation, dissolution or
merger); (c) the acquisition by any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act), of beneficial ownership, directly or
indirectly, of a majority of the voting power of the total outstanding Voting
Stock of any Borrower or the Board of Directors of any Borrower; (d) during any
period of two (2) consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of any Borrower (together with any new
directors whose nomination for election by the stockholders of such Borrower, as
the case may be, was approved by a vote of at least sixty-six and two-thirds
percent (66 2/3%) of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of such Borrower then still in office; or (e)
the failure of Borrower Agent to own one hundred percent (100%) of the voting
power of the total outstanding Voting Stock of All.
1.10 "Closing Date" shall mean March 29, 2004.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as the same now
exists or may from time to time hereafter be amended, modified, recodified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.12 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.13 "Collateral Access Agreement" shall mean an agreement in writing, in
form and substance reasonably satisfactory to Agent, by a lessor of premises to
any Borrower, or any other person to whom any Collateral (including Inventory,
Equipment, bills of lading or other documents of title) is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located,
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pursuant to which such lessor, consignee or other person, inter alia,
acknowledges the first priority security interest of Congress, as agent, for
itself and for Lender, in such Collateral, agrees to waive any and all claims
such lessor, consignee or other person may, at any time, have against such
Collateral, whether for processing, storage or otherwise, and agrees to permit
Congress access to, and the right to remain on, the premises of such lessor,
consignee or other person so as to exercise Congress' rights and remedies and
otherwise deal with such Collateral and, in the case of any consignee or other
person who at any time has custody, control or possession of any Collateral,
acknowledges that it holds and will hold possession of the Collateral for the
benefit of Congress, as agent for itself and Lender, and agrees to follow all
instructions of Congress with respect thereto.
1.14 "Congress" shall mean Congress Financial Corporation (Western), a
California corporation, as agent for the lenders which are parties to the
Congress Agreement, and their respective successors and assigns.
1.15 "Congress Agreement" shall mean that certain Loan and Security
Agreement dated as of March 29, 2004 (as amended or otherwise modified from time
to time) between Congress, as agent for the lenders which are parties to such
agreement, and Borrowers providing for the making of Revolving Loans and the
issuance of letters of credit in an aggregate principal amount not to exceed
$45,000,000.00 outstanding at any time, and Term Loans in an aggregate principal
amount not to exceed $2,500,000.00 outstanding at any time, which Term Loans
shall only be made after Lender's receipt of the financial statements of
Borrowers as required hereunder for the periods ending June 30, 2004 and
September 30, 2004, and Borrowers and their Subsidiaries, on a consolidated
basis, maintaining a Fixed Charge Coverage Ratio of not less than 2.57 to one
for the three (3) months ending June 30, 2004 and 2.23 to one for the six (6)
months ending September 30, 2004.
1.16 "Congress Borrowing Base" shall mean the sum available to the
Borrower for Revolving Loans and Letter of Credit Accommodations under the
Congress Agreement based on the lending formulas and all definitions used in the
determination of the Borrowing Base in existence in the Congress Agreement on
the date hereof, and including the application of any Reserves (as such term is
defined in the Congress Agreement), in the amount of such Reserves in effect on
the date hereof, or in the event of the increase thereof, such increased amount.
1.17 "Default" shall mean an act, condition or event which with notice or
passage of time or both would constitute an Event of Default.
1.18 "Default Rate" shall mean a rate of interest per annum on any
Obligations hereunder, equal to the sum of three percent (3%) plus the then
existing Interest Rate being charged by Lender on the Obligations.
1.19 "Deposit Account Control Agreement" shall mean an agreement in
writing, in form and substance reasonably satisfactory to Lender, by and among
Congress, as agent for itself and Lender, any Borrower and any bank at which any
deposit account of such Borrower is at any time maintained which provides that
such bank will comply with instructions originated by Congress directing
disposition of the funds in the deposit account without further consent by such
Borrower and such other terms and conditions as Congress may require, including
as to any
4
such agreement with respect to any Blocked Account, providing that all items
received or deposited in the Blocked Accounts are the property of Congress, for
itself and for the benefit of Lender, that the bank has no lien upon, or right
to setoff against, the Blocked Accounts, the items received for deposit therein,
or the funds from time to time on deposit therein and that the bank will wire,
or otherwise transfer, in immediately available funds, on a daily basis to the
Payment Account all funds received or deposited into the Blocked Accounts.
1.20 "Direct Foreign Subsidiaries" shall mean, collectively, Rockford
(Europe) Elektronik Vertriebs GmbH, a German GmbH, and Rockford Foreign Sales
Corporation, a Barbados corporation, as the direct foreign Subsidiaries of
Borrower Agent.
1.21 "Domestic Subsidiaries" shall mean, collectively, MB Quart Shanghai,
Inc., an Arizona corporation, Rockford ▇▇▇▇▇.▇▇▇, Inc., an Arizona corporation,
and Rockford Singapore Corporation, an Arizona corporation, as the wholly-owned
domestic Subsidiaries of Borrower Agent (other than All).
1.22 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between any Borrower and any
Governmental Authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of Hazardous Materials, or (c) relating to all laws with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials. The term "Environmental Laws" includes (i) the
Federal Comprehensive Environmental Response, Compensation and Liability Act of
1980, the Federal Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Water Act, the Federal
Clean Air Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal Solid
Waste Disposal and the Federal Toxic Substances Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act, and the Federal Safe Drinking Water
Act of 1974, (ii) applicable state counterparts to such laws, and (iii) any
common law or equitable doctrine that may impose liability or obligations for
injuries or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Materials.
1.23 "Equipment" shall mean all of each Borrower's now owned and
hereafter acquired equipment, wherever located, including machinery, data
processing and computer equipment and computer hardware and software, whether
owned or licensed, and including embedded software, vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed
thereto or used in connection therewith, and substitutions and replacements
thereof, wherever located.
1.24 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, together with all rules, regulations and interpretations
thereunder or related thereto.
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1.25 "ERISA Affiliate" shall mean any person required to be aggregated
with any Borrower or any Borrower's Subsidiary under Sections 414(b), 414(c).
414(m) or 414(o) of the Code.
1.26 "ERISA Event" shall mean (a) any "reportable event", as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to a
Plan; (b) the adoption of any amendment to a Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (d) the filing pursuant to Section 412 of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding
standard with respect to any Plan; (e) the occurrence of a "prohibited
transaction" with respect to which any Borrower or any of its Subsidiaries is a
"disqualified person" (within the meaning of Section 4975 of the Code) or with
respect to which such Borrower or any of its Subsidiaries could otherwise be
liable; (f) a complete or partial withdrawal by any Borrower or any ERISA
Affiliate from a Multiemployer Plan or a cessation of operations which is
treated as such a withdrawal or notification that a Multiemployer Plan is in
reorganization; (g) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or
the commencement of proceedings by the Pension Benefit Guaranty Corporation to
terminate a Plan; (h) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan; (i) the imposition of any
liability under Title IV of ERISA, other than the Pension Benefit Guaranty
Corporation premiums due but not delinquent under Section 4007 of ERISA, upon
any Borrower or any ERISA Affiliate in excess of Twenty-Five Thousand Dollars
($25,000); and (j) any other event or condition with respect to a Plan including
any Plan subject to Title IV of ERISA maintained, or contributed to, by any
ERISA Affiliate that could reasonably be expected to result in liability of any
Borrower.
1.27 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.28 "Excess" shall have the meaning set forth in Section 3.2 hereof.
1.29 "Excess Availability" shall have the meaning set forth in the
Congress Agreement, as of the date hereof.
1.30 "Exchange Act" shall mean the Securities Exchange Act of 1934,
together with all rules, regulations and interpretations thereunder or related
thereto.
1.31 "Final Maturity Date" shall mean May 1, 2006.
1.32 "Financing Agreements" shall mean, collectively, this Agreement and
all notes, guarantees, security agreements, Deposit Account Control Agreements,
Investment Property Control Agreements, Collateral Access Agreements,
intercreditor agreements, and all other agreements, documents and instruments
now or at any time hereafter executed and/or delivered by any Borrower or any
Obligor in connection with this Agreement.
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1.33 "Fixed Charge Coverage Ratio" shall mean, for any period, the ratio
of (a) earnings before interest and taxes plus depreciation and amortization
expenses, less cash payments for taxes, to (b) the sum of Interest Expense,
management fees, principal payments on Indebtedness, and Capital Expenditures,
in each case during such period.
1.34 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Section 9.17 hereof, GAAP shall be determined on the basis of
such principles in effect on the date hereof and consistent with those used in
the preparation of the most recent audited financial statements delivered to
Lender prior to the date hereof.
1.35 "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
1.36 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.37 "Indebtedness" shall mean, with respect to any Person, any
liability, whether or not contingent, (a) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion thereof) or evidenced by bonds, notes, debentures or
similar instruments; (b) representing the balance deferred and unpaid of the
purchase price of any property or services (except any such balance that
constitutes an account payable to a trade creditor (whether or not an Affiliate)
created, incurred, assumed or guaranteed by such Person in the ordinary course
of business of such Person in connection with obtaining goods, materials or
services that is not overdue by more than ninety (90) days, unless the trade
payable is being contested in good faith); (c) all obligations as lessee under
leases which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase,
repurchase, or otherwise acquire such indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency, assets, level of income, or other financial condition;
(e) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any Capital Stock or other equity securities issued
by
7
such Person; (f) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker's acceptances, drafts or similar documents or
instruments issued for such Person's account; (g) all indebtedness of such
Person in respect of indebtedness of another Person for borrowed money or
indebtedness of another Person otherwise described in this definition which is
secured by any consensual lien, security interest, collateral assignment,
conditional sale, mortgage, deed of trust, or other encumbrance on any asset of
such Person, whether or not such obligations, liabilities or indebtedness are
assumed by or are a personal liability of such Person, all as of such time; (h)
all obligations, liabilities and indebtedness of such Person (marked to market)
arising under swap agreements, cap agreements and collar agreements and other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency or commodity values; and (i) all obligations owed
by such Person under License Agreements with respect to non-refundable, advance
or minimum guaranty royalty payments.
1.38 "Information Certificates" shall mean, collectively, the Information
Certificates of each Borrower constituting Exhibit B hereto containing material
information with respect to such Borrower, its business and assets provided by
or on behalf of such Borrower to Lender in connection with the preparation of
this Agreement and the other Financing Agreements and the financing arrangements
provided for herein; sometimes referred to individually as an "Information
Certificate."
1.39 "Initial Maturity Date" shall mean May 1, 2005.
1.40 "Intellectual Property" shall mean all of each Borrower's now owned
and hereafter arising or acquired: patents, patent rights, patent applications,
copyrights, works which are the subject matter of copyrights, copyright
registrations, trademarks, service marks, trade names, trade styles, trademark
and service ▇▇▇▇ applications, and licenses and rights to use any of the
foregoing; all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing; all rights to ▇▇▇ for past,
present and future infringement of any of the foregoing; inventions, trade
secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys,
reports, manuals, and operating standards; goodwill (including any goodwill
associated with any trademark or the license of any trademark); customer and
other lists in whatever form maintained; and trade secret rights, copyright
rights, rights in works of authorship, domain names and domain name
registrations; software and contract rights relating to software, in whatever
form created or maintained.
1.41 "Intercreditor Agreement" shall mean that certain Intercreditor
Agreement of even date herewith between Congress and Lender, and acknowledged by
Borrowers, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.42 "Interest Expense" shall mean, for any period, as to any Person and
its Subsidiaries, all of the following as determined in accordance with GAAP,
total interest expense, whether paid or accrued (including the interest
component of Capital Leases for such period), including, without limitation, all
bank fees, fees due Lender, commissions, discounts and other fees and charges
owed with respect to letters of credit, banker's acceptances or similar
instruments, but excluding (a) amortization of discount and amortization of
deferred financing
8
fees and closing costs paid in cash in connection with the transactions
contemplated hereby, (b) interest paid in property other than cash and (c) any
other interest expense not payable in cash.
1.43 "Interest Rate" shall mean, a rate equal to the greater of (i) the
LaSalle Bank Rate plus four and one-half (4.5%) percent per annum, or (ii) eight
and one-half (8.5%) percent per annum. Interest shall accrue based upon a 360
day year and actual days elapsed. Changes in the LaSalle Bank Rate shall take
effect for the purpose of calculating interest on the Term Loan when such
changes takes effect generally to loans made by LaSalle Bank National
Association.
1.44 "Inventory" shall mean all of each Borrower's now owned and
hereafter existing or acquired goods, wherever located, which (a) are leased by
such Borrower as lessor; (b) are held by such Borrower for sale or lease or to
be furnished under a contract of service; (c) are furnished by such Borrower
under a contract of service; or (d) consist of raw materials, work in process,
finished goods or materials used or consumed in its business.
1.45 "Investment Property Control Agreement" shall mean an agreement in
writing, in form and substance satisfactory to Lender, by and among Congress, as
agent for itself and Lender, a Borrower and any securities intermediary,
commodity intermediary or other Person who has custody, control or possession of
any investment property of such Borrower agreeing and acknowledging that, inter
alia, such Person has custody, control or possession of such investment property
on behalf of Congress, as agent for itself and Lender, that such Person will
comply with entitlement orders originated by Congress with respect to such
investment property, or other instructions of Congress, and such Person will
apply any value distributed on account of any commodity contract as directed by
Congress, in each case, without the further consent of such Borrower, and
including such other terms and conditions as Congress may require.
1.46 "LaSalle Bank Rate" shall mean the rate of interest per annum
announced by LaSalle Bank National Association from time to time as its prime
rate in effect at its principal office in Chicago. (The prime rate is not
intended to be the lowest rate of interest charged by LaSalle Bank National
Association to its borrowers).
1.47 "License Agreements" shall have the meaning set forth in Section
8.11 hereof.
1.48 "Material Contract" shall mean (a) any contract or other agreement
(other than the Financing Agreements), written or oral, of any Borrower
involving monetary liability of or to any Person in an amount in excess of Two
Hundred Fifty Thousand Dollars ($250,000) in any fiscal year and (b) any other
contract or other agreement (other than the Financing Agreements), whether
written or oral, to which any Borrower is a party as to which the breach,
nonperformance, cancellation or failure to renew by any party thereto would have
a material adverse effect on the business, assets, condition (financial or
otherwise) or results of operations or prospects of such Borrower or the
validity or enforceability of this Agreement, any of the other Financing
Agreements, or any of the rights and remedies of Lender hereunder or thereunder.
1.49 "Maturity Date" shall mean the Initial Maturity Date or the Final
Maturity Date, as applicable.
9
1.50 "Maximum Interest Rate" shall mean the maximum non-usurious rate of
interest under applicable Federal or State law as in effect from time to time
that may be contracted for, taken, reserved, charged or received in respect of
the Obligations.
1.51 "Multiemployer Plan" shall mean a "multi-employer plan" as defined
in Section 4001(a)(3) of ER1SA which is or was at any time during the current
year or the immediately preceding six (6) years contributed to by any Borrower
or any ER1SA Affiliate
1.52 "New Lending Office" shall have the meaning set forth in Section
6.5(e) hereof.
1.53 "Non-U.S. Lender" shall have the meaning set forth in Section 6.5(e)
hereof.
1.54 "Obligations" shall mean the Term Loan and all other obligations,
liabilities and indebtedness of every kind, nature and description owing by any
Borrower to Lender and/or any of its affiliates, including principal, interest,
charges, fees, costs and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether arising under this Agreement
or otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of this Agreement or after the
commencement of any case with respect to such Borrower under the United States
Bankruptcy Code or any similar statute (including the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case, whether or not such amounts are allowed or allowable in whole or in part
in such case), whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, and however acquired by Lender.
1.55 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than a Borrower.
1.56 "Other Taxes" shall mean any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any of the
other Financing Agreements.
1.57 "Payment Account" shall mean account no. 5000000030321 of Congress
at Wachovia Bank, National Association, or such other account of Congress as
Congress may from time to time designate to Borrowers as the Payment Account
under the Congress Agreement.
1.58 "Person" or "person" shall mean any individual, sole proprietorship,
partnership, corporation (including any corporation which elects subchapter S
status under the Code), limited liability company, limited liability
partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.59 "Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which any Borrower sponsors, maintains, or to which it makes, is making,
or is obligated to make contributions, or in the case of a Multiemployer Plan
has made contributions at any time during the immediately preceding six (6) plan
years.
10
1.60 "Real Property" shall mean all now owned and hereafter acquired real
property of each Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located.
1.61 "Receivables" shall mean all of the following now owned or hereafter
arising or acquired property of each Borrower: (a) all Accounts; (b) all
interest, fees, late charges, penalties, collection fees and other amounts due
or to become due or otherwise payable in connection with any Account; and (c)
all payment intangibles of such Borrower and other contract rights, chattel
paper, instruments, notes, and other forms of obligations owing to such
Borrower, whether from the sale and lease of goods or other property, licensing
of any property (including Intellectual Property or other general intangibles),
rendition of services or from loans or advances by such Borrower or to or for
the benefit of any third person (including loans or advances to any Affiliates
or Subsidiaries of such Borrower) or otherwise associated with any Accounts,
Inventory or general intangibles of such Borrower (including, without
limitation, choses in action, causes of action, tax refunds, tax refund claims,
any funds which may become payable to such Borrower in connection with the
termination of any Plan or other employee benefit plan and any other amounts
payable to such Borrower from any Plan or other employee benefit plan, rights
and claims against carriers and shippers, rights to indemnification, business
interruption insurance and proceeds thereof, casualty or any similar types of
insurance and any proceeds thereof and proceeds of insurance covering the lives
of employees on which such Borrower is a beneficiary).
1.62 "Records" shall mean all of each Borrower's present and future books
of account of every kind or nature, purchase and sale agreements, invoices,
ledger cards, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data relating to the
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of such Borrower
with respect to the foregoing maintained with or by any other person).
1.63 "Solvent" shall mean, at any time with respect to any Person, that
at such time such Person (a) is able to pay its debts as they mature and has
(and has a reasonable basis to believe it will continue to have) sufficient
capital (and not unreasonably small capital) to carry on its business consistent
with its practices as of the date thereof, and (b) the assets and properties of
such Person at a fair valuation (and including as assets for this purpose at a
fair valuation all rights of subrogation, contribution or indemnification
arising pursuant to any guaranties given by such Person) are greater than the
Indebtedness of such Person, and including subordinated and contingent
liabilities computed at the amount which, such person has a reasonable basis to
believe, represents an amount which can reasonably be expected to become an
actual or matured liability (and including as to contingent liabilities arising
pursuant to any guaranty the face amount of such liability as reduced to reflect
the probability of it becoming a matured liability).
1.64 "Subsidiary" or "subsidiary" shall mean, with respect to any Person,
any corporation, limited liability company, limited liability partnership or
other limited or general partnership, trust, association or other business
entity of which an aggregate of at least a majority
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of the outstanding Capital Stock or other interests entitled to vote in the
election of the board of directors of such corporation (irrespective of whether,
at the time. Capital Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency), managers, trustees or other controlling persons, or an equivalent
controlling interest therein, of such Person is, at the time, directly or
indirectly, owned by such Person and/or one or more subsidiaries of such Person.
1.65 "Taxes" shall mean any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of Lender, such taxes (including income taxes,
franchise taxes or capital taxes) as are imposed on or measured by Lender's net
income or capital by any jurisdiction (or any political subdivision thereof).
1.66 "Termination Date" shall mean the earliest of (a) the Maturity Date;
or (b) the occurrence of any event described in Section 10.1(g) or Section
10.1(h), below; or (c) Lender's notice to the Borrower Agent setting the
Termination Date on account of the occurrence of any Event of Default other than
as described in 10.1(g) or Section 10.1(h), below.
1.67 "Term Loan" shall have the meaning set forth in Section 2.1 hereof.
1.68 "Term Note" shall mean that certain Term Promissory Note, issued by
Borrowers to Lender to evidence the Term Loan, as the same originally exist or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.69 "Transferee" shall mean any Person to whom any Lender may transfer
its rights, interest and obligations hereunder.
1.70 "UCC" shall mean the Uniform Commercial Code as in effect in the
State of Illinois, and any successor statute, as in effect from time to time
(except that terms used herein which are defined in the Uniform Commercial Code
as in effect in the State of Illinois-on the date hereof shall continue to have
the same meaning notwithstanding any replacement or amendment of such statute
except as Lender may otherwise determine).
1.71 "Voting Stock" shall mean with respect to any Person, (a) one (1) or
more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
SECTION 2. CREDIT FACILITY
2.1 Term Loan.
(a) Subject to the terms and conditions contained herein, Lender
agrees to make a term loan to Borrowers (the "Term Loan") on the Closing Date in
an amount equal to Four Million Dollars ($4,000,000).
12
(b) The Term Loan is (i) evidenced by the Term Note duly executed
and delivered by Borrowers to Lender concurrently herewith, (ii) to be repaid,
together with interest and other amounts, in accordance with this Agreement, the
Term Note and the other Financing Agreements, and (iii) secured by all of the
Collateral. The Term Loan will be due and payable in full on the Initial
Maturity Date unless renewed in accordance with Section 2.2. Borrowers shall
repay the principal sum of the Term Loan on the Termination Date.
2.2 Extension Option. Upon satisfaction of each of the following
conditions, Borrower may extend the Term Loan until the Final Maturity Date:
(a) No Default. No Default shall exist on the date of the Borrower
Agent's written notice for an extension as provided for below and on the Initial
Maturity Date.
(b) Notice From Borrower. Borrower shall have given Lender written
notice of Borrower's request to exercise its extension right at least sixty (60)
days before the Initial Maturity Date.
(c) Covenant Compliance. No breach of any covenants imposed upon
Borrowers shall exist including, without limitation, those contained in Sections
9.17 or 9.18.
(d) Conditions Satisfied. All of the conditions set forth in
Section 4.1 of this Agreement, to the extent applicable, shall continue to be
satisfied.
(e) Extension Fee. An Extension Fee of $175,000.00 shall have been
paid to the Lender at least sixty (60) days prior to the Initial Maturity Date.
(f) Additional Documents. Borrowers shall have executed and
delivered to Lender such agreements and documents as Lender may reasonably
require to effectuate the extension.
2.3 Intercreditor Agreement. This Agreement, the grant and perfection of
the security interest, the delivery of the Collateral, and the exercise of all
rights and remedies of Lender hereunder are subject to the terms and conditions
of the Intercreditor Agreement. To the extent that any of the terms or
conditions of this Agreement are inconsistent with the terms and conditions of
the Intercreditor Agreement, the terms and conditions of the Intercreditor
Agreement shall govern.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrowers shall pay to Lender, interest on the outstanding
principal amount of the Loan at the Interest Rate. Interest shall be payable by
Borrower to Lender monthly in arrears not later than the first day of each
calendar month.
(b) Upon and after the occurrence of an Event of Default, all
Obligations shall bear interest at the Default Rate. All interest accruing
hereunder on and after the date of any Event of Default or termination or
non-renewal hereof shall be payable on demand.
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(c) If all obligations have not been paid in full on or before the
Termination Date for any reason, then, in addition to any other fees and
interest payable by the Borrowers to Lender hereunder, the Borrowers shall pay
to Lender, the sum of $35,000.00 on the first day of each month thereafter until
such time as all obligations, including principal, interest, fees, costs, and
out of pocket expenses, have been irrevocably paid in full.
3.2 No agreements, conditions, provisions or stipulations contained in
this Agreement or any of the other Financing Agreements or any Event of Default,
or the exercise by Lender of the right to accelerate the payment or the maturity
of all or any portion of the Obligations, or the exercise by Lender of any
option whatsoever contained in this Agreement or any of the other Financing
Agreements, or the prepayment by any Borrower of any of the Obligations, or the
occurrence of any event or contingency whatsoever, shall entitle Lender to
contract for, charge or receive, in any event, interest exceeding the Maximum
Interest Rate. In no event shall any Borrower be obligated to pay interest
exceeding such Maximum Interest Rate. All agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel any Borrower to pay a rate of interest exceeding the
Maximum Interest Rate shall be without binding force or effect, at law or in
equity, to the extent of the excess of interest over such Maximum Interest Rate.
In the event any interest is contracted for, charged or received in excess of
the Maximum Interest Rate ("Excess"), each Borrower acknowledges and stipulates
that any such contract, charge or receipt shall be the result of an accident and
bona fide error, and that any Excess received by Lender shall be applied, first,
to the payment of the then outstanding and unpaid principal hereunder; second,
to the payment of the other Obligations then outstanding and unpaid; and third,
returned to Borrowers, it being the intent of the parties hereto not to enter at
any time into a usurious or otherwise illegal relationship. Each Borrower
recognizes that, with fluctuations in the rate of interest set forth in this
Section 3.1 of this Agreement and the Maximum Interest Rate, such an
unintentional result could inadvertently occur. By the execution of this
Agreement, each Borrower agrees that (i) the credit or return of any Excess
shall constitute the acceptance by such Borrower of such Excess, and (ii) such
Borrower shall not seek or pursue any other remedy, legal or equitable, against
Lender, based in whole or in part upon contracting for, charging or receiving of
any interest in excess of the Maximum Interest Rate. For the purpose of
determining whether or not any Excess has been contracted for, charged or
received by Lender, all interest at any time contracted for, charged or received
by Lender in connection with this Agreement or any of the other Financing
Agreements shall be amortized, prorated, allocated and spread during the entire
term of this Agreement in accordance with the amounts outstanding from time to
time hereunder and the Maximum Interest Rate from time to time in effect in
order to lawfully charge the maximum amount of interest permitted under
applicable law.
3.3 Commitment Fee. In consideration for Lender entering into this
Agreement and extending the Term Loan to the Borrowers, the Borrowers shall pay
to Lender in cash a commitment fee in the amount of $50,000.00, which has been
previously paid by the Borrowers, receipt of which is acknowledged by Lender.
3.4 Closing Fee. Borrowers shall pay to Lender as a closing fee
("Closing Fee") an amount equal to One Hundred Twenty Nine Thousand Dollars
($129,000.00), which shall be fully earned and payable as of the date hereof
provided, however, that all amounts paid to Lender under Section 3.3 shall be
credited toward payment of the Closing Fee.
14
3.5 Facility Fee. Borrowers shall pay to Lender an annual facility fee
in an amount equal to Two Hundred Twenty Thousand Dollars ($220,000.00) in
respect of Lender's services. which shall be fully earned as of the date hereof.
The facility fee shall be payable in quarterly installments in an amount equal
to Fifty-Five Thousand Dollars ($55,000.00), payable on the first day of each
June, September, December, and March, commencing June 1, 2004, together with
Borrowers' regular payment of interest. The full unpaid installments of the
facility fee shall be due and payable in full on the Termination Date.
3.6 Collateral Management Fee. Borrowers shall pay to Lender a
collateral management fee payable monthly in an amount equal to One Thousand
Five Hundred Dollars ($1,500.00) to offset the expenses and costs (excluding
out-of-pocket expenses and auditor fees) of Lender in connection with
administration, record keeping, analyzing and evaluating the Collateral, which
shall be fully earned as of the date hereof. The collateral management fee shall
be payable on the first day of each month, commencing April 1, 2004, together
with Borrowers' regular payment of interest. The full unpaid installments of the
collateral management fee shall be due and payable in full on the Termination
Date.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Making of Term Loan. Each of the following
is a condition precedent to Lender making the Term Loan:
(a) Lender shall have received, in form and substance satisfactory
to Lender, all releases, terminations and such other documents as Lender may
reasonably request to evidence and effectuate the termination by the existing
lenders to any Borrower of their respective financing arrangements with such
Borrower (excepting only those purchase money security arrangements and similar
financing arrangements disclosed on Schedule 4.1 (a) hereto and not to be
terminated on the Closing Date) and the termination and release by it or them,
as the case may be, of any interest in and to any assets and properties of each
Borrower and each Obligor, duly authorized, executed and delivered by it or each
of them, including, but not limited to, (i) UCC termination statements for all
UCC financing statements previously filed by it or any of them or their
predecessors, as secured party and any Borrower or any Obligor, as debtor and
(ii) satisfactions and discharges of any mortgages, deeds of trust or deeds to
secure debt by any Borrower or any Obligor in favor of such existing lender or
lenders, in form acceptable for recording with the appropriate Governmental
Authority;
(b) all requisite corporate action and proceedings in connection
with this Agreement and the other Financing Agreements shall be satisfactory in
form and substance to Lender, and Lender shall have received all information and
copies of all documents, including records of requisite corporate action and
proceedings which Lender may have requested in connection therewith, such
documents where requested by Lender or its counsel to be certified by
appropriate corporate officers or Governmental Authority (and including a copy
of the certificate of incorporation of each Borrower and Obligor certified by
the Secretary of State (or equivalent Governmental Authority) which shall set
forth the same complete corporate name of such Borrower or Obligor as is set
forth herein and such document as shall set forth the organizational
identification number of such Borrower or Obligor, if one is issued in its
jurisdiction of incorporation);
15
(c) no material adverse change shall have occurred in the assets,
business or prospects of any Borrower or Obligor since the date of Lender's
latest field examination (not including for this purpose the field review
referred to in Section 4.1(d) below) and no change or event shall have occurred
which would impair the ability of any Borrower or any Obligor to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce the Obligations or realize upon the
Collateral;
(d) Lender shall have completed a field review of the Records and
such other information with respect to the Collateral as Lender may reasonably
require (including, without limitation, current perpetual inventory records
and/or roll-forwards of Accounts and Inventory through the Closing Date and test
counts of the Inventory in a manner satisfactory to Lender, together with such
supporting documentation as may be necessary or appropriate, and other documents
and information that will enable Lender to accurately identify and verify the
Collateral), the results of which in each case shall be satisfactory to Lender,
not more than three (3) Business Days prior to the date hereof;
(e) Lender shall have received, in form and substance reasonably
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem reasonably necessary or
desirable in order to permit, protect and perfect its security interests in and
liens upon the Collateral or to effectuate the provisions or purposes of this
Agreement and the other Financing Agreements, including, without limitation,
Collateral Access Agreements by owners and lessors of leased premises of each
Borrower and by warehouses at which Collateral is located;
(f) the Excess Availability, as determined by Lender, as of the
date hereof, shall be not less than Four Million Dollars ($4,000,000) after
giving effect to the initial Loans made or to be made and Letter of Credit
Accommodations issued or to be issued in connection with the initial
transactions under the Congress Agreement;
(g) Lender shall have received, in form and substance reasonably
satisfactory to Lender, Deposit Account Control Agreements by and among
Congress, as agent for itself and Lender, each Borrower and each bank where such
Borrower has a deposit account, in each case, duly authorized, executed and
delivered by such bank and such Borrower;
(h) Lender shall have received evidence, in form and substance
reasonably satisfactory to Lender, that Lender has valid perfected security
interests in and liens upon the Collateral and any other property which is
intended to be security for the Obligations or the liability of any Obligor in
respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
(i) Lender shall have received and reviewed lien and judgment
search results for the jurisdiction of incorporation or organization of each
Borrower, the jurisdiction of the chief executive office of each Borrower and
all jurisdictions in which assets of any Borrower are located, which search
results shall be in form and substance reasonably satisfactory to Lender;
(j) Lender shall have received a written appraisal of the
Inventory conducted by an appraiser reasonably acceptable to Lender, and in
form, scope and methodology
16
reasonably satisfactory to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely (the first such appraisal shall be ordered no later
than June 30, 2004);
(k) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance reasonably satisfactory to Lender, and certificates of
insurance policies and/or endorsements naming Lender as loss payee;
(1) Lender shall have received, in form and substance reasonably
satisfactory to Lender, such opinion letters of counsel to Borrowers and
Obligors with respect to the Financing Agreements and such other matters as
Lender may reasonably request;
(m) Borrowers shall have entered into the Congress Agreement, on
terms and conditions satisfactory to Lender, including all terms relating to the
Borrowing Base, ineligible assets and reserves, and all conditions precedent to
the making of initial loans and Letter of Credit Accommodations under and as
defined in the Congress Agreement, other than the making of the Term Loan by
Lender, shall have been satisfied;
(n) Lender, Congress and Borrower shall have entered into an
Intercreditor Agreement in form and substance satisfactory to Lender;
(o) Lender shall have received, in form and substance reasonably
satisfactory to Lender, a draft balance sheet of Borrowers as of December 31,
2003;
(p) the other Financing Agreements, including without limitation,
a guaranty and security agreement of the Domestic Subsidiaries and a stock
pledge agreement of Borrower Agent, and all instruments and documents hereunder
and thereunder shall have been duly executed and delivered to Lender, in form
and substance reasonably satisfactory to Lender; and
(q) Lender shall have received an executed post-closing letter
from the Borrowers, which shall provide, among other things, that all collateral
in which Lender is required to be granted a security or mortgage interest
pursuant to the terms of the commitment letter dated March 11, 2004 entered into
between Lender and the Borrower Agent, including, without limitation, certain
real estate located in Germany, shall be granted to Lender on or before the
dates provided for in the post-closing letter. The documentation to be entered
into shall include the agreement by Lender to release its collateral interest in
Rockford (Europe) Elektronik Vertriebs GmbH, its assets and Subsidiaries,
subject to the Borrowers' achieving (i) 90% of the Borrowers' fiscal year 2004
projected earnings before interest, taxes, depreciation and amortization for two
(2) consecutive fiscal quarters, as shown on the Borrowers' fiscal 2004 business
plan, annexed hereto as Schedule 4.1(a)(ii); and (ii) average Excess
Availability for the preceding thirty (30) day period in an amount not less than
$5,000,000.00.
SECTION 5. GRANT AND PERFECTION OF SECURITY INTEREST
5.1 Grant of Security Interest. To secure payment and performance of all
Obligations, each Borrower hereby grants to Lender, a continuing security
interest in, a lien upon, and a right of set off against, and hereby assigns to
Lender, as security, all personal and real property and fixtures and interests
in property and fixtures of such Borrower, whether now
17
owned or hereafter acquired or existing, and wherever located (together with all
other collateral security for the Obligations at any time granted to or held or
acquired by Lender, collectively, the "Collateral"), including:
(a) all Accounts;
(b) all general intangibles, including, without limitation, all
Intellectual Property;
(c) all goods, including, without limitation, Inventory and
Equipment;
(d) all Real Property and fixtures;
(e) all chattel paper (including all tangible and electronic
chattel paper);
(f) all instruments (including all promissory notes);
(g) all documents;
(h) all deposit accounts;
(i) all letters of credit, banker's acceptances and similar
instruments and including all letter-of-credit rights;
(j) all supporting obligations and all present and future liens,
security interests, rights, remedies, title and interest in, to and in respect
of Receivables and other Collateral, including (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit and credit
and other insurance related to the Collateral, (ii) rights of stoppage in
transit, replevin, repossession, reclamation and other rights and remedies of an
unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing, Receivables or other Collateral, including returned, repossessed
and reclaimed goods, and (iv) deposits by and property of account debtors or
other persons securing the obligations of account debtors;
(k) all (i) investment property (including securities, whether
certificated or uncertificated, securities accounts, security entitlements,
commodity contracts or commodity accounts) and (ii) monies, credit balances,
deposits and other property of such Borrower now or hereafter held or received
by or in transit to Lender or any of its Affiliates or at any other depository
or other institution from or for the account of such Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise;
(l) all commercial tort claims, including, without limitation,
those identified on Schedule 5.2(g) hereto;
(m) to the extent not otherwise described above, all Receivables;
(n) all Records; and
18
(o) all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims against third parties for loss or
damage to or destruction of or other involuntary conversion of any kind or
nature of any or all of the other Collateral.
Notwithstanding the generality of the foregoing, one-third of the Capital Stock
of each of the Direct Foreign Subsidiaries shall be excluded from "Collateral".
5.2 Perfection of Security Interests.
(a) Each Borrower irrevocably and unconditionally authorizes
Lender (or its agent) to file at any time and from time to time such financing
statements with respect to the Collateral naming Lender or its designee as the
secured party and such Borrower as debtor, as Lender may reasonably require, and
including any other information with respect to such Borrower or otherwise
required by part 5 of Article 9 of the Uniform Commercial Code of such
jurisdiction as Lender may reasonably determine, together with any amendment and
continuations with respect thereto, which authorization shall apply to all
financing statements filed on, prior to or after the date hereof. Each Borrower
hereby ratifies and approves all financing statements naming Lender or its
designee as secured party and such Borrower as debtor with respect to the
Collateral (and any amendments with respect to such financing statements) filed
by or on behalf of Lender prior to the date hereof and ratifies and confirms the
authorization of Lender to file such financing statements (and amendments, if
any). Each Borrower hereby authorizes Lender to adopt on behalf of such Borrower
any symbol required for authenticating any electronic filing. In the event that
the description of the collateral in any financing statement naming Lender or
its designee as the secured party and any Borrower as debtor includes assets and
properties of such Borrower that do not at any time constitute Collateral,
whether hereunder, under any of the other Financing Agreements or otherwise, the
filing of such financing statement shall nonetheless be deemed authorized by
such Borrower to the extent of the Collateral included in such description and
it shall not render the financing statement ineffective as to any of the
Collateral or otherwise affect the financing statement as it applies to any of
the Collateral. In no event shall any Borrower at any time file, or permit or
cause to be filed, any correction statement or termination statement with
respect to any financing statement (or amendment or continuation with respect
thereto) naming Lender or its designee as secured party and any Borrower as
debtor, except with Lender's prior express written consent.
(b) No Borrower has any chattel paper (whether tangible or
electronic) or instruments as of the date hereof, except as set forth on
Schedule 5.2(b) hereto. In the event that any Borrower shall be entitled to or
shall receive any chattel paper or instrument after the date hereof, such
Borrower shall promptly notify Lender thereof in writing. Promptly upon the
receipt thereof by or on behalf of any Borrower (including by any agent or
representative), such Borrower shall deliver, or cause to be delivered to
Lender, all tangible chattel paper and instruments that such Borrower may at any
time acquire, accompanied by such instruments of transfer or assignment duly
executed in blank as Lender may from time to time specify, in each case except
as Lender may otherwise agree. At Lender's option, each Borrower shall, or
Lender may at any time on behalf of any Borrower, cause the original of any such
instrument or chattel paper to be conspicuously marked in a form and manner
acceptable to Lender with the following legend referring to chattel paper or
instruments as applicable: "This [chattel paper] [instrument]
19
is subject to the security interest of Hilco Capital LP, and any sale, transfer,
assignment or encumbrance of this [chattel paper] [instrument] violates the
rights of such secured party."
(c) In the event that any Borrower shall at any time hold or
acquire an interest in any electronic chattel paper or any "transferable record"
(as such term is defined in Section 201 of the Federal Electronic Signatures in
Global and National Commerce Act or in Section 16 of the Uniform Electronic
Transactions Act as in effect in any relevant jurisdiction), such Borrower shall
promptly notify Lender thereof in writing. Promptly upon Lender's request, each
Borrower shall take, or cause to be taken, such actions as Lender may reasonably
request to give Lender control of such electronic chattel paper under Section
9-105 of the UCC and control of such transferable record under Section 201 of
the Federal Electronic Signatures in Global and National Commerce Act or, as the
case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect
in such jurisdiction.
(d) No Borrower has any deposit accounts as of the date hereof,
except as set forth in such Borrower's Information Certificate. No Borrower
shall, directly or indirectly, after the date hereof open, establish or maintain
any deposit account unless each of the following conditions is satisfied: (i)
Lender shall have received not less than five (5) Business Days prior written
notice of the intention of such Borrower to open or establish such account which
notice shall specify in reasonable detail and specificity acceptable to Lender
the name of the account, the owner of the account, the name and address of the
bank at which such account is to be opened or established, the individual at
such bank with whom such Borrower is dealing and the purpose of the account,
(ii) the bank where such account is opened or maintained shall be acceptable to
Lender, and (iii) on or before the opening of such deposit account, such
Borrower shall, as Lender may specify, deliver to Lender a Deposit Account
Control Agreement with respect to such deposit account duly authorized, executed
and delivered by such Borrower and the bank at which such deposit account is
opened and maintained on terms and conditions acceptable to Lender. The terms of
this Section 5.2(d) shall not apply to deposit accounts specifically and
exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of a Borrower's salaried employees.
(e) No Borrower owns or holds, directly or indirectly,
beneficially or as record owner or both, any investment property, as of the date
hereof, or has any investment account, securities account, commodity account or
other similar account with any bank or other financial institution or other
securities intermediary or commodity intermediary as of the date hereof, in each
case except as set forth in such Borrower's Information Certificate.
(i) In the event that any Borrower shall be entitled to or
shall at any time after the date hereof hold or acquire any certificated
securities (except for the Capital Stock of the Direct Foreign Subsidiaries that
is excluded from Collateral pursuant to Section 5.1 hereof), such Borrower shall
promptly endorse, assign and deliver the same to Lender, accompanied by such
instruments of transfer or assignment duly executed in blank as Lender may from
time to time specify. If any securities, now or hereafter acquired by any
Borrower are uncertificated and are issued to such Borrower or its nominee
directly by the issuer thereof, such Borrower shall immediately notify Lender
thereof and shall, as Lender may specify, either (A) cause the issuer to agree
to comply with instructions from Lender as to such securities, without
20
further consent of such Borrower or such nominee, or (B) arrange for Lender to
become the registered owner of the securities.
(ii) No Borrower shall, directly or indirectly, after the
date hereof open, establish or maintain any investment account, securities
account, commodity account or any other similar account (other than a deposit
account) with any securities intermediary or commodity intermediary unless each
of the following conditions is satisfied: (A) Lender shall have received not
less than five (5) Business Days prior written notice of the intention of such
Borrower to open or establish such account which notice shall specify in
reasonable detail and specificity acceptable to Lender the name of the account,
the owner of the account, the name and address of the securities intermediary or
commodity intermediary at which such account is to be opened or established, the
individual at such intermediary with whom such Borrower is dealing and the
purpose of the account, (B) the securities intermediary or commodity
intermediary (as the case may be) where such account is opened or maintained
shall be acceptable to Lender, and (C) on or before the opening of such
investment account, securities account or other similar account with a
securities intermediary or commodity intermediary, such Borrower shall, as
Lender may specify, either (1) execute and deliver, and cause to be executed and
delivered to Lender, an Investment Property Control Agreement with respect
thereto duly authorized, executed and delivered by such Borrower and such
securities intermediary or commodity intermediary or (2) arrange for Lender to
become the entitlement holder with respect to such investment property on terms
and conditions acceptable to Lender.
(f) No Borrower is the beneficiary of or otherwise entitled to any
right to payment under any letter of credit, banker's acceptance or similar
instrument as of the date hereof, except as set forth on Schedule 5.2(f) hereto.
In the event that any Borrower shall be entitled to or shall receive any right
to payment under any letter of credit, banker's acceptance or any similar
instrument, whether as beneficiary thereof or otherwise after the date hereof,
such Borrower shall promptly notify Lender thereof in writing. Such Borrower
shall immediately, as Lender may specify, either (i) deliver, or cause to be
delivered to Lender, with respect to any such letter of credit, banker's
acceptance or similar instrument, the written agreement of the issuer and any
other nominated person obligated to make any payment in respect thereof
(including any confirming or negotiating bank), in form and substance reasonably
satisfactory to Lender, consenting to the assignment of the proceeds of the
letter of credit by such Borrower to Lender and agreeing to make all payments
thereon directly to Lender, or as Lender may otherwise direct or (ii) cause
Lender, to become, at Borrowers' expense, the transferee beneficiary of the
letter of credit, banker's acceptance or similar instrument (as the case may
be).
(g) No Borrower has any commercial tort claims as of the date
hereof, except as set forth on Schedule 5.2(g) hereto. In the event that any
Borrower shall at any time after the date hereof have any commercial tort
claims, such Borrower shall promptly notify Lender thereof in writing, which
notice shall (i) set forth in reasonable detail the basis for and nature of such
commercial tort claim and (ii) include the express grant by such Borrower to
Lender of a security interest in such commercial tort claim (and the proceeds
thereof). In the event that such notice does not include such grant of a
security interest, the sending thereof by such Borrower to Lender shall be
deemed to constitute a grant of security interest therein to Lender. Upon the
sending of such notice, any commercial tort claim described therein shall
constitute part of the Collateral and shall be deemed included therein. Without
limiting the authorization of Lender
21
provided in Section 5.2(a) hereof or otherwise arising by the execution by
Borrowers of this Agreement or any of the other Financing Agreements, Lender is
hereby irrevocably authorized from time to time and at any time to file such
financing statements naming Lender or its designee as secured party and any
Borrower as debtor, or any amendments to any financing statements, covering any
such commercial tort claim as Collateral. In addition, each Borrower shall
promptly upon Lender's request, execute and deliver, or cause to be executed and
delivered, to Lender such other agreements, documents and instruments as Lender
may require in connection with such commercial tort claim.
(h) No Borrower has any goods, documents of title or other
Collateral in the custody, control or possession of a third party as of the date
hereof, except as set forth in such Borrower's Information Certificate and
except for goods located in the United States in transit to a location of a
Borrower permitted herein in the ordinary course of Borrowers' business in the
possession of the carrier transporting such goods. In the event that any goods,
documents of title or other Collateral of any Borrower are at any time after the
date hereof in the custody, control or possession of any other person not
referred to in an Information Certificate, such Borrower shall promptly notify
Lender thereof in writing. Promptly upon Lender's request, such Borrower shall
deliver to Lender a Collateral Access Agreement duly authorized, executed and
delivered by such person and such Borrower.
(i) Each Borrower shall take any other actions reasonably
requested by Lender from time to time to cause the attachment, perfection and
first priority of, and the ability of Lender to enforce, the security interests
of Lender in any and all of the Collateral, including, without limitation, (i)
executing, delivering and, where appropriate, filing financing statements and
amendments relating thereto under the UCC or other applicable law, to the
extent, if any, that such Borrower's signature thereon is required therefor,
(ii) causing Lender's name to be noted as secured party on any certificate of
title for a titled good if such notation is a condition to attachment,
perfection or priority of, or ability of Lender to enforce, the security
interest of Lender in such Collateral, (iii) complying with any provision of any
statute, regulation or treaty of the United States as to any Collateral if
compliance with such provision is a condition to attachment, perfection or
priority of, or ability of Lender to enforce, the security interests of Lender
in such Collateral, (iv) obtaining the consents and approvals of any
Governmental Authority or third party, including/without limitation, any consent
of any licensor, lessor or other person obligated on Collateral, and taking all
actions required by any earlier versions of the UCC or by other law, as
applicable in any relevant jurisdiction.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrowers' Loan Accounts. Lender shall maintain a loan account on
its books in which shall be recorded (a) the Term Loan and other Obligations and
the Collateral, (b) all payments made by or on behalf of any Borrower and (c)
all other appropriate debits and credits as provided in this Agreement,
including fees, charges, costs, expenses and interest. All entries in such loan
account shall be made in accordance with Lender's customary practices as in
effect from time to time.
6.2 Statements. Lender shall render to Borrowers each month a statement
setting forth the balance in Borrowers' loan account maintained by Lender for
Borrowers pursuant to the
22
provisions of this Agreement, including principal, interest, fees, costs and
expenses. Each such statement shall be subject to subsequent adjustment by
Lender but shall, absent manifest errors or omissions, be considered correct and
deemed accepted by each Borrower and conclusively binding upon each Borrower as
an account stated except to the extent that Lender receives a written notice
from Borrower of any specific exceptions of Borrowers thereto within thirty (30)
days after the date such statement has been mailed by Lender. Until such time as
Lender shall have rendered to Borrowers a written statement as provided above,
the balance in Borrowers' loan account shall be presumptive evidence of the
amounts due and owing to Lender by Borrowers.
6.3 Collection of Accounts.
(a) Borrowers shall establish and maintain, at their expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are reasonably
acceptable to Lender into which Borrowers shall promptly deposit and direct
their respective account debtors to directly remit all payments on Receivables
and all payments constituting proceeds of Inventory or other Collateral in the
identical form in which such payments are made, whether by cash, check or other
manner. Each Borrower shall deliver, or cause to be delivered to Congress, as
agent for itself and Lender, a Deposit Account Control Agreement duly
authorized, executed and delivered by each bank where a Blocked Account is
maintained as provided in Section 5.2 hereof or at any time and from time to
time Congress, as agent for itself Lender, may become bank's customer with
respect to the Blocked Accounts and promptly upon Lender's request, such
Borrower shall execute and deliver such agreements or documents as Lender may
reasonably require in connection therewith. Each Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Congress, whether in respect of the Receivables, as proceeds of Inventory or
other Collateral or otherwise shall be treated as payments to Congress for
itself and Lender in respect of the Obligations and therefore shall constitute
the property of Lender to the extent of the then outstanding Obligations.
Notwithstanding anything to the contrary contained herein, after the first
anniversary of the date of this Agreement and Lender's receipt of the audited
financial statements of Borrowers as required hereunder for the fiscal year
ending December 31, 2004, Borrowers shall not be required to remit to Congress
or to deposit (or to direct their respective account debtors to directly remit)
to the Blocked Accounts, or to segregate and hold in trust, payments on
Receivables or payments constituting proceeds of Inventory, if so long as (i)
the consolidated net income of Borrowers and their Subsidiaries, before
provisions for taxes (determined in accordance with GAAP), is not less than Four
Million Dollars ($4,000,000) during the fiscal year ending December 31, 2004,
(ii) no Default or Event of Default has occurred and is continuing, (iii) the
average daily Excess Availability during each month ending on or after March 31,
2005, is not less than Seven Million Five Hundred Thousand Dollars ($7,500,000),
(iv) the average daily Excess Availability during any week in any such month is
not less than Six Million Dollars ($6,000,000), and (v) Congress has agreed to
the foregoing in accordance with the terms of the Congress Agreement.
(b) Subject to the last sentence of Section 6.3(a) hereof, each
Borrower and its shareholders, directors, employees, agents, Subsidiaries or
other Affiliates shall, acting as trustee for Lender, receive, as the property
of Lender, any monies, checks, notes, drafts or any other payment relating to
and/or proceeds of Accounts or other Collateral which come into their
23
possession or under their control and immediately upon receipt thereof, shall
deposit or cause the same to be deposited in the Blocked Accounts, or remit the
same or cause the same to be remitted, in kind, to Congress. In no event shall
the same be commingled with any Borrower's own funds. Borrowers agree to
reimburse Lender on demand for any amounts owed or paid to any bank or other
financial institution at which a Blocked Account, other deposit account or
investment account is established or any other bank, financial institution or
other Person involved in the transfer of funds to or from the Blocked Accounts,
any other deposit account or any investment account arising out of Lender's
payments to or indemnification of such bank, financial institution or other
Person. The obligation of Borrowers to reimburse Lender for such amounts
pursuant to this Section 6.3 shall survive the termination or non-renewal of
this Agreement.
6.4 Payments.
(a) All Obligations shall be payable to such place as Lender may
designate from time to time. Lender shall apply payments received or collected
from a Borrower or for the account of any Borrower (including the monetary
proceeds of collections or of realization upon any Collateral) as follows:
first, to pay any fees, indemnities or expense reimbursements then due to Lender
from Borrowers; second, to pay interest due in respect of the Term Loan; third,
to pay principal due in respect of the Term Loan; fourth, to pay or prepay any
other Obligations whether or not then due, in such order and manner as Lender
determines.
(b) Borrowers shall make all payments to Lender on the Obligations
free and clear of, and without deduction or withholding for or on account of,
any setoff, counterclaim, defense, duties, taxes, levies, imposts, fees,
deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by such Person. Borrowers shall be liable to pay to
Lender, and each does hereby indemnify and hold Lender harmless for the amount
of any payments or proceeds surrendered or returned. This Section 6.4 shall
remain effective notwithstanding any contrary action which may be taken by
Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
6.5 Taxes.
(a) Any and all payments by or on behalf of any Borrower or any
Obligor hereunder and under any other Financing Agreement shall be made, in
accordance with Section 6.4, free and clear of and without deduction for any and
all Taxes. In addition, Borrowers agree to pay to the relevant Governmental
Authority, in accordance with applicable law, any Other Taxes.
(b) If any Borrower or any Obligor shall be required by law to
deduct or withhold in respect of any Taxes or Other Taxes from or in respect of
any sum payable hereunder to Lender, then:
24
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section) Lender
receives an amount equal to the sum it would have received had no such
deductions or withholdings been made;
(ii) such Borrower or such Obligor shall make such deductions
and withholdings;
(iii) such Borrower or such Obligor shall pay the full amount
deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) to the extent not paid to Lender pursuant to clause (i)
above, such Borrower or such Obligor shall also pay to Lender, at the time
interest is paid, all additional amounts which Lender specifies as necessary to
preserve the after-tax yield Lender would have received if such Taxes or Other
Taxes had not been imposed.
(c) Within thirty (30) days after the date of any payment by any
Borrower or any Obligor of Taxes or Other Taxes, such Person shall furnish to
Lender the original or a certified copy of a receipt evidencing payment thereof,
or other evidence of payment reasonably satisfactory to Lender.
(d) Borrowers will indemnify Lender (or Transferee) for the full
amount of Taxes and Other Taxes paid by Lender (or Transferee, as the case may
be). If Lender (or Transferee) receives a refund in respect of any Taxes or
Other Taxes for which Lender (or Transferee) has received payment from any
Borrower or any Obligor hereunder, then Lender shall credit to the loan
account(s) of Borrowers the amount of such refund plus any interest received
(but only to the extent of indemnity payments made, or additional amounts paid,
by any Borrower or any Obligor under this Section 6.5 with respect to the Taxes
or Other Taxes giving rise to such refund). If Lender (or any Transferee) claims
a tax credit in respect of any Taxes for which it has been indemnified by
Borrowers or any Obligor pursuant to this Section 6.5, Lender will apply the
amount of the actual dollar benefit received by Lender as a result thereof, as
reasonably calculated by Lender and net of all expenses related thereto, to the
Term Loan. If Taxes or Other Taxes were not correctly or legally asserted,
Lender shall, upon Borrowers' request and at Borrowers' expense, provide such
documents to Borrowers as Borrowers may reasonably request, to enable Borrowers
to contest such Taxes or Other Taxes pursuant to appropriate proceedings then
available to Borrowers (so long as providing such documents shall not, in the
good faith determination of Lender, have a reasonable likelihood of resulting in
any liability of Lender).
(e) In the event any Transferee is organized under the laws of a
jurisdiction other than the United States, any State thereof or the District of
Columbia (a "Non-U.S. Lender") such Non-U.S. Lender shall deliver to Borrowers
two (2) copies of either United States Internal Revenue Service Form 1001 or
Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S.
Federal withholding tax under Section 871(h) or 881(c) of the Code with respect
to payments of "portfolio interest", a Form W-8, or any subsequent versions
thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8,
a certificate representing
25
that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the
Code, is not a ten (10%) percent shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of any Borrower or any Obligor and is not a controlled
foreign corporation related to any Borrower or any Obligor (within the meaning
of Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from U.S. Federal withholding tax on
payments by any Borrower or any Obligor under this Agreement and the other
Financing Agreements. Such forms shall be delivered by any Transferee that is a
Non-U.S. Lender on or before the date it becomes a party to this Agreement and
on or before the date, if any, such Non-U.S. Lender changes its applicable
lending office by designating a different lending office (a "New Lending
Office"). In addition, a Non-U.S. Lender shall upon written notice from
Borrowers promptly deliver such new forms as are required by the Code or the
regulations issued thereunder to claim exemption from, or reduction in the rate
of, U.S. Federal withholding tax upon the obsolescence or invalidity of any form
previously delivered by such Non-U.S. Lender. Notwithstanding any other
provision of this Section 6.5(e), a Non-U.S. Lender shall not be required to
deliver any form pursuant to this Section 6.5(e) that such Non-U.S. Lender is
not legally able to deliver.
(f) Borrowers and Obligors shall not be required to indemnify any
Non-U.S. Lender or to pay any additional amounts to any Non-U.S. Lender, in
respect of United States Federal withholding tax pursuant to subsections (a) or
(d) above to the extent that (i) the obligation to withhold amounts with respect
to United States Federal withholding tax was applicable on the date such
Non-U.S. Lender became a party to this Agreement (or, in the case of a
Transferee that is a Participant, on the date such Participant became a
Transferee hereunder) or, with respect to payments to a New Lending Office, the
date such Non-U.S. Lender designated such New Lending Office with respect to the
Term Loan; provided, that, this subsection (f) shall not apply (A) to any
Transferee or New Lending Office that becomes a Transferee or New Lending Office
as a result of an assignment, participation, transfer or designation made at the
request of any Borrower or any Obligor and (B) to the extent the indemnity
payment or additional amounts any Transferee, acting through a New Lending
Office, would be entitled to receive (without regard to this subsection (f)) do
not exceed the indemnity payment or additional amounts that the person making
the assignment, participation or transfer to such Transferee making the
designation of such New Lending Office, would have been entitled to receive in
the absence of such assignment, participation, transfer or designation or (ii)
the obligation to pay such additional amounts would not have arisen but for a
failure by such Non-U.S. Lender to comply with the provisions of subsection (e)
above.
(g) Use of Proceeds. Borrowers shall use the proceeds of the Term
Loan provided by or on behalf of Lender to Borrowers hereunder only for: (a)
payments to each of the persons listed in the disbursement direction letter
furnished by Borrowers to Lender on or about the date hereof and (b) costs,
expenses and fees in connection with the preparation, negotiation, execution and
delivery of this Agreement and the other Financing Agreements. None of the
proceeds will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin security or for the purposes of reducing or retiring any
indebtedness which was originally incurred to purchase or carry any margin
security or for any other purpose which might cause the Term Loan to be
considered a "purpose credit" within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended.
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SECTION 7. COLLATERAL REPORTING AND COLLATERAL COVENANTS
7.1 Collateral Reporting.
(a) Each Borrower shall provide Lender with the following
documents in a form satisfactory to Lender:
(i) on a regular basis as required by Lender, a schedule of
sales made, credits issued and cash received;
(ii) weekly, on Tuesday of each week (as of the then
immediately preceding Friday), the Borrower Agent shall provide Lender with a
borrowing base certificate (based upon the Congress Borrowing Base) on a form to
be furnished by Lender;
(iii) as soon as possible after the end of each month (but in
any event within ten (10) days after the end thereof), on a monthly basis or
more frequently as Lender may request, (A) preliminary perpetual inventory
reports, (B) preliminary inventory reports by state and category (including
identifying Inventory on consignment), (C) agings of accounts payable (and
including information indicating the status of payments to owners and lessors of
the leased premises of such Borrower) and (D) agings of accounts receivable
(together with a reconciliation to the previous month's aging and general
ledger);
(iv) as soon as possible after the end of each month (but in
any event within fifteen (15) days after the end thereof), (A) final perpetual
inventory reports, and (B) final inventory reports by state and category and,
where such month ends on the last day of a fiscal quarter, by location
(including identifying Inventory at locations owned and operated by third
parties or on consignment);
(v) quarterly, within fifteen (15) days after the end of
each fiscal quarter, Borrower Agent shall furnish Lender with a report of
warranty expenses incurred by type of activity;
(vi) upon Lender's request, (A) copies of customer
statements, purchase orders, sales invoices and credit memos, remittance advices
and reports, and copies of deposit slips and bank statements, (B) copies of
shipping and delivery documents and (C) copies of purchase orders, invoices and
delivery documents for Inventory and Equipment acquired by such Borrower; and
(vii) such other reports as to the Collateral as Lender shall
reasonably request from time to time; and
(b) If any of any Borrower's records or reports of the Collateral
are prepared or maintained by an accounting service, contractor, shipper or
other agent, such Borrower hereby irrevocably authorizes such service,
contractor, shipper or agent to deliver such records, reports, and related
documents to Lender and to follow Lender's instructions with respect to further
services at any time that an Event of Default exists or has occurred and is
continuing.
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7.2 Accounts Covenants.
(a) Each Borrower shall notify Lender promptly of: (i) any
material delay in such Borrower's performance of any of its obligations to any
account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any account debtor, or any disputes with account debtors, or
any settlement, adjustment or compromise thereof; and (ii) all material adverse
information relating to the financial condition of any account debtor.
(b) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with respect thereto
except as reported to Lender in accordance with the terms of this Agreement, and
(iii) none of the transactions giving rise thereto will violate any applicable
foreign, Federal, State or local laws or regulations, all documentation relating
thereto will be legally sufficient under such laws and regulations and all such
documentation will be legally enforceable in accordance with its terms.
(c) Lender shall have the right at any time or times, in Lender's
name or in the name of a nominee of Lender, to verify the validity, amount or
any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
7.3 Inventory Covenants. With respect to the Inventory: (a) each
Borrower shall at all times maintain inventory records reasonably satisfactory
to Lender, keeping correct and accurate records itemizing and describing the
kind, type, quality and quantity of Inventory, such Borrower's cost therefor and
daily withdrawals therefrom and additions thereto; (b) each Borrower shall
conduct daily cycle counts of the Inventory in a manner satisfactory to its
independent certified public accountants, and shall, at any time or times as
Lender may request on or after an Event of Default, conduct a physical count of
the Inventory, and shall supply Lender upon its request, with reports in the
form and with such specificity as may be reasonably satisfactory to Lender
concerning such counts; (c) no Borrower shall remove any Inventory from the
locations set forth or permitted herein, without the prior written consent of
Lender, except for sales of Inventory in the ordinary course of such Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location and except for Inventory shipped from
the manufacturer thereof to such Borrower which is in transit to the locations
set forth or permitted herein; (d) upon Lender's request, Borrowers shall, at
their expense, no more than two (2) times in any twelve (12) month period,
inclusive of any appraisals delivered in accordance with the Congress Agreement
(not counting the appraisal provided pursuant to Section 4.1(j) hereof), but at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender full written appraisals as to the Inventory
in form, scope and methodology reasonably acceptable to Lender and by an
appraiser reasonably acceptable to Lender, addressed to Lender and upon which
Lender are expressly permitted to rely; (e) each Borrower shall produce, use,
store and maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) none of the Inventory or other Collateral constitutes farm products or the
proceeds thereof; (g) each Borrower assumes all responsibility and liability
arising from or relating to the production, use,
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sale or other disposition of the Inventory; (h) no Borrower shall sell Inventory
to any customer on approval, or any other basis which entitles the customer to
return or may obligate such Borrower to repurchase such Inventory, except in the
ordinary course of Borrowers' business in accordance with the practices and
policies set forth on Schedule 7.3 hereto; (i) each Borrower shall keep the
Inventory in good and marketable condition; and (j) no Borrower shall, without
prior written notice to Lender or the specific identification of such Inventory
with respect thereto provided by such Borrower to Lender pursuant to Section 7.1
(a) hereof, acquire or accept any Inventory on consignment or approval.
7.4 Equipment and Real Property Covenants. With respect to the Equipment
and Real Property: (a) upon Lender's request, Borrowers shall, at their expense,
no more than one (1) time in any twelve (12) month period, inclusive of any
appraisals delivered in accordance with the Congress Agreement, but at any time
or times as Lender may request when the book value of Equipment has increased by
twenty-five percent (25%) or more since the last written appraisal thereof, and
at any time or times as Lender may request on or after an Event of Default,
deliver or cause to be delivered to Lender written appraisals as to the
Equipment and/or the Real Property in form, scope and methodology reasonably
acceptable to Lender and by an appraiser reasonably acceptable to Lender,
addressed to Lender and upon which Lender is expressly permitted to rely; (b)
each Borrower shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (c) each Borrower shall
use the Equipment and Real Property with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with all
applicable laws; (d) the Equipment is and shall be used in a Borrower's business
and not for personal, family, household or farming use; (e) no Borrower shall
remove any Equipment from the locations set forth or permitted herein, except to
the extent necessary to have any Equipment repaired or maintained in the
ordinary course of the business of such Borrower or to move Equipment directly
from one location set forth or permitted herein to another such location or to
sell Equipment in accordance with clause (ii) of Section 9.7 (b) hereof, and
except for the movement of motor vehicles used by or for the benefit of such
Borrower in the ordinary course of business; (f) the Equipment is now and shall
remain personal property and no Borrower shall permit any of the Equipment to be
or become a part of or affixed to real property; and (g) each Borrower assumes
all responsibility and liability arising from the use of the Equipment and Real
Property.
7.5 Power of Attorney. Each Borrower hereby irrevocably designates and
appoints Lender (and all Persons designated by Lender) as such Borrower's true
and lawful attorney-in-fact, and authorizes Lender, in such Borrower's or
Lender's name, to: (a) at any time an Event of Default exists or has occurred
and is continuing (i) demand payment on Receivables or other Collateral, (ii)
enforce payment of Receivables by legal proceedings or otherwise, (iii) exercise
all of such Borrower's rights and remedies to collect any Receivable or other
Collateral, (iv) sell or assign any Receivable upon such terms, for such amount
and at such time or times as Lender deems advisable, (v) settle, adjust,
compromise, extend or renew an Account, (vi) discharge and release any
Receivable, (vii) prepare, file and sign such Borrower's name on any proof of
claim in bankruptcy or other similar document against an account debtor or other
obligor in respect of any Receivables or other Collateral, (viii) notify the
post office authorities to change the address for delivery of remittances from
account debtors or other obligors in respect of Receivables or other proceeds of
Collateral to an address designated by Lender, and open and dispose of all mail
addressed to such Borrower and handle and store all mail relating to the
Collateral; and (ix) do
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all acts and things which are necessary, in Lender's reasonable determination,
to fulfill such Borrower's obligations under this Agreement and the other
Financing Agreements and (b) at any time to (i) take control in any manner of
any item of payment in respect of Receivables or constituting Collateral or
otherwise received in or for deposit in the Blocked Accounts or otherwise
received by Lender, (ii) have access to any lockbox or postal box into which
remittances from account debtors or other obligors in respect of Receivables or
other proceeds of Collateral are sent or received, (iii) endorse such Borrower's
name upon any items of payment in respect of Receivables or constituting
Collateral or otherwise received by or on behalf of Lender and deposit the same
in Lender's account for application to the Obligations, (iv) endorse such
Borrower's name upon any chattel paper, document, instrument, invoice, or
similar document or agreement relating to any Receivable or any goods pertaining
thereto or any other Collateral, including any warehouse or other receipts, or
bills of lading and other negotiable or non-negotiable documents, (v) clear
Inventory through U.S. Customs or foreign export control authorities in such
Borrower's name, Lender's name or the name of Lender's designee, and to sign and
deliver to customs officials powers of attorney in such Borrower's name for such
purpose, and to complete in such Borrower's or Lender's name, any order, sale or
transaction, obtain the necessary documents in connection therewith and collect
the proceeds thereof, (vi) sign such Borrower's name on any verification of
Receivables and notices thereof to account debtors or any secondary obligors or
other obligors in respect thereof. Each Borrower hereby releases Lender and its
officers, employees and designees from any liabilities arising from any act or
acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's own gross negligence or
willful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) upon notice to
Borrowers, cure any default by any Borrower under any material agreement with a
third party that affects the Collateral, its value or the ability of Lender to
collect, sell or otherwise dispose of the Collateral or the rights and remedies
of Lender therein or the ability of such Borrower to perform its obligations
hereunder or under the other Financing Agreements, (b) pay or bond on appeal any
judgment entered against any Borrower, (c) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (d) pay any amount, incur any expense or perform any act
which, in Lender's judgment, is reasonably necessary or appropriate to preserve,
protect, insure or maintain the Collateral and the rights of Lender with respect
thereto. Lender may add any amounts so expended to the Obligations and charge
Borrowers' account(s) therefor, such amounts to be repayable by Borrowers on
demand. Lender shall be under no obligation to effect such cure, payment or
bonding and shall not, by doing so, be deemed to have assumed any obligation or
liability of any Borrower. Any payment made or other action taken by Lender
under this Section shall be without prejudice to any right to assert an Event of
Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at the
cost and expense of Borrowers, (a) Lender or its designee shall have complete
access to all of each Borrower's premises during normal business hours and after
notice to such Borrower, or at any time and without notice to such Borrower if
an Event of Default exists or has occurred and is continuing, for the purposes
of inspecting, verifying and auditing the Collateral and all of each Borrower's
books and records, including the Records, and (b) such Borrower shall promptly
furnish to Lender such copies of such books and records or extracts therefrom as
Lender may
30
request, and (c) Lender or its designee may use during normal business hours
such of such Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default exists or has
occurred and is continuing for the collection of Receivables and realization of
other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to Lender the following
(which shall survive the execution and delivery of this Agreement):
8.1 Corporate Existence: Power and Authority. Each Borrower is a
corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on such Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
(a) are all within each Borrower's corporate powers, (b) have been duly
authorized, (c) are not in contravention of law or the terms of any Borrower's
articles or certificate of incorporation, by-laws, or other organizational
documentation, or any indenture, agreement or undertaking to which any Borrower
is a party or by which any Borrower or its property are bound and (d) will not
result in the creation or imposition of, or require or give rise to any
obligation to grant, any lien, security interest, charge or other encumbrance
upon any property of any Borrower, except for the security interests granted to
Lender in this Agreement and the other Financing Agreements. This Agreement and
the other Financing Agreements constitute legal, valid and binding obligations
of each Borrower enforceable in accordance with their respective terms.
8.2 Name; State of Organization; Chief Executive Office; Collateral
Locations.
(a) The exact legal name of each Borrower is as set forth on the
signature pages of this Agreement and in the Information Certificates. No
Borrower has, during the five years immediately prior to the date of this
Agreement, been known by or used any other corporate or fictitious name or been
a party to any merger or consolidation, or acquired all or substantially all of
the assets of any Person, or acquired any of its property or assets out of the
ordinary course of business, except as set forth in their respective Information
Certificates.
(b) Each Borrower is an organization of the type and organized in
the jurisdiction set forth in such Borrower's Information Certificate. Each
Borrower's Information Certificate accurately sets forth the organizational
identification number of such Borrower or accurately states that such Borrower
has none and accurately sets forth the federal employer identification number of
such Borrower.
(c) The chief executive office and mailing address of each
Borrower and each Borrower's Records concerning Accounts are located only at the
address identified as such in such Borrower's Information Certificate and its
only other places of business and the only other
31
locations of Collateral, if any, are the addresses set forth in such Information
Certificate, subject to the right of a Borrower to establish new locations in
accordance with Section 9.2 below. Each Borrower's Information Certificate
correctly identifies any of such locations which are not owned by such Borrower
and sets forth the owners and/or operators thereof.
8.3 Financial Statements; No Material Adverse Change. All financial
statements relating to any Borrower which have been or may hereafter be
delivered by any Borrower to Lender have been prepared in accordance with GAAP
(except as to any interim financial statements, to the extent such statements
are subject to normal year-end adjustments and do not include any notes) and
fairly present the financial condition and the results of operation of such
Borrower or Borrowers as at the dates and for the periods set forth therein.
Except as disclosed in any interim financial statements furnished by any
Borrower to Lender prior to the date of this Agreement, there has been no
material adverse change in the assets, liabilities, properties and condition,
financial or otherwise, of any Borrower, since the date of the most recent
audited financial statements furnished by Borrowers to Lender prior to the date
of this Agreement.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected liens and security interests in and upon the
Collateral subject only to the liens indicated on Schedule 8.4 hereto and the
other liens permitted under Section 9.8 hereof. Each Borrower has fee simple
title to or valid leasehold interests in all of its Real Property and good,
valid and merchantable title to all of its other properties and assets subject
to no liens, mortgages, pledges, security interests, encumbrances or charges of
any kind, except those granted to Lender, and such others as are specifically
listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Each Borrower has filed, or caused to be filed, in a
timely manner all tax returns, reports and declarations which are required to be
filed by it. All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Each Borrower has paid or caused
to be paid all taxes due and payable or claimed due and payable in any
assessment received by it, except taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to such Borrower and with respect to which adequate reserves have been
set aside on its books. Adequate provision has been made for the payment of all
accrued and unpaid Federal, State, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed.
8.6 Litigation. Except as set forth in the Information Certificates,
there are no present investigations by any Governmental Authority pending, or to
the best of each Borrower's knowledge threatened, against or affecting any
Borrower, its assets or business and there is no action, suit, proceeding or
claim by any Person pending, or to the best of each Borrower's knowledge
threatened, against any Borrower or its assets or goodwill, or against or
affecting any transactions contemplated by this Agreement, which if adversely
determined against such Borrower would result in any material adverse change in
the assets, business or prospects of such Borrower or would impair the ability
of such Borrower to perform its obligations hereunder or under any of the other
Financing Agreements to which it is a party or of Lender to enforce any
Obligations or realize upon any Collateral.
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8.7 Compliance with Other Agreements and Applicable Laws. Except as set
forth in Schedule 8.7 hereto, no Borrower is, in any material respect, in
default under, or in violation of any of the terms of, any agreement, contract,
instrument, lease or other commitment to which it is a party or by which it or
any of its assets are bound and each Borrower is in compliance in all material
respects with all applicable provisions of laws, rules, regulations, licenses,
permits, approvals and orders of any foreign, Federal, State or local
Governmental Authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, no Borrower or any
Subsidiary of any Borrower has generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which at any time
violates in any material respect any applicable Environmental Law or any
license, permit, certificate, approval or similar authorization thereunder and
the operations of each Borrower and each Borrower's Subsidiaries complies in all
material respects with all Environmental Laws and all licenses, permits,
certificates, approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there has been no
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any Governmental Authority or any other person nor is any pending or
to the best of each Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
any Borrower or any Subsidiary of any Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Material or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety
matter, which affects any Borrower or its business, operations or assets or any
properties at which any Borrower has transported, stored or disposed of any
Hazardous Materials.
(c) No Borrower or any of its Subsidiaries have any material
liability (contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials.
(d) Each Borrower and its Subsidiaries have all licenses, permits,
certificates, approvals or similar authorizations required to be obtained or
filed in connection with the operations of such Borrower under any Environmental
Law and all of such licenses, permits, certificates, approvals or similar
authorizations are valid and in full force and effect.
8.9 Employee Benefits.
(a) Each Plan is in material compliance with the applicable
provisions of ERISA, the Code and other federal or state law. Each Plan which is
intended to qualify under Section 401 (a) of the Code has received a favorable
determination letter from the Internal Revenue Service and to the best of each
Borrower's knowledge, nothing has occurred which would cause the loss of such
qualification. Each Borrower and its ERISA Affiliates have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a
33
funding waiver or an extension of any amortization period pursuant to Section
412 of the Code has been made with respect to any Plan.
(b) There are no pending, or to the best of each Borrower's
knowledge, threatened, claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan. There has been no non-exempt
prohibited transaction or violation of the fiduciary responsibility rules with
respect to any Plan.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) the current value of each Plan's assets (determined in accordance
with the assumptions used for funding such Plan pursuant to Section 412 of the
Code) are not less than such Plan's liabilities under Section 4001(a)(16) of
ERISA; (iii) no Borrower or any of its ERISA Affiliates have incurred or
reasonably expect to incur, any liability under Title IV of ERISA with respect
to any Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) no Borrower or any of its ERISA Affiliates have incurred or
reasonably expect to incur, any liability (and no event has occurred which, with
the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) no Borrower or any of its ERISA Affiliates have engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
8.10 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by any Borrower maintained at any bank or
other financial institution are set forth in the Information Certificate of such
Borrower, subject to the right of each Borrower to establish new accounts in
accordance with Section 5.2 hereof.
8.11 Intellectual Property. Each Borrower owns or licenses or otherwise
has the right to use all Intellectual Property necessary for the operation of
its business as presently conducted or proposed to be conducted. As of the date
hereof, no Borrower has any Intellectual Property registered, or subject to
pending applications, in the United States Patent and Trademark Office or any
similar office or agency in the United States, any State thereof, any political
subdivision thereof or in any other country, other than those described in such
Borrower's Information Certificate and has not granted any licenses with respect
thereto other than as set forth in such Information Certificate. No event has
occurred which permits or would permit after notice or passage of time or both,
the revocation, suspension or termination of such rights. To the best of each
Borrower's knowledge and except as set forth in the Information Certificates, no
slogan or other advertising device, product, process, method, substance or other
Intellectual Property or goods bearing or using any Intellectual Property
presently contemplated to be sold by or employed by any Borrower infringes any
patent, trademark, servicemark, tradename, copyright, license or other
Intellectual Property owned by any other Person presently and no claim or
litigation is pending or threatened against or affecting any Borrower contesting
its right to sell or use any such Intellectual Property. The Information
Certificates set forth all of the agreements or other arrangements of each
Borrower pursuant to which any Borrower has a license or other right to use any
trademarks, logos, designs, representations or other Intellectual Property owned
by another person as in effect on the date hereof and the dates of the
expiration of such agreements or other arrangements of any Borrower as in effect
on the date hereof (collectively, together with such agreements or other
arrangements as may be entered into by any Borrower after the date hereof,
collectively, the "License Agreements" and individually, a "License Agreement").
No
34
trademark, servicemark or other Intellectual Property at any time used by any
Borrower which is owned by another person, or owned by any Borrower subject to
any security interest, lien, collateral assignment, pledge or other encumbrance
in favor of any person other than Congress and Lender, is affixed to any
Inventory, except to the extent permitted under the term of the License
Agreements listed in such Borrower's Information Certificate.
8.12 Subsidiaries; Affiliates; Capitalization; Solvency.
(a) No Borrower has any direct or indirect Subsidiaries or
Affiliates and is not engaged in any joint venture or partnership except as set
forth in such Borrower's Information Certificate, subject to the right of such
Borrower to form or acquire Subsidiaries in accordance with Section 9.10 hereof.
(b) Each Borrower is the record and beneficial owner of all of the
issued and outstanding shares of Capital Stock of each of the Subsidiaries
listed in such Borrower's Information Certificate as being owned by such
Borrower and there are no proxies, irrevocable or otherwise, with respect to
such shares and no equity securities of any of such Subsidiaries (except
SimpleDevices, Inc) are or may become required to be issued by reason of any
options, warrants, rights to subscribe to, calls or commitments of any kind or
nature and there are no contracts, commitments, understandings or arrangements
by which any such Subsidiary (except SimpleDevices, Inc) is or may become bound
to issue additional shares of it Capital Stock or securities convertible into or
exchangeable for such shares.
(c) The issued and outstanding shares of Capital Stock of each
Borrower (in excess of 10% of the total shares in the case of Borrower Agent)
are directly and beneficially owned and held by the persons indicated in such
Borrower's Information Certificate, and in each case all of such shares have
been duly authorized and are fully paid and non-assessable, free and clear of
all claims, liens, pledges and encumbrances of any kind, except as disclosed in
writing to Lender prior to the date hereof.
(d) Each Borrower is Solvent and will continue to be Solvent after
the creation of the Obligations, the security interests of Congress and Lender,
and the other transaction contemplated hereunder.
8.13 Labor Disputes.
(a) Set forth on Schedule 8.13 hereto is a list (including dates
of termination) of all collective bargaining or similar agreements between or
applicable to each Borrower and any union, labor organization or other
bargaining agent in respect of the employees of such Borrower on the date
hereof.
(b) There is (i) no significant unfair labor practice complaint
pending against any Borrower or, to the best of each Borrower's knowledge,
threatened against it, before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is pending on the date hereof against
any Borrower or, to best of each Borrower's knowledge, threatened against it,
and (ii) no significant strike, labor dispute, slowdown or stoppage is pending
against any Borrower or, to the best of each Borrower's knowledge, threatened
against any Borrower.
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8.14 Restrictions on Subsidiaries. Except for restrictions contained in
this Agreement or any other agreement with respect to Indebtedness of any
Borrower permitted hereunder as in effect on the date hereof, there are no
contractual or consensual restrictions on any Borrower or any of its
Subsidiaries which prohibit or otherwise restrict (a) the transfer of cash or
other assets (i) between such Borrower and any of its Subsidiaries or (ii)
between any Subsidiaries of such Borrower or (b) the ability of such Borrower or
any of its Subsidiaries to incur Indebtedness or grant security interests to
Congress and Lender, in the Collateral.
8.15 Material Contracts. Schedule 8.15 hereto sets forth all Material
Contracts to which each Borrower is a party or is bound as of the date hereof.
Each Borrower has delivered true, correct and complete copies of such Material
Contracts to Lender on or before the date hereof. No Borrower is in material
breach of or in default under any Material Contract and has not received any
notice of the intention of any other party thereto to terminate any Material
Contract.
8.16 Payable Practices. No Borrower has made any material change in the
historical accounts payable practices from those in effect immediately prior to
the date hereof.
8.17 Accuracy and Completeness of Information. All information furnished
by or on behalf of any Borrower in writing to Lender in connection with this
Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificates, is true and correct in all material respects on the date as of
which such information is dated or certified and does not omit any material fact
necessary in order to make such information not misleading. No event or
circumstance has occurred which has had or could reasonably be expected to have
a material adverse affect on the business, assets or prospects of any Borrower,
which has not been fully and accurately disclosed to Lender in writing.
8.18 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be
conclusively presumed to have been relied on by Lender regardless of any
investigation made or information possessed by Lender. The representations and
warranties set forth herein shall be cumulative and in addition to any other
representations or warranties which any Borrower shall now or hereafter give, or
cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence.
(a) Each Borrower shall at all times preserve, renew and keep in
full, force and effect its corporate existence and rights and franchises with
respect thereto and maintain in full force and effect all permits, licenses,
trademarks, tradenames, approvals, authorizations, leases and contracts
necessary to carry on the business as presently or proposed to be conducted.
(b) No Borrower shall change its name unless each of the following
conditions is satisfied: (i) Lender shall have received not less than thirty
(30) days prior written notice from such Borrower of such proposed change in its
corporate name, which notice shall accurately set forth the new name ; and (ii)
Lender shall have received a copy of the amendment
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to the Articles or Certificate of Incorporation of such Borrower providing for
the name change certified by the Secretary of State or other Governmental
Authority of the jurisdiction of incorporation or organization of such Borrower
as soon as it is available.
(c) No Borrower shall change its chief executive office or its
mailing address or organizational identification number (or if it does not have
one, shall not acquire one) unless Lender shall have received not less than
thirty (30) days' prior written notice from such Borrower of such proposed
change, which notice shall set forth such information with respect thereto as
Lender may require and Lender shall have received such agreements as Lender may
reasonably require in connection therewith. No Borrower shall change its type of
organization, jurisdiction of organization or other legal structure, except with
Lender's prior written consent and after giving Lender adequate opportunity to
make any filings or take any other actions necessary to continue the perfection
of Lender's security interest in any Collateral.
9.2 New Collateral Locations. Any Borrower may only establish new
locations of its business or Collateral so long as such new location is within
the United States of America and provided such Borrower (a) gives Lender thirty
(30) days prior written notice from such Borrower of the intended opening of any
such new location and (b) executes and delivers, or causes to be executed and
delivered, to Lender such agreements, documents, and instruments as Lender may
reasonably deem necessary or desirable to protect its interests in the
Collateral at such location.
9.3 Compliance with Laws, Regulations, Etc.
(a) Each Borrower shall, and shall cause each of its Subsidiaries
to, at all times, comply in all material respects with all laws, rules,
regulations, licenses, permits, approvals and orders applicable to it and duly
observe all requirements of any foreign, Federal, State or local Governmental
Authority.
(b) Each Borrower shall give written notice to Lender immediately
upon such Borrower's receipt of any notice of, or such Borrower's otherwise
obtaining knowledge of, (i) the occurrence of any event involving the release,
spill or discharge, threatened or actual, of any Hazardous Material or (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
applicable Environmental Law by any Borrower or (B) the release, spill or
discharge, threatened or actual, of any Hazardous Material other than in the
ordinary course of business and other than as permitted under any applicable
Environmental Law. Copies of all environmental surveys, audits, assessments,
feasibility studies and results of remedial investigations in any Borrower's
possession or of which any Borrower may obtain possession shall be promptly
furnished, or caused to be furnished, by Borrowers to Lender. Each Borrower
shall take prompt and appropriate action to respond to any non-compliance with
any of the Environmental Laws and shall regularly report to Lender on such
response.
(c) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of any Borrower in order to avoid any
material non-compliance, with any Environmental Law, such Borrower shall, at
Lender's request and Borrowers' expense: (i) cause
37
an independent environmental engineer reasonably acceptable to Lender to conduct
such tests of the site where such Borrower's non-compliance or alleged
non-compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Lender a report as to such
non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or such Borrower's response
thereto or the estimated costs thereof, shall change in any material respect. In
the event both Lender and Congress require any such reports, Lender shall
reasonably coordinate with such holder to avoid duplication.
(d) Each Borrower shall indemnify and hold harmless Lender and its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
any Borrower and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Each Borrower shall, and shall cause
each of its Subsidiaries to, duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes the validity of which are being contested in good faith
by appropriate proceedings diligently pursued and available to such Borrower or
such Subsidiary, as the case may be, and with respect to which adequate reserves
have been set aside on its books. Borrowers shall be liable for any tax or
penalties imposed on Lender as a result of the financing arrangements provided
for herein and Borrowers agree to indemnify and hold Lender harmless with
respect to the foregoing, and to repay to Lender on demand the amount thereof,
and until paid by Borrowers such amount shall be added and deemed part of the
Term Loan; provided that, nothing contained herein shall be construed to require
Borrowers to pay any income or franchise taxes attributable to the income of
Lender from any amounts charged or paid hereunder to Lender. The foregoing
indemnity shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement.
9.5 Insurance. Each Borrower shall, and shall cause each of its
Subsidiaries to, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and all
other insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
reasonably satisfactory to Lender as to form, amount and insurer. In the event
both Lender and Congress require additional insurance, Lender shall reasonably
coordinate with such holder to avoid duplication. Each Borrower shall furnish
certificates, policies or endorsements to Lender as Lender shall reasonably
require as proof of such insurance, and, if any Borrower fails to do so, Lender
is authorized, but not required, to obtain such insurance at the expense of
Borrowers. All policies shall provide for at least thirty (30) days prior
written notice to Lender of any cancellation or reduction of coverage and that
Lender may act as attorney for the relevant
38
Borrower in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Each Borrower shall cause Lender to be named as a loss payee and an
additional insured (but without any liability for any premiums) under such
insurance policies and each Borrower shall obtain non-contributory lender's loss
payable endorsements to all insurance policies in form and substance
satisfactory to Lender. Such lender's loss payable endorsements shall specify
that the proceeds of such insurance shall be payable to Lender, as its interests
may appear and further specify that Lender shall be paid regardless of any act
or omission by any Borrower or any of its Affiliates. At its option, Lender may
apply any insurance proceeds received by Lender at any time to the cost of
repairs or replacement of Collateral and/or to payment of the Obligations,
whether or not then due, in any order and in such manner as Lender may determine
or hold such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Each Borrower shall, and shall cause each of its Subsidiaries
to, keep proper books and records in which true and complete entries shall be
made of all dealings or transactions of or in relation to the Collateral and the
business of such Borrower and its Subsidiaries in accordance with GAAP . Each
Borrower shall promptly furnish to Lender any and all financial or other
information as Lender may reasonably request relating to the Collateral and the
assets, business and operations of such Borrower, and to notify the auditors and
accountants of such Borrower that Lender is authorized to obtain such
information directly from them. Without limiting the foregoing, Borrowers shall
furnish or cause to be furnished to Lender, the following: (i) within thirty
(30) days after the end of each fiscal month, monthly unaudited consolidated
financial statements, and unaudited consolidating financial statements
(including in each case balance sheets, statements of income and loss,
statements of cash flow, and statements of shareholders' equity), all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower Agent and its Subsidiaries as of the end of and
through such fiscal month, certified to be correct by the chief financial
officer of Borrower Agent, subject to normal year-end adjustments and
accompanied by a compliance certificate substantially in the form of Exhibit C
hereto, along with a schedule in form reasonably satisfactory to Lender of the
calculations used in determining, as of the end of such month, whether Borrowers
were in compliance with the covenants set forth in Section 9.17 of this
Agreement for such month; and (ii) within ninety (90) days after the end of each
fiscal year, audited consolidated financial statements and unaudited
consolidating financial statements of Borrower Agent and its Subsidiaries
(including in each case balance sheets, statements of income and loss,
statements of cash flow and statements of shareholders' equity), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower Agent and its
Subsidiaries as of the end of and for such fiscal year, together with the
unqualified opinion of independent certified public accountants, which
accountants shall be an independent accounting firm selected by Borrowers and
reasonably acceptable to Lender (but Lender confirms that Borrowers' current
accountants are acceptable as of the Closing Date), that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrower Agent and its
Subsidiaries as of the end of and for the fiscal year then ended.
39
(b) Each Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations involving an amount in excess of Five Thousand Dollars ($5,000) or
which would result in any material adverse change in any Borrower's business,
properties, assets, goodwill or condition, financial or otherwise, (ii) any
Material Contract of any Borrower being terminated or amended or any new
Material Contract being entered into (in which event such Borrower shall provide
Lender with a copy of such Material Contract), (iii) any order, judgment or
decree in excess of Ten Thousand Dollars ($10,000) having been entered against
any Borrower or any of its properties or assets, (iv) any notification of the
violation of any laws or regulation received by any Borrower, (v) any ERISA
Event, and (vi) the occurrence of any Default or Event of Default, including,
without limitation any Event of Default under the Congress Agreement.
(c) Each Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
such Borrower sends to its stockholders generally and copies of all reports and
registration statements which such Borrower files with the Securities and
Exchange Commission, any national securities exchange or the National
Association of Securities Dealers, Inc.
(d) Each Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information with respect to the
Collateral and the business of such Borrower, as Lender may, from time to time,
reasonably request. Subject to Section 11.4 hereof, Lender is hereby authorized
to deliver a copy of any financial statement or any other information relating
to any Borrower to any court or other Governmental Authority, or Affiliate of
Lender or to any participant or assignee or prospective participant or assignee.
Each Borrower hereby irrevocably authorizes and directs all accountants or
auditors to deliver to Lender, at Borrowers' expense, copies of the financial
statements of any Borrower and any reports or management letters prepared by
such accountants or auditors on behalf of such Borrower and to disclose to
Lender such information as they may have regarding the business of any Borrower.
Any documents, schedules, invoices or other papers delivered to Lender may be
destroyed or otherwise disposed of by Lender one (1) year after the same are
delivered to Lender, except as otherwise designated by Borrowers to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. No Borrower
shall, nor shall it permit any of its Subsidiaries to (and Lender does not
authorize Borrower to), directly or indirectly:
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it, except for
a merger of All into Borrower Agent and, subject to Lender's prior written
consent (not to be unreasonably withheld or delayed), a merger or any Domestic
Subsidiary into Borrower Agent (in all cases with Borrower Agent as the
surviving corporation); or
(b) sell, issue, assign, lease, license, transfer, abandon or
otherwise dispose of any Capital Stock or Indebtedness to any other Person or
any of its assets to any other Person, except for (i) sales of Inventory in the
ordinary course of business, (ii) the disposition of worn-out or obsolete
Equipment so long as (A) any proceeds are paid to Lender for application to the
40
principal payments becoming due on the Term Loan in the inverse order of their
maturity, provided, that if no Event of Default has occurred and is continuing,
such proceeds may instead be used to purchase replacement Equipment of at least
equal value, and (B) such sales do not involve Equipment having an aggregate
(for all Borrowers) fair market value in excess of One Hundred Thousand Dollars
($100,000) for all such Equipment disposed of in any fiscal year of Borrowers;
(iii) the issuance and sale by any Borrower of Capital Stock of such Borrower
after the date hereof; provided, that, (A) Lender shall have received not less
than ten (10) Business Days prior written notice of such issuance and sale by
such Borrower, which notice shall specify the parties to whom such shares are to
be sold, the terms of such sale, the total amount which it is anticipated will
be realized from the issuance and sale of such stock and the net cash proceeds
which it is anticipated will be received by such Borrower from such sale, (B)
such Borrower shall not be required to pay any cash dividends or repurchase or
redeem such Capital Stock or make any other payments in respect thereof, (C) the
terms of such Capital Stock, and the terms and conditions of the purchase and
sale thereof, shall not include any terms that include any limitation on the
right of such Borrower to amend or modify any of the terms and conditions of
this Agreement or any of the other Financing Agreements or otherwise in any way
relate to or affect the arrangements of such Borrower with Lender or are more
restrictive or burdensome to such Borrower than the terms of any Capital Stock
in effect on the date hereof, (D) except as Lender may otherwise agree in
writing, all of the proceeds of such sale and issuance shall be paid to Lender,
for the benefit of Lender, for application to the Obligations in accordance with
the terms of Section 6.4 hereof, and (E) as of the date of such issuance and
sale and after giving effect thereto, no Default or Event of Default shall exist
or have occurred and (iv) the issuance and sale by Borrower Agent of the stock
of SimpleDevices, Inc., or the sale by SimpleDevices, Inc. of its assets or the
merger or consolidation of SimpleDevices, Inc. with another Person, provided
that except as Lender may otherwise agree in writing, all of the proceeds of
such transaction payable to or for the benefit of any Borrower shall be paid to
Lender, for the benefit of Lender, for application to the Obligations in
accordance with the terms of Section 6.4 hereof, and provided further, that no
Event of Default has occurred and is continuing and any such transaction be upon
fair and reasonable terms no less favorable to Borrowers than Borrowers would
obtain in a comparable arm's length transaction;
(c) wind up, liquidate or dissolve; or
(d) agree to do any of the foregoing.
9.8 Encumbrances. No Borrower shall, nor permit any of its Subsidiaries
to, create, incur, assume, suffer or permit to exist any security interest,
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of its assets or properties, including the Collateral or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any security interest or lien with respect to such assets or
properties, except: (a) the security interests and liens of Lender; (b) liens
securing the payment of taxes, either not yet overdue or the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to such Borrower or such Subsidiary, as the case may be and with
respect to which adequate reserves have been set aside on its books; (c)
non-consensual statutory liens (other than liens securing the payment of taxes)
arising in the ordinary course of such Borrower's or such Subsidiary's business
to the extent: (i) such liens secure Indebtedness which is not overdue or (ii)
such liens secure Indebtedness relating to claims or
41
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower or
such Subsidiary, in each case prior to the commencement of foreclosure or other
similar proceedings and with respect to which adequate reserves have been set
aside on its books; (d) zoning restrictions, easements, licenses, covenants and
other restrictions affecting the use of Real Property which do not interfere in
any material respect with the use of such Real Property or ordinary conduct of
the business of such Borrower or such Subsidiary as presently conducted thereon
or materially impair the value of the Real Property which may be subject
thereto; (e) purchase money security interests in Equipment (including Capital
Leases) and purchase money mortgages on Real Property to secure Indebtedness
permitted under Section 9.9(b) hereof; (f) senior security interests and liens
in or against the assets of Borrowers or the Domestic Subsidiaries to secure the
Obligations under and as defined in the Congress Agreement; (g) security
interests and liens in or against the assets of the Direct Foreign Subsidiaries
or MB Quart GmbH, a German GmbH to secure Indebtedness permitted under Section
9.9(f) hereof; and (h) the security interests and liens set forth on Schedule
8.4 hereto.
9.9 Indebtedness. No Borrower shall, nor permit any of its Subsidiaries
to, incur, create, assume, become or be liable in any manner with respect to,
suffer or permit to exist, any Indebtedness or guarantee, assume, endorse, or
otherwise become responsible for (directly or indirectly) the performance,
dividends or other obligations of any Person, except:
(a) the Obligations;
(b) purchase money Indebtedness (including Capital Leases) arising
after the date hereof to the extent secured by purchase money security interests
in Equipment (including Capital Leases) and purchase money mortgages on Real
Property not to exceed Three Million Dollars ($3,000,000) in the aggregate (for
all Borrowers) at any time outstanding so long as such security interests and
mortgages do not apply to any property of any Borrower or any Subsidiary of any
Borrower other than the Equipment or Real Property so acquired, and the
Indebtedness secured thereby does not exceed the cost of the Equipment or Real
Property so acquired, as the case may be;
(c) guaranties by any Subsidiaries of such Borrower of the
Obligations in favor of Lender;
(d) Indebtedness of such Borrower under interest swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
exchange agreements and similar contractual agreements entered into for the
purpose of protecting a Person against fluctuations in interest rates; provided,
that, such arrangements are with banks or other financial institutions that each
have combined capital and unimpaired surplus of not less than One Billion
Dollars ($1,000,000,000) and are not for speculative purposes and such
Indebtedness shall be unsecured;
(e) Indebtedness of Borrowers or the Domestic Subsidiaries on
account of the Congress Agreement;
42
(f) Indebtedness of the Direct Foreign Subsidiaries or MB Quart
GmbH, a German GmbH, on account of loans or other financial accommodations
extended to them, including factoring arrangements, provided, that Burdale
Financial Limited be given a right of first refusal with respect to such loans
or other financial accommodations; and
(g) the Indebtedness set forth on Schedule 9.9 hereto; provided,
that, (i) such Borrower may only make regularly scheduled payments of principal
and interest in respect of such Indebtedness in accordance with the terms of the
agreement or instrument evidencing or giving rise to such Indebtedness as in
effect on the date hereof, (ii) such Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of such Indebtedness or any
agreement, document or instrument related thereto as in effect on the date
hereof except, that, such Borrower may, after prior written notice to Lender,
amend, modify, alter or change the terms thereof so as to extend the maturity
thereof, or defer the timing of any payments in respect thereof, or to forgive
or cancel any portion of such Indebtedness (other than pursuant to payment
thereof), or to reduce the interest rate or any fees in connection therewith, or
(B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose, and (iii)
such Borrower shall furnish to Lender all notices or demands in connection with
such Indebtedness either received by such Borrower or on its behalf, promptly
after the receipt thereof, or sent by such Borrower or on its behalf,
concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Etc. No Borrower shall, nor permit any of its
Subsidiaries to, directly or indirectly, make, or suffer or permit to exist, any
loans or advance money or property to any Person, or any investment in (by
capital contribution, dividend or otherwise) or purchase or repurchase the
Capital Stock or Indebtedness or all or a substantial part of the assets or
property of any Person, or form or acquire any Subsidiaries, or agree to do any
of the foregoing, except:
(a) the endorsement of instruments for collection or deposit in
the ordinary course of business;
(b) investments in cash or Cash Equivalents, provided that the
terms and conditions of Section 5.2 hereof shall have been satisfied with
respect to the deposit account or investment account in which such cash or Cash
Equivalents are held;
(c) the existing equity investments of such Borrower as of the
date hereof in its Subsidiaries, provided, that, such Borrower shall have no
obligation to make any other investment in, or loans to, or other payments in
respect of, any such Subsidiaries;
(d) stock or obligations issued to such Borrower by any Person (or
the representative of such Person) in respect of Indebtedness of such Person
owing to such Borrower in connection with the insolvency, bankruptcy,
receivership or reorganization of such Person or a composition or readjustment
of the debts of such Person; provided, that, the original of any such stock or
instrument evidencing such obligations shall be promptly delivered to Lender,
upon Lender's request, together with such stock power, assignment or endorsement
by such Borrower as Lender may request;
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(e) obligations of account debtors to such Borrower arising from
Accounts which are past due evidenced by a promissory note made by such account
debtor payable to such Borrower; provided, that, promptly upon the receipt of
the original of any such promissory note by such Borrower, such promissory note
shall be endorsed to the order of Lender by such Borrower and promptly delivered
to Lender as so endorsed;
(f) the loans and advances set forth on Schedule 9.10 hereto;
provided, that, as to such loans and advances, (i) such Borrower shall not,
directly or indirectly, amend, modify, alter or change the terms of such loans
and advances or any agreement, document or instrument related thereto and (ii)
such Borrower shall furnish to Lender all notices or demands in connection with
such loans and advances either received by such Borrower or on its behalf,
promptly after the receipt thereof, or sent by such Borrower or on its behalf,
concurrently with the sending thereof, as the case may be; and
(g) loans and advances by Borrowers to their Subsidiaries not to
exceed Fourteen Million Six Hundred Fifty Thousand Dollars ($ 14,650,000) in the
aggregate outstanding at any time (including any such loans and advances
outstanding as of the date hereof), provided that no such loans and advances may
be made if an Event of Default has occurred and is continuing or if (after
giving effect to any such loans and advances) the Excess Availability would be
less than Seven Million Dollars ($ 7,000,000.00).
9.11 Dividends and Redemptions. No Borrower, nor any Subsidiary of any
Borrower, shall, directly or indirectly, declare or pay any dividends on account
of any shares of any class of Capital Stock of such Borrower or such Subsidiary,
as the case may be, now or hereafter outstanding, or set aside or otherwise
deposit or invest any sums for such purpose, or redeem, retire, defease,
purchase or otherwise acquire any shares of any class of Capital Stock (or set
aside or otherwise deposit or invest any sums for such purpose) for any
consideration or apply or set apart any sum, or make any other distribution (by
reduction of capital or otherwise) in respect of any such shares or agree to do
any of the foregoing, except (a) in any case, dividends may be made in the form
of shares of Capital Stock consisting of common stock and (b) any Subsidiary of
any Borrower may pay dividends to such Borrower.
9.12 Transactions with Affiliates. No Borrower shall, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with any Borrower, except in the ordinary course of and pursuant to
the reasonable requirements of such Borrower's business and upon fair and
reasonable terms no less favorable to such Borrower than such Borrower would
obtain in a comparable arm's length transaction with an unaffiliated person or
(b) make any payments of management, consulting or other fees for management or
similar services, or of any Indebtedness owing to any officer, employee,
shareholder, director or other Affiliate of any Borrower except reasonable
compensation to officers, employees and directors for services rendered to such
Borrower in the ordinary course of business.
9.13 Compliance with ERISA. Each Borrower shall and shall cause each of
its ERISA Affiliates to: (a) maintain each Plan (other than a Multiemployer
Plan) in compliance in all material respects with the applicable provisions of
ERISA, the Code and other Federal and State law; (b) cause each Plan which is
qualified under Section 401 (a) of the Code to maintain such
44
qualification; (c) not terminate any of such Plans so as to incur any liability
to the Pension Benefit Guaranty Corporation; (d) not allow or suffer to exist
any non-exempt prohibited transaction involving any of such Plans or any trust
created thereunder which would subject such Borrower or such ER1SA Affiliate to
a tax or penalty or other liability on prohibited transactions imposed under
Section 4975 of the Code or ERISA; (e) make all required contributions to any
Plan which it is obligated to pay under Section 302 of ERISA, Section 412 of the
Code or the terms of such Plan; (f) not allow or suffer to exist any accumulated
funding deficiency, whether or not waived, with respect to any such Plan; or (g)
not allow or suffer to exist any occurrence of a reportable event or any other
event or condition which presents a material risk of termination by the Pension
Benefit Guaranty Corporation of any such Plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation.
9.14 End of Fiscal Years and Fiscal Quarters. Each Borrower shall, for
financial reporting purposes, cause its, and each of its Subsidiaries' (a)
fiscal years to end on December 31 of each year and (b) fiscal quarters to end
on March 31, June 30, September 30 and December 31 of each year.
9.15 Change in Business. No Borrower shall engage in any business other
than the business of such Borrower on the date hereof and any business
reasonably related, ancillary or complimentary to the business in which such
Borrower is engaged on the date hereof.
9.16 Limitation of Restrictions Affecting Subsidiaries. No Borrower
shall, directly, or indirectly, create or otherwise cause or suffer to exist any
encumbrance or restriction which prohibits or limits the ability of any
Subsidiary of such Borrower to (a) pay dividends or make other distributions or
pay any Indebtedness owed to such Borrower or any Subsidiary of such Borrower;
(b) make loans or advances to such Borrower or any Subsidiary of such Borrower,
(c) transfer any of its properties or assets to such Borrower or any Subsidiary
of such Borrower; or (d) create, incur, assume or suffer to exist any lien upon
any of its property, assets or revenues, whether now owned or hereafter
acquired, other than encumbrances and restrictions arising under (i) applicable
law, (ii) this Agreement, (iii) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of such Borrower or any
of its Subsidiaries, (iv) customary restrictions on dispositions of real
property interests found in reciprocal easement agreements of such Borrower or
its Subsidiary, (v) any agreement relating to permitted Indebtedness incurred by
a Subsidiary of such Borrower prior to the date on which such Subsidiary was
acquired by such Borrower and outstanding on such acquisition date, and (vi) the
extension or continuation of contractual obligations in existence on the date
hereof; provided, that, any such encumbrances or restrictions contained in such
extension or continuation are no less favorable to Lender than those
encumbrances and restrictions under or pursuant to the contractual obligations
so extended or continued.
9.17 Fixed Charge Coverage Ratio. Borrowers and their Subsidiaries, on a
consolidated basis, shall maintain a Fixed Charge Coverage Ratio, calculated as
of the last day of such month on the basis of the trailing twelve (12) months
or, if less, the number of months that have elapsed from and including March
2004, of not less then the following (in addition to which Borrowers shall
report the Fixed Charge Coverage Ratio for March, 2004):
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Month Fixed Charge Coverage Ratio
-------------------------------- ---------------------------
April, 2004 1.70 to 1.00
May, 2004 through December, 2004 1.90 to 1.00
Each month thereafter 2.00 to 1.00
9.18 Maximum Capital Expenditures. Borrowers shall not incur aggregate
Capital Expenditures in the first year following the Closing Date in excess of
$5,000,000.00. If the Term Loan is extended until the Final Maturity Date, the
Capital Expenditure limitation for the second year of this Agreement shall be
established by Lender in connection with such extension.
9.19 License Agreements.
(a) Each Borrower shall (i) promptly and faithfully observe and
perform all of the material terms, covenants, conditions and provisions of the
material License Agreements to be observed and performed by it, at the times set
forth therein, if any, (ii) not do, permit, suffer or refrain from doing
anything that could reasonably be expected to result in a default under or
breach of any of the terms of any material License Agreement, (iii) not cancel,
surrender, modify, amend, waive or release any material License Agreement in any
material respect or any term, provision or right of the licensee thereunder in
any material respect, or consent to or permit to occur any of the foregoing;
except, that, subject to Section 9.19(b) below, such Borrower may cancel,
surrender or release any material License Agreement in the ordinary course of
the business of such Borrower; provided, that, such Borrower shall give Lender
not less than thirty (30) days prior written notice of its intention to so
cancel, surrender and release any such material License Agreement, (iv) give
Lender prompt written notice of any material License Agreement entered into by
such Borrower after the date hereof, together with a true, correct and complete
copy thereof and such other information with respect thereto as Lender may
reasonably request, (v) give Lender prompt written notice of any material breach
of any obligation, or any default, by any party under any material License
Agreement, and deliver to Lender (promptly upon the receipt thereof by such
Borrower in the case of a notice to such Borrower, and concurrently with the
sending thereof in the case of a notice from such Borrower) a copy of each
notice of default and every other notice and other communication received or
delivered by such Borrower in connection with any material License Agreement
which relates to the right of such Borrower to continue to use the property
subject to such License Agreement, and (vi) furnish to Lender, promptly upon the
request of Lender, such information and evidence as Lender may reasonably
require from time to time concerning the observance, performance and compliance
by such Borrower or the other party or parties thereto with the terms, covenants
or provisions of any material License Agreement.
(b) Each Borrower will either exercise any option to renew or
extend the term of each material License Agreement in such manner as will cause
the term of such material License Agreement to be effectively renewed or
extended for the period provided by such option and give prompt written notice
thereof to Lender or give Lender prior written notice that such
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Borrower does not intend to renew or extend the term of any such material
License Agreement or that the term thereof shall otherwise be expiring, not less
than sixty (60) days prior to the date of any such non-renewal or expiration. In
the event of the failure of any Borrower to extend or renew any material License
Agreement, Lender shall have, and is hereby granted, the irrevocable right and
authority, at its option, to renew or extend the term of such material License
Agreement, whether in its own name as agent for Lender, or in the name of a
designee or nominee of Lender or in the name of such Borrower, as Lender shall
determine at any time that an Event of Default shall exist or have occurred and
be continuing. Lender may, but shall not be required to, perform any or all of
such obligations of any Borrower under any of the License Agreements, including,
but not limited to, the payment of any or all sums due from such Borrower
thereunder. Any sums so paid by Lender shall constitute part of the Obligations.
9.20 After Acquired Real Property. If any Borrower hereafter acquires any
Real Property, fixtures or similar property and such Real Property, fixtures or
other property at any one location has a fair market value in an amount equal to
or greater than One Hundred Thousand Dollars ($ 100,000) (or if a Default or
Event of Default exists, then regardless of the fair market value of such
assets), without limiting any other rights of Lender, or duties or obligations
of any Borrower, upon Lender's request, such Borrower shall execute and deliver
to Lender a mortgage, deed of trust or deed to secure debt, as Lender may
determine, in form and substance satisfactory to Lender and in form appropriate
for recording in the real estate records of the jurisdiction in which such Real
Property or other property is located granting to Lender, a first and only lien
and mortgage on and security interest in such Real Property, fixtures or other
property (except as such Borrower would otherwise be permitted to incur
hereunder or as otherwise consented to in writing by Lender) and such other
agreements, documents and instruments as Lender may reasonably require in
connection therewith.
9.21 Costs and Expenses. Borrowers shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) costs and expenses and
fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees, costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (c) costs and expenses
of preserving and protecting the Collateral; (d) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); (e)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and
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Borrowers' operations, plus a per diem charge at the then standard rate of
Lender, per person per day for Lender's examiners in the field and office (which
rate is currently $850 per person per eight (8) hour day and $ 100 for each hour
over eight (8) hours a day); and (f) the reasonable fees and disbursements of
counsel (including legal assistants) to Lender in connection with any of the
foregoing.
9.22 Congress Agreement. Borrowers shall not:
(a) effect or permit any change in or amendment to the Congress
Agreement in a manner inconsistent with the Intercreditor Agreement without the
prior written consent of Lender;
(b) at any time permit the aggregate outstanding principal amount
of all Revolving Loans and Letter of Credit Accommodations made to the Borrower
under the Congress Agreement to exceed the Congress Borrowing Base (each of the
foregoing terms as defined in the Congress Agreement); or
(c) furnish any collateral security to Congress on account of
indebtedness due under the Congress Agreement, other than property which also
secures the Obligations and which is the subject of the Intercreditor Agreement.
9.23 Further Assurances. At the request of Lender at any time and from
time to time, Borrowers shall, at their expense, duly execute and deliver, or
cause to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be reasonably
necessary or proper to evidence, perfect, maintain and enforce the security
interests and the priority thereof in the Collateral and to otherwise effectuate
the provisions or purposes of this Agreement or any of the other Financing
Agreements.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more of
the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default";
(a) (i) any Borrower fails to pay any of the monetary
Obligations when due and payable or
(ii) any Borrower fails to perform any of the covenants
contained in Sections 9.1 (a), 9.3(a) and (b), 9.4, 9.6, 9.13 and 9.18 of this
Agreement and such failure shall continue for twenty (20) days in the case of
Section 9.6 and thirty (30) days in the case of the other such sections;
provided, that, such twenty (20) or thirty (30) day period (as applicable) shall
not apply in the case of: (A) any failure to observe any such covenant which is
not capable of being cured at all or within such twenty (20) or thirty (30) day
period (as applicable) or which has been the subject of a prior failure within a
six (6) month period or (B) an intentional breach by any Borrower of any such
covenant or
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(iii) any Borrower fails to perform any of the terms,
covenants, conditions or provisions contained in this Agreement or any of the
other Financing Agreements other than those described in Sections 10.1 (a)(i)
and 10.1 (a)(ii) above;
(b) any representation, warranty or statement of fact made by any
Borrower or any Obligor to Lender in this Agreement, the other Financing
Agreements or any other agreement, schedule, confirmatory assignment or
otherwise shall when made or deemed made be false or misleading in any material
respect;
(c) any Obligor revokes or terminates, purports to revoke or
terminate, or fails to perform any of the terms, covenants, conditions or
provisions of any guaranty, endorsement or other agreement of such party in
favor of Lender;
(d) any judgment for the payment of money is rendered against any
Borrower or any Obligor in excess of One Hundred Thousand Dollars ($ 100,000) in
any one case or in excess of Two Hundred Fifty Thousand Dollars ($250,000) in
the aggregate (for all Borrowers) and shall remain undischarged or unvacated for
a period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against any
Borrower or any Obligor or any of their assets, which either involves an amount
in excess of One Hundred Thousand Dollars ($ 100,000) or could reasonably be
expected to have a material adverse effect on the business, assets or prospects
of any Borrower or any Obligor;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or any Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) any Borrower or any Obligor becomes insolvent (however defined
or evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against any Borrower or any Obligor or all or any part of
its properties and such petition or application is not dismissed within thirty
(30) days after the date of its filing or such Borrower or Obligor shall file
any answer admitting or not contesting such petition or application or indicates
its consent to, acquiescence in or approval of, any such action or proceeding or
the relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by any Borrower or any Obligor or for all or any part of its
property; or
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(i) any default occurs with respect to any Indebtedness of any
Borrower or any Obligor (other than Indebtedness owing hereunder), in any case
in an amount in excess of One Hundred Thousand Dollars ($ 100,000), which
default continues for more than the applicable cure period, if any, with respect
thereto, or any default by any Borrower or any Obligor under any Material
Contract, which default continues for more than the applicable cure period, if
any, with respect thereto, and either involves an amount in excess of One
Hundred Thousand Dollars ($ 100,000) or could reasonably be expected to have a
material adverse effect on the business, assets or prospects of any Borrower or
any Obligor;
(j) any material provision hereof or of any of the other Financing
Agreements shall for any reason attributable to a party other than Lender cease
to be valid, binding and enforceable with respect to any party hereto or thereto
(other than Lender) in accordance with its terms, or any party (other than
Lender) shall challenge the enforceability hereof or thereof, or shall assert in
writing, or take any action or fail to take any action based on the assertion
that any provision hereof or of any of the other Financing Agreements has ceased
to be or is otherwise not valid, binding or enforceable in accordance with its
terms, or any security interest provided for herein or in any of the other
Financing Agreements shall for any reason attributable to a party other than
Lender cease to be a valid and perfected first priority security interest in any
of the Collateral purported to be subject thereto (except as otherwise permitted
herein or therein);
(k) an ERISA Event shall occur which results in or could
reasonably be expected to result in liability of any Borrower in an aggregate
amount (for all Borrowers) in excess of Twenty-Five Thousand Dollars ($25,000);
(l) any Change of Control shall occur;
(m) the indictment by any Governmental Authority, or as Lender may
reasonably and in good faith determine, the threatened indictment by any
Governmental Authority of any Borrower or any Obligor of which any Borrower, any
Obligor or Lender receives notice, in either case, as to which there is a
reasonable possibility of an adverse determination, in the good faith
determination of Lender, under any criminal statute, or commencement or
threatened commencement of criminal or civil proceedings against any Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of (i) any of the Collateral or property
of any Obligor having a value in excess of Twenty-Five Thousand Dollars
($25,000) or (ii) any other property of any Borrower or any Obligor which is
necessary or material to the conduct of its business;
(n) there shall be a material adverse change in the business,
assets or prospects of any Borrower or any Obligor after the date hereof;
(o) there shall be an event of default under any of the other
Financing Agreements; or
(p) there shall be an Event of Default under the Congress
Agreement or any other agreement relating thereto.
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10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the UCC and other applicable law, all
of which rights and remedies may be exercised without notice to or consent by
any Borrower or any Obligor, except as such notice or consent is expressly
provided for hereunder or required by applicable law. All rights, remedies and
powers granted to Lender hereunder, under any of the other Financing Agreements,
the UCC or other applicable law, are cumulative, not exclusive and enforceable,
in Lender's discretion, alternatively, successively, or concurrently on any one
or more occasions, and shall include, without limitation, the right to apply to
a court of equity for an injunction to restrain a breach or threatened breach by
any Borrower of this Agreement or any of the other Financing Agreements. Lender
may, at any time or times an Event of Default exists or has occurred and is
continuing, proceed directly against any Borrower or any Obligor to collect the
Obligations without prior recourse to any other Obligor or any of the
Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may (i) accelerate the
payment of all Obligations and demand immediate payment thereof to Lender
(provided, that, upon the occurrence of any Event of Default described in
Sections 10.1 (g) and 10.1 (h), all Obligations shall automatically become
immediately due and payable), (ii) with or without judicial process or the aid
or assistance of others, enter upon any premises on or in which any of the
Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral,
(iii) require each Borrower, at Borrowers' expense, to assemble and make
available to Lender any part or all of the Collateral at any place and time
designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and
realize upon any and all Collateral, (v) remove any or all of the Collateral
from any premises on or in which the same may be located for the purpose of
effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including entering into contracts with respect thereto,
public or private sales at any exchange, broker's board, at any office of Lender
or elsewhere) at such prices or terms as Lender may deem reasonable, for cash,
upon credit or for future delivery, with Lender having the right to purchase the
whole or any part of the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption of any Borrower,
which right or equity of redemption is hereby expressly waived and released by
each Borrower to the extent permitted by applicable law and/or (vii) terminate
this Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, ten (10) days prior notice by
Lender to Borrowers designating the time and place of any public sale or the
time after which any private sale or other intended disposition of Collateral is
to be made, shall be deemed to be reasonable notice thereof and each Borrower
waives any other notice. In the event Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of prejudgment remedy,
each Borrower waives the posting of any bond which might otherwise be required.
(c) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, enforce any Borrower's rights against
any account debtor, secondary
51
obligor or other obligor in respect of any of the Accounts or other Receivables.
Without limiting the generality of the foregoing, Lender may at such time or
times (i) notify any or all account debtors, secondary obligors or other
obligors in respect thereof that the Receivables have been assigned to Lender,
and that Lender has a security interest therein and Lender may direct any or all
account debtors, secondary obligors and other obligors to make payment of
Receivables directly to Lender, (ii) extend the time of payment of, compromise,
settle or adjust for cash, credit, return of merchandise or otherwise, and upon
any terms or conditions any and all Receivables or other obligations included in
the Collateral and thereby discharge or release the account debtor, any
secondary obligors or other obligors in respect thereof without affecting any of
the Obligations, (iii) demand, collect or enforce payment of any Receivables or
such other obligations, but without any duty to do so, and Lender shall not be
liable for its failure to collect or enforce the payment thereof nor for the
negligence of its agents or attorneys with respect thereto and (iv) take
whatever other action Lender may deem necessary or desirable for the protection
of its and Lender's interests. At any time that an Event of Default exists or
has occurred and is continuing, at Lender's request, all invoices and statements
sent to any account debtor shall state that the Accounts and such other
obligations have been assigned to Lender and are payable directly and only to
Lender and each Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require. In the event any account debtor
returns Inventory when an Event of Default exists or has occurred and is
continuing, each Borrower shall, upon Lender's request, hold the returned
Inventory in trust for Lender, segregate all returned Inventory from all of its
other property, dispose of the returned Inventory solely according to Lender's
instructions, and not issue any credits, discounts or allowances with respect
thereto without Lender's prior written consent.
(d) To the extent that applicable law imposes duties on Lender to
exercise remedies in a commercially reasonable manner (which duties cannot be
waived under such law), each Borrower acknowledges and agrees that it is not
commercially unreasonable for Lender (i) to fail to incur expenses reasonably
deemed significant by such Person to prepare Collateral for disposition or
otherwise to complete raw material or work in process into finished goods or
other finished products for disposition, (ii) to fail to obtain third party
consents for access to Collateral to be disposed of, or to obtain or, if not
required by other law, to fail to obtain consents of any Governmental Authority
or other third party for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies against
account debtors, secondary obligors or other persons obligated on Collateral or
to remove liens or encumbrances on or any adverse claims against Collateral,
(iv) to exercise collection remedies against account debtors and other persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (v) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (vi) to contact other persons, whether or
not in the same business as any Borrower, for expressions of interest in
acquiring all or any portion of the Collateral, (vii) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (viii) to dispose of Collateral
by utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so,
or that match buyers and sellers of assets, (ix) to dispose of assets in
wholesale rather than retail markets, (x) to disclaim disposition warranties,
(xi) to purchase insurance or credit enhancements to insure such Person against
risks of loss, collection or disposition of
52
Collateral or to provide to such Person a guaranteed return from the collection
or disposition of Collateral, or (xii) to the extent deemed appropriate by such
Person to obtain the services of other brokers, investment bankers, consultants
and other professionals to assist such Person in the collection or disposition
of any of the Collateral. Each Borrower acknowledges that the purpose of this
Section is to provide non-exhaustive indications of what actions or omissions by
Lender would not be commercially unreasonable in such Person's exercise of
remedies against the Collateral and that other actions or omissions by such
Person shall not be deemed commercially unreasonable solely on account of not
being indicated in this Section. Without limitation of the foregoing, nothing
contained in this Section shall be construed to grant any rights to any Borrower
or to impose any duties on Lender that would not have been granted or imposed by
this Agreement or by applicable law in the absence of this Section.
(e) For the purpose of enabling Lender to exercise the rights and
remedies hereunder, each Borrower hereby grants to Lender, to the extent
assignable, an irrevocable, non exclusive license (exercisable without payment
of royalty or other compensation to any Borrower) to use, assign, license or
sublicense any of the trademarks, service-marks, trade names, business names,
trade styles, designs, logos and other source of business identifiers and other
Intellectual Property and general intangibles now owned or hereafter acquired by
such Borrower, wherever the same maybe located, including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof.
(f) Lender may apply the cash proceeds of Collateral actually
received by it from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrowers shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(g) Upon the occurrence, and during the continuance, of any Event
of Default, Borrowers shall deposit with Lender the sum of $25,000.00 as an
expense deposit (the "Expense Deposit") to cover out-of-pocket expenses and any
other costs, expenses, and fees which may be incurred by Lender during the
effective period of this Agreement, as to which Borrowers are obligated to
reimburse Lender, as otherwise provided herein. On the first Business Day of
each month thereafter, Borrowers shall restore the Expense Deposit to $25,000.00
for any deficiency therein. Borrowers shall remain obligated to reimburse Lender
for any and all such fees and expenses, if the Expense Deposit does not contain
sufficient funds to cover all of those items.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of Illinois but
excluding any principles of conflicts of law or other rule of law that
53
would cause the application of the law of any jurisdiction other than the laws
of the State of Illinois.
(b) Borrowers and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the state and federal courts located in ▇▇▇▇
County, Illinois, whichever Lender may elect, and waive any objection based on
venue or forum non conveniens with respect to any action instituted therein
arising under this Agreement or any of the other Financing Agreements or in any
way connected with or related or incidental to the dealings of the parties
hereto in respect of this Agreement or any of the other Financing Agreements or
the transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and whether in contract, tort, equity or otherwise, and agree
that any dispute with respect to any such matters shall be heard only in the
courts described above (except that Lender shall have the right to bring any
action or proceeding against any Borrower or its property in the courts of any
other jurisdiction which such Person deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against any
Borrower or its property).
(c) Each Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth
herein and service so made shall be deemed to be completed five (5) days after
the same shall have been so deposited in the U.S. mails, or, at Lender's option,
by service upon such Borrower in any other manner provided under the rules of
any such courts. Within thirty (30) days after such service, such Borrower or
Borrowers shall appear in answer to such process, failing which such Borrower or
Borrowers shall be deemed in default and judgment may be entered by Lender
against such Borrower or Borrowers for the amount of the claim and other relief
requested.
(d) BORROWERS AND LENDER HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY
OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT
OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWERS AND LENDER HEREBY
AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to any Borrower (whether
in tort, contract, equity or otherwise) for losses suffered by any Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on such Person, that the losses
were the result of acts or omissions constituting gross negligence or willful
misconduct of such Person. In
54
any such litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that they acted in good faith and with the exercise of ordinary care
in the performance by them of the terms of this Agreement. Except as prohibited
by law, each Borrower waives any right which it may have to claim or recover in
any litigation with Lender any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages. Each
Borrower: (i) certifies that neither Lender, nor any of its representatives,
agents or attorneys acting for or on behalf of such Person has represented,
expressly or otherwise, that such Person would not, in the event of litigation,
seek to enforce any of the waivers provided for in this Agreement or any of the
other Financing Agreements and (ii) acknowledges that in entering into this
Agreement and the other Financing Agreements, Lender is relying upon, among
other things, the waivers and certifications set forth in this Section 11.1 and
elsewhere herein and therein.
11.2 Waiver of Notices. Each Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and chattel paper, included in or evidencing any of
the Obligations or the Collateral, and any and all other demands and notices of
any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on any Borrower which Lender may elect to give shall entitle any
Borrower to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers.
(a) Neither this Agreement nor any provision hereof shall be
amended, modified, waived or discharged orally or by course of conduct, but only
by a written agreement signed as provided in Section 11.3(a) hereof. Lender
shall not, by any act, delay, omission or otherwise be deemed to have expressly
or impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of such Person as
provided in Section in 11.3(a) hereof. Any such waiver shall be enforceable only
to the extent specifically set forth therein. A waiver by Lender of any right,
power and/or remedy on any one occasion shall not be construed as a bar to or
waiver of any such right, power and/or remedy which Lender would otherwise have
on any future occasion, whether similar in kind or otherwise.
(b) Neither this Agreement nor any other Financing Agreement nor
any terms hereof or thereof may be changed, waived, discharged or terminated
unless such change, waiver, discharge or termination is in writing signed by
Lender, and as to amendments to any of the Financing Agreements, by Borrowers.
11.4 Confidentiality. Lender agrees that it will use its reasonable best
efforts not to disclose, without the prior consent of Borrowers, confidential
information with respect to Borrowers, any Obligor or any of their respective
Subsidiaries which is furnished pursuant to this Agreement and which is
specifically designated as confidential in writing by Borrowers; provided, that,
Lender may disclose any such information (a) to its employees, auditors or
counsel, or to another Lender if the disclosing party or such disclosing party's
holding or parent company in its reasonable discretion determines that any such
party should have access to such information, (b) as has become generally
available to the public, (c) as may be required or appropriate in any report,
statement or testimony submitted to any Governmental Authority
55
having or claiming to have jurisdiction over Lender, (d) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation, (e) in order to comply with any statute or regulation, and (f) to
any prospective or actual assignee or participant in connection with any
contemplated transfer or participation of any of the Term Loan or any interest
therein by Lender, provided, that, such assignee or participant has been
generally advised as to the confidentiality of any such confidential
information. Anything contained herein to the contrary notwithstanding, the
obligations of confidentiality contained herein, as they relate to the
transactions contemplated hereby, shall not apply to the federal tax structure
or federal tax treatment of such transactions, and each party hereto (and any
employee, representative, or agent of any party hereto) may disclose to any and
all Persons, without limitation of any kind, the federal tax structure and
federal tax treatment of such transactions (including all written materials
related to such tax structure and tax treatment). The preceding sentence is
intended to cause the transactions contemplated hereby to not be treated as
having been offered under conditions of confidentiality for purposes of Section
1.6011-4(b)(3) (or any successor provision) of the Treasury Regulations
promulgated under Section 6011 of the United States Internal Revenue Code, and
shall be construed in a manner consistent with such purpose. In addition, each
party hereto acknowledges that it has no proprietary or exclusive rights to the
tax structure of the transactions contemplated hereby or any tax matter or tax
idea related thereto.
11.5 Other Waivers. Each Borrower waives all rights to interpose any
claims, deductions, setoffs or counterclaims of any nature (other than
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto. To the extent permitted by applicable law, no
Borrower shall assert, and each Borrower hereby waives, any claim against
Lender, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement, any of the other Financing
Agreements or any undertaking or transaction contemplated hereby.
11.6 Indemnification. Borrowers shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the reasonable fees and
expenses of counsel, provided, however, that Borrowers are not obligated to
indemnify a party for liabilities arising from that party's gross negligence or
willful misconduct as determined by a final non-appealable judgment of a court
of competent jurisdiction. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in this Section may be unenforceable because it
violates any law or public policy, each Borrower shall pay the maximum portion
which it is permitted to pay under applicable law to Lender in satisfaction of
indemnified matters under this Section. The foregoing indemnity shall survive
the payment of the Obligations and the termination or non-renewal of this
Agreement.
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SECTION 12. JOINT AND SEVERAL LIABILITY; SURETYSHIP WAIVERS; APPOINTMENT OF
BORROWER AGENT
12.1 Independent Obligations; Subrogation. The Obligations of each
Borrower hereunder are joint and several. To the maximum extent permitted by
law, each Borrower hereby waives any claim, right or remedy which such Borrower
now has or hereafter acquires against any other Borrower that arises hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Lender against any Borrower or any Collateral
which Lender now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise until the Obligations are fully paid and finally discharged. In
addition, each Borrower hereby waives any right to proceed against the other
Borrowers, now or hereafter, for contribution, indemnity, reimbursement, and any
other suretyship rights and claims, whether direct or indirect, liquidated or
contingent, whether arising under express or implied contract or by operation of
law, which any Borrower may now have or hereafter have as against the other
Borrowers with respect to the Obligations until the Obligations are fully paid
and finally discharged. Each Borrower also hereby waives any rights of recourse
to or with respect to any asset of the other Borrowers until the Obligations are
fully paid and finally discharged.
12.2 Authority to Modify Obligations and Security. Each Borrower
authorizes Lender, without notice or demand and without affecting any Borrowers'
liability hereunder, from time to time, whether before or after any notice of
termination hereof or before or after any default in respect of the Obligations,
to: (a) renew, extend, accelerate, or otherwise change the time for payment of,
or otherwise change any other term or condition of, any document or agreement
evidencing or relating to any Obligations as such Obligations relate to the
other Borrowers, including, without limitation, to increase or decrease the rate
of interest thereon; (b) accept, substitute, waive, defease, increase, release,
exchange or otherwise alter any Collateral, in whole or in part, securing the
other Borrowers' Obligations; (c) apply any and all such Collateral and direct
the order or manner of sale thereof as Lender, in its sole discretion, may
determine; (d) deal with the other Borrowers as Lender may elect; (e) in Lender'
sole discretion, settle, release on terms satisfactory to them, or by operation
of law or otherwise, compound, compromise, collect or otherwise liquidate any of
the other Borrowers' Obligations and/or any of the Collateral in any manner, and
bid and purchase any of the collateral at any sale thereof; (vi) apply any and
all payments or recoveries from the other Borrowers as Lender, in its sole
discretion, may determine, whether or not such indebtedness relates to the
Obligations; all whether such Obligations are secured or unsecured or guaranteed
or not guaranteed by others; and (vii) apply any sums realized from Collateral
furnished by the other Borrowers upon any of its indebtedness or obligations to
Lender as it, in its sole discretion, may determine, whether or not such
indebtedness relates to the Obligations; all without in any way diminishing,
releasing or discharging the liability of any Borrower hereunder.
12.3 Waiver of Defenses. Upon an Event of Default by any Borrower in
respect of any Obligations, Lender may, at its option and without notice to any
Borrower, proceed directly against any Borrower to collect and recover the full
amount of the liability hereunder, or any portion thereof, and each Borrower
waives any right to require Lender to: (a) proceed against the other Borrowers
or any other person whomsoever; (b) proceed against or exhaust any Collateral
57
given to or held by Lender in connection with the Obligations; (c) give notice
of the terms, time and place of any public or private sale of any of the
Collateral except as otherwise provided herein; or (d) pursue any other remedy
in Lender's power whatsoever. A separate action or actions may be brought and
prosecuted against any Borrower whether or not action is brought against the
other Borrowers and whether the other Borrowers be joined in any such action or
actions; and each Borrower waives the benefit of any statute of limitations
affecting the liability hereunder or the enforcement hereof, and agrees that any
payment of any Obligations or other act which shall toll any statute of
limitations applicable thereto shall similarly operate to toll such statute of
limitations applicable to the liability hereunder.
12.4 Exercise of Lender' Rights. Each Borrower hereby authorizes and
empowers Lender in its sole discretion, without any notice or demand to such
Borrower whatsoever and without affecting the liability of such Borrower
hereunder, to exercise any right or remedy which Lender may have available to it
against the other Borrowers.
12.5 Additional Waivers. Each Borrower waives any defense arising by
reason of any disability or other defense of the other Borrowers or by reason of
the cessation from any cause whatsoever of the liability of the other Borrowers
or by reason of any act or omission of Lender or others which directly or
indirectly results in or aids the discharge or release of the other Borrowers or
any Obligations or any Collateral by operation of law or otherwise. The
Obligations shall be enforceable against each Borrower without regard to the
validity, regularity or enforceability of any of the Obligations with respect to
any of the other Borrowers or any of the documents related thereto or any
collateral security documents securing any of the Obligations. No exercise by
Lender of, and no omission of Lender to exercise, any power or authority
recognized herein and no impairment or suspension of any right or remedy of
Lender against any Borrower or any Collateral shall in any way suspend,
discharge, release, exonerate or otherwise affect any of the Obligations or any
Collateral furnished by the Borrowers or give to the Borrowers any right of
recourse against Lender. Each Borrower specifically agrees that the failure of
Lender: (a) to perfect any lien on or security interest in any property
heretofore or hereafter given any Borrower to secure payment of the Obligations,
or to record or file any document relating thereto or (b) to file or enforce a
claim against the estate (either in administration, bankruptcy or other
proceeding) of any Borrower shall not in any manner whatsoever terminate,
diminish, exonerate or otherwise affect the liability of any Borrower hereunder.
12.6 Additional Indebtedness. Additional Obligations may be created from
time to time at the request of any Borrower and without further authorization
from or notice to any other Borrower even though the borrowing Borrower's
financial condition may deteriorate since the date hereof. Each Borrower waives
the right, if any, to require Lender to disclose to such Borrower any
information it may now have or hereafter acquire concerning the other Borrowers'
character, credit, Collateral, financial condition or other matters. Each
Borrower has established adequate means to obtain from the other Borrowers, on a
continuing basis, financial and other information pertaining to such Borrower's
business and affairs, and assumes the responsibility for being and keeping
informed of the financial and other conditions of the other Borrowers and of all
circumstances bearing upon the risk of nonpayment of the Obligations which
diligent inquiry would reveal. Lender need not inquire into the powers of any
Borrower or the authority of any of their respective officers, directors,
partners or agents acting or purporting to act in their
58
behalf, and any Obligations created in reliance upon the purported exercise of
such power or authority is hereby guaranteed. All Obligations of each Borrower
to Lender heretofore, now or hereafter created shall be deemed to have been
granted at each Borrower's special insistence and request and in consideration
of and in reliance upon this Agreement.
12.7 Notices, Demands, Etc. Except as expressly provided by this
Agreement, Lender shall not be under any obligation whatsoever to make or give
to any Borrower, and each Borrower hereby waives diligence, all rights of setoff
and counterclaim against Lender, all demands, presentments, protests, notices of
protests, notices of protests, notices of nonperformance, notices of dishonor,
and all other notices of every kind or nature, including notice of the
existence, creation or incurring of any new or additional Obligations.
12.8 Subordination. Except as otherwise provided in this Section 12.8,
any indebtedness of any Borrower now or hereafter owing to any other Borrower is
hereby subordinated to the Obligations, whether heretofore, now or hereafter
created, and whether before or after notice of termination hereof, and,
following the occurrence and during the continuation of an Event of Default, no
Borrower shall, without the prior consent of Lender, pay in whole or in part any
of such indebtedness nor will any such Borrower accept any payment of or on
account of any such indebtedness at any time while such Borrower remains liable
hereunder. At the request of Lender, after the occurrence and during the
continuance of an Event of Default, each Borrower shall pay to Lender all or any
part of such subordinated indebtedness and any amount so paid to Lender at its
request shall be applied to payment of the Obligations. Each payment on the
indebtedness of any Borrower to the other Borrowers received in violation of any
of the provisions hereof shall be deemed to have been received by any other
Borrower as trustee for Lender and shall be paid over to Lender immediately on
account of the Obligations, but without otherwise affecting in any manner any
such Borrower's liability under any of the provisions of this Agreement. Each
Borrower agrees to file all claims against the other Borrowers in any bankruptcy
or other proceeding in which the filing of claims is required by law in respect
of any indebtedness of the other Borrowers to such Borrower, and Lender shall be
entitled to all of any such Borrower's rights thereunder. If for any reason any
such Borrower fails to file such claim at least thirty (30) days prior to the
last date on which such claim should be filed, Lender, as such Borrower's
attorney-in-fact, is hereby authorized to do so in Borrowers' name or, in
Lender's discretion, to assign such claim to, and cause a proof of claim to be
filed in the name of, Lender's nominee. In all such cases, whether in
administration, bankruptcy or otherwise, the person or persons authorized to pay
such claim shall pay to Lender the full amount payable on the claim in the
proceeding, and to the full extent necessary for that purpose any such Borrower
hereby assigns to Lender, all such Borrower's rights to any payments or
distributions to which such Borrower otherwise would be entitled. If the amount
so paid is greater than any such Borrower's liability hereunder, Lender will pay
the excess amount to the person entitled thereto.
12.9 Revival. If any payments of money or transfers of property made to
Lender by any Borrower should for any reason subsequently be declared to be, or
in Lender's counsel's good faith opinion be determined to be, fraudulent (within
the meaning of any state or federal law relating to fraudulent conveyances),
preferential or otherwise voidable or recoverable in whole or in part for any
reason (hereinafter collectively called "voidable transfers") under the
Bankruptcy Code or any other federal or state law and Lender is required to
repay or restore, or
59
in Lender's counsel's good faith opinion may be so liable to repay or restore,
any such voidable transfer, or the amount or any portion thereof, then as to any
such voidable transfer or the amount repaid or restored and all reasonable costs
and expenses (including reasonable attorneys' fees) of Lender related thereto,
such Borrower's liability hereunder shall automatically be revived, reinstated
and restored and shall exist as though such voidable transfer had never been
made Lender.
12.10 Understanding of Waivers. Each Borrower warrants and agrees that the
waivers set forth in this Section 13 are made with full knowledge of their
significance and consequences. If any of such waivers are determined to be
contrary to any applicable law or public policy, such waivers shall be effective
only to the maximum extent permitted by law.
12.11 Appointment of Borrower Agent.
(a) Each Borrower hereby irrevocably appoints and constitutes
Borrower Agent as its agent to request and receive the Term Loan pursuant to
this Agreement and the other Financing Agreements from Lender in the name or on
behalf of such Borrower.
(b) Borrower Agent hereby accepts the appointment by Borrowers to
act as the agent of Borrowers pursuant to this Section 12.11. Borrower Agent
shall ensure that the disbursement of the Term Loan to any Borrower requested by
or paid to Borrower Agent, shall be paid to or for the account of such Borrower.
(c) Each Borrower hereby irrevocably appoints and constitutes
Borrower Agent as agent to receive statements on account and all other notices
from Lender with respect to the Obligations or otherwise under or in connection
with this Agreement and the other Financing Agreements.
(d) No purported termination of the appointment of Borrower Agent
as agent as aforesaid shall be effective, except after ten (10) days' prior
written notice to Lender.
SECTION 13. TERM OF AGREEMENT; MISCELLANEOUS
13.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the Maturity Date, unless sooner
terminated pursuant to the terms hereof. Upon the effective date of termination
of this Agreement and the other Financing Agreements, Borrowers shall pay to
Lender, in full, all outstanding and unpaid Obligations and shall furnish cash
collateral to Lender, (or at Lender's option, a letter of credit issued for the
account of Borrowers and at Borrowers' expense, in form and substance
satisfactory to Lender, by an issuer acceptable to Lender and payable to Lender
as beneficiary) in such amounts as Lender determines are reasonably necessary to
secure (or reimburse) Lender from loss, cost, damage or expense, including
reasonable attorneys' fees and legal expenses, in connection with any contingent
Obligations, including checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment and any continuing obligations of Lender to any bank,
financial institution or other Person under or
60
pursuant to any Deposit Account Control Agreement or Investment Property Control
Agreement. Such payments in respect of the Obligations and cash collateral shall
be remitted by wire transfer in Federal funds to such bank account of Lender, as
Lender may, in its discretion, designate in writing to Borrowers for such
purpose. Interest shall be due until and including the next Business Day, if the
amounts so paid by any Borrower to the bank account designated by Lender are
received in such bank account later than 12:00 noon, Los Angeles time.
No termination of this Agreement or the other Financing Agreements shall relieve
or discharge any Borrower of its respective duties, obligations and covenants
under this Agreement or the other Financing Agreements until all Obligations
have been fully and finally discharged and paid, and the continuing security
interest of Lender in the Collateral and the rights and remedies of Lender
hereunder, under the other Financing Agreements and applicable law, shall remain
in effect until all such Obligations have been fully and finally discharged and
paid. Accordingly, each Borrower waives any rights which it may have under the
UCC to demand the filing of termination statements with respect to the
Collateral, and Lender shall not be required to send such termination statements
to any Borrower, or to file them with any filing office, unless and until (in
both cases) this Agreement is terminated in accordance with its terms and all of
the Obligations are paid and satisfied in full in immediately available funds.
13.2 Interpretive Provisions.
(a) All terms used herein which are defined in Division 1 or
Division 9 of the UCC shall have the meanings given therein unless otherwise
defined in this Agreement.
(b) All references to the plural herein shall also mean the
singular and to the singular shall also mean the plural unless the context
otherwise requires.
(c) All references to any party hereto pursuant to the definitions
set forth in the recitals hereto, or to any other person herein, shall include
their respective successors and assigns.
(d) The words "hereof", "herein", "hereunder", "this Agreement"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not any particular provision of this Agreement and as
this Agreement now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
(e) The word "including" when used in this Agreement shall mean
"including, without limitation".
(f) All references to the term "good faith" used herein when
applicable to Lender shall mean, notwithstanding anything to the contrary
contained herein or in the UCC, honesty in fact in the conduct or transaction
concerned. Borrowers shall have the burden of proving any lack of good faith on
the part of Lender alleged by Borrowers at any time.
(g) An Event of Default shall exist or continue or be continuing
until such Event of Default is waived in accordance with Section 11.3 or is
cured in a manner satisfactory to Lender, if such Event of Default is capable of
being cured as reasonably determined by Lender.
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(h) Any accounting term used in this Agreement shall have, unless
otherwise specifically provided herein, the meaning customarily given in
accordance with GAAP, and all financial computations hereunder shall be computed
unless otherwise specifically provided herein, in accordance with GAAP as
consistently applied and using the same method for inventory valuation as used
in the preparation of the financial statements of any Borrower most recently
received by Lender prior to the date hereof.
(i) In the computation of periods of time from a specified date to
a later specified date, the word "from" means "from and including", the words
"to" and "until" each mean "to but excluding" and the word "through" means "to
and including".
(j) Unless otherwise expressly provided herein, (i) references
herein to any agreement, document or instrument shall be deemed to include all
subsequent amendments, modifications, supplements, extensions, renewals,
restatements or replacements with respect thereto, but only to the extent the
same are not prohibited by the terms hereof or of any other Financing Agreement,
and (ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, recodifying, supplementing or interpreting the statute or regulation.
(k) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(l) This Agreement and other Financing Agreements may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(m) This Agreement and the other Financing Agreements are the
result of negotiations among and have been reviewed by counsel to Lender and the
other parties, and are the products of all parties. Accordingly, this Agreement
and the other Financing Agreements shall not be construed against Lender merely
because of their involvement in their preparation.
13.3 Notices. All notices, requests and demands hereunder shall be in
writing and deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing. All notices, requests and
demands upon the parties are to be given to the following addresses (or to such
other address as any party may designate by notice in accordance with this
Section):
If to Borrowers: Rockford Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
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with a copy to: Steptoe & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
If to Lender: Hilco Capital LP
One Northbrook Place
▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Alex Franky, Vice President
Fax No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
13.4 Partial Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
13.5 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrowers and their respective
successors and assigns, except that no Borrower may assign its rights under this
Agreement, the other Financing Agreements and any other document referred to
herein or therein without the prior written consent of Lender. The terms and
provisions of this Agreement and the other Financing Agreements are for the
purpose of defining the relative rights and obligations of Borrowers, Obligors,
and Lender with respect to the transactions contemplated hereby and there shall
be no third party beneficiaries of any of the terms and provisions of this
Agreement or any of the other Financing Agreements.
13.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
63
13.7 Marketing. Borrowers hereby authorize Lender to publish the names of
Borrowers and the amount of the credit facility provided hereunder in any
"tombstone" or comparable advertisement which Lender elects to publish, subject
to the prior approval of Borrower Agent, not to be unreasonably withheld or
delayed.
13.8 Counterparts, Etc. This Agreement or any of the other Financing
Agreements may be executed in any number of counterparts, each of which shall be
an original, but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of this Agreement or any of the
other Financing Agreements by telefacsimile shall have the same force and effect
as the delivery of an original executed counterpart of this Agreement or any of
such other Financing Agreements. Any party delivering an executed counterpart of
any such agreement by telefacsimile shall also deliver an original executed
counterpart, but the failure to do so shall not affect the validity,
enforceability or binding effect of such agreement.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWERS
HILCO CAPITAL, LP ROCKFORD CORPORATION
By: /s/ Alex Franky By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------- -------------------------------
Name: Alex Franky Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Vice President Title: CFO
AUDIO INNOVATIONS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: CFO
S-1
EXHIBIT A
N/A
EXHIBIT C
Form of
Compliance Certificate
To: Hilco Capital LP
Ladies and Gentlemen:
The undersigned each hereby certify to you pursuant to Section 9.6(a)
of the Loan Agreement (as defined below) as follows:
SUCH PERSON IS THE DULY ELECTED CHIEF FINANCIAL OFFICER OF THE BORROWER (AS
DEFINED BELOW) INDICATED ABOVE SUCH PERSON'S SIGNATURE. Capitalized terms used
herein without definition shall have the meanings given to such terms in the
Loan and Security Agreement, dated March 29, 2004 (as amended, modified or
supplemented, from time to time, the "Loan Agreement"), by and among Hilco
Capital LP as Lender (the "Lender"), and Rockford Corporation and Audio
Innovations, Inc. (each a "Borrower" and collectively, "Borrowers").
THE UNDERSIGNED HAVE REVIEWED THE TERMS OF THE LOAN AGREEMENT, AND HAVE MADE, OR
HAVE CAUSED TO BE MADE UNDER THEIR SUPERVISION, A REVIEW IN REASONABLE DETAIL OF
THE TRANSACTIONS AND THE FINANCIAL CONDITION OF THE BORROWERS AND EACH OF THEIR
RESPECTIVE SUBSIDIARIES, DURING THE IMMEDIATELY PRECEDING FISCAL MONTH.
THE REVIEW DESCRIBED ABOVE DID NOT DISCLOSE THE EXISTENCE DURING OR AT THE END
OF SUCH FISCAL MONTH, AND THE UNDERSIGNED HAVE NO KNOWLEDGE OF THE EXISTENCE AND
CONTINUANCE ON THE DATE HEREOF, OF ANY CONDITION OR EVENT WHICH CONSTITUTES A
DEFAULT OR AN EVENT OF DEFAULT, EXCEPT AS SET FORTH ON SCHEDULE I ATTACHED
HERETO. Described on Schedule I attached hereto are the exceptions, if any, to
this Section 3 listing, in detail, the nature of the condition or event, the
period during which it has existed and the action which Borrowers or any Obligor
has taken, is taking, or proposes to take with respect to such condition or
event.
THE UNDERSIGNED FURTHER CERTIFY THAT, BASED ON THE REVIEW DESCRIBED ABOVE,
BORROWERS AND OBLIGORS HAVE NOT AT ANY TIME DURING OR AT THE END OF SUCH FISCAL
MONTH, EXCEPT AS SPECIFICALLY DESCRIBED ON SCHEDULE II ATTACHED HERETO OR AS
PERMITTED BY THE LOAN AGREEMENT, DONE ANY OF THE FOLLOWING:
13.9 Changed their respective corporate names, or transacted business
under any trade name, style, or fictitious name, other than those previously
described to you and set forth in the Financing Agreements.
13.10 Changed the location of their respective chief executive offices,
changed their respective jurisdictions of incorporation, changed their
respective types of organization or changed the location of or disposed of any
of their respective properties or assets (other than pursuant to the sale of
Inventory in the ordinary course of such Borrower's business or as otherwise
permitted by the Loan Agreement), or established any new asset locations.
13.11 Materially changed the terms upon which any Borrower sells goods
(including sales on consignment) or provides services, nor has any vendor or
trade supplier to any Borrower or any Obligor during or at the end of such
period materially adversely changed the terms upon which it supplies goods to
such Borrower or such Obligor.
13.12 Permitted or suffered to exist any security interest in or liens
on any of their respective properties, whether real or personal, other than as
specifically permitted in the Financing Agreements.
13.13 Received any notice of, or obtained knowledge of any of the
following not previously disclosed to Lender: (i) the occurrence of any event
involving the release, spill or discharge of any Hazardous Material in violation
of applicable Environmental Law in a material respect or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice with respect
to: (A) any non-compliance with or violation of any applicable Environmental Law
by any Borrower or any Obligor in any material respect or (B) the release, spill
or discharge of any Hazardous Material in violation of applicable Environmental
Law in a material respect or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials in violation of applicable Environmental Laws in a material respect or
(D) any other environmental, health or safety matter, which has a material
adverse effect on any Borrower or any Obligor or their respective businesses,
operations or assets or any properties at which such Borrower or such Obligor
transported, stored or disposed of any Hazardous Materials.
13.14 Become aware of, obtained knowledge of, or received notification
of, any breach or violation of any material covenant contained in any instrument
or agreement in respect of Indebtedness for money borrowed by any Borrower or
any Obligor.
ATTACHED HERETO AS SCHEDULE III ARE THE CALCULATIONS USED IN DETERMINING, AS OF
THE END OF SUCH FISCAL MONTH WHETHER BORROWERS ARE IN COMPLIANCE WITH THE
COVENANTS SET FORTH IN SECTION 9.17 OF THE LOAN AGREEMENT FOR SUCH FISCAL MONTH.
The foregoing certifications are made and delivered this day of
_________,_____.
Very truly yours,
ROCKFORD CORPORATION
By:_____________________________________
Name:___________________________________
Title: Chief Financial Officer
AUDIO INNOVATIONS, INC.
By:_____________________________________
Name:___________________________________
Title: Chief Financial Officer